A snapshot of how TRULY terrible the advertisement for radio is right now (Beasley)

[MarkW]

Seemingly quietly, because the stock is so thinly traded that virtually all financial news publications completely ignore the company and all but one or two stock analysts completely ignore the company, Beasley (Nasdaq: BBGI) very quietly closed an Amendment No. 2 to its Credit Agreement on June 30.

Bear in mind this company has more than a QUARTER BILLION in outstanding senior secured bank debt.

Here are the new Miniumum EBITDA covenants that replaced the (now suspended) First Lien Leverage Ratio covenant, bearing in mind each of these tests is to be based on EBITDA over the trailing four quarters:

Test Period Ending October 31, 2020: $5,920,000
November 30, 2020: $4,560,000
December 31, 2020: $2,240,000
January 31, 2021: ($575,000)
February 28, 2021: $1,700,000
March 31, 20201: $340,000
April 30, 2021: $1,537,000
May 31, 2021: $1,827,000
June 30, 2021: $330,000

Why the amounts bounce around so much month-to-month for a trailing 12-month calculation is unclear to me, but the bottom line is this: The Company (and evidently U.S. Bank) believe things are going to get worse before they get better. Bear in mind each of the above hurdles is based on a trailing 12-month (four quarter) test. For a company with over a QUARTER BILLION in senior secured debt to be generating so little cash flow is truly stunning. Of course, none of us know how much headroom is baked into the above covenants versus the Company's actual financial forecast. I suspect generous headroom has been built into the above covenants, but still, I think it's a safe bet that we're likely looking a situation where EBITDA will be more than 20x levered later this year or early next year for a time.

The Company's revolver is evergreen and at March 31, the Company only reported $18 million in cash on hand. George Beasley had to write a check for $5 million and infuse those monies into the company and post a Letter of Credit for another $5 million to convince U.S. Bank, et al. to amend the credit agreement.

13-week cash flow forecasting is now required until Total Leverage falls back below 5.0x; this mechanism is often required by corporate lenders when serious concern about future insolvency exists.

I suspect Mr. Beasley isn't done writing checks to fund the company (perhaps his daughter should've taken a larger salary reduction?). This is clearly a very ugly situation.

Oh, almost forgot - no more common share dividend payments until Total Leverage falls below 4.0x. No surprise there. The company sneakily left that little tidbit out of its 8K filing press release. One has to dig through the Amendment No. 2 to Credit Agreement to find that morsel of info. I've been in commercial banking for almost two decades, so I took it upon myself to do so.

 

[TheBigA]

What would you like them to do? There are no format changes that can improve revenue when local businesses that would normally advertise are also hurting. Radio is the canary in the coal mine. If you own stock, they warn you in advance of all the factors involved in their business that THEY DON'T CONTROL, such as government regulation and local advertising community. This is why I recommend that radio companies seek to diversify their holdings and not put all of their interest in local radio.

Anyone who has ventured out of their own personal quarantine can see that the local business situation is not good (contrary to what you see in the national stock market reports) If local businesses are forced to operate at 50% occupancy, or even worse, the chances of them paying for advertising isn't good either. All the new rules mean is bars and restaurants are making less money, even though their costs are about the same. On top of this local governments are talking about tax increases to make up for their losses in sales tax or other traditional revenue streams. So in addition to their own losses, local businesses will be faced with tax hikes either later this year or next.

You make reference to an announcement on June 30, and here it is:

https://www.marketwatch.com/press-r...adcast-group-inc-2020-06-30?mod=mw_quote_news

They are taking an impairment loss on their radio stations amounting to over $6 million. The statement goes into more detail on ways they've adjusted to the current situation, and anticipation that it won't improve quickly. It's not good. I think you'll be seeing other radio companies extending their furloughs and pay cuts for another three months. The national economy has not returned to normal, and consequently, the radio industry won't be returning to normal.

 

[MarkW]

Re:

What would you like them to do? There are no format changes that can improve revenue when local businesses that would normally advertise are also hurting. Radio is the canary in the coal mine. If you own stock, they warn you in advance of all the factors involved in their business that THEY DON'T CONTROL, such as government regulation and local advertising community. This is why I recommend that radio companies seek to diversify their holdings and not put all of their interest in local radio.

I agree with all of the above. It should be mentioned that BBGI does have a meaningful investment in an E-Sports company. I like how you mention "canary in the coal mine." Just as the coal industry is a business made for an older time and is quickly losing viability and relevance, so is old-fashioned AM/FM radio.

Anyone who has ventured out of their own personal quarantine can see that the local business situation is not good (contrary to what you see in the national stock market reports).

I agree with this as well, and I also believe the sentiment by wall street investors is unjustifiably bullish right now. Unless a COVID-19 vaccine receives or is close to receiving FDA approval by the end of the year, I can see another correction in the major market indices happening prior to year end.

They are taking an impairment loss on their radio stations amounting to over $6 million. The statement goes into more detail on ways they've adjusted to the current situation, and anticipation that it won't improve quickly. It's not good.

It would not surprise me if they take a further impairment charge or series of impairment charges as the year moves along. The current carry value of their Boston, Las Vegas, New Jersey and Charlotte licenses leaves little room for valuation downside. Would not at all surprise me to see at least $50 million of additional impairment charges.

I think you'll be seeing other radio companies extending their furloughs and pay cuts for another three months. The national economy has not returned to normal, and consequently, the radio industry won't be returning to normal.

I completely agree.

Amending the Credit Agreement was the right action for both BBGI and U.S. Bank. Heading to bankruptcy court in the current market environment would have destroyed additional value. As long as George pays-to-play, I suspect U.S. Bank will be patient.

I do have to correct myself regarding the dividend to common shareholders situation. Although not highlighted in the June 30 price release, the Company did previously announce on June 12 that it was suspending dividends on common shares indefinitely:
https://bbgi.com/2020/06/12/beasley...ts-first-quarter-net-revenue-of-57-7-million/

Even on March 4, when the most recent dividend of $0.05 per share was declared (paid out April 7), the company was already precariously close to breaching its First Lien Leverage Ratio covenant, and the COVID-19 pandemic was looming. If I'm U.S. Bank, I'm not happy that cash was sucked out of the Company to pay a dividend, especially since little to no unused availability was remaining on the Revolver by quarter end (March 31). I suspect U.S. Bank brought up that point in its negotiations regarding the Amendment. Granted, the total amount of the dividend payment was only about $1.4 million. The $5 million cash infusion from George + the posting of an additional $5 million in the form of a Letter of Credit more than compensate.

If the ad market for radio remains this soft for another 12 months, I think BBGI will be running almost on "E" in terms of liquid resources, and George and/or his relatives will need to write another check to pump fresh money into the company to keep it afloat.

 

[TheBigA]

I like how you mention "canary in the coal mine." Just as the coal industry is a business made for an older time and is quickly losing viability and relevance, so is old-fashioned AM/FM radio.

The difference being that the product of the coal industry is why that business is becoming obsolete. The product of the radio industry is expanding and growing if companies will simply go into those businesses. We've known this for a long time. As you say, Beasley has invested on one nationally syndicated e-sports show. That's great. They should do more. They've also invested to a degree in podcasting. But their digital footprint is a fraction of the size of similar radio companies. They need to look at better merchandising their local radio footprint across a national platform.

The national advertising business is MUCH better now than the local business. A look at RadioInk and other trades will show that the home improvement and insurance companies are still advertising at pre-COVID levels or even higher. Health care, drug, and other similar services are growing too. But its all NATIONAL advertising, not local.

https://radioink.com/2020/06/29/home-depot-returns-to-the-top/

 

[TheBigA]

I can see another correction in the major market indices happening prior to year end.

My advice is that people shouldn't pay attention to "major market indices." They are useless. There are at least two economies right now: The one affected by Covid and the one not affected. The not affected are the tech companies. They are all fine, and will remain fine. Those affected are local retail, restaurant, and amusement. Those in a third economy are the drug companies. Watch J&J, Merck, and similar companies in the development of a vaccine. Someone is going to get very rich very fast.

 

[MarkW]

You sound just like Jim Cramer.

I generally agree.

Financials is another sector I'd be very leery of investing in.

Big dips might bring good short term investing opportunities, even in forbidden Industries. You might remember I bought ETM around a $1.00. NRZ, a stock Cramer ironically said to avoid when it was priced around $4, also appreciated nicely in the past 90 days ( I have reduced my initial position).

 

[TheBigA]

Financials is another sector I'd be very leery of investing in.

I've never been a player in financials. However online retail is something I got into after the last recession. eBay has doubled in value in the last few weeks.

 

[Groove1670]

I wouldn't want to be in the corporate radio (or TV) dumpster fire now. Unfortunatly it gives all of us a bad name.

There are also two radio worlds: local and wall street. Local: We are seeing advertising increase (slowly). We can also get creative on a local level. We just did a a very succesful local 2020 census signup and gave away a $100 gift card and free spaghetti dinners (take out).
We did fireworks with social distancing. Listen to the progam in your car.

High school graduations on the radio, COVID testing sites...Small market radio has adapted and has found ways to thrive. For the large players that has become difficult when you answer to investors. Rocking the boat with a failed idea could mean your job as the content innovator. Expect to see more exits in those departments to justify revenue loss (the blame game).


Honorable corporate mention: IHeart with the Black Info Network. Probably one of the best ideas corporate radio has had in awhile. They also teamed up with clients as marketing partners instead of selling tags and ad schedules for the network.

 

[Kelly A]

I wouldn't want to be in the corporate radio (or TV) dumpster fire now. Unfortunatly it gives all of us a bad name.

Like when people like you call radio a "dumpster fire"?

There are also two radio worlds: local and wall street. Local: We are seeing advertising increase (slowly). We can also get creative on a local level. We just did a a very succesful local 2020 census signup and gave away a $100 gift card and free spaghetti dinners (take out).
We did fireworks with social distancing. Listen to the progam in your car.

Individual or stations groups need to be creative in generating what's known as NTR, Non Traditional Revenue. That could include promotions like you mentioned, or getting more involved with digital opportunities (not streaming), or having account execs work on being ready and creative as potential advertisers start to emerge.

Doing business the old-radio-way, ain't going to cut it.

 

[PTBoardOp94]

I think "NTR" is a mirage for most radio companies. There isn't a competitive advantage for them in most of these areas.

Especially digital -- very few radio operators have a meaningful online presence, and the advertisers will get better results working with a pure play digital marketing outfit. There might be an exception if the radio company is acting as an agency and buying advertising through the major online ad networks, but I can't imagine very many customers who already have ad agencies are going to place their digital advertising through another ad agency.

You end up wasting your account execs' time by training them on selling these digital products and creating digital proposals for customers, and simultaneously de-valuing your core business by reminding your customers how old fashioned radio is. It's the same myopia that crushed the newspaper industry 10-15 years ago.

 

[vchimpanzee]

I have a theory about what Goober Pyle's real name was. One time someone introduced him as Goober Beasley, but his name was almost always Pyle. Here's a thought. Goober could have been short for George Beasley.

 

[Groove1670]

Like when people like you call radio a "dumpster fire"?



Individual or stations groups need to be creative in generating what's known as NTR, Non Traditional Revenue. That could include promotions like you mentioned, or getting more involved with digital opportunities (not streaming), or having account execs work on being ready and creative as potential advertisers start to emerge.

Doing business the old-radio-way, ain't going to cut it.

I call it a "dumpster fire" beacuse (people) small market stations like us get lumped in for the errors that were made by them, and it is now coming beack to bite all of us.

 

[TheBigA]

Meanwhile Entercom has renegotiated their debt and covenant deadlines, giving them some breathing room:

https://www.allaccess.com/net-news/...ercom-lenders-agree-on-covenant-relief-period