Beasley Broadcast Group Inc (BBGI) 2021 Q1 法說會逐字稿

Good morning and welcome to the Beasley Broadcast Group's First Quarter 2021 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 direct comparable financial measures calculated and presented in accordance with GAAP can be found in this morning's news announcement 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'd like to turn the conference over to your host, Beasley Broadcast Group CEO, Caroline Beasley. Please go ahead.

Thank you, Stephanie, and good morning. Thank you for joining us to review our first quarter operating results. Marie Tedesco, our CFO, is on the call with me this morning. Consistent with industry trends, Jan and Feb started strong, but slowed significantly at the midpoint as we were again challenged by tightened COVID-related restrictions in several of our markets as well as the snow storm that affected a large portion of the Northeast in February.

We ended Jan and Feb each down 21% when compared to 2020. And as a reminder, Jan and February of 2020 were up 7% over the same period when comparing to 2019, and that was in part due to political. March revenue increased 3.9% compared to March 2020 as we lapped the initial impact of the pandemic.

Overall, first quarter revenue declined 16.4% and offset revenue increases in our Atlanta, Augusta and Detroit markets. As I noted, political spending also impacted the comps as net political revenue in first quarter of '20 was $1.7 million compared to $265,000 in Q1 '21. In addition, we're still waiting for the return of NTR and event revenue.

In this regard, our featurely popular WiLD SPLASH and Tampa home show events, both of which took place in 2020, did not recur in Q1 of '21, impacting Q1 comparisons by about $1 million. Normalizing for political and NTR event revenue, Q1 '21 would have been down 8.8%. The good news is that while we didn't have revenue from WiLD SPLASH or the Tampa home show in the first quarter, both of these events have been rescheduled to later in the year.

Continuing the momentum of recent quarters, we continue to make meaningful progress with our digital growth initiatives as Q1 digital revenue rose 10% year-over-year and accounted for 12% of our total revenue. Given this continued growth and its accounting for more than 10% of total revenue, we have begun to report digital revenue on a segment basis effective first quarter. We believe this milestone represents an important inflection point in our evolution.

Revenue and cash flow diversification remain a strategic priority, and we're making meaningful progress on these fronts and believe our results throughout 2021 will further highlight the complementary nature of our radio operations with our digital and esports offerings. The first quarter results reflect some of the operating expense reductions implemented in 2020, offset in part by some increases in spending as we began reinvesting in research and marketing.

We've also continued our investments in digital direct, which is our internal digital advertising agency, which is a direct driver of the rise of our digital revenue. In the face of the year-plus long pandemic, Beasley has managed its operations in a manner that prioritize the health and safety of our employees and the local communities we serve while preserving our financial flexibility and advancing our prospects for long-term growth.

I'm extremely proud of the way our team members rose to address and overcome the many unprecedented headwinds to our business while continuing to deliver exceptional local content and services to our listeners, advertisers, online users and esports fans during this difficult time for the country. We are energized by the progress we're making with our ongoing diversification initiatives and the strength of our content and market positions and are optimistic about the future.

As vaccination rates continue to rise in most markets across the country, expect to be more or less fully operational in the next few months, our NTR and event revenue will come back. And with our recent $300 million deal, debt financing and receipt of $10 million in PPP loan, we ended the quarter with $56.2 million in cash and the balance sheet strength to continue to diversify our business, revenue and cash flow to higher growth rates. Reflecting this optimism, our second quarter is pacing currently up 86%. Breaking that down, April was up 128%, with May and June pacing up 100% and 32%, respectively. We expect May and June pacing to improve even more as we get further into the quarter. So I'm going to hand it over to Marie to give you more details on the quarter.

Thanks, Caroline. I will start with the review of the financial results and then provide the balance sheet update. First quarter net revenue decreased 16.4% or $9.4 to $48.2 million, which includes $720,000 from our esports team. We generated $264,000 in political revenue during the quarter compared to $1.7 million in the prior year. Breaking down the quarter, January decreased 21.3% year-over-year and February was down 21% as we comped against the strong start in 2020.

In March, revenue rose 3.9% year-over-year, reflecting the comp against the beginning of the pandemic in mid-March 2020. For the quarter, revenue was up year-over-year at our Atlanta, Detroit, Wilmington and in our digital clusters. Station operating expenses for the quarter decreased $7.9 million or 15.6% to $43 million, resulting in first quarter SOI of $5.2 million. Our quarterly expense decrease is the direct result of our 2020 permanent expense reduction, including a reduction of our allowance account somewhat offset by the reinvestment in our digital agency, which will continue through 2021, as will certain select increases in research and marketing as we reinvest in our markets and clusters.

Now looking at our revenue categories for first quarter on an actual basis. Consumer services, including service-oriented businesses, remained our largest revenue category at 29.7% of our total revenue, and this category was flat year-over-year. Our second largest first quarter category, retail, represented about 14.1% of our total revenue and was down 14% year-over-year. Entertainment landed in third spot, representing 11.9% of first quarter revenue. This category declined just over 26%.

Auto, our fourth largest category, saw revenues down 13% year-over-year, and auto was 11.2% of total revenue. This category showed year-over-year increases in several of our markets, including Philadelphia, Detroit and Las Vegas. And we see the potential for this category to strengthen in 2021 as the industry's supply chain issues ease.

Our fifth largest category was consumer products, which represents 7% of first quarter revenue. That includes pharmaceutical, food, beauty products and auto parts. This category declined nearly 8%. Telecom and utilities was 5.5% of total revenue, and this category was down 9.4%.

Corporate G&A expenses for the quarter decreased 13.5% or by $608,000 compared to the same quarter a year ago to $3.9 million. The year-over-year decrease in corporate G&A reflects the 2020 expense reduction initiative as well as the allocation of certain digital expenses from corporate to our market.

Noncash stock-based compensation increased 95.4% to $521,000 in the quarter. We had no income tax expense for the quarter, and our effective tax rate for the quarter was 19.6%. First quarter 2021 operating income was a negative $2.5 million compared to a negative $7.1 million in the year ago quarter. The prior year operating income included noncash impairment losses of $6.8 million resulting from the impact of the COVID-19 pandemic on advertising revenue, while first quarter 2021 operating income includes the $1.1 million of nonoperating expenses.

Total first quarter interest expense increased $1.6 million year-over-year to $5.8 million, reflecting the capital restructuring. We do not have any scheduled loan payments, and our first interest payment is scheduled for August of 2021. First quarter 2021 free cash flow was a negative $4.2 million compared with a negative $4.6 million in the previous year quarter.

During the first quarter, we completed the previously announced $300 million bond offering, which allowed us to terminate our term loan B, revolver and all subordinated notes. The bonds were issued at 5 years with a non-call 2 at a coupon of 8.625%. Excess net proceeds of $25 million were added to our balance sheet and can be used for general corporate purposes. In addition and due to future economic uncertainty, on February 2, we applied for and were subsequently approved for a $10 million PPP loan as media companies became eligible to participate in the latest round of SBA COVID-related loans. The SBA loan carries a 1% interest and could qualify for forgiveness.

Together, these transactions have greatly improved our liquidity profile and provide additional capital as we continue to diversify our business, revenue and cash flows to higher growth areas. We ended the quarter with cash on hand of $56.2 million, and our total outstanding debt as of March 31, 2021, was $310 million, including the $10 million PPP loan. We spent $1 million in CapEx for the quarter, and that compares to $3.4 million in the prior year first quarter.

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

Thank you, Marie. So let me add a bit more color on why we are optimistic about participating in the recovery as the vaccinations take hold and we return to a new normal. Despite the COVID and weather-related challenges and lack of NTR and event revenue in Q1, we continue to see a sequential increase in Feb over Jan, March over February and now April over March. Revenue growth from our digital agency business exceeded our internal budget in first quarter, and this improvement combined with the $7.9 million of operating expense reductions resulted in positive SOI and EBITDA for the quarter.

Now moving on to esports. These businesses continue to be a growing and popular facet of our company with a mass appeal to younger consumers. So let me give you a quick update on our recent initiatives in our Houston Outlaws platform. During the quarter, we completed an asset swap whereby we secured the remaining 10% interest in the Outlaws in exchange for our interest in the Detroit Renegades. And after naming a new coaching and player roster for 2021, the Outlaws season kicked off on Friday, April 16, being selected to host the league's season opener against the Dallas Fuel.

Not only did we win the match against our biggest rival, but we then pulled in a historical win on that Sunday afternoon, beating the 2-time reigning world champions. Viewership for both of these matches exceeded 113,000 live viewers, and we were ranked as the #1 and #2 most viewed matches for the weekend. Following that first weekend of play, we've competed in 3 additional matches and we're currently 4 in 1 having lost to the Dallas Fuel this past Sunday. And however, we are still one of the top-ranked teams in the league. We believe these positive early season results reinforce the popularity and fan-favorite status of the Outlaws and are positioned to monetize this platform.

So moving on with our focus on the best possible live and local content, our radio stations continue to gain audience share in the markets we operate. Our PPM ratings share performance in Q1 was the best in over 3 years with adults 25-54.

In fact, our PPM stations are up 4% from Q1 of '19 and up nearly 2% from Q1 of '20. Like last quarter, our PPM cluster roll up tier was once again the highest of any other major broadcaster in the industry. And finally, our total on-air audience for our QAM has been consistently growing since the pandemic began, now more than 93% of where our audience was prior to COVID, and we will continue to see growth as our markets fully open.

Now looking ahead as we celebrate our 60th anniversary in 2021 and during a time of significant personal hardship for so many, our founding values have never been more important. At our core, we are a local media company that produces unique local content. Our brands connect our audiences to their favorite artists, sports teams and most important, our local communities. And as much as the world has changed in the past year, so much of what makes Beasley exceptional since George founded the business in 1961 has remained true, our commitment to local and our culture of innovation, entrepreneurship and respect. So in 2021, our strategic priorities remain focused on serving our communities while diversifying our revenue, growing our cash flow and maintaining a solid and flexible balance sheet. We believe the experience of our team and strong competitive positions in our markets, combined with the steps we've taken to reduce costs and improve operating efficiency, position us for near and long-term success and the enhancement of shareholder value.

So with that, we did receive several questions this morning. I'm going to hand it over to Marie and she can review those questions.

Thanks, Caroline. And yes, we did receive a few questions that were not addressed in the earnings release. So with the first question, can you provide some color on the expense savings put in place last year compared to 2019 expenses?

So operating expenses for first quarter declined $4.4 million or 9.4% when comparing to first quarter of 2019. The full year operating expenses will include our investment of approximately $10 million of our digital direct agency and also includes a full year of operating expenses of our esports team, which is equivalent to approximately $2.5 million. Including these added expenses and the fact that we are reinvesting in marketing and research of our assets, we expect flat to a small increase in full year expenses.

This also includes the shift of some of the -- our digital expenses from corporate overhead to the market as we expect corporate overhead expenses also to decrease.

Next question. Please explain the deferred tax liability on the balance sheet.

So the deferred tax liability on the balance sheet comes primarily from the difference between booked and past amortorization of our FCC licenses. And this liability will only be realized if our assets are sold.

Next question. Can you provide some insight on expected CapEx for this year? And is it mostly spending on property and equipment of existing radio station?

So yes, we expect to spend approximately $7 million this year with approximately $3 million of studio and office build-out in 2 of our markets, with the remaining being normal CapEx maintenance.

Next question, can you provide guidance on free cash flow this year? So as in the past, free cash flow is a high priority for us. And after 2020, we do expect to produce positive free cash flow by next quarter.

Next question. Can you give some additional color to top line growth in second quarter? And how does that compare to 2019. Caroline?

Yes. So the pacings that we provided in the call are year-over-year to 2020. We do use 2019 for internal comparison purposes, as going forward, we believe that they are more relevant. So April '19 compared with April '21 was down 8%. May '19 compared to May '21, we are 75% of May '19 final number. And then in June '19 compared to June '21, we're 57% of June '19 final number.

So June appears to be, at this point, a little stronger than May. Right now, we are 75% of Q2 '19 in terms of bookings. And in terms of pacings and where we potentially will end, given this data, we expect that Q2 '21 compared with Q2 '19 could be down in the mid-single digits and the caveat being NTR and events, and that could swing at either way. And as a note, the bookings are coming very, very late as we have seen over the last few months.

Great. Thank you. And we have one more question. How do you plan to use excess cash or retain cash from revenue going forward?

Yes. So for now, we're keeping the cash on our balance sheet. We are reinvesting in our company in research and marketing and also in digital. And we are looking for potential strategic investments that are targeted towards digital.

That is all the questions we have.

Okay. Great. All right. Well, thank you very much for your time this morning. And should you have any questions, please feel free to call.

Thank you. Ladies and gentlemen, this concludes today's presentation. You may now disconnect.