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Edited Transcript of BBGI earnings conference call or presentation 2-Nov-18 3:00pm GMT

Q3 2018 Beasley Broadcast Group Inc Earnings Call

NAPLES Nov 13, 2018 (Thomson StreetEvents) -- Edited Transcript of Beasley Broadcast Group Inc earnings conference call or presentation Friday, November 2, 2018 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Barbara Caroline Beasley

Beasley Broadcast Group, Inc. - CEO & Director

* Marie Tedesco

Beasley Broadcast Group, Inc. - CFO

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Presentation

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Operator [1]

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Good morning, and welcome to Beasley Broadcast Group's Third Quarter 2018 Conference Call.

Before proceeding, I would like to emphasize that today's conference call and webcast will contain forward-looking statements about our future performance and results of operations that involve risks and uncertainties described in the Risk Factors section of our most recent annual report on Form 10-K, as supplemented by our quarterly reports on Form 10-Q. Today's webcast will also contain a discussion of certain non-GAAP financial measures within the meaning of Item 10 on Regulation S-K. A reconciliation of these non-GAAP measures with their most directly comparable financial measures calculated and presented in accordance with GAAP can be found in this morning's news announcement and on the company's website.

I would also like to remind listeners that following its completion, a replay of today's call can be accessed for 5 days on the company's website, www.bbgi.com. You can also find a copy of today's press release on the Investors or press room sections of the site.

At this time, I would like to turn the conference over to your host, Beasley Broadcast Group's CEO, Caroline Beasley. Please go ahead.

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Barbara Caroline Beasley, Beasley Broadcast Group, Inc. - CEO & Director [2]

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Thank you, Anne, and good morning, everyone. Thank you for joining us to review our 2018 third quarter results.

As we previously announced, during the quarter, we began to operate XTU under an LMA and then we subsequently closed on the acquisition on September 27. After a nearly 4-year hiatus, we are thrilled to welcome XTU back into the Beasley family. And our Philadelphia staff is excited as well as they are working actively to integrate this heritage country station into their cluster, thus strengthening our already strong position and revenue share in the Philadelphia market.

Reflecting our recent strategic initiatives and the Q3 outperformance of our revenue in our markets, we grew third quarter revenue by 10.6%. And let me do a quick rundown of the quarterly highlights, after which Marie will provide more detail on the quarter. As a reminder, our reported results represent actual results; and reflect the operations and results from BZ-FM in Boston, which is the market-leading sports station, in the 3 and 9 months ended September of '18; and the divested WMJX-FM in Boston in the 3 and 9 months ended September of '17. The results also reflect approximately 2 months of contributions from XTU in the 3 and 9 months ended September '18 and 4 months of contributions from Coastal Carolina in the 9 months ended September '17.

And started with -- starting with our third quarter results. As I said, we outperformed total revenue on a combined basis when combined with our markets, and we benefited from our new stations in Boston and Philly as well as year-over-year net revenue increases in 5 of our clusters. Station operating expenses rose during the quarter as a direct result of the XTU acquisition, the operations at BZ and a charge of approximately $1.7 million due to the financial issues at USTN. The USTN charge resulted in a 9.8% decline in reported SOI. However, SOI rose just under 1% on a quarter-over-quarter basis when excluding this charge.

So let me quickly review the strategic and financial rationale for the XTU transaction. We purchased Philadelphia's leading country heritage station for $38 million, of which $35 million was financed through additional borrowings from the company's credit facility, with the remaining $3 million coming from cash on hand. The transaction was based on a multiple of 7.6x estimated 2018 adjusted SOI, inclusive of synergies. The acquisition enhances our revenue and competitive position in the Philly market, as it adds another great formats and a strong female listener demographic to our cluster. The transaction was immediately accretive to the company, with September 30 latest trailing 12-month revenue and pro forma SOI, including synergies, of $9.2 million and $4.9 million, respectively. Notably, the addition of XTU increases our market revenue share to almost 30%, which is our minimum goal in every market that we're in.

In addition to the XTU acquisition, during Q3, we acquired an event company in Tampa, Florida which generates approximately $600,000 of SOI annually. This is an immediately accretive acquisition that was funded with cash from operations. The acquisition is strategic in that it allows us to use our brands and marketing abilities to further grow this already successful event company. Also, late in third quarter, we acquired Checkpoint Media, the only nationally syndicated Esports show, which reaches over 1 million weekly listeners. In addition to their own-air weekly 2-hour show, the hosts create 2 weekly podcasts. The shows are also delivered on the Checkpoint Twitch channel. This acquisition was small and was also funded with cash on hand and is a great vehicle for us to reach a coveted demo and future generations of listeners as we continue to focus on new and innovative ways to add more unique content.

In that regard, we've been working quickly to leverage and expand the reach of this in-demand content and more fully monetize it. Over the last 5 weeks, we've launched Checkpoint Daily, a daily Monday-through-Friday show; 4 additional specialty shows around Esports, gaming and pop culture; and 3 new podcasts featuring the Checkpoint personalities delving into topics of interest to take their target demo such as comics, pop culture and wrestling. Our recent station, event and Esports content acquisitions demonstrate our strategies to continue to grow Beasley media and build out our platform in a diversified strategic manner as we continue to identify accretive acquisitions and long-term investments. We plan to further leverage our disciplined acquisition track record and strong balance sheet to take advantage of other potential transactions that can further expand, diversify and strengthen our company's ecosystem.

Now moving on, I'm happy to report that we've successfully released phase 2 of our mobile apps this quarter, and our data attribution initiative has now been rolled out to all our markets. Both of these initiatives reflect our commitment to deliver great content to our listeners anywhere, anytime, on any device while further demonstrating to advertisers the incredible value of radio. As such, we see them contributing to our future operating results. We believe the attribution data derived from Beasley Analytics will emerge as a game changer in our core business given its unrivaled confirmation of how radio provides a significant lift to advertisers' websites.

We continue to invest in both people and products in our digital division, and we expect this revenue stream to realize significant growth in the coming years.

And with that, I'm going to turn it over to Marie.

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Marie Tedesco, Beasley Broadcast Group, Inc. - CFO [3]

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Thanks, Caroline.

Let's start with a review of the third quarter operating results and then I will review some balance sheet items.

Third quarter net revenue increased 10.6% or $6.2 million to $65.1 million as we saw increases in net revenue on a year-over-year basis in 5 of our clusters. Station operating expenses for the quarter rose 18.5% to $50.4 million, resulting in a 9.9% decrease in station operating income to $14.8 million compared to $16.4 million in the year-ago period. The increase in station operating expenses reflects the Boston asset swap; the addition of WXTU, inclusive of a $0.9 million of LMA fees; and a $1.7 million charge due to the financial issues at United States Traffic Network. Excluding the USTN charge, our expenses would have increased 14.4% and our SOI would be 0.7% up.

Looking at our revenue categories on an actual basis.

Consumer services remained our largest revenue category in third quarter '18, representing about 20% of our revenue, and we generated a mid-20% year-over-year revenue increase in this category during the quarter. Our consumer services category includes advertisers such as medical, dental, construction, insurance and real estate. Our second largest category in third quarter was retail, which was down low to mid-single digits. Entertainment was our third largest category for the quarter, which also showed a mid-20% year-over-year revenue increase, while auto, our fourth largest revenue category, was up in the mid-single-digit range. And we are seeing improvements in national revenues, as we outperformed national on a combined basis.

Corporate G&A decreased by $190,000 during the quarter to $3.4 million. In addition, noncash stock-based compensation decreased $84,000 for the quarter to $457,000. And we paid approximately $7,000 in cash taxes for the quarter and $273,000 year-to-date.

Reported third quarter 2018 operating income was approximately $2.7 million compared to $6.1 million in the third quarter of 2017. The year-over-year decrease primarily reflects several onetime items, including the impact of the $1.7 million USTN charge; a non-recurring $2.5 million change in the fair value of contingent consideration; and approximately $800,000 of professional expenses incurred in connection with the July share sale by certain members of the Bordes family, who owned Greater Media prior to our acquisition of the company in 2016. Excluding these onetime expenses, Beasley's third quarter operating income increased approximately 45% year-over-year or approximately $1.6 million.

Total third quarter interest expense decreased approximately $0.6 million year-over-year to $4.1 million, reflecting the November '17 refinancing of our senior debt. And this was partially offset by the addition of $35 million of borrowings for the WXTU acquisition.

We ended the quarter with cash on hand of $10 million.

Reflecting the WXTU transaction, total outstanding debt as of September 30, 2018, was $253 million compared to $220 million at June 30, 2018. Our LTM consolidated operating cash flow as defined in the credit agreement was $52.6 million, resulting in a leverage ratio of 4.8x as of September 30, 2018. This compared to 4.48x as of June 30, 2018. Our credit agreement allows the company to receive the benefit of up to $20 million of our total cash on hand in calculating that leverage. And reflecting our balance sheet cash, net leverage at September 30, 2018, was 4.62x. That compares to maximum leverage covenant of 6x and also compares with 4.18x on the same basis at June 30, 2018.

The company spent $1.2 million in CapEx during the quarter compared to $1.4 million in the prior year quarter, and the company spent $3.3 million in CapEx year-to-date 2018 compared to $3 million year-to-date 2017.

For the September 2018 quarter, excluding the $1.7 million onetime write-off of USTN, free cash flow was $7.6 million compared to $7.3 million in the year-ago period. On a year-to-date basis, free cash flow increased 4.5% to $17 million and reflecting our focus on growing free cash flow from strategic transactions, expense management and the benefit of our November '17 interest rate reduction. We will continue to allocate our free cash flow to pay down debt; return value to our shareholders through quarterly cash dividends; to complete select strategic, accretive transactions; and to reinvest in our stations for research, promotions, sales and other initiatives that strengthen our position in our markets.

And with that, I will turn it back to Caroline.

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Barbara Caroline Beasley, Beasley Broadcast Group, Inc. - CEO & Director [4]

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Thank you, Marie.

Looking ahead, actual Q4 revenue is pacing up double digits, as October rose double digits and November and December are pacing up as well. And again, this is actual. We're going to go into same station in a few minutes during Q&A. With respect to political, we had approximately $1.2 million in political in the first 9 months of the year. And we expect total political advertising to reach just north of $3 million for the year.

We're very excited about our Esports content acquisition and its future potential looking into '19. As many of you are aware, this is a space that is in its infancy, and as radio's leader in this area, we look forward to offering more exciting and engaging content.

In closing. It's important for all of us in the industry to hammer home the fact that radio remains the #1 reach medium in the U.S. We outreach broadcast and cable TV and digital for advertisers, and we provide audiences great and, in many cases, original content. These factors allow our stations to build local connections. And now coupled with the attribution technology available today, we're able to demonstrate to advertisers and brands radio's unique effectiveness in reaching audiences of all ages and demographics on a highly targeted and cost-effective basis.

As such, we remain hyperfocused on driving ratings and revenue share in our existing markets toward or over our goal of 30% total market revenue while extending our brands across multiple platforms. We also remain committed to reducing our leverage ratios both through growth in latest trailing 12 months consolidated operating cash flow and voluntary prepayments. We saw our leverage increase slightly with the XTU acquisition, and we're very mindful of bringing this down within a short period of time. We're managing our capital structure. And we continued to return capital to shareholders, as we just paid our 20th consecutive quarterly cash dividend. We also expect to continue to act on strategic opportunities to increase our scale, diversify our revenue and grow our free cash flow with a long-term point of view.

And so on behalf of our corporate and station personnel, thank you for participating. And with that, I'm going to turn it over to Marie, as she has a number of questions to ask and answer.

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Questions and Answers

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Marie Tedesco, Beasley Broadcast Group, Inc. - CFO [1]

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We have received several questions. And the first question for Caroline is how was the core advertising in third quarter on a same-station basis ex political.

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Barbara Caroline Beasley, Beasley Broadcast Group, Inc. - CEO & Director [2]

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So core advertising ex political on a same-station basis was down approximately 3%. With political, it was down approximately 2% on a same-station basis.

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Marie Tedesco, Beasley Broadcast Group, Inc. - CFO [3]

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How is core pacing in fourth quarter?

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Barbara Caroline Beasley, Beasley Broadcast Group, Inc. - CEO & Director [4]

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So core pacing ex political is currently pacing up on a low single-digit basis for same station.

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Marie Tedesco, Beasley Broadcast Group, Inc. - CFO [5]

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Also, how is political tracking relative to 2014? I will take that. So the political revenue in 2014, which was another nonelection year, was approximately $1.2 million. We expect our political to finish in 2018 just north of $3 million, which is a little bit above our initial expectations.

Another question is to how dependent are you on auto. And thoughts about auto in the next year. So auto on an actual basis was our fourth largest category in third quarter, and it was up, as we discussed earlier. And looking into 2019, at a very early stage, auto is pacing up and it is pacing to be our third largest category.

Another question is, where does your leverage stand today? And how do you think about 2019? So our net leverage for third quarter, as we discussed, was 4.62x. We're very focused on continuing to de-levering in fourth quarter and also into 2019. And we're going to do that by continuing to pay down debt, focus on growing our revenues and also managing our expenses.

Another question is if we can review the USTN financial issue. And how big was our exposure to them? And should we expect any more losses in fourth quarter?

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Barbara Caroline Beasley, Beasley Broadcast Group, Inc. - CEO & Director [6]

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Right. So USTN, we did a write-down of $1.7 million. That was our complete exposure to USTN. There should be no further write-downs for this.

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Marie Tedesco, Beasley Broadcast Group, Inc. - CFO [7]

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Thank you. And what is your options with USTN going forwards?

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Barbara Caroline Beasley, Beasley Broadcast Group, Inc. - CEO & Director [8]

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Okay. So for us, I just want to say that we, in the past, used multiple vendors. So we didn't put all of our eggs in one basket, which was the reason that we only had a $1.7 million write-down. We are working with [caps] currently on reselling some of this inventory, and we are also monetizing some of this inventory in-house as well.

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Marie Tedesco, Beasley Broadcast Group, Inc. - CFO [9]

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Great. And if you have any additional questions. We will be happy to answer those after the earnings call. And feel free to call either Caroline or myself.

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Barbara Caroline Beasley, Beasley Broadcast Group, Inc. - CEO & Director [10]

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All right. Well, thank you again for participating. And as always, as Marie said, feel free to call.

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Operator [11]

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This does conclude today's conference. We thank you for your participation. You may now disconnect.