Beasley Broadcast Group, Inc. (NASDAQ:BBGI) Q2 2016 Results Earnings Conference Call July 29, 2016 10:00 AM ET
Caroline Beasley - Interim CEO, Executive Vice President and Chief Financial Officer
Marie Tedesco - Vice President of Finance
Good morning and welcome to the Beasley Broadcast Group Second Quarter Webcast.
Before beginning, I’d like to emphasize that this webcast will contain forward-looking statements about our future performance and results of operations that involve risks and uncertainties described in the Risk Factors sections of our most recent forms 10-K and 8-K.
Today's webcast will also contain a discussion of certain non-GAAP financial measures within the meaning of Item 10 of Reg 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 our website. I’d remind listeners that following its completion, a replay of today's webcast can be accessed for five days on our website.
We're very excited about today's call in light of last week's news that we entered into an agreement to acquire Greater Media in an accretive cash and stock transaction that, subject to regulatory approvals, is expected to close later this year. I'll spend some time addressing the strategic and economic benefits of the deal later in the call.
I'm pleased to be joined this morning by Marie Tedesco. She is our VP of Finance and she was closely involved in the transaction. She will review our second quarter results today. But first, let me provide some high level commentary on the quarter. On an actual basis, revenue increased 2.8%, while SOI decreased 2.8%. The revenue increase was primarily generated from our Tampa and Charlotte clusters.
In the second quarter we outperformed our markets in terms of revenue growth. According to Miller Kaplan, our clusters increased about 4% compared with the overall markets which were flat.
Our outperformance was driven by our Tampa cluster which generated an impressive year over year revenue increase of about 12% compared with the market which was up almost 2%. In addition to Tampa, our Augusta, Charlotte, Fayetteville, Fort Myers and Greeneville, New Bern clusters all outperformed their respective markets.
Now, briefly moving on to the ratings, in the second quarter we did experience some ratings declines in our PPM markets compared to last quarter and last year's near record second quarter ratings. We remain highly focused on the strength of our local content and ratings as a currency for the local market business solutions and are actively undertaking several opportunities to improve our ratings.
Moving on to Tampa, our largest market, we operate three of the top 10 stations with adults 25-54 and prime. Our top performing station this quarter continues to be country station WQYK which was top five in persons 25-54 and prime. Our Spanish station, WYUU once again saw the largest year over year growth in the Tampa cluster with a 63% increase with persons 25-54 and prime and this is despite a new competitor.
Our Rhythmic CHR station saw a decline year over year and we are actively working to return WILD to number one with adults 18-49 which that's where we were nearly all of last year. The decline at WILD impacted the overall ratings performance of our Tampa cluster which was down year over year and quarter over quarter.
In Charlotte, Beasley has three of the top six stations with adults 25-54 and prime. The largest is country WSOC which is number two in the market. Our AC station KQC remains very competitive and is fifth in persons 25-54 and our urban AC station BAD is sixth.
The only Beasley station in Charlotte that saw a year over year ratings decline was our urban station PEG and that was due to the fact that there were two new urban competitors in Charlotte. We have a strategic plan in place for PEG to improve share and we're already seeing positive momentum. Overall, Charlotte remains a healthy market and we have a healthy cluster there.
Moving on to Vegas, we operate a five-station cluster and our top performing station is our flagship station classic hits KKLZ which is ranked fourth in persons 25-54 and prime. Our urban oldies station KLAS is back in the top 10 and has grown 26% from Q1. The station has a bright future with very positive recent trends. Elsewhere, we saw some challenges at our other stations and we're making changes and investments in this cluster to improve our share.
As we've reviewed previously our operating focus is on localism and delivering great local content. We expect these ratings to be converted into revenue going forward and we and our sales folks expect to have great ratings in order to deliver great revenue.
So with that, I'm going to turn it over to Marie and she can review the financials.
Thank you. It's a pleasure to be joining Caroline today and I'll quickly run through some other income statements and balance sheet items, after which I’ll turn the call back to Caroline.
As Caroline noted, we again had a positive top line in Q2 2016, with net revenue rising 2.8% or $753,000 to $27.8 million, while station operating expenses for the quarter increased 5.3% or by close to $1 million. The expense increase reflects bonuses earned, cash promotion, event concert expenses as well as third party hard costs associated with digital services.
Corporate G&A expenses also rose 6.1% or by $140,000 during the quarter to $2.4 million primarily due to an increase in contract services and costs and investments associated with the Greater Media transactions as we began to put in place an infrastructure for our expanded operating base.
Other income expense net increased $0.3 million during the three months ended June 30, 2016, primarily due to the receipt of insurance proceeds of $0.3 million related to fire damage in our New Bern facility in 2016. Our effective income tax rate was approximately 40% and 39% for the three months ended June 30, 2016 and 2015 respectively. These rates differ from the federal statutory rate of 35% due to the effect of state income taxes and certain expenses that are not deductible for tax purposes.
As such, we recorded $1.7 million of tax expense this year and approximately $1.6 million of tax expense in 2015’s second quarter. Cash taxes for the three months ended June 30, 2016 and 2015 were approximately $2.6 million and $2.1 million, respectively. Total second quarter interest expense decreased approximately $40,000 or 4.5% to $899,000 from $941,000 in second quarter of 2015. This reflects year over year reduction in principal.
Net income during the three months ended June 30, 2016 decreased $100,000 or 2.5% to $2.5 million as a result of the factors described above, while net income per diluted share was flat at $0.11 per share in both the 2016 and 2015 periods.
Turning to the balance sheet, during the quarter we made repayments totaling $3 million against our debt, which was reduced to $83 million as of 6/30/2016.
The LTM consolidated operating cash flow as defined in the credit agreement was $24.3 million, with our leverage ratio at 3.41 times as of June 30, 2016. However, our credit agreement allows the company to receive the benefit of $12.5 million of our total cash on hand in calculating net leverage. So reflecting the cash, our net leverage at June 30, 2016 was 2.90 times compared to our covenant of 4.5 times.
Our low net leverage and the strong cash flow from our existing operations put us in a good position to do the Greater Media transaction. We ended the 2016 second quarter with cash on hand of $14.1 million. In the second quarter 2016, the company spent $713,000 on CapEx compared to second quarter 2015 of $383,000. Year to date, the company has spent $1.369 million in CapEx compared to year to date 2015 of $845,000.
Caroline will now review our thoughts about the Greater Media transaction. Caroline?
Thank you, Marie. With our long-term strategic focus on localism and expanding our scale, expanding our free cash flow, diversifying our revenue and diversifying our SOI, we're pleased that we were able to reach an agreement with Greater Media last week. The acquisition of Greater Media represents a transformational growth opportunity for Beasley as it is strategically and financially compelling for our shareholders.
Upon closing, we'll significantly broaden our local radio and digital platform by adding stations that are geographically complementary to our operations, while presenting the opportunity for synergies with the company's existing operations. Specifically, the transaction increases our broadcast portfolio by about 40% and more than doubles our audience reach, our net revenue and our SOI.
Importantly, the transaction is expected to be accretive to our operating results immediately upon closing when taking into account expected synergies and excluding one-time transaction costs. As has been our practice, we expect to allocate free cash flow from operations to debt reduction, while continuing to return capital to shareholders through our quarterly cash dividend.
So in summary, this transaction will unite two companies with successful long-term family-owned roots, leaving Beasley well positioned to benefit from our expanded scale and revenue and SOI diversification.
So with that, I’d like to thank you very much for participating in the call today and please feel free to call Marie or myself with any questions. Thank you.
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