Good morning, and welcome to the Beasley Broadcast Group Fourth Quarter 2019 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 as supplemented by our quarterly reports on Form 10-Q.Today's webcast will also contain a discussion of non -- 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 would also remind listeners that following its completion, a replay of today's call can be accessed for 5 days on the company's 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's CEO, Caroline Beasley. Please go ahead..

Thank you, Brandon, and good morning, everyone. Thank you for joining us to review our 2019 fourth quarter operating results and our progress toward diversifying our revenue and cash flow, including our growing esports platform.

Marie Tedesco, our CFO, is on the call with me this morning, and she will provide you great details of our fourth quarter financial results.

First, I'd like to say I'm thrilled to review our November acquisition of the Houston Outlaws, which again further expands Beasley's role in the fast-growing esports space and reflects the company's focus on premium esports programming and content. The Outlaws franchise participates in Blizzard Entertainment's Overwatch League.

This acquisition was a rare and unique team ownership opportunity as there are only 20 teams worldwide.

The transaction partners Beasley with Blizzard Entertainment and its parent company, Activision Blizzard, a leading global developer and publisher of interactive entertainment content and services.And to remind everyone, our other investments in esports include Team Renegades, an esport organization consisting of 7 teams based in Detroit, Michigan; Checkpoint XP, a weekly syndicated esports lifestyle show; and a daily podcast; as well as Checkpoint XP On Campus, the first collegiate-based esports show in the U.S.

Our investments in this arena are unique and diversify our audio-focused radio and digital operations.So turning over to our radio operations, the initial integration of Detroit's DMK and DMK HD2 acquired in late '19, they've gone very well.

We remain confident that the addition of DMK will mark further progress toward our goal of capturing 30% revenue share in each of our markets while delivering valuable synergies and the potential for SOI margin improvement.

And as such, we look forward to realizing the full financial and strategic benefits of the transaction in 2020.Now looking at fourth quarter results and largely reflecting the cyclical impact of political realized in '18 but not '19, revenue declined 4.6% on a year-over-year basis to $72.1 million.

In total, we booked about $2.8 million last political in Q4 '19 compared to Q4 '18. And so when you exclude the political impact, 4Q '19 revenue was down 0.9% or $648,000. Notwithstanding the decline in Q4 political, we generated year-over-year revenue increases in 6 of our markets.

In addition, looking closer at the year-over-year revenue comps in last year's fourth quarter, we also recorded $300,000 of nonrecurring revenue related to a canceled spectrum license.During the quarter, we continued to make solid progress with our digital growth initiatives as Q4 digital revenues rose 44% year-over-year, and they accounted for 9.2% of our total fourth quarter revenue.

This is up from 6.1% in the comparable year ago quarter. This trend is also evident on a year-to-date basis as digital revenues represented 7.6% of total revenue in 2019 for the full year compared to 6% in all of '18. And as noted earlier, diversifying our revenue and cash flow is an ongoing strategic priority.

We believe we are demonstrating the complementary nature of our radio business with our digital and esports operations.Now looking past the revenue line, our fourth quarter expenses reflect the acquisition of DMK and the Houston Outlaws.

And inclusive of these expenses, expenses rose 2.8%, which resulted in fourth quarter SOI of $15.6 million.Looking at our full year '19 performance, our revenue increased 1.6% on an actual basis and decreased 1.1% same station.

This is equivalent to an increase of 3% and 0.3% actual and same station, respectively, when excluding 2018 political revenue. Full year actual 2019 SOI decreased 2.1%, inclusive of esports expenses that we did not incur in 2018.So fourth quarter '19 free cash flow increased to $20.7 million compared with $8.6 million in '18 fourth quarter.

This primarily reflects net proceeds of $21.9 million from certain land sales, somewhat offset by the decline in political, higher CapEx and expenses toward our revenue and cash flow diversification initiatives in digital and esports and an increase in taxes due to the gain from the land sale.

Full year '19 free cash flow increased to $33.5 million from $25.5 million in the prior year.And with that, I'm going to turn it over to Marie, who will provide you a deep dive into the fourth quarter..

Augusta, Boston, Charlotte, Detroit, Philadelphia and Wilmington. Boston and Philadelphia were the two main drivers of the year-over-year increases.

Las Vegas saw the biggest decline due to the high level of political revenue booked in this market in 2018.Station operating expenses for the quarter increased 2.8% to $56.5 million, inclusive of expenses related to esports that we did not occur in the comparable 2018 period.

SOI for the quarter declined $5 million to $15.6 million, which was primarily related to the decline of political revenue and the Q4 esports expenses. Excluding the decline in political revenue, fourth quarter SOI declined $2.2 million or 12% and $1.5 million or 8.7% on a same-station basis.

Full year actual SOI decreased $1.3 million or 2.1% and would have increased 3.7% when excluding political.

Same-station SOI for the full year decreased 6.1% and would have been flat when excluding the decline in political.Looking at our revenue categories for fourth quarter on an actual basis, consumer services remained our largest revenue category at around 26% of our revenue, and we had a 4% year-over-year revenue increase in this category for the quarter.

Our consumer services category includes service-oriented businesses, such as medical, dental, construction, insurance and education. Our second-largest category in fourth quarter was retail, which represents 17% of our revenue, and the retail category declined 8%.

Entertainment was our third-largest category for the quarter, and we were flat year-over-year. Auto, our fourth-largest revenue category, representing 13% of revenue, was up 2% driven by our Boston, Detroit and Philadelphia clusters. The top 4 categories accounted for approximately 69% of our total fourth quarter net revenue.

On a same-station basis, consumer services increased 3%, retail declined 8.5%, entertainment was down 1.5%, and auto was up 1%. The increase in auto was again driven by Boston and Philadelphia. Another category that has strong performance in the quarter was finance, which rose 16% on a same-station basis.

Taking a quick look at the categories for the full year on a same-station basis, consumer services was up 7%; retail was down 3%; entertainment, down 1%; and auto was down 4%.Corporate G&A expenses for the quarter increased $600,000 compared to the same quarter a year ago to $5.5 million.

The year-over-year increase in corporate G&A is primarily related to a continued investment in building out our digital platform and our ongoing transformation from a pure-play radio company to a diversified audio-focused media and digital entity.

To quantify this investment, we spent approximately $914,000 in the fourth quarter and $2.7 million in the full year of 2019, and we expect these investments will continue through 2020.

As Caroline reported earlier on the call, these investments are driving digital revenue growth, which is becoming an increasingly significant piece of our overall revenue mix.

As we're continuing to build out this platform beginning in first quarter 2020, these expenses will be shifting from corporate to the markets to match the revenue expectation.Noncash stock-based compensation was up 130% to $384,000 in the quarter.

Our income tax expense for the quarter was $5.6 million and includes accrued taxes on the $17 million gain on land sales.

Our effective tax rate for the quarter was 34.5% as a result of our capital gain and certain expenses that are non -- not deductible for tax purposes, and our tax rate for the full year was 33.3%.Reported fourth quarter 2019 operating income was approximately $11.2 million compared to $13.9 million in the year ago quarter driven by the SOI decline described earlier and increased corporate expenses and an impairment charge related to our AM stations in Boca Raton and Atlanta as well as an impairment loss on an investment.

This partially offset by a gain from the land sale.Fourth quarter 2019 net income increased 129% or $2.7 million to $4.8 million, primarily as a result of lower income tax expense in 2019 versus the prior year.

Full year 2019 operating income increased $3.8 million or 11% to $38.1 million, whereas net income increased $7 million or 108% to $13.5 million.Total fourth quarter interest expense was flat year-over-year at $4.5 million, and we made $3 million in voluntary bank debt repayments for the quarter, and we repaid $12 million in voluntary payments for the full year.

We ended the quarter with cash on hand of $18.6 million. Inclusive of the WDMK transaction, total outstanding debt at December 31, 2019, was $263.5 million compared to $253 million as of September 30.

This includes $13.5 million of unsecured debt related to the Houston Outlaws acquisition.I will therefore break out the leverage covenant to show total debt and total bank debt, which I will refer to as first lien.

Our LTM consolidated EBITDA as defined in our credit agreement was $52.4 million, resulting in total gross leverage ratio of 5.02x and the first lien leverage ratio of 4.77x as of December 31, 2019. That compares to 4.65x first lien leverage in the prior quarter.

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 December 31 balance sheet cash of $18.6 million, total net leverage was 4.67x, and first lien leverage was 4.41x compared to a maximum first lien leverage covenant of 5.75x.

And that compares with 4.43 on the same basis at the end of third quarter.The company spent $2.1 million in CapEx for the quarter compared to prior year quarter of $863,000. And for the full year, we spent $9 million compared to $4.2 million in 2018.

As Caroline noted, for the fourth quarter, Beasley Broadcast Group's free cash flow increased $12.1 million to $20.7 million compared to $8.6 million in the prior year.

This is mostly due to the net proceeds of $21.9 million from the sale of certain land, partially offset by the $5.0 million decline in SOI, which primarily is from the decline in political revenue; and a $3 million increase in cash income tax expense related to the gains from land sales; and a $1.3 million higher capital spending.Full year 2019 free cash flow increased $8 million to $33.5 million from $25.5 million in the prior year.

This was also driven by a $25 million gain on land and tower sales which was partially offset by a $4.8 million increase in corporate expenses related to our digital initiative; a $4.8 million increase in capital expenses, mostly due to the Philadelphia build-out; and a $4.6 million increase in cash income tax expense due to the gain on land sales; and a $2 million increase in cash interest expense.

Now let me also point out that fourth quarter and full year 2019 free cash flow are inclusive of the onetime digital investments of $914,000 and $2.7 million, respectively.As has been our practice, we intend to continue to allocate our free cash flow to pay down debt, return capital to our shareholders through quarterly cash dividend payment to complete select strategic accretive transactions and to reinvest in our stations for research, promotion, sales and other initiatives that will leverage our brands, content and strong market position.And with that, I'll turn it back to Caroline..

Thank you, Marie. So we spent the better part of 2019 aggressively rolling out our digital expansion and transformation across the company, and we're now beginning to see the reward with digital revenue continuing to increase double digits each quarter year-over-year.

Todd Handy, our CDO, has more than a decade of expertise in the digital media space and is focused on driving best sales practices, process improvement and advertiser ROI to realize significant year-over-year digital revenue increases.

Todd and his team continue to hire the digital ops and services teams as we are building out our trafficking and ops functions to support higher growth rates across our digital products and services.

The build-out of our dedicated digital sales team is focused on driving new net digital revenue and targeting the sale of non-radio products to non-radio advertisers. Reflecting the successes of our digital initiatives and strategies, as I said earlier, quarterly digital revenue grew 44% in fourth quarter.

And for the full year, our digital revenue grew 28.5%.These results also highlight the significant strides we're making on the digital content side as we meaningfully expanded our digital content throughout '19.

As a result, we drove a 57% increase in digital traffic users, and page views increased to 104 million, representing a 34% increase.Overall, we're pleased with the momentum and the trajectory of our digital growth initiatives, yet we believe we are only in the early innings.

With the right team, strategies, content and other offerings now in place, we expect 2020 to be another year of solid growth on this front. And as noted earlier, we closed the acquisition of the Houston Outlaws in mid-November, and we began integrating this brand into BMG BXP immediately.

We relocated the entire team, coaching staff to Houston in advance of the 2020 Overwatch season, which began earlier in the month.

And we are investing in the infrastructure to drive content, fan-based growth and sponsorship sales and other revenue.Now I'd like to provide you with some current esports data points in an effort to share with you some of the reasons why we are so excited about this space, and many of you may have read some of these data points in the recent Wall Street Journal article that was written or posted over the weekend.

So revenue per fan base for esports averages $1, and that's relative to $50 to $60 for traditional leagues, such as the NBA or MLB. This gap is expected to converge over time as esports more effectively monetizes an attractive demo and highly engaged fan base.

The key revenue buckets for esports are similar to traditional sports, including ticket sales, rights distribution, sponsorships and merchandising.While new leagues and teams are interested in linear distribution, it's not viewed as the primary growth bet for esports but rather as a potential vehicle to broaden viewership beyond the gamers that traditionally consume content on digital.

And the core audience for esports consists of those that play the video games and therefore can number in the hundreds of millions.

This provides leagues with large audiences already familiar with the content and reduces the need to convert non-gamers or fans of traditional sports.So moving on and looking into the first quarter of the new decade, actual Q1 revenue is currently pacing up low single digits.

We are seeing some political dollars in the first quarter, and we expect this momentum to continue into the first half of Q4.

In addition, though, we are facing negative comps as the New England Patriots only played one playoff game this year in the first quarter as opposed to winning the Super Bowl last year in the first quarter.So with that, let me end today's call by reiterating that we are focused on investments that diversify the company on a long-term basis while keeping an eye on strategic, accretive value-building opportunities in the radio industry.

We're managing our capital structure and leverage, and we continue to return capital to our shareholders. We're pleased with the growing financial results we're seeing from our digital initiatives as well as the early progress we're making toward our esports investments.

Our radio assets, operations and competitive positions in our markets are as strong as ever, and we remain committed to taking actions that can enhance value for all of our shareholders.So with that, that concludes our comments today, and we do have some questions that were sent in that we will address.

Marie?.

Great. Thanks, Caroline. We have gotten some questions. Many of them were addressed on the call today. I have a couple of additional ones that I will take right now. First question is are you seeing any political dollars from Bloomberg and can you quantify it.

So as of this morning, we have about $1 million plus of political revenue booked amongst our markets, and that -- at least half of that is coming from Bloomberg.Another question is can you remind us where you expect leverage to sit at the end of the year. Based on my latest model, we expect to be around 4.2x at the end of 2020.

And I will let Caroline comment on that as well..

Yes. So everyone on this call knows that our target is 4x or below, and we're working very diligently on addressing that. But at this point, we are projecting 4.2x through the end of the year..

Thanks. And the final question is how should we think about operating expense trends for 2020 given all the investment spend.

And how should we think about margins?.

Yes. So let's focus on EBITDA margins with this. And as you've heard on the call today, we've really been focused on our investment initiatives in an effort to diversify our revenue.

So I'm really pleased to say that for first quarter, we are seeing our EBITDA margins should be flat, considering the investments that we're making, and this does exclude Outlaws. But going forward, for the rest of the year, we do expect our EBITDA margins to grow given the fact that digital revenue will far exceed the investments that we're making.

So with that, we're really pleased with our progress. We thank you for your time, and feel free to reach out to Marie or myself with any questions..

Thank you. Ladies and gentlemen, this concludes today's event. You may now disconnect your lines..