Beasley Broadcast Group, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015. The company operates radio stations across U.S. markets. Results are unaudited and subject to seasonal fluctuations; first-quarter results are not necessarily indicative of the full year.
Financial results
| Metric | Q1 2014 | Q1 2015 | Change / context |
|---|---|---|---|
| Net revenue from continuing operations | $13.0 million | $24.3 million | Up 87.2% |
| Operating income | $0.6 million | $2.6 million | Operating margin rose from 4.7% to 10.6% |
| Interest expense | $1.2 million | $0.9 million | Down 22.5% |
| Income from continuing operations | Loss of $1.5 million | $1.3 million | 2014 included a high effective tax rate |
| Net income | $0.7 million | $1.3 million | Up 90.1%; 2014 included $2.2 million from discontinued operations |
| Net income per share | $0.03 | $0.06 | Basic and diluted |
| Operating cash flow | $4.2 million | $1.6 million | Down $2.7 million |
Q1 2015 station operating expenses were $17.8 million, corporate G&A was $2.4 million, exchange transaction costs were $0.3 million, and depreciation and amortization was $1.1 million. The $0.5 million of other income primarily included $0.4 million of insurance proceeds for a weather-damaged tower. Cash declined $1.9 million during the quarter, ending at $12.3 million. Capital expenditures were $0.5 million; financing cash outflows included $1.5 million of debt principal payments and $1.0 million of dividends.
Balance sheet, debt and liquidity
- At March 31, 2015, total assets were $314.1 million, total liabilities $183.3 million, and stockholders’ equity $130.8 million. Current assets were $34.3 million versus current liabilities of $12.3 million.
- Debt was $96.2 million, including $2.9 million current; the company had no revolver borrowings and $16.6 million available under its $20.0 million revolving facility. The facility carried a 3.4% adjusted-LIBOR-based rate and matures August 9, 2019.
- The company reported a 3.25x consolidated total debt ratio and 7.08x interest coverage ratio and said it complied with all financial covenants. The facility is secured by substantially all company and subsidiary assets. Scheduled principal repayments total $96.2 million, including $71.6 million in 2019.
- Management believes available liquidity and capital resources will cover obligations for at least the next 12 months, while cautioning that weak results or unexpected expenses could constrain borrowing capacity or create covenant and liquidity pressures.
Material changes and business developments
- Revenue growth largely reflects the December 1, 2014 asset exchange with CBS Radio, which added stations in Charlotte and Tampa-Saint Petersburg and transferred out stations in Philadelphia and Miami. The acquired markets contributed $6.1 million and $5.8 million of additional revenue, respectively; Wilmington revenue declined $0.4 million, while remaining clusters were generally comparable.
- The exchange also increased station expenses by $4.4 million in each of Tampa-Saint Petersburg and Charlotte. Because the exchange closed after Q1 2014, reported year-over-year figures are not like-for-like. Management provided pro forma Q1 2014 results assuming the exchange occurred January 1, 2014: revenue $27.0 million, operating income $4.3 million, and net income $0.7 million. Against that pro forma revenue base, Q1 2015 revenue was lower.
- The divested Philadelphia and Miami station results were classified as discontinued operations in Q1 2014; they generated $11.3 million revenue and $2.2 million after-tax income. There was no discontinued-operations income in Q1 2015.
- Operating cash flow fell partly because income tax payments increased $2.1 million, advertising cash receipts declined $1.0 million, and exchange-related transaction costs were paid; lower interest payments and insurance proceeds partly offset these effects. Cash taxes paid were $2.2 million in Q1 2015 versus $0.1 million in Q1 2014.
- The company acquired an FM translator license for $190,600 and contributed an additional $166,667 to Digital PowerRadio, LLC, maintaining an approximately 20% interest. The LLC is managed by an entity partially owned by an independent company director.
Outlook, risks and other items
- No quantified revenue or earnings guidance was provided. Management expects liquidity needs to be met through operating cash flow, revolver availability, permitted additional borrowing, or equity offerings. The company said it intends to pay quarterly dividends, subject to board review and approval; a $0.045-per-share dividend was paid April 10, 2015.
- Radio advertising is seasonal and typically weakest in the first quarter. Revenue depends on audience share, competition, advertising demand, market size, and economic conditions. Management also identified risks including unexpected commercial-free broadcasting, poor financial results, unanticipated expenses, and inability to satisfy debt covenants or obtain financing on acceptable terms.
- The credit agreement’s maximum debt-ratio covenant tightens over time, from 4.25x through June 2015 to 3.0x thereafter. Failure to comply with covenants or payment terms could accelerate debt maturity.
- Management reported no material change in risk factors, no material internal-control changes, and effective disclosure controls. It said pending or threatened litigation, including FCC indecency matters, was not expected to have a material adverse effect.
- New accounting guidance on debt issuance costs will require presentation as a deduction from debt when adopted; loan fees were $1.5 million. The company had not determined the impact of the new revenue-recognition standard.
Important facts for investors to verify
- Use the CBS exchange pro forma comparison to assess underlying growth; reported revenue increased largely because of the larger station portfolio.
- Monitor operating cash flow and cash taxes, which weakened materially year over year despite higher reported net income.
- Track debt reduction, the 2019 maturity concentration, covenant headroom, and whether the $16.6 million revolver availability remains accessible.
- Assess whether the Q1 insurance recovery and unusually high prior-year tax rate affect comparisons of recurring earnings.
- Review dividend sustainability alongside liquidity needs, future capital spending, and the company’s discretionary dividend policy.