UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2019

OR

 

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 000-29253

 

 

BEASLEY BROADCAST GROUP, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware		65-0960915
(State of Incorporation)		(I.R.S. Employer Identification Number)

3033 Riviera Drive, Suite 200

Naples, Florida 34103

(Address of Principal Executive Offices and Zip Code)

(239) 263-5000

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class		Trading Symbol		Name of Each Exchange on which Registered
Class A Common Stock, par value $0.001 per share		BBGI		Nasdaq Global Market

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer		☐		Accelerated filer		☐
Non-accelerated filer		☐		Smaller reporting company		☒
Emerging growth company		☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class A Common Stock, $0.001 par value, 11,212,043 Shares Outstanding as of October 31, 2019

Class B Common Stock, $0.001 par value, 16,662,743 Shares Outstanding as of October 31, 2019

 

 

 

INDEX

 

				Page No.
		PART I
		FINANCIAL INFORMATION
Item 1.		Condensed Consolidated Financial Statements.			3
		Notes to Condensed Consolidated Financial Statements.			7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations.			15
Item 3.		Quantitative and Qualitative Disclosures About Market Risk.			21
Item 4.		Controls and Procedures.			21
		PART II
		OTHER INFORMATION
Item 1.		Legal Proceedings.			22
Item 1A.		Risk Factors.			22
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds.			22
Item 3.		Defaults Upon Senior Securities.			22
Item 4.		Mine Safety Disclosures.			22
Item 5.		Other Information.			22
Item 6.		Exhibits.			23
SIGNATURES					24

BEASLEY BROADCAST GROUP, INC.    

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)    

 

		December 31, 2018				September 30, 2019
ASSETS
Current assets:
Cash and cash equivalents		$	13,433,828			$	11,898,751
Accounts receivable, less allowance for doubtful accounts of $2,010,721 in 2018 and $1,816,500 in 2019			52,417,152				49,058,272
Prepaid expenses			3,134,756				6,647,688
Other current assets			1,960,032				2,318,757
Total current assets			70,945,768				69,923,468
Property and equipment, net			57,078,452				59,175,219
Operating lease right-of-use assets			—				38,184,158
Finance lease right-of-use assets			675,194				656,439
FCC licenses			516,735,554				529,626,671
Goodwill			25,377,447				25,377,447
Other intangibles, net			2,823,178				2,791,981
Other assets			7,449,486				14,147,960
Total assets		$	681,085,079			$	739,883,343
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	9,611,151			$	13,770,720
Operating lease liabilities			—				7,023,164
Finance lease liabilities			67,101				69,519
Other current liabilities			19,181,108				21,432,111
Total current liabilities			28,859,360				42,295,514
Due to related parties			662,329				589,795
Long-term debt, net of unamortized debt issuance costs			242,776,520				245,228,469
Operating lease liabilities			—				35,800,025
Finance lease liabilities			499,753				447,009
Deferred tax liabilities			122,912,545				124,449,836
Other long-term liabilities			10,340,481				9,603,803
Total liabilities			406,050,988				458,414,451
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized; none issued			—				—
Class A common stock, $0.001 par value; 150,000,000 shares authorized; 15,334,336 issued and 10,908,309 outstanding in 2018; 15,648,049 issued and 11,212,043 outstanding in 2019			15,334				15,647
Class B common stock, $0.001 par value; 75,000,000 shares authorized; 16,662,743 issued and outstanding in 2018 and 2019			16,662				16,662
Additional paid-in capital			149,963,252				152,870,262
Treasury stock, Class A common stock; 4,426,027 shares in 2018; 4,436,006 shares in 2019			(30,447,597	)			(30,484,269	)
Retained earnings			155,398,555				158,962,705
Accumulated other comprehensive income			87,885				87,885
Total stockholders’ equity			275,034,091				281,468,892
Total liabilities and stockholders’ equity		$	681,085,079			$	739,883,343

 

3

BEASLEY BROADCAST GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

 

		Three Months Ended September 30,
		2018				2019
Net revenue		$	65,147,080			$	66,114,701
Operating expenses:
Station operating expenses (including stock-based compensation of $156,338 in 2018 and $138,704 in 2019 and excluding depreciation and amortization shown separately below)			50,351,099				49,443,632
Corporate general and administrative expenses (including stock-based compensation of $301,116 in 2018 and $463,804 in 2019)			3,665,865				5,326,660
Transaction expenses			110,901				65,423
Depreciation and amortization			1,693,073				1,867,234
Total operating expenses			55,820,938				56,702,949
Operating income			9,326,142				9,411,752
Non-operating income (expense):
Interest expense			(4,073,658	)			(4,406,162	)
Loss on modification of long-term debt			(281,021	)			—
Other income (expense), net			(761,275	)			(86,333	)
Income before income taxes			4,210,188				4,919,257
Income tax expense			1,578,412				1,733,980
Income before equity in earnings of unconsolidated affiliates			2,631,776				3,185,277
Equity in earnings of unconsolidated affiliates, net of tax			—				(141,378	)
Net income		$	2,631,776			$	3,043,899
Net income per Class A and B common share:
Basic and diluted		$	0.10			$	0.11
Dividends declared per common share		$	0.05			$	0.05
Weighted average shares outstanding:
Basic			27,351,587				27,781,412
Diluted			27,500,840				27,882,474

 

4

BEASLEY BROADCAST GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

 

		Nine Months Ended September 30,
		2018				2019
Net revenue		$	181,926,003			$	189,461,003
Operating expenses:
Station operating expenses (including stock-based compensation of $529,802 in 2018 and $346,853 in 2019 and excluding depreciation and amortization shown separately below)			140,831,239				144,654,507
Corporate general and administrative expenses (including stock-based compensation of $1,248,828 in 2018 and $1,387,845 in 2019)			11,388,637				15,712,635
Transaction expenses			110,901				361,935
Depreciation and amortization			4,801,859				5,378,708
Change in fair value of contingent consideration			4,415,925				—
Gain on dispositions			—				(3,545,755	)
Total operating expenses			161,548,561				162,562,030
Operating income			20,377,442				26,898,973
Non-operating income (expense):
Interest expense			(11,504,473	)			(13,544,083	)
Loss on modification of long-term debt			(281,021	)			—
Other income (expense), net			(285,063	)			(280,722	)
Income before income taxes			8,306,885				13,074,168
Income tax expense			3,917,689				4,266,627
Income before equity in earnings of unconsolidated affiliates			4,389,196				8,807,541
Equity in earnings of unconsolidated affiliates, net of tax			—				(141,378	)
Net income			4,389,196				8,666,163
Other comprehensive loss:
Reclassification of other comprehensive income due to termination of pension plan (net of income tax benefit of $261,358)			(731,265	)			—
Comprehensive income		$	3,657,931			$	8,666,163
Net income per Class A and B common share:
Basic and diluted		$	0.16			$	0.31
Dividends declared per common share		$	0.15			$	0.15
Weighted average shares outstanding:
Basic			27,469,904				27,706,759
Diluted			27,664,999				27,828,316

 

5

BEASLEY BROADCAST GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

		Nine Months Ended September 30,
		2018				2019
Cash flows from operating activities:
Net income		$	4,389,196			$	8,666,163
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation			1,778,630				1,734,698
Provision for bad debts			2,472,298				271,399
Depreciation and amortization			4,801,859				5,378,708
Change in fair value of contingent consideration			4,415,925				—
Gain on dispositions			—				(3,545,755	)
Termination of pension plan			(992,623	)			—
Amortization of loan fees			1,415,549				1,451,949
Loss on modification of long-term debt			281,021				—
Deferred income taxes			2,481,306				1,537,291
Equity in earnings of unconsolidated affiliates			—				141,378
Change in operating assets and liabilities:
Accounts receivable			(6,587,432	)			3,087,481
Prepaid expenses			(4,057,747	)			(3,512,932	)
Other assets			(1,511,179	)			(140,228	)
Accounts payable			6,715,576				4,159,569
Other liabilities			212,056				3,950,396
Other operating activities			19,050				133,381
Net cash provided by operating activities			15,833,485				23,313,498
Cash flows from investing activities:
Payments for acquisitions			(39,520,000	)			(13,500,000	)
Capital expenditures			(3,346,558	)			(6,901,243	)
Proceeds from dispositions			—				3,800,000
Payments for translator licenses			(52,500	)			—
Payments for investments			(150,000	)			(5,009,999	)
Net cash used in investing activities			(43,069,058	)			(21,611,242	)
Cash flows from financing activities:
Issuance of debt			35,000,000				10,000,000
Payments on debt			(7,048,014	)			(9,000,000	)
Payments of debt issuance costs			(553,062	)			—
Reduction of finance lease liabilities			—				(50,326	)
Dividends paid			(4,020,751	)			(4,150,335	)
Purchase of treasury stock			(85,489	)			(36,672	)
Net cash provided by (used in) financing activities			23,292,684				(3,237,333	)
Net decrease in cash and cash equivalents			(3,942,889	)			(1,535,077	)
Cash and cash equivalents at beginning of period			13,922,390				13,433,828
Cash and cash equivalents at end of period		$	9,979,501			$	11,898,751
Cash paid for interest		$	9,993,376			$	12,217,854
Cash paid for income taxes		$	273,200			$	3,438,550
Supplement disclosure of non-cash investing and financing activities:
Dividends declared but unpaid		$	1,367,761			$	1,389,273
Class A common stock returned to treasury stock		$	13,515,406			$	—
Note receivable and accrued interest converted to investment		$	187,618			$	—
Class A common stock issued for acquisition		$	29,888			$	198,500
Class A common stock issued for investment		$	—			$	974,125
Media advertising exchanged for investment		$	—			$	1,000,000

 

6

BEASLEY BROADCAST GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(1) Interim Financial Statements

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of Beasley Broadcast Group, Inc. and its subsidiaries (the “Company”) included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. These financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the financial statements reflect all adjustments necessary for a fair statement of the financial position and results of operations for the interim periods presented and all such adjustments are of a normal and recurring nature. The Company’s results are subject to seasonal fluctuations, therefore the results shown on an interim basis are not necessarily indicative of results for the full year.

(2) Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued guidance to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. There continues to be a differentiation between finance leases and operating leases, however lease assets and lease liabilities arising from operating leases should now be recognized in the statement of financial position. New disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. In 2018 and 2019, the FASB issued several updates to address certain practical expedients, codification improvements, and targeted improvements to the original guidance. On January 1, 2019, the Company adopted the new guidance retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment. On January 1, 2019, the Company recorded a lease liability of $43.1 million and right-of-use assets of $38.8 million. The Company recorded a cumulative effect of initially applying the new standard of $0.9 million on the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting guidance in effect for that period.

(3) Acquisitions and Dispositions

On August 31, 2019, the Company completed the acquisition of substantially all of the assets used to operate WDMK-FM in Detroit from Urban One, Inc. for $13.5 million in cash. The purchase price was partially financed with $10.0 million in borrowings from the Company’s credit facility and partially funded with $3.5 million of cash from operations. The acquisition broadened and diversified the Company’s local radio broadcasting platform and revenue base in the Detroit radio market. The acquisition was accounted for as an asset acquisition. The Company incurred transaction costs of $0.2 million which were capitalized as a component of the assets acquired.

The assets acquired are summarized as follows:

 

Property and equipment		$	432,588
FCC licenses			12,891,117
Other intangibles			176,295
		$	13,500,000

On March 28, 2019, the Company completed the sale of certain land and improvements in Augusta, GA to a third party for $0.5 million. As a result of the sale, the Company recorded a gain of $0.4 million in the first quarter of 2019.

On March 15, 2019, the Company agreed to cancel a broadband radio service license in Chattanooga, TN in exchange for a fee of $3.3 million received from Clearwire Spectrum Holdings LLC (“Clearwire”). The Company had previously leased the channels under the broadband radio service license to Clearwire under an agreement that ended on March 15, 2019. As a result of the license cancelation, the Company recorded a gain of $3.1 million in the first quarter of 2019.

On September 27, 2018, the Company completed the acquisition of WXTU-FM in Philadelphia from Entercom Communications Corp. for $38.0 million in cash. The purchase price was partially financed with $35.0 million in borrowings from the Company’s credit facility and partially funded with $3.0 million of cash from operations. On July 19, 2018, the Company also entered into a local marketing agreement (“LMA”) with Entercom Communications Corp. and began operating WXTU-FM on July 23, 2018. During the

 

7

BEASLEY BROADCAST GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

term of the LMA, the Company included net revenues and station operating expenses, including the associated LMA fee from operating WXTU-FM, in its consolidated financial statements. The LMA ended on September 27, 2018. The acquisition broadened and diversified the Company’s local radio broadcasting platform and revenue base in the Philadelphia radio market. Further information regarding the acquisition is included in Note 3 to the consolidated financial statements contained in Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed on February 19, 2019.

The following unaudited pro forma information for the three and nine months ended September 30, 2018 assumes that the acquisition of WXTU-FM in Philadelphia had occurred on January 1, 2018. This unaudited pro forma information has been prepared based on estimates and assumptions, which management believes are reasonable, and are not necessarily indicative of what would have occurred had the acquisition been completed on January 1, 2018 or of results that may occur in the future.

 

		Three Months ended September 30, 2018				Nine Months ended September 30, 2018
Net revenue		$	65,642,435			$	187,201,031
Operating income			10,605,254				28,493,819
Net income			3,307,743				9,893,232
Basic and diluted net income per share			0.12				0.36

(4) Other Assets

On August 22, 2019, the Company contributed an additional $1.5 million in cash to Quu, Inc. (“Quu”), a technology company, in exchange for an additional 10,000,000 shares. As a result of the additional investment, the Company holds approximately 35% of the outstanding shares of Quu. The Company is considered to have the ability to exercise significant influence over the operating and financial policies of Quu. Therefore, the investment will be accounted for using the equity method. On August 22, 2019, the Company adjusted the initial investment to fair value and recognized a loss of $0.1 million. The Company will recognize its share of the earnings or losses of Quu in the periods for which they are reported by Quu. Any loss in value of the investment that is other than a temporary decline will be recognized. As of September 30, 2019, the carrying amount of the investment in Quu is $2.2 million.

On March 1, 2019, the Company (i) issued 235,296 shares of Class A common stock with a fair value of $1.0 million, (ii) agreed to provide $1.0 million of media advertising over a three year period, and (iii) contributed $2.5 million in cash for an aggregate investment of $4.5 million in Renegades Holdings, Inc. (“Renegades”), an esports organization, in exchange for 3,750,000 shares or approximately 43% of the outstanding shares of Renegades. The Company is considered to have the ability to exercise significant influence over the operating and financial policies of Renegades. Therefore, the investment will be accounted for using the equity method. The Company will recognize its share of the earnings or losses of Renegades in the periods for which they are reported by Renegades. Any loss in value of the investment that is other than a temporary decline will be recognized. The Company acquired an additional 416,666 shares in the third quarter of 2019 for $0.5 million in cash. The Company will acquire an additional 416,666 shares in the fourth quarter of 2019 and an additional 416,668 shares in the first quarter of 2020 for an aggregate of $1.0 million in cash. As of September 30, 2019, the carrying amount of the investment in Renegades is $4.9 million.

The Company’s share of earnings from Quu and Renegades is reported in earnings of unconsolidated affiliates, net of tax in the accompanying condensed consolidated statements of comprehensive income for the three and nine months ended September 30, 2019.

(5) Long-Term Debt

Long-term debt is comprised of the following:

 

		December 31, 2018				September 30, 2019
Term loan		$	252,000,000			$	243,000,000
Revolving credit facility			—				10,000,000
			252,000,000				253,000,000
Less unamortized debt issuance costs			(9,223,480	)			(7,771,531	)
			242,776,520				245,228,469
Less current installments			—				—
		$	242,776,520			$	245,228,469

 

8

BEASLEY BROADCAST GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

As of September 30, 2019, the credit facility consisted of a term loan with a remaining balance of $243.0 million and a revolving credit facility with an outstanding balance of $10.0 million and a maximum commitment of $20.0 million. As of September 30, 2019, the Company had $10.0 million in available commitments under its revolving credit facility. At the Company’s option, the credit facility may bear interest at either (i) the London Interbank Offered Rate (“LIBOR”) plus a margin of 4.0% or (ii) the base rate plus a margin of 3.0%. The LIBOR interest rate for the term loan is subject to a 1% floor and the base rate is subject to a 2% floor. Interest payments are, for loans based on LIBOR, due at the end of each applicable interest period unless the interest period is longer than three months, in which case they are due at the end of each three month period. Interest payments for loans based on the base rate are due quarterly. The revolving credit facility carried interest, based on LIBOR, at 6.0% as of September 30, 2019 and matures on November 17, 2022. The term loan carried interest, based on LIBOR, at 6.0% as of September 30, 2019 and matures on November 1, 2023.

On August 31, 2019, the Company borrowed $10.0 million from its revolving credit facility. The proceeds were used for the acquisition of substantially all of the assets used to operate WDMK-FM in Detroit.

As of December 31, 2018, the credit facility consisted of a term loan with a remaining balance of $252.0 million and a revolving credit facility with a maximum commitment of $20.0 million. The revolving credit facility and term loan carried interest, based on LIBOR, at 6.5% as of December 31, 2018.

The credit agreement requires mandatory prepayments equal to 50% of Excess Cash Flow (as defined in the credit agreement) when the Company’s Total Leverage Ratio (as defined in the credit agreement) is greater than 3.5x; mandatory prepayments equal to 25% of Excess Cash Flow when the Total Leverage Ratio is less than or equal to 3.5x but greater than 3.0x; and no mandatory prepayments when the Total Leverage Ratio is less than or equal to 3.0x. Mandatory prepayments of Excess Cash Flow are due 95 days after year end. The credit agreement also requires mandatory prepayments for defined amounts from net proceeds of asset sales, net insurance proceeds, and net proceeds of debt issuances.

The credit agreement requires the Company to comply with certain financial covenants which are defined in the credit agreement. These financial covenants include a First Lien Leverage Ratio that will be tested at the end of each quarter. For the period from September 30, 2019 through December 31, 2019, the maximum First Lien Leverage Ratio is 5.75x. The maximum First Lien Leverage Ratio is 5.25x for March 31, 2020 and thereafter.

The credit facility is secured by substantially all assets of the Company and its subsidiaries and is guaranteed jointly and severally by the Company and its subsidiaries. If the Company defaults under the terms of the credit agreement, the Company and its subsidiaries may be required to perform under their guarantees. As of September 30, 2019, the maximum amount of undiscounted payments the Company and its applicable subsidiaries would have been required to make in the event of default was $253.0 million. The guarantees for the credit facility expire on November 17, 2022 for the revolving credit facility and on November 1, 2023 for the term loan facility.

Failure to comply with financial covenants, scheduled interest payments, scheduled principal repayments, or any other terms of the credit agreement could result in the acceleration of the maturity of the Company’s outstanding debt, which could have a material adverse effect on the Company’s business or results of operations. As of September 30, 2019, the Company was in compliance with all applicable financial covenants under the credit agreement.

The aggregate scheduled principal repayments of the credit facility for the remainder of 2019 and the next four years are as follows:

 

2019		$	—
2020			—
2021			—
2022			10,000,000
2023			243,000,000
Total		$	253,000,000

 

9

BEASLEY BROADCAST GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

(6) Leases

The Company leases office space in several markets. Some leases are for the entire building while others are for certain office space in a building. The Company also rents land beneath a building owned by the Company in Augusta, GA.

The Company leases radio towers for the majority of its radio stations. Leases for FM radio stations are generally to install broadcast equipment on a radio tower and in a transmitter building adjacent to the radio tower. Leases for AM radio stations are generally for the entire radio tower array and the adjacent transmitter building. The Company also leases tower space to install translator equipment.

Certain rental agreements for office space and radio towers contain non-lease components such as common area maintenance and utilities. The Company elected to apply the practical expedient that permits lessees to make an accounting policy election to account for each separate lease component of an office space and radio tower lease contract and its associated non-lease components as a single lease component. Certain rental agreements for office space and radio towers also include taxes and insurance which are not considered lease components.

Consideration for office space and radio tower leases generally includes monthly payments with either a fixed annual increase or a variable annual increase based on a consumer price index. Leases with variable annual increases based on a consumer price index are initially measured using the index at the commencement date. Subsequent changes to variable increases based on a consumer price index will be recognized in the statement of operations in the period of change. The lease term begins at the commencement date and is determined on that date based on the noncancelable term of the lease, together with periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option. When evaluating whether the Company is reasonably certain to exercise an option to renew the lease, the Company is required to assess all relevant factors that create an economic incentive for the Company to exercise the renewal.

The Company rents certain office equipment, such as copiers, in several markets. Consideration for office equipment leases generally includes fixed monthly payments for the lease term. The lease term begins at the commencement date and is determined on that date based on the noncancelable term of the lease. Office equipment leases generally do not include options to extend the lease.

The Company received several vehicles through acquisitions that have completed the original lease term and are now leased on a month to month basis. The vehicles are expected to be acquired or returned to the lessor within twelve months. The Company has made an accounting policy election to not record leases with a term of 12 months or less on its balance sheet. Instead, the Company recognizes lease payments as an expense on a straight-line basis over the lease term.

The various discount rates are based on the Company’s incremental borrowing rate due to the rate implicit in the leases being not readily determinable. The Company’s incremental borrowing rate is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The Company used the current borrowing rate on its credit facility, adjusted for the effects of collateralization, to determine the various rates it would pay to finance similar transactions over similar time periods.

The Company leases certain office space and radio towers from related parties. The current lease expiration dates range from December 2020 through December 2027 and annual rental expense ranges from $13,000 to $0.2 million. Related party right-of-use assets and lease liabilities are included in the amounts reported on the accompanying balance sheet as of September 30, 2019 and future minimum payments for related party leases are included in the tables below. Further information regarding related party leases is included in Note 16 to the consolidated financial statements contained in Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed on February 19, 2019.

The Company elected to apply a package of practical expedients that allows it not to reassess (i) whether any expired or existing contracts are or contain leases, (ii) lease classification for any expired or existing leases, and (iii) initial direct costs for any expired or existing leases.

Certain amounts related to finance leases previously reported in the 2018 financial statements have been reclassified to conform to the 2019 presentation.

 

10

BEASLEY BROADCAST GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

The following table summarizes lease information:

 

		Three Months ended September 30, 2019				Nine Months ended September 30, 2019
Lease cost
Operating lease cost		$	2,564,398			$	7,576,348
Finance lease cost:
Amortization of right-of-use assets			6,251				18,753
Interest on lease liabilities			3,472				10,417
Short-term lease cost			7,200				21,600
Total lease cost		$	2,581,321			$	7,627,118
Other information
Operating cash flows from operating leases		$	2,551,861			$	7,294,543
Operating cash flows from finance leases			3,472				10,417
Financing cash flows from finance leases			16,775				50,326
Right-of-use assets obtained in exchange for new operating lease liabilities			2,027,517				4,577,877
Right-of-use assets obtained in exchange for new finance lease liabilities			—				—
						September 30, 2019
Weighted-average remaining lease term – operating leases							6.7 years
Weighted-average remaining lease term – finance leases							26.3 years
Weighted-average discount rate – operating leases							8.5	%
Weighted-average discount rate – finance leases							3.9	%

As of September 30, 2019, future minimum payments for operating and finance leases for the next five years and thereafter are summarized as follows:

 

Year 1		$	10,503,037
Year 2			9,641,222
Year 3			8,701,116
Year 4			6,935,661
Year 5			5,952,924
Thereafter			19,338,030
Total lease payments			61,071,990
Less imputed interest			(17,732,273	)
Present value of lease liabilities		$	43,339,717

As of December 31, 2018, future minimum payments for operating and finance leases for the next five years and thereafter were summarized as follows:

 

2019		$	9,800,202
2020			9,946,823
2021			8,881,584
2022			7,662,679
2023			6,305,127
Thereafter			19,974,004
Total		$	62,570,419

 

11

BEASLEY BROADCAST GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

(7) Stockholders’ Equity

The changes in stockholders’ equity for the three and nine months ended September 30, 2018 and 2019 are as follows:

 

		Three Months ended September 30,								Nine Months ended September 30,
		2018				2019				2018				2019
Beginning balance		$	272,195,359			$	279,217,346			$	286,166,200			$	275,034,091
Change in accounting principle			—				—				—				(935,916	)
Issuance of common stock			29,888				—				29,888				1,172,625
Stock-based compensation			457,454				602,508				1,778,630				1,734,698
Purchase of treasury stock			(17,093	)			(5,588	)			(13,600,895	)			(36,672	)
Net income			2,631,776				3,043,899				4,389,196				8,666,163
Cash dividends			(1,367,761	)			(1,389,273	)			(4,102,131	)			(4,166,097	)
Other comprehensive loss			—				—				(731,265	)			—
Ending balance		$	273,929,623			$	281,468,892			$	273,929,623			$	281,468,892

(8) Revenue

Revenue is comprised of the following:

 

		Three Months ended September 30,								Nine Months ended September 30,
		2018				2019				2018				2019
Commercial advertising		$	56,644,127			$	57,168,203			$	157,761,002			$	164,125,289
Digital advertising			3,496,136				5,052,417				10,826,473				13,507,547
Other			5,006,817				3,894,081				13,338,528				11,828,167
		$	65,147,080			$	66,114,701			$	181,926,003			$	189,461,003

The Company recognizes revenue when it satisfies a performance obligation under a contract with an advertiser. The transaction price is allocated to performance obligations based on executed contracts which represent relative standalone selling prices. Payment is generally due within 30 days although certain advertisers are required to pay in advance. Revenues are reported at the amount the Company expects to be entitled to receive under the contract. The Company has elected to use the practical expedient to expense sales commissions as incurred. Payments received from advertisers before the performance obligation is satisfied are recorded as deferred revenue in the balance sheet. Substantially all deferred revenue is recognized within twelve months of the payment date.

 

		December 31, 2018				September 30, 2019
Deferred revenue		$	1,868,223			$	3,414,696
		Three Months ended September 30,								Nine Months ended September 30,
		2018				2019				2018				2019
Losses on receivables		$	1,845,022			$	107,224			$	2,259,136			$	465,620

Commercial advertising includes revenue from the sale or trade of aired commercial spots to advertisers directly or through national, regional or local advertising agencies. Each commercial spot is considered a performance obligation. Revenue is recognized when the commercial spots have aired. Trade sales are recorded at the estimated fair value of the goods or services received. If commercial spots are aired before the goods or services are received then a trade sales receivable is recorded. If goods or services are received before the commercial spots are aired then a trade sales payable is recorded.

 

		December 31, 2018				September 30, 2019
Trade sales receivable		$	1,606,283			$	1,818,542
Trade sales payable			1,250,454				1,312,993
		Three Months ended September 30,								Nine Months ended September 30,
		2018				2019				2018				2019
Trade sales revenue		$	2,790,888			$	2,005,613			$	6,409,976			$	6,513,855

 

12

BEASLEY BROADCAST GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Digital advertising includes revenue from the sale of streamed commercial spots, station-owned assets and third party products. Each streamed commercial spot, station-owned asset and third party product is considered a performance obligation. Revenue is recognized when the commercial spots have streamed. Station-owned assets are generally scheduled over a period of time and revenue is recognized over time as the digital items are used for advertising content except for streamed commercial spots. Third-party products are generally scheduled over a period of time with an impression target each month. Revenue from the sale of third-party products is recognized over time as the digital items are used for advertising content and impression targets are met each month.

Other revenue includes revenue from concerts, promotional events, talent fees and other miscellaneous items. Revenue is generally recognized when the event is completed, as the promotional events are completed, or as the talent services are completed.

(9) Stock-Based Compensation

The Beasley Broadcast Group, Inc. 2007 Equity Incentive Award Plan (the “2007 Plan”) permits the Company to issue up to 7.5 million shares of Class A common stock. The 2007 Plan allows for eligible employees, directors and certain consultants of the Company to receive restricted stock units, shares of restricted stock, stock options or other stock-based awards. The restricted stock units and restricted stock awards that have been granted under the 2007 Plan generally vest over one to five years of service.

A summary of restricted stock unit activity is presented below:

 

		Restricted Stock Units				Weighted- Average Grant-Date Fair Value
Unvested as of July 1, 2019			646,934			$	6.10
Granted			—				—
Vested			—				—
Forfeited			—				—
Unvested as of September 30, 2019			646,934			$	6.10

A summary of restricted stock activity is presented below:

 

		Shares				Weighted- Average Grant-Date Fair Value
Unvested as of July 1, 2019			97,500			$	4.88
Granted			—				—
Vested			(7,500	)			4.90
Forfeited			—				—
Unvested as of September 30, 2019			90,000			$	4.88

As of September 30, 2019, there was $2.4 million of total unrecognized compensation cost for restricted stock units and shares of restricted stock granted under the 2007 Plan. That cost is expected to be recognized over a weighted-average period of 2.1 years.

(10) Income Taxes

The Company’s effective tax rate was 37% and 35% for the three months ended September 30, 2018 and 2019, respectively, and 47% and 33% for the nine months ended September 30, 2018 and 2019, respectively. These rates differ from the federal statutory rate of 21% due to the effect of state income taxes and certain expenses that are not deductible for tax purposes. The effective tax rate for the nine months ended September 30, 2018 also reflects a $1.2 million increase due to the change in fair value of contingent consideration during that time period.

 

13

BEASLEY BROADCAST GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

(11) Financial Instruments

The carrying amount of the Company’s financial instruments including cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term nature of these financial instruments.

The carrying amount of the Company’s long-term debt, including the term loan and the revolving credit facility as of September 30, 2019 was $253.0 million, which approximated fair value based on current market interest rates. The carrying amount of the Company’s long-term debt as of December 31, 2018 was $252.0 million, which approximated fair value based on current market interest rates.

 

14

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 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.

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:

 

•

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;

 

•

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;

 

15

•

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 fact that the Company is controlled by the Beasley family, which creates difficulties for any attempt to gain control of the Company;

 

•

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; 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 that 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 Nielson 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.

Our net revenue is affected by general economic conditions, competition and our ability to improve operations at our 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 are typically lowest in the first calendar quarter of the year.

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 other digital products.

 

16

Operating Expenses. Our operating expenses consist primarily of (i) programming, engineering, sales, advertising and promotion, and general and administrative expenses incurred at our radio stations, (ii) general and administrative expenses, including compensation and other expenses, incurred at our corporate offices, and (iii) depreciation and amortization. We strive to control our operating expenses by centralizing certain functions at our corporate offices and consolidating certain functions in each of our 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, 2018. There have been no material changes to our critical accounting estimates during the third quarter of 2019.

Recent Accounting Pronouncements

Recent accounting pronouncements are described in Note 2 to the accompanying financial statements.

Three Months Ended September 30, 2019 Compared to the Three Months Ended September 30, 2018

The following summary table presents a comparison of our results of operations for the three months ended September 30, 2018 and 2019 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
		2018				2019				$				%
Net revenue		$	65,147,080			$	66,114,701			$	967,621				1.5	%
Station operating expenses			50,351,099				49,443,632				(907,467	)			(1.8	)
Corporate general and administrative expenses			3,665,865				5,326,660				1,660,795				45.3
Other income (expense), net			(761,275	)			(86,333	)			674,942				88.7
Interest expense			4,073,658				4,406,162				332,504				8.2
Income tax expense			1,578,412				1,733,980				155,568				9.9
Net income			2,631,776				3,043,899				412,123				15.7

Net Revenue. Net revenue increased $1.0 million during the three months ended September 30, 2019 as compared to the three months ended September 30, 2018. Significant factors affecting net revenue included $1.3 million in additional revenue from our Philadelphia market cluster primarily due to the acquisition of WXTU-FM on September 27, 2018. Net revenue for the three months ended September 30, 2019 was comparable to net revenue for the same period in 2018 at our remaining market clusters.

Station Operating Expenses. Station operating expenses decreased $0.9 million during the three months ended September 30, 2019 as compared to the three months ended September 30, 2018. Significant factors affecting station operating expenses included $0.4 million in additional expenses in the Philadelphia market cluster primarily due to the acquisition of WXTU-FM. Station operating expenses for the three months ended September 30, 2018 included $1.7 million of additional bad debt expense due to financial issues at United States Traffic Network. Station operating expenses for the three months ended September 30, 2019 were comparable to station operating expenses for the same period in 2018 at each of our market clusters.

 

17

Corporate General and Administrative Expenses. Corporate general and administrative expenses increased $1.7 million during the three months ended September 30, 2019 as compared to the three months ended September 30, 2018, primarily due to a $1.1 million increase in compensation expense, which was primarily due to an increase in the number of employees at our corporate offices, and a $0.2 million increase in contract services.

Other Income (Expense), Net. Other income (expense), net decreased $0.7 million during the three months ended September 30, 2019 as compared to the three months ended September 30, 2018 primarily due to expenses of $0.8 million related to a shelf offering in 2018.

Interest Expense. Interest expense increased $0.3 million during the three months ended September 30, 2019 as compared to the three months ended September 30, 2018. The primary factor affecting interest expense was the increase in long-term debt outstanding.

Income Tax Expense. Our effective tax rate was 37% and 35% for the three months ended September 30, 2018 and 2019, respectively. These rates differ from the federal statutory rate of 21% due to the effect of state income taxes and certain expenses that are not deductible for tax purposes.

Net Income. Net income during the three months ended September 30, 2019 was $3.0 million, an increase of $0.4 million compared to net income of $2.6 million during the three months ended September 30, 2018 as a result of the factors described above.

Nine Months Ended September 30, 2019 Compared to the Nine Months Ended September 30, 2018

The following summary table presents a comparison of our results of operations for the nine months ended September 30, 2018 and 2019 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
		2018				2019				$				%
Net revenue		$	181,926,003			$	189,461,003			$	7,535,000				4.1	%
Station operating expenses			140,831,239				144,654,507				3,823,268				2.7
Corporate general and administrative expenses			11,388,637				15,712,635				4,323,998				38.0
Change in fair value of contingent consideration			4,415,925				—				4,415,925				(100.0	)
Gain on dispositions			—				3,545,755				3,545,755				—
Interest expense			11,504,473				13,544,083				2,039,610				17.7
Income tax expense			3,917,689				4,266,627				348,938				8.9
Net income			4,389,196				8,666,163				4,276,967				97.4

Net Revenue. Net revenue increased $7.5 million during the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018. Significant factors affecting net revenue included $6.7 million in additional revenue from our Philadelphia market cluster primarily due to the acquisition of WXTU-FM and a $2.1 million increase in revenue from our Boston market cluster, partially offset by a $0.9 million decrease in revenue from our Las Vegas market cluster. Net revenue for the nine months ended September 30, 2019 was comparable to net revenue for the same period in 2018 at our remaining market clusters.

Station Operating Expenses. Station operating expenses increased $3.8 million during the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018. Significant factors affecting station operating expenses included $2.5 million in additional expenses in the Philadelphia market cluster primarily due to the acquisition of WXTU-FM and a $1.9 million increase in station operating expenses at our Boston market cluster. Station operating expenses for the nine months ended September 30, 2018 included $1.7 million of additional bad debt expense due to financial issues at United States Traffic Network. Station operating expenses for the nine months ended September 30, 2019 were comparable to station operating expenses for the same period in 2018 at our remaining market clusters.

Corporate General and Administrative Expenses. Corporate general and administrative expenses increased $4.3 million during the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018. The primary factors affecting corporate general and administrative expenses included a $2.2 million increase in compensation expense, which was primarily due to an increase in the number of employees at our corporate offices in 2019, a $0.4 million increase in contract services in 2019, and a $1.0 million gain as a result of the termination of the Greater Media, Inc. (“Greater Media”) pension plan in 2018.

 

18

Change in Fair Value of Contingent Consideration. In connection with the acquisition of Greater Media, a certain number of shares of our Class A common stock placed in escrow on the acquisition date were forfeited based on a working capital adjustment. The fair value of the forfeited shares decreased $2.9 million due to a change in our stock price from January 1, 2018 to March 15, 2018, the date the forfeited shares were recorded in treasury stock. In addition, a number of shares of our Class A common stock were returned to us by the former stockholders of Greater Media based on certain proceeds from the sale of Greater Media’s tower assets. The fair value of the returned shares decreased $1.6 million due to a change in our stock price from January 1, 2018 to March 15, 2018, the date the returned shares were recorded in treasury stock.

Gain on Dispositions. On March 28, 2019, we completed the sale of certain land and improvements in Augusta, GA for $0.5 million. As a result of the sale, we recorded a gain of $0.4 million in the nine months ended September 30, 2019. On March 15, 2019, we agreed to cancel a broadband radio service license in Chattanooga, TN in exchange for a fee of $3.3 million. As a result of the license cancelation, we recorded a gain of $3.1 million in the nine months ended September 30, 2019.

Interest Expense. Interest expense increased $2.0 million during the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018. The primary factor affecting interest expense was the increase in long-term debt outstanding.

Income Tax Expense. Our effective tax rate was 47% and 33% for the nine months ended September 30, 2018 and 2019, respectively. These rates differ from the federal statutory rate of 21% due to the effect of state income taxes and certain expenses that are not deductible for tax purposes. The effective tax rate for the nine months ended September 30, 2018 also reflects a $1.2 million increase due to the change in fair value of contingent consideration during that time period.

Net Income. Net income during the nine months ended September 30, 2019 was $8.7 million, an increase of $4.3 million compared to net income of $4.4 million during the nine months ended September 30, 2018 as a result of the factors described above.

Liquidity and Capital Resources

Overview. Our primary sources of liquidity are internally generated cash flow and our revolving credit facility. 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, 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.

Credit Facility. On November 17, 2017 we and our wholly owned subsidiary, Beasley Mezzanine Holdings, LLC, entered into a credit agreement with U.S. Bank, National Association, as administrative agent and collateral agent, providing for a term loan B facility in the amount of $225.0 million (the “term loan facility”) and a revolving credit facility of $20.0 million (the “revolving credit facility,” and together with the term loan facility, the “credit facility”). On September 27, 2018, we borrowed an additional $35.0 million from the term loan facility. The proceeds were used for the acquisition of WXTU-FM in Philadelphia. On August 31, 2019, we borrowed $10.0 million from our revolving credit facility. The proceeds were used for the acquisition of substantially all of the assets used to operate WDMK-FM in Detroit.

As of September 30, 2019, the credit facility consisted of a term loan with a remaining balance of $243.0 million and a revolving credit facility with an outstanding balance of $10.0 million and a maximum commitment of $20.0 million. As of September 30, 2019, we had $10.0 million in available commitments under our revolving credit facility. At our option, the credit facility may bear interest at either (i) the London Interbank Offered Rate (“LIBOR”) plus a margin of 4.0% or (ii) the base rate plus a margin of 3.0%. The LIBOR interest rate for the term loan is subject to a 1% floor and the base rate is subject to a 2% floor. Interest payments are, for loans based on LIBOR, due at the end of each applicable interest period unless the interest period is longer than three months, in which case they are due at the end of each three month period. Interest payments for loans based on the base rate are due quarterly. The revolving credit facility carried interest, based on LIBOR, at 6.0% as of September 30, 2019 and matures on November 17, 2022. The term loan carried interest, based on LIBOR, at 6.0% as of September 30, 2019 and matures on November 1, 2023.

The credit agreement requires mandatory prepayments equal to 50% of Excess Cash Flow (as defined in the credit agreement) when our Total Leverage Ratio (as defined in the credit agreement) is greater than 3.5x; mandatory prepayments equal to 25% of Excess Cash Flow when our Total Leverage Ratio is less than or equal to 3.5x but greater than 3.0x; and no mandatory prepayments when our Total Leverage Ratio is less than or equal to 3.0x. Mandatory prepayments of Excess Cash Flow are due 95 days after year end. The credit agreement also requires mandatory prepayments for defined amounts from net proceeds of asset sales, net insurance proceeds, and net proceeds of debt issuances.

 

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The credit agreement requires us to comply with certain financial covenants which are defined in the credit agreement. These financial covenants include a First Lien Leverage Ratio that will be tested at the end of each quarter. For the period from September 30, 2019 through December 31, 2019, the maximum First Lien Leverage Ratio is 5.75x. The maximum First Lien Leverage Ratio is 5.25x for March 31, 2020 and thereafter.

The credit facility is secured by substantially all assets of the Company and its subsidiaries and is guaranteed jointly and severally by the Company and its subsidiaries. If we default under the terms of the credit agreement, the Company and its subsidiaries may be required to perform under their guarantees. As of September 30, 2019, the maximum amount of undiscounted payments the Company and its applicable subsidiaries would have been required to make in the event of default was $253.0 million. The guarantees for the credit facility expire on November 17, 2022 for the revolving credit facility and on November 1, 2023 for the term loan facility.

Failure to comply with financial covenants, scheduled interest payments, scheduled principal repayments, or any other terms of our credit agreement could result in the acceleration of the maturity of our outstanding debt, which could have a material adverse effect on our business or results of operations. As of September 30, 2019, we were in compliance with all applicable financial covenants under our credit agreement.

The aggregate scheduled principal repayments of the credit facility for the remainder of 2019 and the next four years are as follows:

 

2019		$	—
2020			—
2021			—
2022			10,000,000
2023			243,000,000
Total		$	253,000,000

Our credit agreement permits us to 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, subject to compliance with financial covenants, up to an aggregate amount of $2.5 million per year. We paid approximately $37,000 to repurchase 9,979 shares during the nine months ended September 30, 2019.

Our credit agreement restricts our ability to pay cash dividends and to repurchase additional shares of our common stock. The credit agreement does permit, however, (i) additional dividends of up to an aggregate amount of $7.5 million each year if our Total Leverage Ratio is greater than 3.5x and up to an aggregate amount of $10.0 million each year if our Total Leverage Ratio is less than or equal to 3.5x, (ii) an amount equal to our excess cash flow each year that is not required to prepay the credit agreement, subject to maintaining a Total Leverage Ratio of no greater than 3.75x and (iii) unlimited dividends each year if our Total Leverage Ratio is less than 3.5x and our First Lien Leverage Ratio (as defined in the credit agreement) is less than 2.5x. We paid cash dividends of $4.2 million during the nine months ended September 30, 2019. Also, on August 19, 2019, our board of directors declared a cash dividend of $0.05 per share on our Class A and Class B common stock. The dividend of $1.4 million in the aggregate was paid on October 7, 2019, to stockholders of record on September 30, 2019.

We expect to provide for future liquidity needs through one or a combination of the following sources of liquidity:

 

•

internally generated cash flow;

 

•

our revolving credit facility;

 

•

additional borrowings, other than under our revolving credit facility, to the extent permitted under our credit facility; and

 

•

additional equity offerings.

 

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We believe that 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. However, poor financial results or unanticipated expenses could give rise to defaults under our credit facility, 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.

Our ability to reduce our Total Leverage Ratio, as defined by our credit agreement, by increasing operating cash flow and/or decreasing long-term debt will determine how much, if any, of the remaining commitments under our revolving credit facility will be available to us in the future. Poor financial results or unanticipated expenses could result in our failure to maintain or lower our Total Leverage Ratio and we may not be permitted to make any additional borrowings under our revolving credit facility.

Cash Flows. The following summary table presents a comparison of our capital resources for the nine months ended September 30, 2018 and 2019 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.

 

		Nine Months ended September 30,
		2018				2019
Net cash provided by operating activities		$	15,833,485			$	23,313,498
Net cash used in investing activities			(43,069,058	)			(21,611,242	)
Net cash provided by (used in) financing activities			23,292,684				(3,237,333	)
Net decrease in cash and cash equivalents		$	(3,942,889	)		$	(1,535,077	)

Net Cash Provided By Operating Activities. Net cash provided by operating activities increased $7.5 million during the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018. Significant factors affecting the increase in net cash provided by operating activities included a $17.1 million increase in cash receipts from revenue, partially offset by a $3.2 million increase in cash paid for corporate general and administrative expenses, a $3.2 million increase in income tax payments, a $2.2 million increase in interest payments, and a $0.8 million increase in cash paid for station operating expenses.

Net Cash Used In Investing Activities. Net cash used in investing activities during the nine months ended September 30, 2019 included a payment of $13.5 million for the acquisition of substantially all of the assets used to operate WDMK-FM, payments of $6.9 million for capital expenditures, and payments of $5.0 million for investments, partially offset by proceeds of $3.8 million from dispositions. Net cash used in investing activities for the same period in 2018 included a payment of $38.0 million for the acquisition of WXTU-FM, payments of $3.3 million for capital expenditures, and payments of $1.5 million for other acquisitions.

Net Cash Provided By (Used In) Financing Activities. Net cash used in financing activities during the nine months ended September 30, 2019 included repayments of $9.0 million under our credit facility and payments of $4.2 million for cash dividends, partially offset by proceeds of $10.0 million from the issuance of indebtedness used for the acquisition of substantially all of the assets used to operate WDMK-FM. Net cash provided by financing activities for the same period in 2018 included proceeds of $35.0 million from the issuance of indebtedness used for the acquisition of WXTU-FM, partially offset by repayments of $7.0 million under our credit facility, payments of $4.0 million for cash dividends, and payments of $0.6 million for repurchases of our Class A common stock.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not required for smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective as of the end of the period covered by this report.

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

We currently and from time to time are involved in litigation and are the subject of threats of litigation that are incidental to the conduct of our business. These include indecency claims and related proceedings at the FCC as well as claims and threatened claims by private third parties. However, we are not a party to any lawsuit or other proceedings, or the subject of any threatened lawsuit or other proceedings, which, in the opinion of management, is likely to have a material adverse effect on our financial condition or results of operations.

ITEM 1A. RISK FACTORS.

The risk factors affecting our Company are described in Item 1A of our Annual Report on Form 10-K for the year ended December  31, 2018. There have been no material changes to the risks affecting our Company during the third quarter of 2019.

ITEM  2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

The following table presents information with respect to purchases we made of our Class A common stock during the three months ended September 30, 2019.

 

Period		Total Number of Shares Purchased				Average Price Paid per Share				Total Number of Shares Purchased as Part of Publicly Announced Program				Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program
July 1 – 31, 2019			—				—				—				—
August 1 – 31, 2019			—				—				—				—
September 1 – 30, 2019			1,875			$	2.98				—				—
Total			1,875

On March 27, 2007, our board of directors approved the Beasley Broadcast Group, Inc. 2007 Equity Incentive Award Plan (the “2007 Plan”). The original ten year term of the 2007 Plan ended on March 27, 2017. Our stockholders approved an amendment to the 2007 Plan at the Annual Meeting of Stockholders on June 8, 2017 to, among other things, extend the term of the 2007 Plan until March 27, 2027. The 2007 Plan permits us to purchase sufficient shares to fund withholding taxes in connection with the vesting of restricted stock units and shares of restricted stock. Our credit agreement permits us to 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, subject to compliance with financial covenants, up to an aggregate amount of $2.5 million per year. All shares purchased during the three months ended September 30, 2019, were purchased to fund withholding taxes in connection with the vesting of restricted stock units and shares of restricted stock.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

 

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ITEM 6. EXHIBITS.

 

Exhibit Number		Description
31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) (17 CFR 240.15d-14(a)).
31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) (17 CFR 240.15d-14(a)).
32.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(b)/15d-14(b) (17 CFR 240.15d-14(b)) and 18 U.S.C. Section 1350.
32.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(b)/15d-14(b) (17 CFR 240.15d-14(b)) and 18 U.S.C. Section 1350.
101.INS		XBRL Instance Document.
101.SCH		XBRL Taxonomy Extension Schema Document.
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB		XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

				BEASLEY BROADCAST GROUP, INC.
Dated: November 7, 2019				/s/ Caroline Beasley
				Name: Caroline Beasley
				Title: Chief Executive Officer (principal executive officer)

 

Dated: November 7, 2019				/s/ Marie Tedesco
				Name: Marie Tedesco
				Title: Chief Financial Officer (principal financial and accounting officer)

 

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