Franchise Brands Q3 2023 Earnings Call Transcript

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November 1, 2023

There are 2 speakers on the call.

Operator

Good morning, and welcome to Beasley Broadcast Group's Third Quarter 2023 Conference Call. Before proceeding, I'd 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 ks 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. Reconciliation of these non GAAP measures with our 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 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.

Operator

You can also find a copy of today's press release on the Investors and Press Room section 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.

Speaker 1

Call. Thank you very much and good morning. Welcome to our Q3 conference call. Marie Cadesco, our CFO is with me this morning. Call.

Speaker 1

The 3rd quarter saw continued softness in the advertising market with the cyclical offset of political, which led to a 5.8% revenue decline. Call is being recorded. However, excluding last year's political revenue of approximately $1,800,000 revenue was down 3.2 percent or 2,000,000 And on a positive note, our quarterly digital revenue continued to show year over year growth. And with our proactive debt management initiatives, we decreased our operating expenses by 2.7%, resulting in SOI of $10,000,000 and EBITDA of With our consistent digital revenue growth and currently representing almost 19% of total revenue, we are within a basis point reaching the lower end of our goal of digital accounting for 20% to 30% of total revenue. The increases from digital and network were offset by challenges in national, which was down $2,600,000 or 20% and down 8%, excluding political, and local was also down 6%.

Speaker 1

The softness of the local side was a result of a soft local agency market, which was down 4.7% and local direct market, which was down 3.5%. Call. As a result of this softness, we reprioritized our efforts mid quarter with a renewed focus on developing local direct new business. And as a result, local new business grew 22%, 7,800,000 up call comes from $6,400,000 in the prior year. In the sports betting category, we recorded $3,700,000 in the 3rd quarter, down 2.6% from the prior year with sports betting representing 6% of total revenue.

Speaker 1

Sports betting was driven by increased spending in Boston, which generated $1,900,000 this quarter versus $325,000 in the prior year. We expect sports betting in Boston to increase in 4th quarter with increased Patriots, Celtics and Bruins gains. These gains were offset by year over year decreases in Detroit and Philadelphia. Now breaking down the quarter's total revenue trends, July was down 4.8%, August was down 5.1% and September showing a slight improvement conference call declined 2.3%. September, excluding political, increased 2.1% earnings were by $530,000 which reflected our focus on developing local direct business.

Speaker 1

And as I point to note, same station revenue was down 4.7%, same station expenses were down 3.6% and same station SOI was down 9.3% and excluding political, revenue declined 2% and SOI increased 4.5% on a same station basis. The sale of JBR, our Seamless station in Wilmington call closed in early Q4 and I'm happy to announce that we took advantage of our BOGS trading below par and used 100% of the proceeds along with cash on our balance sheet to reduce our debt by $10,000,000 In addition, we were able to retain the majority of our digital revenue from JBR, We shifted over to our digital direct agency. Our debt reduction both reduces our leverage and will lower our annual interest debt by approximately $863,000 We will continue to monitor the market conditions to determine when we should repurchase additional bonds. Call. I'm now going to hand it over to Marie, who will give you a deeper dive into the quarter.

Speaker 1

Thanks, Caroline, and good morning, everyone. 3rd quarter net revenue decreased 5.8 percent or $3,700,000 to $60,100,000 which includes $609,000 from our E-four team. Excluding political, revenue decreased $2,000,000 year over year or by 3.2%. Call will be recorded. We generated positive revenue growth in 4 of our markets, including Augusta, Boston, Fort Myers and Wilmington.

Speaker 1

Digital revenue for the quarter grew 9.1 percent to $11,400,000 and now represents 18.6% Moving to our revenue categories for Q3, consumer services remained our largest category at 29.2% of total revenue. Category declined 1.8% during the quarter. However, 5 of our markets delivered year over year increases. Largest decrease in this category came from medical, dental and recruitment. Our 2nd largest category was retail, which fell 1.5% year over year and accounted for 16.2% of total revenue.

Speaker 1

Entertainment number 3 represents around 15.2 percent of 3rd quarter total revenues and decreased 7.8% year over year. The entertainment category includes sports betting, which generated $3,700,000 for the quarter compared to $3,800,000 in the prior year quarter. Auto, our 4th largest category, saw revenues up 1.6% year over year and the category accounted for 8.8 percent of total revenue. We saw increases in auto in more than half of our markets, including a 24% growth in Philadelphia. Domestic auto advertising increased 1% in the quarter, While import auto adds were up around 10%, we have seen a spike in National Auto Tier 1 Branding, While domestic auto has slowed somewhat, especially Tier 1, and this has been partly driven by the current auto strike,

Operator

call is

Speaker 1

being recorded. We expect continued improvement once the auto strike is resolved. Finance jumped the 5th spot with revenues up almost 4% financial performance is 5.2 percent of our total revenue. SOI for the quarter decreased 18.8 expense were by $2,300,000 year over year as revenue declines were partially offset by our success in reducing expenses by $1,400,000 call in the quarter. In Echo and Caroline, same station revenue excluding 3 WE AM, which was divested in the quarter And the Kaydon KXPE swap and the Guaranty Digital acquisition declined 4.7 percent or 2,900,000 call is being recorded to $59,200,000 and same station SOI declined 9.3 percent or 1,100,000 to $10,800,000 Same Station does not reflect the sale of WJBR, which took place on October 5, 2023.

Speaker 1

Year to date revenue decreased 1.6% with year to date same station revenue decreasing 1.9%. Year to date SOI increased 0.2% with year to date same station SOI increasing 8.4%. Corporate G and A expenses for the quarter decreased 12% or $639,000 compared to the same quarter a year ago to $4,500,000 The year over year decrease in corporate G and A is related to a decrease in wages and corporate digital expenses. Non cash stock based compensation decreased 34 percent or $92,000 to $178,000 in the quarter And we paid $107,000 in income taxes in the quarter. 3rd quarter 2023 operating income of negative $85,500,000 call is driven by the increase in discount rate and reduced overall radio market revenue projections.

Speaker 1

Excluding these non cash impairment losses, our operating income was a positive 3,300,000 expense decreased $176,000 year over year to $6,400,000 and our outstanding debt at the end of 3rd quarter call was $287,000,000 Now we used 100% of the net proceeds from the sale of WJBR FM, which closed early October and some balance sheet cash to repurchase $10,000,000 of our bonds call is at a discount of 37.375%. This was completed on October 17, 2023 and decreases are total debt to $277,000,000 3rd quarter 2023 EBITDA declined 23.3 percent or $1,700,000 from the comparable prior year quarter to 5,500,000 LTM adjusted net leverage, including add backs, such as certain taxes, non cash compensation, losses from a digital agency build up, pro form a for our 2022 agency acquisition and pro form a 20222023 risk call was 7.03 times. We ended the Q3 2023 with cash on hand of 29,700,000 net of $12,400,000 interest payments that we made on August 1. We are generating cash from operations and will continue to build up cash during 4th quarter as we expect to generate positive free cash flow in 4th quarter. Our capital expenditures for the quarter were $1,000,000 and that compares to Q3 2022 CapEx spend of $4,700,000 which was related to our Boston build out.

Speaker 1

Year to date CapEx spend was $3,100,000 and that compares to year to date 2022 call is of $11,200,000 We expect our CapEx spending in 2023 to be around $4,000,000 to $5,000,000 for the full year. Call. And with that, I'll turn it back to Caroline. Thank you, Marie. While we were faced with headwinds in Q3, especially from National, I'm pleased with our Q3 digital revenue and new business initiatives.

Speaker 1

Our continued digital revenue growth has allowed us to partially call will be recorded in the Q4 and beyond. Our multi platform local content strategy continues to drive tremendous audience growth in the 3rd quarter. Our O and O audience monthly reach is now almost 32,000,000 compared to approximately 29,000,000 during the same period in 20 22. This represents a 13% overall monthly audience increase from last year. Our radio brands continue to maintain dominant transition to Nelson, where our market share grew by 6% year over year with the key demographic of adults 2,554.

Speaker 1

However, like other recent quarters, the largest audience growth was seen on our digital O and O assets with unique users increasing by 37 quarter was $1,200,000 from Q3 'twenty two to Q3 'twenty three for a total of 31,200,000 unique users in the quarter, And this is compared to $21,000,000 in the year ago quarter. And on a year to date basis, unique users increased 63% from 51,800,000 to 84,300,000. Audience growth led to an 18% increase of sellable digital impressions from Q3 2022 to Q3 23. And during Q3, our growing total digital and esports audience represented over 50% of our total monthly audience. In Q3, we successfully rolled out a more technically advanced version of our branded apps, plus we launched a new national content brand, podcastradiousandpodcastradioreus.com, which is the first ever radio brand in the U.

Speaker 1

S. Dedicated to podcast discovery and curation. Additionally, in October, we launched a new country format on our side channels in markets where we currently have a country format product, Which is solely focused on featuring new artists and their music. Now moving on to eSports, we just closed out the season with our best finish ever, winning 2nd place in the Overwatch League and this win accounted for an additional $400,000 in prize money for a total of $620,000 this year. And as you may have heard, the league will likely shut down by year end and we'll have more on this on our next quarterly call.

Speaker 1

Looking into Q4, with continued uncertainty in advertising, our goals remain on driving further revenue diversification call will allow us to continue to reduce our debt, decrease our leverage and lower our interest expense. So as of today, Our 4th quarter revenue is pacing down 9%. And breaking that down, October was down approximately 17%, November is pacing down 9% and December is pacing up 6%. Excluding political, Q4 is pacing down 1%, with October pacing down 4%, November down 2% and December up 6%. Last year, we recorded about $5,100,000 net of political revenue

Operator

call is being local direct new

Speaker 1

business and digital to offset the softness and the political comps. Lastly, before going Q and A, I'd like to address the fact that in October, we received notice from NASDAQ regarding the status of our listing. Call are all reasonable available options to regain compliance. Finally, I'd like to acknowledge our team members across the company for everything they've done and are doing. And thank you very much for participating on the call today.

Speaker 1

We have received several questions. So Marie, I'm going to hand it back over to you. Thanks, Caroline. And yes, we did receive a handful of questions. And the first one is, do you see the opportunity to do more asset sales.

Speaker 1

Yes, I mean, we're always open and we continue to explore potential opportunities for asset sales. However, we are looking for them to be deleveraging for the company. Next question, can you give us an update on eSports? Sure. As I mentioned before, it is likely that AL will shut down by end of the year And we will look to receive a payment from Activision Blizzard.

Speaker 1

And with that payment, we will plan to reduce Great. Next question. Can you tell us the multiple and SOI and EBITDA for the sale of your Yes. So first of all, we sold Wilmington to a noncom broadcaster. Call to a stream plus an HD side channel that we have in Philadelphia.

Speaker 1

So we'll be able to continue to provide the same EBITDA on a trailing basis for the full year was about $500,000 Again, we sold the station for 5,000,000 Revenue total revenue for the station was $4,000,000 digital revenue was 2,000,000 most of the EBITDA of the $500,000 related to digital. Because we sold to a non com, we were able to move The digital revenue, most of the digital revenue and EBITDA over to our digital direct agency. So based on that, we're looking at a 10 times multiple with us being able to keep most of the EBITDA within the company. Great. Thanks.

Speaker 1

Next question, do you expect to be free cash flow positive for full year 2023 2024? So with the economic headwinds that we have experienced both in Q3 and now in Q4, it will be a stretch to get to free cash flow positive call is scheduled for 2023 full year. However, we expect to be free cash flow positive in Q4 of 2023 And most certainly for the full year of 2024. And the last question we have received is how much political advertising did you have in 2022 and what are you expecting in 2023 2024. So a review of that.

Speaker 1

In 2022, We received $7,500,000 of political revenue and $5,100,000 of that came in Q4 of 2022. In 2023 year to date, we have received approximately 164,000 in political advertising And our expectations for 2024 is $11,000,000 And that concludes the questions. Call. Okay. Thank you very much for participating on the call today and feel free to call either Marie or myself with any follow-up questions.

Speaker 1

Thank you very much.

Operator

Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

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