Q4 2019 Earnings Call
Good morning, and welcome to the Beasley broadcast group fourth quarter 2019 conference call.
Seating 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 factor section of our most recent annual report on form 10-K, supplemented our quarterly reports on form 10-Q.
Today's webcast will also contain a discussion of non certain non-GAAP financial measures within the meaning of items in a regulation SK. A reconciliation of these non-GAAP measures with their most directly comparable financial measures calculated and presented in accordance with gap can be found in this morning's news announcement and on the comp.
He's website.
I would also remind listeners that following its completion a replay of todays call can be accessed for five days on the company's website www dot.
Not BG <unk> Dot Com you can also find a copy of today's press release on the investors or pressroom 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 Brandon and good morning, everyone. Thank you for joining us to review, our 2019 fourth quarter operating results and our progress towards diversifying our revenue and cash flow, including our growing E sports platform.
Tabasco, our CFO I always on the call with me. This morning, and she will provide you great details of our fourth quarter financial results.
First I'd like to say I'm thrilled to review our November Act acquisition at the Houston out loans, which again further expands piece lease role in the fast growing E sports base.
And reflects the company focused on premium E sports programming and content. The outlets franchise participates in Blizzard Entertainment Overwatch League. This acquisition was a rare and unique team ownership opportunity as there are only 20 teams worldwide the transaction partners Beasley.
With Blizzard Entertainment and its parent company Activision Blizzard, a leading global developer in publisher of interactive entertainment content and services.
And to remind everyone. Our other investments in E. Sports include team Renick agent E Sports organization, consisting of seven team based in Detroit, Michigan Checkpoint X P. A weekly syndicate syndicated E sports lifestyle show and a daily podcast as well as checkpoint X P on campus.
The first collegiate based E sports show in the U.S. our investments in this arena are unique and diversify our audio focus radio and digital operations.
So turning over to our radio operations. The initial integration of Detroit, the MK and DM KHD to acquired in late night team they've gone very well we remain confident that the addition of P and K will mark further progress toward our goal of capturing 30% revenue share in each of our markets while delivering.
Valuable synergies and the potential for X or Y margin improvement and as such we look forward to realizing the full financial and strategic benefits average transaction and 2020.
Now looking at fourth quarter result, and largely reflecting does cyclical impact a political realized in 18, but night 19 revenue declined 4.6% on a year over year basis to 72.1 million in total we booked about 2.8 million last political and Q4 19 compare to.
Q4, 18, and so when you exclude the political impact for Q 19 revenue was down 1.9% EUR 648000.
Notwithstanding the decline in Q4 political we generated year over year revenue increases in six of our markets.
In addition, looking closer at the year over year revenue cops and last year's fourth quarter. We also recorded 300000 of nonrecurring revenue related to get canceled batch spectrum license.
During the quarter, we continue to make solid progress with our digital growth initiatives as Q4 digital revenues rose, 44% year over year and they accounted for 9.2% of our total fourth quarter revenue. This is up from 6.1% in the comparable year ago quarter. This trend is also at.
<unk> on a year to date basis as digital revenues represented 7.6% of total revenue in 2019 for the full year compared to 6% and all of 18 and as noted earlier diversifying our revenue and cash flow isn't ongoing strategic priority. We believe we are demonstrating the a complement.
Sorry nature of our radio business with our digital and E sports operations.
Now looking past the revenue line, our fourth quarter expenses reflect the acquisition of D. and K in Houston out wall and inclusive of these expenses expenses rose, 2.8%, which resulted in fourth quarter S. ally of 15.6 million.
Looking at our full year 19 performance, our revenue increased 1.6% on an actual basis and decreased 1.1% same station. This is equivalent to an increase of 3% and 0.3% actual and same station respectively. When excluding 2018 political revenue.
For your actual 2019, Essar why decreased 2.1% inclusive of E sports expenses that we did not occur in 2018.
So fourth quarter 19 free cash flow increased to 20.7 million compared with 8.6 million in 18 fourth quarter. This primarily reflects net proceeds of 21.9 million from certain landfill somewhat offset by the decline in political higher capex and expenses toward our revenue and cash flow diversify.
Occasion initiatives and digital and E sports and an increase in taxes due to the game front. The landfill four year 19 free cash flow increased 33.5 million from 25.5 million in the prior here and with that I'm going to turn it over to Murray, who will provide you a deep dive into the fourth quarter.
Thanks, Caroline I will begin with a review of the fourth quarter results followed by a review of our balance sheet.
Fourth quarter on that revenue decreased 4.6% or 3.5 million to 72.1 million with a decrease primarily coming from the just discussed year over year decline in political revenue. Despite this nonrecurring political revenue.
Nice revenue increases in our Augusta, Sean that Detroit, Philadelphia, and Wilmington clusters, again ask Caroline mention the year over year comparison was impacted by the approximate 2.8 million decline of net political revenue and a $300000 nonrecurring spectrum.
Revenue, which combined would be equivalent to two or 3.7%.
Oh, Yeah revenue increased 1.6% on an actual basis as we achieved revenue increases in the following six markets. It got stuff Austin, Charlotte, Detroit, Philadelphia, and Wilmington, Boston, and Philadelphia or the two main drivers I think year over year increases Las Vegas thought.
The biggest decline due to the high level political revenue booked in this market in 2018.
Station operating expenses for the quarter increased 2.8% to 56.5 million inclusive of expenses related to E. Sports. That's we did not occur in the comparable 20 and teams Marianne.
So I for the quarter decline 5 million to 15.6 million, which was primarily related to the decline of political revenue and the Q4 E sports expenses.
Excluding the decline in political revenue fourth quarter, and so I declined 2.2 million or 12% and 1.5 million or 8.7% on a same station basis.
He or actual and that's why decreased 1.3, mallya or 2.1% and would have increased 3.7% when excluding political.
Same station, that's all I for the full year decreased 6.1% and would've been flat when excluding the decline in political.
Looking at our revenue categories for fourth quarter on an actual basis consumer services remained our largest revenue category at around 26% on revenue and we had a 4% year over year revenue increase in this category for the quarter, our consumer services category includes service oriented.
Mr., such as medical dental construction insurance and education.
Our second largest category in fourth quarter, West retail, which represents 17% of our revenue.
And the retail category declined 8%.
Entertainments once that third largest category for the quarter and we were flat year over year auto our fourth largest revenue category, representing 13% of revenue was up 2% driven by our Boston, Detroit and Philadelphia clusters. The top four categories accounted for approximately 69 per se.
Sounds of our total fourth quarter net revenue.
On a same station basis consumer services increased 3% retail declined eight and a half person entertainments was down one and a half person and auto was up 1%.
The increase in auto once again, driven by Boston and Philadelphia.
Another category that has strong <unk> performance in the quarter was finance, which rose 16% on a same station basis.
Taking a quick look out the categories for the full year on a same station basis consumer services was up 7% retail was down 3% entertainment down, 1% and auto was down 4%.
Corporate DNA expenses for the quarter increased 600000 compared to the same quarter, a year ago to find and a half million the year over year, increasing corporate Gionee is primarily related to and continued investments in building out our digital platform and our ongoing transformation from a pure play.
Radio company to a diversified audio focus media and digital entity.
Quantify this investment we spent approximately 914000 in the fourth quarter and 2.7 million in the full year off 29 team and we expect these investments will continue through 2020.
That's Caroline reported earlier on the call. These investments are driving digital revenue growth, which is becoming an increasingly significant piece of our overall revenue mix as we're continuing to build out this platform beginning in first quarter 2020. These expenses were shifting from corporate to the markets to match the revenue.
Expectation.
Noncash stock based compensation was up 130% to 384000 in the quarter. Our income tax expense for the quarter was 5.6 million and includes a cruise taxes on the 17 million gain on land sale, our effective tax rate for the quarter was 34.5% as some are softer.
Our capital gain and certain expenses down non not deductible for tax purposes.
And our tax rate for the full year was 33.3%.
Reported fourth quarter 29 teen operating income was approximately 11.2 million compared to 13.9 million in the parents about corner driven by the so I decline described earlier and increased corporate expenses and an impairment charge related to our am stations in Boca Raton.
Atlanta as well that's an impairment loss on investments this partially offset by again from the land sale fourth quarter 2019, net income increased 129% EUR 2.7 million to 4.8 million primarily after her solved a lower income tax expense in 2019.
I mean versus the prior year.
Well here 2019 operating income increased 3.8 million or 11%, just 38.1 million, whereas net income increased 7 million or 100, an 8% to 13.5 million.
Total fourth quarter interest expense was flat year over year at four and a half mountain and we made 3 million involuntary bank debt repayments for the quarter and we paid 12 million in voluntary payments for the full year. We ended the quarter with cash on hand up 18.6 million inclusive of the WD EM.
Can't transaction total outstanding debt at December 31st 2019 was 263.5 million compared to 253 email in yen as of September Thirtyth. This includes 13, and a half million unsecured debt related to the Houston outlaw acquisition.
I will therefore break out the leverage covenant to show total debt and total bank debt, which I'll refer to US first lien our LTM consolidated EBITDA as defined in our credit agreement was 52.4 million, resulting in total gross leverage ratio of 5.02 times and the first lien.
Leverage ratio a 4.77 times as of December 31st 2019 that compares to 4.65 times first lien leverage in the prior quarter. Our credit agreement allows the company to receive the benefit of up to 20 million of our total cash on hand in calculating that leverage.
And reflecting on December 31st balance sheet cash up 18.6 million told them that leverage was 4.67 times and first lien leverage was 4.41 times compared to a maximum person I lean leverage covenant of 5.75 times and that compares with four.
When for three times on the same basis at the end of third quarter.
The company's spent 2.1 million in capex for the quarter compared to prior year quarter of 863000 and for the full year, we spent 9 million compared to 4.2 million in 2018.
As Karen I know that's for the fourth quarter Beasley broadcast groups free cash flow increased 12.1 million to 20.7 million compared to 8.6 million in the prior year. This is mostly due to the net proceeds of 21.9 million from the sale of certain land, partially offset by the 5.0.
<unk> million declined and and so why which primarily is from the decline in political revenue and a 3 million increasing cash income tax expense related to the gains from land and land sale and a 1.3 million higher capital spending.
Well here 29, P.M. free cash flow increased 8 million to 33, and a half mallya from 25.5 million in the prior year. This was also driven by a 25 million gain and tower sale, which was partially offset by a 4.8 million increase in corporate expenses related to our digital initiative.
A 4.8 million increasing capital expenses, mostly due to the Philadelphia build out and the full point sixmillion, increasing cash income tax expense due to the gain on land sale and a 2 million increasing cash interest expense now let me also point out that fourth quarter and full year 29 team.
Free cash smell are inclusive of the onetime digital investments of 914000 and 2.7 million respectively.
As has been our practice, we intend to continue to allocate our free cash flow to pay down debt returned capital to our shareholders through quarterly cash dividend payment to complete select strategic accretive transactions and to reinvest in our stations for research promotion sales and other initiatives that will leverage our brands costs.
Okay, and strong market possessions and with that I'll turn it back to Caroline.
Thank you Mary So we spent the better part of 2019 aggressively rolling out our digital expansion and transformation across the company and we're now beginning to see the reward with digital revenue continuing to increased double digits each quarter year over year, Todd Handy our C D O.
He has more than a decade of expertise into digital media space and it's focused on driving best cells practices process improvement and advertiser ROI to realize significant year over year digital revenue increases.
Todd and his team continue to hire the digital ops in services teams as we are building out our trafficking and ops functions to support higher growth rates are cross our digital products and services.
The build out of our dedicated digital sales team is focused on driving new net digital revenue and targeting the sale of non radio products to non radio advertisers.
Reflecting the successes of our digital initiatives and strategies as I said earlier quarterly digital revenue grew 44% in fourth quarter and for the full year, our digital revenue grew 28.5%.
These results also highlight the significant strides we're making on the digital content side as we meaningfully expanded our digital content throughout 19 as a result, we drove a 57% increase in digital traffic users and page views increased to 104 million representing a 34.
Recent increase.
Overall, we're pleased with the momentum and the trajectory of our digital growth initiatives. Yet. We believe we are only in the early innings with the right teens strategies content and other offerings now in place, we expect 2020 to be another year of solid growth on this front.
And as noted earlier, we closed the acquisition of the Houston out walls and mid November and we began integrating this brand and to be MGP X P. Immediately we relocated the entire team coaching staff to Houston and dance has a 2020 ever watch season, which began earlier in the month and we are investing.
Texture to drive content fan base growth and sponsorship sales and other revenue.
Now I'd like to provide you with some current E sports data point.
Data points in an effort to share with use some of the reasons why we are so excited about this phase and many of you may have read some of these data points into recent Wall Street Journal article that was written or posted over the weekend. So revenue per fan base for E sports averages adult.
Okay, and that's relative to 50 to $60 for traditional league such as the N.B.A. Our MLP. This gap is expected to converge over time as E sports more effectively monetize is an attractive demo and highly engaged fan base.
The key revenue buckets for E sports are similar to traditional sports, including Ticketsnow sprites distribution sponsorships and merchandising.
While new leaks and teams are interested and linear distribution, it's not viewed as the primary growth bad for each sports, but rather as a potential vehicle to broaden viewership beyond the gamers that traditionally consume content on digital and the core audience for E sports consistent those that play the video games and therefore can number.
In the hundreds of millions this provides weeks with large audiences already familiar with the content and reduces the need to convert non gamers are fans of traditional sport.
So moving on and looking into the first quarter of the new decade. Actual Q1 revenue is currently pacing up low single digits. We are seeing some political dollars in the first quarter and we expect this momentum to continue into the first half of Q4. In addition, though we are facing negative comps.
As the new England Patriots only played one playoff game this year in the first quarter as opposed to winning do Super Bowl last year into first quarter.
So with that let me end today's call by reiterating that we are focused on investments that diversified the company on a long term basis, well keeping an eye on strategic accretive value building opportunities in the radio industry, we're managing our capital structure and leverage and we continue to return capital to.
There's we're pleased with growing financial results were seeing from or digital initiatives as well as the early progress, we're making toward our E sports investments or radio assets operations and competitive positions in our markets are as strong as ever and we remain committed to taking actions that can enhance value for all of our show.
Sure holders so with that that concludes our comments today and we do have some questions that were sent and where you will address.
I think every airline we have gotten some questions many of them garage rests on the call today and I have a couple of a additional wants it I will then take take right now first question is.
Are you seeing any political dollars from at Bloomberg and can you quantify it. So absent. This morning, we have about a million dollars plus of political revenue booked a amongst our markets and that that at least half of that is coming from Bloomberg.
Another question here can you remind us where you expect leveraged to sit at the end of a year. So based on my latest model, we expect to have to be around 4.2 times at the end of 2020, and I will let Caroline comments on that as well.
Yeah. So everyone on this call know fit our target is four times are below and we're working.
I'm very diligently on a addressing that but at this point.
We are projecting 4.2 chime in here [noise].
Thanks, and the final question is them how should we think about operating expense trends in her for 2020, given all the investments spend and how should we think about margins. Yeah. So let's focus on EBITDA margins with us and as you've heard on the call today, we've we've really been focused on.
Our investment initiatives in an effort to diversify our revenue. So I'm really pleased to say that for first quarter. We are seeing our EBITDA margins should.
Should be flat considering the investments that we're making and this does exclude outlaw.
Going forward or for the rest of the year, we do expect our EBITDA margins to grow a given the fact that digital revenue will far exceed the investments that we're making so with that we're really pleased with our progress. We thank you for your time until created or reach out to Murray or myself with in question.
[noise] [noise] [noise] [noise]. Thank you ladies and gentlemen. This concludes today's event you may now disconnect your lines.
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