Q3 2019 Earnings Call

Excuse me, ladies and gentlemen, thank you for patients in whole deemed the conference will begin momentarily. Please remain on the line.

Again, thank you for your patience in holding the conference will begin momentarily. Please remain on the line.

Good morning, and welcome to the Beasley broadcast group third quarter 2019 conference call.

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 they involve risks.

Oh Geez described in the risk factor section of our most recent annual report on Form 10-K , and supplemented by our quarterly reports on Form 10-Q .

Today's webcast will also contain discussion of certain non-GAAP financial measures within the meaning of the item kin of regulation escape.

A reconciliation of these non-GAAP measures with their most directly comparable financial measures calculated and presented in accordance with Ken can be found in the morning news announcement on the company's website.

I would also like I would also remind listeners that following the completion a replay of today's call can be accessed for five days on the company's website Www Dot BP G Hi, dotcom.

You can also find a copy today's press release on the investors or press room section 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 know and good morning, everyone. Thank you for joining us for our third quarter operating results I'll first review several quarterly highlights and then handed over to our CFO Marie Tedesco, who will provide more color on the quarter.

He began by reviewing de accretive and de leveraging acquisition of D.A.M.K. and Detroit, which we completed on August 31st the General purchase price was 13.5 million and whats funded by a combination of debt and cash on hand. The addition of D.A.M.K. and the three translators chore blackouts portola.

Yes, it's complimentary to our three existing radio stations and digital operations in the Detroit market.

Let's start with easily disciplined approach to growing our platform. The acquisition of Dmk is immediately accretive to your free cash flow and will contribute approximately 2.6 million impressed formats station operating income and this includes energy, while moving us closer to our goal of achieving 34.

<unk> revenue share in the markets. The integration of the last eight weeks has been as expected and as such we look forward to realizing the full financial and strategic benefit of this transaction injury and 2020.

Now looking at the corner revenue increased by 1.5% on a year over year basis, just 66.1 million driven by our Boston, Charlotte Detroit that don't silly and Wilmington clusters.

In closer at the year over year revenue comparison in last year's third quarter. We recorded approximately 240000, a nonrecurring U.S.T.N. traffic revenue and 300000 of nonrecurring revenue related to be cancelled spectrum license.

In addition, Q3 19 revenue levels were impacted by 375000 decline and political revenue from 700000 in prior year as such excluding the combined 915000 of revenue related to these items are Three Q1 9, net revenue would have grown to.

0.9%.

Now on a same station basis and not adjusting for the non recurring revenue items and higher levels of political revenue for the quarter was essentially flat or minus 43000.

With third quarter same station spot advertising flat, while excluding political.

In addition, we continued to make progress with our digital growth initiatives as digital revenue grew almost 37% year over year in third quarter and accounted for 7.4% of our total third quarter revenue and this is up from 5.4% into comparable year ago corridor. This trend is also evident on a year.

To date basis as digital revenues represented 7% of revenue in the nine months ended September 30, compared to 5.9% in the same period a year ago.

Now looking past the revenue line, our strategic accretive acquisitions combined with our focus on margins and synergy realization drove a 12.7% increase and reported third quarter as though I'd like to 16.7 million third quarter I say why was also strong on a pro forma in same station basis.

Rising by 4.6, and 6% respectively.

Moving on we're pleased with that results from X to you at the station generated a 16% year over year revenue increased on a pro forma basis with a return to the heritage country station to our silly cluster, we try to try to form a third quarter revenue increases in the market, a 5.4% or 800000.

We had a revenue share of just over 28% in the third quarter and 29%. Your today I'm one of the reasons. We targeted this acquisition last year was the prior experience and fixed assets that we had with this format in Philly and I would like to congratulate our teams in Philly and at W. X to you for H.

Well done.

As we previewed our expectations on the call earlier this year third quarter 2019 free cash flow was 4.6 million compared with 5.9 million in the third quarter of last year and this was due to the fact that the growth in your other your quarterly so I was more than offset by increased corporate overhead related to.

Our investment in digital platforms higher capex related to the now you're completed Buildout of our Philadelphia Studios and increased costs related to our additional borrowings and increased taxes and as noted on calls earlier. This year, we expect full year nitrogen free cash flow to reflect a year over.

A year decline related to the lack of political higher interest expense related to the addition, it back to you increased capex and be investments, we're making to expand and diversify our platform.

We continue to allocate our free cash flow to pay down debt returned value to our shareholders through quarterly cash dividend to complete strategic.

Transactions, including investments in digital and E sports and other businesses that leverage our brands content and strong market positions and with that I'm going to turn it over Jean Marie He's going to take a deeper dive into the core [noise].

Thank you Caroline let me starts with the revealed that third quarter results and then I will review our balance sheet.

Third quarter net revenue increased 1.5% or 968260 6.1 million and we saw year over year net revenue increases in our Boston, Charlotte's Detroit, Fairfield, Philadelphia, and Wilmington clusters with net revenue as our remaining clusters comps.

They're able to the levels in third quarter 18.

Caroline mentions that year over year comparison was impacted by approximately 240000 of U.S.T.N. revenue in third quarter 18, 300000 of nonrecurring spectrum revenue and approximately 375000.

Oh nonrecurring political revenue, which combined would be equivalent to an additional 1.4% growth in net revenue for the quarter.

Station operating expenses for the quarter decreased 1.8% to 49.4 million, mostly related to the nonrecurring 1.7 million right off of U.S.T.N. that occurred in third quarter, 18, which was partially offset by operating expenses from the Philadelphia.

Yeah and.

W. ex U.S, Philadelphia, and W.G.M.K. Detroit acquisition as to resolve the 1.5, increasing net revenue led to a 12.7% increase in station operating income to 16.7 million on an actual basis.

Looking at our revenue categories for third quarter on an actual basis consumer services remained our largest revenue category representing around 26% of our revenue.

And we generated a 12% year over year revenue increase in this category during the quarter. Our consumer services category includes advertisers such as medical dental construction insurance and other service oriented businesses, our second largest.

Category in third quarter, West retail, which represents almost 16% of our revenue and the retail category was up 1.5%.

Entertainment, what that third largest category for the quarter and we were flat year over year auto our fourth largest revenue category, representing about 13% about revenue was down around 5%.

The top four categories accounted for approximately 69% of our total third quarter net revenue.

On the same station basis consumer services increased 10% retail declined 1.5% entertainments was down 3% and auto was down 6.5%.

Another category that had strong performance in the quarter West Telecom, which rose 5% on the same station basis.

<unk> Frenchie M&A expenses for the quarter increased 1.7 million compared to the same quarter a year ago, just 5.3 email yen.

Breaking it down the year over year increase incorporates DNA is primarily related to timing differences compared to prior year and a continued investment in our digital initiative as would build out our platform.

Quantified. This investment we spent approximately 750000 in the third quarter and 1.7 million year to date. This increase reflects our ongoing transformation from a pure play radio company to a diversified audio focused media and digital entity.

As indicated on prior calls these investments will continue through off the year and will result in an expanded digital platform digital content portfolio digital sales team and corporate staff, we expect our corporate expenses to Stabilise. Once this digital failed dock is complete and we should then see a decrease.

And some of these expenses at that point, well being moved into the markets.

Noncash stock based compensation was up 31.7% at 603000 in third quarter.

Our income tax expense for the quarter was 1.7 million and our effective tax rate for the quarter was 37% as the result of certain expenses that are not deductible for tax purposes.

Reported third quarter 29 teen operating income was approximately 9.4 million compared to 9.3 million in the year ago quarter, while third quarter net income increased 15.6% or 410000 to 3 million, primarily as a result of higher station cash flow.

Third quarter interest expense increased approximately 300000 year over year to 4.4 million, reflecting an overall increase in borrowing costs from additional borrowings related to our recent acquisitions, we made 2.5 million in voluntary debt repayments for the quarter and repaid nine.

Well, yes in the year to date periods.

We ended the quarter with cash on hand of 11.8 million.

Inclusive of the W.G.M.K. transaction total outstanding debt at September Thirtyth was 253 million compared to 245.5 million at June Thirtyth.

Our LTM consolidated operating cash flow as defined in the credit agreement was 54.3 million, resulting in a leverage ratio of 4.66 times as of September Thirtyth 2019, compared to 4.66 times as of June Thirtyth.

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 was 4.44 times compared to a maximum leverage covenant of 5.75 times and that compares with.

<unk> 0.43 time on the same basis at June Thirtyth 29 team.

We spent 2.2 million in capex during the quarter compared to 1.2 million in the prior year third quarter, and 6.9 million year to date, which compares to a 3.3 email yeah yesterday 2018.

For the third quarter Beasley broadcast group free cash flow decreased from 5.9 down yet in the prior year third quarter, two 4.6 million in the current quarter. The 1.3 million variants reflects a 1 million increase in capital expenses, which includes the buildout of our Philadelphia studio.

1 million increase incorporate G and H 1.7 million increase incorporate DNA expenses, primarily related to digital investments, which I reviewed a moment ago. A 320000, an increase in current income tax expense under 330000, an increase in interest expense related to high rent borrowing.

Cost due to the acquisition.

These increases were partially offset by a 1.9 million increase in station. So why as noted by Caroline earlier, we expect another quarter of positive free cash flow in the fourth quarter.

As has been our practice, we will continue to allocate our free cash flow to pay down debt return value to our shareholders through quarterly dividend payments to complete select strategic accretive transactions and to reinvest in our stations for research promotion and other incense a initiatives that sales revenue share.

Leverage our brands and content and strong market position and with that I will turn it back to Caroline.

Thank you marine as we discussed we are in the messed up aggressively rolling out a digital expansion and transformation across the company and during the third quarter. We continued our investment into development and diversification of our digital platform. After an extensive search me identified in higher pod engage until the new.

Really created position US Chief Digital officer, Andy has been at the forefront of the digital media space for more than a decade, having spent six years and local media responsible for sell advertising strategy and products add operation in analytics programmatic sales and native advertising you also glad publisher.

Our development implementation and customer success for an AD Tech video start up and worked with Blue Chip digital pure plays and display audio video mobile performance marketing every targeting and affiliates cells and went tough background and digital expertise our digital team will be that much stronger and we expect to see the.

Done if that going into 2020.

The development of our digital support team continued to be in progress. This team will help in developing custom marketing solutions as turnkey and efficient as possible, including lead generation custom presentation proposal development campaign activation optimization recording and final campaign recap.

Reports these teams have been very well received by both advertisers and by our internal teams. We're seeing increased renewal rates due to a highly performing campaigns and increased digital revenue that you reiterate I'm happy to report that we saw an almost 37% increase and digital revenue year over year end up there.

Order and a 22.5% increase in digital revenue on a year to date basis.

Our commitment to growing content and audience is within our digital sales continues in full force as well specific content advertisers are now in place and are continuously creating new relevant and exciting contact. We're also in the process of rolling out our first theory that BMG produced indicated music videos, we continue to work with our own.

Our team to expand their own air brand to the digital sites and as a result, our digital expansion efforts are showing record growth, including an increase in users year over year or 68% and page views are up 31% and these are just a few examples of early successes that we're seeing.

Finally, let me review our current <unk> portfolio of E sports businesses. As we are very excited about this space and its potential opportunity in 2018, we invested in content via checkpoint X P. We entered into a partnership with Sun Radio group for this indication of just content and the shadow.

I'll be heard on approximately 70 stations in North America, and the team that life on Twitch for approximately five to seven hours a day Monday through Friday, and it is offering podcasts as well.

Earlier this year, we invested in team renegade, which includes players from five different teams competing in different games, such as fortnight My and rocket League in September we entered into a partnership with you in L.D., where we created checkpoint X P. On campus, a new college face endeavor with the Hank Greenberg fund goal of journalism and media.

I'd checkpoint XT on campus, if the vision as the voice of collegiate E sports produced for students by students with a show the Irrs weekly and it's a great tie in with one of E sports primary demographic, while creating further catalyst for social media integration regarding our E sports interests and we continue to work.

On the other E sports investment and look forward to sharing days with you as appropriate and moving on and looking into the balance at night team due to the October and November comparisons with last year's political cycle actual people revenue at currently pacing down high single digits. However December is more representative of what.

We've seen throughout the year and is pacing up in the low single digits and as I remind during Q4 18, we recorded approximately 3.3 million in net political revenue.

So to recap our third quarter performance includes about the investments we've made today, so revenue and so I increases on the actual basis, we're focused on investments that diversified the company on a long term basis, particularly in digital and E sports and we're managing our capital structure and leverage and we continue to return capital to shareholders.

So with that I think you for your time today and Maria do we have any questions that have come in yes that thinks Caroline. So we recently received if you are handful of question now most of them and have already been addressed except for a few and so I'm going to dive right into them first question.

He is can you Caroline provide some color on our digital segments, EBITDA and whether that is cash flow positive.

Sure, Yes, I mean.

Leahy digital segment, EBITDA, and we're not reporting segments, but the digital EBITDA is cash flow positive and we're looking at margins and the 30 plus percent range. We're very excited about a this area and as I. Just mentioned earlier, we just hired talk handy to come on board.

Our and we're looking for even higher increases next year and our digital revenues down what we recorded in their core excellent. Thank you second question is please can you. Please provide some color on our M&A strategy going forward.

Yes, so for M&A, I mean, we or I would like to break it into three buckets, we have our core business of radio and we will look at any potential strategic.

Acquisitions that makes sense for our company a in addition to that we're looking at growing or digital and E sports area and because we see these two areas.

Providing significant increase in long term value for our company and also near term revenue growth for our company.

Great. Thank you and the and the final question is said that's our leverage targets remain at four times by yearend and a and the answer is yes, four times and if you talked target them has been out targets and we expect to gets closer to that by the yearend from both organic growth.

And from additional debt repayment and those that concludes our question. Okay. Great. So again. Thank you all for participating on the call and should you have any Clarkson, please feel free to reach out to Maria or myself.

I'll have a great day.

Thank you ladies and gentlemen. This concludes today's presentation you may now disconnect.

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