Beasley Broadcast Group Inc (BBGI) 2002 Q2 法說會逐字稿

Good morning, everyone and welcome to our company's second quarter conference call. Caroline Beasley, Bruce Beasley and Allen Shaw are on the call today to review operations and help answer any questions that you might have a little later on.

Our financial results for the second quarter were released earlier today and I hope by now that you had an opportunity to review them.

We're pleased to note that for the third straight quarter the company's financial results exceeded expectations. For the quarter actual revenues were only down 6.2 percent compared to an earlier forecast of 10.6 percent, while broadcast cash flow rose almost 15 percent from the year ago quarter compared to an earlier forecast of no growth at all.

Now, let me briefly touch on some of the highlights before turning the call over to Caroline, Bruce and Allen to fill in the details.

On the revenue front the business climate in general is certainly improved from a year ago. On our same station basis our revenues declined only 1 percent in quarter two compared to a nearly 6 percent decline in the year ago second quarter. If you exclude unusual items from last year's mix, such as barter related Internet revenue, our same station revenue would have been up 2 percent.

But the real story at Beasley this quarter is cash flow performance. This past spring WQAM in Miami renegotiated its broadcast contract with the Florida Marlins. In the second quarter alone this led to an approximate 1.4 million swing in cash flow for this company. Combined with other company-wide efficiencies and station contributions, BCF on a same station basis rose 22.3 percent when compared to last year.

Although there remains a great deal of uncertainty in the economy, our results, as well as signs from the rest of the radio industry, show promise. And though our guidance will again be somewhat conservative, we are cautiously optimistic about the advertising environment for the remainder of 2002 and we're looking forward to a productive second half of the year.

Having said that, I will now turn the call over to Caroline for our financials. Caroline?

Thank you, George and good morning.

I will address the highlights of the actual same station pro forma results, which are the same for this quarter, as well as review our capital structure and then give guidance on third quarter.

Actual revenues for the quarter decreased 6.2 percent from 30.2 to 28.4 million.

Our actual BCF for the quarter increased 15 percent from 8.5 to 9.7 million. This is largely due to our Miami cluster, which was up 41 percent in cash flow for the quarter, as well as our Philadelphia cluster, which was up 76 percent in cash flow for the quarter.

Our margins increased from 28 percent to 34.4 percent, and our actual ATCF for the quarter increased 47.9 percent from 3.1 to 4.5 million. Our ATCF is defined as net income plus depreciation and amortization, deferred income tax expense, or minus deferred income tax benefits, plus non-recurring items and other non-cash charges. For the quarter, we had net income of 2.6 million, plus D&A of 900,000, plus deferred income tax expense of 1.6 million, plus non-recurring charges of 100,000, minus non-cash charges, and this is our gain on hedging instruments, of 700,000, giving us 4.5 million in ATCF. ATCF per share for the quarter increased 46 percent, from 13 to 19 cents, and are fully diluted shares remained constant at 24.3 million.

On a same station basis, and this includes all the stations that we owned as of June 30, '02, and those same stations as of June 30, '01. So we are excluding WRNO and KMEZ from the calculations in '01. Revenues for the quarter decreased one percent from 28.6 to 28.4 million. Cash flow increased 22.3 percent from 8 to 9.7 million, and our margins increased from 27.8 to 34.4 percent.

The revenue decrease is primarily attributable to the elimination of a barter internet investment revenue this year over last year. As mentioned in the last conference call, we had approximately 800,000 in barter revenue last year, compared to zero this year. And if you were to exclude this revenue, then revenue would be up two percent, and cash flow would increase by 36 percent for the quarter. for the quarter were as follows. In April we were up five percent, May we were flat, and June we were up two percent. And this does exclude the barter revenue.

On a same station basis, the margin increase is primarily attributable to the Miami and Philadelphia markets. Miami saw gains in margins due to the successful negotiation of a Marlin's contract. Margins in Miami increased from 20 to 30 percent for the quarter. In Philadelphia, our margins increased from 18 to 30 percent. The margins on our developing stations increased from a minus 12 percent in second quarter '01, to ten percent in second quarter '02, and our mature stations saw flat revenues, DCF and margins for the quarter. And the margins were up 43 percent.

At the June 30, 38 percent, or 16 stations, were in the developmental stage. 27 percent of our total revenues are generated from these stations, and these stations contributed eight percent of the total cash flow for the quarter. On a year to date basis, our pro forma same station revenues decreased 2.9 percent, from 54.7 to 53.1 million, and our BCF increased 15.8 percent, from 14.3 to 16.5 million. Now excluding the barter related Internet investment revenue of 1.7 million, revenues would be flat and BCF would be up 31 percent.

On the bottom line for the quarter, we had net income of approximately 2.6 million, or 11 cents per share, compared to a loss of 4.1 million, or 17 cents per share for the prior period. On January 1, 2002, the company adopted FAS-142, which eliminated the amortization expense for goodwill and FCC license. Had goodwill and the FCC license not been amortized in 2001, our EPS would have been minus two cents for the second quarter, here again compared with EPS of 11 cents for second quarter '02.

As of June 30 total senior debt was 199.5 million and our latest trailing 12-month EBITDA was 30.8 million for a leverage of 6.47 times, and this is per our bank covenant definition. Our leverage covenant with out bank was seven times.

Cash on hand as of June 30 was 3.3 million. Cap ex for the quarter was 359,000, of which 184,000 was maintenance. This compares to second quarter '01 in which we had 1.2 million in cap ex, of which 390,000 was maintenance. On a year-to-date basis we've had 899,000 in cap ex, of which 604 was maintenance compared to 2001 in which we had 1.9 million in cap ex, of which 671,000 was maintenance.

And now guidance for third quarter. We expect revenues to be 27 million, cash flow eight million, and ATCF to be approximately 12 cents for the quarter. On a same-station/pro forma basis for the third quarter we expect revenues to be flat. This is partially a result of barter-related Internet investment revenue of approximately 300,000.

We're also looking at decreases in revenues in our Fort Myers and Miami markets. The decrease in Miami results from the lower revenues generated from the Marlin as well as the competitive challenge we have faced at our Power 96 station over there. Even though Power is wining the ratings battle, we had to decrease the number of units that we played there. So it will take a little time for our revenues to get back to where they were.

In cash flow we expect that to be up as much as eight percent. This increase is a result of the increased cash flows stemming from the negotiation of the Marlins' contract as well as increases in cash flow in Philadelphia. These increases were offset by the barter Internet investment of approximately 300,000 as well as decreases in BCF expected in Fort Myers because of competition. Excluding the barter-piece of the equation, cash flow would increase 12 percent for the quarter.

Our D&A expense we expect to be approximately 3.8 million for the year, 900,000 we're expecting for third quarter '02. This compares with 1.3 million in third quarter '01 had FAS 142 been effective. We expect interest expense to be approximately 17 million. This assumes an effective rate of interest of nine percent going forward. And our effective tax rate is 40 percent.

Cap ex for third quarter we expect to be approximately $2 million, of which we expect 1.3 to be investments.

This will be the guidance that you receive for third quarter. We undertake no obligation to update this information until the next call and look forward in speaking with you then. Now I'll turn it over to Bruce.

Caroline, thank you very much.

Good morning. Due to the timing of the information we don't have complete spring ratings yet, but Allen and I are going to try to highlight a few other operating accomplishments for you and if you need more information we're going to cover that in Q&A after our conference.

When looking at BBGI versus its markets, we outperformed the market in Philadelphia, where our station group revenues were up 17.5 percent compared to a five percent - 5.1 percent increase for the market. Strong performances at WXTU up 23.7 percent, and WPTP up 13.2 percent. These gains translated into an increase in market revenue share from 5.6 in the year-ago period to 6.2 today.

Importantly, the cluster's power ratio continues to increase rising from .88 in the first quarter of last year to 1.11 in this quarter, so we're definitely on the right track in Philadelphia.

In Miami overall cluster revenue decreased 3.1 compared to a year ago, while the market grew 4.9 and there are several reasons for this, which I'd like to discuss.

First, as we've pointed out in the Q1 call, we expected some of the revenue decline due to our late start selling on-air time for the Marlins, which wasn't renegotiated until opening day.

WKIS, our country station, hasn't rebounded as quickly as we'd like from last fall's format wide decline due to 9/11. We have some things in progress at the station, including a new morning show, which was added about two weeks ago and we'll continue to work on the station's fundamentals as we progress.

The bright spot in Philadelphia was Power 96. Last winter we took a direct format challenge, and as I predicted it forced the station to improve itself. Well, that's happening and Power 96's revenues increased 3.8 percent during the quarter, so we're very optimistic that Power will continue to deliver strong revenue and BCF.

Our management team, led by Greg , has really done a terrific job in fighting off this challenge, as we've done three times in the past.

The other cluster worth noting in this call is the cluster in North Carolina where revenue growth accelerated from the previous quarter, leading to an 8.4 percent increase for Beasley versus a 7.6 percent for the market as a whole. Four out of five stations sell double-digit revenue growth, so the cluster is very healthy.

On the ratings front we have some positive news from Spring and Arbitron ratings, both that I'd like to share with you. In Philadelphia WXTU posted its third consecutive ratings gain among its target demo, 25 to 54, rising from 3.2 share in fall '01 to a 3.5 share in winter '02 to a 3.6 this spring. While we're not quite where we want to be with this station, it's trending in the right direction.

WPTP, the Point, retreated slightly in spring from the winter book from a 2.3 to a 2.1 in the target demo, but another very important development to note that as of this week our direct competitor changed formats yesterday to a soft AC targeting females 40-plus, which gives us the opportunity to capture some of their old listeners and their advertising base.

Reflecting on its resiliency from the format challenge, Power 96's ratings climbed back to a 9.8 share in its target demo -- that's persons 18 to 34 -- from a 9.1 share in the winter as our competition actually lost some big ground. The station also reclaimed its number two ranking for the 12-plus category.

Looking at WQAM it's off from its ratings peak of a 6.4 share in its target demo, men 25 to 54, but it's up .6 rating points from the year ago spring book.

And WKIS, as we mentioned, held steady at a 3.2 share and we think this station can do a lot better and it absolutely will.

In Fort Meyers our ratings were a mixed bag. Two of our stations performed very well, including WJPT, which jumped from a 5.7 to a 6.6, giving it a number two ranking 12-plus on a strength of new programming and a stronger signal.

And WXKB reclaimed the top spot women 18 to 49 with a 9.7 share, its highest ratings in two years.

When looking at national versus local, as in earlier periods national advertising continued to play a significant role in some of our stations' revenue results. On the whole Beasley National was up 17.2 percent compared to a 10.1 percent national increase for our markets. That trim was most pronounced in Philadelphia where WTTP continues to gain traction, up 290 percent and also at WXTU, up 50.9 percent. Both of these numbers compare favorably with the market as a whole, where national was up 11.2. Again, local did not keep pace with our market as a whole. Company-wide local fell one percent compared to a 3.2 percent rise for our markets. The exception was Coastal Carolina, where local was up 17.9 percent versus a 14.4 percent for the market.

The overall mix between national and local remains fairly consistent, with approximately 72 percent of our revenue coming from local, 20 percent from national, four percent from NTR, and four percent from our brokered programming. When we look at our top ten advertisers, auto represents approximately 33.5 percent of the top ten advertising category. This number's down slightly on a sequential basis from Q1, but up significantly from a year ago second quarter.

The beverage category at four percent also returned to normalized level. The only other notable sequential swings in the quarter came from the telecom category, which is off nearly four percent from Q1, and television, which increased to seven percent, due to the May sweeps. With that, I'd like to turn it over to Allen, and Allen's going to discuss Las Vegas.

Thank you Bruce. Our Las Vegas cluster revenue for quarter two was down one percent, compared to a market revenue increase of 1.7 percent. This was primarily due to lower hotel and casino revenue for KJUL, and lower demand for KKLZ due to its mid-level 25 54 audience rank. However on a national basis, our cluster outperformed the market, rising 37.3 percent versus the 16.6 percent increase for national revenue for the market as a whole.

KSTJ, our '80s music station, continued its upward audience momentum, rising to a number four rank, 25 54 adults, with a 5.5 share in the very latest spring rating book. That's up from a number eight ranking, and five share in the winter rating book. On a revenue basis, KSDJ has performed quite well in second quarter, with revenue gains of 34 percent over the same quarter last year. We really do feel that KSDJ is establishing a very solid brand in the market, now going into the second year, or third year really, as the '80s station.

In our last conference call, we said that our primary objective in Las Vegas is to build KKLZ, our classic rock station's 25 54 audience back up to at least a five share level or better in 25 54. Our programming changes in the last six months have given the station a current four book average of a 4.7 share 25 54, compared to a four share in a four book average one year ago. So we're getting closer to that five share goal. In the latest spring ratings, KKLZ did rise to third place in men 25 54 in the market, which should help us revenue-wise for the rest of the year.

KJUL, our standard space AC station regained its number one rank in 12 plus audience in the Las Vegas market with an 8.1 share. The station remains strong, and its target audience of adults 35 64, with a 5.7 share and ranks number five. KJUL experienced a 4.7 percent revenue decline in quarter two, due primarily as we mentioned to lower hotel and casino advertising, which is a large component of KJUL's client base. We do believe however, as tourism to Las Vegas improves to its normal levels, KJUL will benefit accordingly.

With that, I'll turn the call back over to George.

Thanks Allen, and thank you Bruce and Caroline for your insightful presentations. I imagine that there are many questions at this time, so I'll ask , our operator, to please open the call for questions.

Thank you, sir.

The floor is now open for questions. If you do have a question or a comment please press numbers one, followed by four, on your touch-tone phone. If at any point your question has been answered you may remove yourself from queue by pressing the pound key. We do ask that while you pose your question that you please pick up the handset to provide optimum sound quality. Once again, that is one, followed by four, on your touch-tone phone.

Our first question is coming from Fred of Jefferies & Company.

Thank you very much. The cash flow improvement was extremely impressive. I'm just wondering if there's something special behind the same-station revenue decline and projection to remain flat in the third quarter when the industry is starting to see a real recovery? And when and if we will see that pick up the way your cash flow growth has been sparked?

All right, I'll touch on that briefly, Fred. There are several items effecting or impacting the revenue side in the projections going forward. The first is the barter revenue; second, as I mentioned earlier, the Marlins' impact on the revenue; and then also, too, in Miami, the - we're not projecting huge growth, actually relatively flat growth at our Power station over there because of the competitive issue.

So $700,000 for us is a big - is a big number when you compare it with, you know, $27-$30 million. So that's the reason for the decline. If you take into account, you know, all of these items then you would be looking at a positive increase in revenues. But there's a couple situations over there that we're dealing with.

Yeah, just to add to that, Fred - this is George Beasley. Had we been able to sign the Marlins contract a couple of months earlier than we did, I think you would have seen significantly different numbers in revenue going forward. Again, we signed the contract on the day that the season began.

OK. So normalizing for that you're trending closer to the industry and if you took some of your more normalized stations how are they doing?

Well, I mean, they're doing - they're doing. I mean, in Philly we're looking at pretty good increases for the third quarter and in our - and in our other markets as well. It's just that Miami accounts for such a large, you know, percentage of our revenues and it's such a big number for us that any decreases there really impact the whole company.

I appreciate that.

Any other questions?

Thank you.

Our next question is coming from Paul of Credit Suisse First Boston.

Thanks very much and good morning everyone.

Good morning, Paul.

Morning, Paul.

Wonder if you could just talk about any changes in the visibility of your ? Is it getting any better? Perhaps you could express in terms of sell-out rates heading into the month now versus maybe six months ago or 12 months ago?

And second, just - in terms of Miami looks like the situation's starting to stabilize a little bit. Where do you - I mean, do you guys think that the competitive marketplace is starting to stabilize or when do you expect your ratings to stabilize and then perhaps, you know, find a base to start growing? And is that - is that a third quarter issue or later on? Thanks.

Paul, I'll take the Miami and then I'll turn it over to Caroline for the other questions.

We believe that Power is beginning to move back up, quite frankly. When we look at our phase by phase reports we're seeing the other radio station continually dropping month by month by month. I think the radio station, Power 96, that is, has done a tremendous job fending off its competitor.

The reason that we're talking about the conservativeness of the revenue for that particular radio station is we did pare back our units on that radio station substantially when we obtained a competitor.

But the short answer is Power 96 we believe has fended off the competitor as of second quarter and will continue to rise in ratings moving forward into third, fourth and so forth and so on.

All right. I think it will be fourth quarter before we'll see a positive impact.

Fourth quarter before -- as far as revenue goes, fourth quarter. We're going to continue to hold our units, so fourth quarter before we see positive impact.

And then, Paul, as far as visibility goes, and Bruce can add to this, I can speak specific to the sell-out rates and I've been tracking this for the last five months, if you will, and quite frankly we have been up and down on a monthly basis over the last five months. You don't see a trend, an upward trend each month so I track it based on the last week going into a month, so it would be the last week in the previous month.

And so if you take a look at March going into April we were at 54 percent sold out and we ended up April at 5 percent increase in sales.

April going into May we were at 61 percent sold out and we were flat in May.

And May going into June we were 65 percent sold out and we were 2 percent increased in June.

And then June going into July we were at 60 percent sold out and it looks like we're going to be like around a 5 percent increase for July.

July going into August we're at 59 percent sold out.

And so to me it's kind of staying in the same range as the sell out or the percent increases are from flat to up, and this excludes the barter revenue.

Okay, and how does August look at this point?

Well, August looks to me like it's going to be flat.

Right, okay. Okay, thank you.

Thank you, Paul.

Thank you. Our next question is coming from Drew Marcus of Deutsche Bank.

Hi. Good morning, everybody. Actually, George, it's James Dick stepping in for him.

Oh, hi, James.

I always like to impersonate him.

Just one thing just to drill down a little bit on what Paul was asking about in Miami, do you have any sense as to when things settle out what type of ratings you're looking for on a steady state basis from Power, what you think it's power ratio could be now that it will have a competitor presumably going forward and what you think kind of on a run rate its margins will be now that it will have a competitor? Do you expect kind of a higher run rate promotion cost?

And then one other question, just on the strength of Auto, do you have any sense as to what your growth would be, excluding Auto, and are you getting any buzz from people as to what they expect in terms of new models or what the activity of Auto is going to be this fall?

Jim, this is Bruce. I'll take the, as far as the competition question goes.

What we expect is we expect Power to be back at previous levels prior to the winter book is what we expect that radio station to be. With the changes that we've made at that station due to competition, we feel it's made that radio station a tremendously stronger radio station. As far as promotional cost, we don't perceive there will be any additional promotional costs other than what we've been doing in the past. Because that station has been very active promotionally anyway. You know, I think this thing is going to settle out. We've said all along that this radio station only plays about ten percent of what power 96 plays.

And then just to address the margins a little bit , I guess Bruce said going forward we do not expect to do any additional promotions there than what we've done in the past, but for the first six months, there has been a drop in the margins because of the promotional dollars that we did put in the station. And that was about a six percent drop. Now I think that that will level out a little bit and, you know, when they get back to the margins where they were last year, I don't know, I mean, it might take another year or so for that to happen.

And then as far as the power ratio, do you want to address that?

You know, I think a power ratio is going to be very strong at power. I don't see it, you know, decreasing that much on a going forward basis. I think we're going, you know, maintain strong power ratios there. As we have in the past.

What has that station typically been at?

1.15.

OK. And then just on the auto category?

you just to follow-up on that ...

If I could just ...

... you were talking about if we take auto out?

No.

Yes, what will your, what would your growth be, and then just what is your sense as to, you know, the strength of that category going forward? Are you hearing any buzz in terms of like what the number of new models is going to be that might need to be promoted or advertised, you know, this fall versus last?

Well, I mean, you know, things seem to be going OK to mix, as you noticed probably this morning, you saw Ford and GM had a, had a pretty darn good July. You know, I don't have any indications from our local on the ground people that we're seeing any decreases in automotive. You know, as of this point, you know, it seems to be, seems to be flourishing pretty well, as I can report to you today.

And as far the increase goes, I mean, if you exclude auto, and taking a look at this, I mean, auto was a large part of the, I mean, look excluding the barter we were up two percent. So that was a large part of that, because auto is such a big, a big, a big advertiser for us as a company. So we probably would have been, you know, flat to down if you were to exclude auto.

Well if you exclude auto in any radio company, just a major part of any broadcast revenues, radio or TV.

Yes.

OK. So you would have been flat to down versus up two percent excluding the barter.

Right.

OK. All right, thank you.

As a reminder, ladies and gentlemen, if you do have a question, please press the numbers one, then four, on your touchtone phone at this time. Our next question is coming from of UBS Warburg.

Hi, good morning.

Morning .

Good morning.

Two questions, but maybe first pertains to North Carolina, Fayette market. If I'm recalling the unique circumstance there was that local economy had been impacted by soldiers going overseas, so on repatriation has the economy picked up there, and has your market there? And the second, Caroline, I'm sorry if I missed it but could you repeat the debt at the end of the quarter, and if you could repeat the debt at the end of the quarter? And if you could walk me through the debt structure as of the end of the quarter? Thanks.

, I don't understand your question correctly but for the Fayetteville market actually it's, you know, with this thing going on it's turned into a pretty positive impact because there's a lot of reserves that have come into that market for training. And, you know, the hotels are full, the eating establishments are full, they're drinking a lot of beer at the bars. So the local retailers seem to be pretty happy. And it looks on a local - looks on a local basis ...

Market.

... or local base - or the market bases is up five percent. So, you know, as long as you don't see, you know, 20,000 troops pulled out of Fayetteville then it's kind of pretty been pretty good. I mean, hasn't effected us negatively at all.

There just hasn't been any mass exodus ...

Right.

... of troops at this point.

Well, the reservists coming in has helped to offset anybody going out.

And then as far as the debt structure goes, the debt at the end of the quarter was 199.5 million and over leverage was at 6.47 times, and that's per our bank definition we're able to add that certain items in that. The covenant requirement was seven times so we certainly beat that pretty .

And I'm not certain what else you would like to know.

And that covers it thoroughly. Thanks everyone.

Thank you.

Thank you.

As a reminder, if you would like to ask a question please the numbers one, then four, on your touch-tone phone at this time.

Want to turn the floor back over to management for any additional comments or closing remarks.

Well, if there are no further questions this concludes our second quarter conference call. We look forward to visiting with you once again when our third quarter results are available. Thank you and good morning, everyone.

Thank you, ladies and gentlemen. This does conclude today's teleconference. You may disconnect your lines at this time and have a great weekend.