Urban One(US:UONE)2020-11-12 12:00PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements This section presents Urban One, Inc.'s unaudited consolidated financial statements for the three and nine months ended September 30, 2020, and 2019, along with detailed notes on accounting policies Consolidated Statements of Operations Urban One reported a net loss of $12.8 million in Q3 2020 and $34.5 million for the nine months, primarily due to revenue declines and significant impairment charges Consolidated Statements of Operations (Unaudited, In thousands) | | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net Revenue | $91,912 | $111,055 | $262,795 | $331,075 | | Operating Income (Loss) | $3,968 | $31,117 | $(2,937) | $75,034 | | Impairment of long-lived assets | $29,050 | $0 | $82,700 | $3,800 | | Consolidated Net (Loss) Income | $(12,277) | $5,687 | $(33,693) | $9,845 | | Net (Loss) Income Attributable to Common Stockholders | $(12,772) | $5,359 | $(34,539) | $8,846 | | Diluted EPS | $(0.29) | $0.12 | $(0.77) | $0.19 | Consolidated Balance Sheets Total assets decreased slightly to $1.21 billion as of September 30, 2020, primarily due to impairments, while cash and cash equivalents significantly increased to $102.2 million Consolidated Balance Sheet Highlights (Unaudited, In thousands) | | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $102,223 | $33,073 | | Total current assets | $233,543 | $186,039 | | Goodwill | $223,872 | $239,772 | | Radio Broadcasting Licenses | $516,372 | $582,697 | | Total assets | $1,210,537 | $1,249,919 | | Total current liabilities | $122,743 | $101,038 | | Long-term debt, net | $827,128 | $850,308 | | Total liabilities | $1,036,995 | $1,056,280 | | Total stockholders' equity | $162,425 | $183,075 | Consolidated Statements of Cash Flows Net cash provided by operating activities increased to $64.4 million for the nine months ended September 30, 2020, supported by financing activities and a draw on the ABL facility Cash Flow Summary (Unaudited, In thousands) | | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Net cash flows provided by operating activities | $64,443 | $51,048 | | Net cash flows (used in) provided by investing activities | $(3,651) | $9,553 | | Net cash flows provided by (used in) financing activities | $8,358 | $(44,588) | | Increase in cash, cash equivalents and restricted cash | $69,150 | $16,013 | | Cash, cash equivalents and restricted cash, end of period | $102,696 | $31,903 | Notes to Consolidated Financial Statements The notes detail accounting policies, business segments, debt structure, and significant events, including COVID-19 impacts, impairment charges, and subsequent debt and asset exchanges - The company operates as a multi-media entity targeting African-American and urban consumers across four segments: radio broadcasting, Reach Media, digital, and cable television 3235 - Due to COVID-19, the company recorded significant non-cash impairment charges of $15.9 million for goodwill and $66.8 million for radio broadcasting licenses for the nine months ended September 30, 2020 6495 - In August 2020, the company raised approximately $14.8 million in net proceeds from an "at-the-market" stock offering by issuing 2.9 million Class A shares 143 - Subsequent to quarter-end, the company successfully exchanged $347.0 million (99.15% of outstanding) of its 7.375% Senior Secured Notes for new 8.75% notes with a later maturity to enhance financial flexibility 180184185 - In November 2020, the company signed an asset exchange agreement with Entercom Communications Corp., trading stations in St. Louis, Philadelphia, and Washington, D.C. for stations in Charlotte, NC 188 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the significant negative impact of COVID-19 on revenues, particularly in radio, leading to net losses, but notes improved operating cash flow and bolstered liquidity through cost-cutting and financing actions Results of Operations Net revenue declined 17.2% in Q3 2020 and 20.6% for the nine months, primarily due to reduced radio advertising, partially offset by political advertising and significant cost-cutting measures Net Revenue by Source - Q3 2020 vs Q3 2019 (In thousands) | Revenue Source | Q3 2020 | Q3 2019 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Radio Advertising | $34,919 | $50,813 | $(15,894) | (31.3)% | | Political Advertising | $4,324 | $300 | $4,024 | 1,341.3% | | Digital Advertising | $8,121 | $8,171 | $(50) | (0.6)% | | Cable Television Advertising | $19,603 | $20,649 | $(1,046) | (5.1)% | | Cable Television Affiliate Fees | $24,421 | $25,330 | $(909) | (3.6)% | | Event Revenues & Other | $524 | $5,792 | $(5,268) | (91.0)% | | Total Net Revenue | $91,912 | $111,055 | $(19,143) | (17.2)% | - Operating expenses for Q3 2020 significantly decreased across programming, technical, and SG&A categories due to extensive cost-cutting initiatives 214216 - A non-cash impairment charge of $29.1 million was recorded in Q3 2020, related to goodwill and radio broadcasting licenses 220 Broadcast and Digital Operating Income (Non-GAAP) (In thousands) | | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Broadcast and digital operating income | $44,194 | $43,644 | $112,002 | $122,122 | | Broadcast and digital operating income margin | 48.1% | 39.3% | 42.6% | 36.9% | Liquidity and Capital Resources The company bolstered liquidity through cost-cutting, a $27.5 million ABL facility draw, and a $14.8 million stock offering, projecting adequate cash and covenant compliance for the next 12 months - The company drew approximately $27.5 million on its ABL Facility in March 2020 to enhance liquidity amid pandemic uncertainty 250 - Management concluded the company has adequate cash reserves and will meet debt service requirements and covenants for at least the next 12 months, following reforecasts and cost-cutting 249250 Debt Covenant Compliance as of September 30, 2020 | Covenant | Actual Ratio | Covenant Limit | Status | | :--- | :--- | :--- | :--- | | 2017 Credit Facility | | | | | Interest Coverage Ratio | 2.02x | > 1.25x | Compliant | | Senior Secured Leverage Ratio | 4.55x | < 5.85x | Compliant | | 2018 Credit Facility | | | | | Total Gross Leverage Ratio | 6.36x | < 7.50x | Compliant | Critical Accounting Policies and Estimates Critical accounting estimates include goodwill and radio broadcasting license valuations, which saw significant impairment charges in 2020, and the realizability of deferred tax assets - Goodwill and radio broadcasting licenses represent approximately 61.2% of total assets as of September 30, 2020, making their valuation a critical estimate 263 Impairment Charges for Nine Months Ended Sep 30, 2020 (in millions) | Asset | Impairment Charge | | :--- | :--- | | Goodwill (Atlanta & Indianapolis) | $15.9 | | Radio Broadcasting Licenses (various markets) | $66.8 | - Management concluded that the company's deferred tax assets (DTAs) are more likely than not realizable, based on cumulative income and future profitability forecasts, avoiding a valuation allowance 273274 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's market risk exposure has not materially changed since its December 31, 2019, Annual Report on Form 10-K disclosures - There have been no material changes to the company's market risk exposure since December 31, 2019 293 Item 4. Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were not effective as of September 30, 2020, due to previously identified material weaknesses, with remediation efforts ongoing - Management concluded that disclosure controls and procedures are not effective due to previously identified material weaknesses 294 - The company is actively remediating three material weaknesses identified in the 2019 Form 10-K, with completion expected in 2020 298 PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in routine legal proceedings not expected to materially affect its financial condition or results of operations - Urban One states that ongoing legal proceedings are routine and not expected to have a material adverse effect on the company 301 Item 1A. Risk Factors The primary risk factor is the significant and uncertain impact of the COVID-19 pandemic on advertising demand and event revenues, despite the company's cost-cutting and liquidity measures - The COVID-19 outbreak is causing significant disruption, with advertisers reducing or eliminating spending, particularly impacting the radio segment's reliance on local advertisers 302 - The pandemic has led to the postponement or cancellation of special events, including the 2020 Tom Joyner Foundation Fantastic Voyage cruise, impacting alternative revenue sources 302 - To mitigate financial impact, the company implemented cost-cutting measures and drew $27.5 million on its ABL facility to enhance liquidity 304 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None 307 Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - None 308 Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable 309 Item 5. Other Information The company reported no other information for this item - None 310 Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and XBRL financial data - Exhibits filed include CEO/CFO certifications under Sarbanes-Oxley Sections 302 and 906, and the XBRL Interactive Data File 311