Beasley Broadcast Group Inc (BBGI) 2017 Q4 法說會逐字稿

Good morning, and welcome to Beasley Broadcast Group's Fourth Quarter 2017 Conference. Before proceeding, I would like to emphasize that today's conference 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 report on Form 10-Q.

Today's webcast will also contain a discussion of certain non-GAAP financial measures within the meaning of Item 10 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 section of the site.

And at this time, it's my pleasure to turn the conference over to your host, Beasley Broadcast Group's CEO, Caroline Beasley. Please go ahead.

Thank you, and good morning, everyone. Thank you for joining us to review our fourth quarter and full year operating results. Marie Tedesco, our CFO, is on the call with me today. As a reminder, the fourth quarter results reflect the November 1, 2016, closing of Greater Media transaction, the divestiture of the 4 Charlotte stations last January and the May 2017 divestiture of our Greenville-New Bern-Jacksonville cluster. It also includes the Boston asset swap whereby we exchanged Magic for The Sports Hub on December 19, 2017.

This transaction included a $12 million cash payment, of which $6 million was funded with additional debt. Our ownership of Beasley includes radio broadcast rights for the Patriots, the Bruins and the Celtics, as BZ is the heritage flagship station for this teams. The swap further diversifies our market revenue from a music-formatted cluster to include spoken word with marquis content that is unique and original.

As a result, we are at the talent forefront in this market with nationally recognized personalities, including Toucher and Rich in the morning, Zolak and Bertrand in middays and Felger and Mazz in the afternoon. And I'm pleased to report that Beasley recently signed a multiyear agreement with Felger.

In addition to the station swap, we successfully refinanced our credit facility on November 17, 2017, with a $225 million term loan and we reduced interest rate 200 basis points. Reflecting these transactions at the end of fourth quarter, we owned and operated 63 stations in 15 markets and we generated $251 million of pro forma revenue in 2017.

Two years ago, at this time, we owned and operated 52 stations with approximately $106 million in annual revenue. Our platform growth over this period has been accomplished in an accretive manner with limited impact to our leverage, and the integration and results from these transactions have positioned us for solid results in 2018.

Now looking at the fourth quarter with our recent transaction and financing activity, there are a whole host of items that impacted operating and net income for the 2017 and 2016 fourth quarters, and Marie is going to dive into those in just a few minutes.

As mentioned a few minutes ago, the Greater Media transaction closed November 1, 2016, so we only had 2 months of those stations in 2016 fourth quarter compared to the full fourth quarter in 2017, i.e., 3 months. On an operating basis, the quarterly comps reflect the political revenue benefit in fourth quarter of '16. And also, in fourth quarter of '17, revenue declined in Boston. And this was related to the anticipated closing of the mega Entercom-CBS merger as ad in place -- ad in placement in the market was virtually at a standstill.

On our last call in October, we indicated that fourth quarter pro forma revenue would be down mid- to high single digits and flat when excluding political. However, on a pro forma basis, excluding political, we were down 1.5%, and this is primarily due to the Boston market issues.

Now I'm going to turn it over to Marie and she's going to take a deep dive into the financials.

Thanks, Caroline. Let's start with a review of the fourth quarter operating results, after which we'll review some balance sheet items reflecting a full quarter of contribution from the Greater Media stations compared to 2 months in Q4 '16 as well as the asset swap transaction that Caroline reviewed. Actual net revenue increased $4.8 million or 9% to $58.5 million, and station operating expenses for the quarter increased 16% or $6 million, resulting in a 7.3 decline in station operating income to $15 million.

The rise in operating expenses is a direct result of our expansion on a year-over-year basis. On a pro forma basis, including the asset swap and the Greater Media transaction, as they both took place in January 1, 2016, our fourth quarter revenue declined 6.9% or $4.9 million with political revenue accounting for approximately $3.9 million or 80% of the decline. I am pleased to report that on a pro forma basis, more than 70% of the revenue decline in the quarter was offset by reduced expenses. Pro forma expenses were down approximately $6.5 million -- or 6.5% or $3.5 million.

Pro forma SOI declined 7.8% or $1.4 million year-over-year, reflecting the $3.9 million political revenue in Q4 '16, which did not recur in fourth quarter '17. Q4 pro forma SOI margin remain relatively flat at 24.5% compared to 24.8% in the year ago period. If excluding political revenue from the 2016 fourth quarter, our SOI would have risen 4.1% year-over-year.

Corporate G&A expenses increased $1.1 million during the quarter to $4.1 million, and this primarily reflects our expanded scale and an increase in corporate staff. In addition, stock-based compensation increased $64,000 for the quarter to $231,000.

As you look up and down the income statement, there were transaction expenses in both fourth quarter periods, $217,000 this year and $5.2 million last year. There was a $45.5 million gain on merger in last year's fourth quarter. We also recorded an $11 million gain on exchange of assets related -- in this quarter. And in both this year and last year, we recorded a loss and modification of long-term debt with approximately $4 million hitting the income statement in fourth quarter '17, compared to $800,000 in last year's fourth quarter.

Finally, the enactment of the Tax Cuts and Jobs Act will result in a significant recurring free cash flow benefit. And due to the reduction of the federal tax rate from 35% to 21%, there was a $59.7 million deferred tax benefit during the fourth quarter. Also, the working capital and power adjustments with Greater Media are now settled and we don't expect any further material adjustments. We paid approximately $2 million in cash taxes for the full year of 2017.

Total fourth quarter interest expense increased approximately $278,000 year-over-year to $4.1 million, reflecting the year-over-year increase in borrowings related to last year's Greater Media transaction. Reflecting the recently completed refinancing of our credit facility and the WBZ transaction, our total outstanding debt as of December 31, 2017, was $225 million compared to $219 million at September 30, 2017. Our LTM consolidated operating cash flow, as defined in the credit agreement, was $52.1 million, resulting in a leverage ratio of 4.32x as of 12/31/17. This compares to 4.17x as of September 30, 2017.

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. Reflecting our balance sheet cash, net leverage as of December 31, 2017, was 4.05x with a maximum leverage covenant of 6.25x at that time.

We ended the year with cash on hand of $13.9 million. The company spent $1.2 million in CapEx in Q4 '17 compared to $868,000 in Q4 '16. Full year capital expenses was $4.2 million compared to 2016 with $2.9 million, and the increasing capital expenses is a direct result from the addition of the Greater Media stations in November of 2016.

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

Thanks, Marie. The fourth quarter concluded a successful and active year for our company. Even with the tough fourth quarter comps due to the lack of political, it was an exciting quarter for Beasley with both the acquisition of The Sports Hub and the successful refi of our credit facility. And we believe both of these events will prove to be beneficial in our results going forward.

On our previous earnings call, I mentioned our Alexa initiative, and I'm happy to report that we now have 65 brands that are enabled on the Amazon Alexa's platform, featuring live streams and podcasts. As of today, Q1 revenue pacings are up slightly. And looking deeper into 2018, our focus will be on integrating WBZ into our cluster in Boston and on our strategic priorities of further diversifying our revenue streams, managing our expenses, reducing leverage and returning capital to shareholders.

We also intend to remain opportunistic about identifying, structuring and completing additional strategic accretive acquisitions and investments in other areas that are complementary to our business. We will be ready with the appropriate capital structure and experience provided we can achieve our free cash flow accretion criteria. And given this focus, we will not report pro forma results or same-station results for this year because, at the end of the day, we believe investors, like ourselves, are more interested in our ability to grow free cash flow.

We're very excited about our company's future. We're becoming more and more agnostic to the content distribution platform with the emphasis on delivering entertaining local content, which is a core focus of our company and incorporating our Beasley-best philosophy in everything we do.

In this regard, we plan to launch Phase 2 of our mobile apps in second quarter.

And in addition, our podcast strategy is to create a better listener experience by delivering access to original content and on-air talent at any time and on any device, while providing our company with enhanced opportunity to monetize our strong core programming and local brands. We're also very excited about our early successes with several data attribution products that leverage a combination of AI, analytics and algorithms to deliver better ROI information.

In closing, we are very proud to be in the radio business. Data continues to show that on a weekly basis, more people listen to radio than watch TV or consume content on smartphones. And as a result, radio continues to be a valuable marketing platform for advertisers to reach their target audiences.

In addition to being a great entertainment, news and information medium, we are the lifeline to our communities in times of crisis. We experienced this in fourth quarter in Las Vegas, as our teams were in the community providing critical news and information following the tragic October 1 shooting. And we're honored to serve our local communities, our listeners and our advertisers with critical trustworthy news, weather and safety information.

So on behalf of our corporate and station employees, I'd like to thank you very much for participating on the call today. And I'm going to turn it back over to Marie because she's going to review some questions that we received.

Thanks, Caroline. We did receive a few questions, and I will handle the first few of them, and then I'll hand it over to Caroline. First question is why our corporate expenses up so much compared to fourth quarter 2016? So in us doubling our company, we also increased our staff. We don't expect that we are going to have any additional significant increases in corporate expenses going forward.

What segments were stronger and what segments were weaker? Looking at fourth quarter, our consumer services were up in fourth quarter, but we did have some weaker results in both auto and retail. The outlook for political in 2018, we do expect a few million in political revenue throughout 2018.

Next question is what is your effective tax rate for 2018? So overall, our effective tax rate for 2018 is going to be about 28%. That includes state taxes. So we've got a 21% federal tax rate and then the remaining will be for state taxes. This compares, prior to tax reform, with an effective approximately 40% all-in tax rate. So a significant decrease.

You mentioned also that the Boston was at a standstill in fourth quarter. Has that recovered in first quarter?

So local seems to be holding its own and we especially saw that at The Sports Hub, given the Patriots' drive to the Super Bowl, if you will. National is pacing down, so we continue to be watching that cluster closely.

Thanks, Caroline. And that concludes the questions.

Okay. Thank you. So we, again, like to thank you all for participating today. And if you have any follow-up questions, please feel free to call Marie or myself. Thank you. Have a great day and a great week.

And ladies and gentlemen, once again, that does conclude today's conference. Again, I'd like to thank everyone for joining us today.