Beasley Broadcast Group, Inc. — Q3 2012 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2012. The company operates radio stations across 11 U.S. markets. Interim results may be affected by seasonal advertising patterns; revenue is typically lowest in the first quarter.
Financial performance
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Net revenue | $24.7 million | $24.0 million | $72.8 million | $72.5 million |
| Operating income | $6.5 million | $5.6 million | $19.4 million | $17.0 million |
| Net income | $1.2 million | $2.3 million | $7.4 million | $6.7 million |
| Net income per diluted share | $0.05 | $0.10 | $0.33 | $0.30 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $15.6 million | $15.6 million |
- Q3 revenue increased 3.1%, primarily reflecting approximately $0.4 million of revenue from KOAS-FM, acquired in August; revenue at other market clusters was comparable.
- Q3 operating income rose as operating expenses were slightly lower. Net income fell 50.7%, principally because the company recorded a $2.6 million debt-extinguishment loss; interest expense was also modestly higher.
- For the nine months, revenue increased 0.4%, operating income increased to $19.4 million, and net income increased 10.7%, despite the debt-extinguishment charge. Lower interest expense and operating costs contributed to the improvement.
- Approximate operating margins were 26.3% in Q3 2012 versus 23.5% in Q3 2011, and 26.7% for the 2012 nine-month period versus 23.5% in 2011. Approximate net margins were 4.7% and 9.8% for Q3, and 10.2% and 9.3% for the respective nine-month periods.
Cash, liquidity and debt
- Cash was $11.4 million at September 30, 2012, down from $13.6 million at year-end 2011. Current assets were $32.8 million and current liabilities $13.8 million.
- Nine-month operating cash flow was $15.6 million. Investing used $3.3 million, including $2.0 million cash consideration for KOAS-FM and $1.3 million of capital expenditures. Financing used $14.6 million, including $7.9 million of debt principal payments, $4.1 million of new-loan fees and repayment of a $2.5 million related-party note.
- Total debt was $118.9 million at September 30, down from $126.7 million at December 31, 2011. The August refinancing established a $110 million first-lien facility and a $25 million second-lien facility; $15 million remained available under the $20 million revolving commitment at quarter-end.
- At September 30, stated interest rates were 5.19% on the first-lien facility and 11.25% on the second-lien facility. The facilities mature in 2017 and 2018, respectively, and are secured by company assets. The company entered into interest-rate caps covering $57.5 million of notional debt through September 2014.
- The company reported compliance with all debt covenants at quarter-end, with a consolidated total debt ratio of 3.80x and interest coverage of 5.54x. Management said it expected sufficient liquidity to meet obligations over the next 12 months, while cautioning that weak results, unexpected costs or acquisitions could pressure liquidity and covenant compliance.
Material developments, outlook and risks
- The refinancing generated a $2.6 million Q3 loss on extinguishment and $4.1 million of loan-fee cash payments during the nine-month period. The new agreements impose leverage and interest-coverage tests, mandatory excess-cash-flow prepayments and other repayment requirements; covenant failure could accelerate debt maturity.
- KOAS-FM was acquired from an entity owned by George G. Beasley for $4.5 million, funded with $2.0 million cash and a $2.5 million related-party note, which was repaid during Q3. The transaction was accounted for as a common-control business combination. The company also made additional investments in Digital PowerRadio, LLC, in which it holds about 20%.
- Station operating costs for the nine months declined partly due to cost controls and an approximately $0.8 million BMI fee-settlement benefit across ten market clusters.
- No quantitative earnings or revenue guidance was provided. Management identified economic conditions, competition, advertising demand, seasonality, industry changes and unexpected events that could interrupt broadcasting as risks. It reported no litigation expected to have a material adverse effect and no material change in previously disclosed risk factors.
Key facts for investors to verify
- Whether revenue growth from KOAS-FM and other markets continues, given that revenue at existing market clusters was otherwise comparable.
- Ongoing cash generation, the effect of refinancing costs and high-cost second-lien interest on earnings and debt reduction.
- Compliance with tightening leverage covenants and availability of the revolving facility as covenant limits decline over time.
- The related-party nature and accounting treatment of the KOAS-FM acquisition, and the contribution of the BMI settlement benefit to cost trends.
- Whether the stated 12-month liquidity outlook remains supported by operating cash flow and cash needs, including debt service, acquisitions and capital spending.