Beasley Broadcast Group Inc (BBGI) 2003 Q3 法說會逐字稿

Good morning, and welcome to the Beasley Broadcast Group third-quarter financial results teleconference. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions 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. It's very nice to have you with us on the Beasley Broadcast Group 2003 third-quarter conference call. Before proceeding, I would like to emphasize that this 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 that 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 of 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 conditions section of our SEC filings, copies of which can be obtained from the SEC web site, which is www.SEC.gov, or Beasley Broadcast Group's web site, www.BBGI.com. All information in this conference call is as of November third, 2003, and the Company undertakes no obligation to update these statements or to update expectations from prior conversations. I would also like to remind listeners that this call is being Web cast live over the Internet, and the replay of the call will be available on our corporate site, www.BBGI.com for 14 days after the call ends. Investors may also find a copy of today's press release on the "Investors" or "Press Room" section of our web site.

We may discuss certain non-GAAP financial measures within the meaning of Item 10 of Regulation SK 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 our Company's web site. And with all of that said, it is now my pleasure to turn the floor over to George G. Beasley, our Chairman and Chief Executive Officer.

Thank you, Dennis. Good morning, everyone, 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 to answer any questions that you might have.

The third quarter marked yet another period of steady progress for our Company. Our revenue grew at a modest 2 percent, overcoming what continues to be a challenging economic and advertising climate. We saw good growth in our Miami, Fort Myers and Las Vegas market clusters, as well as Greenville/Newburn market cluster. But certain military dependent (ph) markets like Augusta and Fayetteville continue to struggle with the effect of troop deployments on the local economy.

Despite a few challenges and some distractions, we remain squarely focused on improving this Company's competitive position. To that end, we continue to make what we believe are key investments in our largest markets like Philadelphia and Miami in order to stay competitive. We're also scrutinizing every aspect of our operations and sales to programming to promotions, to generate maximum efficiency from our business model.

Lastly, we remained focused on using cash flow to reduce debt and improve this Company's balance sheet. In the first nine months of 2003, we have reduced long-term debt by over 10 percent. We look to build on that accomplishment further in the quarter ahead.

This will come as no surprise to some of you, but the outlook for the upcoming quarter is again difficult to predict. While the economic picture appears to improve every day, we do not yet see a rising tide situation, if you will; (indiscernible) pushes (ph) advertisers to book inventory far in advance of broadcast schedule. Additionally, we will have to work through several market-specific issues in the fourth quarter that could hinder our year-over-year revenue performance. So our revenue guidance for the fourth quarter is again conservative. However, I would caution listeners that it is early in the quarter, and a lot could happen between now and December 31st to help us generate better results.

I want to close by briefly thanking those of you who attended our HD Radio Demonstrations at the NAV show in Philadelphia last month. Our Company has always been a firm believer in the power of new technology, to transform the radio experience, starting with FM way back in the '70s through today's HD format. That's why we were early investors in ubiquity and why we have a aggressively equipped most of our radio stations in top 20 markets with HD radio technology. Today, over 15 percent of this Company's radio stations have been converted to video. We believe this to be a prudent investment, as our industry continues to embrace digital. With that, I will turn the call over to Caroline.

Thank you, George, and good morning. For the third quarter, revenues increased 2 percent to 29.4 million from 28.8 million. This compares to guidance given of revenues down 2 percent for the quarter. We expected revenues in our Miami cluster to be flat; however, we have increases of approximately 2 percent. This increase is partially due to the success of the Marlins. Our Philly stations revenues were flat for the quarter, which is up from what we projected due to a NTR (ph) concert event in the month of September, and increases in local, offsetting any decreases in national. The Company also saw revenue increases in Fort Myers, Las Vegas and coastal Carolina. Our Fayetteville market continues to experience revenue declines.

Station operating expenses, as defined in the earnings release, increased 2.8 percent to 19.9 million from 19.3 million. The increases were primarily due to increased program light (ph) speeds associated with the Florida Marlins. And our station operating income was flat at 9.5 million. Our SOI margins for the quarter were 32.3 percent, down from 32.9 percent for the same period last year.

Interest expense for the quarter decreased 20 percent to 3 million from 3.8 million. The decrease was due to a reduction of the outstanding balance under our credit facility and lower borrowing costs, resulting primarily from lower interest rates. The Company sold 50,000 shares of (indiscernible) stock in third quarter, resulting in a 1.2 million gain on sale of investments. Our effective tax rate for the quarter was approximately 45 percent. Current taxes payable for the quarter were 180,000.

Our credit agreement prohibits us from having a total debt to consolidated operating cash flow ratio greater than 6-to-1. As of September 30th, total senior debt was 176 million, and the latest trailing 12-month consolidated operating cash flow, as defined in our credit agreement, was 31.4 million, for a leverage ratio of 5.6-to-1. We anticipate compliance with our covenants for our fourth quarter based on projections given today. Cash on hand as of 9/30 was 7.7 million. CapEx for the quarter was 545,000, of which 229,000 was maintenance. This compares to third quarter of '02, in which we had CapEx of 1.6 million, of which 171,000 was maintenance. Year-to-date for '03, we've spent 1.2 million in CapEx, of which 528,000 was (ph) maintenance, compared to year-to-date '02, in which we had spent 2.4 million, of which 730,000 was maintenance.

Now as far as guidance goes for fourth quarter, as indicated in the press release, we do expect our revenues to be down up to 5 percent for the quarter. In the fourth quarter of last year, the Company generated approximately 1.1 million in NTR revenues from our Chili-Cook-Off Concert Event in Philly; this will not be held this year. Also last year, the Company generated approximately 500,000 in political advertising. These decreases in revenues are partially offset by increases generated from the Florida Marlins' appearance in the playoffs and World Series.

Also, we continue to expect decreases in revenues in our Fatbo (ph) cluster due to the continued deployment of troops in Iraq. And as of October 26, based upon revenue numbers received from Miller-Kaplan, the Philly market is pacing down 2 percent for the fourth quarter; national being up 2 percent, and local being down 5 percent. And we are projecting our Las Vegas cluster to be flat to down because of political advertising in fourth quarter '02.

As far as corporate G&A for the quarter, we are projecting 1.5 million. This expectation is due to anticipated increases in legal and other expenses related to compliance to Sarbanes-Oxley. And we estimate corporate G&A to be approximately 5.6 million for the year.

Our D&A expense, we are projecting 1 million for fourth quarter, and approximately 4 million for the year. And interest expense, we are projecting 3.1 million, and approximately 12.1 million for the year. And we are projecting an effective tax rate of 40 percent for the fourth quarter. 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; and we are projecting to pay approximately 300,000 in state taxes for the fourth quarter. And our CapEx will be approximately 1.2 million for the quarter, with about half of that in investment.

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 look forward in speaking with you then. Thank you, very much, and I will turn it over to Bruce.

Thanks, Caroline, and good morning, everyone. I'm going to try to add some color to the numbers Caroline just provided. And let me start by reviewing some of the core numbers. But before I do that, I would like to congratulate our general managers and their teams, because on the whole, our station clusters outperformed overall revenue growth in their markets, registering a 2.7 percent gain versus a 1.5 percent gain for the markets on average. And that's according to Miller-Kaplan. Four of our seven markets, and that includes Miami, Las Vegas, Fort Myers, and Greenville/Newburn, registered positive revenue gains of 3 to 13 percent. And for the three station clusters that saw declining revenue during the quarter, two still managed to fall less than their markets overall.

A couple of very positive station developments continue their pace in the third quarter. Revenue in the Miami cluster was up 3 percent compared to a flat growth for the market; and that's based on strong spot advertising performance at WKIS, our country station, and WPOW. Also in the summer, Arbitron book, WQAM, registered its highest numbers in years, due in part to the success of the Marlins as well as some realignment of our own staff. So we're hoping to see improvements in the station's performance in the periods ahead.

Fort Myers and Greenville/Newburn also registered nice gains, rising over 8 percent and 6 percent respectively. And Fort Myers, national in the market, increased over 26 percent, but our station cluster grew national sales by 41 percent.

On the expense front, we continue to take a judicious approach to cutting costs, and investing in our station properties. In Miami, as Caroline noted, we shouldered $0.5 million increase in programming rights fees associated with the Florida Marlins baseball club during the period, as well as an increase in other programming and promotional expenses. And as you can imagine, we are as thrilled as anybody, I guess that is outside of New York, about the Marlins' success this year. We're hopeful that the excitement generated by the team will translate into sustainable community support for the franchise in the years ahead. So we view our relationship with the team as an investment in the future.

As for general trends in our business, the Company's local sales rose 3.4 percent compared to a 1.1 percent increase for our markets while national sales were slightly ahead of breakeven compared to a 2.5 percent gain in our markets. This development bucks the industry trend of national sales outpacing local sales in '03, and that's according to the our eating to the RAB.

I don't know that we are doing anything different in terms of the sales process, but I can say that because of our midsize markets, we have always prided ourselves on strong relationships with local advertisers through good times and bad. I think that focus is paying off as we operate through these uncertain times.

As for categories, auto, restaurant, beverages, retail, education and financial services -- we are up compared to the second quarter while telecom, television and movie advertising, (indiscernible), casinos, and clubs were down. And with that, I will turn it over to Allen Shaw.

Thank you, Bruce. For the third quarter, our Las Vegas cluster continued to show healthy revenue increase. The Miller-Kaplan revenue report showed our cluster up 13.1 percent in total spot revenue, while the market as a whole was up 5.3 for the quarter. On a local sales basis, our station cluster revenues grew 3 percent during the period compared to no growth for the market.

On a national basis, our station cluster revenues grew 79.1 percent during the period compared to 32.9 percent growth for the market. These revenue improvements again helped our Las Vegas station cluster increase its share of market revenue up to 14.3 percent from 13.3 percent in the third quarter of last year, according to Miller-Kaplan.

Overall in the Las Vegas and southern Nevada region, the strengthening economy, low unemployment and new job growth have been driving the economy. The hotels and casinos are beginning to build new facilities. Many of the largest hotels are actually adding on new tower room facilities to accommodate the demand for hotel rooms in that market. This has had a very positive effect on the local economy. And supporting services that accompany that kind of growth, of course, help shore up office vacancies, they boost retail sales and create jobs across the region. The health-care industry has also been getting into the act as they build facilities to accommodate the rising population of senior citizens who now represent 11 percent of Clark County's total population. So we are cautiously optimistic about the station clusters' prospects in the periods ahead. And with that, I will turn the call back to George.

Thank you, Allen. Thanks, Bruce, and Caroline for your reports on third-quarter results. Operator, would you please open the line for questions?

Thank you. (OPERATOR INSTRUCTIONS). Our first question is coming from Jason Helfstein of CIBC World Markets.

You already answered my question in your prepared comments. Thank you.

Our next question is coming from David Bank of RBC Capital Markets.

Thanks. Two questions. Good morning. First, Caroline, can you give us a sense of what the incremental revenues and expenses are from the Marlins and postseason play in the fourth quarter? And second -- actually there's three questions -- second, since local was a relative pocket of strength for you versus the rest in the industry, are you still kind of -- are you seeing -- what is the trend you're seeing in local going into the fourth quarter? And last, can you just give a little bit more color on what percentage of revenue Las Vegas contributed during the third quarter since it was so -- such an incredible driving force?

Sure. I will answer a couple of those, and then as far as the local trend and fourth quarter, I'm going to lob that over to Bruce. But as far as the percent revenue that Vegas contributed in the third quarter, they contributed -- it looks like about 10 percent of the Company's revenue in the third quarter.

And then as far as the Marlins go -- looks like -- as far as (indiscernible), it appears that we are going to have maybe about $0.5 million increase in revenues for the fourth quarter as a result of the Marlins. And you know, maybe 4 to 500,000, maybe, in expenses.

Okay.

And David, as far as the local fourth-quarter trends go, obviously, as George mentioned earlier, we are still having low visibility. However, we are still continuing to see regional differences. For example, our South Florida markets are pacing nicely. But in some of the other regions we're in, they are not pacing as strong as is the South Florida market. So I guess the answer to your question is, we're still seeing regional differences in pacing.

Okay. But where it was strong, is it staying strong?

It seems to be.

I mean, you know, strong is a relative term in this market.

Right. Where it was performing better, it still seems to be performing that way.

Okay. Thank you.

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

Good morning, everybody. As you start to look into '04, obviously, we've seen -- this year, we've seen sluggish results despite the economic (indiscernible) improvement. What sort of business practices are you going to put in place in '04 to try to get things started again? Are you adding certain salespeople in certain areas? Are you doing other things to jump start revenue, looking into next year?

Well, Drew, this is Bruce. We've been adding a lot of salespeople to our Company this year, in anticipation of an economic upturn. You know, we're starting to go in our budgeting process beginning this week as a matter of fact. And we're going to be looking to all types of revenue increases throughout our Company, whether it's through regular spot sales, local and national, through NTR events, where it makes sense; even, we're looking to the Internet, to help us increase our topline revenues.

Okay then just as a follow-up, one category people are looking to be a big new category here is a mobile number (ph) portability. Have you seen any ads placed with regard to that, that should kick in late November?

Yes, we've seen that through our national ad placements.

Do you think that's going to start fourth quarter? Or maybe that would have to wait until the first quarter to start?

We're seeing it in fourth quarter.

Okay, great. Thank you, very much.

Our next question is coming from Paul Sweeney with CSFB.

Thanks, very much. Good morning. Just a couple of questions. On the non-traditional revenue -- I know you're not doing that event in the fourth quarter -- does that reflect any type of strategy of you guys on how you are thinking about NTR? Is that something you're going to deemphasize as a longer-term strategy? Second, could you just update us on the morning show in Philadelphia; I know that was a big edition a couple of quarters ago. And then Caroline, just in the fourth quarter, do you have kind of pacings by month? Is there any trend developing in the quarter once you get past the politicals? Are things firming up at all in the fourth quarter? Thanks.

Let me go ahead and take the NTR question first, Paul. The reason we didn't do this Chili-Cook-Off, as Caroline explained earlier, is because it was a contrary-based show. And Philadelphia had a tremendous amount of country shows coming into its market this year, whereas it just did not make sense for us to go out and invest the kind of money that we did last year when the visibility for country artists wasn't there. We still believe that if NTR events will allow us to make money, produce results for our advertisers, we're going to continue to do that as a long-term strategy. And we have quite a few of those -- I'm believing we're going to have quite a few of those in our upcoming '04 budget. As far as the point (ph) morning show, we continue to see some good -- what we believe are some good signs. Our research continues to show this morning show will produce results for us. And they are cautiously optimistic that the investment that we put in the show is going to pay off.

And Paul, as far as pacings, I'm not going to get too specific on that. But obviously for October, our revenues were down for the month, primarily because of the NTR event in Philadelphia. If you were to exclude the NTR, then we would have had an up month. And that was partially due to help fund the Marlins playoff. November and December, they are just pacing down. And I don't really want to comment anything additional to that.

Okay, thanks, very much.

Our next question is coming from Richard Rosenstein of Goldman Sachs. Richard, your line is live. Our next question is coming from Lee Westerfield with Jefferies.

Thank you, everybody. Good morning. Sorry I joined in a little bit late. You may have answered this question. But I heard (indiscernible) comments about the Philadelphia market in general terms. But what should we expect as far as the cost omission (ph) in the fourth quarter as a result of the cancellation in the NTR in Philadelphia? And then I have one follow-up regarding competition in the Miami market.

The cost of NTR, as far as revenues, was 1.1 million. And expenses, it was around 800,000.

Okay. And then in Miami, if you can elaborate on what you are seeing in terms of market -- price competition, or promotional cost competition in that market? And has that stabilized at this stage?

Lee, Miami is one of the markets that we've been fairly pleased with what we're seeing going on there. Our stations, you know, are strategically positioned; and ratings have been really good for us, particularly with WQAM and this last summer book that just came out. We're seeing some tightening in pricing in that market. But that is only specific to that market.

That is encouraging, Bruce. Thank you, very much.

I would now like to turn the floor back over to Mr. Beasley for any closing comments you may have.

Well, thank you, and thanks to everyone for joining us today. We look forward to our next conference call, when we will report back to you with year-end results. Good day, everyone.

Thank you. This does conclude today's teleconference. Please disconnect your lines at this time, and have a wonderful day.