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spk01: Greetings and welcome to Beasley Broadcast Group fourth quarter 2022 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during a conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Caroline Beasley, Chief Executive Officer. Please proceed.
spk02: Thank you, LaTanya. Good morning, everyone, and thank you for joining us to review our fourth quarter and full year results. Marie Tedesco, our CFO, was with me this morning. We're happy to share that our fourth quarter results showed year-over-year improvements in revenue, SOI, and the continued growth we are achieving on our digital side. Our digital revenue, political revenue, and new business initiatives were the primary drivers to the quarter. Overall net revenue increased 1.8% in line with the guidance we provided when we reported Q3 of a projected flat to slightly up quarter. Breaking down the revenue increase, over the air local spot increased 1.9% and national increased 6.1%. And this is inclusive of 5.1 million of political revenue. The growth in our Q4 political revenue offset the headline are the headwinds everyone is seeing in national, as our national business ex-political was down 25%. Notably, same-station revenue for the quarter increased 0.7%, with same-station SOI increasing 2.8%. Full-year revenue increased 6.2%. Similar to fourth quarter, over-the-air local spot increased 7.7%, while national was down 7.5%. including net political revenue of approximately $7.5 million. Same station full year revenue increased 5.6%, and same station SOI increased 3.2% for the full year. Excluding political for the full year, national declined 19.2%. In addition, national revenue, ex-political, declined to 12.2% of our total revenue in fourth quarter. Looking at previous quarters as well as the last few years, national has been trending down and has decreased from almost 21% of total revenue in 2019 to 12.2% in fourth quarter and to 14.2% for the full year of 22. And this is ex-political. We've been successful in offsetting these national declines with higher local and digital revenue as evidenced by our results of the past several quarters. where digital revenue has consistently out-built national. And we expect national to continue to decline, which is why we are prioritizing the growth of our digital platform while continuing to aggressively develop local direct new business. So Q4 digital revenue grew 12.2% year-over-year and now represents almost 17% of our total revenue, and that's up from 15% in the year-ago fourth quarter. Full year digital revenue increased 25% to 40.8 million and accounted for about 16% of our total revenue. We're clearly on the path to achieving our goal of digital accounting for 20% of total revenue. And we expect to land somewhere between 20 and 30% digital to total revenue in 2023. And that's gonna be driven by our content creation, our web services rollout, and our acquisition of the White Label Agency Guaranteed Digital last year. Now, audio revenue for the quarter, and audio revenue is spot, network, talent revenue, barter, and block programming was slightly down by 0.4%. Our increase in new business and political were offset by declines in national, network, and barter. Moving on to sports betting, we recorded $3.3 million in Q4 revenue, amounting to 4.6% of total revenue in this category, which was again driven by Detroit, Philly, and New Jersey. And on a positive note, sports betting legislation was approved and started on January 31st in Massachusetts. And we are seeing the benefit of such just this month with the Super Bowl, as well as heading into March with March Madness. We're well positioned in Boston with our five FM radio stations, including the number one sports station in the country, 98.5 The Sports Hub, home to the New England Patriots, the Boston Bruins, and the Boston Celtics. Now, as far as our operating expenses go, we implemented a cost reduction program in third quarter, with most of these cuts completed in October. Among the expense reductions were permanent headcount reductions, which will benefit 2023 by about $5 million. And I'm going to turn it over to Marie. She's going to bring you more detail on the expense side of where we ended up last year. So Marie, I'm going to turn it over to you right now. Great. Thanks, Caroline. And good morning, everyone.
spk03: I will start with a review of our fourth quarter results, followed by a review of our balance sheet. As Caroline mentioned, fourth quarter net revenue increased 1.8% or $1.3 million to $72 million, which includes $784,000 from our two esports teams, as well as $900,000 from Guaranteed Digital, which is our second quarter agency acquisition. Excluding political, fourth quarter revenue declined 4.8% or $3.4 million due to the decline in nationals. Full year total revenue increased 6.2% or 15 million, and excluding political, revenue increased 3.5% or 8.4 million, reflecting our outperformance in local and digital revenue. Given the strong political demands during the period, we had a shortage of inventory for local, and while the political revenue masked any kind of slowdown in October and partly November, We saw a slowdown in the second half related to inflation, labor shortages, and interest rate increases. Looking closer at the quarter, October was up 8% with local up 2% and national up 41% including political. November was down 2% with local down 3% and national down 7.3% including political. December also declined 2%, with local up 1% and national down 15.1%. Station operating expenses for the quarter increased 1.3 million, or 2.2%, to 58.1 million, resulting in fourth quarter SOI of 13.9 million, marking a slight year-over-year increase. Breaking down the increase in operating expenses, the main driver were the acquisition of our white-labeled agency, Guaranty Digital, which added $1.1 million of new expenses for the quarter, as well as severance costs from our October RIF of approximately $600,000. Full-year operating expenses rose 6.9%, or $13.8 million, driven by an increased cost of sales of approximately 4.3 million, a 2.6 million variance from a bad debt reduction taken in 2021, and the addition of guaranteed digital of 2 million of new expenses. Notably, pro forma for the severance and the fourth quarter headcount savings operating expenses would have declined 1% and SOI would have increased 13.5%. Now looking at our revenue categories for fourth quarter, consumer services remained our largest revenue category at 28.6% of our total revenue, with a decrease of 0.5% year over year for the quarter. Our second largest category was retail, switching place with entertainment, and retail was down 1.4% for the quarter, at 15.3% of our total revenue. Entertainment was 13.2% of total revenue, and this category, which includes sports betting, was down 11%. We saw entertainment spend increases in Charlotte, Las Vegas, Augusta, and Wilmington. However, sports betting was the driver for the decrease in this category in Detroit and Philadelphia. Auto, our fourth largest category, saw revenues down 3% or $190,000 year over year, and the category accounted for 8.8% of our total revenue. We saw double-digit increases in auto at our Detroit, Augusta, Fayetteville, and Wilmington clusters, and low single-digit increases in Charlotte and New Jersey. Political came in fifth place at 7.5% of total fourth quarter revenue, and consumer products and telecom landed in sixth and seventh place with 4.8 and 4.4% of total revenue. Looking at the full year, consumer services accounted for 29.5% of total revenue and was up 5.7% for the year. Retail was up 11% and accounted for 15.9% of total revenue. Entertainment also increased 11% and accounted for 14.5% of total, and auto declined 4% to 8.8% of total revenue. Comparing our key categories in fiscal year 2022 to 2019, consumer services increased 14.6%, retail was down 5.5%, entertainment increased 4.8% and auto was down 31.6% or just under $10 million compared to 2019. Corporate GNA for the quarter decreased 14.1% or by 666,000 compared to the same quarter a year ago to 4.1 million. The year-over-year decrease in corporate GNA is mostly related to expenses in prior year fourth quarter related to a CapEx project that was terminated, as well as reduced compensation. Full year corporate GNA increased 8.6% or 1.4 million to 18 million, primarily related to corporate digital expenses. This includes non-cash expenses of approximately 1 million. We expect to land somewhere around 18 million in 2023, or slightly below 17 million excluding non-cash expenses. Non-cash stock-based compensation decreased 26,000 to 12.6% or 12.6% to 183,000 in the quarter and decreased 23.5% or 325,000 to 1.1 million for the full year 2022. And we had an income tax benefit both for the quarter and for the full year. Fourth quarter 2022 operating income declined $40 million to a negative $33.5 million compared to $6.5 million in the year-ago quarter driven by a non-cash impairment charge of $44.2 million related to FCC licenses, goodwill, and franchise rights. Full-year operating income declined $50.8 million year-over-year to a negative $36.1 million again related to a non-cash impairment charge of $54.7 million for the year. Fourth quarter interest expense decreased $170,000 year over year to $6.6 million, reflecting our bond repurchase activity during 2022. And full year interest expense was $26.9 million, slightly up from $26.5 million in 2021. We ended the year with a total debt of 290 million and we made our semi-annual interest payment on February 1st, 2023. EBITDA for the quarter was 9.9 million up 7.5% or 690,000 from the prior year quarter. And full year EBITDA decreased 0.9% or 234,000 compared to 2021. Adjusted net leverage was 6.71 times and includes at-bats of approximately 12 million with half of that coming from our risk on a pro forma basis, 25% coming from our digital build-out, and the remaining 25% from tax and non-cash items that are added back. And in this calculation, the debt is net of cash on hand. We ended the quarter with cash on hand of $39.5 million. Our current cash balance continues to allow us the flexibility to reduce debt and or pursue additional investments in the digital space should an opportunity arise. However, given the uncertain economic environment, we are inclined to keep cash on the balance sheet for the time being. Our capital expenditures for the quarter were 2.4 million, of which 1.6 million was directly related to the now completed Boston build-out of studios and offices. We received 830,000 in the quarter from the build-out allowance, with an additional 590,000 balance on the way. This capital expense compares to prior fourth quarter of 800,000. Year-to-date CapEx spend was 13.4 million, or 9.3 million net of the build-out reimbursement compared to prior year-to-date or full year of 4.5 million. Moving into 2023, we expect our CapEx spend will normalize in the range of 4 to 5 million. And with that, I'll turn it back to Caroline.
spk02: Thank you, Marie. As reflected in our results and in light of the economic headwinds that we saw in fourth quarter, We're pleased with our fourth quarter and four-year performance, particularly the continued growth and diversification afforded by our digital business. Specifically, the strategy that was put in place mid-year helped to drive 25% growth in our digital revenue for the full year. We're very excited about this opportunity as we go into 2023. For example, our multi-platform local content strategy continued to drive tremendous audience growth in the fourth quarter. Our owned and operated audience reach grew by 18% compared to fourth quarter of 21. And our radio brands remain dominant in Nielsen, where we currently have the highest average cluster share when compared to the other major radio broadcasters in PPM. However, the largest audience growth was seen on our digital O&O assets. with unique users increasing from 16.6 million in Q421 to 22.3 million in Q422, marking an increase of 34%. This audience growth led to a 69% increase of sellable digital impressions from Q421 to Q422, And as noted on prior calls, the growth in digital impressions is a fundamental driver of our digital revenue growth. And when looking at the full year of 22 versus 21, our total owned and operated audience is up 30%. And just like in Q4, digital is feeling the growth with our unique users up 38%, growing from 54.9 million in 21 to 75.5 million in 22. Sellable digital impressions were up 95% year over year, and we expect similar growth in 2023. So moving on to 2023 and looking at first quarter revenue, as of today, pacings are slightly up to prior year, and breaking that down, January was flat. February and March are pacing up in the low to mid single digits. And as previously noted, we are very mindful of the current economic environment and we will be monitoring our revenue pacing and managing our expenses based on such. We're hyper-focused on improving overall margins for the company and generating free cash flow for the year. And we'll monitor our cash on hand and determine the best use of free cash flow in the future as we move through the year. So lastly, I'd like to acknowledge our team across the company for everything they've done and are doing to help us continue our digital transition with our content and sell strategies in place. So thank you very much. And Marie, I'm going to hand it over to you to ask a number of questions that we received this morning.
spk03: Great. Thanks, Caroline. So most of the questions that we received were addressed in our prepared remarks. However, we do have a few additional questions that I will now review. And for the first question, Caroline, this will be for you. Could you touch on our pacing for first quarter for local versus national versus digital?
spk02: Sure. And, you know, this is the same story that we've seen over the last, you know, several quarters and actually several years. Local is pacing up right now 6%, national is pacing down 12%, and digital is pacing up 15%. what our goals are, and that is really focused on local direct business, generating new local direct business, and growing our digital side of the house because national continues to decline.
spk03: Great. Next question. Digital growth was up 12.3%. Can you touch on the trends in digital margins?
spk02: Sure. So we're going to go back to 21 when you saw our digital margins at you know, flat to slightly up. So we were barely generating cash flow with digital in 21. In 22, those margins increased to about 11%. And in 23, we're looking at those margins coming in closer to 20%. Great.
spk03: In terms of your digital businesses, are there any current restraints in its growth, such as ability to hire experienced staff and also any heightened competition out there.
spk02: So on the digital side of the house, we are seeing in terms of hiring experienced personnel that this is actually easing up. However, what we are seeing today is that it's harder to find entry level positions. So that is where we are on the employment side. On the business side, in terms of competition, we are seeing heightened competition in some of our markets, but in some of the markets, we're not. We're seeing more of our peers really focused on digital, and then also smaller agencies coming on starting a digital side of the house, and so we're competing against them.
spk03: Great. Another question, under a mild recessionary environment for 2023, how should numbers look and how should we view the $10 million cost savings and what is the incremental operating expense for the acquisition of guaranteed digital? Can you be free cash flow positive in 2023 under this kind of environment?
spk02: So I'll start with the last question. And yes, we do expect to be free cash flow positive in 2023. The reasons are as follows. In a mild recession, we still expect to see revenue growth. We expect national, of course, to be down. Local will be flat, maybe even slightly down. But with our emphasis on digital and growing digital revenue, we expect that to be able to offset any declines in the traditional side of the house. Also, with the acquisition of Guaranty Digital, they're going to bring revenue into the company. In terms of expenses from Guaranty, we are projecting about $7 million in additive expenses this year. However, that's based on certain revenue projections for Guaranty, and we are expecting them to cash flow positive this year. So if the revenues are not coming in the way that we expect, then we will obviously adjust those expenses. And what else? Did I miss anything there?
spk03: I think I know that was a long question and I think I got it all. There was a question if there is any more cash costs tied to the cost savings actions that were implemented in October. And the answer is actually no. So we accrued and paid out all the related severance expenses in fourth quarter, and none of that is carrying over to first quarter of 2023. And then, Caroline, the last question that we'll review is with cash now almost up to $40 million and the bonds trading in the mid-60s, does it make sense to keep buying back some?
spk02: Yeah, so one of the goals of the company is to reduce our debt and to reduce our leverage. So that aligns very well with one of the goals of the company. So yes, it would make sense to buy the bonds back at 60%, if you will. We are being very disciplined. We want to see how the beginning of 2023 you know, shapes out and to see if there are any recessionary risks out in the marketplace. And, you know, once we feel comfortable with the economy, then we will, you know, really focus on the goals of the company.
spk03: Perfect.
spk02: And that concludes the question. All right. Well, thank you very much. Really appreciate your questions and you all participating today. Hope you have a great day.
spk01: Thank you. This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation, and have a great day.
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