Beasley Broadcast Group Inc (BBGI) 2020 Q4 法說會逐字稿

Good morning, and welcome to Beasley Broadcast Group's Fourth Quarter 2020 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 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 also can find a copy of today's press release on the Investors or Press Room sections of this 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, Casey, and good morning, everyone. Thank you for joining us to review our 2020 fourth quarter and full year operating results. Marie Tedesco, our CFO, is with me this morning. First, let me provide a quick update on our recent capital market activity and the success we had as a first-time issuer in the high-yield market. On February 2, we closed on our oversubscribed $300 million bond offering, which allowed us to terminate our term loan B revolver in all subordinated notes. The bonds were issued at 5 years with a 2-year noncall at a coupon of 8.625%. In addition to allowing Beasley to repay in full all prior indebtedness, the remaining net proceeds of $25 million were added to our balance sheet and can be used for general corporate purposes. We believe this transaction improves our liquidity profile and provides capital as we continue to diversify our business, revenue and cash flows to higher growth areas.

With respect to Q4, it proved to be a very strong quarter as we generated more than 3x the expected political revenue, which helped offset some advertiser hesitation as well as the increased restrictions we experienced in some of our markets beginning in mid-November, which was more pronounced in December, and we're seeing it as we go into 2021 as well. Overall, we recorded approximately $10.2 million of political revenue in the fourth quarter with approximately $6.9 million in October. Strong political markets for us were Charlotte, Detroit, Augusta and Fayetteville.

With quarterly sequential revenue growth in the third and fourth quarters, we continue to see improvement in weekly ads with monthly sequential revenue increases in October and November when excluding political. December revenues were down slightly due to one less Patriots game, and as just mentioned, tightening restrictions in several of our markets. Despite the pandemic and related restrictions, we generated year-over-year revenue increases in 6 of our markets, which resulted in overall 4Q revenues down 5%, which is a substantial improvement when comparing to second and third quarters. During the quarter, we continued to make meaningful progress with our digital growth initiatives as Q4 digital revenues rose 7.6% year-over-year and accounted for 10.6% of total fourth quarter revenue, and that's up from 9.2% in 4Q '19. The trend was also evident in the 2020 full year result as digital revenues represented 10.6% of total revenue compared to 7.6% in all of '19. As noted earlier, diversifying our revenue and cash flow remains a strategic priority, and we believe our 2020 results demonstrate the complementary nature of our radio business with our digital and esports operation.

Our fourth quarter performance also highlights the significant operating benefits from the actions we took in 2020 to address the pandemic, including reducing station operating expenses and negotiating discounts with our partners. Reflecting these efforts and initiatives, fourth quarter expenses decreased 14.4% year-over-year, which resulted in fourth quarter SOI increasing 28.8% to $20.1 million, the high end of the range we provided in our January 14 Q4 preannouncement, and that compares with $15.6 million in last year's Q4. In addition, fourth quarter SOI less corporate expenses increased by approximately 62.4% to $16.5 million compared to $10.1 million in 4Q '19, and again, this was at the high end in our January 14 Q4 preannouncement. As we reflect on 2020, I couldn't be prouder of the resiliency and determination shown by our corporate, station, digital and esports team members during what was a very challenging year for all of us from both a personal and professional standpoint. We successfully endured unprecedented changes to our business, created and implemented enhanced safety protocols and continue to execute on our long-term strategy by reevaluating and reimagining our operations and content offerings while accelerating our digital transformation.

So now I'm going to hand it over to Marie to give you a deeper dive into the quarter.

Thanks, Caroline. I will start with a review of the fourth quarter results, followed by a review of our balance sheet. Fourth quarter net revenue decreased just 5% or $3.6 million to $68.5 million, which includes $732,000 from our esports teams, the Outlaws and the Renegades. We generated $10.2 million in net political revenue compared to $500,000 in the prior year.

Breaking down the quarter, October increased 9.1% year-over-year with approximately $6.9 million of political. November was down 8.2%, and in December, we saw a 15.9% decrease year-over-year, primarily due to one less Patriot game placed compared to 2019 as well as tightened restrictions in some of our markets due to COVID-19 third and second wave in some of those markets.

Despite the headwinds, we grew revenue year-over-year at our Atlanta, Augusta, Detroit, Fayetteville, Tampa and Wilmington clusters. Full year revenue decreased 21.2% or $55.4 million to $206.1 million, inclusive of approximately $15.2 million of political ad revenue. Station operating expenses for the quarter decreased $8.1 million or 14.4% to $48.3 million, resulting in fourth quarter 2020 SOI of $20.1 million. Our significant quarterly expense production is the direct result of our quick response to the pandemic, including company-initiated expense costs and savings in excess of $32 million against our 2020 operating budget and in excess of $23 million against our stations' operating expenses in 2019, excluding esports. Full year expenses decreased 9.4% or $18.9 million to $182.2 million, including esports, with SOI for the full year decreasing 60.4% to approximately $24 million.

Now looking at our revenue categories for fourth quarter. Consumer services, including service-oriented businesses, remained our largest revenue category at 25.5% of our total revenue, and we had a 5.3% year-over-year revenue decrease in this category for the quarter, and that compares to this category being down almost 22% in the previous quarter. Our second largest category in fourth quarter was political revenue, which represented around [15%] of fourth quarter total revenue. Retail came in the third spot and represented around 13.5% of our revenue, and this category declined 24%.

Auto, our fourth largest category, saw revenues down close to 31% year-over-year, that shows a modest increase from the previous quarter. Auto was around 9.5% of our total revenue for the quarter. This category was hardest hit in Boston, New Jersey and Las Vegas as these markets under some of the largest COVID-driven restrictions during the period.

Our fifth largest category was entertainment, which represented 8.4% of fourth quarter revenues.

Consumer products, such as pharmaceuticals, food, beauty products and auto parts, accounted for 5.5% of total revenue, and this category declined nearly 38%. Telecom and utilities was 4.9% of total revenue, and this category was down 10%. On a full year basis, consumer services decreased 15.6%, retail declined 31.6%, auto was down 36.5%, consumer products declined 44.5%, entertainment was down 47.1% and telecom was down 20%.

Corporate G&A expenses for the quarter decreased almost 49% or by $1.8 million compared to the same quarter a year ago to $3.7 million. The year-over-year decrease in corporate G&A is related to the previously discussed expense reduction initiatives and allocation of certain digital expenses from corporate to our market. Full year corporate G&A decreased $5.6 million to $15.6 million.

Noncash stock-based compensation decreased 85% to $56,000 in the quarter and decreased 65% or $1.4 million to $751,000 for the full year. We had an income tax expense for the quarter of $4.3 million and a income tax benefit for the full year of $5.2 million. Our effective tax rate for the quarter was approximately 28%, and we will have [no] tax liability for 2020.

Fourth quarter 2020 operating income was $19.6 million, and reflecting the year-over-year increase in SOI, we significantly exceeded prior year operating income of $11.2 million, which in the prior year included $17.1 million gain on disposition and a $13.7 million noncash impairment loss. In addition, in the current quarter, we closed on the sale of a piece of land in Charlotte, North Carolina, with net cash proceeds of $4.6 million on December 31. That was partially offset by a $2.2 million noncash impairment charge for this divested assets.

Full year operating income declined from $38.1 million in 2019 to a loss of $4.3 million, a direct reflection of the loss of revenue during the pandemic, particularly in the first half of 2020, partly offset by reduced operating expenses and lower corporate expenses.

Total fourth quarter interest expense decreased $175,000 year-over-year to $4.3 million, and for the full year 2020, interest expense increased approximately $1.1 million due to increased borrowing costs. We did not have any scheduled term loan debt payments during the quarter. However, we reduced the [amortized] notes by $2.25 million at the end of December. Fourth quarter 2020 free cash flow was $16.8 million compared to $20.7 million in the 2019 fourth quarter, which included $21.8 million of proceeds from dispositions. Fourth quarter 2020 also reflects lower capital spending, the aforementioned expense reductions and the net proceeds from the land sales.

We ended the quarter with cash on hand of $20.8 million. Our total outstanding debt as of December 31, 2020, was $268.5 million, inclusive of $10.5 million of unsecured debt. Pro forma for the completion of the $300 million bond offering completed in first quarter as if it had occurred by December 31, including the repayment of all prior existing indebtedness, our total outstanding debt was $300 million. And finally, the company spent $481,000 in the current quarter on CapEx compared to $2.1 million in fourth quarter of 2019, and $7.5 million for the full year of 2020 compared to $9 million in the full year of 2019.

And with that, I'll turn it back to Caroline.

Thank you, Marie. To provide further color on fourth quarter revenue, spot revenue, including political, was down just 2.6% with national increasing 45%. And that does include $10.2 million of net political revenue and local was down 20.6%. While October political had a significant impact on the quarter, it's important to mention that excluding political, we still saw a sequential increase in both October over September and November over October. Digital revenue continues to grow, and the digital expansion is a priority as the digital direct sales team is laser focused on driving net new digital revenue and targeting the sale of nonradio products to nonradio advertisers.

Esports continues to be a growing and popular facet of our company, given the sports' COVID-proof online play format, and its increasingly massive appeal to younger consumers. Our esports offerings have enormous appeal to the Gen Y and Gen Z demos, who makes up the majority of gamers. And with respect to our properties, the Outlaws ranked as the league's fourth most popular team in terms of fan viewership, social media followers and merchandise sales, and we look forward to building on our first year successes and leveraging our learnings going forward.

Now moving on to 2021. First quarter is currently pacing down about 18%. And breaking that down, January was down 21.5% with Feb and March pacing down approximately 16% and 15%, respectively. We do expect Feb and March pacings to improve as we get further into the months and the quarters as this has been a consistent trend over the past several months. And as a reminder, last year's first quarter had a strong start with both Jan and Feb up 7% over '19, and that was followed by March's decline due to COVID.

So to recap fourth quarter, our 5% decline in revenue is a significant improvement from the 54% decline in second quarter and 25% decline in third quarter. The revenue improvement, combined with the operating expense reduction of $8.1 million, allowed us to post positive SOI and positive EBITDA for the quarter. And of special note, our SOI, SOI less corporate expense and EBITDA were all greater in fourth quarter of 2020 compared to the same quarter in 2019. Looking ahead to first quarter and into 2021, our focus will include growing our free cash flow and maintaining a strong balance sheet with liquidity at the current level or higher. And while we no longer will be under a leverage covenant, reducing our net leverage continues to be a priority, and we're working towards returning to our pre-COVID-19 level of mid 4x.

With our continued emphasis on the highest quality local content, our ratings performance remains the best in the industry. In fact, according to Nielsen, Beasley's Q4 PPM Ratings Cluster roll up share was once again the highest of any other major broadcaster in the industry. During the fall '20 ratings period, we had 1 or more top 3 stations in 10 of our 13 markets -- rated markets with the top advertising demographic of adults 25 to 54. And finally, our total on-air audience has been consistently growing since the pandemic began. And now we're at more than 90% of where our audience was prior to COVID, and we do expect to continue to see growth in our team going forward as our markets open up.

So before going into Q&A, I'd like to acknowledge our team members across the company for everything they've done and are doing to help us quickly address and overcome the challenges of last year and any hits that we have seen thus far for 2021. So thank you very much, and I'm going to turn it over to Marie.

Thank you, Caroline. We have received just a couple of questions with the first one asking to discuss live event and NTR business. And when will we see a return to those?

Right. So we're excited about the potential opportunity of live events and NTR returning. This business actually accounted for more than 5% of our revenue pre-COVID. However, we do expect this revenue to come back, hopefully, by the end of this year and going into 2022 as the states start opening up, and we're able to host events.

Great. Thank you. And we will also asked to dive into esports a little and review any growth opportunities in this sector.

Right. So given where we are today, we have great assets across our esports space. These are complementary esports assets, and they are somewhat COVID-proof as we saw last year. We do believe that this space, combined with our traditional assets and learnings, actually allowed us to make lemonade out of lemons last year, and we look forward to applying some of these same principles in 2021. But that being said, I do want to focus on digital today because that is our focus in 2021. We are looking to attract nonradio clients to generate added revenue. And as we've said in the past, our internal target is to have 20% of our revenue coming from digital and potentially, a larger number longer term. So with that, thank you.

Great. That's great. Thank you. And that concludes the 2 questions that we had from this morning.

All right. 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. Hope you have a great day.

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