Beasley Broadcast Group Inc (BBGI) 2005 Q2 法說會逐字稿

Good morning and welcome to your second quarter earnings call. (Operator Instructions). It is now my pleasure to turn the floor over to your host Miss Denise Mesnik. Ma'am, you may begin.

Thank you very much Marquita. Good morning everyone and welcome to the Beasley Broadcast Group, 2005 second quarter conference call. Before proceeding I would like to emphasis 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 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 operation and financial conditions section of our SEC filings, copies of which can be obtained from the SEC Web site www.sec.gov or Beasley Broadcast Group's Web site, www.bbgi.com.

All information in this conference call is as of July 28th 2005, and the company undertakes no obligation to update these statements, or to update expectations from prior conversations. I also would like to remind you all that this calls is being web cast live over the Internet, and that a replay of the call will be available on our corporate Web site 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 on both the investors and press room sections of our Website. We may discuss certain non-GAAP financial measures, within the meaning of item 10, of regulation SK during this call. Reconciliation of these non-GAAP measures and your most directly comparable financial measures calculated and presented in accordance with GAAP can be found in the companies Web site. And with that said its now my privilege to turn over the call to Caroline Beasley, our Chief Financial Officer.

Thank you Denise and good morning. I'd like to welcome everyone to our conference call today. Bruce Beasley, our president and I will keep our remarks brief. George Beasley our Chairman and CEO and Allen Shaw our Vice Chairman and Co CEO are here with us and available to answer questions during Q&A.

So for the quarter, our revenues increased 6.6%. Our Philadelphia cluster's revenue increased approximately 31%, generating about three-fourths of the increase in revenue year over year for the entire company. We benefited from significant increases at both our country and rhythm mix CHR stations.

We also continued to see increases in our Miami and Fort Myers clusters. These increases were off set by decreases in our Augusta cluster which continues to struggle because of ratings and increased competition. The 6.6% revenue increase compares favorably to the 5% guidance given in second quarter. This positive variance is generated in our Philadelphia and Fort Myers clusters. The increase was due to better than expected results in the local and national, but in particularly national. The company projected local and national to increase 4 and 9% respectively and we actually came in for local up 5% and national we were up 16%.

Our station operating expenses increased 6.9% with about half of the $1.4 million increase resulting from higher Marlins rights fees, we associated with the new three-year contract at our Miami sports station and the remaining increase includes commissions and presenting costs. Our station operating income increased 6.1%. Corporate G&A increased 19.5% this is due to increase compensation and legal costs. Our effective tax rate for the quarter was approximately 40%. Current taxes payable were approximately $1.1 million. As of June 30 our total senior debt was $152 million and the latest trailing 12 months consolidated operating cash flow was $33.3 million for a leverage of 4.57 times.

On June 27th, our credit agreement was amended to reduce the interest paid on outstanding borrowing and to allow the company to issue certain cash dividends. Cash on hand at the end of the quarter was $12.8 million. CapEx for the quarter we spent $750,000 of which $478,000 was maintenance.

Now you may note that this was quite a bit lower than what we had projected in second quarter we did project $2.2 million but you will see that we are just using these moneys from second quarter into third quarter. Year to date we've spent $1.2 million in CapEx with $674,000 of that as maintenance.

Now moving on to guidance for third quarter. As indicated in the press release. We do expect our revenues to be flat over last year. There are several reasons for this and I'd like to review each one of them.

As mentioned before, the company did not renew the Dolphins' contact. In third quarter of '04, the Dolphins generated $650,000 in revenues for the company. Also, in third quarter of '04, we received about $350,000 in political advertising, with about half of this coming from Las Vegas and that's an important point to remember.

We also hosted an NTR event last year in third quarter. This year we're moving that into fourth quarter and then finally, as other broadcast companies have stated, we're reviewing all our non cash revenue and the impact that it has on their inventory. And in second quarter alone, we ran $300 000 less in non cash revenue compared to last year and we're projecting to run at the same deficit for third quarter. So all these items add up to about $1.4 million, which is approximately a 4% negative impact on our revenue for third quarter of '05.

These decreases in revenue are projected to be offset by continued increases in Philadelphia and Fort Myers. However, that being said, we expect our Odessa cluster to continue to lag in revenue and we also anticipate Las Vegas to experience some softness in third quarter.

Our station operating expenses are projected flat for the quarter. This includes the benefit of not having the Dolphins' expenses in third quarter of '05 of approximately $1.6 million. This is offset by increased Marlins' right fees of $750 000, increased advertising and promotion and then our continued investment in programming.

Corporate G&A will be $1.7 million for the quarter and approximately $7 million for the year. On July 1st, we granted restricted stock to certain employees, and during the third quarter, we expect to record approximately $800 000 in non cash stock based compensation expense and we will report a total of $1.2 million for the year.

Our G&A expense, we're projecting to have $750 000 in third quarter and have about $3 million for the year. Interest expense, we're projecting $2 million in the third quarter and approximately $8 million for the year. Our expected tax rate is 40% and we're projecting approximately $1 million in deferred tax expense in third quarter. CapEx will be approximately $2.3 million for the quarter, with $1.4 million of that in investments.

The investment CapEx relates to the continued HD conversion at our radio station, expansion of studio facilities and several other markets and then a new tower at one of our stations. We expect to spend approximately $4.5 million for the year in CapEx. 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 thank you very much. And I'll turn it over to Bruce.

Thank you Caroline. I'd like to start once again by congratulating our employees on the local level for another outstanding quarter. Beasley once again grew revenues faster than its market grew and that's measured by Miller-Kaplan and probably faster than the industry as a whole based on April and May revenue growth measured by the RAB.

Much of this performance was driven, as Caroline noted, by increases at our Philadelphia cluster which grew national ad sales by over 50% and local ad sales by over 22% compared to last year's second quarter. Our station teams in that market are doing a tremendous job on execution, outperforming their peers and growing market share at a time when ad sales in general in that market have not been strong as of late. We think out two FM stations, WXTU and WRDW, are just hitting their stride in terms of sales, execution and programming, and we are looking forward to more good things coming out of Philadelphia in the periods ahead.

The spring rating book certainly bodes well for that outlook with WXTU achieving a 4.3 shares in its target demo as well as Wired maintaining a 6.9 share in its target demo, 18-34. Our Fort Myers station cluster also performed very well during this second quarter achieving a low double digit revenue increase over '04.

As many of you know, Fort Myers has been an incredible growth story for a number of years and our station cluster has really done very well accordingly. This year, as in other years past, our team has responded to a number of competitive challenges and unexpected developments that threaten to derail this process. However, everyone at the station level rose to the challenge and, as a result, our station cluster continues to outgrow the market.

In Miami, the new rights -- the broadcast rights agreement for the Florida Marlins appears to be working out well for us and it's partly behind the cluster's revenue increase this period. As many of you know, we've had some transition at our programming lineup at WQAM this year, and thus far we think the changes we made are keeping the station moving forward. Power 96 continues to perform strongly and our country station also had a decent quarter. Taking all these things together, the three station clusters outperformed the market on both the local and national basis.

Taking a look at sales categories. Automotive revenue was up 5% from the year ago quarter and up 8% from the first quarter of '05. Another notable category in this period, was retail - our second largest source of revenue - which was up almost 21% from the year ago quarter and 34% from first quarter of '05. Restaurants, TV advertising, banks, healthcare were also up on a year over year and sequential basis. Notable categories that were down from a year ago, were beverages and telecom.

Because radio is such a local medium, it's often unaffected by larger forces shaping the national economic landscape. Our stations are a great example of this. By focusing on airing the best station possible in the markets we serve, and aggregating attractive audience for our advertisers, the majority of whom are local businessmen and women, we've been able to stay ahead of the growth curve. Of course, there are things on the ground that can change very quickly, as Caroline noted in her guidance review.

We have some station management, competitive and national advertising issues to address in the back half of the year. But one thing we do know is that you have to react quickly to changing market conditions and new competitive threats. If you don't, years of hard fought ratings and revenue gains can quickly slip away. We will not only continue to outperform in markets like Philadelphia and Fort Myers during the coming period, but we will also react swiftly to challenges in Las Vegas and Augusta. And I am very confident that as a whole, our portfolio will continue to improve and grow. Now with that, I'll turn it back over to Caroline for Q&A.

Thank you Bruce. Operator, we would now like to open the line for Q&A.

Thank you. The floor is now open for questions. (OPERATOR INSTRUCTIONS). Thank you, our first question is coming from Dave James Dick with Deutsche Bank.

James, it's you, come here please. Hello.

Hey, good morning.

Good morning.

I just wanted to see if you would give a little more color on third quarter growth trends in terms of any categories. And then, kind of a longer term basis, I know you've been rolling out some HD channels and you've being ahead of others, actually, in converting the HD. Just, what your strategy is, now that you have a fairly large portfolio of stations broadcasting in HD.

As far as HD, our HD strategy goes, is we are rolling out a lot of radio stations this year. And I think, as we've noted, probably by as is the year '07, Caroline, we should have about almost 100% of our stations in digital. But our strategy, at this point, is to start taking advantage of multi-casting in using our sidebend channels where we're available. And I think one of the most important things that we need to do with HD is to educate the audiences, potential audiences that we have out there so we can get some HD radios out in the field.

As far as the growth trends go for the quarter, James. I mean, we are seeing going forward a deceleration for August and September, but that is merely because of the Dolphins not being here and political not being available this year. If you were to strip that out, then I think that you would be making some strengthening, actually, toward the latter part of the quarter. As you know, June was soft and the industry - July seems to be soft as well.

August is better but it's still soft. And then September seems to be a little better. And then as far as specific categories. I mean, what we are hearing from our sales managers is that auto has been experiencing a decline in advertising and that was primarily due to the -- employee discount advertising going on TV, many of the dealers just didn't advertise because they were getting so much publicity from TV advertising. And what else, Bruce, is there something else?

No I think excluding the fact that we don't have political any more, retail I think it continues to be a good growth category for us as well, looking forward.

And then one important point to note too is telecom. I mean, it's cell phone setting and then we have seen a -- well I don't want to say drastic --reduction but surely a reduction in the number of dollars that these cell phone companies have been advertising on radio versus last year -- this year compared to last year. And I think it's just consolidation in the industry.

James to circle - - this is George - - to circle back to HD for just a minute. We've spent considerable time educating our staff on HD and what it can do and we certainly are doing the same thing insofar as audiences are concerned. But as Bruce said, the big problem that we're having is the availability of receivers. If we could get receivers in these markets, we could sell receivers very, very quickly. So that is a problem for us at this point.

Okay. Thanks very much.

Thank you, our next question is coming from Lee Westerfield of Harris Nesbitt.

Thank you. Everyone, good morning

Good morning.

Good morning.

I really have got two sets of questions, I'll take them in order here if I may. Caroline I wanted to flesh out in a little more detail to help everyone and myself understand the third, and possibly even some elements of the fourth quarter, in your revenue outlook. And memory serves me, you have been shaving your batter non-cash revenue barter component down in recent quarters and I wonder if that's not also part of the third quarter.

Secondly, was there not an NTR event a year ago in the third quarter, will that be recurring and if so when? And, at least in my notes, I had political advertising a little over $1 million in the fourth quarter. Is that about right? These are all elements that would help in our revenue outlook and then I have a follow-up question.

Okay. So I'll tackle that series of questions. As far as third quarter revenue outlook, yes you're right and I'm taking a conscious - - or making a conscious effort to reduce the amount of non-cash or barter revenue that we have been running. Second quarter we ran about $300,000 less than we did the prior year and in third quarter we're projecting to run at about the same deficit -- about 300,000 less.

As far the NTR event, that last year we did have an NTR event that generated about $100,000 in revenue that has been moved to fourth quarter so we're not having that in the third quarter. And then of course political which we had about $350,000 last year in third quarter. We ran about, or we received about, $1.1 million in political last year in fourth quarter. In addition now, I'm not giving any fourth quarter guidance on this call, but you all need to make note of the fact that we also had the Dolphins last year in fourth quarter and they generated about $1.6 million in revenue. So between political and the Dolphins, I mean, that's about $2.7 million in revenue for fourth quarter that we're just not going to have this year.

Okay. And then Bruce, a follow through is - have -- is to look at some of the markets that have been stronger, some of them in flux. Philadelphia and Fort Myers, I guess we all understand has been quite strong. On the other side, Miami - KISS. How's that been doing also the ratings at Power. I wonder if she could fill us in at Power and KISS in Miami? And then in Vegas -- Las Vegas -- if I recall, that's obviously an extraordinary growth market, but there was some significant political advertising, if I remember, a year ago. How do we take those factors in to account in the near term and then obviously Vegas is a very strong market in the long run?

Yes you're right Lee. Philadelphia and Fort Myers has just been burning the roads up for us. Miami actually had a good quarter, it outperformed the market in second quarter. WQAM actually led the way with revenue increases. Then Power had a really strong quarter as well as KISS Country had a decent quarter there.

As far as ratings go, we just received the ratings yesterday and Miami WKIS, our country station, had a 4.1 share in its target demo, that's good enough for eighth place in the market which is a very strong ratings period for us as well as WPLW -- Number 1 teens, I think Number 2, 18 to 34 -- doing very well there for us.

I think the prospects for all those stations in Miami going forward are strong, with the exception of the Dolphins not having the revenue there but -- revenue not there will not hurt us that bad because the expenses are going to go down substantially.

As far as Vegas goes, political was of big part of, I guess, third, probably more so fourth quarter, particularly on KJUL in Vegas. And as far the landscape goes in Vegas, June was a little soft for the market as a whole. Looks like it's going to be soft a little bit for July. But August and September seem to be showing some strengthening going on. And we have some things that we're doing there to help solidify our situation there. But we feel very comfortable about the future going forward.

Bruce, George and Caroline, those are helpful comments. I appreciate it.

Thank you.

(OPERATOR INSTRUCTIONS). Ma'am, there appear to be no further questions at this time.

Okay. Well thank you very much today for attending our conference call. And we look forward to speaking with you next quarter

Thank you. This does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.