Business context and reporting period
Beasley Broadcast Group, Inc. filed this Form 10-K for the fiscal year ended December 31, 2018. The filing reports full-year results, not standalone fourth-quarter results. The company operated 64 radio stations across 14 U.S. markets; revenue is primarily advertising, including digital advertising and other event-related revenue.
Key financial metrics
| Metric | 2018 | 2017 |
|---|---|---|
| Net revenue | $257.5 million | $232.2 million |
| Operating income | $34.3 million | $60.8 million |
| Operating margin | 13.3% | 26.2% |
| Net income | $6.5 million | $87.1 million |
| Diluted earnings per share | $0.24 | $3.14 |
| Cash from operating activities | $24.4 million | $28.0 million |
| Cash from investing activities | ($45.6 million) | $17.5 million |
| Cash from financing activities | $20.7 million | ($51.9 million) |
| Cash and cash equivalents at year-end | $13.4 million | $13.9 million |
| Long-term debt, gross term loan balance | $252.0 million | $225.0 million |
| Stockholders’ equity | $275.0 million | $286.2 million |
2018 revenue comprised $222.8 million commercial advertising, $15.5 million digital advertising and $19.2 million other revenue. Station operating expenses were $195.8 million, up 12.0%; corporate general and administrative expenses were $16.3 million. Interest expense was $16.0 million. Cash capital expenditures were $4.2 million.
Material changes versus the prior comparable period
- Revenue rose 10.9%, largely reflecting the Boston asset exchange’s contribution and Philadelphia’s WXTU-FM local marketing agreement and acquisition. Revenue also included $4.4 million of political advertising. The Greenville-New Bern-Jacksonville station disposition partly offset growth; revenue at remaining clusters was described as comparable.
- Operating income declined to $34.3 million from $60.8 million. The comparison is affected by 2017 gains from the Boston asset exchange and station dispositions, a postretirement plan termination benefit, and other items. 2017 also included a $48.2 million income tax benefit, principally associated with federal tax-rate changes; 2018 recorded $11.7 million of tax expense.
- Net income fell 92.6%, to $6.5 million. The 2018 effective tax rate was approximately 64%, reflecting, among other items, a $3.4 million increase in the valuation allowance.
- Operating cash flow decreased $3.6 million. Investing cash outflow included $38.0 million for WXTU-FM; the acquisition was partly funded by $35.0 million of additional term borrowing. Year-end cash decreased by $0.5 million.
- Bad-debt expense increased: the company cited $1.7 million of additional station expense related to financial issues at United States Traffic Network. The allowance for doubtful accounts was $2.0 million at year-end, versus $1.6 million in 2017.
Outlook, risks, contingencies and unusual items
- Management said it expected adequate liquidity to meet obligations for the next 12 months, relying on operating cash flow and available credit, among other potential sources. No numerical revenue or earnings guidance was provided.
- The company had $20.0 million of available revolving-credit commitments at year-end and reported compliance with its financial covenants. Term-loan interest was 6.5% at year-end; the loan matures November 1, 2023. Scheduled debt and capital-lease repayments include approximately $247.2 million in 2023. The credit facility is secured by substantially all company and subsidiary assets; covenant breaches could accelerate repayment.
- Operating results are exposed to advertising-market conditions, audience shifts, competition from digital and other media, political-advertising variability, and seasonality. Boston, Philadelphia and Tampa–St. Petersburg contributed 58.8% of 2018 revenue, increasing exposure to those markets.
- FCC licenses and goodwill are significant assets and depend on valuation assumptions. The company reported no 2018 impairment of FCC licenses; the filing cautions that future impairment charges could be material. FCC license renewals, regulation and possible music-performance royalties are additional industry risks.
- On January 1, 2019, the company adopted the new lease accounting standard and recorded a $43.1 million lease liability, $38.8 million of right-of-use assets and a $0.9 million cumulative reduction to opening retained earnings.
- The 2018 WXTU-FM acquisition cost $38.0 million. The company also reported related-party property and tower leases and other dealings; review their terms and governance oversight. Management said routine legal matters were not expected to have a material adverse effect. Disclosure controls and management-assessed internal controls were reported effective; the smaller reporting company was not required to obtain an auditor attestation on internal controls.
Important facts for investors to verify
- How much of reported revenue growth and future performance reflects the WXTU-FM acquisition and Boston asset exchange versus comparable-market trends.
- Cash generation, receivables collectability and bad-debt exposure, including the United States Traffic Network issue.
- Debt covenant headroom, leverage, refinancing or repayment capacity, and the large 2023 maturity; verify the applicable credit agreement terms.
- Whether FCC-license and goodwill valuations remain supported by market and cash-flow assumptions, particularly in clusters with smaller fair-value cushions.
- Dividend capacity under credit-agreement restrictions and the board’s discretion over future payments.
- Related-party lease and investment terms, including any future contribution obligations, and the implications of family voting control.