Q4 2022 Beasley Broadcast Group Inc Earnings Call

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Greetings and welcome to the Beasley broadcast group fourth quarter 2022 earnings call.

At this time all participants are in a listen only mode.

A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Caroline Beasley Chief Executive Officer. Please proceed.

Okay.

Thank you Latanya good morning, everyone and thank you for joining us to review, our fourth quarter and full year results married to NASCAR CSR with with me. This morning, we're happy to share that our fourth quarter results showed year over year improvement in revenue.

Right and the continued growth we are achieving on our digital side, our digital revenue political revenue and new business initiatives were the primary drivers to the quarter.

Net revenue increased one 8% in line with the guidance. We provided when we reported Q3 projected flat to slightly up quarter breaking down the revenue increase already Aramark website increased one 9% and national increased six 1% and this is <unk>.

Inclusive of $5 1 million of political revenue.

And our Q4 political revenue offset the headlines are the headwinds everyone is seeing in national as our national business ex political was down 25%, notably same station revenues for the quarter increased 7% with same station soi, increasing two 8%.

Full year revenue increased six 2% similar to fourth quarter over the year, but books bought increased seven 7%, while national was down seven 5%, including net political revenue was approximately $7 5 million.

Same station full year revenue increased five 6% and same station Soi increased three 2% critical year.

Excluding political for the full year National's declined 19, 2%. In addition national revenue ex political declined to 12, 2% of our total revenue in fourth quarter looking at previous quarters as well as the last few years national has been trending down.

It has decreased from almost 21% of total revenue in 2019 to 12, 2% in fourth quarter and to a 14, 2% for the full year at 22 and this is ex political we been successful in offsetting these national declines with higher local and digital revenue as Ed.

Evidenced by our results for the past several quarters, where digital revenue has consistently outfield national and we expect national to continue to decline, which is why we are prioritizing the growth of our digital platform, while continuing to aggressively develop local direct new business.

So Q4 digital revenue grew 12, 2% year over year and now represents almost 17% of our total revenue and that's up from 15% in a year ago fourth quarter full year digital revenue increased 25% to $40 8 million and accounted for about 16.

Percent of our total revenue, we're clearly on the path to achieving our goal of digital accounting for 20% of total revenue and we expect to land somewhere between 20 and 30% digital to total revenue in 2023, and that's going to be driven by our content creation, our web services rollout.

Our acquisition of the White label agency guaranteed digital last year.

Now audio revenue for the quarter and audio revenue in spot network talent revenue barter and block programming was slightly down by <unk>, 4%, our increase in new business and political were offset by declines in national network and partner.

Moving onto sports betting we recorded $3 3 million in Q4 revenue amounted to four 6% of total revenue in this category, which was again driven by Detroit, Philly and New Jersey and on a positive note sports betting legislation was approved and started on January 31, and Massachusetts.

And we are seeing the benefit of such just this month with the Super Bowl as well as heading into March with March Madness, we're well positioned in Boston with her five FM radio station, including the number one sports station in in the country 98, five to support Com home to the new <unk>.

England Patriots, the Boston Bruins and the Boston Celtics.

Now as far as our operating expenses.

It is a cost reduction program in third quarter with most of these costs completed in October a month the expense reductions were permanent head count reductions, which will benefit 2023 by about $5 million and I'm going to turn it over to Marie she's going to bring you more detail.

On the expense side of where we ended up last year, So Moray I'm going to turn it over to you right now great. Thanks, Caroline and good morning, everyone. I will start with a review of our fourth quarter results followed by a review of our balance sheet.

Caroline mentioned fourth quarter net revenue increased one 8% or $1 3 million to $72 million, which includes 784000 from our two esports teams as well as 900000 from guaranteed digital which is our second quarter Agency acquisition.

Excluding political fourth quarter revenue declined four 8% or $3 4 million due to the decline in National's full year total revenue increased six 2% or $15 million and excluding political revenue increased three 5% or $8 4 million reflecting.

Our outperformance in local and digital revenue.

Given the strong political demand during the period, we had a shortage of inventory for local and while the political revenue masks any kind of slowdown in October and partially in November we saw it slow down in the second half related to inflation labor shortage at an interest rate increase.

Looking closer at the quarter October was up 8% with local up 2% and national up 41%, including political November was down 2% with local down 3% and national was down seven 3%, including political.

December also declined 2% with local up 1% and national is down 15, 1%.

<unk> operating expenses for the quarter increased $1 3 million or two 2% to $58 1 million worse off resulting in fourth quarter Soi of $13 9 million, marking a slight year over year increase.

Breaking down the increase in operating expenses. The main driver for the acquisition over a white labeled agency guaranteed that the Dol, which added $1 1 million of new expenses for the quarter as well as severance costs from our October risks of approximately 600000.

Full year operating expenses rose six 9% or $13 8 million driven by an increased cost of sales of approximately $4 3 million.

$2 6 million variance from a bad debt reduction taken in 2021, and the addition of guaranteed digital up 2 million of new expenses.

Notably pro forma for the severance and the fourth quarter head count savings operating expenses would have declined 1% and Soi would have increased 13, 5%.

Now looking at our revenue categories for fourth quarter consumer services remained our largest revenue category at 28, 6% of our total revenue with a decrease of 0.5% year over year for the quarter.

Our second largest category was retail switching place with entertainment and retail was down one 4% for the quarter at 15, 3% of our total revenue.

Attainment was 13, 2% of total revenue and this category, which includes sports betting was down 11%. We saw entertainment spend increases in Charlotte Las Vegas, Augusta and Wilmington, However, sports betting what's the driver for the decrease in this category in Detroit.

And Philadelphia.

Although our fourth largest category saw revenues down, 3% or 190000 year over here and the category accounted for eight 8% of our total revenue.

We saw double digit increases in auto and our Detroit Augusta, Fayetteville, and Wilmington clusters, and low single digit increases in Charlotte and New Jersey.

Political came in fifth place at seven 5% of total fourth quarter revenue and consumer products in telecom landed in sixth and seventh place with four eight and four 4% of total revenue.

Looking at the full year consumer services accounted for 29, 5% of total revenue and was up five 7% for the year retail was up 11% and accounted for 15, 9% of total revenue Andrew.

Entertainment also increased 11% and accounted for 14 and a half a percent of total and auto declined 4% to eight 8% of total revenue.

Comparing our key GAAP categories in fiscal year 2022 to 22 of 2019 consumer services increased 14, 6% retail was down five 5% entertainment increased four 8% and auto was down.

31, 6% or just under $10 million compared to 2019.

Corporate G&A for the quarter decreased 14, 1% or by 666000 compared to the same quarter a year ago to $4 1 million the year over year decrease in corporate G&A is mostly related to expenses in prior year fourth quarter related to a capex project that was.

Terminated as well as reduced compensation full year corporate G&A increased eight 6% or $1 4 million to 18 million primarily related to a corporate digital expenses. These include noncash expenses of approximately $1 million, we expect to land.

Somewhere around $18 million in 2023 or slightly below $17 million, excluding noncash expenses.

Noncash stock based compensation decreased 26000 to 12, 6% or 12, 6% to 183000 in the quarter and decreased 23, 5% or 325000 to $1 1 million for the full year 2022.

And we had an income tax benefit both for the quarter and for the full year.

Fourth quarter 2022, operating income declined 40 million to a negative $33 5 million compared to $6 5 million in the year ago quarter, driven by a non cash impairment charge of $44 2 million related to FCC licenses goodwill and franchise.

Right.

Our operating income declined $58 million year over year to a negative $36 1 million again related to a noncash impairment charge of $54 7 million for the year.

Fourth quarter interest expense decreased to 170000 year over year to $6 6 million, reflecting our bond repurchase activity during 2022 and full year interest expense was $26 9 million slightly up from $26 5 million in 2021.

We ended the year with a total depth of $290 million and we made our semiannual interest payment on February one 2023.

EBITDA for the quarter was $9 9 million up seven 5% or 690000 from the prior year quarter and full year, EBITDA decreased 0.9% or 234000 compared to 2021 and Jeff.

And that's an average was $6 seven one times and includes add back of approximately $12 million with half of that coming from our risk on a pro forma basis, 25% coming from our digital build out and the remaining 25% from tax and noncash items.

That are added back.

And the in this calculation the debt is net of cash on hand.

We ended the quarter with cash on hand of $39 5 million. Our current cash balance continues to allow us the flexibility to reduce that and pursue additional investments in the digital space should an opportunity arise.

However, given the uncertain economic environment, we are inclined to keep cash on the balance sheet for the time being.

Our capital expenditures for the quarter were $2 4 million of which $1 6 million was directly related to the now completed Boston buildup of studios and offices. We received 830000 in the quarter from the build out the allowance with an additional 590000 balance.

On the way this capital expense compares to prior fourth quarter of 800000 year. Today's Capex spend was $13 4 million or nine 3 million net of the buildup.

Reimbursement.

Compared to prior year to date or full year of $4 5 million moving into 2023, we expect our capex spend will normalize in the range of four to five melia and with that I will turn it back to Caroline.

Thank you Murray as reflected in our results and in light of the economic headwinds that we saw on fourth quarter. We're pleased with our fourth quarter and full year performance, particularly the continued growth and diversification afforded by our digital business specifically the strategy that was put in place mid year helped to drive to.

25% growth in our digital revenue for the full year, we're very excited about this opportunity as we go into 2023 for example, our multiplatform local content strategy continued to drive tremendous audience growth in the fourth quarter, our owned and operated audience reach grew by 18.

Per cent compared to fourth quarter of 'twenty, one and a radio brands remained dominant and Nelson, where we currently have the highest average cluster share when compared to the other major radio broadcasters in P. P. M. However, the largest audience growth was seen on our digital O&M assets with unique.

<unk>, increasing from $16 6 million in Q4, 'twenty, one to 'twenty $2 3 million in Q4, 'twenty two marking an increase of 34%. This audience growth led to a 69% increase of Sellable digital impressions from Q1.

Q4, 'twenty, one to Q4 'twenty two and as noted on prior calls the growth in digital impressions as a fundamental driver of our digital revenue growth and then when looking at the full year of 'twenty two versus 21, our total owned and operated audience is up 30% and just like in Q4 digital is fueling the growth.

With Dr unique users up 38% growing from $54 9 million in 'twenty, one to $75 5 million in 'twenty two.

Sellable digital impressions were up 95% year over year, and we expect similar growth in 2023, so moving onto 2023 and looking at first quarter revenue as of today pacings are slightly up to prior year and breaking that down January was flat.

February and March are pacing up in the low to mid single digits and as previously noted we are very mindful of the current economic environment, and we will be monitoring our revenue paces and pacings in managing our expenses based on such we're hyper focused on improving overall margins for the company and <unk>.

<unk> free cash flow for the year, and we will monitor our cash on hand, and determine the best use of free cash flow in the future as we move through the year. So lastly, I'd like to acknowledge our team across the company for everything they've done and are doing to help us continue our digital transition with our content and sales strategy.

And place. So thank you very much and Maria I'm going to hand, it over to you to add a number of questions that we received this morning, great. Thanks, Caroline So most of the questions that we received were addressed in our prepaid in her prepared remarks. However, we do have a few additional questions that I will now review and for the first.

Question Caroline this will be for you could you touch on our pacing for first quarter for a local versus national versus digital.

Sure and you know this is the same story that we've seen over the last.

Several quarters and actually several years local is pacing up right now, 6% national is pacing down 12% and digital is pacing up 15%. So this reinforces what our goals are and that is really focused on locals Iraq.

Business generating new local direct business and growing our digital side of the house because national continues to decline.

Great next question.

Digital growth was up 12, 3% can you touch on the trends in digital margin.

Sure. So we're going to go back to 'twenty one.

And you saw our digital margins at flat to slightly up.

So we were barely generating cash flow with digital in 'twenty, one and 'twenty two does margins increased to about 11% in 'twenty three we're looking at those margins coming in closer to 20%.

Great.

In terms of your digital businesses are there any current restraints in its growth such as ability to hire experienced staff and also any heightened competition out there.

So in an additional side of the house.

<unk> seen.

In terms of hiring experienced personnel that this is actually easing up however, what we are.

What we are seeing today is that it's harder to find entry level positions. So that that is where we are on the employment side.

On the business side in terms of competition, we are seeing heightened competition in some of our markets, but in some of the markets we are not.

We're seeing more of our peers really focused on digital and then also smaller agencies coming on starting a digital side of the house and so we're competing against them.

Great. Another question under a mild recession risks recessionary environment for 2023.

The numbers look and how should we view the $10 million cost savings and what is the incremental operating expense for the acquisition of guaranteed digital can you be free cash flow positive in 2023 under this kind of an environment.

So I'll start with the last question and yes, we do expect to be free cash flow positive in 2023. The reasons are as follows in a mild recession, we still expect to see revenue growth, we expect national of course to be down a local.

It will be flat, maybe even slightly down but with our emphasis on digital and growing digital revenue we expect.

And that to be able to offset any declines in the traditional side of the house also with the acquisition of Guaranty digital.

They're going to bring revenue into the company in terms of expenses from guarantee we are projecting about $7 million in outages expenses. This year. However, that's based on certain revenue projections for our guarantee and we are expecting them to cash flow positive. This year. So if the revenues.

They're not coming in the way that we expect then we will obviously adjust those expenses.

And what else did I Miss anything there.

I think I know that that was a long question and I think I got it all.

There was a question that if there is any more cash costs tied to the cost savings actions that were implemented in October .

And the answer is actually no. So we accrued and paid out all the related severance.

Expenses in fourth quarter, and none of that is carrying over to first quarter of 2023, and then Caroline the last question that well review is.

With cash now almost up to 40 million and the bonds trading in the mid sixties, that's it makes sense to keep buying back some.

Yeah. So one of the goals as a company is to reduce our debt and to reduce our leverage so that aligns very well with the goal one of the goals of the company. So yes, it would make sense to buy the bonds back at 60% if you will.

We are being very disciplined we want to see how the beginning of.

2023.

<unk> out and just see if there are any recessionary risk out in the marketplace and what we feel comfortable with the economy than we will.

Really focused on the goals of the company.

Perfect and that concludes the question alright.

Alright, well. Thank you very much really appreciate your questions and you all participating today I hope you have a great day.

Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time and thank you for your participation and have a great day.