Beasley Broadcast Group, Inc. — Q3 2013 Form 10-Q
Business and period: Radio broadcaster operating stations across 11 U.S. markets. This unaudited filing covers the quarter and nine months ended September 30, 2013; comparisons are with the corresponding 2012 periods. Results are subject to seasonal fluctuations.
Financial performance
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Net revenue | $25.95 million | $24.71 million | $77.62 million | $72.80 million |
| Operating income | $6.55 million | $6.50 million | $19.43 million | $19.44 million |
| Operating margin | 25.3% | 26.3% | 25.0% | 26.7% |
| Net income | $3.19 million | $1.16 million | $7.97 million | $7.43 million |
| Net margin | 12.3% | 4.7% | 10.3% | 10.2% |
| Diluted EPS | $0.14 | $0.05 | $0.35 | $0.33 |
- Cash flow, nine months: Operating cash flow was $14.05 million, down from $15.60 million. Investing used $5.97 million, including $4.00 million for the KVGS-FM acquisition and $2.08 million of capital expenditures. Financing used $7.25 million, primarily for $6.50 million of debt repayments. Cash increased $0.83 million to $12.49 million.
- Liquidity: Current assets were $34.58 million and current liabilities $14.92 million at September 30, 2013 (current ratio approximately 2.3). The company reported $13.0 million available on its $20.0 million revolver.
- Debt: Total debt was $110.25 million, down from $116.75 million at December 31, 2012; cash-adjusted net debt was approximately $97.76 million. The first-lien facility bore a 4.18% adjusted-LIBOR-based rate and matures August 2017. Q3 interest expense was $1.34 million; nine-month expense was $5.71 million.
Changes and notable items
- Q3 revenue grew 5.0%, while operating income was nearly flat as station operating costs rose 4.9% and corporate general and administrative costs rose 11.2%. Net income increased mainly because Q3 2012 included a $2.61 million debt-extinguishment loss.
- Nine-month revenue increased 6.6%, but operating income was essentially unchanged as station operating costs rose 8.9%. Net income rose 7.3%; higher interest expense partly offset revenue growth and the smaller debt-extinguishment loss versus 2012.
- Management attributed Q3 revenue gains mainly to Philadelphia and Miami-Fort Lauderdale, partly offset by Greenville-New Bern-Jacksonville. For the nine-month period, Philadelphia and Las Vegas were key contributors; Greenville-New Bern-Jacksonville declined.
- On April 3, 2013, the company refinanced and repaid its $25 million second-lien facility using additional first-lien borrowings and $3 million cash. The transaction included a $1.0 million prepayment fee and a $1.26 million debt-extinguishment loss.
- On September 1, 2013, the company acquired Las Vegas station KVGS-FM from an entity owned by Chairman and CEO George G. Beasley for $4.0 million cash. The related-party transaction was accounted for as a common-control combination; the excess purchase price over recorded asset values reduced additional paid-in capital by $0.81 million. Additional amounts of $185,916 and $99,483 were due to the seller for management-fee losses and equipment, respectively.
Outlook, risks, and contingencies
- No specific revenue or earnings guidance was provided. Management said it expected sufficient liquidity and capital resources to meet obligations for at least the next 12 months.
- The company was in compliance with its financial covenants at September 30, 2013; its reported total-debt ratio was 3.32x against a 5.0x limit through year-end 2013, and interest coverage was 4.19x against a 2.0x minimum. Covenant limits tighten over time. Noncompliance or failure to meet payment terms could accelerate debt maturity; substantially all assets secure the facility.
- Management cautioned that weak results or unanticipated expenses could reduce revolver availability or create liquidity pressure. Advertising demand, competition, general economic conditions, and seasonal revenue patterns are relevant business risks.
- The company disclosed routine litigation, including FCC indecency matters, but management did not consider any pending or threatened matter likely to have a material adverse effect. No material risk-factor changes were reported. Disclosure controls were assessed as effective, with no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether revenue growth translates into operating-margin improvement, given nine-month expense growth exceeded revenue growth.
- Debt paydown, interest costs, covenant headroom, and the effect of tightening leverage limits and required excess-cash-flow repayments.
- KVGS-FM’s contribution to results and the terms and accounting of the related-party acquisition and associated amounts payable.
- Operating cash flow and liquidity trends, including cash requirements for acquisitions, capital spending, and debt service.
- Advertising-market and seasonal developments, as the filing provides no quantified forward guidance.