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BEASLEY BROADCAST GROUP, INC.

(BBGI)
  Report
Delayed Nasdaq  -  04:00 2022-09-28 pm EDT
1.060 USD   -1.85%
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BEASLEY BROADCAST GROUP INC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (form 10-Q)

08/15/2022 | 09:09am EDT

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, 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;



     •    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;



     •    increases to royalties the Company pays to copyright owners or the
          adoption of legislation requiring royalties to be paid to record labels
          and recording artists;



     •    the Company's dependence on selected market clusters of radio stations
          for a material portion of its net revenue;



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  •   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.



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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 accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect reported amounts and related disclosures. We consider an accounting estimate to be critical if:

  •   it involves a significant level of estimation uncertainty; and



     •    changes in the estimate or different estimates that could have been
          selected have had or are reasonably likely to have a material impact on
          our results of operations or financial condition.

FCC Licenses. FCC licenses are tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that our FCC licenses might be impaired. We assess qualitative factors to determine whether it is more likely than not that our FCC licenses are impaired. If we determine it is more likely than not that our FCC licenses are impaired, then we are required to perform the quantitative impairment test. The quantitative impairment test compares the fair value of our FCC licenses with the carrying amounts. If the carrying amounts of the FCC licenses exceed the fair value, an impairment loss is recognized in an amount equal to that excess. For the purpose of testing FCC licenses for impairment, we combine our FCC licenses into reporting units based on our market clusters.

Due to an increase in interest rates in the U.S. economy, we tested our FCC licenses for impairment during the second quarter of 2022. As a result of the quantitative impairment test performed as of June 30, 2022, we recorded impairment losses of $2.8 million related to the FCC licenses in our Fort Myers-Naples, FL, Las Vegas, NV, and Wilmington, DE market clusters. The impairment losses were due to 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 associated with the U.S. economy.

The fair values of the FCC licenses in our Fort Myers-Naples, FL, Las Vegas, NV, and Wilmington, DE market clusters were estimated using an income approach. The income approach is based upon discounted cash flow analyses incorporating variables such as projected radio market revenues, projected growth rate for radio market revenues, projected radio market revenue shares, projected radio station operating income margins, and a discount rate appropriate for the radio broadcasting industry. The key assumptions used in the discounted cash flow analyses are as follows:


Revenue growth rates                   (1.9)% - 15.9%

Market revenue shares at maturity 0.6% - 44.0% Operating income margins at maturity 19.2% - 32.6% Discount rate

                               9.5%



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The carrying amount of our FCC licenses for each reporting unit and the percentage by which fair value exceeded the carrying amount are as follows:

                                           FCC

                                      broadcasting

Market cluster                          licenses        Excess
Atlanta, GA                           $     832,300        13.1 %
Augusta, GA                               6,113,075        57.1
Boston, MA                              137,856,160         0.2
Charlotte, NC                            56,418,151         9.4
Detroit, MI                              29,978,201         8.2
Fayetteville, NC                          8,974,679         9.3
Fort Myers-Naples, FL                     9,131,300          -
Las Vegas, NV                            33,655,100          -
Middlesex, Monmouth, Morristown, NJ      21,896,900         1.6
Philadelphia, PA                        119,674,192        11.2
Tampa-Saint Petersburg, FL               61,787,351        16.7
Wilmington, DE                           16,686,500          -


Goodwill.

We are required to test our goodwill for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that our goodwill might be impaired. We assess qualitative factors to determine whether it is necessary to perform a quantitative assessment for each reporting unit. If the quantitative assessment is necessary, we will determine the fair value of each reporting unit. If the fair value of any reporting unit is less than the carrying amount, we will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. The loss recognized will not exceed the total amount of goodwill allocated to the reporting unit. For the purpose of testing our goodwill for impairment, we have identified our radio market clusters and esports as our reporting units.

Due to an increase in interest rates in the U.S. economy, we tested our goodwill for impairment during the second quarter of 2022. As a result of the quantitative impairment test performed as of June 30, 2022, we recorded impairment losses of $5.9 million related to the goodwill in our Boston, MA, Charlotte, NC, Fayetteville, NC, Fort Myers-Naples, FL and Tampa-Saint Petersburg, FL market clusters. The impairment losses were due to an increase in the discount rate used in the discounted cash flow analyses to estimate the fair value of our goodwill due to certain risks associated with the U.S. economy.

The fair values of the goodwill in our Boston, MA, Charlotte, NC, Fayetteville, NC, Fort Myers-Naples, FL and Tampa-Saint Petersburg, FL market clusters were estimated using an income approach. The income approach is based upon discounted cash flow analyses incorporating variables such as projected radio market revenues, projected growth rate for radio market revenues, projected radio market revenue shares, projected radio station operating income margins, and a discount rate appropriate for the radio broadcasting industry. The key assumptions used in the discounted cash flow analyses are as follows:

Revenue growth rates       (1.9)% - 11.1%
Operating income margins    5.4% - 29.8%
Discount rate                   9.5%

We believe we have made reasonable estimates and assumptions to calculate the estimated fair value of our FCC licenses and goodwill, however, these estimates and assumptions are highly judgmental in nature. Actual results can be materially different from estimates and assumptions. If actual market conditions are less favorable than those projected by the industry or by us, or if events occur or circumstances change that would reduce the estimated fair value of our indefinite-lived intangible assets below the amounts reflected on our balance sheet, we may recognize future impairment charges, the amount of which may be material.


Our remaining critical accounting estimates are described in Item 7 of our
Annual Report on Form
10-K
for the year ended December 31, 2021. There have been no additional material
changes to our critical accounting estimates during the six months ended
June 30, 2022.

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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 June 30, 2022 Compared to the Three Months Ended June 30, 2021

The following summary table presents a comparison of our results of operations for the three months ended June 30, 2021 and 2022, with respect to certain of our key financial measures. The 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.

© Edgar Online, source Glimpses

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