SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022March 31, 2023
Commission File No. 0-25969
URBAN ONE, INC.
(Exact name of registrant as specified in its charter)
Delaware | 52-1166660 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
1010 Wayne Avenue,
14th Floor
Silver Spring, Maryland 20910
(Address of principal executive offices)
(301) 429-3200
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: |
| Trading Symbol(s) |
| Name of each exchange on which registered: |
Class A Common Stock |
| UONE |
| NASDAQ Stock Market |
Class D Common Stock |
| UONEK |
| NASDAQ Stock Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒☐ No ☐☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒☐ No ☐☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☒ |
Non-accelerated filer ☐ | Smaller reporting company ☒ |
| Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, is as of the latest practicable date.
Class |
| Outstanding at |
|
Class A Common Stock, $.001 Par Value |
|
|
|
Class B Common Stock, $.001 Par Value |
| 2,861,843 |
|
Class C Common Stock, $.001 Par Value |
| 2,045,016 |
|
Class D Common Stock, $.001 Par Value |
|
|
|
TABLE OF CONTENTS
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| PART I. FINANCIAL INFORMATION | |
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| 6 | |
| Consolidated Balance Sheets as of | 7 |
| 8 | |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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2
EXPLANATORY NOTE
In connection with the preparation of the interim consolidated financial statements for the quarterly period as of March 31, 2023, Urban One, Inc. and its consolidated subsidiaries (“Urban One” or the “Company”) identified immaterial errors in its accounting for its stock-based compensation, the Company’s investment in the operations of its Richmond casino joint venture, RVA Entertainment Holdings, LLC (“RVAEH”), and related tax effects. The Company assessed the materiality of the adjustments both quantitatively and qualitatively and concluded that the adjustments were not material to its previously issued consolidated financial statements as of December 31, 2022 and 2021 and for the years then ended. However, the Company concluded that the effect of correcting these adjustments in 2023 would materially misstate the Company’s unaudited consolidated financial statements as of and for the three months ended March 31, 2023. Accordingly, the Company determined that it was necessary to record these immaterial errors, as well as other immaterial adjustments previously identified during fiscal year 2022 and revised the previously issued consolidated financial statements with respect to the quarters ended March 31, June 30, and September 30, 2022, and the year ended December 31, 2022. The remainder of the notes to the Company’s consolidated financial statements and within Management Discussion & Analysis of Financial Condition and Results of Operations have been updated and revised, as applicable, to reflect the impact of the adjustments described in Note 2 – Revision of our Previously Issued Financial Statements.
CERTAIN DEFINITIONS
Unless otherwise noted, throughout this report, the terms “Urban One,” the “Company,” “we,” “our” and “us” refer to Urban One, Inc. together with its subsidiaries.
Cautionary Note Regarding Forward-Looking Statements
This document containsOur disclosure and analysis in this quarterly report on Form 10-Q concerning our operations, cash flows and financial position, contain forward-looking statements within the meaning of Section 27A of the Securities Act, of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements do not relay historical facts, but rather reflect our current expectations concerning future operations, results and events. All statements other than statements of historical fact are “forward-looking statements” including any projections of earnings, revenues or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new activities, services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. You can identify some of these forward-looking statements by our use of words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “likely,” “may,” “estimates” and similar expressions. You can also identify a forward-looking statement in that such statements discuss matters in a way that anticipates operations, results or events that have not already occurred but rather will or may occur in future periods. We cannot guarantee that we will achieve any forward-looking plans, intentions, results, operations or expectations. Because these statements apply to future events, they are subject to risks and uncertainties, some of which are beyond our control that could cause actual results to differ materially from those forecasted or anticipated in the forward-looking statements. These risks, uncertainties and factors include (in no particular order), but are not limited to:
● | public health crises, epidemics and pandemics such as |
● | lingering impacts of the COVID-19 pandemic (particularly in our largest markets, Atlanta; Baltimore; Charlotte; Dallas; Houston; Indianapolis; and Washington, DC), including changes in social and business dynamics and the impact of any variants and reduced government stimulus, the impact on our employees, and the extent of the impact of the changes in social and business dynamics on overall demand for advertising across our various media; |
● | recession, economic volatility, financial market unpredictability and fluctuations in the United States and other world economies that may affect our business and financial condition, and the business and financial conditions of our |
● | our |
3
● |
● | risks associated with the implementation and execution of our business diversification strategy, including our strategic actions with respect to expansion into gaming; |
● | risks associated with our investments or potential investment in gaming |
● | regulation by the |
3
● | regulation by certain gaming commissions relative to maintaining our interests, or our creditors’ ability to foreclose on collateral that includes our interests in, in any gaming licenses, joint ventures or other gaming and casino investments; |
● | changes in our key personnel and on-air talent; |
● | increases in competition for and in the costs of our programming and content, including on-air talent and content production or acquisitions costs; |
● | financial losses that may be incurred due to impairment charges against our broadcasting licenses, goodwill, and other intangible assets; |
● | increased competition for advertising revenues with other radio stations, broadcast and cable television, newspapers and magazines, outdoor advertising, direct mail, internet radio, satellite radio, smart phones, tablets, and other wireless media, the internet, social media, and other forms of advertising; |
● | the impact of our acquisitions, dispositions and similar transactions, as well as consolidation in industries in which we and our advertisers operate; |
● | developments and/or changes in laws and regulations, such as the California Consumer Privacy Act or other similar federal or state regulation through legislative action and revised rules and standards; |
● | disruptions to our technology network including computer systems and software, whether by man-made or other disruptions of our operating systems, structures or equipment, including as we further develop alternative work arrangements, as well as natural events such as pandemic, severe weather, fires, floods and earthquakes; |
● | material weaknesses identified in our internal control over financial reporting which, if not remediated, could result in material misstatements in our consolidated financial statements; |
● | failure to meet the continued listing standards of Nasdaq, which could cause our common stock to be delisted, and which could have a material adverse effect on the liquidity and market price of our common stock and expose the Company to litigation;and |
● | other factors mentioned in our filings with the Securities and Exchange Commission (“SEC”) including the factors discussed in detail in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, |
You should not place undue reliance on these forward-looking statements, which reflect our views based only on information currently available to us as of the date of this report. We undertake no obligation to publicly update or revise any forward-looking statements because of new information, future events or otherwise.
4
URBAN ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | | |||||||||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| |||||||||||
| | (Unaudited) | | (Unaudited) | | | Three Months Ended March 31, | | ||||||||||||
| | (In thousands, except share data) | | (In thousands, except share data) | |
| 2023 |
| 2022 |
| ||||||||||
| | | | | | | | | | | | | | | | | | (As Revised) | | |
NET REVENUE | | $ | 118,810 | | $ | 107,593 | | $ | 231,159 | | $ | 199,033 | | | $ | 109,869 | | $ | 112,131 | |
OPERATING EXPENSES: | |
| | |
| | |
| | |
| | | |
| | |
| | |
Programming and technical including stock-based compensation of $0 and $4, and $0 and $10, respectively | |
| 28,351 | |
| 26,517 | |
| 56,869 | |
| 51,613 | | |||||||
Selling, general and administrative, including stock-based compensation of $0 and $0, and $0 and $31, respectively | |
| 35,346 | |
| 31,510 | |
| 70,774 | |
| 61,497 | | |||||||
Corporate selling, general and administrative, including stock-based compensation of $336 and $168, and $460 and $384, respectively | |
| 11,864 | |
| 9,321 | |
| 21,324 | |
| 19,657 | | |||||||
Programming and technical, including stock-based compensation of $63 and $0, respectively | |
| 33,917 | | | 28,518 | | |||||||||||||
Selling, general and administrative, including stock-based compensation of $159 and $0, respectively | |
| 36,874 | | | 35,210 | | |||||||||||||
Corporate selling, general and administrative, including stock-based compensation of $3,056 and $124, respectively | |
| 11,586 | | | 9,537 | | |||||||||||||
Depreciation and amortization | |
| 2,481 | |
| 2,325 | |
| 4,886 | |
| 4,589 | | |
| 2,597 | | | 2,405 | |
Impairment of long-lived assets | |
| 16,933 | | | — | |
| 16,933 | |
| 0 | | |||||||
Impairment of goodwill, intangible assets, and long-lived assets | |
| 16,775 | | | — | | |||||||||||||
Total operating expenses | |
| 94,975 | |
| 69,673 | |
| 170,786 | |
| 137,356 | | |
| 101,749 | |
| 75,670 | |
Operating income | |
| 23,835 | |
| 37,920 | |
| 60,373 | |
| 61,677 | | |
| 8,120 | |
| 36,461 | |
INTEREST INCOME | |
| — | |
| 168 | |
| 59 | | | 172 | | |
| 333 | | | 59 | |
INTEREST EXPENSE | |
| 15,886 | |
| 15,853 | |
| 31,813 | | | 33,898 | | |
| 14,068 | | | 15,927 | |
(GAIN) LOSS ON RETIREMENT OF DEBT | | | (1,855) | | | 0 | | | (1,855) | | | 6,949 | | |||||||
OTHER INCOME, net | |
| (9,725) | |
| (2,362) | |
| (11,711) | | | (4,046) | | |||||||
Income before provision for income taxes and noncontrolling interests in income of subsidiaries | |
| 19,529 | |
| 24,597 | |
| 42,185 | |
| 25,048 | | |||||||
PROVISION FOR INCOME TAXES | |
| 3,725 | |
| 6,119 | |
| 9,311 | | | 6,109 | | |||||||
CONSOLIDATED NET INCOME | |
| 15,804 | |
| 18,478 | |
| 32,874 | |
| 18,939 | | |||||||
GAIN ON RETIREMENT OF DEBT | | | 2,356 | | | — | | |||||||||||||
OTHER (EXPENSE) INCOME, NET | |
| (312) | | | 1,986 | | |||||||||||||
Income (loss) before (benefit from) provision for income taxes and noncontrolling interests in income of subsidiaries | |
| (3,571) | |
| 22,579 | | |||||||||||||
(BENEFIT FROM) PROVISION FOR INCOME TAXES | |
| (1,160) | | | 5,465 | | |||||||||||||
NET (LOSS) INCOME | |
| (2,411) | |
| 17,114 | | |||||||||||||
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | |
| 770 | |
| 612 | |
| 1,471 | | | 1,066 | | |
| 511 | | | 626 | |
CONSOLIDATED NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS | | $ | 15,034 | | $ | 17,866 | | $ | 31,403 | | $ | 17,873 | | |||||||
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS | | $ | (2,922) | | $ | 16,488 | | |||||||||||||
| | | | | | | | | | | | | | | | | | | | |
BASIC NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS | |
| | |
| | |
| | |
| | | |||||||
Net income attributable to common stockholders | | $ | 0.30 | | $ | 0.36 | | $ | 0.62 | | $ | 0.36 | | |||||||
| | | | | | | | | | | | | | |||||||
DILUTED NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS | |
| | |
| | |
| | |
| | | |||||||
Net income attributable to common stockholders | | $ | 0.28 | | $ | 0.33 | | $ | 0.57 | | $ | 0.34 | | |||||||
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS (per share) | |
| | |
| | | |||||||||||||
Basic | | $ | (0.06) | | $ | 0.32 | | |||||||||||||
Diluted | | $ | (0.06) | | $ | 0.30 | | |||||||||||||
| | | | | | | | | | | | | | | | | | | | |
WEIGHTED AVERAGE SHARES OUTSTANDING: | | | | | | | | | | | | | | | | | | | | |
Basic | | | 50,806,346 | | | 49,789,892 | | | 50,994,612 | | | 49,124,056 | | | | 47,420,832 | | | 51,182,831 | |
Diluted | | | 54,658,543 | | | 53,780,918 | | | 54,871,963 | | | 53,186,619 | | | | 47,420,832 | | | 55,097,781 | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
URBAN ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | ||
| | Three Months Ended June 30, | | Six Months Ended June 30, | | | Three Months Ended March 31, | | |||||||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
|
| 2023 |
| 2022 |
| |||||||
| | (Unaudited) | | (Unaudited) | | | | | | (As Revised) | | ||||||||||
| | (In thousands) | | (In thousands) | | ||||||||||||||||
| | | | | | | | | | | | | | ||||||||
COMPREHENSIVE INCOME | | $ | 15,804 | | $ | 18,478 | | $ | 32,874 | | $ | 18,939 | | ||||||||
NET (LOSS) INCOME | | $ | (2,411) | | $ | 17,114 | | ||||||||||||||
OTHER COMPREHENSIVE (LOSS) INCOME, BEFORE TAX: | | | | | | | |||||||||||||||
Unrealized gain on available-for-sale securities | | | — | | 10,400 | | |||||||||||||||
Income tax expense related to unrealized gain on available-for-sale securities | | | — | | | 2,504 | | ||||||||||||||
OTHER COMPREHENSIVE INCOME, NET OF TAX | | | — | | | 7,896 | | ||||||||||||||
COMPREHENSIVE (LOSS) INCOME | | $ | (2,411) | | $ | 25,010 | | ||||||||||||||
LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | |
| 770 | |
| 612 | |
| 1,471 | |
| 1,066 | | |
| 511 | |
| 626 | | |
COMPREHENSIVE INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS | | $ | 15,034 | | $ | 17,866 | | $ | 31,403 | | $ | 17,873 | | ||||||||
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS | | $ | (2,922) | | $ | 24,384 | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
6
URBAN ONE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
| | | | | | |
| | As of | ||||
|
| March 31, 2023 |
| December 31, 2022 | ||
| | (Unaudited) | | (As Revised) | ||
ASSETS |
| |
|
| |
|
CURRENT ASSETS: |
| |
|
| |
|
Cash and cash equivalents | | $ | 71,455 | | $ | 75,404 |
Restricted cash | |
| 476 | |
| 26,475 |
Trade accounts receivable, net of allowance for expected credit losses of $7,188 and $9,223 | |
| 123,420 | |
| 142,045 |
Prepaid expenses | |
| 10,205 | |
| 8,729 |
Current portion of content assets | |
| 34,713 | |
| 34,003 |
Assets held for sale | | | 9,907 | | | — |
Other current assets | |
| 8,563 | |
| 8,750 |
Total current assets | |
| 258,739 | |
| 295,406 |
CONTENT ASSETS, NET | |
| 80,045 | |
| 86,378 |
PROPERTY AND EQUIPMENT, NET | |
| 27,904 | |
| 28,258 |
GOODWILL | |
| 216,599 | |
| 216,599 |
RIGHT OF USE ASSETS | |
| 28,341 | |
| 31,879 |
RADIO BROADCASTING LICENSES | |
| 464,368 | |
| 488,419 |
OTHER INTANGIBLE ASSETS, NET | |
| 52,949 | |
| 55,193 |
DEBT SECURITIES - available-for-sale, at fair value; amortized cost of $40,000 at March 31, 2023 and December 31, 2022 | | | 136,826 | | | 136,826 |
INVESTMENT IN UNCONSOLIDATED JOINT VENTURE | | | 13,125 | | | — |
OTHER ASSETS | |
| 5,575 | |
| 5,688 |
Total assets | | $ | 1,284,471 | | $ | 1,344,646 |
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY | |
| | | |
|
CURRENT LIABILITIES: | |
| | | |
|
Accounts payable | | $ | 14,316 | | $ | 17,196 |
Accrued interest | |
| 8,976 | |
| 23,111 |
Accrued compensation and related benefits | |
| 10,146 | |
| 17,421 |
Current portion of content payables | |
| 25,339 | |
| 26,718 |
Current portion of lease liabilities | |
| 8,368 | |
| 8,690 |
Liabilities held for sale | | | 2,407 | | | — |
Other current liabilities | |
| 43,044 | |
| 39,682 |
Total current liabilities | |
| 112,596 | |
| 132,818 |
LONG-TERM DEBT, net of original issue discount and issuance costs | |
| 714,780 | |
| 739,000 |
CONTENT PAYABLES, net of current portion | |
| 8,891 | |
| 10,365 |
LONG-TERM LEASE LIABILITIES | |
| 22,092 | |
| 25,545 |
OTHER LONG-TERM LIABILITIES | |
| 31,208 | |
| 34,856 |
DEFERRED TAX LIABILITIES, NET | |
| 38,211 | |
| 39,389 |
Total liabilities | |
| 927,778 | |
| 981,973 |
| | | | | | |
COMMITMENTS AND CONTINGENCIES | | | | | | |
REDEEMABLE NONCONTROLLING INTERESTS | |
| 25,116 | |
| 31,923 |
| | | | | | |
STOCKHOLDERS’ EQUITY: | |
| | |
| |
Convertible preferred stock, $.001 par value, 1,000,000 shares authorized; no shares outstanding at March 31, 2023 and December 31, 2022 | |
| — | |
| — |
Common stock — Class A, $.001 par value, 30,000,000 shares authorized; 9,854,682 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively | |
| 10 | |
| 10 |
Common stock — Class B, $.001 par value, 150,000,000 shares authorized; 2,861,843 shares issued and outstanding at March 31, 2023 and December 31, 2022 | |
| 3 | |
| 3 |
Common stock — Class C, $.001 par value, 150,000,000 shares authorized; 2,045,016 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively | |
| 2 | |
| 2 |
Common stock — Class D, $.001 par value, 150,000,000 shares authorized; 34,023,756 and 33,618,227 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively | |
| 34 | |
| 34 |
Accumulated other comprehensive income | | | 73,227 | | | 73,227 |
Additional paid-in capital | |
| 996,644 | |
| 993,484 |
Accumulated deficit | |
| (738,343) | |
| (736,010) |
Total stockholders’ equity | |
| 331,577 | |
| 330,750 |
Total liabilities, redeemable noncontrolling interests and stockholders’ equity | | $ | 1,284,471 | | $ | 1,344,646 |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
7
URBAN ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2023 and 2022
(In thousands, except share data)
(Unaudited)
| | | | | | |
| | As of | ||||
|
| June 30, 2022 |
| December 31, 2021 | ||
| | (Unaudited) | | | | |
| | (In thousands, except share data) | ||||
ASSETS |
| |
|
| |
|
CURRENT ASSETS: |
| |
|
| |
|
Cash and cash equivalents | | $ | 123,030 | | $ | 132,245 |
Restricted cash | |
| 19,973 | |
| 19,973 |
Trade accounts receivable, net of allowance for doubtful accounts of $8,314 and $8,743, respectively | |
| 123,998 | |
| 127,446 |
Prepaid expenses | |
| 4,030 | |
| 2,967 |
Current portion of content assets | |
| 31,993 | |
| 25,883 |
Other current assets | |
| 8,037 | |
| 4,760 |
Total current assets | |
| 311,061 | |
| 313,274 |
CONTENT ASSETS, net | |
| 65,053 | |
| 60,155 |
PROPERTY AND EQUIPMENT, net | |
| 26,913 | |
| 26,291 |
GOODWILL | |
| 219,077 | |
| 223,402 |
RIGHT OF USE ASSETS | |
| 34,149 | |
| 38,044 |
RADIO BROADCASTING LICENSES | |
| 489,340 | |
| 505,148 |
OTHER INTANGIBLE ASSETS, net | |
| 61,508 | |
| 50,159 |
ASSETS HELD FOR SALE | | | 3,200 | | | 0 |
OTHER ASSETS | |
| 44,463 | |
| 44,635 |
Total assets | | $ | 1,254,764 | | $ | 1,261,108 |
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY | |
| | |
|
|
CURRENT LIABILITIES: | |
| | |
|
|
Accounts payable | | $ | 14,819 | | $ | 14,588 |
Accrued interest | |
| 24,648 | |
| 25,458 |
Accrued compensation and related benefits | |
| 7,272 | |
| 10,960 |
Current portion of content payables | |
| 21,628 | |
| 18,972 |
Current portion of lease liabilities | |
| 9,933 | |
| 10,072 |
Other current liabilities | |
| 31,345 | |
| 26,421 |
Total current liabilities | |
| 109,645 | |
| 106,471 |
LONG-TERM DEBT, net of current portion, original issue discount and issuance costs | |
| 787,381 | |
| 818,616 |
CONTENT PAYABLES, net of current portion | |
| 3,962 | |
| 2,865 |
LONG-TERM LEASE LIABILITIES | |
| 26,900 | |
| 31,228 |
OTHER LONG-TERM LIABILITIES | |
| 37,555 | |
| 28,320 |
DEFERRED TAX LIABILITIES, net | |
| 11,070 | |
| 2,473 |
Total liabilities | |
| 976,513 | |
| 989,973 |
COMMITMENTS AND CONTINGENCIES | | | | | | |
REDEEMABLE NONCONTROLLING INTERESTS | |
| 18,690 | |
| 17,015 |
| | | | | | |
STOCKHOLDERS’ EQUITY: | |
| | |
| |
Convertible preferred stock, $.001 par value, 1,000,000 shares authorized; 0 shares outstanding at June 30, 2022 and December 31, 2021 | |
| 0 | |
| 0 |
Common stock — Class A, $.001 par value, 30,000,000 shares authorized; 9,104,916 shares issued and outstanding as of June 30, 2022 and December 31, 2021 | |
| 9 | |
| 9 |
Common stock — Class B, $.001 par value, 150,000,000 shares authorized; 2,861,843 shares issued and outstanding as of June 30, 2022 and December 31, 2021 | |
| 3 | |
| 3 |
Common stock — Class C, $.001 par value, 150,000,000 shares authorized; 2,045,016 and 2,045,016 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively | |
| 2 | |
| 2 |
Common stock — Class D, $.001 par value, 150,000,000 shares authorized; 32,755,317 and 37,324,737 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively | |
| 33 | |
| 37 |
Additional paid-in capital | |
| 994,678 | |
| 1,020,636 |
Accumulated deficit | |
| (735,164) | |
| (766,567) |
Total stockholders’ equity | |
| 259,561 | |
| 254,120 |
Total liabilities, redeemable noncontrolling interests and stockholders’ equity | | $ | 1,254,764 | | $ | 1,261,108 |
The accompanying notes are an integral part of these consolidated financial statements.
7
URBAN ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2022 (UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Convertible | | Common | | Common | | Common | | Common | | Additional | | | | | Total | |||||||
| | Preferred | | Stock | | Stock | | Stock | | Stock | | Paid-In | | Accumulated | | Stockholders’ | ||||||||
|
| Stock |
| Class A |
| Class B |
| Class C |
| Class D |
| Capital |
| Deficit |
| Equity | ||||||||
| | (In thousands, except share data) | ||||||||||||||||||||||
BALANCE, as of December 31, 2021 | | $ | 0 | | $ | 9 | | $ | 3 | | $ | 2 | | $ | 37 | | $ | 1,020,636 | | $ | (766,567) | | $ | 254,120 |
Consolidated net income | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 31,403 | | | 31,403 |
Stock-based compensation expense | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 460 | | | 0 | | | 460 |
Repurchase of 4,684,419 shares of Class D common stock | | | 0 | | | 0 | | | 0 | | | 0 | | | (4) | | | (24,665) | | | | | | (24,669) |
Exercise of options for 60,240 shares of common stock | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 50 | | | 0 | | | 50 |
Adjustment of redeemable noncontrolling interests to estimated redemption value | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| (1,803) | |
| 0 | |
| (1,803) |
BALANCE, as of June 30, 2022 | | $ | 0 | | $ | 9 | | $ | 3 | | $ | 2 | | $ | 33 | | $ | 994,678 | | $ | (735,164) | | $ | 259,561 |
The accompanying notes are an integral part of these consolidated financial statements.
8
URBAN ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2021 (UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Convertible | | Common | | Common | | Common | | Common | | Accumulated Other | | Additional | | | | | Total | ||||||||
| | Preferred | | Stock | | Stock | | Stock | | Stock | | Comprehensive | | Paid-In | | Accumulated | | Stockholders’ | |||||||||
|
| Stock |
| Class A |
| Class B |
| Class C |
| Class D |
| Income | | Capital |
| Deficit |
| Equity | |||||||||
BALANCE, as of December 31, 2022 (As Revised) | | $ | — | | $ | 10 | | $ | 3 | | $ | 2 | | $ | 34 | | $ | 73,227 | | $ | 993,484 | | $ | (736,010) | | $ | 330,750 |
Cumulative effect of accounting change | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 589 | | | 589 |
BALANCE, as of January 1, 2023 | | $ | — | | $ | 10 | | $ | 3 | | $ | 2 | | $ | 34 | | $ | 73,227 | | $ | 993,484 | | $ | (735,421) | | $ | 331,339 |
Net loss | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,922) | | | (2,922) |
Stock-based compensation expense | | | — | | | — | | | — | | | — | | | — | | | — | | | 2,558 | | | — | | | 2,558 |
Repurchase of 256,442 shares of Class D common stock | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,324) | | | — | | | (1,324) |
Vesting of share-based payment awards upon grant | | | — | | | — | | | — | | | — | | | — | | | — | | | 3,234 | | | — | | | 3,234 |
Adjustment of redeemable noncontrolling interests to estimated redemption value | |
| — | |
| — | |
| — | |
| — | |
| — | | | — | |
| (1,308) | |
| — | |
| (1,308) |
BALANCE, as of March 31, 2023 | | $ | — | | $ | 10 | | $ | 3 | | $ | 2 | | $ | 34 | | $ | 73,227 | | $ | 996,644 | | $ | (738,343) | | $ | 331,577 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Convertible | | Common | | Common | | Common | | Common | | Additional | | | | | Total | |||||||
| | Preferred | | Stock | | Stock | | Stock | | Stock | | Paid-In | | Accumulated | | Stockholders’ | ||||||||
|
| Stock |
| Class A |
| Class B |
| Class C |
| Class D |
| Capital |
| Deficit |
| Equity | ||||||||
| | (In thousands, except share data) | ||||||||||||||||||||||
BALANCE, as of December 31, 2020 | | $ | 0 | | $ | 4 | | $ | 3 | | $ | 3 | | $ | 38 | | $ | 991,769 | | $ | (804,919) | | $ | 186,898 |
Consolidated net income | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 17,873 | |
| 17,873 |
Repurchase of 509,347 shares of Class D common stock | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| (1) | |
| (904) | |
| 0 | |
| (905) |
Issuance of 3,779,391 shares of Class A common stock | |
| 0 | |
| 4 | |
| 0 | |
| 0 | |
| 0 | |
| 33,278 | |
| 0 | |
| 33,282 |
Adjustment of redeemable noncontrolling interests to estimated redemption value | | | 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| (1,425) | |
| 0 | |
| (1,425) |
Exercise of options for 197,256 shares of common stock | | | 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 315 | |
| 0 | |
| 315 |
Stock-based compensation expense | | | 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 425 | |
| 0 | |
| 425 |
BALANCE, as of June 30, 2021 | | $ | 0 | | $ | 8 | | $ | 3 | | $ | 3 | | $ | 37 | | $ | 1,023,458 | | $ | (787,046) | | $ | 236,463 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Convertible | | Common | | Common | | Common | | Common | | Accumulated Other | | Additional | | | | | Total | ||||||||
| | Preferred | | Stock | | Stock | | Stock | | Stock | | Comprehensive | | Paid-In | | Accumulated | | Stockholders’ | |||||||||
|
| Stock |
| Class A |
| Class B |
| Class C |
| Class D |
| Income | | Capital |
| Deficit |
| Equity | |||||||||
BALANCE, as of December 31, 2021 (As Revised) | | $ | — | | $ | 9 | | $ | 3 | | $ | 2 | | $ | 37 | | $ | 54,950 | | $ | 1,018,996 | | $ | (770,353) | | $ | 303,644 |
Net income, as revised | |
| — | |
| — | |
| — | |
| — | |
| — | | | — | |
| — | |
| 16,488 | |
| 16,488 |
Stock-based compensation expense | | | — | |
| — | |
| — | |
| — | |
| — | | | | |
| 124 | |
| — | |
| 124 |
Repurchase of 2,649 shares of Class D common stock | |
| — | |
| — | |
| — | |
| — | |
| — | | | — | |
| (10) | |
| — | |
| (10) |
Adjustment of redeemable noncontrolling interests to estimated redemption value | | | — | |
| — | |
| — | |
| — | |
| — | | | — | |
| (871) | |
| — | |
| (871) |
Other comprehensive income, net of tax | | | — | |
| — | |
| — | |
| — | |
| — | | | 7,896 | |
| — | |
| — | |
| 7,896 |
BALANCE, as of March 31, 2022 (As Revised) | | $ | — | | $ | 9 | | $ | 3 | | $ | 2 | | $ | 37 | | $ | 62,846 | | $ | 1,018,239 | | $ | (753,865) | | $ | 327,271 |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
98
URBAN ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| | | | | | | | | | | | |
| | Six Months Ended | | Three Months Ended | ||||||||
| | June 30, | | March 31, | ||||||||
|
| 2022 |
| 2021 |
| 2023 |
| 2022 | ||||
| | (Unaudited) | ||||||||||
| | (In thousands) | | | | | (As Revised) | |||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
| |
|
| |
|
| |
|
| |
|
Consolidated net income | | $ | 32,874 | | $ | 18,939 | ||||||
| | | | | | | ||||||
Adjustments to reconcile net income to net cash from operating activities: | |
| | |
| | ||||||
Net (loss) income | | $ | (2,411) | | $ | 17,114 | ||||||
Adjustments to reconcile net (loss) income to net cash from operating activities: | |
| | |
| | ||||||
Bad debt expense | |
| (1,278) | |
| 311 | ||||||
Depreciation and amortization | |
| 4,886 | |
| 4,589 | |
| 2,597 | |
| 2,405 |
Amortization of debt financing costs | |
| 1,005 | |
| 1,296 | |
| 481 | |
| 501 |
Amortization of launch assets | | | 1,254 | | | 652 | ||||||
Amortization of content assets | |
| 20,341 | |
| 18,575 | |
| 13,158 | |
| 10,532 |
Amortization of launch assets | |
| 1,897 | |
| 668 | ||||||
Bad debt expense | | | (35) | | | 134 | ||||||
Deferred income taxes | |
| 8,597 | |
| 6,108 | | | (1,178) | | | 5,465 |
Amortization of right of use assets | | | 4,330 | | | 3,851 | | | 2,140 | | | 2,132 |
Non-cash lease liability expense | | | 2,038 | | | 2,066 | ||||||
Non-cash interest expense | |
| 0 | |
| 158 | ||||||
Impairment of long-lived assets | |
| 16,933 | |
| 0 | ||||||
Impairment of goodwill, intangible assets, and long-lived assets | |
| 16,775 | |
| — | ||||||
Non-cash fair value adjustment of Employment Agreement Award | |
| (144) | |
| 579 | ||||||
Stock-based compensation | |
| 460 | |
| 425 | | | 3,278 | | | 124 |
Non-cash fair value adjustment of Employment Agreement Award | | | 1,482 | | | 1,508 | ||||||
Non-cash income on PPP loan forgiveness | | | (7,575) | | | 0 | ||||||
(Gain) loss on retirement of debt | | | (1,855) | | | 6,949 | ||||||
Gain on asset exchange agreement | | | 0 | | | 404 | ||||||
| | | | | | | ||||||
Gain on retirement of debt | | | (2,356) | | | — | ||||||
Loss on deconsolidation of RVAEH | | | 187 | | | — | ||||||
Effect of change in operating assets and liabilities, net of assets acquired: | |
| | |
| | |
| | | | |
Trade accounts receivable | |
| 3,483 | |
| 2,260 | ||||||
Trade accounts receivable, net | |
| 19,903 | |
| 13,336 | ||||||
Prepaid expenses and other current assets | |
| (394) | |
| (1,285) | |
| (1,289) | |
| (329) |
Other assets | |
| (698) | |
| (8,512) | |
| 1,511 | |
| (216) |
Content assets | |
| (10,388) | |
| (11,292) | ||||||
Accounts payable | |
| 231 | |
| 1,388 | |
| (2,880) | |
| (2,586) |
Accrued interest | |
| (810) | |
| 18,397 | |
| (14,135) | |
| (15,192) |
Accrued compensation and related benefits | |
| (3,688) | |
| (5,597) | | | (7,275) | | | (4,125) |
Other liabilities | |
| (7,283) | |
| 235 | |
| (846) | |
| (3,955) |
Payment of launch support | | | (5,000) | | | 0 | ||||||
Payments for content assets | |
| (27,595) | |
| (21,064) | ||||||
Net cash flows provided by operating activities | |
| 43,624 | |
| 51,492 | | | 17,104 | | | 15,456 |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | |
| | | | | | | |
Purchases of property and equipment | | | (3,871) | |
| (2,454) | ||||||
Proceeds from sale of broadcasting assets | | | 0 | | | 8,000 | ||||||
Net cash flows (used in) provided by investing activities | |
| (3,871) | |
| 5,546 | ||||||
Purchase of property and equipment | | | (2,009) | | | (1,576) | ||||||
Restricted cash derecognized in deconsolidation of RVAEH | |
| (26,000) | |
| — | ||||||
Proceeds from sale of RVAEH interest | |
| 6,563 | |
| — | ||||||
Net cash flows used in investing activities | |
| (21,446) | |
| (1,576) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | |
| | | | | | | |
Repayment of 2017 credit facility | |
| 0 | |
| (317,332) | ||||||
Proceeds from issuance of Class A common stock, net of fees | | | 0 | | | 33,282 | ||||||
Repayment of 2018 credit facility | |
| 0 | |
| (129,935) | ||||||
Proceeds from exercise of stock options | | | 50 | | | 315 | ||||||
Repurchase of 2028 Notes | | | (22,750) | | | 0 | ||||||
Payment of dividends to noncontrolling interest members of Reach Media | | | (1,599) | | | 0 | ||||||
Contributions from noncontrolling interest members of RVAEH | |
| — | |
| 278 | ||||||
Payments of long-term debt | | | (22,281) | | | — | ||||||
Repurchase of common stock | |
| (24,669) | |
| (905) | | | (1,324) | | | (10) |
Proceeds from 2028 Notes | |
| 0 | |
| 825,000 | ||||||
Proceeds from PPP Loan | | | 0 | | | 7,505 | ||||||
Debt refinancing costs | | | 0 | | | (11,157) | ||||||
Repayment of MGM National Harbor Loan | |
| 0 | |
| (57,889) | ||||||
Repayment of 7.375% Notes | | | — | | | (2,984) | ||||||
Repayment of 8.75% Notes | |
| — | |
| (347,016) | ||||||
Net cash flows used in financing activities | |
| (48,968) | |
| (1,116) | ||||||
(DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | | | (9,215) | | | 55,922 | ||||||
Payment of dividends to noncontrolling interest shareholders of Reach Media | | | (2,001) | | | — | ||||||
Net cash flows (used in) provided by financing activities | | | (25,606) | | | 268 | ||||||
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | | | (29,948) | | | 14,148 | ||||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period | | | 152,218 | | | 73,858 | | | 101,879 | | | 158,718 |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period | | $ | 143,003 | | $ | 129,780 | | $ | 71,931 | | $ | 172,866 |
| |
| | |
| | | | | | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | | | | | | | | ||
Cash paid for: | | | | | | | | | | | ||
Interest | | $ | 31,543 | | $ | 14,048 | | $ | 27,723 | | $ | 30,619 |
Income taxes, net of refunds | | $ | 698 | | $ | 782 | | $ | 69 | | $ | 2 |
| | | | | | | | | | | ||
NON-CASH OPERATING, FINANCING AND INVESTING ACTIVITIES: | | | | | | | | | | | ||
Assets acquired under Audacy asset exchange | | $ | 0 | | $ | 28,193 | ||||||
Liabilities recognized under Audacy asset exchange | | $ | 0 | | $ | 2,669 | ||||||
Right of use asset and lease liability additions | | $ | 435 | | $ | 4,935 | | $ | 938 | | $ | 435 |
Non-cash launch addition | | $ | 13,750 | | $ | 0 | ||||||
Non-cash launch additions | | $ | — | | $ | 18,750 | ||||||
Adjustment of redeemable noncontrolling interests to estimated redemption value | | $ | 1,803 | | $ | 1,425 | | $ | 1,308 | | $ | 871 |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
109
URBAN ONE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
|
|
Urban One, Inc. (a, a Delaware corporation, referred to as “Urban One”) and its subsidiaries (collectively, “Urban One,” the “Company”, “we”, “our” and/or “us”) is an urban-oriented, multi-media company that primarily targets African-American and urban consumers. Our core business is our radio broadcasting franchise which is the largest radio broadcasting operation that primarily targets African-American and urban listeners. As of June 30, 2022,March 31, 2023, we owned and/or operated 6466 independently formatted, revenue producing broadcast stations (including 5455 FM or AM stations, 89 HD stations, and the 2 low power television stations we operate)stations), located in 13 of the most populous African-American markets in the United States. While a core source of our revenue has historically been and remains the sale of local and national advertising for broadcast on our radio stations, our strategy is to operate the premier multi-media entertainment and information content platform targeting African-American and urban consumers. Thus, we have diversified our revenue streams by making acquisitions and investments in other complementary media properties. Our diverse media and entertainment interests include TV One, LLC (“TV One”), which operates two cable television networks targeting African-American and urban viewers, TV One and CLEO TV; our 80.0% ownership interest in Reach Media, Inc. (“Reach Media”) which operates the Rickey Smiley Morning Show and our other syndicated programming assets, including the Get Up! Mornings with Erica Campbell Show, Russ Parr Morning Show, and the DL Hughley Show; and Interactive One, LLC (“Interactive One”), our wholly owned digital platform serving the African-American community through social content, news, information, and entertainment websites, including its iONE Digital, Cassius and Bossip, HipHopWired and MadameNoire digital platforms and brands. We also holdAs of March 31, 2023, we held a minority ownership interest in MGM National Harbor (the “MGM Investment”), a gaming resort located in Prince George’s County, Maryland. However, as of April 2023, following the exercise of a put option available to us, we no longer hold the MGM Investment. Please refer to Note 12 – Subsequent Events to our consolidated financial statements for more details. Through our national multi-media operations, we provide advertisers with a unique and powerful delivery mechanism to communicate with African-American and urban audiences.
Our core radio broadcasting franchise operates under the brand “Radio One.” We also operate other media brands, such as TV One, CLEO TV, Reach Media, iONE Digital, and Interactive One Solution, while developing additional branding reflective of our diverse media operations and our targeting of African-American and urban audiences.
As part of our consolidated financial statements, consistent with our financial reporting structure and how the Company currently manages its businesses, we have provided selected financial information on the Company’s 4four reportable segments: (i) radio broadcasting; (ii) Reach Media; (iii) digital; and (iv) cable television. (See Note 79 – Segment Information.Information of our consolidated financial statements).
Principles of Consolidation
The consolidated financial statements include the accounts and operations of Urban One and subsidiaries in which Urban One has a controlling financial interest, which is generally determined when the Company holds a majority voting interest. All intercompany accounts and transactions have been eliminated in consolidation. Noncontrolling interests have been recognized where a controlling interest exists, but the Company owns less than 100% of the controlled entity.
The Company is required to include in its consolidated financial statements, the financial statements of variable interest entities (“VIE”). Under the VIE model, the Company consolidates an investment if it has control to direct the activities of the entity and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.
| Interim Financial Statements |
The interim consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). In management’s opinion, the interim financial data presented herein include all adjustments (which include only normal recurring adjustments) necessary for a fair presentation. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations.
Results10
The Company's results are subject to seasonal fluctuations and typically, revenues are lowest in the first calendar quarter of the year. Due to this seasonality, the results for interim periods are not necessarily indicative of results to be expected for the full year. This Form 10-Q shouldWe experience further seasonality in odd versus even years as there tends to be readmore political activity in conjunctioneven years which can have a positive impact on advertising revenues.
2. REVISION OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
In connection with the preparation of the interim consolidated financial statements and notes thereto includedfor the quarterly period as of March 31, 2023, the Company identified immaterial errors in its accounting for its stock-based compensation expense, the Company’s investment in the Company’s 2021 Annual Report on Form 10-K.
|
|
Financial instrumentsoperations of RVAEH, and related tax effects. The Company assessed the materiality of the adjustments both quantitatively and qualitatively and concluded that the adjustments were not material to its previously issued consolidated financial statements as of June 30,December 31, 2022 and December 31, 2021 consistedand for the years then ended. However, the Company concluded that the effect of cash and cash equivalents, restricted cash, trade accounts receivable, asset-backed credit facility, long-term debt and redeemable noncontrolling interests. The carrying amounts approximated fair value for each ofcorrecting these adjustments in 2023 would materially misstate the Company’s unaudited consolidated financial instrumentsstatements as of June 30, 2022 and December 31, 2021, except for the Company’s long-term debt. On June 1, 2021, the Company borrowed approximately $7.5 million on a new PPP loan (as defined in Note 4 – Long-Term Debt). During the three months ended March 31, 2023. Accordingly, the Company determined that it was necessary to reflect these adjustments, as well as other immaterial adjustments previously identified during fiscal year 2022 and revised the previously issued consolidated financial statements with respect to the quarters ended March 31, June 30, and September 30, 2022, and the year ended December 31, 2022. See Note 11 – Quarterly Financial Data (Unaudited and Revised) for the revised quarterly and year-to-date unaudited consolidated financial statements for the quarters ended March 31, June 30, and September 30, 2022. The remainder of the notes to the Company’s consolidated financial statements have been updated and revised, as applicable, to reflect the impact of these adjustments.
Adjustments Background
Stock-Based Compensation
On September 27, 2022, the PPP loanCompensation Committee of the Board of Directors of the Company (the “Compensation Committee”) approved the principal terms of new employment agreements for the Company’s Founder and related accrued interestExecutive Chairperson, President and Chief Executive Officer and Executive Vice President and Chief Financial Officer. Pursuant to the terms, annual Class D stock awards and stock options with fixed monetary value known at inception were awarded. The first tranche of equity awards was forgivengranted and recordedvested on September 27, 2022. The second and third annual grants were scheduled to vest in January 2023 and January 2024, respectively, with the grant price equal to the closing share price on the fifth calendar day of the month following the date on which vesting occurs (February 5, each of 2023 and 2024) (“Executive Awards”).
During the first quarter of 2023, the Company determined that it should have recognized expense for the second tranche of the Executive Awards during the third and fourth quarters of 2022 beginning at the service inception date that precedes the grant date and to classify these grants as other incomea liability until vested. The effect of this adjustment was an understatement of stock-based compensation expense in the amountconsolidated statements of $7.6 million. The PPP Loan had a carrying value of approximately $7.5 million and fair value of approximately $7.5 million as ofoperations for the year ended December 31, 2021. The fair value2022 and understatements of other current liabilities and accumulated deficit in the PPP Loan, classified as a Level 2 instrument, was determined based on theconsolidated balance sheet at December 31, 2022.
11
fair value of a similar instrument as of the reporting date using updated interest rate information derived from changes in interest rates since inception to the reporting date. On January 25,
In 2021, the Company borrowed $825 million in aggregate principal amountand Peninsula Pacific Entertainment entered into a 75/25 partnership of senior secured notes due February 2028 (the “2028 Notes”). The 7.375% 2028 Notes had a carrying value of approximately $800.0 million and fair value of approximately $684.0 million as of June 30, 2022, and had a carrying value of approximately $825.0 million and fair value of approximately $851.8 million as of December 31, 2021. The fair valuesRVAEH. During the preparation of the 2028 Notes, classified as Level 2 instruments, wereinterim consolidated financial statements for the quarter ended March 31, 2023, the Company evaluated whether it should have consolidated RVAEH due to its 75% ownership interest. As the Company had control and was the primary beneficiary of RVAEH, it was determined based on the trading values of these instrumentsthat RVAEH should have been consolidated in an inactive market as of the reporting date. There was 0 balance outstanding on the Company’s asset-backed credit facility as of June 30, 2022 and December 31, 2021.
|
|
In2021 in accordance with Accounting Standards Codification (“ASC”ASC 810”) 606, “Revenue from Contracts with Customers,, “Consolidation.” the Company recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. In general, our spot advertising (both radio and cable television) as well as our digital advertising continues to be recognized when aired and delivered. For our cable television affiliate revenue, the Company grants a license to the affiliate to access its television programming content through the license period, and the Company earns a usage based royalty when the usage occurs. Finally, for event advertising, the performance obligation is satisfied at a point in time when the activity associated with the event is completed.
Within our radio broadcasting and Reach Media segments, the Company recognizes revenue for broadcast advertising at a point in time when a commercial spot runs. The revenue is reported net of agency and outside sales representative commissions. Agency and outside sales representative commissions are calculated based on a stated percentage applied to gross billing. Generally, clients remit the gross billing amount to the agency or outside sales representative, and the agency or outside sales representative remits the gross billing, less their commission, to the Company. For our radio broadcasting and Reach Media segments, agency and outside sales representative commissions were approximately $4.4 million and $4.1 million for the three months ended June 30, 2022 and 2021, respectively. Agency and outside sales representative commissions were approximately $8.0 million and $7.6 million for the six months ended June 30, 2022 and 2021, respectively.
Within our digital segment, including Interactive One, which generates the majority of the Company’s digital revenue, revenue is principally derived from advertising services on non-radio station branded but Company-owned websites. Advertising services include the sale of banner and sponsorship advertisements. Advertising revenue is recognized at a point in time either as impressions (the number of times advertisements appear in viewed pages) are delivered or when “click through” purchases are made, where applicable. In addition, Interactive One derives revenue from its affiliate partners, in which it provides third-party clients with services including digital platforms and related expertise. Revenue is recognized primarily as a share of the third party’s reported revenue.
Our cable television segment derives advertising revenue from the sale of television air time to advertisers and recognizes revenue at a point in time when the advertisements are run. To the extent there is a shortfall in contracts where the ratings were guaranteed, a portion of the revenue is deferred until the shortfall is settled, typically by providing additional advertising units generally within one year of the original airing. Our cable television segment also derives revenue from affiliate fees under the terms of various multi-year affiliation agreements based on a per subscriber fee multiplied by the most recent subscriber counts reported by the applicable affiliate. The Company recognizes the affiliate fee revenue at a point in time as its performance obligation to provide the programming is met. The Company has a right of payment each month as the programming services and related obligations have been satisfied. For our cable television segment, agency and outside sales representative commissions were approximately $5.3 million and $4.4 million for the three months ended June 30, 2022 and 2021, respectively. Agency and outside sales representative commissions were approximately $10.5 million and $8.2 million for the six months ended June 30, 2022 and 2021, respectively.
12
Revenue by Contract Type
RVAEH’s financial statements on its consolidated financial statements under the equity method of accounting. The following chart shows ouradjustment primarily impacted restricted cash, other current assets, property and equipment, net, revenue (and sources) for the three and six months ended June 30, 2022 and 2021:
| | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| ||||
| | (Unaudited) | |||||||||||
| | (In thousands) | |||||||||||
Net Revenue: |
| |
|
| |
|
| |
|
| |
|
|
Radio Advertising | | $ | 44,518 | | $ | 42,605 | | $ | 83,645 | | $ | 75,944 | |
Political Advertising | |
| 1,839 | |
| 500 | |
| 2,371 | |
| 1,280 | |
Digital Advertising | |
| 17,881 | |
| 15,016 | |
| 33,363 | |
| 25,369 | |
Cable Television Advertising | |
| 29,120 | |
| 22,968 | |
| 59,535 | |
| 43,670 | |
Cable Television Affiliate Fees | |
| 24,318 | |
| 25,396 | |
| 50,288 | |
| 50,883 | |
Event Revenues & Other | |
| 1,134 | |
| 1,108 | |
| 1,957 | |
| 1,887 | |
Net Revenue (as reported) | | $ | 118,810 | | $ | 107,593 | | $ | 231,159 | | $ | 199,033 | |
Contract assets and liabilities
Contract assets (unbilled receivables) and contract liabilities (customer advances and unearned income, reserve for audience deficiency and unearned event income) that are not separately stated in our consolidated balance sheets at June 30, 2022, December 31, 2021 and June 30, 2021 were as follows:
| | | | | | | | | |
|
| June 30, 2022 |
| December 31, 2021 |
| June 30, 2021 | |||
| | (Unaudited) | | | | | (Unaudited) | ||
| | (In thousands) | |||||||
Contract assets: |
| |
|
| |
|
| |
|
Unbilled receivables | | $ | 10,470 | | $ | 10,735 | | $ | 8,540 |
| | | | | | | | | |
Contract liabilities: | |
| | |
| | |
| |
Customer advances and unearned income | | $ | 7,708 | | $ | 7,494 | | $ | 5,252 |
Reserve for audience deficiency | | | 7,050 | | | 6,020 | | | 6,478 |
Unearned event income | |
| 379 | |
| — | |
| 6,118 |
Unbilled receivables consists of earned revenue on behalf of customers that have not yet been billed and are included in accounts receivable on the consolidated balance sheets. Customer advances and unearned income represents advance payments by customers for future services under contract that are generally incurred in the near term and are included in other current liabilities, on the consolidated balance sheets. The reserve for audience deficiency represents the portion of revenue that is deferred until the shortfallother long-term liabilities, redeemable noncontrolling interests, and accumulated deficit in contracts where the ratings were guaranteed is settled, typically by providing additional advertising units generally within one year of the original airing. Unearned event income represents payments by customers for upcoming events.
For customer advances and unearned income as of January 1, 2022, $550,000 and approximately $2.0 million, was recognized as revenue during the three and six months ended June 30, 2022, respectively. For customer advances and unearned income as of January 1, 2021, $545,000 and approximately $2.6 million was recognized as revenue during the three and six months ended June 30, 2021, respectively. For unearned event income, 0 revenue was recognized during the six months ended June 30, 2022 and June 30, 2021.
Practical expedients and exemptions
We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling, general and administrative expenses.
We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less or (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
13
|
|
The cable television segment has entered into certain affiliate agreements requiring various payments for launch support. Launch support assets are used to initiate carriage under affiliation agreements and are amortized over the term of the respective contracts. For the three and six months ended June 30, 2022, the Company paid approximately $5.0 million for carriage initiation. For the six months ended June 30, 2022, there was non-cash launch support additions of approximately $13.8 million for carriage initiation that will be paid in cash in future periods. The Company did not pay any launch support for carriage initiation during the three and six months ended June 30, 2021. The weighted-average amortization period for launch support is approximately 8.1 years as of June 30, 2022, and approximately 7.1 years as of December 31, 2021. The remaining weighted-average amortization period for launch support is 4.3 years and 3.3 years as of June 30, 2022 and December 31, 2021, respectively. Amortization is recorded as a reduction to revenue to the extent that revenue is recognized from the vendor, and any excess amortization is recorded as launch support amortization expense. For the three months ended June 30, 2022 and 2021, launch support asset amortization of approximately $1.1 million and $105,000, respectively, was recorded as a reduction of revenue, and $232,000 and $229,000, respectively, was recorded as an operating expense in selling, general and administrative expenses. For the six months ended June 30, 2022 and 2021, launch support asset amortization of approximately $1.5 million and $211,000, respectively, was recorded as a reduction of revenue, and $371,000 and $457,000, respectively, was recorded as an operating expense in selling, general and administrative expenses. Launch assets are included in other intangible assets on the consolidated balance sheets, except for the portion of the unamortized balance that is expected to be amortized within one year which is included in other current assets.
|
|
For barter transactions, the Company provides broadcast advertising time in exchange for programming content and certain services. The Company includes the value of such exchanges in both broadcasting net revenue and operating expenses. The valuation of barter time is based upon the fair value of the network advertising time provided for the programming content and services received. For the three months ended June 30, 2022 and 2021, barter transaction revenues were $570,000 and $440,000, respectively. Additionally, for the three months ended June 30, 2022 and 2021, barter transaction costs were reflected in programming and technical expenses of $404,000 and $302,000, respectively, andcorporate selling, general and administrative expenses, and net income (loss) attributable to noncontrolling interests in the consolidated statements of $166,000 and $138,000, respectively. For the six months ended June 30, 2022 and 2021, barter transaction revenues were $904,000 and $889,000, respectively. Additionally, for the six months ended June 30, 2022 and 2021, barter transaction costs were reflected in programming and technical expenses of $573,000 and $614,000, respectively, and selling, general and administrative expenses of $331,000 and $275,000, respectively.operations.
|
|
Basic earnings per share is computed on the basis of the weighted average number of shares of common stock (Classes A, B, C and D) outstanding during the period. Diluted earnings per share is computed on the basis of the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. The Company’s potentially dilutive securities include stock options and unvested restricted stock. Diluted earnings per share considers the impact of potentially dilutive securities except in periods in which there is a net loss, as the inclusion of the potentially dilutive common shares would have an anti-dilutive effect. The amount of earnings per share pertains to each of our classes of common stock because the holders of each class are entitled to equal per share dividends or distributions in liquidation in accordance with the Company’s Amended and Restated Certificate of Incorporation.
14
The following table sets forth the calculation of basic and diluted earnings per share from continuing operations (in thousands, except share and per share data):
| | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
| | (Unaudited) | | (Unaudited) | ||||||||
Numerator: | | | | | | | | | | | | |
Net income attributable to common stockholders | | $ | 15,034 | | $ | 17,866 | | $ | 31,403 | | $ | 17,873 |
Denominator: | |
| | |
| | |
| | |
| |
Denominator for basic net income per share - weighted average outstanding shares | |
| 50,806,346 | |
| 49,789,892 | |
| 50,994,612 | |
| 49,124,056 |
Effect of dilutive securities: | |
| | |
| | |
| | |
| |
Stock options and restricted stock | |
| 3,852,197 | |
| 3,991,026 | |
| 3,877,351 | |
| 4,062,563 |
Denominator for diluted net income per share - weighted-average outstanding shares | |
| 54,658,543 | |
| 53,780,918 | |
| 54,871,963 | |
| 53,186,619 |
| | | | | | | | | | | | |
Net income attributable to common stockholders per share – basic | | $ | 0.30 | | $ | 0.36 | | $ | 0.62 | | $ | 0.36 |
Net income attributable to common stockholders per share – diluted | | $ | 0.28 | | $ | 0.33 | | $ | 0.57 | | $ | 0.34 |
|
|
We report our financial and non-financial assets and liabilities measured at fair value on a recurring and non-recurring basis under the provisions of ASC 820, “Fair Value Measurements and Disclosures.” ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.
The fair value framework requires the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:
Level 1: Inputs are unadjusted quoted prices in active markets for identical assets and liabilities that can be accessed at the measurement date.
Level 2: Observable inputs other than those included in Level 1 (i.e., quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets).
Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value instrument.
1511
AsOther Adjustments
The Company, in the process of June 30,correcting the immaterial errors discussed above, recorded other immaterial adjustments previously identified during fiscal year 2022. The adjustments, in aggregate, impacted trade accounts receivable, net, accounts payable, other long-term liabilities, and accumulated deficit in the consolidated balance sheets and selling, general and administrative expenses, corporate selling, general and administrative expenses, and related tax effect in the consolidated statements of operations.
Revised Consolidated Financial Statements
The following tables reflect the correction of the immaterial errors and adjustments, discussed above, on the affected line items presented in the Company’s consolidated financial statements as of and for the year ended December 31, 2022. The previously reported amounts were derived from the Company's fiscal year 2022 Form 10-K. These amounts are labeled as “As Previously Reported” in the tables below. The columns labeled “Adjustments” represent the combined effects of the corrections of the stock-based compensation, the consolidation of RVAEH, and related tax effects. The columns labeled “Other Adjustments” represent the combined effects of the corrections of other immaterial adjustments and related tax effects.
Revised Consolidated Balance Sheet
| | | | | | | | | | | | |
| | As of December 31, 2022 | ||||||||||
| | As Previously | | | | | | | | | | |
|
| Reported |
| Adjustments |
| Other Adjustments |
| As Revised | ||||
| | (In thousands) | ||||||||||
ASSETS |
| |
|
| |
|
| |
|
| |
|
CURRENT ASSETS: |
| |
|
| |
|
| |
|
| |
|
Restricted cash | | $ | 19,975 | | $ | 6,500 | | $ | — |
| $ | 26,475 |
Trade accounts receivable, net of allowance for doubtful accounts of $9,223 | | | 143,264 | | | — | | | (1,219) |
| | 142,045 |
Other current assets | |
| 8,372 | |
| 378 | |
| — |
|
| 8,750 |
Total current assets | |
| 289,747 | |
| 6,878 | |
| (1,219) |
|
| 295,406 |
PROPERTY AND EQUIPMENT, net | |
| 27,758 | |
| 500 | |
| — |
|
| 28,258 |
Total assets | | $ | 1,338,487 | | $ | 7,378 | | $ | (1,219) |
| $ | 1,344,646 |
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY | |
| | | | | | | |
|
| |
CURRENT LIABILITIES: | |
| | | | | | | |
|
| |
Accounts payable | | $ | 18,003 | | $ | — | | $ | (807) |
| $ | 17,196 |
Other current liabilities | |
| 36,320 | |
| 3,362 | |
| — |
|
| 39,682 |
Total current liabilities | |
| 130,263 | |
| 3,362 | | | (807) |
|
| 132,818 |
OTHER LONG-TERM LIABILITIES | |
| 34,540 | |
| 858 | |
| (542) |
|
| 34,856 |
DEFERRED TAX LIABILITIES, net | |
| 39,704 | |
| (214) | |
| (101) |
|
| 39,389 |
Total liabilities | |
| 979,417 | |
| 4,006 | |
| (1,450) |
|
| 981,973 |
REDEEMABLE NONCONTROLLING INTERESTS | |
| 25,298 | |
| 6,625 | |
| — |
|
| 31,923 |
STOCKHOLDERS’ EQUITY: | |
| | | | | |
| |
| | |
Accumulated deficit | |
| (732,988) | |
| (3,253) | |
| 231 |
| | (736,010) |
Total stockholders’ equity | |
| 333,772 | |
| (3,253) | |
| 231 |
| | 330,750 |
Total liabilities, redeemable noncontrolling interests and equity | | $ | 1,338,487 | | $ | 7,378 | | $ | (1,219) |
| $ | 1,344,646 |
12
Revised Consolidated Statement of Operations
| | | | | | | | | | | | |
| | Year Ended December 31, 2022 | ||||||||||
| | As Previously | | | | | Other | | | | ||
|
| Reported | | Adjustments | | Adjustments |
| As Revised | ||||
| | (In thousands, except per share data) | ||||||||||
OPERATING EXPENSES: |
| | | | | |
| | |
| | |
Selling, general and administrative, including stock-based compensation of $239 | | $ | 160,230 | | $ | — | | $ | 412 | | $ | 160,642 |
Corporate selling, general and administrative, including stock-based compensation of $9,666 | | | 56,334 | | | 3,728 | | | (542) | | | 59,520 |
Total operating expenses | | | 389,917 | | | 3,728 | | | (130) | | | 393,515 |
Operating income (loss) | | | 94,687 | | | (3,728) | | | 130 | | | 91,089 |
Income (loss) before provision for (benefit from) income taxes and noncontrolling interests in income of subsidiaries | | | 56,676 | | | (3,728) | | | 130 | | | 53,078 |
PROVISION FOR (BENEFIT FROM) INCOME TAXES | | | 16,721 | | | (202) | | | (101) | | | 16,418 |
NET INCOME (LOSS) | | | 39,955 | | | (3,526) | | | 231 | | | 36,660 |
NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTERESTS | | | 2,626 | | | (309) | | | — | | | 2,317 |
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS | | $ | 37,329 | | $ | (3,217) | | $ | 231 | | $ | 34,343 |
| | | | | | | | | | | | |
BASIC NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS | | | | | | | | | | | | |
Net income (loss) attributable to common stockholders | | $ | 0.76 | | $ | (0.06) | | $ | — | | $ | 0.70 |
| | | | | | | | | | | | |
DILUTED NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS | | | | | | | | | | | | |
Net income (loss) attributable to common stockholders | | $ | 0.72 | | $ | (0.06) | | $ | — | | $ | 0.66 |
| | | | | | | | | | | | |
Revised Consolidated Statement of Comprehensive Income
| | | | | | | | | | | | |
|
| Year Ended December 31, 2022 | ||||||||||
| | As Previously | | | | | Other | | | | ||
|
| Reported | | Adjustments | | Adjustments |
| As Revised | ||||
| | (In thousands) | ||||||||||
| | | | | | | | | | | | |
COMPREHENSIVE INCOME (LOSS) | | $ | 58,232 | | $ | (3,526) | | $ | 231 | | $ | 54,937 |
LESS: COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTERESTS | |
| 2,626 | |
| (309) | |
| — | | | 2,317 |
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS | | $ | 55,606 | | $ | (3,217) | | $ | 231 | | $ | 52,620 |
Revised Consolidated Statement of Changes in Stockholders’ Equity
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | As Previously Reported | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | |
| | | Convertible | | | Common | | | Common | | | Common | | | Common | | | Other | | | Additional | | | | | | Total |
| | | Preferred | | | Stock | | | Stock | | | Stock | | | Stock | | | Comprehensive | | | Paid-In | | | Accumulated | | | Stockholders’ |
For the year ended December 31, 2022 |
| | Stock |
| | Class A |
| | Class B |
| | Class C |
| | Class D |
| | Income |
| | Capital |
| | Deficit |
| | Equity |
BALANCE, as of December 31, 2021 | | $ | — | | $ | 9 | | $ | 3 | | $ | 2 | | $ | 37 | | $ | 54,950 | | $ | 1,018,996 | | $ | (770,317) | | $ | 303,680 |
Net income | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 37,329 | | | 37,329 |
Stock-based compensation expense | | | — | | | 1 | | | — | | | — | | | 1 | | | — | | | 6,593 | | | — | | | 6,595 |
Repurchase of 5,124,671 shares of Class D common stock | | | — | | | — | | | — | | | — | | | (4) | | | — | | | (26,539) | | | — | | | (26,543) |
Exercise of options for 60,240 shares of Class D common stock | |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — | |
| 50 |
|
| — | |
| 50 |
Other comprehensive income, net of tax | | | — |
| | — |
| | — |
| | — |
| | — |
| | 18,277 | | | — |
| | — | | | 18,277 |
Adjustment of redeemable noncontrolling interests to estimated redemption value | |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — | |
| (5,616) |
|
| — | |
| (5,616) |
BALANCE, as of December 31, 2022 | | $ | — | | $ | 10 | | $ | 3 | | $ | 2 | | $ | 34 | | $ | 73,227 | | $ | 993,484 | | $ | (732,988) | | $ | 333,772 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | Adjustments and Other Adjustments | | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | |
| | | Convertible | | | Common | | | Common | | | Common | | | Common | | | Other | | | Additional | | | | | | Total |
| | | Preferred | | | Stock | | | Stock | | | Stock | | | Stock | | | Comprehensive | | | Paid-In | | | Accumulated | | | Stockholders’ |
For the year ended December 31, 2022 |
| | Stock |
| | Class A |
| | Class B |
| | Class C |
| | Class D |
| | Income |
| | Capital |
| | Deficit |
| | Equity |
BALANCE, as of December 31, 2021 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | (36) | | $ | (36) |
Net (loss) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,986) | | | (2,986) |
Total Adjustments | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | (3,022) | | $ | (3,022) |
13
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | As Revised | | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | |
| | | Convertible | | | Common | | | Common | | | Common | | | Common | | | Other | | | Additional | | | | | | Total |
| | | Preferred | | | Stock | | | Stock | | | Stock | | | Stock | | | Comprehensive | | | Paid-In | | | Accumulated | | | Stockholders' |
For the year ended December 31, 2022 |
| | Stock |
| | Class A |
| | Class B |
| | Class C |
| | Class D |
| | Income |
| | Capital |
| | Deficit |
| | Equity |
BALANCE, as of December 31, 2021 | | $ | — | | $ | 9 | | $ | 3 | | $ | 2 | | $ | 37 | | $ | 54,950 | | $ | 1,018,996 | | $ | (770,353) | | $ | 303,644 |
Net income (loss) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 34,343 | | | 34,343 |
Stock-based compensation expense | | | — | | | 1 | | | — | | | — | | | 1 | | | — | | | 6,593 | | | — | | | 6,595 |
Repurchase of 5,124,671 shares of Class D common stock | | | — | | | — | | | — | | | — | | | (4) | | | — | | | (26,539) | | | — | | | (26,543) |
Exercise of options for 60,240 shares of Class D common stock |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 50 |
|
| — |
|
| 50 |
Adjustment of redeemable noncontrolling interests to estimated redemption value |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (5,616) |
|
| — |
|
| (5,616) |
Other comprehensive income, net of tax |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 18,277 |
|
| — |
|
| — |
|
| 18,277 |
BALANCE, as of December 31, 2022 | | $ | — | | $ | 10 | | $ | 3 | | $ | 2 | | $ | 34 | | $ | 73,227 | | $ | 993,484 | | $ | (736,010) | | $ | 330,750 |
Revised Consolidated Statement of Cash Flows
| | | | | | | | | | | | |
| | Year Ended December 31, 2022 | ||||||||||
| | As | | | | | | | | | | |
| | Previously | | | | | Other | | As | |||
|
| Reported |
| Adjustments |
| Adjustments |
| Revised | ||||
| | (In thousands) | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
| |
|
| |
|
| |
| | | |
Net income (loss) | | $ | 39,955 | | $ | (3,526) | | $ | 231 | | $ | 36,660 |
Adjustments to reconcile net income (loss) to net cash from operating activities: | |
| | |
| | |
| | |
| |
Bad debt expense | |
| 1,425 | |
| — | |
| 412 | |
| 1,837 |
Deferred income taxes | |
| 14,878 | |
| (202) | |
| (101) | |
| 14,575 |
Stock-based compensation | |
| 6,595 | |
| 3,317 | |
| — | |
| 9,912 |
| | | | | | | | | | | | |
Effect of change in operating assets and liabilities, net of assets acquired: | |
| | |
| | |
| | |
| |
Trade accounts receivable | |
| (16,930) | |
| — | |
| 807 | |
| (16,123) |
Prepaid expenses and other current assets | |
| (6,691) | |
| 40 | |
| — | |
| (6,651) |
Accounts payable | |
| 1,111 | |
| — | |
| (807) | |
| 304 |
Other liabilities | |
| (3,710) | |
| (141) | |
| (542) | |
| (4,393) |
Net cash flows provided by (used in) operating activities | |
| 67,060 | |
| (512) | |
| — | |
| 66,548 |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | |
| | |
| | |
| |
Contributions from noncontrolling interest members of RVAEH | |
| — | |
| 512 | |
| — | |
| 512 |
Net cash flows provided by (used in) financing activities | |
| (95,216) | |
| 512 | |
| — | |
| (94,704) |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period | |
| 152,218 | |
| 6,500 | |
| — | |
| 158,718 |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period | | $ | 95,379 | | $ | 6,500 | | $ | — | | $ | 101,879 |
| | | | | | | | | | | | |
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Cash and Cash Equivalents and Restricted Cash
Cash and cash equivalents consist of cash and money market funds at various commercial banks that have original maturities of 90 days or less. For cash and cash equivalents, cost approximates fair value. The Company’s cash and cash equivalents are insured by the Federal Deposit Insurance Corporation (“FDIC”). However, the Company has amounts held with banks that may exceed the amount of FDIC insurance provided on such accounts. Generally, the balances may be redeemed upon demand and are maintained with financial institutions of reputable credit, and, therefore, bear minimal credit risk.
In July 2021, RVAEH, a previously consolidated joint venture of the Company, entered into a Host Community Agreement (the “Original HCA”) with the City of Richmond (the “City”) for the development of the ONE Casino + Resort, (the “Project”), and the partners of RVAEH made an initial investment of $26.0 million (the “Upfront Payment”) into an escrow account. In February 2023, given a change in the joint venture ownership structure, RVAEH no longer met the consolidation requirements and therefore, the Company began accounting for its investment in RVAEH under the equity method. Accordingly, the Company, derecognized RVAEH (including $26.0 million in restricted cash) from its consolidated balance sheet. RVAEH’s restricted cash on the Company’s consolidated balance sheets was zero and $26.0 million as of March 31, 2023 and December 31, 2022, respectively.
14
(b)Trade Accounts Receivable
The Company adopted Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”) on January 1, 2023. The Company estimates the allowance for expected credit losses on trade accounts receivable in pools based on the Company’s four reportable segments and historical credit loss information over a defined period adjusted for current conditions and reasonable and supportable forecasts. Large individual receivables for which there is indication of increased credit risk are individually assessed for loss allowances. The Company reports the allowance for expected credit losses for financial assets measured at amortized cost. The allowance for expected credit losses is reviewed periodically by management.
Trade accounts receivable, which consist of both billed and unbilled receivables, are recorded at their invoiced amount, and presented net of an allowance for expected credit loss. Inactive delinquent accounts that are past due beyond a certain number of days are written off and often pursued by other collection efforts. Bankruptcy accounts are immediately written off upon receipt of the bankruptcy notice from the courts. Subsequent recoveries of these amounts are recorded as received.
Allowance for Expected Credit Loss
The changes in the allowance for expected credit loss are as follows:
| | | |
| | As of March 31, 2023 | |
| | (In thousands) | |
Balance at Beginning of Period(1) | | $ | 8,643 |
Charged to Expenses, net | |
| (1,278) |
Less: Deductions | |
| (177) |
Balance at End of Period | | $ | 7,188 |
(1) | The allowance for expected credit loss as of January 1, 2023 includes $0.6 million cumulative-effect adjustment of the adoption of ASU 2016-13. |
(c)Financial Instruments
As of March 31, 2023 and December 31, 2022, the Company’s financial instruments consisted of cash and cash equivalents, restricted cash, trade accounts receivable, asset-backed credit facility, long-term debt, and debt securities. The carrying amounts approximated fair value for each of these financial instruments as of March 31, 2023 and December 31, 2022, except for the Company’s long-term debt. On January 25, 2021, the Company borrowed $825.0 million in aggregate principal amount of senior secured notes due February 2028 and bearing interest at a rate of 7.375% (the “2028 Notes”). The 2028 Notes had a carrying value of approximately $725.0 million and fair value of approximately $645.3 million as of March 31, 2023, and had a carrying value of approximately $750.0 million and fair value of approximately $646.9 million as of December 31, 2022. The fair value of the 2028 Notes, classified as a Level 2 instrument, was determined based on the trading value of this instrument in an inactive market as of the reporting date.
(d)Revenue Recognition
In accordance with ASC 606, “Revenue from Contracts with Customers”, the Company recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. In general, spot advertising (both radio and cable television) as well as digital advertising is satisfied as advertising spots or as impressions are delivered. For our cable television affiliate revenue, the Company grants a license to the affiliate to distribute its television programming content through the license period, and the Company recognizes revenue based on the number of subscribers each month. Finally, for event-based revenue, the Company’s events typically occur on one specified date when revenue is recognized. However, there may be performance obligations that are satisfied in the weeks leading up to the event, such as radio and digital advertising, and in such instances revenue is recognized as the underlying performance obligations are satisfied based on the allocated transaction price and the pattern of delivery to the customer.
Within the radio broadcasting and Reach Media segments, revenues are generated from the sale of spot advertisements and sponsorships. Revenue is recognized for each performance obligation based on the allocated transaction price and the pattern of transfer
15
to the customer. The Company records as revenue the amount of consideration that it receives. For the radio broadcasting and Reach Media segments, agency and outside sales representative commissions were approximately $4.2 million and $3.7 million for the three months ended March 31, 2023 and 2022, respectively.
Within our digital segment, Interactive One generates the majority of the Company’s digital revenue. Our digital revenue is principally derived from advertising services on non-radio station branded but Company-owned websites. Advertising services include the sale of banner and sponsorship advertisements. As the Company runs its advertising campaigns, the customer simultaneously receives benefits as impressions are delivered, and revenue is recognized over time. The amount of revenue recognized each month is based on the number of impressions delivered multiplied by the effective per impression unit price, and is equal to the amount receivable from the customer.
The cable television segment derives advertising revenue from the sale of television airtime to advertisers and revenue is recognized over time when the advertisements are run. In the agreements governing advertising campaigns, the Company may also promise to deliver to its customers a guaranteed minimum number of viewers or impressions on a specific television network within a particular demographic. These guaranteed advertising campaigns are considered to represent a single, distinct performance obligation. Revenues are recognized based on the guaranteed audience level multiplied by the average price per impression. The Company provides the advertiser with advertising until the guaranteed audience level is delivered, and invoiced amounts may exceed the value of the actual audience delivery. As such, a portion of revenues are deferred until the guaranteed audience level is delivered or the rights associated with the guaranteed lapse, which is typically less than one year. Audience guarantees are initially developed internally, based on planned programming, historical audience levels, and market trends. Actual audience and delivery information is obtained from independent ratings services. Agency and outside sales representative commissions were approximately $5.0 million and $5.1 million for the three months ended March 31, 2023 and 2022, respectively.
Our cable television segment also derives revenue from affiliate fees under the terms of various multi-year affiliation agreements based on a per subscriber royalty payable by the affiliate, in exchange for the right to distribute the Company’s programming. The majority of the Company’s distribution fees are collected monthly throughout the year and distribution revenue is recognized over the term of the contracts based on contracted programming rates and reported subscriber levels. The Company applies the sales- or usage-based royalty exception for its affiliate agreements. The amount of distribution fees due to the Company is reported by distributors based on actual subscriber levels. Such information is generally not received until after the close of the reporting period. In these cases, the Company estimates the number of subscribers receiving the Company’s programming to estimate royalty revenue. Historical adjustments to recorded estimates have not been material. Revenues from the Company’s cable television segment are reduced by the amortization of the Company’s launch support assets.
Some of the Company’s contracts with customers contain multiple performance obligations. In an arrangement with multiple distinct performance obligations, the transaction price is allocated among the separate performance obligations on a relative stand-alone selling price basis. The stand-alone selling price is determined with consideration given to market conditions, the size and scope of the contract, customer information, and other factors.
16
Revenue by Contract Type
The following chart shows the sources of our net revenue for the three months ended March 31, 2023 and 2022:
| | | | | | | |
| | Three Months Ended March 31, | | ||||
|
| 2023 |
| 2022 |
| ||
| | (In thousands) | | ||||
Radio advertising | | $ | 43,108 | | $ | 39,127 | |
Political advertising | |
| 296 | | | 532 | |
Digital advertising | |
| 15,024 | | | 15,482 | |
Cable television advertising | |
| 25,822 | | | 30,414 | |
Cable television affiliate fees | |
| 23,837 | | | 25,752 | |
Event revenues & other | |
| 1,782 | | | 824 | |
Net revenue | | $ | 109,869 | | $ | 112,131 | |
Contract Assets and Liabilities
Contract assets (unbilled receivables) and contract liabilities (customer advances and unearned income, reserve for audience deficiency and unearned event income) that are not separately stated in our consolidated balance sheets at March 31, 2023 and December 31, 2022 were as follows:
| | | | | | |
|
| March 31, 2023 |
| December 31, 2022 | ||
| | (In thousands) | ||||
Contract assets: |
| |
|
| |
|
Unbilled receivables | | $ | 11,991 | | $ | 12,597 |
Contract liabilities: | |
| | |
| |
Customer advances and unearned income | | $ | 2,966 | | $ | 6,123 |
Reserve for audience deficiency | | | 12,925 | | | 9,629 |
Unearned event income | |
| 9,412 | |
| 5,708 |
Unbilled receivables consist of earned revenue that has not yet been billed and is included in trade accounts receivable on the consolidated balance sheets. Customer advances and unearned income represents advance payments by customers for future services under contract that are generally incurred in the near term and are included in other current liabilities on the consolidated balance sheets. For advertising sold based on audience guarantees, audience deficiency typically results in an obligation to deliver additional advertising units to the customer, generally within one year of the original airing. To the extent that audience guarantees are not met, a reserve for audience deficiency is recorded until such a time that the audience guarantee has been satisfied. Unearned event income represents payments by customers for upcoming events.
For customer advances and unearned income as of January 1, 2023, $1.9 million was recognized as revenue during the three months ended March 31, 2023. For the reserve for audience deficiency, there was $0.5 million revenue recognized for the three months ended March 31, 2023. For unearned event income as of January 1, 2023, no revenue was recognized during the three months ended March 31, 2023.
Practical expedients and exemptions
The Company generally expenses employee sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling, general and administrative expenses.
The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, or (ii) contracts for which variable consideration is a sales-based or usage-based royalty promised in exchange for a license of intellectual property.
17
(e)Launch Support
The cable television segment has entered into certain affiliate agreements requiring various payments for launch support. Launch support assets are used to initiate carriage under affiliation agreements and are amortized over the term of the respective contracts. For the three months ended March 31, 2023 and 2022, there was non-cash launch support additions of zero and approximately $18.8 million, respectively, for carriage initiation. The Company did not pay any launch support for carriage initiation during the three months ended March 31, 2023 and 2022. The weighted-average amortization period for launch support was approximately 8.1 years as of March 31, 2023 and December 31, 2022. The remaining weighted-average amortization period for launch support was 3.6 years and 3.8 years as of March 31, 2023 and December 31, 2022, respectively. Amortization is recorded as a reduction to revenue. For the three months ended March 31, 2023 and 2022, launch support asset amortization was approximately $1.2 million and $0.7 million, respectively. Launch assets are included in other intangible assets on the consolidated balance sheets, except for the portion of the unamortized balance that is expected to be amortized within one year which is included in other current assets.
(f)Barter Transactions
In a barter transaction, the Company provides broadcast advertising time in exchange for programming content and certain services. The Company includes the value of such exchanges in both broadcasting net revenue and station operating expenses. The valuation of barter time is based upon the fair value of the network advertising time provided for the programming content and services received. For the three months ended March 31, 2023 and 2022, barter transaction revenues were approximately $0.6 million and $0.4 million, respectively. Barter transaction costs reflected in programming and technical expenses were approximately $0.4 million and $0.3 million for the three months ended March 31, 2023 and 2022, respectively. Barter transactions reflected in selling, general and administrative expenses were approximately $0.2 million, for each of the three months ended March 31, 2023 and 2022.
(g) Advertising and Promotions
The Company expenses advertising and promotional costs as incurred. Total advertising and promotional expenses for the three months ended March 31, 2023 and 2022, were approximately $7.1 million and $7.4 million, respectively.
(h)Earnings Per Share
Basic and diluted net income (loss) per share attributable to common stockholders is presented in conformity with the two-class method required for participating securities: Class A, Class B Class C, and Class D common stock. The rights of the holders of Class A, Class B, Class C and Class D common stock are identical, except with respect to voting, conversion, and transfer rights.
Basic net income (loss) per share attributable to common stockholders is computed by dividing the net income attributable to common stockholders by the weighted-average number of common shares outstanding during the period.
For the calculation of diluted earnings per share, net income (loss) attributable to common stockholders for basic earnings per share (“EPS”) is adjusted by the effect of dilutive securities. Diluted net income per share attributable to common stockholders is computed by dividing the net income attributable to common stockholders by the weighted-average number of common shares outstanding, including all potentially dilutive common shares. In periods of loss, there are no potentially dilutive common shares to add to the weighted-average number of common shares outstanding. The undistributed earnings or losses are allocated based on the contractual participation rights of the Class A, Class B, Class C and Class D common shares as if the earnings or losses for the year have been distributed. As the liquidation and dividend rights are identical, the undistributed earnings or losses are allocated on a proportionate basis, and as such, diluted and basic earnings per share is the same for each class of common stock under the two-class method.
18
The following table sets forth the calculation of basic and diluted earnings (loss) per share from continuing operations (in thousands, except share and per share data):
| | | | | | | |
| | Three Months Ended March 31, | | ||||
|
| 2023 |
| 2022 |
| ||
| | (In Thousands) | | ||||
| | | | | (As Revised) | | |
Numerator: | | | | | | | |
Net (loss) income attributable to Class A, Class B, Class C and Class D common stockholders | | $ | (2,922) | | $ | 16,488 | |
Denominator: | |
| | |
| | |
Denominator for basic net (loss) income per share - weighted average outstanding shares | |
| 47,420,832 | |
| 51,182,831 | |
Effect of dilutive securities: | |
| | | | | |
Stock options and restricted stock | |
| — | |
| 3,914,950 | |
Denominator for diluted net (loss) income per share - weighted-average outstanding shares | |
| 47,420,832 | |
| 55,097,781 | |
| | | | | | | |
Net (loss) income attributable to Class A, Class B, Class C and Class D common stockholders per share – basic | | $ | (0.06) | | $ | 0.32 | |
Net (loss) income attributable to Class A, Class B, Class C and Class D common stockholders per share – diluted | | $ | (0.06) | | $ | 0.30 | |
For the three months ended March 31, 2023, there were 2.7 million potentially dilutive securities that were not included in the computation of diluted EPS because to do so would have been antidilutive for the period presented. There were no material potentially antidilutive securities excluded from the computation of diluted EPS for the three months ended March 31, 2022.
(i)Fair Value Measurements
We report our financial and non-financial assets and liabilities measured at fair value on a recurring and non-recurring basis under the provisions of ASC 820, “Fair Value Measurement” (“ASC 820”) which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.
The fair value framework requires the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:
Level 1: Inputs are unadjusted quoted prices in active markets for identical assets and liabilities that can be accessed at the measurement date.
Level 2: Observable inputs other than those included in Level 1 (i.e., quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets).
Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value instrument.
19
As of March 31, 2023 and December 31, 2022, respectively, the fair values of our financial assets and liabilities measured at fair value on a recurring basis are categorized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| Level 1 |
| Level 2 |
| Level 3 | ||||||||
| | (Unaudited) | | (In thousands) | ||||||||||||||||||||
| | (In thousands) | ||||||||||||||||||||||
As of June 30, 2022 | | | | | | | | | | | | | ||||||||||||
As of March 31, 2023 | | | | | | | | | | | | | ||||||||||||
Liabilities subject to fair value measurement: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Employment agreement award (a) | | $ | 29,675 |
| | — |
| | — | | $ | 29,675 | ||||||||||||
Total | | $ | 29,675 | | $ | — | | $ | — | | $ | 29,675 | ||||||||||||
Employment Agreement Award (a) | | $ | 25,597 | | $ | — | | $ | — | | $ | 25,597 | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Mezzanine equity subject to fair value measurement: | |
| | |
|
| |
|
| |
| | |
| | |
|
| |
|
| |
| |
Redeemable noncontrolling interests (b) | | $ | 18,690 | | $ | — | | $ | — | | $ | 18,690 | | $ | 25,116 | | $ | — | | $ | — | | $ | 25,116 |
| | | | | | | | | | | | | | | | | | | | | | | | |
As of December 31, 2021 | |
| | |
|
| |
|
| |
| | ||||||||||||
Assets subject to fair value measurement: |
| |
|
| |
|
| |
|
| |
| ||||||||||||
Available-for-sale securities (c) | | $ | 136,826 | | $ | — | | $ | — | | $ | 136,826 | ||||||||||||
Cash equivalents - money market funds (d) | | | 40,168 | | | 40,168 | | | — | | | — | ||||||||||||
Total | | $ | 176,994 | | $ | 40,168 | | $ | — | | $ | 136,826 | ||||||||||||
| | | | | | | | | | | | | ||||||||||||
As of December 31, 2022 | |
| | |
|
| |
|
| |
| | ||||||||||||
Liabilities subject to fair value measurement: | |
| | |
|
| |
|
| |
| | |
| | |
|
| |
|
| |
| |
Employment agreement award (a) | | $ | 28,193 | |
| — | |
| — | | $ | 28,193 | ||||||||||||
Total | | $ | 28,193 | | $ | — | | $ | — | | $ | 28,193 | ||||||||||||
Employment Agreement Award (a) | | $ | 25,741 | | $ | — | | $ | — | | $ | 25,741 | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Mezzanine equity subject to fair value measurement: | |
| | |
|
| |
|
| |
| | |
| | |
|
| |
|
| |
| |
Redeemable noncontrolling interests (b) | | $ | 17,015 | | $ | — | | $ | — | | $ | 17,015 | | $ | 25,298 | | $ | — | | $ | — | | $ | 25,298 |
| | | | | | | | | | | | | ||||||||||||
Assets subject to fair value measurement: |
| |
|
| |
|
| |
|
| |
| ||||||||||||
Available-for-sale securities (c) | | $ | 136,826 | | $ | — | | $ | — | | $ | 136,826 | ||||||||||||
Cash equivalents - money market funds (d) | | | 39,798 | | | 39,798 | | | | | | — | ||||||||||||
Total | | $ | 176,624 | | $ | 39,798 | | | — | | $ | 136,826 |
(a) | Each quarter, pursuant to an employment agreement (the “Employment Agreement”) executed in April 2008 and with terms amended in September 2022, the Chief Executive Officer (“CEO”) is eligible to receive an award (the “Employment Agreement Award”) amount equal to approximately 4% of any proceeds from distributions or other liquidity events in excess of the return of the Company’s aggregate investment in TV One. The Company reviews the factors underlying this award at the end of each quarter including the valuation of TV One (based on the estimated enterprise fair value of TV One as determined by |
(b) | The redeemable noncontrolling interest in Reach Media is measured at fair value using a discounted cash flow methodology. |
(c) | The investment in MGM National Harbor was preferred stock that had a non-transferable put right and is classified as an available-for-sale debt security. The investment was initially measured at fair value using a dividend discount model. Significant inputs to the dividend discount model include revenue growth rates, discount rate and a terminal |
1620
purposes based on the facts, circumstances, and information available at the time. During the fourth quarter of 2022, the Company adopted the contractual valuation method described above as it believes it more closely approximates the fair value of the investment at that time. |
(d) | The Company measures and reports its cash equivalents that are invested in money market funds at estimated fair value. |
There were no transfers in or out of within Level 1, 2, or 3 during the sixthree months ended June 30, 2022.March 31, 2023. The following table presents the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the sixthree months ended June 30 2022:March 31, 2023:
| | | | | | | | | | | | | | | |
|
| Employment |
| Redeemable |
| | |
| Employment |
| Redeemable | ||||
| | Agreement | | Noncontrolling | | Available-for-Sale | | Agreement | | Noncontrolling | |||||
| | Award | | Interests | | Securities | | Award | | Interests | |||||
| | (In thousands) | | (In thousands) | |||||||||||
| | | | | | | |||||||||
Balance at December 31, 2021 | | $ | 28,193 | | $ | 17,015 | |||||||||
Balance at December 31, 2022 | | $ | 136,826 | | $ | 25,741 | | $ | 25,298 | ||||||
Net income attributable to noncontrolling interests | |
| — | |
| 1,471 | |
| — | |
| — | |
| 511 |
Dividends paid to noncontrolling interests | | | — | | | (1,599) | | | — | | | — | | | (2,001) |
Change in fair value | |
| 1,482 | |
| 1,803 | |
| — | |
| (144) | |
| 1,308 |
Balance at June 30, 2022 | | $ | 29,675 | | $ | 18,690 | |||||||||
Balance at March 31, 2023 | | $ | 136,826 | | $ | 25,597 | | $ | 25,116 | ||||||
| | | | | | | | | | | | | | | |
The amount of total (losses)/income for the period included in earnings attributable to the change in unrealized losses/income relating to assets and liabilities still held at the reporting date | | $ | (1,482) | | $ | — | |||||||||
Amount of total (losses)/income for the period included in earnings attributable to the change in unrealized losses/income relating to assets and liabilities still held at the reporting date | | $ | — | | | 144 | | $ | — |
| | | | | | | | | |
|
| | |
| Employment |
| Redeemable | ||
| | Available-for-Sale | | Agreement | | Noncontrolling | |||
| | Securities | | Award | | Interests | |||
| | (In thousands) | |||||||
Balance at December 31, 2021 | | $ | 112,600 | | $ | 28,193 | | $ | 18,655 |
Net income attributable to noncontrolling interests | |
| — | |
| — | |
| 701 |
Change in fair value included within other comprehensive income | | | 10,400 | | | — | | | — |
Change in fair value | |
| — | |
| 579 | |
| 871 |
Balance at March 31, 2022 | | $ | 123,000 | | $ | 28,772 | | $ | 20,227 |
| | | | | | | | | |
Amount of total (losses)/income for the period included in earnings attributable to the change in unrealized losses/income relating to assets and liabilities still held at the reporting date | | $ | — | | $ | (579) | | $ | — |
Losses and incomegains included in earnings were recorded in the consolidated statements of operations as corporate selling, general and administrative expenses for the employment agreement awardEmployment Agreement Award for the three and six months ended June 30, 2022March 31, 2023 and 2021.2022.
| | | | | | | | | |
| | | | | | As of | | As of |
|
| | | | | | June 30, | | December 31, |
|
|
| |
| Significant |
| 2022 |
| 2021 |
|
| | | | Unobservable | | Significant Unobservable |
| ||
Level 3 liabilities |
| Valuation Technique |
| Inputs |
| Input Value |
| ||
Employment agreement award |
| Discounted Cash Flow |
| Discount Rate |
| 10.5 | % | 9.5 | % |
Employment agreement award |
| Discounted Cash Flow |
| Long-term Growth Rate |
| 0.5 | % | 0.5 | % |
Redeemable noncontrolling interest |
| Discounted Cash Flow |
| Discount Rate |
| 11.5 | % | 11.5 | % |
Redeemable noncontrolling interest |
| Discounted Cash Flow |
| Long-term Growth Rate |
| 0.4 | % | 0.4 | % |
21
For Level 3 assets and liabilities measured at fair value on a recurring basis, the significant unobservable inputs used in the fair value measurements were as follows:
| | | | | | | | | |
| | | | | | As of | | As of |
|
| | | | | | March 31, | | December 31, |
|
|
| |
| |
| 2023 |
| 2022 |
|
| | | | Significant | | | | | |
| | | | Unobservable | | Significant Unobservable |
| ||
Level 3 assets and liabilities |
| Valuation Technique |
| Inputs |
| Input Value |
| ||
Employment Agreement Award |
| Discounted cash flow |
| Discount rate |
| 10.5 | % | 10.5 | % |
Employment Agreement Award |
| Discounted cash flow |
| Terminal growth rate |
| 0.5 | % | 0.5 | % |
Employment Agreement Award |
| Discounted cash flow | | Operating profit margin range | | 34.2% - 46.7 | % | 33.7% - 46.6 | % |
Employment Agreement Award |
| Discounted cash flow | | Revenue growth rate range | | (2.3)% - 2.6 | % | (4.1)% - 4.2 | % |
Employment Agreement Award | | Market Approach | | Average recurring EBITDA multiple | | 5.8 | x | 6.6 | x |
Redeemable noncontrolling interest |
| Discounted cash flow |
| Discount rate |
| 11.5 | % | 11.5 | % |
Redeemable noncontrolling interest |
| Discounted cash flow |
| Terminal growth rate |
| 0.3 | % | 0.3 | % |
Redeemable noncontrolling interest |
| Discounted cash flow | | Operating profit margin range | | 26.6% - 29.8 | % | 25.8% - 29.8 | % |
Redeemable noncontrolling interest |
| Discounted cash flow | | Revenue growth rate range | | 0.2% - 31.8 | % | 0.2% - 32.2 | % |
Any significant increases or decreases in discount rate or long-term growth rateunobservable inputs could result in significantly higher or lower fair value measurements.
Certain assets and liabilities are measured at fair value on a non-recurring basis using Level 3 inputs as defined in ASC 820. These assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances. Included in this category are goodwill, radio broadcasting licenses and other intangible assets, net, that are written down to fair value when they are determined to be impaired, as well as content assets that are periodically written down to net realizable value. See Note 5 – Radio Broadcasting Licenses of our consolidated financial statements for further discussion.
(j)Leases
The Company determines whether a contract is, or contains, a lease at inception. Right of use (“ROU”) assets represent the Company’s right to use an underlying asset during the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets are initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received. Costs associated with operating lease assets are recognized on a straight-line basis within operating expenses over the term of the lease.
Lease liabilities are recognized at commencement date based on the present value of the lease payments over the lease term. Many of the Company’s leases provide for renewal terms and escalation clauses, which are factored into calculating the lease liabilities when appropriate. The implicit rate within the Company’s lease agreements is generally not determinable and as such the Company’s collateralized borrowing rate is used.
For the three and sixleases with an initial term of twelve months ended June 30, 2022,or less, the Company recorded an impairment charge of approximately $4.3 million related to its Atlanta market goodwill balance,elected the exemption from recording ROU assets and also an impairment charge of approximately $12.6 million associated with our Atlanta, Dallas, Houston, Indianapolis,lease liabilities and Raleigh market radio broadcasting licenses.records rent expense over the lease term. The Company concluded these assets were not impaired duringconsideration in the six months ended June 30, 2021.lease contracts is separate between the lease and non-lease components. All variable non-lease components are expensed as incurred.
The Company’s leases are for office space, studio space, broadcast towers, and transmitter facilities that expire over the next fifty years.
1722
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On January 1, 2019, with the adoption of Accounting Standards Codification (“ASC”) Topic 842, Leases (“ASC 842”), the Company adopted a package of practical expedients as allowed by the transition guidance which permitted the Company to carry forward the historical assessment of whether contracts contain or are leases, classification of leases and the remaining lease terms. The Company has also made an accounting policy election to exclude leases with an initial term of twelve months or less from recognition on the consolidated balance sheet. Short-term leases will be expensed over the lease term. The Company also elected to separate the consideration in the lease contracts between the lease and non-lease components. All variable non-lease components are expensed as incurred.
ASC 842 results in significant changes to the balance sheets of lessees, most significantly by requiring the recognition of right of use (“ROU”) assets and lease liabilities by lessees for those leases classified as operating leases. Upon adoption of ASC 842, deferred rent balances, which were historically presented separately, were combined and presented net within the ROU asset.
Many of the Company's leases provide for renewal terms and escalation clauses, which are factored into calculating the lease liabilities when appropriate. The implicit rate within the Company's lease agreements is generally not determinable and as such the Company’s collateralized borrowing rate is used.
The following table sets forth the components of lease expense and the weighted average remaining lease term and the weighted average discount rate for the Company’s leases:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | | Six Months Ended June 30, | | | | | Three Months Ended March 31, | | | ||||||||||||
|
| 2022 |
| 2021 |
| | 2022 |
| 2021 |
| |
| | 2023 |
| 2022 |
| | ||||||
| | (Unaudited) | | | (Unaudited) | | | | | (Dollars In thousands) | | | ||||||||||||
Operating lease cost (cost resulting from lease payments) | | | $ | 2,949 | | $ | 3,246 | | | |||||||||||||||
Variable lease cost (cost excluded from lease payments) | | |
| 11 | | | 10 | | | |||||||||||||||
Total lease cost | | | $ | 2,960 | | $ | 3,256 | | | |||||||||||||||
| | (Dollars In thousands) | | | (Dollars In thousands) | | | | | | | | | | | | ||||||||
Operating Lease Cost (Cost resulting from lease payments) | | $ | 3,169 | | $ | 3,335 | | | $ | 6,414 | | $ | 6,549 | | | |||||||||
Variable Lease Cost (Cost excluded from lease payments) | |
| 10 | | | 10 | | |
| 20 | | | 20 | | | |||||||||
Total Lease Cost | | $ | 3,179 | | $ | 3,345 | | | $ | 6,434 | | $ | 6,569 | | | |||||||||
Operating lease - operating cash flows (fixed payments) | | | $ | 3,102 | | $ | 3,503 | | | |||||||||||||||
Operating lease - operating cash flows (liability reduction) | | | $ | 2,251 | | $ | 2,449 | | | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating Lease - Operating Cash Flows (Fixed Payments) | | $ | 3,503 | | $ | 3,419 | | | $ | 7,006 | | $ | 6,750 | | | |||||||||
Operating Lease - Operating Cash Flows (Liability Reduction) | | $ | 2,479 | | $ | 2,248 | | | $ | 4,928 | | $ | 4,422 | | | |||||||||
| | | | | | | | | | | | | | | | |||||||||
Weighted Average Lease Term - Operating Leases | |
| 4.68 | years | | 5.24 | years | | | 4.68 | years | | 5.24 | years | | |||||||||
Weighted Average Discount Rate - Operating Leases | |
| 11.00 | % | | 11.00 | % | | | 11.00 | % | | 11.00 | % | | |||||||||
Weighted average lease term - operating leases | | | | 5.34 | years | | 4.80 | years | | |||||||||||||||
Weighted average discount rate - operating leases | | | | 11.00 | % | | 11.00 | % | |
As of June 30, 2022,March 31, 2023, maturities of lease liabilities (inclusive of lease liabilities held for sale) were as follows:
| | | | | | |
For the Year Ended December 31, |
| (Dollars in thousands) |
| (In thousands) | ||
For the remaining six months ending December 31, 2022 | | $ | 6,829 | |||
2023 | |
| 11,886 | |||
For the remaining nine months ending December 31, 2023 | | $ | 8,745 | |||
2024 | |
| 10,773 | |
| 10,822 |
2025 | |
| 6,033 | |
| 6,891 |
2026 | |
| 3,723 | |
| 5,121 |
2027 | |
| 3,550 | |||
Thereafter | |
| 8,189 | |
| 8,486 |
Total future lease payments | |
| 47,433 | |
| 43,615 |
Imputed interest | |
| 10,600 | |||
Total | | $ | 36,833 | |||
Less: imputed interest | |
| (10,748) | |||
Less: leases held for sale | |
| (2,407) | |||
Total lease liabilities | | $ | 30,460 |
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| Impact of Recently Issued Accounting Pronouncements |
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial InstrumentsInstruments”” (“ASU 2016-13”). ASU 2016-13 is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. In November 2019, the FASB issued ASU 2019-10, “Financial Instruments—Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates.Dates” ASU 2019-10 deferswhich deferred the effective date of credit loss standard ASU 2016-13 by two years for smaller reporting companies and permits early adoption. ASU 2016-13 isbecame effective for the Company beginning January 1, 2023.
The Company adopted ASU 2016-13 during the first quarter of 2023 using a modified retrospective transition method, which requires a cumulative-effect adjustment to the opening retained earnings in the consolidated balance sheet to be recognized on the date of adoption without restating prior years. The cumulative-effect adjustment on January 1, 2023 is evaluating$0.6 million.
In March 2020, the impactFASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” to provide optional relief from applying GAAP to contract modifications, hedging relationships, and other transactions affected by the anticipated transition away from LIBOR. As a result of the reference rate reform initiative, certain widely used rates such as LIBOR are expected to be discontinued. The Company holds the ABL Facility, which now bears interest based on the SOFR rate, having formerly been subject to the LIBOR rate. In December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848”, to defer the sunset date of the temporary relief in Topic 848 to December 31, 2024. The guidance became effective upon issuance. The Company does not expect the adoption of ASU 2016-132022-06 to have a material impact on its consolidated financial statements.
23 In October 2021, the FASB issued ASU 2021-08, “Business Combination (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”, which requires an acquirer to recognize and measure contract assets and liabilities acquired in a business combination in accordance with “Revenue from Contracts with Customers (Topic 606)”, rather than adjust them to fair value at the acquisition date. The guidance became effective for the Company beginning January 1, 2023 and applies to acquisitions occurring after the effective date. The new guidance had no material impact to the consolidated financial statements during the quarter ended March 31, 2023 as there were not any acquisitions during the period. (l)Redeemable Noncontrolling Interest |
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Redeemable noncontrolling interests are interests held by third parties in the Company’s subsidiaries that are redeemable outside of the Company’s control either for cash or other assets. These interests are classified as mezzanine equity and measured at the greater of estimated redemption value at the end of each reporting period or the historical cost basis of the noncontrolling interests adjusted for cumulative earnings allocations. The resulting increases or decreases in the estimated redemption amount are affected by corresponding charges against retained earnings, or in the absence of retained earnings, additional paid-in-capital.
(m)Investments Available-for-sale securities
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On April 10, 2015, the Company made a $5 million investment in MGM’s world-class casino property, MGM National Harbor, LLC (“MGMNH” or “MGM National Harbor”) located in Prince George’s County, Maryland, which has a predominately African-American demographic profile. On November 30, 2016, the Company contributed an additional $35 million to complete its investment. This investment further diversified our platform in the entertainment industry while still focusing on our core demographic. We accountIn return for this investment, onthe Company received preferred stock and a cost basis and our MGM investment is included in other assetsnon-transferable put right, exercisable for a thirty-day period each year. The price of the put right was determined based on the consolidated balance sheets. Our“Put Price” definition as defined in the agreement between the Company and MGM National Harbor.
The Company classified its investment in MGM National Harbor as an available-for-sale debt security. Investments classified as available for sale were carried at fair value with unrealized gains and losses, net of deferred taxes, reflected in accumulated other comprehensive income. Net realized gains and losses on sales of available for sale securities, and unrealized losses considered to be other-than-temporary, are recorded to other income, net in the consolidated statements of operations.
On March 8, 2023, Radio One Entertainment Holdings, LLC (“ROEH”), a wholly-owned subsidiary of the Company, issued a put notice (the “Put Notice”) with respect to one hundred percent (100%) of its interest (the “Put Interest”) in MGMNH. On April 21, 2023, ROEH closed on the sale of the Put Interest and the Company received approximately $136.8 million. Please refer to Note 12 – Subsequent Events of our consolidated financial statements for further information.
The investment entitles usentitled the Company to an annual cash distribution based on net gaming revenue. We recognizedAs the Company exercised its Put Interest in March 2023, the Company did not have any distribution income in the amount of approximately $2.1 million and $1.9 million, for the three months ended June 30, 2022 and 2021, respectively, andMarch 31, 2023. The Company recognized approximately $4.1$2.0 million and $3.6 million,in distribution income, which is included in other income, net on the consolidated statements of operations for the sixthree months ended June 30,March 2022.
24
The amortized cost, estimated fair value, and unrealized gains and losses on the debt security classified as available-for-sale as of March 31, 2023 and December 31, 2022 is summarized as follows:
| | | | | | | | | | | | |
| | Amortized |
| Gross | | Gross | | | | |||
| | Cost | | Unrealized | | Unrealized | | Fair | ||||
| | Basis | | Gains | | Losses | | Value | ||||
| | (In thousands) | ||||||||||
March 31, 2023 | | | | | | | | | | | | |
MGM Investment | | $ | 40,000 | | $ | 104,326 | | $ | (7,500) | | $ | 136,826 |
| | | | | | | | | | | | |
December 31, 2022 | | | | | | | | | | | | |
MGM Investment | | $ | 40,000 | | $ | 104,326 | | $ | (7,500) | | $ | 136,826 |
RVA Entertainment Holding
The Company and Peninsula Pacific Entertainment (succeeded by Churchill Downs Incorporated (“CDI”) on November 1, 2022) formed a joint venture in 2021 respectively, whichto develop and operate the ONE Casino + Resort in Richmond. The Company owned 75% of the joint venture and met the requirements to consolidate the joint venture under the VIE method as the Company had control to direct the activities of RVAEH and the obligation to absorb losses and the right to receive benefits that could potentially be significant to RVAEH. The investment included a put right allowing the noncontrolling interest holder the option to require the Company to purchase all shares of the noncontrolling interest holder starting 10 years after reaching a certain milestone. Therefore, the put rights were required to be presented as mezzanine equity and were recorded at cost, adjusted for the noncontrolling interest in the net loss of RVAEH. When the redemption or carrying value is less than the recorded redemption value, the Company adjusts the redeemable noncontrolling interest to equal the redemption value with changes recognized as an adjustment to retained earnings, or in the absence of retained earnings, additional paid-in-capital. Any such adjustment, when necessary, will be performed as of the applicable balance sheet date. RVAEH’s redeemable noncontrolling interest on the Company’s consolidated balance sheet as of December 31, 2022 was $6.6 million.
On February 14, 2023, CDI purchased 25% of the Company’s investment in RVAEH for $6.6 million, bringing both the Company’s and CDI’s ownership interests to 50% each. On this date, the Company no longer met the requirements to consolidate the joint venture entity as it was no longer the primary beneficiary of RVAEH. The Company deconsolidated RVAEH’s assets, liabilities, and redeemable noncontrolling interest, and, using CDI’s cash payment for 25% of RVAEH to calculate the fair value of the joint venture, recognized a $0.2 million loss in other incomeexpense (income), net on the consolidated statements of operations. The costCompany then began accounting for its interest in the joint venture using the equity method. Under the equity method, the initial investment is subject to a periodic impairment review. The Company reviewedrecorded at cost and subsequently adjusted for the investmentCompany’s proportionate share of net income or losses, cash contributions made and concluded that no impairment todistributions received, and other adjustments, as appropriate. As of March 31, 2023, the carrying value was required. There has been no impairmentamount of the Company’s investment to date.in unconsolidated joint venture on the consolidated balance sheet was $13.1 million. The Company’s proportionate share of net loss is included in other expense (income), net on the consolidated statements of operations.
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Our
(n)Content Assets
The Company’s cable television segment has entered into contracts to acquirelicense entertainment programming rights and programs from distributors and producers. The license periods granted in these contracts generally run from one year to five years. Contract payments are typically made in quarterly installments over the terms that are generally shorter thanof the contract period. Each contract is recorded as an asset and a liability at an amount equal to its gross contractual commitment when the license period begins, and the program is available for its first airing. For programming that is predominantly monetized as part of a content group, which includes our acquired and commissioned programs, capitalized costs are amortized based on an estimate of our usage and benefit from such programming. The estimates require management’s judgement and include consideration of factors such as expected revenues to be derived from the programming, the expected number of future airings, and, if applicable, the length of the license period. Acquired content is generally amortized on a straight-line basis over the term of the license which reflects the estimated usage. For certain content for which the pattern of usage is accelerated, amortization is based upon the actual usage. Amortization of content assets is recorded in the consolidated statements of operations as programming and technical expenses.
19
The Company also has programming for which the Company has engaged third parties to develop and produce, and it owns most or all rights (commissioned programming). In accordance with ASC 926, “Entertainment – Films,”For programming that is predominantly monetized as part of a content amortization expense for each period is recognizedgroup, such as the Company’s commissioned programs, capitalized costs are amortized based on an estimate of our usage and benefit from such programming. The estimates require management’s judgment and include consideration of factors such as expected revenues to be derived from the revenue forecastprogramming, the expected number of future airings, among other factors. The Company’s acquired programs’ capitalized costs are amortized based on projected usage, generally resulting in an amortization pattern that is the greater of straight-line or projected usage.
25
The Company utilizes judgment and prepares analyses to determine the amortization patterns of our content assets. Key assumptions include: the categorization of content based on shared characteristics, and the use of a quantitative model to predict revenue. For each film group, which approximates the proportion thatCompany defines as a genre, this model takes into account projected viewership which is based on (i) estimated advertisinghousehold universe; (ii) ratings; and affiliate revenues for(iii) expected number of airings across different broadcast time slots.
As part of the current period represent in relation toCompany’s assessment of its amortization rates, the Company compares the estimated remaining total lifetime revenues as ofamortization rates to those that have been utilized during the beginning of the current period.year. Management regularly reviews, and revises when necessary, its total revenue estimates, which may result in a change in the rate of amortization and/or a write-downwrite down of the asset to fair value.value The result of the content amortization analysis is either an accelerated method or a straight-line amortization method over the estimated useful lives of generally one to five years.
Content that is predominantly monetized within a film group is assessed for impairment at the film group level and is tested for impairment if circumstances indicate that the fair value of the content within the film group is less than its unamortized costs. The Company’s film groups for commission programming are generally aligned along genre, while the Company’s licensed content is considered a separate film group. The Company did not recordevaluates the fair value of content at the film group level by considering expected future revenue generation using a cash flow analysis when an event or change in circumstances indicates a change in the expected usefulness of the content or that the fair value may be less than unamortized costs. Estimates of future revenues consider historical airing patterns and future plans for airing content, including any changes in strategy. Given the significant estimates and judgments involved, actual demand or market conditions may be less favorable than those projected, requiring a write-down to fair value. The Company determined there were no impairment or additional amortization expense as a result of evaluating its contracts for impairment forindicators during the sixthree months ended June 30, 2022March 31, 2023 and 2021.2022. Impairment and amortization of content assets is recorded in the consolidated statements of operations as programming and technical expenses. All producedcommissioned and licensed content is classified as a long-term asset, except for the portion of the unamortized content balance that is expected to be amortized within one year which is classified as a current asset.
Tax incentives that state and local governments offer that are directly measured based on production activities are recorded as reductions in production costs.
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As discussed, in footnote 1(h), the(o)Employment Agreement Award
The Company accounts for the Employment Agreement Award at fair value. The Company estimated the fair value of the award at June 30, 2022,March 31, 2023, and December 31, 2021,2022, to be approximately $29.7$25.6 million and $28.2$25.7 million, respectively, and accordingly adjusted its liability to this amount.respectively. The long-term portion is recorded in other long-term liabilities and the current portion is recorded in other current liabilities in the consolidated balance sheets. The expenseincome (expense) associated with the Employment Agreement Award was recorded in the consolidated statements of operations as corporate selling, general and administrative expenses and was $903,000approximately $0.1 million and $911,000$0.6 million for the three months ended June 30,March 31, 2023 and 2022, and 2021, respectively, and was approximately $1.5 million and $1.5 million for the six months ended June 30, 2022 and 2021, respectively.
The Company’s obligation to pay the Employment Agreement Award wasis triggered after the Company recovered the aggregate amount of its capital contribution in TV One and only upon actual receipt of distributions of cash or marketable securities or proceeds from a liquidity event with respect to the Company’s aggregate investment in TV One. The CEO wasis fully vested in the award, upon execution of the employment agreement, and the awardwhich lapses if the CEO voluntarily leaves the Company, or is terminated for cause. In September 2014,2022, the Compensation Committee of the Board of Directors of the Company approved terms for a new employment agreement with the CEO, including a renewal of the Employment Agreement Award upon similar terms as in the prior employment agreement.
(p)Related Party Transactions |
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Reach Media operates the Tom Joyner Foundation’s Fantastic Voyage®Voyage® (the “Fantastic Voyage®Voyage®”), aan annual fund-raising event, on behalf of the Tom Joyner Foundation, Inc. (the “Foundation”), a 501(c)(3) entity. The agreement under which the Fantastic Voyage®Voyage® operates provides that Reach Media provide all necessary operations of the cruise and that Reach Media will be reimbursed its expenditures and receive a fee plus a performance bonus. Distributions from operating revenues are in the following order until the funds are depleted: up to $250,000 to the Foundation, reimbursement of Reach’s expenditures, up to a $1.0 million fee to Reach, a performance bonus of up to 50% of remaining operating revenues to Reach Media, with the balance remaining to the Foundation. For 2021 and 2023, $250,000 to the Foundation is guaranteed. Reach Media’s earnings for the Fantastic Voyage®Voyage® in any given year may not exceed $1.75 million. For 2023, $250,000 to the Foundation is guaranteed. The Foundation’s remittances to Reach Media under the agreements are limited to its Fantastic Voyage® Voyage® related cash collections. Reach Media bears the risk should the Fantastic Voyage®Voyage® sustain a loss and bears all credit risk associated
26
with the related passenger cruise package sales. The agreement between Reach and the Foundation automatically renews annually unless termination is mutually agreed or unless a party’s financial requirements are not met, in which case the party not in breach of their obligations has the right, but not the obligation, to terminate unilaterally. As of June 30,March 31, 2023, the Foundation owed Reach Media approximately $3.9 million and as of December 31, 2022, the Foundation owed Reach Media $255,000 and as of December 31, 2021, Reach Media owed the Foundation $41,000approximately $2.3 million under the agreements for the operation of the cruises. No cruise will sailThe Fantastic Voyage took place during the second quarter of 2023. The Fantastic Voyage was not operated in 2022; however, packages are currently being sold for the Fantastic Voyage® for 2023.2022.
Reach Media provides office facilities (including office space, telecommunications facilities, and office equipment) to the Foundation. Such services are provided to the Foundation on a pass-through basis at cost. Additionally, from time to time, the Foundation
20
reimburses Reach Media for expenditures paid on its behalf at Reach Media-related events. Under these arrangements, the Foundation owed an immaterial amount to Reach Media as of June 30, 2022each of March 31, 2023 and December 31, 2021, the Foundation owed $6,000 and $4,000, respectively, to Reach Media.2022.
Alfred C. Liggins, President and Chief Executive Officer of Urban One, Inc., is a compensated member of the Board of Directors of Broadcast Music, Inc. (“BMI”), a performance rights organization.organization to which the Company pays license fees in the ordinary course of business. During the three months ended June 30,March 31, 2023 and 2022, and 2021, the Company incurred expense of $607,000 and $908,000, respectively. During the six months ended June 30, 2022 and 2021, the Company incurred expense of approximately $1.5$0.8 million and $1.9$0.9 million, respectively. As of June 30, 2022March 31, 2023 and December 31, 2021,2022, the Company owed BMI $621,000approximately $1.4 million and $423,000,$1.5 million, respectively.
q) Goodwill and Intangible Assets
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As partIn accordance with ASC 350, “Intangibles - Goodwill and Other,” we do not amortize our radio broadcasting licenses and goodwill. Instead, we perform a test for impairment annually on October 1 across all reporting units and radio broadcasting licenses, or on an interim basis when events or changes in circumstances or other conditions suggest impairment may have occurred. We had 16 reporting units as of its internal control framework,our October 2022 annual impairment assessment, consisting of each of the Company routinely performs13 radio markets within the radio segment and each of the other three business segments.
Other intangible assets continue to be amortized on a going concern assessment.straight-line basis over their useful lives. We evaluate amortizable intangible assets for recoverability when circumstances indicate impairment may have concluded thatoccurred, using an undiscounted cash flow methodology. If the Company has sufficient capacity to meet its financing obligations, thatfuture undiscounted cash flows from operationsfor the intangible asset are sufficientless than net book value, the net book value is reduced to meet the liquidity needs and/or has sufficient capacity to access asset-backed facility funds to finance working capital needs should the need arise.estimated fair value.
4
2.. ACQUISITIONS AND DISPOSITIONS:
On October 30, 2020, we entered into a local marketing agreement (“LMA”) with Southeastern Ohio Broadcasting System for the operation of station WWCD-FM in Columbus, Ohio beginning November 2020. Under the terms of the LMA, we will pay a monthly fee as well as certain operating costs, and, in exchange, we will retain all revenues from the sale of the advertising within the programming.
On November 6, 2020,April 11, 2023, the Company entered into a definitive asset exchangepurchase agreement with Audacy, Inc. (formerly Entercom Communications Corp.Cox Media Group (“CMG”) wherebyto purchase its Houston radio cluster. Under the terms of the agreement, Urban One agreed to acquire 93Q Country KKBQ-FM, classic rock station The Eagle 106.9 & 107.5 KHPT-FM and KGLK-FM, and Country Legends 97.1 KTHT-FM. The transaction price was $27.5 million. The acquisition was completed on August 1, 2023. Please refer to Note 12 – Subsequent Events of our consolidated financial statements for further details. In anticipation of the transaction with CMG, the Company would receive Charlotte stations: WLNK-FM (Adult Contemporary); WBT-AM & FM (News Talk Radio); and WFNZ-AM & 102.5 FM Translator (Sports Radio).agreed to sell its KROI-FM radio broadcasting license along with the associated station assets from the radio broadcasting segment to a third party for approximately $7.5 million, which represents estimated fair value as of March 31, 2023. As part of customary closing terms, the KROI assets are held in an irrevocable trust until the transaction is complete, which is anticipated to close in 2024. The identified assets and liabilities, with a combined carrying value of approximately $9.9 million (net of impairments of approximately $16.8 million) and $2.4 million, respectively, were classified as held for sale in the Company transferred 3consolidated balance sheet at March 31, 2023. The major category of the assets held for sale included radio stations to Audacy: St. Louis, WHHL-FM (Urban Contemporary); Philadelphia, WPHI-FM (Urban Contemporary); and Washington, DC, WTEM-AM (Sports); as well asbroadcasting licenses in the intellectual property to its St. Louis radio station, WFUN-FM (Adult Urban Contemporary)amount of approximately $7.3 million (net of impairments). The Company and Audacy began operationrecognized an impairment charge of approximately $16.8 million related to the held-for-sale assets during the three months ended March 31, 2023. In addition, the Company is required to divest of KTHT-FM as part of the exchanged stations on or about November 23, 2020 under LMAsclosing conditions of the CMG transaction. The assets are held in a trust until FCC approval was obtained.the divestiture is complete, which is anticipated to close in 2024.
On June 13, 2022, the Company entered into a definitive asset purchase agreement with Emmis Communications (“Emmis”) to purchase its Indianapolis Radio Cluster to expand the Company’s market presence. The deal was subject to FCC approval and other customary closing conditions and, after obtaining the approvals, closed on April 20, 2021. In addition, the Company entered into an asset purchase agreement with Gateway Creative Broadcasting, Inc. (“Gateway”) for the remaining assets of our WFUN station in a separate transaction which also closed on April 20, 2021. The Company received approximately $8.0 million in exchange for approximately $8.0 million in tangible and intangible assets as part of the transaction with Gateway.
The Company’s purchase accounting to reflect the fair value of assets acquired and liabilities assumed consisted of approximately $21.1 million to radio broadcasting licenses, approximately $1.8 million to land and land improvements, approximately $2.0 million to towers and antennas, $517,000 to buildings, approximately $1.0 million to transmitters, $712,000 to studios, $53,000 to vehicles, $200,000 to furniture and fixtures, $67,000 to computer equipment, $19,000 to other equipment, approximately $1.7 million to right of use assets, $1.9 million advertising credit liability, $921,000 to operating lease liabilities, and $812,000 unfavorable lease liability. The fair value of the assets exchanged with Audacy approximate the carrying value of the assets. The Company recognized a net gain of $404,000 related to the Audacy and Gateway transactions during the year ended DecemberAugust 31, 2021.
On June 13, 2022, the Company announced it had signed a definitive asset purchase agreement with Emmis Communications to purchase its Indianapolis Radio Cluster. Under the terms of the agreement,2022. Urban One will acquireacquired radio stations WYXB (B105.7FM), WLHK (97.1FM), WIBC (93.1FM), translators W228CX and W298BB (The Fan 93.5FM and 107.5FM), and Network Indiana. The Company noted that the transaction price wasIndiana for $25 million.
In anticipationAs part of the transaction, the Company will selldisposed of its former WHHH radio broadcasting license along with the intellectual property related to WNOW (there was a call letter change from WHHH to WNOW immediately prior to the close) to a
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third party for approximately $3.2 million. BothThe fair value of the acquisition and disposition are subject to FCC approval and other customary closing conditions, anticipated inassets disposed approximated the third quarter of 2022. Emmis will continue to operate its stations and Urban One will continue to operate WHHH until the transaction closes. The identified assets, with a combined carrying value of the assets. The Company recognized a net loss of approximately $3.2$0.1 million related to the disposal transaction during the year ended December 31, 2022.
The Company’s purchase accounting to reflect the fair value of assets acquired and liabilities assumed in the Emmis transaction consisted of approximately $23.6 million to radio broadcasting licenses, $0.2 million to towers and antennas, $0.3 million to transmitters, $0.2 million to studios, $0.1 million to vehicles, $27,000 to furniture, fixtures, computer equipment and computer software, $0.1 million to acquired advertising contracts, $0.4 million to goodwill, and $1.2 million to right of use assets and operating lease liabilities. The purchase price allocation was finalized during fiscal year 2022, and no significant changes were recorded from the original estimation.
Unaudited Pro Forma Information
The table below sets forth unaudited pro forma results of operations, assuming that the Emmis acquisition occurred on January 1, 2022:
| | |
| | For The Three Months Ended |
| | March 31, |
| | 2022 |
| | (In thousands) |
Net revenue | $ | 116,493 |
Operating income | | 36,689 |
Net income | | 17,313 |
This pro forma financial information is based on historical results of operations, adjusted for the allocation of the purchase price and other accounting adjustments, and is not indicative of what our results would have been classified as heldhad we operated Emmis for sale in the consolidated balance sheet at June 30, 2022.period presented because the pro forma results do not reflect expected synergies. The major categorypro forma adjustments primarily reflect depreciation expense and amortization of tangible and intangible assets related to the fair value adjustments of the assets held for sale includeacquired. The pro forma adjustments are based on available information and assumptions that the Company believes are reasonable to reflect the impact of this acquisition on the Company’s historical financial information on a supplemental pro forma basis.
5. RADIO BROADCASTING LICENSES:
Broadcasting Licenses
The following table presents the changes in the Company’s radio broadcasting licenses carrying value during the three months ended March 31, 2023.
| | | | |
|
|
| Total | |
| | | (Unaudited) | |
| | | (In thousands) | |
Balance at January 1, 2023 | | | $ | 488,419 |
Impairment charges | | | | (16,775) |
Reclassification of amounts to assets held for sale |
|
| | (7,276) |
Balance at March 31, 2023 | | | $ | 464,368 |
The Company recorded an impairment loss of $16.8 million associated with the expected sale of the KROI-FM radio broadcasting license as discussed in Note 4 – Acquisitions and Dispositions of our consolidated financial statements, during the amount of approximately $3.2 million.three months ended March 31, 2023.
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3. GOODWILL AND RADIO BROADCASTING LICENSES:
Impairment Testing
In accordance with ASC 350, “Intangibles - Goodwill and Other,” we do not amortize our indefinite-lived radio broadcasting licenses and goodwill. Instead, we perform a test for impairment annually across all reporting units, or on an interim basis when events or changes in circumstances or other conditions suggest impairment may have occurred in any given reporting unit. Other intangible assets continue to be amortized on a straight-line basis over their useful lives. We perform our annual impairment test as of October 1 of each year. We evaluate all events and circumstances on an interim basis to determine if an interim indicator is present.
Valuation of Broadcasting Licenses
During the second quarter of 2022, there was slowing in certain general economic conditions and a rising interest rate environment, which we deemed to be an impairment indicator that warranted interim impairment testing of certain markets’ radio broadcasting licenses. During the three and six months ended June 30, 2022, the Company recorded a non-cash impairment charge of approximately $10.7 million associated with our Atlanta, Dallas, Houston, and Raleigh radio market broadcasting licenses, of which approximately $3.7 million relates to periods ending prior to January 1, 2022. Accordingly, the Company recorded an out-of-period non-cash impairment charge of approximately $3.7 million during the three months ended June 30, 2022. The fair value of the radio broadcasting licenses were overstated by approximately $1.1 million, $2.8 million, and $2.1 million as of December 31, 2019, March 31, 2020, and December 31, 2021, respectively, and understated by approximately $2.3 million as of September 30, 2020. The Company determined that the errors were not material to any previous period and that correcting the error in the three-month and six-month periods ended June 30, 2022 would not materially misstate estimated net revenue or pre-tax income for the full year, as of and for the period ended December 31, 2022, or the earnings trend and therefore can be corrected in the current period. In addition, we recorded an impairment charge of approximately $1.9 million associated with the estimated asset sale consideration for one of our Indianapolis radio broadcasting licenses. We did not identify any impairment indicators for the six months ended June 30, 2021, and, therefore, no interim impairment testing was performed.
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Below are some of the key assumptions used in the income approach model for estimating broadcasting licenses fair values for the interim impairment assessments for the quarter ended June 30, 2022.
| | | | |
Radio Broadcasting | | June 30, | | |
Licenses | | 2022 (a) | | |
Impairment charge (in millions) | | $ | 12.6 | (*) |
Discount Rate | | | 9.5 | % |
Year 1 Market Revenue Growth Rate Range | | | 1.4% – 1.8 | % |
Long-term Market Revenue Growth Rate Range | | | 0.7% – 1.0 | % |
Mature Market Share Range | | | 6.2% – 23.2 | % |
Mature Operating Profit Margin Range | | | 28.3% – 36.1 | % |
(a)Reflects changes only to the key assumptions used in the interim testing for certain units of accounting.
(*)Includes an impairment charge whereby the license fair value is based on estimated asset sale consideration.
Valuation of Goodwill
During the three and six months ended June 30, 2022, the Company recorded a non-cash impairment charge of approximately $4.3 million to reduce the carrying value of our Atlanta market goodwill balance. We did not identify any impairment indicators at any of our other reporting units for the three months ended June 30, 2022. We did not identify any impairment indicators at any of our reporting units for the six months ended June 30, 2021, and therefore, no interim impairment testing was performed.
As noted above, during the quarter ended June 30, 2022, we identified an impairment indicator at certain of our radio markets, and, as such, we performed an interim analysis for certain radio market goodwill. Below are some of the key assumptions used in the income approach model for estimating reporting unit fair values for the interim impairment assessments for the quarter ended June 30, 2022.
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| | | | |
Goodwill (Radio Market | | June 30, | | |
Reporting Units) |
| 2022 (a) | | |
Impairment charge (in millions) | | $ | 4.3 | |
Discount Rate | | | 9.5 | % |
Year 1 Market Revenue Growth Rate Range | | | (2.5)% - 1.5 | % |
Long-term Market Revenue Growth Rate Range | | | 0.7% – 1.0 | % |
Mature Market Share Range | | | 10.4% – 15.5 | % |
Mature Operating Profit Margin Range | | | 19.5% – 32.9 | % |
|
|
Goodwill Valuation Results
The table below presents the changes in the Company’s goodwill carrying values for its 4 reportable segments.
| | | | | | | | | | | | | | | |
|
| Radio |
| Reach |
| | |
| Cable |
| | | |||
| | Broadcasting | | Media | | Digital | | Television | | | | ||||
| | Segment | | Segment | | Segment | | Segment | | Total | |||||
| | (In thousands) | |||||||||||||
Gross goodwill | | $ | 155,000 | | $ | 30,468 | | $ | 27,567 | | $ | 165,044 | | $ | 378,079 |
Additions | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
Impairments | |
| (4,325) | |
| 0 | |
| 0 | |
| 0 | |
| (4,325) |
Accumulated impairment losses | |
| (117,748) | |
| (16,114) | |
| (20,345) | |
| 0 | |
| (154,207) |
Audacy asset exchange | | | (470) | | | — | | | — | | | — | | | (470) |
Net goodwill at June 30, 2022 | | $ | 32,457 | | $ | 14,354 | | $ | 7,222 | | $ | 165,044 | | $ | 219,077 |
4.. LONG-TERM DEBT:
Long-term debt consists of the following:
| | | | | | | | | | | | |
|
| June 30, |
| December 31, |
| March 31, |
| December 31, | ||||
| | 2022 | | 2021 | | 2023 | | 2022 | ||||
| | (Unaudited) | | | | |||||||
| | (In thousands) | | (In thousands) | ||||||||
7.375% Senior Secured Notes due February 2028 | | $ | 800,000 | | $ | 825,000 | | $ | 725,000 | | $ | 750,000 |
PPP Loan | | | 0 | | | 7,505 | ||||||
Total debt | |
| 800,000 | |
| 832,505 | |
| 725,000 | |
| 750,000 |
Less: current portion of long-term debt | |
| 0 | |
| 0 | |
| — | |
| — |
Less: original issue discount and issuance costs | |
| 12,619 | |
| 13,889 | |
| 10,220 | |
| 11,000 |
Long-term debt, net | | $ | 787,381 | | $ | 818,616 | | $ | 714,780 | | $ | 739,000 |
7.375% 2028 Notes
On January 7, 2021, the Company launched an offering (the “2028 Notes Offering”) of $825 million in aggregate principal amount of 7.375% senior secured notes due 2028 (the “2028 Notes”) in a private offering exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”). On January 8, 2021, the Company entered into a purchase agreement with respect to the 2028 Notes at an issue price of 100% and the 2028 Notes Offering closed on January 25, 2021.The2021. The 2028 Notes are general senior secured obligations of the Company and are guaranteed on a senior secured basis by certain of the Company’s direct and indirect restricted subsidiaries. The 2028 Notes mature on February 1, 2028 and interest on the Notes accrues and is payable semi-annually in arrears on February 1 and August 1 of each year, commencing on August 1, 2021 at the rate of 7.375% per annum.
The Company used the net proceeds from the 2028 Notes Offering, together with cash on hand, to repay or redeem: (1) the 2017 Credit Facility; (2) the 2018 Credit Facility; (3) the MGM National Harbor Loan; (4) the remaining amounts of our 7.375% Notes; and (5) our 8.75% Notes that were issued in the November 2020 Exchange Offer (all as defined below). Upon settlement of the 2028 Notes Offering, the 2017 Credit Facility, the 2018 Credit Facility and the MGM National Harbor Loan were terminated and the indentures
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governing the 7.375% Notes and the 8.75% Notes were satisfied and discharged. There was a net loss on retirement of debt of approximately $6.9 million for the year ended December 31, 2021 associated with the settlement of the 2028 Notes.
The 2028 Notes and the guarantees are secured, subject to permitted liens and except for certain excluded assets (i) on a first priority basis by substantially all of the Company’s and the Guarantors’ current and future property and assets (other than accounts receivable, cash, deposit accounts, other bank accounts, securities accounts, inventory and related assets that secure our asset-backed revolving credit facility on a first priority basis (the “ABL Priority Collateral”)), including the capital stock of each guarantor (collectively, the “Notes Priority Collateral”) and (ii) on a second priority basis by the ABL Priority Collateral. The 2028 Notes require the Company to file quarterly and annual reports with the SEC within a specified time period after the Company’s filing deadlines. However, failure to comply does not constitute an event of default unless the Company does not comply within 120 days after receiving written notice from the Trustee. The Company has not received any such notice.
The associated debt issuance costs in the amount of approximately $15.4 million is reflected as an adjustment to the carrying amount of the debt obligations and amortized to interest expense over the term of the credit facility using the effective interest rate method. The amortization of deferred financing costs is charged to interest expense for all periods presented.
The amount of deferred financing costs included in interest expense for all instruments, for each of the three months ended June 30,March 31, 2023 and 2022, and 2021, was $504,000 and $471,000, respectively. The amount of deferred financing costs included in interest expense for all instruments, for the six months ended June 30, 2022 and 2021, was approximately $1.0 million and $1.3 million, respectively.$0.5 million. The Company’s effective interest rate for 2022 is 7.83%2023 was 7.63% and for 20212022 was 7.96%7.72%.
During the quarter ended June 30, 2022,March 31, 2023, the Company repurchased approximately $25.0 million of its 2028 Notes at an average price of approximately 91.0%89.1% of par. The Company recorded a net gain on retirement of debt of approximately $1.9$2.4 million for the quarter ended June 30, 2022.March 31, 2023.
The Company conducts a portion of its business through its subsidiaries. Certain of the Company’s subsidiaries have fully and unconditionally guaranteed the Company’s 2028 Notes.
PPP Loan
On January 29, 2021, the Company submitted an application for participation in the second round of the Paycheck Protection Program loan program (“PPP”).On and on June 1, 2021, the Company received proceeds of approximately $7.5 million. During the three monthsquarter ended June 30, 2022, the PPP loan and related accrued interest was forgiven and recorded as other income in the amount of approximately $7.6 million. ThePrior to being forgiven, the loan bore interest at a fixed rate of 1% per year and was not changed during the life of the loan. The loan was scheduled to mature June 1, 2026.
8.75% Notes
In October 2020, the Company announced an offer to eligible holders of its 7.375% Senior Secured Notes due 2022 (the “7.375% Notes”) to exchange any and all of their 7.375% Notes for newly issued 8.75% Senior Secured Notes due 2022 (the “8.75 Notes”). The exchange offer closed on November 9, 2020 and, therefore, is referred to as the “November 2020 Exchange Offer”. Until their satisfaction and discharge on settlement of the 2028 Notes, the 8.75% Notes were governed by an indenture, dated November 9, 2020 (the “8.75% Notes Indenture”), by and between the Company, the guarantors therein (the “Guarantors”) and Wilmington Trust, National Association, as trustee (in such capacity, the “8.75% Notes Trustee”) and as notes collateral agent (in such capacity, “the 8.75% Notes Collateral Agent”). Interest on the 8.75% Notes accrued at the rate per annum equal to 8.75% and was payable, in cash, quarterly on January 15, April 15, July 15 and October 15 of each year, commencing on January 15, 2021, to holders of record on the immediately preceding January 1, April 1, July 1 and October 1, respectively.
The 8.75% Notes were general senior obligations and were guaranteed (the “Guarantees”) by the Guarantors. The 8.75% Notes and the Guarantees: (i) ranked equal in right of payment to all of the Company’s and the Guarantor’s existing and future senior indebtedness, (ii) were secured on a first-priority basis by the Notes Priority Collateral (as defined below) and on a second-priority basis by the ABL Priority Collateral (defined below) owned by the Company and the applicable Guarantor, in each case subject to certain liens permitted under the 8.75% Notes Indenture, (iii) were equal in priority to the collateral owned by the Company and the Guarantor with respect to obligations under the credit agreement, dated as of April 18, 2017, by and among the Company, various lenders therein and Guggenheim Securities Credit Partners, LLC, as administrative agent and any other Parity Lien Debt (as described in the 8.75% Notes Indenture), if an, incurred after the date the 8.75% Notes were issued, (iv) ranked senior in right of payment to any existing or future subordinated indebtedness of the Company or Guarantors, (v) were initially guaranteed on a senior basis by each of the Company’s wholly-owned
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domestic subsidiaries (other than certain immaterial subsidiaries, unrestricted subsidiaries, and other certain exceptions), (vi) were effectively senior to all of the Company’s and the Guarantor’s existing and future unsecured indebtedness to the extent of the value of the collateral owned by the Company or applicable Guarantors and effectively senior to all existing and future ABL Debt Obligations (as defined in the 8.75% Notes Indenture) to the extent of the value of the Notes Priority Collateral (as defined below) owned by the Company or applicable Guarantor, (vii) were effectively subordinated to all of the Company’s and the Guarantor’s existing and future indebtedness that was secured by liens on assets that do not secure the Notes or the Guarantee to the extent of the value of such assets, (viii) were structurally subordinated to all of the Company’s and the Guarantor’s existing and future indebtedness and other claims and liabilities, including preferred stock, of subsidiaries of the Company that are not guarantors, and (ix) were effectively senior to any 7.375% Notes that remain outstanding after the November 2020 Exchange Offer with respect to any collateral proceeds.
The 8.75% Notes and the guarantees were secured, subject to permitted liens and except for certain excluded assets (i) on a first priority basis by substantially all of the Company’s and the Guarantors’ current and future property and assets (other than accounts receivable, cash, deposit accounts, other bank accounts, securities accounts, inventory and related assets that secure our asset-backed revolving credit facility on a first priority basis (the “ABL Priority Collateral”), including the capital stock of each Guarantor (which, in the case of foreign subsidiaries, is limited to 65% of the voting stock and 100% of the non-voting stock of each first-tier foreign subsidiary) (collectively, the “Notes Priority Collateral”) and (ii) on a second priority basis by the ABL Priority Collateral.
In connection with the November 2020 Exchange Offer, the 8.75% Notes were subject to a new intercreditor agreement, pursuant to which proceeds received by the 7.375% Notes Trustee with respect to collateral proceeds received by the 7.375% Notes Trustee for the 7.375% Notes under an existing parity lien intercreditor agreement were to be paid over to the 8.75% Notes Trustee for the 8.75% Notes to the extent of the amounts owed to the holders of the 8.75% Notes then outstanding.
The Company could redeem the 8.75% Notes in whole or in part, at its option, upon not less than 30 nor more than 60 days’ prior notice at a redemption price equal to 100% of the principal amount of such 8.75% Notes plus accrued and unpaid interest, if any, to the redemption date.
Within 90 days following the completion of the November 2020 Exchange Offer, the Company was required to repurchase, repay or redeem $15 million aggregate principal amount of the 8.75% Notes. Separately, within five business days after each Excess Cash Flow Calculation Date (as defined in the 8.75% Notes Indenture), the Company was to redeem an aggregate principal amount of 8.75% Notes equal to 50% of the Excess Cash Flow (as defined in the 8.75% Notes Indenture), provided that repurchases, repayments or redemption of 8.75% Notes with internally generated funds during the applicable calculation period would reduce on a dollar-for-dollar basis the amount of such redemption otherwise required on the applicable calculation date. Any such mandatory redemptions were to be at par (plus accrued and unpaid interest).
The premium paid to the bondholders in the amount of approximately $3.5 million is being reflected as an adjustment to the carrying amount of the debt obligation and amortized to interest expense over the term of the obligation using the effective interest rate method. The amortization of deferred financing costs was charged to interest expense for all periods presented.
2018 Credit Facility
On December 4, 2018, the Company and certain of its subsidiaries entered into a credit agreement (“2018 Credit Facility”), among the Company, the lenders party thereto from time to time, Wilmington Trust, National Association, as administrative agent, and TCG Senior Funding L.L.C, as sole lead arranger and sole bookrunner. The 2018 Credit Facility provided $192.0 million in term loan borrowings, which was funded on December 20, 2018. The net proceeds of term loan borrowings under the 2018 Credit Facility were used to refinance, repurchase, redeem or otherwise repay the Company's then outstanding 9.25% Senior Subordinated Notes due 2020.
Until its termination on settlement of the 2028 Notes, borrowings under the 2018 Credit Facility were subject to customary conditions precedent, as well as a requirement under the 2018 Credit Facility that (i) the Company's total gross leverage ratio on a pro forma basis be not greater than 8:00 to 1:00 (this total gross leverage ratio test steps down as described below), (ii) neither of the administrative agents under the Company's existing credit facilities nor the trustee under the Company's existing senior secured notes due 2022 have objected to the terms of the new credit documents and (iii) certification by the Company that the terms and conditions of the 2018 Credit Facility satisfied the requirements of the definition of “Permitted Refinancing” (as defined in the agreements governing the Company's existing credit facilities) and neither of the administrative agents under the Company's existing credit facilities notified
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the Company within five (5) business days prior to funding the borrowings under the 2018 Credit Facility that it disagreed with such determination (including a reasonable description of the basis upon which it disagrees).
The 2018 Credit Facility was scheduled to mature on December 31, 2022 (the “Maturity Date”). In connection with the November 2020 Exchange Offer, we also entered into an amendment to certain terms of our 2018 Credit Facility including the extension of the maturity date to March 31, 2023. Interest rates on borrowings under the 2018 Credit Facility were either (i) from the Funding Date to the Maturity Date, 12.875% per annum, (ii) 11.875% per annum, once 50% of the term loan borrowings had been repaid or (iii) 10.875% per annum, once 75% of the term loan borrowings had been repaid. Interest payments began on the last day of the 3-month period commencing on the Funding Date. Within 90 days following the completion of the November 2020 Exchange Offer, the Company was required to repay $10 million of the 2018 Credit Facility. The amendment was accounted for as a modification in accordance with the provisions of ASC 470, “Debt”.
The Company's obligations under the 2018 Credit Facility were not secured. The 2018 Credit Facility was guaranteed on an unsecured basis by each entity that guarantees the Company's outstanding $350.0 million 2017 Credit Facility (as defined below).
The term loans could be voluntarily prepaid prior to February 15, 2020 subject to payment of a prepayment premium. The Company was required to repay principal to the extent then outstanding on each quarterly interest payment date, commencing on the last business day in March 2019, equal to one quarter of 7.5% of the aggregate initial principal amount of all term loans incurred on the Funding Date to December 2019, commencing on the last business day in March 2020, one quarter of 10.0% of the aggregate initial principal amount of all term loans incurred on the Funding Date to December 2021, and, commencing on the last business day in March 2021, one quarter of 12.5% of the aggregate initial principal amount of all term loans incurred on the Funding Date to December 2022. The Company was also required to use 75% of excess cash flow (“ECF payment”) as defined in the 2018 Credit Facility, which excluded any distributions to the Company or its restricted subsidiaries in respect of its interests in the MGM National Harbor, to repay outstanding term loans at par, paid semiannually and to use 100% of all distributions to the Company or its restricted subsidiaries received in respect of its interest in the MGM National Harbor to repay outstanding terms loans at par.
The 2018 Credit Facility contained customary representations and warranties and events of default, affirmative and negative covenants (in each case, subject to materiality exceptions and qualifications). The 2018 Credit Facility, as amended, also contained certain financial covenants, including a maintenance covenant requiring the Company's total gross leverage ratio to be not greater than 8.0 to 1.00 in 2019, 7.5 to 1.00 in 2020, 7.25 to 1.00 in 2021, 6.75 to 1.00 in 2022 and 6.25 to 1.00 in 2023.
The original issue discount in the amount of approximately $3.8 million and associated debt issuance costs in the amount of $875,000 were reflected as an adjustment to the carrying amount of the debt obligation and amortized to interest expense over the term of the credit facility using the effective interest rate method. The amortization of deferred financing costs was charged to interest expense for all periods presented.
MGM National Harbor Loan
Concurrently, on December 4, 2018, Urban One Entertainment SPV, LLC (“UONESPV”) and its immediate parent, Radio One Entertainment Holdings, LLC (“ROEH”), each of which is a wholly owned subsidiary of the Company, entered into a credit agreement, providing $50.0 million in term loan borrowings (the “MGM National Harbor Loan”) which was funded on December 20, 2018. On June 25, 2020, the Company borrowed an incremental $3.6 million on the MGM National Harbor Loan and used the proceeds to pay down the higher coupon 2018 Credit Facility by the same amount.
Until its termination on settlement of the 2028 Notes, the MGM National Harbor Loan was scheduled to mature on December 31, 2022 and bore interest at 7.0% per annum in cash plus 4.0% per annum paid-in kind. The loan had limited ability to be prepaid in the first two years. The loan was secured on a first priority basis by the assets of UONESPV and ROEH, including all of UONESPV's shares held by ROEH, all of UONESPV's interests in MGM National Harbor, its rights under the joint venture operating agreement governing the MGM National Harbor and UONESPV's obligation to exercise its put right under the joint venture operating agreement in the event of a UONESPV payment default or bankruptcy event, in each case, subject to applicable Maryland gaming laws and approvals. Exercise by UONESPV of its put right under the joint venture operating agreement was subject to required lender consent unless the proceeds are used to retire the MGM National Harbor Loan and any remaining excess is used to repay borrowings, if any, under the 2018 Credit Facility. The MGM National Harbor Loan also contained customary representations and warranties and events of default, affirmative and negative covenants (in each case, subject to materiality exceptions and qualifications).
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The original issue discount in the amount of approximately $1.0 million and associated debt issuance costs in the amount of approximately $1.7 million was being reflected as an adjustment to the carrying amount of the debt obligation and amortized to interest expense over the term of the obligation using the effective interest rate method. The amortization of deferred financing costs was charged to interest expense for all periods presented.
2017 Credit Facilities
On April 18, 2017, the Company closed on a senior secured credit facility (the “2017 Credit Facility”). The 2017 Credit Facility was governed by a credit agreement by and among the Company, the lenders party thereto from time to time and Guggenheim Securities Credit Partners, LLC, as administrative agent, The Bank of New York Mellon, as collateral agent, and Guggenheim Securities, LLC as sole lead arranger and sole book running manager. The 2017 Credit Facility provided for $350 million in term loan borrowings, all of which was advanced and outstanding on the date of the closing of the transaction.
Until its termination on settlement of the 2028 Notes, the 2017 Credit Facility matured on the earlier of (i) April 18, 2023, or (ii) in the event such debt is not repaid or refinanced, 91 days prior to the maturity of the Company’s 7.375% Notes (as defined below). At the Company’s election, the interest rate on borrowings under the 2017 Credit Facility are based on either (i) the then applicable base rate (as defined in the 2017 Credit Facility) as, for any day, a rate per annum (rounded upward, if necessary, to the next 1/100th of 1%) equal to the greater of (a) the prime rate published in the Wall Street Journal, (b) 1/2 of 1% in excess rate of the overnight Federal Funds Rate at any given time, (c) the one-month LIBOR rate commencing on such day plus 1.00%) and (d) 2%, or (ii) the then applicable LIBOR rate (as defined in the 2017 Credit Facility). The average interest rate was approximately 5.0% for 2021.
The 2017 Credit Facility was (i) guaranteed by each entity that guarantees the Company’s 7.375% Notes on a pari passu basis with the guarantees of the 7.375% Notes and (ii) secured on a pari passu basis with the Company’s 7.375% Notes. The Company’s obligations under the 2017 Credit Facility were secured, subject to permitted liens and except for certain excluded assets (i) on a first priority basis by certain notes priority collateral, and (ii) on a second priority basis by collateral for the Company’s asset-backed line of credit.
In addition to any mandatory or optional prepayments, the Company was required to pay interest on the term loans (i) quarterly in arrears for the base rate loans, and (ii) on the last day of each interest period for LIBOR loans. Certain voluntary prepayments of the term loans during the first six months required an additional prepayment premium. Beginning with the interest payment date occurring in June 2017 and ending in March 2023, the Company was required to repay principal, to the extent then outstanding, equal to 1∕4 of 1% of the aggregate initial principal amount of all term loans incurred on the effective date of the 2017 Credit Facility.
The 2017 Credit Facility contained customary representations and warranties and events of default, affirmative and negative covenants (in each case, subject to materiality exceptions and qualifications) which may be more restrictive than those governing the 7.375% Notes. The 2017 Credit Facility also contained certain financial covenants, including a maintenance covenant requiring the Company’s interest expense coverage ratio (defined as the ratio of consolidated EBITDA to consolidated interest expense) to be greater than or equal to 1.25 to 1.00 and its total senior secured leverage ratio (defined as the ratio of consolidated net senior secured indebtedness to consolidated EBITDA) to be less than or equal to 5.85 to 1.00.
The net proceeds from the 2017 Credit Facility were used to prepay in full the Company’s previous senior secured credit facility and the agreement governing such credit facility.
The 2017 Credit Facility contained affirmative and negative covenants that the Company was required to comply with, including:
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The original issue discount is being reflected as an adjustment to the carrying amount of the debt obligations and amortized to interest expense over the term of the credit facility using the effective interest rate method. The amortization of deferred financing costs was charged to interest expense for all periods presented.
7.375% Notes
On April 17, 2015, the Company closed a private offering of $350.0 million aggregate principal amount of 7.375% senior secured notes due 2022 (the “7.375% Notes”). The 7.375% Notes were offered at an original issue price of 100.0% plus accrued interest from April 17, 2015 and matured on April 15, 2022. Interest on the 7.375% Notes accrued at the rate of 7.375% per annum and was payable semiannually in arrears on April 15 and October 15, which commenced on October 15, 2015. The 7.375% Notes were guaranteed, jointly and severally, on a senior secured basis by the Company’s existing and future domestic subsidiaries, including TV One.
The Company used the net proceeds from the 7.375% Notes, to refinance a previous credit agreement, refinance certain TV One indebtedness, and finance the buyout of membership interests of Comcast in TV One and pay the related accrued interest, premiums, fees and expenses associated therewith.
Until their satisfaction and discharge on settlement of the 2028 Notes, the 7.375% Notes were the Company’s senior secured obligations and ranked equal in right of payment with all of the Company’s and the guarantors’ existing and future senior indebtedness, including obligations under the 2017 Credit Facility and the Company’s previously existing senior subordinated notes. The 7.375% Notes and related guarantees were equally and ratably secured by the same collateral securing the 2017 Credit Facility and any other parity lien debt issued after the issue date of the 7.375% Notes, including any additional notes issued under the Indenture, but were effectively subordinated to the Company’s and the guarantors’ secured indebtedness to the extent of the value of the collateral securing such indebtedness that does not also secure the 7.375% Notes. Collateral included substantially all of the Company’s and the guarantors’ current and future property and assets for accounts receivable, cash, deposit accounts, other bank accounts, securities accounts, inventory and related assets including the capital stock of each subsidiary guarantor.
On November 9, 2020, we completed the November 2020 Exchange Offer of 99.15% of our outstanding 7.375% Notes for $347 million aggregate principal amount of 8.75% Notes.
Asset-Backed Credit Facilities
On April 21, 2016, the Company entered into a senior credit agreement governing an asset-backed credit facility (the “2016 ABL Facility”) among the Company, the lenders party thereto from time to time and Wells Fargo Bank National Association, as administrative agent (the “Administrative Agent”). The 2016 ABL Facility originally provided for $25 million in revolving loan borrowings in order to provide for the working capital needs and general corporate requirements of the Company. On November 13, 2019, the Company entered into an amendment to the 2016 ABL Facility, (the “2016 ABL Amendment”), which increased the borrowing capacity from $25 million in revolving loan borrowings to $37.5 million in order to provide for the working capital needs and general corporate requirements of the Company and provides for a letter of credit facility up to $7.5 million as a part of the overall $37.5 million in capacity. The 2016 ABL Amendment also redefined the “Maturity Date” to be “the earlier to occur of (a) April 21, 2021 and (b) the date that is thirty (30) days prior to the earlier to occur of (i) the Term Loan Maturity Date (as defined in the Term Loan Credit Agreement as in effect on the Effective Date or as the same may be extended in accordance with the terms of the Term Loan Credit Agreement), and (ii) the Stated Maturity (as defined in the Senior Secured Notes Indenture (as defined in the Term Loan Credit Agreement)) of the Notes (as defined in the Senior Secured Notes Indenture as in effect on the Effective Date or as the same may be extended in accordance with the terms of the Senior Secured Notes Indenture).”
At the Company’s election, the interest rate on borrowings under the 2016 ABL Facility were based on either (i) the then applicable margin relative to Base Rate Loans (as defined in the 2016 ABL Facility) or (ii) the then applicable margin relative to LIBOR Loans (as
28
defined in the 2016 ABL Facility) corresponding to the average availability of the Company for the most recently completed fiscal quarter.
Advances under the 2016 ABL Facility were limited to (a) eighty-five percent (85%) of the amount of Eligible Accounts (as defined in the 2016 ABL Facility), less the amount, if any, of the Dilution Reserve (as defined in the 2016 ABL Facility), minus (b) the sum of (i) the Bank Product Reserve (as defined in the 2016 ABL Facility), plus (ii) the aggregate amount of all other reserves, if any, established by Administrative Agent.
All obligations under the 2016 ABL Facility were secured by first priority lien on all (i) deposit accounts (related to accounts receivable), (ii) accounts receivable, (iii) all other property which constitutes ABL Priority Collateral (as defined in the 2016 ABL Facility). The obligations were also secured by all material subsidiaries of the Company.
The 2016 ABL Facility was subject to the terms of the Intercreditor Agreement (as defined in the 2016 ABL Facility) by and among the Administrative Agent, the administrative agent for the secured parties under the Company’s term loan and the trustee and collateral trustee under the senior secured notes indenture.
In connection with the offering of the 2028 Notes, the Company entered into an amendment of its 2016 ABL Facility to facilitate the issuance of the 2028 Notes. The amendments to the 2016 ABL Facility, include, among other things, a consent to the issuance of the 2028 Notes, revisions to terms and exclusions of collateral and addition of certain subsidiaries as guarantors.
On February 19, 2021, the Company closed on a newits current asset backed credit facility (the “Current 2021 ABL Facility”). The Current 2021 ABL Facility is governed by a credit agreement by and among the Company, the other borrowers party thereto, the lenders party thereto from time to time and Bank of America, N.A., as administrative agent. The Current 2021 ABL Facility provides for up to $50$50.0 million revolving loan borrowings in order to provide for the working capital needs and general corporate requirements of the Company. The Current 2021 ABL Facility also provides for a letter of credit facility up to $5$5.0 million as a part of the overall $50$50.0 million in capacity. On closing of the Current 2021 ABL Facility, the 2016 ABL Facilityformer facility was terminated on February 19, 2021. As of June 30,March 31, 2023 and December 31, 2022, there was 0no balance outstanding on the Current 2021 ABL Facility.
At the Company’s election, the interest rate on borrowings under the Current 2021 ABL Facility areis based on either (i) the then applicable margin relative to Base Rate Loans (as defined in the Current 2021 ABL Facility) or (ii) the then applicable margin relative to LIBOR Loans (as defined in the Current 2021 ABL Facility) corresponding to the average availability of the Company for the most recently completed fiscal quarter. See Note 12 – Subsequent Events of our consolidated financial statements for further details.
Advances under the Current 2021 ABL Facility are limited to (a) eighty-five percent (85%) of the amount of Eligible Accounts (as defined in the Current 2021 ABL Facility), less the amount, if any, of the Dilution Reserve (as defined in the Current 2021 ABL Facility), minus (b) the sum of (i) the Bank Product Reserve (as defined in the Current 2021 ABL Facility), plus (ii) the AP and Deferred Revenue Reserve (as defined in the Current 2021 ABL Facility), plus (iii) without duplication, the aggregate amount of all other reserves, if any, established by Administrative Agent.
All obligations under the Current 2021 ABL Facility are secured by a first priority lien on all (i) deposit accounts (related to accounts receivable), (ii) accounts receivable, and (iii) all other property which constitutes ABL Priority Collateral (as defined in the Current 2021 ABL Facility). The obligations are also guaranteed by all material restricted subsidiaries of the Company. The Current ABL Facility includes a covenant requiring the Company’s fixed charge coverage ratio, as defined in the agreement, to not be less than 1.00 to 1.00. The Company has obtained waivers due to certain events of default related to the Company's failure to timely deliver certain financial deliverables. See Note 12 – Subsequent Events of our consolidated financial statements for further details.
The Current 2021 ABL Facility matures on the earlier to occur of: (a) the date that is five (5) years from the effective date of the Current 2021 ABL Facility, and (b) 91 days prior to the maturity of the Company’s 2028 Notes.
Finally, theThe Current 2021 ABL Facility is subject to the terms of the Revolver Intercreditor Agreement (as defined in the Current 2021 ABL Facility) by and among the Administrative Agent and Wilmington Trust, National Association. See Note 12 – Subsequent Events of our consolidated financial statements for further details.
Letter of Credit Facility
On February 24, 2015, theThe Company entered intohad a letter of credit reimbursement and security agreement providingwith capacity of up to $1.2 million which expires on October 8, 2024. As of March 31, 2023, the Company had letters of credit totaling $0.8 million under the agreement for certain operating leases and certain insurance policies. Letters of credit issued under the agreement are required to be collateralized with cash. In addition, the Current ABL Facility provides for letter of credit capacity of up to $1.2 million. On October 8, 2019, the Company entered into an amendment$5.0 million subject to its letter of credit reimbursement and security agreement and extended the term to October 8, 2024. As of June 30, 2022, the Company had letters of credit totalingcertain limitations on availability.
2930
$871,000 under the agreement for certain operating leases and certain insurance policies. Letters of credit are issued under the agreement are required to be collateralized with cash. In addition, the Current 2021 ABL Facility provides for letter of credit capacity of up to $5 million subject to certain limitations on availability.
Future Minimum Principal Payments
Future scheduled minimum principal payments of debt as of June 30, 2022,March 31, 2023, are as follows:
| | | | | | | | | |
| | 7.375% Senior | | |
| | 7.375% Senior | ||
| | Secured Notes due | | | | | Secured Notes due | ||
|
| February 2028 |
| Total |
| February 2028 | |||
| | (In thousands) | | (In thousands) | |||||
July - December 2022 |
| $ | 0 |
| $ | 0 | |||
2023 | | | 0 | | | 0 | |||
April - December 2023 |
| $ | — | ||||||
2024 | | | 0 | | | 0 | | | — |
2025 | | | 0 | | | 0 | | | — |
2026 | | | 0 | | | 0 | | | — |
2027 and thereafter | | | 800,000 | | | 800,000 | |||
Total Debt |
| $ | 800,000 |
| $ | 800,000 | |||
2027 | | | — | ||||||
2028 and thereafter | | | 725,000 | ||||||
Total debt |
| $ | 725,000 |
5.7. INCOME TAXES:
The Company uses the estimated annual effective tax rate method under ASC 740-270, “Interim Reporting”“Interim Reporting” to calculate the provision for income taxes. The Company recorded a provision forbenefit from income taxes of approximately $9.3$1.2 million on pre-tax incomeloss from continuing operations of approximately $42.2$3.6 million for the sixthree months ended June 30, 2022,March 31, 2023, which results in an effective tax rate of approximately 22.1%32.5%. This rate is based on the estimated annual effective tax rate of approximately 27.1%27.6%, and discrete tax benefits of approximately $2.1 million$94,000 primarily related to non-taxable income forgiveness of the PPP Loan.statutory state tax rates and apportionment changes.
In accordance with ASC 740, “Accounting“Accounting for Income Taxes,” the Company continues to evaluate the realizability of its net DTAsdeferred tax assets (“DTAs”) by assessing the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns, tax planning strategies, and future profitability. As of June 30, 2022,March 31, 2023, the Company believes it is more likely than not that these DTAs will be realized.
The Company is subject to the continuous examination of our income tax returns by the IRS and other domestic tax authorities. We believeThe Company believes that an adequate provision has been made for any adjustments that may result from tax examinations. The Company believes that it is reasonably possible that a decrease of up to $680,000$57,000 of unrecognized tax benefits related to state tax exposures may occur within the next twelve months.
6.8. STOCKHOLDERS’ EQUITY:
On June 16, 2020, the Company’s Board of Directors authorized an amendment (the “Potential Amendment”) of Urban One's certificate of incorporation to effect a reverse stock split across all classes of common stock by a ratio of not less than one-for-two and not more than one-for-fifty at any time prior to December 31, 2021, with the exact ratio to be set at a whole number within this range as determined by our board of directors in its discretion. The Company’s shareholders approved the Potential Amendment at the annual meeting of the shareholders June 16, 2020. The Company did not act on the Potential Amendment but may do so in the future as determined by our board of directors in its discretion. On June 23, 2021, the Company’s Board of Directors authorized an amendment of the Urban One 2019 Equity and Performance Incentive Plan to increase the number of shares available for grant and to provide the grant of Class A as well as Class D shares. The amendment was approved by the Company’s shareholders and added 5,519,575 shares of Class D Shares and added 2,000,000 Class A Shares.
On August 18, 2020, the Company entered into an Open Market Sales Agreement with Jefferies LLC (“Jefferies”) under which the Company sold shares of its Class A common stock, par value $0.001 per share (the “Class A Shares”) up to an aggregate offering price of $25 million (the “2020 ATM Program”). Jefferies acted as sales agent for the 2020 ATM Program. During the year ended December
30
31, 2020, the Company issued 2,859,276 shares of its Class A Shares at a weighted average price of $5.39 for approximately $14.7 million of net proceeds after associated fees and expenses.
On January 19, 2021, the Company completed its 2020 ATM Program, sold an additional 1,465,826 shares for an aggregate of 4,325,102 Class A shares sold through the 2020 ATM Program, receiving gross proceeds of approximately $25.0 million and net proceeds of approximately $24.0 million for the program (inclusive of the $14.7 million sold during the year ended December 31, 2020). On January 27, 2021, the Company entered into a new 2021 Open Market Sale Agreement (the “2021 Sale Agreement”) with Jefferies under which the Company could sell up to an additional $25.0 million of Class A Shares, through Jefferies as its sales agent. During the three months ended March 31, 2021, the Company issued and sold an aggregate of 420,439 Class A Shares pursuant to the 2021 Sale Agreement and received gross proceeds of approximately $3.0 million and net proceeds of approximately $2.8 million, after deducting commissions to Jefferies and other offering expenses. During the three months ended June 30, 2021, the Company issued and sold an aggregate of 1,893,126 Class A Shares pursuant to the 2021 Sale Agreement and received gross proceeds of approximately $22.0 million and net proceeds of approximately $21.2 million, after deducting commissions to Jefferies and other offering expenses which completed its 2021 ATM Program.
On May 17, 2021, the Company entered into an Open Market Sale AgreementSM (the “Class D Sale Agreement”) with Jefferies under which the Company may offer and sell, from time to time at its sole discretion, shares of its Class D common stock, par value $0.001 per share (the “Class D Shares”), through Jefferies as its sales agent. On May 17, 2021, the Company filed a prospectus supplement pursuant to the Class D Sale Agreement for the offer and sale of its Class D Shares having an aggregate offering price of up to $25.0 million. As of June 30, 2022, the Company has 0t sold any Class D Shares under the Class D Sale Agreement. The Company may from time to time also enter into new additional ATM programs and issue additional common stock from time to time under those programs.
On October 29, 2021, Alfred C. Liggins, President and Chief Executive Officer of Urban One, Inc. and/or Catherine L. Hughes, Founder and Chairperson of Urban One, Inc., and/or their affiliates converted a total of 883,890 shares of Class C Common Stock into 883,890 shares of Class A Common Stock.
Stock Repurchase Program
From time to time, the Company’s Board of Directors has authorized repurchases of shares of the Company’s Class A and Class D common stock. On March 7, 2022, the Board of the Company authorized and approved a share repurchase program for up to $25 million of the currently outstanding shares of the Company’s Class A and/or Class D common stock over a period of 24 months. Under the stock repurchase program, the Company intends to repurchase shares through open market purchases, privately negotiated transactions, block purchases or otherwise in accordance with applicable federal securities laws, including Rule 10b-18 of the Securities Exchange Act of 1934 (the “Exchange Act”).
Under open authorizations, repurchases may be made from time to time in the open market or in privately negotiated transactions in accordance with applicable laws and regulations. Shares are retired when repurchased. The timing and extent of any repurchases will depend upon prevailing market conditions, the trading price of the Company’s Class A and/or Class D common stock and other factors, and subject to restrictions under applicable law. When in effect, the Company executes upon stock repurchase programs in a manner consistent with market conditions and the interests of the stockholders, including maximizing stockholder value. During the three and six months ended June 30, 2022,March 31, 2023, the Company repurchased 4,665,589824 shares of Class D common stock in the amount offor approximately $24.6 million$3,000 at an average price of $5.26$3.99 per share and did 0t repurchase any Shares of Class A common stock.share. As of June 30, 2022,March 31, 2023, the Company had $439,000approximately $10.0 million remaining under its most recent and open authorization with respect to its Class A and Class D common stock. During the three and six months ended June 30, 2021,March 31, 2022, the Company did 0tnot repurchase any shares of Class A common stock orand Class D common stock.
31
TableOn September 27, 2022, the Compensation Committee authorized the repurchase of Contentsup to $500,000 worth of shares in the aggregate from employees who want to sell in connection with the Company’s most recent employee stock grant. During the three months ended March 31, 2023, the Company did not repurchase any shares of Class A or Class D stock under this authorization.Giving effect to repurchases, the Company has $443,000 remaining under its most recent and open authorization.
In addition, the Company has limited but ongoing authority to purchase shares of Class D common stock (in one or more transactions at any time there remain outstanding grants) under the Company’s 2009 Stock Plan and 2019 Equity and Performance Incentive Plan (both as defined below). AsPlan. This limited authority is used to
31
satisfy any employee or other recipient tax obligations in connection with the exercise of an option or a share grant under the 2009 Stock Plan and the 2019 Equity and Performance Incentive Plan, to the extent that the Company has capacity under its financing agreements (i.e., its current credit facilities and indentures) (each a “Stock Vest Tax Repurchase”). During the three months ended June 30,March 31, 2023 and 2022, the Company executed a Stock Vest Tax RepurchaseRepurchases of 16,181255,618 shares of Class D Common Stock in the amount of $91,000approximately $1.3 million at an average price of $5.64$5.17 per share. During the three months ended June 30, 2021, the Company executed a Stock Vest Tax Repurchase of 14,051share and 2,649 shares of Class D Common Stock in the amount of $33,000$10,000 at an average price of $2.36$3.63 per share. During the six months ended June 30, 2022, the Company executed a Stock Vest Tax Repurchase of 18,830 shares of Class D Common Stock in the amount of $101,000 at an average price of $5.36 per share. During the six months ended June 30, 2021, the Company executed a Stock Vest Tax Repurchase of 509,347 shares of Class D Common Stock in the amount of $904,000 at an average price of $1.78 per share.share, respectively.
Stock Option and Restricted Stock Grant Plan
Our 2009 stock option and restricted stock plan (the “2009 Stock Plan”) was originally approved by the stockholders at the Company’s annual meeting on December 16, 2009. The Company had the authority to issue up to 8,250,000 shares of Class D Common Stock under the 2009 Stock Plan. Since its original approval, from time to time, the Board of Directors adoptedhas one equity and as required, our stockholders approved certain amendments to and restatement of the 2009 Stock Plan (the “Amended and Restated 2009 Stock Plan”). The amendments under the Amended and Restated 2009 Stock Plan primarily affected (i) the number of shares with respect to which options and restricted stock grants may be granted under the 2009 Stock Plan and (ii) the maximum number of shares that can be awarded to any individual in any one calendar year. On April 13, 2015, the Board of Directors adopted, and our stockholders approved on June 2, 2015, an amendment that replenished the authorizedperformance incentive plan, shares, increasing the number of shares of Class D common stock available for grant back up to 8,250,000 shares. Our new stock option and restricted stock plan (“2019 Equity and Performance Incentive Plan”), currently in effect was approved by the stockholders at the Company’s annual meeting on May 21, 2019. The Board of Directors adopted, and on May 21, 2019, our stockholders approved, the 2019 Equity and Performance Incentive Plan, which is funded with 5,500,000 shares offor stock options and restricted stock. Both Class A and Class D Common Stock.common stock are available for grant. The Company uses an average life for all option awards. The Company settles stock options, net of tax, upon exercise by issuing stock. As of June 30, 2022, 5,836,380 shares of Class D common stock and 2,000,000 shares of Class A common stock were available for grant under
During the 2019 Equity and Performance Incentive Plan.
On June 12, 2019,quarter ended March 31, 2023, the Compensation Committee (“Compensation Committee”) of the Board of Directors of the Company awarded Catherine Hughes, Chairperson, 427,148certain executive officers and management personnel 743,599 restricted shares of the Company’s Class D common stock, and stock options to purchase 189,843439,429 shares of the Company’s Class D common stock. The grants were effective June 5, 2020 and vested on January 6, 2021.
On June 12, 2019, the Compensation Committee awarded Alfred Liggins, Chief Executive Officer and President, 711,914Of these awards, 688,987 restricted shares of the Company’s Class D common stock and stock options to purchase 316,406 shares of the Company’s Class D common stock. The grants were effective June 5, 2020 and vested on January 6, 2021.
On June 12, 2019, the Compensation Committee awarded Peter Thompson, Chief Financial Officer, 243,750 restricted415,141 shares of the Company’s Class D common stock and stock optionsvested upon grant. In connection with the vesting of these awards, a total of 226,980 shares were disposed of to purchase 108,333 shares ofsettle the Company’s Class D common stock. The grants were effective June 5, 2020 and vested on January 6, 2021.
On June 12, 2019, the Compensation Committee awarded David Kantor, Chief Executive Officer – Radio Division, 211,838 restricted shares of the Company’s Class D common stock, and stock options to purchase 94,150 shares of the Company’s Class D common stock. The grants were effective June 5, 2020 and vested on January 6, 2021.recipients’ tax obligations.
Pursuant to the terms of each of our stock plans and subject to the Company’s insider trading policy, a portion of each recipient’s vested shares may be sold in the open market for tax purposes on or about the vesting dates.
Stock-based compensation expense for the three months ended June 30, 2022 and 2021, was $336,000 and $172,000, respectively and for the six months ended June 30, 2022 and 2021, was $460,000 and $425,000, respectively.
The Company granted a total of 439,429 and 6,887 stock options duringto purchase the three and six months ended June 30, 2022, did not grant any stock optionsCompany’s Class D shares during the three months ended June 30, 2021,March 31, 2023, and granted 20,000 stock options during the six months ended June 30, 2021.2022, respectively.
32
Transactions and other information relating to stock options for the sixthree months ended June 30, 2022,March 31, 2023, are summarized below:
| | | | | | | | | | | | | | | | | | | | |
|
| |
| | |
| Weighted-Average |
| | |
| |
| | |
| Weighted-Average |
| | |
| | | | | | | Remaining | | Aggregate | | | | | | | Remaining | | Aggregate | ||
| | Number of | | Weighted-Average | | Contractual Term | | Intrinsic | | Number of | | Weighted-Average | | Contractual Term | | Intrinsic | ||||
| | Options | | Exercise Price | | (In Years) | | Value | | Options | | Exercise Price | | (In Years) | | Value | ||||
Outstanding at December 31, 2021 |
| 3,771,000 | | $ | 2.18 |
| 5.68 | | $ | 4,660,000 | ||||||||||
Outstanding at December 31, 2022 |
| 4,594,734 | | $ | 2.59 |
| 5.72 | | $ | 5,871,492 | ||||||||||
Grants |
| 7,000 | | $ | 3.63 |
| — | |
| 0 |
| 439,429 | | | 5.14 |
| — | |
| — |
Exercised |
| (60,000) | | $ | 0.83 |
| — | |
| 0 |
| — | | | — |
| — | |
| — |
Forfeited/cancelled/expired/settled |
| 0 | | $ | 0 |
| — | |
| 0 |
| — | | | — |
| — | |
| — |
Balance as of June 30, 2022 |
| 3,718,000 | | $ | 2.20 |
| 5.28 | | $ | 7,794,000 | ||||||||||
Vested and expected to vest at June 30, 2022 |
| 3,717,000 | | $ | 2.20 |
| 5.28 | | $ | 7,794,000 | ||||||||||
Unvested at June 30, 2022 |
| 11,000 | | $ | 7.26 |
| 9.26 | | $ | 0 | ||||||||||
Exercisable at June 30, 2022 |
| 3,707,000 | | $ | 2.19 |
| 5.27 | | $ | 7,794,000 | ||||||||||
Balance as of March 31, 2023 |
| 5,034,163 | | $ | 2.81 |
| 5.86 | | $ | 13,575,645 | ||||||||||
Vested and expected to vest at March 31, 2023 |
| 4,982,498 | | | 2.80 |
| 5.82 | | | 13,510,620 | ||||||||||
Unvested at March 31, 2023 |
| 441,730 | | | 4.28 |
| 9.51 | | | 539,477 | ||||||||||
Exercisable at March 31, 2023 |
| 4,592,433 | | | 2.67 |
| 5.51 | | | 13,036,168 |
The aggregate intrinsic value in the table above represents the difference between the Company’s stock closing price on the last day of trading during the sixthree months ended June 30, 2022,March 31, 2023, and the exercise price, multiplied by the number of shares that would have been received by the holders of in-the-money options had all the option holders exercised their options on June 30, 2022.March 31, 2023. This amount changes based on the fair market value of the Company’s stock.
There were 60,240no options exercised during the three and six months ended June 30,March 31 2023 and 2022, respectively. A total of 463,497 and there were 197,256 options exercised during the three and six months ended June 30, 2021. NaN16,795 options vested during the three months ended June 30,March 31, 2023 and 2022, and June 30, 2021. There were 16,795 options vested during the six months ended June 30, 2022 and 832,847 options vested during six months ended June 30, 2021.respectively.
As of June 30, 2022, $3,000March 31, 2023, approximately $0.9 million of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of less than one month.14 months. The weighted-average fair value per share of shares underlying stock options was $1.46$1.76 at June 30, 2022.March 31, 2023.
The Company granted 54,759did not grant any options to purchase shares of restrictedClass A common stock during the three and six months ended June 30, 2022March 31, 2023 and 2022. The Company granted 62,373a total of 743,599 and 6,887 restricted shares of restrictedClass D common stock during the three and six months ended June 30, 2021. March 31, 2023 and 2022, respectively.
On July 6, 2021, each32
Activity relating to grants of restricted stock or $50,000 worthshares of restricted stock based upon the closing price of the Company's Class D common stock on July 6, 2021. The restricted stock grants for the non-executive directors vest over a two-year period in equal 50% installments. See Note 9 – Subsequent Events.
Transactions and other information relating to restricted stock grants for the sixthree months ended June 30, 2022,March 31, 2023, are summarized below:
| | | | | | | | | | |
|
| |
| Average |
| |
| Average | ||
| | | | Fair Value | | | | Fair Value | ||
| | | | at Grant | | | | at Grant | ||
| | Shares | | Date | | Shares | | Date | ||
Unvested at December 31, 2021 |
| 76,000 | | $ | 3.90 | |||||
Unvested at December 31, 2022 |
| 434,264 | | $ | 4.27 | |||||
Grants |
| 55,000 | | $ | 5.39 |
| 743,599 | | | 5.13 |
Vested |
| (82,000) | | $ | 4.51 |
| (771,729) | | | 5.04 |
Forfeited/cancelled/expired |
| 0 | | $ | 0 |
| — | | | — |
Unvested at June 30, 2022 |
| 49,000 | | $ | 4.56 | |||||
Unvested at March 31, 2023 |
| 406,134 | | $ | 4.39 |
The Company did not award any restricted shares of Class A common stock during the three months ended March 31, 2023 and 2022. There were no restricted shares of Class A common stock that vested or were cancelled during the period. There were 750,000 unvested shares of restricted Class A common stock as of March 31, 2023 and no unvested shares of restricted Class A common stock as of March 31, 2022.
Restricted stock grants for Class A and Class D shares were and are included in the Company’s outstanding share numbers on the effective date of grant. As of June 30, 2022, $45,000March 31, 2023, approximately $3.1 million of total unrecognized compensation cost related to awards of restricted Class A common stock grants is expected to be recognized over a weighted-average period of five21 months. As of March 31, 2023, approximately $1.2 million of total unrecognized compensation cost related to awards of restricted Class D common stock is expected to be recognized over a weighted-average period of 12 months.
33
7.9. SEGMENT INFORMATION:
The Company has 4four reportable segments: (i) radio broadcasting; (ii) Reach Media; (iii) digital; and (iv) cable television. These segments operate in the United States and are consistently aligned with the Company’s management of its businesses and its financial reporting structure.
The radio broadcasting segment consists of all broadcast results of operations. The Reach Media segment consists of the results of operations for the related activities and operations of our syndicated shows. The digital segment includes the results of our online business, including the operations of Interactive One, as well as the digital components of our other reportable segments. The cable television segment consists of the Company’s cable TV operation, including results of operations of TV One and CLEO TV. Corporate/Eliminations represents financial activity associated with our corporate staff and offices and intercompany activity amongBusiness activities unrelated to these four segments are included in an “all other” category which the 4 segments.Company refers to as “All other - corporate/eliminations.”
Operating loss or income represents total revenues less operating expenses, depreciation and amortization, and impairment of goodwill, intangible assets, and long-lived assets. Intercompany revenue earned and expenses charged between segments are recorded at estimated fair value and eliminated in consolidation.
The accounting policies described in the summary of significant accounting policies in Note 13 – Organization and Summary of Significant Accounting Policies of our consolidated financial statements are applied consistently across the segments.
Detailed segment data for the three and six months ended June 30, 2022 and 2021, is presented in the following tables:
3433
Detailed segment data for the three months ended March 31, 2023 and 2022, is presented in the following tables:
| | | | | | | | | | | | |
| | Three Months Ended | | Three Months Ended | ||||||||
| | June 30, | | March 31, | ||||||||
|
| 2022 |
| 2021 |
| 2023 |
| 2022 | ||||
| | (Unaudited) | | (Unaudited) | ||||||||
| | (In thousands) | | (In thousands) | ||||||||
| | | | | (As Revised) | |||||||
Net Revenue: |
| |
|
| |
|
| |
|
| |
|
Radio Broadcasting | | $ | 37,192 | | $ | 35,465 | | $ | 35,180 | | $ | 31,493 |
Reach Media | |
| 11,092 | |
| 9,414 | |
| 10,917 | |
| 10,030 |
Digital | |
| 17,881 | |
| 15,129 | |
| 15,071 | |
| 15,486 |
Cable Television | |
| 53,449 | |
| 48,461 | |
| 49,677 | |
| 56,216 |
Corporate/Eliminations* | |
| (804) | |
| (876) | ||||||
All other - corporate/eliminations* | |
| (976) | |
| (1,094) | ||||||
Consolidated | | $ | 118,810 | | $ | 107,593 | | $ | 109,869 | | $ | 112,131 |
| | | | | | | | | | | | |
Operating Expenses (including stock-based compensation and excluding depreciation and amortization and impairment of long-lived assets): | |
| | |
| | ||||||
Operating Expenses (excluding depreciation and amortization and impairment of goodwill, intangible assets, and long-lived assets): | |
| | |
| | ||||||
Radio Broadcasting | | $ | 25,538 | | $ | 22,369 | | $ | 26,448 | | $ | 23,618 |
Reach Media | |
| 6,279 | |
| 6,002 | |
| 7,736 | |
| 6,196 |
Digital | |
| 10,218 | |
| 8,800 | |
| 11,350 | |
| 10,864 |
Cable Television | |
| 25,551 | |
| 23,550 | |
| 29,383 | |
| 25,929 |
Corporate/Eliminations | |
| 7,975 | |
| 6,627 | ||||||
All other - corporate/eliminations | |
| 7,460 | |
| 6,658 | ||||||
Consolidated | | $ | 75,561 | | $ | 67,348 | | $ | 82,377 | | $ | 73,265 |
| | | | | | | | | | | | |
Depreciation and Amortization: | |
| | |
| | |
| | |
| |
Radio Broadcasting | | $ | 825 | | $ | 792 | | $ | 917 | | $ | 815 |
Reach Media | |
| 46 | |
| 53 | |
| 40 | |
| 47 |
Digital | |
| 332 | |
| 315 | |
| 337 | |
| 333 |
Cable Television | |
| 952 | |
| 937 | |
| 965 | |
| 946 |
Corporate/Eliminations | |
| 326 | |
| 228 | ||||||
All other - corporate/eliminations | |
| 338 | |
| 264 | ||||||
Consolidated | | $ | 2,481 | | $ | 2,325 | | $ | 2,597 | | $ | 2,405 |
| | | | | | | | | | | | |
Impairment of Long-Lived Assets: | |
| | |
| | ||||||
Impairment of Goodwill, Intangible Assets, and Long-Lived Assets: | |
| | |
| | ||||||
Radio Broadcasting | | $ | 16,933 | | $ | — | | $ | 16,775 | | $ | — |
Reach Media | |
| — | |
| — | |
| — | |
| — |
Digital | |
| — | |
| — | |
| — | |
| — |
Cable Television | |
| — | |
| — | |
| — | |
| — |
Corporate/Eliminations | |
| — | |
| — | ||||||
All other - corporate/eliminations | |
| — | |
| — | ||||||
Consolidated | | $ | 16,933 | | $ | — | | $ | 16,775 | | $ | — |
| | | | | | | | | | | | |
Operating income (loss): | |
| | |
| | |
| | |
| |
Radio Broadcasting | | $ | (6,104) | | $ | 12,304 | | $ | (8,960) | | $ | 7,060 |
Reach Media | |
| 4,767 | |
| 3,359 | |
| 3,141 | |
| 3,787 |
Digital | |
| 7,331 | |
| 6,014 | |
| 3,384 | |
| 4,289 |
Cable Television | |
| 26,946 | |
| 23,974 | |
| 19,329 | |
| 29,341 |
Corporate/Eliminations | |
| (9,105) | |
| (7,731) | ||||||
All other - corporate/eliminations | |
| (8,774) | |
| (8,016) | ||||||
Consolidated | | $ | 23,835 | | $ | 37,920 | | $ | 8,120 | | $ | 36,461 |
| | | | | | | | | | | | |
* Intercompany revenue included in net revenue above is as follows: | | | | | | | | | | | | |
Radio Broadcasting |
| $ | (804) |
| $ | (876) |
| $ | (976) |
| $ | (1,094) |
| | | | | | |
Capital expenditures by segment are as follows: |
| | | | | |
Radio Broadcasting |
| $ | 616 |
| $ | 966 |
Reach Media | |
| 153 | |
| 31 |
Digital | |
| 410 | |
| 246 |
Cable Television | |
| 233 | |
| 144 |
Corporate/Eliminations | |
| 883 | |
| 263 |
Consolidated | | $ | 2,295 | | $ | 1,650 |
| | | | | | |
Capital expenditures by segment are as follows: |
| | | | | |
Radio broadcasting |
| $ | 1,015 |
| $ | 640 |
Reach Media | |
| 34 | |
| 21 |
Digital | |
| 600 | |
| 225 |
Cable television | |
| 11 | |
| 383 |
All other - corporate/eliminations | |
| 349 | |
| 307 |
Consolidated | | $ | 2,009 | | $ | 1,576 |
3534
| | | | | | |
| | Six Months Ended | ||||
| | June 30, | ||||
|
| 2022 |
| 2021 | ||
| | (Unaudited) | ||||
| | (In thousands) | ||||
Net Revenue: |
| |
|
| |
|
Radio Broadcasting | | $ | 68,684 | | $ | 63,253 |
Reach Media | |
| 21,123 | |
| 17,230 |
Digital | |
| 33,367 | |
| 25,484 |
Cable Television | |
| 109,883 | |
| 94,703 |
Corporate/Eliminations* | |
| (1,898) | |
| (1,637) |
Consolidated | | $ | 231,159 | | $ | 199,033 |
| |
| | |
| |
Operating Expenses (including stock-based compensation and excluding depreciation and amortization and impairment of long-lived assets): | |
| | |
| |
Radio Broadcasting | | $ | 49,156 | | $ | 45,698 |
Reach Media | |
| 12,475 | |
| 11,176 |
Digital | |
| 21,082 | |
| 16,853 |
Cable Television | |
| 51,698 | |
| 45,071 |
Corporate/Eliminations | |
| 14,556 | |
| 13,969 |
Consolidated | | $ | 148,967 | | $ | 132,767 |
| |
| | |
| |
Depreciation and Amortization: | |
| | |
| |
Radio Broadcasting | | $ | 1,640 | | $ | 1,522 |
Reach Media | |
| 93 | |
| 111 |
Digital | |
| 665 | |
| 638 |
Cable Television | |
| 1,899 | |
| 1,866 |
Corporate/Eliminations | |
| 589 | |
| 452 |
Consolidated | | $ | 4,886 | | $ | 4,589 |
| |
| | |
| |
Impairment of Long-Lived Assets: | |
| | |
| |
Radio Broadcasting | | $ | 16,933 | | $ | — |
Reach Media | |
| — | |
| — |
Digital | |
| — | |
| — |
Cable Television | |
| — | |
| — |
Corporate/Eliminations | |
| — | |
| — |
Consolidated | | $ | 16,933 | | $ | — |
| |
| | |
| |
Operating income (loss): | |
| | |
| |
Radio Broadcasting | | $ | 955 | | $ | 16,033 |
Reach Media | |
| 8,555 | |
| 5,943 |
Digital | |
| 11,620 | |
| 7,993 |
Cable Television | |
| 56,286 | |
| 47,766 |
Corporate/Eliminations | |
| (17,043) | |
| (16,058) |
Consolidated | | $ | 60,373 | | $ | 61,677 |
| | | | | | |
* Intercompany revenue included in net revenue above is as follows: | | | | | | |
Radio Broadcasting |
| $ | (1,898) |
| $ | (1,637) |
| | | | | | |
Capital expenditures by segment are as follows: |
| |
|
| |
|
Radio Broadcasting | | $ | 1,256 | | $ | 1,227 |
Reach Media | |
| 174 | |
| 32 |
Digital | |
| 635 | |
| 572 |
Cable Television | |
| 616 | |
| 182 |
Corporate/Eliminations | |
| 1,190 | |
| 441 |
Consolidated | | $ | 3,871 | | $ | 2,454 |
36
| | | | | | | | | | | | |
| | As of | | As of | ||||||||
|
| June 30, |
| December 31, |
| March 31, |
| December 31, | ||||
| | 2022 | | 2021 | | 2023 | | 2022 | ||||
| | (Unaudited) | | | | | (In thousands) | |||||
| | (In thousands) | | | | | (As Revised) | |||||
Total Assets: | | | | | | | ||||||
Radio Broadcasting | | $ | 604,868 | | $ | 627,948 | ||||||
Total assets: | | | | | | | ||||||
Radio broadcasting | | $ | 584,446 | | $ | 605,703 | ||||||
Reach Media | |
| 32,913 | |
| 33,451 | |
| 44,228 | |
| 48,936 |
Digital | |
| 30,292 | |
| 32,915 | |
| 27,334 | |
| 35,766 |
Cable Television | |
| 397,214 | |
| 367,896 | ||||||
Corporate/Eliminations | |
| 189,477 | |
| 198,898 | ||||||
Cable television | |
| 409,899 | |
| 414,324 | ||||||
All other - corporate/eliminations | |
| 218,564 | |
| 239,917 | ||||||
Consolidated | | $ | 1,254,764 | | $ | 1,261,108 | | $ | 1,284,471 | | $ | 1,344,646 |
8.10. COMMITMENTS AND CONTINGENCIES:
Radio Broadcasting Licenses
Each of the Company’s radio stations operates pursuant to one or more licenses issued by the Federal Communications Commission that have a maximum term of eight years prior to renewal. The Company’s radio broadcasting licenses expire at various times beginning in October 2027 through August 1, 2030. Although the Company may apply to renew its radio broadcasting licenses, third parties may challenge the Company’s renewal applications. The Company is not aware of any facts or circumstances that would prevent the Company from having its current licenses renewed. A station may continue to operate beyond the expiration date of its license if a timely filed license renewal application was filed and is pending.
Royalty Agreements
Musical works rights holders, generally songwriters and music publishers, have been traditionally represented by performing rights organizations, such as the American Society of Composers, Authors and Publishers (“ASCAP”), Broadcast Music, Inc. (“BMI”) and SESAC, Inc. (“SESAC”). The market for rights relating to musical works is changing rapidly. Songwriters and music publishers have withdrawn from the traditional performing rights organizations, particularly ASCAP and BMI, and new entities, such as Global Music Rights, Inc. (“GMR”), have been formed to represent rights holders. These organizations negotiate fees with copyright users, collect royalties, and distribute them to the rights holders. We currently have arrangements with ASCAP, SESAC and GMR. On April 22, 2020, the Radio Music License Committee (“RMLC”), an industry group which the Company is a part of, and BMI reached agreement on the terms of a new license agreement that covers the period January 1, 2017, through December 31, 2021. Upon approval of the court of the BMI/RMLC agreement, the Company automatically became a party to the agreement and a license through December 31, 2021. GMROn April 12, 2022, the RMLC announced that it had reached an interim licensing agreement with BMI. The radio industry’s previous agreement with BMI covering calendar years 2017 to 2021 expired December 31, 2021 (the “2017 Licensing Terms”), but the interim arrangement will keep the 2017 Licensing Terms in place until a new arrangement is agreed upon. The Company is party to the interim arrangement and, therefore, will continue to operate under the 2017 Licensing Terms.. On February 7, 2022, the RMLC and GMR reached a settlement and achieved certain conditions which effectuate a four-year license to which the Company is a party for the period April 1, 2022 to March 31, 2026. The license includes an optional three-year extended term that the Company may effectuate prior to the end of the initial term.
Other Contingencies
The Company has been named as a defendant in several legal actions arising in the ordinary course of business. It is management’s opinion, after consultation with its legal counsel, that the outcome of these claims will not have a material adverse effect on the Company’s financial position or results of operations.
Off-Balance Sheet Arrangements
The Company currently is under a letter of credit reimbursement and security agreement with capacity of up to $1.2 million which expires on October 8, 2024. As of June 30, 2022, the Company had letters of credit totaling $871,000 under the agreement for certain operating leases and certain insurance policies. Letters of credit are issued under the agreement are required to be collateralized with cash. In addition, the Current 2021 ABL Facility provides for letter of credit capacity of up to $5 million subject to certain limitations on availability.
37
Reach Media Redeemable Noncontrolling Interest Shareholders’ Put RightsInterests
Beginning on January 1, 2018, the noncontrolling interest shareholders of Reach Media have had an annual right to require Reach Media to purchase all or a portion of their shares at the then current fair market value for such shares (the “Put Right”). This annual right is exercisable for a 30-day period beginning January 1 of each year. The purchase price for such shares may be paid in cash and/or registered Class D common stock of Urban One, at the discretion of Urban One. The noncontrolling interest shareholders of Reach Media did not exercise their Put Right for the 30-day period ending January 31, 2022.2023. Management, at this time, cannot reasonably determine the period when and if the put right will be exercised by the noncontrolling interest shareholders.
Letters of Credit
The Company currently is under a letter of credit reimbursement and security agreement with capacity of up to $1.2 million which expires on October 8, 2024. As of March 31, 2023, the Company had letters of credit totaling $0.8 million under the agreement for certain operating leases and certain insurance policies. Letters of credit issued under the agreement are required to be collateralized with cash. In addition, the Current ABL Facility provides for letter of credit capacity of up to $5.0 million subject to certain limitations on availability.
9. SUBSEQUENT EVENTS:35
Since July 1, 2022, and through July 6, 2022, the Company repurchased 100,803 sharesTable of Class D common stock in the amount of $439,000 at an average price of $4.30 per share. Giving effect to the July repurchases, the Company does 0t have any remaining shares under its most recent and open authorization.Contents
On July 5, 2022, each of the 4 non-executive directors received 11,848 shares of restricted stock, valued at $50,000 based upon the closing price of the Company's Class D common stock on the grant date. The shares vest in equal portions over two years.
On August 4, 2022, theOther Contingencies
The Company announced that it will pursue runninghas been named as a referendum campaign to approve the One Resort + Casino projectdefendant in several legal actions arising in the 2023 election cycle as provided byordinary course of business. It is management’s opinion, after consultation with its legal counsel, that the current Virginia budget language. outcome of these claims will not have a material adverse effect on the Company’s financial position or results of operations.
11. QUARTERLY FINANCIAL DATA (UNAUDITED AND REVISED)
The Company noted that despite its strong legal argumentshas revised quarterly and year-to-date unaudited consolidated financial statements for the quarters ended March 31, June 30, and September 30, 2022. See Note 2 – Revision of Previously Issued Financial Statements of the consolidated financial statements for further background.
Revised Consolidated Balance Sheets
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2022 (unaudited) | | As of June 30, 2022 (unaudited) | | As of September 30, 2022 (unaudited) | |||||||||||||||||||||
|
| As Previously |
| | | | |
| As Previously |
| | | |
| As Previously |
| | | | ||||||||
| | Reported | | Adjustments | | As Revised | | Reported | | Adjustments | | As Revised | | Reported | | Adjustments | | As Revised | |||||||||
| | (In thousands) | |||||||||||||||||||||||||
ASSETS |
| |
|
| |
| | | | | | | | | | | | | | | | | | | | | |
CURRENT ASSETS: |
| |
|
| |
| | | |
|
|
|
|
|
| | |
|
|
|
|
|
|
| | |
|
Restricted cash | | $ | 19,973 | | $ | 6,500 | | $ | 26,473 | | $ | 19,973 | | $ | 6,500 | | $ | 26,473 | | $ | 19,974 | | $ | 6,500 | | $ | 26,474 |
Other current assets | |
| 7,134 | |
| 155 | | | 7,289 | |
| 6,774 | |
| 275 | |
| 7,049 | |
| 7,676 | |
| 353 | |
| 8,029 |
Total current assets | |
| 325,305 | |
| 6,655 |
|
| 331,960 | |
| 310,150 | |
| 6,775 | |
| 316,925 | |
| 286,190 | |
| 6,853 | |
| 293,043 |
PROPERTY AND EQUIPMENT, net | |
| 26,243 | |
| 500 | | | 26,743 | |
| 26,913 | |
| 500 | |
| 27,413 | |
| 27,529 | |
| 500 | |
| 28,029 |
Total assets | | $ | 1,363,064 | | $ | 7,155 |
| $ | 1,370,219 | | $ | 1,335,248 | | $ | 7,275 | | $ | 1,342,523 | | $ | 1,322,693 | | $ | 7,353 | | $ | 1,330,046 |
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
CURRENT LIABILITIES: | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Other current liabilities | | $ | 33,776 | | $ | 13 | | $ | 33,789 | | $ | 29,582 | | $ | 13 | | $ | 29,595 | | $ | 38,624 | | $ | 133 | | $ | 38,757 |
Total current liabilities | |
| 100,162 | |
| 13 |
|
| 100,175 | |
| 109,997 | |
| 13 | |
| 110,010 | |
| 112,999 | |
| 133 | |
| 113,132 |
OTHER LONG-TERM LIABILITIES | |
| 36,243 | |
| 567 | | | 36,810 | |
| 37,555 | |
| 1,055 | |
| 38,610 | |
| 35,359 | |
| 908 | |
| 36,267 |
DEFERRED TAX LIABILITIES, net | |
| 26,843 | |
| (9) |
|
| 26,834 | |
| 30,368 | |
| (98) | |
| 30,270 | |
| 31,284 | |
| (55) | |
| 31,229 |
Total liabilities | |
| 1,015,525 | |
| 571 |
|
| 1,016,096 | |
| 996,163 | |
| 970 | |
| 997,133 | |
| 982,345 | |
| 986 | |
| 983,331 |
REDEEMABLE NONCONTROLLING INTERESTS | |
| 20,227 | |
| 6,625 | | | 26,852 | |
| 20,434 | |
| 6,625 | |
| 27,059 | |
| 22,327 | |
| 6,625 | |
| 28,952 |
STOCKHOLDERS’ EQUITY: | |
| | |
| | | | | | | | | | | | | | | | | | | | | | |
Accumulated deficit | |
| (753,824) | |
| (41) |
| | (753,865) | | | (737,251) | |
| (320) | | | (737,571) | |
| (733,844) | |
| (258) | | | (734,102) |
Total stockholders’ equity | |
| 327,312 | |
| (41) |
| | 327,271 | | | 318,651 | |
| (320) | | | 318,331 | |
| 318,021 | |
| (258) | | | 317,763 |
Total liabilities, redeemable noncontrolling interests and stockholders’ equity | | $ | 1,363,064 | | $ | 7,155 |
| $ | 1,370,219 | | $ | 1,335,248 | | $ | 7,275 | | $ | 1,342,523 | | $ | 1,322,693 | | $ | 7,353 | | $ | 1,330,046 |
Revised Quarterly Consolidated Statements of Operations
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2022 | | Three Months Ended June 30, 2022 | | Three Months Ended September 30, 2022 | |||||||||||||||||||||
| | As | | | | | | | | As | | | | | | | | As | | | | | | | |||
|
| Previously | | |
| As |
| Previously | | |
| As |
| Previously | | |
| As | |||||||||
| | Reported | | Adjustments | | Revised | | Reported | | Adjustments | | Revised | | Reported | | Adjustments | | Revised | |||||||||
| | (In thousands) | |||||||||||||||||||||||||
OPERATING EXPENSES: |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate selling, general and administrative, including stock-based compensation of $124, $336 and $5,109, respectively | | $ | 9,460 | | $ | 77 | | $ | 9,537 | | $ | 11,864 | | $ | 488 | | $ | 12,352 | | $ | 14,908 | | $ | (22) | | $ | 14,886 |
Total operating expenses | | | 75,593 | | | 77 | | | 75,670 | | | 92,794 | | | 488 | | | 93,282 | | | 103,276 | | | (22) | | | 103,254 |
Operating income (loss) | | | 36,538 | | | (77) | | | 36,461 | | | 25,863 | | | (488) | | | 25,375 | | | 17,974 | | | 22 | | | 17,996 |
Income (loss) before provision for (benefit from) income taxes and noncontrolling interests in income of subsidiaries | | | 22,656 | | | (77) | | | 22,579 | | | 21,557 | | | (488) | | | 21,069 | | | 6,937 | | | 22 | | | 6,959 |
PROVISION FOR (BENEFIT FROM) INCOME TAXES | | | 5,462 | | | 3 | | | 5,465 | | | 4,214 | | | (89) | | | 4,125 | | | 3,170 | | | 43 | | | 3,213 |
NET INCOME (LOSS) | | | 17,194 | | | (80) | | | 17,114 | | | 17,343 | | | (399) | | | 16,944 | | | 3,767 | | | (21) | | | 3,746 |
NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTERESTS | | | 701 | | | (75) | | | 626 | | | 770 | | | (120) | | | 650 | | | 360 | | | (83) | | | 277 |
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS | | $ | 16,493 | | $ | (5) | | $ | 16,488 | | $ | 16,573 | | $ | (279) | | $ | 16,294 | | $ | 3,407 | | $ | 62 | | $ | 3,469 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
36
Revised Year to support moving forwardDate Consolidated Statements of Operations
| | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2022 | | Nine Months Ended September 30, 2022 | ||||||||||||||
|
| As Previously | | Adjustments |
| As Revised |
| As Previously | | | Adjustments |
| As Revised | |||||
| | (In thousands) | ||||||||||||||||
OPERATING EXPENSES: |
| | | | | |
| | |
| | | | | |
| | |
Corporate selling, general and administrative, including stock-based compensation of $460 and $5,569, respectively | | $ | 21,324 | | $ | 565 | | $ | 21,889 | | $ | 36,232 | | $ | 543 | | $ | 36,775 |
Total operating expenses | | | 168,387 | | | 565 | | | 168,952 | | | 271,663 | | | 543 | | | 272,206 |
Operating income (loss) | | | 62,401 | | | (565) | | | 61,836 | | | 80,375 | | | (543) | | | 79,832 |
Income (loss) before provision for (benefit from) income taxes and noncontrolling interests in income of subsidiaries | | | 44,213 | | | (565) | | | 43,648 | | | 51,150 | | | (543) | | | 50,607 |
PROVISION FOR (BENEFIT FROM) INCOME TAXES | | | 9,676 | | | (86) | | | 9,590 | | | 12,846 | | | (43) | | | 12,803 |
NET INCOME (LOSS) | | | 34,537 | | | (479) | | | 34,058 | | | 38,304 | | | (500) | | | 37,804 |
NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTERESTS | | | 1,471 | | | (195) | | | 1,276 | | | 1,831 | | | (278) | | | 1,553 |
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS | | $ | 33,066 | | $ | (284) | | $ | 32,782 | | $ | 36,473 | | $ | (222) | | $ | 36,251 |
| | | | | | | | | | | | | | | | | | |
Revised Quarterly Consolidated Statements of Comprehensive Income
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2022 | | Three Months Ended June 30, 2022 | | Three Months Ended September 30, 2022 | |||||||||||||||||||||
| | As Previously | | | | | | | | As Previously | | | | | | | | As Previously | | | | | | | |||
|
| Reported | | Adjustments |
| As Revised |
| Reported | | Adjustments |
| As Revised |
| Reported | | Adjustments |
| As Revised | |||||||||
| | (In thousands) | |||||||||||||||||||||||||
COMPREHENSIVE INCOME (LOSS) | | $ | 25,090 | | $ | (80) | | $ | 25,010 | | $ | 17,418 | | $ | (399) | | $ | 17,019 |
| $ | (1,929) | | $ | (21) | | $ | (1,950) |
LESS: COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTERESTS | | | 701 | | | (75) | | | 626 | | | 770 | | | (120) | | | 650 | |
| 360 | |
| (83) | |
| 277 |
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS | | $ | 24,389 | | $ | (5) | | $ | 24,384 | | $ | 16,648 | | $ | (279) | | $ | 16,369 | | $ | (2,289) | | $ | 62 | | $ | (2,227) |
Revised Year to Date Consolidated Statements of Comprehensive Income
| | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2022 | | Nine Months Ended September 30, 2022 | ||||||||||||||
| | As Previously | | | | | As | | As Previously | | | | | As | ||||
|
| Reported |
| Adjustments |
| Revised |
| Reported |
| Adjustments |
| Revised | ||||||
| | (In thousands) | ||||||||||||||||
COMPREHENSIVE INCOME (LOSS) | | $ | 42,508 | | $ | (479) | | $ | 42,029 | | $ | 40,579 | | $ | (500) | | $ | 40,079 |
LESS: COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTERESTS | | | 1,471 | | | (195) | | | 1,276 | | | 1,831 | | | (278) | | | 1,553 |
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS | | $ | 41,037 | | $ | (284) | | $ | 40,753 | | $ | 38,748 | | $ | (222) | | $ | 38,526 |
Revised Consolidated Statements of Changes in 2022, it asked its partner, the CityStockholders’ Equity
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Convertible |
| Common |
| Common |
| Common |
| Common | | Accumulated Other |
| Additional |
|
| |
| Total | ||||||||
| | Preferred | | Stock | | Stock | | Stock | | Stock | | Comprehensive | | Paid-In | | Accumulated | | Stockholders’ | |||||||||
|
| Stock |
| Class A |
| Class B |
| Class C |
| Class D | | Income |
| Capital |
| Deficit |
| Equity | |||||||||
For the three months ended March 31, 2022 | | (In thousands, except share data) | |||||||||||||||||||||||||
As Previously Reported |
| |
|
| |
|
| |
|
| |
|
| |
| | | |
| |
|
| |
|
| |
|
BALANCE, as of December 31, 2021 | | $ | — | | $ | 9 | | $ | 3 | | $ | 2 | | $ | 37 | | $ | 54,950 | | $ | 1,018,996 | | $ | (770,317) | | $ | 303,680 |
Net income | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 16,493 | | | 16,493 |
Stock-based compensation expense | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 124 | |
| — | |
| 124 |
Repurchase of 2,649 shares of Class D common stock | | | — | | | — | |
| — | |
| — | |
| — | |
| — | |
| (10) | |
| — | | | (10) |
Adjustment of redeemable noncontrolling interests to estimated redemption value | | | — | | | — | |
| — | |
| — | |
| — | |
| — | |
| (871) | |
| — | | | (871) |
Other comprehensive income, net of tax | | | — | | | — | | | — | | | — | | | — | | | 7,896 | | | — | | | — | | | 7,896 |
BALANCE, as of March 31, 2022 | | $ | — | | $ | 9 | | $ | 3 | | $ | 2 | | $ | 37 | | $ | 62,846 | | $ | 1,018,239 | | $ | (753,824) | | $ | 327,312 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Adjustments and Other Adjustments | | | | | | | | | | | | | | | | | | | | | | | | | | | |
BALANCE, as of December 31, 2021 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (36) | | | (36) |
Net loss | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (5) | | | (5) |
Total Adjustments March 31, 2022 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | (41) | | $ | (41) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
As Revised | | | | | | | | | | | | | | | | | | | | | | | | | | | |
BALANCE, as of December 31, 2021 | | | — | | | 9 | | | 3 | | | 2 | | | 37 | | | 54,950 | | | 1,018,996 | | | (770,353) | | | 303,644 |
Net income | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 16,488 | | | 16,488 |
Stock-based compensation expense | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 124 | |
| — | |
| 124 |
Repurchase of 2,649 shares of Class D common stock | | | — | | | — | |
| — | |
| — | |
| — | |
| — | | | (10) | | | — | | | (10) |
Adjustment of redeemable noncontrolling interests to estimated redemption value | | | — | | | — | |
| — | |
| — | |
| — | |
| — | | | (871) | | | — | | | (871) |
Other comprehensive income, net of tax | | | — | | | — | | | — | | | — | | | — | | | 7,896 | | | — | | | — | | | 7,896 |
BALANCE, as of March 31, 2022 | | $ | — | | $ | 9 | | $ | 3 | | $ | 2 | | $ | 37 | | $ | 62,846 | | $ | 1,018,239 | | $ | (753,865) | | $ | 327,271 |
37
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Convertible |
| Common |
| Common |
| Common |
| Common | | Accumulated Other |
| Additional |
|
| |
| Total | ||||||||
| | Preferred | | Stock | | Stock | | Stock | | Stock | | Comprehensive | | Paid-In | | Accumulated | | Stockholders’ | |||||||||
|
| Stock |
| Class A |
| Class B |
| Class C |
| Class D | | Income |
| Capital |
| Deficit |
| Equity | |||||||||
For the six months ended June 30, 2022 | | (In thousands, except share data) | |||||||||||||||||||||||||
As Previously Reported |
| |
|
| |
|
| |
|
| |
|
| |
| | | |
| |
|
| |
|
| |
|
BALANCE, as of December 31, 2021 | | $ | — | | $ | 9 | | $ | 3 | | $ | 2 | | $ | 37 | | $ | 54,950 | | $ | 1,018,996 | | $ | (770,317) | | $ | 303,680 |
Net income | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 33,066 | | | 33,066 |
Stock-based compensation expense | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 460 | |
| — | |
| 460 |
Repurchase of 4,684,419 shares of Class D common | | | — | | | — | |
| — | |
| — | |
| (4) | |
| — | |
| (24,665) | |
| — | | | (24,669) |
Exercise of options for 60,240 shares of Class D common stock | | | — | | | — | | | — | | | — | | | — | | | — | | | 50 | | | — | | | 50 |
Adjustment of redeemable noncontrolling interests to estimated redemption value | | | — | | | — | |
| — | |
| — | |
| — | |
| — | |
| (1,907) | |
| — | | | (1,907) |
Other comprehensive income, net of tax | | | — | | | — | | | — | | | — | | | — | | | 7,971 | | | — | | | — | | | 7,971 |
BALANCE, as of June 30, 2022 | | $ | — | | $ | 9 | | $ | 3 | | $ | 2 | | $ | 33 | | $ | 62,921 | | $ | 992,934 | | $ | (737,251) | | $ | 318,651 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Adjustments and Other Adjustments | | | | | | | | | | | | | | | | | | | | | | | | | | | |
BALANCE, as of December 31, 2021 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (36) | | | (36) |
Net income | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (284) | | | (284) |
Total Adjustments June 30, 2022 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | (320) | | $ | (320) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
As Revised | | | | | | | | | | | | | | | | | | | | | | | | | | | |
BALANCE, as of December 31, 2021 | | | — | | | 9 | | | 3 | | | 2 | | | 37 | | | 54,950 | | | 1,018,996 | | | (770,353) | | | 303,644 |
Net income | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 32,782 | | | 32,782 |
Stock-based compensation expense | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 460 | |
| — | |
| 460 |
Repurchase of 4,684,419 shares of Class D common | | | — | | | — | |
| — | |
| — | |
| (4) | |
| — | | | (24,665) | | | — | | | (24,669) |
Exercise of options for 60,240 shares of Class D common stock | | | — | | | — | |
| — | |
| — | |
| — | |
| — | | | 50 | | | — | | | 50 |
Adjustment of redeemable noncontrolling interests to estimated redemption value | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,907) | | | — | | | (1,907) |
Other comprehensive income, net of tax | | | — | | | — | | | — | | | — | | | — | | | 7,971 | | | — | | | — | | | 7,971 |
BALANCE, as of June 30, 2022 | | $ | — | | $ | 9 | | $ | 3 | | $ | 2 | | $ | 33 | | $ | 62,921 | | $ | 992,934 | | $ | (737,571) | | $ | 318,331 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Convertible |
| Common |
| Common |
| Common |
| Common | | Accumulated Other |
| Additional |
|
| |
| Total | ||||||||
| | Preferred | | Stock | | Stock | | Stock | | Stock | | Comprehensive | | Paid-In | | Accumulated | | Stockholders’ | |||||||||
|
| Stock |
| Class A |
| Class B |
| Class C |
| Class D | | Income |
| Capital |
| Deficit |
| Equity | |||||||||
For the nine months ended September 30, 2022 | | (In thousands, except share data) | |||||||||||||||||||||||||
As Previously Reported |
| |
|
| |
|
| |
|
| |
|
| |
| | | |
| |
|
| |
|
| |
|
BALANCE, as of December 31, 2021 | | $ | — | | $ | 9 | | $ | 3 | | $ | 2 | | $ | 37 | | $ | 54,950 | | $ | 1,018,996 | | $ | (770,317) | | $ | 303,680 |
Net income | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 36,473 | | | 36,473 |
Stock-based compensation expense | |
| — | |
| 1 | |
| — | |
| — | |
| 1 | |
| — | |
| 5,467 | |
| — | |
| 5,469 |
Repurchase of 4,684,419 shares of Class D common stock | | | — | | | — | |
| — | |
| — | |
| (4) | |
| — | |
| (26,482) | |
| — | |
| (26,486) |
Exercise of options for 60,240 shares of Class D common stock | | | — | | | — | | | — | | | — | | | — | | | — | | | 50 | | | — | | | 50 |
Adjustment of redeemable noncontrolling interests to estimated redemption value | | | — | | | — | |
| — | |
| — | |
| — | |
| — | |
| (3,440) | |
| — | |
| (3,440) |
Other comprehensive income, net of tax | | | — | | | — | | | — | | | — | | | — | | | 2,275 | | | — | | | — | | | 2,275 |
BALANCE, as of September 30, 2022 | | $ | — | | $ | 10 | | $ | 3 | | $ | 2 | | $ | 34 | | $ | 57,225 | | $ | 994,591 | | $ | (733,844) | | $ | 318,021 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Adjustments and Other Adjustments | | | | | | | | | | | | | | | | | | | | | | | | | | | |
BALANCE, as of December 31, 2021 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (36) | | | (36) |
Net income | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (222) | | | (222) |
Total Adjustments September 30, 2022 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | (258) | | $ | (258) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
As Revised | | | | | | | | | | | | | | | | | | | | | | | | | | | |
BALANCE, as of December 31, 2021 | | | — | | | 9 | | | 3 | | | 2 | | | 37 | | | 54,950 | | | 1,018,996 | | | (770,353) | | | 303,644 |
Net income | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 36,251 | | | 36,251 |
Stock-based compensation expense | |
| — | |
| 1 | |
| — | |
| — | |
| 1 | |
| — | |
| 5,467 | |
| — | |
| 5,469 |
Repurchase of 4,684,419 shares of Class D common stock | | | — | | | — | |
| — | |
| — | |
| (4) | |
| — | | | (26,482) | | | — | | | (26,486) |
Exercise of options for 60,240 shares of Class D common stock | | | — | | | — | |
| — | |
| — | |
| — | |
| — | | | 50 | | | — | | | 50 |
Adjustment of redeemable noncontrolling interests to estimated redemption value | | | — | | | — | | | — | | | — | | | — | | | — | | | (3,440) | | | — | | | (3,440) |
Other comprehensive income, net of tax | | | — | | | — | | | — | | | — | | | — | | | 2,275 | | | — | | | — | | | 2,275 |
BALANCE, as of September 30, 2022 | | $ | — | | $ | 10 | | $ | 3 | | $ | 2 | | $ | 34 | | $ | 57,225 | | $ | 994,591 | | $ | (734,102) | | $ | 317,763 |
38
Revised Consolidated Statements of Cash Flows
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2022 | | Six Months Ended June 30, 2022 | | Nine Months Ended September 30, 2022 | |||||||||||||||||||||
| | As | | | | | | | | As | | | | | | | | As | | | | | | | |||
| | Previously | | | | | As | | Previously | | | | | As | | Previously | | | | | As | ||||||
|
| Reported |
| Adjustments |
| Revised |
| Reported |
| Adjustments |
| Revised | | Reported |
| Adjustments |
| Revised | |||||||||
| | (In thousands) | |||||||||||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 17,194 | | $ | (80) | | $ | 17,114 | | $ | 34,537 | | $ | (479) | | $ | 34,058 | | $ | 38,304 | | $ | (500) | | $ | 37,804 |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Adjustments to reconcile net income to net cash from operating activities: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Deferred income taxes | |
| 5,462 | |
| 3 | |
| 5,465 | |
| 8,962 | |
| (86) | |
| 8,876 | |
| 11,682 | |
| (43) | |
| 11,639 |
Stock-based compensation | |
| 124 | |
| — | |
| 124 | |
| 460 | |
| — | |
| 460 | |
| 5,469 | |
| 105 | |
| 5,574 |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Effect of change in operating assets and liabilities, net of assets acquired: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Prepaid expenses and other current assets | |
| (592) | |
| 263 | |
| (329) | |
| (394) | |
| 143 | |
| (251) | |
| (2,279) | |
| 65 | |
| (2,214) |
Other liabilities | | | (3,491) | | | (464) | | | (3,955) | | | (5,017) | | | 24 | | | (4,993) | | | 3,317 | | | (108) | | | 3,209 |
Net cash flows provided by (used in) operating activities | | | 15,734 | | | (278) | | | 15,456 | | | 43,624 | | | (398) | | | 43,226 | | | 54,067 | | | (481) | | | 53,586 |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Contributions from noncontrolling interest members of RVAEH | | | — | | | 278 | | | 278 | | | — | | | 398 | | | 398 | | | | | | 481 | | | 481 |
Net cash flows provided by (used in) financing activities | | | (10) | | | 278 | | | 268 | | | (48,968) | | | 398 | | | (48,570) | | | (73,562) | | | 481 | | | (73,081) |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period | | | 152,218 | | | 6,500 | | | 158,718 | | | 152,218 | | | 6,500 | | | 158,718 | | | 152,218 | | | 6,500 | | | 158,718 |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period | | $ | 166,366 | | $ | 6,500 | | $ | 172,866 | | $ | 143,003 | | $ | 6,500 | | $ | 149,503 | | $ | 105,547 | | $ | 6,500 | | $ | 112,047 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
12. SUBSEQUENT EVENTS:
On March 8, 2023, ROEH issued a Put Notice with respect to its Put Interest in MGMNH. Upon issuance of the Put Notice, no later than thirty (30) days following receipt, MGMNH is required to repurchase the Put Interest for cash. On April 21 2023, ROEH closed on the sale of the Put Interest and received approximately $136.8 million at the time of settlement of the Put Interest, representing the put price.
On April 30, 2023, the Company entered into a waiver and amendment (the “Waiver and Amendment”) to the Current ABL Facility, dated as of February 19, 2021 (as amended by the Waiver and Amendment, the “Amended Current ABL Facility”), with the Company, the Company’s subsidiaries guarantors, Bank of America, N.A., as administrative agent (the “Administrative Agent”) and the lenders party thereto. The Waiver and Amendment waived certain events of default under the Current ABL Facility related to the Company’s failure to timely deliver the Annual Financial Deliverables for the Fiscal Year ended December 31, 2022 as required under the Current ABL Facility (the “Specified Defaults”).
Additionally, under the Waiver and Amendment, the Current ABL Facility was amended to provide that from and after the date thereof, any request for a new LIBOR Loan (as defined in the Current ABL Facility), for a continuation of an existing LIBOR Loan (as defined in the Current ABL Facility) or for a conversion of a Loan to a LIBOR Loan (as defined in the Current ABL Facility) shall be deemed to be a request for a loan bearing interest at Term SOFR (as defined in the Amended Current ABL Facility) (the “SOFR Interest Rate Change”). As the Company was undrawn under the Current ABL Facility as of the date of the Waiver and Amendment, the SOFR Interest Rate Change would only bear upon future borrowings by the Company such that they bear an interest rate relating to the secured overnight financing rate. These provisions of the Waiver and Amendment are intended to transition loans under the Current ABL Facility to the new secured overnight financing rate as the benchmark rate.
On June 5, 2023, the Company entered into a second waiver and amendment (the “Second Waiver and Amendment”) to the Current ABL Facility. On July 31, 2023, the Company entered into a third waiver and amendment (the “Third Waiver and Amendment”) to the Current ABL Facility (collectively, with the Second Waiver and Amendment, the “Waiver and Amendments”). The Waiver and Amendments waived certain events of default under the Current ABL Facility related to the Company’s failure to timely deliver both the Annual Financial Deliverables for the Fiscal Year ended December 31, 2022 and Quarterly Financial Deliverables for the Quarters
39
ended March 31, 2023 and June 30, 2023 as required under the Current ABL Facility. On September 29, 2023, the Company entered into a fourth waiver and amendment (the “Fourth Waiver and Amendment”) to the Current ABL Facility. The Fourth Waiver and Amendment waived certain events of default under the Current ABL Facility related to the Company’s failure to timely deliver both the Quarterly Financial Deliverables for the Quarter ended December March 31, 2023 (“Q1 2023 Form 10-Q”) and Quarterly Financial Deliverables for the Quarter ended June 30, 2023 as required under the Current ABL Facility (the “Q2 2023 Form 10-Q”) and together with the Q1 2023 Form 10-Q, the “Delayed Reports”). The Fourth Waiver and Amendment sets a due date of (i) November 9, 2023 for the Q1 2023 Form 10-Q and (ii) November 14, 2023 for the Q2 2023 Form 10-Q. Most recently, November 9, 2023, the Company entered into a fifth waiver and amendment (the “Fifth Waiver and Amendment”) to the Current ABL Facility. The Fifth Waiver and Amendment waived certain events of default under the Current ABL Facility related to the Company’s failure to timely deliver the Delayed Reports. The Fifth Waiver and Amendment set a due date of November 30, 2023 for the Delayed Reports and a due date of December 31, 2023 for the Quarterly Financial Deliverables for the three months ended September 30, 2023.
On September 28, 2023, the Company received a Staff Delisting Determination (the “Staff Determination”) from the Listing Qualifications Department (the “Listing Department”) of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that Nasdaq has initiated a process that could result in the delisting of the Company’s securities from Nasdaq as a result of the Company not being in compliance with Nasdaq Listing Rule 5250(c)(1) (the “Listing Rule”), which requires listed companies to timely file all required periodic financial reports with the Securities and Exchange Commission (the “SEC”). The Staff Determination had no immediate effect and will not immediately result in the suspension of trading or delisting of the Company’s shares of common stock.
After receipt of the Staff Determination, the Company timely requested a hearing before a Nasdaq Hearings Panel (the “Hearings Panel”). The hearing request automatically stayed any suspension or delisting action through October 20, 2023. On October 17, 2023, the Hearings Panel granted the Company’s request that the stay be extended through the hearing, scheduled for November 30, 2023 (the “Hearing”), and the expiration of any additional extension period granted by the Hearings Panel following the Hearing.
The Staff Determination was issued because the Company had not filed the Delayed Reports by the Extension Deadline (defined below).
As previously disclosed, on August 22, 2023, the Company received a letter from the Listing Department on August 16, 2023 (the “Third Nasdaq Letter”), notifying the Company that it was not in compliance with requirements of the Rule as a result of not having timely filed the Delinquent Reports.
As previously disclosed, the Company received a notice from Nasdaq on April 3, 2023 (the “First Nasdaq Letter”), notifying the Company that it was not in compliance with the Rule due to its delay in filing the 2022 Form 10-K. On May 10, 2023, the Company filed a Form 12b-25 Notification of Late Filing with respect to its Q1 2023 Form 10-Q, triggering a second letter from Nasdaq dated May 19, 2023 (the “Second Nasdaq Letter”), as previously disclosed on May 24, 2023. In accordance with the Second Nasdaq Letter, the Company filed a plan with Nasdaq to regain compliance with the listing requirements that include completion and filing of the 2022 Form 10-K and the Q1 2023 Form 10-Q with the SEC. Nasdaq accepted the Company’s compliance plan and granted the Company 180 days, or until September 27, 2023 (the Extension Deadline”), for filing the 2022 Form 10-K and the Q1 2023 Form 10-Q, to regain compliance. The Company subsequently filed the 2022 Form 10-K on June 30, 2023.
On June 13, 2023, Urban One, Inc.’s 50/50 partnership with CDI, RVAEH, entered into a Resort Casino Host Community Agreement with the City (the “New HCA”), to be the City’s preferred casino gaming operator subject to certification by the Virginia Lottery Department and a local referendum.
As discussed in Note 4 – Acquisitions and Dispositions of our consolidated financial statements, the Company announced it has signed a definitive asset purchase agreement with CMG to purchase its Houston radio cluster. The transaction closed on August 1, 2023.
Since April 1, 2023, and through the date of this filing, the Company executed Stock Vest Tax Repurchases of 56,830 shares of Class D common stock for approximately $306,000 at an average price of $5.54 per share.
Since April 1, 2023, and through the date of this filing, the Compensation Committee awarded certain executive officers and management personnel 153,996 restricted shares of the Company’s Class D common stock, and stock options to purchase 218,308 shares of the Company’s Class D common stock. Of these awards, there were no immediate vesting of restricted shares of the Company’s Class D common stock and stock options to purchase.
40
On July 29, 2021, RVAEH entered into the Original HCA with the City for the development of the Project. The Original HCA imposed certain obligations on RVAEH in connection with the development of the Project, including a $26 million upfront payment due upon successful passage of a citywide referendum permitting development of the Project (the “Referendum”). In connection with the Original HCA, RVAEH and its development partner funded the Upfront Payment into escrow to be released to the City upon successful passage of the Referendum or back to RVAEH in the event the Referendum failed. On November 2, 2021, the Referendum was conducted, and the resort project was narrowly defeated. However, on January 24, 2022, the Richmond City Council adopted a new resolution in continued efforts to bring the Project to the City. The new resolution was the first step in pursuit of a second referendum. The City and RVAEH then entered into the New HCA which also included an Upfront Payment to be held in escrow and payable upon successful passage of a citywide referendum permitting development of the Project or back to RVAEH in the event the second referendum failed. As a result of the efforts to obtain a second referendum, including execution of the New HCA, the Upfront Payment remained in escrow. On November 7, 2023, the second referendum was held and the resort project was defeated. As a result, the escrowed fund became releasable from the escrow and the Company anticipates receipt of its 50% portion of the escrowed funds during the quarter ended December 31, 2023.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following information should be read in conjunction with “Selected Financial Data” and the Consolidated Financial Statements and Notes thereto included elsewhere in this report and the audited financial statements and Management’s Discussion and Analysis contained in our Annual Report on Form 10-K for the year ended December 31, 2021.
Introduction
Revenue
Within our core radio business, we primarily derive revenue from the sale of advertising time and program sponsorships to local and national advertisers on our radio stations. Advertising revenue is affected primarily by the advertising rates our radio stations are able to charge, as well as the overall demand for radio advertising time in a market. These rates are largely based upon a radio station’s audience share in the demographic groups targeted by advertisers, the number of radio stations in the related market, and the supply of, and demand for, radio advertising time. Advertising rates are generally highest during morning and afternoon commuting hours.
Net revenue consists of gross revenue, net of local and national agency and outside sales representative commissions. Agency and outside sales representative commissions are calculated based on a stated percentage applied to gross billing.
The following chart shows the percentage of consolidated net revenue generated by each reporting segment.
| | | | | | | | | | | | | | | | | |
| | For The Three Months Ended |
| | For The Six Months Ended |
| | | For The Three Months Ended |
| | ||||||
| | June 30, |
| | June 30, |
| | | March 31, |
| | ||||||
|
| 2022 |
| 2021 |
| | 2022 |
| 2021 |
|
| | 2023 | | 2022 | |
|
Radio broadcasting segment |
| 31.3 | % | 33.0 | % | | 29.7 | % | 31.8 | % | | | 32.1 | % | 28.1 | % | |
| | | | | | | | | | | |||||||
Reach Media segment |
| 9.3 | % | 8.7 | % | | 9.1 | % | 8.7 | % | | | 9.9 | % | 8.9 | % | |
| | | | | | | | | | | |||||||
Digital segment |
| 15.1 | % | 14.1 | % | | 14.4 | % | 12.8 | % | | | 13.7 | % | 13.8 | % | |
| | | | | | | | | | | |||||||
Cable television segment |
| 45.0 | % | 45.0 | % | | 47.6 | % | 47.5 | % | | | 45.2 | % | 50.1 | % | |
| | | | | | | | | | | |||||||
Corporate/eliminations |
| (0.7) | % | (0.8) | % | | (0.8) | % | (0.8) | % | | ||||||
All other - corporate/eliminations | | (0.9) | % | (0.9) | % | |
The following chart shows the percentages generated from local and national advertising as a subset of net revenue from our core radio business.
| | | | | | | | | | | | | | | | | |
| | For The Three Months Ended |
| | For The Six Months Ended |
| | | For The Three Months Ended |
| | ||||||
| | June 30, |
| | June 30, |
| | | March 31, |
| | ||||||
|
| 2022 |
| 2021 |
| | 2022 |
| 2021 |
|
| | 2023 |
| 2022 |
|
|
Percentage of core radio business generated from local advertising |
| 61.8 | % | 61.5 | % | | 62.1 | % | 61.0 | % | | | 60.6 | % | 62.3 | % | |
| | | | | | | | | | | | | | | | | |
Percentage of core radio business generated from national advertising, including network advertising |
| 35.9 | % | 36.9 | % | | 35.9 | % | 37.2 | % | | | 36.5 | % | 35.8 | % | |
National and local advertising also includes advertising revenue generated from our digital segment. The balance of net revenue from our radio segment was generated from tower rental income, ticket sales and revenue related to our sponsored events, management fees and other revenue.
3941
The following chart showshows the sources of our net revenue (and sources) for the three and six months ended June 30, 2022March 31, 2023 and 2021:2022:
| | | | | | | | | | | | |
| | Three Months | | | | | |
| ||||
| | Ended June 30, | | | | | |
| ||||
|
| 2022 |
| 2021 |
| $ Change |
| % Change |
| |||
| | (Unaudited) | | | | | |
| ||||
|
| (In thousands) | | | | | | | ||||
Net Revenue: |
| |
|
| |
|
| |
|
|
| |
Radio Advertising | | $ | 44,518 | | $ | 42,605 | | $ | 1,913 |
| 4.5 | % |
Political Advertising | |
| 1,839 | |
| 500 | |
| 1,339 |
| 267.8 | |
Digital Advertising | |
| 17,881 | |
| 15,016 | |
| 2,865 |
| 19.1 | |
Cable Television Advertising | |
| 29,120 | |
| 22,968 | |
| 6,152 |
| 26.8 | |
Cable Television Affiliate Fees | |
| 24,318 | |
| 25,396 | |
| (1,078) |
| (4.2) | |
Event Revenues & Other | |
| 1,134 | |
| 1,108 | |
| 26 |
| 2.3 | |
Net Revenue (as reported) | | $ | 118,810 | | $ | 107,593 | | $ | 11,217 |
| 10.4 | % |
| | | | | | | | | | | | |
| | Six Months Ended June 30, | | | | | |
| ||||
|
| 2022 |
| 2021 |
| $ Change |
| % Change |
| |||
| | (Unaudited) | | | | | |
| ||||
| | (In thousands) | | | | | |
| ||||
Net Revenue: | |
|
| |
|
| |
|
|
|
| |
Radio Advertising |
| $ | 83,645 |
| $ | 75,944 |
| $ | 7,701 |
| 10.1 | % |
Political Advertising | | | 2,371 | | | 1,280 | | | 1,091 |
| 85.2 | |
Digital Advertising | | | 33,363 | | | 25,369 | | | 7,994 |
| 31.5 | |
Cable Television Advertising | | | 59,535 | | | 43,670 | | | 15,865 |
| 36.3 | |
Cable Television Affiliate Fees | | | 50,288 | | | 50,883 | | | (595) |
| (1.2) | |
Event Revenues & Other | | | 1,957 | | | 1,887 | | | 70 |
| 3.7 | |
Net Revenue (as reported) |
| $ | 231,159 |
| $ | 199,033 |
| $ | 32,126 |
| 16.1 | % |
| | | | | | | | | | | | |
| | Three Months | | | | | |
| ||||
| | Ended March 31, | | | | | |
| ||||
|
| 2023 |
| 2022 |
| $ Change |
| % Change |
| |||
|
| (In thousands) | | (In thousands) | | | | |||||
Net Revenue: |
| |
|
| |
|
| |
|
|
| |
Radio advertising | | $ | 43,108 | | $ | 39,127 | | $ | 3,981 |
| 10.2 | % |
Political advertising | |
| 296 | |
| 532 | |
| (236) |
| (44.4) | |
Digital advertising | |
| 15,024 | |
| 15,482 | |
| (458) |
| (3.0) | |
Cable television advertising | |
| 25,822 | |
| 30,414 | |
| (4,592) |
| (15.1) | |
Cable television affiliate fees | |
| 23,837 | |
| 25,752 | |
| (1,915) |
| (7.4) | |
Event revenues & other | |
| 1,782 | |
| 824 | |
| 958 |
| 116.3 | |
Net revenue | | $ | 109,869 | | $ | 112,131 | | $ | (2,262) |
| (2.0) | % |
In the broadcasting industry, radio stations and television stations oftenmay utilize trade or barter agreements to reduce cash expenses by exchanging advertising time for goods or services. In order to maximize cash revenue for our spot inventory, we closely manage the use of trade and barter agreements.
Within our digital segment, including Interactive One which generates the majority of the Company’s digital revenue,revenue. Our digital revenue is principally derived from advertising services on non-radio station branded, but Company-owned websites. Advertising services include the sale of banner and sponsorship advertisements. AdvertisingAs the Company runs its advertising campaigns, the customer simultaneously receives benefits as impressions are delivered, and revenue is recognized either as impressions (theover time. The amount of revenue recognized each month is based on the number of times advertisements appear in viewed pages) areimpressions delivered or when “click through” purchases are made, where applicable. In addition, Interactive One derives revenuemultiplied by the effective per impression unit price, and is equal to the net amount receivable from its affiliate partners, in which it provides third-party clients with services including digital platforms and related expertise. Revenue is recognized primarily as a share of the third party’s reported revenue.customer.
Our cable television segment generates the Company’s cable television revenue, and derives its revenue principally from advertising and affiliate revenue. Advertising revenue is derived from the sale of television air timeairtime to advertisers and is recognized when the advertisements are run. Our cable television segment also derives revenue from affiliate fees under the terms of various multi-year affiliation agreements generally based uponon a per subscriber fee multiplied by most recent subscriber counts reported byroyalty for the applicable affiliate.right to distribute the Company’s programming under the terms of the distribution contracts.
Reach Media primarily derives its revenue from the sale of advertising in connection with its syndicated radio shows, including the Rickey Smiley Morning Show, the Russ Parr Morning Show and the DL Hughley Show. Reach Media also operates www.BlackAmericaWeb.com, an African-American targeted news and entertainment website, in addition to various other event-related activities.
Expenses
Our significant expenses are: (i) employee salaries and commissions; (ii) programming expenses; (iii) marketing and promotional expenses; (iv) rental of premises for office facilities and studios; (v) rental of transmission tower space; (vi) music license royalty fees; and (vii) content amortization. We strive to control these expenses by centralizing certain functions such as finance, accounting, legal,
40
human resources and management information systems and, in certain markets, the programming management function. We also use our multiple stations, market presence and purchasing power to negotiate favorable rates with certain vendors and national representative selling agencies. In addition to salaries and commissions, major expenses for our internet business include membership traffic acquisition costs, software product design, post-application software development and maintenance, database and server support costs, the help desk function, data center expenses connected with internet service provider (“ISP”) hosting services and other internet content delivery expenses. Major expenses for our cable television business include content acquisition and amortization, sales and marketing.
We generally incur marketing and promotional expenses to increase and maintain our audiences. However, because Nielsen reports ratings either monthly or quarterly, depending on the particular market, any changed ratings and the effect on advertising revenue tends to lag behind both the reporting of the ratings and the incurrence of advertising and promotional expenditures.
42
URBAN ONE, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS
The following table summarizes our historical consolidated results of operations:
Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022
| | | | | | | | | | | | |
| | Three Months Ended March 31, | | | | | |
| ||||
|
| 2023 |
| 2022 |
| Change |
| |||||
| | (In thousands) | | (In thousands) | | |
| |||||
Statements of Operations: |
| |
|
| |
|
| |
|
|
| |
Net revenue | | $ | 109,869 | | $ | 112,131 | | $ | (2,262) |
| (2.0) | % |
Operating expenses: | |
| | |
| | |
| |
| | |
Programming and technical, excluding stock-based compensation | |
| 33,854 | |
| 28,518 | |
| 5,336 |
| 18.7 | |
Selling, general and administrative, excluding stock-based compensation | |
| 36,715 | |
| 35,210 | |
| 1,505 |
| 4.3 | |
Corporate selling, general and administrative, excluding stock-based compensation | |
| 8,530 | |
| 9,413 | |
| (883) |
| (9.4) | |
Stock-based compensation | |
| 3,278 | |
| 124 | |
| 3,154 |
| *NM | |
Depreciation and amortization | |
| 2,597 | |
| 2,405 | |
| 192 |
| 8.0 | |
Impairment of goodwill, intangible assets, and long-lived assets | | | 16,775 | | | — | | | 16,775 | | 100.0 | |
Total operating expenses | |
| 101,749 | |
| 75,670 | |
| 26,079 |
| 34.5 | |
Operating income | |
| 8,120 | |
| 36,461 | |
| (28,341) |
| (77.7) | |
Interest income | |
| 333 | | | 59 | |
| 274 |
| 464.4 | |
Interest expense | |
| 14,068 | | | 15,927 | |
| (1,859) |
| (11.7) | |
Gain on retirement of debt | |
| 2,356 | | | — | | | 2,356 |
| 100.0 | |
Other (expense) income, net | |
| (312) | | | 1,986 | |
| (2,298) |
| 115.7 | |
(Loss) income before provision for income taxes and noncontrolling interests in income of subsidiaries | |
| (3,571) | |
| 22,579 | |
| (26,150) |
| (115.8) | |
(Benefit from) provision for income taxes | |
| (1,160) | | | 5,465 | |
| (6,625) |
| (121.2) | |
Net (loss) income | |
| (2,411) | |
| 17,114 | |
| (19,525) |
| (114.1) | |
Net income attributable to noncontrolling interests | |
| 511 | | | 626 | |
| (115) |
| (18.4) | |
Net (loss) income attributable to common stockholders | | $ | (2,922) | | $ | 16,488 | | $ | (19,410) |
| (117.7) | % |
*NM - Not meaningful
43
Net revenue
| | | | | | | | | | |
Three Months Ended March 31, | | Change | | |||||||
2023 |
| 2022 |
| | | | |
| ||
$ | 109,869 | | $ | 112,131 | | $ | (2,262) |
| (2.0) | % |
During the three months ended March 31, 2023, we recognized approximately $109.9 million in net revenue compared to approximately $112.1 million during the three months ended March 31, 2022. These amounts are net of agency and outside sales representative commissions. We recognized approximately $35.2 million of revenue from our radio broadcasting segment during the three months ended March 31, 2023, compared to approximately $31.5 million for the three months ended March 31, 2022, an increase of approximately $3.7 million primarily due to the acquisition of three stations in the second half of 2022 in the Indianapolis market and revenue growth in the Atlanta market. Based on reports prepared by the independent accounting firm Miller, Kaplan, Arase & Co., LLP (“Miller Kaplan”), the markets we operate in (excluding Richmond and Raleigh, both of which do not participate in Miller Kaplan) decreased 0.6% in total revenues. Same station net revenue from our radio broadcasting segment, excluding political advertising, during the three months ended March 31, 2023 increased 3.6% compared to the three months ended March 31, 2022, primarily in our Atlanta market.
We recognized approximately $10.9 million of revenue from our Reach Media segment during the three months ended March 31, 2023, compared to approximately $10.0 million for the three months ended March 31, 2022, an increase of approximately $0.9 million. The increase was primarily driven by four new reach networks and four new programming platforms.
We recognized approximately $49.7 million of revenue from our cable television segment during the three months ended March 31, 2023, compared to approximately $56.2 million for the three months ended March 31, 2022, a decrease of approximately $6.5 million. The decrease was primarily driven by lower ratings for the three months ended March 31, 2023 and a decrease in advertising sales and affiliate fees.
We recognized approximately $15.1 million of revenue from our digital segment during the three months ended March 31, 2023 compared to $15.5 million for the three months ended March 31, 2022, a slight decrease of approximately $0.4 million.
Operating Expenses
Programming and technical, excluding stock-based compensation
| | | | | | | | | | |
Three Months Ended March 31, | | Change |
| |||||||
2023 |
| 2022 |
| | | | |
| ||
$ | 33,854 | | $ | 28,518 | | $ | 5,336 |
| 18.7 | % |
Programming and technical expenses include expenses associated with on-air talent and the management and maintenance of the systems, tower facilities, and studios used in the creation, distribution and broadcast of programming content on our radio stations. Programming and technical expenses for the radio segment also include expenses associated with our programming research activities and music royalties. For our digital segment, programming and technical expenses include software product design, post-application software development and maintenance, database and server support costs, the help desk function, data center expenses connected with ISP hosting services and other internet content delivery expenses. For our cable television segment, programming and technical expenses include expenses associated with technical, programming, production, and content management. Programming and technical expenses were $33.9 million for the three months ended March 31, 2023 compared to $28.5 million for the three months ended March 31, 2022, an increase of approximately $5.3 million. The increase was due to higher expenses across all segments. Expenses in our cable television segment for the three months ended March 31, 2023 increased approximately $3.1 million compared to the three months ended March 31, 2022. This increase was primarily driven by higher content amortization expense which increased approximately $2.9 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022.
Expenses in our radio broadcasting segment for the three months ended March 31, 2023 increased approximately $1.5 million compared to the three months ended March 31, 2022. This increase was primarily driven by an increase in payroll, contract labor and rent expense.
44
Selling, general and administrative, excluding stock-based compensation
| | | | | | | | | | |
Three Months Ended March 31, | | Change |
| |||||||
2023 |
| 2022 |
| | | | |
| ||
$ | 36,715 |
| $ | 35,210 |
| $ | 1,505 |
| 4.3 | % |
Selling, general and administrative expenses include expenses associated with our sales departments, offices and facilities and personnel (outside of our corporate headquarters), marketing and promotional expenses, special events and sponsorships and back office expenses. Expenses to secure ratings data for our radio stations and visitors’ data for our websites are also included in selling, general and administrative expenses. In addition, selling, general and administrative expenses for the radio broadcasting segment and digital segment include expenses related to the advertising traffic (scheduling and insertion) functions. Selling, general and administrative expenses also include membership traffic acquisition costs for our online business. Selling, general and administrative expenses were approximately $36.7 million for the three months ended March 31, 2023 compared to $35.2 million for the three months ended March 31, 2022, an increase of approximately $1.5 million. Expenses in our radio broadcasting segment increased approximately $1.2 million for the three months ended March 31, 2023, compared to the three months ended March 31, 2022 due primarily to payroll costs.
Corporate selling, general and administrative, excluding stock-based compensation
| | | | | | | | | | |
Three Months Ended March 31, | | Change |
| |||||||
2023 |
| 2022 |
| | | | |
| ||
$ | 8,530 |
| $ | 9,413 |
| $ | (883) |
| (9.4) | % |
Corporate expenses consist of expenses for associated with our corporate headquarters and facilities, including personnel as well as other corporate overhead functions. Corporate selling, general and administrative expenses were approximately $8.5 million for the three months ended March 31, 2023 compared to $9.4 million for the three months ended March 31, 2022, a decrease of approximately $0.9 million. The decrease is primarily due to lower expenses associated with salaries and related compensations costs.
Stock-based compensation
| | | | | | | | | | |
Three Months Ended March 31, | | Change |
| |||||||
2023 |
| 2022 |
| | | | |
| ||
$ | 3,278 |
| $ | 124 |
| $ | 3,154 |
| *NM | % |
Stock-based compensation expense was approximately $3.3 million for the three months ended March 31, 2023 compared to $0.1 million for the three months ended March 31, 2022, an increase of approximately $3.2 million. The increase in stock-based compensation, was primarily due to new grants during the three months ended March 31, 2023 and the timing of vesting of stock awards for executive officers and other management personnel.
*NM – Not meaningful
45
Depreciation and amortization
| | | | | | | | | | |
Three Months Ended March 31, | | Change |
| |||||||
2023 |
| 2022 | | | | | |
| ||
$ | 2,597 |
| $ | 2,405 |
| $ | 192 |
| 8.0 | % |
Depreciation and amortization expense was approximately $2.6 million for the three months ended March 31, 2023, compared to approximately $2.4 million for the three months ended March 31, 2022, an increase of approximately $0.2 million. The increase is due to increased depreciation of capital expenditures.
Impairment of goodwill, intangible assets, and long-lived assets
| | | | | | | | | | |
Three Months Ended March 31, |
| Change |
| |||||||
2023 |
| 2022 |
| | | | |
| ||
$ | 16,775 | | $ | — | | $ | 16,775 |
| 100.0 | % |
Impairment of goodwill, intangible assets and long-lived assets was approximately $16.8 million for the three months ended March 31, 2023 with no impairment for the three months ended March 31, 2022. The expense for the three months ended March 31, 2023 was driven by the Company recording an impairment loss associated with the sale of the KROI-FM radio broadcasting license as discussed in Note 5 – Radio Broadcasting Licenses of our consolidated financial statements.
Interest expense
| | | | | | | | | | |
Three Months Ended March 31, |
| Change | | |||||||
2023 |
| 2022 |
| | | | |
| ||
$ | 14,068 | | $ | 15,927 | | $ | (1,859) |
| (11.7) | % |
Interest expense was approximately $14.1 million for the three months ended March 31, 2023 compared to approximately $15.9 million for the three months ended March 31, 2022, a decrease of approximately $1.9 million. Beginning in the second quarter of 2022 and continuing through the fourth quarter of 2022, the Company repurchased $75.0 million of its 2028 Notes at an average price of approximately 89.5% of par. During the three months ended March 31, 2023, the Company repurchased $25.0 million of its 2028 Notes at an average price of approximately 89.1% of par. This reduction in the outstanding debt balances led to a reduction in interest expense.
Gain on retirement of debt
| | | | | | | | | | |
Three Months Ended March 31, |
| Change |
| |||||||
2023 |
| 2022 |
| | | | |
| ||
$ | 2,356 | | $ | — | | $ | 2,356 |
| 100.0 | % |
Gain on retirement of debt was approximately $2.4 million for the three months ended March 31, 2023 compared to $0.0 million for the three months ended March 31, 2022. As discussed above, the Company repurchased $25.0 million of its 2028 Notes at an average price of approximately 89.1% of par, resulting in a net gain on retirement of debt.
Other (expense) income, net
| | | | | | | | | | |
Three Months Ended March 31, |
| Change | | |||||||
2023 |
| 2022 |
| | | | |
| ||
$ | (312) |
| $ | 1,986 |
| $ | (2,298) |
| 115.7 | % |
Other expense was approximately $0.3 million for the three months ended March 31, 2023, compared to other income of approximately $2.0 million for the three months ended March 31, 2022, respectively. As the Company exercised its put interest in March 2023, the Company was no longer entitled to any dividend in 2023. We recognized other income in the amount of approximately $2.0 million for the three months ended March 31, 2022, related to our MGM investment.
46
(Benefit from) provision for income taxes
| | | | | | | | | | |
Three Months Ended March 31, |
| Change |
| |||||||
2023 |
| 2022 |
| | | | |
| ||
$ | (1,160) | | $ | 5,465 | | $ | (6,625) |
| (121.2) | % |
For the three months ended March 31, 2023, we recorded a benefit from income taxes of approximately $1.2 million on pre-tax loss from continuing operations of approximately $3.6 million which results in an effective tax rate of 32.5%. This rate includes $0.1 million of discrete tax benefits primarily related to statutory state tax rate and apportionment changes. For the three months ended March 31, 2022, we recorded a provision for income taxes of approximately $5.5 million on pre-tax income from continuing operations of approximately $22.6 million which results in an effective tax rate of 24.2%.
Net income attributable to noncontrolling interests
| | | | | | | | | | |
Three Months Ended March 31, | | Change |
| |||||||
2023 |
| 2022 | | | | | |
| ||
$ | 511 |
| $ | 626 |
| $ | (115) |
| (18.4) | % |
Net income attributable to noncontrolling interests was approximately $0.5 million for the three months ended March 31, 2023 compared to approximately $0.6 million for the three months ended March 31, 2022. The decrease was due primarily to lower net income recognized by Reach Media during the three months ended March 31, 2023 compared to the three months ended March 31, 2022
Non-GAAP Financial Measures
The presentation of non-GAAP financial measures is not intended to be considered in isolation from, as a substitute for, or superior to the financial information prepared and presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). We use non-GAAP financial measures including broadcast and digital operating income and Adjusted EBITDA as additional means to evaluate our business and operating results through period-to-period comparisons. Reconciliations of our non-GAAP financial measures to the most directly comparable GAAP financial measures are included below for review. Reliance should not be placed on any single financial measure to evaluate our business.
Measurement of Performance
We monitor and evaluate the growth and operational performance of our business using net income and the following key metrics:
(a) Net revenue: The performance of an individual radio station or group of radio stations in a particular market is customarily measured by its ability to generate net revenue. Net revenue consists of gross revenue, net of local and national agency and outside sales representative commissions consistent with industry practice. Net revenue is recognized in the period in which advertisements are broadcast. Net revenue also includes advertising aired in exchange for goods and services, which is recorded at fair value, revenue from sponsored events and other revenue. Net revenue is recognized for our online business as impressions are delivered, as “click throughs,” where applicable.delivered. Net revenue is recognized for our cable television business as advertisements are run, and during the term of the affiliation agreements at levels appropriate for the most recent subscriber counts reported by the affiliate, net of launch support.
(b) Broadcast and digital operating income: NetThe radio broadcasting industry commonly refers to “station operating income” which consists of net income (loss) before depreciation and amortization, income taxes, interest expense, interest income, net income attributable to noncontrolling interests, inother (expense) income, of subsidiaries, other (income) expense, corporate selling, general and administrative expenses, stock-based compensation, impairment of goodwill, intangible assets, and long-lived assets (gain) lossand gain on retirement of debt and gain on sale-leaseback, is commonly referred to in the radio broadcasting industry as “station operating income.”debt. However, given the diverse nature of our business, station operating income is not truly reflective of our multi-media operation and, therefore, we now use the term broadcast“broadcast and digital operating income.” Broadcast and digital operating income is not a measure of financial performance under accounting principles generally accepted in the United States of America (“GAAP”).GAAP. Nevertheless, broadcast and digital operating income is a significant measure used by our management to evaluate the operating performance of our core operating segments. Broadcast and digital operating income provides helpful information about our results of operations, apart from expenses associated with our fixed assets and, goodwill, intangible assets, and long-lived intangible assets, income taxes, investments, impairment charges, debt financings and retirements, corporate overhead and stock-based compensation. Our measure of broadcast and digital operating income is similar to industry use of station operating income; however, it reflects our more diverse
47
business and therefore is not completely analogous to “station operating income” or other similarly titled measures as used by other companies. Broadcast and digital operating income does not represent operating income or loss, or cash flow from operating activities, as those terms are defined under GAAP, and should not be considered as an alternative to those measurements as an indicator of our performance.
(c) Broadcast and digital operating income margin: Broadcast and digital operating income margin representsdecreased to approximately $39.3 million for the three months ended March 31, 2023, compared to approximately $48.4 million for the three months ended March 31, 2022, a decrease of approximately $9.1 million or 18.8%. The decrease was primarily due to lower broadcast and digital operating income as a percentage of net revenue. Broadcastat our digital, Reach Media and digital operating income margin is not a measure of financial performance under GAAP. Nevertheless, we believe thatcable television segments, which was partially offset by higher broadcast and digital operating income margin is a useful measureat our radio broadcasting segment. Our digital segment generated approximately $3.8 million of our performance because it provides helpful information about our profitability as a percentage of our net revenue. Broadcastbroadcast and digital operating margin includes resultsincome during the three months ended March 31, 2023, compared to approximately $4.6 million during the three months ended March 31, 2022. The decrease in the digital segment’s broadcast and digital operating income is primarily from all four segments (radio broadcasting,higher selling, general and administrative expenses. Reach Media generated approximately $4.2 million of broadcast and digital operating income during the three months ended March 31, 2023, compared to approximately $4.5 million during the three months ended March 31, 2022. TV One generated approximately $22.4 million of broadcast and digital operating income during the three months ended March 31, 2023, compared to approximately $31.4 million during the three months ended March 31, 2022. The decrease in the cable television).
41
Tabletelevision segment’s broadcast and digital operating income is primarily from lower net revenues coupled with higher programming and technical expenses. Finally, our radio broadcasting segment generated approximately $8.9 million of Contentsbroadcast and digital operating income during the three months ended March 31, 2023, compared to approximately $7.9 million during the three months ended March 31, 2022.
(d)(c) Adjusted EBITDA: Adjusted EBITDA consists of net (loss) income plus (1) depreciation and amortization, income taxes, interest expense, net income attributable to noncontrolling interests, in incomeimpairment of subsidiaries, impairment ofgoodwill, intangible assets, and long-lived assets, stock-based compensation, (gain) lossgain on retirement of debt, gain on sale-leaseback, employment agreement incentive plan award expenses and other compensation, contingent consideration from acquisition, corporate development costs, severance-related costs, cost method investment income, less (2) other income and interest income. Net income before interest income, interest expense, income taxes, depreciation and amortization is commonly referred to in our business as “EBITDA.” Adjusted EBITDA and EBITDA are not measures of financial performance under GAAP. We believe Adjusted EBITDA is often a useful measure of a company’s operating performance and is a significant measure used by our management to evaluate the operating performance of our business becausebusiness. Accordingly, based on the previous description of Adjusted EBITDA, excludes charges for depreciation, amortization and interest expense that have resulted from our acquisitions and debt financing, our taxes, impairment charges, and gain on retirements of debt. Accordingly, we believe that Adjusted EBITDAit provides useful information about the operating performance of our business, apart from the expenses associated with our fixed assets and long-livedgoodwill, intangible assets, and long-lived assets or capital structure or the results of our affiliated company.structure. Adjusted EBITDA is frequently used as one of the measures for comparing businesses in the broadcasting industry, although our measure of Adjusted EBITDA may not be comparable to similarly titled measures of other companies, including, but not limited to the fact that our definition includes the results of all four of our operating segments (radio broadcasting, Reach Media, digital and cable television). Business activities unrelated to these four segments are included in an “all other” category which the Company refers to as “All other - corporate/eliminations.” Adjusted EBITDA and EBITDA do not purport to represent operating income or cash flow from operating activities, as those terms are defined under GAAP, and should not be considered as alternatives to those measurements as an indicator of our performance.
Summary of Performance
The tables below provide a summary of our performance based on the metrics described above:
| | | | | | | | | | | | | | |
| | Three Months Ended June 30, |
| Six Months Ended June 30, |
| | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
|
| ||||
|
| (In thousands, except margin data) | | | ||||||||||
| | (Unaudited) | ||||||||||||
Net revenue | | $ | 118,810 | | $ | 107,593 | | $ | 231,159 | | $ | 199,033 | | |
Broadcast and digital operating income | | $ | 55,113 | | $ | 49,570 | | $ | 103,516 | | $ | 85,964 | | |
Broadcast and digital operating income margin | |
| 46.4 | % |
| 46.1 | % |
| 44.8 | % |
| 43.2 | % | |
Adjusted EBITDA | | $ | 47,508 | | $ | 44,765 | | $ | 89,512 | | $ | 75,002 | | |
Net income attributable to common stockholders | | $ | 15,034 | | $ | 17,866 | | $ | 31,403 | | $ | 17,873 | | |
The reconciliation of net income to broadcast and digital operating income is as follows:
| | | | | | | | | | | | | |
| | Three Months Ended June 30, |
| Six Months Ended June 30, |
| ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| ||||
| | (In thousands, unaudited) | | ||||||||||
| | | | | | | | | | | | | |
Consolidated net income attributable to common stockholders | | $ | 15,034 | | $ | 17,866 | | $ | 31,403 | | $ | 17,873 | |
Add back non-broadcast and digital operating income items included in consolidated net income: | |
| | |
| | |
| | |
| | |
Interest income | |
| — | |
| (168) | |
| (59) | |
| (172) | |
Interest expense | |
| 15,886 | |
| 15,853 | |
| 31,813 | |
| 33,898 | |
Provision for income taxes | |
| 3,725 | |
| 6,119 | |
| 9,311 | |
| 6,109 | |
Corporate selling, general and administrative, excluding stock-based compensation | |
| 11,528 | |
| 9,153 | |
| 20,864 | |
| 19,273 | |
Stock-based compensation | |
| 336 | |
| 172 | |
| 460 | |
| 425 | |
(Gain) loss on retirement of debt | |
| (1,855) | |
| — | |
| (1,855) | |
| 6,949 | |
Other income, net | |
| (9,725) | |
| (2,362) | |
| (11,711) | |
| (4,046) | |
Depreciation and amortization | |
| 2,481 | |
| 2,325 | |
| 4,886 | |
| 4,589 | |
Noncontrolling interests in income of subsidiaries | |
| 770 | | | 612 | | | 1,471 | | | 1,066 | |
Impairment of long-lived assets | | | 16,933 | | | — | | | 16,933 | | | — | |
Broadcast and digital operating income | | $ | 55,113 | | $ | 49,570 | | $ | 103,516 | | $ | 85,964 | |
42
The reconciliation of net income to adjusted EBITDA is as follows:
| | | | | | | | | | | | | |
| | Three Months Ended June 30, |
| | Six Months Ended June 30, |
| |||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| ||||
| | (In thousands, unaudited) | | ||||||||||
| | | | | | | | | | | | | |
Adjusted EBITDA reconciliation: |
| |
|
| |
| | | | | | | |
Consolidated net income attributable to common stockholders, as reported | | $ | 15,034 | | $ | 17,866 | | $ | 31,403 | | $ | 17,873 | |
Add back non-broadcast and digital operating income items included in consolidated net income: | |
| | |
| | | | | | | | |
Interest income | |
| — | |
| (168) | | | (59) | | | (172) | |
Interest expense | |
| 15,886 | |
| 15,853 | | | 31,813 | | | 33,898 | |
Provision for income taxes | |
| 3,725 | |
| 6,119 | | | 9,311 | | | 6,109 | |
Depreciation and amortization | |
| 2,481 | |
| 2,325 | | | 4,886 | | | 4,589 | |
EBITDA | | $ | 37,126 | | $ | 41,995 | | $ | 77,354 | | $ | 62,297 | |
Stock-based compensation | |
| 336 | |
| 172 | | | 460 | | | 425 | |
(Gain) loss on retirement of debt | |
| (1,855) | |
| — | | | (1,855) | | | 6,949 | |
Other income, net | |
| (9,725) | |
| (2,362) | | | (11,711) | | | (4,046) | |
Noncontrolling interests in income of subsidiaries | |
| 770 | | | 612 | | | 1,471 | | | 1,066 | |
Corporate development costs | | | 762 | | | 941 | | | 1,019 | | | 2,334 | |
Employment Agreement Award, incentive plan award expenses and other compensation | |
| 903 | |
| 911 | | | 1,482 | | | 1,509 | |
Contingent consideration from acquisition | |
| — | |
| 240 | | | — | | | 280 | |
Severance-related costs | |
| 109 | |
| 312 | | | 242 | | | 573 | |
Impairment of long-lived assets | | | 16,933 | | | — | | | 16,933 | | | — | |
Cost method investment income from MGM National Harbor | |
| 2,149 | |
| 1,944 | | | 4,117 | | | 3,615 | |
Adjusted EBITDA | | $ | 47,508 | | $ | 44,765 | | $ | 89,512 | | $ | 75,002 | |
43
URBAN ONE, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS
The following table summarizes our historical consolidated results of operations:
Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021 (In thousands)
| | | | | | | | | | | | |
| | Three Months Ended June 30, | | | | | |
| ||||
|
| 2022 |
| 2021 |
| Increase/(Decrease) |
| |||||
| | (Unaudited) | | | | | |
| ||||
Statements of Operations: |
| |
|
| |
|
| |
|
|
| |
Net revenue | | $ | 118,810 | | $ | 107,593 | | $ | 11,217 |
| 10.4 | % |
Operating expenses: | |
| | |
| | |
| |
| | |
Programming and technical, excluding stock-based compensation | |
| 28,351 | |
| 26,513 | |
| 1,838 |
| 6.9 | |
Selling, general and administrative, excluding stock-based compensation | |
| 35,346 | |
| 31,510 | |
| 3,836 |
| 12.2 | |
Corporate selling, general and administrative, excluding stock-based compensation | |
| 11,528 | |
| 9,153 | |
| 2,375 |
| 25.9 | |
Stock-based compensation | |
| 336 | |
| 172 | |
| 164 |
| 95.3 | |
Depreciation and amortization | |
| 2,481 | |
| 2,325 | |
| 156 |
| 6.7 | |
Impairment of long-lived assets | | | 16,933 | | | — | | | 16,933 | | 100.0 | |
Total operating expenses | |
| 94,975 | |
| 69,673 | |
| 25,302 |
| 36.3 | |
Operating income | |
| 23,835 | |
| 37,920 | |
| (14,085) |
| (37.1) | |
Interest income | |
| — | | | 168 | |
| (168) |
| (100.0) | |
Interest expense | |
| 15,886 | | | 15,853 | |
| 33 |
| 0.2 | |
Gain on retirement of debt | |
| (1,855) | | | — | | | 1,855 |
| 100.0 | |
Other income, net | |
| (9,725) | | | (2,362) | |
| 7,363 |
| 311.7 | |
Income before provision for income taxes and noncontrolling interests in income of subsidiaries | |
| 19,529 | |
| 24,597 | |
| (5,068) |
| (20.6) | |
Provision for income taxes | |
| 3,725 | | | 6,119 | |
| (2,394) |
| (39.1) | |
Consolidated net income | |
| 15,804 | |
| 18,478 | |
| (2,674) |
| (14.5) | |
Noncontrolling interests in income of subsidiaries | |
| 770 | | | 612 | |
| 158 |
| 25.8 | |
Net income attributable to common stockholders | | $ | 15,034 | | $ | 17,866 | | $ | (2,832) |
| (15.9) | % |
44
Net revenue
| | | | | | | | | | |
Three Months Ended June 30, | | Increase/(Decrease) | | |||||||
2022 |
| 2021 |
| | | | |
| ||
$ | 118,810 | | $ | 107,593 | | $ | 11,217 |
| 10.4 | % |
During the three months ended June 30, 2022, we recognized approximately $118.8 million in net revenue compared to approximately $107.6 million during the same period in 2021. These amounts are net of agency and outside sales representative commissions. The increase in net revenue was due primarily to mitigation of the economic impacts of the COVID-19 pandemic which began in March 2020 and to increased demand for minority focused media. Net revenues from our radio broadcasting segment increased 4.9% compared to the same period in 2021. Based on reports prepared by the independent accounting firm Miller, Kaplan, Arase & Co., LLP (“Miller Kaplan”), the markets we operate in (excluding Richmond and Raleigh, both of which do not participate in Miller Kaplan) increased 7.7% in total revenues. We experienced net revenue improvements in all of our existing radio markets with the exception of Philadelphia and Washington, DC. Net revenue from our radio broadcasting segment, excluding political advertising, increased 1.3% compared to the same period in 2021. We recognized approximately $53.4 million of revenue from our cable television segment during the three months ended June 30, 2022, compared to approximately $48.5 million for the same period in 2021 with the increase primarily in advertising sales. We recognized approximately $11.1 million of revenue from our Reach Media segment during the three months ended June 30, 2022, compared to approximately $9.4 million for the same period in 2021, due primarily to increased demand. Finally, net revenues for our digital segment increased approximately $2.8 million for the three months ended June 30, 2022, compared to the same period in 2021, primarily due to an increase in direct revenues.
Operating Expenses
Programming and technical, excluding stock-based compensation
| | | | | | | | | | |
Three Months Ended June 30, | | Increase/(Decrease) |
| |||||||
2022 |
| 2021 |
| | | | |
| ||
$ | 28,351 | | $ | 26,513 | | $ | 1,838 |
| 6.9 | % |
Programming and technical expenses include expenses associated with on-air talent and the management and maintenance of the systems, tower facilities, and studios used in the creation, distribution and broadcast of programming content on our radio stations. Programming and technical expenses for the radio segment also include expenses associated with our programming research activities and music royalties. For our digital segment, programming and technical expenses include software product design, post-application software development and maintenance, database and server support costs, the help desk function, data center expenses connected with ISP hosting services and other internet content delivery expenses. For our cable television segment, programming and technical expenses include expenses associated with technical, programming, production, and content management. The increase in programming and technical expenses for the three months ended June 30, 2022, compared to the same period in 2021 was due primarily to higher expenses in our radio broadcasting, Reach Media, digital and cable television segments. Expenses in our radio broadcasting segment increased $512,000 for the three months ended June 30, 2022, compared to the same period in 2021 due primarily to higher music royalties, contract labor and compensation expenses. Expenses in our digital segment increased $894,000 for the three months ended June 30, 2022 compared to the same period in 2021 due primarily to higher compensation expenses and video production costs.
Selling, general and administrative, excluding stock-based compensation
| | | | | | | | | | |
Three Months Ended June 30, | | Increase/(Decrease) |
| |||||||
2022 |
| 2021 |
| | | | |
| ||
$ | 35,346 |
| $ | 31,510 |
| $ | 3,836 |
| 12.2 | % |
45
Selling, general and administrative expenses include expenses associated with our sales departments, offices and facilities and personnel (outside of our corporate headquarters), marketing and promotional expenses, special events and sponsorships and back office expenses. Expenses to secure ratings data for our radio stations and visitors’ data for our websites are also included in selling, general and administrative expenses. In addition, selling, general and administrative expenses for the radio broadcasting segment and digital segment include expenses related to the advertising traffic (scheduling and insertion) functions. Selling, general and administrative expenses also include membership traffic acquisition costs for our online business. Expenses in our radio broadcasting segment increased approximately $2.7 million for the three months ended June 30, 2022, compared to the same period in 2021 due primarily to higher compensation costs, promotional accounts and bad debt. Expenses in our digital segment increased $519,000 for the three months ended June 30, 2022, compared to the same period in 2021 due primarily to higher traffic acquisition costs. Finally, expenses in our cable television segment increased $644,000 for the three months ended June 30, 2022, compared to the same period in 2021 due primarily to higher promotional expenses.
Corporate selling, general and administrative, excluding stock-based compensation
| | | | | | | | | | |
Three Months Ended June 30, | | Increase/(Decrease) |
| |||||||
2022 |
| 2021 |
| | | | |
| ||
$ | 11,528 |
| $ | 9,153 |
| $ | 2,375 |
| 25.9 | % |
Corporate expenses consist of expenses associated with our corporate headquarters and facilities, including personnel as well as other corporate overhead functions. The increase in expense for the three months ended June 30, 2022, compared to the same period in 2021 was primarily due to an increase in compensation costs, software license fees, and contract labor costs.
Stock-based compensation
| | | | | | | | | | |
Three Months Ended June 30, | | Increase/(Decrease) |
| |||||||
2022 |
| 2021 |
| | | | |
| ||
$ | 336 |
| $ | 172 |
| $ | 164 |
| 95.3 | % |
The increase in stock-based compensation for the three months ended June 30, 2022, compared to the same period in 2021, was primarily due to timing of grants and vesting of stock awards for certain executive officers and other management personnel.
Depreciation and amortization
| | | | | | | | | | |
Three Months Ended June 30, | Increase/(Decrease) |
| ||||||||
2022 |
| 2021 | | | | | |
| ||
$ | 2,481 |
| $ | 2,325 |
| $ | 156 |
| 6.7 | % |
Depreciation and amortization expense increased to approximately $2.5 million for the quarter ended June 30, 2022, compared to approximately $2.3 million for the quarter ended June 30, 2021.
Impairment of long-lived assets
| | | | | | | | | | |
Three Months Ended June 30, |
| Increase/(Decrease) |
| |||||||
2022 |
| 2021 |
| | | | |
| ||
$ | 16,933 | | $ | — | | $ | 16,933 |
| 100.0 | % |
During the second quarter of 2022, there was slowing in certain general economic conditions and a rising interest rate environment, which we deemed to be an impairment indicator that warranted interim impairment testing of certain markets’ radio broadcasting licenses. The impairment of long-lived assets for the three months ended June 30, 2022, was related to a non-cash impairment charge of approximately $4.3 million recorded to reduce the carrying value of our Atlanta market goodwill balance and a charge of approximately $12.6 million associated with our Atlanta, Dallas, Houston, Indianapolis, and Raleigh radio market broadcasting licenses. The fair value of the radio broadcasting license assets were overstated by approximately $1.1 million, $2.8 million, and $2.1 million as of December 31, 2019, March 31, 2020, and December 31, 2021, and understated by approximately $2.3 million as of September 30, 2020. Accordingly, the Company recorded an out-of-period non-cash impairment charge of approximately $3.7 million during the three
46
months ended June 30, 2022. The Company determined that the errors were not material to any previous period and that correcting the error in the three-month and six-month periods ended June 30, 2022 would not materially misstate estimated net revenue or pre-tax income for the full year, as of and for the period ended December 31, 2022, or the earnings trend and therefore can be corrected in the current period.
Interest expense
| | | | | | | | | | |
Three Months Ended June 30, |
| Increase/(Decrease) | | |||||||
2022 |
| 2021 |
| | | | |
| ||
$ | 15,886 | | $ | 15,853 | | $ | 33 |
| 0.2 | % |
Interest expense remained flat at approximately $15.9 million for the quarters ended June 30, 2022 and 2021. During the three months ended June 30, 2022, the PPP loan and related accrued interest was forgiven and recorded as other income in the amount of $7.6 million. During the quarter ended June 30, 2022, the Company repurchased approximately $25.0 million of its 2028 Notes at an average price of approximately 91.0% of par.
Gain on retirement of debt
| | | | | | | | | | |
Three Months Ended June 30, |
| Increase/(Decrease) |
| |||||||
2022 |
| 2021 |
| | | | |
| ||
$ | (1,855) | | $ | — | | $ | (1,855) |
| 100.0 | % |
As discussed above, the Company repurchased approximately $25.0 million of its 2028 Notes at an average price of approximately 91.0% of par, resulting in a net gain on retirement of debt of approximately $1.9 million for the quarter ended June 30, 2022.
Other income, net
| | | | | | | | | | |
Three Months Ended June 30, |
| Increase/(Decrease) | | |||||||
2022 |
| 2021 |
| | | | |
| ||
$ | (9,725) |
| $ | (2,362) |
| $ | 7,363 |
| 311.7 | % |
Other income, net, was approximately $9.7 million and $2.4 million for the three months ended June 30, 2022 and 2021, respectively. We recognized other income in the amount of approximately $2.1 million and $1.9 million for the three months ended June 30, 2022 and 2021, respectively, related to our MGM investment. As noted above, during the three months ended June 30, 2022, the PPP loan and related accrued interest was forgiven and recorded as other income in the amount of $7.6 million.
Provision for income taxes
| | | | | | | | | | |
Three Months Ended June 30, |
| Increase/(Decrease) |
| |||||||
2022 |
| 2021 |
| | | | |
| ||
$ | 3,725 | | $ | 6,119 | | $ | (2,394) |
| (39.1) | % |
For the three months ended June 30, 2022, we recorded a provision for income taxes of approximately $3.7 million on pre-tax income from continuing operations of approximately $19.5 million which results in an effective tax rate of 19.1%. This rate includes approximately $2.1 million of discrete tax benefits primarily related to non-taxable income forgiveness of the PPP Loan. For the three months ended June 30, 2021, we recorded a provision for income taxes of approximately $6.1 million on pre-tax income from continuing operations of approximately $24.6 million which results in an effective tax rate of 24.9%. This rate includes $22,000 of tax benefit related to excess tax benefits from restricted stock units.
47
Noncontrolling interests in (loss) income of subsidiaries
| | | | | | | | | | |
Three Months Ended June 30, | | Increase/(Decrease) |
| |||||||
2022 |
| 2021 | | | | | |
| ||
$ | 770 |
| $ | 612 |
| $ | 158 |
| 25.8 | % |
The increase in noncontrolling interests in income of subsidiaries was due primarily to higher net income recognized by Reach Media during the three months ended June 30, 2022 compared to the three months ended June 30, 2021.
Other Data
Broadcast and digital operating income
Broadcast and digital operating income increased to approximately $55.1 million for the three months ended June 30, 2022, compared to approximately $49.6 million for the comparable period in 2021, an increase of approximately $5.5 million or 11.2%. The increase was primarily due to higher broadcast and digital operating income at our Reach Media, cable television and digital segments which was partially offset by lower broadcast and digital operating income at our radio broadcasting segment. Our radio broadcasting segment generated approximately $11.7 million of broadcast and digital operating income during the three months ended June 30, 2022, compared to approximately $13.1 million during the three months ended June 30, 2021, with the decrease primarily due to higher selling, general and administrative expenses. Reach Media generated approximately $5.4 million of broadcast and digital operating income during the three months ended June 30, 2022, compared to approximately $4.0 million during the three months ended June 30, 2021, with the increase primarily due to higher net revenues. Our digital segment generated approximately $7.7 million of broadcast and digital operating income during the three months ended June 30, 2022, compared to approximately $6.3 million during the three months ended June 30, 2021. The increase in the digital segment’s broadcast and digital operating income is primarily from higher net revenues. Finally, TV One generated approximately $30.3 million of broadcast and digital operating income during the three months ended June 30, 2022, compared to approximately $26.1 million during the three months ended June 30, 2021, with the increase primarily due to higher net revenues.
Broadcast and digital operating income margin
Broadcast and digital operating income margin increased to 46.4% for the three months ended June 30, 2022, from 46.1% for the comparable period in 2021. The margin increase was primarily attributable to higher broadcast and digital operating income across our cable television, Reach Media and digital segments.
| | | | | | | |
| Three Months Ended March 31, |
| | ||||
| 2023 |
| 2022 |
|
| ||
| (In thousands) | | | ||||
| | | | | | | |
Net revenue | $ | 109,869 | | $ | 112,131 | | |
Net (loss) income attributable to common stockholders | | (2,922) | | | 16,488 | | |
Broadcast and digital operating income | | 39,300 | | | 48,403 | | |
Adjusted EBITDA | | 30,285 | | | 42,004 | | |
48
URBAN ONE, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS
The following table summarizes our historical consolidated resultsreconciliation of operations:
Six Months Ended June 30, 2022 Comparednet (loss) income to Six Months Ended June 30, 2021 (In thousands)broadcast and digital operating income is as follows:
| | | | | | | | | | | | |
| | Six Months Ended June 30, | | | | | | | ||||
|
| 2022 |
| 2021 |
| Increase/(Decrease) |
| |||||
| | (Unaudited) |
| |||||||||
Statements of Operations: | |
|
| |
|
| |
|
|
|
| |
Net revenue |
| $ | 231,159 |
| $ | 199,033 |
| $ | 32,126 |
| 16.1 | % |
Operating expenses: | | | | | | | | | | | | |
Programming and technical, excluding stock-based compensation | | | 56,869 | | | 51,603 | | | 5,266 |
| 10.2 | |
Selling, general and administrative, excluding stock-based compensation | | | 70,774 | | | 61,466 | | | 9,308 |
| 15.1 | |
Corporate selling, general and administrative, excluding stock-based compensation | | | 20,864 | | | 19,273 | | | 1,591 |
| 8.3 | |
Stock-based compensation | | | 460 | | | 425 | | | 35 |
| 8.2 | |
Depreciation and amortization | | | 4,886 | | | 4,589 | | | 297 |
| 6.5 | |
Impairment of long-lived assets | | | 16,933 | | | — | | | 16,933 |
| 100.0 | |
Total operating expenses | | | 170,786 | | | 137,356 | | | 33,430 |
| 24.3 | |
Operating income | | | 60,373 | | | 61,677 | | | (1,304) |
| (2.1) | |
Interest income | | | 59 | | | 172 | | | (113) |
| (65.7) | |
Interest expense | | | 31,813 | | | 33,898 | | | (2,085) |
| (6.2) | |
(Gain) loss on retirement of debt | | | (1,855) | | | 6,949 | | | 8,804 |
| 126.7 | |
Other income, net | | | (11,711) | | | (4,046) | | | 7,665 |
| 189.4 | |
Income before provision for income taxes and noncontrolling interests in income of subsidiaries | | | 42,185 | | | 25,048 | | | 17,137 |
| 68.4 | |
Provision for income taxes | | | 9,311 | | | 6,109 | | | 3,202 |
| 52.4 | |
Consolidated net income | | | 32,874 | | | 18,939 | | | 13,935 |
| 73.6 | |
Noncontrolling interests in income of subsidiaries | | | 1,471 | | | 1,066 | | | 405 |
| 38.0 | |
Net income attributable to common stockholders |
| $ | 31,403 |
| $ | 17,873 |
| $ | 13,530 |
| 75.7 | % |
| | | | | | | |
|
| Three Months Ended March 31, |
| ||||
|
| 2023 |
| 2022 |
| ||
| | (In thousands) | | ||||
| | | | | | | |
Net (loss) income attributable to common stockholders | | $ | (2,922) | | $ | 16,488 | |
Add back/(deduct) non-broadcast and digital operating income items included in net (loss) income: | |
| | |
| | |
Interest income | |
| (333) | |
| (59) | |
Interest expense | |
| 14,068 | |
| 15,927 | |
(Benefit from) provision for income taxes | |
| (1,160) | |
| 5,465 | |
Corporate selling, general and administrative, excluding stock-based compensation | |
| 8,530 | |
| 9,413 | |
Stock-based compensation | |
| 3,278 | |
| 124 | |
Gain on retirement of debt | |
| (2,356) | |
| — | |
Other expense (income), net | |
| 312 | |
| (1,986) | |
Depreciation and amortization | |
| 2,597 | |
| 2,405 | |
Net income attributable to noncontrolling interests | | | 511 | | | 626 | |
Impairment of goodwill, intangible assets, and long-lived assets | | | 16,775 | | | — | |
Broadcast and digital operating income | | $ | 39,300 | | $ | 48,403 | |
The reconciliation of net (loss) income to adjusted EBITDA is as follows:
| | | | | | | |
|
| | Three Months Ended March 31, |
| |||
|
| 2023 |
| 2022 |
| ||
| | (In thousands) | | ||||
| | | | | | | |
Net (loss) income attributable to common stockholders | | $ | (2,922) | | $ | 16,488 | |
Add back/(deduct) non-broadcast and digital operating income items included in net (loss) income: | | | | | | | |
Interest income | | | (333) | | | (59) | |
Interest expense | | | 14,068 | | | 15,927 | |
(Benefit from) provision for income taxes | | | (1,160) | | | 5,465 | |
Depreciation and amortization | | | 2,597 | | | 2,405 | |
EBITDA | | $ | 12,250 | | $ | 40,226 | |
Stock-based compensation | | | 3,278 | | | 124 | |
Gain on retirement of debt | | | (2,356) | | | — | |
Other expense (income), net | | | 312 | | | (1,986) | |
Net income attributable to noncontrolling interests | | | 511 | | | 626 | |
Corporate development costs | | | (376) | | | 334 | |
Employment Agreement Award and other compensation | | | (144) | | | 580 | |
Severance-related costs | | | 150 | | | 133 | |
Impairment of goodwill, intangible assets, and long-lived assets | | | 16,775 | | | — | |
Investment (expense) income from MGM National Harbor1 | | | (115) | | | 1,967 | |
Adjusted EBITDA | | $ | 30,285 | | $ | 42,004 | |
1Investment expense (income) from MGM National Harbor is included in the Other (expense) income, net
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Net revenue
| | | | | | | | | | |
Six Months Ended June 30, | | Increase/(Decrease) |
| |||||||
2022 |
| 2021 |
| | | | |
| ||
$ | 231,159 |
| $ | 199,033 |
| $ | 32,126 |
| 16.1 | % |
During the six months ended June 30, 2022, we recognized approximately $231.2 million in net revenue compared to approximately $199.0 million during the same period in 2021. These amounts are net of agency and outside sales representative commissions. The increase in net revenue was due primarily to mitigation of the economic impacts of the COVID-19 pandemic which began in March 2020 and to increased demand for minority focused media. Net revenues from our radio broadcasting segment for the six months ended June 30, 2022, increased 16.1% from the same period in 2021. Based on reports prepared by Miller Kaplan, the markets we operate in increased 10.7% in total revenues. We experienced net revenue improvements in all of our existing radio markets, with the exception of Philadelphia. Net revenue from our radio broadcasting segment, excluding political advertising, increased 6.8% compared to the same period in 2021. Reach Media’s net revenues increased 22.6% for the six months ended June 30, 2022, compared to the same period in 2021, due primarily to increased demand. We recognized approximately $109.9 million and $94.7 million of revenue from our cable television segment during the six months ended June 30, 2022, and 2021, respectively, due primarily to increased advertising sales. Net revenue for our digital segment increased approximately $7.9 million for the six months ended June 30, 2022, compared to the same period in 2021 primarily from higher direct revenues.
Operating Expenses
Programming and technical, excluding stock-based compensation
| | | | | | | | | | |
Six Months Ended June 30, | | Increase/(Decrease) |
| |||||||
2022 |
| 2021 |
| | | | |
| ||
$ | 56,869 |
| $ | 51,603 |
| $ | 5,266 |
| 10.2 | % |
Programming and technical expenses include expenses associated with on-air talent and the management and maintenance of the systems, tower facilities, and studios used in the creation, distribution and broadcast of programming content on our radio stations. Programming and technical expenses for the radio segment also include expenses associated with our programming research activities and music royalties. For our internet segment, programming and technical expenses include software product design, post-application software development and maintenance, database and server support costs, the help desk function, data center expenses connected with ISP hosting services and other internet content delivery expenses. For our cable television segment, programming and technical expenses include expenses associated with technical, programming, production, and content management. The increase in programming and technical expenses for the six months ended June 30, 2022, compared to the same period in 2021 is primarily to higher expenses across all segments. Expenses in our radio broadcasting segment increased $895,000 for the six months ended June 30, 2022, compared to the same period in 2021, due primarily to higher music royalties and compensation expenses. Expenses in our digital segment increased approximately $1.4 million for the six months ended June 30, 2022 compared to the same period in 2021 due primarily to higher compensation expenses, content expenses and video production costs. Expenses in our cable television segment increased approximately $2.7 million for the six months ended June 30, 2022 compared to the same period in 2021 due primarily to higher content amortization expense and compensation expenses.
Selling, general and administrative, excluding stock-based compensation
| | | | | | | | | | |
Six Months Ended June 30, |
| Increase/(Decrease) |
| |||||||
2022 |
| 2021 |
| | | | |
| ||
$ | 70,774 | | $ | 61,466 | | $ | 9,308 |
| 15.1 | % |
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Selling, general and administrative expenses include expenses associated with our sales departments, offices and facilities and personnel (outside of our corporate headquarters), marketing and promotional expenses, special events and sponsorships and back-office expenses. Expenses to secure ratings data for our radio stations and visitors’ data for our websites are also included in selling, general and administrative expenses. In addition, selling, general and administrative expenses for the radio broadcasting segment and internet segment include expenses related to the advertising traffic (scheduling and insertion) functions. Selling, general and administrative expenses also include membership traffic acquisition costs for our online business. Expenses in our radio broadcasting segment increased approximately $2.6 million for the six months ended June 30, 2022, compared to the same period in 2021 due primarily to higher compensation costs and promotional accounts. Expenses in our digital segment increased approximately $2.9 million for the six months ended June 30, 2022, compared to the same period in 2021 due primarily to higher compensation costs, higher traffic acquisition costs and web services fees. Expenses in our Reach Media segment increased $895,000 for the six months ended June 30, 2022, compared to the same period in 2021 due primarily to higher affiliate station costs and higher bad debt expense. Finally, expenses in our cable television segment increased approximately $3.2 million for the six months ended June 30, 2022, compared to the same period in 2021 due primarily to higher compensation costs, research expenses and higher promotional and advertising expenses.
Corporate selling, general and administrative, excluding stock-based compensation
| | | | | | | | | | |
Six Months Ended June 30, |
| Increase/(Decrease) |
| |||||||
2022 |
| 2021 |
| | | | |
| ||
$ | 20,864 | | $ | 19,273 | | $ | 1,591 |
| 8.3 | % |
Corporate expenses consist of expenses associated with our corporate headquarters and facilities, including personnel as well as other corporate overhead functions. There was a decrease in professional fees related to corporate development activities in connection with potential gaming and other similar business activities which was offset by an increase in compensation costs, software license fees, contract labor, and travel and entertainment expenses.
Stock-based compensation
| | | | | | | | | | |
Six Months Ended June 30, |
| Increase/(Decrease) |
| |||||||
2022 |
| 2021 |
| | | | |
| ||
$ | 460 | | $ | 425 | | $ | 35 |
| 8.2 | % |
The increase in stock-based compensation for the six months ended June 30, 2022, compared to the same period in 2021, was primarily due to timing of grants and vesting of stock awards for certain executive officers and other management personnel.
Depreciation and amortization
| | | | | | | | | | |
Six Months Ended June 30, | Increase/(Decrease) |
| ||||||||
2022 |
| 2021 | | | | | |
| ||
$ | 4,886 |
| $ | 4,589 |
| $ | 297 |
| 6.5 | % |
Depreciation and amortization expense increased to approximately $4.9 million for the six months ended June 30, 2022, compared to approximately $4.6 million for the six months ended June 30, 2021.
Impairment of long-lived assets
| | | | | | | | | | |
Six Months Ended June 30, | | Increase/(Decrease) |
| |||||||
2022 |
| 2021 |
| | | | |
| ||
$ | 16,933 |
| $ | — |
| $ | 16,933 |
| 100.0 | % |
During the second quarter of 2022, there was slowing in certain general economic conditions and a rising interest rate environment, which we deemed to be an impairment indicator that warranted interim impairment testing of certain markets’ radio broadcasting licenses. The impairment of long-lived assets for the six months ended June 30, 2022, was related to a non-cash impairment charge of approximately $4.3 million recorded to reduce the carrying value of our Atlanta market goodwill balance and a charge of approximately $12.6 million associated with our Atlanta, Dallas, Houston, Indianapolis, and Raleigh radio market broadcasting licenses. The fair value of the radio broadcasting license assets were overstated by approximately $1.1 million, $2.8 million, and $2.1 million as of December
51
31, 2019, March 31, 2020, and December 31, 2021, and understated by approximately $2.3 million as of September 30, 2020. Accordingly, the Company recorded an out-of-period non-cash impairment charge of approximately $3.7 million during the three months ended June 30, 2022. The Company determined that the errors were not material to any previous period and that correcting the error in the three-month and six-month periods ended June 30, 2022 would not materially misstate estimated net revenue or pre-tax income for the full year, as of and for the period ended December 31, 2022, or the earnings trend and therefore can be corrected in the current period.
Interest expense
| | | | | | | | | | |
Six Months Ended June 30, | | Increase/(Decrease) |
| |||||||
2022 |
| 2021 |
| | | | |
| ||
$ | 31,813 |
| $ | 33,898 |
| $ | (2,085) |
| (6.2) | % |
Interest expense decreased to approximately $31.8 million for the six months ended June 30, 2022, compared to approximately $33.9 million for the same period in 2021, due to lower overall debt balances outstanding and lower average interest rates. As discussed above, on January 25, 2021, the Company closed on a new financing in the form of the 2028 Notes. The proceeds from the 2028 Notes were used to repay in full each of: (1) the 2017 Credit Facility; (2) the 2018 Credit Facility; (3) the MGM National Harbor Loan; (4) the remaining amounts of our 7.375% Notes; and (5) our 8.75% Notes that were issued in the November 2020 Exchange Offer. During the six months ended June 30, 2022, the PPP loan and related accrued interest was forgiven and recorded as other income in the amount of $7.6 million. During the six months ended June 30, 2022, the Company repurchased approximately $25.0 million of its 2028 Notes at an average price of approximately 91.0% of par.
(Gain) loss on retirement of debt
| | | | | | | | | | |
Six Months Ended June 30, | | Increase/(Decrease) |
| |||||||
2022 |
| 2021 |
| | | | |
| ||
$ | (1,855) |
| $ | 6,949 |
| $ | 8,804 |
| 126.7 | % |
As discussed above, the Company repurchased approximately $25.0 million of its 2028 Notes at an average price of approximately 91.0% of par, resulting in a net gain on retirement of debt of approximately $1.9 million for the quarter ended June 30, 2022. Upon settlement of the 2028 Notes Offering, the 2017 Credit Facility, the 2018 Credit Facility and the MGM National Harbor Loan were terminated and the indentures governing the 7.375% Notes and the 8.75% Notes were satisfied and discharged. There was a net loss on retirement of debt of approximately $6.9 million for the six months ended June 30, 2021 associated with the settlement of the 2028 Notes.
Other income, net
| | | | | | | | | | |
Six Months Ended June 30, |
| Increase/(Decrease) |
| |||||||
2022 |
| 2021 |
| | | | |
| ||
$ | (11,711) | | $ | (4,046) | | $ | 7,665 |
| 189.4 | % |
Other income, net, was approximately $11.7 million and $4.0 million for the six months ended June 30, 2022 and 2021, respectively. We recognized other income in the amount of approximately $4.1 million and $3.6 million for the six months ended June 30, 2022 and 2021, respectively, related to our MGM investment. As noted above, during the six months ended June 30, 2022, the PPP loan and related accrued interest was forgiven and recorded as other income in the amount of $7.6 million.
Provision for income taxes
| | | | | | | | | | |
Six Months Ended June 30, | | Increase/(Decrease) |
| |||||||
2022 |
| 2021 |
| | | | |
| ||
$ | 9,311 |
| $ | 6,109 |
| $ | 3,202 |
| 52.4 | % |
For the six months ended June 30, 2022, we recorded a provision for income taxes of approximately $9.3 million. This amount is based on the actual effective tax rate of 22.1%, which includes 3.5% state income tax, 1.3% non-deductible goodwill impairment, 1.1% related to non-deductible officer’s compensation, and 0.2% other permanently non-deductible expenses. The Company also recorded
52
approximately $2.1 million of discrete tax benefits primarily related to non-taxable income forgiveness of the PPP Loan, which resulted in a rate reduction of 5.1%. For the six months ended June 30, 2021, we recorded a provision for income taxes of approximately $6.1 million. This amount is based on the actual effective tax rate of 24.4%, which includes 0.8% related to non-deductible officer’s compensation, and 0.3% other permanently non-deductible expenses.
Noncontrolling interests in income of subsidiaries
| | | | | | | | | | |
Six Months Ended June 30, | | Increase/(Decrease) |
| |||||||
2022 |
| 2021 | | | | |
| |||
$ | 1,471 |
| $ | 1,066 |
| $ | 405 |
| 38.0 | % |
The increase in noncontrolling interests in income of subsidiaries was due to higher net income recognized by Reach Media during the six months ended June 30, 2022, versus the same period in 2021.
Other Data
Broadcast and digital operating income
Broadcast and digital operating income increased to approximately $103.5 million for the six months ended June 30, 2022, compared to approximately $86.0 million for the comparable period in 2021, an increase of approximately $17.6 million or 20.4%. This increase was primarily due to higher broadcast and digital operating income at each of our segments. Our radio broadcasting segment generated approximately $19.5 million of broadcast and digital operating income during the six months ended June 30, 2022, compared to approximately $17.6 million during the six months ended June 30, 2021, an increase of approximately $1.9 million, primarily from higher net revenues, partially offset by higher selling, general and administrative expenses. Reach Media generated approximately $10.0 million of broadcast and digital operating income during the six months ended June 30, 2022, compared to approximately $7.3 million during the six months ended June 30, 2021, with the increase primarily due to higher net revenues. Our digital segment generated approximately $12.3 million of broadcast and digital operating income during the six months ended June 30, 2022, compared to $8.6 million during the six months ended June 30, 2021, with the increase primarily due to higher net revenues, partially offset by higher programming and technical expenses and selling, general and administrative expenses. Finally, TV One generated approximately $61.7 million of broadcast and digital operating income during the six months ended June 30, 2022, compared to approximately $52.5 million during the six months ended June 30, 2021, with the increase primarily due to higher net revenues, partially offset by higher programming and technical expenses and higher selling, general and administrative expenses.
Broadcast and digital operating income margin
Broadcast and digital operating income margin increased to 44.8% for the six months ended June 30, 2022, compared to 43.2% for the comparable period in 2021. The margin increase was primarily attributable to higher broadcast and digital operating income as noted above.
LIQUIDITY AND CAPITAL RESOURCES
Our primary source of liquidity is cash provided by operations and, to the extent necessary, borrowings available under our asset-backed credit facility. Our cash, cash equivalents and restricted cash balance is approximately $143.0$71.9 million as of June 30, 2022.
Throughout each of 2020 and 2021, the COVID-19 pandemic had a negative impact on certain of our revenue and alternative revenue sources. Most notably, a number of advertisers across a variety of significant advertising categories ceased operations or reduced their advertising spend due to the pandemic. This has been particularly true within our radio segment which derives substantial revenue from local advertisers, including in areas such as Texas, Ohio and Georgia. The economies in these areas were hit particularly hard due to social distancing and government interventions. Further, the COVID-19 pandemic has caused a shift in the way people work and commute, which in some instances has altered demand for our broadcast radio advertising. Finally, the COVID-19 outbreak caused the postponement of or cancellation of our tent pole special events or otherwise impaired or limited ticket sales for such events. We do not carry business interruption insurance to compensate us for losses that occurred as a result of the pandemic and such losses may continue to occur as a result of the ongoing nature of the COVID-19 pandemic. Outbreaks in the markets in which we operate could have material impacts on our liquidity, operations including potential impairment of assets, and our financial results. Likewise, our income from our
53
investment in MGM National Harbor Casino has at times been negatively affected by closures and limitations on occupancy imposed by state and local governmental authorities.
We anticipate continued fluctuations in revenues due to the COVID-19 pandemic. The extent to which our results continue to be affected by the COVID-19 pandemic will largely depend on future developments, which cannot be accurately predicted and are uncertain. These developments include, but are not limited to, the duration, scope and severity of the COVID-19 pandemic, any additional resurgences, variants or new viruses; the ability to effectively and widely manufacture and distribute vaccines/boosters; the public’s perception of the safety of the vaccines/boosters and the public’s willingness to take the vaccines/boosters; the effect of the COVID-19 pandemic on our customers and the ability of our clients to meet their payment terms; the public’s willingness to attend live events; and the pace of recovery when the pandemic subsides.
March 31, 2023. As of June 30, 2022,March 31, 2023, there were no amounts wereborrowings outstanding on our current asset-backed credit facility. Further, after we refinanced our debt structurethe Current ABL Facility (as defined below) which has $50.0 million in January 2021, we anticipate meeting our debt service requirements and obligations for the foreseeable future, including through one year from the date of issuance of our most recent consolidated financial statements. Our estimates however, remain subject to substantial uncertainty, in particular due to the unpredictable extent and duration ofoverall capacity.
The Company regularly considers the impact of the COVID-19 pandemicmacroeconomic conditions on our businessbusiness. Uncertainty in the macroeconomic environment with continued increases in inflation and the economy generally, the possibility of new variants of the coronavirus and the concentration of certain ofinterest rates, along with banking volatility, may have an adverse effect on our revenues in areas that could be deemed “hotspots” for the pandemic.
On August 18, 2020, the Company entered into an Open Market Sales Agreement with Jefferies LLC (“Jefferies”) under which the Company sold shares of its Class A common stock, par value $0.001 per share (the “Class A Shares”) up to an aggregate offering price of $25 million (the “2020 ATM Program”). Jefferies acted as sales agent for the 2020 ATM Program. During the year ended December 31, 2020, the Company issued 2,859,276 shares of its Class A Shares at a weighted average price of $5.39 for approximately $14.7 million of net proceeds after associated fees and expenses.
On January 19, 2021, the Company completed its 2020 ATM Program, sold an additional 1,465,826 shares for an aggregate of 4,325,102 Class A shares sold through the 2020 ATM Program, receiving aggregate gross proceeds of approximately $25.0 million and net proceeds of approximately $24.0 million for the program (inclusive of the $14.7 million sold during the year ended December 31, 2020). On January 27, 2021, the Company entered into a new 2021 Open Market Sale Agreement (the “2021 Sale Agreement”) with Jefferies under which the Company could sell up to an additional $25.0 million of Class A Shares, through Jefferies as its sales agent. During the three months ended March 31, 2021, the Company issued and sold an aggregate of 420,439 Class A Shares pursuant to the 2021 Sale Agreement and received gross proceeds of approximately $3.0 million and net proceeds of approximately $2.8 million, after deducting commissions to Jefferies and other offering expenses. During the three months ended June 30, 2021, the Company issued and sold an aggregate of 1,893,126 Class A Shares pursuant to the 2021 Sale Agreement and received gross proceeds of approximately $22.0 million and net proceeds of approximately $21.2 million, after deducting commissions to Jefferies and other offering expenses which completed its 2021 ATM Program.revenues.
On May 17, 2021, the Company entered into an Open Market Sale AgreementSM (the “Class D Sale Agreement”) with Jefferies under which the Company may offer and sell, from time to time at its sole discretion, shares of its Class D common stock, par value $0.001 per share (the “Class D Shares”), through Jefferies as its sales agent.. On May 17, 2021, the Company filed a prospectus supplement pursuant to the Class D Sale Agreement for the offer and sale of its Class D Shares having an aggregate offering price of up to $25.0 million. As of June 30, 2022,March 31, 2023, the Company has not sold any Class D Shares under the Class D Sale Agreement.The Company may from time to time also enter into new additional ATM programs and issue additional common stock from time to time under those programs.
During the three and six months ended June 30, 2022,March 31, 2023, the Company repurchased 4,665,589824 shares of Class D common stock in the amount of $3,000 at an average price of $3.99 per share and during the three months ended March 31, 2023, the Company executed Stock Vest Tax Repurchases of 255,618 shares of Class D Common Stock in the amount of approximately $24.6$1.3 million at an average price of $5.26$5.17 per share.
On March 8, 2023, ROEH issued a Put Notice with respect to its Put Interest in MGMNH. Upon issuance of the Put Notice, no later than thirty (30) days following receipt, MGMNH was required to repurchase the Put Interest for cash. On April 21 2023, ROEH closed on the sale of the Put Interest and received approximately $136.8 million at the time of settlement of the Put Interest, representing the put price. During the quarter ended March 31, 2023, the Company received $8.8 million representing the Company’s annual distribution from MGMNH with respect to fiscal year 2022.
On January 25, 2021, the Company closed on an offering (the “2028 Notes Offering”) of $825$825.0 million in aggregate principal amount of senior secured notes due 2028 (the “2028 Notes”) in a private offering exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”). The 2028 Notes are general senior secured obligations of the Company and are guaranteed on a senior secured basis by certain of the Company’s direct and indirect restricted subsidiaries. The 2028 Notes mature on February 1, 2028 and interest on the Notes accrues and is payable semi-annually in arrears on February 1 and August 1 of each year, commencing on August 1, 2021 at the rate of 7.375% per annum.
54
The Company used the net proceeds from the 2028 Notes, together with cash on hand, to repay or redeem: (1) the 2017 Credit Facility; (2) the 2018 Credit Facility; (3) the MGM National Harbor Loan; (4) the remaining amounts of our 7.375% Notes; and (5) our 8.75% Notes that were issued in the November 2020 Exchange Offer. Upon settlement of the 2028 Notes Offering, the 2017 Credit Facility, the 2018 Credit Facility and the MGM National Harbor Loan were terminated and the indentures governing the 7.375% Notes and the 8.75% Notes were satisfied and discharged.
The 2028 Notes and the guarantees are secured, subject to permitted liens and except for certain excluded assets (i) on a first priority basis by substantially all of the Company’s and the Guarantors’ current and future property and assets (other than accounts receivable, cash, deposit accounts, other bank accounts, securities accounts, inventory and related assets that secure our asset-backed revolving credit facility on a first priority basis (the “ABL Priority Collateral”)), including the capital stock of each guarantor (collectively, the “Notes Priority Collateral”) and (ii) on a second priority basis by the ABL Priority Collateral.
During the three months ended March 31, 2023, the Company repurchased $25.0 million of its 2028 Notes at an average price of approximately 89.1% of par, resulting in a net gain on retirement of debt of approximately $2.4 million. During the year ended December 31, 2022, the Company repurchased $75.0 million of its 2028 Notes at an average price of approximately 89.5% of par. The Company recorded a net gain on retirement of debt of $6.7 million for the year ended December 31, 2022. As of March 31, 2023, the Company had approximately $725.0 million of our 2028 Notes outstanding. See Note 6 – Long-Term Debt of our consolidated financial statements for further information on liquidity and capital resources in the footnotes to the consolidated financial statements.
On February 19, 2021, the Company closed on a new asset backed credit facility (the “Current 2021 ABL Facility”). The Current 2021 ABL Facility is governed by a credit agreement by and among the Company, the other borrowers party thereto, the lenders party thereto from time to time and Bank of America, N.A., as administrative agent. The Current 2021 ABL Facility provides for up to $50 million revolving loan borrowings in order to provide for the working capital needs and general corporate requirements of the Company. The Current 2021 ABL Facility also provides for a letter of credit facility up to $5 million as a part of the overall $50 million in capacity. The Asset Backed Senior Credit Facility entered into on April 21, 2016 among the Company, the lenders party thereto from time to time and Wells Fargo
50
Bank National Association, as administrative agent (the “2016 ABL Facility”), was terminated on February 19, 2021. As of March 31, 2023, there were no borrowings outstanding on the Current ABL Facility. See Note 12 – Subsequent Events of our consolidated financial statementsfor descriptions of amendments to the Current ABL Facility subsequent to March 31, 2023.
At the Company’s election, the interest rate on borrowings under the Current 2021 ABL Facility are based on either (i) the then applicable margin relative to Base Rate Loans (as defined in the Current 2021 ABL Facility) or (ii) the then applicable margin relative to LIBOR Loans (as defined in the Current 2021 ABL Facility) corresponding to the average availability of the Company for the most recently completed fiscal quarter.
Advances under the Current 2021 ABL Facility are limited to (a) eighty-five percent (85%) of the amount of Eligible Accounts (as defined in the Current 2021 ABL Facility), less the amount, if any, of the Dilution Reserve (as defined in the Current 2021 ABL Facility), minus (b) the sum of (i) the Bank Product Reserve (as defined in the Current 2021 ABL Facility), plus (ii) the AP and Deferred Revenue Reserve (as defined in the Current 2021 ABL Facility), plus (iii) without duplication, the aggregate amount of all other reserves, if any, established by Administrative Agent.
All obligations under the Current 2021 ABL Facility are secured by a first priority lien on all (i) deposit accounts (related to accounts receivable), (ii) accounts receivable, and (iii) all other property which constitutes ABL Priority Collateral (as defined in the Current 2021 ABL Facility). The obligations are also guaranteed by all material restricted subsidiaries of the Company.
The Current 2021 ABL Facility matures on the earlier to occur of: (a) the date that is five (5) years from the effective date of the Current 2021 ABL Facility, and (b) 91 days prior to the maturity of the Company’s 2028 Notes.
Finally, the The Current 2021 ABL Facility is subject to the terms of the Revolver Intercreditor Agreement (as defined in the Current 2021 ABL Facility) by and among the Administrative Agent and Wilmington Trust, National Association.
On January 29, 2021, the Company submitted an application for participation in the second round of the Paycheck Protection Program loan program (“PPP”).On June 1, 2021, the Company received proceeds of approximately $7.5 million. During the three months ended June 30, 2022, the PPP loan and related accrued interest was forgiven and recorded as other income in the amount of $7.6 million. The loan bore interest at a fixed rate of 1% per year and was not changed during the life of the loan. The loan was scheduled to mature June 1, 2026.
During the quarter ended June 30, 2022, the Company repurchased approximately $25.0 million of its 2028 Notes at an average price of approximately 91.0% of par, resulting in a net gain on retirement of debt of approximately $1.9 million for the quarter ended June 30, 2022.
See Note 4 to our consolidated financial statements – Long-Term Debt for further information on liquidity and capital resources in the footnotes to the consolidated financial statements.
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The following table summarizes the interest rates in effect with respect to our debt as of June 30, 2022:March 31, 2023:
| | | | | | | | | | | | |
| | | | | Applicable |
| | | | | Applicable |
|
| | Amount | | Interest |
| | Amount | | Interest |
| ||
Type of Debt |
| Outstanding |
| Rate |
|
| Outstanding |
| Rate |
| ||
| | (In millions) | | |
| | (In millions) | | |
| ||
7.375% Senior Secured Notes, net of issuance costs (fixed rate) | | $ | 787.4 |
| 7.375 | % | ||||||
2028 Notes, net of issuance costs (fixed rate) | | $ | 714.8 |
| 7.375 | % | ||||||
Asset-backed credit facility (variable rate) (1) | | $ | — |
| — | % | | | — |
| — | |
(1) | Subject to variable LIBOR or base rate plus a spread as defined in the agreement. See Note 12 – Subsequent Events of our consolidated financial statements for further discussion. |
The following table provides a comparisonsummary of our statements of cash flows for the sixthree months ended June 30,March 31, 2023 and 2022, and 2021, respectively:
| | | | | | | ||||||
| | | | | | |
| Three Months Ended March 31, | ||||
|
| 2022 |
| 2021 | | 2023 |
| 2022 | ||||
| | (In thousands) | | (In thousands) | ||||||||
Net cash flows provided by operating activities | | $ | 43,624 | | $ | 51,492 | | $ | 17,104 | | $ | 15,456 |
Net cash flows (used in) provided by investing activities | | $ | (3,871) | | $ | 5,546 | ||||||
Net cash flows used in financing activities | | $ | (48,968) | | $ | (1,116) | ||||||
Net cash flows used in investing activities | | | (21,446) | | | (1,576) | ||||||
Net cash flows (used in) provided by financing activities | | | (25,606) | | | 268 |
Net cash flows provided by operating activities were approximately $43.6$17.1 million and $51.5$15.5 million for the sixthree months ended June 30,March 31, 2023 and 2022, and 2021, respectively. Net cash flow from operating activities for the sixthree months ended June 30, 2022 decreasedMarch 31, 2023 increased from the prior year primarily due to timing of interest payments, paymentcollections of launch supportaccounts receivable and increased payments for contentother assets. Cash flows from operations, cash and cash equivalents, and other sources of liquidity are expected to be available and sufficient to meet foreseeable cash requirements.
Net cash flows used in investing activities were approximately $3.9$21.5 million compared to net cash flows provided by investing activities of approximately $5.5and $1.6 million for the sixthree months ended June 30,March 31, 2023 and 2022, and 2021, respectively. During the three months ended March 31, 2023, we derecognized $26.0 million of restricted cash related to the deconsolidation of RVAEH. Additionally, we sold a partial interest in RVAEH for $6.6 million. Capital expenditures, including digital tower and transmitter upgrades and deposits for station equipment and purchases were approximately $3.9$2.0 million and $2.5$1.6 million for the sixthree months ended June 30,March 31, 2023 and 2022, and 2021, respectively. The Company received approximately $8.0 million during the six months ended June 30, 2021 as part
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Net cash flows used in(used in) provided by financing activities were approximately $49.0($25.6) million and $1.1$0.3 million for the sixthree months ended June 30,March 31, 2023 and 2022, and 2021, respectively. During the six months ended June 30, 2021, we repaid approximately $855.2 million in outstanding debt and we borrowed approximately $825.0 million on our 2028 Notes. During the six months ended June 30, 2021, we paid approximately $11.2 million in debt refinancing costs. We repurchased approximately $24.7$1.3 million and $905,000$10,000 of our Class D Common Stock during the sixthree months ended June 30,March 31, 2023 and 2022, and 2021, respectively. During the sixthree months ended June 30, 2022,March 31, 2023, the Company repurchased approximately $22.8$25.0 million of our 2028 Notes. Finally, Reach Media paid approximately $1.6$2.0 million in dividends to noncontrolling interest shareholders during the sixthree months ended June 30, 2022. During the six months ended June 30, 2022 and 2021, respectively, we received proceeds of $50,000 and $315,000 from the exercise of stock options. During the six months ended June 30, 2021, the Company received proceeds of approximately $33.3 million from the issuance of Class A Common Stock, net of fees paid, and the Company also received proceeds of approximately $7.5 million on its PPP Loan.March 31, 2023.
Credit Rating Agencies
On a continuing basis, Standard and Poor’s, Moody’s Investor Services and other rating agencies may evaluate our indebtedness in order to assign a credit rating. Our corporate credit ratings by Standard & Poor's Rating Services and Moody's Investors Service are speculative-grade and have been downgraded and upgraded at various times during the last several years. Any reductions in our credit ratings could increase our borrowing costs, reduce the availability of financing to us or increase our cost of doing business or otherwise negatively impact our business operations.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our significant accounting policies are described in Note 1 -3 – Organization and Summary of Significant Accounting Policiesof the consolidated financial statements in our Annual Report on Form 10-K. We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States,GAAP, which require us to make estimates and assumptions that affect the
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reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the year. Actual results could differ from those estimates. In Management’s Discussion and Analysis contained in our Annual Report on Form 10-K for the year ended December 31, 2021,2022, we summarized the policies and estimates that we believe to be most critical in understanding the judgments involved in preparing our consolidated financial statements and the uncertainties that could affect our results of operations, financial condition and cash flows. There have been no material changes to our existing accounting policies or estimates since we filed our Annual Report on Form 10-K for the year ended December 31, 2021.2022.
Goodwill and Radio Broadcasting Licenses
Impairment Testing
We have made several acquisitions in the past for which a significant portion of the purchase price was allocated to radio broadcasting licenses and goodwill. Goodwill exists whenever the purchase price exceedsBased on our 2022 annual quantitative impairment test, the fair value of tangible and identifiable intangible net assets acquired in business combinations. As of June 30, 2022, we had approximately $489.3 million in broadcast licenses and $219.1 million in goodwill, which totaled $708.4 million, and represented approximately 56.5% of our total assets. Therefore, we believe estimating the fair value of goodwill andfour markets, with radio broadcasting licenses is a critical accounting estimate because of the significanceapproximately $163.4 million as of March 31, 2023, exceeded their carrying values in relation to our total assets.
We test for impairment annually across all reporting units, or when events or changes in circumstances or other conditions suggest impairment may have occurred in any given reporting unit. Our annual impairment testing is performed as of October 1 of each year. Impairment exists when the carrying value of these assets exceeds its respective fair value. When the carrying value exceeds fair value, an impairment amount is charged to operations for the excess.
Valuation of Broadcasting Licenses
During the second quarter of 2022, there was slowing in certain general economic conditions and a rising interest rate environment, which we deemed to be an impairment indicator that warranted interim impairment testing of certain markets’ radio broadcasting licenses. During the three and six months ended June 30, 2022, the Company recorded a non-cash impairment charge of approximately $10.7 million associated with our Atlanta, Dallas, Houston, and Raleigh radio market broadcasting licenses, of which approximately $3.7 million relates to periods ending prior to January 1, 2022. Accordingly, the Company recorded an out-of-period non-cash impairment charge of approximately $3.7 million during the three months ended June 30, 2022.by less than 10%. The fair value of the radio broadcasting licenses were overstated by approximately $1.1 million, $2.8 million,in all four markets are considered at risk of failing step one of the impairment test in future quarters if financial performance continues to decrease.
Refer to our Form 10-K for additional information regarding the method and $2.1 million as of December 31, 2019, March 31, 2020,key assumptions, and December 31, 2021, respectively, and understated by approximately $2.3 million as of September 30, 2020. The Company determined that the errors were not material to any previous period and that correcting the error in the three-month and six-month periods ended June 30, 2022 would not materially misstate estimated net revenue or pre-tax income for the full year, as of and for the period ended December 31, 2022, or the earnings trend and therefore can be corrected in the current period. In addition, we recorded an impairment charge of approximately $1.9 millionuncertainty associated with the estimated asset sale consideration forkey assumptions.
Goodwill
Based on our 2022 annual quantitative impairment test, there was no radio market reporting unit at risk of failing step one of our Indianapolis radio broadcasting licenses. We did not identify anythe impairment indicators for the six months ended June 30, 2021, and, therefore, no interim impairment testing was performed.
Below are some of the key assumptions used in the income approach model for estimating broadcasting licenses fair values for the interim impairment assessments for the quarter ended June 30, 2022.
| | | | |
Radio Broadcasting | | June 30, | | |
Licenses | | 2022 (a) | | |
Impairment charge (in millions) | | $ | 12.6 | (*) |
Discount Rate | | | 9.5 | % |
Year 1 Market Revenue Growth Rate Range | | | 1.4% – 1.8 | % |
Long-term Market Revenue Growth Rate Range | | | 0.7% – 1.0 | % |
Mature Market Share Range | | | 6.2% – 23.2 | % |
Mature Operating Profit Margin Range | | | 28.3% – 36.1 | % |
(a)Reflects changes only to the key assumptions used in the interim testing for certain units of accounting.
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(*)Includes an impairment charge whereby the license fair value is based on estimated asset sale consideration.
Valuation of Goodwill
During the three and six months ended June 30, 2022, the Company recorded a non-cash impairment charge of approximately $4.3 million to reduce the carrying value of our Atlanta market goodwill balance. We did not identify any impairment indicators at any of our other reporting units for the three months ended June 30, 2022. We did not identify any impairment indicators at any of our reporting units for the six months ended June 30, 2021, and therefore, no interim impairment testing was performed.
As noted above, during the quarter ended June 30, 2022, we identified an impairment indicator at certain of our radio markets, and, as such, we performed an interim analysis for certain radio market goodwill. Below are some of the key assumptions used in the income approach model for estimating reporting unit fair values for the interim impairment assessments for the quarter ended June 30, 2022.
| | | | |
Goodwill (Radio Market | | June 30, | | |
Reporting Units) |
| 2022 (a) | | |
Impairment charge (in millions) | | $ | 4.3 | |
Discount Rate | | | 9.5 | % |
Year 1 Market Revenue Growth Rate Range | | | (2.5)% - 1.5 | % |
Long-term Market Revenue Growth Rate Range | | | 0.7% – 1.0 | % |
Mature Market Share Range | | | 10.4% – 15.5 | % |
Mature Operating Profit Margin Range | | | 19.5% – 32.9 | % |
|
|
As part of our annual testing, when arriving at the estimated fair values for radio broadcasting licenses and goodwill, we also performed an analysis by comparing our overall average implied multiple basedtest. Based on our cash flow projections and fair values to recently completed sales transactions, and by comparing our fair value estimates to the market capitalization of the Company. The results of these comparisons confirmed that the fair value estimates resulting from our annual assessment for 2021 were reasonable.
Several of the licenses in our units of accounting have limited or no excess of fair values over their respective carrying values. Should our estimates, assumptions, or events or circumstances for any upcoming valuations worsen in the units with no or limited fair value cushion, additional license impairments may be needed in the future.
Realizability of Deferred Tax Assets
As of each reporting date, management considers new evidence, both positive and negative, that could affect its conclusions regarding the future realization of the Company’s deferred tax assets (“DTAs”). During the quarter ended June 30,year end 2022 management continues to believe that there is sufficient positive evidence to conclude that it is more likely than not the DTAs are realizable. The assessment to determine the value of the DTAs to be realized under ASC 740 is highly judgmental and requires the consideration of all available positive and negative evidence in evaluating the likelihood of realizing the tax benefit of the DTAs in a future period. Circumstances may change over time such that previous negative evidence no longer exists, and new conditions should be evaluated as positive or negative evidence that could affect the realization of the DTAs. Since the evaluation requires consideration of events that may occur some years into the future, significant judgment is required, and our conclusion could be materially different if certain expectations do not materialize.
In the assessment of all available evidence, an important piece of objectively verifiable evidence is evaluating a cumulative income or loss position over the most recent three-year period. Historically, the Company maintained a full valuation against the net DTAs, principally due to overwhelming objectively verifiable negative evidence in the form of a cumulative loss over the most recent three-year period. However, during the quarter ended December 31, 2018, the Company achieved three years of cumulative income, which removed the most heavily weighted piece of objectively verifiable negative evidence from our evaluation of the realizability of DTAs. Moreover, in combination with the three years of cumulative income and other objectively verifiable positive evidence that existed as of the quarter ended December 31, 2018, management believed that there was sufficient positive evidence to conclude thatqualitative impairment test, it was more likely than not that a material portionthe fair value of all other reporting units exceeded its net DTAs were realizable. Consequently, the Company reduced its valuation allowance during the quarter ended December 31, 2018.carrying amounts.
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As of the quarter ended June 30, 2022, management continues to weigh the objectively verifiable evidence associated with its cumulative income or loss position over the most recent three-year period. The Company continues to have three years of rolling cumulative income. Management also considered the cumulative income includes non-deductible pre-tax expenditures that, while included in pre-tax earnings, are not a component of taxable incomeIntangible Assets Excluding Goodwill and therefore are not expected to negatively impact the Company's ability to realize the tax benefit of the DTAs in current or future years.Radio Broadcasting Licenses
As part of the 2017 Tax Act, IRC Section 163(j) limits the timing of the tax deduction for interest expense. In conjunction with evaluating and weighing the aforementioned negative and positive evidence from the Company’s historical cumulative income or loss position, management also evaluated the impact that interest expense has hadBased on our cumulative income or loss position over the most recent three-year period. A material component of the Company’s expenses is interest and has been the primary driver of historical pre-tax losses. As part of our evaluation of positive evidence, management is adjusting for the IRC Section 163(j) interest expense limitation on projected taxable income as part of developing forecasts of taxable income sufficient to utilize the Company’s federal and state net operating losses that are not subject to2022 annual limitation resulting from the 2009 ownership shift as defined under IRC Section 382.
Realization of the Company’s DTAs is dependent on generating sufficient taxable income in future periods, and although management believesqualitative impairment test, it is more likely than not future taxable income will be sufficient to realize the DTAs, realization is not assured and future events may cause a change to the judgment of the realizability of the DTAs. If a future event causes management to re-evaluate and conclude that it is notwas more likely than not that all or a portionthe fair value of the DTAs are realizable, the Company would be required to establish a valuation allowance against theintangible assets at that time, which would result in a charge to income tax expense and a decrease to net income in the period which the change of judgment is concluded.exceeded their respective carrying amounts.
The Company continues to assess potential tax strategies, which if successful, may reduce the impact of the annual limitations and potentially recover NOLs that otherwise would expire before being applied to reduce future income tax liabilities. If successful, the Company may be able to recover additional federal and state NOLs in future periods, which could be material. If we conclude that it is more likely than not that we will be able to realize additional federal and state NOLs, the tax benefit could materially impact future quarterly and annual periods. The federal and state NOLs expire in various years from 2022 to 2039.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1 3 - Summary of Significant Accounting Policies of our consolidated financial statements – Organization and Summary of Significant Accounting Policies for a summary of recent accounting pronouncements.
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CAPITAL AND COMMERCIAL COMMITMENTS
Radio Broadcasting Licenses
Each of the Company’s radio stations operates pursuant to one or more licenses issued by the Federal Communications Commission that have a maximum term of eight years prior to renewal. The Company’s radio broadcasting licenses expire at various times beginning in October 2027 through August 1, 2030. Although the Company may apply to renew its radio broadcasting licenses, third parties may challenge the Company’s renewal applications. The Company is not aware of any facts or circumstances that would prevent the Company from having its current licenses renewed. A station may continue to operate beyond the expiration date of its license if a timely filed license renewal application was filed and is pending as is the case with respect to each of our stations with licenses that have expired..
Indebtedness
As of June 30, 2022,March 31, 2023, we had approximately $800.0$725.0 million of our 2028 Notes outstanding within our corporate structure. The Company used the net proceeds from the 2028 Notes, together with cash on hand, to repay or redeem: (1) the 2017 Credit Facility; (2) the 2018 Credit Facility; (3) the MGM National Harbor Loan; (4) the remaining amounts of our 7.375% Notes; and (5) our 8.75% Notes that were issued in the November 2020 Exchange Offer. Upon settlement of the 2028 Notes, the 2017 Credit Facility, the 2018 Credit Facility and the MGM National Harbor Loan were terminated and the indentures governing the 7.375% Notes and the 8.75% Notes were satisfied and discharged. See “Liquidity and Capital Resources.” The Company had no other indebtedness.
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Royalty Agreements
Musical works rights holders, generally songwriters and music publishers, have been traditionally represented by performing rights organizations, such as the American Society of Composers, Authors and Publishers (“ASCAP”), Broadcast Music, Inc. (“BMI”) and SESAC, Inc. (“SESAC”). The market for rights relating to musical works is changing rapidly. Songwriters and music publishers have withdrawn from the traditional performing rights organizations, particularly ASCAP and BMI, and new entities, such as Global Music Rights, Inc. (“GMR”), have been formed to represent rights holders. These organizations negotiate fees with copyright users, collect royalties, and distribute them to the rights holders. We currently have arrangements with ASCAP, SESAC and GMR. On April 22, 2020, the Radio Music License Committee (“RMLC”), an industry group which the Company is a part of, and BMI reached agreement on the terms of a new license agreement that covers the period January 1, 2017, through December 31, 2021. Upon approval of the court of the BMI/RMLC agreement, the Company automatically became a party to the agreement and a license through December 31, 2021. GMROn April 12, 2022, the RMLC announced that it had reached an interim licensing agreement with BMI. The radio industry’s previous agreement with BMI covering calendar years 2017 to 2021 expired December 31, 2021 (the “2017 Licensing Terms”), but the interim arrangement will keep the 2017 Licensing Terms in place until a new arrangement is agreed upon. The Company is party to the interim arrangement and, therefore, will continue to operate under the 2017 Licensing Terms.. On February 7, 2022, the RMLC and GMR reached a settlement and achieved certain conditions which effectuate a four-year license to which the Company is a party for the period April 1, 2022 to March 31, 2026. The license includes an optional three-year extended term that the Company may effectuate prior to the end of the initial term.
Lease obligationsObligations
We have non-cancelable operating leases for office space, studio space, broadcast towers and transmitter facilities that expire over the next ninefifty years.
Operating Contracts and Agreements
We have other operating contracts and agreements including employment contracts, on-air talent contracts, severance obligations, retention bonuses, consulting agreements, equipment rental agreements, programming related agreements, and other general operating agreements that expire over the next fivesix years.
Reach Media Noncontrolling Interest Shareholders’ Put Rights
Beginning on January 1, 2018, the noncontrolling interest shareholders of Reach Media have had an annual right to require Reach Media to purchase all or a portion of their shares at the then current fair market value for such shares (the “Put Right”). This annual right is exercisable for a 30-day period beginning January 1 of each year. The purchase price for such shares may be paid in cash and/or registered Class D common stock of Urban One, at the discretion of Urban One. The noncontrolling interest shareholders of Reach Media did not exercise their Put Right for the 30-day period ending January 31, 2022.2023. Management, at this time, cannot reasonably determine the period when and if the put right will be exercised by the noncontrolling interest shareholders.
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Contractual Obligations Schedule
The following table represents our scheduled contractual obligations as of June 30, 2022:March 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | Payments Due by Period | |||||||||||||||||||
| | Payments Due by Period | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
| | Remainder of | | | | | | | | | | | | | | 2027 and | | | | | Remainder of | | | | | | | | | | | | | | 2028 and | | | | ||||
Contractual Obligations |
| 2022 |
| 2023 |
| 2024 |
| 2025 |
| 2026 |
| Beyond |
| Total |
| 2023 |
| 2024 |
| 2025 |
| 2026 |
| 2027 |
| Beyond |
| Total | ||||||||||||||
|
| (In thousands) |
| (In thousands) | ||||||||||||||||||||||||||||||||||||||
7.375% Subordinated Notes (1) | | $ | 29,500 | | $ | 59,000 | | $ | 59,000 | | $ | 59,000 | | $ | 59,000 | | $ | 863,917 | | $ | 1,129,417 | | $ | 40,102 | | $ | 53,469 | | $ | 53,469 | | $ | 53,469 | | $ | 53,469 | | $ | 729,456 | | $ | 983,434 |
Other operating contracts/agreements (2) | |
| 59,391 | | | 34,064 | | | 24,244 | | | 20,552 | | | 9,661 | | | 13,596 | |
| 161,508 | |
| 80,393 | | | 43,624 | | | 27,828 | | | 13,816 | | | 4,551 | | | 8,297 | |
| 178,509 |
Operating lease obligations | |
| 6,614 | | | 11,563 | | | 10,333 | | | 5,615 | | | 3,313 | | | 5,538 | |
| 42,976 | |
| 8,745 | | | 10,822 | | | 6,891 | | | 5,121 | | | 3,550 | | | 8,486 | |
| 43,615 |
Total | | $ | 95,505 | | $ | 104,627 | | $ | 93,577 | | $ | 85,167 | | $ | 71,974 | | $ | 883,051 | | $ | 1,333,901 | | $ | 129,240 | | $ | 107,915 | | $ | 88,188 | | $ | 72,406 | | $ | 61,570 | | $ | 746,239 | | $ | 1,205,558 |
(1) | Includes interest obligations based on interest rates on senior secured notes outstanding as of |
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(2) | Includes employment contracts (including the Employment Agreement Award), severance obligations, on-air talent contracts, consulting agreements, equipment rental agreements, programming related agreements, launch liability payments, asset-backed credit facility (if applicable) and other general operating agreements. Also includes contracts that our cable television segment has entered into to acquire entertainment programming rights and programs from distributors and producers. These contracts relate to their content assets as well as prepaid programming related agreements. |
Of the total amount of other operating contracts and agreements included in the table above, approximately $93.0$110.0 million has not been recorded on the balance sheet as of June 30, 2022,March 31, 2023, as it does not meet recognition criteria. Approximately $17.2$26.1 million relates to certain commitments for content agreements for our cable television segment, approximately $26.3$36.1 million relates to employment agreements, and the remainder relates to other agreements.
Other Contingencies
The Company has been named as a defendant in several legal actions arising in the ordinary course of business. It is management’s opinion, after consultation with its legal counsel, that the outcome of these claims will not have a material adverse effect on the Company’s financial position or results of operations.
Off-Balance Sheet Arrangements
The Company currently is under a letter of credit reimbursement and security agreement with capacity of up to $1.2 million which expires on October 8, 2024. As of June 30, 2022,March 31, 2023, the Company had letters of credit totaling $871,000$0.8 million under the agreement for certain operating leases and certain insurance policies. Letters of credit issued under the agreement are required to be collateralized with cash. In addition, the Current 2021 ABL Facility provides for letter of credit capacity of up to $5 million subject to certain limitations on availability.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
For quantitative and qualitative disclosures about market risk affecting Urban One, see Item 7A: “Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report on Form 10-KNot required for the fiscal year ended December 31, 2021. Our exposure related to market risk has not changed materially since December 31, 2021.smaller reporting companies.
Item 4.Controls and Procedures
(a) Evaluation of disclosure controls and procedures
In connection with the preparation of this Form 10-Q, weWe have carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.
In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and
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procedures. Our disclosure controls and procedures are designed to provide a reasonable level of assurance of reaching our desired disclosure controls objectives. Based on this evaluation, our CEO and CFO concluded that as of such date,March 31, 2023, our disclosure controls and procedures are ineffectivewere not effective in timely alerting them to material information required to be included in our periodic SEC reports dueas a result of material weaknesses that existed in our internal control over financial reporting as described below.
Previously Reported Material Weakness in Internal Control Over Financial Reporting
As previously described in the 2022 Form 10-K, in connection with the audits of our consolidated financial statements in certain prior years, we and our independent registered public accounting firm identified certain control deficiencies in the design and implementation of our internal control over financial reporting that, in the aggregate, constituted a material weakness. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our consolidated annual or interim financial statements will not be prevented or detected on a timely basis. Specifically, we did not design and or implement an effective control environment or control activities as further detailed below:
Control Environment, Risk Assessment, and Monitoring – We did not have appropriately designed entity-level controls impacting the (1) control environment, (2) risk assessment procedures, and (3) monitoring activities to prevent or detect material misstatements to the financial statements and assess whether the components of internal control were present and functioning. These deficiencies were attributed to an insufficient number of qualified resources to effectively operate and oversee internal controls over financial reporting.
Control Activities – Management has determined that the Company did not have an adequate selection and development of effective control activities resulting in the following material weaknesses:
o | Management did not design and maintain effective information technology general controls in the areas of user access and program change management for certain information technology systems that support the Company’s financial reporting and other processes. This material weakness also resulted in segregation of duties conflicts for certain user roles. |
o | Management did not design and maintain effective controls to support proper segregation of duties relating to the review of manual journal entries. |
o | Management did not design and maintain effective review controls over revenue, income taxes, content assets, launch assets, the preparation of the statements of cash flows, and certain financial statement disclosures with an appropriate level of precision to detect a material misstatement. |
o | Management did not design and maintain effective review controls over the accounting and disclosures related to non-routine transactions, including the investment in MGM National Harbor, certain stock-based compensation, and the Joint Venture RVA Entertainment Holdings. |
o | Management did not design and maintain effective controls over the completeness and accuracy of the balances of its radio broadcasting licenses, goodwill and related accounts. Specifically, the Company’s monitoring and control activities related to review of key third-party reports and assumptions used in the valuation of its radio broadcasting licenses, goodwill and related accounts were not operating effectively. |
Material Weakness in Internal Control Over Financial Reporting
In connection with the preparation of our consolidated financial statements for the three months ended March 31, 2023, we and our independent registered public accounting firm identified certain control deficiencies in the design and implementation of our internal control over financial reporting that, in the aggregate, constituted a material weakness. Specifically, we did not design and or implement an effective control environment or control activities over the financial statement close process including an inadequate evaluation of the accounting for significant and non-recurring transactions and an inadequate review as part of the Company’s radio broadcasting licenses, goodwill,reporting and non-cash impairment charges.disclosures with an appropriate level of precision to detect a material misstatement.
Identification of Material Weakness
Following the evaluation,Based on additional procedures and post-closing review, management determinedconcluded that the fair valueconsolidated financial statements included in this Quarterly Report on Form 10-Q present fairly, in all material respects, our financial position, results of its Radio Broadcasting License assets were overstated by approximately $1.1 million, $2.8 million,operations, and $2.1 million ascash flows for the periods presented, in conformity with accounting principles generally accepted in the United States.
Remediation of December 31, 2019, March 31, 2020, and December 31, 2021, respectively, and understated by approximately $2.3 million as of September 30, 2020. Accordingly, the Company recorded an out-of-Material Weaknesses in Internal Control over Financial Reporting
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period non-cash impairment charge
In response to the material weaknesses identified, management designed a remediation plan which was approved by the Audit Committee and board of approximately $3.7 million duringdirectors. As of November 20, 2023, Management has made progress to remediate the three months ended June 30, 2022. The Company determined that correctingcontrol deficiencies contributing to the errormaterial weaknesses, as described below:
•We provided training to new and existing personnel on proper execution of designed control procedures;
As part of our ongoing effort to expand our accounting department, we hired a Corporate Controller and a Senior VP-Finance/Chief Accounting Officer and engaged external resources to augment our accounting team. We developed a preliminary hiring plan which has been approved by the Audit Committee and continue to assess our personnel needs, expertise and requirements and will hire personnel as needed.
We engaged external resources with the appropriate depth of expertise to establish a robust financial controls governance structure, conduct a financial risk assessment, establish internal materiality thresholds, and identify key business processes.
We are in the three-monthprocess of conducting process and six-month periods ended June 30, 2022 would not materially misstate estimated net revenue or pre-tax income forcontrol walkthroughs of all key processes to identify risk points and corresponding controls.
We have initiated the full year orprocess to document, implement and redesign controls, policies, and procedures with an appropriate level of precision to detect a material misstatement, and to retain sufficient documentation to support the earnings trend, and therefore can be corrected in the current period.
As a result, management has determined that the Company did not maintain effective internal controls over review of key reports and assumptions used in the valuationoperating effectiveness of the radio broadcasting licensescontrols. The control enhancement procedures are focused on:
o | Increasing the precision and specificity of our control activities, addressing completeness and accuracy of the information used in performing management review controls, as well as documenting sufficient evidence of management’s review supporting its conclusions; and |
o | Modifying our journal entry operating procedures to establish a formal hierarchy of review of journal entries to enforce proper segregation of duties in advance of implementing a new general ledger system. |
oAssessing roles and goodwill. This deficiency representspermissions across relevant financial systems and restricting access based on job responsibilities.
o | Redesigning information technology general controls across relevant systems related to user access and change management. |
•We will also seek to improve the process of assessing the effectiveness of the control environment by:
oImplementing a Governance Risk and Compliance (“GRC”) tool to manage the control assessment annually; and
oDesigning and implementing an ongoing controls evaluation strategy to be executed by an independent party
Management is committed to the remediation of the material weakness inweaknesses described above, as well as the continued improvement of the Company’s internal control over financial reporting at June 30, 2022. Additionally,reporting. The actions that we are taking are subject to ongoing senior management review, as well as oversight of the Company has determinedaudit committee of our board of directors. We may also conclude that additional measures may be required to remediate the material weaknesses. We will not be able to conclude that we have remediated a material weakness existed at March 31, 2022until the applicable controls operate for a sufficient period of time and December 31, 2021. The Companymanagement has concluded, through formal testing, that these controls are operating effectively. We will file amendmentscontinue to monitor the 2021 Annual Report (updating Item 9Adesign and BDO’s opinion relating to the effectiveness of the Company’s internalthese and other processes, procedures and controls over financial reporting) and the 2022 Q1 Report (updating Item 4) on Forms 10K/A and/or 10Q/A shortly after the date of this report. make any further changes management deems appropriate.
This material weakness could result in misstatements of the aforementioned accounts and disclosures that would result in a material misstatement of the consolidated financial statements that would not be prevented or detected.
Plans for Remediation
We intend to take the following actions to remediate this material weakness:
These actions listed above have not yet been implemented. Management will test the design and operating effectiveness of the newly implemented controls in future periods.
(b) Changes in internal control over financial reporting
There
Except for the material weakness and the material weakness remediation efforts described above, there were no changes in our internal control over financial reporting during the quarterthree months ended June 30, 2022March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Legal Proceedings
Urban One is involved from time to time in various routine legal and administrative proceedings and threatened legal and administrative proceedings incidental to the ordinary course of our business. Urban One believes the resolution of such matters will not have a material adverse effect on its business, financial condition or results of operations.
Item 1A. Risk Factors
We have identified a material weakness in our internal control over financial reporting which could, if not remediated, result in additional material misstatements in our consolidated financial statements.
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Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act. As disclosed in Item 4, management identified a material weakness in our internal control over financial reporting. A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As a result of this material weakness, our management concluded that our internal control over financial reporting was not effective based on criteria set forth by the Committee of Sponsoring Organization of the Treadway Commission in Internal Control — An Integrated Framework. We are actively engaged in implementing a remediation plan designed to address this material weakness. If our remedial measures are insufficient to address the material weakness, or if additional material weaknesses or significant deficiencies in our internal control are discovered or occur in the future, our consolidated financial statements may contain material misstatements and we could be required to restate our financial results.
1A. Risk Factors
The material weakness, or a failure to promptly remediate it, may adversely affect our business, our reputation, our results of operations and the market price of our common stock. If we are unable to remediate the material weakness in a timely manner, our investors, customers and other business partners may lose confidence in our business or our financial reports, and our access to capital markets may be adversely affected. In addition, our ability to record, process, and report financial information accurately, and to prepare financial statements within the time periods specified by the rules and regulations of the Securities and Exchange Commission and other regulatory authorities, could be adversely affected, which may result in violations of applicable securities laws, stock exchange listing requirements and the covenants under our debt agreements. We could also be exposed to lawsuits, investigations, or other legal actions. In such actions, a governmental authority may interpret a law, regulation or accounting principle differently than we have, exposing us to different or additional risks. We could incur significant costs in connection with these actions. We have not accrued for any such liabilities.
The control deficiencies resulting in the material weakness, in the aggregate, if not effectively remediated could also result in misstatements of accounts or disclosures related to liabilities that would result in a material misstatement of the annual or interim consolidated financial statements that would not be prevented or detected. In addition, we cannot be certain that we will not identify additional control deficiencies or material weaknesses in the future. If we identify future control deficiencies or material weaknesses, these may lead to additional adverse effects on our business, our reputation, our results of operations, and the market price of our common stock.
War in the Ukraine
Russian military actions and the resulting sanctions could adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets, potentially making it more difficult for companies, including us, to obtain additional funds, as well as further disrupting the supply chain. Any of the foregoing factors could have a material adverse effect on our business, prospects, financial condition, results of operations, and cash flows as such impacts could affect the demand for advertising. The extent and duration of the military action, sanctions, and resulting market and/or supply disruptions are impossible to predict but could be substantial.
Increases in interest rates and the reduced availability of financing for consumer products may impact the demand for advertising.
In general, demand for certain consumer products may be adversely affected by increases in interest rates and the reduced availability of financing. Also, trends in the financial industry which influence the requirements used by lenders to evaluate potential consumers can result in reduced availability of financing. If interest rates or lending requirements increase and consequently, the ability of prospective consumers to finance purchases of products is adversely affected, the demand for advertising may also be adversely impacted and the impact may be material. In addition, our borrowing costs could be impacted, and such cost changes could reduce the expected returns on certain of our corporate development and other investment opportunities.
In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Annual Report”), as updated in our Quarterly Report on Form 10-Q for the period ended March 31, 2022, which could materially affect our business, financial condition or future results. The risks described in our 2021 Annual Report,2022 Form 10-K, as updated by our quarterly reports on Form 10-Q, are not the only risks facing our Company. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, may also materially adversely affect our business, financial condition and/or operating results.
Continued delays in the filing of our periodic reports with the Securities and Exchange Commission could impact our listing on the Nasdaq stock market, which could materially and adversely affect our stock price and impact our operations.
As previously disclosed, in connection with the preparation of the consolidated financial statements for the period ended December 31, 2022, the Company re-evaluated its accounting for the valuation of its investment interest in MGM National Harbor (the “MGM Investment”) and determined that adjustments were required to previously issued financial statements for certain periods due to understatements in the value of the MGM Investment and related tax effects. As a result, the Company was unable to file its Annual Report on Form 10-K for the period ended December 31, 2022 (the “2022 Form 10-K”) on a timely basis with the United States Securities and Exchange Commission (the “SEC”). While we filed our 2022 Form 10-K on June 30, 2023, the delay in filing the 2022 Form 10-K caused follow on delays in the filing of our Quarterly Reports on Forms 10-Q for the three months ended March 31, 2023 and June 30, 2023, which were due in May 2023 and August 2023, respectively. While we subsequently filed the Quarterly Reports on Forms 10-Q for the three months ended March 31, 2023 and June 30, 2023 on November 20, 2023, we are now delayed in the filing of our Quarterly Report on Form 10-Q for the three months ended September 30, 2023 (the “Q3 2023 10-Q”). We anticipate filing the Q3 2023 10-Q prior to December 31, 2023.
Nasdaq Listing Rule 5250(c) (1) (the “Listing Rule”) requires Nasdaq listed companies to timely file all required periodic financial reports with the SEC. On September 28, 2023, the Company received a Staff Delisting Determination (the “Staff Determination”) from the Nasdaq Listing Qualifications Department (the “Listing Department”) notifying the Company that Nasdaq has initiated a process that could result in the delisting of the Company’s securities from Nasdaq as a result of the Company not being in compliance with the Listing Rule. The Staff Determination had no immediate effect and did not immediately result in the suspension of trading or delisting of the Company’s shares of common stock. After receipt of the Staff Determination, the Company timely requested a hearing before a Nasdaq Hearings Panel (the “Hearings Panel”). The hearing request automatically stayed any suspension or delisting action at least through October 20, 2023. On October 17, 2023, the Hearings Panel granted the Company’s request that the stay be extended through the hearing, scheduled for November 30, 2023 (the “Hearing”), and the expiration of any additional extension period granted by the Hearings Panel following the Hearing. We cannot assure you that we will be successful in keeping the Company’s stock listed after the Hearing or any extension granted at the Hearing. However, in the interim, during the period of any stay or extension, the Company’s common stock will continue to trade on the Nasdaq.
If our common stock were to be delisted, the liquidity of our common stock would be adversely affected and the market price of our common stock could decrease. While our common stock could move to the over-the-counter markets (“OTC”), OTC markets are significantly more limited than the Nasdaq, and quotation on the OTC markets may result in a less liquid market available for existing and potential security holders to trade in our common stock and could further depress the trading price of our common stock. The suspension and delisting of our common stock from the Nasdaq could also result in other adverse consequences, including lower demand for our common stock, increased volatility in the price of our common stock, adverse publicity, reputational harm and a reduced interest in our Company from investors, analysts and other market participants. In addition, the suspension and delisting could impair our ability to raise additional capital through equity or debt financing and our ability to attract and retain employees by means of equity compensation. There can be no assurance that our common stock would continue to trade on the OTC markets or that any public market for our common stock would exist in the future, whether broker-dealers will continue to provide public quotes of our common stock on this market, whether the trading volume of our common stock will be sufficient to provide for an efficient trading market, whether quotes for our common stock may be blocked by in the future, or that we would seek to, or be able to, relist our common stock on a national securities exchange.
In addition, the delay in our 2022 and 2023 filings could expose the Company to risk of litigation concerning any impact upon the Company’s price of the Company’s common stock. Any such litigation could distract management from day-to-day operations and further adversely affect the market price of our common stock
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
Exhibit |
| Description |
| | |
31.1 | | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 | | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1 | | |
32.2 | | |
101 | | Financial information from the Quarterly Report on Form 10-Q for the quarter ended |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| URBAN ONE, INC. |
|
|
| /s/ PETER D. THOMPSON |
| Peter D. Thompson |
| Executive Vice President and |
| Chief Financial Officer |
| (Principal Accounting Officer) |
August 12, 2022November 20, 2023
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