Beasley Broadcast Group Inc (BBGI) 2003 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Beasley Broadcast Group Inc. second-quarter financial results conference call. (CALLER INSTRUCTIONS). It is now my pleasure to turn the floor over to Ms. Denyse Mesnik, Director of Corporate Communications.

Thank you. Good morning everyone. It is nice to have you with us for the Beasley Broadcast Group 2003 second quarter conference call. The conference call will contain statements that are forward-looking statements relating to the future financial results of Beasley Broadcast Group. Listeners are cautioned that such statements are based upon current expectations and assumptions and involve certain risks and uncertainties within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Listeners should note that these statements are only predictions. They are subject to inherent risks and uncertainties and may be impacted by several factors including economic and regulatory changes, the loss of key personnel, the downturn and the performance of our large market radio stations, the Company's substantial debt levels and changes in the radio broadcast industry generally.

The Company's actual performance and results could differ materially because of these factors and other factors discussed in the management's discussion and analysis of results of operations and financial condition section of our SEC filing, copies of which can be obtained from the SEC Website, www.SEC.gov., or Beasley Broadcast Group's Website, www.bbgi.com. All information in this conference call is of August 3rd, 2003, and the Company undertakes no obligation to update these statements or to update expectations in prior conversations. 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 Website, www.bbgi.com for 14 days after the call ends. Investors can also find a copy of today's press release on the Investors or Press Room section of the corporate Website.

We may discuss certain non-GAAP financial measures within the meaning of Item 10 of regulation F-K during this 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 Website.

With all that said, it is now my pleasure to introduce George Beasley, our Chairman and Chief Executive Officer.

Thank you. Good morning everyone and welcome to our Company's second quarter conference call. Caroline Beasley, Bruce Beasley, and Allen Shaw are also on the call today to review questions and answer any questions that you might have.

We are pleased with our financial results for the second quarter given the economic and geopolitical uncertainty that ushered in the period. We are also quite pleased with our operating performance relative to the industry's performance as a whole. We began the quarter with modest expectations based on our exposure to the military markets and our past experience operating through troop mobilizations as in the Gulf War. Our expectations remain low as the quarter progressed even as we began to see revenue growth in Miami and Fort Myers markets. By quarter end, it became clear that Miami and Fort Myers contributions together with another stellar performance of our Las Vegas market cluster will nearly offset revenue declines in our military markets and in Philadelphia.

Despite these mixed top line results, we successfully grew net income and net income per share in the second quarter through a combination of onetime investment gains and continuing to focus on managing expenses and reducing our debt. Using available cash to decrease our leverage is a top priority for the Company. Since September of 2002, we have reduced our total debt by over 7 percent, brought the leverage into the 5s, and reduced year-over-year interest expense by 25 percent. Debt reduction and strengthening our balance sheet will continue to be a high priority for us through the remainder of 2003.

The outlook for the third quarter is difficult to predict. As with the second quarter, visibility is limited. We are starting to see a demand from some of our key markets (inaudible), but it remains soft in others. So our revenue guidance is again conservative, and we remain cautious about revenue prospects for the remainder of 2003.

That said, we are prudently managing station expenses and implementing steps to increase revenue growth for this company going forward. We are investing in station personnel and programming to increase ratings, and we are retooling sales personnel in select markets. So when advertising demand does pickup, as we expect it will, our Company will be positioned to benefit.

With that, I will turn the call over to Caroline.

Thank you, George, and good morning. For the quarter, our revenues increased .5 percent to 28.5 million from 28.3 million. This compares to guidance given of revenues down in the single digits for the quarter. We expected revenues in our Miami cluster to be down 4 percent; however, they had increases of approximately 2 percent. We saw larger than anticipated revenue gains at WPOW and WKIF, our two FMs in the Miami market. We had anticipated WPOW to start seeing increases in year-over-year revenues beginning in June; however, we were pleasantly surprised as they began to see increases in May.

Revenue gains generated at these stations were offset by decreases at WQAM because of the Florida Marlins. In Fayetteville, North Carolina, which is one of our military markets, our stations had revenue declines for the quarter of approximately 9 percent. Our Philadelphia cluster also had revenues decreases of approximately 3 percent, and this is primarily due to national. These decreases were offset by increases in Fort Myers of 11 percent and in Las Vegas of 7 percent over last year.

Our station operating expenses increased 3 percent to 19.1 from 18.5 million. The increases were partially due to higher expenses in our Philly market because of the increased programming and promotional expenses resulting from the new morning show that began at WPTP in March of this year. Our Miami cluster expenses for the quarter were up 200,000. This increase includes expenses related to the Marlins program rights that increased by approximately 500,000 for this quarter. These increases were offset by cost containment measures within the Miami market of about 300,000, and our station operating income decreased 4.3 percent to 9.4 million from 9.8 million. And our for the quarter were at 32.9 percent, down from 34.6 percent for the same period last year.

Our interest expense for the quarter decreased 25.8 percent to 2.8 from 3.8 million. The decrease was due to a reduction of the outstanding balance under our credit facility and lower borrowing costs. The Company sold 150,000 shares of (inaudible) stock in second quarter resulting in a 2.5 million gain on sale of investments before taxes. Our effective tax rate for the quarter was approximately 40 percent. Our current taxes payable for the quarter were 140,000. As of June 30th, our total senior debt was 185 million, and the latest trailing twelve month consolidated operating cash flow at the fund in our credit agreement was 31.4 million for a leverage of 5.89 times. Our leverage covenant with our bank 6.25 times. We do anticipate compliance with our covenants for third quarter '03 based on the projections given today. Cash on hand as of June 30th was 7.1 million. CapEx for second quarter was 400,000. This compares to second quarter '02 in which we spent 348,000. On a year-to-date basis in CapEx, we spent 670,000 compared to last year in which we spent 849,000.

Now as far as guidance goes for third quarter, we expect our revenues to be down approximately 2 percent for the quarter. We are currently looking at decreases in revenues in our Fayetteville and Philadelphia markets through the quarter. As of July 27th, based upon revenue numbers received from Miller Kaplan (ph), the Philly market is pacing down 6 percent for third quarter, national being down 13 percent and local flat. Our Philly stations account for 16 percent of BBGI's revenues in second quarter. We are looking at flat to maybe slightly down revenues in Miami with any revenue increases from power (inaudible) offset by decreases in the Marlins. Our Fort Myers and Las Vegas cluster should continue to see revenue increases for the quarter.

One other note to make, the Company's revenues for last year included about 200,000 in political advertising, and of course, we do not have any for third quarter '03. Our corporate G&A for the quarter is projected to be at 1.5 million, and our depreciation and amortization expense for the quarter is projected to be at 1 million. Our interest expense, we are projecting 3.3 million. We are projecting slightly higher interest expense in third quarter because of additional hedges the Company has entered into. Our effective tax rate is 40 percent. Because of existing NOLs, we are projecting not to pay any federal taxes for '03; however, we will pay approximately 700,000 in state taxes for the year. We are projecting to pay approximately 200,000 in third quarter. Our CapEx will be approximately 1.2 million for the quarter.

This will be the guidance that you receive for third quarter. We undertake no obligation to update this information until the next conference call. I look forward in speaking with you then. Thank you very much, and I will now turn it over to Bruce.

First of all, I am going to be adding some color to the numbers Caroline provided, but before I do that, I want to congratulate our station managers and personnel for making the best of a challenging situation during the first six months of '03. Some of our markets had it tougher than the others, but everyone pulled together and made it work, and that is the kind of chemistry that makes our company tick. Again, congratulations to our local managers and personnel. It is very much appreciated.

Caroline briefly mentioned our progress in Miami and Fort Myers. We have been working very hard in both of those markets to improve our stations over the past year. In Miami, we adjusted very nicely to the new competitive landscape there. We still have some issues with WQAM with the Marlins, but Power 96 and Kiss (ph) Country are both making great progress and have solid rating books in the spring Arbitron.

As a matter-of-fact, Power 96 is now the number one rated radio station 12 plus in Miami as well as number one 18 to 34, which is its target demo, and in that target demo, it is number one across all (inaudible). On a spot advertising basis, the Miami cluster grew by 3 percent compared to the market growing at 2 percent, and that is according to Miller Kaplan (ph). In Fort Myers, renewed focus on sales helped contribute to a 14 percent increase in spot advertising for Q2 compared to a 9 percent gain for the market. We are seeing some pricing integrity issues reemerging in certain markets like Fayetteville, which continues to deal with troop deployment overseas with spot ad revenues down 11 percent during the period and some car dealers cutting their ad buys by as much as half of the market. Pricing grew highly competitive and very promotional. As in the past, we maintain our price integrity sometimes at the expense of booking a sale, but we do believe this is the right approach to take, as higher overall rates will ultimately benefit the Company in the long run when growth does resume.

On the right front, we are taking a judicious approach to cutting costs and investing in our station properties. In Philadelphia as you know, we brought a high-profile radio name to the morning show this spring to bolster our weekday lineup. We then supported him with a television campaign to raise the show's profile. The potential for return on this type of investment could be more than offset its initial cost over time if ratings and advertising demand play out as we expect it will. Initial signs from the spring rating book were encouraging, and the revenues for the station were the highest they have been since early '02. So we are really feeling cautiously optimistic there in Philadelphia. But as with any operating strategy or decision we make, it will have to prove itself through improved cash flow.

As for general trends in our business, our stations paced slightly ahead of their markets on a spot advertising basis in Q2. BBGI was up 2 percent versus our markets being up 1 percent. On a local basis, our portfolio was up 2 percent compared to flat for the industry, and as with Q1, national sales are still not where we want them to be. BBGI was up 2.5 percent versus the markets we are in being up 3 percent. We had a 21 percent decrease in Philadelphia, and that was part of the problem.

Telecom, again, was a strong advertising category for us during the quarter comprising about 15.5 percent of our top ten advertising mix. This is up from 13.5 percent in the '03 first quarter and 10.8 percent in the year ago second quarter. Other strong categories in Q2 were retail, beverage and the lottery, while restaurant category was a little weaker.

And with that, I will turn it over to Allen.

Thank you, Bruce. For the second quarter, our Las Vegas cluster continued to show healthy revenue increases, up 7.3 percent over the prior year. The Miller Kaplan (ph) revenue report, which includes nontraditional revenue, showed our cluster up 18.3 percent in total spot revenue, while the market as a whole was up 9.3 for the quarter, so we were growing at about twice the market rate.

KKLZ had the strongest percentage gain in the second quarter, up 40.8 percent in total spot revenue helped by a strong winter 25 to 54 audience share of 4.8, up from a 3.4 in the fall. Our A/D station, KSTJ, total grew total spot revenue by 18.4 percent in Q2, helped by its continued strong 25 to 54 audience position in the market. KJUL revenues were up a little over 1 percent for the quarter, and that station has suffered some gradual audience erosion in the 25 to 54 demo, and we are now reviewing our music mix for KJUL in an effort to reverse that audience decline for the fall rating period. Overall for the first half of this year, the Las Vegas cluster has been able to increase its share of market revenue from 13.2 percent last year to 14 percent this year.

Now I will turn the call back to George.

Thanks, Allen. Thank you Bruce and Caroline for those insightful reports. I am sure some of you have questions, so operator, will you please open the line for questions at this point?

(CALLER INSTRUCTIONS). Tim Wallace, UBS Warburg.

Thank you very much. A question on your guidance. It would suggest a sequential slowdown in the third quarter from your performance in the second quarter. I understand this is just your guidance and not what you are actually going to turn in, but could you comment a little bit on why you are looking at your markets like that? And then secondly on Miami, I thought I heard you say that there is weakness there, not at your stations, but in the market in the third quarter. Maybe you could clarify how the Miami market is doing, and then maybe be more specific about how you are doing in Miami?

Okay. To start with, the Miami market and weakness in there in the third quarter, we are talking about the marlins, and we are looking at Marlin revenue being down this year's third quarter over last year's third quarter. Power and Kiss (ph) expect them to hopefully have increases in revenues, but any increases may be offset by the decreases in the Marlins.

But the market itself, how is it doing?

I think the market for the second quarter was up, I think, about 2 percent. We do not get weekly pacing in Miller Kaplan (ph), so I can just leave it at that. Bruce, unless you have something else to add?

I agree with Caroline. I think to offset the Marlins decrease in revenue, Power 96 and Miami and Kiss (ph) Country in Miami are going to have to perform pretty darn strong, and we certainly hope they will. They have done well in second quarter, and we certainly expect to see them perform well in third quarter.

But, Bruce, what is your sense of the tone of business in Miami?

The tone of business is very limited right now. It feels good. We are seeing some good things happen there, but the ads are still being placed at very short notices. But the tone feels better.

Okay.

As far as the guidance goes and us projecting a slowdown, I can just tell you that we are giving guidance as we see it today and where our numbers look today. Because advertisers are placing so much business at the last moment, it is hard for us to be any more aggressive than what we are.

Just from an anecdotal point of view, do you sense there is a slowdown going on in your markets? Maybe this is a Bruce question or an Allen question.

I will let Allen jump in, but I will take it first. I think what we said earlier is that some of our markets have got it much better off than some of our other markets, but when you take a look, it seems the northeastern quarter markets are having a slower time recovering than, say, the South Florida markets or the Las Vegas markets. So it is not across the board. Some of our markets we're seeing some pretty nice increases. Other ones, they have not gotten there yet.

Paul Sweeney, Credit Suisse First Boston.

A couple of questions. First in Philadelphia, could you give us a sense of how the morning show is doing and update on the ratings, maybe anecdotal evidence in terms of sales? Second, and I guess also just in Philadelphia, it looked like your national business under performs, so do you have an issue there on your national sales effort in Philadelphia?

Second, Caroline, expense growth picked up a little bit to 3 percent in the second quarter. Should we think about that level for the second half of the year? And then just finally on the military markets, is there any reason to expect for the remainder of the year any change there? Have you heard any significant deployment changes that might make you more optimistic or less so as you think about the military markets coming back in the back half of the year?

As far as the Philadelphia morning show goes, we are seeing -- I don't have the exact numbers in front of me right now. Maybe I can get them before we finish this conference call. But we are seeing some pretty good growth across a couple of different demos, primarily the 25 to 34 demos. We are seeing some very strong growth there, which will fall into the 18 to 34 and then the 25 to 54 ratings.

So we are seeing, as I mentioned in my comments, some positive growth there. Certainly the morning show has only been on since the middle of March, so with these new numbers that just came out a couple of weeks ago, we certainly believe we will start seeing some opportunities for growth as we go forward. Just to giving you an example, the first one is 25 to 49 in morning drive, we went from a 1.7 to a 2.9 share, so that is a pretty big percent growth in the morning show. So we are cautiously optimistic as I mentioned.

As far as national sales go in Philadelphia, we do have issues there. We have issues with both our national rep and internally, and we have addressed those issues. As a matter-of-fact, today we have a new national sales manager starting, and we are optimistic about that situation; however, national is down in the Philadelphia market, and a lot of people are diving for dollars there. So it has made it a little more difficult for us to work there, but we are addressing the opportunities and the problems.

As far as military markets go, I think people are feeling pretty good. The only thing that would create additional problems for us is the African situation, if that would escalate at all. We are seeing for example in (inaudible) and (inaudible) North Carolina, we pretty much have all our people back. Fayetteville is not quite there yet.

No. In Fayetteville at the height, they were about 40,000 troops out. Now there is still around 16,000.

Okay. So about half of them are still out. I hope that answers your question.

As far as expense growth, I did not give guidance on expenses.

I assume you are going to be spending here certainly in Philadelphia in promoting the morning show, and I cannot imagine -- there is no reason I think expenses would moderate or promotional spending would be pulled back. Is that a fair assumption?

Well, we still have our morning show in Philadelphia, and that was one of the reasons for the increased expenses in the second quarter. We still have the Marlins over in Miami for third quarter as well.

Andrew Marcus, Deutsche Bank.

Good morning everybody. It is actually James (inaudible) stepping in for Drew. I had a couple of questions. Just one I think following up a little bit on Tim's questions. If you have what your third quarter pacing were by month at the moment and what your sellout ratios are for each of those three months?

Second, could you give some color as to what your expense growth for marketing and promotion was in the second quarter just so we have some ideas as to how to quantify what you are doing for instance in Philadelphia? And then one follow-up on Paul's question, do you have an estimate as to roughly how much of your revenue comes from military markets? I understand it was around 20 or 25 percent, but if you could just give us some further color on that as to what it was in the second quarter?

I did not do that calculation for the second quarter, but I think for the first quarter it was about 25 percent. I can go back and do that and circle back with you on that for the military markets.

As far as third quarter pacing, July came in flat, and then August (inaudible) and September looking down at this point for us. Sellout rate going into August, we are at about 55 to 60 percent sold out, and going into September, I think it is around 35 to 40 percent sold out, somewhere in that range. Then the expense growth for marketing and promotion, I don't have those specific numbers broken out, but I can certainly take a look at that and get back with you.

Just one thing. Is that September number, doe you have any sense as to what that would normally be? Like this time last year, that 35 to 40 percent number, is that much different?

I have that. If you will bear with me and let me find out that number, I can get back to you. That is about the same percentage really.

Lee Westerfield, of Jeffries Inc.

Good morning. Caroline, your debt leverage is thanks to a little upset surprise in the second quarter somewhat lower than anticipated, which is nice in carrying into the third and fourth quarters, you expressed a comfort level of staying with (inaudible). Can you remind us in some detail what the step-downs are in terms of covenants? And secondly, you mentioned your interest rate hedge. When did that expire?

Our covenants step-down in September is 6 times, and it remains at 6 times through the end of the year. On March 31st, there is another step-down to 5.75 times. As far as the hedges go, the big hedge expires in November of this year. As I mentioned earlier, we did go on and enter into additional hedges last quarter.

David Bank, RBC Capital Markets.

A couple of questions. First is I was wondering if you could quantify the impact of NTR both on the second quarter this year and last year, and then how NTR plays into the guidance that you are giving for the following quarter?

And the second question is kind of a follow-up on (inaudible). But when we talked about the sellout rates, 55 to 60 percent in August, 30 to 45 for September, how much below are those compared to what you might have seen a year ago, what you might have seen in more normal times?

Actually I will add a third question, which is you indicated Fayetteville down, I think, 11 percent. I believe that was for current quarter pacing. Correct me if I am wrong, can you talk about how the other two military markets are doing in that kind of depth if you can? Thanks.

Okay. Let's start within NTR. NTR this year was about 3 percent of our total revenues. Last year it was about 4 percent. There was a reduction of around north of $100,000 in NTR for the quarter. Going forward, we are expecting NTR to be about the same level in third quarter. I think there will probably be a reduction in NTR in fourth quarter.

So it's generally not really skewing results in either direction?

At this point, no, but we will have to see what happens in fourth quarter. NTR may do results in the fourth quarter.

And then as far as the sellout rates go, the rates are about the same as they were last year. I have got a tally, and the percentages are about the same when you compare August/September this year to August/September to last year's.

May be a follow-up question for George. Generally when you are entering a month, isn't 75 to 80 more a normal at the first of the month when it starts?

I like to enter a month about 80 percent sold out, yes. When you do that, you can pretty much depend on reaching your 100 percent goal.

I think there are two different issues one should consider. You are looking at percent of budget and what you are anticipating to finish the month with, but also sellout. There are two different issues here.

One other point that I think that Caroline made a good point there is that our sellout is a little low. But the fact is used to at 80 or 85 percent you needed to go in now at 70 or 75 percent or sometimes even less you can go in with the limited visibility and the last minute buying. In a particular month, you can go in and make your goals. (multiple speakers). We are running with about 72 percent, so we are well within range of making our goals, our internal goals, for August.

You obviously did that for second quarter because the results were certainly better than the guidance. So maybe the best question is, is the sellout pretty comparable to where you were one quarter ago because clearly I think you finished ahead of budget because you really beat your guidance on the revenue side.

While Caroline looks for that, David, let me give you the color on the Augusta market. We had mentioned that in Fayetteville we were down 11 percent for second quarter. The Augusta market, we were up 9 percent, and in the coastal Carolina market, we were down 6 percent. Those are the other two military markets that you asked about.

Going back to the sellout rate, they really have been quite consistent since the end of April. So going into May, going into June and July and August, they have been quite consistent.

Mike (inaudible).

Good morning. I wanted to try to dig in a little bit more on the military markets. Can you tell me understand the discrepancy you see between Augusta being up and the other ones being down? And then, I would like to tie that in with I have heard from some other media companies that they saw big jumps in their military markets as troops came back basically with a lot of cash that they did not have any time to spend, and the advertisers wanted to try to get that. It looks like you saw them in one of your markets but not the other two.

Augusta, it does have a military base there, but certainly Augusta's economy is not as heavily dependent on the military as say a Fayetteville and Greenville coastal North Carolina. I think that is one of the reasons, and actually I think that is the main reason.

Then when you look at the Fayetteville, we have about 20,000 troops still left out based on the number of, I think it was 40,000 that were recently sent, so that market continues to be a little more driven. In the coastal Carolina market, it was not as down as bad as Fayetteville. I think primarily because we are seeing troops come back in. And we are seeing that, so other broadcasters that you spoke of we are seeing that as troops come back in. But when you have got 50 percent of the troops left out in Philadelphia, it is still not going to go gangbusters for the economy.

It is difficult to compare Fayetteville this quarter with the Gulf War, for example. When the Gulf War ended, the troops came back, and they were spending money so fast you could hardly get out of the way of it. This time with the troops trickling in, we just have not had that avalanche of spending not to this point, but it will happen.

You don't see that the advertisers are trying to get out in front of that spending now?

The main thing is when you are talking about as I mentioned in my part of the conversation, it is primarily the large ticket items like automobiles and refrigerators and those sorts of things that take the family to make that decision. Certainly a spouse is not going to make a decision to buy when her husband or wife is overseas. So it is largely the big-ticket items that are holding back the spending, and in the market like Fayetteville, automotive accounts were quite a bit part of our total advertising scope there.

Douglas Wertz, Goldman Sachs.

Just a question about the trends you are seeing in some of your markets. I was just wondering are you seeing any impact you can identify from cable in its efforts to sell advertising either locally or nationally? And in particular, anything in Comcast markets in particular that you may be seeing?

Not really. We are in Comcast where -- our company is located in a Comcast markets, and we have a cluster that we are very come close to here in a Comcast market. As they are getting some advertising out there, the rates are so darn low it is incredible. You can buy commercial for $1.00 or $2.00.

I don't see it affecting -- if you take a look at this market where the market grew, I think it was at 9 percent in the quarter. In our company, it grew at 14 percent. In a Comcast market, I just don't -- I am sure it affects some buys, but I don't think it is affecting us terribly by any means.

Kit Spring, Stifel and Nicholas.

Good morning. Present market values are still a lot higher than public values. You have had a lot of competitors raise money or competitor for that build up substantial better balance sheets. They have much lower cost of capital. My question is, have you given any recent consideration of selling the company?

In the day and age in which we live, there are companies who propose to merge with other companies. I suppose that is going to continue for a period of time. With this low economy that we have been in, there just have not been too many companies who have been motivated to do deals if you will because we think there are better days ahead.

(CALLER INSTRUCTIONS). There are further questions at this time. I would like to turn the floor back to the speakers for any further or closing comments.

Since there are no additional questions, I certainly want to thank each of you for joining us today, and we look forward to our next conference call when we will be reporting third quarter results. Thank you once again.

This does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day.

(CONFERENCE CALL CONCLUDED)