Beasley Broadcast Group Inc (BBGI) 2006 Q3 法說會逐字稿

Good day, my name is Jackie and I will be your conference operator today. At this time I would like to welcome everyone to the Beasley Broadcast Group, Inc. third-quarter earnings release 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)

Thank you. It is now my pleasure to turn the floor over to your host, Ms. Caroline Beasley, Executive Vice President and Chief Financial Officer. Ma'am, you may begin your conference.

Thank you, Jackie, and good morning. Welcome to the Beasley Broadcast Group third-quarter conference call. Before proceeding, I would 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 S-K. A 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 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 preference sections of the site.

We will keep our remarks focused this morning on the third quarter, our guidance and operations outlook, and then open d the floor to Q&A. I'm joined this morning by George Beasley, our Chairman and CEO, and Bruce Beasley, our President and COO. For the quarter, our revenues declined 3.1%. Our Philadelphia cluster revenue declined 9%. Local revenue at our cluster was flat year-over-year; however, national revenue declined 22%. This compares with the market where local and national both posted 7% declines.

Our Miami cluster continued to struggle in third quarter, as total sales were down 10%. Miami cluster spot revenue declined 14% compared to the market, which increased 1%. This is due to sales efforts and initiatives at our Rhythmic CHR station being unacceptably weak, and declines from the Florida Marlins baseball team.

In contrast, the changes implemented earlier in the year with our QAM Miami South team are beginning to show results. Bruce will address both Miami stations in a few minutes.

On the upside, our Las Vegas cluster generated a 12% increase in total revenue with pro forma revenue reflecting the KDWN acquisition rising 6% compared to third quarter of '05. The Las Vegas increase reflects strong year-over-year increases at our country station, which was reformatted just over a year ago. In addition to Las Vegas, the Company generated double-digit increases at our August cluster.

The Coastal Carolina market remains soft, primarily due to the market's reliance on auto spending. Auto and third quarter declined 21%, and this is primarily from a decrease in domestic spending. The market was down 7% with our cluster down 2%. On a local level combined, the market increased 1% compared to our stations which declined 3%, and nationally our markets declined 3%, while BBGI national revenue declined 14%.

With programming and own-air changes in place in Vegas and Philly, we are focused on ratings improvements that can reverse this trend. Total spot revenue, our markets were flat and our stations declined 5%. Our station operating expenses increased 3.4% and station operating income decreased 15%. On a same-station basis, and this excludes revenue and expenses derived from KDWN and Las Vegas, our same-station revenue declined 3.5%, same-station expenses increased 1.4%, and same station SOI declined 12.8%.

Corporate G&A excluding stock-based compensation expense was 1.7 million for the quarter, declining 3.8%. During the third quarter we recorded approximately 630,000 in stock-based compensation. Of this amount, 77,000 is included in station operating expenses. In last year's third quarter, we recorded 807,000 with approximately 50,000 in station operating expenses. Year-to-date, we've recorded approximately 1.6 million with approximately 200,000 of that in station operating expenses.

The third quarter of 2006 was our most active period ever in terms of share repurchases, as we repurchased approximately 317,000 shares of our stock for a total of $2.2 million, representing an average price of $6.88 per share. These purchases were executed pursuant to the May reauthorization, and as such under the present program we are authorized to repurchase up to an additional 22.5 million shares -- dollars worth of shares. Since the repurchase program was launched in Q3 of '04, the Company has repurchased 684,000 shares for a total of $6.7 million.

Interest expense for the quarter increased 45%, and this primarily is due to three factors; increased borrowings from the KDWN acquisition, higher interest rates due to the rolloff of swaps and, of course, generally higher interest rates. Our effective tax rate was approximately 40% and current taxes payable were approximately 525,000.

Now turning to the balance sheet as of September 30 and reflecting the KDWN acquisition, total senior debt was 156.4 million, and the latest trailing 12-month consolidated operating cash flow was 30.7 million for a leveraged of 5.09 times. Now on a pro forma basis, if you take into account the upcoming acquisition of WJBR, our total debt will be 198.4 million. The latest trailing 12-month consolidated operating cash flow would be 33.9 million for a leverage of 5.85 times. Cash on hand as of 9-30 was 12.6 million, and we spent $1.2 million in CapEx for the third-quarter, and year-to-date we spent $3.3 million.

Moving onto guidance for fourth quarter, as indicated in this morning's press release and reflecting the ownership of KDWN in Las Vegas and the LMA with WJBR in Wilmington, Delaware, we are looking at our revenues to increase 5% from last year, and this does reflect $2 million dollars in additional revenue from KDWN and JBR.

We're looking at our station operating expenses to increase 6% for the quarter, and this reflects $1.4 million in additional expense related to KDWN and WJBR. On a same-station basis, we are projecting our revenues to decline 2% for the following reasons; we are looking at continued declines in our Miami cluster related to our Rhythmic CHR station and continued softness in our Coastal Carolina cluster, driven by the declines in auto advertising. We expect our Philly market to be flat with last year and our Las Vegas, Fort Myers and Augusta clusters to generate quarter-over-quarter increases.

On a same-station basis for station operating expenses, we're projecting them to decline 1% for the quarter. We're projecting our corporate G&A to be $1.875 million for the quarter and approximately $7.2 million for the year.

During the fourth quarter we expect to record approximately $700,000 in stock-based compensation expense, and we now expect a total of $2.3 million for the year. In fourth quarter, $100,000 of the $700,000 will be included in station operating expenses and will negatively impact SOI. And for the full year, approximately $300,000 of the $2.3 million will be included in station operating expenses.

For our D&A expense, we're projecting $750,000 for the quarter and approximately $2.8 million for the year. We are projecting $2.7 million in interest expense for the quarter and approximately $9 million for the year, and this assumes an affected rate of interest of approximately 7%.

Our effective tax rate is 40%, and our deferred tax expense will be approximately $1.1 million for the quarter. We continue to invest in our properties, assets and HD conversions. CapEx will be approximately $1.5 million for the quarter, with $1 million of that as investments. The investment CapEx relates to HD Radio conversions at several of our stations, expansion of studio facilities in Vegas, and a tower upgrade in Boston. And we expect to spend approximately $5 million in CapEx for the year.

On October 1st, we entered into an agreement with NextMedia to LMA WJBR in Wilmington, Delaware, effective immediately. Simultaneously, we entered into an asset purchase agreement to purchase the station for $42 million. The guidance for actual revenue and station operating expenses reflect the impact of the LMA for fourth quarter. The LMA fee is not included in SOI, but will be included in operating income, and the fee is projected to be approximately $400,000. This will be the guidance we are providing for fourth quarter, and we undertake no obligation to update this information until the next conference call.

With that, I thank you very much and turn it over to Bruce.

Thank you, Caroline. I'm going to review our top six ad sales categories in terms of 3Q related to revenue contribution. Looking at our number one category, auto was 21.6%. That is down from 22.8, but back into the number one revenue contributor as far as the sectors go. Retail 17.3, up from 15.9. Other which includes travel, real estate and et cetera is at 8%; that is up slightly from 7.9%. Brokered programming 6.8, up from 6.5. Restaurants 6%, down from 6.3%, and beverages flat at 4.3%.

I'm going to talk in detail about Miami, Philadelphia, and Las Vegas, so let's start with Miami. We indicated in August that the broadcast rights agreement for the Florida Marlins on WQAM and our Rhythmic CHR's winter book would impact three quarter, and it did.

Let me first describe the situation at Power 96 and how we've addressed it. In Q3, our sales staff at the station was selling off the winter ratings book where the station slipped to number 3 in its target demo. Power reemerged in the spring book at number 2 in its 18 to 34 target demo, and we somewhat expected our sales team to change strategies to offset an anticipated decline in national sales with local sales. Quite frankly, this did not happen at an acceptable level. The summer ratings at Power put the station in third again in its target demo.

And you're going to ask us, how are we fixing this situation? Well, first, we're going to fine-tune the music to drive the ratings. In third quarter we appointed Tom Calococci as the station's operations manager to oversee programming, operations and promotions. He just finished a research project, and we are implementing changes that we think can address the inconsistency in the ratings.

Tom came to us from a position up as program director at The Beat in Los Angeles, and he's brought a solid background to the radio station. He's done a good job for us at the station already, and we expect his background to help keep Power 96's ratings where they should be. And to ensure that the sales team at Power 96 is moving as it should with market trends and ratings, we are actively recruiting a general sales manager for the station and we expect to make an announcement on this shortly.

On our conference calls in 2006, we have reviewed personnel changes intended to drive ratings or revenue gains, and we are having some really good success with this initiative such as in Miami, particularly at WQAM. Early in 2006, we named Chris Jones General Sales Manager QAM and expanded our feet on the street. We've doubled our sales team to 16 people. Chris and his team are doing an excellent job in driving revenue at QAM, as we continue to transition this station's programming.

We also promoted Joe Bell to the position of general manager of WQAM and market manager of QAM, Power and KISS Country. Joe was the general manager of Beasley's successful KISS Country for the past six years where he did a tremendous job. Joe is bringing additional synergies to our Miami cluster. And talking about KISS Country, it delivered another good period of revenue contribution in Q3.

On the whole, the Miami market is up year-to-date, but as Caroline indicated, it softened a bit in Q3. Our goal is to be in a position to begin outperforming the market sometime in '07, and we've taken action and are making progress towards this goal.

Now let's move onto Philadelphia. Wired is now 1 of 4 young-end hit stations, and anticipating this environment, earlier this year we added a very popular personality at WRDW. In the summer book, [G-N] Choi moved up to number 3 in the station's target demo 18 to 34, and this was the station's highest morning ratings ever. In addition, we recently tweaked the on-air lineup at Wired, moving successful personalities from our morning show into mid-days. We think the strength in the mornings and movement to the rest of the day lineup will help our efforts to drive revenue upside from the station.

Summer ratings at Wired moved up nicely over the spring. WXTU, our country station in the market, again delivered another great rating book for us, and we remain very confident with overall revenue contributions and market share. Philadelphia revenue contributions remain strong, but we are intent on achieving additional growth and outperforming the market and are moving in this direction with the strength of Wired.

Following a lot of work over the last year, Las Vegas turned in strong double-digit 3Q revenue performance, driven by the positive momentum for Coyote Country which was launched last fall, as well as ratings gains in the summer book from KSTJ and KKLZ. Recall that we've been actively addressing this sound and personnel at both KSTJ and KKLZ. These results should benefit the cluster's operating results near-term.

In addition during the quarter, we completed the acquisition of KDWN-AM, the only station in Las Vegas with a full 50,000 watts signal. We quickly went about reprogramming the station and launched new stock AM-720 KDWN, and that happened in late September, giving the listeners a single source on the dial for detailed local news, traffic, weather and talk.

The station is now affiliated with Fox News Radio, so it has the resources and the network affiliation to provide breaking news coverage of local, national and international events. As Caroline pointed out, KDWN impacts results for now, but we see a turnaround coming by '08 and possibly sooner. In the first month on the air, KDWN has established great traction with advertisers, and we are confident that the niche we have established for the station has positioned it as a contributor to great results in the future. The Las Vegas market growth remains among the best in the nation, and we think we are well-positioned to drive value from this market.

I'm going to spend a little time on Augusta, a market that was weighing on results as recently as earlier -- as early this year. With the benefit of reformat and the cluster's solid spring ratings, Augusta delivered its second consecutive quarter of double-digit revenue improvements in Q3. Our stations and people in this market are taking share, so even a depressed category like auto was up in Q3 in Augusta.

As we seek to develop new complementary revenue, I want to provide an update on the progress and our strategy -- our strategic initiatives being pursued companywide to drive value from interactive media through Beasley Interactive. We are making real headway on focusing our entire company to compete effectively in an increasingly Internet-centric marketplace. WTOW in Miami has been our company test bed to determine the best means of generating new revenue from these sources, and the station is now deriving about 5% of its total revenue from interactive initiatives, and this was in our last quarter.

The POW effect, as we like to call it, has been led by Kathleen Bricketto who is taking responsibility for our efforts companywide. We are now implementing a range of Web-based activities including Internet advertising and sales, stream content on the Internet, and coordinating sales and programming opportunities. We've identified interactive sales managers for each of our markets, and just completed four days of meetings and training to prepare all of our stations to sell new media, both on a stand-alone basis and as part of an upsell with traditional spot buys.

Companywide, interactive source revenue accounts for about 1.8% of revenue, and we think this should grow to about 5% of revenue over the next 12 to 18 months. In Kathleen's six years at POW, she developed a strong and transferal model in Miami. We will soon have all our radio station streaming, and we are intent on ensuring that BBGI will continue to be a leading local media source in the markets in which we operate.

Lastly, I'd like to quickly review our new LMA agreement to purchase WJBR in Wilmington, Delaware. JBR is a financially strong station with good share in Wilmington, but the potential to significantly improve both share and revenue. It's the heritage AC station in the market, but with 50,000 watt signal, the station reaches listeners in Delaware, Pennsylvania, Maryland, and New Jersey. As such, it also represents a good complement to our existing Philadelphia station cluster.

Before we open the call to Q&A, I will summarize by saying that we believe that KDWN and JBR acquisitions are initiatives companywide to drive revenue growth through programming and personnel changes. Our Beasley interactive initiatives, and HD Radio conversions are all far along in terms of their potential contribution to improving ratings and results.

Format, ratings, management, and sales team reviews continue on an ongoing basis, and we'll react swiftly to market and national changes. By adhering to this strategy, we can drive additional station and market turnarounds.

With that, I'm going to ask the operator to open the call for Q&A.

(OPERATOR INSTRUCTIONS) Tracy Young of Bear Stearns.

Good morning. I have two questions. The first, congratulations in Vegas. According to my numbers for the first six months, you were down 9 versus a market that was up 6. Can you talk a little bit more about your performance and did you see benefits from the top 3 billing stations in that market? And then also, can you give us a sense of what to expect for the Marlins on a net loss basis for the year?

I'm going to take the last question, Tracy, and I guess Bruce can talk about the revenue decline in Las Vegas. The Marlins, we're looking at them to lose about $2 million this year.

Tracy, as far as the revenue decline, it really has to do with two of our radio stations, KKLZ, our classic rock station, and KSTJ, our 80s station, had some ratings issues that we've been dealing with. We've had some personnel changes as well as some music studies done to help us refocus those stations. As I mentioned earlier, we didn't have what we called the stellar book in the summer book, but we saw some pretty decent increase in ratings, and we expect those elements to drive our revenue as we move forward.

Our Coyote Country just continues to amaze us with its traction and advertising, and we are very, very excited about the opportunities we have going forward with KDWN.

Thank you.

James Dix of Deutsche Bank.

Good morning, everyone. I have a few questions. I guess first on the operational side, what would auto as a category have been if you exclude the Coastal Carolinas in the third quarter? And then what type of auto pacing are you seeing for the fourth quarter? I guess I'll just go back and forth instead of giving a big long list.

Well, I'll talk about auto fourth quarter while Caroline maybe tries to figure that other question out, James. It is sporadic. In certain markets we're starting to see some traction. In other markets it's not as strong. That is the clearest, I guess, answer to your question I can give you.

I mean, is the pacing a lot different than the third-quarter results?

Not significantly. But as you know, third quarter and when we reported second quarter, auto dropped to our second category as far as percentage of revenue for our company, and now it is back up to the number 1 category as far as revenue for the Company in third quarter. So we did see some movement in third quarter which, hopefully, we will continue to see that movement in fourth quarter.

James, I'm still working on this other question.

Okay, I can keep going -- secondly, and this may also be for you unfortunately, Carolina -- what your political revenue was in the third quarter and your expectation for the fourth quarter?

Our political revenue in third quarter was about 80,000, and the expectation for fourth quarter is about 400,000.

Is there much in KDWN for the fourth quarter, or is that a fairly clean number versus prior year?

No, KDWN I believe is making up about 16% of that 400,000.

Okay. And then what are your power ratio -- ratings and power ratio goals for KDWN over the next year or so, given its format?

Well, I think we're always looking to at least a 1 to 1 power conversion ratio. Obviously, the station just went on the air September the 18th. So we are a little -- almost two months into the format. So our expectation is we would expect to be at least a 1 to 1.

Okay. And then my last operational question, and then I had one other. On the online side, what revenue growth rate are you assuming, Bruce, given that you think the piece can go from roughly 2% to 5% over the next 18 months? Is this kind of in line 20% or -- I'm just trying to get a sense as to how fast that piece is growing?

I'm not sure I understand the question.

I think you indicated in your remarks that you thought the online piece of your revenue mix could go to 5% or so in the next 12 to 18 months. How fast is it growing right now, that piece?

I think it can grow pretty quickly, to be honest with you, because I did mention we had a test market basically in Miami at Power 96 which Kathleen Bricketto who is now in charge of all our interactive services led the way with that for six years. So we've had six years to model what works and what doesn't work.

So we think -- we did a sales training situation last week. She's able to, I think, carry over things that work well. We know that some issues of revenue coming from Internet will come quicker than others. So I think we have a really good plan any really good model. So I think we could see this moving fairly quickly.

What is your local national split on that online advertising down in Miami at Power?

It is primarily local. There is a little bit of national dollars, but not that much.

However, we do see an opportunity with national as national advertisers like the automotive, Coca-Cola, Cingular, those guys look at Internet as a way to push their products. We think that national can be an opportunity for us in the future.

I guess my last question, this may be for George. What interest if any are you seeing from private equity in all or any of your assets? And how do you assess at this point the benefits of being a public company with your shares at these levels, and obviously given what Clear Channel is considering?

Well, that is a pretty tough question.

That is why I saved it till the end.

We've had some, I guess, some private equity people speak with us about this, and I'm not sure. I guess my only comment to that would be that we're going to continue to talk with some of these people, but ultimately, we will do what we think is in the best interest of all of our shareholders.

Do you have any sense as to what type of terminal multiples they are considering, or how those have changed over the course of the past year, given radio's growth trends?

I'm not sure. It seems to me that good assets are still very, very strong, and that some of the lesser assets aren't quite as strong. Now one thing that I have noted recently is that there seems to be more and more AM stations on the market than -- perhaps more than I've seen in a long time. The multiples on those seem to be in the 8, 9, 10 area. But on good FMs, I think it is has remained pretty strong.

Okay. By pretty strong for FM, what have you been seeing?

Well, it depends on market size. If you're talking about a good market, I'm seeing some 12 times, some 13 times, some 14 times. And it seems to be that they are holding their value at this point.

Okay.

James, can I circle back on a couple of your questions?

Yes, thank you.

You're welcome. As far as the Internet growth, that particular category for us, we've increased like 33% quarter-over-quarter. So we've seen significant increases in that. And then if you take a look at auto, our auto was down about 9% for the whole company. And if I exclude the Coastal Carolina market, then that would have been about a 7% decline. So it had about a 2% impact on our decline in auto.

Okay. Thanks very much.

Lee Westerfield of BMO Capital Markets.

Thanks, everyone, good morning. Actually, just two fairly specific operating questions just to make sure I understand a little more clearly, one in Philadelphia, the other one at KDWN. At KDWN you outlined, and it was nice, the specifics on operating expense improvements. I wanted to be sure I understood you meant that to be in the fourth quarter specifically?

And secondly, if I can ask how long out to the next several quarters would we reasonably want to think about KDWN extending operating expenses to the startup phase here?

And the second question is on Philadelphia. In Philadelphia we've been tracking commercial inventory loads for a lot of radio companies, not only in Philly but elsewhere. And your time had been substantially down, and I wanted to know whether that was what you are seeing in terms of pricing, I guess, is the main question at Philly? Given that it looked like the commercial time was down, perhaps you've been holding on price. Those are the two areas.

Okay, I will start with Philadelphia. Pricing is not strong right now in Philadelphia when the market is declining like it is. The pricing issues aren't -- pricing is not an issue, as far as strengthening going there. Caroline, did you want to --?

No. To circle back on your other questions, Lee, if I understand them properly, and let me know if I'm not answering you question. As far as the related expense for KDWN, we're looking at that to be about $700,000 in the fourth quarter. And their revenues are projected, as I said earlier, probably around $500,000. So it's going to have a negative couple hundred thousand fourth-quarter impact on our SOI.

We continue to expect that KDWN will have a negative impact on the Company for next year, probably to the tune of about $0.5 million, and then the following year we expect to see positive results coming from KDWN.

All right, that is perfect. Thank you very much.

Thank you. I would like to hand the floor back to management for any closing remarks.

We'd like to thank you today for participating in the call, and we look forward in speaking with you on our next conference call. Have a good day.

Thank you. This concludes today's Beasley Broadcast Group, Inc. teleconference. You may now disconnect.