Barbara Beasley - CEO and Director Marie Tedesco - CFO.

Analysts:.

Welcome to the Beasley Broadcast Group Fourth 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 section 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 the company's website.

I'd also like to remind listeners that following its completion, a replay of today's call can be accessed for 5 days on the company's website at www.bbgi.com. You can also find a copy of today's press release on the investors or press room sections of the site.

At this time, I'd like to turn the conference over to your host, Beasley Broadcast Group's Chief Financial Officer, Caroline Beasley. Please go ahead..

Thank you, Ron. Good morning, every one. And thank you for joining us to review our 2017 first quarter operating results. Marie Tedesco, our CFO, is on the call with me today. To best understand the comparisons we're presenting today, let's start with some details on the operations that are included in the first quarter.

First, first quarter '17 represents the first full quarter of results following our November closing of Greater Media. And as a reminder, also on January 5, 2017, we completed the sale of 3 Greater Media stations in Charlotte and WFMZ-AM. And as a result, Q1 '17 does not reflect any contribution from these stations.

In addition, in early February, we announced the sale of 6 Greenville-New Bern-Jacksonville, North Carolina stations and we expect to close on these near term. These stations are reported in continuing operations for the first quarter and for the results reported today reflect our ownership in operations of 69 radio stations.

So this has been a very busy quarter for us. Overall, we've spent a great deal of time in the new market, in the integration is generally progressing as expected, with a few surprises that we're addressing. We expect the integration to be fully completed within the targeted 12 to 18 months after closing.

Our strategy is focused on applying our proven strategies that emphasize strong core programming and targeted localism to support ratings and market leadership. And as we indicated on our fourth quarter call in March, the first quarter was a bit challenging, given the lack of political revenue in the ongoing integration of Greater Media.

On a reported basis, the 95.7% rise in first quarter net revenue reflects the addition of Greater Media stations, partially offset by the impact of the comparison with political a year ago.

Pro forma, as if we owned all the stations as of January 1, 2016, revenue was down 5.7% or $3.2 million of which approximately $1 million was attributable to the lack of political revenue. Also during the quarter, we saw challenges in the Philadelphia cluster where revenue declined about 13% and in our Tampa cluster where revenue dropped about 18%.

Philly's decline reflects certain integration issues, including the loss of 8 AEs near the time of closing as well as lower national revenues, whereas Tampa's decline was related to a combination of a format change at WBRN which is now WTDB, ratings-related issues in the market and the fact that the year-ago period included political.

On a reported basis, the 95.7% increase in consolidated net revenue drove SOI growth of 31%. I will emphasize that the first quarter was a transitional period and that we're on target with our integration initiatives and we'll continue this process to drive SOI improvement as we benefit from scale efficiencies and other upside from the transaction.

The Greater Media transaction continues to prove to be beneficial for the company, as our bottom line results also reflect an additional gain of approximately $7.5 million on the acquisition. And this is resulting from an increase in the company's stock price which increased the fair value of certain preliminary purchase price accounting items.

I'm now going to turn the call over to Marie Tedesco, our CFO and she is going to take a deep dive into the number..

Thanks, Caroline. Let's start with a review of the first quarter operating results and then we'll review some balance sheet items. Net revenue increased $26.3 million or 95.7% to $53.7 million. And station operating expenses for the quarter increased 119.9% or $24 million, resulting in 31.1% increase in station operating income to $9.8 million.

The revenue increase reflects the addition of the Greater Media stations, partially offset by approximately $1 million of political revenue in first quarter '16. The rise in operating expenses is a direct result of the addition of the Greater Media station.

On a pro forma basis, our first quarter operating expenses were down approximately 5.7% or $2.6 million. SOI reflects the increase in revenue, partially offset by higher operating costs related to the operations of the recently acquired stations and increased variable costs such as sales, marketing and advertising and research expenses.

Beasley's legacy cluster in Tampa, St. Petersburg, Charlotte and Las Vegas experienced revenue declines primarily due to nonrecurring political revenue, increased competition and the reformatting of a station in Tampa.

On a consolidated basis, first quarter 2017 SOI margins were 18.2% compared to 27.2% in the year-ago period, reflecting the addition of Greater Media which historically generates lower margins in the first quarter which is partially a function of the location of the markets and is somewhat weather-related.

Our goal is to have SOI margins in the mid- to-high 20s before the end of our integration.

The Greater Media properties had first quarter '17 revenue decline of approximately 4% that was in part related to a lack of national revenue, including political, as well as underperformance in Philadelphia which as Caroline noted, was partly integration related.

These revenue declines were offset by 9% decrease in operating expenses, resulting in 42.4% year-over-year increase in SOI. I will point out that the expense reduction are the direct result of our implemented synergies and highlight the effectiveness of Beasley's expense management programs and initiatives.

Beasley legacy stations saw a revenue decrease of 7.6% or approximately $2 million with $710,000 of the decline related to political.

And as Caroline mentioned, both Philadelphia and Tampa had challenges with revenue decreases of approximately $1.4 million each On the pro forma basis, for the quarter, as if we owned the Greater Media stations for the first quarter of 2016, net revenue declined 5.7% to $53.7 million, while SOI decreased 5.9% or $612,000 to $9.8 million.

According to Miller Kaplan, our combined clusters declined 5.5% compared with the overall market which declined 2%, largely related to the specific challenges and weakness in national in Philadelphia, Tampa and Las Vegas. On a combined basis, Miller Kaplan reported that these markets were down 8.1% compared to Beasley down 24.5%.

Conversely, we outperformed our markets in terms of revenue growth in Augusta, Charlotte, Detroit, Fayetteville and Fort Myers as our combined clusters in these markets rose 4.2% versus the market which were down 0.3%.

Our performance in our Detroit cluster was particularly noteworthy, as we generated an impressive year-over-year revenue increase of over 23.5% compared with the Detroit market which was up 3.3%.

Corporate G&A expenses rose 29.2% or by $729,000 during the quarter to $3.2 million, primarily due to an increase in corporate staff and other costs associated with the continued integration of the Greater Media acquisition.

And as Caroline pointed out, we also incurred approximately $450,000 in additional pretax merger-related expenses during the quarter. Our effective income tax rate after the $7.5 million gain on merger was approximately negative 2.9% for the 3 months and we paid $247,000 in taxes in the first quarter of this year.

Total first quarter interest expense increased approximately $3.8 million year-over-year to $4.8 million, reflecting the year-over-year increase in borrowings related to the Greater Media transaction as well as an increase in borrowing costs.

With the financing of the Greater Media acquisition, our total outstanding debt, as of March 31, 2017, was $240 million compared to $268 million at December 31, '16. We made voluntary repayments against our debt in first quarter '17 of $4 million.

We also applied 100% of the Charlotte divestiture proceeds for debt repayment resulting in an additional $24 million debt reduction during the first quarter. Our LTM-consolidated operating cash flow, as defined in the credit agreement, was $56.7 million, resulting in a leverage ratio at 4.24x as of March 31, 2017.

This compares to 4.3x as of December 31, 2016. However, our credit agreement allows the company to receive the benefit of up to $20 million of our total cash on hand. In calculating net leverage and reflecting our balance sheet cash, our leverage at March 31, 2017 was 3.9x with a maximum leverage covenant of 6.25x at that time.

We ended 2016 with cash on hand of $18.9 million and the company spent approximately $1 million in CapEx in the first quarter of 2017 compared with $656,000 in first quarter of 2016. And with that, I will turn it back to Caroline..

Thanks, Marie. So as we wrapped up our first quarter, we note that there is upside to our overall revenue performance. In this regard, we're making progress at the Philly cluster where we have replaced 6 of the 8 AEs that left around the closing date with Greater Media and we have identified other areas that require extra attention going forward.

With our undivided focus, we feel that overall we're on target with our plans to drive long term value for our shareholders as demonstrated with the 42% increase in Greater Media property's SOI for first quarter.

Now looking into second quarter, we continue to see headwinds on the national front and we're currently facing down pro forma mid-single-digits. We will continue to protect and grow our brands and we will invest in them as needed, whether that will be in research, marketing or format changes.

Throughout '17, we will continue our strategic priorities and realizing the synergy targets and integration goals for the newly-acquired stations, reducing debt and leverage, returning capital to shareholders through our quarterly cash dividend program and further diversifying our revenue stream.

In closing, we remain confident that our initiatives to drive sales, productivity and efficiency, combined with prudent management of our capital structure, is a proven formula for sustained long term financial growth and the appreciation of shareholder value.

And finally, I'd like to add that we're very excited about the many different brands that we have within our company. And we're also excited about the various delivery platforms available. So on behalf of our corporate and station personnel, I'd like to thank you for attending the call today.

And please feel free to call Marie or myself with any questions. And with that I'm going to turn it over to Marie. We did have a few questions that some of you all submitted, so we're going to review them right now..

Thanks, Caroline. So the first question that we got was what percent of revenue is national? And depending on which quarter we're looking at, it's usually between 20% and 25%. The second question was how was April? And how we're pacing for May and June? April was a soft month and it was down around 8%.

Looking forward to May and June, we're pacing down in the low single digits.

Another question is to, please review our key geographical markets and what percentage of revenue they account for? Caroline, would you answer that?.

So our larger markets, Boston and Philly account for about 20% of our revenue each. And then we have Detroit that is contributing almost 10% of the revenue. Tampa and Charlotte are contributing 11%, 12% of our revenue..

Also another question is, how do you see the CBS Entercom merger impacting you and the industry?.

So first of all, I think that's a great deal for David and I think it shows confidence in the industry. You have 2 great operators coming together with CBS and Entercom and David has the opportunity to take the best of the best and continue with the great brands that he has. And I'm very happy for Entercom and their shareholders..

Great.

Finally, the last question is, could you explain how does the gain on the acquisition work?.

Right. So as you all have noted, there was a $7.5 million gain that we recorded this quarter. And it's basically made up of 2 components and it's based off of the fluctuation of our share price. But there are a few items that have yet to be settled from the Greater Media closing.

One is working capital and we're hopeful that we will be able to close that out within second quarter. But depending on what that final number will be, working capital is going to be settled in shares and Beasley stock. So depending on what that final number will be, we'll -- and when we settle it will depend on the fluctuation in the stock price.

And then second item is the tower sale. And that is scheduled to take place in second quarter as well. The company, Beasley, receives a certain amount of stock after a certain net proceed dollar amount to the family. And so depending on the share price, it will depend on how much that gain or loss is.

So we've had to adjust -- we had to adjust that based on our stock price as of March 31 and that's reflective of the $7.5 million gain..

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

Okay, great. All right. If any of this was not clear, again, please feel free to give us a call and we'll be happy to review it in further detail. All right. Thanks. Bye..

And that will conclude today's conference. We appreciate your participation. You may now disconnect..

End of Q&A:.