Business context and reporting period
Beasley Broadcast Group, Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2013. The company operates radio stations across U.S. markets and generates most revenue from advertising. Management cautions that radio results are seasonal and interim results may not indicate full-year performance.
Financial performance and condition
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Net revenue | $26.86 million, up 8.3% | $51.67 million, up 7.4% |
| Operating income | $7.43 million, down from $7.70 million | $12.88 million, approximately flat versus $12.94 million |
| Net income | $2.36 million, down 38.9%; diluted EPS $0.10 | $4.78 million, down 23.8%; diluted EPS $0.21 |
| Operating cash flow | Not separately provided for the quarter | $7.41 million, down from $9.16 million |
| Cash and cash equivalents | — | $12.99 million at June 30, 2013 |
| Debt | — | $112.25 million gross debt at June 30, 2013 |
For the quarter, operating expenses rose 13.7%, faster than revenue, and operating margin was approximately 27.7%, versus 31.1% a year earlier. Net margin was approximately 8.8%, versus 15.6%. For the six months, operating margin was approximately 24.9%, versus 26.9%, and net margin approximately 9.2%, versus 13.0%. These margins are calculated from reported figures.
At June 30, current assets were $36.31 million and current liabilities $14.31 million. The company reported $13.0 million of remaining availability on its $20.0 million revolving facility. Six-month investing cash outflow was $0.83 million, including $0.85 million of capital expenditures; financing cash outflow was $5.25 million, including $4.5 million of debt principal payments and $0.62 million of loan fees.
Material changes versus the prior comparable period
- Revenue growth was led by Las Vegas and Philadelphia. Las Vegas contributed $1.1 million of quarterly growth, including $1.0 million from KOAS-FM, acquired in 2012; Philadelphia added $0.7 million. For the first half, Las Vegas added $1.9 million, including $1.8 million from KOAS-FM, and Philadelphia added $1.7 million.
- Station operating expense growth outpaced revenue growth: up 14.6% for the quarter and 11.1% for the half-year. Management cited higher costs in several markets, KOAS-FM expenses, and a comparison against a 2012 BMI fee settlement.
- Interest expense increased 83.8% for the quarter and 67.5% for the half-year. The 2013 periods include a $1.0 million prepayment fee; the company also recorded a $1.26 million loss on extinguishment of debt following its refinancing.
- Operating cash flow declined $1.75 million year over year for the first half. Management cited higher station operating costs, interest and tax payments, partly offset by increased advertising cash receipts.
Outlook, risks, contingencies and unusual items
- Management said it expects sufficient liquidity and capital resources to meet obligations for at least the next 12 months; no specific revenue or earnings guidance was provided. It warned that weak results or unanticipated expenses could impair liquidity or covenant compliance and restrict future revolver borrowings.
- In April 2013, the company refinanced and repaid its $25.0 million second-lien loan using $20.0 million of additional term borrowings, $2.0 million of revolver borrowings and $3.0 million of cash. The first-lien facility carried a 4.20% adjusted-LIBOR-based rate at June 30 and matures August 9, 2017.
- The credit agreement requires a minimum 2.0x interest coverage ratio and sets maximum total-debt ratios that tighten over time. At June 30, the company reported a 3.39x total-debt ratio and 3.94x interest coverage ratio and said it was in compliance with all covenants. Debt is secured by substantially all company and subsidiary assets; default could accelerate repayment.
- The company agreed to acquire KVGS-FM in Las Vegas from an entity owned by George G. Beasley for $4.0 million, subject to conditions, with completion expected by the end of the third quarter of 2014. It may use cash and/or a note payable to the related party.
- A related-party note’s rate was reduced from 6.0% to 2.57% in May; monthly payments remained approximately $38,000 and maturity moved to June 30, 2019. The carrying amount was $2.5 million at June 30.
- Management reported no litigation expected to have a material adverse effect and no material changes to previously disclosed risk factors. The company stated disclosure controls were effective and reported no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether revenue gains, particularly in Las Vegas and Philadelphia, continue to exceed station-cost growth.
- Debt covenant headroom, scheduled principal payments, interest costs and remaining revolver availability as operating results evolve.
- The terms, related-party safeguards, closing conditions and financing for the proposed $4.0 million KVGS-FM acquisition.
- The effect of seasonality and the one-time refinancing charges when assessing future earnings and cash generation.