Beasley Broadcast Group, Inc.
Q4 2019 Earnings Call Transcript

Published: 18 Feb 2020

[Operator:]

Good morning, and welcome to the Beasley Broadcast Group Fourth Quarter 2019 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 non -- 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 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's CEO, Caroline Beasley. Please go ahead.

[Barbara Beasley:]

Thank you, Brandon, and good morning, everyone. Thank you for joining us to review our 2019 fourth quarter operating results and our progress toward diversifying our revenue and cash flow, including our growing esports platform. Marie Tedesco, our CFO, is 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 acquisition of the Houston Outlaws, which again further expands Beasley's role in the fast-growing esports space and reflects the company's focus on premium esports programming and content. The Outlaws franchise participates in Blizzard Entertainment's 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 and publisher of interactive entertainment content and services.And to remind everyone, our other investments in esports include Team Renegades, an esport organization consisting of 7 teams based in Detroit, Michigan; Checkpoint XP, a weekly syndicated esports lifestyle show; and a daily podcast; as well as Checkpoint XP On Campus, the first collegiate-based esports show in the U.S. Our investments in this arena are unique and diversify our audio-focused radio and digital operations.So turning over to our radio operations, the initial integration of Detroit's DMK and DMK HD2 acquired in late '19, they've gone very well. We remain confident that the addition of DMK 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 SOI margin improvement. And as such, we look forward to realizing the full financial and strategic benefits of the transaction in 2020.Now looking at fourth quarter results and largely reflecting the cyclical impact of political realized in '18 but not '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 in Q4 '19 compared to Q4 '18. And so when you exclude the political impact, 4Q '19 revenue was down 0.9% or $648,000. Notwithstanding the decline in Q4 political, we generated year-over-year revenue increases in 6 of our markets. In addition, looking closer at the year-over-year revenue comps in last year's fourth quarter, we also recorded $300,000 of nonrecurring revenue related to a canceled spectrum license.During the quarter, we continued 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 evident on a year-to-date basis as digital revenues represented 7.6% of total revenue in 2019 for the full year compared to 6% in all of '18. And as noted earlier, diversifying our revenue and cash flow is an ongoing strategic priority. We believe we are demonstrating the complementary nature of our radio business with our digital and esports operations.Now looking past the revenue line, our fourth quarter expenses reflect the acquisition of DMK and the Houston Outlaws. And inclusive of these expenses, expenses rose 2.8%, which resulted in fourth quarter SOI 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. Full year actual 2019 SOI decreased 2.1%, inclusive of esports expenses that we did not incur 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 land sales, somewhat offset by the decline in political, higher CapEx and expenses toward our revenue and cash flow diversification initiatives in digital and esports and an increase in taxes due to the gain from the land sale. Full year '19 free cash flow increased to $33.5 million from $25.5 million in the prior year.And with that, I'm going to turn it over to Marie, who will provide you a deep dive into the fourth quarter.

[Marie Tedesco:]

Thanks, Caroline. I will begin with a review of the fourth quarter results, followed by a review of our balance sheet. Fourth quarter net 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, we realized revenue increases in our Augusta, Charlotte, Detroit, Philadelphia and Wilmington clusters. Again, as Caroline mentioned, the year-over-year comparison was impacted by the approximate $2.8 million decline of net political revenue and a $300,000 of nonrecurring spectrum revenue, which, combined, would be equivalent to 3.7%. Full year revenue increased 1.6% on a natural basis as we achieved revenue increases in the following 6 markets

[Barbara Beasley:]

Thank you, Marie. 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 increase double digits each quarter year-over-year. Todd Handy, our CDO, has more than a decade of expertise in the digital media space and is focused on driving best sales 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 and services teams as we are building out our trafficking and ops functions to support higher growth rates across 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% 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 team, 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 Outlaws in mid-November, and we began integrating this brand into BMG BXP immediately. We relocated the entire team, coaching staff to Houston in advance of the 2020 Overwatch season, which began earlier in the month. And we are investing in the infrastructure to drive content, fan-based growth and sponsorship sales and other revenue.Now I'd like to provide you with some current esports data points in an effort to share with you some of the reasons why we are so excited about this space, and many of you may have read some of these data points in the recent Wall Street Journal article that was written or posted over the weekend. So revenue per fan base for esports averages $1, and that's relative to $50 to $60 for traditional leagues, such as the NBA or MLB. This gap is expected to converge over time as esports more effectively monetizes an attractive demo and highly engaged fan base. The key revenue buckets for esports are similar to traditional sports, including ticket sales, rights distribution, sponsorships and merchandising.While new leagues and teams are interested in linear distribution, it's not viewed as the primary growth bet for esports but rather as a potential vehicle to broaden viewership beyond the gamers that traditionally consume content on digital. And the core audience for esports consists of those that play the video games and therefore can number in the hundreds of millions. This provides leagues with large audiences already familiar with the content and reduces the need to convert non-gamers or fans of traditional sports.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 the Super Bowl last year in the first quarter.So with that, let me end today's call by reiterating that we are focused on investments that diversify the company on a long-term basis while 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 our shareholders. We're pleased with the growing financial results we're seeing from our digital initiatives as well as the early progress we're making toward our esports investments. Our 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 shareholders.So with that, that concludes our comments today, and we do have some questions that were sent in that we will address. Marie?

[Marie Tedesco:]

Great. Thanks, Caroline. We have gotten some questions. Many of them were addressed on the call today. I have a couple of additional ones that I will take right now. First question is are you seeing any political dollars from Bloomberg and can you quantify it. So as of this morning, we have about $1 million plus of political revenue booked amongst our markets, and that -- at least half of that is coming from Bloomberg.Another question is can you remind us where you expect leverage to sit at the end of the year. Based on my latest model, we expect to be around 4.2x at the end of 2020. And I will let Caroline comment on that as well.

[Barbara Beasley:]

Yes. So everyone on this call knows that our target is 4x or below, and we're working very diligently on addressing that. But at this point, we are projecting 4.2x through the end of the year.

[Marie Tedesco:]

Thanks. And the final question is how should we think about operating expense trends for 2020 given all the investment spend. And how should we think about margins?

[Barbara Beasley:]

Yes. So let's focus on EBITDA margins with this. And as you've heard on the call today, 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 be flat, considering the investments that we're making, and this does exclude Outlaws. But going forward, for the rest of the year, we do expect our EBITDA margins to grow 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, and feel free to reach out to Marie or myself with any questions.

[Operator:]

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