Beasley Broadcast Group, Inc. — Q3 2017 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2017. Beasley operates radio stations; its 63 stations covered 14 markets at the reporting date. Results include Greater Media, acquired November 1, 2016, so year-over-year growth primarily reflects the acquisition rather than comparable-station growth.
Financial performance
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Net revenue | $58.9 million | $27.7 million | $173.7 million | $83.0 million |
| Operating income | $13.2 million | $3.8 million | $37.6 million | $12.7 million |
| Operating margin | 22.4% | 13.7% | 21.6% | 15.3% |
| Net income | $6.1 million | $1.7 million | $17.5 million | $6.0 million |
| Diluted earnings per share | $0.22 | $0.07 | $0.63 | $0.26 |
| Net cash from operating activities | — | — | $17.8 million | $13.1 million |
- Revenue increased 112.4% in Q3 and 109.3% for the nine-month period. Greater Media contributed substantial revenue from Boston, Philadelphia, Detroit, and New Jersey. Management said revenue at remaining market clusters was generally comparable with prior-year periods.
- Station operating expenses rose 117.6% in Q3 and 121.7% year to date, largely from Greater Media. Corporate G&A also increased, including higher compensation, stock-based compensation, and contract services.
- Q3 net income improved despite interest expense increasing to $4.7 million from $0.9 million. Nine-month interest expense was $14.3 million versus $2.7 million, reflecting higher debt and interest rates.
- At September 30, cash was $15.5 million; current assets were $85.2 million and current liabilities $26.8 million. Total assets were $631.9 million. Working capital included a $15.5 million merger consideration receivable.
- Debt totaled $219.6 million before unamortized issuance costs, comprising a $216.0 million term loan, $3.0 million revolver borrowing, and capital leases. The balance-sheet carrying amount was $207.0 million after issuance costs and current installments. Revolver availability was $17.0 million; reported LIBOR-based borrowing rates were 7.2%. Debt declined from $268.7 million gross at December 31, 2016.
- Cash fell $4.9 million during the nine months to $15.5 million. Investing provided $30.8 million, including $35.0 million from station dispositions; financing used $53.4 million, including $49.0 million of debt repayments and $3.9 million of dividends. Capital expenditures were $3.0 million.
Material changes and unusual items
- Beasley sold Charlotte station assets in January 2017 and its Greenville–New Bern–Jacksonville market cluster in May 2017. Combined disposition proceeds were $35.0 million; the Greenville sale generated a reported $4.0 million gain, partly offset by a $0.3 million Charlotte disposition loss.
- Q3 operating results included a $2.5 million benefit from changes in the fair value of Greater Media contingent consideration. The nine-month period included a $7.7 million benefit, a $1.8 million gain from termination of a postretirement benefits plan, and the disposition gain. These nonrecurring items affected reported earnings.
- Greater Media acquisition accounting remained subject to estimates and adjustments, including working-capital and tower-sale-related share returns. The former Greater Media owners’ tower-sale adjustment and escrowed-share estimates are sensitive to Beasley’s share price.
- Dividends declared were $0.045 per share in Q3, unchanged from Q3 2016; $0.135 per share was declared over the nine-month period.
Outlook, liquidity, and risks
No numerical earnings or revenue guidance was provided. Management expected liquidity from operating cash flow and its revolver to be sufficient for obligations over the next 12 months, while cautioning that weak results or unexpected expenses could create earlier financing needs. The company was in compliance with its financial covenants at September 30, 2017. The credit agreement has leverage tests, required excess-cash-flow and asset-sale repayments, and restrictions on dividends and share repurchases; a covenant breach could accelerate debt.
Management cited seasonality in advertising, economic conditions, competition for audiences and advertising, Greater Media integration, substantial debt and covenant restrictions, FCC licensing and regulation, technology and infrastructure risks, and potential impairment of broadcast licenses or goodwill. The filing reported no material change to risk factors and no litigation management believed likely to materially affect financial condition or results.
Subsequent event: On November 1, 2017, the company agreed to exchange Boston station WMJX-FM for WBZ-FM and pay $12.0 million, partly funded by credit-facility borrowing. Closing was expected in Q1 2018, subject to FCC and other approvals; the company cautioned that the transaction might not qualify for like-kind exchange tax treatment.
Important facts for investors to verify
- How much of the reported revenue and earnings growth reflects Greater Media versus underlying performance at comparable stations.
- The final acquisition working-capital and tower-sale adjustments, including the value and timing of share returns and contingent consideration.
- Debt repayment capacity, interest costs, covenant headroom, mandatory cash-flow repayments, and the effect of the planned $12.0 million Boston exchange payment.
- Whether ongoing operating cash generation supports dividends and other liquidity needs after divestiture proceeds are no longer available.
- FCC approval, closing timing, tax treatment, and final economics of the WMJX-FM/WBZ-FM exchange.