Urban One, Inc. (filed as Radio One, Inc.) — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. Financial statements are unaudited. Amounts below are in U.S. dollars; financial statement figures are shown in millions unless stated otherwise.
Business context
The company operates 56 radio stations in 16 U.S. markets and has radio broadcasting, Reach Media, internet and cable television segments. TV One is wholly owned following the 2015 Comcast buyout. Cable television generated the largest share of Q1 revenue, at 45.4%.
Financial performance and liquidity
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Net revenue | $109.1 | $105.8 |
| Operating income | $18.8 | $15.6 |
| Operating income as a share of revenue | 17.2% | 14.7% |
| Net loss attributable to common stockholders | $3.9 | $18.5 |
| Basic and diluted loss per share | $0.08 | $0.39 |
| Station operating income and margin | $39.6; 36.3% | $36.0; 34.0% |
| Adjusted EBITDA (non-GAAP) | $30.7 | $27.1 |
| Operating cash flow | $10.2 | $0.5 |
Interest expense was $20.6 million, up from $19.2 million. Cash interest paid was $20.6 million, compared with $25.8 million. Investing cash outflow was $3.2 million, including $2.0 million for Columbus radio assets; financing cash outflow was $1.6 million. Cash increased to $72.7 million from $67.4 million at year-end.
At March 31, current assets were $213.9 million and current liabilities were $79.5 million. Total debt was $1,044.2 million, including $347.4 million under the credit facility, $335.0 million of 9.25% notes due 2020, $350.0 million of 7.375% secured notes due 2022, and an $11.9 million Comcast note. Stockholders’ deficit was $76.0 million. The company reported compliance with its credit-facility covenants; interest coverage was 1.72x against a 1.25x minimum, and senior secured leverage was 4.86x against a 5.85x maximum.
Material changes versus Q1 2015
- Revenue increased 3.1%. Cable television revenue rose to $49.5 million from $45.7 million, supported by advertising and affiliate fees. Radio broadcasting revenue declined 0.5%; internet revenue declined 5.6%, primarily due to lower alliance revenues; Reach Media revenue increased.
- Operating income increased 20.6% while total operating expenses were nearly flat. Station operating income rose 10.1%, with improvement in cable television and radio.
- Net loss attributable to common stockholders narrowed by $14.5 million. Lower income tax expense and lower income attributable to noncontrolling interests contributed to the improvement; interest expense increased.
- Operating cash flow improved to $10.2 million from $0.5 million, which management attributed primarily to improved receivables collections and lower cash interest payments.
- Radio One completed its approximately $2.0 million acquisition of two Columbus stations in February 2016.
Outlook, risks and unusual items
- The filing provides no specific revenue, earnings or cash-flow guidance. Management cited advertising demand, market-level performance, audience ratings, competition, programming costs and the company’s high leverage as risks. It also noted that local economic weakness could affect liquidity and covenant compliance.
- On April 21, 2016, after quarter-end, the company entered into a $25 million asset-based revolving credit facility for working capital and general corporate needs. Availability is subject to borrowing-base limits and reserves.
- Management recorded $1.9 million of additional amortization expense after assessing content-asset recoverability; it reported no impairment indicators for goodwill or broadcast licenses during the quarter. Goodwill and broadcast licenses totaled $903.4 million, or 67.3% of assets, and some licenses had limited or no valuation cushion.
- A $2.3 million Q1 expense related to the CEO Employment Agreement Award increased corporate costs. The award’s payment is contingent on recovery of the company’s TV One investment and receipt of qualifying distributions or liquidity-event proceeds.
- The company recorded $1.8 million of income tax expense despite a pretax loss, primarily reflecting deferred tax liabilities on indefinite-lived intangible assets. It maintained a valuation allowance on substantially all net deferred tax assets.
- Reach Media noncontrolling shareholders can begin exercising annual put rights in 2018. The company also disclosed $908,000 of cash-collateralized letters of credit and approximately $76.4 million of unrecorded operating commitments. Management said routine legal claims were not expected to have a material adverse effect.
Important facts for investors to verify
- Debt maturity and refinancing exposure, particularly the $341.3 million scheduled credit-facility principal payment in 2018, covenant headroom and the terms and actual availability of the subsequent $25 million ABL facility.
- Whether operating cash flow and covenant ratios remain adequate given high leverage, interest costs and advertising-market sensitivity.
- Performance and sustainability of TV One’s revenue growth, and the valuation assumptions behind the CEO award and the company’s substantial goodwill and broadcast-license balances.
- Potential cash or share repurchases under the remaining repurchase authorization, and the financial effect of Reach Media put rights beginning in 2018.
- The filing uses the registrant name Radio One, Inc.; confirm the issuer identity and any subsequent corporate name changes when matching it to Urban One, Inc. records.