Business context and reporting period
Beasley Broadcast Group, Inc. operates radio stations and provides radio-station management services. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2011; results are subject to seasonal fluctuations and are not necessarily indicative of full-year performance.
Financial performance and position
| Metric | Three months ended September 30, 2011 | Nine months ended September 30, 2011 |
|---|---|---|
| Net revenue | $24.0 million | $72.5 million |
| Operating income | $5.6 million | $17.0 million |
| Operating margin | 23.5% | 23.5% |
| Net income | $2.3 million | $6.7 million |
| Net margin | 9.8% | 9.3% |
| Diluted earnings per share | $0.10 | $0.30 |
| Cash provided by operating activities | Not presented for the quarter | $15.6 million |
| Capital expenditures | Not presented for the quarter | $1.0 million |
At September 30, cash and cash equivalents were $15.1 million, total current assets $36.2 million, and current liabilities $15.8 million (current ratio approximately 2.3). Total debt was $132.6 million, down from $142.0 million at December 31, 2010; cash less total debt was approximately $117.5 million. Stockholders’ equity was $70.2 million. The company had $10.2 million of remaining revolving-credit commitments. Its credit facility bore LIBOR-based rates of 3.75% at September 30 and matures June 30, 2015.
Changes versus prior comparable periods
- Third-quarter revenue declined 1.0% year over year, while operating income declined 4.8%; net income rose 12.6% to $2.3 million, primarily reflecting a $0.8 million reduction in interest expense. Miami-Fort Lauderdale advertising revenue fell approximately $0.4 million.
- Nine-month revenue increased 2.2%, operating income increased 13.0%, and net income increased 44.2% to $6.7 million. Management attributed revenue growth mainly to a $1.1 million increase in Philadelphia advertising revenue; station-cost reductions included approximately $0.6 million in Miami-Fort Lauderdale.
- Nine-month operating cash flow rose to $15.6 million from $11.7 million. Cash used in financing increased to $9.5 million, principally reflecting $9.4 million of debt principal payments. Cash increased by $4.4 million during the period.
- Interest expense declined 30.4% in the quarter and 21.2% for the nine-month period, reflecting debt repayments and the expiration of an interest-rate swap. All remaining swaps expired during the third quarter; the company no longer had derivative instruments.
Outlook, risks, and unusual items
- No specific revenue, earnings, or other financial guidance was provided. Management said it believed liquidity and capital resources would be sufficient to meet obligations for at least the next 12 months.
- The company was in compliance with all credit covenants at September 30. Reported total-debt, interest-coverage, and fixed-charge-coverage ratios were 4.64x, 3.54x, and 1.7x, respectively. Covenant limits tighten over time, including a maximum debt ratio of 4.75x from January 2012 and minimum interest and fixed-charge coverage ratios of 2.0x and 1.1x, respectively. A breach could accelerate debt maturity.
- The credit facility is secured by substantially all company assets and guaranteed by subsidiaries; maximum undiscounted subsidiary guarantees were $132.6 million. The company cited the possibility that weak results or unexpected expenses could impair borrowing availability or create additional liquidity needs.
- Debt agreements restrict dividends and share repurchases. No cash dividends were paid in the first nine months of 2011. The company repurchased 33,983 shares for $0.2 million during that period, within the stated restricted-stock withholding allowance.
- Management reported no material changes in risk factors or critical accounting estimates. It said litigation, including FCC indecency matters and private-party claims, was not expected to have a material adverse effect. Disclosure controls were assessed as effective, with no material change in internal control reported.
- Seasonality, advertising demand, competition, audience ratings, and broader economic conditions affect revenue. Management also identified unforeseen events that could require commercial-free broadcasting as a risk.
Important facts to verify
- Whether advertising conditions and the contrasting market trends—Philadelphia growth and Miami-Fort Lauderdale weakness—continued after quarter-end.
- Progress on debt reduction and the company’s ability to satisfy tighter credit covenants, especially the 4.75x leverage ceiling beginning in 2012.
- Availability of the stated $10.2 million revolver capacity, subject to covenant compliance and facility terms.
- Cash-flow sustainability and the impact of the swap expiration on interest costs, given the variable-rate debt structure.
- Potential cash needs from scheduled debt amortization, capital spending, investments, and any litigation or other contingencies.