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Edited Transcript of BBGI earnings conference call or presentation 11-Feb-19 4:00pm GMT

Q4 2018 Beasley Broadcast Group Inc Earnings Call

NAPLES Feb 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Beasley Broadcast Group Inc earnings conference call or presentation Monday, February 11, 2019 at 4:00:00pm 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 First 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 most recent annual report on Form 10-K, as supplemented by quarterly reports on Form 10-K. Today's webcast will also contain a discussion of certain non-GAAP financial measures within the meaning of Item 10 of Regulation S-K. A reconciliation of these non-GAAP measures with the 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 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 Pressroom sections of the site.

At this time, I would like to turn the conference over to your host, Beasley Broadcast Group's Chief Executive Officer, 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, Sandy, and good morning, everyone. Thank you for joining us to review our solid 2018 fourth quarter operating results. In a moment, I'll review the quarterly highlights. After which our CFO, Marie Tedesco, will provide more detail of the fourth quarter results.

I'd ask you to please refer to today's earnings release for details on the stations included in actual results for 2018 and 2017. So we ended 2018 strongly as we increased actual fourth quarter revenue by 29.1%. The revenue growth was broad-based, with increases at 10 of our 13 clusters, and we also benefited from our September '18 acquisition of XTU, the December '17 Boston station swap and approximately $3.9 million of fourth quarter growth political revenue.

The revenue increase for the quarter on a pro forma basis was an equally impressive 9.9%. And excluding political revenue, pro forma revenue rose 5.1%, which demonstrates the strength of core advertising in our markets during the quarter. Our strongest revenue-performing clusters for the quarter were Philadelphia, Boston, Las Vegas and Tampa.

Actual reported fourth quarter SOI rose 37.2% to $20.6 million as we increased our margins to 27.3% from 25.7% in the year-ago quarter. We achieved the strong SOI growth despite the increase in quarterly station operating expenses as a result of the XTU acquisition and operations of BZ.

I'm delighted to report that the integration of XTU has exceeded our internal projections and expectations. As the station posted impressive fourth quarter growth, the station revenue is growing 13.8% and SOI increasing north of 30%. The return of this heritage country station is a great complement to our existing Philly cluster and have strengthened our competitive revenue position in the market as our Philly cluster grew fourth quarter revenue 14.6% on a pro forma basis. The addition of XTU has quickly moved us closer to our goal of 30% market revenue share, with Philly cluster garnering 27% in the fourth quarter and 28% on a pro forma basis for the full year according to Miller Kaplan.

Finally, with respect to our most important financial metrics, our free cash flow for the quarter increased 33.9% over the same period in '17 to $8.6 million. In addition, our initiative to significantly broaden and diversify our reach, scale, revenue and free cash flow through accretive transactions and select investments are delivering the anticipated results as our free cash flow rose from $14.9 million in 2015, which is the last full year prior to completing the Greater Media transaction to $25.5 million in the 2018 full year. So that's an increase of a little over $10 million in the last 3 years. With about 27.5 million diluted shares outstanding and our current share price below $5, our free cash flow yield is north of 20%.

So with that, I'm going to turn it over to Marie, and she's going to give you a deeper dive into the quarter.

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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 fourth quarter and full year operating results, and then I will review some balance sheet items. Fourth quarter net revenue increased 29.1% or $17 million to $75.6 million, including year-over-year net revenue increases in our Tampa, Philadelphia, Detroit, Boston, Fort Myers, Las Vegas, Augusta, Charlotte, Wilmington and New Jersey clusters. Political revenue accounted for around 5.6% of that increase, showing that our platform building and margin initiatives, combined with the strength of core categories, drove our fourth quarter growth. Fourth quarter pro forma revenue increased 9.9% and pro forma revenue, excluding political, increased 5.1%.

Station operating expenses for the quarter rose 26.3% to $54.9 million, largely related to our expanded platform and strategic growth initiatives, including the Boston asset swap and the addition of WXTU-FM in Philadelphia. As a result, we delivered a 37.2 increase in station operating income to $20.6 million compared to $15 million in the year-ago period and an 18% SOI increase on a pro forma basis.

Looking at our revenue categories for fourth quarter on an actual basis. Consumer services remains our largest revenue category, representing about 24% of our revenue, and we generated a 42% 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, legal and education.

Our second largest category in fourth quarter was retail, which was up 30%. Entertainment was our third largest category for the quarter, and we generated a 19% year-over-year revenue increase. While auto, our fourth-largest revenue category, was up in the low 20% range.

On a same-station basis, consumer services increased 15%, retail was up 8%, entertainment grew 10% and auto was flat. Corporate G&A expenses increased $765,000 during the fourth quarter to $4.5 million, reflecting our continuing investment in digital, digital content and corporate staff, including the addition of Chief Digital Content Officer and a VP of Esports sales, both of whom previously proved themselves in consulting roles and have now joined us full time. These investments support our growing digital initiative and our ongoing transformation from a pure-play radio company to a diversified audio-focused media and digital entity.

Noncash stock-based compensation decreased $64,000 for the quarter to $167,000, and we paid approximately $656,000 in cash taxes for the quarter and $929,000 year-to-date. Our effective tax rate increased in the quarter, primarily due to certain expenses that are not deductible for tax purposes and an increase in valuation allowance, mostly related to unused operating losses and an increase in the fair value of contingent consideration. As mentioned, in fourth quarter, our cash taxes were $656,000, while our income statement book taxes were $7.8 million compared to the year-ago period where we had a tax benefit on the income statement of $54.5 million.

Reported fourth quarter 2018 operating income was approximately $13.9 million compared to $23.3 million in the fourth quarter of '17. The year-over-year decline reflects several onetime benefits realized in the 2017 fourth quarter, including an $11.8 million gain on exchange from the Boston station swap and a $2.4 million gain from the change in the fair value of contingent consideration.

Excluding these unusual gains, Beasley's fourth quarter 2018 operating income increased approximately 53% year-over-year or by approximately $4.9 million. Net income in fourth quarter '18 was $2.1 million compared to $69.7 million in 2017, with a decrease coming from a $4 million loss on modification of debt in 2017 and a tax benefit due to the change in the federal tax rate in the year-ago quarter. Total fourth quarter interest expense increased approximately $400,000 year-over-year to $4.5 million, reflecting the $35 million of additional borrowing for the WXTU acquisition.

We ended the quarter with cash on hand of $13.4 million. And reflecting the late third quarter '18 completion of the XTU transaction, total outstanding debt at December 31, 2018, was $252 million compared to $253 million in the prior quarter. Our LTM consolidated operating cash flow as defined in the credit agreement was $55 million, resulting in a leverage ratio of 4.6x as of 12/31/18 compared to 4.8x as of 9/30/2018.

Our credit agreement allows the company to receive the benefit of up to $20 million of our total cash on hand in calculating net leverage and reflecting our balance sheet cash of $13.4 million, net leverage at December 31, 2018, was 4.34x compared to a maximum leverage covenant of 6.0x. And that compares with 4.62x on the same basis at September 30, 2018.

We continue to prioritize capital allocation towards leverage reduction while also paying a quarterly cash dividend and evaluating other strategic initiatives and accretive acquisitions that can enhance shareholder value. The company spent $863,000 in CapEx for the quarter compared to $1.2 million in the year-ago quarter and $4.2 million for the full year of 2018 compared to $4.2 million spent in the full year of 2017.

As Caroline noted, for the 2018 fourth quarter, our free cash flow increased 33.9% to $8.6 million, and free cash flow for the full year increased 12.8% to $25.5 million. These metrics confirm the progress we are making as a result of our focus on growing free cash flow.

Before I turn the call back to Caroline, let me spend a couple of minutes providing some guidance on several key financial metrics for 2019 that will help those modeling our performance. All of this commentary is subject to the risks and uncertainties associated with forward-looking statements as discussed in our filings with the SEC and reflects all completed and announced transactions and the recent executive appointments.

Looking first at the income statement. We expect full year 2019 corporate overhead to be approximately $18 million, with the increase from 2018 largely related to the recent executive appointments that I mentioned earlier. For free cash flow calculation, including in this figure is approximately $2 million of noncash stock-based compensation. We forecast 2019 total interest expense of $18 million to $19 million, including the amortization of loan fees. And this estimate assumes one rate increase during the year. Of the estimated 2019 interest expense, between $16 million and $17 million is cash interest expense.

Noncash depreciation and amortization expense will be between $7 million and $8 million in 2019. And with respect to taxes, we will be a full taxpayer in 2019.

Finally, we expect 2019 CapEx to be approximately $6 million. As has been our practice, we will continue to allocate our free cash flow to pay down debt, return value to shareholders through quarterly cash dividends, to complete select strategic, accretive transactions and to reinvest in our stations for research, promotion, sales and other initiatives that leverage our station's brand, content and strong market position. The fourth quarter results reflects the value of this approach in terms of growing our operating results and strengthening our position in our market.

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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Okay. Thank you, Marie. In addition to our focus on growing our core local audio operations, we remain committed to continuing our strategy of diversifying and expanding our platform. In that regard, we continue to make progress in diversifying our revenue with 15.6% of total '18 revenue coming from sources other than advertising slots on terrestrial radio.

Our local stations and content creation capabilities have established strong brands in their markets and, in many cases, are attractive to consumers and markets beyond where our stations are based. So we have been and intend to further participate in the ever-expanding number of distribution channels for our unique audio content, whether that be streaming, smart speakers, cars, mobile devices, digital platforms, like Amazon's Twitch for some of our sports content, podcasts or live events. Beasley has a very long record of successfully driving strong growth in brand and ratings, and we've consistently adapted to changing consumer preferences in terms of when and how they access our content.

So consistent with this focus, throughout '18 we continued to execute on our integration strategy, focused on premium local programming to support our goals of ratings and market leadership at acquired stations while remaining opportunistic in further building our scale and revenue diversification to drive growth. Our strong free cash flow has enabled us to complete strategic investments in our broadcast, digital, technology and other platforms; reduce leverage and pay dividend.

During the year, we completed a strategically complementary and accretive acquisition of XTU, which significantly strengthened our competitive position and revenue share in Philly. We also completed several smaller acquisitions, including a Tampa-based event company and a nationally syndicated Esports show and podcast. And these were funded with cash on hand.

We also forged a relationship with SpokenLayer, the #1 voice provider to Amazon and Google. SpokenLayer handles all syndication and distribution to major audio platforms, including Amazon Alexa, Google Home, Apple Podcasts and others.

Also during the year, we successfully launched Phase 2 of our mobile apps and our data attribution initiative, Beasley Analytics, in all of our markets as well as bPod Studios, which distributes compelling on-demand audio and original podcast content. These initiatives reflect our commitment to deliver great content to our listeners anywhere, anytime on any device while further demonstrating to our advertisers the incredible value of radio.

So we had a really busy year back in 2018. So looking into 2019, first, in January, we announced a multiyear rights extension with the Super Bowl Champions, the New England Patriots on 98.5, The Sports Hub. And I will say that this station was just named the #1 sports station in the United States, along with Mike Thomas being named the #1 sports PD in the United States. So we're very thrilled about this ongoing partnership with The Patriots and Sports Hub.

As far as pacings, actual Q1 revenue is pacing up low single digits as January rose low single digits, and Feb and March are pacing up low single as well. We're pacing flat to slightly down on a same-station basis for the quarter. And throughout the year, we will remain hyper-focused on driving ratings and revenue share in our existing markets toward or over our goal of 30% of total market revenue.

We also remain committed to reducing our leverage ratios, both through growth and cash flow and voluntary prepayments. We've already reduced our leverage from the time of the XTU acquisition. And with our strong free cash flow generation, we expect to make further progress on this front throughout '19. We are managing our capital structure and leverage, and we continue to return capital to shareholders.

The capital market valuation of BBGI shares have been under pressure since mid-'18 when certain members of the Bordes family, who owned Greater Media prior to our acquisition, sold approximately 3.1 million Beasley shares. Neither the company nor any Beasley insiders sold any shares in that offering. In fact, if you were to access the filings for the time we've been a public company, you'd see that the Beasley family insiders have been net purchasers of our stock.

We believe our operating results reported today validate the prudency of our approach to managing our platform for free cash flow growth and that with our dividend yield of approximately 5%, our shares are highly attractive at these levels. We will be participating in upcoming investor meetings being scheduled over the next several months, and we look forward to meeting current and new potential investors.

Finally, with a strong balance sheet, we believe we have a solid foundation to continue pursuing a range of near- and long-term growth opportunities that create new value for our listeners, advertisers and shareholders. Our platform, market position, ratings and content are strong. And as the #1 reach medium, we remain confident in the radio industry's future and believe that Beasley's ongoing initiatives to diversify and drive revenue, productivity and efficiency across our platforms, combined with prudent management of our capital structure, is a proven formula for sustaining long-term financial growth and enhance shareholder returns.

So with that, that concludes Marie and my comments. And we did receive some questions today that Marie is going to go over.

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

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That's right, Caroline. We did receive some questions that had not been addressed on our call this morning. So I will now go ahead and review those.

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Questions and Answers

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

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The first question is on, "How is auto advertising doing?" So auto for fourth quarter was up 27% on an actual basis. On a same-station -- and it was flat on the same-station. Same-station in fourth quarter would exclude the Boston swap and WXTU as well as the New Bern divestiture. And for the full year, auto was up 5% on an actual basis, and auto was down mid-single digit on same-station for the full year. Looking into 2019, pacing for first quarter '19 as of today is flat on actual and down mid-single digits on the same-station. And in 2019, same-station would exclude WXTU.

The next question is, "Can you parse out the recurring operating expenses from investment spend in fourth quarter?" So our investment spend in fourth quarter was around $0.5 million. And with the continuing digital and Esports initiatives, we project that our investment spend for the full year of 2019 will be somewhere around $2 million to $2.5 million.

The next question is, "In terms of capital allocation, what are your main priorities headed into 2019?"

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

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So thanks, Marie. I think we've addressed it like 3 times on the call today. But as we've said, we're focused on reducing our debt. We're focused on returning capital to shareholders in the form of dividends and also, we're focused on looking at strategic transactions, and that would be towards our goal of diversifying our revenue within the company.

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

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Great. Another question is, "Where do you expect to sit leverage-wise at the end of the year?"

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

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So we've been really vocal in terms of our target leverage, and that's around 4x. So that will be our target by the end of the year.

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

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Great. And we will do one more question. "Any customer operating metrics that can be shared at this point on Beasley Analytics and bPod?"

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

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Sure. As far as Beasley Analytics, we're seeing an increase overall in website traffic for our advertisers of north of 10%. But what we're also able to get from these analytics is being able to provide a better marketing strategy for our advertisers, who are able to address creatives by using analytics. And we're able to address which day parts perform better in terms of commercials and whatnot. So we're very excited about this product that we're using. And then as far as bPod, we just launched that in December of last year. We have about 50 podcasts on that. We have about 3 million downloads, and that's made up of internally created podcasts, on-demand, [shifted] content and then also external partners.

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

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Great. Okay. And that's it for the questions of the items that were not covered in the call this morning.

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

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Well, thank you very much for your time today. And should you have any questions, please feel free to reach out to Marie or myself.

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Operator [9]

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Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.