The July 12 change of Urban One’s independent registered public accounting firm from BDO to EY, a decision prompted by the company’s discovery of “immaterial errors” in its accounting for its stock-based compensation and its investment in the operations of its now-scuttled Richmond casino joint venture, meant the nation’s foremost home for African American-centric audio and video content had to re-compute its financial results for 2023.
As of last week, there was no sign of when any would come, with a SEC filing indicating that its Q3 2023 results would be delayed indefinitely.
On Monday, the long-awaited results for the first half of 2023 were supplied to the regulatory body, along with an expected arrival of the Q3 results.
And, Q2 looks particularly good for Urban One.
And, in the filing, Urban One noted that the delay is tied to accounting errors tied to its investment in the operations of its RVA Entertainment Holdings — the collaboration between Urban One and Churchill Downs that presented a proposal to allow the Richmond Grand Resort & Casino to be built, pending voter approval that did not come in the November 2023 elections.
RBR+TVBR had previously reported that the accounting errors were associated with its now-former investment in the MGM National Harbor casino resort. However, the detailed SEC filings offered a fresh perspective on the financial errors attributed to BDO that EY (formerly Ernst & Young) has spent weeks re-doing.
First, Urban One told the SEC that it 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 for all quarters in 2021 and 2022. However, correcting these adjustments in 2023 would “materially misstate” the Q1 2023 numbers.
Thus, Urban One concluded that it was necessary to record these “immaterial errors,” as well as other immaterial adjustments previously identified during fiscal year 2022 and 2021.
That effort is now concluded, and resulted in concurrent SEC filings, with each containing its quarterly earnings results for Q1 and Q2 2023, respectively.
First came the Q1 2023 results. And, like many media companies, there was year-over-year declines due to a decrease in political advertising dollars and an overall softness in core advertising.
For Urban One, the Q1 ’23 net revenue shrunk to $109.87 million from $112.13 million as total operating expenses surged to $101.75 million from $75.67 million. And, the current quarter saw Urban One take a $16,775,000 impairment charge.
As such, Urban One in Q1 2023 swung to a net loss of $2.92 million (-$0.06) from net income of $16.49 million ($0.30 per diluted share).
Don’t blame the Radio stations for the year-over-year dip. Rather, it is the Cable Television segment that saw declines.
Detailed data regarding the company’s cash flow from operating activities outlines the RVA investment:
To compute the comprehensive Q1 2023 results, it looked at 2022 income tax expense related to an unrealized gain on available-for-sale securities, along with the value of the gain. As such, Urban One swung to a Q1 net loss of $2.92 million from net income of $24.38 million.
Urban One also offered a full explanation of how the RVA misstatement came to be.
In 2021, Peninsula Pacific Entertainment, which Churchill Downs would acquire the following year, entered into a 75/25 partnership with Urban One for RVA.
Fast-forward to the preparation of interim consolidated financial statements for the quarter ended March 31, 2023. Urban One 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 that RVAEH should have been consolidated in 2021 in accordance with Accounting Standards Codification.”
Urban One historically recognized its 75% ownership portion of RVAEH’s financial statements on its consolidated financial statements under the equity method of accounting. Thus, as seen in the figure above, the adjustment primarily impacted restricted cash, other current assets, property and equipment, net, other current liabilities, other long-term liabilities, redeemable noncontrolling interests, and accumulated deficit in the consolidated balance sheets, and corporate selling, general and administrative expenses, and net income (loss) attributable to noncontrolling interests in the consolidated statements of operations.
And, while the 2022 restatements were done even as “immaterial” errors were found, the recalculations result in lower full-year results: the previously reported net income of $37.33 million ($0.72 per diluted share) was changed downward to $34.34 million ($0.66).
As Urban One wrapped up its Q1 2023 report, it shared that its long-term debt at the end of that quarter stood at $714.78 million, down from $739 million at the end of 2022.
A STRONG Q2 FINALLY ARRIVES … BUT DOES IT?
While the new Q1 results were impacted by lower revenue in Cable for Urban One, the Q2 performance was significantly better on a sequential and year-over-year basis.
Net revenue climbed to $129.65 million from $118.66 million as net income attributable to common shareholders surged to $70.37 million ($1.39 per diluted share) from $16.29 million ($0.30).
While that’s commendable for Urban One, here’s where the results get fuzzy.
It factored in a “reclassification adjustment for realized gain included in net income” of $96,826,000. Then, there is an income tax provision related to reclassification for realized gain totaling $23,599,000.
When all was said and done, CFO Peter D. Thompson determined a Q2 2023 comprehensive loss attributable to common shareholders of $2.86 million was seen, compared to year-ago net income of $16.37 million.
For the second quarter, Radio advertising revenue increased to $45.14 million from $44.07 million, while Digital revenue grew to $18.86 million from $17.88 million.
The bigger takeaway: Unlike in Q1, Q2 saw Cable television advertising climb to $30.25 million, from $29.12 million, on lower affiliate fees of $22.18 million, falling from $24.17 million.
Also of note was some $12.82 million in event revenue, compared to just $1.74 million in Q2 2022.
WHEN WILL WE SEE Q3?
A third SEC filing was made by Urban One on Monday, and in it the company explained that the delinquency of its Q3 2023 results puts it at odds with the Nasdaq listing qualifications department. This may serve as a separate basis for a possible delisting of the company’s stock.
However, a November 30 hearing to discuss the delinquency of the company’s now-filed Q1 and Q2 2023 results could erase any such talk of a delisting.
Bolstering Urban One’s case: news that the company anticipates filing its Q3 2023 Form 10-Q “on or about December 31.” It will present its plan “to evidence full compliance with the Nasdaq listing criteria” at the November 30 hearing.
