Business context and reporting period
Beasley Broadcast Group, Inc. filed this unaudited Form 10-Q for the quarter ended September 30, 2014. It operates radio stations in U.S. markets. Results are subject to seasonal fluctuations; first-quarter revenue is typically lowest.
Financial performance and position
- Third quarter: Continuing-operations net revenue was $13.05 million, down 5.0% from $13.73 million. Operating income was $0.94 million, versus $1.72 million; operating margin was approximately 7.2%, compared with 12.5%. Continuing operations recorded a $7,718 loss after tax. Net income, including discontinued operations, was $2.46 million, down 22.8% from $3.19 million; diluted earnings per share were $0.11 versus $0.14.
- First nine months: Continuing-operations net revenue was $40.14 million, down 2.3%. Operating income was $3.81 million versus $5.56 million; operating margin was approximately 9.5%, compared with 13.5%. Continuing operations recorded a $0.16 million loss after tax. Net income including discontinued operations was $6.16 million, down 22.6% from $7.97 million; earnings per share were $0.27 versus $0.35.
- Cash flow: For the first nine months, reported operating cash flow was $13.16 million, investing cash outflow was $2.59 million, and financing cash outflow was $11.65 million. Cash declined $1.08 million from year-end 2013 to $13.22 million. Capital expenditures were $2.61 million.
- Liquidity and debt: At September 30, cash was $13.22 million and current assets were $34.78 million against current liabilities of $12.69 million. Debt was $98.97 million, down from $106.88 million at year-end 2013; the $20 million revolving facility was undrawn. The facility’s stated LIBOR-based rate was 3.4% and maturity August 9, 2019. The company reported compliance with covenants, a 3.20x total-debt ratio against a 4.5x ceiling for 2014, and 6.30x interest coverage against a 2.0x minimum.
- Discontinued operations: The five Philadelphia and Miami stations proposed for exchange generated $11.50 million revenue and $2.47 million after-tax income in Q3 2014; for the nine months, they generated $34.50 million revenue and $6.33 million after-tax income.
Material changes and management commentary
- Continuing revenue weakness was concentrated in Wilmington and Greenville-New Bern-Jacksonville. Management attributed part of the decline to lower advertising revenue; Las Vegas included additional revenue and expenses from the KVGS-FM acquisition.
- Nine-month interest expense fell $2.31 million, reflecting lower debt and a prior-year prepayment fee. Corporate G&A rose $0.43 million, primarily due to higher stock-based compensation. A logo agreement contributed $0.7 million of other revenue in Q2 2014.
- On June 17, 2014, the company amended its credit agreement, revised covenants and pricing, extended maturity, and repaid the revolving balance. The amendment permits greater dividends and waives excess-cash-flow prepayments when debt is below three times operating cash flow.
- Management stated it expects sufficient liquidity to meet obligations for at least 12 months, while warning that weak results or unexpected expenses could impair borrowing capacity or lead to covenant defaults. No operating earnings or revenue guidance is provided.
Outlook, risks, and unusual items
- On October 1, 2014, after quarter-end, the company agreed to exchange its five Philadelphia and Miami stations for 14 CBS Radio stations in Philadelphia, Tampa, and Charlotte. Closing was expected in Q4 2014, subject to regulatory approvals and other conditions. Management expected an approximately $63 million gain and $2 million in transaction costs; neither was recorded as of September 30. The transaction’s qualification as a tax-deferred like-kind exchange is not assured.
- The company cautioned that the exchange may not close, anticipated synergies may not materialize, and integration could be costly and disruptive. Its debt is secured by substantially all company and subsidiary assets; covenant breaches could accelerate repayment.
- Nine-month 2014 income tax expense included a $1.4 million increase from revising the projected federal tax rate to 35%. A $0.3 million related-party note was forgiven following a tower demolition and recorded as a loss.
- The company declared a $0.045-per-share dividend, paid October 10, 2014. It said future dividends would be reviewed quarterly and remain subject to board discretion.
Important facts for investors to verify
- Whether the CBS Radio exchange closed, received required approvals, and qualified for the expected tax treatment; verify the final gain and transaction costs.
- Whether continuing-station advertising trends and operating margins improved after the reported declines.
- Debt, cash availability, covenant headroom, and compliance as the covenant thresholds tighten.
- The sustainability of cash flows and dividends, including the effect of station disposals and incoming stations.
- Reported net income includes substantial discontinued-operations earnings; assess continuing operations separately.