Beasley Broadcast Group Inc (BBGI) 2004 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Beasley Broadcast Group fourth quarter and year-end financial results conference call. [OPERATOR INSTRUCTIONS] It is now my pleasure to turn the floor over to your host, Director of Corporate Communications, Ms. Denyse Mesnik. Ma'am, you may begin.

Thank you, Holly (ph). Good morning, everyone. We do thank you for joining us as we report our 2004 fourth quarter and year-end results.

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. 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” 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.bbgi.com. All information in this conference call is as of today, February 9th, 2005, 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, that's www.bbgi.com -- for 14 days after the call ends. Investors can also find a copy of today's press release on the investors or press room sections of our company site.

We may discuss certain non-GAAP financial measures within the meaning of Item 10 of Regulation FK during this call. A reconciliation of these non-GAAP measures with their most directly comparable financial measures calculated and presented in accordance with GAAP can be found on the company's website.

With all of that said, it's now my pleasure to turn the floor over to Caroline Beasley, our CFO.

Thank you, Denyse. I'd like to welcome everyone to our conference call this morning. After my remark, Bruce and Allen Shaw will provide a quick overview of the operating highlights for the quarter.

For the quarter our revenues increased 4 percent. Our Philadelphia cluster's revenues increased approximately 28 percent and we benefited from significant increases at both our Country and Rhythmic CHR stations. We also continued to see double-digit growth in our Las Vegas cluster and our Fayetteville and Ft. Myers clusters were up, with Fayetteville seeing increases of 13 percent and Ft. Myers increasing 9 percent.

Our Miami cluster's revenues decreased approximately $1 million and this is due to the absence of revenue from games played in 2003 that were not played in 2004.

The 4 percent revenue increase for fourth quarter compares favorably to the minus 2 percent guidance given on the third quarter conference call. This positive variance was generated by better-than-expected performance in our Augusta, Ft. Myers, Miami and Vegas clusters. Political was a factor in the increase, with the company receiving approximately $1.1 million in political advertising in the fourth quarter. This compares with approximately $600,000 in political advertising received four years earlier during the last presidential election.

Our station operating expenses decreased .5 percent and this decrease is primarily due to lower costs associated with the sports teams in Miami not playing games in 2004 compared to 2003.

And our SOI increased 14.3 percent.

Interest expense for the quarter decreased 23.5 percent and this is due to a reduction of the outstanding balance under our credit facility, as well as lower borrowing costs associated with lower leverage. Our effective tax rate for the quarter was approximately 41 percent and current taxes payable for the quarter were approximately $1.4 million.

As of 12-31 our total senior debt was $159 million and the latest trailing 12-month consolidated operating cash flow was $33.3 million for a leverage of 4.77 times. And we had cash on hand as of 12-31 of $14.85 million.

CapEx for the quarter was $678,000, with all of this with maintenance and on a year-to-date basis we spent $3.9 million in CapEx, of which $1.7 million was maintenance.

Moving on to guidance for first quarter, we are projecting our revenues to increase 3 percent for the quarter and a large part of this increase comes from our Philadelphia cluster. We're projecting our station operating expenses to increase approximately 4 to 5 percent and this increase is primarily a result of our continued investment in programming and promotions at our stations.

We're projecting corporate G&A to be $1.65 million for the quarter and approximately $6.6 million for the year. D&A expense we're projecting $850,000 for the quarter and approximately $3.4 million for the year. Interest expense we're projecting $2 million for the quarter and approximately $8 million for the year. And our effective tax rate is projected to be 40 percent. We do have deferred tax expense of approximately $1.3 million per quarter, so that's about $5.2 million annually.

And our CapEx will be approximately $1.15 million for the quarter with $500,000 in investment and the investment CapEx relates to our continued conversion to HD radio, as well as one of our stations is constructing a new tower. And we are projecting to spend approximately $4.2 million for the year in CapEx.

This will be the guidance that you receive for first quarter. We undertake no obligation to update this information until the next conference call.

Thank you and I'll turn it over to Bruce.

Thank you, Caroline. The first quarter, as well as the entire year of '04, were pretty successful periods for the Beasley Broadcast Group. We extended our growth streak to four consecutive quarters. We were extremely proud of this accomplishment and every one of our markets should be congratulated for a job well done.

For those of you watching industry numbers from the Radio Advertising Bureau, our 4 percent revenue growth in Q4 outpaced the industry growth of 1 percent and for the full year we grew revenues 7 percent, more than 3 times the industry rate of 2 percent.

Numbers being what they are, this 4 percent growth actually fell short of the 8 percent growth measured in our markets by Miller, Kaplan. This statistical-- the statistical quirk, however, is due, as Caroline noted, to the absence of certain football and hockey games broadcast at WQAM in Miami during the quarter that occurred in '03 but not in '04. All-in-all, our Miami cluster actually had a pretty good start to the quarter and we think we will bounce back in '05 and for the full year our station clusters performed in line with their markets on a Miller, Kaplan basis at just over 6 percent annual revenue growth.

Following up Caroline's remarks, we had some very solid cluster performances that contributed to the 4 percent revenue growth in the fourth quarter. In particular, we were very excited about the progress we are marking in Philadelphia with WRDW and the strong advertising demand we continue to see in mid-size markets such as Ft. Myers and Fayetteville.

On a company-wide basis, local sales actually declined in Q4 by a percentage point or two and that's due, in some part, to the situation in Miami, while national sales grew 17 percent based on outstanding growth in markets like Las Vegas, up 47 percent; Ft. Myers, up 40 percent; and Philadelphia, up 46 percent.

A quick look at some of the category performances in Q4 would bear this trend out. Beverages, retail and financial services were all up significantly during the period, while some of the more traditional local categories such as auto and restaurants were not.

As for ratings, we are very excited about some of the fall Arbitron numbers. In Philadelphia, WRDW continues to establish its presence in the market and was again one of the top 3 radio stations in its target demo, adults 18 to 34, while in Miami, WPOW regained its top ranking among its target demo, 18 to 34, while WQAM had a good book, posting a number two ranking for men 25 to 54, its target demo.

Looking out to the first quarter of '05, we are bullish on our prospects, as Caroline noted. We think our Philadelphia cluster will continue to improve its financial performance as WRDW enters its second full year of operations. We've added some new sales personnel there and continue to attract new advertisers. So we think there is-- there is room to build on our achievements.

We are also cautiously optimistic about the prospects for the Miami cluster, as well as our other clusters in BBGI.

Now with that, I'm going to turn it over to Allen for him to talk in more detail about Las Vegas.

Thank you, Bruce. Our Las Vegas cluster turned in another solid performance in the fourth quarter of 2004. Our three FM stations achieved 21.8 percent revenue growth compared to 14.5 percent growth for the market as a whole according to Miller, Kaplan.

Similar to corporate results, this was the fourth consecutive quarter that our cluster outperformed the market and, like Bruce, I would also like to congratulate our team in Las Vegas for a job well done.

Leading the way in quarter four was KKLZ, our Classic Rock station, which grew spot revenues 61.9 percent during the period. We have been fine-tuning the music mix and making other changes at that station over the last 12 to 18 months, which apparently have really made a big difference for the radio station, audience-wise. KSTJ and KJUL also turned in a nice performance during Q4 with 6.5 and 13.1 percent growth, respectively.

From a revenue mix standpoint, we achieved a strong balance between local and national ad sales with local growing 17.7 percent and national growing 47 percent. In the fall Arbitron report, KKLZ had a 5.4 share of men in the 25-54 age group, maintaining its top five ranking for that key target demo. KSTJ held steady at a 4.6 share for adults 25-54 and KJUL, our Adult Standards Soft AC maintained its top five ranking in 35-64 adults.

As I mentioned during the last quarterly call, our Las Vegas cluster has grown its market share by nearly 2 full percentage points since 2002 in one of the fastest-growing markets in the country. With over $95 million now in spot revenue in the market in 2004, this gain translates to nearly $2 million of incremental revenue that our cluster generated for the company.

Now I'll return the call back to Caroline for questions and answers.

Thank you, Allen. Holly (ph), if you will now, please open the lines for Q&A.

Thank you. [OPERATOR INSTRUCTIONS] Drew Marcus, Deutsche Bank.

It's actually James Vick (ph), stepping in for Drew. A couple of questions for you. First, just-- I note that your revenue growth guidance for 1Q is actually quite good. The operating expenses, however, do imply some operating leverage decline. I just wanted to get some color as to how you think the operating leverage is going to proceed throughout the year?

Second, some of your clusters had and also on the national side had huge percentage increases. Is there any color you can provide as to particular categories which were driving some of those very large increases? Just so we could understand what's the dynamic there better.

And then last one, maybe kind of a longer-term one, where do you stand on your conversion of stations to HD Radio? I know you've kind of been out in front on that. And any further thinking about what business models are starting to look attractive with HD?

OK, James (ph). I'll start with a portion of that and then turn it over to Bruce for the national side.

As far as operating leverage throughout the year, I mean, we have not given full-year guidance on expenses just because there's some items out there that could impact expenses for the year, but at this point I think that it would be safe to say you could assume expenses to be in the same range as where we ended up last year.

And then as far as the company's conversion to HD Radio, I mean, as you said, we have always been on the forefront of HD Radio. We think it's very, very important for the whole industry to come together and convert their stations to HD Radio and we have made a commitment to do that with our stations over the next several years to be fully converted.

As far as the business model that's available, I mean, gosh, there are so many opportunities. I'm not sure if any of you all have seen one of the presentations that Bob Struble with iBiquity has presented, but there are so many opportunities for terrestrial radio in HD and in addition to the quality being better than satellite radio, there's a lot of features that terrestrial radio will be able to-- will be able to offer.

I can't be specific as far as business model, what we're planning on doing, but I can tell you that we have a lot of options out there. We're really, really excited about that.

Also, speaking to the national categories that we saw in Q4, auto was strong, restaurant and beverages, as well as movies were strong for us and that's particularly due to-- to WRDW in Philadelphia, as well as to WPOW in Miami. As well as political was a strong national advertiser for us in Q4.

I guess just one thing. I guess maybe, Allen, you might be able to speak to this. I mean, some of the huge growth that you saw in some of your stations, were there any particular categories which were driving those gains which are different than what Bruce just talked about?

Well, we did extremely well in Las Vegas on KJUL with national political because of the demographic of that station. Political candidates targeted older demos, so KJUL benefited greatly, both locally and nationally, in the fourth quarter from political.

But otherwise, it was pretty much the same categories that Bruce described -- movies, automotive and beverages were probably the three leading categories on national.

And just, Caroline, one followup. So you're saying for the full year you think the growth in expenses will be similar to what we saw last year?

I think that would be reasonable, yes.

Lee Westerfield, Harris Nesbitt.

I really have two questions, if I may, and the first is going to be on Philadelphia and the second one on Sarbanes-Oxley.

Oh, great.

Yes, I know. In Philadelphia as RDW's ratings have been coming up, we're now coming up to the anniversary of the reformatting of that station. First, what are you seeing in terms of revenue conversion of those ratings? Secondly, what are you anticipating in terms of promotional costs going forward? Do you intend to reduce, level off or increase your promotion expenses there?

And then in regard to Sarbanes-Oxley, what-- Caroline, if you have a figure that we can use to understand how much Sarbanes-Oxley increased the cost structure during 2004 so we can compare that in our 2005 models? Thank you.

Lee, I'll take the first one and certainly let Caroline have Sarbanes-Oxley. As far as the revenue goes, we are seeing some good growth in revenue there at WRDW, but as most people know, revenue does lag ratings by a certain period of time. We are going into our second full year in the format and we're-- as I mentioned in my-- in my notes, we're very optimistic about '05 for continuing revenue growth at that radio station.

As far as discussing promotional costs, due to the competitive nature there in Philadelphia I won't-- I won't talk specifically to that, except to say that we will give these guys whatever they need to make sure that we continue to be successful in that market.

OK. Lee, as far as Sarbanes-Oxley costs for 2004 and this is primarily due to gearing up for 404, as far as the total cash outlay, and this would include additional payments due to our outside auditor, we hired an outside consulting firm to assist us in documentation, testing, et cetera, and then we actually had to spend a great deal of money to-- in IT, in the IT area. So the company probably spent about-- a little over $1 million this year related to 404 alone.

Going forward into next year and doing the analysis, I think that will be down because I'm hopeful that we will not be spending the amount that we had to spend in IT. Of course, our IT people, they always come up with something, but we'll see. So I think probably if you take off a third of that, then that would probably be a reasonable number going forward for '05.

And one quick followup if I may on HD Radio what your CapEx plans are for 2005 in terms of the investment outlay?

Yes. Let's see, we are planning on converting at least 6, probably more. That's about $100,000. So I would say, estimate probably about a $1 million, because we are on the fast road to get HD converted, HD Radio converted-- or implemented at our radio stations.

[OPERATOR INSTRUCTIONS] David Bank, RBC Capital Markets.

Two questions. The first one is, could you guys give a little bit more color, I guess, on Q1? January is sort of in the bag. How did January turn out and if you sort of care to comment on February pacings, given that we're pretty well into the month?

And the second question is for Allen. We saw-- and maybe this is just because we're looking at 12-plus only and not specific demos, but it looks like there was a little bit of a drop-off in ratings in Las Vegas in the fall book and I was wondering if you sort of had any color on that?

Allen, you want to go first or you want me to go first?

Well, I can-- I'll go first on Vegas. We did have a drop, not only 12-plus but 25-54 for the fall book for KKLZ, in particular, but one of the things we've noticed in Las Vegas, really for the last 7 years, is that the quarterly reports and particularly the monthly reports can be extremely volatile and we never get too excited about what happens there.

For example, what we suffered from in the fourth quarter fall report for KKLZ was on a monthly basis. In October we had a 5.8 share, 25-54. In November we had a .6 and then back to a 4.0 in December. Those kind of monthly aberrations can cause one particular quarterly report to look pretty bad. But we've learned not to take that too seriously because we were as low as a 3.0 overall in the spring report of '03 and then that was following a 4.8 in the fall of '02 and then we bounced back to a 4.1, then a 4.4, 4.5, 4.7, 4.9.

We don't know why this happens other than the sampling aberrations that occur there. So, I mean, we haven't changed anything. There was no particular reason for KKLZ to have a soft fall book, but it did.

And KSTJ is within its range, even though it was down from a 5.0 to a 4.6 25-54. We don't worry too much about that because it was at a 4.2 in the spring and it was at a 5.7 the book before that and then rebounded to a 5.0 in the summer.

So it's just the nature of that market and it's the most volatile market and other operators in the market have noticed the same thing. So at this point we're not concerned about anything because it'll take a couple of books that are down in a row before we really begin to be concerned.

OK. So no other format wars or anything like that breaking out in the market?

Nothing-- there was no practical reason for this rating to be what it was. Nothing happened to us or competitively that would cause or explain it.

Great.

OK, David, to respond to your question as far as pacings. I mean, you know that we do not give pacings on a month-to-month basis. That being said, I can talk a little bit about January because January is complete.

We-- it looks like that we were up fairly well, probably around 10-ish percent for the month of January and this was-- in large part it appears to be driven by local. Also, too, I think if you were to look at our markets last January, those markets-- our markets were down 1 percent. So the fact that January was up so well this year, the comps were very easy, as well. And that's really all I would like to say at this point on that.

Terrific. Can I ask just one followup, which would be are there any particular categories that are sort of standing out in-- that stood out in January? Anything-- anything that's come back particularly robustly? Because that's a pretty strong result.

Not that I can--

David, I think it's just an overall effect from all of our major categories doing well and I think Caroline really hit the nail on the head, particularly local did very well for us in January.

[OPERATOR INSTRUCTIONS] Shawn Feeley, Credit Suisse First Boston.

A couple of questions. First question is, Bruce, on the-- on your typical-- your commercial duration mix, right now, 60s and 30s, et cetera, have you seen-- I mean, do you have any plans-- How does it stand today and do you have any plans to change that given what's kind of going on with Clear Channel and so forth?

And then, Caroline, just a question on the sports rights contracts. Do you have any coming up-- are you currently negotiating any right now? Or do you have any coming up this year?

Yes, Shawn, as far as our commercial mix, I guess you're discussing 30s versus 60s. Am I correct on that?

Yes.

OK, we are seeing some questioning from advertisers, particularly national advertisers asking about pricing for 30s and we will-- I think I've said this before and I will continue to say it again, we are an advertiser-friendly company. If an advertiser wants 30s, we'll certainly give them a chance to buy 30s. If they want 60s, we'll give them a chance to buy 60s. But since the CCU less is more initiative we are-- we are beginning to see advertisers request rates for 30 second commercials.

OK. And just a followup, how are you-- how do those rates compare to what you're looking at for your typical--?

You know what, Shawn, it varies. We don't have a corporate dictate throughout the company that says you got to charge X percent of 60s. Depending on the radio station and depending on the particular markets, we let them price it. We have a floor that we won't let them price it below, but it could go as high as 100 percent of a 60-second rate if a radio station is in a heavy demand situation.

OK.

Shawn, as far as our sports rights, I think it would be fair to say that most of the sports rights are coming up for renewal this year. As we've said in the past, we are taking a very close look at these rights to determine the viability of keeping them.

There will be some that we will keep and we're well on our way to an agreement. Some we probably will not keep.

I would like to turn the floor back over to management for any closing comments or additional remarks.

Holly (ph), no, I don't think we have any closing comments. I do want to thank everyone for joining us today and look forward to speaking with you next quarter.

Thank you. [OPERATOR INSTRUCTIONS]