Beasley Broadcast Group Inc (BBGI) 2003 Q4 法說會逐字稿

*** This call was edited without the benefit of audio.

Welcome to the Beasley Broadcast Group fourth quarter conference call. At this time all lines are placed on mute. I'll turn it over to your host, Denyse Mesnik.

Thank you. Good morning. We thank you for joining the Beasley Broadcast Group 2003 fourth quarter conference call.

I would like to emphasize this call will contain statements that are forward-looking statements relating to the future financial results of Beasley Broadcast Group. Listeners are cautioned such statements are based on 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 and are subject to inherent risks and uncertainties and may be impacted by several factors, including economic and regulatory changes, the loss of key personnel, a downturn in the performance of our large market radio station the company's substantial debt levels and changes in the radio broadcast industry generally. The company's 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 www.SEC.gov or our website www.bbgi.com. All information is as of March 3 2004, and the company undertakes no obligation to update the statements or update expectations from prior conversations.

I would like to remind listeners this is being webcast live over the internet and a replay will be available on our corporate website at www.bbgi.com for 14 days after the call ends. Investors can find a copy of today's press release on both the investors and press room sections of our website. We may discuss certain nonGAAP financial measures within the meaning of item 10 of regulation FK during this call. A regulation of these nonGAAP measures and comparable measures kal lated and presented in accordance with GAAP can be found on the company's website. Again, we thank you for joining us.

It is my privilege to turn the floor over to George Beasley, our Chairman and Chief Executive Officer.

Thank you. Good morning. Welcome to our company's fourth quarter conference call. Caroline Beasley, Bruce Beasley and Alan Shaw are with me today to review operations and answer questions you might have. 2003 was a mixed year for Beasley and the radio broadcasting industry generally. We started the year with high hopes, hopes of building on our gains from 200 it, but the war in Iraq changed the advertising landscape dramatically. As the year progressed, our station clusters near military bases never seemed to regain their momentum. Advertisers in general grew fickle about media budgets and spending plans. Even signs of an improving economy weren't enough to move our company or the industry, for that matter, toward a full recovery in the fourth quarter. I think our company responded well to these challenges.

We made a few sales management changes and saw improved ratings in some of our key markets as our programming investments began to pay off, and contrary to the trend reported by RAB, local sales at our company rose 2.1% in '03 compared to a flat performance in our markets and the industry as a whole. We attribute the success to our strong belief in supporting our host communities with local programming, promotions and participation in local charity and community events. An uncertain advertising climates, we believe this level of community involvement creates strong relationships with local advertisers. This is true in our midsize markets, true in our largest markets, which actually saw the best local advertising performances during 2003.

All of our employees are to be congratulated for their hard work that they contributed to this company in '03. Another positive outcome from last year was a progress we made toward strengthening our balance sheet. Paying down long-term debt was a major priority in 2003. I think we made good progress in that endeavor. We're still not where we want to be in terms of leverage, but economic and advertising industry trends continue on pace we'll look to continue reducing debt and leverage in 2004.

With that, I'll turn the call over to Caroline to review the numbers.

Thank you, George. Good morning. For the quarter, revenues decreased 1.7% to 32.1 from 32.7 million. Our Philadelphia cluster was down 1.5 million for the quarter approximately 25% of this decrease resulted from the format change at WRDW and the majority of the remaining decrease resulted from one of our stations not hosting an NTR event this year compared to last. The cluster continues to be down due to the continued deployment of troops in Iraq. On a spot basis, that market was down 7% compared to our cluster being down 5%. These decreases were partially offset by increases in our Miami and Fort Myers clusters, which were up 9% and 19% respectively on a spot basis. Approximately half of the increase in Miami was from incremental revenue earned during the Florida Marlins world series run. Station operating expenses increased 1.8% to 22.5 from 22.1 million. These increases resulted from increased program rights, partly associated with the Florida mar lens appearance in the playoffs and world series.

There were also severance expenses at WRDW from the change in format. Station operating income decreased 9.1% or 1 million to 9.6 million. This decrease is primarily due to the change in format at WRDW. Interest expense decreased 38% to 2.3 to 7.3 million. It was due to a reduction of the grout standing balance in our credit facility and borrowing costs. Our effective tax rate was approximately 40% with current taxes payable for the quarter being 80,000. On February 27, the company entered into a new loan agreement with our bank. This agreement provides greater flexibility and our financial covenants and extends the majority of our debt to 2011. The former credit agreement prohibited us from having a total debt to consolidated operating cash flow ratio greater than six to one. As of 12/31, total senior debt was 170 million and the consolidated operating cash flow was 30.5 million for a leverage of 5.7 times. Cash on hand as of 12/31 was 7.7 million.

Cap ex for the quarter was 352,000 and on a year-to-date basis we spent 1.6 million. Now, as far as guidance goes, the first quarter as indicated in the press release, we expect revenues to increase 1% to 24.7 million. The company anticipates that the format change in Philadelphia will negatively impact revenues by approximately $600,000. These decreases are offset by increases in our Fort Myers, Greenville and Las Vegas clusters. The company expects Miami, Fayetteville and Augusta to be flat. Given the times in Fayetteville we are pleased to be pacing flat for the quarter, which is the first time we've seen this in quarterly pacings in over a year. Just to note, if you were to look at revenues, excluding the format change in the company's revenues would be increasing by 4% for the quarter. The company expects costs of services to increase approximately 1.3 million in the first quarter.

These increases are primarily a result of increased programming, advertising and promotion expenses in our Philadelphia and Miami clusters. Approximately half is associated with the change in format in Philadelphia. Our corporate G&A is expected to be 1.55 million for the quarter and approximately 6.2 million for the year. G&A, we're projecting 900,000 for the quarter and approximately 4 million for the year. Interest expense, we're projecting 2.5 million and approximately 10 million for the year. In the first quarter, the company will record a loss on extinguishment of debt of 2.5 million. Our expected tax rate of 40%, because of existing NOLs currently we're projecting not to pay federal taxes for '04. However, we will pay $550,000 in state taxes. We're projecting to pay $100,000 in state taxes for first quarter of '04. Cap ex will be approximately 1 million for the quarter with about half of this in investment capex. Most of the capex outlay is associated with the consolidation of studios in our Augusta, Georgia cluster. This will be the guidance that you receive for first quarter. We undertake no obligation to update this information until the next conference call. I like forward in speaking to you then.

With that, I will turn it over to Bruce.

Thank you, Caroline. Good morning, everyone. Before I get started, I, as George, would like to thank our local management team for a job well done not only in Q4 but for the full year of '03. During the fourth quarter our clusters outperformed their markets registering a 3.5% gain versus a 1.4% decline for their markets on average. That's according to Miller-Kaplan.

As Caroline pointed out, Miami and Fort Myers clusters were the top performers in Q4. For the full year we grew 2.4% versus a 1% in the markets we serve. In addition to the Miami and Fort Myers markets doing well, our Las Vegas cluster turned in a great performance growing spot revenue 11.4% versus a 5% increase for the market as did our Augusta cluster, which was slightly up versus 9.7 decline for the market. Even though some of our midsize markets located near military bases had a challenging year, what made a difference were two factors.

Number one, strong local sales and the continuing performance of our Miami cluster. As George pointed out, local sales are all about relationships, and Augusta's performance last year is a great example of how those relationships can help a cluster when external factors as troop deployments can affect the market. Miami had a great year and continues to exceed its budgets. Our country station did much better on the sales front in '03 compared to 02, as he haved by 6% gain in local sales during the year. I want to talk about Philadelphia. Given its impact on Q4 and Q1 guidance, I want to help you better understand the rationale for the format change in Philadelphia. Three years after reformatting, we were making decent progress. Our programming strategy had had some successes, forcing a direct competitor to leave a format. At the end of the day, we saw music opportunity that we felt was being ignored. It was just too promising for us to pass up.

So the new format at WRDW modeled on power 96 in Miami, features a sound that we believe is more mainstream than any other sound on the Philadelphia wear waves. It targets adults 18 to 34, the crossover audience in the area. Our goal is to capture a portion of the combined 30 share held by the top three urban/oriented markets in the area and we think [indiscernible] says can be sustainable. We're proud to announce we have seen some successes in the 1 to 17 audience, which is how a power 96 first got its start. In phase one extrapolated of the winter book trends, we captured a [indiscernible] share in this segment for a number two ranking in our formats target demo 18 to 34 we dap tured 8.3 share and a number three ranking which nipped at the heels of our two closest competitors who also had eight plus shares. Just to show how far we've come, we rose to 517,000 listeners in phase one compared to 268,000 during TTP's last full book. I would like to add that we're seeing a much broader advertising response than we saw through the launch of the point with [indiscernible] nightclubs, fast food and beverages expressing interest. We're about the possibility of this new station and look forward to reporting back to you on our progress.

Before I wrap up my remarks -- I would like to wrap up by outlining some of the internal operating goals for '04. This year, we are renewing our focus on accountability and cost management. Last year, our cost of services increased, which was partly a result of higher broadcast fees in Miami. As always, we will continue to examine our cost structure to see if we're running the company as efficiently as possible. We're not looking to cut strategic expenses but will boost the product lift of our sales force. The goal is to improve margins from revenue increase we might see throughout the year.

With that, I will turn it over to Allen Shaw.

Thank you, Bruce. Talking about Las Vegas now. In the fourth quarter, revenue for the lag Vegas cluster performed in line with the market. We were down 2.7% on a spot basis versus 2.8% negative for the market. We were up against some pretty tough comp from a year ago fourth quarter when the market grew 21% and our clusters grew 44%. Part of the 2002 gain was driven by political advertising which totaled nearly $28 million statewide during that election cycle.

For the year, the cluster did grow 11.4% as was mentioned earlier versus the 5% growth rate for the entire market, leading to an overall $700,000 revenue increase over 2002 levels. The best performer of all of our stations in quarter 4 was KSTJ, our '80s music station which grew nearly 20% on both a local and national sales basis during that quarter. We're proud of what the station and sales staff has accomplished since switching formats three years ago.

Ratings wise, KKLZ, which we've been working on for a number of months to try to improve its 2554 position did rise in the fall book to a 4.4 share among adults 25-54, that's up from three four one year ago. KSTJ remains in fifth place and KJUL, our standard station we've been trying to improve in the 25-54 area, did rise to a 2.5 share 25-54 in the fall compared to 1.3 share one year ago. With another election season approaching this year in Las Vegas and with visitor levels getting stronger for the market, we're optimistic about the station's cluster prospects for the year ahead.

With that, I'll turn the call back to George.

Thank you, Allen. Thank you, Bruce, and Caroline, for those reports. Operator, at this point, I will ask you to open the line for calls.

Thank you. The floor is open for questions. If you have a question, press the number one, followed by four on your touch tone phone. If at any point your question is answered, you may remove yourself by pressing the pound key. Questions will be taken in the order they are received. We do ask while you pose your question, you pick up your handsets to provide the best sound quality. Please hold while we poll for questions. Our first question is calming from Paul Sweeney of Credit Suisse First Boston.

Good morning. Thanks very much.

Good morning.

Two questions. One, in the first quarter, Caroline, are you seeing any acceleration throughout the quarter, presumably a comparison from last year, vis-a-vis the war, you would presumably mathematically see some acceleration throughout the quarter. Is it continuing into April? Bruce, in Philadelphia, obviously, a big segment to go over, 30% of the market is going urban or CHR. Are you seeing any material or unusual competitive spots from some of those leading players that might cause you to have to either tweak what you're doing or spend more to launch your format? Thanks.

Okay. Just to respond to your first question, Paul, it does seem like that there is an improvement in the first quarter month over month at this point. Then going into April, while we're not getting guidance on full year and touching on second quarter, I think the general outlook as far as for second quarter, we're somewhat optimistic at this point.

Paul, as far as the competitive response in Philadelphia goes, as I've mentioned in the call, we felt like we had found an opportunity that was being ignored. As far as the response action, we haven't seen much except a couple of step one station knee jerking about a week and going back to its regular programming. So we don't believe this year we're going to have to do anything beyond what we have budgeted in promotional activity to continue the strong performance that we're seeing in this radio station as of the first trend of the winter book.

Thanks very much.

Thank you. Our next question is coming from Drew Marcus of Deutsche Banc.

Good morning. It is James Dix stepping in for Drew. In terms of local versus national growth, if you could give some color as to how that has been trending in the fourth quarter and want to see whether you can confirm that going forward for the locals. Bruce, you mentioned you're going to be focusing on operating expense control for 2004. If you could just go through any types of more specific items of expense which you're going to be facing, for instance, in terms of the roll-out of the Philadelphia, how much expense you will incur there potentially in terms of any sports rates increases, specific types of items which you know you're going to have to budget against and watch out for.

Okay. As far as local versus national, James, in the fourth quarter I can tell you what our stations did on a combined basis versus the market. You can see what the result is there. Local, our stations were up 1% and the markets were down 3% and nationally our stations were up 15% while the markets were up 2%. January, which we have received the Miller-Kaplan for the only month we have received Miller-Kaplan, at this point. Locally for our stations, they were down 3% nationally we were up 8%. Our marketing locally were down 2% and up 2% nationally as well. I think the general trend going forward for the first quarter is that, you know, February -- there again, we haven't received Miller-Kaplan. It soms that national seems to continue to be somewhat strong in February. However, local seems to be a little stronger in March than national, which probably goes with the trends that you've been hearing from everyone else.

And as far as the operating expenses and what we're reinvigorating ourselves to this year, as I said, we're looking at controlling non-strategic expenses. As far as RDW goes, our budgets are in place. We're looking at probably an increase. There will be an increase of about 1.5 million throughout the radio station, including promotions through all departments. The sports rights fees should increase about $500,000 this year over last year, and those are contractual increases that we have budgeted for internally throughout the year. As far as the non-strategic expenses we're looking at, you know, it is -- it is across all departments and looking to maybe about a 2% of our entire expenses that we're looking to trim throughout the year.

Thank you.

Our next question is coming from Jim Boyle of Wachovia.

Good morning. The increase you're seeing in Q1 is it mostly just ease -- is it comps or partly business is actually firming up a little?

Well, you know, I think it is a little of both, Jim. Some of our markets, as I think in most broadcasters, some markets are better than others. I think it is a little of both. For example, in the Fort Myers market, it's on fire. You know, you can't get out of the way of business. So pricing is moving forward nicely. The demand is there. Then you may look across one of our other markets where the demand is not as strong and, you know, you continue to have to price a little bit on that.

Okay. Not to point out that all of you aren't exactly spring chickens anymore, but you're all veteran, gone through cycles, a lot of potential and real head fakes. Is there anything sales chatter from the trenches that suggests this isn't another potential head fake?

Well, from my perspective, in talking to the trenches every day, our local management team, they're very cautiously optimistic. We may see a week or two where things slow down, but then it pops right back. Most of our general managers are not spring chickens either, Jim. They have been through these cycles before and understand what to expect and not expect. Hopefully, this is not a head fake. Only time will tell.

Finally, ad rate cutting by the big two aggravated 2003. Is it any better or worse in 2004, in your markets?

I don't see it being any worse.

Okay. Thank you.

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

Thank you. Good morning.

Good morning.

A couple of questions. First of all, should we expect to see the return of the NTR event, the country event, in Philly in 2004. Two other questions. Can you clarify the incremental revenues that you got from Marlins post-season play and the expense impact of the Philly reformat in the first quarter? I think you said it was about half of 1.6 million, if I got it right.

Yeah. I'll take the Philly NTR. Our plans, David, are not to do that again in '04.

Not to have the NTR event.

Just like we did not have it in '03. We won't is have it in '04.

As far as the revenue increase for the Marlins, we saw about $500,000 to $600,000 increase in revenues. However, these revenues were offset by expenses. That dollar amount said there were was no increase in SOI as a result of the Marlins going to the playoffs and the world series. Then as far as the format change impact on expenses in the fourth quarter, that particular station's expenses increased about $700,000 for the quarter with about, you know, 400 or 500 of that related specifically to the format change.

Okay. In the first quarter, should that be kind of similar?

The first quarter, we're looking at that station's expenses increasing about a half million dollars.

Okay. What quarter does -- do the expenses start to ratchet back?

I think that you would see them start to ratchet back in third quarter and fourth quarter.

Okay. Thank you very much.

Increase dramatically.

Thank you. Once again, it is one followed by four for any questions at this time. Please hold as we poll for questions. Once again, one followed by four for any questions at this time.

Operator, if there are no other questions, I think each of -- I thank each of you for joining us today. Until next quarter when we report our first quarter results we bid you a good day. Thank you.

Thank you. This does conclude this morning's teleconference. You may disconnect your lines and enjoy your day.