Beasley Broadcast Group Inc (BBGI) 2002 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Beasley Broadcast Group fourth quarter and year end earnings conference call. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions and comments following the presentation. It is now my pleasure to turn the floor over to Denyse Mesnik. Ma'am, the floor is yours.

Thank you. Good morning, everyone, we do thank you for joining our 2002 fourth quarter and year end conference call. Before moving on to our formal presentation, Beasley Broadcast Group would like to remind listeners this conference call contains statements of a forward-looking nature relating to this future events or the future financial results of Beasley Broadcast Group.

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 reports and documents, filed from time to time with the Securities and Exchange Commission. It is now my pleasure to introduce George Beasley, our Chairman and Chief Executive Officer.

Thank you, Denise. Good morning, everyone. Welcome to our company's fourth quarter conference call. Caroline Beasley, Bruce Beasley and Allen Shaw are on the call today to review operations and help answer any questions you may have.

Our financial results for the fourth quarter were released earlier today and hope by now that you've had some time to review them. The fourth quarter marked yet another period of steady improvement at our stations. Same station revenue growth at 9% was the best quarterly growth rate that we have achieved since the advertising cycle last [INAUDIBLE] 2000.

Our quarterly, same-station BCF growth of 8% was more than we had originally expected, given some of the marketing and promotion investments that we made during the quarter. Our after-tax cash flow rose over 27% to $5.4 billion. The highest amount that we posted in any quarter since going public. Our station employees did a great job last year and for, that we want to congratulate them.

As Caroline will explain in greater detail shortly, these results came from improved market conditions, our continued emphasis on management station operating costs, which, on a full-year basis, were down over 5% in the year 2000. We also improved our balance sheet in '02, producing an interest expense by paying down debt with proceeds from the New Orleans divestiture.

The pro forma leverage now stands at just 6.1 times, over 6.1 times -- excuse me, our leverage now stands at just over 6.1 times trailing EBITDA, and we hope to lower that number even further into the 5 range by this time next year. As for the business climate that's out there today, it certainly grows more tentative as the situation abroad remains tense.

Certain of our clusters like Las Vegas continue to experience tremendous sales momentum. The three of our midsized markets have nearby military basis. In Fayetteville, we have Fort Bragg and Hope Air Force Base. In Greenville-Newburn, we have Camp LeJeune and in Augusta, Fort Gordon. All have experienced the preliminary effects of concerns about war.

Advertisers and these markets are very cautious and they're often waiting up until the very last minute to place buys although we have had very few, if any, cancellations up to this point. That being said, once the crisis resolved, as it eventually will be, we anticipate that these markets will rebound very sharply just as they did in 1991.

Outside of this situation, we're very excited about 2003. We had excellent fall ratings in the books, posting nice increases in Miami and Fort Myers and Augusta and our competitive position should definitely improve in these markets as we go forward, but we're looking forward to what we hope will be an exciting 2003. For that, I will turn the call over to Caroline. Thank you, George. Good morning. As George said earlier, we are pleased that our company achieved revenue and cash-flow growth in the same quarter once again. On a same-station basis for the quarter, revenues were up 9.7%, cash flow was up 8.3%. We saw better-than-expected spot revenue increases in our Miami, Las Vegas, and Augusta clusters.

Our expenses on a same-station basis for the quarter increased by 10% and as mentioned in the last conference call, the majority of the increases were a result of increased advertising and promotion expenses. Margins for the quarter were at 32.4%, down from 32.8% for the same period last year. And sequentially, margins were slightly down as well from 32.7% in 3Q '02. Year to date, same-station revenues were up 2.3%, and cash flow was up 14.9%.

Our margins increased from 28.5% in 2001 to 32% in 2002, and these cash-flow increases were driven by our Philadelphia, Miami, and Las Vegas clusters. The margins on our developing stations increased from 7% in fourth quarter '01 to 11%. And our mature stations margins decreased for the quarter by 2% from 45 to 43%.

Now, as of 12/31, we have 38% or 16 stations that were in the developmental stage, 34% of our total revenues are generated from these stations and these stations contributed 11% of total cash flow. As of 12/31 our total senior debt was $196.4 million, and the latest trailing twelve month EBITDA was $39.1 million, for a leverage of a little over 6.1 times, 6.1 six times per our bank covenant definition. And our leverage covenant with the bank was 6.75.

Cash on hand as of 12/31 was $5.4 million. CAPEX for the quarter was $228,000 of which $127,000 was maintenance. This compares to fourth quarter '01, in which we spent $169,000 of which 119 was maintenance. For the year, we spent $2.7 million in CAPEX, of which $857,000 was maintenance, compared to '01 in which we spent $2.5 million of which $911,000 was maintenance.

I would like to take the opportunity this morning to briefly explain the financial adjustments we announced this morning. During the first quarter of 2002, the company recorded an adjustment to its deferred tax asset and deferred income tax expense as a result of the company's 2001 income tax returns being completed. However, during the fourth quarter, it was determined that this adjustment should have been recorded in prior periods.

The noncash adjustment corrects the companies deferred tax assets recorded upon conversion from a series of sub S Corp partnerships and limited liability companies to a C-Corp at the time of the company's IPO in February 2000. The net impact on EPS combined over the last three years is a pick up of one penny and these adjustments do not effect previously reported revenue, BCF, EBITDA or ATCF for the year ending 2000-2001 and first quarter '02.

As far as guidance goes for first quarter, as indicated in the press release, we're expecting revenues to come in at $24 million BCF, $6.5 million, and on a same-station basis, we are expecting revenues to be down up to 3%. We are projecting our Miami cluster to be down over last year in part due to the Dolphins not make the play-offs this year compared to last year. We also still have not anniversaried the reduction and unit at our power station in Miami, so we're projecting lower revenues there as well. Remember, we reduced units from 16 down to 12 last April as a result of the party station going against us.

Also, we're looking at decreases in revenues at our [INAUDIBLE] coastal Carolina and Augusta markets for the quarter, and as George mentioned earlier, and we warned you all last quarter, that bill is dependent on Fort Bragg and Hope military bases and coastal Carolinas dependent on Camp LeJeune and Cherry Point military bases. Fort Gorton is located in the Augusta market. With the pending strike in Iraq, these markets are cautious, advertisers are tentative with a military strike, these markets could see decreases of up to 20% in revenues. And these markets account for 25% of our revenues. And as George just mentioned. once the troops do come home, these markets should experience great increases.

Cash flow we're projecting to be down up to 5%. We are projecting decreases and expenses of approximately 2% this quarter. Our free-cash flow, we're projecting 0 cents per share, corporate G&A, we're projecting $1.4 million for the quarter. We have experienced a 35% increase in our D&O insurance, and a 20% increase in our property and casualty insurance. We have seen significant increases in legal expenses related to stocks.

Our D&A expense should be approximately $4 million for the quarter, $1 million for first quarter '03. We're projecting interest expense of approximately $16 million, and this has been an effective greater interest of approximately 8%. We're projecting $3.8 million for first quarter.

Our effective tax rate is 40% and because of exiting NOLs, we are projecting not to pay any federal taxes for '03. However, we will pay approximately $500,000 in state taxes. We are projecting CAPEX to be approximately $1.2 million for the quarter with $800,000 in investment.

[INAUDIBLE] planned capital outlay for the digital conversion in some of our larger markets. We anticipate that this conversion will be ongoing throughout this year and into next year. We estimate the total cost of the digital conversion to be approximately $4 million, and that's about $100,000 per station.

For the year, we're projecting $4.5 million in CAPEX, $2.5 million in investment, and $2 million in maintenance. And we do anticipate being in compliance with our covenant with our bank.

Just one housekeeping item. Our same-station numbers for '02, which exclude the operations of the two FMs in New Orleans and the one AM in New Orleans first quarter '02 revenues, 24.7 BCF, 6.8. And if you'll look at page 7 in the press release you can get the details on second, third, and fourth quarters because same station will be the same as actual revenues for those quarters.

This will be the guidance that you receive for first quarter. We undertake no obligation to update this information until the next conference call, and I look forward to speaking with you then. I'll turn it over to Bruce. Thank you, Caroline. I'm going to use my time this morning to touch briefly on some of last year's highlights and then I'm going to focus on what we're starting to see from an operational standpoint in '03.

Let's take a look, a couple of our markets. Philadelphia was up over 15% on revenue basis in '02, compared to an 8% gain for the market as a whole. WPTP, our '80s music station was a shining star, recapturing some audience share from its earlier debut. This station delivered a 27% revenue increase in the fourth quarter, compared to an 11% increase for the market overall, and WXTU our country station continues to do everything right, though we still have to do a better job of translating that performance into revenue successes.

The story in Miami last year was obviously the performance of power FM which rebuffed the direct challenge from our cross channel rival, as well as the new Marlins and Dolphin's contract at WQAM. Though we're still not quite where we want to be on a revenue front, WQAM led the pack with a 15% revenue growth during Q4, while the cluster as a whole grew national sales more than twice as fast as the market in the quarter.

We also had solid ratings books in the fall with all three stations maintaining or expanding their shares. And WKIS, our country station, finished the year particularly strong, returning to the mid-3 share consistently held in '01.

Looking at trends, our biggest category was auto at about 33% of our top 10% revenues in '02, and this was up significantly from '01. Telecom was another strong category for us last year as was retail. Casino spending returned in Q4 rising to about 6% of our top 10. And political was only about 1% of the top 10 in Q4. The rest of the categories remained fairly stable.

The 9% same station revenue gain in Q4 primarily was driven by better inventory sellout compared to the year-ago period, rather than price increases. There were some isolated cases of pricing leverage at certain large markets but on a whole, inventory demand was relatively stable across our markets.

Local sales represented 70% of revenue in Q4, compared to 17% for national. NTR was 9% of revenues in Q4, which was the most we did in all of '02, and this was primarily due to a very successful event sponsored by WXTU in Philadelphia during the quarter.

In looking at '03 year to date, our station portfolio was up 1% in January primarily due to war driven advertiser concerns in Fayetteville, Greenville, and Augusta, but also because of the items Caroline mentioned earlier at WPOW and WQAM, which are creating tough comparisons to the year-ago first quarter. This is consistent with Miller Caplan data for these markets through January which shows our Fayetteville cluster down 2%, and our Augusta cluster down 1%.

Though February is not over yet, February looks look it could trend into negative low single digits and given the low visibility for March, it's really too early to tell how we're going to fair there. Including last year's Dolphin's play-off game, we're facing about 2.5% below where we were last year at this time, and that is as of February the 19th. Excluding the Dolphins game, we're facing about 1.5% below last year, and right now, we're about 80% of our internal sales goal for the quarter.

If recent history is any guide, there will likely be some advertisers who pull spots, should a war in Iraq commence, and that's to be expected. I don't want to predict how world events will play out or how our stations will adjust programming schedule, if at all.

We're all hoping this crisis resolves itself without bloodshed, but in the event it doesn't, we'll operate successfully in whatever business climate prevails and when the crisis does pass, as it will, we expect advertisers to return in droves as they did after the Gulf War. And with, that I'll turn it over to Allen Shaw.

Thank you, Bruce. Talking about Las Vegas, the market seems to be back finally to near normal growth rates. In quarter four, market revenues grew over 21% while our cluster revenues grew over 44%. These rates are very similar to what we saw in the late 1990s and as Bruce noted, casino spending was a big part of that comeback.

All three of our stations had a tremendous fourth quarter and a good year. We did especially well in national, generating increases of 59% and 126% for Q4 and 2002 respectively. This is consistent with gains we have been registering all year long and it's helped us recapture more than a full percentage point of market revenue share compared to a year ago fourth quarter.

What is happening really is our sales force is doing a much better job of selling the cluster, selling in combination and matching advertiser needs with available inventory. They're really doing a great job, and we've congratulated them for that. In the fall ratings book, KSDJ, our '80s station, had a great report in it's target demo rising to a 5.2 share in adults, 25-54.

KKLZ, our classic rock station was off, but the station was up 21% on a year-for-year basis for the month of January, and revenue, and that momentum has carried over into February. And the reason for KKLZ and, as a matter of fact, KJULs revenue success in fourth quarter and continuing into first is that as the market grows, the more highly-rated stations tend to sell out and the second tier stations pick up the slack and get a lot of demand from advertisers.

We have learned to sell the stations very effectively and we're really on KJUL, especially, the most effective way to reach the growing senior citizen population in that market and our sales staff has learned how to find the target clients for that station. The fourth quarter momentum has carried on into 2003 we're happy to report. And in January, the market was up nearly 13%. Our cluster was pacing over 25% ahead of last year.

KKLZ, KJUL, and KSDJ are continuing to pace quite well into February, and as a matter of fact, at this point as of today with weeks left to go in the first quarter, we're already over 80% of our first-quarter whole budget. With that, I'll turn it back over to George.

Thank you, Allen, thank you, Bruce and Caroline for your insightful reports on fourth quarter and year-end '02. Operator, if you will, please open the line for questions.

Thank you, the floor is now open for questions. If you do have a question or comment, you may press one followed by four on your touch-tone phone. If you're on a speaker phone, we ask that you please pick up your handset to minimize any background noise and if at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. Once again, if you do have a question or comment, please press one followed by four on your touch-tone phone at this time. Our first question is coming from Drew Marcus of Deutsche Bank.

Hi, good morning, everybody, it's actually James Dix stepping in for Drew. I had two questions. First, if you could just review where your markets for Philadelphia, Miami and Las Vegas are pacing for the first quarter. I think I got a little bit of granularity on some of the months. Just in terms of what you're seeing for the quarter where those are pacing. Secondly, in your guidance, it looks like your cost control is pretty good with the expenses expected to be down 2%. I want to know, you know, how you're able to do that, and if you expect, you know, that revenue slowdown continues into the second quarter, would you be able to continue to hold expenses down like this.

Right. Okay, James, as far as pacings go and the Philadelphia, Las Vegas and Miami markets. Just received an update this morning on the Philadelphia market and this is from Miller Caplan. This market is the only one that we actually get weekly pacing reports on, and it looks like February is actually going to come in down .5%, so down flat to down 1%, and March is pacing right now down 5%, January was up 8%, so that being said, given that that March is such a big month in the first quarter, it looks like the market may be down about 2%. And here again, that is the Philadelphia market.

I don't get the market data on Las Vegas and Miami, but I can just tell you as Allen said for Vegas, that market still is, still looks fairly strong and it doesn't look like we will see double-digit increases in the Las Vegas market. From Miami specifically for us, we're looking at revenues to be down in that market because of the, as Bruce mentioned, the Dolphins and also as I mentioned earlier, the reduction in units at Power 96. We're looking at a down quarter there.

And then as far as cost controls go, we did tighten our pencil in the first quarter, and cut back on some of the expenses. These are primarily -- I'm not going to go into specifics, but they're pretty much across the board and, yes, there are other expenses that we could go through and cut out in the upcoming quarters if the, if the trend continues to be a downward trend in revenues for the year.

Thank you.

Uh-huh.

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

Thank you very much. Carolyn, maybe you could review with us, based on your first quarter guidance, I know you indicated that your leverage covenant, you were very comfortable with. But could you review with us where you would be relative to the interest coverage covenants? And then secondly, this is to George, given that competition seems to have gotten more aggressive not just for Beasley but for a lot of companies and it seems to be impacting the smaller companies more than the larger companies like Infinity or Clear Channel, George maybe you could give us sort of your view longer term of what you think happens to perhaps Beasley or the radio industry. Thanks.

I guess as we go forward,Tim, you're going to see more consolidation. When the next round of consolidation is going to come remains to be seen, but I strongly suspect that once you see the market to begin spiraling upwards and the companies start feeling good about themselves that you're going to see quite a bit of activity and in so far as additional consolidation is concerned.

Okay. Thank you.

And then as far as the interest coverage, we are projecting to be at the minimum coverage is 2 for the covenant and based on the interest expense number that we had given you for first quarter and the estimated cash flow, we're looking at being at 2.1 times and that's the coverages, too. So we should be fine there.

And how much, I mean, how much of the quarter do you feel comfortable as totally booked? I think you said 80%, but I just wanted to review that.

Well, I think basically what Caroline said, Tim, this is Bruce, is that internally we're about 80% of what have we had budgeted for the quarter, . Now, we're about Tim, we're about 89 to 90% of the budget that we have given to you guys.

Right, okay, I guess what I'm driving at is, if a situation develops in Iraq at the beginning of March and there was some dislocation, do you have enough room in the first quarter? It's hard to predict, I know, but I mean are we --

Good question. I don't know -- You know what, Tim. It's very hard to predict because we just don't know what the impact, absolute impact would be. So if we would give you an answer, it would be purely a guess, and we certainly are keeping our ear to the ground and we're talking to our advertisers in these very important markets when it comes to military but it will be hard to give you, you know, a quantitative answer to that except we have said that if something happens, we expect those markets maybe down 20%. We do, we would expect some cancellations but I can't tell you to the extent of how much that would be.

I guess what the question really should have been was Caroline, do you have costs that you can -- that are in your back pocket basically, that you can cut to make sure you make the covenant?

To make our covenant I think, yes. I mean I'm not worried about making this covenant for the first quarter.

Okay, great. Thank you.

Thank you, our next question is coming from Paul Sweeney of Credit Suisse First Boston.

Thank you very much. Good morning. Just a couple of questions on some of the bigger markets. First in Miami, Bruce when -- I know you, in April of last year, took your units down, and , I guess my question is, you know, when do you think you're going to get to a point where when you can perhaps add some units back or will you add units back? And then specific about the power station, was that a positive contributor to run your cash flow growth in the fourth quarter? I know you hoped that it would be. Second, Allen, just in Vegas. If you can just talk about, the market seems to bounce back particularly strong given there still seems be a lot of uncertainty in the tourism business. The point is how sustainable do you think the strength in the Vegas market is, what are the casinos customers telling you?

Paul, this is Bruce. I'll take the units question and I'll turn the other half of the question for Miami over to Caroline. We don't at this point intend to add any units back at that radio station. We just saw probably the biggest ratings we've ever seen at that radio station with the fall book. It seems the things that we've done are the right things, and I think we have a real good combination to success that radio station. So right now and into the near future, I don't see us touching that success that we have picked up on there. And as far as power being a positive contributor to revenues and BCF in the fourth quarter, it was not. It was down about 6% from prior year.

Okay, and what do you think of that in '03? You guys have budgeted that being up?

The power station?

Yeah.

Well, I think we have to get through first quarter and certainly it's not going to be up in first quarter because it's tough comparison. Beyond that with the positive ratings that we just have received from that market, I would say, yes, we should be up.

Okay.

And, Paul, regarding the Las Vegas sustainability, it's obviously key to the average tourist fear or lack of fear of getting on an airplane since the 60% or more of the tourists to Las Vegas fly there. Rather than drive. The key is airline safety and the feeling of the consumers about the safety of flying, flying on an airplane because there have been no further events since 9/11, no terrorist attacks at all in the domestic U.S. That has been a big help. If there were to be another terrorist attack of some sort, particularly if it involved anything to do with aircraft, that could obviously create another downturn for the market. But you know, short of that happening, people seem to be very comfortable again about going about their business and flying to Las Vegas periodically.

Great. Thank you very much.

Thank you, our next question is coming from Lee Westerfield of UBS Warburg.

Thank you very much. Caroline, this is on a specific tax-related question. Where are your tax deferrals at this point and your net amortizable deductions from the standpoint of intangible life? How long do those last?

Right. Let me get that for you. We have, our, as far as the net asset on the balance sheet and that covers the NOLs, I think there is probably -- let me grab that number for you real quickly. There is about $3.4 million and then on the deferred tax liability, it's about $22.7 million, and as far as the intangibles go that we are amortizing currently, I'll get that for you. It looks like it's only about -- well, we're only -- we only have D&A of around $800,000. So the book tax different, they think it's $1.3 million on a quarterly basis.

Thank you very much.

Once again, ladies and gentlemen, for any further questions or comments, please press one followed by four on your touch-tone phone at this time. Thank you, our next question is coming from Shannon Ward of AIG.

Hi, just a clarification of something you mentioned earlier. You were talking about power not being a positive contributor to revenue and BCF. Did get that wrong?

No, that's correct.

In the fourth quarter.

Fourth quarter, right.

Were there any other stations that didn't contribute BCF in Q4?

I don't really feel comfortable going through the specifics on the call. I mean. I could, we can talk markets in general and generally our markets were up over last year, but I don't really feel comfortable feel talking in specifics beyond that.

Okay. Thank you.

Once again, ladies and gentlemen, for any final questions or comments, you may press one followed by four on your touch-tone phone at this time. There appears to be no further questions or comments at this time.

Operator, thank you, and thanks to those of you who joined us for today's conference call. We look forward to having you with us once again when we announce first quarter earnings for '03 at a later day. Thank you and good morning.

Thank you, ladies and gentlemen for your participation. This does conclude this morning's conference. You may disconnect your lines at this time and have a wonderful day.