Business context and reporting period
Beasley Broadcast Group, Inc. is a radio broadcasting company. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2016; results are for the company before its subsequent acquisition of Greater Media. The Greater Media merger closed November 1, 2016.
Financial results and position
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Net revenue | $27.7 million | $26.3 million | $83.0 million | $77.5 million |
| Operating income (loss) | $3.8 million | $(0.1) million | $12.7 million | $7.6 million |
| Net income (loss) | $1.7 million | $(0.7) million | $6.0 million | $3.1 million |
| Diluted earnings per share | $0.07 | $(0.03) | $0.26 | $0.13 |
| Cash provided by operating activities | Not provided for quarter | Not provided for quarter | $13.1 million | $9.9 million |
Q3 revenue increased 5.6%; nine-month revenue rose 7.0%. Operating margins were approximately 13.7% in Q3 2016 versus negative 0.3% in Q3 2015, and 15.3% for the first nine months of 2016 versus 9.8% in 2015. Nine-month net margin increased to approximately 7.2% from 4.0%.
At September 30, 2016, cash was $16.7 million, current assets $38.9 million and current liabilities $17.2 million. Debt was $83.0 million on the term loan, plus $0.7 million of capital lease obligations before unamortized fees and current/noncurrent classification. The existing $20 million revolver was undrawn and fully available. The company reported compliance with its existing credit covenants; its debt ratio was 2.77x and interest coverage ratio 7.51x. The quarterly dividend was $0.045 per share.
Material changes versus prior comparable periods
- Q3 revenue gains were led by Tampa–St. Petersburg, Charlotte and Fayetteville; nine-month gains were led by Tampa–St. Petersburg. The company reported $0.5 million of political advertising in 2016.
- Nine-month station operating expenses increased $3.0 million, partly offsetting revenue growth. Q3 station expenses were broadly unchanged.
- Net income improved partly because the prior-year periods included a $3.5 million impairment charge for Wilmington market goodwill. Q3 2016 also included $1.2 million of merger expenses and $0.3 million of insurance proceeds related to Charlotte.
- Nine-month operating cash flow rose $3.2 million to $13.1 million. Cash increased $2.3 million over the period, after $6.0 million of debt principal payments, $3.1 million of dividends and $2.1 million of capital expenditures.
Outlook, transactions and risks
- On November 1, 2016, the company completed its Greater Media acquisition, adding 21 stations across several markets. Stated aggregate purchase price was $239.9 million, subject to adjustments; consideration included approximately $94.4 million cash and $25.0 million in Beasley Class A shares. The filing had not yet completed the purchase-price allocation or provided pro forma results.
- To finance the acquisition and refinance debt, the company entered into a $265 million term loan and a $20 million revolving facility. Term-loan pricing is LIBOR plus 6.0% or base rate plus 5.0%, subject to a 1% LIBOR floor for the initial term loan; rates step down 0.25% if the specified first-lien leverage ratio is at or below 3.75x. The loan matures in seven years and has a large final balloon payment. A $0.6 million debt-modification loss was expected in Q4 2016.
- The company agreed to sell specified Charlotte station assets to Entercom for $24 million, subject to FCC approval and other conditions, and intended to apply net proceeds to debt repayment. Certain stations were being operated under a local marketing agreement or held in trust pending the sale.
- Management said it expected sufficient liquidity to meet obligations for the next 12 months, while cautioning that poor results or unexpected expenses could create covenant, debt-service or financing pressures. No quantified operating guidance was provided.
- Key risks include integration and realization of acquisition synergies, transaction costs, possible dilution or non-accretion, substantial debt, advertising-market conditions, competition, technology changes and regulatory matters. Management reported no litigation expected to have a material adverse effect and no material change in risk factors during the quarter.
Important facts for investors to verify
- Final Greater Media purchase-price allocation, adjustments, acquired assets and liabilities, and pro forma financial impact.
- Post-merger debt, leverage, interest expense, covenant headroom and cash generation under the new credit agreement.
- Completion and proceeds of the $24 million Charlotte station sale, including required regulatory approvals.
- Whether revenue growth and operating cash flow persist without the reported political advertising and one-time items, and whether merger expenses or tax deductibility change.
- The board’s future dividend decisions and the company’s ability to fund dividends, capital spending and debt repayment.