Beasley Broadcast Group Inc (BBGI) 2004 Q2 法說會逐字稿

Good morning and welcome to the Beasley Broadcast Group's Second Quarter earnings conference call. At this time, all participants have being placed on a listen-only mode and the floor will be open for questions following the presentation. It is now my pleasure to turn the floor over to your host, Denyse Mesnik, ma'am you may begin.

Thank you Shirley. Good morning everyone and we do thank you for joining us. 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 US 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 down turn of the performance of our launch 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, discussion and analysis of results of operations and financial conditions section of our SEC filings, copies of which can be obtained from the SEC website which of course is www.sec.gov or Beasley Broadcast Group's website www.bbgi.com. All information in this conference call was as of July 29, 2004 and the company undertakes no obligation to update these statements or to update expectations from prior conversation.

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, again at www.bbgi.com for 14 days after the call ends. Investors may also find the copy of today's press release on the investors or press room sections of our site. We may discuss certain non-GAAP financial measures within the meeting of item 10 as regulation SK during this call. A reconciliation of these non-GAAP measures to there most directly comparable financial measures, calculated and presented in accordance with GAAP can be found on the company's website.

And with that said, it is now my pleasure to turn the floor over George G. Beasley, our Chairman and CEO.

Thanks Denyse and good morning everyone. We welcome you to our second quarter conference call. Caroline Beasley, Bruce Beasley and Allen Shaw are also on the call today to review operations and answer any questions that you might have. Beasley Broadcast Group reported another solid financial performance this morning. Revenues grew almost 9% to $31m. We had a strong April and a very strong June with growth in high single digit to low double-digit numbers.

Now this performance was primarily driven by continuing strength in our Miami, Fort Myers and Las Vegas clusters which is on top of a very nice growth in this second quarter. This year's second quarter however we were also helped by other term of revenue growth in our Philadelphia market cluster which fro their second consecutive quarter and for the second consecutive quarter at our Florida cluster also. The growth is secular and is linked to some very specific developments in situations at our radio stations and markets. Bruce will elaborate more on this during his remarks but we're pleased with these developments as they validate some of the programs, personnel and acquisitions decisions that we've made over the past few periods.

One item which I will briefly touch on, is the growing success of our newly reformatted station in Philadelphia that we already doubled on. In May we reported some impressive numbers for the station and we won other drawing book with spring ratings which were published just last week showed that the success wasn't (inaudible) and that the station is clearly building an audience with young listeners in the market. We'll continue to promote and invest in that station as the year progresses and we'll go with a building a top three powerhouse in the 18-34 demo if you will. We've always been optimistic about our prospects and build a national economic outlook in prospects for advertising growth remains somewhat cloudy. We've never felt better about the competitive position of our station assets or the markets in which we choose to operate.

Reflecting that optimism, the Broad of Directors approved the repurchase of up to 25 million worth of these very common stock. Like our peers, we believe this is an efficient use of capital and given the equity valuation of publicly-created broadcasters today. We also believe we can pursue this goal while continuing to reduce debt and invest in our station assets for long term growth. With that I'll turn the call over to Caroline to review the numbers, Caroline.

Thank you George and good morning. For the second quarter our revenues increased 8.7% to $31m from $28.5m,.Our Miami clusters' revenues increased approximately 8% for the quarter and our Fort Myers and Las Vegas clusters were each up approximately 17%. Our Philadelphia clusters revenues were up approximately 5%. Increases at our country station in Philadelphia offset the decreases generated from WRGW and one additional note on revenues as George mentioned earlier for the second consecutive quarter our company benefited from our several clusters seeing increases in revenue of approximately 9%. Our station operating expenses as defined in the earnings release increased 8.6%. This increase is a result of increased advertising and promotion expenses in 9 of our 10 clusters, as well as increased selling expenses incurred in connection with the increase in our net revenues.

Our station operating income increased 8.9%.Interest expense for the quarter decreased 42.1% to $1.6m from $2.8m. The decrease was due to the following. A reduction of the outstanding balance under our credit facility, lower borrowing costs associated with lower leverage and the roll off of certain swabs and colors. Our effective tax rate for the quarter was approximately 40% and current taxes payable for the quarter were $80,000. EPS for the quarter was 15 cents, this compares to 18 cents last year and please note that the 18 cent included a gain on the sale of investment of $2.5m or 6 cents on an after tax basis . As of June 30, our (inaudible) senior debt was a $165m and the latest trailing 12 months consolidated operating cash flow as defined in the credit agreement with $31.4m for a leverage of 5.25 times. Cash on hand as of June 30 was $8.4m. CapEx for the quarter was $1.6m and on a year to date business we've spent $2.6m and this is primarily due to the consolidation of our studios in Augusta, Georgia.

Now going on to guidance for the third quarter as indicated in the press release we expect our revenues to increase 4% for the quarter to $30.5m. The company anticipates that WRDW in Philadelphia will start contributing to revenue growth for the first time since the format change. We also expect to see increases in revenue at our other stations in Philadelphia for the quarter. We expect to see increases in our Miami, Fort Myers and Las Vegas clusters as well. The increases from these clusters will be offset by projected decreases in Augusta, and coastal Carolina and we expect our (inaudible) clusters to be flat for the quarter. The company expects costs of services and selling, G&A combined to increase approximately 4-5% in the quarter. A large part of this increase can be contributed to increased programming and promotions cost sat our stations, including increases associated with higher sport raced speed in Miami related to the Miami Dolphins and Hurricanes.

Corporate G&A for the quarter is projected to be $1.6m. This compares to $1.3m for the third quarter of '03, and this increase is principally due to increased compensation and compliance costs associated with operating a public company. Our DNA expense for the quarter is projected to be $900,000. This compares to $900,000 from third quarter of '03 and we're projecting approximately $4m for the year. In interest expense we're projecting $2m in third quarter and approximately $8m for the year. Our effective tax rate is 40% because of existing NOL's, we're projecting not to take any federal taxes for '04; however, we will pay approximately $550,000 in state taxes for the year and we're projecting to pay approximately $150,000 in state taxes for the third quarter.

Our CapEx will be approximately $1m for the third quarter. Most of the CapEx outlay is associated with the continued consolidation of our studios in Augusta, Georgia and the standardization of our traffic software system. Additionally we will continue our build out and conversion in HD radio. This will be the guidance that you receive for third 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'll turn it over to Bruce.

Thank you Caroline, before I start with my remarks I'd like to congratulate our local management team for a job well done in the second quarter.

Beasley did out perform the industry during the second quarter through a combination of developments but mostly through solid performances all 3 of our large market clusters in Miami, Philadelphia and Las Vegas, as well as strong results in some of our midsize clusters like Fayetteville and Fort Myers. During the period our station clusters grew spot advertising revenue by 7.9% in aggregates compared to 4.8 % for our markets as a whole, and that's according to our capital. And as George said earlier there are some very specific reasons why our station clusters performed so well. First it's our Miami cluster in WQAM are reaping the benefits of the Florida Marlins, continuing success and while Las Vegas clusters reaping the benefits of a researched tourist economy and solid ratings in the fall book.

The entire For Myers market continues to outpace growth well above national trends while Fayetteville continues to benefit from the returns of some troops stationed abroad. Even Philadelphia which has under performed over the past 18 months has a very specific trend helping it. The return of national advertising growth, due in part to hiring a last year of a new national sales manager. Whether we can continue to generate results in the second half of '04 that outpaced the industry remains to be seen as factors remain beyond our control such as the health of economic recovery or the public safety levels that encourage domestic tourism but we are optimistic that performance specifically related to things we can control.such as programming, personnel and ratings should continue to bear fruit in the next six months. The 6.3% increase in local sales and 14.1% increase in national sales we saw during the second quarter are encouraging.

The strength in categories such as auto, restaurant, beverages, telecom, retail, financial services and education during the quarter are also a very positive sign. Ratings in Miami just came out yesterday and Power 96 had another stellar book. Number one in all day parts for our target demo 18-34, number one 12+ winning the beauty contest there and number one 12-17. That's one of the best books we can recall in the history of that radio station and as you may recall, this was the station on which we modeled WRDW in Philadelphia. And the most significant developed (inaudible) contributing to the strong second half finish is the growing momentum we are seeing at WRDW. In the spring waiting book the station captures 7.7share of adults 18-34 on par with the winter book and good for another top three ranking. In the last days of the book WRDW's numbers shot all the way to a 8.6 share and number one ranking Monday through Sunday 6am to midnight and that's for our target demo 18-34. We were again number one with teens and we are even making strides 12+ rising to the number 8 ranking.

The Q grew from $526,000 to $575,000 over the winter book and has quickly become the 4th most listened to radio station in the Philadelphia market. These numbers proved the station's music appeal is not a fluke. That the format has staying power and that the station continues to grow. Advertisers are starting to notice to us, as Caroline noted earlier, we expect the station to begin contributing to revenue growth during the third quarter less than a year after the initial switch. This is a very positive show of support for the station by the local and national advertisers and we haven't even begun to scratch at the surface of what's possible on a revenue basis at WRDW. With that I will turn it over to Caroline, I mean to Allen, sorry Allen.

Ok, well Caroline can do it if she'd like, (laughter).

That's ok Allen (Laughter)

Like Bruce I would love to compliment the market management, the sales management, the program directors, the sales staffs and the air staffs in Las Vegas for really doing a performance in the last several quarters that has been nothing short of exceptional and outstanding. I think we have got the best team of management and staff that we have ever had in Las Vegas. As a result our market had another, our cluster had another strong quarter of revenue growth and our three station cluster continued to grow faster than the market on a spot advertising basis. Our stations were up 15.1% versus a 7.4% gain for the Market. KSPJ, our 80's station continued to lead the cluster with a 22.3% gain in revenue which follows a 20% gain in quarter 2 a year ago. KKLZ saw spot revenues increase 13.6% while KJUL returned to growth again after a weak first quarter. The cluster also continued to increase its total share of national market revenue, growing over 65% over the prior year and growing 7.9% in; local revenue compared to 1.7 growth rate for the market as a whole. The audience levels for KKLZ and KSTJ are higher than they were a year ago on a four book average and we are very, very optimistic about continued growth for KKLZ which has been lagging KSTJ in 25-54 audience share and ranking. We believe we've got a really good situation developing there with the programming changes we have made so we look for grater audiences and greater revenue growth from KKLZ than we have seen really in about two or three years. KJUL remains very stable and still ranks number one in adults 35+ in the latest phase of the Arbitron reports and with that I will turn the call back to George.

Thanks Allen. Thanks Bruce and thank you Caroline for very excellent reports. Operator Shirley if you are ready we will now take the questions.

Thank you. The floor is now open for questions. If you have a question please press star one on you touch tone phone at this time. If at any point your question is answered you may remove yourself from the queue by pressing the pound key. Questions will be taken in the order that they are received. We do ask that while you pose your questions that you pick up your handsets to provide optimum sound quality.

Our first question comes from Drew Marcus, of Deutsche Bank.

Good morning everyone it's actually James Sticks stepping in for Drew. I have a couple topics to discuss. First in terms of forward pacing just, Caroline if you have any color on how the months are pacing you know July, how's that's finishing up and then what's August and September looking like?

The second, obviously your launch in Philadelphia is better than expected. Do you have a sense as to where it's getting it's audience share from? What other stations in the market is it taking share from? I think you originally said that that the target demo you expected to be maybe a little older than some of its competition.

It looks like given your strength in the 18 to 34 ratings, you're getting a lot of young share. I just want to know if there is any change in what your sense is as to what that station is going to develop into. And anyway you can dimension at this point what the revenue and cash flow impact of the station could be now that you're seeing it unfold?

And then the last topic is just - - you kind of related to what Clear Channel said on their call regarding reducing inventory. And - - that you know - -what impact is that going to have in your markets and then they had a statistic in there - - the 29% or so of their inventory was not generating any revenue. I want to know are there in any of your markets? You keep track of some similar statistic, you know , and what you think that might mean?

That's it guys.

Oh, is that it?

Okay. Well, let's start with the pacing and I'll give you a little bit of information. For July, we expect sum up to end up around 7%. August and September, I'm not going into specific numbers but August is pacing up as well as September but not as much as July at the time.

As far as the station share James, where RSW shares are coming from, they are coming from WPHI, WUSL and WIOQ. As far as where the station is, it's on the track that we originally had scheduled it to be on. There is no change in what we thought. If we had said something about it being an older demo then that was a mistake because our original target is adults 16 to 34 and that continues to be the target.

As far as the CCU, revenue - - sorry, inventory impact you know, I think, it's great. I mean, I followed those guys for pulling back their units. We as you well know have taken that stance from the very beginning and most part throughout our company. So, I hope that that will be a very positive impact for pricing and so forth as we move on.

As far as revenue goes, I'll let Caroline have that discussion with you about RDW impact.

Jim - - James, I guess I really didn't hear that question - -

I mean just what your sense is now that - - I mean you're up to a 4:1 share, I think in the Spring book and then you know, on to 12 plus basis. I mean, what's your sense as to how - - and obviously on the 18 to 34. I mean, how should we go about thinking of the revenue impact there? I mean, obviously it's ramping up. What do you think revenue impact is this year and how should we think about that going forward?

Well, obviously it is ramping up. I can't give you percentages at this point because I haven't gone through and done an analysis. Certainly we - - you know it's ramping up. The conversion ratio at this point is probably anywhere between a 0.2 and 0.4 and we expect that to continue to improve.

So, you know, I would just - - I guess I would look at it based on that.

And maybe a little color going forward James. The station did - - had no opportunity for annual buys in '04. We will have opportunities to be involved in all the annual buys that will be out there for our target demo.

So, that may be a little color for you there for '05.

Okay, great. Thank you.

Your next question comes from Tim Wallace of UBS. Please pose your question.

Thank you very much. Caroline you gave us numbers for the third quarter, 7% in July, which is actually quite good and then you said August and September were doing well but not as good as that.

We've heard from some other broadcasters that September is quite strong. Are you not seeing that? And if you're not seeing that, are you seeing some kind of a slow down or is this something company specific?

And then my second question would relate to the operating leverage. You've - - in the second quarter your revenue growth may turn out to be the top of the pack, in terms or radio broadcasters, but your cost are up equally, so your getting just that amount of cash flow growth.

At what point do you see your cost growth coming down so you'll start to really get the operating leverage that you top line growth would generate? Thanks.

Okay. So, we'll address September numbers at this point. We - - our national numbers - - and looking at pacing, it looks very strong in September. We do have - - we hadn't enjoyed that last year, we're not doing that this year in September. So, that could be what is impacting our September numbers compared with everyone else in the industry.

I mean, do we see a specific flow down in September? No, not at this point and you know and I think that Bruce would probably say the same things.

As far as leverage and reducing costs and what not, I would certainly expect to see in fourth quarter that our cost would become more in line and hopefully our revenues would begin to grow at a faster rate than our expenses are and we can, you know, generate more leverage toward the bottom line.

Maybe a question for Bruce, the sports rights are probably some of the reason your costs are up. How do you see the - sort of the return on that investment panning out?

Tim, we have taken a hard look at all of our sports rights fees at this point, and if they make sense to go forward we will if they don't we won't, renew that is.

Great, okay thank you.

Our next question comes from Paul Sweeney of Credit Suisse First Boston, please pose your question.

Thanks very much, good morning. First question about Vegas, Allen and George, its been such a strong market for you for a long time and I know you have your three station cluster there, what are the opportunities you think over the next twelve months- potentially, you know get bigger into that market, whether its buying a little established signal, perhaps moving something in markets. Is there any opportunity to get bigger in what's been a great market for you?

Second, Caroline, if you could just maybe give us a sense of how you're thinking about the buy-back in the context of - you know, depending on your balance sheet debt payment and so on.

Okay, Paul, regarding your Las Vegas question, it has always been our open policy to have high interest in acquiring a fourth FM in that market, we have had some conversations with existing owners, we are exploring other ways to get a fourth FM in the market and so far we've been unsuccessful in completing that, but it remains a priority and a very high interest for us to get a fourth FM and we will make every effort to do that. Whether we will succeed or not, of course is - you know, subject to conditions and whether it's possible, but that is a goal for us.

And as far as the buy-back Paul, the plan is to use free cash flow to buy-back stock, we will not be drawing down on our revolver to buy down stocks.

But where the stock is right now is - I mean do you have a preference for paying down your bank debt and reducing leverage further or is the buy-back for now, could you give us a -

I think we would - we have plans to do both.

Okay, great. Thank you.

Our next question comes from Leland Westerfield of Harris Nesbitt, please pose your question.

Thank you very much, I actually have question sin two areas, first is in Philadelphia and then turning back to Miami and also on the sports rights. To go back to your question about how well or how much revenue and potential cash flow might come out of RDW next year and in 2006, if I were to frame it this way, if I look at the clear channel urban station market, they're doing about $13 million of revenue, radio one a little bit less than that, they're about $9 million in revenue, and at this point you are looking essentially at generating some modest amount for the second half of this year, that would be - would those be the certain target ranges for annualized revenue for RDW and then if I can also ask, what expense base on a fixed base you would expect in RDW to match against that. And I have, again, one follow-up on Miami.

Okay, as far as the expense base goes I think we've laid a good promotional budget, talent budgets so forth and so on. We really don't expect our expenses to increase further at WRDW as we go forward except for sales related increases in expenses. As far as our expected revenue from that radio station on a - on going forward basis, our ultimate goal is - we believe that this radio station, and I can't tell you what year it will be in, that this radio station will out-bill WXTU, which currently is in the - around 10 - around $11 million in net revenues.

Okay. And then Miami, you - you know, you've continually retained your number one position in that market, that has been an increasingly competitive market over the last couple of years, or if you can describe - if the abatement on the competitive pricing has been taking shape and if so, is Miami one of your- is Miami driving growth, in other words growing faster than your - in the third quarter here than your overall guidance or is that still not relative to the rest your group' s cluster under pacing.

I'll let Caroline talk to you about the revenue guidance there. But as far as pricing goes when you a have a radio station such as Power 96 that has the heritage, it's been there since 1985, have had meaningful competitors over the years you know the last one almost a couple of year ago. We felt that with - in light of WMIB coming in as an urban radio station against Cox's EDR, that we would eventually see Power 96 pop out as number one in the market place purely because of more competitiveness with the 2 other stations than with our rhythmic CHR and that's what happened. Pricing continues to be strong for us at that radio station we have a tremendous sales staff, national is very strong there. So competitive pricing is not a problem for us at Power 96.

And then as far as guidance goes - we are expecting Miami to perform pretty much in line with the guidance that we have given to you today.

That's terrific and congratulations again on the Philadelphia performance with this rapid ratings upswing as we've seen for a long time congratulations.

Thank you.

Our next question comes from David Bank of RBC, please pose your question.

Thanks good morning.

Good morning.

A couple of question I guess on the success of Philadelphia has been terrific I wonder is the line between ratings and revenue in the station a little bit shorter than you have normally seen and why? Because it really does seem to be impacting results ahead of schedule. The second question is a multi-parter, can you guys talk about how the Miami, Philly and Vegas markets overall, not so much Beasley but the markets performed out of the industry and then how you performed relative to those markets in the second quarter. And are you kind of seeing a continuation of trends that would make you get specific numbers in market and stuff. Are you seeing a continuation of those kind of trends?

I'll let Caroline handle that last question but as far as -- normally rating revenue lags ratings about 6 months. I think one of the reasons that we're seeing it a little quicker is the fact that national has really done a tremendous job. They are - we hired a new national sales manager last year. We were out talking to the clients very positively about what was going on and when we jumped out of the box like we did in the winter book, every thing we had told our clients was right on target for what we believe was going to happen. So national is driving the quickness in the growth that we're seeing there and the local will catch up. As I mentioned earlier we missed all of the annual buys last year and we certainly - we should have a very good opportunity of being on those annual buys in '05.

Okay and David as far as the 3 largest markets the Miami market itself and strictly talking spot sales here was up 3%, our group of stations were up 8.5% almost 9%. Philly spot sales for the market was up 4%, our stations were up 6%. And Vegas the market was up 7% and our stations were up 15% this is all on spot sale. Going forward to third quarter I would say that Philadelphia hopefully our stations will continue to out perform the market and you know as far as Miami and Vegas go we would probably I'm just projecting that we will perform in line with the markets and that the markets will perform similar to how they preformed in second quarter. That seems to be what they are facing at this point.

What do you attribute the shift to in Miami and in Vegas? I'm sure that you know tripling the - or what ever doubling or tripling the performance were more in line?

I can't you know I can't say that we're going to double the market performance every quarter.

I think that's fair. Okay thank you very much.

Yes, you're welcome.

Once again the floor is still open for questions. If you do have a question press star one on your touch tone telephone at this time.

Operator if there are no further questions this concludes our reports. We look forward to joining you once again when we report third quarter results. Thank you and good day everyone.

Thank you this does conclude today's teleconference please disconnect your line at this time and have a wonderful day.