Beasley Broadcast Group Inc (BBGI) 2006 Q1 法說會逐字稿

Good morning. My name is Henry and I will be your conference facilitator today. At this time I’d like to welcome everyone to the Beasley Broadcast Group, Inc. first quarter earnings conference call. [Operator Instructions]

It is now my pleasure to turn the floor over to your host, Caroline Beasley. Ma’am, you may begin your conference.

Thank you, Henry, and good morning. Before proceeding, I’d like to emphasize that this call will contain forward-looking statements about our future performance and results of operations that involve risks and uncertainties that are described in the risk factor section of Form 10-K. This call will also contain a discussion of certain non-GAAP financial measures. For reconciliation of these non-GAAP measures with their most direct comps can be found on the Company’s website. I’d also like to remind listeners that this call is being web cast live over the internet, and that a replay of the call is available for 14 days at BBGI.com. And if you’d like to find a copy of today’s press release, you can go to the Investors or Press Room sections of the site.

As always, we’ll 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.

So moving on to the numbers for the quarter. Our revenues declined 5%. Our Philadelphia cluster continues to generate year-over-year increases in spite of the market declining as a whole. Our Philly revenues increased by approximately 2%, and this is compared to the market, which declined 7%. These increases were offset by decreases at all other BBGI clusters. Miami was challenged as ratings declined at our rhythmic CHR station, in the comparison with last year when we had an NTR net. Las Vegas’ soft quarter was due to increased competition and a drop in ratings at our ‘80’s station. However, on a positive note, our country station generated quarter-over-quarter increases. Our Ft. Meyer’s cluster decreased due to a NTR event held last year which was not held this year. And our Fayetteville and Coastal Carolina markets both experienced declines, and this is primarily due to decreased auto spendings in the first quarter.

One point I would like to make is in Fayetteville and in Coastal Carolina, approximately 35% of their revenue is generated from auto advertising, and that had declined 25% quarter-over-quarter.

In addition, line cash revenue for the company decreased almost 40%, and this reflects our continued effort to reduce the amount of inventory used for trade. Nationally combined, our markets decreased 6%, while BBGI revenue decreased 14%, so we are working to reverse this. On a local level combined, the market increased 1%, compared to our clusters, which were flat.

So to recap, the first quarter revenue decline reflects the reductions in NTR and trade revenue, which accounted for about half of the 5% decline in revenue. And one additional point that I would like to make is that in first quarter of ’05, our revenue increased approximately 10%, so we were up against very tough comps.

Moving on to station operating expenses. They declined 10%. And last year’s first quarter, BBGI incurred 1.4 million in severance costs and approximately 600,000 in NTR expenses. These are associated with NTR events in Miami and Ft. Meyers. These expenses were not incurred this year. During the first quarter, we recorded approximately 500,000 in stock-based compensation expense. Other than that, 100,000 is included in station operating expenses. And in last year’s first quarter, we incurred no stock-based compensation expense.

Our corporate G&A was 1.8 million for the first quarter. As indicated on the fourth quarter call, on January 30th, we amended our credit agreement reducing the term loan and increasing the revolver. We extended the maturity date of the credit facility, and we revised certain financial covenants. And at the time, we projected a 714,000 loss on extinguishment of debt that was to be recognized in first quarter. However, after further review and advice from our auditors, it was determined that these losses should not be recorded.

During the first quarter of 2006, we repurchased approximately 90,000 shares of stock, for a total of 1.2 million. And as of March 31st, we have repurchased approximately 265,000 shares for a total of 3.7 million, and we have remaining 21.3 million under repurchase authorization. Also during the first quarter, we paid our first dividend of $0.0625 per share, and in March we authorized our second quarterly dividend, which was paid in April. Our effective tax rate for the quarter was approximately 40% and current taxes payable were approximately 110,000.

Turning to the balance sheet, as of March 31st, total senior debt was 142.4 million and the latest trend in 12-month consolidated operating cash flow is 33.1 million for a leverage ratio of 4.3 times. Cash on hand as of March 31st was 14.1 million and we spent 742,000 in CapEx for the first quarter, compared to 442,000 in first quarter of ’05.

Leading on to guidance for second quarter. As indicated in this morning’s press release, we are projecting a decrease of 8% from last year, and this is due to the following reasons -- about half of the 8% decrease is projected to come from our Miami cluster, and this is related to our rhythmic CHR station and the Florida Marlins. About 1% of the 8% decline is expected to be generated from our continued reduction in trade revenue. We are also expected to see continued softness in our Fayetteville and our Coastal Carolina clusters, primarily due to continued declines in auto advertising. However, we did have a format change at one of our Fayetteville stations that is also causing a portion of the decline. We are projecting softness at our ‘80’s station in Las Vegas, where we have refreshed the format. And Bruce is going to discuss this a little later on.

On the positive side, in addition to our new country station out performing the prior year’s revenue under the old format, we expect that it will begin to cash flow positive in the second quarter, which is ahead of our internal expectations. We expect our Philadelphia market to be flat over last year, and one point of comparison is that in second quarter of ’05, our Philadelphia market was up 32%. So here again, we’re going against very difficult comps. And as a whole, the Company was up 6.6% in second quarter of ’05.

Our station operating expenses are projected to decline 1% for the quarter. We are projected to have 1.8 million in corporate G&A. We are projected to record approximately 500,000 in non-cash stock-based compensation expense, with about 100 of that -- 100,000 of that to be included in station operating expenses, and will negatively impact our SLI. We are projecting 750,000 in D&A expense, 2.2 million in interest expense, and our effective tax rate is 40%, with deferred taxes being approximately 1.3 million.

CapEx for the quarter will be approximately 2 million. We do expect to spend approximately 5 million in CapEx for 2006, so the full-year guidance is unchanged. We have just moved dollars from first quarter of ’06 to second quarter of ’06. And near the end of the first quarter we entered into an asset purchase agreement to acquire KDWN AM in Las Vegas for 17 million. The projected closing date is third quarter of ’06. The station is considered to be a stick purchase, and we expect that the turnaround will be -- will take approximately 18 to 24 months. This will be the guidance that we are providing you for second quarter, and we undertake no obligation to update this information.

And at this point, I’ll turn it over to Bruce.

Excuse me. Caroline, thank you very much for that in-depth review. It certainly puts a lot of things in a clearer perspective. I’d also like to add that, while we do see some challenges on the landscape in the current quarter, we have in place strategies to address many of these issues that weight on our core and revenue in first quarter.

In Q1, we again exceeded the revenue guidance provided at the time we reported 4Q and the consensus SOI estimates established by the analysts covering the company. In Q1, BBGI’s top six sales categories in terms of revenue contributions were auto, representing about 19.1%, but that was down from 22.5; retail, 19.7, up from 15.2; and then brokerage at 7.4%; restaurants at 6.1; T.V. and advertising at 5.3; and telecom at 4.2. A category we’re fairly excited about is an emerging category for BBGI, which is real estate.

We entered 2006 with several stations and markets in transition, and I’ll briefly update the status of these today. I’d like to start with our largest market, and that’s Philadelphia, of course. During Q1, we overcame a declining market and achieved another period of revenue growth. WRDW, our rhythmic CHR station, remained in the Top Three in its target demo, 18 to 34, while WXGU, our country station, had another solid book in the winter. On a year-over-year basis, Philly is up against challenging comps, as Caroline mentioned. Our cluster recorded solid, double-digit gains throughout ’05. However, there’s still a lot of upside for us there in the Philadelphia market.

Another exciting point about Philadelphia is we just recently added a very popular morning show at WRDW. Before joining Wired near the end of the first quarter, Chio had the number one morning show in the Philadelphia market among women 18 to 34 and 25 to 34 demos, and was Top Three adults 18 to 34 in morning drive. We think the new morning line-up will help us get that station to the next level. And remember, we’re already Top Three at WRDW.

Let’s take a look at Miami and the Las Vegas markets. And they are economically sound, great radio markets right now, and both recorded overall revenue gains in the first quarter. We’re well positioned in both cities, and recent management changes and format changes are expected to prove our revenue share in these markets in the future periods.

Taking a look at Miami, revenues in Miami were mixed, with our country station generating revenue increases, which were offset by revenue decline at our rhythmic CHR station. Early in ’06, we made management changes and personnel changes at WPOW, WQAM, and Kiss Country, mostly with BBGI personnel who are also market veterans, many with 20 years’ experience in Miami. In the recently released winter book, Power 96 was number three in its target demo, 18 to 34. Kiss Country had another solid book, and we continue to work on programming at WQAM.

We are closely monitoring this cluster’s performance, and any further changes in the market should be considered an evolution of the overall reengineering we are undertaking there. We are confident that we’ve put some great talent to work at our stations, and we believe these individuals and their teams can improve ratings and results over the most recent period.

Las Vegas, that’s a market we’re really excited about. We named a new manager there and programmers there, following last fall’s format change, as Caroline mentioned. I’m happy to report that just six months into its reformat, our new Las Vegas country station is already showing signs of a healthy turnaround over the former adult standards programming. And that’s based on its first full ratings book this winter. We expect spring book to confirm this, and we should see positive financial contributions from the station starting in the second half of the year.

Coyote Country has generated strong year-over-year increases in Q1 revenue, which were offset by lower revenue from our ‘80’s station. Earlier this year, we appointed a new market manager with 18 years of experience in the Las Vegas market to lead our cluster. He’s been advancing the successes we have in the market, while addressing areas to deliver more value. We determined that our ‘80’s station in Las Vegas could strengthen its market position through a format’s week, and we recently revised the station’s play list, and we are actively promoting the station’s new sound.

The Las Vegas ratings came out just yesterday, and we’re very happy with the overall ratings, particularly with our country station, which went from a 2.4 in fall to almost doubling that to a 4.3 in the winter, and now is a Top Ten station, 25-54. Ratings at our classic rock station remain stable fall to winter. Our ‘80’s station was another bright spot. After tweaking the format, it went from a 3.1 in the fall to a 4.3 in the winter. It’s tied with Coyote Country as number eight in adults 25 to 54.

The Las Vegas market holds great potential for BBGI, and we invested in research, management, and promotion for the cluster that will deliver returns. With our strengthening country station, our ‘80’s station, and our classic rock station, we fully expect to garner our share of that market as it gains.

And also, we’re leaving no stone unturned, so we’ve also made format and management changes in our mid-sized markets including Greenville, Fayetteville, Augusta, and Ft. Meyers. We’ve been working hard over the past few months, and we’re going to show you the returns there.

Switching to another subject, or something similar. As noted across the portfolio, we are seeking to close the gap on national advertising and perform ahead of our markets, rather than the 8% lag reported in Q1. Now that follows last year’s strong Q1, where national revenue increased 22% for BBGI. The improvement will come from stronger ratings, and with so many stations in transition, we have tremendous potential in this front.

For national advertisers, ratings are the key. We think we’re on the right path to improvement, and the spring book will provide further insights on our progress. Ratings also matter locally, but we believe that our sales efforts served us well in Q1 as combined, the markets increased 1% compared to our stations which were flat. And that’s following last year’s strong Q1, where local revenues increased 6% for BBGI stations.

At last week’s NAB show in Las Vegas, we actively demonstrated the HD radio to the media. With our ongoing station upgrades and the productive work of the HD radio alliance, we remain confident that consumer acceptance of this technology will prove to be of value to both advertisers and broadcasters. And now BBGI has nearly 50% of its portfolio converted to this technology.

Before I turn the call over for Q&A, I’d like to summarize by saying that we believe we have the right local managers that can drive improvements in sales and ratings, and the right plans, budgets, and goals. And we are confident that there will be progress in the portfolio to deliver improving results, both near and long-term. We are reviewing our formats, ratings, management and sales teams on an on-going basis, and will do what needs to be done to improve our market and financial position in future periods. Now with that, I’ll ask the operator to open the call up for Q&A.

[Operator Instructions] Our first question is coming from Lee Westerfield of Harris Nesbitt. Sir, please go.

Thank you, good morning. It strikes me that you all are in the midst of a revenue lull this early half of this year and perhaps into the summer months, as well, as contrasted when you were way out-performing the market last year. I guess the root of my question is this, if we can get into the details. Miami and Philadelphia that are your two biggest markets, I believe from looking back at my notes that those together represent approximately 50% of revenue and EBITDA. A little bit more profitable in Philadelphia than in Miami. So here’s the root of the question is this, if I’m looking at those two markets, what are the components that I should look to for revival? The morning show at Wired, the rhythmic CHR, specifically in Miami, or the sports property in Miami, as we get past the anniversary of the -- or the end of the baseball season. So what are the turning points that we should be looking for?

Yes. Lee, you nailed it. The morning show in Philadelphia at Wired, outside of mornings we do very well in our target demo. And again, we’re Top Three there in our target demo. But to get to the next level, we need to do something with mornings, and I think we’ve knocked a home run with that. The first full rating book with the new morning show will be this spring book, so you can track our progress there. WPOW, we’ve had -- well, quite frankly, there’s been a lot of competition there. And we have been working very hard there. We came out okay in ratings in the winter book. We’re not happy or totally satisfied, but there is a bright spot. The last phase of our winter book is in the area that we want to see that station be, so I think all the research and the work we’ve done there will show, again, if you take a look at the spring book, will show where we need to be there. And as far as the sports station goes, we’ve installed, as you know, a new manager there in the first part of this year. He also brought in an incredible sales manager who has put together just a tremendous sales staff and is continuing to do that job. So we do expect to see some good contribution. However, the Marlins aren’t helping us at all. I think they have the worst --

Won/lost.

Yes, they have the worst won/lost record in baseball, and it’s difficult.

But the best minor league team in the majors.

Absolutely, absolutely. But we do feel good about that because of the sales manager and the new sales people that we’ve put on board there. We’ve really upgraded that situation there.

Okay, we’ll keep our eyes peeled.

Thank you very much.

Thank you. Our next question is coming from Jim Barrett of CL King and Associates. Sir, please go ahead.

Good morning. Since Beasley Broadcasting has been around through the 1960’s and 1970’s, and countless up and down cycles since then, this substantial auto pull-back has happened before in the 1970’s with the gas crisis and the Chrysler bail-out. This time, though, it seems different, perhaps a more permanent rearranging of the ad spending by domestic. Do you think it will be different, or do you see them coming back in ’07?

Jim, I think -- we were at a conference last week in Las Vegas and I mentioned that I think they’re going to come back to -- domestic needs to come back. As a matter of fact, a week or so ago, I believe it was Chrysler was the number one radio advertiser. Outpaced Home Depot. That’s the first time that’s happened in awhile. I believe they need to partner back up with radio, both locally -- where they’re getting hurt is the foreign auto dealers are outspending those guys and they are taking share away. And they’re using radio. So we believe they’ll come back. I can’t say whether it’s going to be the back half of this year or into ’07, but we believe they will come back.

One thing’s for sure, they better not wait too long.

Right.

Okay, and on another industry front. Do you think that radio can wait until ’07, ’08, ’09 for electronic audience measurements, or do you think at some point this is really going to hurt the industry?

Well, as you know Jim, we’ve been a big proponent of electronic measurement. And I hope, and I know our Company hopes, that it’s a lot sooner than later. My understanding is that there should be some interesting conversations going on towards the end of this week that we might get a better idea of what’s going to be happening there. As you know, we signed up for Philadelphia. We think sooner than later is much better. I wish I could give you a date, but I can’t.

Okay, thank you.

Thank you. [Operator Instructions] Our next question is coming from James Dix of Deutsche Bank. Sir, please go ahead.

Good morning, everybody.

Thanks.

A couple of things. I guess just first, in the first quarter, if you could give some break out on the market growth for your three biggest markets, Las Vegas, Philadelphia, and Miami. Particularly the market growth as opposed to just your clusters, and any big differences you were seeing in the national and local environment there. And then, do you have anything in terms of how those markets were growing in April? And then secondly, do you have any data on what your inventory sell-out and what your rates were in the first quarter, year-over-year? Just how that contributed to your revenue. And then, finally, on your recent acquisition of the AM in Las Vegas, if you could just give a little color behind your thinking on that and the value you see in that AM, and AM assets generally. Thanks.

So I’ll start with the largest market and the market growth. For Miami, total spot was up about 6%, local was up about 7%, and national was up about 3%. And that was total spots. Philly, total spot revenues were down for the quarter 8%, local was down 5% and national was down 13%. And in Las Vegas, total spot was up 5%, local 5, and national up 3. And markets -- Miami and Vegas were fairly healthy, Philly was not for the first quarter.

As far as sell-outs go for the quarter, it looks to me like, if we were to compare obviously ’06 with ’05, our sell-outs were at a lower percentage. Probably in the 60ish percent range year-over-year versus -- and as far as rates go, I can’t really respond to that.

It’s different in different markets. Some rates were higher for some stations, some rates were lower for other stations.

And then I’ll turn over the KDWN acquisition to George.

Okay.

Yes, the KDWN acquisition is an unusual opportunity, one that you do not see come available very often. It’s a 50,000 watt, full-time station that you can compare with the big 50,000 watters in New York City and Los Angeles, Chicago and all across the U.S. There’s only one full-time 50 kilowatter in Las Vegas. We think there are a couple of opportunities there, and we think it may take 12 to 18 months to develop them, but at that point, we do expect to see a station that is performing quite well. And a station that adds a great deal to our cluster in Las Vegas.

Any sense over those 18 and 24 months as to roughly how many -- how much in losses you’ll be investing?

Yes. James, I mean -- what I’d like to do is wait until next quarter, until we get a better handle on all the expenses that are going to go in to that, and then we have a preliminary budget out there now, that I would like to just refrain from responding to that until next quarter.

Okay, fair enough. Thanks.

Thank you.

Thank you. There seem to be no further questions. I will now turn the floor over to your hosts for any closing comments.

Well, thank -- thank you very much for attending the call, and we look forward in speaking with you soon.

This concludes today’s conference call. You may now disconnect. ??

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