Beasley Broadcast Group Inc (BBGI) 2006 Q4 法說會逐字稿

Good morning. At this time, I would like to welcome everyone to the Beasley Broadcast Group, Inc. earnings release fourth-quarter year-end results 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, Ms. Caroline Beasley, Executive Vice President and Chief Financial Officer. Ma'am, you may begin your conference.

Thank you and good morning. Welcome to the Beasley Broadcast Group fourth-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 FK. 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 would also remind listeners this call is being webcast live over the Internet, and that a replay of the call will be available on the corporate website, bbgi.com, for 14 days after the call ends. Investors can also find a copy of today's press release on the investors or pressroom sections of the site.

We will keep our remarks focused this morning on the fourth quarter, our guidance and operations outlook, and then open the floor to Q&A. Bruce Beasley, our President and COO, is with me this morning.

For the quarter, our revenues increased 13.9%. Our company generated better than projected revenue in all markets, particularly Augusta, Fort Myers and Las Vegas, all of which posted double-digit increases for the quarter. Las Vegas' increase was driven by our country station, KCYE, which we reformatted in fourth quarter 2005. Fort Myers' increase was driven by an NTR event held in October. Augusta's increase reflects the cluster's conversion of strong ratings into revenues.

Our Philadelphia cluster continued to outperform the market during fourth quarter, rising 1% compared to the market, which declined 2%.

In Miami, while our stations continue to underperform the market, we are starting to see progress, as we've reduced the spread over the earlier quarters of 2006. In fourth quarter, Miami's market spot revenue increased 1%, while our cluster declined 1%. The changes that were implemented at WQAM in early 2006 are paying off, and in fourth quarter, QAM delivered double-digit revenue growth. However, QAM's gains were offset by declines at the cluster's rhythmic CHR and country stations. Bruce will address the Miami market cluster in a few moments.

Actual revenue, SOI and other metrics reported this morning include revenue from WJBR and KDWN, which the Company did not own in fourth quarter 2005. These stations combined generated $2.2 million of the increase in total revenue for the Company. However, our fourth-quarter same-station results were also impressive, and I will review those in a minute.

Per Miller Kaplan, nationally combined, our markets decreased 1% while BBGI national revenue declined 5%. Here again, we are narrowing the spread between our market and the stations from prior quarters. With programming and on-air changes in place in Miami, Las Vegas and Philly, we remain focused on ratings improvements that will reverse this trend. On the local level combined, the markets increased 4% compared to our stations, which increased 8%, showing significant improvement from prior quarters. One note to make is that Wilmington, Delaware, is not a reporting market to Miller Kaplan, so these figures exclude WJBR.

On the political front, the Company recorded approximately $700,000 in political advertising in fourth quarter, with approximately 42% of that coming from WJBR and KDWN. On a same-station basis, the Company generated approximately $400,000 in political revenue.

As I said a moment ago, our portfolio also performed well during the fourth quarter on a same-station basis, with fourth-quarter revenue increasing 6.7%. Our station operating expenses for the quarter increased 12.3%, with over half of the increase, or $1.4 million, related to the operation of WJBR and KDWN. These stations, again, were not part of our portfolio in the comparable 2005 period. The remaining increase includes investments in programming in Miami and promotional events in Fort Myers and increased sales commissions. Without the effect of the expenses for WJBR and KDWN, our same-station expenses rose 5.6%.

Our station operating income for the quarter increased 17%. On a same-station basis, our SOI increased 9%.

Corporate G&A -- and this excludes stock-based compensation expense -- was $1.6 million for the quarter, decreasing 6.5% from last year's level. During the fourth quarter, we recorded approximately $600,000 in stock-based compensation expense. Of this amount, $39,000 is included in station operating expense. In last year's fourth quarter, we incurred $300,000, with approximately none of that in station operating expense.

For all of 2006, we recorded $2.2 million in stock-based compensation, with approximately $200,000 included in station operating expenses. The remaining portion of that would be recorded under corporate G&A.

As far as share repurchases go, we continued to remain active in the fourth quarter. We repurchased approximately 235,000 shares for a total of $1.7 million, representing an average price of $7.41 per share. These purchases were executed pursuant to the May reauthorization, and as such, under the present program, we're authorized to repurchase up to an additional 20.7 million shares.

Since the repurchase program was launched in third quarter of 2004, we have repurchased 919,000 shares for a total of $8.4 million. In 2006 alone, we repurchased approximately 744,000 shares for a total of $5.9 million.

Our interest expense for the quarter increased 58%, which reflects increased borrowings related to KDWN and higher interest rates due to the rolloff of swaps. For the year, interest expense increased 25%, for the same reasons as I just mentioned.

Our effective tax rate for the year was approximately 41%. Current taxes payable for the quarter were approximately $837,000 and $1.8 million for the year.

Now, turning to the balance sheet, as of 12-31, total senior debt was $154.4 million. The latest trailing 12-month consolidated operating cash flow was $32 million, for a leverage of 4.83 times. Now, on a pro forma basis, which reflects the acquisition of WJBR, which was completed on February 1st, pro forma debt would be $196.4 million, and the latest trailing 12-month consolidated operating cash flow would be $34.9 million, for a leverage of 5.63 times. Availability under the credit agreement after the acquisition would be $23 million, and after reflecting the covenant levels, availability will be $12.9 million.

Cash on hand at the end of the year was $8.5 million. We spent $1.5 million in CapEx for the quarter and a total of $4.8 million in CapEx for the year.

Moving on to guidance for first quarter, as indicated in this morning's press release and reflecting the ownership of KDWN in Las Vegas and the LMA acquisition of WJBR in Wilmington, Delaware, we're projecting revenues to increase 9% from last year, with station operating expenses increasing 13%. We do project that over half of this increase will be related to KDWN and WJBR expenses.

On a same-station basis, we are projecting an increase of 2% in revenue. We are looking at a projected increase in our Miami cluster related to WQAM and our rhythmic CHR station. However, a portion of this increase is offset by a decline at our country station, which had a very strong first quarter of 2006. Their revenues increased 24% last year in the first quarter.

We are also looking at a projected increase in Fort Myers related to an NTR event, and projected increases in Philadelphia related to our rhythmic CHR station. We expect our Las Vegas cluster on a same-station basis -- so excluding KDWN -- to be flat with last year.

Station operating expenses, on a same-station basis, we're projecting to increase 7%. This includes the cost of a significant advertising campaign in Philadelphia for our CHR station and increased [sales] expense at WQAM, which Bruce will address both of these items in a few moments.

Corporate G&A excluding stock-based compensation expense -- we're projecting $1.8 million for the quarter and approximately $7.2 million for the year. We are projecting for stock-based compensation expense approximately $700,000 for the quarter, and we expect a total of $2.6 million for the year. Of the $700,000, approximately $100,000 will be included in station operating expenses. For the full year, approximately $400,000 of the $2.6 million will be included in station operating expenses.

We're projecting $750,000 in depreciation and amortization expense for the first quarter and approximately $3.2 million for the year. Interest expense -- we're projecting $3.3 million for the quarter and approximately $14.1 million for the year. This assumes an effective interest rate of approximately 7.15%.

Our effective tax rate is 41%. Our deferred tax expense will be approximately $1.65 million for the quarter and approximately $6.6 million for the year.

As far as CapEx goes, we are projecting to spend approximately $1.5 million for the quarter and $4 million for the full year.

This will be the guidance that we provide to you for first quarter. We undertake no obligation to update this information until the next conference call, and I look forward to speaking with you then.

Thank you, and I will now turn it over to Bruce.

Thanks, Caroline. Before I get into my comments, I would like to thank our managers and their teams on a local level for just a tremendous job in Q4.

As we've stated publicly, our goal is to grow revenues at a rate that exceeds the industry. We're delighted that through a series of actions largely taken since late 2005, we recorded significant revenue gains in Q4 2006, including same-station revenue results that exceeded the 3% achieved in the industry in Q4 and as reported by the RAB.

In Q4, based on Miller Kaplan data, our markets were up 3.8%, while our revenues in those markets rose 7%, thereby reversing the trend experienced earlier in the year. We think this is relevant, as it demonstrates overall strength in radio and our markets, and again highlights our ability to outperform even a healthy marketplace. During the quarter, we recorded year-over-year revenue increases in our top five ad categories, which includes retail; automotive; other, which includes a host of small advertising segments; restaurants; and entertainment, which includes television, movies and so forth.

In December 2006, the Company celebrated its 45th anniversary, and our reports to you throughout last year focused on the multifaceted approach we take to build on our success of the past four and a half decades. We believe the management, personnel and format changes effected over the last five or six quarters are delivering the desired results, and we enter 2007 with a focus on driving further improvements. Our portfolio has enormous potential, and I will take you through some of the key markets, operating trends and why we think Q4 results are the beginning of the upturn we thought we had achieved as we implemented of these changes.

Let's look at Miami. That cluster is making real progress, in terms of our goals to achieve growth rates that first meet, then exceed the market. Miami is a market that grew about 4% in 2006 and just over 3% in Q4. We narrowed the disparity between the market and our cluster in Q4 as our revenue declined 1.2%, and overall trend in the market is positive.

Power 96's ratings moved from number three in the summer to number two in the fall book in its target demo, as the station successfully battled through some format challenges. As in the past, Power 96 is again the rhythmic CHR leader, as competitors' stations move their programming towards urban AC and adult Hispanic. I would like to say that the competitive landscape in the market has gone back to what it was 10 years ago, and that was a really good time for Power 96. After several down comparisons, and as Caroline mentioned, we are projecting a small revenue increase for the cluster in Q1 2007 as compared to Q1 2006.

The story at WQAM, our Miami sports station, is evolving, and we're looking for continued revenue gains in the first quarter. We have had good success based on our sales efforts in the market, and we have expanded the team to 19 from 16 from the last time we reported. Fall ratings at QAM were up over the summer book, the station's market rank improved and the revenue shares gained in the last half of 2006 were very impressive.

In Miami also, our country station performed pretty much in line with the market in 2006, though we saw some slippage late in the year, as Caroline mentioned.

Let's take a look at Philadelphia, our largest market. We outperformed the market for the quarter and the year, and based on Miller Kaplan, improved revenue share to 8.2% from 7.9% in 2005, this despite some very weak national advertising trends.

Ratings-wise, WRDW continued to do well in the fall, handily beating its direct competitor, and overall, the station was number three in ratings in its target demo, 18 to 34. In the fall book, Chio, our new morning show there, moved up to number two in the station's 18 to 34 demo, and that is from number three in the summer. This was the station's highest morning ratings ever.

Based on some interesting research, we recently launched a TV campaign aimed at ensuring that marketwide listeners are aware that Chio is now on Wired. While he joined the station last March, research showed that there would be an upside in advertising, as there was a significant portion of the population that was still unaware that he had moved. Our sights are set on making the morning show number one 18 to 34, and we also believe we can move the station up from its number three position in its ratings.

WXTU, our country station in the market, saw ratings move from a 4.3 in the summer to a 3.8 in the fall book. That is reflecting the seasonal impact related to an all-Christmas music programming on another station in the market. We remain very comfortable with the station's overall revenue contribution and market share.

Overall, Philadelphia revenue contributions remain strong. Given the size of this market, we see opportunities to build long-term revenue growth based on our cluster.

I would like to just take a quick second to congratulate Lynn Bruder and her entire staff at Wired for their efforts. Their contributions are continuing at our expectations for first quarter and, we believe, well beyond that.

In Las Vegas, we have done some extensive work in the market over the last year. The market turned in its second consecutive quarter of double-digit revenue growth, driven by ongoing momentum from the Coyote Country format that was launched last fall. The station emerged in 2006 as a consistent top 10 country format performer, and is delivering ongoing expectations and goals we had in reformatting it. The Las Vegas radio market is rock solid, and grew 10.2% in 2006, while our revenue, even while we had stations in transition, rose 3.1%.

We have completed the transition of the music and the sound of KSTJ, and the station is now targeting 25 to 44 female audience, which our research identified as underserved. KKLZ, our classic rock formatted station in the market, has also been tweaked, and we continue to see great upside overall for our cluster, based on the vibrancy of this market and the fact that if you look at our cluster, three of our four stations can be classified as start-ups.

KDWN-AM, acquired in 3Q 2006, was reprogrammed and launched as news/talk AM 720 KDWN in late September, and the station is hitting our revenue goals. As Caroline pointed out, KDWN impacts results for now, and we are projecting flat 1Q Las Vegas revenue, but we see contributions from the station by 2008 and maybe sooner.

As you my recall, Augusta was a cluster that was impacting results as recently as early 2006. With the reformat and a great team in the market, the Augusta cluster delivered its third consecutive quarter of double-digit revenue improvements in Q4. This market is also healthy, with revenue rising almost 16% in 2006. I'm proud to report that we outperformed that with an 18.1% year-over-year revenue gain, and we are the revenue share leader in that particular market.

Fort Myers/Naples is another hot market that we are fortunate to be well positioned in. You don't hear this too often, but we are actually seeing some inventory sellouts in this market. So we like our cluster's prospects as we move into 2007.

Lastly, I will review the completion of the purchase of WJBR-FM in Wilmington, Delaware. WJBR is a financially strong station with good share in Wilmington. We operated the station under an LMA in Q4, and the station outperformed our expectations. This heritage AC is a great addition to our overall portfolio. It boasts a 50,000-watt signal with a broad reach, and represents a good complement to our existing Philadelphia station cluster.

Before we turn the call over to Q&A, I will summarize by saying that the operating improvements in the fourth quarter are a direct outcome of initiatives we took and will continue to take at the station level to drive performance and revenue. We believe WJBR and KDWN acquisitions, our Beasley Interactive initiatives, HD radio conversions, share repurchases and dividend payments are also representative of our long-term approach to building value for our stockholders. Our activity in terms of driving additional station growth remains at a very high level, and we are well-positioned in 2007 for further progress against our goal of exceeding market and industry growth.

With that, I will ask the operator to open the call up for Q&A.

(OPERATOR INSTRUCTIONS). James Dix, Deutsche Bank.

First, if you have it, what is your assumption basically for market growth for the first quarter that's underlying your guidance?

Secondly, are you planning to see EBITDA margins grow this year, or are you not so sure about that? I'm just trying to get some sense as to where you are at least budgeting that.

Finally, what is your current view of the various, I guess, at the moment, remnant inventory sales systems such as Google system or SoftWave? How do you see them being integrated, if at all, into your revenue growth strategy going forward?

I'll take the first question, and Bruce will take the second one. As far as the assumptions for market revenue growth, I'm looking at our markets to be slightly above flat, so 1% to 2%. I am looking at our company to perform in line with our markets at this point.

Then as far as EBITDA margins, I think the first quarter and the second quarter, we will not have EBITDA margin growth, but I am planning on picking that up in the third and fourth quarters. So by the full year -- which I am not giving full-year guidance -- but by the full year, I expect to have EBITDA margin growth.

On the remnant inventory, we are doing a test with one of the companies in one of our midsize markets. It hasn't begun yet. But we want to see how it works first, before we make decisions on where we're going to go with that.

But the that's only with one company?

Yes, that's just with one particular company.

What are you looking for? What's your criteria for whether it's a successful test or unsuccessful test?

Well, I want to see how rates evolve. I want to see particular clients, and I want to see how it affects our inventory in a positive way, hopefully, by driving demand, is what we're looking for.

Are you expecting that most of these clients are going to be out-of-market, like national regional clients as opposed to local?

You know, I'm not quite sure. I would expect it to be initially regional/national. That's why were doing the test.

Tracy Young, Bear Stearns.

In terms of Fort Myers, it had looked like some of your stations had also shown some ratings growth this quarter. I was wondering how much of your revenue growth was from NTR and how much you're expecting NTR to attribute to next quarter or the first quarter.

The second question is just on the Internet, how much revenue it had this year versus last year.

You broke up a little bit for the first question, so I'm not really sure exactly --

On Fort Myers, could you give a little more color on NTR versus just your growth in the market?

As far as for Fort Myers, I can give you -- yes. Quarter growth for Fort Myers -- we were basically just slightly up for spot revenue. I have it broken out for spot and in total. So spot sales for Fort Myers, the station cluster was up about 2%, with the market being up around 4%. So the NTR event actually pushed Fort Myers over into the double-digit range for revenue growth in fourth quarter.

For first quarter, they are planning another NTR event there. So we are still seeing fairly good spot growth, but the NTR will just magnify the spot growth, I expect, in first quarter.

Then for the Internet, let me just break that out for you real quickly. I think we ended up the year or the fourth quarter with Internet revenue being 1.8% of our total revenue compared to fourth quarter of 2005, where Internet revenue was 1.4%. Total dollars, if you were to look at dollar for dollar, that's like a 45% increase in the total Internet dollars.

For the full year, you will see that it doesn't appear that it has grown as quickly, but I think what we have done is we have really pushed the Internet initiative more in the back half of the year, and you'll see that impact. For 2006, 1.5% of our revenue was Internet, compared to your 2005, where we had 1.3%.

Lee Westerfield, BMO Capital Markets.

Caroline, you mentioned and you gave us some good color as far as margin progression during the year, but I wanted to delve into that a little bit further. My understanding is that you all are investing, and investing operating expenses in Philadelphia and in Miami, especially. I wonder if we could go into that in a little bit more detail, both with the Philadelphia ad campaign for RDW and the sales staff increases in Miami that, at least judging by your early pacings, seem to be showing some good promise.

I'm going to let Bruce discuss the ad campaign.

I'll start with Philadelphia. We spent a significant amount of money, as I mentioned in my talk there earlier. I'm not going to divulge how much we spent, because of competitive reasons. But believe me, we did a very, very good campaign, and we believe it will pay results back heavily for us there.

I'll just start a little bit on Miami, and Caroline may want to add to it. But last year, around March or so, we had probably around six salespeople at WQAM. As I mentioned earlier in the call, right now we're up to 19 salespeople. So that is driving the cost of sales, purely because of some guarantees that are still out there.

Both those investment expenses carry through the second quarter, I would imagine, given the timing of the spring book in Philadelphia and just the way hiring takes place in Miami?

Yes.

Bruce, could we get a little more color on your local versus national performance? I know you did touch on that in terms of the differences between the two. But anything further you could add, in terms of how we will compare throughout this year versus last year, whether there's an easier comparison that we will begin to approach; secondly, whether the national spot sales -- boy, I don't want to put it all on the media reps. But anything you can elaborate with regard to your interrelationship with your media reps.

I'll start with that. First of all, we were very pleased about the announcement of David Kennedy for Interep. He's a great broadcaster and, I think, is going to continue to lead that firm into a higher level.

Overall, our local sales have done much better, in our opinion, than our international sales have been. I'll maybe have Caroline give you a little more color on that. But I think, as we look at comps from 2006 compared to 2007, I believe our national comps are going to hopefully be a little bit easier than they were in the previous year.

Just to address compared to our market, for the full year, our local revenue was up 2%, while our markets were up 3% locally. That just reflects many of the changes that Bruce spoke about earlier this morning, and we are starting to see some of those changes pay dividends. Nationally, our markets were down 4%. We were down 12%. In going through that analysis, the fourth quarter, we saw -- and as I mentioned on the call today -- we saw the smallest spread in national.

So we are seeing some gradual progression there, but certainly not -- and Bruce will agree with me -- certainly not to the point that we are happy with. We would like to perform nationally at least in line with the market or better. So I think that that's the goal this year.

(OPERATOR INSTRUCTIONS). Michael Kupinski, A.G. Edwards.

I was wondering if you could add a little color on the advertising categories that you're seeing in the first quarter. I know that on a same-store basis that it's a fairly easy comp for you. But I was wondering if you're seeing any particular strength in the auto category, and if you're seeing that coming from the manufacturers or the dealership level.

We're seeing some strength, but it's coming from the foreign auto advertisers. Quite frankly, we are seeing it from both the local and the manufacturers.

Any other ad categories that you're starting to seeing some traction with?

I think, from the information I have been receiving, that we -- let's see. The telecom category, we should start seeing picking some steam up as we move forward. That would be pretty much on national level, I think. But that's another category I think we can identify in seeing some improvements.

But also, I think on the grocery/retail area, we're seeing a little bit of improvement in that area as well.

(OPERATOR INSTRUCTIONS). There appear to be no further questions.

Thank you, everyone, for joining our conference call today.

This does conclude today's Beasley Broadcast Group, Inc. conference call. You may now disconnect your lines, and have a wonderful day.