BEASLEY BROADCAST GROUP INC 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. General We are a multi-platform media company whose primary business is operating radio stations throughout the United States. We offer local and national advertisers integrated marketing solutions across audio, digital and event platforms. We own and operate radio stations in the following radio markets: Atlanta, GA, Augusta, GA, Boston, MA, Charlotte, NC, Detroit, MI, Fayetteville, NC, Fort Myers-Naples, FL, Las Vegas, NV, Middlesex, NJ, Monmouth, NJ, Morristown, NJ, Philadelphia, PA, Tampa-Saint Petersburg, FL, West Palm Beach-Boca Raton, FL, and Wilmington, DE. We refer to each group of radio stations in each radio market as a market cluster. Unless the context otherwise requires, all references in this report to “the Company,” “we,” “us” or “our” are to Beasley Broadcast Group, Inc. and its subsidiaries. Cautionary Note Regarding Forward-Looking Statements This report contains “forward-looking statements” about the Company within the meaning of the Private Securities Litigation Reform Act of 1995, which relate to future, not past, events. All statements other than statements of historical fact included in this document are forward-looking statements. These forward-looking statements are based on the current beliefs and expectations of the Company’s management and are subject to known and unknown risks and uncertainties. Forward-looking statements, which address the Company’s expected business and financial performance and financial condition, among other matters, contain words such as: “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” “may,” “will,” “plans,” “projects,” “could,” “should,” “would,” “seek,” “forecast,” or other similar expressions. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that the expectations will be attained or that any deviation will not be material. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. The Company undertakes no obligation to update or revise any forward-looking statements. Forward-looking statements involve a number of risks and uncertainties, and actual results or events may differ materially from those projected or implied in those statements. Factors that could cause actual results or events to differ materially from these forward-looking statements include, but are not limited to: • the effects of the COVID-19 pandemic, including its potential effects on the economic environment and the Company’s results of operations, liquidity and financial condition, and the increased risk of impairments of the Company’s Federal Communications Commission (“FCC”) licenses and/or goodwill, as well as any changes to federal, state or local government laws, regulations or orders in connection with the pandemic; • external economic forces that could have a material adverse impact on the Company’s advertising revenues and results of operations; • the ability of the Company’s radio stations to compete effectively in their respective markets for advertising revenues; • the ability of the Company to develop compelling and differentiated digital content, products and services; • audience acceptance of the Company’s content, particularly its radio programs; • the ability of the Company to respond to changes in technology, standards and services that affect the radio industry; • the Company’s dependence on federally issued licenses subject to extensive federal regulation; • actions by the FCC or new legislation affecting the radio industry; • the Company’s dependence on selected market clusters of radio stations for a material portion of its net revenue; 13 Table of Contents • credit risk on the Company’s accounts receivable; • the risk that the Company’s FCC licenses and/or goodwill could become impaired; • the Company’s substantial debt levels and the potential effect of restrictive debt covenants on the Company’s operational flexibility and ability to pay dividends; • the potential effects of hurricanes on the Company’s corporate offices and radio stations; • the failure or destruction of the internet, satellite systems and transmitter facilities that the Company depends upon to distribute its programming; • disruptions or security breaches of the Company’s information technology infrastructure; • the loss of key personnel; • the Company’s ability to integrate acquired businesses and achieve fully the strategic and financial objectives related thereto and their impact on the Company’s financial condition and results of operations; • the fact that the Company is controlled by the Beasley family, which creates difficulties for any attempt to gain control of the Company; and • other economic, business, competitive, and regulatory factors affecting the businesses of the Company, including those set forth in the Company’s filings with the SEC. Although we believe the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. We do not intend, and undertake no obligation, to update any forward-looking statement. Financial Statement Presentation The following discussion provides a brief description of certain key items that appear in our financial statements and general factors that impact these items. Net Revenue. Our net revenue is primarily derived from the sale of commercial spots to advertisers directly or through national, regional or local advertising agencies. Revenues are reported at the amount we expect to be entitled to receive under the contract. Local revenue generally consists of commercial advertising sales, digital advertising sales and other sales to advertisers in a radio station’s local market either directly to the advertiser or through the advertiser’s agency. National revenue generally consists of commercial advertising sales through advertiser agencies. National advertiser agencies generally purchase advertising for multiple markets. National sales are generally facilitated by our national representation firm, which serves as our agent in these transactions. Our net revenue is generally determined by the advertising rates that we are able to charge and the number of advertisements that we can broadcast without jeopardizing listener levels. Advertising rates are primarily based on the following factors: • a radio station’s audience share in the demographic groups targeted by advertisers as measured principally by periodic reports issued by Nielsen Audio; • the number of radio stations, as well as other forms of media, in the market competing for the attention of the same demographic groups; • the supply of, and demand for, radio advertising time; and • the size of the market. 14 Table of Contents Our net revenue is affected by general economic conditions, competition and our ability to improve operations at our radio market clusters. Seasonal revenue fluctuations are also common in the radio broadcasting industry and are primarily due to variations in advertising expenditures by local and national advertisers. Our revenues typically are lowest in the first calendar quarter of the year. In addition, our revenues tend to fluctuate between years, consistent with, among other things, increased advertising expenditures in even-numbered years by political candidates, political parties and special interest groups. This political spending typically is heaviest during the fourth quarter of such years. We use trade sales agreements to reduce cash paid for operating costs and expenses by exchanging advertising airtime for goods or services; however, we endeavor to minimize trade revenue in order to maximize cash revenue from our available airtime. We also continue to invest in digital support services to develop and promote our radio station websites, applications, and other distribution platforms. We derive revenue from our websites through the sale of advertiser promotions and advertising on our websites and the sale of advertising airtime during audio streaming of our radio stations over the internet. We also generate revenue from selling third-party digital products and services. Operating Expenses. Our operating expenses consist primarily of programming, engineering, sales, advertising and promotion, and general and administrative expenses incurred at our radio stations. We strive to control our operating expenses by centralizing certain functions at our corporate offices and consolidating certain functions in each of our radio market clusters. Critical Accounting Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect reported amounts and related disclosures. We consider an accounting estimate to be critical if: • it requires assumptions to be made that were uncertain at the time the estimate was made; and • changes in the estimate or different estimates that could have been selected could have a material impact on our results of operations or financial condition. Our critical accounting estimates are described in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020. There have been no additional material changes to our critical accounting estimates during the nine months ended September 30, 2021. Recent Accounting Pronouncements There were no recent accounting pronouncements that have or will have a material effect on our financial condition or results of operations. Three Months Ended September 30, 2021 Compared to the Three Months Ended September 30, 2020 The following summary table presents a comparison of our results of operations for the three months ended September 30, 2020 and 2021, with respect to certain of our key financial measures. These changes illustrated in the table are discussed in greater detail below. This section should be read in conjunction with the financial statements and notes to financial statements included in Item 1 of this report. Three Months ended September 30, Change 2020 2021 $ % Net revenue $ 49,649,659 $ 62,902,935 $ 13,253,276 26.7 % Operating expenses 41,589,490 51,186,064 9,596,574 23.1 Corporate expenses 3,712,816 3,980,815 267,999 7.2 Other operating expense 600,000 — (600,000 ) (100.0 ) Interest expense 4,544,235 7,021,577 2,477,342 54.5 Income tax benefit (1,031,166 ) (515,380 ) 515,786 50.0 Net loss (2,724,774 ) (1,620,323 ) 1,104,451 40.5 15 Table of Contents Net Revenue. Net revenue increased $13.3 million during the three months ended September 30, 2021 as compared to the three months ended September 30, 2020. Significant factors affecting net revenue included an increase in audio revenue and digital revenue primarily due to recovery from the COVID-19 pandemic that was partially offset by a decrease in political advertising. Operating Expenses. Operating expenses increased $9.6 million during the three months ended September 30, 2021 as compared to the three months ended September 30, 2020. Significant factors affecting operating expenses included an increase in audio operating expenses primarily due to recovery from the COVID-19 pandemic and an increase in digital operating expenses. Corporate Expenses. Corporate expenses increased $0.3 million during the three months ended September 30, 2021 as compared to the three months ended September 30, 2020. The primary factors affecting corporate expenses were an increase in cash compensation and contract services partially offset by an allocation of digital expenses from corporate expenses to operating expenses. Other Operating Expense. Other operating expense for the three months ended September 30, 2020 includes payments of $0.6 million for consulting services related to the COVID-19 pandemic. Interest Expense. Interest expense increased $2.5 million during the three months ended September 30, 2021, as compared to the three months ended September 30, 2020. The primary factors affecting interest expense were an increase in long-term debt outstanding and the applicable interest rate. Income Tax Benefit. Our effective tax rate was approximately (27)% and (24)% for the three months ended September 30, 2020 and 2021, respectively. These rates differ from the federal statutory rate of 21% due to the effect of state income taxes, certain non-taxable income, and certain expenses that are not deductible for tax purposes. Net Loss. Net loss for the three months ended September 30, 2021 was $1.6 million compared to net loss of $2.7 million for the three months ended September 30, 2020 as a result of the factors described above. Nine Months Ended September 30, 2021 Compared to the Nine Months Ended September 30, 2020 The following summary table presents a comparison of our results of operations for the nine months ended September 30, 2020 and 2021, with respect to certain of our key financial measures. These changes illustrated in the table are discussed in greater detail below. This section should be read in conjunction with the financial statements and notes to financial statements included in Item 1 of this report. Nine Months ended September 30, Change 2020 2021 $ % Net revenue $ 137,683,217 $ 170,689,680 $ 33,006,463 24.0 % Operating expenses 133,868,282 142,648,355 8,780,073 6.6 Corporate expenses 11,950,672 11,843,958 (106,714 ) (0.9 ) Impairment losses 6,804,412 — (6,804,412 ) (100.0 ) Other operating (income) expense, net 600,000 (400,000 ) (1,000,000 ) (166.7 ) Interest expense 12,580,706 19,665,017 7,084,311 56.3 Loss on extinguishment of long-term debt 2,798,789 4,996,731 2,197,942 78.5 Income tax benefit (9,490,892 ) (4,417,660 ) 5,073,232 53.5 Net loss (29,838,734 ) (12,117,270 ) 17,721,464 59.4 Net Revenue. Net revenue increased $33.0 million during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. Significant factors affecting net revenue included an increase in audio revenue and digital revenue primarily due to recovery from the COVID-19 pandemic, partially offset by a decrease in political advertising and other revenue. Operating Expenses. Operating expenses increased $8.8 million during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. Significant factors affecting operating expenses included an increase in audio operating expenses primarily due to recovery from the COVID-19 pandemic and an increase in digital operating expenses. Corporate Expenses. Corporate expenses decreased $0.1 million during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. The primary factors affecting corporate expenses were an allocation of digital expenses from corporate expenses to operating expenses partially offset by an increase in cash and stock-based compensation and contract services. 16 Table of Contents Impairment Losses. Due to the impact of the COVID-19 pandemic on the U.S. economy, we tested our FCC licenses for impairment during the first quarter of 2020. As a result of the quantitative impairment test, we recorded impairment losses of $6.8 million related to the FCC licenses in our Atlanta, GA, Las Vegas, NV, Middlesex-Monmouth-Morristown, NJ, West Palm Beach-Boca Raton, FL, and Wilmington, DE radio market clusters. The impairment losses were primarily due to a decrease in projected revenue in these markets due to the impact of the COVID-19 pandemic and an increase in the discount rate used in the discounted cash flow analyses to estimate the fair value of our FCC licenses due to certain risks specifically associated with the Company and the radio broadcasting industry. Other Operating (Income) Expense, Net. Other operating income, net for the nine months ended September 30, 2021 includes life insurance proceeds of $3.0 million related to the death of Mr. George Beasley, the Company’s former Chairman, in June 2021, partially offset by certain payments totaling $1.5 million that were paid in accordance with Mr. Beasley’s employment contract, payments of $0.6 million for consulting services related to the COVID-19 pandemic and expenses of $0.5 million related to the early termination of a programming contract. Other operating expense for the nine months ended September 30, 2020 includes payments of $0.6 million for consulting services related to the COVID-19 pandemic. Interest Expense. Interest expense increased $7.1 million during the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020. The primary factors affecting interest expense were an increase in long-term debt outstanding and the applicable interest rate. Loss on Extinguishment of Long-Term Debt. We recorded a loss on extinguishment of long-term debt of $5.0 million during the nine months ended September 30, 2021, resulting from the issuance of secured notes on February 2, 2021 and the use of proceeds to repay the credit facility. We recorded a loss on modification of long-term debt of $2.8 million during the nine months ended September 30, 2020, resulting from an amendment to our credit agreement. Income Tax Benefit. Our effective tax rate was approximately (24)% and (27)% for the nine months ended September 30, 2020 and 2021, respectively. These rates differ from the federal statutory rate of 21% due to the effect of state income taxes, certain non-taxable income, and certain expenses that are not deductible for tax purposes. Net Loss. Net loss for the nine months ended September 30, 2021 was $12.1 million compared to net loss of $29.8 million for the nine months ended September 30, 2020 as a result of the factors described above. Liquidity and Capital Resources Overview. Our primary source of liquidity is internally generated cash flow. Our primary liquidity needs have been, and for the next twelve months and thereafter are expected to continue to be, for working capital, debt service, and other general corporate purposes, including capital expenditures and radio station acquisitions. Historically, our capital expenditures have not been significant. In addition to property and equipment associated with radio station acquisitions, our capital expenditures have generally been, and are expected to continue to be, related to the maintenance of our office and studio space, the maintenance of our radio towers and equipment, and digital products and information technology. We have also purchased or constructed office and studio space in some of our markets to facilitate the consolidation of our operations. In response to the COVID-19 pandemic, our board of directors has suspended future quarterly dividend payments until it is determined that resumption of dividend payments is in the best interest of the Company’s stockholders. In addition, as discussed in “Secured Notes” below, the Indenture governing our Notes limits our ability to pay dividends. Secured Notes. On February 2, 2021, we issued $300.0 million aggregate principal amount of 8.625% senior secured notes due on February 1, 2026 (the “Notes”) under an indenture dated February 2, 2021 (the “Indenture”). Interest on the Notes accrues at the rate of 8.625% per annum and is payable semiannually in arrears on February 1 and August 1 of each year, commencing on August 1, 2021. The Notes are secured on a first-lien priority basis by substantially all assets of the Company and its majority owned subsidiaries and are guaranteed jointly and severally by the Company and its majority owned subsidiaries. We used the net proceeds from the Notes, to repay the credit facility, the promissory note, and a loan from Mr. George Beasley (see Note 10 to the accompanying financial statements) and to pay related accrued interest, fees and expenses. The Indenture contains restrictive covenants that limit the ability of the Company and its subsidiaries to, among other things, incur additional indebtedness, guarantee indebtedness or issue disqualified stock or, in the case of such subsidiaries, preferred stock; pay dividends on, repurchase or make 17 Table of Contents distributions in respect of our capital stock or make other restricted payments; make certain investments or acquisitions; sell, transfer or otherwise convey certain assets; create liens; enter into agreements restricting certain subsidiaries’ ability to pay dividends or make other intercompany transfers; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; enter into transactions with affiliates; prepay certain kinds of indebtedness; and issue or sell stock of our subsidiaries. PPP loan . On March 1, 2021, we entered into a loan with Synovus Bank for $10.0 million pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The loan bears interest at a rate of 1.0% per annum and matures on March 1, 2026. Principal and interest payments will be deferred, with interest accruing, until after the period in which we may apply for loan forgiveness pursuant to the PPP. After the deferral period, we will make monthly principal and interest payments, amortized over the remaining term of the loan. The loan may be prepaid at any time prior to maturity with no prepayment penalties. The loan contains customary events of default relating to, among other things, payment defaults or breaches of the terms of the promissory note. Upon the occurrence of an event of default, Synovus Bank may require immediate repayment of all amounts outstanding under the promissory note. Under the terms of the CARES Act, we can apply for and be granted forgiveness for all or a portion of the loan granted under the PPP. The loan is subject to forgiveness to the extent proceeds are used for certain qualifying expenses pursuant to the terms and limitations of the PPP. On September 16, 2021, we submitted an application for forgiveness, however, no assurance can be provided that we will obtain forgiveness of the loan in whole or in part. Credit Facility. As of December 31, 2020, the credit facility consisted of a term loan facility with a remaining balance of $238.0 million and a revolving credit facility with an outstanding balance of $20.0 million and a maximum commitment of $20.0 million. The revolving credit facility carried interest, based on LIBOR, at 4.4% as of December 31, 2020. The term loan carried interest, based on LIBOR, at 5.25% as of December 31, 2020. As noted above, the credit facility was repaid on February 2, 2021, using a portion of the proceeds from the Notes offering. On November 14, 2019, we acquired a majority interest in an esports team and issued a promissory note for $16.5 million to the seller. On June 30, 2020, we entered into an amendment to the promissory note applicable to the remaining balance. As amended, the promissory note bore cash-pay interest at 5% per annum payable quarterly in arrears and additional payment-in-kind interest at 10% per annum. The promissory note had a remaining balance of $5.5 million as of December 31, 2020. As noted above, the promissory note was repaid on February 2, 2021, using a portion of the proceeds from the Notes offering. In June 2020, Mr. George Beasley, our former Chairman, provided a $5.0 million loan to the Company that accrued payment-in-kind interest at 6% per annum with no cash payments due until the loan’s maturity in December 2023. Mr. Beasley and GGB Family Limited Partnership also each entered into standby letters of credit in combined aggregate face amount of $5.0 million in favor of U.S. Bank, National Association for the benefit of the Company as a source of backup liquidity in the event we failed to maintain a minimum liquidity amount. As noted above, the loan was repaid on February 2, 2021, using a portion of the proceeds from the Notes offering. From time to time, we repurchase sufficient shares of our common stock to fund withholding taxes in connection with the vesting of restricted stock units and shares of restricted stock. We paid $0.1 million to repurchase 52,758 shares during the nine months ended September 30, 2021. We expect to provide for future liquidity needs through one or a combination of the following sources of liquidity: • internally generated cash flow; • additional borrowings or notes offerings, to the extent permitted under the Indenture governing our Notes; and • additional equity offerings. We believe we will have sufficient liquidity and capital resources to permit us to provide for our liquidity requirements and meet our financial obligations for the next twelve months and thereafter. However, poor financial results or unanticipated expenses could give rise to default under the Notes, additional debt servicing requirements or other additional financing or liquidity requirements sooner than we expect, and we may not secure financing when needed or on acceptable terms. Cash Flows . The following summary table presents a comparison of our cash flows for the nine months ended September 30, 2020 and 2021 with respect to certain of our key measures affecting our liquidity. The changes set forth in the table are discussed in greater detail below. This section should be read in conjunction with the financial statements and notes to financial statements included in Item 1 of this report. 18 Table of Contents Nine Months ended September 30, 2020 2021 Net cash provided by (used in) operating activities $ 800,567 $ (5,977,001) Net cash used in investing activities (7,996,619 ) (342,250 ) Net cash provided by financing activities 4,040,306 33,701,577 Net increase (decrease) in cash and cash equivalents $ (3,155,746 ) $ 27,382,326 Net Cash Provided By (Used In) Operating Activities. Net cash used in operating activities increased $6.8 million during the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020. Significant factors affecting the increase in net cash used in operating activities included a $25.2 million increase in cash paid for operating expenses, a $3.8 million increase in interest payments and a $1.4 million increase in income tax payments, partially offset by a $22.1 million increase in cash receipts from revenue and a $0.6 million decrease in cash paid for corporate expenses. Net Cash Used In Investing Activities. Net cash used in investing activities during the nine months ended September 30, 2021 included payments of $3.7 million for capital expenditures partially offset by proceeds of $3.0 million from life insurance. Net cash used in investing activities for the same period in 2020 included payments of $7.0 million for capital expenditures and payments of $1.0 million for investments. Net Cash Provided By Financing Activities. Net cash provided by financing activities during the nine months ended September 30, 2021 included proceeds of $300.0 million from the issuance of secured notes and proceeds from the $10.0 million PPP loan, partially offset by credit facility and promissory note repayments of $263.5 million, repayment of the $5.0 million loan provided by George Beasley, and payments of $7.6 million for debt issuance costs related to the secured notes. Net cash provided by financing activities for the same period in 2020 included proceeds of $9.0 million from the issuance of indebtedness under our revolving credit facility and proceeds from the $5.0 million loan provided by George Beasley, partially offset by credit facility and promissory note repayments of $4.5 million, payments of $2.8 million for cash dividends, and payments of $2.6 million for debt issuance costs related to the amendment to our credit agreement. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not required for smaller reporting companies.