Beasley Broadcast Group Inc (BBGI) 2005 Q4 法說會逐字稿

Good morning, ladies and gentlemen. My name is Martine and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Beasley Broadcast Group fourth-quarter 2005 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS)

It is now my pleasure to turn the floor over to your host, Denise Mesnik, Corporate Communications Director. Ma'am, you may begin your conference.

Thank you very much. Good morning, everyone. We do appreciate you joining us and we apologize for the delay. We had a few technical difficulties getting started. But thanks for joining us.

Before proceeding, we would like to emphasize that this conference call will contain 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] risks and [uncertainties within the meaning of the U.S. (technical difficulty) Securities 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 radio stations, the Company's debt levels and changes in the radio broadcast 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 as results of operations and financial conditions section of our SEC filings, copies of which can be obtained from the SEC Website, which is www.sec.gov, or Beasley Broadcast Group's site, www.bbgi.com. All information in this conference call is as of February 13, 2006, 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 is available on our corporate Website -- again, that is www.bbgi.com -- for 14 days after the call ends. Investors can also obtain a copy of today's press release on the Investors or Pressroom sections of the 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 our most directly comparable financial measures calculated and presented in accordance with GAAP can be found on our Company's Website.

What 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 call today. As always, we will try to keep our remarks concise and to allow ample time for Q&A. George Beasley, our Chairman and CEO, and Bruce Beasley, our President and COO, are here with us and available to answer questions during Q&A.

Moving on through the quarter, our revenues decreased 8%. One note that I would like to make before going into the detail, political revenue for fourth quarter '04 was approximately 1.1 million, or 3% of the revenue in that quarter. You will see that's going to be a recurring theme over the next few minutes.

Our Philadelphia and Fort Myers clusters continued to generate year-over-year double-digit increases, with Philly revenues increasing approximately 17% and Fort Myers increasing approximately 13%. These increases were offset by decreases in Augusta, Fayetteville, Vegas and Miami. Augusta continues to struggle because of a decline in ratings and increased competition. However, I am happy to report that we just received our fall book, and Augusta is currently showing some traction there.

Moving on, another point about Augusta in fourth quarter '04, 5% of their revenues were generated from political. Fayetteville's soft quarter was due to weakness in both local and national, and this is in part due to the amount of political generated in that market last year, which was 5%.

Las Vegas's decline was in large part due to the change in format at KCYE, and then tough political comps in that market as well, where 7% of their revenue was generated from political. Miami's decline was primarily due to not broadcasting the Dolphins football games. And finally, non-cash revenue for the Company decreased 25%, which is a result of our continued effort to reduce the amount of inventory used for trade.

Nationally, all of our markets experienced a decline in revenue with the exception of Philly. And actually, the market was down; our cluster outperformed the market and was up. On a local level, all clusters with the exception of Philly and Fort Myers generated losses for the quarter.

So to recap, fourth quarter's decline was primarily due to tough political comps and this had a negative 3% impact on our revenues; not broadcasting the Dolphins in Miami, which impacted revenues by 5%; a reduction in trade revenue or non-cash revenue for the quarter, which negatively impacted revenues by 1%; and then the change in format in Las Vegas at KCYE, which had a negative impact of 2%.

Our station operating expenses decreased 6%, and as mentioned before, we did not renew the broadcast rights agreement with the Dolphins. And our expenses decreased by about 2.7 million for the quarter as a result of this. This decrease was partially offset by an increase in programming expenses in Miami and increased promotional expenses from the change in format in both Las Vegas and Augusta clusters. And then we had an NTR event in Fort Myers. Our station operating income decreased 13% or 1.4 million.

On July 1st, 2005, we granted 267,500 shares of restricted stock. During the fourth quarter, we recorded stock-based compensation of 300,000, which reduced EPS by about $0.01; and for the full year, stock-based compensation expense was 1.1 million, which reduced EPS by about $0.03.

As of 12/31, the Company recorded a $2 million impairment charge related to the valuation of our SEC license. The impairment was identified in our Augusta market, and this impairment decreases our EPS by about [$0.05].

Current taxes payable for the quarter were approximately 1.4 million, the effective tax rate for the year was approximately 42%, and current taxes payable for the year were approximately 4.1 million. As of 12/31, total Senior debt was 144.4 million, and the latest trailing 12 months consolidated operating cash flow was $32.2 million for a leverage of 4.48 times. Cash on hand at the end of the year was 16.3 million. For the fourth quarter, we spent 1.4 million in CapEx and 3.3 million for the year.

As far as share repurchases go, during the fourth quarter we repurchased 62,500 shares for a total of $875,000, and for the year we repurchased approximately 132,000 shares for approximately 1.9 million. And we have approximately 22.5 million remaining under our present authorization.

Moving onto guidance for first quarter, we are projecting revenues to decrease 7% over last year and this is due to the following reasons. We are projecting a reduction in NTR of approximately 700,000 generated from concerts in our Miami and Fort Myers clusters. And this has a negative 2% impact on our projections in revenue. We are also looking at a reduction in non-cash revenue of approximately $0.5 million, which is another approximate 2%.

We are seeing general softness in our Fayetteville and coastal Carolina clusters, and this is in large part driven by declines in auto advertising. And then we are projecting a decrease at our 80s station in Las Vegas due to increased competition and ratings decline. On the positive side, our new country station in Vegas is expected to outperform the prior year's revenues under the old format beginning in March.

Moving on to station operating expenses, we're projecting a decrease of 8% for the quarter. We incurred 1.5 million in severance costs last year and we have approximately 600,000 in NTR expense savings, and this is associated with the 700,000 decrease in NTR revenue that I just discussed. These decreases are offset by increased expenses associated with the Las Vegas format change.

We are projecting 1.8 million for the quarter for corporate G&A and approximately 7.5 million for the year. Effective January 1st, the Company is required to record compensation expense on all stock-based compensation. During the first quarter, we expect to record approximately $0.5 million in non-cash stock-based compensation expense, and this is related to our stock options and restricted stock. And we're expecting to record a total of 1.9 million for the year.

And for first quarter, 100,000 of the 500,000 will be included in station operating expenses and will negatively impact our SOI. And 400,000 of the 1.9 million will be included in station operating expenses for the full year.

We're projecting 750,000 in D&A expense and approximately 3 million for the year. We're projecting 2.2 million in first quarter '06 of interest expense and approximately 8.8 million for the year.

On January 30th, we amended our credit agreement, reducing the term loan and increasing the revolver commitment. We also extended the maturity date of the credit facility and we revised certain financial covenants. As a result, we will record an approximate 700,000 loss on extinguishment of debt.

Our effective tax rate is projected to be 41%. Our deferred tax expense will be approximately 1.3 million for first quarter and approximately 5 million for the year. We are projecting to spend about 1.5 million in CapEx for the quarter and about 5 million in CapEx for the year. This CapEx number reflects conversion to HD Radio at 11 of our radio stations in 2006.

During the fourth quarter, the Board of Directors authorized the initiation of a quarterly cash dividend $0.0625 per share. We paid the first dividend last month, which in total amounted to 1.5 million.

This will be the guidance that you receive for first quarter. We undertake the obligation to update this information until the next call. I thank you very much and I will turn it over to Bruce.

Thanks, Caroline. While there were some moving pieces in Q4, we again exceeded the revenue guidance provided at the time we reported 3Q and the consensus SOI estimates established by the analysts covering the Company. Since our 3Q call, we have made a wide range of station level changes. And that I'll review now as well as our ratings trends and the significant ad categories for the Group.

First, I'd like to emphasize this morning that we are activist managers of our stations. By this, I mean we consistently review and evaluate the ratings, formats, revenues and management at each station with an eye towards identifying areas for improvement.

By and large, we have succeeded in this effort in the markets such as Philadelphia, Fort Myers and Miami, and we have several exciting situations at some of our stations in transition at this time that we believe will contribute to long-term operating improvements.

Let me start by reviewing personnel changes made since our last call, as while we are actively involved in the management of our Group, it is the local station management that can drive improvements in sales and ratings, given their in-depth knowledge of their specific markets.

I am particularly proud of the fact that the changes I'm going to review, we were able to call upon our own talent pool to steer some of our most important markets. In each case, the newly-appointed management has long-term experience and in-depth knowledge of the markets that they are now managing.

In Las Vegas -- we will talk about that first -- Tom Davis was named market manager of our three-station cluster earlier this year. Tom is an 18-year Las Vegas broadcast veteran. He was most recently director of sales for the Beasley Las Vegas Station Group, and we think that is a terrific background for Market Manager there in Las Vegas.

In Miami, another of our top three markets, we promoted Joe Bell to the position of General Manager of Sports Radio at 560 WQAM, and Market Manager of not only QAM, but KISS Country there. And Joe was manager of KISS Country for the past six years, where he did a tremendous job.

We also named Carole Bowen, a 25-year Miami radio industry veteran, General Manager of KISS Country. And to complete our management change in Miami, we imported Matthew Bell as General Manager of Power 96. Matthew was most recently the General Sales Manager at Power and is a 28-year broadcast pro, and has been at Power 96 for over 20 years. We think this incredible collective market experience by Joe, by Matt and by Carol are powerful combinations to lead our cluster.

Looking across the station portfolio, the spot performance of the markets in which Beasley operates were down 1.7%, while our stations were down 6.1, and that's measured by Miller Kaplan. These results primarily reflected the impact of items [submitted] earlier by Caroline, including format change, election not to renew the Dolphins, and some generally difficult markets, such as Augusta and Fayetteville.

Also, as Caroline noted earlier, continued gains at Philadelphia and Fort Myers clusters particularly offset the items, and these markets in our coastal Carolina cluster exceeded their respective market's performance.

Sales categories that were strong for us compared to a year ago fourth quarter included retail, financial services, insurance and NTR. Notable categories that were down from a year ago include auto, telecom, gaming casinos and, of course, political. As has been well-documented, automotive also showed the largest quarterly sequential decline during the period, followed by restaurants, soft drinks, while retail, TV movies and entertainment and financial services recorded gains over Q3 levels.

The double-digit gains in Philadelphia reflect the strong performance at WRDW, as the station turned in a solid fall rating book with nice gains over the summer and top three ranking in our target demo, adults 18 to 34, while our country station there, WXTU, remains a very consistent and resilient performer; and while ratings fell slightly, revenue rose double digits year-over-year.

Looking into Miami, Power 96 has solidly regained its position in the market, with nice ratings gains in the fall book and the number two position in the market for adults 18 to 34, while KISS Country had a down fall book. This does happen from time to time in that market, but on the whole, disposition in the market remains strong and the fall ratings had no impact on continued revenue growth being achieved at the station.

WQAM, our sports talk situation there with the Dolphins is well-documented at this point, and as expected, did impact our ratings; although long-term, we do believe WQAM has strong potential as we put in place new management and will realize significant savings over the Dolphins contract.

Las Vegas is an important cluster for Beasley and we have some very high expectations there. Early in Q4, we rolled out the [County] Country format, which targets listeners ages 25 to 54. Ratings trends to date have been positive and we are very optimistic that we will improve on the performance of the former station, KJUL, which was programming on adult standards.

Las Vegas is a terrific market. We have solid management team in Tom Davis and we brought in one of the country's most experienced program directors to drive the success at that radio station.

In Augusta, the market remains challenged, as evidenced by the continued revenue declines, though we see the potential for improvement performance for Beasley cluster based on a reformat and some management and cost savings changes that we have initiated there.

Let's take a look at the HD Radio. Beasley became a member of HD Radio Alliance, which includes several of the nation's leading radio groups. The HD Alliance was formed to accelerate rollout and consumer acceptance of HD Radio. We now have converted 17 of our stations to HD technology, with five of these stations offering new programming through multicasts. The Alliance is already making progress in raising consumer awareness of the technology and growing availability of the hardware. As a matter of fact, a Crutchfield car stereo catalog was recently sent to me, and the number of the receivers now capable of receiving HD broadcast has grown measurably, with products available at several price points, including some as low as $179.99.

Before we open the call to Q&A, I want to speak briefly about our efforts to reduce the amount of station inventory used in trade situations, as we continue to reduce ad clutter and reserve inventory for its highest and best use, and that obviously is cash transactions.

Earlier this year, we audited every station's trade revenue arrangements to identify examples that made economic sense. We then instructed our station managers to use trade agreements sparingly going forward, and only in those situations where there's a relative equal economic exchange. This policy went into effect during Q2. Results, again, about $450,000 year-over-year decline in fourth-quarter revenue from this source, and '05 trade revenue declined about 1.45 million.

Finally we remain committed to regularly reviewing our formats, ratings and management and sales teams, and to make appropriate changes based on our analysis that we believe can improve our market and financial position in future periods.

With that, operator, I'll ask that you open the call for Q&A.

(OPERATOR INSTRUCTIONS) James Dix from Deutsche Bank.

Good morning, everybody. Just a couple questions for you. First, relating to the fourth quarter, Bruce, if you could give some breakout as to the local versus the national growth in the quarter. And then specifically, what was the auto category for you in terms of percentage decline? I'm trying to get a better handle on that.

And then looking out for first quarter, what are your basic assumptions as to what your markets are going to be growing in the quarter, given the various things which are going into your guidance?

And then, I guess just more broadly for the full year, you're obviously getting a fair amount of operating expense cut in the first quarter. But just generally, do you think this is a year where you're going to be able to hold operating expenses to grow kind of in the low single digit range depending on what the revenue is? Or do you expect to be making the types of investments that would make that more unlikely? And that's it.

Is that all?

Yes, that's it.

That's one of those like seven-part questions. You know what, James, I'm going to jump in and help Bruce with the local versus national for fourth quarter. And just to circle back on something that he had said earlier -- there was actually a typo -- our stations were down 8% for the quarter, while our markets were down 6%.

And I'd like to talk about that in a little bit. But let's talk about the breakout between local and national for spot. So we were down [8%; locally], we were down 4%; and nationally, we were down 20%. The markets that we were in local, they were down 2%, and national was down 14% for the quarter.

Now this includes us not having the Dolphins and the change in format. You just take a look at us not having the Dolphins, then we would have outperformed our markets; our spot revenue would have been down 4% versus our markets down 6%. So we've got a lot of tough things going on in the fourth quarter, but just if you remove that one piece --

Plus political.

Yes, plus political.

As well as political out there in fourth quarter.

Then it doesn't look as bad. And as far as auto goes, we actually saw a decrease in auto quarter-over-quarter of about 16%.

Is that versus third quarter or versus the fourth quarter of '04?

That is versus fourth quarter of '04.

Okay.

That is a decrease of about 16%. And for the first time since I remember, auto was not our number one category in fourth quarter; actually, retail was. So that was -- just barely, but it just shows how significant the drop in auto was in fourth quarter and how slow things were with auto. Did you want to add something?

And then as far as our basic assumptions for first quarter, as we said -- or as I said before, we've got the trade revenue issue and the NTR issue. We are seeing softness in our Fayetteville and coastal clusters. And when you have clusters like this, where 30, 35% of their revenue comes from auto and auto is looking down 5 to 10%, then you're going to see some significant impact in revenues or in declines. So we're looking at that.

As far as our larger clusters that I'm sure you're interested in (indiscernible), we're looking at probably flattish to slightly up for the quarter. And in Miami, because of the NTR impact, we're looking at Miami being slightly down. If you were to look at Miami without NTR, you would see Miami probably flattish to slightly up as well. And then Vegas, of course, we're looking at down because of the 80s station and, again, we're not projecting to see month-over-month increases in our revenues until probably March with the country station.

Yes. And all those things I agree with. And when you are looking at operating expense, James, I think Caroline's numbers, we can't hold those across the year, based on the way that we continually budget for our radio stations that need high promotional dollars. Those are in the numbers; they are there. I think we did a pretty good job of budgeting for '06 as far as expenses goes. And I think you can rely on those numbers, unless something happens out there that we're not aware of right now.

So for '06, I think that your assumption in the low single digit range is a really good assumption, because we are very focused on expenses this year -- unless, of course, as Bruce said, we need to make investments in our radio stations.

Okay, great. I think you got them all.

David Bank with RBC Capital Markets.

Good morning. I think James got them all.

Great.

Have a good day.

(OPERATOR INSTRUCTIONS)

Martine?

(OPERATOR INSTRUCTIONS)

I would just like to thank everyone for being on the call today, and we look forward to speaking with you again next quarter.