Beasley Broadcast Group, Inc. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014; balance-sheet comparisons are with December 31, 2013. Beasley operates radio stations in U.S. markets. Results are unaudited, and the company cautions that first-quarter results are seasonally low and are not necessarily indicative of full-year performance.
Key financial results
| Metric | Q1 2013 | Q1 2014 | Change |
|---|---|---|---|
| Net revenue | $24.81 million | $24.22 million | Down 2.4% |
| Operating income | $5.45 million | $4.24 million | Down 22.3% |
| Operating margin | 22.0% | 17.5% | Down 4.5 percentage points |
| Interest expense | $2.05 million | $1.22 million | Down 40.2% |
| Income before taxes | $3.45 million | $3.04 million | Down 12.0% |
| Income tax expense / effective tax rate | $1.03 million / approximately 30% | $2.35 million / approximately 78% | Tax expense rose $1.32 million |
| Net income / diluted earnings per share | $2.42 million / $0.11 | $0.68 million / $0.03 | Net income down 71.8% |
| Operating cash flow | $3.93 million | $4.21 million | Up $0.28 million |
Liquidity, debt, and capital
- Cash was $12.72 million at March 31, down from $14.30 million at year-end. Current assets were $33.71 million and current liabilities $12.53 million.
- Total debt was $103.50 million, down from $106.88 million at year-end, including a $96.50 million term loan and $7.00 million drawn on the revolver. The $20.0 million revolver had $13.0 million of remaining commitments available.
- Debt carried an adjusted-LIBOR rate of 4.15% and matures August 9, 2017. Scheduled principal payments include $0.88 million for the remainder of 2014, $8.25 million in 2015, $9.63 million in 2016, and $84.75 million in 2017.
- Q1 investing cash outflow was $1.16 million, including $1.19 million of capital expenditures. Financing cash outflow was $4.64 million, including $3.38 million of debt repayments, $1.02 million of dividends paid, and $0.35 million of share repurchases. Cash declined $1.58 million overall.
- The company reported compliance with all financial covenants: debt ratio of 3.16x against a 4.5x maximum for 2014, and interest coverage of 5.00x against a 2.0x minimum. Management said it expects sufficient liquidity to meet obligations for at least 12 months.
Material changes and notable items
- Revenue decreased $0.59 million. Miami-Fort Lauderdale advertising revenue fell $0.4 million; other clusters were broadly comparable. Las Vegas revenue included $0.6 million from KVGS-FM, acquired in September 2013.
- Station operating expenses increased $0.40 million, including $0.5 million of additional KVGS-FM expenses. Corporate G&A rose $0.18 million, primarily due to stock-based compensation.
- Lower interest expense reflected reduced debt and the prior-year repayment of the second-lien facility. Despite this benefit, net income fell substantially, principally as the effective tax rate increased to approximately 78%.
- The company attributed a $1.3 million increase in Q1 tax expense to raising its projected federal tax rate from 34% to 35% based on updated 2014 taxable-income projections; a state-rate change reduced tax expense by $0.2 million.
- The board declared a $0.045-per-share dividend on March 12, payable April 10; the aggregate payment was approximately $1.0 million. Management said it intends to pay quarterly dividends, subject to quarterly board review and discretion.
- On April 7, a family-owned related party agreed to demolish a leased Miami tower. The lease, costing about $3,000 per month, was canceled, and the company forgave $332,000 of related-party notes receivable. The Audit Committee approved the forgiveness.
- Two FM translator licenses were placed in service in March for $65,000, expanding coverage for a North Carolina station.
Outlook, risks, and contingencies
No specific revenue or earnings guidance is provided. Management identified internally generated cash flow and the credit facility as primary liquidity sources, while noting that weak results or unexpected expenses could cause covenant problems, limit revolver availability, or create additional financing needs. The secured credit facility includes leverage and interest-coverage covenants, excess-cash-flow prepayment requirements, and acceleration risk upon default. Interest-rate caps covering $57.5 million of variable-rate debt expire in Q3 2014; their fair value was approximately zero at quarter-end.
The company cited advertising demand, competition, economic conditions, radio-industry changes, and events that could require commercial-free broadcasting as risks. It reported no material changes to the risk factors in its 2013 Form 10-K. Litigation, including FCC indecency matters and private-party claims, was described as incidental; management did not believe any current or threatened matter was likely to have a material adverse effect. Disclosure controls were deemed effective, with no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether advertising trends, particularly in Miami-Fort Lauderdale, and KVGS-FM’s contribution support revenue and operating-margin recovery.
- The drivers and sustainability of the unusually high Q1 effective tax rate and the projected 2014 taxable-income assumptions.
- Debt-covenant headroom, required principal and excess-cash-flow payments, and actual availability of the revolver under the credit agreement.
- Cash generation relative to capital expenditures, dividends, repurchases, and scheduled debt service; future dividends remain discretionary.
- The accounting and related-party treatment of the $332,000 note forgiveness and the effect of the tower demolition and lease cancellation.