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Operator: Greetings, and welcome to Beasley Broadcast Group Fourth Quarter 2022 Earnings Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Caroline Beasley, Chief Executive Officer. Please proceed.

Caroline Beasley: Thank you, Latanya. Good morning, everyone, and thank you for joining us to review our fourth quarter and full year results. Marie Tedesco, our CFO, is with me this morning. We’re happy to share that our fourth quarter results showed year-over-year improvements in revenue, SOI and the continued growth we are achieving on our digital side. Our digital revenue, political revenue and new business initiatives were the primary drivers to the quarter. Overall net revenue increased to 1.8%, in line with the guidance we provided when we reported Q3 of a projected flat to slightly up quarter. Breaking down the revenue increase, over-the-air local spot increased 1.9% and national increased 6.1%, and this is inclusive of $5.1 million of political revenue.

The growth in our Q4 political revenue, offset the headlines or the headwinds everyone is seeing in national as our national business, ex political, was down 25%. Notably, same-station revenue for the quarter increased 0.7%, with same-station SOI increasing 2.8%. Full year revenue increased 6.2%. Similar to fourth quarter, over-the-air local spot increased 7.7%, while national was down 7.5%, including net political revenue of approximately $7.5 million. Same-station full year revenue increased 5.6% and same-station SOI increased 3.2% for the full year. Excluding political for the full year, national declined 19.2%. In addition, national revenue, ex political, declined to 12.2% of our total revenue in fourth quarter. Looking at previous quarters as well as the last few years, national has been trending down and has decreased from almost 21% of total revenue in 2019 to 12.2% in fourth quarter and to 14.2% for the full year of ’22, and this is ex political.

We’ve been successful in offsetting these national declines with higher local and digital revenue as evidenced by our results of the past several quarters, where digital revenue has consistently outbuilt national. And we expect national to continue to decline, which is why we are prioritizing the growth of our digital platform while continuing to aggressively develop local direct new business. Q4 digital revenue grew 12.2% year-over-year and now represents almost 17% of our total revenue, and that’s up from 15% in the year-ago fourth quarter. Full year digital revenue increased 25% to $40.8 million and accounted for about 16% of our total revenue. We’re clearly on the path to achieving our goal of digital accounting for 20% of total revenue, and we expect to land somewhere between 20% and 30% digital to total revenue in 2023.

And that’s going to be driven by our content creation, our web services rollout and our acquisition of the white label agency, Guarantee Digital, last year. Now audio revenue for the quarter. And audio revenue is spot, network, talent revenue, barter and block programming, was slightly down by 0.4%. Our increase in new business and political were offset by declines in national, network and barter. Moving on to sports betting. We recorded $3.3 million in Q4 revenue, amounting to 4.6% of total revenue in this category, which was again driven by Detroit, Philly and New Jersey. And on a positive note, sports betting legislation was approved and started on January 31 in Massachusetts. And we are seeing the benefit of such, just this month with the Super Bowl, as well as heading into March with March Madness.

We’re well positioned in Boston with our 5 FM radio stations, including the number one sports station in the country, 98.5 The Sports Hub, home to the New England Patriots, the Boston Bruins and the Boston Celtics. Now as far as our operating expenses go, we implemented a cost reduction program in third quarter, with most of these cuts completed in October. Our monthly expense reductions were permanent headcount reductions, which will benefit 2023 by about $5 million. And I’m going to turn it over to Marie. She’s going to bring you more detail on the expense side of where we ended up last year. So Marie, I’m going to turn it over to you right now.

Marie Tedesco: Great. Thanks, Caroline, and good morning, everyone. I will start with a review of our fourth quarter results, followed by a review of our balance sheet. As Caroline mentioned, fourth quarter net revenue increased 1.8% or $1.3 million to $72 million, which includes $784,000 from our two esports teams as well as $900,000 from Guarantee Digital, which is our second quarter agency acquisition. Excluding political, fourth quarter revenue declined 4.8% or $3.4 million due to the decline in national. Full year total revenue increased 6.2% or $15 million. And excluding political, revenue increased 3.5% or $8.4 million, reflecting our outperformance in local and digital revenue. Given the strong political demand during the period, we had a shortage of inventory for local.

And while the political revenue masked any kind of slowdown in October and partly November, we saw a slowdown in the second half related to inflation, labor shortages and interest rate increases. Looking closer at the quarter, October was up 8% with local up 2% and national up 41%, including political. November was down 2%, with local down 3% and national down 7.3%, including political. December also declined 2%, with local up 1% and national down 15.1%. Station operating expenses for the quarter increased $1.3 million or 2.2% to $58.1 million, resulting in fourth quarter SOI of $13.9 million, marking a slight year-over-year increase. Breaking down the increase in operating expenses, the main driver were the acquisition of our white label agency, Guarantee Digital, which added $1.1 million of new expenses for the quarter as well as severance costs from our October risk of approximately $600,000.

Full year operating expenses rose 6.9% or $13.8 million, driven by an increased cost of sales of approximately $4.3 million, a $2.6 million variance from a bad debt reduction taken in 2021 and the addition of Guarantee Digital of $2 million of new expenses. Notably, pro forma for the severance and the fourth quarter headcount savings, operating expenses would have declined 1% and SOI would have increased 13.5%. Now looking at our revenue categories for fourth quarter, consumer services remained our largest revenue category at 28.6% of our total revenue, with a decrease of 0.5% year-over-year for the quarter. Our second largest category was retail, switching place with entertainment, and retail was down 1.4% for the quarter at 15.3% of our total revenue.

Entertainment was 13.2% of total revenue, and this category, which includes sports betting, was down 11%. We saw entertainment spend increases in Charlotte, Las Vegas, Augusta and Wilmington. However, sports betting was the driver for the decrease in this category in Detroit and Philadelphia. Auto, our fourth largest category, saw revenues down 3% or $190,000 year-over-year, and the category accounted for 8.8% of our total revenue. We saw double-digit increases in auto at our Detroit, Augusta, Fayetteville and Wilmington clusters and low single-digit increases in Charlotte and New Jersey. Political came in fifth place at 7.5% of total fourth quarter revenue, and consumer products and telecom landed in sixth and seventh place with 4.8% and 4.4% of total revenue.

Looking at the full year, consumer services accounted for 29.5% of total revenue and was up 5.7% for the year. Retail was up 11% and accounted for 15.9% of total revenue. Entertainment also increased 11% and accounted for 14.5% of total, and auto declined 4% to 8.8% of total revenue. Comparing our key categories in fiscal year 2022 to 2019, consumer services increased 14.6%, retail was down 5.5%, entertainment increased 4.8% and auto was down 31.6% or just under $10 million compared to 2019. Corporate G&A for the quarter decreased 14.1% or by $666,000 compared to the same quarter a year ago to $4.1 million. The year-over-year decrease in corporate G&A is mostly related to expenses in prior year fourth quarter related to a CapEx project that was terminated as well as reduced compensation.

Full year corporate G&A increased 8.6% or $1.4 million to $18 million, primarily related to corporate digital expenses. This includes noncash expenses of approximately $1 million. We expect to land somewhere around $18 million in 2023 or slightly below $17 million, excluding noncash expenses. Noncash stock-based compensation decreased $26,000 to 12.6% or 12.6% to $183,000 in the quarter and decreased 23.5% or $325,000 to $1.1 million for the full year 2022. And we had an income tax benefit, both for the quarter and for the full year. Fourth quarter 2022 operating income declined $40 million to a negative $33.5 million compared to $6.5 million in the year-ago quarter, driven by a noncash impairment charge of $44.2 million related to FCC licenses, goodwill and franchise rights.

Full year operating income declined $50.8 million year-over-year to a negative $36.1 million, again related to a noncash impairment charge of $54.7 million for the year. Fourth quarter interest expense decreased $170,000 year-over-year to $6.6 million, reflecting our bond repurchase activity during 2022. And full year interest expense was $26.9 million, slightly up from $26.5 million in 2021. We ended the year with a total debt of $290 million, and we made our semiannual interest payment on February 1, 2023. EBITDA for the quarter was $9.9 million, up 7.5% or $690,000 from the prior year quarter. And full year EBITDA decreased 0.9% or $234,000 compared to 2021. Adjusted net leverage was 6.71x and includes add-backs of approximately $12 million, with half of that coming from our risk on a pro forma basis, 25% coming from our digital build-out and the remaining 25% from tax and noncash items that are added back.

And in this calculation, the debt is net of cash on hand. We ended the quarter with cash on hand of $39.5 million. Our current cash balance continues to allow us the flexibility to reduce debt and/or pursue additional investments in the digital space should an opportunity arise. However, given the uncertain economic environment, we are inclined to keep cash on the balance sheet for the time being. Our capital expenditures for the quarter were $2.4 million, of which $1.6 million was directly related to the now completed Boston build-out of studios and offices. We received $830,000 in the quarter from the build-out allowance, with an additional $590,000 balance on the way. This capital expense compares to prior fourth quarter of $800,000. Year-to-date CapEx spend was $13.4 million or $9.3 million net of the build-out reimbursement compared to prior year-to-date or full year of $4.5 million.

Moving into 2023, we expect our CapEx spend will normalize in the range of $4 million to $5 million. And with that, I’ll turn it back to Caroline.

Caroline Beasley: Thank you, Marie. As reflected in our results and in light of the economic headwinds that we saw in fourth quarter, we’re pleased with our fourth quarter and full year performance, particularly the continued growth and diversification afforded by our digital business. Specifically, the strategy that was put in place midyear helped to drive 25% growth in our digital revenue for the full year. We’re very excited about this opportunity as we go into 2023. For example, our multi-platform local content strategy continued to drive tremendous audience growth in the fourth quarter. Our owned and operated audience reach grew by 18% compared to fourth quarter of ’21. And our radio brands remain dominant in Nielsen, where we currently have the highest average cluster share when compared to the other major radio broadcasters in PPM.

However, the largest audience growth was seen on our digital O&O asset, with unique users increasing from 16.6 million in Q4 ’21 to 22.3 million in Q4 ’22, marking an increase of 34%. This audience growth led to a 69% increase of sellable digital impressions from Q1 – from Q4 ’21 to Q4 ’22. And as noted on prior calls, the growth in digital impressions is a fundamental driver of our digital revenue growth. And when looking at the full year ’22 versus ’21, our total owned and operated audience is up 30%. And just like in Q4, digital is fueling the growth with our unique users up 38%, growing from 54.9 million in ’21 to 75.5 million in ’22. And our sellable digital impressions were up 95% year-over-year, and we expect similar growth in 2023. So moving on to 2023 and looking at first quarter revenue.

As of today, pacings are slightly up to prior year. And breaking that down, January was flat, February and March are pacing up in the low to mid-single digits. And as previously noted, we are very mindful of the current economic environment, and we will be monitoring our revenue pacings and managing our expenses based on such. We’re hyper-focused on improving overall margins for the company and generating free cash flow for the year. And we’ll monitor our cash on hand and determine the best use of free cash flow in the future as we move through the year. So lastly, I’d like to acknowledge our team across the company for everything they’ve done and are doing to help us continue our digital transition with our content and sales strategies in place.

So thank you very much. And Marie, I’m going to hand it over to you to ask a number of questions that we received this morning.

A – Marie Tedesco: Great. Thanks, Caroline. So most of the questions that we received were addressed in our pre-prepared remarks, however, we do have a few additional questions that I will now review. And for the first question, Caroline, this will be for you. Could you touch on our pacing for first quarter for local versus national versus digital?

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Caroline Beasley: Sure. And this is the same story that we’ve seen over the last several quarters and actually several years. Local’s pacing up right now, 6%, national’s pacing down 12% and digital’s pacing up 15%. So this reinforces what our goals are, and that is really focused on local direct business, generating new level of direct business and growing our digital side of the house because national continues to decline.

Marie Tedesco: Great. Next question. Digital growth was up 12.3%. Can you touch on the trends in digital margins?

Caroline Beasley: Sure. So we’re going to go back to ’21, when you saw our digital margins at flat to slightly up, so we were barely generating cash flow with digital in ’21. In ’22, those margins increased to about 11%. And in ’23, we’re looking at those margins coming in closer to 20%.

Marie Tedesco: Great. In terms of your digital businesses, are there any current restraints in its growth, such as ability to hire experienced staff? And also any heightened competition out there?

Caroline Beasley: So on the digital side of the house, we are seeing, in terms of hiring experienced personnel, that this is actually easing up. However, what we are seeing today is that it’s harder to find entry-level positions. So that is where we are on the employment side. On the business side, in terms of competition, we are seeing heightened competition in some of our markets. But in some of the markets, we are not. We are seeing more of our peers really focused on digital and then also smaller agencies coming on starting a digital side of the house. And so we’re competing against them.

Marie Tedesco: Great. Another question. Under a mild recession – a recessionary environment for 2023, how should the numbers look? And how should we view the $10 million cost savings? And what is the incremental operating expense for the acquisition of Guarantee Digital? Can you be free cash flow positive in 2023 under this kind of an environment?

Caroline Beasley: So I’ll start with the last question. And yes, we do expect to be free cash flow positive in 2023. The reasons are as follows. In a mild recession, we still expect to see revenue growth. We expect national, of course, to be down. Local will be flat, maybe even slightly down. But with our emphasis on digital and growing digital revenue, we expect that to be able to offset any declines in the traditional side of the house. Also with the acquisition of Guarantee Digital, they’re going to bring revenue into the company. In terms of expenses from Guarantee, we are projecting about $7 million in additive expenses this year. However, that’s based on certain revenue projections for Guarantee, and we are expecting them to cash flow positive this year. So if the revenues are not coming in the way that we expect, then we will obviously adjust those expenses. And what else? Did I miss anything there?

Marie Tedesco: I think – I know that was a long question, and I think you got it all. There was a question, is there – is any more cash cost tied to the cost savings actions that were implemented in October? And the answer is actually no. So we accrued and paid out all the related severance expenses in fourth quarter, and none of that is carrying over to first quarter of 2023. And then, Caroline, the last question that we’ll review is, with cash now almost up to $40 million and the bonds trading in the mid-60s, does it make sense to keep buying back some?

Caroline Beasley: Yes. So one of the goals of the company is to reduce our debt and to reduce our leverage. So that aligns very well with the goal – one of the goals of the company. So yes, it would make sense to buy the bonds back at 60%, if you will. We are being very disciplined. We want to see how the beginning of 2023 shapes out and to see if there are any recessionary risks out in the marketplace. And once we feel comfortable with the economy, then we will really focus on the goals of the company.

Marie Tedesco: Perfect. And that concludes the questions.

Caroline Beasley: All right. Well, thank you very much. We really appreciate your questions and you all participating today. Hope you have a great day.

Operator: Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. And thank you for your participation, and have a great day.