Good morning, and welcome to Beasley Broadcast Group's Third Quarter 2022 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 reports 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 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, and good morning, everyone. Thank you for joining us to review our third quarter results. Marie Tedesco, our CFO, is with me on the call this morning. So I'm happy to share that our third quarter results continued to show year-over-year improvement in both revenue and SOI.

Overall, net revenue increased 1.5% year-over-year, exceeding the guidance we provided when we reported Q2 of a projected flat to slightly down quarter.

Now breaking that down, over-the-air local spot revenue increased 1% or by $275,000 while national revenue declined 8.7% or by $1.2 million, and that includes the benefit of $1.9 million in political. Impressively, third quarter digital revenue grew 23.2% year-over-year while audio revenue decreased 1.9%.

Similar to previous quarters, new business initiatives, sports betting, political and a $1.9 million year-over-year increase in digital revenue were the primary drivers that offset the continued national revenue decline.

Now to dig into that a bit, national, excluding political, was down 20% or $2.7 million for the quarter, and it now accounts for about 15% of our total revenue. This trend is consistent with the past several quarters where we've been successful in offsetting declines in national with higher local and, more notably, digital revenue.

As a matter of fact, in both the second and third quarters, digital was a larger part of our revenue mix than national. Third quarter digital revenue represented just over 16% of our total revenues, up from 13.2% in the year-ago third quarter.

And our goal remains that digital revenues will be close to 20% of total revenue by fourth quarter with continued growth thereafter.

And as a reminder, we completed the acquisition of a white label digital agency on June 23, and this will continue to accelerate our digital revenue growth and provide meaningful synergies with our growing digital platform. Now historically, national has accounted for as much as 20% and sometimes 30% of our total revenue mix.

And as I just mentioned, it now represents about 15%. We expect national to continue to decline, which is why we have emphasized the growth of our digital platform while continuing to aggressively develop local direct new business, and we recorded $6.4 million in new business this quarter.

Now given the economic backdrop, we began reducing costs early in the quarter. We executed our first of 2 risks at the beginning of July, which eliminated approximately $1.5 million of permanent wages. Our second risk, which was executed in early October, reduced annual wages by an additional approximate $3.5 million.

These initiatives were executed as we remain watchful of all expenses as we near the end of 2022, with our eyes on 2023. Now touching on sports betting. We recorded $3.8 million in revenue or 6% of total revenue in this category during the quarter, which was driven by Detroit, Philly and New Jersey clusters.

We expect that sports betting will begin in Massachusetts sometime between the end of fourth quarter and first quarter of 2023. And we're well positioned in this market with our 5 FMs that have 5 distinct formats reaching 5 different demographics, including 98.5 The Sports Hub, home to the Patriots, Bruins and the Celtics.

Operating expenses increased 0.6% year-over-year or by $326,000 with our June acquisition accounting for $926,000 of new expenses. SOI grew by $595,000 compared to third quarter '21 with margins now at just over 19%.

And of note, when comparing third quarter '22 to third quarter '21, digital SOI increased to $2 million, and that was from $10,000, marking another indication of the great progress we are making in digital.

Like previous quarters, we were able to take advantage of our bonds trading below par, and we repurchased an additional $3 million at 77% of par for a total of $5 million that was settled in the quarter, permanently reducing our debt to $290 million.

So with that, I'm going to hand it over to Marie, and she's going to provide you a deep insight into the quarter.

Marie?.

Thanks, Caroline. Good morning, and good morning, everyone. Let me start with a review of our third quarter results, followed by a review of our balance sheet.

Third quarter net revenue increased 1.5% or $921,000 to $63.8 million, which includes $586,000 from our 2 esports teams as well as $1.1 million from Guarantee Digital, our second quarter agency acquisition.

We grew revenue year-over-year in all but 2 of our markets, and we generated approximately $1.9 million in net political revenue in third quarter compared to $258,000 last year. We continue to see higher political spending than initially expected, which will also be evident in fourth quarter.

As of today, we have exceeded the full year political revenue received in 2018 midterm election by approximately 40%. Excluding political, third quarter revenue declined 1.5% or $724,000 due to the decline in national.

We saw a slowdown in July and August related to inflation, labor shortages, interest rate increases and the overall slowdown in the economy. Looking closer at the quarter, July was down approximately 3% with local flat and national down 28%. August came in flat with local up 5%, offsetting a 24% decline in national.

September was up 2.8% with local up 3% and national up 5%, thanks to political. Digital revenue for the quarter grew 23.2% to $10.2 million and represented approximately 16% of total third quarter revenue compared to 13.2% in the prior year quarter.

We grew our digital margin from 14.4% in second quarter 2022 and from 3.3% in prior year third quarter to an impressive 19.6% this quarter as we closed in on margin levels closer to pre-pandemic over-the-air margins.

Station operating expenses for the quarter increased $326,000 or 0.6% to $51.5 million, resulting in third quarter SOI of $12.3 million, a year-over-year increase of approximately $600,000.

Breaking down the increase in operating expenses, the main drivers were the acquisition of our white label agency, Guarantee Digital, which added $926,000 of new expenses for the quarter and severance costs from part 1 of 2 risks completed first week of July of approximately $200,000.

Pro forma for the severance and the annual wage savings, our expenses would have declined 2.4% and our SOI would have increased 18.4%. Now looking at our revenue categories for third quarter. Consumer services remained our largest revenue category at 28.5% of total revenue, with an increase of 1.1% year-over-year for the quarter.

Our second largest category was entertainment, which switched place with retail. Entertainment was flat year-over-year and accounted for 15.8% of total revenues. We saw entertainment spend increases in all but 4 of our markets, and sports betting added $3.8 million compared to $4.3 million in the prior year quarter.

Retail grew 9.6% year-over-year and accounted for 15.7% of total revenues. And we saw double-digit growth in Philadelphia, Tampa, Detroit, Charlotte and Las Vegas. Auto, our fourth largest category saw revenues down 5.5% year-over-year, and the category accounted for 8.3% of total revenue.

We saw double-digit increases in auto at our Detroit and Fayetteville clusters and low single-digit increases in Boston, New Jersey and Las Vegas. The year-over-year decline in this category in third quarter was again less than $300,000.

We believe this revenue category can show improvement as supply chain issues normalize and stabilize and as inventory levels continue to build at the dealership level. Consumer products were in fifth place, down 24% and 5.4% of total revenue. And telecom was in sixth spot, down 5.5%, representing 4.9% of total revenues.

Corporate G&A expenses for the quarter increased 29% or by $1.2 million compared to the same quarter a year ago to $5.1 million. The year-over-year increase in corporate G&A is mostly related to an increase in corporate digital expenses of approximately $900,000 as well as severance expense from a reduction in headcount.

Noncash stock-based compensation increased $19,000 or 7.5% to $270,000 in the quarter. And we had an income tax benefit for the quarter of $1.3 million.

Third quarter 2022 operating income declined $170,000 to a negative $4.7 million compared to a negative $4.9 million in the year ago quarter, driven by the increase in corporate expense, mostly offset by an increase in station operating income.

Third quarter interest expense decreased $400,000 year-over-year to $6.6 million related to the repurchase of our bonds over the past 2 quarters. We did not have any scheduled debt payments during the quarter, leaving us with a total debt of $290 million. Our next semiannual interest payment is scheduled for February 1, 2023.

EBITDA for the third quarter was $7.2 million, and our adjusted net leverage including add-backs such as certain taxes, noncash compensation, a PPL grant from fourth quarter 2021 and pro forma for the agency acquisition and our July risk was 5.87x. We ended the quarter with cash on hand of $32.8 million.

That's net of the cash used for the bond repurchases. Our cash balance continues to allow us flexibility to reduce debt and/or pursue additional investments in the digital space should an opportunity arise that could further accelerate our digital growth and provide significant synergies and free cash flow.

However, given the uncertain economic environment, we are inclined to keep our cash on the balance sheet for time being. Our capital expenditures for the quarter were $4.7 million, which was almost entirely related to the relocation and build-out of our Boston studios and offices, which were completed on August 30.

We have received $2.6 million in a build-out allowance from the landlord with an additional $1.5 million on the way. This compares to prior third quarter of $1.2 million. And year-to-date, CapEx spend was $11.2 million or $8.6 million, net of the build-out reimbursement received so far, compared to prior year-to-date of $3.7 million.

And with that, I'll turn it back to Caroline..

Thank you, Marie. Our multi-platform local content strategy continues to drive more audience in our markets. In the third quarter, our owned and operated audience grew by 22% compared to Q3 '21. This growth was particularly evident in our digital O&O assets with unique users increasing from 16.3 million in Q3 '21 to 23.6 million in Q3 '22.

That's an increase of 45%. But more important, this expanded audience spent more time and consumed more content on our digital platform, which led to higher sellable digital impressions, which has been our focus in driving digital growth.

Our O&O impressions were up over 128% from Q3 '21, and we expect to reach 1 billion impressions by the end of this year.

In addition to this incredible growth on our digital platforms, our radio stations continue to maintain dominant positions in Nielsen, where we currently have the highest average cost per share when compared to all other major broadcasters in PPM. Overall, our PPM market share increased 1% year-over-year with adults 25-54 in prime.

In fact, we have the #1 station in most of our largest markets, including Boston, Philly, Detroit and Charlotte amongst adults 25-54. Now according to eMarketer's Global Media Intelligence Report, total audio listening in the first half of '22 grew 10% year-over-year to a total of 4 hours and 5 minutes per day.

Broadcast radio increased from an hour and 7 minutes to an hour and 11 minutes, and this is likely due to an increase in at-work listening with a return to work. Between broadcast radio and podcasts, average daily time spent increased 10 minutes, with podcast listening moving from 52 to 58 minutes daily.

And digital audio listening is up across the board, moving from 72% penetration during the first half of '21 to 79% in the first half of '22. The growth is especially notable in the 16 to 24 demographic, where those reporting having listened to content in the past month went from 84% to 91%.

So I hope that you can see from our comments this morning that we are well positioned to take advantage of these trends. Now moving on to esports. The Overwatch League had its best season today, and we just ended the season and we were ranked #3 in the world.

So I have to say that I'm really proud of our team and the accomplishments that they were able to achieve this year. We're now planning for the '23 out season, which should be very exciting, given the fact that the Overwatch 2 game was released on October 4, and they had more than 25 million players registered to play in its first 10 days.

Our Rocket League team, Team Axle, has a new and upgraded roster, including 1 former World Champion, and we're currently ranked #11 in North America and that's out of 200 teams.

So last month, we were pleased to announce that we entered into an asset exchange agreement with Audacy, whereby we will exchange KDWN-AM and a translator for their Alternative 107.5 KXTE-FM in Vegas.

And as part of this agreement, long-time Las Vegas-based syndicated morning personality, Dave and Mahoney will continue to be heard weekdays from 6 a.m. to 10 a.m. under the Beasley Media Group banner. The planned asset exchange highlights our focus on premium local content, and it's very complementary to our other 4 stations in the market.

And the transaction is expected to be completed sometime this quarter. Now looking at fourth quarter.

As we stay focused on driving further revenue diversification and growing our audience, especially on our digital platform with our new strategic initiatives, we've seen some political crowd-out, leading to declines in certain categories, offset by stronger-than-expected political revenue.

However, we have prepared for an overall slowdown in the economy, given the overall declining environment that we're seeing today. Fourth quarter revenue as of today is pacing flat to slightly up to prior year. And breaking that down, October was up 8.5%, and November and December are pacing just north of down 3%.

And as noted earlier, we are ever mindful of the current economic environment and initiated a second and other permanent cut cost reductions effective October 1 of approximately $10 million on a combined basis.

So before going to Q&A, I'd like to thank our teams in Fort Myers and the corporate office here in Naples for the outstanding job of getting us back on air and for their incredible commitment and dedication during Hurricane Ian in September of this year.

Our on- and off-air teams were a direct lifeline to the communities that were impacted by the storm, staying on the air around the clock to provide important life-saving news and information. Their selfless, brave and unwavering acts of heroism during this time were all inspiring.

And I'd also like to acknowledge our team members once again across the company for everything that they are doing to help us move past these economic challenges that we're currently facing and we are expecting to face going forward into 2023. Thank you for your time this morning, and please feel free to call with any questions.

We do have some questions that were submitted so we will take some time to review those..

Okay, great. Thanks, Caroline. So we did receive a request to disclose our quarterly EBITDA numbers. And so as you could see in our prepared comments, we have included both EBITDA and our net adjusted leverage, and we will continue to do so on a go-forward basis. So going to the first question.

Caroline, what is the minimum cash balance which -- what you are comfortable with? And also to follow up with that, are you interested in buying back any more bonds?.

Yes. So the minimum cash balance that we feel comfortable with is about $25 million. And as far as buying back more bonds, our goal is to be opportunistic in buying back bonds. However, as I said, our minimum cash balance was $25 million and we're very conscious now, given the uncertain economic environment. So that's where we are..

Great.

And another question was what products or services are driving the digital growth? And could you give us an update on expectations for digital revenue as a percent of total revenue for both '22 and 2023?.

Yes. So I think that hopefully, you heard from the comments that I made earlier today is our focus has been growing our O&O audience on the digital platform. So we have rolled out an editorial content initiative, which has really driven our page views and therefore impressions.

So our O&O products as a result of this were really the driver of revenue growth and we saw a 23% increase in revenue. So what are these products that we're able to sell? We've got programmatic audio and display and then, of course, our direct sales from our podcast and display shelf.

Our TPP products for the quarter were flat so again, this was all driven by O&O products this year..

Great. And then we have 1 more question here. And this is about the timing of the cost reduction plan. And what are the cash costs of implementing those cuts? So I will take that. So of the $10 million annualized cost cuts, half of those are permanent reduction in headcount, which cost us just under $600,000 in severance.

The headcount reduction was effective in October so we will see some benefit of that in fourth quarter less the added severance expense. And that's it. We had a few more questions but they were all covered in our prepared comments..

All right. Well, thank you very much for your time today, and feel free to reach out with any additional questions that we may not have covered. All right. Bye..

This concludes today's call. Thank you for your participation. You may now disconnect..