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Edited Transcript of BBGI earnings conference call or presentation 29-Apr-19 3:00pm GMT

Q1 2019 Beasley Broadcast Group Inc Earnings Call

NAPLES May 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Beasley Broadcast Group Inc earnings conference call or presentation Monday, April 29, 2019 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 the Beasley Broadcast Group's First Quarter 2019 Conference Call.

Before proceeding, I would like to emphasize that today's conference call and the 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 proceeded in accordance with GAAP can be found in this morning's news announcement and on the company's website.

I would also remind listeners that following its completion, a replay of today's conference 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 Pressroom sections of the site.

At this time, I'd like to turn the conference over to your host, Beasley Broadcast Group 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, and good morning, everyone. Thank you for joining us to review our first quarter operating results. I'll review several quarterly highlights, after which I will hand it over to Marie who is going to provide you more additional details on the quarter. But looking at first quarter, we increased revenue by 4.6% on a year-over-year basis. As with last quarter, the revenue growth was broad-based and was driven by our Augusta, Boston, Philly, Tampa and Wilmington clusters. It was also driven by the September '18 acquisition of XTU and last year's acquisition of the event company in Tampa. First quarter was also a busy quarter for our Boston cluster, which includes 98.5 The Sports Hub as the New England Patriots won the Super Bowl, which we all know, which contributed to the year-over-year increase in the quarter. As reviewed before and as wisely reported in the industry, we discontinued our relationship with USTN in 2018. However, in last year's first quarter, we realized approximately 825,000 of USTN traffic revenue and, of course, we did not have that revenue this year. As such, excluding that revenue, our net revenue would have increased 6.2%. On a pro forma basis, revenue for the quarter was essentially flat. Overall, our pro forma spot revenue increased year-over-year by 1%, and this was led by our national team with national increasing double-digits for the quarter. So kudos to our national team, our national rep and everyone who participated in that increase. Our revenue performance was consistent with the Q1 guidance we provided in February, both on an actual and pro forma basis. Our portfolio moves and margin focus enabled us to increase reported first quarter SOI by 6.2%. While the integration of XTU is exceeding our internal projections, we did see a slight year-over-year revenue decline in the quarter and that's primarily related to corporate pushdown revenues under the prior ownership.

The return of the heritage country station is a great complement to our existing Philly cluster and has strengthened our competitive position in the market as our Philly cluster revenue grew almost 2% on a pro forma basis. The addition of XTU also quickly moves us closer to our 30% market revenue share with our Philly cluster garnering 29.2% revenue share in Q1 and this is up from 27% in Q4.

Finally, I want to address that on a reported basis our free cash flow for the first quarter was a negative $214,000. The variance is directly related to a pension benefit of $1 million in the prior year, about $1 million increase in cash interest expense and this is related both to the XTU acquisition as well as higher interest rate when comparing to last year. We saw higher cash taxes and about a $700,000 increase in CapEx. In addition, we received $3 million in cash as a result of a terminated license agreement and this $3 million is not included in the free cash flow calculations. We intend to allocate our free cash flow to reduce debt, continue to return value to our shareholders and to invest in our facilities, operations, content and revenue diversification when and where we see opportunities to enhance long-term shareholder value.

And with that, I'm going to hand it over to Marie, who is going to take a deep dive into the quarter.

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

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Thanks, Caroline. I will now review first quarter results and our balance sheet. So first quarter net revenue increased 4.6% or $2.5 million to $57.7 million and we saw year-over-year net revenue increases in our Augusta, Boston, Tampa, Philadelphia and Wilmington clusters. And as Caroline mentioned, the year-over-year comparison was impacted by approximately $826,000 of USTN revenue in first quarter '18, which would have been equivalent to an additional 1.5% growth in net revenue of first quarter '19.

Station operating expenses for the quarter rose 4.3% to $47.5 million and is mostly related to the addition of WXTU and our digital content and other strategic growth initiatives. As a result, the 4.6% rise in net revenue generated a 6.2% increase in station operating income to $10.2 million.

Looking at our revenue categories for first quarter on an actual basis, consumer services remained our largest revenue category, representing about 26% of our revenue, and we generated almost a 6% year-over-year revenue increase in this category during the quarter. Our consumer services category includes advertisers, such as medical, dental, construction, insurance, real estate and education. Our second largest category in first quarter was retail, which was up 8%. Entertainment was our third largest category for the quarter with a 1% year-over-year revenue increase. An auto, our fourth largest revenue category, was also up 1%. These top 4 categories account for approximately 70% of our total net revenue. And in aggregate, net revenue from the top 4 categories was up 4% in first quarter '19 over first quarter '18.

On a same-station basis, consumer services increased 2.5%, retail was up 3%, entertainment was down 1.5% and auto was down 3%.

Corporate G&A expenses for the quarter increased $1.7 million compared to the same quarter a year ago to $5.0 million. While the increase seems substantial, it reflects a 1.2% or $60,000 increase from fourth quarter of 2018. Breaking it down further, the year-over-year increase in first quarter corporate G&A is primarily related to a prior year nonoperating pension benefit of $1 million as a result of the termination of that pension plan. Also, $140,000 of expenses related to the Checkpoint and Esports investment and approximately $200,000 of digital investment as we continue to build out our digital platform in our markets, including our content initiative, which Caroline will provide more color on in a moment.

So for the quarter, approximately $340,000 of our corporate expenses relates to our Esports and digital investments. The increased expenses largely reflect our ongoing transformation from a pure-play radio company to a diversified audio-focused media and digital entity. These investments will be ongoing throughout the year and bring us an expanded digital, digital content and corporate staff, including the addition of a Chief Digital Content Officer, Format Content Editors, a VP of Esports Sales and several digital back-end fulfillment positions. Now we will be breaking out the expenses between regular corporate expenses and investment initiative expenses as we report the remaining quarters in 2019. And as previously mentioned, we expect our 2019 Esports investment and digital initiative to be around $2 million to $2.5 million for the year.

Noncash stock-based compensation was down 5% to $584,000 in first quarter and our income tax expense for the quarter was $167,000. Our effective tax rate for the quarter was 31.9% as certain expenses are not deductible for tax purposes. Reported first quarter 2019 operating income was approximately $6.8 million compared to $396,000 in the year ago quarter. The year-over-year increase reflects a gain on dispositions in the current year of $3.5 million as well as a $4.4 million charge in the prior year due to the change in fair value of contingent consideration.

Total fourth quarter interest expense increased around $1 million year-over-year to $4.6 million, reflecting the $35 million of additional borrowings for the WXTU acquisition and an overall increase in borrowing costs.

Net income in first quarter '19 was $1.4 million compared to a loss of $3.2 million in 2018, with a change largely reflecting the first quarter '19 gain and the first quarter '18 charge as previously reviewed as well as year-over-year changes in interest expense and taxes.

We ended the quarter with cash on hand of $16.3 million. Reflecting the late third quarter '18 completion of the WXTU acquisition, total outstanding debt at March 31, '19 was $249.5 million compared to $252 million as of December 31, 2018. In the second quarter today, we have already reduced debt by an additional $1.5 million and we intend to use our free cash flow to continue to make voluntary prepayments throughout the remainder of second quarter and the balance of 2019.

Our LTM consolidated operating cash flow, as defined in our credit agreement, was $53.3 million. Our credit agreement allows the company to receive the benefit of up to $20 million of our total cash on hand in calculating net leverage. So reflecting our March 31, 2019, balance sheet cash, net leverage was 4.38x compared to a maximum leverage covenant of 5.75x. And that compares with 4.34x on the same basis at December 31, 2018.

The company spent approximately $1.8 million in CapEx for the quarter and that compares with $1.2 million in first quarter of 2018.

As Caroline previously noted, for the quarter, Beasley Broadcast Group's free cash flow decreased from $2.7 million in the prior year to a negative $200,000 in the current quarter. The variance is directly related to a pension benefit of $1 million in the prior year, $966,000 increase in interest expense due to the XTU acquisition and increased borrowing cost as well as the $668,000 increase in capital expenses, which includes a $250,000 for a transmitter replacement that will be reimbursed under our insurance policy.

Please note that the first quarter free cash flow is not indicative of the run rate we expect to achieve as we move through 2019. Overall, we expect full year free cash flow for the remaining 3 quarters of 2019 to be positive and move us closer to 2018 level.

As has been our practice, we will continue to allocate our free cash flow to pay down debt, return value to our shareholders through our quarterly cash dividend payments and to complete select strategic accretive transactions and to reinvest in our stations where needed for research, promotion, sales and other initiatives that leverage our station's brand, content and strong market position.

And with that, I'll 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. And continuing our focus on growing and leveraging our core local audio operations to diversify our revenue streams, I'll provide an update on our initiatives where we have invested to expand our platform to set the stage for future growth. As we previously reviewed, we are in the midst of aggressively rolling out a digital expansion and transformation across the company. We're working hard to diversify our business platforms and revenue streams to further participate in consumer and advertiser preferences. Given the short-term impact this transition is having on our reported free cash flow, it's important to share our vision and initiatives that we believe will strengthen and diversify the company and create new long-term shareholder value. The first driver of this effort is content marketing monetization as we seek to leverage of our live and local DNA across all of our digital platforms, while increasing efficiencies by maximizing resources, minimizing redundancies and delivering excellence across every digital platform. For the first part of the year, our focus has been on introducing our national content team. This new team of format focused and credential digital editors hit the ground running in late January and were trained and in place to cover major Q1 events. Today, this group generates about 11% of the company's digital traffic and we anticipate this to accelerate now that the new team is fully onboarded and publishing nationally relevant content designed to reinforce our leadership position in our markets across the music industry and in the pop culture universe. A second strategic initiative is expanding our local market commitment to digital content excellence. We are in the midst of expanding our live and local coverage harnessing the influential connections that our on-air talent enjoys with their audiences and extending this far more deliberately than we have in the past. This includes a much bigger commitment to producing local digital content, aligning the interest and passions of our DJs with our audiences to deliver more engaging digital content that allows for deeper connections to our local market fans. We've successfully deployed this digital-centric approach with several of our stations and several markets and the initial sampling of this initiative has been generating exceptional growth in traffic, page views and DJ participation. We believe this approach is crucial to growing our leadership positions across all of our markets and of course, monetizing some of our largest digital assets. Next, we are leveraging a natural extension of our nearly 60 years of audio expertise and podcasting. We are presently focused on growing our biggest franchises and downloads, which include a targeted 35 podcasts delivering approximately 3 million downloads per month. We're working to better understand what fueled our best successes from a content perspective and the marketing levers that can propel downloads, listens and loyalty. From a monetization standpoint, we've recently begun to bundle our top podcasts and we are presenting sponsorships to our larger advertisers.

Moving on to the Esports arena where there is tremendous overall growth and momentum and where we've have established several footholds that we believe put us on the ground for this emerging industry. We recently launched Beasley XP, our new Esports division with a strategic focus on creating and distributing multi-platform content, targeting Esports and gamers affording Beasley access to the non-radio-orientated Gen Y and Z demos. During the quarter, we established an exciting partnership with Detroit Renegades. They are considered one of North America's premier multi-gaming Esports franchises. We are very honored to be their partner. This initiative dovetails with our initial venture into this space late in '18 with Beasley XP Checkpoint team where we are in the process of building out this brand through radio, Twitch and a growing number of podcasts being distributed via bPod, Apple, Google and Spotify.

Overall, we've got a lot on our plate, things are moving in the right direction and we look forward to providing updates on our progress with these exciting new initiatives.

Moving on and looking into '19, actual Q2 revenue is pacing up low, mid-single digits as April rose mid-single digits, May is pacing flattish and June is pacing up. We are pacing slightly up on a same-station basis for the quarter and I will remind everyone that we did receive $325,000 in political revenue in the second quarter, which may impact our pacing going forward. We are focused on reducing our leverage and we've already done so from the time of the XTU acquisition and we expect further progress on this front. We're managing our capital structure and we will continue to return capital to our shareholders.

While our current valuation in no way, and let me repeat, in no way represents the value of our assets, operations and future. We are highly appreciative of the support we receive from analysts and investors who know us well and have taken the time to understand the value of our long-term audio experience and how they can be leveraged into new -- into today's new and exciting platforms and distribution channels. Our equity represents a strong free cash flow and dividend yield and we are committed to the interest of all of our shareholders, advertisers and stakeholders. We have a terrific foundation for a great future. And we look forward to keeping you apprised of our progress.

So with that, that concludes our comments. We do have a few questions that were sent in that Marie is going to review.

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Questions and Answers

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

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That's right. Thanks, Caroline. Yes, we have received several questions and the majority of those questions have been answered within this call today. We will review a few questions that have not been addressed yet.

So the first question I will address is, what were your best and worst performing categories?

So by percentage-wise and also by dollar-wise, the best-performing category was not one of our top 4 categories, rather it was fast food. Now the worst-performing categories by percentages was beverages and also consumer products, which were down about the same percentage-wise and dollar-wise, we were -- our worst-performing category was consumer product.

Second question is, what is the impact of USTN in second quarter?

So as Caroline and I both reviewed, our USTN impact for first quarter was $826,000. For second quarter, it was $675,000. Again, I will remind you that the total impact for Beasley was approximately $1.7 million and this was all written off in third quarter.

Another question is, how should we think about margins in the Esports segments?

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

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Yes. So let me just say that for Esports, podcasting and our digital content initiative combined, Marie has outlined before the total expense expected impact for the year. And based on that, we review -- we believe that these initiatives and reviewing them as startups will have about 1% to 2% impact on our margin.

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

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Great. And the final question is, you had mentioned in your release about your digital content, can you give us a little bit more information on that?

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

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Sure. So after our remarks, I think we went into a lot of detail about our digital content initiatives and we're very excited about where we're going, especially based on the initial result. And in addition to that, digital content account for about 30% of our digital revenue. So we are basically fishing where the fish are and we see that there is great opportunity to grow revenue in this area.

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

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Great. And that's all the questions we have.

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

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All right. Well, everyone, thank you very much. And if you have any questions, please feel free to call Marie or myself. Thank you.

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

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Thank you.