Urban One, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Urban One operates radio, syndicated programming, digital media, and cable television businesses, primarily serving African-American and urban audiences. Unless stated otherwise, amounts below are in millions of dollars.
Key financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net revenue | $117.8 | $121.3 | $357.3 | $352.0 |
| Operating income (loss) | $(56.1) | $18.0 | $(38.3) | $79.8 |
| Net income (loss) attributable to common stockholders | $(54.4) | $3.5 | $13.0 | $36.3 |
| Basic EPS | $(1.14) | $0.07 | $0.27 | $0.73 |
| Adjusted EBITDA (non-GAAP) | $34.1 | $44.3 | $101.9 | $133.9 |
| Broadcast and digital operating income (non-GAAP) | $43.8 | $50.8 | $130.4 | $154.4 |
- Revenue and operating performance: Q3 revenue fell 2.8%; nine-month revenue rose 1.5%. Q3 adjusted EBITDA declined 23.0%, and nine-month adjusted EBITDA declined 23.8%. Management attributed pressure principally to lower cable television revenue and higher programming and operating costs. These non-GAAP measures are not substitutes for GAAP results.
- Segment trends: Q3 cable television revenue decreased about $3.8 million, reflecting lower advertising sales and subscriber churn; nine-month cable revenue fell about $11.2 million, with lower ratings, advertising sales, and affiliate fees cited. Nine-month Reach Media revenue increased about $10.9 million, driven mainly by the 2023 Fantastic Voyage event. Nine-month radio revenue increased about $5.4 million, including acquisition contributions, while digital revenue was approximately flat.
- Cash flow: Nine-month operating cash flow was $43.3 million, down from $53.6 million. Investing activities provided $79.3 million, primarily reflecting proceeds from the MGM investment sale; financing activities used $28.3 million. Cash, cash equivalents, and restricted cash totaled $196.2 million at September 30, 2023.
- Liquidity and debt: Current assets were $393.5 million and current liabilities were $105.5 million. Long-term debt was $725.0 million principal, or $715.6 million net of discount and issuance costs; the notes bear 7.375% interest and mature in February 2028. No borrowings were outstanding on the $50 million asset-backed revolving facility, subject to its borrowing-base limits. Nine-month interest expense was $42.0 million.
Material changes and unusual items
- Radio-license impairments: The company recorded $85.4 million of Q3 non-cash impairment charges for licenses in 10 markets. Nine-month impairment charges totaled $124.3 million, including $22.1 million in Q2 and $16.8 million related to the planned KROI-FM sale. Management cited weaker projected market revenues and a higher discount rate. One market’s license carrying value of about $58.4 million had fair value less than 10% above carrying value, leaving it at risk if performance weakens.
- MGM investment sale: Urban One completed the sale in April 2023 for approximately $136.8 million and recognized a pre-tax gain of $96.8 million. This gain materially supported nine-month reported earnings and other income; it is not representative of recurring operating performance. The company also received an $8.8 million distribution relating to 2022.
- Debt repurchase and acquisitions: The company repurchased $25 million principal amount of 2028 notes during Q1 at about 89.1% of par, recording a $2.4 million gain. It acquired the Houston radio cluster for $27.5 million in August 2023. The planned sale of KROI-FM was expected to close in 2024; the KTHT-FM divestiture closed November 1, 2023 for $3.1 million.
- Joint venture: Urban One deconsolidated RVA Entertainment Holdings in February 2023 and began equity-method accounting after its ownership became 50%. It recorded a $2.7 million nine-month loss from the venture. Following defeat of a second Richmond casino referendum in November 2023, escrow funds were released and the company received its 50% share; the filing does not state the amount received.
Outlook, risks, and controls
- The filing provides no specific revenue, earnings, or EBITDA guidance. Management said operating cash flows, cash balances, and other liquidity sources were expected to meet foreseeable cash requirements. It also warned that inflation, higher interest rates, banking volatility, and economic uncertainty may adversely affect revenue.
- Management identified continuing risks from advertising-market weakness, cable ratings and subscriber declines, leverage, competition, regulatory matters, and potential further impairment of broadcasting licenses. Results are seasonal; management notes advertising can benefit from political activity in even-numbered years.
- Late filings and Nasdaq listing risk: The filing describes delayed prior reports and a Nasdaq delisting process. On December 12, 2023, Nasdaq granted an extension through January 16, 2024 to file this Q3 report; the stay of delisting was conditional on meeting that deadline. Delisting could harm share liquidity, price, and access to capital.
- Material weaknesses: Disclosure controls were deemed ineffective as of September 30, 2023. Reported weaknesses include insufficient control resources, IT access and change-management issues, journal-entry segregation, and review controls over financial reporting and significant transactions. Remediation was underway but not yet demonstrated effective through sufficient operating history and testing.
- Management stated that routine legal proceedings were not expected to have a material adverse effect. The filing also reports a $0.8 million balance of cash-collateralized letters of credit and substantial contractual commitments, including approximately $88.0 million of commitments not recorded on the balance sheet.
Most important facts for investors to verify
- Whether the company met Nasdaq’s January 16, 2024 filing deadline and maintained its listing; confirm any subsequent exchange notices.
- Progress and independent testing of remediation for the disclosed material weaknesses, and the status of any later SEC filings.
- Operating trends excluding the MGM sale gain, especially radio-license valuations, cable ratings and subscriber churn, and adjusted EBITDA and cash generation.
- Available borrowing capacity under the ABL borrowing-base formula, debt service requirements, and compliance with facility covenants and reporting obligations.
- Completion and proceeds of the KROI-FM sale, and the amount and accounting treatment of the Richmond escrow distribution.