Beasley Broadcast Group, Inc. — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. Beasley operates 64 radio stations across 14 U.S. markets. Financial results are unaudited; management notes that radio revenue is seasonal and interim results may not indicate full-year performance.
Financial performance
| Metric | Q2 2018 | Q2 2019 | Six months 2018 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $61.6M | $65.7M (+6.5%) | $116.8M | $123.3M (+5.6%) |
| Operating income | $10.7M | $10.7M | $11.1M | $17.5M |
| Interest expense | $3.8M | $4.5M | $7.4M | $9.1M |
| Net income | $4.9M | $4.3M (-13.2%) | $1.8M | $5.6M |
| Net income per share, basic and diluted | $0.18 | $0.15 | $0.06 | $0.20 |
Q2 operating margin was approximately 16.3%, versus 17.3% a year earlier; net margin was approximately 6.5%, versus 8.0%. For the first half, operating margin was approximately 14.2%, versus 9.5%, and net margin was approximately 4.6%, versus 1.5%. First-half 2019 operating income included $3.5M of gains on dispositions; first-half 2018 included $4.4M of expense from changes in contingent consideration. These items affect comparability.
Commercial advertising revenue rose to $57.4M from $53.4M in Q2; digital advertising rose to $4.9M from $4.1M. For the first half, commercial advertising was $107.0M and digital advertising was $8.5M, both above the prior-year period.
Cash flow, liquidity and debt
- First-half operating cash flow was $11.5M, compared with $11.0M. Investing used $3.4M, including $4.7M of capital expenditures and $2.5M invested in Renegades, partly offset by $3.8M of disposition proceeds. Financing used $9.3M, including $6.5M of debt repayments and $2.8M of dividends.
- Cash was $12.3M at June 30, 2019, down from $13.4M at year-end. Current assets were $69.7M and current liabilities $36.6M. The company reported $20.0M available under its revolving facility.
- Term-loan principal was $245.5M, down from $252.0M at December 31, 2018; balance-sheet debt net of issuance costs was $237.2M. The term loan’s stated interest rate was 6.4% at quarter-end. Approximately $245.5M of principal is scheduled for 2023.
- The company was in compliance with applicable debt covenants at June 30. Its maximum first-lien leverage ratio is 5.75x through December 2019 and 5.25x from March 2020. Debt is secured by substantially all company and subsidiary assets. Credit terms restrict dividends and share repurchases.
- The company adopted lease accounting on January 1, 2019, recording an opening lease liability of $43.1M, right-of-use assets of $38.8M and a $0.9M reduction to opening retained earnings. At June 30, lease liabilities totaled $43.3M.
Material changes and notable items
- Q2 revenue increased $4.0M, principally from $3.2M of additional Philadelphia revenue following the WXTU-FM acquisition and a $1.6M increase in Boston. Q2 station expenses rose $2.8M, including $1.6M in Philadelphia and $0.9M in Boston. Corporate G&A increased $1.0M, primarily due to higher cash compensation. Higher debt and interest rates contributed to a $0.7M increase in Q2 interest expense.
- First-half revenue increased $6.6M, led by Philadelphia (+$5.4M), Boston (+$2.1M) and Tampa–St. Petersburg (+$0.9M), partly offset by declines in Las Vegas and Charlotte. First-half corporate G&A increased $2.7M, and interest expense increased $1.7M.
- Q2 net income declined despite higher revenue, as higher operating costs, corporate expenses and interest expense offset the revenue growth. First-half net income improved, but comparison includes the disposition gains in 2019 and the contingent-consideration expense in 2018.
- In March, the company sold Augusta land and improvements for $0.5M, recording a $0.4M gain, and canceled a Chattanooga broadband radio license for $3.3M, recording a $3.1M gain.
- The company agreed to acquire WDMK-FM and three Detroit translators for $13.5M in cash. The transaction remained subject to FCC approval and customary closing conditions and was expected to close in Q3 2019; funding was expected from the credit facility and operating cash.
- Beasley invested $4.5M for approximately 43% of esports organization Renegades, using cash, shares and a commitment for advertising. It agreed to invest a further $1.5M in cash through early 2020.
- The board declared a $0.05-per-share dividend, totaling approximately $1.4M, paid July 5, 2019. First-half declared dividends were $0.10 per share.
Outlook, risks and contingencies
Management expects to fund liquidity needs through operating cash flow, the revolver and, if permitted and needed, other borrowing or equity issuance. It stated that resources should be sufficient for obligations over the next 12 months, while warning that poor results or unexpected expenses could create liquidity needs, covenant issues or limit revolver availability. No numerical revenue or earnings guidance was provided.
Key stated risks include economic weakness affecting advertising, competition for audiences and ad spending, digital product development, audience acceptance, technology changes, FCC regulation and dependence on broadcast licenses, revenue concentration in certain markets, receivable credit risk, potential license or goodwill impairment, substantial debt and restrictive covenants, disruption or cybersecurity risks, key-personnel loss, family control, and integration of acquisitions. The company reported routine litigation and FCC-related matters but no proceeding management believed likely to have a material adverse effect. No material risk-factor changes were reported for the quarter.
Important facts for investors to verify
- Whether WDMK-FM and the translators received FCC approval and closed on the expected terms and timetable.
- Underlying station-level revenue and expense trends, especially outside Philadelphia, and the sustainability of Boston’s growth.
- Debt covenant headroom, leverage trajectory, interest costs and the effect of restricted dividend capacity.
- Cash generation after capital spending, dividends, the Renegades investment and any acquisition funding.
- The drivers and nonrecurring nature of the 2019 disposition gains and the 2018 contingent-consideration charge when comparing earnings.
- Risks associated with advertising conditions, FCC licensing, and the company’s ability to maintain liquidity and comply with credit terms.