Beasley Broadcast Group Inc (BBGI) 2005 Q1 法說會逐字稿

Good morning, and welcome to the Beasley Broadcast Group first quarter 2005 earnings conference call. At this time, all participants have been 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 Ms. Denyse Mesnik. Ma'am, the floor is yours.

Thank you, Allen. Good morning, everyone, and welcome to the Beasley Broadcast Group 2005 first quarter conference call. Before proceeding, 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 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 also 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 Conditions" 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 May 2nd, 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 -- and again, that's www.bbgi.com -- for 14 days after the call ends. Investors can also find a copy of today's press release in both the "Investors" and "Press Room" sections of the Beasley site.

We may discuss certain non-GAAP financial measures within the meaning of Item 10 of Regulation SK during this call. A reconciliation of these non-GAAP measures 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, let me now turn the floor over to Caroline Beasley, our Chief Financial Officer.

Thank you, Denyse. I'd like to welcome everyone on the call this morning, and good morning to you all. Bruce Beasley, our President and co-COO, and I will keep our remarks brief so we leave enough time for Q&A. George Beasley, our Chairman and CEO, and Allen Shaw, our Vice Chairman and co-COO, are here with us and available to answer questions during the Q&A. For the first quarter, our revenues increased to 10%. Our Philadelphia clusters' revenues increased approximately 43%, generating over half of the increase in revenue year over year for the Company. We benefited from significant increases at both our country and rhythmic DHR stations.

We also continued to see increases in our Las Vegas and Fort Myers clusters. The 10% revenue increase compares favorably to the 3% guidance given in first quarter. This positive variance was generated in our Philadelphia, Fort Myers, Miami and Vegas clusters. The increase was due to better than expected results in both local and national. The Company projected local and national to increase 1 and 6%, respectively, and actual local and national revenue increased 6 and 22%, respectively. Our station operating expenses, as defined in our earnings release, increased 16% to 22 million from 19 million. Approximately half of the three million increase is a nonrecurring employee separation charge associated with the change in management in our Philadelphia cluster.

The remaining increase includes commissions, programming costs, and advertising and promotion expenses. And our SOI decreased 7% to 6.6 million. Now, if you were to exclude the nonrecurring separation costs of 1.4 million, then the Company station operating expenses would increase by 8.6% and SOI would increase by 13.1% for the first quarter. Our interest expense decreased 10.5% for the quarter. The decrease was due to a reduction of the outstanding balance under our credit facility and lower borrowing costs associated with lower leverage. These decreases were partially offset by an increase in general interest rates. Our effective tax rate for the quarter was approximately 40%, with current taxes payable being around 100,000.

As of March 31st, total senior debt was 156 million and the latest trailing 12-month consolidated operating cash flow was 32.8 million, for a leverage of 4.76 times. And cash on hand at the end of the quarter was 17.1 million. Cap ex for the quarter was 442,000. This compares to 1.1 million that was spent in first quarter of 2004. Now moving on to guidance for second quarter, as indicated in the press release, we do expect our revenues to increase approximately 5% for the quarter, with a large part of this increase coming from our Philadelphia cluster. Station operating expenses are expected to increase approximately 6 to 7%, with approximately half of this increase resulting from increased Marlins rights fees associated with the new contract.

The remaining increase is primarily due to our continued investment in programming, as well as increased commissions. We're projecting corporate G&A to be approximately 1.7 million for the quarter, D&A expense we're projecting at 850,000, interest expense we're projecting to be 2 million. Our effective tax rate is -- will be 40%, with our deferred tax expense being approximately 1.3 million per quarter. Cap ex will be approximately 2.2 million for the quarter, with 1.4 in investment. The investment cap ex relates to the HD conversion at many of our radio stations, and expansion of studio facilities in Fort Myers and a new tower at one of our station in coastal Carolina.

We expect to spend approximately 4.2 million in cap ex for 2005. This will be the guidance that you receive for second quarter. We undertake no obligation to update this information until the next conference call. Now before turning the call over to Bruce, I'd like to mention one additional item. With the upcoming adoption of new accounting standards related to stock-based compensation, the Company will be issuing restricted stock as well as options under the existing equity plan. At this time, we're unable to quantify the projected impact of the plan on our 2005 earnings. Thank you very much, and I'll now turn it over to Bruce. Thank you, Caroline. Before I get into my remarks, I'd like to again thank our managers on a local level for a job well done in Q1. Once again, Beasley turned in revenue growth for the first quarter that outpaced growth in its markets, as measured by Miller, Kaplan, and growth across the industry, as measured by the Radio Advertising. Bureau. Much of this performance was driven, as Caroline noted, by an increase at our Philadelphia cluster, which more than doubled its national ad sales compared to last year's first quarter. This 900,000-plus swing represents most of the 1.2 million national sales increase we achieved across the entire Company in Q1. On a local sales basis, we benefited from nice gains at Fort Myers and Las Vegas, as well as in our Philadelphia market.

Some of the strongest categories for the period, both on an actual dollar and percentage gain basis, they were automotive, retail and television, and movie advertising, health and education; and two notable categories that declined during the period were telecom and banks. I want to talk a little bit more about Philadelphia, since the cluster has such a large influence on our Q1 results. I'd like to take a few moments to discuss some of the changes we've recently implemented at the station group. As you know, we had a change of management at WRDW in March. The new general manager, Lynn Bruder, has a lot of experience in the market. She is a Philly native, she knows the advertisers, and she understands the demo. She also launched another very successful station in this market over a dozen years ago. She brought a team with her, and they are clearly making an impact.

They know how to enhance the station's credibility with key audiences, they know how to sell the format and the station and how to cultivate new advertisers. With solid ratings, the station is still number one in teams, with a 20.9 share and ranked number four in its target demo, 18 to 34, in the most recent Arbitron book We are expecting more good things from this station in periods to come. Over to our country station, WXTU, we installed a station and market veteran in Natalie Conner in the GM role. And she's made a good station even better by bringing her sales management skills to bear across the enterprise. She works well with advertisers and station employees alike, and she's really brought a fresh sense of optimism and energy to this role. And the most recent winner Arbitron book, WXTU had a 4.6 share share adults 25 to 54, ranking number 6 in one of the best books we've seen at that radio station in many years. Also, had a 4.3 share, 12 plus, tied for fourth plus. So we're very excited about the future of this station, as well as WRDW.

When looking at our success in Philadelphia, it's just one example of why we continue to invest in our stations. Every year, we look at our programming, promotions, and sales budgets to gauge what will move the needle. In a market like Philadelphia, where we have a successful new station in a more competitive market, we think the investment makes sense. Of course, this is not so for every station in our portfolio; but generally speaking, we think at a low to mid single-digit annual increase in programming and promotions makes sense for a competitive radio station -- that is, if the economic and market conditions warrant. Before moving to Q&A, I'd like to elaborate briefly on our leadership roll in rolling out HD radio. As many of you know, we've been committed to HD technology since the very beginning, as we believe it will make radio a better and more competitive medium.

By the end of '05, we expect to have at least 50% of our radio stations broadcasting in this technology. Last month, at the NAB show in Las Vegas, our 80s station in that market, KSTJ, which has been broadcasting digital since April '04, joined with iBiquity and Broadcast Electronics in illustrating the power of multicast channels and data services. One channel broadcasts a version of our original 80s format, while the other loops local traffic and weather information. Special receivers were also able to display programming associated data, such as song title and artist and other now playing information and navigational content. We think these new capabilities can be paired with a business model that makes the most of our revenue opportunities.

It's something that we are studying very closely, and we look forward to discussing more definitive plans with you at some point in the future. Now with that, I will turn it back over to Caroline for Q&A. Well, thank you Bruce. Allen, we'd like to turn the call back to you for Q&A.

Thank you. The floor is now open for questions. If you have a question, please press star 1 on your touch-tone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound sign. Once again, that is star 1 on your touch-tone phone to ask a question. Our first question is coming from Shawn Feely of CSFB.

Good morning.

Hi, Shawn. Good morning, Shawn.

How are you? Couple questions here. Bruce, can you talk a little bit about the ratings performance in Miami. It looks like the -- a couple of stations you had decent declines. Just kind of wondering what's going on there, if you can talk about the local and national performance there as well. And then maybe also talk about, just to the extent that you've got the changes now with -- or the proposed changes with Viacom and Clear Channel, how, if it all, do you think that impacts the kind of the small to mid cap radio players, to the extent that you've got large -- two large liquid yielding vehicles, and to the extent that we stay in kind of a low growth radio environment? Thanks.

Yes, I'll tackle the Miami ratings situation there. As you know, WQAM, we made some pretty big changes there. We had the Howard Stern agreement that we actually took off the air on, I believe it was January the 10th; so we realigned our on-air line-up, which really we didn't get into full exposure until probably the middle of February. So we did have some -- we had some inconsistencies, so to speak, in our on-air line-up, and we believed that's what -- what's created the problem for us there. And our country station had a very, very good book. WPOW did go down 12 plus, but remained number one in its target demo, 18 to 34.

There have been, you know, a lot of changes going on in the Miami market. We are -- we are -- we feel very, very comfortable about our positioning there at WPOW. It's been, you know, doing the same thing since 1985, and you'll have opportunities that you can work with going forward, and we feel very comfortable about the future for that radio station, as well as WQAM. Now Caroline, on a local and national basis, specifically for Miami? Yes, for the quarter, Shawn, the market itself was basically flat, with local for the market down 1 and national up about 2, and we outperformed the market. Our spot sales were up 2%, local flat, and our national was up four.

Thanks.

And then as far as the general outlook for the radio industry, if I understood your question appropriately, and the -- I guess the spin-off between Clear Channel and Viacom and their radio groups and our outdoor or entertainment or whatever, I mean, I think that that -- I'm not sure that that will impact broadcast groups our size significantly. George, you're on the call. If you have any particular comments that you'd like to make on, that I'd appreciate that. No, I don't see any particular impact coming from that. I think it's going to be pretty much business as usual .

Thank you. Our next question is coming from Jim Boyle -- or I'm sorry, James Dicks, of Deutsche Bank.

Hey, good morning, everybody.

James. Hi, James.

Got a couple of questions. First, just how did you see the growth developing by month in the first quarter, and how did April finish up? Secondly, just concerning your operating expense guidance, it's a pretty healthy growth rate you're looking for, if you could give us a little bit more understanding as to where that's going. You mentioned, you know, the Marlins; but apart from that, is there anything on an underlying basis we should be looking for, kind of for the balance of the year? And then finally, on the HD conversion, you indicated you think around half your stations will be converted by the year end. Do you have a sense as to how much of your cumulative audience is going to be covered by that, in the sense that -- are you skewing more towards, you know, the larger market stations, so that will 50% will translate into 60% of your cumulative audience, or is it probably going to be more like, you know, half?

Okay, James. All right. So as far as growth for the quarter, well, January started off pretty strong for us. Our revenues grew around 8%, February they dipped down a little bit -- we had about a 3% revenue growth. And then in March, we finished up 17%. So for the quarter, we had 10% revenue growth. April is, you know, looking like it's going to be a little below March at this time. Obviously, it looks like it's going to be around 6% at this point, and beyond that, you know, I'm not going to discuss pacings beyond that. As far as operating expense guidance, the 6 to 7%, you know, we did talk about the Marlins being made -- making up half of that 6 to 7% increase.

Going forward, you know, we haven't given expense guidance for the full year; but one thing I can say going forward, in third quarter, you know, obviously we're still going to have the Marlins' impact, but that will be offset basically dollar for dollar, from not having the Dolphins in the third and fourth quarters of this year. And then fourth quarter, you know, the impact on expenses should definitely be positive by not having the Dolphins. Offsetting that, you know, we're not going to have the Dolphins' revenue either; but net-net, the Dolphins did cause the Company to lose money last year, so it should be a positive impact on SOI. Moving forward to HD conversion, I mean, the goal for our Company is for us to have at least one station in each of our markets operating HD by the end of the year; so I think that you say that probably, you know, 100% of our markets are -- yes, of our markets -- would be covered by HD radio, by the end of the year.

Great. Thank you.

Mm-hmm.

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

Thanks, good morning. Couple questions. The first one, I'm sorry if I missed it, but could you repeat what first quarter cap ex was? Three questions. Second one is, if you could sort of comment on national local trends and differences verse the first quarter as they're sort of shaping up in the second quarter. And the last question, actually probably a more George Beasley focused question, you know, you've been on one of the really early adopters, particular on the AM side, of what's been going on in digital. And philosophically, you've talked about what you've done with some of those channels thus far in terms of traffic.

Do you anticipate for the most part using those B, C, D, and E channels to run more variations on existing formats that exist, or do you think it's more likely that you and -- you know, and your sort of cohort on the radio side program all different kinds of formats rather than just sort of variations on the existing format on the A signal?

David, I'll start and then answer your couple questions, then turn it over to George if that's okay with you.

Great.

We had 442,000 in cap ex for the first quarter. As far as local and national trends, you know, on the call, we had said that I think local was up 6%, national up was 22% for first quarter. Moving into second quarter, I'm actually projecting local to be up about 4% and national to be up around 9% for the quarter.

Okay.

And George, I'll just log HD over to you. Yes. Insofar as opportunities are concerned in digital, I think there's a lot that we don't know about digital as of yet. I think there may be additional opportunities that will be open to us through technology as it advances that we just don't know about as we sit here today on this conference call. Insofar as what we intend to do with those added channels, I would suspect that there may be in some cases variations of the same type format, or there may be totally different types of programming that would be broadcast. But I am so excited, and have been over the years, about digital; and as we learn more about it and get further along, I believe that this is going to be our saving grace, so to speak, insofar as competition with satellite radio is concerned.

Okay. Thanks.

Thank you. Once again, as a reminder, if you do have a question, please press star 1 on your touch-tone phone. Our next question is coming from Jim Boyle of Wachovia.

Good morning. Although there's only maybe a couple of smaller markets that you do not overlap with Clear Channel, do you notice any difference between your Clear Channel markets and your non-Clear Channel markets with regards to the "less is more" impact?

Jim, I'll take that question. You know, I think the differences that we may see is that in some of our markets there were certain clients last year in first quarter that did not buy our radio stations because of our pricing issues. This year, we were able to -- able to accommodate them with our pricing issues because of less inventory in the market as a whole, so I think that's probably one of the major differences we've seen.

Okay. And the second question, Caroline, on the guidance for Q2 of 5 -- up to 5% growth -- do you think that will outpace or underpace the industry in Q2?

Well, hmm. I think that our other peers are doing a very fine job, and I'm not really sure. You know, I think that we'll probably be right in line or maybe on the top end, quite frankly. Jim, as you know, we have -- we have a lot of exciting things going on in our largest market, which as you can see for Q1 results, has helped the company out.

And a final question for George. George, what did you think of the Louis Appel move to put Susquehanna on the block?

Well, it seems that opportunities in broadcasting in '05 are probably going -- to buy radio stations in '05 -- are probably going to be better than they have in a long time. However, the multiples are much higher than I had expected. I believe that you're going to see more of the privately owned companies and companies backed with private equity step up and pay the higher multiples, because those of us who are publicly operated aren't in a position to pay the multiples that seem to be coming down. I don't know. I can't answer. I haven't talked with the principals and I don't know what their principle reason is for putting their stations on the market.

What do you think the multiples will be for their mid markets rather than their major markets?

Well, if the past or the most recent sales that I've seen were to hold true in this situation -- and this is sheer conjecture on my part -- I wouldn't be surprised to see those multiples in the 15 to 18 range.

Thank you very much.

You're welcome.

Thank you. Once again, as a reminder, if you do have a question, please press star 1 on your touch-tone phone. At this time, I am showing no further questions. I would like to turn the floor back over to management for any closing remarks.

Okay. Thank you, Allen. At this point, I'd like to thank everyone -- we'd like to thank everyone for attending the call today, and we'll speak with you next quarter.

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