Good morning and welcome to the Beasley Broadcast Group Second Quarter 2021 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 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 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, 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 would like to turn the conference over to your host, Beasley Broadcast Group CEO, Caroline Beasley. Please go ahead..

Thank you, Katie and good morning. Thank you all for joining us to review our 2021 second quarter operating results. Marie Tedesco, our CFO, is with me this morning. First, before starting, let me just say that we continue to mourn the passing of my dad, our Founder and Chair, George Beasley, who passed away on June 2.

George had a vision when he founded the company 60 years ago with a single station in North Carolina to one of the 5 largest radio groups in the country today. His vision continues uninterrupted as we further our transition to a multimedia platform company.

This year represents our 60th anniversary, and we all wish that he could be with us to celebrate this major milestone. So, moving on to our results, I am pleased to report that the second quarter again saw revenue increasing both quarter-over-quarter and year-over-year.

Our ad trend rebound is being driven by a healthy consumer spending and pent-up demand; vaccinations; the initial return of commuting; and customers, again, visiting local and national retail shop and, of course, dining out. However, with this being said, we continue to monitor the Delta variant as this could impact some of our progress.

Our second quarter revenue rose 96.1% year-over-year with over-the-air local spot increasing 116% and national spot increasing 121%. Our overall increase was widespread across all of our markets with healthy double-digit increases in Boston, Detroit, Philadelphia and Wilmington.

Comparing where we are today to a year ago, we learned a lot, and we are emerging a stronger, more efficient media company in a better position across every facet of our business, including audio, digital, our balance sheet and overall capital structure.

Throughout our 60-year history, we have focused on localism and highly rated content that resonates and connects with our users. And as a result, we maintained significant local reach within our market, and local revenue remains the cornerstone of our revenue.

Notably, our continued emphasis on strong local content drove best in industry ratings performance for our station clusters in the second quarter. And our cumulative on-air audience share has grown consistently. We continue to serve our listeners and customers with highly rated programming and market-leading content.

And with the progress we’ve all made against the pandemic, we intend to reopen our event in third quarter. However, this may change given the Delta variant.

Our second quarter event and NTR revenue were minimal, but with NTR and events pushed into third quarter, we’ll get the revenue upside in third and fourth quarter, again, assuming no further negative impacts from the Delta variant.

Now looking at our digital revenue and our steady upward curve of recent quarters, our digital revenue grew 96% year-over-year and accounted for 13.4% of total second quarter revenue and 12.8% year-to-date. This compares with digital revenue accounting for 7.6% of total ‘19 second quarter revenue and 6.9% year-to-date in the comparable 2019 period.

Revenue and cash flow diversification remain a strategic priority, and we’re making meaningful progress on all these fronts. As disclosed before, with the continued growth and focus of this revenue channel and it eclipsing 10% of total revenue, we’re now reporting digital on a segment basis.

Second quarter operating expense reflects several permanent reductions implemented in 2020 as well as the increased cost of sales expenses related to our higher local and national spot advertising in the period.

Q2 operating expenses also include our reinvestment in research and marketing and the investment in digital direct, our internal digital advertising agencies that is a significant driver of our digital revenue. Given these factors, our 2021 second quarter SOI was $11.1 million and we generated positive free cash flow of just over $1 million.

Now while the last 16 months presented unprecedented challenges for ad-reliant businesses, I’m extremely proud of the way our team rose to the occasion and worked tirelessly to enable Beasley to generate positive earnings, SOI and free cash flow in the second quarter.

Our strategic priorities remain focused on delivering exceptional content and services to our listeners, advertisers, online users and esport fan while diversifying our revenue, growing our cash flow and maintaining a solid and flexible balance sheet and we are making consistent progress on all fronts.

In addition to our revenue diversification and expense-reduction initiatives, we also remain committed to capital structure improvement that can support our future growth and enhance our financial flexibility. Earlier this year, we completed a $300 million offering of 8.625% senior secured notes due in 2026.

The net proceeds of the offering were used to repay in full existing indebtedness, with the remaining proceeds added to our balance sheet for general corporate purposes. And as a result, and with our positive second quarter free cash flow, we ended the quarter with over $57 million of cash on hand on our balance sheet.

We are confident the experience of our team and competitive positions in our markets, combined with the steps we’ve taken to reduce cost and improve operating efficiencies, position us well for near- and long-term success, particularly as economic trends continue to improve in our market.

Looking ahead, we expect continued growth and recovery as likely as ad sales continue to build and events return. We also expect continued growth from our digital initiative as we expect the investment in this build-out to drive further revenue increases.

Overall, our third quarter is now pacing up 30%, with July up 40% and August and September pacing up 29% and 23% respectively. Now, let me also touch on sports betting revenue as this has become a very viable category and was our second largest category in the second quarter.

Our second quarter sports betting revenue increased 340% year-over-year and represented 5% of our total revenue. This was driven by our Philadelphia, Detroit and New Jersey market clusters.

Massachusetts and Florida are in the process of legalizing sports betting, which if passed, will have a positive impact on our revenue, given the sports presence and targeted demographics we have in those markets. So now I am going to turn over the call to Marie and she is going to give you a deeper dive into our results..

Thank you, Caroline. And let me begin with a financial review of the quarter, followed by a balance sheet update. Second quarter net revenue increased 96.1% or $29.2 million to $59.6 million, inclusive of a $376,000 from our esports operations.

Core ad trends were solid as we generated just $85,000 in net political revenues during the second quarter compared to $270,000 in the prior year. Breaking down the quarter, audio revenues increased $24.2 million, digital revenue increased $3.8 million, and digital represented 13.4% of total revenue.

Looking closer at the quarter, April station revenues were up 128% or $8.2 million compared to prior year. May was up 117% or $9.1 million, and June was up 65.8% or $12 million year-over-year.

Station operating expenses for the quarter increased $7.1 million or 17.2% to $48.5 million, resulting in second quarter SOI of $11.1 million compared to a loss of $11 million in the year-ago period. Our second quarter SOI marks over 100% quarterly sequential increase from first quarter 2021, when we had a $5.2 million in SOI.

Quarterly expenses, inclusive of our 2020 permanent expense reductions, increased by $7.1 million, primarily from increased cost of sales related to the $29.2 million increase in revenue, the investment in our digital agency and reinvestment in our market in terms of research and marketing.

We also reinstituted wage levels to a pre-pandemic level after the cuts we made last year. Moving to our revenue categories, we saw upward improvements across the board. Consumer services remained our largest revenue category at 30.5% of our total revenue, and consumer services increased 80% when compared to second quarter 2020.

Our second largest category, retail, represented around 14.8% of total revenues and was up 98% year-over-year. Entertainment was our third largest revenue category, representing 11.8% of total revenue. This category saw a year-over-year increase of 286%.

Auto, our fourth largest category, saw revenues up 135% year-over-year, and auto was 9.5% of total revenue for the quarter. With many car dealers closed in second quarter of 2020, this category showed huge year-over-year increases in all our markets, especially Boston and Philadelphia.

While the auto industry continues having new car inventory challenges, the second quarter increase in spend was primarily driven by increased used car sales and services, mostly from Tier 2 and Tier 3.

We expect Tier 4 to rebound in their advertising spend by fourth quarter as the industry’s supply chain challenges ease and the auto chip becomes more readily available. Our fifth largest category was consumer products, which represented 7.6% of second quarter revenues.

Consumer products include pharmaceuticals, food and auto parts, and this category increased 143%. Telecom and utility was 5.5% of total revenues, and this category increased 80%.

One source for competitive market data that we internally rely upon is Miller Kaplan, 8 of our 15 markets, representing about 91% of second quarter revenues, reports to Miller Kaplan, including our top 5 markets.

On a combined basis, Beasley market clusters drove a revenue increase of 109.2% for the quarter, handsomely outperforming our markets, which rose 85.9%. We are taking a larger share of revenue in our market, and that is very evident when looking at global spot as our clusters outperformed the market by 22.3%.

We also continue to exceed the market revenue increase on a combined basis in national, digital and NTR. I believe this is a metric that carries value when we look at our local and digital performance inside our market, as that is our main focus and where we see growth opportunities.

Corporate G&A expenses, excluding stock-based compensation, for the quarter increased 2.6% or $93,000 compared to the same quarter a year ago to $3.7 million and also down from $3.9 million in first quarter.

The year-over-year increase in corporate G&A reflects the 2020 expense wage reduction initiative, which was reinstated in the first quarter of 2021. Non-cash stock-based compensation increased 102% to $402,000 in the quarter. We had no income tax expense for the quarter, and our effective tax rate for the quarter was 27%.

Second quarter 2021 operating income increased $23.4 million to $5.8 million compared to a negative $17.6 million in the year-ago quarter. Current operating income includes a net $1.5 million insurance benefit. Total second quarter interest expense increased $3 million year-over-year to $6.9 million, reflecting the recent capital structure changes.

We don’t have any scheduled loan payments, and our first semiannual interest payment of $12.9 million was made earlier this week. Second quarter 2021 free cash flow improved meaningfully from second quarter 2020 to a positive $1 million compared to a negative $20.4 million in the 2020 second quarter.

This turnaround is significant and reflects our advertisers’ resurgence as well as hard work from our Beasley team. We are pleased that with the second quarter representing the first full quarter under our newly restructured debt, we are again reporting positive free cash flow.

As a reminder, we completed a previously announced $300 million bond offering in first quarter, which were issued at 5 years, with a non-call 2 at a coupon of 8.625%. The process allowed the company to eliminate all our bank and subordinated debt with excess net proceeds added to our balance sheet.

Moving on to our liquidity, we ended the quarter with $57.1 million cash on hand. Our total outstanding debt as of June 30, 2021, was $310 million, including $10 million PPP loan, which is eligible for forgiveness. For the quarter, we spent $1.5 million in capital expenses compared to $2.5 million in second quarter 2020.

And year-to-date 2021, we spent $2.6 million versus $6 million for the same period in 2020. And with that, I will turn it back to Caroline..

Thank you, Marie. As I noted earlier, our stations continue to gain share and audience in our largest markets, driven by the highest quality multi-platform local content in the industry. This is a clear competitive differentiator and one which we will continue to leverage to drive ad sales.

In the spring ratings period, our largest PPM market saw a 7% share increase year-over-year and a 4% increase quarter-to-quarter with the top advertising demographic of adults 25-54. This is the largest share Beasley has ever had in our PPM market.

And impressively, we have the number one station in all of our three largest markets of Boston, Detroit and Philadelphia. As commerce and consumer activities in our markets continue to strengthen, our total on-air audience has been consistently growing and is now more than 91% of where our audience was prior to COVID.

In addition to our growing on-air audience and share, our digital content strategy continues to show great success. Our digital impressions grew by over 29% in the second quarter year-over-year and 13% quarter-to-quarter, the biggest quarter ever for digital impressions for our company.

Now, let me give you a quick update on our Houston Outlaws platform. We presently ranked number three in the West and 5 in the world and have that of 2018 and we completed our first live event since COVID in July. Furthermore, and to expand our esports audience, scale and appeal, we are expanding into the Rocket League.

We selected this game because it has younger skills, is a non-tutor, PG-friendly game and will allow us to compete in a game that can be played on virtually every device, delivering a more mainstream easy-to-understand game. So to conclude, as we celebrate our 60th anniversary this year, our family values have never been more important.

At our core, we are a level multimedia platform company that produces unique local content. Our brands connect our audiences to their favorite artist sports teams and their local communities.

And as much as the world has changed in the past year, so much of what makes us exceptional since George founded the business in 1961 has remained true, our commitment to local and our culture of innovation, entrepreneurship and leaseback.

Overall, I am so proud of our hardworking teams as reflected in the improvements we saw this quarter, not only on the revenue line, but across all strategic priorities, diversifying our revenue, creating and expanding our great content and delivering positive free cash flow. I thank you for your time today.

And Marie, I think we do have a few questions..

We do. We have a handful of questions.

The first one is, how is third quarter pacing compared to 2019?.

Third quarter pacing to 2019 we are looking at that being about 5% compared to 2019 at this point. In terms of second quarter pacing from 2019, we’re looking at that and today on about 10%. And that was driven by spot down about 16%, offset by increases in digital of about 67% and NTR of course was down in second quarter.

Now for us to be down 5% compared to 2019 and third quarter, we are assuming NTR will come back and these events will come back. So that’s a big if out there at this point..

Great. The next question is asking for an update on our PPP loan forgiveness. So I can share with you that our loan forgiveness application was filed a couple of weeks ago. This is a somewhat longer process, and we will be providing an update of the PPP forgiveness application on our next earnings call.

The next question is if we can provide some color on the contribution of events?.

Yes. So in 2019, events accounted for about 5% of our total revenue, and that was a little over $12 million. So in second quarter, as I just mentioned, we literally had almost no event revenue. And in second quarter of ‘19, that accounted for 2% of total or $2 million. Third quarter of ‘19 event revenue accounted for almost $3 million.

And in fourth quarter, it accounted for almost $4 million. So assuming this revenue is able to come back, we can see that gap being reduced between 2019 and 2021 and also helping us with the growth in digital revenue..

Great.

Next question is, are you continuing to see a shift in listeners to digital?.

At this point, we are actually seeing a shift back to over-the-air. As I mentioned in my comments earlier today, we have 91% of our over-the-air audience back when you compare just the public listening. That being said, we want our listeners, we want our users in our own ecosystem.

So whether they’re listening digitally or over the air, then that is fine with us. And also, we would like to attract new listeners. And by doing that, with that in line, we are and can be found on multiple channels in addition to our owned and operated digital channels with our app and also our site. We are also on Odyssey. We are on iHeart.

We are on TuneIn. And of course, we can be found onsite Alexa..

Great. Thank you. Next question is please describe the nature of the 2020 cost reductions and how much of these cost reductions will be permanent? So I will take that. On an annual basis, the original 2020 cost cuts were done in two steps. They totaled $23 million.

And on top of that, we also had cost savings from the market in the first 4 months of 2020 of an additional $8 million. So our total cuts and savings came to $31 million in 2020. Approximately $6 million or 19% of those cuts were permanent.

And the last question we have, Caroline, is when do you anticipate a rebound to pre-COVID revenue level?.

Yes. Assuming that NTR events are coming back, we do anticipate that revenue will come back to pre-COVID level near-term, but realistically, it could be 2022.

And once we start seeing revenue come back to these levels and we see normalized operations and our operating income would be compared with pre-COVID, we would like to take a look at dividends at that point. That being said, we will also take a look at our leverage.

And if leverage is a point where we feel comfortable, then we will take a look at dividends..

Thank you. And that’s all the questions we have..

Alright. Thank you all very much for your time. And as always, please feel free to call Marie or myself. Hope you have a great day..

Thank you, ladies and gentlemen. This concludes today’s teleconference. You may now disconnect..