Urban One(UONE) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides Urban One, Inc.'s unaudited consolidated financial statements for the three and six months ended June 30, 2023, and 2022, along with management's discussion and analysis, market risk disclosures, and controls and procedures Item 1. Financial Statements This section presents Urban One, Inc.'s unaudited consolidated financial statements, including statements of operations, comprehensive income, balance sheets, changes in stockholders' equity, and cash flows, with detailed notes on accounting policies and significant transactions Consolidated Statements of Operations For Q2 2023, net revenue increased to $129.7 million, but operating income declined to $9.7 million due to a $22.1 million impairment charge, while net income attributable to common stockholders surged to $70.4 million, or $1.39 per diluted share, driven by a $96.8 million gain from the MGM investment sale Consolidated Statements of Operations Highlights (Q2 & H1 2023 vs 2022) | Financial Metric | Q2 2023 (in thousands) | Q2 2022 (in thousands) | H1 2023 (in thousands) | H1 2022 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Net Revenue | $129,652 | $118,657 | $239,521 | $230,788 | | Operating Income | $9,655 | $25,375 | $17,776 | $61,836 | | Other Income, Net | $96,773 | $9,725 | $96,460 | $11,711 | | Net Income | $71,157 | $16,944 | $68,747 | $34,058 | | Net Income Attributable to Common Stockholders | $70,366 | $16,294 | $67,444 | $32,782 | | Diluted EPS | $1.39 | $0.30 | $1.34 | $0.60 | - A significant impairment charge of $22.1 million was recorded in Q2 2023, compared to $14.9 million in Q2 2022, negatively impacting operating income[18] - Other income surged in Q2 2023 to $96.8 million, primarily due to the realized gain on the sale of the MGM investment, which significantly boosted net income[18][86] Consolidated Balance Sheets As of June 30, 2023, total assets decreased to $1.28 billion from $1.34 billion at year-end 2022, mainly due to the sale of debt securities and impairment of radio licenses, while cash and cash equivalents significantly increased to $230.7 million from $75.4 million Key Balance Sheet Items (As of June 30, 2023 vs. Dec 31, 2022) | Account | June 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $230,731 | $75,404 | | Total current assets | $417,709 | $295,406 | | Radio Broadcasting Licenses | $442,288 | $488,419 | | Debt Securities | $0 | $136,826 | | Total Assets | $1,279,847 | $1,344,646 | | Long-Term Debt, net | $715,204 | $739,000 | | Total Liabilities | $924,028 | $981,973 | | Total Stockholders' Equity | $331,531 | $330,750 | Consolidated Statements of Cash Flows For the six months ended June 30, 2023, operating activities provided $41.8 million in cash, while investing activities generated $113.3 million, primarily from the $136.8 million sale of the MGM investment, leading to a $129.3 million increase in the company's cash position Consolidated Cash Flow Summary (Six Months Ended June 30) | Cash Flow Category | 2023 (in thousands) | 2022 (in thousands) | | :--- | :--- | :--- | | Net cash from operating activities | $41,775 | $43,226 | | Net cash from investing activities | $113,271 | $(3,871) | | Net cash from financing activities | $(25,717) | $(48,570) | | Increase (Decrease) in Cash | $129,329 | $(9,215) | | Cash at end of period | $231,208 | $149,503 | - The primary driver of the significant increase in cash was the $136.8 million received from the sale of available-for-sale debt securities (the MGM investment)[29] Notes to Consolidated Financial Statements These notes detail the company's four operating segments, the $136.8 million sale of its MGM investment resulting in a $96.8 million pre-tax gain, $38.9 million in radio license impairment charges, and subsequent events including waivers for delayed SEC filings and Nasdaq delisting risk - The company operates in four reportable segments: radio broadcasting, Reach Media, digital, and cable television, targeting African-American and urban consumers[30][32] - In April 2023, the company sold its investment in MGM National Harbor for approximately $136.8 million, recognizing a pre-tax gain of $96.8 million[86] - The company recorded impairment charges of $38.9 million on its radio broadcasting licenses during the first six months of 2023, primarily due to declines in projected market revenues[114][115][117] - Subsequent to the quarter-end, the company received multiple waivers for its ABL facility due to delayed financial reporting and faces a delisting determination from Nasdaq, with a hearing scheduled for November 30, 2023[169][170][171] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 9.3% increase in Q2 2023 net revenue to $129.7 million, offset by a 62.0% decline in operating income to $9.7 million due to higher expenses and a $22.1 million impairment charge, while liquidity significantly improved with cash balances reaching $231.2 million from the MGM investment sale Results of Operations For Q2 2023, net revenue increased 9.3% to $129.7 million, primarily from the Reach Media segment's Fantastic Voyage cruise, but operating income declined 62.0% to $9.7 million due to a 28.6% rise in operating expenses and a $22.1 million impairment charge on radio licenses Net Revenue by Source (Q2 2023 vs Q2 2022) | Revenue Source | Q2 2023 (in thousands) | Q2 2022 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Radio advertising | $45,135 | $44,067 | 2.4% | | Digital advertising | $18,861 | $17,881 | 5.5% | | Cable television advertising | $30,247 | $29,120 | 3.9% | | Cable television affiliate fees | $22,184 | $24,165 | (8.2)% | | Event revenues & other | $12,815 | $1,738 | 637.3% | | Total Net Revenue | $129,652 | $118,657 | 9.3% | - The Reach Media segment's revenue increased by approximately $9.0 million in Q2 2023, primarily driven by the Fantastic Voyage cruise, which did not occur in Q2 2022[196] - Operating income for Q2 2023 decreased by $15.7 million (62.0%) compared to Q2 2022, mainly due to a $14.6 million increase in SG&A expenses and a $7.2 million increase in impairment charges[195] Non-GAAP Financial Measures For Q2 2023, Broadcast and digital operating income decreased 14.1% to $47.3 million, and Adjusted EBITDA declined to $37.5 million, reflecting lower performance across digital, Reach Media, cable, and radio segments due to reduced revenues and higher operating costs Non-GAAP Performance Summary (Q2 & H1 2023 vs 2022) | Metric (in thousands) | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Broadcast and digital operating income | $47,328 | $55,113 | $86,628 | $103,516 | | Adjusted EBITDA | $37,504 | $47,507 | $67,790 | $89,512 | - The decrease in Broadcast and digital operating income for Q2 2023 was primarily due to lower income from the digital, Reach Media, cable television, and radio segments, reflecting higher operating expenses[218] Liquidity and Capital Resources The company's liquidity significantly improved, with cash and cash equivalents increasing to approximately $231.2 million as of June 30, 2023, primarily driven by $136.8 million in proceeds from the MGM investment sale, and $25.0 million of its 2028 Senior Secured Notes were repurchased - Cash and cash equivalents stood at approximately $231.2 million as of June 30, 2023, with no outstanding borrowings on the $50.0 million ABL facility[244] - The company received approximately $136.8 million in cash proceeds from the sale of its MGM investment interest on April 21, 2023[248] - During the first half of 2023, the company repurchased $25.0 million of its 2028 Notes, resulting in a net gain on debt retirement of approximately $2.4 million[251] Critical Accounting Estimates Critical accounting estimates focus on indefinite-lived intangible assets, leading to a $22.1 million impairment loss on radio broadcasting licenses in Q2 2023 due to declining projected revenues, with $147.4 million in radio licenses in three additional markets at risk of future impairment - A quantitative impairment test in Q2 2023 resulted in a $22.1 million impairment loss for radio broadcasting licenses in five markets, driven by a decline in projected gross market revenues[266] - As of June 30, 2023, three markets with radio broadcasting licenses valued at approximately $147.4 million are considered at risk of future impairment, as their fair value exceeded carrying value by less than 10%[267] Item 3. Quantitative and Qualitative Disclosures About Market Risk Disclosure about market risk is not required as the company qualifies as a smaller reporting company - Disclosure about market risk is not required as the company qualifies as a smaller reporting company[286] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of March 31, 2023, due to existing material weaknesses in internal control over financial reporting, including a newly identified weakness in the financial statement close process, for which a remediation plan is underway - The CEO and CFO concluded that disclosure controls and procedures were not effective as of March 31, 2023, due to existing material weaknesses in internal control over financial reporting[288] - Previously reported material weaknesses exist in the Control Environment, Risk Assessment, Monitoring, and various Control Activities, including IT general controls, segregation of duties, and review controls over key financial areas[289][290][295] - A new material weakness was identified related to the financial statement close process, including inadequate evaluation of significant transactions and insufficient precision in review of reporting and disclosures[292] - A remediation plan is underway, involving hiring a Corporate Controller and Chief Accounting Officer, engaging external experts, redesigning controls, and enhancing IT general controls[294][296] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, and exhibits, highlighting the company's ongoing legal matters, the significant risk of Nasdaq delisting due to delayed SEC filings, and the required certifications Item 1. Legal Proceedings The company is involved in routine legal proceedings incidental to its business, with management not expecting the outcomes to have a material adverse effect on its financial condition or results of operations - The company states that ongoing legal proceedings are routine and not expected to have a material adverse impact[301] Item 1A. Risk Factors The primary risk factor is the continued delay in filing periodic reports with the SEC, which has led to a Nasdaq delisting determination, and while a hearing is scheduled, there is no assurance the company will remain listed, potentially impacting stock liquidity and capital raising ability - The company received a Staff Delisting Determination from Nasdaq on September 28, 2023, due to its failure to timely file required periodic reports with the SEC[304] - A hearing before a Nasdaq Hearings Panel was scheduled for November 30, 2023, which has stayed any delisting action pending the outcome, however, there is no guarantee the company's stock will remain listed[306] - Potential consequences of delisting include adverse effects on stock liquidity and price, reduced investor interest, and impaired ability to raise capital or issue equity compensation[307] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications as required by the Sarbanes-Oxley Act of 2002, and the financial data formatted in Inline XBRL - The exhibits filed include Sarbanes-Oxley Section 302 and 906 certifications from the CEO and CFO, and financial data in Inline XBRL format[312]