Beasley Broadcast Group, Inc. — Q2 2014 Form 10-Q
Business and period: Beasley operates radio stations in 11 U.S. markets. This unaudited report covers the three and six months ended June 30, 2014; interim results may be affected by seasonal advertising patterns and are not necessarily indicative of full-year results.
Financial performance
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Net revenue | $25.9 million | $26.9 million | $50.1 million | $51.7 million |
| Operating income | $6.5 million | $7.4 million | $10.8 million | $12.9 million |
| Operating margin | 25.2% | 27.7% | 21.5% | 24.9% |
| Net income | $3.0 million | $2.4 million | $3.7 million | $4.8 million |
| Diluted EPS | $0.13 | $0.10 | $0.16 | $0.21 |
| Operating cash flow | Not provided for quarter | $7.0 million | $7.4 million |
Q2 net revenue fell 3.6% year over year, while net income rose 28.1%, largely as lower interest expense and a smaller debt-extinguishment loss more than offset lower operating income and higher taxes. For the first half, revenue declined 3.0% and net income fell 22.5%; the effective tax rate rose to approximately 54%, including a $1.4 million impact from revising the projected federal tax rate. Q2 and first-half 2014 dividends declared were $0.045 and $0.09 per share, respectively.
Liquidity, debt, and balance sheet
- At June 30, cash was $12.1 million and current assets were $35.0 million, versus current liabilities of $14.3 million.
- Total debt was $102.25 million, down from $106.88 million at December 31, 2013; net debt after cash was approximately $90.2 million. The company had $20 million available under its revolving facility.
- The amended credit facility matures August 9, 2019 and carried a 3.4% adjusted-LIBOR-based rate at quarter-end. It is secured by substantially all company and subsidiary assets. Scheduled principal repayments include $2.56 million for the remainder of 2014 and $5.11 million in 2015.
- First-half operating cash flow was $7.0 million; investing cash outflow was $1.9 million, including $1.8 million of capital expenditures; financing cash outflow was $7.3 million. Cash declined $2.2 million during the period.
- The company reported compliance with its covenants at June 30: total debt ratio of 3.20x against a 4.5x maximum for 2014, and interest coverage of 6.19x against a 2.0x minimum.
Material changes and unusual items
- Advertising revenue weakness included declines in Philadelphia, Wilmington, and Greenville-New Bern-Jacksonville in Q2; first-half declines also included Miami-Fort Lauderdale. KVGS-FM, acquired in 2013, contributed $0.5 million of Q2 and $1.1 million of first-half advertising revenue, alongside related station expenses.
- A June 30 logo-use agreement generated $0.7 million of other revenue in Q2 and the first half.
- The June credit-agreement amendment extended maturity, revised interest margins and covenants, increased permitted dividends, and removed excess-cash-flow prepayments when debt is below 3.0x operating cash flow. The company repaid its $7 million revolver balance using $5.75 million of additional term borrowings and $1.25 million of cash; the amendment generated a $24,000 debt-extinguishment loss.
- A related-party tower demolition agreement ended monthly lease payments and resulted in forgiveness of $0.3 million of related-party notes receivable, recorded as a loss. The filing also reports a $104,167 investment contribution to an entity managed by a company partly owned by an independent director.
- First-half corporate G&A increased 9.3%, primarily because of higher stock-based compensation. Station expenses were broadly flat. The filing reports a $1.9 million unrecognized restricted-stock compensation balance expected to be recognized over a weighted-average 2.1 years.
Outlook, risks, and contingencies
Management gave no quantified revenue or earnings guidance. It believes liquidity and capital resources will be sufficient to meet obligations for at least the next 12 months. It expects liquidity needs to be funded through operating cash flow, the credit facility, permitted additional borrowings, or equity offerings, and said future dividends remain subject to quarterly board review. Risks include advertising demand, competition, seasonality, unexpected interruptions to broadcasting, weaker results or unanticipated expenses, and potential covenant breaches or restricted revolver access. Variable-rate debt creates interest-rate exposure; two interest-rate caps covering $57.5 million of notional debt were due to expire in Q3 2014. The company reported routine litigation, including FCC indecency matters, but no proceeding management believed likely to have a material adverse effect. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether advertising trends in the named markets stabilize and how much the $0.7 million logo-agreement revenue recurs.
- Actual post-amendment borrowing costs, covenant headroom, repayment requirements, and availability under the $20 million revolver.
- The sustainability of earnings given first-half revenue and operating-income declines and the elevated effective tax rate.
- Cash generation and capital needs, including dividend payments, debt service, and the extent of future share repurchases.
- Resolution of related-party matters, routine legal and FCC proceedings, and any material impact from adoption of the new revenue-recognition standard, whose effect had not yet been determined.