Caroline Beasley - Interim CEO & CFO Marie Tedesco - VP, Finance.

Analysts:.

Good morning and welcome to the Beasley Broadcast Group Third Quarter 2016 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 sections of our most recent annual report on Form 10-K and supplemented by our quarterly report on Form 10-Q.

Today's webcast will also contain a discussion of 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 our website.

I’d also like to remind listeners that following its completion, a replay of today's webcast can be accessed for five days on the 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 Interim CEO and Chief Financial Officer, Caroline Beasley. Please go ahead..

Thank you. Good morning everyone and thank you for joining us today to review our third quarter operating results.

Before getting into details I'm very pleased to announce that we closed on the Greater Media transaction yesterday, and we're going to provide a little more color later in the call but not go into a lot of detail today; most of the details will be coming in our fourth quarter call next year.

As seen from our earnings report today, our company is now performing at a high level and delivering strong operating results and cash flow as a result of our successful integration and operation of the CBS station in Tampa and Charlotte that we added in '14 and integrated throughout '15.

We expect the positive momentum from what I'll refer to as our legacy platform to carry into 2017 when we will also begin to benefit from the acquisition of 18 radio stations and these are net of the divestitures from Greater Media.

There's been a great deal of preparation throughout the company in anticipation of yesterday's closing and there will be continued focus on transitioning these stations to ourselves and operating practices. And we're very pleased to welcome our new employees to the Beasley team and we are very, very excited to operate these great stations.

Today, we'll review the quarter's progress and our outlook as well as other ongoing initiatives to drive free cash flow growth and shareholder returns in 2017. Marie Tedesco, our VP of Finance, is on the call with me today and I'm very happy to report as of January 1 Marie will assume the role of Chief Financial Officer of our company.

Let me remind you that the results reported today solely reflect our legacy platform and do not include any operating results from Greater Media. The 5.6% rise in third quarter net revenue was attributable to advertising strength in key categories including auto and retail and political ads done.

With the operating leverage in our model the net revenue increase drove SOI growth of 24.2% resulting in solid operating income, net income, diluted EPS and free cash flow growth.

When you look at our third quarter income statement you really don’t see an apples-to-apples comparison as we incurred about $1.2 million of pretax merger expenses in the 2016 period and $300,000 gain from insurance proceeds while we had a impairment charge in third quarter of '15, so if you back out these item our operating income would have been about $900,000 more this quarter or 37% higher.

And as you read down the income statement you'll see that our focus on actively and conservatively managing our capital structure to provide financial flexibility to support our growth initiative was evident as lower borrowing cost resulted in about 20% year-over-year reduction in interest expense.

Our third quarter results highlight the value of our long term strategy to focus on strong core programming and targeted localism while building sales through select station swaps and accretive acquisition.

With Beasley current operations generating strong growth on their own, completing the acquisition of Greater Media marked an inflexion point in our 55-year history and a tremendous growth opportunity as we expand to 69 stations across 60 markets and more than doubled our revenue while increasing diversification, scale and our ability to compete in today's multi-platform environments.

We believe our proven ability to create value via acquisition, swaps and other station transaction is reflected by Beasley's long term growth from a single station in 1961 to our position today as the ninth largest broadcaster.

This transaction meets all of our M&A criteria and enables Beasley to build upon its role as one of the nation's leading local media companies while bringing financial accretion with a modest increase to our leverage. With the integration of the CBS assets and the addition of the Greater Media stations, our outlook for growth remains attractive.

And now I'm going to turn the call over to Marie to review the third quarter results in detail..

Thanks, Caroline. I have been at Beasley since 1991 and started my career in the industry in 1982 with positions at Radio & Records, NBC Radio Networks and Westwood One. Like Caroline and everyone at Beasley I'm very passionate about the radio industry.

It is my pleasure to be joining you today and I look forward to interacting with investors and analysts as I transition to my new role as CFO for the New Year. Let's move on with the review of results for the quarter.

Net revenue increased $1.5 million or 5.6% to $27.7 million while station operating expenses for the quarter decreased 27% or $100,000 resulting in a 24.2 increase in station operating income to $8.2 million. The revenue and SOI increases were primarily generated from our Tampa and Charlotte and Fayetteville clusters.

The operating efficiencies, the integration of the CBS station and continued focus on expense management resulted in 2016 third quarter SOI margin of 29.6% up from 25.2% in the year ago period. In the third quarter, we again outperformed our market in terms of revenue growth and according to Miller Kaplan.

Our clusters rose approximately 7.8% compared with the overall market which increased 2.6%. Our outperformance was driven by our Tampa cluster which generated an impressive year-over-year revenue increase of 17% compared with the Tampa market which was up 4%.

In addition to Tampa, our Augusta, Charlotte, Fayetteville, Las Vegas and Greenville-New Bern clusters all outperform their respective markets.

Corporate G&A expenses rose 3.8% or $88,000 during the quarter to $2.4 million primarily due to an increase in contract services and cost and investments associated with the Greater Media transaction as we began to put in place an infrastructure for our expanded operating base.

In addition, the company incurred approximately $1.2 million in merger related expenses during the quarter. Our effective income tax rate was approximately 48% and 43% for the three and nine months ended September 30, 2016 respectively.

These rates differ from the federal statutory rates of 35% due to the effect of state income taxes and certain expenses that are not tax adjustable. As such we recorded $1.6 million of taxes in the third quarter of this year.

Total third quarter interest expense decreased approximately $200,000 or 20% to $855,000 from $1.1 million in the third quarter of 2015. This reflects the year-over-year reduction in principal and a reduction in borrowing cost due to lower leverage.

With the completion of the Greater Media transaction and refinancing our credit agreements which we will discuss in a moment, we did not make any repayments against our debt in third quarter. So our outstanding debt was $83 million as of 9/30/16.

The LTM consolidated operating cash flow as defined in the credit agreement was $25.4 million with our leverage ratio at 3.26 times as of September 30, 2016. However, our since-replaced credit agreement allowed the company to receive the benefit of $12.5 million of our total cash on hand in calculating net leverage.

Reflecting the cash, our net leverage as of September 30, 2016 was 2.77 times compared to our covenants of 4.5 times. Our low net leverage and the strong cash flows from our existing operations put us in this good position to do this Greater Media transaction. We ended 2016 third quarter with cash on hand of $16.7 million.

Our CapEx for the quarter was $704,000 compared with third quarter 2015 of $963,000. Year-to-date the company spent $2.072 million in CapEx compared to year-to-date 2015 of $1.808 million.

I will now review some ratings data both from our legacy portfolio and the new markets to offer some insights on our competitive positions in each of our larger markets. In the third quarter, which reflects the spring book, Beasley experienced nice quarter-to-quarter ratings increases in our PPM markets.

In fact, all markets were either up or flat between Q2 and Q3. However, similar to the second quarter, we saw year-over-year decline due to difficult comps. Overall, our PPM markets were up by an average of 3.6% from quarter-to-quarter and down 4% year-over-year with adults 25-54 in prime Monday, Friday 6:00 am to 7:00 pm.

In our largest markets, Tampa, Beasley was flat quarter-to-quarter and up 8.7% year-over-year. We have three out of the top 10 stations with adults 25-54 in prime. In Charlotte, Beasley has four out of the 10 top stations with adults 25-54 in prime and overall this cluster was up nearly 10% from Q2 to Q3, though it did decline 4.7% year-over-year.

In Las Vegas, like the other markets, we’re coming off a great third quarter 2015 and with that said from Q3 2015 to Q3 2016 Vegas is down 17% with about 25,54 and down 1.9% quarter-to-quarter. The company is making numerous investments in this cluster to improve our share and we are starting to see increases in the latest trend.

We will now move on to the stations and market just purchased from Greater Media where we are very excited about our stations and their brands. Starting in Philadelphia we now have four leading FMs in this market and all four stations were in their normal range for people, 25-54 rating share, including our number one rated heritage rock station WMMR.

In Boston, we now operate five stations and four of them were in the top 10 in Q3 with people 25-54 in prime with our WROR classification ranked number one this quarter.

There are exciting things happening in Detroit where we now operate three FM stations all of which were in the top six with prime people 25-54 in prime for third quarter and the number one station with our newly acquired active rock station WRIF. With that let me turn it back to Caroline. .

Thanks, Marie. Before wrapping this up I just want to make a comment. Our third quarter results may speak volumes about our management team that we have in place, Bruce, Brian, other executives here at corporate and our market managers.

To post these kind of results for third quarter on top of branding for the integration of the Greater Media asset speak to the management depth that we have within our company so, I just want to say that. And then so now to wrap this up where confident that the Greater Media acquisition is a transformational growth opportunity for our company.

It’s important to note that as required by the SEC last month we announced the divesture of our stations and the Greater Media stations in Charlotte for $24 million and that does include one of our legacy stations as well.

Given the tax basis of the stations being sold we expect to incur no tax impact, meaning that upon closing the proceeds will allow us to immediately reducing borrowings. And we expect to reduce net leverage by approximately 0.2 times.

And those who you have followed us over the years know we have a proven track record of prudent balance sheet management and leverage reduction and our thinking is to allocate free cash flow from operations throughput 2017 to be reduce leverage with the net leverage target of under four times by the end of next year.

We believe our strong third-quarter results continue to highlight the value of the strategy we successfully executed for 55 years.

Over this period, the company has grown to become an industry leader based on our disciplined approach to platform growth, a focus on enhancing the operating results of our stations and digital media properties and an organization-wide commitment to localism.

In this regard, on behalf of all of our employees, our board of directors, we thank and are grateful to George Beasley for putting us on a path to continued success in the business we love and we look forward to his continued advice as chairman as we embark on this exciting chapter in our growth and development.

In addition, our executive team look forward to working with Peter Smyth as we transition the Greater Media station.

So thank you very much and we look forward to any questions that you may have but I’m going to hand it over to Marie because I think that we did offer the ability for folks to ask questions and I think we’ve received the couple, Marie, is that right?.

That is right, Caroline. We received the few questions where as the first question we received is how much political revenue is included in the third quarter results and how much political is expected for fourth quarter? And I will go ahead and answer that.

We received approximately $400,000 in political revenue in third-quarter and as of yesterday we have approximately $2.2 million of political revenue book.

A second question we received is how should we view your corporate overhead going forward? And Caroline, would you like to answer that?.

So on, I would say that in terms of our corporate overhead we've been staffing up as many of you may have seen or noticed, our corporate overhead year-over-year as higher and so that reflects our preparation of this Greater Media transaction and acquiring Greater Media part of the attractiveness is the ability to take advantage of the corporate synergies.

And they had about $8 million in corporate overhead; we expect about $3 million of that to come over to Beasley.

So as far as added management within our company, I think that we are ready and we might have one or two more positions that we will be adding but I feel very comfortable with the management team we had in place and as noted with our third-quarter results that we just posted..

Great, thank you.

And the last and final question is could you please review any changes to your board of directors?.

As part of the transaction we added one board seat and that was for the family, the Bordes family and they were able to elect one representative, and that is Peter Bordes, Jr. We're very excited to have him join our board.

His interest is aligned with ours and other shareholders on the call today as he will be holding that the family will be holding a significant amount of stock. In addition to that Peter comes with a digital background so, he will add depth to our board. So again, we’re very excited to have him joining our board. .

Thank you. And that concludes the questions we have received. .

All right, well, thank you everyone for joining the call today. If you have any added questions please feel free to call Marie or myself. And thank you for your time. .

And this does conclude today's presentation. We thank everyone for their participation..