Beasley Broadcast Group, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020; filed November 12, 2020. Beasley operates radio stations across U.S. markets and sells commercial and digital advertising and event-related services. Results are unaudited and subject to seasonal fluctuations.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $49.6 million | $66.1 million | $137.7 million | $189.5 million |
| Operating income (loss) | $0.8 million | $9.4 million | $(23.9) million | $26.9 million |
| Net income (loss) attributable to BBGI stockholders | $(2.4) million | $3.0 million | $(29.0) million | $8.7 million |
| Basic and diluted EPS | $(0.08) | $0.11 | $(1.02) | $0.31 |
| Net cash from operating activities | Not provided for quarter | $0.8 million | $23.3 million |
- Margins: Operating margin was approximately 1.7% in Q3 2020 versus 14.2% a year earlier; for the nine months, approximately (17.4)% versus 14.2%.
- Cash and liquidity: Cash was $15.5 million at September 30, down from $18.6 million at year-end 2019. Current assets were $68.7 million and current liabilities $48.4 million. Operating cash flow less capital expenditures was approximately negative $6.2 million for the nine months.
- Debt: Credit-facility and promissory-note principal totaled $265.75 million ($260.1 million net of issuance costs, before current/noncurrent classification). The company also reported $5.0 million due to related parties, including a chairman loan. The $20 million revolver was fully drawn, with no remaining availability. Nine-month interest expense was $12.6 million.
- Other balance-sheet items: Total assets were $735.9 million; FCC licenses and goodwill together represented about 73% of assets, according to the filing.
Changes versus comparable periods
- Q3 revenue fell 24.9%; nine-month revenue fell 27.3%. Commercial advertising was the main source of weakness, reflecting COVID-19-related advertiser cutbacks. Digital advertising was nearly flat in Q3 and increased for the nine-month period.
- Expense controls reduced operating expenses 15.9% in Q3 and 7.5% over nine months, but did not offset the revenue decline. Q3 operating income fell sharply and the company moved to a net loss.
- Nine-month results also included a $6.8 million FCC-license impairment charge and a $2.8 million loss on modification of debt. The prior-year period included $3.5 million of gains on dispositions, absent in 2020.
- Operating cash flow declined to $0.8 million from $23.3 million, primarily reflecting lower cash receipts from revenue. Cash declined by $3.2 million during the 2020 nine-month period.
Outlook, risks and notable items
- Management said advertising sales began recovering in Q2 and continued to recover in Q3, but emphasized substantial uncertainty about the pandemic’s duration and impact. The filing provides no quantified revenue or earnings guidance.
- Cost actions included compensation reductions, furloughs and headcount reductions, vendor savings, lower planned capital spending, and restrictions on hiring, travel and entertainment. Management expected the savings to continue through the rest of 2020.
- The board suspended future quarterly dividends. The amended credit agreement also restricts dividends until leverage milestones are met; $0.05 per share was declared for the nine-month period, while none was declared in Q3.
- The June 2020 credit amendment raised borrowing costs, added potential fees if not refinanced, tightened restricted-payment and other debt-related flexibility, and introduced an $8.5 million minimum-liquidity covenant, monthly minimum-EBITDA tests beginning October 2020, and a later leverage test. Management projected covenant compliance for the next 12 months, but warned that poor results or unexpected costs could threaten liquidity or compliance. The filing reports no available revolver commitments.
- Chairman George Beasley provided a $5.0 million loan bearing 6% payment-in-kind interest, and he and a family partnership supplied $5.0 million in standby letters of credit as backup liquidity. A separate amended esports acquisition note had a $7.75 million balance and required a $2.25 million cash principal payment at year-end 2020.
- FCC-license testing found no further impairment at September 30 after the first-quarter charge. However, fair value exceeded carrying value by only 0.3% to 4.7% in four identified markets, leaving sensitivity to future assumptions and economic conditions. Goodwill was not retested in Q2 or Q3 because no triggering events were identified.
- Management cited COVID-19 and advertising-market conditions, debt and covenant risk, receivables collectability, and potential further FCC-license or goodwill impairment as material risks. It reported no litigation expected to have a material adverse effect and no material changes to disclosure controls.
Important facts for investors to verify
- Whether advertising recovery continued after Q3 and whether commercial and digital revenue trends improved.
- Actual covenant calculations and compliance, particularly minimum liquidity and EBITDA tests, and the company’s ability to retain or regain borrowing capacity.
- Cash generation, upcoming debt and interest payments, and the scheduled $2.25 million note payment, given the fully drawn revolver and substantial 2023 maturities.
- Whether the narrow FCC-license valuation cushions in certain markets led to subsequent impairment charges, and how management’s valuation assumptions changed.
- The duration of dividend restrictions and the extent to which cost reductions can be sustained without impairing operations.