Beasley Broadcast Group Inc (BBGI) 2004 Q1 法說會逐字稿

Good morning and welcome to the Beasley Broadcast Group 2004 first-quarter conference call. At this time, all participants have been placed on a listen-only mode and the floor will be opened for questions following the presentation. At this time, it is my pleasure to introduce Denyse Mesnik. Denyse, you may begin.

Thank you. Good morning, everyone and welcome to the Beasley Broadcast Group 2004 first-quarter conference call. Before proceeding I would like to emphasize that this 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 the 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, a downturn in 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 of section of our SEC filings, copies of which can be obtained from the SEC Website www.SEC.gov or Beasley Broadcast Group's Website www.PBGeye.com.

All information in this conference call is as of May 3, 2004 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 webcast live over the Internet and that a replay of the call will be available on our corporate Website, again, www.BBGI.com for 14 days after the call ends. Investors can also find a copy of today's press release on the investor's or press room section of the site. We may discuss certain non-GAAP financial measures within the meeting 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 the Company's Website.

It is now my pleasure to turn the call over to George G. Beasley, our Chairman and Chief Executive Officer.

Good morning everyone and welcome to our first-quarter call. Caroline Beasley, Bruce Beasley and Allen Shaw are also on the call today to review operations and to answer any questions that you might have. I am pleased to report that earlier today Beasley posted the highest level of revenue for any first quarter in the Company's history as a public entity. Like many of our peers we experienced a strong demand from advertisers during the period especially in March which turned out to be a very good month.

Every market cluster, except Philadelphia and Boston, saw revenue increases over the same period a year ago. Two of our strongest markets from last year, Miami and Fort Myers, extended that strength into the first-quarter this year while one of our weakest clusters from last year, Fayetteville has appeared to turn the corner.

Given comparisons to last year's first-quarter and the general improvement in the business climate, this performance should not be surprising. There are a number of developments on which Caroline and Bruce will elaborate which should position our Company to extend this momentum into the second-quarter and even beyond. We also hope to begin transforming this revenue strength into better operating margins and cash flow growth.

Investing in our stations is something that we do throughout the peaks and the valleys of an advertising cycle. We believe it is the most direct way to improve our competitiveness and to build shareholder value. We have reaped significant rewards from that strategy in Miami and in Fort Myers over the past year and we are cautiously optimistic that we can generate a similar response from some of our recent investments like our newly reformatted station in Philadelphia, WRDW. We are very pleased with the impressive ratings progress of WRDW and the one at Arbatron which was released last week. The station vaulted to number one with teens and to number three for persons 18-34, Monday through Sunday 6 AM to 12 PM and 18-34 is our target demo. We have been operating in this market for 20 years and those who watch the market closely would agree that there have been only been a few stations over the past two decades to have improved ratings so dramatically and in such a short amount of time.

Certainly one rating book does not make a market leader but we think this station has staying power and we are very excited about these prospects. With that, I will turn the call over to Caroline to review the numbers.

For the quarter revenues increased 6.3 percent. Our Miami and Fort Myers clusters were up approximately 5 percent and 30 percent respectively for the quarter. These increases were offset partially by decreases in Philadelphia of 9 percent. Increases at our country station in Philadelphia were not enough to offset the decreases generated from the newly formatted WRDW. One additional note on revenues, our Company benefited from our Fayetteville cluster seeing increases of approximately 7 percent which is the first quarterly increase we have seen in over a year.

Our station operating expenses increased 7.9 percent and as mentioned on the last conference call, a large part of the increase is due to increased advertising expenses in our Philadelphia cluster and is related to the format change at WRGW. The remaining portion was spread throughout our clusters and divided among cost of services and selling G&A. And our station operating income increased 2.2 percent.

Interest for the quarter decreased 36 percent; the decrease was due to a reduction of the outstanding balance under our credit facility and lower borrowing costs associated with lower leverage. Our effective tax rate for the quarter was approximately 40 percent; current taxes payable for the quarter were 19,000. On February 27, the Company entered into a new loan agreement with our banks, the new credit facility consists of a revolver with a maximum commitment of 75 million and a term loan of 150 million. In connection with the new credit agreement we recorded a 2.4 million loss on extinguishment of long-term debt related to the old credit agreement. This charge impacted EPS by 6 cents net of taxes.

As a March 31, total senior debt was 168 million and the latest twelve-month trailing operating cash flow was a 30.5 million for a leverage of 5.5 times.

Cash on hand at the end of the quarter was 10.1 million and CAPEX for the quarter was 1.1 million of which 90,000 was maintenance. The remaining portion was investment and this related to primarily to the construction of the new studio building in Augusta, Georgia as well as IBOC conversion in Las Vegas. This compares to first-quarter of '03 in which we spent 270,000 in CAPEX.

Now as far as guidance for a second quarter, we expect our revenues to increase 3.5 percent. The Company anticipates that the format change in Philadelphia will negatively impact revenues by approximately 2 percent. These decreases are offset by increases in our Miami, Fort Myers and Las Vegas clusters. We also expect our Fayetteville clusters to increase for the second consecutive quarter. If you were to look at revenues excluding the format change at WRDW, then our Company's revenues would be increasing by 5.5 percent

The Company expects cost of services and selling G&A to increase approximately 4 percent for the quarter and these expensed increased are spread throughout our clusters. We expect corporate G&A expense to be 1.6 million for the quarter. This is compared to 1.4 million for last year. This increase is primarily due to increased compensation and compliance cost associated with operating a public company.

Our D&A expense is projected to be 900,000, interest expense projected to be 2.5 million and our effective tax rate is projected to be 40 percent. Because of existing NOLs, we are projecting no to pay any federal taxes for '04 and we are projecting to pay approximately 100,000 in state taxes for the second quarter of '04.

Our CAPEX will be approximately 2 million for the quarter with 1.5 million in investment and here again most of this CAPEX outlay is associated with the consolidation of our studios in our Augusta, Georgia cluster. This will be the guidance that you receive for second quarter. We undertake no obligation to update this information until the next conference call.

Thank you very much and I will turn it over to Bruce.

Before I get into the operating results, I would like to thank our managers on the local level for a great job in Q1 '04. Now let's talk about first quarter. During the first quarter our station clusters in total grew spot advertising revenue by 4.9 percent. That excludes NTR and that is according to Miller, Kaplan. As Caroline pointed out, our Miami and Fort Myers clusters were again the top performers in Q1 but just about every cluster in our portfolio, except Philadelphia grew revenue during the period so the strength is not just isolated in those two Florida markets.

As said before, even our Fayetteville cluster which suffered last year due to two trip deployments has started to see a local advertisers return to the airwave which we view as a sign that the business climate there is moving in the right direction.

As for general trends in our business, local sales rose 4.6 percent to 6 percent while national sales were up six percent. Our Miami cluster had a particularly strong national sales performance rising 13.2 percent compared to a 2.8 for the market as a whole. While Fort Myers delivered an incredible 34.9 percent increase in local sales compared to a 22.9 percent increase for the market.

As for categories, auto, restaurant, Telecom, television and movies, advertising, financial services and nightclubs were up compared to the year ago first quarter. Retail and healthcare were some of the notable category declines. I would like to talk briefly about the progress we are making in some of our large market stations. As George noted earlier, we are very excited about the progress of our newly reformatted station in Philadelphia, WRDW, or Wired as the station is called. In the first full rating book, Wired scored what we believe are some impressive numbers among listeners, leaping from 8th place to 1st place in the 12 to 17 age group. In doing so, the station beat out, previously first and second ranked stations in this demo which is no small achievement, given how long these heritage stations have dominated this music segment.

In its target demo, adults 18 to 34, Wired shot from 15th place to 3rd place overall while tripling its ratings to a 7.7 share. We are very encouraged by these developments, especially the momentum generated by the station during the last phase of the period which showed rising listenership across key day parts. We have been through this scenario before in Philadelphia. We owned WDAS in the mid-90s and made programming changes that set that station on its course to being number one. The demo we're targeting is clearly a younger, more challenging audience than the 25 to 54 listeners that we courted at the previous format, the Point. But we are in this for the long haul and we think we've found the right formula to build great radio station with a loyal audience. It is not going to happen in one or two books as George stated earlier, but we think the winter ratings put u in an excellent footing for the all-important spring rating books coming up.

Moving onto our WXTU, our country station in Philadelphia, that continues to be a steady performer during the winter book and achieved a 3.9 share in its target demo, 25 to 54 compared to a 3.8 share in the fall book.

Moving on over to Miami, WKIS, the other large market country station we operate, registered its best target demo, adult 25 to 54 rating since 1999 rising from a 3.4 share in the fall to a 4.1 in the winter and that is good enough for 9th place overall.

Power 96, a station that just continues to do very well. That is the format on which is WRDW is based, also had a stellar book, increasing its target demo 18 to 34 from a 9.5 to a 12.2 in the winter. The station was also number one an all day parts in its target demo.

With that, I will turn it over to Allen.

Thank you, Bruce. We are now turning to Las Vegas and the Las Vegas market remained strong in the first-quarter of '04. While radio revenues did not grow at the high rate of 2003, the growth does continue and our three station cluster continues to outperform the market.

On a spot advertising basis our cluster was up 10 percent versus the 6.9 percent gain for the market. KSTJ continued its torrid growth with a 32.8 percent increase which is on top of the 15.5 percent gain in Q1 of last year. KKLZ also had another solid quarter and KJUL, which is again one of the top-rated stations in the market saw some casino revenue weakness in the first quarter. We watch the casino category very closely in this market because it is the second-largest revenue generator after automotive. Casino revenue has more effect on KJUL than our other two stations because KJUL has an older demographic and they frequent casino locally very, very often.

In Q1 '04, Casino revenue at KJUL was down compared to first quarter of 03. Back in the first quarter of '03, casinos were marketing very hard in anticipation of the war in Iraq and they were trying to offset the effects of declining travel prior to that war. We expect casino revenue however to improve to normal levels later this year.

The good news also is that the audience levels for all three station remain stable and in fact if you take a four-book average of all three station this year compared to last year, we are higher on a 25-54 audience share basis on all three station than we were one year ago.

I will now turn the call back to George.

Thank you Allen, and thank you Bruce and Caroline for those reports. At this point I will ask Lynne (ph) , our operator, to please open the line for some questions.

(OPERATOR INSTRUCTIONS) David Bank with RBC Capital Markets.

A couple of questions. The first one is we understand from the press that there is a third sports station being launched in the Miami market and I was wondering if there is going to be any response from WQM or how do you view that competitor? The second question is, Caroline, this is the second or third quarter where you pretty dramatically outperformed interest expense, I guess partially due to the swaps that are in place. Is there a way that we could -- should we just kind of be factoring in the swaps in a different way to have a more accurate view of what the interest expense is going to actually come out to be?

The last question is, you guys didn't really give any operating expense guidance for the second quarter. Should we assume a normal operating conversion leverage ratio of something like 1.5 times, ex-Philadelphia or something like that? Is there some general terms you could -- a general way you could help us to think about it? I'm guessing that Philadelphia is the only thing that is pushing you down maybe in the second quarter.

I will take the first question on the third sports station. Anytime we get a competitor, we're always looking over our shoulder. However, this competitor is a small signal AM, high on the band dial. We think that it is not going to be a huge competitor for us, but we always look at competition.

Is it a class B or a class A?

It is a class A -- AM.

Okay, it is a class A -- AM Okay. Any threat do you think in terms of the Marlins franchise or anything like that or you don't really anticipate them being a player?

Like I said, anytime you have a competitor, you have to think about things. The marlins, the Dolphins those professional teams like to have a station that covers the entire market as WQAM does, and this station does not. It is about 1000 watt radio station.

Got it.

To follow up on your questions, are you finished on the other?

Yes, I think so.

Okay. As far as interest expense coming in lower than the guidance for first quarter, we did just complete a new bank deal that lowered our interest and so we did not have the impact of the lower interest in that guidance as a result of the new bank deal. Also as far as swaps going forward, we will be entering into either some swaps or collars going forward and that is primarily the reason for the higher interest rate guidance that I am giving to you. Then we are also counting on interest rates going up at some point.

Okay.

As far as expense guidance, in the script today, I did say that we expect our expenses to be at 4 percent.

Thank you, I'm sorry. Did you guys quantify what you think was attributable to Philly?

Specifically in the 4 percent?

Yes.

No, I didn't. But this 4 percent increase is pretty much spread throughout our radio stations.

When you guys do ramp up the commercial load on RDW, what kind of spot loads are you thinking about doing? We hear a lot about spot loads and the impact of how buyers think of the media these days. Are you thinking about doing anything differently when you think about how you set the spot loads up initially for the new format?

Right now we are running a maximum of eight units per hour. We don't see ourselves running any more than 10 to 12 as we move forward.

Okay. Thanks very much.

Tim Wallace of UBS.

Caroline, your guidance for the second quarter suggests, I think it suggests a sequential slowdown and maybe you could remind us what the year-over-year comps you went against in the first quarter versus the second quarter and talk a little bit about why you are seeing a sequential slowdown? And maybe to expand on that, could you talk a bit about how April came in and what you are seeing for May and then June and then maybe you could incorporate in that discussion what pricing looks like these days in the radio business? Thanks.

Just to generally discuss the sequential slowdown, in doing an analysis of our markets as I said earlier today -- I mean our Fort Myers cluster was up over 30 percent for the first quarter. We feel at the Company we cannot expect increases of 30 percent on a quarterly basis going forward. In addition to that, our coastal Carolina market was up quite dramatically as well and it has been up in the high single digits over the last several quarters. So we expect that that market will start seeing some gradual growth, not major slowdown but more gradual growth.

That is really the reason why we are projecting the revenues to be slightly lower than where we were coming in in first quarter. In addition to that in the second-quarter of last year our markets were up and we were up on a spot basis 3 percent last year versus on a spot basis of 1 percent for first quarter of last year.

What about second quarter?

Second quarter of last year, our stations were up on a 3 percent on spot.

Were up 3 percent, so second quarter, I'm sorry -- is it a tougher comparison then?

It is tougher.

How does April, May and June -- how are they developing.

April, we were happy with the way April turned out, that was similar to March. I would say in the high single digits. May, what I can tell you is that going into May we are about 80 percent of our budget and in the old days of radio, as I had mentioned to someone else earlier today, if you go into a month at 80 percent, you are feeling pretty good. We are going into June at about 60 percent of where we are telling you. So here again if you go back to the old days, if you go into a month 80 percent and the following month is 60 percent, then you are feeling good about that.

So on pricing, are you seeing sequential pricing increases?

We are in certain markets, Tim. It is not across the entire platform, but certain markets are seeing some pricing strength and price strengthening.

Where is pricing these days versus a year ago?

It is up, it is up. Again, in certain markets it is up, it is certainly not down and the markets that are not seeing an increase. So I think there is a positive trend there.

Is it up better than inflation?

I would say right along with inflation.

Okay, very good. Thanks a lot.

(OPERATOR INSTRUCTIONS) Leland Westerfield with Harris Nesbitt.

I have a couple of questions. The first would be for Bruce. Philadelphia, this may turn our attention back to the short (indiscernible) of WRDW but can you sequence for us how January, February and March trends went in the key 18 to 34 figure so we can have a picture about how that station progressed during the quarter? Carolyn, could you refresh us on your bank covenants -- sorry, your covenant restrictions?

Let me give the covenant restrictions, basically the leverages is 6.25 and that will be through this year. As I said earlier, our actual leverage is 5.5 times.

I'm gathering this information for you so if you will bear with me.

I know it is a fine print point, but the fine print here I think is rather interesting.

No problem, if you will just bear with us for a minute or so.

Paul Sweeney of Credit Suisse First Boston.

Bruce, while you are looking for that information, just again trying to get a little color on Philadelphia. Obviously a great start out of the blocks. Was there any stunting on your part or on the station's part in terms of commercial free time or anything unusual supporting that book, number one? Number two, how did the trends look coming out of the one winter book as you come into the more important spring book from the trends?

And three, give us a sense of what kind of competitive response you would look for in this market fairly competitive market. You had a great first book, just give us a sense on what kind of competitive response? And finally, when do you expect this station to contribute to the growth rate of revenue and cash flow, Caroline?

We really did not do any stunting at all. The advertisers that we had on the air that chose to stay in the beginning stayed so we did not go any commercial free. We did however, start in spring with some -- excuse me --in January with cash giveaways and then in March which really doesn't reflect this winter book, we started our outside advertising. So I think to answer your question, to help to see how we are going to vault into spring, I think the first full phase of spring will actually have an effect of our outside advertising because prior to that during most of this winter book we did not have any outside advertising. It was just pretty much word-of-mouth. So that is encouraging to us.

As far as the competitor response, obviously there have been some responses from the other radio stations but what we saw with this particular format is that we were going to go right between where our competitors were. We felt that if they reacted too extensively, that it would be a format change for them. So as far as the competitive nature goes it is there. There is a huge amount of dollars that these three radio stations have, that we are going to attempt to take away from. But we still feel comfortable about the legs that this particular format has.

How should we think about the timing in terms of the station contributing to the Company's revenue and cash flow growth?

I think that we can look at fourth quarter -- last year fourth quarter is when we changed the format, so that should be the low point last year fourth quarter. I am saying fourth quarter this year.

Thank you very much.

Lee, back to your question. When looking at phases, January phase we had a 7.7, 18 to 34; February we had a 7.1, 18-to 34. And then as our advertising kicked in, we had than an 8.7 in March, 18 to 34, giving and us overall book of 7.7.

Drew Marcus of Deutsche Bank.

Beasley has been an innovator in implementation of HD radio and in trying to maximize value out of AM's. Looking forward, do you see AM's out there that might be attractive from a return on capital perspective? Are you getting any early read on how your HG (ph) experiments are going?

I don't think we are getting any early read on how the experiments are going simply because the receivers aren't there to receive this. There are a few but not enough to make any significant difference. (multiple speakers) will happen until we have some cars that are equipped with these radios. I believe that is supposed to happen with the '05 models, some of the '05 models.

George, how about as far as -- now that you have had it up and running for a few months, the single quality, have you done tests on that and how it is working indoors versus outdoors, things like that?

We have done some checking on it and monitoring. The quality, if you've got a set to receive it is superb, but if you are just listening on the analog band, the service is basically the same as it was. I don't really see any difference in it.

Has your appetite for buying AM's?

My appetite for buying AMs is pretty good, if you could find the good high power stations in large markets. But there aren't so many of those out there now. The prices of AMs are escalating. And they are not so easy to come by. There just isn't much of the market at this point.

Thank you very much.

Tim Wallace of UBS.

George, in terms of long-term goals and strategic vision, I guess one alternative is to grow the Company. I mean do you feel that the size of your Company puts you at a competitive disadvantage, particularly as we see you reformat stations and the impact that has on your numbers. The question is, are you looking at your leverages coming down this year and next year you will probably be in a position to do acquisitions? Are you looking at acquisitions actively at this point or are they are other alternative that you're taking a look at? Thanks.

We are beginning to take a look at acquisitions. As you know, in today's world it is not an easy process. Sometimes you work on these things for as much as a year or two before they happen. And also we tend to keep an open mind in so far as all of our options are concerned.

In terms of the acquisitions you would be looking at, would these be large market FMs or are you pursuing a different strategy?

We are looking to fill in some existing holes that we have in some of our present clusters and we are also looking at a couple of clusters that are outside the markets in which we presently own stations. Again, these would be situations that might take a year or 18 months to come about, or they may never come about.

What kind of leverage would you be comfortable with to do something like this? Or would this require potentially selling stock?

Well, as far as leverage is concerned, obviously we are certainly a lot more comfortable when our leverage is down below 5.5 times. At some point it may be necessary if we were to find the cluster that we really wanted or clusters, it may be necessary for us to do a secondary. As you know, we haven't done a secondary up to this point.

Okay, thank you very much.

Bobby Melnick of Terrier Partners.

I wanted to make sure I understand what you said. Did you say that in Fort Myers your cluster was up 30 percent revenues and the market was up 22 percent?

Yes, what we said is that the Fort Myers market was up 22.9 percent while our cluster was up 34.9, that is in local sales.

34.9. Can you help me -- I don't want to overly weight one market but was that radio growth -- I'm sorry I'm naive -- I'm not fully informed on the market -- was it that you were taking share from newspaper? Was it overall market growth? In other words, were other media in the market growing 23 percent or was there something extraordinary about 2003 or what? Can you just help me to understand why that's such a dynamic growth market?

I think it is too early to tell what we did to other median's because we just don't have that information at this point, but I think if you look at the growth in this market by itself, it is one of the top five counties in American with leading Collier (ph) County in population growth, the median prices at homes have risen pretty dramatically. It was named in the top 25 Best Places to Breathe Air, sort of thing. First quarter is certainly a tourist park for Fort Myers and the attitudes here are just incredible. This market is just a tremendous place for people to live, to visit and building is just out of sight here. The construction industry is growing. The attitudes are positive. It is just a tremendous market basically.

Okay, thank you very much. That is remarkable growth.

There are no further questions at this time. I would like to turn the floor over to Mr. Beasley for any closing remarks.

Thanks to each one of you for joining us today. We look forward to next quarter when we will be reporting second-quarter results and we bid each one of you a good day.

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