Beasley Broadcast Group Inc (BBGI) 2002 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Beasley Broadcast Group's third quarter earnings release teleconference. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions and comments following the presentation. It is now my pleasure to turn the floor over to your hostess, Ms. Denyse Mesnik. Denyse, the floor is yours.

Thank you, Cayla. Good morning, everyone. It's nice to have you with us for our third quarter conference call. Before we begin our formal presentation, we would like to emphasize that this conference call contains statements of a forward-looking nature, relating to the future events, or the future financial results, of Beasley Broadcast Group, and serves as a disclosure point. The company is under no obligation to update these statements or update expectations from prior conversations. Investors are cautioned that such statements are only predictions, and that actual events or results may differ materially. In evaluating such statements, investors should specifically consider the various factors which could cause actual events or results to differ materially from those indicated from such forward-looking statements, including the matters set forth in Beasley Broadcast Group's report and documents filed from time to time with the Securities and Exchange Commission.

And now it is my pleasure to introduce George B. Beasley, our Chairman and CEO.

Thank you, Denise, and I, too, extend a good morning and welcome to our company's third quarter conference call. Caroline Beasley, Bruce Beasley, and Allen Shaw are on the call today to review operations and they'll help to answer any questions that you might have. We will keep our remarks brief, given the number of other broadcasters that will be reporting today.

Our financial results for the third quarter were released earlier this morning, and I hope by now that you have had sufficient time to review those. We're proud to report that for the fourth consecutive quarter, our financial results exceeded our guidance. The third quarter also marked the first time since last year that we generated positive year-over-year revenue comparisons. The visibility is gradually improving, and the mood of our advertisers is encouraging, and the business climate in general is slowly growing healthier, I think.

Before turning the call over to Caroline, Bruce, and Allen, I want to briefly highlight some key accomplishments for Beasley during the third quarter. First, we're continuing to generate significant cash flow growth from operations, with a BCF increase of 25 percent in the third quarter. And the new Marlins contracts that WQAM in Miami contributed to the gains, as did an improved performance at WXTU in Philadelphia. Additionally, we generated favorable summer ratings books in these markets, which bodes well for our future revenue prospects. So conditions are improving at Beasley, along with the rest of the industry. I don't think the economy is fully out of danger yet; certainly in view of the consumer confidence report that we just received, which shows consumer confidence at its lowest point in about 10 years, but we are cautiously optimistic about the future here at Beasley, and with that, I'll turn the call over to Caroline for financials. Caroline?

Thank you, George, and good morning. We are pleased that our company achieved revenue and cash flow growth in the same quarter, on a same-station basis, for the first time since fourth quarter of 2000. The BCF increase was driven by our Miami and Philly clusters. Excluding the impact of the loss of approximately $300,000 in barter, Internet, and investment revenue, revenues would have been up approximately 6 percent. And, excluding an estimated loss in revenues of approximately $700,000 in Miami, because of the Marlins and power, revenues would have been up approximately 9 percent. On a same-station basis, the margin increase is primarily attributable to the Miami and Philly markets. Miami saw gains in margins due to the successful negotiation of the Marlins contract, and margins in Miami increased from 16 to 29 percent for the third quarter. In Philadelphia, our margins increased from 18 percent to 25 percent. The margins on our developing stations increased from a minus 18 percent in third quarter '01 to a positive 3 percent in third quarter '02. Our mature stations increased their margins for the quarter by 1 percent, from 44 to 45 percent, and as of 9/30, 38 percent, or 16 stations, were in developmental stage. Thirty percent of our revenues are generated from these stations, and these stations contributed 3 percent of the total cash flow for the quarter.

As of September 30, total senior debt was $198.4 million, and our latest trailing 12-month EBITDA was $31.5 million, for a leverage of 6.29 times, per our bank covenant definition. Our leverage covenant with our bank was 6.75 times. On 9/30, the company closed on an amendment to our credit facility. The amendment provided for the company to issue $100 million term loan B, and use the proceeds to permanently reduce the existing revolver and term loan. The amendment also delays the company's total leverage step down. In accordance with EITF 9619 and 9814, a loss of extinguishment of debt of $1.9 million was recorded, related to the amendment-- amended and restated credit facilities.

Cash on hand as of 9/30 was $2.6 million, and our capex for the quarter was $1.6 million, of which $100,000 was maintenance. This compares to third quarter '01 in which we had $439,000, of which $121,000 was maintenance. On a year-to-date basis, we've had $2.5 million in capex, of which $730,000 has been maintenance, compared to last year, of $2.3 million in capex, of which $792,000 was maintenance.

And as far as guidance goes for fourth quarter, we expect revenues to be at $30.75 million, BCF, $9.7 million, and ATCF to be approximately 17 cents for the quarter.

On a same-station basis, we expect revenues to be up approximately 3 percent. We are projecting our Miami cluster to be flat over last year, due to the competitive challenge we have in that market with our WTOW station. While we're winning the ratings battle, we've seen a decrease in revenues, primarily because of the reduction of units at the station. However, our direct competitor has taken some of our nightclub business, while some of the nightclub business has just decreased in the market in general. We're also looking at flat to slightly up growth in our Fayetteville and coastal Carolina markets for the quarter. Fayetteville is dependent on Ft. Bragg Army Base, and coastal Carolina is dependent on Camp Lejune and Cherry Point military bases. With the pending strike in Iraq, these markets are cautious and advertisers are tentative. We are projecting cash flow to be flat, we are increasing expenses, investing in promotions and advertising at our stations for fourth quarter and the upcoming fall book.

For the year, we expect depreciation and amortization expense to be approximately $4 million; $1 million for fourth quarter, '02, compared to $1.6 million for fourth quarter, '01, had FAS 142 been effective. We are projecting interest expense of $16.1 million for the year, and our effective tax at 40 percent. We're projecting capex to be approximately $1.5 million for the quarter, with $1 million being investments. This includes the planned capital outlay for the digital conversion in some of our larger stations. This project will go into next year and beyond. We estimate the total cost of the conversion to be approximately $4 million. This will be the guidance that you receive for fourth quarter. We undertake no obligation to update this information until the next conference call, and I'll look forward in speaking with you then. Thank you very much, and I'll turn it over to Bruce.

Thank you, Caroline, and good morning, everyone. I'm going to use my time this morning to highlight some promising developments for the company in our top markets. Starting with Philadelphia, on the ratings front, we scored a major victory at WPTP, the Point, our 80s music station, when one of our direct competitors, Alice, left the format over the summer. We managed to pick up some audience share, rising from a 2.1 share, adults 25 to 54, in the spring Arbitron book, to a 2.7 share in the summer book. A TV campaign to promote the station has been underway, and we're expecting this type of branding and cross-media exposure will convert some new listeners as well as those Alice listeners into part of our regular audience. And WXTU also had a great book, continuing its rise, back above a four share, as we expected it would. This success is definitely showing up in the numbers. Once again, we outperformed the market on a revenue basis, with station group revenues up 18.6 percent, compared to a 12.5 percent increase for the market. This increase was primarily due to solid gains in national advertising at both stations. The Point still hasn't stabilized its place with local advertisers, and we're hoping better ratings, combined with some advertising, will start to change that, and we'll also see that as another leg of growth at the Point.

In looking at Miami, on a revenue front, the big story is the performance of Power 96, which now appears to have stood down to a direct challenge from a cross-town rival. I had indicated earlier this year that this was my expectation. The station climbed back to its pre-challenge share for its target demo in the summer book, with 11.2 share, adults 18 to 34, and even improved a full point from the year-ago summer book, when the challenge was still a ratings book away. Power never lost its footing during this competition, it never backed down, and if anything, the station got better. We think our listeners believe this, too, and we're looking forward to converting some of this enthusiasm into better financial results going forward, particularly as we anniversary the competitive period of the format attack in early '03.

On the revenue front, as Caroline alluded to earlier, lower inventory loads at Power definitely had an impact on the cluster's overall performance. Our station group revenues were only up 3.4 percent, compared to a 9.5 percent year-over-year gain for the market. All three stations performed better than the market on a national basis, with a combined increase of 14.8, versus an 8.8 percent increase for the market. And with that, I'm going to turn it over to Allen.

Thank you, Bruce. In Las Vegas, our quarter three cluster revenue came in slightly above the market's revenue increase of 5 percent. However, if we include non-traditional revenue, which we were very, very aggressive on, our total cluster revenue actually increased 15.5 percent compared to 5 percent growth for the market. Market local advertising was up 3.5 percent in Q3 compared to a 2 percent decline in Q2, so the market's gaining momentum. On a national basis, our cluster again outperformed the market, gaining 23 percent compared to a 3.5 percent gain for the market. KSTJ, our 80s music station, saw local revenue increase by 19.2 percent, and national increase by 61 percent. KJUL, our standards-based AC station, was still tied for first place in 12-plus audience. The station did gain some share in its target audience of adults 35-64, moving from a 6.3 in the summer from a 5.7 share in the spring. KKLZ, our classic rock station, also gained 25-54 audience, on a year-to-year four-book average, moving from a four share at this time last year to now a 4.6 share.

Las Vegas tourism has recovered to near-normal levels finally, and market radio advertising revenue is gaining momentum as we go into the fourth quarter. We are actually quite optimistic about our stations' growth in the fourth quarter and beyond. And with that, I'll turn the call back over to George.

Thank you, Allen, and thank you, Bruce and Caroline, for your insightful reports. Operator, will you please open the line for questions?

Thank you, gentlemen. The floor is now open for questions. If you do have a question or a comment, please press the numbers one, followed by four, on your touch tone telephone at this time. If at any point, your question has been answered, you may remove yourself from the queue by pressing the pound key. Questions will be taken in the order received. We do ask all participants to please utilize the handset for optimum sound quality. Please hold as we poll for questions.

Our first question is coming from Drew Marcus of Deutsche Bank. Please go ahead.

Good morning, everybody. Nice numbers.

Thank you.

Thank you.

Can you give us a little bit more sense, by month, on how the fourth quarter is looking? You know, we're hearing some pretty strong numbers for the industry, on how your markets are doing, by month, kind of October, November, and then do you have any visibility into December at this point?

Right. Actually, October for us came in fairly well, because we had an NPR event up in Philadelphia, so October-- and this is cash only, so it excludes trade. When you take into account trade, you know, it may lower the numbers a bit, for but for cash only, October was up 16 percent.

And that includes that Philly concert, which I guess was about $1 million or something.

Yeah, it was around $800,000.

OK.

Excluding that, it was up about 7 percent.

And then how-- are we entering November 80 percent sold-out, or how are we entering November, about?

November, as of last week, we were 63 percent sold-out.

And then too early to tell on December, or do you have any thoughts on December?

I think it's too early to talk about December for us.

And then just final question --- Las Vegas, one of your markets, you mentioned was only up 5. Why do you think Las Vegas is growing slower than the overall radio market?

I think Las Vegas was hit a little harder than most other markets because of the problem with people being afraid to fly, and as you know, over 50 percent of the tourism to Vegas has to get there by airplane, so the Vegas market had severe layoffs at this time last year, at the hotels, and as a result, you know, the advertising slowed down considerably, but that is recovering, I can tell you, Drew, very, very rapidly. Our revenue pacing for October, November, December is really pretty spectacular.

Do you see a similar pattern in Miami?

Yeah, Miami is a little different. I think we're seeing some good growth there, Drew. National seems to be growing less faster than it has in previous quarters, but local seems to be growing pretty strongly.

That being said, we still do have the issue with our Power station, which is bringing, you know, our comps down with the market, so the market could be growing faster locally, but we're having an issue with the Power station.

And let me add one other thing to that comment, Drew. We, as you know, when we had the competitor come on board, we took quite a few units and dropped out of Power's inventory. That's not going to last forever, but we're still looking at that during the fourth quarter of this year.

OK, thank you very much.

Thank you, Drew.

Thank you. Your next question is coming from Paul Sweeney of Credit Suisse First Boston. Please go ahead.

Thanks very much. Good morning.

Good morning.

Bruce, just to follow-up on that last point. You know, now that your Power station, as you said, has kind of withstood the competitive challenge from an audience share perspective, you know, when do you believe-- kind of where are you on units now, to what degree, or, you know, over what time period, do you expect to add units to kind of get that market back-- or your station to participate with the market's growth?

And then the second question is just for the Carolina markets, it's a new issue for, I think, investors to think about at this time, but kind of what are your advertisers telling you as to the duration of this issue? Is it an uncertainty issue? Do you have any experience back from the '91 time period, for example? I mean, is this something that you believe could certainly go well into next year, to the extent that the uncertainty of this issue goes on?

OK, let me touch base on the Power units. I think what our plan is to look through one more book; we're in a fall book right now. We want to make sure that Power really has stabilized. We certainly believe it has. We actually believe it's going to become a stronger radio station than it was prior to a new competitor. So we don't have any plans of adding any units in the fourth quarter.

To address the military issue, we have been through this before, back in the Gulf War, but there's two scenarios here. During the Gulf War, they pulled out tens of thousands of troops out of Fayetteville, North Carolina. If this is going to be a ground-fought war and last a long time, it could have affect on any military market that we're in. If this is going to be a technological war, with minimal troops, then it may have some short-term effect, a month or two, in any market that's a military market, but I think we'll come out much stronger, if that's the case.

But still, at this point, advertisers, given your guidance for those markets, remain very cautious for--

They're tentative. They're tentative. They're-- a lot of the advertisers have been through this before. We still haven't seen the trains pulling out in Fayetteville, like we did in the Gulf War, which is a big sign that they're moving huge amounts of troops.

They're just very cautious, very tentative, and our general manager tells us that basically, you know, they can see no trend at this time, either good or bad; they're just, you know, there. Very cautious.

Right. And Caroline, can you just refresh our memory, and kind of what the percentage of your revenue comes from Fayetteville and the coastal markets?

About 10 percent from Fayetteville, and around 10 percent from coastal Carolina.

Great. Thanks very much.

Thanks, Paul.

Thank you. Our next question is coming from Tim Wallace of Banc of America Securities. Please go ahead.

Thank you very much. Could you, on the amount of inventory that you've sold in November, I don't think you attached sort of what kind of growth that you were seeing there, and then, as a follow-up to that, I think, if I'm not wrong, your guidance, your same-station revenue guidance for the fourth quarter, I think, is sequentially down, and I wondered what-- the implications of that were. And then a final question to George -- as you look out over the next year or two, what do you think the likelihood is for further consolidation among the mid-cap radio companies, and what do you think the benefits of that are? Thanks.

Let me just address the revenue issue -- as far as the revenues being down, fourth quarter, projected, this year over last year, I have that our actual revenues last year were 30.4 and we're coming in at 30.75, so I don't see that they're down. Last year, for the fourth quarter, we did have $598,000, almost $600,000, in revenues from New Orleans, so that may be part of what you're looking at.

I was talking about sequential, meaning going from the third quarter to the fourth quarter in terms of growth expectations.

Well I think here again, that, for the reasons we just stated earlier, and that's Fayetteville and coastal Carolina, those markets are tentative at this point, and with Miami and the reduction of units, and that station and that market is just not-- or that cluster is not growing with the market at this time.

Are you seeing any slowdown in any of your major categories, like auto, in particular?

No, we're not seeing any slowdown. Pretty much it's the same percentage of our top ten in third quarter as it was in second quarter, and from what we're seeing and hearing our managers say about fourth quarter, it's still very strong.

OK, Tim, this is George, and in response to your question as to what I see over the next year or two, I think, first of all, we have to see the economy really stabilize, and then at that point, the capital markets opening up somewhat. I think at that point, you may very well see another wave of consolidation, and a true third player being created, one that may well be almost as large as the old Infinity; not as large as Clear Channel is today.

And what do you see the benefits in-- I mean, why do you think that would occur?

I think that's going to occur because there are a lot of us who have the small companies, or who operate the small companies, as we do, and there are a lot of egos that we've got to get past before this does occur. Once it occurs, I think it's going to make it more beneficial for these companies to go out and sell wide range across the country, particularly to national accounts. In the case of Clear Channel, I believe they have their own national sales company now, and it's just going to-- and locally, I don't know that the benefits locally are going to be that great, except I know in areas where we have completed clusters of radio stations, ourtendency to dominate those markets, and putting together completed clusters of radio stations is where you have at least four FMs in a market, across the country, you put those together, you're going to make a powerful statement to the market, to the advertisers, and I think you're going to see what's happening to us in just a few markets happen to this consolidated entity all across the country.

OK, great. Thank you, George.

You're welcome.

Thank you. Our next question is coming from Jason Halstein of CIBC World Markets. Mr. Halstein, your line is live. We'll move on to the next question. Once again, ladies and gentlemen, the floor is open for your questions and comments. If you do have a question or comment, please press the numbers one, followed by four, on your touch tone telephone at this time. We have a follow-up question coming from Tim Wallace of Banc of America.

Thank you very much. I'm not sure who to address this to, maybe to any one of you, and it relates to digital radio. George, you have a fair amount of AM stations. Could you comment on the opportunity there-- you know, first of all, are you planning on upgrading all your stations, what would be the cost to do that, and what do you see as the opportunity going forward? Thanks.

Tim, we have some figures on that, and I believe, Caroline, to update all our stations, would be approximately, is it $4 million? Yes, around $4 million. We obviously won't do this all in one year. We'll do it over a period of time, but we will begin doing it, fourth quarter of this year, and of course, the advantage of that is one receivers are in place is a better product to deliver to consumers.

Would you consider changing the formats on some of your AMs, for instance, because you'd have higher fidelity, or what would be the plan there?

Well that's certainly an option that's open to us.

OK, no plans at this point?

No plans until we see a good saturation of receivers in place.

Fair enough. Thanks.

Thank you.

Again, ladies and gentlemen, as a reminder, if you do have a question or a comment, please press the numbers one, followed by four, on your touch-tone telephone at this time.

If there are no further questions, ladies and gentlemen, thank you for joining us today. We look forward to reporting fourth quarter and year-end results on our next call, and operator, this concludes our report. Thank you.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.