Business context and reporting period
Beasley Broadcast Group, Inc. operates 42 radio stations across 11 U.S. markets and provides management services to two Las Vegas stations. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2012. Management cautions that radio results are seasonal and interim results may not indicate full-year performance.
Financial performance
| Metric | Three months ended June 30, 2011 | Three months ended June 30, 2012 | Six months ended June 30, 2011 | Six months ended June 30, 2012 |
|---|---|---|---|---|
| Net revenue | $25.5 million | $24.8 million | $48.6 million | $48.1 million |
| Operating income | $6.4 million | $7.7 million | $11.4 million | $12.9 million |
| Operating margin | 25.2% | 31.1% | 23.4% | 26.9% |
| Net income | $2.8 million | $3.9 million | $4.4 million | $6.3 million |
| Diluted earnings per share | $0.12 | $0.17 | $0.19 | $0.28 |
- For the quarter, revenue decreased 2.8%, while operating income rose about 19.6% and net income rose 37.3%. For the six months, revenue fell 1.0%, while operating income rose about 13.7% and net income rose 43.7%.
- Lower station operating costs and interest expense supported profit growth. Q2 interest expense was $1.3 million versus $1.8 million; six-month expense was $2.6 million versus $4.2 million.
- Cash provided by operations for the six months was $9.2 million, up from $8.9 million. Investing used $0.6 million, primarily capital expenditures of $0.7 million; financing used $6.8 million, including $6.6 million of debt principal payments. Cash increased $1.8 million to $15.4 million.
- At June 30, total debt was $120.2 million, down from $126.7 million at year-end; cash less total debt was approximately negative $104.8 million. The variable-rate facility carried a 3.8021% LIBOR-based rate and matures June 30, 2015. Remaining revolving commitments were $10.2 million.
- Current assets were $37.4 million and current liabilities $15.7 million, for a current ratio of approximately 2.4. Stockholders’ equity was $80.0 million.
Material changes and management commentary
- Q2 revenue declined chiefly because advertising revenue fell in eight of 11 market clusters, including a $0.3 million decrease in Fayetteville. Six-month revenue was described as comparable with the prior year.
- Station operating expenses fell $1.8 million in Q2 and $1.7 million in the first half. Management attributed about $0.6 million of the reductions to continuing cost controls in Miami-Fort Lauderdale and about $0.8 million across ten clusters to the BMI settlement.
- A second-quarter BMI/RMLC agreement covering fees through 2016 reduced interim 2010–2011 fees and estimated 2012 fees. Resulting credits of $0.8 million were recorded in the first half; most were expected to be used over the remainder of 2012.
- Interest expense declined following debt repayments and the expiration of interest-rate swaps in 2011. The company had no derivative instruments outstanding at June 30, 2012.
- Management stated it expected sufficient liquidity and capital resources to meet obligations for at least the next 12 months. No specific revenue or earnings guidance was provided.
Risks, contingencies and other items
- The company was in compliance with its debt covenants at June 30. Covenant ratios were 4.16x total debt (maximum 4.75x), 5.36x interest coverage (minimum 2.0x), and 1.80x fixed-charge coverage (minimum 1.1x). Covenant breaches or repayment shortfalls could accelerate debt maturity. The facility is secured by substantially all assets and guaranteed by subsidiaries.
- Management warned that weak results, unexpected expenses or acquisitions could strain liquidity or covenant compliance and that additional financing may not be available on acceptable terms. Debt terms restrict additional borrowing, dividends, and share repurchases; no cash dividends were paid.
- Routine litigation includes FCC indecency matters and private-party claims; management did not identify proceedings likely to materially adversely affect the company. No material changes to reported risk factors were disclosed.
- A $1.3 million Boston tower leasehold-improvement balance was reclassified to long-term prepaid rent. The company also acquired an Augusta translator license for $45,000 and contributed $62,500 to a related-party-managed investment, retaining an approximately 20% interest.
Important facts for investors to verify
- Whether advertising trends recover after the reported declines in most market clusters, and how seasonal first-quarter weakness affects full-year results.
- The sustainability of cost reductions and the one-time timing and benefit of the $0.8 million BMI settlement credits.
- Debt repayment schedule, availability of the $10.2 million revolving commitment, floating-rate exposure, and covenant headroom.
- Cash conversion and capital needs, including scheduled principal payments and any unexpected liquidity requirements.
- Potential outcomes of FCC and other litigation, and the financial implications, if any, of the related-party investment and receivables.