Beasley Broadcast(BBGI) - 2019 Q4 - Annual Report

Part I Business Beasley Broadcast Group operates US radio stations, generating advertising revenue, with a 2019 esports expansion, facing intense competition and FCC regulation - The company's primary business is operating radio stations in various US markets, with revenue mainly derived from advertising sales across audio, digital, and event platforms[7][9] - In 2019, the company diversified its operations by acquiring the Houston Outlaws, an esports team competing in the Overwatch League[10] - The radio broadcasting industry is highly competitive, with competition from other radio stations, digital audio streaming, satellite radio, television, and major digital platforms like Amazon, Apple, Facebook, and Google[11] - The business is subject to extensive regulation by the Federal Communications Commission (FCC), which governs station licenses, ownership limits, and program content[13][14] - Company revenues are seasonal, typically lowest in the first quarter, and tend to be higher in even-numbered years due to political advertising, which is heaviest in the fourth quarter[48] - As of February 10, 2020, the company employed 846 full-time and 592 part-time employees[49] Risk Factors The company faces significant risks from economic sensitivity of advertising revenue, intense media competition, FCC license dependency, substantial debt, asset impairment, and family control - The company's advertising revenue is highly sensitive to economic conditions, as advertising is often a discretionary expense for businesses[54][57] - The company faces intense competition for advertising revenue from other radio stations and a variety of other media, including digital, satellite, and television platforms[60][61] - The business is dependent on federally-issued FCC licenses, which are renewable every eight years. Non-renewal or renewal with adverse conditions could materially harm the company[76] - As of December 31, 2019, FCC licenses and goodwill represented 72% of total assets, and a future impairment of these assets could adversely affect operating results[87] - The company has substantial debt ($263.5 million long-term debt vs. $284.5 million equity as of Dec 31, 2019), which requires significant cash flow for debt service and includes restrictive covenants that may limit operational flexibility[88][91] - A significant portion of revenue is generated from a few key markets. In 2019, the Boston, Philadelphia, and Tampa-Saint Petersburg markets contributed 60.7% of net revenue[84] - The company is controlled by its Chairman, George G. Beasley, and his family, who hold 59.3% of the total voting power, which allows them to control stockholder votes and direct management and policies[114][115] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments[123] Properties The company owns or leases properties for its radio stations across the US, with several key locations leased from Beasley family-affiliated related parties - The company owns or leases properties for its radio station market clusters in locations such as Atlanta, Boston, Charlotte, Detroit, Philadelphia, and Tampa[124] - Several properties are leased from related parties, including entities controlled by George G. Beasley or held in trusts for the benefit of his family members[124][126][127] Legal Proceedings The company is not party to any legal proceedings expected to have a material adverse effect on its financial condition or operations - The company is not currently party to any lawsuit or proceeding expected to have a material adverse effect on its financial condition or operations[128] Mine Safety Disclosures This item is not applicable to the company - Not applicable[129] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's Class A common stock trades on NASDAQ, while Class B has no public market; in 2019, it paid $5.5 million in dividends and repurchased shares for tax purposes - The company's Class A common stock trades on the NASDAQ Global Market (BBGI), while Class B common stock has no established public trading market[131] - The company paid aggregate annual cash dividends of $5.5 million in 2019. Future dividends are at the discretion of the board and are limited by the company's credit agreement[133] Share Repurchases in Q4 2019 | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | November 1 – 30, 2019 | 5,625 | $2.89 | | December 1 – 31, 2019 | 51,550 | $3.14 | - All shares purchased in Q4 2019 were to fund withholding taxes in connection with the vesting of restricted stock units and shares of restricted stock[135] Selected Financial Data This section is not required for smaller reporting companies - Not required for smaller reporting companies[138] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2019, net revenue increased to $261.6 million and net income to $13.5 million, influenced by asset dispositions and impairment losses, with liquidity from cash flow and a $263.5 million credit facility, relying on critical accounting estimates and related-party transactions Critical Accounting Estimates The company's financial statements rely on critical accounting estimates, primarily for FCC licenses and goodwill valuation, which led to $12.4 million impairment losses in 2019 due to reduced revenue projections - As of December 31, 2019, FCC licenses and goodwill represented 72% of the company's total assets, making their valuation a critical accounting estimate[87] - The annual quantitative impairment test as of November 30, 2019, resulted in impairment losses of $12.4 million for FCC licenses in the Atlanta, GA and West Palm Beach-Boca Raton, FL markets, primarily due to reduced projected revenue share[158] - The fair value of FCC licenses is estimated using a discounted cash flow model, with key assumptions including revenue growth rates (0.4% - 1.5%), market revenue shares (0.6% - 44.3%), operating income margins (19.8% - 35.4%), and a discount rate of 9.0%[154][156] Results of Operations In 2019, net revenue increased by 1.6% to $261.6 million and net income rose 107.5% to $13.5 million, primarily due to a $20.7 million gain on dispositions, partially offset by $13.7 million impairment losses Comparison of Results of Operations (2019 vs. 2018) | Financial Metric | 2018 | 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net revenue | $257,494,599 | $261,554,114 | $4,059,515 | 1.6% | | Operating expenses | $195,752,948 | $201,107,084 | $5,354,136 | 2.7% | | Gain on dispositions | $0 | $20,657,360 | $20,657,360 | N/A | | Impairment losses | $0 | $13,657,941 | $13,657,941 | N/A | | Net income | $6,481,049 | $13,450,224 | $6,969,175 | 107.5% | - The increase in net revenue was primarily driven by an additional $6.8 million from the Philadelphia market cluster following the acquisition of WXTU-FM[163] - The company recorded a $20.7 million gain on dispositions in 2019 from the sale of land in Las Vegas and Boca Raton, and radio towers in Tampa and New Jersey[167] - Impairment losses of $13.7 million were recorded in 2019, consisting of $12.4 million for FCC licenses and $1.3 million for an investment in LN2 DB[168] Liquidity and Capital Resources The company's liquidity is primarily from cash flow and a credit facility, with $263.5 million in long-term debt as of 2019, while net cash from operations decreased to $21.0 million - As of December 31, 2019, the company had total long-term debt of $263.5 million, including a term loan, revolving credit facility, and a promissory note[181] - The credit facility includes a term loan with a $239.0 million balance and a revolving credit facility with a $20.0 million maximum commitment, of which $11.0 million was outstanding at year-end[174] - The credit agreement requires compliance with financial covenants, such as a maximum First Lien Leverage Ratio, which was 5.75x for December 31, 2019[176] Cash Flow Summary (2019 vs. 2018) | Cash Flow Activity | 2018 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $24,394,480 | $20,991,224 | | Net cash used in investing activities | ($45,612,343) | ($4,955,046) | | Net cash provided by (used in) financing activities | $20,729,301 | ($10,821,835) | Related Party Transactions The company engages in numerous related party transactions, primarily leasing properties and towers from Beasley family-affiliated entities, with 2019 rental expenses totaling approximately $1.2 million - The company leases numerous properties, including its principal executive offices, land, and radio towers, from entities controlled by or affiliated with the Beasley family[191][194][198] - In 2019, rental expenses for these related party leases included $0.2 million to Beasley Broadcasting Management, LLC, $0.7 million to Beasley Family Towers, LLC, and $0.2 million to GGB Las Vegas, LLC[191][194][198] - The company recorded a $1.3 million impairment loss on its investment in LN2 DB, LLC, which is managed by a firm partially owned by a company director, after a study concluded its patents had no significant remaining market value[195][323] Quantitative and Qualitative Disclosures About Market Risks This section is not required for smaller reporting companies - Not required for smaller reporting companies[201] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2019 and 2018, including balance sheets, income statements, cash flows, and detailed notes on accounting policies, acquisitions, debt, and lease accounting Consolidated Balance Sheets As of December 31, 2019, total assets were $760.1 million, with $517.5 million in FCC licenses and $28.6 million in goodwill, against total liabilities of $475.6 million and equity of $284.5 million Consolidated Balance Sheet Highlights (as of Dec 31, 2019) | Category | Amount | | :--- | :--- | | Assets | | | Cash and cash equivalents | $18,648,171 | | FCC licenses | $517,529,167 | | Goodwill | $28,596,547 | | Total Assets | $760,060,229 | | Liabilities & Equity | | | Long-term debt (net) | $248,712,452 | | Total Liabilities | $475,588,271 | | Total Stockholders' Equity | $284,538,540 | Consolidated Statements of Comprehensive Income For 2019, net revenue was $261.6 million, operating income $38.1 million, and net income $13.5 million, influenced by a $20.7 million gain on dispositions and $13.7 million impairment losses Income Statement Highlights (Year Ended Dec 31, 2019) | Metric | Amount | | :--- | :--- | | Net Revenue | $261,554,114 | | Operating Income | $38,118,390 | | Gain on dispositions | $20,657,360 | | Impairment losses | $13,657,941 | | Net Income Attributable to BBGI | $13,450,224 | | Basic EPS | $0.49 | Consolidated Statements of Cash Flows In 2019, net cash from operations was $21.0 million, investing activities used $5.0 million (including acquisitions and capital expenditures offset by dispositions), and financing activities used $10.8 million, resulting in a $5.2 million cash increase Cash Flow Summary (Year Ended Dec 31, 2019) | Cash Flow Activity | Amount | | :--- | :--- | | Net cash provided by operating activities | $20,991,224 | | Net cash used in investing activities | ($4,955,046) | | Net cash provided by (used in) financing activities | ($10,821,835) | | Net increase in cash and cash equivalents | $5,214,343 | Notes to Consolidated Financial Statements The notes detail accounting policies, including 2019 ASC 842 adoption, significant transactions like esports and radio acquisitions, asset sales, debt structure, employee benefits, and related-party transactions - The company adopted the new lease accounting standard (ASC 842) on January 1, 2019, resulting in the initial recording of a $43.1 million lease liability and $38.8 million in right-of-use assets[240] - In 2019, the company acquired the Houston Outlaws esports team and WDMK-FM in Detroit, and completed sales of land and towers for proceeds of $23.0 million, resulting in gains of $20.7 million[241][242][244][245] - Revenue is broken down into Commercial advertising ($223.8M), Digital advertising ($20.3M), and Other revenue ($17.4M) for 2019[302] - As of December 31, 2019, the company had commitments for rating services and sports broadcast rights totaling $127.7 million, with future minimum payments extending beyond 2024[325][326] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[331] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2019, with no material changes during the fourth quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2019[333] - Management concluded that the company's internal control over financial reporting was effective as of the end of the fiscal year, based on the COSO framework[336] Other Information The company reports no other information for this item - None[339] Part III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the 2020 Proxy Statement - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the 2020 Proxy Statement[339] Executive Compensation Information regarding executive compensation is incorporated by reference from the 2020 Proxy Statement - Information regarding executive compensation is incorporated by reference from the 2020 Proxy Statement[340] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership is incorporated by reference from the 2020 Proxy Statement - Information regarding security ownership is incorporated by reference from the 2020 Proxy Statement[340] Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the 2020 Proxy Statement - Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the 2020 Proxy Statement[341] Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the 2020 Proxy Statement - Information regarding principal accounting fees and services is incorporated by reference from the 2020 Proxy Statement[342] Part IV Exhibits, Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the annual report, including key corporate documents and required certifications - This section provides a list of all financial statements and exhibits filed with the Form 10-K[342] Form 10-K Summary The company reports no information for the Form 10-K summary - None[345]