It’s no secret that there has been a lot of nail biting in anticipation of what will likely be a less-than-stellar round of quarterly earnings releases to start the 2018 calendar year.
If Beasley Broadcast Group‘s Q1 results portend much of the industry’s revenue tales, buckle up: We’ll be experiencing some turbulence for the next several days.
Lower operating income in the quarter resulted in a net loss in Q1 2018, despite growth in net revenue. Investors immediately reacted, sending BBGI shares down by nearly 11% as the company’s 10am Eastern quarterly earnings call with Wall Street analysts began.
By 11am, a slow recovery was underway, with shares down 8.2% to $10.78.
At the Closing Bell, BBGI shares were off by 4.7%, to $11.20.
Beasley CEO Caroline Beasley was joined by CFO Marie Tedesco on the Q1 call, and Ms. Beasley kicked off the discussion by noting that she was happy that her company’s reporting is a lot easier today now that the Greater Media transaction has been completed.
For 2018, Beasley Broadcast Group (which operates as Beasley Media Group) will put its focus on free cash flow growth. “That is where we are devoting our energies,” Ms. Beasley said, adding at the conclusion of the call, “Our Free Cash Flow grew both in Q1 and on a trailing 12-month basis. On a trailing 12-month basis it increased 27.5%.”
That’s where the good news ends for Beasley, which saw its net revenue grow 2.6% to $55.2 million from $53.7 million but swung to a net loss of $3.2 million (11 cents) from net income of $7.5 million (27 cents).
Using the popular non-GAAP standard of Station Operating Income didn’t help for Beasley: SOI dipped to $9.6 million from $9.8 million in Q1 for the company, as total operating income dipped to $400,000 from $11.5 million.
PATRIOT DEFLATION
In November 2017 iHeartRadio agreed to trade Sports Talk WBZ-FM 98.5 “The Sports Animal” in Boston to Beasley in exchange of AC WMJX-FM in Boston — and $12 million cash.
This deal gave Beasley the radio rights to the Patriots and the NHL’s Boston Bruins, which were eliminated from the 2018 Stanley Cup Playoffs on Sunday (5/6) by the Tampa Bay Lightning.
Ms. Beasley acknowledged that the sports play-by-play and chat programs bring “additional revenue potential going beyond music” for the important cluster, and said that the Patriots’ AFC championship-winning season contributed to the company’s Q1 revenue growth. There was also a bump at Sports Talk WPEN-FM 97.5 “The Fanatic” in Philadelphia, even though the Super Bowl Champion Philadelphia Eagles’ games are not heard on the station.
Subtract Boston and the newly divested Greenville-New Bern-Jacksonville, N.C. stations from the equation, and net revenue was statistically flat compared to Q1 2017.
Additionally, there was a Northeast region ad slowdown in Q1 that dinged Beasley’s revenue, “due to major storms” that led to business and school closures.
But it is The Sports Hub that is the big Q1 positive and negative for Beasley: SOI in Q1 went down expressly due to expenses tied to WBZ-FM. Subtract Boston, and SOI was flat across the company’s other clusters.
A key factor in Beasley’s year-over-year operating income dip, the company says, is a $11.9 million year-over-year change “in the fair value of contingent consideration due to changes in our stock price affecting the value of the Class A common stock to be returned to the company in settlement of the purchase price adjustment in connection with the acquisition of Greater Media and related sale of Greater Media’s tower assets.”
In addition, Beasley incurred $1 million in transaction expenses, other expenses and loss on disposition of assets in Q1.
An income tax expense of $380,501 was also seen in Q1.
With national revenue continuing to “remain challenged,” Ms. Beasley is nevertheless confident that her family’s publicly traded radio industry pure-play “continued to execute well” on an integration strategy “focused on strong local programming to support our goals of ratings and market leadership at recently acquired stations, while implementing our operating and expense management disciplines.”
ROOTING FOR REORGANIZATION WINS
Caroline Beasley also took a moment during her company’s Q1 2018 conference call for analysts to address the Chapter 11 restructuring petitions in U.S. bankruptcy court for the radio industry’s two biggest players — iHeartMedia and Cumulus Media.
With Cumulus on the road to emerging from bankruptcy debtor-in-possession status by the end of June and iHeartMedia’s petitions likely to receive approval soon, Ms. Beasley said it was “business as usual on one hand.” On the other hand, Beasley as a company has to believe that the bankruptcies had an impact on the industry at large.
As such, Ms. Beasley says, she and her compatriots are rooting for iHeart and Cumulus to become healthy operations as this is for the betterment of the entire radio broadcasting industry.
She also noted that the former CBS Radio stations changed hands in 2017 (to Entercom), and that Beasley expects these properties to see ratings and revenue improvements.
Live calls were not taken during the Q1 call, with Tedesco and Beasley instead answering questions sent via email ahead of time.
Asked about Beasley’s outlook on mergers and acquisitions, Beasley said, “We are always on the lookout for strategic acquisitions that will be accretive.”
For the right deal, “we would stretch our leverage to five times or lower,” she added.
At this time, Beasley’s focus may just be on reducing expenses while reaping the benefits of having The Sports Hub in its family.
How does Q2 shape up? April is up, May is flat and June is pacing down from 2017.
