Beasley Broadcast Group, Inc. — Q1 2020 Form 10-Q
Business and period: Beasley operates U.S. radio stations and offers advertising across audio, digital, and event platforms. This unaudited report covers the three months ended March 31, 2020, compared with Q1 2019. The company delayed filing because COVID-19 disrupted normal financial reporting work.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Net revenue | $57.65 million | $57.69 million, down 0.1% |
| Operating income (loss) | $(7.14) million | $6.81 million |
| Net income (loss) attributable to BBGI stockholders | $(8.84) million; $(0.32) per share | $1.35 million; $0.05 per share |
| Operating cash flow | $1.95 million | $7.41 million |
| Capital expenditures | $3.44 million | $1.84 million |
| Cash and cash equivalents at March 31 | $18.48 million | $18.65 million at December 31, 2019 |
| Debt at March 31 | $267.0 million gross; $260.2 million net of debt issuance costs | $263.5 million gross at December 31, 2019 |
Operating margin was approximately negative 12.4%, compared with positive 11.8% in Q1 2019. The loss included a $6.8 million FCC-license impairment charge; Q1 2019 included $3.5 million of gains on dispositions. Cash flow from operations fell $5.5 million year over year. Current assets were $73.9 million and current liabilities $46.0 million at quarter-end.
Revenue mix shifted: commercial advertising declined to $47.43 million from $49.58 million, while digital advertising increased to $5.36 million from $3.51 million. Other revenue was $4.87 million versus $4.60 million. The company attributed revenue resilience in part to increased political advertising, digital and esports revenue, and the WDMK-FM acquisition.
Material changes, outlook, and risks
- COVID-19 drove a downturn in advertising. Cancellations rose and new sales fell beginning in mid-March, especially in heavily affected industries. Management said cancellations had decreased and sales began recovering during June, but could not predict the pandemic’s total impact.
- Operating expenses increased 7.3% to $50.9 million, reflecting higher digital and esports costs, allocation of digital expenses to market clusters, and WDMK-FM expenses. Corporate expenses declined 9.1% to $4.5 million.
- The company recorded $6.8 million of FCC-license impairment in seven market clusters, citing lower projected revenue and a higher discount rate. No goodwill impairment was recorded, but Boston and Charlotte FCC-license fair values exceeded carrying amounts by only 2.4% and 2.5%, respectively; further impairment remains possible.
- At March 31, the company was compliant with credit covenants, but projected a breach of its leverage covenant for June 30. It borrowed $7.5 million on March 26 and another $1.5 million on April 7; after the latter draw, no revolving commitments remained available.
- A June 30, 2020 credit-agreement amendment replaced the near-term leverage test with an $8.5 million minimum liquidity covenant, tested every other week, and a minimum EBITDA covenant tested monthly through June 30, 2021. Management projected covenant compliance through that date. The amendment also raised borrowing costs, tightened restrictions and cash-flow prepayments, and limited dividends. The chairman was to provide a $5 million loan and the chairman and a family partnership were to provide standby letters of credit totaling $5 million.
- The esports seller note was amended June 30. Its $10.5 million balance carries 5% cash-pay and 10% payment-in-kind interest, with scheduled cash and stock principal payments and maturity on December 31, 2023. The planned stock issuance could dilute shareholders.
- The board suspended future quarterly dividends; the $0.05-per-share Q1 dividend was paid April 7. Management said it believed liquidity would be sufficient for the next 12 months, while warning that weak results or unexpected expenses could create earlier financing needs. Expense measures included compensation reductions, lower planned capital spending, vendor concessions, furloughs, headcount reductions, and hiring and travel suspensions.
Other disclosed risks include advertiser credit losses, substantial debt and covenant restrictions, possible further FCC-license or goodwill impairments, and uncertainty in the advertising recovery. The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. Management did not identify litigation expected to have a material adverse effect.
Key facts for investors to verify
- Subsequent liquidity, covenant compliance, and access to financing after the April 7 revolver draw and June 30 amendment.
- Whether advertising recovery continued, and the resulting effects on operating cash flow, bad debts, and liquidity.
- Updated FCC-license and goodwill valuations, particularly in Boston and Charlotte and the markets already impaired.
- Cash and share payments, interest accruals, and potential dilution under the amended esports seller note.
- Dividend restrictions and whether the company can meet the amended minimum-liquidity and EBITDA tests.