Beasley Broadcast Group, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Beasley operates U.S. radio stations and generates revenue primarily from audio and digital advertising. Amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net revenue | $63.8 million | $62.9 million | $184.4 million | $170.7 million |
| Operating income (loss) | $4.7 million | $4.9 million | $(2.6) million | $8.1 million |
| Net income (loss) | $0.5 million | $(1.6) million | $(17.5) million | $(12.1) million |
| Basic and diluted EPS | $0.02 | $(0.06) | $(0.60) | $(0.41) |
| Operating margin | 7.4% | 7.8% | (1.4)% | 4.8% |
Operating margins are calculated from reported revenue and operating income (loss). Q3 revenue rose 1.5% year over year: digital revenue increased 23.1% to $10.2 million, while audio revenue fell 1.9% to $53.0 million. For the first nine months, revenue grew 8.0%; audio increased 4.6% and digital increased 30.4%.
- Cash flow: Nine-month operating cash flow was $2.3 million, versus cash used of $6.0 million in 2021. Investing used $12.0 million, including $11.2 million of capital expenditures and the $2.0 million Guarantee Digital acquisition, partly offset by $1.2 million of disposition proceeds. Financing used $8.8 million, primarily for debt repurchases. Cash declined $18.5 million to $32.8 million.
- Liquidity: At September 30, cash was $32.8 million; current assets were $93.4 million and current liabilities $47.4 million, implying working capital of approximately $46.0 million.
- Debt: The company reported $290.0 million principal amount of 8.625% senior secured notes due February 2026; carrying value net of issuance costs was $285.1 million. Nine-month interest expense was $20.3 million. Management reported repurchasing $10.0 million principal during 2022: $5.0 million in Q2 at 96% of principal and $5.0 million in Q3 at 77%.
Material changes versus comparable periods
- Q3 net income improved from a $1.6 million loss to $0.5 million income, helped by $1.2 million of other income, including a $1.0 million gain on the Q3 note repurchase, and a larger income tax benefit. Operating income nevertheless edged lower as corporate expenses rose 28.9% to $5.1 million.
- Nine-month net loss widened to $17.5 million despite higher revenue. Results included $10.5 million of reported impairment losses on FCC licenses and goodwill, largely recorded in Q2, and higher operating and corporate expenses. The prior-year period included a $5.0 million loss on extinguishment of debt, while the current period did not.
- Management attributed nine-month audio revenue growth to continued recovery from the COVID-19 pandemic and digital growth to continued expansion and Guarantee Digital. Guarantee was acquired for $2.0 million in June; its reported revenue and earnings were not material.
Outlook, risks, contingencies, and unusual items
- No specific numerical revenue, earnings, or cash-flow guidance is provided. Management expects liquidity needs to continue to include working capital, debt service, capital expenditures, and other corporate purposes, and believes resources will be sufficient for obligations over the next 12 months and thereafter. It cautions that poor results or unanticipated expenses could create earlier financing needs, and funding may not be available on acceptable terms.
- Interest-rate increases prompted Q2 impairment testing. Nine-month impairment charges were $10.476 million; no additional FCC license or goodwill impairment was recorded in Q3. Management cautions that weaker-than-projected market conditions or changed assumptions could result in further material charges. Disclosed FCC-license fair value exceeded carrying value by 0% in Fort Myers-Naples, Las Vegas, and Wilmington, and by only 0.2% in Boston.
- The company agreed to exchange its KDWN-AM Las Vegas assets for Audacy’s KXTE-FM assets. The transaction was expected to close in Q4 2022, subject to FCC approval and customary conditions; the company expected to record a gain at closing. It entered an LMA and was scheduled to begin operating KXTE-FM November 14, 2022.
- Quarterly dividends remain suspended. The notes are secured by substantially all company assets and contain restrictive covenants, including limits on dividends, additional debt, and certain acquisitions and asset sales.
- Other risks include advertising-market weakness, competition, dependence on FCC licenses and regulation, accounts-receivable credit risk, technology and distribution disruptions, cybersecurity, weather events, and the company’s substantial debt. Routine litigation is disclosed; management said no pending or threatened matter was likely to have a material adverse effect. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether digital growth continues and offsets the Q3 decline in audio and national agency revenue.
- Cash generation, capital spending, and the capacity to service 8.625% notes amid remaining principal debt of $290.0 million.
- Assumptions and valuation headroom behind FCC-license and goodwill impairment tests, especially markets with little or no disclosed excess fair value.
- FCC approval, closing timing, and final financial impact of the KDWN-AM/KXTE-FM asset exchange.
- Whether management’s liquidity assessment remains supportable if advertising weakens or further impairment, operating, or financing pressures arise.