Beasley Broadcast Group Inc (BBGI) 2007 Q2 法說會逐字稿

Ladies and gentlemen, good morning. My name is Stacy, and I will be your conference operator today.

At this time, I would like to welcome everyone to the Beasley Broadcast Group's Second Quarter Financial 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, Caroline Beasley, Chief Financial Officer. Ma'am, you may begin your conference.

Thank you, Stacy. Good morning, and welcome to the Beasley Broadcast Group's Second Quarter Conference Call.

Before beginning, I would like to emphasize that this call will contain forward-looking statements about our future performance and results of operations that involve risk 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 five days after the call ends.

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. Bruce Beasley, our President and COO, is with me this morning.

For the quarter, our revenues increased 8%. Actual revenue, SOI and other metrics reported this morning include revenue from WJBR and KDWN, which the Company did not own in second quarter '06. These stations combined generated $2.3 million of the increase in total revenue for the Company. I will review our second quarter same-station results momentarily.

Our Company generated better-than-projected second quarter '07 revenue in Fort Myers, Fayetteville and Coastal Carolina. Las Vegas cluster revenue rose 14%, with the increase attributable to KDWN-AM, which we did not own in second quarter '06. Excluding KDWN, Las Vegas cluster revenue declined 4%. The decline reflects the May format change in classic hits at KKLZ-FM, which was previously formatted as classic rock.

On a pro forma basis, including KDWN, our total cluster revenue increased about 6% versus the market, which increased 5%. Our over performance was driven by the other revenue category as spot sales declined 2% versus the market, where spot increased 4%. Fort Myers' increase reflects a strong sales effort for the quarter, with spot revenue increasing 9% compared to the market, which declined 3%.

According to Miller Kaplan, second quarter Philadelphia market revenue declined 5%, compared to our cluster revenues, which declined about 3%. In terms of spot sales, the Philadelphia market declined 7% compared to our cluster, which declined about 3.5%. While we're not happy about the decline, we are pleased that our cluster continues to consistently outperform in this market.

In Miami, our stations continue to underperform the market. The total market increased 3%, with spot sales increasing 1%. Our cluster's total revenue declined 5%, as did spot revenue.

However, there are several positives in Miami that are worth noting. Power 96 outperformed the market, which marks the first time since second quarter of '05. And as Bruce mentioned on last quarter's call, we announced a new GM in April, and he has been working to turn the station around along with our consultants.

WQAM faced difficult comps due to the Heat games last year. And if you look at the station's performance excluding the Miami Heat in '06, the station outperformed the market. And Kiss continues to face challenges and is the station that negatively impacts our results in this market, which Bruce will address.

Total spot revenue in our markets declined 2% compared to our stations, which were flat. Nationally combined, our markets declined 2%, while BBGI national revenue declined 3%. And on a local level combined, the markets decreased about 2% compared to our clusters, which increased about 1%.

One note to make is that Wilmington, Delaware, is not a reporting market to Miller Kaplan, so these figures exclude WJBR, which continues to perform well.

I'm pleased to report that interactive revenue accounted for 3.1% of the Company's total second quarter '07 revenue, representing an increase of 126% over second quarter of '06. In second quarter '07, we surpassed the $1 million mark in quarterly interactive revenue, generating net margins in excess of 60% on this revenue. On a same-station basis for second quarter, our stations' revenues increased 1% compared to the second quarter of '06.

Station operating expenses increased 10%, or $2.2 million. $1.7 million of the increase is related to the operation of WJBR and KDWN, which again were not part of the portfolio in the comparable 2006 period. Without the effect of these expenses, same-station expenses rose 2%, which primarily reflects increases in programming and sales calls.

Reflecting the revenue and station operating expenses, SOI increased 4% and same-station SOI decreased 2%.

Corporate G&A, excluding stock-based compensation, was $1.9 million for the quarter, and this is an increase of approximately $200,000, which represents the Company's investment in our interactive initiative. Stock-based compensation expense was approximately $600,000 for the quarter. And of this amount, approximately $100,000 was included in station operating expenses.

We continue to remain active on the share repurchase front during the second quarter, and we repurchased approximately 123,000 shares, for a total of $1.1 million. This represents an average price of $8.77 per share.

These purchases were executed pursuant to the May 2007 reauthorization, and we are authorized to repurchase up to an additional 18.7 million of BBGI shares. Since the Board authorized the repurchase program in Q3 '04, we have repurchased a total of 1.2 million shares, for a total of $11 million, representing an average price of $9.12 per share.

Interest expense for the quarter increased 78% to $3.5 million, and this reflects the increased borrowings related to KDWN and JBR acquisitions, higher interest rates due to the roll-off of swaps and increased spreads from our increased leverage over last year.

Our effective tax rate for the quarter was approximately 39%, and we incurred $8,000 in current taxes payable for the quarter. Deferred taxes were approximately $1.3 million.

Now, turning to the balance sheet, as of June 30, total senior debt was $195.4 million, and the latest trailing 12-month consolidated operating cash flow was $34.1 million, for a leverage of 5.73 times.

As noted before, on April 13th, we amended our credit agreement. The amendment reduced borrowing costs by 25 basis points and extended the maturity of the loan until 2015 or by two years. The commitment increased from $219.4 million to $230.2 million.

Current availability under the agreement is about $35 million. However, after reflecting covenant requirements, availability is about $18 million.

In accordance with EITF 96-19, we recorded a pre-tax charge of $366,000, or about $0.01 per diluted share, for early extinguishment of debt.

Cash on hand at the end of the quarter was $6.8 million. We spent $563,000 in CapEx for the quarter, and year-to-date we've spent $1.358 million.

Moving on to guidance for third quarter and as indicated in this morning's press release, and we're reflecting ownership of KDWN in Las Vegas, the acquisition with JBR in Wilmington, Delaware, and the new contract with the Miami Dolphins, we're projecting revenues to increase 6% over last year, station operating expenses to increase 16%. We project that approximately three-quarters of the increase, or $2.7 million, will be related to KDWN, WJBR and the Miami Dolphins.

On a same-station basis -- and this compares stations that we owned for all of third quarter '06 to all of third quarter '07 -- we are guiding for revenues to decline 3% from last year, and this is primarily a result of a projected decline in our Las Vegas cluster related to KKLZ and also related to KSTJ.

As mentioned before, with KKLZ's format switch to classic hits from classic rock, we expect third quarter revenue to be down, and this is negatively impacting our revenues about 2%. So it's making up about 2% of the 3% decline.

We're projecting a decline in our Coastal Carolina cluster. The overall market seems to be softening in third quarter, compared to second quarter, which actually generated a 4% increase. We're projecting this to impact revenues by about 1%.

And then we're looking at a decline in our Fort Myers cluster as well. Even though our stations outperformed the market in second quarter, the overall market declined 2.3% for the quarter.

So the market is experiencing continued softness which is a result of a depressed real estate market in this area. That will negatively impact our revenue by about 1%. We expect Philadelphia, Augusta and Fayetteville market clusters to be flat.

And then finally, on a positive note, we're expecting our Miami cluster to generate quarter-over-quarter increases. And this, again, does exclude the impact of the Miami Dolphins.

While Kiss, our country station, still has its challenges, we are beginning to realize the benefits from the changes that we made last year and this year at QAM and Power. And we expect these stations to positively impact our revenues by 1%. So if you add down, that's where we're getting the minus 3%.

Station operating expenses on a same-station basis are expected to increase 4.5% for the quarter. This includes the cost of increased sales expense in Miami, Philly and Las Vegas related to larger sales staff and, in Philadelphia, related to the PPM. And we're projecting increased programming expenses in Miami.

Corporate G&A, excluding stock-based compensation expense -- we're projecting $2 million for the quarter and approximately $8 million for the year. And again, this includes our investment in our interactive initiative of approximately $800,000 for the year. Stock-based compensation expense -- we're projecting about $700,000 for the quarter, and we expect a total of $2.6 million for the year.

D&A expense -- we're projecting $850,000 for the quarter and approximately $3.3 million for the year. Interest expense -- we're projecting $3.5 million for the quarter and approximately $14 million for the year. Our effective tax rate is 39%. Our deferred tax expense will be approximately $1.4 million for the quarter.

And in terms of CapEx, we are projecting to spend about $1 million for the quarter with about half of that as investment. This does reduce the annual guidance that I had given to you in terms of CapEx that we're spending for the year to $3.5 million from $4 million.

This will be the guidance that we provide for third quarter and the year at this time. 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'll turn it over to Bruce.

Thanks, Caroline. As everyone who follows radio knows, Q2 '07 was overall a challenging period for the industry. Based on Miller Kaplan data, in 2Q the markets in which we operate were down 0.4%, while our revenues in these markets rose 1%, marking the third consecutive quarter of results that are exceeding our markets.

In addition, we generated an 8.2% total revenue increase and a 1% same-station revenue improvement. These results reflect revenue gains in seven out of our 11 market clusters, including Las Vegas, where we have KDWN, and continued solid contributions from WJBR in Wilmington, Delaware.

In addition, '07 second quarter revenue levels reflect growing contributions from our interactive initiative. We're seeing positive response on both a local and national level to our interactive offerings, and we grew interactive revenue by 28% from Q1 '07 levels, when they accounted for about 2.7% of the revenue.

Our sales teams and the interactive sales managers in each of our markets are doing a great job of selling new media, both on a standalone basis as well as part of an upsale traditional spot buy.

Based on the progress we're making toward goals of having our 5% of revenue derived from the Internet, we are considering a Company-wide alliance whereby we will offer streaming ads on an auction basis, and we hope to have news on that front shortly.

Our Q2 '07 results exceeded our guidance, for a net revenue increase of 5% compared to Q2 '06, and a same-station net revenue decline of 2% compared to the same period last year, and also surpassed TheStreet's SOI and EPS consistent estimates.

Given the published RAB monthly data for April and May and the fact that June was generally weak, we believe we've again outperformed the industry in 2Q. However, with several markets and stations still in transition or recently reprogrammed, we don't believe our 2Q results reflect the overall potential of our portfolio.

As such, I'd like to focus my remarks this morning on the markets and stations where we see opportunities to further improve operating results in the operational, personnel and programming strategies we are taking to extract gains in the future.

During the quarter, we recorded year-over-year revenue increases in five out of our top nine ad categories, in which we saw gains in health care, entertainment, other, telecom and events, and we saw declines in retail, automotive, restaurants and financial services.

Based on our work over the last year or so, Beasley's Miami cluster continues to move in the right direction, though it did not match the market, which was up 3.1% in Q2. At Power 96, where we have changed management, improved ratings, we recorded a 2.1% spot revenue gain and a 2.4% total revenue gain.

Power 96 had a good rating book in the winter in its target demo, 18 to 34. And in the just-released spring book, which just came out yesterday, we saw Power 96 back that up again with number one in its target demo.

Management at the station continues to focus on improving local sales effectiveness, and with the spring ratings, the station is well positioned to garner national business. So we think we've put this station in a position to build from here, and with the benefit of some national sales, we expect Power 96 to perform well going forward.

WQAM recorded an actual total revenue decline of 3.7% from Q2 '06 levels, which, as Caroline noted, was due to the tough comps related to the inclusion of the Heat games last year, and that's partly behind the cluster's revenue decline this period. However, WQAM also continues to show ratings strength and, combined with its improved sales effort, continues to show positive trends when excluding the Heat from last year's results.

Miami's Kiss Country was the primary reason for our cluster's under performance relative to the market during the period, a trend that began late last year. Kiss posted an unacceptable 14% revenue decline in Q2, and we are taking a multifaceted approach to reviving the station.

We previously completed a research study and increased the station's promotions. At this time, we're recruiting a new program director for the station, and we'll follow that with the addition of approximately two new sales people. That will bring our total sales staff up to about 10.

We're also strengthening our NTR efforts at the radio station. And finally, we are emphasizing interactive selling at the station and believe based on the success we're achieving with interactive sales in Miami at Power and QAM, there is considerable revenue upside from this source.

As Caroline reported, WPOW and WQAM strengthened, and excluding the impact of the Dolphins, we see the Miami cluster generating an increase in Q3. With our latest contract from the exclusive broadcasting rights for the Dolphins games through at least '09, which includes adjustments to traditional spots rights arrangements, includes the Cam Cameron show, In Season, and other special Dolphins programming year-round, we believe the Dolphins-related programming will be an asset to QAM over the lifetime of the agreement.

Let's take a look at Philadelphia, where our cluster continues its record of outperforming the market. Unfortunately, with market revenue declines and our strong performance over the last few years during which we recorded gains on gains, our Q2 performance turned negative. In Q2 '07, we improved our revenue share to 9.4% from 9.1% in last year's Q2 and from 8.4% in Q1 '07.

XTU, our country station, is faring well in the current environment, but WRDW posted 6% year-over-year revenue decline, as these two stations tell part of the story of what's occurring in the Philadelphia market due to the transition to the People Meter. Overall, our stations are doing well and are confident of their programming, people and promotion. What's at issue is the declining People Meter sample, which is elevating ratings volatility of stations targeted at the 18 to 34 demo, and Wired, unfortunately, is being impacted by this.

While we expect the People Meter to add value to the reporting process, we have experienced sampling issues since its implementation earlier this year and have seen ratings at stations programmed to the demo bouncing from number one to number three to number five. This is causing confusion among buyers, which, in turn, is leading to lower market revenue. We are regularly addressing this situation with Arbitron, and based on this dialogue, we expect improving, more representative samples to be in place by September.

All in all, our Philadelphia cluster revenue contributions remain strong. We have the right on-air talent. We have the right station personnel and management at this point. But we're relying on Arbitron to ensure that they address the People Meter issues, which we and other broadcasters have raised.

Let's take a look at Vegas. The cluster recorded its fourth consecutive quarter of double-digit revenue growth with a rise of 14%, led by a 33% year-over-year rise at our Coyote Country station as well as a very impressive contribution from KDWN, which we acquired late last summer and reprogrammed shortly thereafter.

On a pro forma basis, including KDWN, our total cluster revenue increased 6.2% versus the market, which increased 5.4%. So while Coyote Country is performing as we would have hoped, as is KDWN in the early stage of its relaunch, these performances are being overcome by the revenue declines at KSTJ and KKLZ, where revenue dropped 14% and 29%, respectively.

Turnarounds at these stations, combined with the continued outperformance of KDWN and Coyote, represent an opportunity for our cluster to garner additional revenue share from the market. Overall, Coyote and KDWN helped maintain our Q2 revenue share at around 13.2%, but there remains considerable upside for us in this market, which continues to be one of the fastest-growing markets in the country.

Last December, we tweaked the music and sound at KSTJ, and the station now targets the 25 to 44 female audience, which our research has identified as underserved. We continue to consider this a work in progress and are working closely with station management and personnel to ensure that this station is on track for improvement.

In May we switched to classic hits format at KKLZ, one of our three FM stations in the market. As we reported, the station has experienced consecutive year-over-year declines in spot advertising revenue over the last several quarters. For a variety of strategic competitive reasons, we've opted to reformat KKLZ to the new greatest hits of all time sound, which targets listeners age 25 to 54. Our research indicated a strong potential for this kind of music as listener demos and taste in the market have changed dramatically over the last few years, and the rock genre has become overcrowded, with five stations in the market offering variations of the rock music.

Las Vegas is a terrific market. We have solid management in place. We think that this new station has a great potential to reap benefits from those changes, and we're very, very excited about the prospects there.

We're confident that we'll succeed with KSTJ and KKLZ, just as we have with other turnarounds in the Las Vegas market and other markets. But the impact of KSTJ and KKLZ will overcome the success of KDWN and Coyote in 3Q. Longer term, we anticipate upturns in revenue from these stations beginning in mid '08.

Our managers and personnel in Augusta, Fayetteville, Fort Myers-Naples and Coastal Carolina deserve acknowledgment as in each of these markets we are holding our number-one position in terms of revenue share, and in each case they grew quarterly revenues year-over-year by 7.3%, 7.7%, 9.9% and 4.5%, respectively. Overall, these were some of the most impressive performances in the radio industry at this time.

Also, WJBR in Wilmington again turned in a solid contribution, and we're reviewing some compelling cross-market NTR synergies with our Philadelphia cluster.

Before we turn the call over to Q&A, I want to reiterate that reflecting our strong position in some of the country's best radio markets, there remain several areas of improvement that can drive further growth. We remain committed to regularly reviewing our formats, ratings and management and sales teams and to making appropriate changes that, based on our analysis, can further improve our market and financial position in future periods.

Our activity in terms of driving additional station growth remains at very high levels. We are making tremendous progress with our interactive initiatives. Our recent station acquisitions are proving to be excellent complements to our portfolio. And we continue to support shareholder value, both in the form of buybacks and dividends.

As such, and acknowledging the recent industry changes, we believe we are well positioned in '07 and beyond to succeed in outpacing market and industry growth. Now, with that, I'll ask the operator to open the call up for Q&A.

Thank you.

(OPERATOR INSTRUCTIONS)

Your first question is coming from Lee Westerfield from BMO Capital. Please go ahead.

Thank you, and good morning. I have a question that focuses on Miami and particularly on the sports programming and impact there potentially on the total Company's revenue. And I wanted to make sure that maybe my calculator work was correct here, first, regarding the Heat, and then, second, regarding the Dolphins.

Regarding the Heat, if I'm right here -- and maybe this was also mentioned, too, but the overall impact of the Heat not making it through the playoffs this year versus 2006 subtracted 1% from your total Company's revenue growth in Q2? Does that sound right, Caroline?

And then secondly, since the Miami Dolphins are not embedded in the same-station guidance that you provided for the third quarter, in any way that you possibly can dimensionalize what the impact might be from the Dolphins to total Co. revenue? Thank you.

Right. Well, the Miami Dolphins are not included in same-station revenue, and they are included obviously in total Company revenue, and we're projecting the Dolphins to contribute between $800,000 and $1 million for the third quarter in revenue.

And the Heat?

The Heat last year contributed over $200,000 -- I think it was between $200,000 and $300,000 -- I think it was around $300,000 in revenue for second quarter last year.

So it was about 1%. Thank you.

Yes.

Thank you. Your next question's coming from Tracy Young from Bear Stearns. Please go ahead.

Hi. Two questions. What was your top ad category for the quarter? And also, in terms of your expense growth, can you give us a little more clarity? Is most of that coming from sales or from programming? Thanks.

Tracy, the top ad category for us in second quarter was retail. Following closely behind was auto.

And then the expense growth is driven by two areas -- programming expenses, primarily in Miami. And Bruce addressed a little bit of that with the changes that we're making over at Kiss and some of the tweaks that are going on over there. And then secondly, the sales expense growth in Miami and Vegas, and in Philadelphia, where we're really beefing up the sales department.

Okay. Thanks.

Thank you.

(OPERATOR INSTRUCTIONS)

Your next question is coming from James Dix from Deutsche Bank. Please go ahead.

Good morning, everybody. Just a couple questions. First, regarding third quarter -- just a housekeeping one -- what is the same-station base in terms of revenue and operating expense, if I missed it? And then what's your market pacing assumption? What are you assuming your markets are going to be up or down in the third quarter?

And then, Bruce, you mentioned that you think the PPM in Philadelphia is contributing to lower market revenue. Any estimate that you have or that you have heard others make about what the impact has been year-over-year in terms of market revenue in Philadelphia from the PPM?

While Caroline gets that information you're looking for, James, I'll talk about the PPM. Specifically for the month of June, the Philadelphia market was down 7.5%. I can't attribute that totally to the PPM, so I can't give you an exact number.

However, I can discuss the confusion that we're seeing, and I think it's contributing to the decrease in revenue because of the fact of just a poor, poor [in-test] samples that we're having in the 18 to 24 primary demo as well as the 18 to 34 demo. It's just incredible how the sample, it's below 50%.

If you compare 18 to 34 in the last diary, it indexed at 82%, and we're sitting there at somewhere around 50% right now in that same demo. So it's hard to make comparisons when your buyer's sitting out there looking at the fluctuations that we're seeing because of the poor samples that we're having.

Okay. In terms of the same-station base, last year same-station revenues were 30.9. Expenses were 21.2.

Those expenses included non-cash comp?

Yes.

Okay.

For station operating expenses, yes. It's about $100,000.

Okay. And then I guess my last question is -- oh, I guess there was another one. What was your assumption on market growth for the third quarter?

Yes, what I'm looking at for market growth is probably flat to slightly down. I'm saying that we're probably going to underperform because of the Las Vegas cluster. But our markets are -- I think they'll be flat to slightly down.

Okay. All right, great. Thank you.

Thank you.

(OPERATOR INSTRUCTIONS)

There appear to be no more further questions at this time. I will turn the floor over to Caroline Beasley for any closing remarks.

I'd like to thank everyone for joining us today, and we look forward in speaking with you next quarter. Have a good day.

This concludes today's Beasley Broadcast Group Second Quarter Financial Results Conference Call. You may now disconnect your lines and have a wonderful day.