Urban One, Inc. — FY2017 Form 10-K
Reporting period: Year ended December 31, 2017; comparisons are with FY2016. This is an annual filing, not a separate fourth-quarter report. Urban One operates radio, cable television, syndicated radio, and digital businesses primarily targeting African-American and urban audiences.
Financial performance
| Metric | FY2017 | FY2016 | Change |
|---|---|---|---|
| Net revenue | $440.0 million | $456.2 million | Down 3.5% |
| Operating income | $52.7 million | $88.1 million | Down 40.2% |
| Broadcast and digital operating income (non-GAAP) | $161.7 million | $174.6 million | Down 7.4% |
| Broadcast and digital operating income margin (non-GAAP) | 36.7% | 38.3% | Down 1.6 percentage points |
| Adjusted EBITDA (non-GAAP) | $137.1 million | $136.4 million | Up $0.7 million |
| Net income (loss) attributable to common stockholders | $111.9 million | $(0.4) million | Improved by $112.3 million |
| Cash provided by operating activities | $28.3 million | $48.2 million | Down $19.9 million |
FY2017 net income was driven principally by a $123.2 million income tax benefit, including provisional effects of the Tax Cuts and Jobs Act; it should not be read as a comparable improvement in underlying operations. Operating income also included a $14.4 million sale-leaseback gain, while radio license impairment charges were $29.1 million, versus $1.3 million in FY2016. Adjusted EBITDA and broadcast and digital operating income are company-defined non-GAAP measures.
Segment revenue: radio broadcasting $176.7 million (down 5.1%); Reach Media $45.5 million (down 13.0%); digital $30.8 million (up about $4.5 million); and cable television $187.5 million (down about $4.3 million). Radio and Reach Media weakness reflected lower advertising demand; cable advertising declined, while lower programming costs supported cable operating income. Digital growth reflected direct revenue and the 2017 acquisition.
Liquidity, debt, and cash flow
- Cash and cash equivalents were $37.0 million at year-end, compared with $45.8 million a year earlier. Current assets were $199.7 million and current liabilities $80.8 million.
- Gross principal debt was approximately $984.2 million: $347.4 million under the 2017 senior secured credit facility, $275.0 million of 9.25% notes due 2020, $350.0 million of 7.375% secured notes due 2022, and an $11.9 million Comcast note due 2019. Balance-sheet long-term debt, net of discounts and costs and including current classification, was $970.7 million.
- Interest expense was $79.4 million, down from $81.6 million. The new $350 million credit facility closed in April 2017 and refinanced the previous facility. The company repurchased about $40 million of 2020 Notes during 2017.
- At December 31, 2017, the company reported covenant interest coverage of 1.83x against a 1.25x minimum and senior secured leverage of 5.11x against a 5.85x maximum; it stated it was in compliance. The filing describes the company’s credit ratings as speculative-grade.
- Investing activities provided $12.6 million, including $25.0 million of sale-leaseback proceeds; financing activities used $49.8 million. Capital expenditures were approximately $7.4 million. Operating cash flow fell mainly because of the timing of receivable collections and accrued compensation payments.
Material changes, outlook, and unusual items
- Management said it expected FY2018 results to improve and compare favorably with FY2017, citing strategy execution and increased political advertising in an election year. Priorities include gaining market and audience share, improving revenue conversion, and diversifying multimedia revenue. No quantified FY2018 guidance was provided.
- The company sold land, towers, and equipment for $25 million in May 2017 and leased certain assets back. The overall gain was approximately $22.5 million; $14.4 million was recognized in 2017 and $8.1 million deferred over the 10-year lease term.
- Acquisitions included Bossip, HipHopWired, and MadameNoire for $5 million upfront, with up to $5 million in performance-based earn-outs, and two radio stations for approximately $2 million. The company also sold Detroit station WCHB-AM for $2 million.
- The Tax Cuts and Jobs Act reduced the federal corporate tax rate from 35% to 21%. The company recorded a provisional deferred tax benefit, maintained a valuation allowance on certain deferred tax assets, and said its tax accounting could change as it completes its analysis. It reported federal and state net operating loss carryforwards of about $872.9 million and $639.2 million, respectively, subject to limitations and expirations.
- Radio license impairment charges of $29.1 million related to Houston and Columbus. Radio licenses and goodwill together were $877.4 million, about 66.6% of total assets; management cautioned that changed assumptions or market conditions could result in further impairment.
- Content revenue forecasts were revised, extending the estimated programming life of certain assets and reducing FY2017 amortization expense by approximately $8.9 million. MGM National Harbor investment income was approximately $6.1 million, recorded in other income.
- Key risks include high leverage and covenant headroom, advertising cyclicality and competition from digital media, geographic and Reach Media revenue concentration, audience and talent dependence, FCC licensing and regulation, TV One distributor renewals, and potential further impairment. The filing reports routine legal matters that management did not expect to have a material adverse effect.
Most important facts for investors to verify
- Whether revenue, operating performance, and cash generation improve as management anticipated for 2018, separating election-related advertising from recurring trends.
- Debt repayment and refinancing capacity, variable-rate exposure, upcoming maturities, and covenant headroom under the credit facility.
- The sustainability and cash implications of the large FY2017 tax benefit, including final Tax Act adjustments, valuation allowances, NOL limitations, and uncertain tax positions.
- Whether radio license valuations remain supportable, particularly given 2017 impairment charges and sensitivity to growth, margins, and discount rates.
- Digital acquisition performance and earn-outs, TV One advertising and affiliate-fee trends, and Reach Media performance amid weaker advertising demand.
- Potential cash or share repurchases if Reach Media noncontrolling holders exercise annual put rights; the filing says the January 2018 put window passed without exercise.