Beasley Broadcast Group Inc (BBGI) 2007 Q1 法說會逐字稿

At this time I would 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, Ms. Caroline Beasley, Executive Vice President, Chief Financial Officer. Ma'am, you may begin your conference.

Thank you, Coretta, and good morning. Welcome to the Beasley Broadcast Group first-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. SK. A reconciliation of these non-GAAP measures with their most directly comparable financial measures calculated and presented in accordance with GAAP can be found in today's news announcement.

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 Web site, BBGI.com, for five 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 first quarter, our guidance and operations outlook, and then open the floor to Q&A. George Beasley, our Chairman and CEO, and Bruce Beasley, our President and COO, are with me this morning.

For the quarter our revenues increased 13.7%. Actual revenue, SOI, and other metrics reported this morning include revenue from WJBR and KDWN, which the Company did not own in first quarter of '06. These stations combined generated $2 million of the increase in total revenue for the Company. Their first-quarter same-station results were also impressive, and I will review them in a minute.

During the first quarter, Beasley Broadcast generated better-than-projected revenue in Augusta, Fort Myers and Las Vegas, and each of these clusters posted double-digit revenue increases through the quarter. Our country station KCYE, which we reformatted in fourth quarter '05, and our new talk station, KDWN, drove our gains in Las Vegas. For the quarter, Las Vegas cluster revenues increased in line with market growth relative to spot sales, and Bruce will address total revenue results.

Fort Myers' increase was partially driven by an NTR event held in March, and also reflects a strong sales effort, as spot sales rose 15% compared to the market, which was up 9%. Augusta's gains also reflect a solid sales effort, with our cluster increasing its spot sales by 24%, which significantly outpaced the market growth of 4%. Our Philadelphia cluster also continued to outperform the market, and Bruce will address this in a minute.

In Miami, our stations underperformed the market, but we continue to see progress. In first quarter, Miami spot revenue increased almost 5%, while our cluster increased 2%. Our cluster's underperformance is entirely attributable to national, as our local revenue increased 8% compared to the market, which increased 5%. The changes that were implemented at WQAM in early 2006 are paying off, and for the second consecutive quarter, this station delivered double-digit revenue growth.

In addition, our Miami rhythmic CHR station delivered positive results for the first time since first quarter of '05. And I'd like to take this opportunity to thank our consultant, Greg Reed a Florida radio veteran and longtime Beasley Broadcast Group colleague, for all the efforts he has made to get WPOW back on track. The gains at QAM and Power were partially offset by declines at our country station, WKIS, and Bruce will address this.

Nationally combined, our markets increased 2%, while BBGI national revenue decreased 2%. And this is the first quarter since second quarter of '05 that our markets have seen national revenue increases. So, national remains a priority here as an avenue for growth.

On a local level combined, our markets increased 4% compared to our stations, which increased 8%. And one note to make is that Wilmington, Delaware is not a reporting market to Miller Kaplan, so these figures exclude our station there. And as I said before, our portfolio also performed well during the first quarter on a same-station basis, with net revenue increasing 6.1% compared to the first quarter of '06.

Our station operating expenses increased 12.4%, with over half of the increase, or $1.4 million, related to the operation of WJBR and KDWN, which were not part of our portfolio in the comparable 2006 period. The remainder reflects the significant advertising campaign in Philadelphia that we spoke about on the last call, a promotional event in Fort Myers, and increased commissions. Without the effect of the expenses for WJBR and KDWN, same-station expense rose 5.2%. Reflecting the first quarter '07 revenue growth and station operating expenses, station operating income increased 16.9%, and same-station operating income increased 8.5%.

Corporate G&A, excluding stock based compensation, was $2 million for the quarter, or an increase of 12.7%. This increase reflects an approximate $200,000 that the Company is spending on continuing to develop our interactive support services for our radio stations. During the first quarter, we recorded approximately 700,000 in stock-based compensation expense, and of this amount, 100,000 is included in station operating expenses.

During the first quarter of '07, we repurchased approximately 164,000 shares of common stock for a total of $1.5 million, representing an average price of $9.20 per share. Reflecting this activity, our current authorization allows us to repurchase up to an additional 19.5 million of BBGI shares. And since the repurchase program was launched, the Company has repurchased a total of 1,083,000 shares for $9.9 million.

Interest for the quarter increased 89% to 3.4 million, and this reflects increased borrowings related to the KDWN and WJBR acquisitions, higher interest rates due to the rolloff of swaps, and generally higher interest rates. And our effective tax rate for the quarter was approximately 40%.

Turning to the balance sheet, as of March 31st, total senior debt was 196.4 million, and the latest trailing 12 months' consolidated operating cash flow was 35 million, for a leverage of 5.61 times. On April 13, 2007, we amended our credit agreement. The amendment reduced borrowing costs by 25 basis points and extended the maturity of the loan until 2015, or two years. The commitments also increased from 219.4 million to 230.2 million, and as such, current availability under the facility is 33.8 million. However, after reflecting covenant requirements, availability is 22.3 million. In accordance with EITF 96-19, the Company will record an approximately 400,000 early extinguishment of debt charge in the second quarter.

On March 28, we purchased KBET-AM, which is our fifth station in Las Vegas, for 2.5 million. The station is a Class D 1000 kW day and 300 kW night station. The (inaudible) was acquired pursuant to an option that we acquired almost two years ago as part of our strategy to expand our presence in Las Vegas, and we are evaluating several proposals for deriving the best value from this asset.

Cash on hand at the end of the quarter was 7.1 million, and we spent $795,000 in CapEx.

Now moving on to guidance for second quarter, we are projecting our revenues increase 5% on an actual basis, and our station operating expenses to increase 11%. We project that over half of the increase in station operating expense, or 1.5 million, is related to KDWN and WJBR.

On a same-station basis, we are guiding for a 2% decrease from last year in revenues, based on the following assumption. We're looking at a projected decline in our Miami cluster related to the Miami Heat and to WKIS, our country station. Last year, approximately 300,000 was generated from the Miami Heat going to the playoffs and NBA Finals. And as most of you know, the Miami Heat lost in the first series of playoff games this past Sunday. So we will not be getting that revenue this year.

In Las Vegas we're projecting a decline on a same-station basis related to the projected performance of KKLZ. And finally, we're projecting that our clusters in Philly, Fort Myers, Augusta and Fayetteville will be basically flat for the quarter.

On a same-station basis, we forecast -- in terms of station operating expenses, we forecast a 4% increase for the quarter, and this includes the cost of increased sales expense at WQAM related to the expansion of its sales team and additional promotion expense in Philly.

Our corporate G&A is projected to be 2 million for the quarter and approximately 8 million for the year, and this includes the cost of the Company's continued development of interactive support services for our radio stations of approximately 800,000 for 2007.

In terms of stock-based employee compensation expense, we expect to report approximately 700,000 during second quarter, and a total of 2.6 million for the year.

In depreciation and amortization expense, we're projecting 850,000 for the quarter and approximately 3.1 million for the year, and the increase in D&A is primarily attributable to the newly acquired stations.

Interest expense -- we're projecting 3.4 million for the quarter and approximately 13.6 million for the year. This increase -- this reflects the recent amendment to our credit agreement with interest spreads declining 25 basis points. And as mentioned before, we do expect to record a $400,000 charge from early extinguishment of debt related to the amendment.

Our effective tax rate is 40%. Our deferred income tax expense will be approximately 1.6 million for the quarter and 5.5 million for the year.

And in terms of CapEx, we are projecting to spend about 1.2 million for the quarter, with 750,000 of that as investment, and we are continuing to project $4 million in CapEx for 2007.

This will be the guidance that we provide for second quarter and the year. At this time we undertake no obligation to update this information until the next conference call.

Thank you very much, and I'll turn it over to Bruce.

Thanks, Caroline. As most of you can see, we got off to a pretty terrific start in '07, with revenue gains in eight of our 11 market clusters, and impressive contributions from our interactive initiatives, which collectively drove a nearly 14% rise in total revenue and a 6% same-station revenue improvement.

The '07 first quarter revenue growth reflects double-digit revenue gains in our clusters in Las Vegas, Fort Myers and Augusta, as well as over three times the level of new media revenue recorded in first quarter of '06. Importantly, we also recorded improvements in both Miami and Philadelphia, rounding out gains in our three largest markets during the period. We attribute this overall strength to the operational, personnel and programming changes made at our station clusters that we've reviewed over the last few quarterly conference calls.

Beasley Broadcast Group in Q1 '07 same-station revenue results are expected to exceed the industry growth. Also, based on Miller Kaplan data, in Q1 the markets in which we operate were up 4.9%, while our revenues in these markets were up 8%, thereby extending the trend established during fourth quarter of '06. This is relevant as it highlights the health of our markets and our success in outperforming a good environment.

During Q1 we also continued to narrow the disparity between national trends and our performance. As Caroline noted, we're actively addressing our portfolio to ensure that we can at least perform as well with the industry respecting to recapturing our national revenue.

In Q1 we also surpassed the revenue guidance provided at the time we reported 4Q, and exceeded the Street's SOI and EPS consistence estimates. And while we're succeeding during the period and significantly outpacing industry growth, there are several areas where we can improve operating results, and we're deploying the same holistic approach to our portfolio in each market and each station to drive future performance. I think if I focus my remarks this morning on those areas, you'll see that we understand where we can achieve further upside and the approaches that we are taking.

The guidance we're providing this morning for Q2 '07 reflects some of the challenges that we are addressing, as well as the overall environment, which softened in March and April; bookings in May and June could render this guidance conservative. For example, I just returned from sales meetings at our Coastal Carolina cluster, and the focus was on the recent and fairly rapid ramp-up of local auto advertising. However, visibility is limited, as advertisers are generally buying in a short window leading up to airing their spots and their campaigns.

During the quarter we recorded year-over-year revenue increases in five of our top six categories. That includes auto, which had gains in both domestic and international, health care, restaurants, entertainment and telecom, with a decline in retail.

Based on the work of the last year or so, Beasley's Miami cluster posted a turnaround in the first quarter. WQAM led our gains in the market with a 22% revenue increase, based on the strength of the sales effort at that radio station. Last week we announced that WQAM secured the exclusive broadcasting rights for Dolphins games through at least the '09 season, as well as The Cam Cameron Show, in-season, and other special Dolphins programming year-round. We do expect to build an extensive state-wide radio network that allows Dolphins fans throughout the state to listen to the games, and we'll carry special Dolphins programming and promotions on our Miami sister stations, Power 96 and KISS Country. The important fact here is that we have a deeper and far more talented sales staff at the station than in the past, and I'm confident they're going to do a better job of aligning advertisers with this great programming.

On the last call, Caroline indicated that she was including a small revenue increase for Power 96 in our Q1 guidance. And the station performed as expected, with revenue growth of 1.6% in Q1. Power had a good fall ratings book, where it moved to number two in its target demo, and the station was very strong in its first two phases of the winter book. So, we expect continued ratings strength at that radio station. We also have a new GM at the station who has been doing a great job. He's working with our consultant in turning the station around. They've been focused on improving their local sales effectiveness. And with the winter ratings, they'll be going after more national business. So we think we've put this station in a position to build from here. And with the benefit of some national dollars, I'm looking for an acceleration of the improvement at Power 96 in the second half of '07.

In Miami, right now we are focused on KISS Country, which after a strong Q1 '06 experienced a low double-digit decline in total dollars at the station during Q1 '07. In our troubleshooting analysis, we completed a -- just completed a research project and found that listeners are responding well to the programming; however, we learned that the station promotion needs a push, and we're in the midst of rolling out a marketing campaign to remind listeners that KISS is the only place on the dial in Miami for country music. I expect results from this campaign in short order and, despite the decline in Q1, the station remains number seven in the market in terms of revenue. And we are looking forward to moving that back up into the top five.

In Philadelphia, our largest market, our cluster continues its record of outperforming the market. For the quarter, and based on Miller Kaplan, BBGI cluster revenue rose an impressive 7.1% versus the market that was up 1%. We also improved revenue share in Philadelphia to 8.4% in Q1 '07, from 8.2% in 4Q '06 and 8% in the last year's first quarter. With the benefit of the advertising that we discussed on the last call and the awareness that is building for the morning show, WRDW posted a 37% rise in year-over-year revenue. We're very happy with the steady gains being achieved. And as Caroline noted, we'll continue to spend some promotional dollars in the market to drive further upside.

Rating-wise, WRDW did well in the fall, besting its direct competitor. And overall, the station was number three in its target demo, 18 to 34. The winter book came out last Friday, and it was the first time ratings included data from the deployment of -- in the market of the people meter. We have been early adopters of this technology, and see it adding value to the reporting process. But we also are seeing some sampling issues in the first phases of the ratings. We expected some volatility in the winter book, particularly since there has been reported that younger demos was materially undersampled during this period. Believe me, we're going to be watching and monitoring the undersampling and underindexing of the particularly 18 to 24 demos as we move forward throughout the process of the people meter.

WXTU, our country station, stayed pretty level from the fall diary to the people meter, as far as their rank goes, and performed very well. WRDW went from number three to number four in their target demo. All in all, our station -- our Philadelphia cluster remains -- their revenue contributions remain very strong and growing. We have the right personnel in place, we have the right management in place, and we're backing them with promotion, and we'll address and overcome any short-term people meter issues.

Turning to Las Vegas, the cluster recorded its third consecutive quarter of double-digit revenue growth with a rise of 15.4%, led by the 57% year-over-year rise at Coyote Country, as well as the very impressive contributions from KDWN, which we acquired late last summer and reprogrammed shortly thereafter. Together, Coyote and KDWN helped move our revenue share in the market to 14.2% from 13.5 in Q1 '06. There remains considerable upside for us in this market, which continues to be among the fastest-growing in the country, and was up 9.5% in Q1.

On a same-station basis, or excluding KDWN, we were up 6.1% in 1Q. So, while Coyote Country is performing as we would have hoped, as is KDWN in the early stage of its relaunch, we will continue to devote considerable management attention to extracting improved performance from KSTJ and KKLZ, both of which I would classify as in transition.

Last December we tweaked the music and sound at KSTJ, and the station now targets the 25 to 44 female audience, which our research identified as underserved. Results at the station were flat year-to-year. And in this market, that's just not acceptable. Similarly, KKLZ, our classic rock formatted station in the market, continues to underperform in terms of revenue generation and overall revenue share. We just completed a research project at KKLZ in February, and we've seen some improvements in the trend. However, we've been disappointed with the pace of improvement at these two important Las Vegas properties, and we intend to take any further action necessary with personnel and programming to cultivate value from these assets. We're confident that we're going to succeed with KSTJ and KKLZ, just as we've done with our other turnarounds. But KKLZ will impact 2Q, as well as it impacted Q1.

Our managers and personnel in Augusta, Georgia, Fayetteville, North Carolina, Fort Myers, Florida and the Greenville/NewBern, North Carolina area also deserve recognition, as in each market we are now number one in terms of revenue share. In each case they grew quarterly revenue year-over-year. Also, WJBR in Bloomington, Delaware is providing to be a very solid addition to the group, and we're very happy with its operations and contributions.

The other really bright spot in our company is the traction we're getting with the interactive media initiative. Our sales teams and interactive sales managers in each of our markets are doing a great job of selling new media, both on a stand-alone basis and as part of an upsell with traditional spot buys. As I alluded to earlier in the portion of my remarks, interactive revenue in Q1 rose over 35% on a quarterly sequential basis, and over 3.2 times from what we recorded a year ago. With interactive accounting for about 2.7% of our Q1 '07 revenue, we are well on our way to realizing our goal of having it account for 5% of our revenue over the next several months. And I'd remind you, we only formally launched this initiative last fall.

Before we open the call to Q&A, I'll summarize by saying that the operating improvements in the first quarter are in line with the expectations we established as we made a series of operational, programming and personnel changes. However, this process doesn't end. And with our strong position in some of the country's best radio markets, there remains several areas for improvement that we can drive future growth.

So, while our 2Q guidance is for a 2% same-station revenue drop, which is in lock-step with the industry expectations, we hope investors will look a little deeper into our 2Q to see that we actually expect a very good quarter. As Caroline pointed out, half of the expected 2Q revenue decline is related to the Miami Heat not going to the NBA Finals, which of course is beyond our control. The other half of our projected decline is related to KISS Country in Miami, which we're already addressing with stepped up promotions, and the situation in Las Vegas with KKLZ.

With a total of 44 radio stations, we'll be addressing a few issues that are work in progress. But our results over the last few quarters demonstrate that we are delivering improvements from our focus on operations. Our activity in terms of driving additional station growth remains high, and as a result, we believe we're well positioned in '07 for further growth against our goal of exceeding the market and industry.

With that, operator, I'd like to turn this over for Q&A.

(OPERATOR INSTRUCTIONS). Tracy Young, Bear Stearns.

Could you give us some idea of how auto and retail did in April and May -- sorry -- March and April? And then also, what was the NTR dollars for Fort Myers, if you could?

I do not have auto retail broken out for -- exact numbers broken out for March and April. Do you have any --?

Just a sense of -- do you think domestic is pacing up still? You mentioned in first quarter it was pacing up.

Yes. It definitely in first quarter -- domestic actually paced up at a higher percentage than import.

And second quarter, you're still seeing the same?

In second quarter we're seeing slowness in auto, and I don't have that broken out between domestic and import.

Let me add onto that. I think, Caroline, we are seeing -- we did see a slowness in April, but I think that may or may not reflect as we go forward.

And also, NTR for Fort Myers?

The NTR revenue in Fort Myers, I think, was a couple hundred thousand dollars.

Jim Boyle, CL King.

Bruce, do you see anything different in Q2 versus Q1 so far, in terms of whether budgets are being placed at the same time or even later, whether they're being placed in even shorter or the same length flights, or at the same or lower cost per points?

As far as the flights go -- overall, I think we're seeing it pretty much the same. The people are placing it in shorter timeframes, as they have in first quarter. As far as the flights go, they seem to be about the same. However, we did see some, as I mentioned in my portion here, some -- beginning to see in certain markets an increase in the automotive category spending. But I can't give you any other information beyond that it looks like the same as first quarter.

George, big-picture question. The last five or six years have seen the radio sector pretty much in slow to no revenue growth. So it looks, at least to this second-generation radio guy, that this is not exactly a cyclical downturn, but more of a maturing secular trend. You've been in this business, certainly, for longer than this one particular trend. What two things do you see, if any, that can get radio in the mid-term back to mid single-digit growth? Or is that asking too much in the mid-term?

I don't think it's asking too much. I think that our interactive program is going to aid considerably, in this company, in getting us back to mid single-digit growth for a while. And I can't say beyond that. But any other factor that could cause us to get higher growth, I suppose, would be better people, better sales effort, and perhaps HD Radio, looking in the future. I think HD Radio has a great deal of potential that we have not yet begun to realize, and that may even propel us into double-digit growth at some point down the road, once there is a -- once we have good penetration of HD Radio. I don't mean for an extended period of time, but it may at some point propel us to that.

Would you see the potential in HD Radio from the advertiser supported side, or could it perhaps get radio, terrestrial local radio, into subscription supported revenue stream?

I think it could do both.

Lee Westerfield, BMO Capital Markets.

That was a comprehensive presentation, so I'm just going to ask two generic questions here. The first relates to your current eyes on different acquisitions that may be in the marketplace. You've, from time to time, of course, been adding to your portfolio in the last year or so. So you're not disinclined. And so I'm wondering what you're seeing in the market for acquisitions that may be of immediate interest to you. And the second question relates to the revenue that's coming from the Internet side. And Bruce, if you can bring us up to speed as to what you guys are thinking and monitoring in terms of royalty rates on the Internet music side, as you think about the expanding revenue base that you can get in that segment.

I'll go ahead and take the revenues on the Internet. We're really excited about this. I think we're just touching the surface on where we're going to be able to take these revenues through lots of different initiatives that the Company is working with on our Beasley interactive. As far as the royalty rates, we're looking at those. There may be -- I think we're -- I know we're committed to continuing to stream these radio stations. I know we're committed to our interactive initiative. Hopefully, the work that's going on with these rates, there will be some changes in where they end up. But our commitment is to be in this business of Beasley interactive.

And acquisitions?

On the acquisition portion, I would say that we aren't actively looking for additional stations at this point. Our leverage is 5.61 times trailing cash flow, and I don't see us biting off anything further at this point. I do see, if the opportunity were to arise, to make trades that would boost what we have in two or three of our critical markets -- that we would certainly take a look at doing that sort of thing.

Totally consistent. Thank you very much.

There are no further questions in the queue. I will now turn the floor back over to management for closing remarks.

Thank you, Coretta. And thanks, everyone, for attending today. We look forward to speaking with you on the next quarter.

This concludes the Beasley Broadcast Group, Inc. conference call. You may now disconnect, and have a wonderful day.