Beasley Broadcast Group, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Beasley operates radio stations and sells broadcast, digital, and event-based advertising. Results were heavily affected by the COVID-19-driven advertising downturn.
Financial performance
- Q2 revenue: $30.4 million, down 53.7% from $65.7 million. Commercial advertising was $24.2 million versus $57.4 million; digital advertising was $4.2 million versus $4.9 million.
- Q2 operating result: Operating loss of $17.6 million versus income of $10.7 million; operating margin was approximately -58% versus 16%. Net loss attributable to BBGI stockholders was $17.7 million, or $0.63 per share, versus net income of $4.3 million, or $0.15 per share.
- First-half revenue and earnings: Revenue was $88.0 million, down 28.6% from $123.3 million. Operating loss was $24.8 million versus income of $17.5 million; net loss attributable to stockholders was $26.6 million, or $0.95 per share, versus income of $5.6 million, or $0.20 per share.
- Cash flow: First-half operating cash flow was $7.1 million, down from $11.5 million. Capital expenditures were $6.0 million; investing cash outflow was $7.0 million. Cash increased $4.2 million to $22.8 million, aided by financing inflows.
- Liquidity and debt: At June 30, cash was $22.8 million and current assets were $64.2 million against current liabilities of $46.5 million. Gross debt was $268.0 million, including a fully drawn $20.0 million revolver; no revolver commitments remained available. The balance-sheet debt carrying amount, net of issuance costs and current installments, was $256.9 million.
- Other items: First-half FCC license impairment was $6.8 million. Q2 included a $2.8 million loss on debt modification. No Q2 dividend was declared, compared with $0.05 per share in Q2 2019.
Material changes and financing
- Commercial advertising weakness drove most of the revenue decline. Management said cancellations rose and new sales slowed from mid-March; sales began recovering and cancellations fell significantly during June. Digital advertising rose for the first half but fell in Q2. Esports revenue increased, while the acquired Detroit station also contributed revenue.
- Expense reductions—including compensation cuts, furloughs, headcount reductions, vendor savings, lower planned capital spending, and limits on hiring, travel, and entertainment—helped reduce operating and corporate expenses. Management expected these measures to continue lowering expenses in Q3.
- The June credit amendment raised borrowing costs by 25 basis points, added potential fees in 2021 and 2022, tightened restrictions on debt, investments, and dividends, and changed financial covenants. It requires at least $8.5 million of liquidity, with additional EBITDA and leverage tests beginning later in 2020 and 2021. Excess-cash-flow prepayments may apply when leverage exceeds specified thresholds.
- As a condition of the amendment, Chairman George Beasley provided a $5 million related-party loan at 6% payment-in-kind interest, due in December 2023; he and a family partnership also provided standby letters of credit totaling $5 million. The company reported that it projected compliance with applicable covenants for the next 12 months.
- On July 8, 2020, after quarter-end, the company issued 1,276,596 Class A shares to reduce the amended esports acquisition note principal by $2.25 million. The note also provides for cash interest and payment-in-kind interest, with remaining principal and accrued interest due at maturity in 2023.
Outlook, risks, and contingencies
- Management described the pandemic’s duration and total financial impact as uncertain. Continued restrictions or a prolonged advertising downturn could further harm revenue, cash flow, and liquidity.
- FCC licenses and goodwill were 73% of total assets. The company recorded the FCC license impairment based on lower projected revenue and a higher discount rate; it did not identify a second-quarter impairment trigger. Boston and Charlotte license fair values exceeded carrying values by only 2.4% and 2.5%, respectively, increasing their sensitivity to future deterioration.
- Debt covenant breaches could trigger acceleration of outstanding debt. Scheduled principal repayments total $241.5 million in 2023. The company warned that weak results or unexpected expenses could strain liquidity, and that future financing might not be available on acceptable terms.
- The board suspended future quarterly dividends; the amended credit agreement also restricts dividends until leverage milestones are met. A planned sale of Charlotte land for $4.7 million was expected to close in Q4 2020; no sale gain was recorded by June 30.
- Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter. Routine litigation was not considered likely to have a material adverse effect.
Investor facts to verify
- Whether advertising recovery after June was sustained, and the pace of commercial and digital revenue recovery.
- Cash generation, minimum-liquidity compliance, covenant calculations, and any further lender amendments or waivers.
- Impairment sensitivity, particularly for the Boston and Charlotte FCC licenses and for goodwill.
- Debt repayment and refinancing plans ahead of the large 2023 maturities, including the amended promissory note’s cash and stock payment terms.
- Whether cost reductions, the planned land sale, and the dividend suspension materially change liquidity and operating capacity.