URBAN ONE, INC. 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 endedDecember 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
June 30, June 30,
2022 2021 2022 2021Radio broadcasting segment 31.3 % 33.0 % 29.7 % 31.8 % Reach Media segment 9.3 % 8.7 % 9.1 % 8.7 % Digital segment 15.1 % 14.1 % 14.4 % 12.8 % Cable television segment 45.0 % 45.0 % 47.6 % 47.5 % Corporate/eliminations (0.7) % (0.8) % (0.8) % (0.8) %
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
June 30, June 30,
2022 2021 2022 2021
Percentage of core radio business generated
from local advertising 61.8 % 61.5 % 62.1 % 61.0 %
Percentage of core radio business generated
from national advertising, including
network advertising 35.9 % 36.9 % 35.9 % 37.2 %
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.
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The following chart show our net revenue (and sources) for the three and six
months ended
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 26.8Cable 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 %
In the broadcasting industry, radio stations and television stations often 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 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 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 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 time 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 affiliation agreements based upon a per subscriber fee multiplied by most recent subscriber counts reported by the applicable affiliate.
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
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,
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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.
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. 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: Net income (loss) before depreciation and amortization, income taxes, interest expense, interest income, noncontrolling interests in income of subsidiaries, other (income) expense, corporate selling, general and administrative expenses, stock-based compensation, impairment of long-lived assets, (gain) loss on retirement of debt and gain on sale-leaseback, is commonly referred to in the radio broadcasting industry as "station operating income." 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 and digital operating income. Broadcast and digital operating income is not a measure of financial performance under accounting principles generally accepted inthe United States of America ("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 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 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 represents broadcast and digital operating income as a percentage of net revenue. Broadcast and digital operating income margin is not a measure of financial performance under GAAP. Nevertheless, we believe that broadcast and digital operating income margin is a useful measure of our performance because it provides helpful information about our profitability as a percentage of our net revenue. Broadcast and digital operating margin includes results from all four segments (radio broadcasting, Reach Media, digital and cable television). 41 Table of Contents (d) Adjusted EBITDA: Adjusted EBITDA consists of net (loss) income plus (1) depreciation and amortization, income taxes, interest expense, noncontrolling interests in income of subsidiaries, impairment of long-lived assets, stock-based compensation, (gain) loss 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 because 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 EBITDA provides useful information about the operating performance of our business, apart from the expenses associated with our fixed assets and long-lived intangible assets, capital structure or the results of our affiliated company. 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). 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
The reconciliation of net income to broadcast and digital operating income is as follows:
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