Beasley Broadcast Group Inc (BBGI) 2006 Q2 法說會逐字稿

Good morning. My name is Jackie, and I'll be your Conference facilitator today.

At this time, I would like to welcome everyone to the Beasley Broadcast Group, Inc. Second Quarter Earnings Release Conference Call. [Operator Instructions]

It is now my pleasure to turn the floor over to your host, Caroline Beasley, Chief Financial Officer.

Ma'am, you may begin your Conference.

Thank you, Jackie.

Good morning. And welcome to the Beasley Broadcast Group Second Quarter Conference Call.

Before beginning, 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 Factors section of our most recent Form 10-K. This call will also contain a discussion of certain non-GAAP financial measures within the meaning of Item 10 of Reg FK. A reconciliation of these non-GAAP measures with their most directly comparable financial measures can be found on the Company's website.

I'd also remind listeners this call is being WebCast live over the Internet and that a replay of the call will be available on our corporate website, bbgi.com, for 14 days. Investors can also find a copy of today's press release on the Investors or Press Room sections of the site.

We'll keep our remarks focused this morning on the second quarter, our guidance and operations outlook; and then open the floor to Q&A.

I'm joined this morning by George Beasley, our Chairman and CEO; and Bruce Beasley, our President and COO.

Moving on to second quarter -- for the quarter, our revenues declined 2.4%, reflecting our companywide initiative to reduce the amount of inventory use for trade. Noncash revenue for the Company declined by 33%, or $400,000, during the second quarter. This decrease accounted for half of the total second quarter revenue decline.

During the quarter, four of our 10 markets achieved gains, which compares with the first quarter, when all markets, with the exception of Philly, were down. Our Philly cluster revenues increased approximately 4%, compared to the market, which declined 2%. We also generated year-over-year increases in Fort Myers and Augusta. These increases were offset by declines in Miami, Las Vegas and Coastal Carolina.

Miami's decrease in revenue is a result of a ratings decline at our rhythmic CHR station and the Florida Marlins baseball team. However, this was partially offset by increases from the Miami Heat playoff. Las Vegas' quarter was impacted by a competitor's format change a few books ago that boosted their ratings.

The Coastal Carolina market remains soft, primarily due to the market's reliance on automotive spending, which again declined in their second quarter. The market was down 12%, with our cluster down 8%.

Now, about 30% of Coastal Carolina's revenues come from auto. And on a companywide basis, auto was down approximately 13%.

Nationally combined, our markets decreased 6%, while BBGI national revenues decreased 16%. With programming and on-air changes in place that Bruce is going to talk about shortly, we are focused on ratings improvements that can reverse this trend. On a local level combined, the markets increased 4% compared to our clusters, which were up 1%.

So to recap -- second quarter's revenue decline of 2.4%, which followed a second quarter '05 revenue increase of 6.6%, reflects the reductions in trade revenue, which was about half of the decline in the current radio ad environment, [in Aspen] declines in some of our biggest markets. Our station operating expenses increased slightly by .3%. And station operating income declined 8.1%.

Our [core] G&A declined 7.1% to $1.7 million. And during the second quarter, we recorded approximately $454,000 in stock-based compensation. Of this amount, $32,000 is included in station operating expenses. In last year's second quarter, we incurred no stock-based compensation expense.

Year to date, we've recorded approximately $925,000, with approximately $100,000 of that in station operating expenses.

We remain active on the share-repurchase front. In May, the Company's board reloaded the Company's previous share-repurchase program to authorize repurchases of up to 25 million. During the second quarter, we repurchased approximately 100,000 shares of our stock for a total of $820,000, representing an average price of $8.20 per share. Since the repurchase program was launched in Q3 '04, we've repurchased approximately 368,000 shares, for a total of $4.5 million.

During the second quarter, the Company authorized a quarterly dividend of $0.06.25 per share to each shareholder of record as of June 30. And this was paid on July 20. And this reflects an annual yield of approximately 4%.

Interest expense for the quarter increased 3%, while borrowings are down. Higher interest rates, due to the roll-off of swaps, and generally higher interest rate resulted in the increase. And our effective tax rate for the quarter was approximately 40%, with current taxes payable $361,000.

Turning to the balance sheet -- as of June 30, total senior debt was $140.4 million. In the latest trailing 12 months, consolidated operating cash flow was $32.2 million, for a leverage of 4.35 times. Cash on hand was $13 million. We spent $1.3 million in cap ex for the second quarter. And year to date, we've spent $2.1 million in cap ex. Moving on to guidance for the third quarter -- as indicated in this morning's press release, and reflecting approximately two months of ownership of [Kdawn], KDWN, in Las Vegas, we are projecting our revenues to decline 5% from last year. And we're projecting our station operating expenses to increase 2% for the quarter. And this does include the expected impact of the closing of [Kdawn] of an additional $500,000 in expenses.

Now, on a same-station basis, which compares stations that we own for all of third quarter '05 and third quarter of '06, we project our revenues to decline 5% as well. And I'd like to just review what those reasons are.

We're projecting a decrease in our Miami cluster related to our rhythmic CHR station and the Florida Marlins. And this accounts for 3% of the 5% decline. We're booking at continued reduction and trade revenue. And we do expect this number to normalize in upcoming quarters. And we are expecting that to account for about 1% of the 5% decline. And we're looking at softness in our Coastal Carolina and [federal] clusters. And this is driven by continued declines in auto advertising. And that will account for about 1% of the decline.

We expect our Philadelphia market to be flat with last year and our Las Vegas and Augusta clusters to generate quarter-over-quarter increases. And I'd like to point out that the Marlins and the trade revenue declines are expected to represent about 50% of our expected decline in third quarter.

On a same-station basis, our station operating expenses are projected to be flat for the quarter. Our corporate G&A is projected to be $1.875 and approximately $7.2 million for the year. During the third quarter, we expect to record approximately $700,000 in stock-based compensation expense. This relates to stock options and restricted stock. We now expect a total of $2.4 million for the year. The increase from prior guidance of $1.9 million reflects a second quarter restricted stock grant.

In the third quarter of '06, $100,000 of the $700,000 will be included in station operating expenses and will negatively impact SOI. And for the full year, we're projecting approximately $500,000 of the $2.4 million included in station operating expenses.

We're projecting $750,000 in D&A expense for the third quarter and approximately $3 million for the year. And as far as interest expense goes, we're projecting $2.5 million in third quarter and approximately $9 million for the year. And this assumes an effective interest rate of approximately 6.5%, reflecting higher interest rates from the roll-off of swaps and the borrowings for the upcoming purchase of [Kdawn].

Our effective tax rate is 40%. And our deferred tax expense will be approximately $1.3 million for the quarter.

We continue to invest in our properties and HD conversions. Cap ex will be approximately $2 million for the quarter, with $1.25 million in investments. The investment cap ex relates to HD Radio conversions at several of our stations, expansion of [two-DI] facilities in Fort Myers and Vegas, and tower upgrade in Boston. And we continue to expect to spend approximately $5 million in cap ex for the year.

Within the next day or hours, or the next several days, we expect to close on the acquisition of [Kdawn] in Las Vegas and 27 acres of land which was subject to an option. So we will acquire [Kdawn] AM for approximately $17 million, and the 27 acres of land, where the tower is currently located, for an additional $5 million. So the total purchase price will be $22 million. The acquisition is funded from $16 million in borrowings under the credit facility. We're funding $3.8 million from cash on hand and the remaining $2.2 million from proceeds from the [sell] of the tower and related assets to Beasley Family Towers.

We previously anticipated holding an option on the land but decided to purchase it with the station. As indicated before, the station acquisition is considered to be a stick purchase. And we expect that the turnaround will take approximately 18 to 24 months. Pro forma debt will be $156.4 million, and our leverage will be 4.85 times upon closing.

This will be the guidance that we're providing for third quarter. We undertake no obligation to update this information until the next Conference Call.

And I will turn it over to Bruce.

Thank you, Caroline.

Now let's take a look at some of our operating results for Q2.

As Caroline pointed out, Q2 results were again impacted by the reduction of inventory used for trade and some tough comparisons with the strong results we showed in Q2 '05, but has not yet shown the benefit of the programming and personnel changes that were effected in late '05 and earlier this year.

With some spring data out right now, we've started to see some of the progress we've expected. We remain confident that we will begin to see turnaround in our core ad revenue later in the year in Miami, while we continue our efforts to improve our Las Vegas cluster.

In 2Q, we again exceeded the revenue guidance provided at the time we reported 1Q. And we also surpassed the street's SOI- and EPS-consistence estimates. There were several positive developments during and subsequent to the period, which I'll touch on after reviewing the top advertiser categories for last quarter.

BBGI's top six categories in 2Q, in terms of revenue contribution, were retail, at 19.8%, and that's up from 17.6. Auto came in at 18.5%, down from 20.9 in other, which includes -- categories like travel and real estate, and so forth, came in at 8.6%, up from 8.2; brokered, 6.5 -- that's up slightly from 6.4 -- restaurants, 6.2, down slightly from 6.3 -- and telecom at 4.6, down from 4.9.

Our story this year is that we made a wide range of station-level changes in management, programming and sales to strengthen our position in the key markets and drive long-term operating improvements. As you can imagine, we really watch closely Philadelphia. So I'll start there in reviewing the markets and our stations.

In Philadelphia, our cluster once again outperformed the markets, as we posted a 4% revenue gain, which followed the spectacular results this cluster recorded in Q2 '05. Philly is clearly benefitting from management and station programming and sales process improvements implemented since last year, as reflected in market revenue share, which rose to 9.1% in 2Q '06 from 8.6% in 2Q '05.

Looking at our ratings, we saw what we view as an aberration in the market or [diaries] as each of the four urban CHR rhythmic stations in Philadelphia, including ours, had a down Spring book. We're not sure if it was an under-sampling of an important component of the target demo affecting these ratings. But since the decline did not result in gains at one of the other stations in this format, we're pretty sure it's an anomaly of some sort.

WRDW did beat our closest format competitor in morning and midday [day parts] in the spring book. And while we're pleased with the overall station lineup and performance, we're always looking for ways to get it to the next level. WXTU, our country station in the market, again delivered another good ratings book this spring. And we remain very comfortable with its overall revenue contribution and market share.

All in all, our stations' teams in the market are doing a tremendous job on execution, outperforming their peers and growing market share at a time when ad sells in general in that market have not been so strong.

Now let's take a look at Miami. With the Mets leading the tough National League East, the broadcast rights agreement for the Florida Marlins on WQAM impacted second quarter results. And it's partially behind the cluster's revenue decline during the period. The winter book ratings at Power 96 that temporarily slipped to number three in our target demo also had a negative effect on the second quarter, while KISS Country delivered another good period of revenue contribution.

The Marlins and WTOW's winter book will also affect Q3. But we see brighter days ahead. WQAM is making impressive inroads with its sales department, and it's spring book showed a healthy gain over the winter. In addition, WTOW reemerged in the spring book as number two; 18 to 34 its target demo. And we see this benefitting revenue in future periods.

And as Caroline said, advertising in the market remains healthy. So we don't have to overcome a weak economy. Taking all these things together, we believe Beasley's three-station cluster can meet or beat the marketing in upcoming periods.

Let's move on to Las Vegas. Las Vegas remains a work in progress, with more work needed to get ratings where we want them to drive national business. The change to Coyote Country format last fall resulted in positive results in a recent research project. And the station turned cash flow-positive last quarter. But we intend to continue to focus on improvements at the station, as well as our '80s and classic rock formatted stations in the market.

In addition, the acquisition of [Kdawn] this month is a stick purchase. And we project that it'll take about 18 to 24 months to turn this station around. [Kdawn] is the only station in Las Vegas that boasts a 50,000-watt signal, so it can reach more listeners than any other station in the market.

As we indicated in earlier calls, we also did a reformat, made some market management changes, and implemented cost-savings initiatives in Augusta. And we were rewarded in Q2 with this cluster delivering double-digit revenue improvements. We see follow-through on this in 3Q and are delighted with the results of hard work in this market to turn things around.

Additionally, with Fort Myers doing close to $50 million in revenue, and with the recent tweaks we implemented in the classic rock station following the loss of Howard Stern, we were pleased to see that it came out number one in its target demo, adults 25 to 54. Other mid-size markets, such as Coastal Carolina and Fayetteville, also turned in good spring books.

Because radio is such a local medium, it's often unaffected by larger forces shaping the national economic landscape. 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 can again exceed the performance of the industry, which is our corporate goal, and certainly our priority.

Before we open the call to Q&A, I'll summarize by saying that we've addressed station management and sales personnel issues in our large markets, as well as in our mid-size markets. And we've invested in programming that can result in ratings growth needed to turn around our national advertising. We have a great team of local managers that can drive improvements in sales and ratings; and the right plans, budgets and goals. And we are confident that we will progress in the right direction for our portfolio to deliver improved results for both near and long term.

Format, ratings, management and sales team reviews continue on an ongoing basis. And we'll rectify swiftly to market and national changes. By adhering to this strategy, we can drive turnarounds, just as we've done in markets like Philadelphia and Fort Myers. As such, I'm very confident that as a whole, our portfolio will improve and grow.

Now with that, operator, I'd like to turn the call over for Q&A.

[Operator Instructions] James Dix, of Deutsche Bank.

Good morning, everybody.

[Morning].

Good morning.

Had just a few questions -- first in terms of just the market pacings, which you saw in the second quarter; and then trends you're seeing in the third. Caroline, you kind of broke down your guidance in terms of various company-specific things. So are you assuming that the markets otherwise are going to be flat in the third quarter? I'm just trying to get a sense as to what your feeling is, or the trend of the overall business in your markets, as opposed to some of your station-specific things going into the third quarter from the second.

And then secondly, what are you seeing in terms of private-market values of stations? Given where your stock is now, I mean, does it make you any more interested in selling any assets or stations in the private market that take advantage of any gap that you see opening up?

And then I guess finally, just what is your thinking in terms of the pace of buybacks that you want to do with your stock at these levels?

And that's it.

Okay.

Well, let me address the first question. I guess George will address the second question. And then I'll go back to the third question here.

As far as market pacings go -- first of all, I'd like to say that it's very difficult at this point to provide guidance, revenue guidance. Because so much business is being placed in a particular month. I mean, for example, second quarter, we gave guidance of revenue being down -- projected being down 8%. But as we progress in the quarter, the months got better and better, and they built on one another. So that is very difficult.

As far as the assumptions go, going into third quarter -- we are in some pretty good markets -- some strong markets. We've got Miami that to date has been strong, as Bruce mentioned before. Vegas has been strong, as far as the market goes. Fort Myers has been a strong market as well. But in looking toward [two], am I -- glass ball, if you will -- my crystal ball going into third quarter, it seems like that Fort Myers might be slowing down a bit. And that could be driven by real estate values down here, et cetera.

And I'm not sure exactly about Miami; that might be slowing down a bit as well. That's what I'm seeing today. The Philadelphia market is down. And I haven't seen any indication that that is trending back up. But we've got very strong stations in the market. And then the Coastal Carolina markets and the [federal] markets -- at this point, they seem to be down.

So that's kind of the overview for the markets that we are in. But the positive is Vegas, Miami and Fort Myers have been very strong markets. And while Miami and Fort Myers may slow down a little bit, we still think that the markets will be strong.

Do you [see] markets which appear to be accelerating on third quarter?

Have you seen that, Bruce? I --

Well -- I think one that maybe we see accelerating a little bit is Coastal, just because it's been down for the last two years.

Okay.

So I think that may be easy comps.

Yes. I don't think it's going to have growth, but it may not be declining as much as it has in prior quarters.

And James, I mean, the bigger effect is national advertising. Our guys on a local level are doing a pretty good job. It's just nationally, we've got -- we're dealing with some issues that the revenues just aren't there, as they were before.

Okay.

James, this is George.

You asked the question, private-market values. I think perhaps that private-market values are at their lowest point in, say, the past 15 years. That's just my opinion. And you also ask if we were interested in sales of stations. I do not believe that we are so interested in sales of stations as we are perhaps in doing some swaps to bulk up in some of the areas where we do not have completed clusters. Swaps would certainly be something that we would entertain at this point.

Just specifically, following up on your plan in private-market values, kind of what are you seeing? What ranges are you seeing for stations with cash flow in some of these markets?

Well, I'm seeing some stations at 12 times cash flow in really good markets that I haven't seen -- I haven't seen that in several years. Haven't seen it in 15 years, I don't believe.

Okay. That's interesting.

I'm talking about FM [soon]. AM stations are probably in the eight, nine, 10 times range at this point.

Okay.

And James, to address your question as far as the pace of our buyback, our stock-repurchase program -- yes, I mean, as you can tell by what we have repurchased in the first two quarters of this year, I mean, we've bought back about 200,000 of the 368,000 in total. So that should tell you that we are stepping up the pace of the buyback.

Okay. Thanks very much.

Thank you.

[Jim Boyle, of CL King].

Good morning.

Good morning.

Your [NOIG is a] large all the way to small markets. And every group has a different vantage point there for. What has been your view or experience in the past half year on the overall industry effort that's being spearheaded by the largest group -- less is more -- to de-clutter the radio environment? Some of the groups yesterday said that they have obviously seen the amount of commercial minute time down, but both seem to imply or state that in their markets, due to many more shorter units being sold and bought, that the number of inventory units has gone up. Has that been your experience?

Yes, Jim, this is Bruce.

That's the case. In markets where they're able to sell the -- and we're talking about the industry leader as far as number of stations go -- in markets where they're able to sell their shorter units, it does increase the number of commercials. So we have experienced that in certain of our markets. In other markets, they haven't experienced that.

And is that -- is it more of an oversupply challenge right now? Or is it a combination of that and just not sufficient demand led by national weakness?

Well, I think the demand is the key, and specifically demand on 30-second commercials. We're obviously seeing an increased demand for those than we saw two years ago. But I don't think the demand is there up to where some people might think it should be. And then obviously, the weakness in national is certainly a point as well.

And I know it's just a rough guess -- and there's no way you can sit there and say, Well, maybe March 3rd, 2008. But roughly, when do you think the oversupply of inventory is going to moderate or go away, roughly, and bring it back to a more traditional -- when demand is up, business is up again?

Well, I think you just answered your question. It certainly depends on demand, Jim. And if demand in our advertising –

But when do you think the supply kind of levels out? Is that a 2006, a 2007 or a 2008 probability?

I can't answer that, Jim. I'll get back with you on that. How about that?

Okay, thank you.

[Operator Instructions] Lee Westerfield, of BMO Capital Markets.

Hi, Caroline, George and Bruce. Good morning.

Hi.

Hey.

It was very thorough presentation. So maybe I just have two clarifying questions, if I may.

Caroline, what, at this stage, is -- or in the second quarter, was the percentage of trade in total revenue, and where your targets -- I think you identified reducing trade specifically in Miami here. And so, where would it go for the overall group? Where was it in the second quarter?

And then the second question -- I know at the start of the year, the Marlins looked like a team that was somewhere between major leagues and minor leagues. And I know that that set the tough tone for the Marlins baseball at the start of the year. Their teams improved. Is there any chance that the revenue might also be improving? Did you sell out a lot of that inventory early? Is there some remaining? What is the progress report, in terms of the Marlins?

Lee, I'll take that before Caroline.

Marlins -- most of the revenue for a sports team is placed prior to the season, or right at the beginning of season. So we are placing some business. But if the team had a run at a win in their division, we would probably be placing more than we are now. The good news that we have, though, in Miami, is that we installed a new sales manager a few months ago who has fully loaded his sales staff. And we're prepared, going into the hurricane season, as far as -- not hurricane season, but the hurricane football season -- I'll put it that way -- we're really prepared with a sales staff that can do the job. And we're absolutely looking forward to using -- taking advantage of these salespeople that we've installed in our new sales management team there, and looking forward to the Marlins in '07.

But this year, with the performance, it's just -- we'll add a little bit here and there, and that's about it.

And trade revenue?

Hey, Lee. Yes, the trade revenue as a percentage of total revenue for second quarter was about 2.5%. And quite frankly, that's kind of where we want it to be. And for third quarter last year, if I take a look at it, we were over 3%; like 3.2%. So we're trying to get it down to, say, around the 2, 2.5% range.

I know that's been an effort of yours over the past couple of years, so it looks like you're completing that project. Excellent.

Thank you very much.

Thank you.

[Thank you].

[Thank you].

[Michael Kupinski, of A.G. Edwards].

Thank you for taking the question.

A number of radio companies in the industry reported last year that they saw significant decline beginning in July from auto advertising. And so, I was just wondering what your feeling is about auto going into the third quarter. You mentioned -- Caroline, you talked a little bit about certain markets. But as a category in general, if you would talk a little bit about that.

And also, I think that a number of radio stations have said that they are seeing increased frequency in auto advertising, but yet the total dollar commitment is less. And I was wondering if you can verify that; if that's what you're seeing as well.

And then, another part of the question -- if you could just talk a little bit about the retail-advertising category -- are you not seeing at this point advanced bookings late into the third -- late into this quarter, like around September, back-to-school, that sort of thing? Are you seeing that they're just not giving any commitments? And if you could just go over for me what you're seeing in terms of retail category?

I'll take the retail category first.

We are seeing some advanced bookings for back-to-school. And obviously, as reported in what the percentage of our overall revenue contribution, retail now is our highest category. So we are seeing that, particularly in some of the markets more than others.

As far as auto advertising goes -- again, I refer back to second quarter, where auto advertising dropped from our highest category, as far as contributions of revenue, to our second-highest category. I don't see any difference in that going into third quarter.

As far as the frequencies of advertising for automotive dealers go -- in a local level, it's like who gets out there and advertises first. I mean, some of our markets -- if we have a huge auto buy from one dealer, the others will follow. Now we're starting to see that a little bit in a couple of our markets; nothing I could -- Michael, that I could just jump up and down about. But there are some indications that we're seeing some of that happening.

Okay, great. Thanks.

Thank you.

I would like to hand the floor back to Caroline Beasley for any further, closing comments.

I guess my closing comment would be to thank everyone for attending our call today. And we look forward in speaking with you next quarter.

This concludes today's Beasley Broadcast Group, Inc. Conference Call. You may now disconnect.

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