Beasley Broadcast Group Inc (BBGI) 2003 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Beasley Broadcast Group's first quarter financial results conference call. 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. I would now like to turn the floor over to your host, Denyse Mesnik. Ma'am, the floor is yours.

Good morning, everyone. Thank you for joining us today for the Beasley Broadcast Group 2003 first quarter conference call. Before proceeding, I would like to emphasize that this call contains statements of a forward-looking nature, relating to the future events or the future financial results of Beasley Broadcast Group. The company undertakes no obligation to update these statements or to update expectations from prior conversations. Investors are cautioned that such statements are only predictions and that actual events or results may differ materially from them. In evaluating such statements, investors should specifically consider the inherent risks and uncertainties which could cause actual events or results to differ materially from those indicated from such forward-looking statements. Including economic changes, unforeseen media events that would cause the company to broadcast commercial free for any period of time, changes in the radio broadcast industry generally and other such matters set forth in Beasley Broadcast Group's report and documents filed from time to time with Securities and Exchange Commission. I would also like to remind listeners that this call is being web cast live over the Internet and that a replay of the call will be available on our corporate web site www.bbgi.com after the call ends. Investors can also find a copy of today's press release on the investors or press room sections of the web site.

We may discuss certain non-GAAP financial measures within the meaning of item 10 of regulation FK during the call. A reconciliation of these non-GAAP measures and their most directly comparable financial measures calculated and presented in accordance with, GAAP can be found on the company's web site. With that said, let me please now turn the floor over to George G. Beasley, our Chairman and Chief Executive Officer.

Thank you, Denyse. Good morning. We welcome you to our company's first quarter conference call. Caroline Beasley, Bruce Beasley, and Allen Shaw of the company are also on the call today to review operations and answer any questions that you might have.

Our financial results for the first quarter were released earlier today. I hope by now you had some time to review them. The net revenues in the quarter were down slightly from the year ago period. This was primarily due to lower revenues at our Miami, Fayetteville, and Greenville clusters. Though we were expecting the worst at some of our mid-sized markets located near military bases due to the war in Iraq, spot advertising was actually better than we originally anticipated in certain markets like Augusta. Some advertisers canceled the day that the hostilities began, but they were back on the air in a few days. Other advertisers just delayed their schedules into the second quarter. The net result was a manageable scenario, not unlike what other broadcasters experienced during the quarter. The bright spot in our portfolio is our Las Vegas cluster, which continues to benefit from tourism and a decent local economy, defying national trends. Our Philadelphia cluster also continues to outperform its market, especially at WPTP, which continues to build station brand and rapport with local advertisers.

Looking forward, the outlook for the second quarter remains tenuous. The business climate is not robust. And demand from advertisers can be apparent one week and fleeing the next. Visibility is very limited, so our guidance, once again, is conservative. We'll keep doing whatever we need to do on our station level to remain competitive, whether it's managing costs or investing in our stations. We'll do what it takes to build on the value that we've created in this company. And we're going to position the company for prosperity in the periods ahead. With that, I'll turn the call over to Caroline. Caroline.

Thank you, George. I'd like to start off by saying that we did exceed previous guidance given in all measures for first quarter '03. On a same station basis, for the quarter, revenues were down .9%, and station operating income was up 1.6%. This does compare to guidance given of revenues down up to 3% and station operating income down up to 5%. We expected our Miami cluster to have lower revenues due to the lower number of units being played at power and the absence of playoff revenues at WQAM. We were also projecting decreases in our military markets due to the uncertainty at the time of war. For first quarter, we saw better than expected spot revenue in our Las Vegas market, as George just mentioned, and our military markets. We had projected our military markets to be down 8%, and they were actually down 4%.

And our expenses on a same station basis for the quarter decreased 1.8%. The majority of the decrease results from the absence of program rights associated with the Miami Dolphins not making the playoffs. Our corporate G&A for the quarter was up 13.3% to $1.4m. This was up from $1.2m last year. This is due to increased insurance and legal and compliance expenses associated with stocks. Interest expense for the quarter decreased 23.3% to $3.1m from $4m. The decrease was due to a reduction of our outstanding balance under our credit facility. Our effective tax rate for the quarter was approximately 40%, and current taxes payable for the quarter were 44,000. As of March 31st, total senior debt was $192m, and our latest trailing 12-month consolidated operating income, as provided in our press release was $31.7m, for a leverage of 6.05 times. Our leverage covenant with our bank was 6.5 times, and we do anticipate compliance in our covenants for second quarter '03. Cash on hand as of March 31 was $9.4m. Our CAPEX for the quarter was 270,000. This compares to 501,000 for the first quarter of '02.

As far as guidance goes, for second quarter, first, I would like to apologize for not being able to provide you with more concrete guidance. It's a very tough environment to project currently, as many of our peers have commented over the last several days. So as indicated in the press release, we expect our revenues to be down in the mid-single digits for the quarter. We are projecting our Miami cluster to be down over last year, resulting from lower sports revenues associated with the Marlins and competitive issues at Power. It appears that in June, assuming the market holds, Power will finally have a lower spot unit anniversaried, and the station should start seeing increases in revenues. Also, we're looking at decreases in revenues in our Fayetteville and Philly markets for the quarter.

Our corporate G&A for the quarter is expected to be approximately $1.5m. Here again, this increase is due to increases in insurance and increases in legal and other expenses regarding compliance. Our D and A expense for the quarter should be approximately $1m, and this compares to $1m for last year, second quarter, and we are projecting $4m for the year. Our interest expense for the quarter, we're projecting $3.8m. Our effective tax rate is 40% because of existing NRLs, we are projecting not to pay any federal taxes for '03. However, we will be paying approximately $550,000 in state taxes, and we are projecting to pay approximately 100,000 of that in second quarter '03. And our CAPEX will be approximately $1m for the quarter.

This will be the guidance that you receive for second quarter. We undertake no obligation to update this until the next conference call. And with that, I will turn it over to Bruce.

Thank you, Caroline. We've certainly covered a lot of ground already today. So I'm going to try to keep my remarks brief. Since Miami was the primary source of revenue and expense trends during the quarter, I'll start with this cluster. As we anticipated, the absence of the Miami Dolphins playoff game in '03 and lower year over year inventory comps once again affected our revenue comps in the first quarter. As we look out over the second quarter, the picture may improve. The winter Arbitron ratings in our demographics were neutral to positive. At WPOW it remained at number one in its target demo, adults 18-34. While WQAM, our sports station, built its share of men, 25 to 54.

Also want to speak briefly about our Philadelphia cluster which once again outperformed the market this quarter. While market revenues were flat in Q1, our cluster was actually up 1% on the strength of local, being up 15%. And WPTP was up 40% on a local basis. We also picked up a combined .3 rating share points in adults 25-54 demo during the winter Arbitron ratings book, which should keep the clusters competitive in the periods ahead. We also have a new morning show on air at WPTP, and will be promoting that show on TV in the spring ratings as we move forward. We are very excited about this day part. We attracted a well-known radio personality in Philadelphia to host our morning show. So far, the feedback has been very positive.

As for general trends in our business, I think our portfolio is holding its own on a local sales basis, with our company up about 3%, and that's in line with the industry. It’s national, which are down 4.9%, compared to a 3.1% increase in our markets. That's providing to be a challenge for us. But we are taking some steps internally to correct this problem.

We did not see a major shift in advertising categories during the quarter. Our biggest category remained auto at about 22% of total revenues during the quarter. This year increased about 2% from fourth quarter in the overall revenue mix. Other categories increasing share in the mix include Telecom which grew about 1% from the fourth quarter and restaurant, whose share also grew about 1%. Retail is our second largest category, about 14% of the mix. But it was essentially flat over the fourth quarter.

Before I turn the call over to Allen, let me address second quarter pacings and provide some color on our second quarter guidance. Our station portfolio was pacing slightly up in April, even with the war and economy-driven advertiser concerns. May and June are pacing down. And as of April the 27th, for example, the Philadelphia market based on numbers received from Miller Kaplan was pacing down 14.1% for Q2 '03. National being down 11.8, and local decreasing 15.5%. So you can see why we're guiding cautiously in this climate as we look ahead. And with that, I'll turn it over to Allen.

All right. Thank you, Bruce. The cluster revenue in Las Vegas again, grew at a 20% + clip during the first quarter compared to a 9.8% growth rate for the market overall. Every station in the cluster contributed to this gain from 130% increase in national revenue on KKLZ to a 23% increase in local revenue for KSDJ. The Las Vegas economy appears to be defying gravity to some extent. Jobs are growing again in the state of Nevada. The tourism economy has seen some effects and some concerns about travel. But occupancy levels really are remaining fairly solid. There's new construction now on the books and beginning everywhere. As we've noted in the past, this kind of market, where a rising tide lifts all boats, occurs, and we're certainly seeing that again. Our cluster is growing faster than the market, and these gains have helped us recapture some of our market share.

Nearly .5 percentage point of revenue share in Q1 on top of a full percentage point last year. The winter Arbitron ratings report shows classic rock KKLZ moving up 4.8 share 25-54 from a 3.4 share in the fall. This is the highest rating, 25-54 for that station in a year. The '80s music station KSTJ remains strong, 25-54, although it is off from its initial launch year numbers. And KJUL, our standards music station, remains stable. As in Philadelphia, we will be running a television advertising schedule for two of our stations KSDJ and KKLZ in the upcoming spring rating book. With that, I'll turn it back to George.

Thank you, Allen. And thank you, Bruce, for your reports on operations. And thank you, Caroline, for your report on financial. Operator, would you please open the line for questions at this point.

Certainly. The floor is now open for questions. If you have a question or a comment, please press the number 1 followed by 4 on your touch tone phone at this time. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. We do ask that while you pose your question, that you pick up your hand set to provide optimum sound quality. Once again, to ask a question, please press the number 1 followed by 4 on your touch tone phone at this time. Our first question is coming from Drew Marcus from Deutsche Bank Securities. Please go ahead with your question.

Good morning, everybody. It's actually James Dix stepping in for Drew. I appreciated the color that you gave, Bruce, on the Philadelphia market in terms of the pacings, even though they were kind of negative. Wanted to know whether you had any other market pacings for the April, May, June quarter or any of the months of it, for instance, in Miami and Las Vegas just for the markets. And then, secondly, I guess if you could give any color as to what type of expenses -- expense increases you're seeing for the second quarter, any particular items we should be taking note of. For instance, like TV campaigns in Las Vegas and Philadelphia and anything in the comps from second quarter last year that we should be aware of.

James, the reason we were able to give Philadelphia as an example is because we did have a weekly pacing report provided by Miller Kaplan in that market, and we don't have that in any of our other markets, and I'll leave that at that.

As far as the expenses go, as we mentioned in our -- both Allen’s and my -- comments, we are doing television in Philadelphia and Las Vegas, and I think, with the new information we've been provided that we can talk about, I think that's about all I can go on that matter with you.

Any sense as to what the expenses could grow in second quarter?

Well, I don't think that we're going to give that --

Go down that road?

Uh-huh.

Okay. Thank you.

Thank you.

As a reminder, if you do have a question or a comment, please press the number 1 followed by 4 on your touch tone phone at this time. Our next question is coming from David Bank from RBC Capital Markets. Please go ahead with your question.

Thanks a lot, guys. Nice job.

Hi. Thank you.

I have a couple of questions. I guess the first one would be for Caroline. On the interest rate, I thought your guidance for interest during the second quarter was, if I heard it right, $3.8m, which is about what I was looking for the first quarter, and you came in at $3.0m. I was sort of looking for what the difference was there between the guidance in 2Q and that 1Q number.

And just a couple more quick questions. The first one was wondering if you seeing – you know, we're now into May, and the May sweeps, people talk about that as a big driver on the TV side for radio. Are you seeing any impact from May sweeps? Are you -- I guess, can you talk about how your performance, you think is, versus the markets during the second quarter, which I know you're not going to be able to answer, but I have to ask it anyway.

And the last question is can you guys talk about, you know, anything in particular you're looking at in terms of maybe station swaps or other kinds of transaction? Is there any conversations that have happened recently or anything you're thinking about?

Okay, David. I'll start with the interest rate question and then --

And then someone else will not answer the others?

Well, we can probably address May 3.

David, I'll tell you that TV is advertising on radio during the May sweeps.

Yeah. And it seems that most of the business has been placed for the May sweeps.

So it's reflected in those pacings that you talked about?

Right.

That is correct.

As far as the interest rates guidance, the differential is I'm going to have to hedge a large portion of our debt, and I will probably do that shortly. So I was just, you know, accounting for the increase. If I do not get that done in the second quarter, then certainly our interest rate, assuming interest rates do not go up, will be closer in line to first quarter. But I was including in my numbers a hedging arrangement that I'm looking at entering into.

And was that also the assumption, when you gave 8% guidance last quarter, did that include that hedging assumption as well?

Yes.

Okay. Thanks.

You're welcome.

Thank you. Our next question is coming from Paul Sweeney from Credit Suisse First Boston. Please go ahead with your question.

Thanks very much. A couple questions. First, just, Bruce, on the Miami market, as you begin to cycle through the unit issue, is it fair to think that your cluster can kind of grow with the market or is there anything else unusual in your market or your stations, either contract-wise or anything on the expense side that might lead you not to perform at least in line with the market?

Second, on the military markets, as you suggested, it wasn't necessarily as bad going into and during the war. Could you give us a sense of how you expect those markets to fare now that we've come out? Do you expect any pop in those markets or perhaps not since they didn't necessarily weaken up going into the war? And last, just on the Philly morning show, I know it's a big deal in that market. When did that talent go on the air? What trends -- when can we start looking for the trends? When do you expect to see some impact from that show? Thanks.

Thanks, Paul. First, I'll talk about Miami. You know, I fully expect, as we anniversary the spot comps in June, which is the tail end of second quarter, that, you know, we should see Power. We should see KISS, our country station, at least growing with the market. However, the Marlins on WQAM aren't performing as well as we would expect. So that may affect our overall Miami cluster of growing with the markets. Also, when we talk about the military markets, I think one of the reasons that we didn't see as high of a decrease as we expected is because the military quite frankly, asked the families to stay in their particular markets so they could pretty much keep an eye on them. Now, if we give you some light on how the troops are coming back, in Fayetteville, I believe there are 22,000 troops out in both Afghanistan and Iraq. They're expecting about 1,300 of those troops to be home by the middle of May. So they're trickling in. They're not all coming back at once, as I think we all know. Some positive news for us. Once these people get back into the markets, is that there is what's called combat pay, and there is a lot of different levels of combat pay that these soldiers will be paid above and beyond their normal salaries. And some of that money may already be in the market because soldiers are required to have direct deposits. Now, obviously, they're not going to make any big purchases because you don't normally do that without one or the other spouse around.

In our Philadelphia morning show we started that, I believe it was in the second week of March. We are getting a little bit of an idea of what it's looking like. If you take a look at the last phase of March for WPTP. But we fully expect to really make a determination of how well we're doing there with the full spring book that will be out, I guess, sometime later in July.

Great. Thanks very much.

As a final reminder if you do have a question or a comment, please press the number 1 followed by 4 on your touch tone phone. Our next question is coming from Shannon Ward from AIG. Please go ahead with your question.

Good morning. You mentioned that you're holding your own on local and that national is harder. Can you talk about why you think that's happening?

Well, obviously, when markets are down, whether it's a local or a national market, you know, if you're fully clustered in a market -- for example, Philadelphia's primarily what's driving down our national, as a company overall. You know, we have two FMs there while you've got Infiniti and Clear Channel there with five FMs and certainly going for share in a down market. So I think that really is the major concern is Philadelphia in particular.

You think that's because of the clustering strength of your competitors in that market?

I think that's something that has to do with it. I think there's some internal things we're looking at in Philadelphia right now that may also have something to do with it.

Also, you said pacing -- April was pacing up, and May and June down. I'm assuming that means April was actually booked already, and that means that April actually did do ahead of last year. Is that right? I mean, since we're already early May.

Right.

And May and June down to what degree? Can you give me some sense?

We're not giving guidance on that.

And, lastly, you said that the ratings at KKLZ up pretty significantly, looks quite good. I'm assuming that's responsible for the outperformance in that market?

Certainly KKLZ's improving ratings are creating, yeah, outperformance from expectations for the station. But, quite frankly, Star has also sort of outperformed our riginal expectations.

Where is KKLZ rated now -- or ranked, sorry, in the demo?

Al, I think they're ranked eighth for adults 25 to 54.

Yes, you’re right.

I don't know what men is. I don't have that information with me.

I don't have the breakout on men/women. It's a little stronger in men than women. But it’s eighth overall 25-54.

And how is that versus the fall? You said it was a 3.4 rating? Where was it ranked then?

I believe, I don’t have the data in front of me, but as I recall I think it was 11th or 12th. I don't recall exactly.

I have men 25-54 here, and for the fall, KKLZ was 4.1, had a 4.1 share. And for the winter book, they went up to a 6.2.

They're ranked number 4 in men 25 to 54.

For winter.

Yes.

Fantastic. Thanks very much.

Thank you.

Ladies and gentlemen, there appear to be no further questions in the queue at this time. I would like to turn the floor back over to the presenters for any closing remarks.

Well, since there are no further questions, we want to thank you for joining us today. And we look forward to reporting second quarter's results to you on our next call. Thanks again. Good day.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Have a wonderful day.