Beasley Broadcast Group Inc (BBGI) 2017 Q2 法說會逐字稿

Good morning, and welcome to Beasley Broadcast Group's Second Quarter 2017 Conference Call. Today's conference is being recorded.

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 of 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 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 Chief Executive Officer, Caroline Beasley. Please go ahead.

Thank you, Evan, and good morning, everyone. Thank you for joining us to review our second quarter operating results. Marie Tedesco, our CFO, is with me this morning.

So let me quickly review the comps we're presenting today. Our second quarter reflects the November 1, 2016, closing of the Greater Media transaction and the divestiture of the 4 Charlotte stations in January of this year. Q2 reported numbers also include 1 month of operations of our Coastal Carolina cluster, which was sold on May 1, 2017. And it is included under continuing ops but excluded in our pro forma numbers. Reflecting these transactions at the end of the second quarter, Beasley owned and operated 63 stations in 15 markets.

So before diving into the details, let me say that I'm pleased to report that we had solid second quarter SOI growth on a pro forma basis, which resulted in over 20% year-over-year increase in pro forma SOI margins. Overall, pro forma revenue declined partially due to the lack of political and a decrease from national. But this was more than offset by operating efficiencies, resulting in a 17.5% increase in second quarter SOI. In addition, we reduced debt by $15 million during the quarter, and we've reduced debt by $43 million year-to-date, and a total of $45.3 million since the closing of the Greater Media transaction.

So we achieved solid SOI growth. The second quarter remained a transitional period as we move forward with our integration of the Greater Media stations. We continue to see improvements in these markets and remain confident that the integration will be completed within the targeted 12 to 18 months after closing.

As reported on our first quarter call in May, we expected second quarter revenue to be down mid-single digits. And while second quarter revenues dipped slightly on a pro forma basis, I'm happy to report that several of our clusters reported year-over-year revenue increases.

On an actual basis, the 119.7% increase in second quarter revenue reflects the addition of the Greater Media stations and the divestiture of the stations that I mentioned earlier. Pro forma, as if we owned all the stations as of April 1, 2016, revenue was down 3.3% or $2 million, of which about 400,000 of that came from political.

During the quarter, the Philly cluster revenue declined again on a pro forma basis as we continue to address and overcome some of the sales issues, which weighed on this cluster postclosing. And that resulted in second quarter revenue down 7.6% compared to the first quarter decline of 13%. So we are seeing some progress in the Philly cluster.

Our Tampa cluster also recovered somewhat in Q2 with revenue down 3% compared to a decline of 18% in Q1. On an actual basis, the 119.7% increase in consolidated net revenue drove a 100% increase in second quarter SOI.

We also recorded a decrease against the Greater Media estimated gain of about $2.4 million due to fluctuations of the stock price related to an ongoing working capital adjustment, and we recorded a gain from the sale of the Coastal Carolina cluster of approximately $4 million. In addition, we recorded a gain due to the termination of a certain Greater Media medical and life insurance benefit. And then finally, we incurred $1 million onetime severance charge related to terminations within the Greater Media market. This onetime $1 million severance charge is included in our station operating expenses.

So with that, I'm going to turn it over to Marie to dive into the details a little more.

Thanks, Caroline. I'm going to start with a review of the second quarter operating results and then we'll talk about some balance sheet items.

Reflecting the addition of the Greater Media stations, actual net revenue increased $33.2 million or 119.7% to $61 million. And station operating expenses for the quarter increased 127.6% or $25.2 million, resulting in a 100% increase in station operating income to $16.1 million. The rise in operating expenses is a direct result of the addition of the Greater Media stations and includes approximately $1 million of the onetime severance expense from terminations in some of the Greater Media markets.

On a pro forma basis, our second quarter revenue decreased approximately 3.3% or $2 million. Pro forma operating expenses were down approximately 9.1% or $4.4 million. Excluding the onetime severance, our expenses would have been down 11%. Pro forma SOI is up 17.5% or $2.4 million year-over-year, reflecting the slightly lower revenue offset by the reduced expenses from the ongoing realization of synergies. Reflecting the operating synergies, Q2 pro forma SOI margins reached 26.6%, up from 21.9% in the year-ago period.

Looking at Beasley legacy, our clusters in Fayetteville, Wilmington, Fort Myers and Las Vegas experienced revenue increases compared to Q2 '16; while Tampa, St. Petersburg and Augusta reported low single-digit revenue decline. Overall, the Beasley legacy stations saw flat revenue, and when combined with a 2% reduction in operating expenses, resulted in an SOI increase of 3.6%. On a consolidated basis, second quarter '17 SOI margins were 26.4% compared to 29% in the year-ago period. Our goal and expectation is to build SOI margins back into the low to mid-30% range.

In the Greater Media markets, revenue declined approximately 5.2%, which was in part related to a lack of national revenue, including nonrecurring political revenue. We saw revenue declines in Boston, New Jersey and Philadelphia, whereas Detroit, again, generated double-digit revenue increases.

The revenue declines were more than offset by the company's expense reduction and efficiency initiatives, and the Greater Media markets' operating expenses decreased 12.9%. This equated to SOI increasing an impressive 35% on a pro forma basis, which we believe begins to highlight the value this transaction is creating for Beasley.

According to Miller Kaplan, our combined clusters declined 1.6% compared with the overall markets, which increased 0.6%. This was mainly attributable to underperformance in national revenue, where our clusters on a combined basis were down 8.8% compared with the combined markets being down 5.4%.

The national underperformance was particularly noticeable in Philadelphia, Tampa and Charlotte. Now conversely, we outperformed our markets in terms of revenue growth in both Fort Myers and Detroit with Detroit generating revenue increases of 20% compared to the Detroit market, which was up 4%.

Corporate G&A expenses rose 65.7% or by $1.5 million during the quarter to $3.8 million primarily due to an increase in corporate staff and new employment agreements, including some retroactive compensation. Stock-based compensation increased $0.6 million for the quarter to $0.7 million.

Our effective income tax rate after the Greenville-New Bern-Jacksonville divestiture gain, the gain on the termination of the postretirement plan and the change in the fair value of the working capital adjustment was approximately 25.1% for the 6 months ended June 30. And we paid $1.7 million in taxes for the first 6 months of this year.

Total second quarter interest expense increased approximately $3.9 million year-over-year to $4.8 million, reflecting the year-over-year increase in borrowings related to the Greater Media transaction as well as an increase in borrowing costs.

With the financing of the Greater Media acquisition, our total outstanding debt as of June 30, '17, was $225 million. This compares to $240 million as of March 31, '17. We made voluntary repayments against our debt in second quarter of $4 million. We also applied 100% of the Greenville-New Bern-Jacksonville divestiture proceeds to debt repayment, this resulting in a total of $15 million debt reduction during the quarter.

Our LTM consolidated operating cash flow, as defined in the credit agreement, was $52.6 million, resulting in a leverage ratio of 4.28x as of June 30. This compares to 4.28x as of March 31. 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, net leverage as of June 30, '17 was 3.96x with a maximum leverage covenant of 6.25x.

We ended second quarter '17 with cash on hand of $17 million, and the company spent $600,000 in CapEx in the second quarter '17 compared to $713,000 in the prior year second quarter. Total CapEx spend for year-to-date was $1.6 million compared to $1.4 million year-to-date 2016.

With that, I'll turn it back to Caroline.

Thank you, Marie. After completing our second full quarter with the addition of the Greater Media markets, we are beginning to see the benefits this transaction brings to our company in terms of scale and opportunity. For example, on July 24, our WRIF Detroit morning show, Dave & Chuck the Freak, can now be heard on our Boston station, WBOS. This is our first foray into syndication, and I look forward to updating you on the progress we're making.

We recognize that there is upside to the overall revenue performance, and we are actively developing new revenue initiatives. We're focused on the remaining 2 quarters this year, but we're also looking ahead to opportunities in 2018 as we near the completion of the Greater Media integration. In looking into 3Q, we continue to see some headwinds on the national front and we're currently pacing flat on a pro forma basis for the company.

Our focus will continue to be on protecting and growing our brands, and we will continue to invest in them as needed, whether that be in research or marketing. Throughout '17 and looking into '18, we will continue our strategic priorities of achieving or exceeding the synergy targets and integration goals for the newly acquired stations, reducing debt leverage in our cost of capital and returning value to our shareholders through our quarterly cash dividend and further diversifying our revenue streams.

In closing, we are excited about the future of radio and our company. We're becoming more and more agnostic to the content delivery platform with the emphasis on delivering entertaining content, which is a core focus of our company while incorporating our Beasley best philosophy in all that we do. So on behalf of our dedicated employees, thank you very much for participating today.

We did receive a few questions. I'm going to hand it over to Marie to review those.

Thanks, Caroline. The first question that we received was, if we could touch a little bit about the estimate of the total amount of cost synergies.

And so I'm happy to report that we expect our total synergies in 2017 to be approximately $10.8 million. Year-to-date as of June 30, we have had the benefit of approximately $5.9 million in synergies so far.

Another question was to touch on the categories and geographic strengths and weaknesses.

As far as our revenue categories, in second quarter, we were down in our top 5 categories. Looking ahead at third quarter, we are pacing up in our top 2 categories, which are consumer services and retail. We are seeing some downward pacings in the next 3 categories, which are auto, entertainment and consumer products. Do you want to talk about geographic strength?

Well, you had mentioned it in your comments. So just in terms of geography, geographic strength, we saw growth in Fayetteville, Fort Myers, Las Vegas and Detroit.

Great.

For second quarter.

Thank you. And the final question is, how much opportunity might there be as other groups divest properties to meet financial obligations?

So at this point, that's speculative at this nature. But we always will look at opportunities as they become available to see if it makes financial sense for our company. I mean, we've been very vocal about returning value to our shareholders, whether that be through dividends or finding other ways to grow our company.

Great. Thank you. And that concludes the questions we have received.

So thank you, again, for participating on the call today. And should you have any questions, please feel free to call Marie or myself.

Thank you.

And this does conclude today's presentation. Thank you for your participation. You may disconnect.