Beasley Broadcast Group, Inc. — Q2 2017 Form 10-Q
Business context and reporting period. The filing covers the quarter and six months ended June 30, 2017. Beasley operates radio stations and reported 63 stations across 14 markets. Results include 21 Greater Media stations acquired in November 2016; accordingly, year-over-year comparisons are substantially affected by the acquisition. During the first half of 2017, the company also sold stations in Charlotte and Greenville–New Bern–Jacksonville.
Key financial metrics
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Net revenue | $61.0 million | $27.8 million | $114.8 million | $55.2 million |
| Operating income | $12.8 million | $4.8 million | $24.4 million | $8.9 million |
| Operating margin | 21.0% | 17.2% | 21.3% | 16.1% |
| Net income | $3.9 million | $2.5 million | $11.4 million | $4.3 million |
| Diluted EPS | $0.14 | $0.11 | $0.41 | $0.19 |
| Net cash from operating activities | Not separately reported | Not separately reported | $10.7 million | $8.8 million |
Q2 net margin was 6.4%, compared with 8.9% a year earlier; first-half net margin was 9.9%, compared with 7.8%. Q2 dividends declared were $0.045 per share, unchanged year over year; first-half dividends declared were $0.09 per share.
- Cash and liquidity: Cash was $17.0 million at June 30, down from $20.3 million at December 31, 2016. Current assets were $83.5 million and current liabilities $27.4 million. The revolving facility had $17.0 million of unused capacity.
- Debt: Debt and capital lease obligations totaled $225.7 million before unamortized debt issuance costs; reported long-term debt, net of current installments and costs, was $212.4 million. The term loan was $222.0 million, and the revolver had $3.0 million drawn. The company repaid $43.0 million of debt during the first half.
- Cash flow and investment: Investing activities provided $32.1 million, including $35.0 million of station-sale proceeds; capital expenditures were $1.6 million. Financing activities used $46.1 million, including debt repayments, dividends and share repurchases. Cash decreased $3.3 million over the period.
Material changes versus prior comparable periods
- Revenue rose 119.7% in Q2 and 107.8% in the first half, primarily from Greater Media stations. Management said revenue at continuing, comparable market clusters was generally comparable to the prior-year periods, with some market-specific decreases.
- Operating expenses also rose substantially with the acquired stations. Operating income increased, but comparisons include one-time and valuation items as well as the expanded station portfolio.
- Interest expense increased to $4.8 million in Q2 from $0.9 million, and to $9.6 million for the first half from $1.9 million, reflecting higher debt and interest rates associated with the acquisition.
- At June 30, total assets were $630.5 million, down from $661.7 million at year-end; total liabilities were $418.8 million, down from $459.2 million.
Outlook, commentary, risks and unusual items
- Management gave no specific revenue or earnings guidance. It expects liquidity to be sufficient for requirements and obligations over the next 12 months, while cautioning that weak results or unanticipated expenses could create earlier financing needs.
- Q2 included a $4.0 million gain on the Greenville-area station sale, a $1.8 million benefit from terminating a postretirement benefits plan, and a $2.4 million expense from changes in fair value of Greater Media contingent consideration. For the first half, the company reported a $3.7 million net gain on dispositions, a $5.1 million benefit from the contingent-consideration fair-value change, and the $1.8 million plan-termination benefit. These items affect comparisons with recurring operating performance.
- Greater Media purchase accounting and related working-capital and tower-sale adjustments remained preliminary. The company reported a $13.0 million merger-consideration receivable at June 30. Final share returns and purchase-price adjustments could change.
- The credit agreement carries LIBOR-based rates of 7.2% at June 30, is secured by substantially all company and subsidiary assets, and includes leverage covenants and mandatory excess-cash-flow and asset-sale prepayments. The company said it complied with applicable covenants at quarter-end; a breach could accelerate debt maturity.
- Management cited advertising demand and competition, Greater Media integration, substantial debt and restrictive covenants, FCC licensing and regulation, technology and audience changes, and broadcasting and information-technology disruptions among key risks. It reported no material changes to risk factors and no litigation expected to materially affect financial condition or results.
- Disclosure controls were deemed effective, and no material change in internal control over financial reporting was reported during the quarter.
Important facts for investors to verify
- How much of reported growth and margin improvement reflects Greater Media versus performance at comparable stations.
- Debt leverage, covenant headroom, interest-rate exposure, and the impact of required cash-flow and asset-sale prepayments.
- Final Greater Media purchase-price, working-capital, tower-sale and contingent-consideration adjustments.
- The sustainability of reported income after excluding station-sale gains, plan-termination benefits and contingent-consideration fair-value effects.
- Whether operating cash generation and available revolver capacity remain adequate for debt service, dividends and other liquidity needs.