UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended March 31, 2018
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File No. 000-29253
BEASLEY BROADCAST GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 65-0960915 | |
(State of Incorporation) |
(I.R.S. Employer Identification Number) |
3033 Riviera Drive, Suite 200
Naples, Florida 34103
(Address of Principal Executive Offices and Zip Code)
(239) 263-5000
(Registrants Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ (Do not check if a smaller reporting company) | Smaller reporting company | ☒ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.
Class A Common Stock, $0.001 par value, 10,839,506 Shares Outstanding as of May 1, 2018
Class B Common Stock, $0.001 par value, 16,662,743 Shares Outstanding as of May 1, 2018
Page
No. |
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PART I | ||||||
FINANCIAL INFORMATION | ||||||
Item 1. | Condensed Consolidated Financial Statements. | 3 | ||||
Notes to Condensed Consolidated Financial Statements. | 6 | |||||
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations. | 12 | ||||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk. | 17 | ||||
Item 4. | Controls and Procedures. | 17 | ||||
PART II | ||||||
OTHER INFORMATION | ||||||
Item 1. | Legal Proceedings. | 18 | ||||
Item 1A. | Risk Factors. | 18 | ||||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. | 18 | ||||
Item 3. | Defaults Upon Senior Securities. | 18 | ||||
Item 4. | Mine Safety Disclosures. | 18 | ||||
Item 5. | Other Information. | 18 | ||||
Item 6. | Exhibits. | 19 | ||||
SIGNATURES | 20 |
BEASLEY BROADCAST GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
December 31,
2017 |
March 31,
2018 |
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ASSETS | ||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 13,922,390 | $ | 13,169,964 | ||||
Accounts receivable, less allowance for doubtful accounts of $1,623,408 in 2017 and $1,623,092 in 2018 |
42,669,351 | 40,017,862 | ||||||
Prepaid expenses |
6,001,996 | 9,022,158 | ||||||
Merger consideration receivable |
17,931,331 | | ||||||
Other current assets |
4,135,905 | 4,419,721 | ||||||
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Total current assets |
84,660,973 | 66,629,705 | ||||||
Property and equipment, net |
59,318,933 | 58,979,747 | ||||||
FCC broadcasting licenses |
489,186,679 | 489,239,179 | ||||||
Goodwill |
15,275,264 | 15,275,264 | ||||||
Other intangibles, net |
550,058 | 493,934 | ||||||
Other assets |
5,726,874 | 5,584,672 | ||||||
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Total assets |
$ | 654,718,781 | $ | 636,202,501 | ||||
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LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
Current liabilities: |
||||||||
Current installments of long-term debt |
$ | 2,314,020 | $ | 64,791 | ||||
Accounts payable |
7,847,829 | 7,428,742 | ||||||
Other current liabilities |
18,799,195 | 21,435,026 | ||||||
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Total current liabilities |
28,961,044 | 28,928,559 | ||||||
Due to related parties |
759,041 | 734,863 | ||||||
Long-term debt, net of current installments and unamortized debt issuance costs |
212,465,882 | 212,169,482 | ||||||
Deferred tax liabilities |
115,282,931 | 115,338,525 | ||||||
Other long-term liabilities |
11,083,683 | 11,046,927 | ||||||
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Total liabilities |
368,552,581 | 368,218,356 | ||||||
Commitments and contingencies |
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Stockholders equity: |
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Preferred stock, $0.001 par value; 10,000,000 shares authorized; none issued |
| | ||||||
Class A common stock, $0.001 par value; 150,000,000 shares authorized; 15,222,738 issued and 12,189,998 outstanding in 2017; 15,214,405 issued and 10,841,181 outstanding in 2018 |
15,223 | 15,215 | ||||||
Class B common stock, $0.001 par value; 75,000,000 shares authorized; 16,662,743 issued and outstanding in 2017 and 2018 |
16,662 | 16,662 | ||||||
Additional paid-in capital |
147,987,332 | 148,605,112 | ||||||
Treasury stock, Class A common stock; 3,032,740 shares in 2017; 4,373,224 shares in 2018 |
(16,667,085 | ) | (30,207,533 | ) | ||||
Retained earnings |
154,389,494 | 149,865,034 | ||||||
Accumulated other comprehensive income (loss) |
424,574 | (310,345 | ) | |||||
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Total stockholders equity |
286,166,200 | 267,984,145 | ||||||
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Total liabilities and stockholders equity |
$ | 654,718,781 | $ | 636,202,501 | ||||
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3
BEASLEY BROADCAST GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
Three Months Ended March 31, | ||||||||
2017 | 2018 | |||||||
Net revenue |
$ | 53,740,551 | $ | 55,153,627 | ||||
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Operating expenses: |
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Station operating expenses (including stock-based compensation of $79,047 in 2017 and $152,418 in 2018 and excluding depreciation and amortization shown separately below) |
43,949,594 | 45,512,847 | ||||||
Corporate general and administrative expenses (including stock-based compensation of $118,692 in 2017 and $465,354 in 2018) |
3,230,097 | 3,282,473 | ||||||
Transaction expenses |
450,833 | | ||||||
Other operating expenses |
328,247 | | ||||||
Depreciation and amortization |
1,502,837 | 1,546,734 | ||||||
Change in fair value of contingent consideration |
(7,533,292 | ) | 4,415,925 | |||||
Loss on disposition |
269,456 | | ||||||
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Total operating expenses |
42,197,772 | 54,757,979 | ||||||
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Operating income |
11,542,779 | 395,648 | ||||||
Non-operating income (expense): |
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Interest expense |
(4,827,339 | ) | (3,625,240 | ) | ||||
Other income (expense), net |
356,198 | 448,901 | ||||||
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Income (loss) before income taxes |
7,071,638 | (2,780,691 | ) | |||||
Income tax expense (benefit) |
(414,858 | ) | 380,501 | |||||
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Net income (loss) |
7,486,496 | (3,161,192 | ) | |||||
Other comprehensive income (loss): |
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Unrealized losses on securities (net of income tax benefit of $9,200) |
(14,174 | ) | | |||||
Reclassification of other comprehensive income due to termination of pension plan (net of income tax benefit of $261,358) |
| (731,265 | ) | |||||
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Comprehensive income (loss) |
$ | 7,472,322 | $ | (3,892,457 | ) | |||
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Net income (loss) per Class A and B common share: |
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Basic and diluted |
$ | 0.27 | $ | (0.11 | ) | |||
Dividends declared per common share |
$ | 0.045 | $ | 0.05 | ||||
Weighted average shares outstanding: |
||||||||
Basic |
27,663,114 | 27,717,394 | ||||||
Diluted |
27,766,662 | 27,717,394 |
4
BEASLEY BROADCAST GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31, | ||||||||
2017 | 2018 | |||||||
Cash flows from operating activities: |
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Net income (loss) |
$ | 7,486,496 | $ | (3,161,192 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
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Stock-based compensation |
197,739 | 617,772 | ||||||
Provision for bad debts |
364,848 | 225,415 | ||||||
Depreciation and amortization |
1,502,837 | 1,546,734 | ||||||
Change in fair value of contingent consideration |
(7,533,292 | ) | 4,415,925 | |||||
Loss on disposition |
269,456 | | ||||||
Termination of pension plan |
| (992,623 | ) | |||||
Amortization of loan fees |
546,808 | 470,376 | ||||||
Deferred income taxes |
(451,967 | ) | 375,204 | |||||
Change in operating assets and liabilities: |
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Accounts receivable |
7,465,563 | 2,426,074 | ||||||
Prepaid expenses |
(2,286,930 | ) | (3,020,162 | ) | ||||
Other assets |
388,902 | (48,878 | ) | |||||
Accounts payable |
(1,193,685 | ) | (419,087 | ) | ||||
Other liabilities |
(744,634 | ) | 2,410,033 | |||||
Other operating activities |
134,557 | (44,593 | ) | |||||
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Net cash provided by operating activities |
6,146,698 | 4,800,998 | ||||||
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Cash flows from investing activities: |
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Capital expenditures |
(999,587 | ) | (1,173,496 | ) | ||||
Proceeds from disposition of radio stations |
24,000,000 | | ||||||
Payments for translator licenses |
(700,000 | ) | (52,500 | ) | ||||
Loan to related party |
(150,000 | ) | | |||||
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Net cash provided by (used in) investing activities |
22,150,413 | (1,225,996 | ) | |||||
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Cash flows from financing activities: |
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Payments on debt |
(28,015,270 | ) | (3,016,005 | ) | ||||
Dividends paid |
(1,280,410 | ) | (1,286,381 | ) | ||||
Purchase of treasury stock |
(456,126 | ) | (25,042 | ) | ||||
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Net cash used in financing activities |
(29,751,806 | ) | (4,327,428 | ) | ||||
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Net decrease in cash and cash equivalents |
(1,454,695 | ) | (752,426 | ) | ||||
Cash and cash equivalents at beginning of period |
20,325,415 | 13,922,390 | ||||||
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Cash and cash equivalents at end of period |
$ | 18,870,720 | $ | 13,169,964 | ||||
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Cash paid for interest |
$ | 4,384,687 | $ | 3,051,884 | ||||
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Cash paid for income taxes |
$ | 246,800 | $ | 35,950 | ||||
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Supplement disclosure of non-cash investing and financing activities: |
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Dividends declared but unpaid |
$ | 1,285,412 | $ | 1,366,922 | ||||
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Class A common stock returned to treasury stock |
$ | | $ | 13,515,406 | ||||
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5
BEASLEY BROADCAST GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) | Interim Financial Statements |
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of Beasley Broadcast Group, Inc. and its subsidiaries (the Company) included in the Companys Annual Report on Form 10-K for the year ended December 31, 2017. These financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the financial statements reflect all adjustments necessary for a fair statement of the financial position and results of operations for the interim periods presented and all such adjustments are of a normal and recurring nature. The Companys results are subject to seasonal fluctuations therefore the results shown on an interim basis are not necessarily indicative of results for the full year.
(2) | Recent Accounting Pronouncements |
In March 2017, the Financial Accounting Standards Board (FASB) issued guidance to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. The new guidance is effective for annual periods beginning after December 15, 2017. The Company adopted the new guidance in the first quarter of 2018 with no material impact on its financial statements.
In August 2016, the FASB issued guidance to reduce diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The Company adopted the new guidance in the first quarter of 2018 with no material impact on its financial statements.
In February 2016, the FASB issued guidance to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. There continues to be a differentiation between finance leases and operating leases, however lease assets and lease liabilities arising from operating leases should now be recognized in the statement of financial position. New disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The new guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company continues to review the new guidance and is currently researching lease management software. The Company expects the new guidance to result in a significant impact on the balance sheet, however that impact will not be quantified until closer to the adoption date. The Companys initial assessment, which is subject to change, is that the new guidance is not expected to have a significant impact on the statement of comprehensive income.
In January 2016, the FASB issued guidance that changes how entities measure equity investments and present changes in the fair value of financial liabilities. The new guidance requires entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income unless the investments qualify for the new practicality exception. A practicality exception will apply to those equity investments that do not have a readily determinable fair value and do not qualify for the practical expedient to estimate fair value, and as such, these investments may be measured at cost. The new guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company adopted the new guidance in the first quarter of 2018 with no material impact on its financial statements.
In May 2014, the FASB issued guidance to clarify the principles for recognizing revenue. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides a comprehensive framework for revenue recognition that supersedes current general revenue guidance and most industry-specific guidance. In addition, the guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized. In 2016, the FASB issued several updates to address implementation issues and to clarify guidance for principal versus agent considerations and identifying performance obligations and licensing. The Company adopted the new guidance on January 1, 2018, using the modified retrospective method, with no impact on its financial statements. The cumulative effect of initially applying the new guidance had no impact on the opening balance of retained earnings as of January 1, 2018. There was no impact on the condensed consolidated balance sheet as of March 31, 2018 or on the condensed consolidated statement of comprehensive income for the three months ended March 31, 2018. The comparative information has not been restated and continues to be reported under the accounting guidance in effect for that period. The Company does not expect the new guidance to have a material impact on its financial statements in future periods.
6
BEASLEY BROADCAST GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(3) | Acquisitions and Dispositions |
Greater Media Merger
On November 1, 2016, (the Acquisition Date), the Company completed the acquisition of Greater Media, Inc. (Greater Media), pursuant to the merger agreement, dated as of July 19, 2016 by and among the Company, Greater Media, Beasley Media Group 2, Inc., an indirect wholly-owned subsidiary of the Company (Merger Sub), and Peter A. Bordes, Jr., as the Stockholders Representative (the Merger Agreement). On the Acquisition Date, Merger Sub was merged with and into Greater Media, with Greater Media surviving the merger as an indirect wholly-owned subsidiary of the Company (the Merger). As a result of the Merger, the Company added 21 radio stations in the Boston, MA, Detroit, MI, Charlotte, NC, Middlesex, NJ, Monmouth, NJ, Morristown, NJ and Philadelphia, PA markets.
On the Acquisition Date, in accordance with the Merger Agreement, the Company placed 867,679 shares of the Companys Class A common stock with a fair value of $4.2 million in escrow. These escrow shares were to be distributed either to the Company for cancellation or to Greater Media based upon a working capital adjustment. As of the Acquisition Date based on the estimated working capital adjustment, the Company estimated that 189,915 shares of Class A common stock would be released to Greater Media and the remainder would be forfeited to the Company for cancellation. The estimated number of shares to be released to Greater Media had a fair value of $0.9 million as of the Acquisition Date and were included in the purchase price. The estimated shares to be forfeited were not indexed to the Companys stock price and therefore were adjusted to fair value based on the Companys closing stock price on each reporting date with changes in fair value recorded in earnings. The estimated number of shares to be forfeited had a fair value of $3.3 million as of the Acquisition Date.
Also, in accordance with the Merger Agreement, the purchase price was to be adjusted by certain proceeds from the sale of Greater Medias towers assets. Based on the proceeds from the tower sale, the former stockholders of Greater Media were required to return a certain number of shares of Class A common stock to the Company for cancellation. The Company accounted for this arrangement as contingent consideration subject to the ultimate sale of the tower assets. As of the Acquisition Date, the Company estimated the sales price of the towers to be $28.0 million which resulted in the expected return of 650,759 shares. As of the Acquisition Date, the estimated number of shares to be returned had a fair value of $3.4 million. On February 27, 2017, the former stockholders of Greater Media entered into an asset purchase agreement to sell the towers for $28.0 million.
On December 29, 2017, the Company entered into a settlement agreement with Greater Media regarding the working capital adjustment and proceeds from the tower sale. As a result, all 867,679 shares held in escrow for the working capital adjustment were forfeited to the Company and recorded in treasury stock on March 15, 2018 and the former stockholders of Greater Media returned 470,480 shares to the Company related to the tower sale proceeds, which were recorded in treasury stock on March 15, 2018. The forfeited shares previously held in escrow for the working capital adjustment had a fair value of $11.6 million and $8.8 million as of December 31, 2017 and March 15, 2018, respectively. The shares returned by the former stockholders of Greater Media related to the tower sale proceeds had a fair value of $6.3 million and $4.8 million as of December 31, 2017 and March 15, 2018, respectively.
The Company has engaged a third party to evaluate certain net operating loss carryforwards related to Greater Media, Inc. and several of its subsidiaries to determine the amount of net operating loss carryforwards that may be utilized by the Company in future tax returns. These evaluations have not been finalized, therefore an estimate of $3.6 million for net operating loss carryforwards was included in the purchase price. The accounting for this item was not finalized before the end of the measurement period and any adjustment will now be recognized in current operations during the period in which the accounting is finalized.
Effective on the Acquisition Date, the Company entered into an agreement with the former CEO of Greater Media to provide consulting services for a period of one year. The costs associated with this agreement are reported in other operating expenses in the accompanying statement of comprehensive income for the three months ended March 31, 2017.
Dispositions
On January 6, 2017, the Company completed the sale of substantially all of the assets used or useful in the operations of WBT-AM, WBT-FM, WFNZ-AM and WLNK-FM in Charlotte, NC to Entercom Communications Corp. for $24.0 million in cash. The Company repaid a portion of the outstanding balance under its credit facility with the sales proceeds. The Company recorded a $0.3 million loss on disposition during the first quarter of 2017.
7
BEASLEY BROADCAST GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
On May 1, 2017, the Company completed the sale of substantially all of the assets used in the operations of WIKS-FM, WMGV-FM, WNCT-AM, WNCT-FM, WSFL-FM and WXNR-FM in its Greenville-New Bern-Jacksonville, NC market cluster to CMG Coastal Carolina, LLC for $11.0 million in cash and a translator license and equipment with a fair value of $0.3 million. The Company repaid a portion of the outstanding balance under its credit facility with the cash sales proceeds. The Company recorded a $4.0 million gain on disposition during the second quarter of 2017.
Asset Exchange
On December 19, 2017, the Company completed an asset exchange with CBS Radio Stations, Inc., Entercom Boston, LLC, and The Entercom Divestiture Trust under which the Company agreed to exchange all of the assets used or useful in the operations of WMJX-FM in Boston, MA for all of the assets used or useful in the operations of WBZ-FM in Boston, MA. In addition, the Company also paid $12.0 million in cash, which was partially financed with $6.0 million in borrowings from our credit facility and partially funded with $6.0 million in cash from operations. The asset exchange broadened and diversified the Companys local radio broadcasting platform and revenue base in the Boston radio market. Further information regarding the asset exchange is included in Note 3 to the consolidated financial statements contained in Item 8 in the Companys Annual Report on Form 10-K for the year ended December 31, 2017 filed on February 20, 2018.
The following unaudited pro forma information for the three months ended March 31, 2017 assumes that the acquisitions and dispositions had occurred on January 1, 2017. This unaudited pro forma information has been prepared based on estimates and assumptions, which management believes are reasonable, and is not necessarily indicative of what would have occurred had the acquisition been completed on January 1, 2017 or of results that may occur in the future.
Net revenue |
$ | 57,097,999 | ||
Operating income |
5,553,325 | |||
Net income |
573,912 | |||
Basic and diluted net income per share |
0.02 |
(4) | Long-Term Debt |
Long-term debt is comprised of the following:
December 31,
2017 |
March 31,
2018 |
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Term loan |
$ | 225,000,000 | $ | 222,000,000 | ||||
Revolving credit facility |
| | ||||||
Capital lease obligations |
630,874 | 614,869 | ||||||
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225,630,874 | 222,614,869 | |||||||
Less unamortized debt issuance costs |
(10,850,972 | ) | (10,380,596 | ) | ||||
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214,779,902 | 212,234,273 | |||||||
Less current installments |
(2,314,020 | ) | (64,791 | ) | ||||
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$ | 212,465,882 | $ | 212,169,482 | |||||
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As of March 31, 2018, the credit facility consisted of a term loan with a remaining balance of $222.0 million and a revolving credit facility with a maximum commitment of $20.0 million. As of March 31, 2018, the Company had $20.0 million in available commitments under its revolving credit facility. At the Companys option, the credit facility may bear interest at either (i) London Interbank Offered Rate (LIBOR) plus a margin of 4.0% or (ii) the base rate plus a margin of 3.0%. The LIBOR interest rate for the term loan is subject to a 1% floor. Interest payments are, for loans based on LIBOR, due at the end of each applicable interest period unless the interest period is longer than three months, in which case they are due at the end of each three month period. Interest payments for loans based on the base rate are due quarterly. The revolving credit facility carried interest, based on LIBOR, at 5.8% as of March 31, 2018 and matures on November 17, 2022. The term loan carried interest, based on LIBOR, at 5.8% as of March 31, 2018 and matures on November 1, 2023.
8
BEASLEY BROADCAST GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
As of December 31, 2017, the credit facility consisted of a term loan with a remaining balance of $225.0 million and a revolving credit facility with a maximum commitment of $20.0 million. The revolving credit facility and term loan carried interest, based on LIBOR, at 5.5% as of December 31, 2017.
Commencing with the year ending December 31, 2018, the credit agreement requires mandatory prepayments equal to 50% of Excess Cash Flow (as defined in the credit agreement) when the Companys Total Leverage Ratio (as defined in the credit agreement) is greater than 3.5x; mandatory prepayments equal to 25% of Excess Cash Flow when the Total Leverage Ratio is less than or equal to 3.5x but greater than 3.0x; and no mandatory prepayments when the Total Leverage Ratio is less than or equal to 3.0x. Mandatory prepayments of consolidated Excess Cash Flow are due 95 days after year end. The credit agreement also requires mandatory prepayments for defined amounts from net proceeds of asset sales, net insurance proceeds, and net proceeds of debt issuances.
The credit agreement requires the Company to comply with certain financial covenants which are defined in the credit agreement. These financial covenants include a First Lien Leverage Ratio that will be tested at the end of each quarter. For the period from December 31, 2017 through March 31, 2018, the maximum First Lien Leverage Ratio was 6.25x. For the period from June 30, 2018 through December 31, 2018, the maximum First Lien Leverage Ratio is 6.0x. For the period from March 31, 2019 through December 31, 2019, the maximum First Lien Leverage Ratio is 5.75x. The maximum First Lien Leverage Ratio is 5.25x for March 31, 2020 and thereafter.
The credit facility is secured by substantially all assets of the Company and its subsidiaries and is guaranteed jointly and severally by the Company and its subsidiaries. If the Company defaults under the terms of the credit agreement, the Company and its subsidiaries may be required to perform under their guarantees. As of March 31, 2018, the maximum amount of undiscounted payments the Company and its applicable subsidiaries would have been required to make in the event of default was $222.0 million. The guarantees for the credit facility expire on November 17, 2022 for the revolving credit facility and on November 1, 2023 for the term loan.
Failure to comply with financial covenants, scheduled interest payments, scheduled principal repayments, or any other terms of the credit agreement could result in the acceleration of the maturity of the Companys outstanding debt, which could have a material adverse effect on the Companys business or results of operations. As of March 31, 2018, the Company was in compliance with all applicable financial covenants under the credit agreement.
The aggregate scheduled principal repayments of the credit facility and capital lease obligations for the remainder of 2018, the next four years and thereafter are as follows:
2018 |
$ | 48,015 | ||
2019 |
1,567,101 | |||
2020 |
2,320,326 | |||
2021 |
2,323,700 | |||
2022 |
2,253,332 | |||
Thereafter |
214,102,395 | |||
|
|
|||
Total |
$ | 222,614,869 | ||
|
|
(5) | Revenue |
Revenue is comprised of the following:
Three months ended March 31, | ||||||||
2017 | 2018 | |||||||
Commercial advertising |
$ | 47,549,822 | $ | 47,702,470 | ||||
Digital advertising |
3,183,127 | 3,208,539 | ||||||
Other |
3,007,602 | 4,242,618 | ||||||
|
|
|
|
|||||
$ | 53,740,551 | $ | 55,153,627 | |||||
|
|
|
|
The Company recognizes revenue when it satisfies a performance obligation under a contract with an advertiser. The transaction price is allocated to performance obligations based on executed contracts which represent relative standalone selling prices. Payment
9
BEASLEY BROADCAST GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
is generally due within 30 days although certain advertisers are required to pay in advance. Revenues are reported at the amount the Company expects to be entitled to receive under the contract. The Company has elected to use the practical expedient to expense sales commissions as incurred. Payments received from advertisers before the performance obligation is satisfied are recorded as deferred revenue in the balance sheet. Substantially all deferred revenue is recognized within twelve months of the payment date. Deferred revenue was $1.9 million and $3.0 million as of December 31, 2017 and March 31, 2018, respectively. Losses on receivables from contracts with advertisers were $0.1 million and $0.2 million for the three months ended March 2017 and 2018, respectively.
Commercial advertising includes revenue from the sale or trade of commercial spots to advertisers directly or through national, regional or local advertising agencies. Commercial spots may be aired or streamed. Each commercial spot is considered a performance obligation. Revenue is recognized when the commercial spots have aired or streamed. Trade sales are recorded at the estimated fair value of the goods or services received. If commercial spots are aired or streamed before the goods or services are received then a trade sales receivable is recorded. If goods or services are received before the commercial spots are aired or streamed then a trade sales payable is recorded. Trade sales revenue was $2.6 million and $1.9 million for the three months ended March 31, 2017 and 2018, respectively. Trade sales receivable was $1.6 million and $1.7 million as of December 31, 2017 and March 31, 2018, respectively. Trade sales payable was $1.3 million as of both December 31, 2017 and March 31, 2018.
Digital advertising includes revenue from the sale of streamed commercial spots station-owned assets and third party products. Each station-owned asset and third party product is considered a performance obligation. Station-owned assets are generally scheduled over a period of time and revenue is recognized over time as the digital items are used for advertising content. Third-party products are generally scheduled over a period of time with an impression target each month. Revenue from the sale of third-party products is recognized over time as the digital items are used for advertising content and impression targets are met each month.
Other revenue includes revenue from concerts, promotional events, talent fees and other miscellaneous items. Revenue is generally recognized when the event is completed, as the promotional events are completed, or as the talent services are completed.
(6) | Employee Benefit Plans |
Effective May 31, 2017, the Company terminated the Greater Media, Inc. Pension Plan (the Pension Plan). In December 2017, lump sum payments were made from the trust to participants who elected to receive a lump sum payment. In January 2018, a payment of $52.0 million was made from the trust to an insurance company to purchase annuities for the remaining participants who elected to receive annuity payments. As a result of the termination, the Company recognized a $1.0 million gain that was recorded in corporate general and administrative expenses for the three months ended March 31, 2018. This completes the recognition in earnings of the amount related to the Pension Plan that remained in accumulated other comprehensive income as of December 31, 2017.
(7) | Stock-Based Compensation |
The Beasley Broadcast Group, Inc. 2007 Equity Incentive Award Plan (the 2007 Plan) permits the Company to issue up to 7.5 million shares of Class A common stock. The 2007 Plan allows for eligible employees, directors and certain consultants of the Company to receive restricted stock units, shares of restricted stock, stock options or other stock-based awards. The restricted stock units and restricted stock awards that have been granted under the 2007 Plan generally vest over one to five years of service.
A summary of restricted stock unit activity is presented below:
Shares |
Weighted-
Average Grant-Date Fair Value |
|||||||
Unvested as of January 1, 2018 |
416,763 | $ | 10.86 | |||||
Granted |
22,239 | 10.05 | ||||||
Vested |
(5,000 | ) | 10.25 | |||||
Forfeited |
| | ||||||
|
|
|||||||
Unvested as of March 31, 2018 |
434,002 | $ | 11.30 | |||||
|
|
10
BEASLEY BROADCAST GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
A summary of restricted stock activity is presented below:
Shares |
Weighted-
Average Grant-Date Fair Value |
|||||||
Unvested as of January 1, 2018 |
180,319 | $ | 5.47 | |||||
Granted |
| | ||||||
Vested |
(1,500 | ) | 3.59 | |||||
Forfeited |
(13,333 | ) | 9.55 | |||||
|
|
|||||||
Unvested as of March 31, 2018 |
165,486 | $ | 6.58 | |||||
|
|
As of March 31, 2018, there was $5.4 million of total unrecognized compensation cost for restricted stock units and shares of restricted stock granted under the 2007 Plan. That cost is expected to be recognized over a weighted-average period of 2.3 years.
(8) | Income Taxes |
The Companys effective tax rate was approximately (5.9)% and (13.7)% for the three months ended March 31, 2017 and 2018, respectively. These rates differ from the federal statutory rate of 35% and 21% in 2017 and 2018, respectively, due to the effect of state income taxes and certain expenses that are not deductible for tax purposes. The effective tax rate for the three months ended March 31, 2018 also reflects a $1.2 million increase due to the change in fair value of contingent consideration. The effective tax rate for the three months ended March 31, 2017 also reflects a $3.0 million decrease due to the change in fair value of contingent consideration.
(9) | Financial Instruments |
The carrying amount of the Companys financial instruments including cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short term nature of these financial instruments.
The carrying amount of the Companys long-term debt, including the term loan, the revolving credit facility, capital lease obligations and current installments, as of March 31, 2018 was $222.6 million which approximated fair value based on current market interest rates. The carrying amount of the Companys term loan as of December 31, 2017 was $225.6 million which approximated fair value based on current market interest rates.
11
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
We are a radio broadcasting company whose primary business is operating radio stations throughout the United States. We own and operate 63 radio stations in the following radio markets: Atlanta, GA, Augusta, GA, Boston, MA, Charlotte, NC, Detroit, MI, Fayetteville, NC, Fort Myers-Naples, FL, Las Vegas, NV, Middlesex, NJ, Monmouth, NJ, Morristown, NJ, Philadelphia, PA, Tampa-Saint Petersburg, FL, West Palm Beach-Boca Raton, FL, and Wilmington, DE. We refer to each group of radio stations in each radio market as a market cluster.
Cautionary Note Regarding Forward-Looking Statements
This report contains forward-looking statements about the Company within the meaning of the Private Securities Litigation Reform Act of 1995, which relate to future, not past, events. All statements other than statements of historical fact included in this document are forward-looking statements. These forward-looking statements are based on the current beliefs and expectations of the Companys management and are subject to known and unknown risks and uncertainties. Forward-looking statements, which address the Companys expected business and financial performance and financial condition, among other matters, contain words such as: expects, anticipates, intends, plans, believes, estimates, may, will, plans, projects, could, should, would, seek, forecast, or other similar expressions.
Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that the expectations will be attained or that any deviation will not be material. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. The Company undertakes no obligation to update or revise any forward-looking statements.
Forward-looking statements involve a number of risks and uncertainties, and actual results or events may differ materially from those projected or implied in those statements. Factors that could cause actual results or events to differ materially from these forward-looking statements include, but are not limited to:
| external economic forces that could have a material adverse impact on the Companys advertising revenues and results of operations; |
| the ability of the Companys radio stations to compete effectively in their respective markets for advertising revenues; |
| the ability of the Company to respond to changes in technology, standards and services that affect the radio industry; |
| audience acceptance of the Companys content, particularly its radio programs; |
| the Companys substantial debt levels and the potential effect of restrictive debt covenants on the Companys operational flexibility and ability to pay dividends; |
| the Companys dependence on federally issued licenses subject to extensive federal regulation; |
| the risk that the Companys FCC broadcasting licenses and/or goodwill could become impaired; |
| the failure or destruction of the internet, satellite systems and transmitter facilities that the Company depends upon to distribute its programming; |
| disruptions or security breaches of the Companys information technology infrastructure; |
| actions by the FCC or new legislation affecting the radio industry; |
| the loss of key personnel; |
12
| the fact that the Company is controlled by the Beasley family, which creates difficulties for any attempt to gain control of the Company; |
| the effect of future sales of Class A common stock by the Beasley family or the former stockholders of Greater Media; |
| other economic, business, competitive, and regulatory factors affecting the businesses of the Company, including those set forth in the Companys filings with the SEC. |
Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. We do not intend, and undertake no obligation, to update any forward-looking statement.
Financial Statement Presentation
The following discussion provides a brief description of certain key items that appear in our financial statements and general factors that impact these items.
Net Revenue. Our net revenue is primarily derived from the sale of commercial spots to advertisers directly or through national, regional or local advertising agencies. Revenues are reported at the amount we expect to be entitled to receive under the contract. Local revenue generally consists of commercial advertising sales, digital advertising sales and other sales to advertisers in a radio stations local market either directly to the advertiser or through the advertisers agency. National revenue generally consists of commercial advertising sales through advertiser agencies. National advertiser agencies generally purchase advertising for multiple markets. National sales are generally facilitated by our national representation firm, which serves as our agent in these transactions.
Our net revenue is generally determined by the advertising rates that we are able to charge and the number of advertisements that we can broadcast without jeopardizing listener levels. Advertising rates are primarily based on the following factors:
| a radio stations audience share in the demographic groups targeted by advertisers as measured principally by periodic reports issued by Nielson Audio; |
| the number of radio stations, as well as other forms of media, in the market competing for the attention of the same demographic groups; |
| the supply of, and demand for, radio advertising time; and |
| the size of the market. |
Our net revenue is affected by general economic conditions, competition and our ability to improve operations at our market clusters. Seasonal revenue fluctuations are also common in the radio broadcasting industry and are primarily due to variations in advertising expenditures by local and national advertisers. Our revenues are typically lowest in the first calendar quarter of the year.
We use trade sales agreements to reduce cash paid for operating costs and expenses by exchanging advertising airtime for goods or services; however, we endeavor to minimize trade revenue in order to maximize cash revenue from our available airtime.
We also continue to invest in digital support services to develop and promote our radio station websites. We derive revenue from our websites through the sale of advertiser promotions and advertising on our websites and the sale of advertising airtime during audio streaming of our radio stations over the internet. We also generate revenue from selling other digital products.
Operating Expenses. Our operating expenses consist primarily of (1) programming, engineering, sales, advertising and promotion, and general and administrative expenses incurred at our radio stations, (2) general and administrative expenses, including compensation and other expenses, incurred at our corporate offices, and (3) depreciation and amortization. We strive to control our operating expenses by centralizing certain functions at our corporate offices and consolidating certain functions in each of our market clusters.
13
Critical Accounting Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect reported amounts and related disclosures. We consider an accounting estimate to be critical if:
| it requires assumptions to be made that were uncertain at the time the estimate was made; and |
| changes in the estimate or different estimates that could have been selected could have a material impact on our results of operations or financial condition. |
Our critical accounting estimates are described in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2017. There have been no material changes to our critical accounting estimates during the first quarter of 2018.
Recent Accounting Pronouncements
Recent accounting pronouncements are described in Note 2 to the accompanying financial statements.
Three Months Ended March 31, 2018 Compared to the Three Months Ended March 31, 2017
The following summary table presents a comparison of our results of operations for the three months ended March 31, 2017 and 2018 with respect to certain of our key financial measures. These changes illustrated in the table are discussed in greater detail below. This section should be read in conjunction with the financial statements and notes to financial statements included in Item 1 of this report.
Three Months ended March 31, | Change | |||||||||||||||
2017 | 2018 | $ | % | |||||||||||||
Net revenue |
$ | 53,740,551 | $ | 55,153,627 | $ | 1,413,076 | 2.6 | % | ||||||||
Station operating expenses |
43,949,594 | 45,512,847 | 1,563,253 | 3.6 | ||||||||||||
Corporate general and administrative expenses |
3,230,097 | 3,282,473 | 52,376 | 1.6 | ||||||||||||
Change in fair value of contingent consideration |
7,533,292 | (4,415,925 | ) | (11,949,217 | ) | (158.6 | ) | |||||||||
Interest expense |
4,827,339 | 3,625,240 | (1,202,099 | ) | (24.9 | ) | ||||||||||
Income tax expense (benefit) |
(414,858 | ) | 380,501 | 795,359 | 191.7 | |||||||||||
Net income (loss) |
7,486,496 | (3,161,192 | ) | (10,647,688 | ) | (142.2 | ) |
Net Revenue. Net revenue increased $1.4 million during the three months ended March 31, 2018 as compared to the three months ended March 31, 2017. Significant factors affecting net revenue included $4.5 million in additional advertising revenue from the asset exchange completed on December 19, 2017 in Boston, partially offset by a $1.5 million decrease due to the disposition of our Greenville-New Bern-Jacksonville market cluster on May 1, 2017. Net revenue for the three months ended March 31, 2018 was comparable to net revenue for the same period in 2017 at our remaining market clusters.
Station Operating Expenses. Station operating expenses increased $1.6 million during the three months ended March 31, 2018 as compared to the three months ended March 31, 2017. Significant factors affecting station operating expenses included $3.9 million in additional expenses from the asset exchange, partially offset by a $1.3 million decrease in station operating expenses due to the disposition of our Greenville-New Bern-Jacksonville market cluster. Station operating expenses for the three months ended March 31, 2018 were comparable to station operating expenses for the same period in 2017 at our remaining market clusters.
Corporate General and Administrative Expenses. Corporate general and administrative expenses increased $0.1 million during the three months ended March 31, 2018 as compared to the three months ended March 31, 2017. Significant factors affecting corporate general and administrative expenses included a $0.5 million increase in cash compensation expense, which was primarily due to an increase in the number of employees at our corporate offices, and a $0.3 million increase in stock-based compensation expense, offset by a $1.0 million gain as a result of the Greater Media pension plan termination.
Change in Fair Value of Contingent Consideration. In connection with the acquisition of Greater Media, a certain number of shares of our Class A common stock placed in escrow on the acquisition date were forfeited based on a working capital adjustment. The fair value of the forfeited shares decreased $2.9 million due to a change in our stock price from January 1, 2018 to March 15, 2018, the date the forfeited shares were recorded in treasury stock. The fair value of the estimated number of shares to be forfeited increased $3.7 million over the three months ended March 31, 2017. In addition, a number of shares of our Class A common stock were returned to us by the former stockholders of Greater Media based on certain proceeds from the sale of Greater Medias tower
14
assets. The fair value of the returned shares decreased $1.6 million due to a change in our stock price from January 1, 2018 to March 15, 2018, the date the returned shares were recorded in treasury stock. The fair value of the estimated number of shares to be returned increased $3.8 million over the three months ended March 31, 2017.
Interest Expense. Interest expense decreased $1.2 million during the three months ended March 31, 2018. The primary factor affecting interest expense was the decrease in long-term debt outstanding and the applicable interest rate.
Income Tax Expense (Benefit). Our effective tax rate was approximately (5.9)% and (13.7)% for the three months ended March 31, 2017 and 2018, respectively. These rates differ from the federal statutory rate of 35% and 21% in 2017 and 2018, respectively, due to the effect of state income taxes and certain expenses that are not deductible for tax purposes. The effective tax rate for the three months ended March 31, 2018 also reflects a $1.2 million increase due to the change in fair value of contingent consideration. The effective tax rate for the three months ended March 31, 2017 also reflects a $3.0 million decrease due to the change in fair value of contingent consideration.
Net Income (Loss). Net loss during the three months ended March 31, 2018 was $3.2 million, a change of $10.6 million compared to net income of $7.5 million during the three months ended March 31, 2017 as a result of the factors described above.
Liquidity and Capital Resources
Overview. Our primary sources of liquidity are internally generated cash flow and our revolving credit facility. Our primary liquidity needs have been, and for the next twelve months and thereafter, are expected to continue to be, for working capital, debt service, and other general corporate purposes, including capital expenditures and radio station acquisitions. Historically, our capital expenditures have not been significant. In addition to property and equipment associated with radio station acquisitions, our capital expenditures have generally been, and are expected to continue to be, related to the maintenance of our studio and office space and the technological improvement, including upgrades necessary to broadcast HD Radio, and maintenance of our broadcasting towers and equipment. We have also purchased or constructed office and studio space in some of our markets to facilitate the consolidation of our operations.
Our credit agreement permits us to repurchase sufficient shares of our common stock to fund withholding taxes in connection with the vesting of restricted stock units and shares of restricted stock, subject to compliance with financial covenants, up to an aggregate amount of $2.5 million per year. We paid approximately $25,000 to repurchase 2,325 shares during the three months ended March 31, 2018.
Our credit agreement restricts our ability to pay cash dividends and to repurchase additional shares of our common stock. The credit agreement does permit, however, (i) additional dividends of up to an aggregate amount of $7.5 million each year if our Total Leverage Ratio is greater than 3.5x and up to an aggregate amount of $10.0 million each year if our Total Leverage Ratio is less than or equal to 3.5x, (ii) an amount equal to our excess cash flow each year that is not required to prepay the credit agreement, subject to maintaining a Total Leverage Ratio of no greater than 3.75x and (iii) unlimited dividends each year if our Total Leverage Ratio is less than 3.5x and our First Lien Leverage Ratio (as defined in the credit agreement) is less than 2.5x. We paid cash dividends of $1.3 million during the three months ended March 31, 2018. Also, on March 2, 2018, our board of directors declared a cash dividend of $0.05 per share on our Class A and Class B common stock. The dividend of $1.4 million in the aggregate was paid on April 6, 2018, to stockholders of record on March 30, 2018.
We expect to provide for future liquidity needs through one or a combination of the following sources of liquidity:
| internally generated cash flow; |
| our revolving credit facility; |
| additional borrowings, other than under our revolving credit facility, to the extent permitted; and |
| additional equity offerings. |
We believe that we will have sufficient liquidity and capital resources to permit us to provide for our liquidity requirements and meet our financial obligations for the next twelve months. However, poor financial results or unanticipated expenses could give rise to defaults under our credit facility, additional debt servicing requirements or other additional financing or liquidity requirements sooner than we expect, and we may not secure financing when needed or on acceptable terms.
15
Our ability to reduce our total leverage ratio, as defined by our credit agreement, by increasing operating cash flow and/or decreasing long-term debt will determine how much, if any, of the remaining commitments under our revolving credit facility will be available to us in the future. Poor financial results or unanticipated expenses could result in our failure to maintain or lower our total leverage ratio and we may not be permitted to make any additional borrowings under our revolving credit facility.
Cash Flows . The following summary table presents a comparison of our capital resources for the three months ended March 31, 2017 and 2018 with respect to certain of our key measures affecting our liquidity. The changes set forth in the table are discussed in greater detail below. This section should be read in conjunction with the financial statements and notes to financial statements included in Item 1 of this report.
Three Months ended March 31, | ||||||||
2017 | 2018 | |||||||
Net cash provided by operating activities |
$ | 6,146,698 | $ | 4,800,998 | ||||
Net cash provided by (used in) investing activities |
22,150,413 | (1,225,996 | ) | |||||
Net cash used in financing activities |
(29,751,806 | ) | (4,327,428 | ) | ||||
|
|
|
|
|||||
Net decrease in cash and cash equivalents |
$ | (1,454,695 | ) | $ | (752,426 | ) | ||
|
|
|
|
Net Cash Provided By Operating Activities. Net cash provided by operating activities decreased $1.3 million during the three months ended March 31, 2018. Significant factors affecting this decrease in net cash provided by operating activities included a $2.9 million decrease in cash receipts from the sale of advertising airtime and a $0.7 million increase in cash paid for corporate general and administrative expenses, partially offset by a $1.3 million decrease in interest payments and a $0.8 million decrease in expenses related to the acquisition of Greater Media.
Net Cash Provided By (Used In) Investing Activities. Net cash used in investing activities during the three months ended March 31, 2018 included payments of $1.2 million for capital expenditures. Net cash provided by investing activities for the same period in 2017 included proceeds of $24.0 million from the disposition of radio stations in Charlotte, partially offset by payments of $1.0 million for capital expenditures, and payments of $0.7 million for translator licenses.
Net Cash Used In Financing Activities. Net cash used in financing activities during the three months ended March 31, 2018 included repayments of $3.0 million under our credit facility and payments of $1.3 million for cash dividends. Net cash used in financing activities for the same period in 2017 included repayments of $28.0 million under our credit facility, payments of $1.3 million for cash dividends and payments of $0.5 million for repurchases of our Class A common stock.
Credit Facility. As of March 31, 2018, the credit facility consisted of a term loan with a remaining balance of $222.0 million and a revolving credit facility with a maximum commitment of $20.0 million. As of March 31, 2018, we had $20.0 million in available commitments under our revolving credit facility. At our option, the credit facility may bear interest at either (i) LIBOR plus a margin of 4.0% or (ii) the base rate plus a margin of 3.0%. The LIBOR interest rate for the term loan is subject to a 1% floor. Interest payments are, for loans based on LIBOR, due at the end of each applicable interest period unless the interest period is longer than three months, in which case they are due at the end of each three month period. Interest payments for loans based on the base rate are due quarterly. The revolving credit facility carried interest, based on LIBOR, at 5.8% as of March 31, 2018 and matures on November 17, 2022. The term loan carried interest, based on LIBOR, at 5.8% as of March 31, 2018 and matures on November 1, 2023.
Commencing with the year ending December 31, 2018, the credit agreement requires mandatory prepayments equal to 50% of Excess Cash Flow (as defined in the credit agreement) when our Total Leverage Ratio (as defined in the credit agreement) is greater than 3.5x; mandatory prepayments equal to 25% of Excess Cash Flow when our Total Leverage Ratio is less than or equal to 3.5x but greater than 3.0x; and no mandatory prepayments when our Total Leverage Ratio is less than or equal to 3.0x. Mandatory prepayments of consolidated Excess Cash Flow are due 95 days after year end. The credit agreement also requires mandatory prepayments for defined amounts from net proceeds of asset sales, net insurance proceeds, and net proceeds of debt issuances.
The credit agreement requires us to comply with certain financial covenants which are defined in the credit agreement. These financial covenants include a First Lien Leverage Ratio that will be tested at the end of each quarter. For the period from December 31, 2017 through March 31, 2018, the maximum First Lien Leverage Ratio was 6.25x. For the period from June 30, 2018 through December 31, 2018, the maximum First Lien Leverage Ratio is 6.0x. For the period from March 31, 2019 through December 31, 2019, the maximum First Lien Leverage Ratio is 5.75x. The maximum First Lien Leverage Ratio is 5.25x for March 31, 2020 and thereafter.
16
The credit facility is secured by substantially all assets of the Company and its subsidiaries and is guaranteed jointly and severally by the Company and its subsidiaries. If we default under the terms of the credit agreement, the Company and its subsidiaries may be required to perform under their guarantees. As of March 31, 2018, the maximum amount of undiscounted payments the Company and its applicable subsidiaries would have been required to make in the event of default was $222.0 million. The guarantees for the credit facility expire on November 17, 2022 for the revolving credit facility and on November 1, 2023 for the term loan.
Failure to comply with financial covenants, scheduled interest payments, scheduled principal repayments, or any other terms of our credit agreement could result in the acceleration of the maturity of our outstanding debt, which could have a material adverse effect on our business or results of operations. As of March 31, 2018, we were in compliance with all applicable financial covenants under our credit agreement.
The aggregate scheduled principal repayments of the credit facility and capital lease obligations for the remainder of 2018, the next four years and thereafter are as follows:
2018 |
$ | 48,015 | ||
2019 |
1,567,101 | |||
2020 |
2,320,326 | |||
2021 |
2,323,700 | |||
2022 |
2,253,332 | |||
Thereafter |
214,102,395 | |||
|
|
|||
Total |
$ | 222,614,869 | ||
|
|
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
Not required for smaller reporting companies.
ITEM 4. | CONTROLS AND PROCEDURES. |
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective as of the end of the period covered by this report.
There were no changes in our internal control over financial reporting during the quarter ended March 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
17
PART II OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS. |
We currently and from time to time are involved in litigation and are the subject of threats of litigation that are incidental to the conduct of our business. These include indecency claims and related proceedings at the FCC as well as claims and threatened claims by private third parties. However, we are not a party to any lawsuit or other proceedings, or the subject of any threatened lawsuit or other proceedings, which, in the opinion of management, is likely to have a material adverse effect on our financial condition or results of operations.
ITEM 1A. | RISK FACTORS. |
The risk factors affecting our Company are described in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2017. There have been no material changes to the risks affecting our Company during the first quarter of 2018.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. |
The following table presents information with respect to purchases we made of our Class A common stock during the three months ended March 31, 2018.
Period |
Total Number
of Shares Purchased |
Average Price
Paid per Share |
Total Number
of Shares Purchased as Part of Publicly Announced Program |
Approximate
Dollar Value of Shares That May Yet Be Purchased Under the Program |
||||||||||||
January 1 31, 2018 |
375 | $ | 13.48 | | | |||||||||||
February 1 28, 2018 |
| | | | ||||||||||||
March 1 31, 2018 |
1,950 | 10.25 | | | ||||||||||||
|
|
|||||||||||||||
Total |
2,325 | |||||||||||||||
|
|
On March 27, 2007, our board of directors approved the Beasley Broadcast Group, Inc. 2007 Equity Incentive Award Plan (the 2007 Plan). The original ten year term of the 2007 Plan ended on March 27, 2017. Our stockholders approved an amendment to the 2007 Plan at the Annual Meeting of Stockholders on June 8, 2017 to, among other things, extend the term of the 2007 Plan until March 27, 2027. The 2007 Plan permits us to purchase sufficient shares to fund withholding taxes in connection with the vesting of restricted stock units and shares of restricted stock. Our credit agreement permits us to repurchase sufficient shares of our common stock to fund withholding taxes in connection with the vesting of restricted stock units and shares of restricted stock, subject to compliance with financial covenants, up to an aggregate amount of $2.5 million per year. All shares purchased during the three months ended March 31, 2018, were purchased to fund withholding taxes in connection with the vesting of restricted stock units and shares of restricted stock.
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES. |
None.
ITEM 4. | MINE SAFETY DISCLOSURES. |
Not applicable.
ITEM 5. | OTHER INFORMATION. |
None.
18
ITEM 6. | EXHIBITS. |
Exhibit Number |
Description |
|
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) (17 CFR 240.15d-14(a)). | |
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) (17 CFR 240.15d-14(a)). | |
32.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(b)/15d-14(b) (17 CFR 240.15d-14(b)) and 18 U.S.C. Section 1350. | |
32.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(b)/15d-14(b) (17 CFR 240.15d-14(b)) and 18 U.S.C. Section 1350. | |
101.INS | XBRL Instance Document. | |
101.SCH | XBRL Taxonomy Extension Schema Document. | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. |
19
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BEASLEY BROADCAST GROUP, INC. | ||||||
Dated: May 8, 2018 |
/s/ Caroline Beasley |
|||||
Name: Caroline Beasley | ||||||
Title: Chief Executive Officer (principal executive officer) | ||||||
Dated: May 8, 2018 |
/s/ Marie Tedesco |
|||||
Name: Marie Tedesco | ||||||
Title: Chief Financial Officer (principal financial and | ||||||
accounting officer) |
20
Exhibit 31.1
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Caroline Beasley, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Beasley Broadcast Group, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Dated: May 8, 2018 | /s/ Caroline Beasley | |||||||
Title: Chief Executive Officer |
Exhibit 31.2
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Marie Tedesco, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Beasley Broadcast Group, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Dated: May 8, 2018 | /s/ Marie Tedesco | |||||||
Title: Chief Financial Officer |
Exhibit 32.1
Certification of Chief Executive Officer
Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Beasley Broadcast Group, Inc. (the Company) hereby certifies to such officers knowledge that:
(i) the accompanying Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2018 (the Report) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: May 8, 2018 | /s/ Caroline Beasley | |||||||
Caroline Beasley Chief Executive Officer |
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Exhibit 32.2
Certification of Chief Financial Officer
Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Beasley Broadcast Group, Inc. (the Company) hereby certifies to such officers knowledge that:
(i) the accompanying Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2018 (the Report) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: May 8, 2018 | /s/ Marie Tedesco | |||||||
Marie Tedesco Chief Financial Officer |
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.