Beasley Broadcast Group, Inc. — Q3 2018 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2018; comparative figures are for the corresponding 2017 periods. The company operates radio stations across U.S. markets. Management notes that radio revenues are seasonal and typically lowest in the first quarter.
Financial results
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Net revenue | $65.1 million | $58.9 million | $181.9 million | $173.7 million |
| Operating income | $9.3 million | $13.2 million | $20.4 million | $37.6 million |
| Net income | $2.6 million | $6.1 million | $4.4 million | $17.5 million |
| Diluted EPS | $0.10 | $0.22 | $0.16 | $0.63 |
| Operating cash flow | Not separately provided | Not separately provided | $15.8 million | $17.8 million |
Q3 revenue increased 10.6%, while operating income and net income declined. For the nine months, revenue rose 4.8%, but operating income fell substantially and net income declined 74.9%. Station operating expenses increased 18.5% in Q3 and 7.2% for the nine-month period. The filing does not present a stated margin figure.
Cash, debt and liquidity: Cash was $10.0 million at September 30, 2018, down from $13.9 million at year-end 2017. Nine-month investing cash use was $43.1 million and financing cash provided was $23.3 million; cash decreased $3.9 million. Long-term debt, net of issuance costs and current installments, was $243.8 million, versus $212.5 million at year-end. The term loan balance was $253.0 million; the company had $20.0 million available under its revolving facility. Both term and revolver borrowings carried a 6.2% LIBOR-based rate at quarter-end. The company reported compliance with covenants. Dividends declared were $0.05 per share in Q3 and $0.15 per share for the nine months.
Material changes and notable items
- On September 27, 2018, the company acquired Philadelphia station WXTU-FM for $38.0 million, funded with $35.0 million of additional term borrowing and $3.0 million of cash. It had operated the station under a local marketing agreement beginning July 23.
- Q3 revenue benefited from Boston and Philadelphia, while station expense growth reflected the Boston asset exchange, the WXTU marketing agreement, higher Tampa costs and $1.7 million of additional bad-debt expense associated with financial issues at United States Traffic Network.
- Nine-month revenue growth was led by Boston, partly offset by the 2017 Greenville-New Bern-Jacksonville disposition and lower revenue in Charlotte, Detroit and New Jersey. Higher Boston-related expenses and the United States Traffic Network bad debt weighed on results.
- Contingent-consideration fair-value changes were a significant year-over-year earnings swing: a $4.4 million expense in the first nine months of 2018 versus a $7.7 million benefit in 2017. Q3 2017 included a $2.5 million benefit; Q3 2018 had no such adjustment.
- Nine-month 2017 results included a $3.7 million net disposition gain and a $1.8 million benefit from terminating a postretirement plan. In 2018, pension-plan termination produced a $1.0 million gain in corporate expenses. The 2018 nine-month effective tax rate was approximately 47%, including an increase related to contingent consideration.
- The 2018 quarter included a $0.3 million loss on modification of debt and $0.8 million of other expense related to a shelf offering.
Outlook, risks and other disclosures
Management expects liquidity needs to include working capital, debt service, capital spending and station acquisitions, and believes available resources will meet obligations for the next 12 months. This is subject to operating performance, covenant capacity and access to financing; poor results or unexpected costs could constrain borrowing or create liquidity pressure. No numerical earnings or revenue guidance is provided.
Key risks cited include advertising-market and audience competition, technology changes, substantial debt and restrictive covenants, FCC licensing and regulation, potential impairment of broadcast licenses or goodwill, infrastructure and cybersecurity disruptions, and integration of acquisitions. The credit agreement is secured by substantially all company assets and includes leverage tests and potential mandatory excess-cash-flow prepayments. Management reported no litigation expected to have a material adverse effect, no material risk-factor changes during the quarter, and effective disclosure controls. New lease accounting was expected to significantly increase recognized assets and liabilities; the impact had not been quantified. Revenue-standard adoption had no reported financial-statement impact.
Important facts for investors to verify
- Whether WXTU-FM and the Boston asset exchange contribute sufficient revenue and cash flow to offset related operating costs and added debt.
- The collectability of receivables and any further exposure to United States Traffic Network; nine-month losses on receivables were $2.3 million.
- Leverage, covenant headroom, interest-rate exposure and future mandatory debt prepayments, including the effect of the $35.0 million borrowing.
- The sustainability of operating cash flow, dividends and liquidity given lower cash and declining reported earnings.
- Assumptions supporting the acquired FCC license valuation and the potential for future impairment; the filing notes actual results could differ materially from valuation assumptions.