Beasley Broadcast Group Inc (BBGI) 2018 Q1 法說會逐字稿

Good morning, and welcome to the Beasley Broadcast Group's 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 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 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.

Thank you, Don, and good morning, everyone. Thank you for joining us for our 2018 first quarter operating results. Marie Tedesco, our CFO, is with me this morning.

First, I'm happy, and I'm sure you are, that our reporting and comparison presentations are a lot easier in Q1 as we lapped the acquisition and divestiture transactions completed in late '16 and early '17.

As discussed on our previous call and given our focus on growing free cash flow, we are reporting actual results, as at the end of the day, we believe investors, like us, are most interested in our ability to grow free cash flow over the long term, and that is where we are devoting our energies. However, the 2018 first quarter includes the December 2017 Boston asset swap, where we exchanged Magic for The Sports Hub. With this transaction, we secured the radio broadcast rights for the market's prominent sports teams such as the New England Patriots and the Boston Bruins.

The addition of this great, sticky programming further diversified our market revenue from a music-formatted cluster to one with marquee content that is unique and features some of the most popular sports franchises in the country. As you'd expect, it was a busy quarter with the Patriots in the Super Bowl, which contributed to the first quarter's revenue growth. In fact, we also saw a Super Bowl revenue benefit at our Philly sports station, WPEN, even though we don't hold the broadcast rights. On the flip side, we experienced some ad placement slowdown in our Northeast markets due to several major storms in the first quarter, as businesses and schools were closed and people were asked to stay home.

Looking at the first quarter, we generated a 2.6% increase in revenue. This is primarily a result of the Boston station swap, which was somewhat offset by the divestiture of our Coastal Carolina cluster that was included for the full 2017 first quarter.

National revenues also continue to remain challenged across several of our markets, which, in some cases, was offset by our success in driving local revenue. The overall expense increase was mainly driven by BZ, which was partially offset by the ongoing expense management discipline we are deploying across our markets.

First quarter SOI would have been flat when excluding the SOI contribution from the Coastal Carolina market station divestitures from last year's results.

Overall, we believe our strategic activity related to the Greater Media transaction and other announced acquisitions, swaps and divestitures have strengthened our platform. Moreover, we continue to execute well on our integration strategy, focused on strong local programming to support our goals of ratings and market leadership while implementing our operating and expense management disciplines.

Now before I turn the call over to Marie for a deeper review of the quarter, I'd like to address the coverage of the iHeart and Cumulus bankruptcies and what they mean for some of the other operators. Remember that in addition to their difficulties, CBS Radio changed hands late last year, and we expect those stations to improve under Entercom's ownership.

From our perspective, it's business as usual on one hand as we continue to be differentiated with great stations, great brands, great local programming and solid ratings, with upside from our ongoing integration and synergy realization successes, and our leverage is modest and addressable. On the other hand, we have to believe that with a leading company suffering the way that they've had, that it had to have an impact on the industry at large. So we're rooting for these companies to get healthier as we are likely to see an industry where leaders better advocate for the product, its reach and its effectiveness, which we hope elevates the value of our inventory and creates a more rationalized market for advertising.

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

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

Net revenue increased 2.6% or $1.4 million to $55.2 million, and station operating expenses for the quarter rose 3.6% or $1.6 million, resulting in a 1.5% decline in station operating income to $9.6 million compared to $9.8 million in the year ago period.

Again, the net revenue and SOI for the year ago period includes the Coastal Carolina cluster, which we sold, and WMJX-FM in Boston, which was swapped for WBZ-FM. The increase in station operating expenses reflects the Boston asset swap which, as a sports station format, generally carries higher expenses.

In addition, during the quarter, we incurred additional expenses related to the Patriots competing in the Super Bowl. These increases were partially offset by expense reductions at our Tampa, Charlotte, Detroit, Fort Myers and Augusta clusters as well as the absence of expenses from the divested Coastal Carolina cluster.

On a category basis, consumer services remained our largest revenue category in first quarter of '18 and was up high single digits in the quarter. This was followed by retail, which was down low single digits, but rebounded somewhat from a tough fourth quarter, and then entertainment at third, up mid-single digits. Auto, which is typically our third largest category, also rebounded from a tough fourth quarter to low- to mid-single-digit decline. We are seeing positive movement in the automotive category, primarily in our Boston, Tampa, Las Vegas and Fayetteville markets.

Corporate G&A expenses increased by $100,000 during the quarter to $3.3 million, primarily reflecting our expanded scale and an increase in corporate staff. In addition, noncash stock-based compensation increased $347,000 for the quarter to $465,000, and we paid approximately $200,000 in cash taxes for the quarter.

Total first quarter interest expense decreased approximately $1.2 million year-over-year to $3.6 million, reflecting the November '17 refinancing of our senior debt, which reduced our interest rate by 200 basis points. It also reflects a year-over-year reduction in borrowings as we applied proceeds from the Coastal Carolina divestiture, plus cash from operations to voluntarily reduce our borrowings. We ended the quarter with cash on hand of $13.2 million. And reflecting the recently completed refinancing of our credit facility and the WBZ transaction, our total outstanding debt as of March 31, '18, was $222 million compared to $225 million at December 31, '17. Our LTM consolidated operating cash flow, as defined in the credit agreement, was $49.9 million, resulting in a leverage ratio of 4.45x as of March 31, '18. This compares to 4.32 as of December 31, '17.

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, though reflecting our balance sheet cash, net leverage at March 31, '18, was 4.18x compared to a maximum leverage covenant of 6.25, and that compares with 4.05x on the same basis at December 31, '17.

The company spent $1.2 million in CapEx for the first quarter compared to $1 million in the first quarter of '17.

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

Thank you, Marie. So the highlight of today's report is our free cash flow growth, both in the first quarter and on a trailing 12-month basis.

Before the first quarter, our free cash flow rose 79.9%, while on a trailing 12-month basis, it increased 27.5%. This growth highlights the benefits of our recent strategic transactions and expanded scale combined with our initiative to manage the capital structure and reduce borrowing costs and our overall disciplined approach to expense management and the benefits of tax reform.

Our ongoing diversification and commitment to local content, innovation and growth has positioned us to capitalize on the many opportunities to serve listeners and businesses in our market.

With our growing free cash flow profile, we have invested in our broadcast and technology platforms while pursuing selective, accretive acquisitions and station swaps. At the same time, we are effectively managing our capital structure, leverage and returning capital to shareholders. Our quarterly and trailing 12-month free cash flow growth highlight the efficacy of this approach, which, we believe, is a proven formula for building long-term shareholder value.

We continue to innovate to enhance the value of our platform for our listeners. As an example, we are now featuring a total of 124 podcasts. We had approximately 3 million downloads in the last 30 days. In addition, our Alexa initiative is already up to 31 enabled podcasts. Also, we're on track to launch Phase 2 of our mobile apps toward the middle of the year, which will create a better experience for our listeners.

Overall, audio consumption is growing, and while there is more competition for listeners, radio share remains stable. Radio continues to be the #1 reached medium, with 93% of the U.S. population tuning in weekly. And as a result, we remain confident in our industry and in Beasley's growing broadcast and digital platforms. As a matter of fact, I'd say that the level of excitement for the industry at last month's NAB show was higher than I can remember in years. With 2 of the industry's biggest operators about to get healthier, we're looking at an industry that is far more aligned than it's been in the past. NAB is hard at work on several innovative initiatives that will allow broadcasters to best serve their communities, strengthen our businesses and capitalize on even more new digital opportunities.

Now as of today, Q2 revenue is pacing flat, and looking deeper into '18, we are starting to see a few political buys in some markets.

More specifically, on Q2 pacings, April was up; May is flat currently; and June is currently pacing down.

Finally, we intend to remain opportunistic about identifying, structuring and completing additional strategic accretive acquisitions and investments. We'll be ready with the appropriate capital structure and the experience while we continue to build our platforms.

So on behalf of our Beasley best team, we'd like to thank you for participating in the call today, and I'm going to turn it over to Marie as we have had a few questions that have come in.

Thanks, Caroline. And that is correct, we've got a few questions here. I'll take care of some of them, and I'm going have Caroline address a few of them.

First question that I got. We received one about our CapEx outlook.

I did review our CapEx spend for the quarter, and our intent is to spend somewhere around $5 million to $6 million in CapEx for the full year of 2018.

We also received a question regarding our leverage target. And as we have mentioned before, our leverage target remains to be below 4x.

We were also asked about our Super Bowl expenses in Boston from the Patriots.

And looking at both the Super Bowl and the playoffs, we had approximately between $700,000 and $800,000 in expenses related to those games and, of course, this affected our margin in Boston going into second quarter. We expect that margin to increase until we start entering the football season again.

Another question that we got is, what is our outlook on M&A?

So Marie, I think we just mentioned that in the comments that -- to reiterate that, we are always on the lookout for strategic acquisitions that will be accretive to our shareholders and complementary to our platform. We would like to see an opportunity with any acquisition to be able to delever quickly. And if it is the right acquisition, we are able to meet these guidelines, then we would stretch our leverage to 5x or lower.

Thank you. And we also received a question to touch on our political revenue expectation in 2018.

And we expect our political revenue to be somewhere around $2 million to $3 million, which is in line and consistent with prior year nonelection years.

Another question that we got was to touch a little bit on the comments of the last quarter's ad placement in Boston. Caroline, will you...

Yes. So last quarter -- in the fourth quarter, ad placement was pretty much at a standstill because of all the disruption that was going on in the marketplace. And the question is, is where do we see that today?

We see, today, that local is holding its own, national is coming back. It's still down year-over-year. However, it is not down as much as it was in first quarter.

And then to follow that on, another question was just local versus national trends?

And I think that's the same local versus national as we're seeing in Boston. Local is pretty much holding its own, and national is down year-over-year.

And the last question I have was to touch on, if we are looking at hedging any of our current senior debt?

And that is something that we are looking into, just to see what our options are.

And those are the questions we received.

Okay. Well, thank you, again, for participating on the call today. And if you have any questions, please feel free to call Marie or myself. All right. Bye.

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