Beasley Broadcast Group, Inc. — FY 2016 Form 10-K
Reporting period: Year ended December 31, 2016; filed March 23, 2017. This is an annual report, not a standalone fourth-quarter filing. Beasley operates radio stations and derives most revenue from advertising. Results include Greater Media only from its November 1, 2016 acquisition date.
Key financial results
| Metric | FY 2015 | FY 2016 | Change / context |
|---|---|---|---|
| Net revenue | $105.9 million | $136.7 million | Up 29.0%; includes two months of Greater Media and $4.9 million of political advertising. |
| Operating income | $13.6 million | $62.6 million | FY 2016 includes a $45.5 million gain on merger. Excluding that gain, operating income was approximately $17.0 million. |
| Net income | $6.4 million | $47.5 million | FY 2016 increase was substantially driven by the non-recurring merger gain. |
| Diluted EPS | $0.28 | $1.98 | Reported; FY 2016 reflects the merger gain. |
| Cash from operations | $14.4 million | $17.2 million | Up $2.8 million. |
| Cash and equivalents | $14.3 million | $20.3 million | At year-end. |
| Gross debt, including capital leases | $89.8 million | $268.7 million | Increase primarily reflects acquisition financing and Greater Media debt. |
Station operating expenses were $96.7 million, up 27.9%; corporate G&A was $10.3 million, up 14.7%; merger and exchange expenses were $6.4 million; depreciation and amortization was $6.2 million; and interest expense was $6.6 million. The filing does not provide a company-defined adjusted EBITDA or an unambiguously comparable normalized profit measure.
Business developments and changes versus prior year
- Greater Media added 21 stations in Boston, Detroit, Charlotte, New Jersey and Philadelphia. The acquisition’s reported contribution after November 1 was $22.7 million of revenue and $17.1 million of station operating expenses.
- FY 2016 revenue also benefited from higher advertising in Tampa-St. Petersburg, Charlotte and Fayetteville. Revenue at the remaining clusters was described as comparable with 2015.
- Beasley recorded no impairment loss in 2016, versus a $3.5 million Wilmington goodwill impairment in 2015. The $45.5 million merger gain and $6.4 million merger expenses make year-over-year earnings comparisons unusually sensitive to acquisition accounting.
- Investing cash outflow was $89.6 million, including $86.8 million for Greater Media and $2.9 million of capital expenditures. Financing cash inflow was $78.5 million, reflecting new borrowing and debt repayments, debt issuance costs and dividends.
- On January 6, 2017, the company sold certain Charlotte stations and assets to Entercom for $24.0 million and used proceeds to repay debt. On February 3, 2017, it agreed to sell six Greenville-area stations for $11.0 million, subject to regulatory approval and closing conditions; proceeds were intended for debt repayment.
Debt, liquidity and capital allocation
At December 31, 2016, debt comprised a $265.0 million term loan and $3.0 million drawn on a $20.0 million revolver, leaving $17.0 million of stated revolver commitments available. The term loan bore 7.0% interest and the revolver 6.8%, both based on LIBOR. The term loan matures November 1, 2023; the revolver matures November 1, 2021. The company reported compliance with its financial covenants at year-end.
Current assets were $103.4 million and current liabilities $33.9 million, but current assets include a $19.9 million beneficial interest in a trust and $7.9 million merger consideration receivable, in addition to $20.3 million cash. Management said it expected sufficient liquidity for the next 12 months, while warning that weaker results or unexpected expenses could constrain borrowing or create liquidity pressure. Scheduled principal payments are $6.7 million in 2017; the credit agreement also requires cash-flow and certain asset-sale proceeds to be applied to debt under specified conditions.
Cash dividends were $4.1 million in 2016, or $0.18 per share. The credit agreement restricts dividends and share repurchases; future dividends remain subject to board discretion and covenant limits.
Outlook, risks and unusual items
- No numerical revenue, earnings or cash-flow guidance is provided. Management’s stated outlook is that liquidity should meet needs for the next 12 months, subject to operating performance, covenant compliance and financing availability.
- Management identified advertising demand, audience ratings, economic conditions, political-advertising variability, competition from digital and other media, and seasonal weakness in the first quarter as key operating uncertainties.
- Integration of Greater Media may involve costs, delays and execution risk. Merger-related transaction costs totaled $20.3 million, including estimated debt issuance costs of $13.9 million; the income statement separately reports $6.4 million of merger and exchange expenses.
- Debt is substantial and carries restrictive covenants, floating-rate exposure and mandatory repayment provisions. The company’s assets are largely secured by the credit facility.
- FCC licensing and ownership rules, potential changes in music royalties, and possible station-distribution disruptions are material industry risks. FCC license and goodwill valuations depend on assumptions; licenses represented a substantial share of assets.
- Related-party leases and transactions involve entities connected to the Beasley family. The chairman and family control significant voting power; the filing reports that the chairman’s shares represented 59.5% of total voting power.
- The company reported ordinary-course legal matters and no proceeding management expected to have a material adverse effect. It reported effective disclosure controls and internal control over financial reporting; however, Greater Media, representing 51.6% of year-end assets, was excluded from management’s 2016 ICFR assessment because of the short time since acquisition. The auditor did not attest to ICFR.
Investor verification checklist
- Separate recurring station-level performance from the $45.5 million merger gain, acquisition costs, political advertising and the partial-year Greater Media contribution.
- Confirm completion and proceeds from the announced station sales, and how proceeds were applied to debt.
- Review leverage, covenant headroom, required debt repayments, floating interest costs and the availability of the revolver.
- Track integration results and any final purchase-price, working-capital, tower-sale or tax-attribute adjustments; the acquisition accounting was preliminary.
- Assess liquidity quality, including the recoverability and timing of merger consideration and trust-related balances, and the sustainability of dividends under credit-agreement restrictions.