Beasley Broadcast Group, Inc. — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018; balance sheet compared with December 31, 2017. The company operates radio stations and reports seasonality, with revenue typically lowest in the first quarter.
Financial performance
| Metric | Q2 2018 | Q2 2017 | H1 2018 | H1 2017 |
|---|---|---|---|---|
| Revenue | $61.6 million | $61.0 million | $116.8 million | $114.8 million |
| Operating income | $10.7 million | $12.8 million | $11.1 million | $24.4 million |
| Net income | $4.9 million | $3.9 million | $1.8 million | $11.4 million |
| Operating margin | 17.3% | 21.0% | 9.5% | 21.3% |
| Net cash from operations | Not stated for quarter | Not stated for quarter | $11.0 million | $10.7 million |
Q2 diluted earnings per share were $0.18, versus $0.14; the declared dividend was $0.05 per share, versus $0.045. H1 diluted earnings per share were $0.06, versus $0.41; dividends were $0.10 per share, versus $0.09. H1 comprehensive income was $1.0 million, including a $0.7 million pension-plan reclassification loss.
H1 revenue increased 1.8%, while operating income fell 54.7% and net income fell 84.6%. Commercial advertising declined year over year (Q2 $53.4 million versus $54.8 million; H1 $101.1 million versus $102.4 million); growth in digital and other revenue more than offset the decline. Management attributed revenue gains mainly to the Boston station asset exchange, partly offset by the 2017 Greenville-area station sale; revenue at remaining clusters was generally comparable.
Liquidity, debt and financial position
- At June 30, cash was $14.8 million; current assets were $73.9 million and current liabilities $31.4 million.
- Debt consisted of a $220.0 million term loan and $0.6 million of capital lease obligations; reported debt net of issuance costs and current installments was $210.6 million. The company repaid $5.0 million of debt in H1.
- The $20.0 million revolving facility was undrawn and available at quarter-end. Term-loan and revolving-facility LIBOR-based rates were 6.1%. Debt maturities are principally thereafter, with $214.1 million of scheduled principal and lease payments due thereafter.
- The company reported compliance with financial covenants at June 30. The facility is secured by substantially all company and subsidiary assets; covenant breaches or payment defaults could accelerate debt.
- H1 investing cash outflow was $2.3 million, including $2.1 million of capital expenditures. Financing cash outflow was $7.8 million, including dividends of $2.7 million. Management said liquidity should suffice for the next 12 months, but noted weaker results or unexpected costs could constrain borrowing capacity.
Material changes, outlook and risks
- Q2 operating income declined despite modest revenue growth, partly because Q2 2017 included a $4.0 million disposition gain. H1 comparisons were also affected by contingent-consideration fair-value changes: a $4.4 million expense in 2018 versus a $5.1 million benefit in 2017. H1 2017 additionally included disposition gains and a $1.8 million postretirement-plan termination benefit.
- Interest expense declined 19.9% in Q2 and 22.4% in H1, which management attributed to lower debt and applicable interest rates. H1 2018’s 57% effective tax rate included a $1.2 million increase related to contingent consideration.
- In January 2018, the company paid $52.0 million from the pension trust to purchase participant annuities and recognized a $1.0 million gain upon pension-plan termination. In March, 867,679 escrow shares and 470,480 shares related to the Greater Media tower sale were returned and recorded as treasury stock.
- After quarter-end, the company agreed to acquire Philadelphia station WXTU-FM for $38.0 million, partly financed with credit-facility borrowings. It began operating the station under a local marketing agreement on July 23; closing was expected in Q3 or Q4 2018, subject to FCC approval and customary conditions. No quantitative earnings guidance is provided.
- Risks highlighted include advertising and economic conditions, competition for audiences and advertisers, technology change, substantial debt and restrictive covenants, FCC licensing and regulation, potential impairment, operational or cybersecurity disruptions, key-personnel dependence, and integration of acquisitions. Management reported no material change in risk factors or internal controls during the quarter; pending litigation was not considered likely to have a material adverse effect.
- Adoption of the new lease standard was expected to significantly increase reported assets and liabilities, with no significant income-statement effect anticipated. The amount was not yet quantified.
Key facts for investors to verify
- Whether WXTU-FM received regulatory approval and closed, and the resulting purchase financing and operating contribution.
- Whether revenue trends, especially commercial advertising, and operating performance at existing markets improve or weaken.
- Debt covenant headroom, leverage, interest-rate exposure and cash available after dividends and required debt prepayments.
- The effect of contingent-consideration accounting and the elevated H1 effective tax rate on comparable earnings.
- The eventual balance-sheet impact of lease-standard adoption and any changes in liquidity or commitments.