Beasley Broadcast Group, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. The company operates radio stations and derives most revenue from local and national advertising. Comparisons with Q1 2016 are not like-for-like: Q1 2017 includes Greater Media, acquired November 1, 2016, adding 21 stations.
Financial performance
| Metric | Q1 2016 | Q1 2017 | Change / context |
|---|---|---|---|
| Net revenue | $27.5 million | $53.7 million | Up 95.7%, primarily from Greater Media |
| Operating income | $4.1 million | $11.5 million | Reported operating margin rose from 15.0% to 21.5%; Q1 2017 includes a $7.5 million favorable contingent-consideration fair-value change |
| Net income | $1.8 million | $7.5 million | Net margin was approximately 6.6% and 13.9%, respectively |
| Basic and diluted EPS | $0.08 | $0.27 | Weighted-average shares increased, partly reflecting merger shares |
| Operating cash flow | $6.1 million | $6.1 million | Nearly flat year over year |
- Greater Media contributed $10.5 million of revenue in Boston, $9.5 million in Philadelphia, $5.0 million in Detroit, and $3.9 million in New Jersey. Revenue at the remaining markets was broadly comparable, with declines in Tampa–St. Petersburg and Charlotte.
- Station operating expenses increased 119.9% to $43.9 million, largely reflecting the acquired stations. Interest expense rose to $4.8 million from $1.0 million, primarily due to higher debt and interest rates. The company recorded a $0.4 million income tax benefit, including a benefit associated with the contingent-consideration fair-value change.
- Cash from investing activities was $22.2 million, including $24.0 million from the January sale of Charlotte stations; capital expenditures were $1.0 million. Financing activities used $29.8 million, including $28.0 million of debt repayments, $1.3 million of dividends, and $0.5 million of share repurchases. Cash declined $1.5 million during the quarter.
Financial position and liquidity
- At March 31, cash was $18.9 million and current assets were $83.8 million, versus current liabilities of $26.0 million. Current assets include a $15.4 million merger-consideration receivable.
- Debt principal, including the revolving facility and capital leases, was $240.7 million, down from $268.7 million at December 31, 2016. The term loan was $237.0 million and the revolver was drawn by $3.0 million; $17.0 million remained available under the $20.0 million revolver.
- Term-loan and revolver rates were 7.0% at March 31. The facilities mature in 2023 and 2021, respectively. The debt is secured by substantially all company assets and includes leverage covenants and required prepayments. The company reported compliance with all applicable covenants at quarter-end.
- Management said it expects available liquidity to meet obligations for the next 12 months, while cautioning that poor results or unanticipated costs could create earlier financing or liquidity needs. The credit agreement restricts dividends and repurchases; the company paid $1.3 million in dividends and declared a $0.045-per-share dividend.
Material developments, outlook, and risks
- The January 6 sale of Charlotte station assets generated $24.0 million; proceeds were used in part to repay debt. On May 1, after quarter-end, the company sold its Greenville–New Bern–Jacksonville stations for $11.0 million and used proceeds in part to repay debt. The company said it would no longer operate in that market.
- Greater Media purchase accounting remains preliminary. Merger consideration and the tower-sale and working-capital adjustments may change. The $7.5 million favorable fair-value adjustment is a notable, non-cash item and should not be treated as recurring operating performance.
- No numeric earnings or revenue guidance is provided. Management notes that radio advertising is seasonal, with revenue typically lowest in Q1, and depends on economic conditions, audience share, competition, and advertising demand.
- Key risks include substantial debt and covenant restrictions, integration of Greater Media, advertising-market weakness, competition and technology changes, FCC licensing and regulation, and potential impairment of broadcast licenses or goodwill. The filing reports no litigation that management believes is likely to materially affect financial condition or results.
- The company expects the new lease-accounting standard to significantly affect its balance sheet; the impact had not yet been quantified. Management’s preliminary assessment of the new revenue-recognition standard was that it would not have a significant financial-statement impact.
Important facts for investors to verify
- How much of the nearly doubled revenue and higher reported profit reflects acquired stations versus underlying performance at legacy markets.
- The sustainability of earnings after excluding the $7.5 million contingent-consideration fair-value benefit and other merger-related or disposition items.
- Final Greater Media purchase-price adjustments, including the tower-sale proceeds and working-capital share adjustments.
- Debt reduction, interest costs, covenant headroom, and the effect of mandatory excess-cash-flow and asset-sale prepayments.
- The financial impact of the May 2017 Greenville-market sale and the company’s remaining station portfolio.