Beasley Broadcast Group Inc (BBGI) 2005 Q3 法說會逐字稿

Good morning ladies and gentlemen. My name is India and I will be your conference facilitator today. At this time I would like to welcome everyone to the Beasley Broadcast Group Third Quarter 2005 Earnings Conference Call. (Operator Instructions). It is now my pleasure to turn the floor over to your host, Ms. Denise Mesnik. Ma'am the floor is yours.

Thank you, India. Good morning everyone and 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 U.S. Private Securities Litigation Reform Act of 1995. Listeners should also note that these statements are only predictions they are subject to inherent risk and uncertainties and may be impacted by several factors including economic and regulatory change, the loss of key personnel, a down turn in the performance of our radio stations, the company's 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 operation and financial condition 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 November 3, 2005 and the company undertakes no obligations to update these statements or to update expectations from prior conversations.

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 Web site, 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 this site. We may discuss certain non-GAAP financial measures within the meaning of Item 10 of Regulation SK during this call. The 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 Web site. With that said it's now my pleasure to turn the floor over to Caroline Beasley our Chief Financial Officer.

Thank you, Denise. I'd like to welcome everyone to our conference call today. As always we'll try to keep our remarks brief and to the point. George Beasley our Chairman and CEO and Bruce Beasley our COO are here with us today. Moving on for the quarter our revenues increased 1% our Philadelphia cluster's revenues increased approximately 28%. This increase was generated from both our Country and Resimix CHR stations. We also continued to see double digits. We also continued to see double digit increases in our Ft. Myers cluster and these increases were offset by decreases in Augusta, Vegas and Miami. Augusta continues to struggle because of a decline in ratings and increased competition.

Vegas experienced a down quarter for the first time since Q4 '03, due to weaker performance of our former adult standard station, which changed formats on October 3rd to Country. And Miami's decline in revenue was due to us not broadcasting the Miami Dolphins football games. And this had a negative impact on our revenues for the quarter of about 3%. And finally, non-cash revenue for the company decreased over 30% which is a result of our continued effort to reduce the amount of inventory used for trade. This decrease in trade revenue negatively impacted our revenues by about 2% for the quarter.

Heading into the quarter we projected local revenue to be flat and national to increase to 9% and this is for cash revenue. Actual cash local revenue increased to a national increase 3, so there was a clear deterioration in national sales throughout the quarter. Station operating expenses decreased 1% as mentioned before, the company did not renew the broadcast rights agreement with the Dolphins and this decreased expenses by $1.6 million for the quarter. This decrease was partially offset by an increase in rights fees for the Florida Marlins and increased programming expenses related to on-air talent. Our station operating income increased 4%, corporate G&A increased 17.7% and this is due to increased compensation and other costs associated with being a public company.

On July 1, 2005 we granted 267,500 shares of restricted stock to certain employees during ht third quarter we recorded stock based employee compensation of 800,000 which reduced ETF by about $0.02. Of the 800,000 compensation expense, 50,000 has been included in station operating expenses and negatively affects SOI. And I'll ask you to please look at the reconciliation tables in today's earnings release.

Our effective tax rate for the quarter was approximately 40%; current taxes payable were approximately $1.7 million. As of September 30, total senior debt was $148 million and the latest trailing 12 month consolidated operating cash flow was $33.3 million for a leverage of 4.46 times. Cash on hand as of 9/30 was $15.8 million and we spent $742,000 in CapEx for our third quarter and this is down from the 2.3 million that we projected. And what we're doing is we're just transferring from third quarter to fourth quarter, there was a delay in projects. So you'll see this money in fourth quarter when I give you guidance. On a year-to-date basis we've spent $1.9 million in CapEx.

Now, moving on to guidance for fourth quarter. With three of our 10 markets in aggregate generating 47% of the company's revenue affected by Hurricane Wilma last week, it has been very tough to determine and be able to provide you all guidance today. That being said, where we are today, we are projecting a decrease in revenues of 12% over last year. And there are a number of reasons for this. First, as mentioned before and reflected in our third quarter results we did not renew the Dolphins' contract and in fourth quarter of '04, the Dolphins generated $1.6 million in revenue for the company. This has a negative 5% impact on our revenues in fourth quarter.

In fourth quarter of '04 the company received $1.1 million in political advertising. This is about a 3% negative impact on our revenues. Our Las Vegas format change negatively impacts revenue by about $500,000 and as in the previous two quarters we expect non-cash revenue to decrease year-over-year by approximately $800,000. And finally with again three of our markets affected by Hurricane Wilma, we have received cancellations both before and after the hurricane, which has to date negatively impacted our revenues by around 1%.

All these items are in excess of a 12% negative impact on revenue. These decreases are offset by projected increases in Philadelphia and Ft. Myers. However, there is one additional point I would like to make. We do anticipate our Augusta, Fayetteville and coastal clusters to continue to experience softness in their markets and I think this is certainly to be expected given the fact that last year these clusters received anywhere from 5% to 6% in political advertising dollars.

Moving on to station operating expenses. We're projecting to decrease our expenses by 11% for the quarter. This includes the benefit of not having the Dolphins expense of approximately $2.7 million, which is offset by increased expenses associated with the Las Vegas format change. Our corporate G&A is projected to be $1.8 million for the quarter and approximately $7.1 for the year. During fourth quarter we expect to record approximately $300,000 in non-cash stock based compensation expense for total of $1.2 million for the year.

We are projecting $750,000 in depreciation and amortization expense for fourth quarter and approximately $3 million for the year. Our interest expense, we're projecting $2 million in fourth quarter and approximately $7.6 million for the year. Our effective tax rate is 40%; our deferred tax expense will be approximately $1.1 million for fourth quarter and about $4.4 million for the year. CapEx will be approximately $2.6 million for the quarter, with about $2 million of this in investment. And this relates to our continued HD conversion at many of our stations in fourth quarter, expansion of two studio facilities in Ft. Myers and a new tower at one of our stations. So, we expect to spend approximately $4.5 million Cap Ex for 2005 and this compares to $3.9 million that we spent in 2004.

This will be the guidance that you receive for fourth quarter. We undertake no obligation to update this information until our next conference call and I look forward in speaking with you then. Thank you and I'll turn it over to Bruce.

Thank you, Caroline. As Caroline pointed out we did have some unusual circumstances and tough year-over-year comparisons in Q3, but there were also a number of very positive developments during and subsequent to the period, which I'd like to talk about now. In general Beasley once again, grew revenues faster than its market has measured by Millard Kaplan (ph). The markets in which we participate were down about 8%, while the company was up 2.1 and that's about in line with the industry as measured by the RAB.

Sales categories that were strong for us compared to a year ago third quarter included restaurants, retail, financial services and education. Notable categories that were down for a year ago include -- from a year ago include telecom and political. Automotive was also down in Q3 but was sequentially higher than Q2 and the year to date - the category's up about 3%. As Caroline noted strong contributions in our Philadelphia and Ft. Myers cluster were behind this performance, while she also noted the company wide national sales fell a little short of our expectations. Our station clusters in Philadelphia and Ft. Myers saw national advertising sore, bucking the trend of declines in each of those markets. Both of those clusters also significantly outperformed their market on a local advertising basis.

Let's talk about Miami. WQAN's decision to relinquish broadcast rights for the Dolphins in '05 is challenging the cluster's top line performance in the second half of the year. The station did well with the Marlins during the summer, which partially offset those declines in Q3. But perhaps more significant is the performance from our Country Music station WKIS, which had an outstanding quarter by increasing spot revenue by 10%. Over the past 12 months that station has really improved its relationships with local advertisers which is making a tremendous difference.

Moving on to Las Vegas, we are very bullish on the prospects for this cluster, despite a down Q3. In early October we switched to a Country Music format at KJUL, one of our three FM stations in the market. In the first nine months of the year, this station experienced consecutive year-over-year declines in spot advertising revenue and for a variety of strategic and competitive reasons, we opted to reformat the KJUL to a new Country Music sound. Our research indicated strong potential for this kind of music, as listeners, demos and tastes in the market have changed dramatically over the last few years. We think this new station has a great potential to reap benefits for -- from those changes as we are very excited about its prospects in the future.

Before I turn the call back over for questions, I want to speak briefly about our efforts to reduce the amount of station inventory used in trade situations. Earlier this year we audited every stations trade revenue arrangements to identify examples that made economic sense. We then instructed our station managers to use trade arrangements sparingly going forward and only in those situations where there is a relatively equal economic exchange.

This policy went into affect during Q2 resulting in a $500,000 year-over-year decline in revenue for the third quarter year-to-date our trade revenue is down about $1 million. So this is a significant shift in our revenue mix, ultimately though we think this is the right approach as it will reduce ad clutter and reserve inventory for its highest and best use, which are cash transactions. Now, with that operator, I'd like to open the floor for questions.

Thank you. [Operator Instruction]. Our first question is coming from Lee Westerfield of Harris Nesbitt; please go ahead. Your line is live.

Bruce and Caroline, good morning, thanks for taking the call too. Actually you touched on many of the operating questions I would have had, I want to look then at HD radio you guys have been among the strongest proponents. At this point it seems that one of the issues in HD radio, or one of the questions coming up, is to what extent radio companies themselves may either promote heavily or even subsidize potentially at least early receiver rollout. I wonder if you could comment Bruce or Caroline about the economics and strategy thinking on that front at least in regard to promotion separately from subsidization.

Well, good morning Lee it's Bruce. Our strategy promote right now is to educate listeners that there are receivers in the market place that we would encourage them to buy. Right now, obviously you can't hear radio stations in HD unless you have the receiver. So, I think it's our job initially is to educate the listeners and to promote with the listeners how best to get there. Also, we believe there are certain ways we can do that.

We think that we can have kiosks in our reception area that will give listeners an opportunity to sample HD when they walk in to pick prizes up or visit or whatever the case may be. We think there are opportunities to have Kiosk on our remote vehicles to give listeners an opportunity to listen to HD and see how - - what the difference is in the quality of the sound. As well as other on air opportunities that we feel like we can do to help promote and educate our listeners on the values of HD in the future.

And Lee, that's what we are doing now, going into the future, once the receivers are available for us to give away. I mean, we've pre-ordered receivers to be able to come out and make a big splash for our listeners and to use those as promotional giveaways.

Okay, and then also on the same topic, Caroline and Bruce, what if anything you have learned in the last six month to year about the cost for implementing HD per station. Is that a declining cost curve at this point with your assessment as far as the CapEx on a station level basis?

Concerning the Cap Ex, I think it;s been fairly consistent with what we thought it would be from the very beginning and the average that we are using is about 100,000 per station and again, that seems to be fairly consistent. I guess some of the things that we did not count on are some of the operating costs that are popping up. They're very minimal, but they are popping up and until we're able to offset those costs with revenues, it's just something we're willing to digest. But here again, it's not material they are very minimal, but they are costs that have popped up.

Bruce and Caroline that's clear. Thank you very much.

Thank you Lee.

(Operator Instructions). Our next question is coming from James Dix of Deutsche Bank, please go ahead.

Good morning everybody.

Good morning.

I guess my first question would be I suppose for you, George, what you think the implications are of the cumulous private equity acquisition of Susquehanna. Do you think that starts to narrow the Bidas(ph) gap in the radio business, what implications do you think that is going to have for the market, generally. And I guess operationally, perhaps Bruce, what do are you seeing in terms of your competitors in terms of inventory levels now. We're basically a year in on less is more, you compete with Clear Channel in a number of markets. Are you seeing your competitors taking down inventory levels? Have you been taking down inventory levels even apart from the trade initiative that you had? And, I guess finally, maybe for Caroline, when do you expect the format flip in Las Vegas to go revenue neutral versus the prior format and I guess that's kind of what I would like to know.

Well, first of all James, as pertains to the Cumulus transaction, I think it was a pretty ingenious play on the part of Cumulus. It's not often that you see a group of assets such as those Susquehana is selling to Cumulus, come available on the market.

So I think this first of all should be accretive to the shareholders of Cumulus Broadcasting as we go forward. I think, again, all I'm giving you is information that I read in the trades because I haven't spoken with Lou Dickey (ph) firsthand. But I think that what he has done is probably the best overall transaction that I've seen come down the pike in the last few years. I applaud him for what he did and so far, based on the knowledge that I have I see absolutely nothing negative about the transaction.

I guess, do you have a sense as to what type of multiple the transaction was. Do you think the multiple might have been a little less than what people have been thinking about for assets of that quality or do you think that was kind of in line.

Yes, I think the multiple was in line. I suspect that the multiple, it appears from the knowledge that I have that it's probably somewhere in the 13 to 14.5 range.

Okay. And do you think this kind of loosened up the M&A market or this transaction or not necessarily?

I don't know, I spoke to one broker yesterday who seemed to think that there would be other fair sized deals that would come along over the next 12 months. But I question again whether we'll see a group of so-called beach front assets as Susquehana is selling to Cumulus.

Okay.

Jake, I'll just end with you, we need to ask about the competitors, but we are seeing competition that participated markets in which we're involved with Clear Channel, reduce their inventory. For example, you heard what Cox is planning on doing next year. We ourselves, for example in Philadelphia, only run 10 units per hour at our rhythmic CHR radio station, however, we look at our country station there where we run a few more than 10 units per hour because of the competitive nature. So I think less is more is helping with inventory.

I believe that Clear Channel is sticking to their guns and I think it's nothing but -- great for radio to help us with the pricing. And quite frankly we are seeing some pricing demands in some of our markets. They're not all across our markets, but in some of our markets.

Would you expect that most of your competitors, the balance of your competitors are going to be cutting inventory this year versus next year?

I think that could be possible, I can't speak for our competitors. I know what we will be doing and we've been strategically in line with where we are this year, we'll be there next year. We think we took care of our inventory just a few years ago on radio stations where we thought we needed to and I'm in hopes that our competitors in those markets will reduce their inventory. I think it would be nothing but good stuff for radio if they did.

So you're saying basically your inventory levels year over year have not changed this year versus last year.

Yes, I think that would be appropriate to say in our markets like Vegas, we run very little inventory and I mentioned in Philadelphia where we run 10 units per hour at wired. We've been doing that all year long and we're running a few more at our country station there and we're doing that all year long so I don't see any reason why we're going to show any decrease inventory next year in our radio stations.

Okay.

And James as far as the format flip in Vegas and when we think that it will be revenue neutral, we're looking at probably second, third quarter of next year.

Okay. And then any sense as to when it becomes cash flow neutral?

Cash flow neutral will probably be around the same time.

Okay, thank you.

(Operator Instructions). Our next question is coming from Philip Remnick (ph) of Guzman (ph) and Company.

Good morning, I have a question about HD radio receivers. I checked with some managers at local big box electronic retailers and this isn't even on their radar screens, certainly not anytime in the next several months. You mentioned you had pre-order in for units and do you have some idea on when those mayactually be available.

We actually will have some available by the end of this year.

Okay, because these local managers, I was asking about Christmas season and they're not going to see them until well into next year. So is this something where you would just be just giving something away at this point?

Yes, we ordered direct from the manufacturer, not from a local retailer.

I think once you see a plentiful supply of HD radios in the stores such as Wal-Mart, electronics stores selling them around the country, you're going to see radio promote HD unlike anything you've ever seen before.

But part of our job is to promote it even before it gets there and that's what we're doing now. As Bruce said before, we're educating our listeners, number one, and number two, we're going to be giving out these HD radio receivers once we receive them in December and that's before the stores have them. So our listeners are going to be going to the stores hopefully and requesting HD receivers and hopefully that will drive some of the retailers to go on and order these and get them in the stores.

And Philip we're also, a big part right now is the educational process and also our company, we have a Web site on our radio stations' Web sites that gives listeners an idea and explains what HD is all about. So we're in the educational process right now until the receivers out there, it's our job to educate people on what HD can -- how it can benefit the listener going forward.

Okay, thank you.

Our next question is coming from John Cornrike (ph) of Sandler Capital, please go ahead, sir.

Hi, two things. What are the listening audience trends year over year at the two largest Las Vegas stations, I assume they're down, how much are they down year over year. And secondly, could I -- I missed the listing of the contributions to the minus 12% in the fourth quarter. Can you just do that 30 seconds again?

Sure. So, do you want to do the ratings real quickly.

Go ahead.

Okay, as far as the ratings go --

I guess we're looking at comparing summer over summer?

Well, whatever okay.

Yes, let's see, in the, we've got all these pieces of paper here that we'll get to eventually. Summer over summer, is this summer of last year? OK, KKLZ, let's just talk about KKLZ and KSDJ.

Those are the two big ones?

Those are our two big ones. KKUL we changed to country.

Right. Okay. To get that down.

Yes, right, we don't have about that yet. Classic Rock station and this is a target demo, 25 to 54, last summer had a 3.4 share. Yes, I'm sorry, our target demo for KKLZ is men, 25 to 54, last summer we had a 3.4 share, this summer we had a 6.4 share.

Wow.

I'm sorry?

That's great.

I'm sorry, I'm sorry, let me start over again because we've got so many different pieces of paper here. I guess that -- let me just -- okay, here we go. Let's do this one more time. Summer to summer, KKLZ 6.4, last summer, 6.9, this summer from fourth to third.

You went up from 6.4 to 6.9?

That's correct sir.

OK, up 7% that's good.

KSDJ, adults 25 to 54 went from a 5 share last summer to a 4.7 share this summer.

Okay, so you put the two together is basically up very slightly.

Very slightly.

Okay, thank you. And on the reiteration of the factors contributing to the minus 12?

Right. Okay, the Dolphins we had last year, we do not have this year.

That's 5 points?

That's 5%. Political up 3%, the Las Vegas format change impact their revenue by about $0.5 million. We had a decrease in non-cash revenue by $800,000 and the impact, the negative impact of Hurricane Wilma on three of our 10 markets, we're looking at between 1 and 2%.

Okay, so if you put them all together, it sounds like an underlying trend, flat to up slightly.

Right.

Thank you very much for your help.

Okay.

Ladies and gentlemen, I am not showing any further questions from the phone lines at this time so I would like to turn the floor back to management for any closing remarks.

Thank you very much for attending our call today and if you have any questions please feel free to call and we look forward to speaking with you next quarter.

Thank you. This concludes today's Beasley Broadcast Group conference call. You may now disconnect your lines and have a wonderful day.