Beasley Broadcast Group Inc (BBGI) 2007 Q3 法說會逐字稿

Good morning ladies and gentlemen my name is Marquita and I will be your conference operator today. At this time I would like to welcome everyone to the Beasley Broadcast third-quarter 2007 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.

Good morning and welcome to the Beasley Broadcast Group third-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 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 would 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. Investors can also find a copy of today's press release on the investors or pressroom section of the site. As always we will keep our remarks focused this morning on the third 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.

Before the quarter, our revenues increased 7.2%. Actual revenue, SOI and other metrics reported this morning include revenue from WJBR, KDWN and the Miami Dolphins broadcast rights which the Company did not have for the full quarter in 2006. On a combined basis, these stations and sports contract generated about $3 million in total revenue for the Company. I will review our third quarter same-station results in just a moment.

Relative to our third quarter guidance for net revenue to increase 6% Beasley Broadcast Group generated better than projected revenue in Philadelphia and Fayetteville. According to Miller Kaplan third quarter Philadelphia market revenue declined 1% compared to our cluster revenues which increased 2%. In terms of spot sales, the Philadelphia market declined 2% compared to our cluster which increased 1%.

Our stations also outperformed the market in Miami. The total market increased 2% with spot sales flat. Our cluster's total revenues increased 11.5% with spot revenue increasing 9%. These numbers are somewhat distorted as they reflect the benefit of the Miami Dolphins. Adjusting for the Dolphins and looking at Miller Kaplan on a same-station basis, our stations increased 3% with spot sales flat. So any way you look at it our cluster outperformed the Miami market for the first time in two years.

Excluding the Dolphins, both Power and [WQAM], outperformed the market according to Miller Kaplan. Kiss continues to face challenges and again impacted our quarterly results in the market and Bruce will address the operational, personnel and programming changes we are making there and what we're expecting going forward.

Inclusive of the revenue benefits from KDWN which was acquired in August of 2006, our Las Vegas cluster revenue declined 12%. Excluding KDWN our Las Vegas cluster revenue declined 20% compared to the market which was down 4%. Bruce will review the status of efforts to transition two key stations in the market in a few moments.

Even though we continue to outperform in Fort Myers market as projected on the second quarter conference call, the market experienced significant declines in third quarter. The overall Fort Myers market declined 16% compared to our cluster which was down 8%. We believe the decline in this market is a direct reflection of the depressed real estate market here in southwest Florida.

We also outperformed our markets on a spot basis as total spot revenue in our markets declined 3% compared to our clusters which were flat. And on a national basis combined our markets declined 5% while BBGI national revenue increased 6%. On a local level combined, the markets decreased 2% compared to our clusters which also decreased 2%.

One note to make is that Wilmington Delaware is not a reporting market to Miller Kaplan so these figures exclude WJBR. Also these numbers do include the positive revenue contribution of the Miami Dolphins and KDWN.

I am pleased to report that interactive revenue accounted for 3.2% of the Company's total third quarter revenue representing an increase of 98% of reserve quarter of '06. And third quarter of '07 we again surpassed the $1 million mark in quarterly interactive revenue generating net margins of approximately 60%. And on the same-station basis for third quarter, our stations revenue declined 2%.

Our station operating expenses increased 14%. About 77% or $2.4 million of increase was related to the operation of WJBR and KDWN and the Miami Dolphins contract, which were not part of the portfolio in the full third quarter in 2006. Without the effect these expenses, same-station expenses rose 3% which reflects increases in our cost of sales and programming expenses. Reflecting the third quarter revenue levels and station operating expenses, station operating income declined 9.4% while same-station SOI declined 14%.

Our corporate G&A expense excluding stock base compensation was $2.1 million for the quarter and this is an increase of approximately $400,000 which represents the Company's investment in interactive and severance costs. Stock based compensation expense for the quarter was approximately $576,000. Of this amount $31,000 is excluded in station operating expenses. And in last year's third quarter we incurred $631,000 in stock based compensation expense with approximately $80,000 in station operating expense.

We continued to repurchase shares during the third quarter repurchasing just under 60,000 shares of our common stock for a total of about 500,000 representing an average price of $8.10 per share. These purchases were executed pursuant to the May 2007 reauthorization and we are authorized to repurchase up to an additional 18.3 million of BBGI shares.

Since the Board authorized to repurchase program in Q3 '04 we have repurchased about 1.3 million shares for a total of $11.5 million representing an average price of $9.07 per share. Interest expense for the quarter increased 39% to $3.6 million and this primarily reflects increased borrowings related to WJBR and KDWN. And our effective tax rate for the quarter was approximately 39% and we incurred $7500 in current tax payables. Deferred taxes were approximately $600,000.

Now turning to the balance sheet, as of September 30, total senior debt was $193.4 million. In the latest trailing 12 months consolidated operating cash flow was $32.2 million for a leverage ratio of six times. Cash on hand at the end of the quarter was $6.1 million and we spent $936,000 in CapEx for the quarter and year to date we spent $2.3 million for CapEx.

Moving onto guidance for the fourth quarter, as indicated in this morning's press release we are projecting revenues to decline 2% from last year. And our station operating expenses, we are projecting to increase 5% for the quarter. The entire projected increase in expenses is related to the Miami Dolphins contract.

For the fourth quarter on a same-station basis -- and just to remind you all the difference between actual and same-station for the fourth quarter is the impact of the Miami Dolphins contract. We are projecting our revenues to decline 6% and I would like to break that out for you right now.

Last year we generated over $700,000 in political advertising; that does account for about 2% of the decline in revenue. Also last year our Fort Myers cluster held an NTR event and that generated around $4000 in revenue. So that accounts for about 1% of the decline. WQAM terminated its contract with the Florida Panthers hockey club this year, so that's another 0.5 to 1% decline in revenue.

So that makes up for about 4% of the 6% decline. And then we're looking at a projected decline in our Fort Myers cluster and that is related to the ongoing market impact related to the depressed real estate environment here in this market. And we're looking at projected declines in Las Vegas because of KKLV and KFRH which Bruce will talk about in just a moment and we're looking at a slight decline in Philadelphia. Without the benefit of the revenue related to the Dolphins broadcast, and the negative impact of the Florida Panthers contract from last year, our Miami cluster would be generating a slight increase in fourth quarter revenues.

In terms of same-station operating expenses, we're looking at a decrease of 4%. This includes the expense savings from the NTR event held in Fort Myers last year, savings from not entering into a new agreement with the Florida Panthers and the fact that expenses incurred in fourth quarter '06 in Las Vegas related to KDWN launching its new formats and we are not -- those expenses will not recur this year.

Corporate G&A expense excluding stock based compensation is projected to be $2 million for the quarter and approximately $8.1 million for the year. And this does include our investment in our interactive initiative of approximately $800,000 and then the severance costs that I just mentioned before.

Stock based compensation -- stock based employee compensation expense -- we're projected to record approximately $600,000 with $100,000 of that included in station operating expenses. And for the full year we are projecting $2.5 million in stock based employee compensation expense with approximately $300,000 of that in station operating expenses.

We are projecting $800,000 in D&A expense for the quarter and approximately $3.1 million for the year. And for [interest] we are projecting $3.5 million and approximately $14 million for the year. Our effective tax rate is 39% and our deferred tax expense will be approximately $1.1 million for the quarter and approximately $3.8 million for the year.

And we are projecting to spend approximately $1.2 million in CapEx for the quarter and those relate to planned HD radio conversion and our Power upgrade in Boston. We expect to spend a total of approximately $3.5 million in CapEx for all of 2007.

This will be the guidance we're providing for the fourth quarter and the year at this time. We undertake no obligation to update this information until the next call and I look forward to speaking with you then. Thank you and I'll turn it over to Bruce.

Thanks, Caroline and good morning everyone. As everyone who follows radio knows, Q3 '07 was another challenging period for the industry. And with Beasley with a 45 plus year perspective on radio broadcasting we believe we have a good grasp on the industry dynamics, challenges and opportunities.

One of our goals has been to manage our stations for industry outperformance. Well I'm pleased to report that we're succeeding in this effort. We're also seeing considerable opportunities for further growth and success even in markets where we've turned operations around and already have strengthened our cluster.

Based on Miller Kaplan data in Q3, the markets in which we operate were down 1.5 while our revenues in these markets rose 2.1. That makes the fourth consecutive quarter of results that are seeing our markets. Also WJBR in Wilmington which is not covered by Miller Kaplan continues to record gains and we're very pleased with the addition of this station to our portfolio.

In Q3 we generated 7.2% total revenue increases though same-station revenue declined 2%. During the quarter we drove year-over-year revenue share gains in five of the seven markets covered by Miller Kaplan. The story is the same through the first three quarters of '07 with Beasley Broadcast Group significantly outperformed on a revenue basis in five of its seven markets during this period and that's also according to Miller Kaplan. We also outperformed the industry at large during this time frame.

A quick remark on Las Vegas, Fort Myers and Miami and our exposure to the well-publicized housing led consumer spending slowdown. Our recent revenue declines in Las Vegas are in our estimation more a result of the re-engineering that we're doing in the market than driven by the economy as related to housing. While the market has definitely been impacted by real estate and showed a decline in Q3, our issues are more specific to our stations than the market.

In Miami, the market is well diversified far beyond the reliance on real estate and our cluster has established a pretty strong and positive growth trend with Q3 '07 revenues rising 11.5% from year-ago levels. Miami is not immune to the downturn in real estate and we did see market revenues turn down in September '07 while we grew revenues by 15%.

We are clearly feeling the real estate pinch in Fort Myers and Naples area where we have consistently held the position of the top cluster stations of revenue and this market declined almost 16% in third quarter while we managed to limit the revenue impact to our cluster of about 8% and while we were continuing to build revenue share, to 28.9% from 26.4% a year ago.

During the quarter on an actual basis, we recorded year-over-year revenue increases in nine of our top 10 ad categories; only auto was down there. And on a same-station basis, we recorded year-over-year revenue increases in eight of our top nine ad categories. If you look at our ad categories the 2% same-station decline is directly related to auto and real estate. Our third-quarter '07 revenue levels benefited again from our interactive initiative which is now just one-year-old. For the second consecutive quarter contributions from interactive accounted for more than 3% of the Company's total Q3 '07 revenue.

As our largest revenue market we have had a full court press going on in Miami and for the first time in a while we can report that all three of our stations in the market are at a position for growth. We [handily] beat market growth in Q3 with revenue of 11.5% against the market, which also rose 2.1 and this performance reflects a significant turnaround of our cluster which has lagged market growth for several quarters. Power 96 sports radio WQAM are the major drivers of our turnaround and indications are that both stations are in good shape to extend their success.

Power 96 was number one again in the summer book as this is the third book in a row where it's the leader in its target demo. As such, we expect the stations' continued rating strength to drive great business in the future periods. With its improved sales effort WQAM continues to show positive trends and the benefit of the Dolphins broadcast unrelating to content.

As we've recounted on recent calls, Miami's Kiss country has weighed on the cluster's performance. However, with the music tweak, an addition of a new PD, its ratings rebounded in the summer book [above a] three share 25 to 54. So with ratings and the addition of one new sales person, we're looking out to mid '08 as the horizon for the station to resume delivering positive comps and outperforming the market.

And an update performance by Kiss combined with the trends we have at Power and WQAM should really make our Miami cluster shine in '08 combined with select NTR events. And interactive selling we believe there remains considerable revenue upside for us in this Miami market.

Let's move onto Philadelphia where in Q3 our cluster resumed its record of outperforming the market. Despite the headwinds caused by the PPM in Q3 '07 Philly as a whole was down 1.1 while our cluster revenues increased 1.8. We also improved our revenue share to 8.6 from 8.4 in last year's Q3. [XT, our] country station remains consistent in its ratings performance but we remain plagued by the undersampling issue particularly in the 18 to 34 demo related to the adaption of the PPM and this really hurts our Rhythmic CHR Wired.

Arbitron is on record as recently as last month saying that as the summer ended it was getting back to and above its targeted sample size in Philadelphia. However, in our experience PPM continues to underrepresent the young-end sample and we believe that we are only seeing a sample amounting to less than 60% of the market. So while we remain proponents of the transition to electronic measurement, we're now expecting Arbitron to take another three or four quarters before they can deliver samples that we believe are more meaningful.

Overall, our Philadelphia stations are doing well and we're confident of their programming, their people and their promotions. However, the PPM sample has elevated ratings volatility of stations targeted at the 18 to 34 demo and margins unfortunately being impacted by this.

While we expect the PPM to add value to the reporting process, we have seen ratings reports where a public radio station pops out of nowhere to number four in the market and cases where another station targeted to an older demo also miraculously shows up in the ratings when before it was never a factor. We're having ongoing dialogue to be sure with Arbitron about this situation. But as importantly we're developing a host of tools, technology and resources to manage our cluster for PPM.

For example, Wired has terrific cume figures, well over one million people. And we're working with our sales teams to emphasize the station's reach and frequency and to educate advertisers on the short-term dissonance and impact of ratings of the PPM.

I would like to mention that Wired, our morning show which was launched about 18 months ago is consistently beating its format competitors and this represents a great avenue for growth for our Philadelphia operations. Our team in the market is focused on building on the success of Chio's morning show and widening the gap between us and our nearest competitor as we will do that both through spot transaction and through our interactive efforts.

Remember, that while we are being hurt a bit by the PPM as a result of the young-end demoed for Wired this audience is ideal for many of our new interactive offerings and efforts. We are projecting a slight decline in Philadelphia in Q4 but I know the team on the ground there including our air talent, our station personnel and our management will do their best to prove us from wrong and again overcome market forces and the PPM situation.

Now, let's take a look at Las Vegas. As noted earlier after years of terrific growth the market has been impacted by the real estate situation and was down 4.3% in Q3 while our cluster revenue dropped 12.1%. As our third-largest market the health and growth of our cluster is of paramount performance and we have taken a measured long-term approach to positioning the Company in Las Vegas.

Admittedly, we are in a sense dealing with an entirely new cluster as [KCYE] country which was reprogrammed just two years ago and KDWN, KKLZ and KFRH have all undergone program changes in the last 12 months. Product wise, I feel we're in a great zone now is Las Vegas with the addition of KDWN last year and the subsequent reformat and the changes at KKLZ and KFRH. However, revenue declines at KFRH and KKLZ hurt the cluster in Q3. Our turnarounds at these stations combined with the continued outperformance of KDWN and [KCYE] country represent opportunities for our cluster to grow in additional revenue share from the market.

Last December we tweaked the music and sound at what was then KSTJ and we have since moved it to the fresh market as KFRH. And that's the better target of 25 to 44 female audience, which our research identified as being underserved. We iContinue to consider the station as a work in progress and are working closely with station management and personnel to ensure that this station is on track for improvement and we expect to have an indication of this in early '08 when we have the fall book results.

In May, we switched to a classic hits formats at KKLZ which features the greatest hits of all time and targets listeners age 25 to 54. Our research indicated strong potential for this kind of music as listeners demos and tastes in the market have changed dramatically over the last few years and the rock genre has been become overcrowded with five stations in the market offering variations of rock music.

I'm pleased to report that the station went from a 3.4 to a 3.7 in the summer book and was number 725 to 54 in both the spring and summer books. With these ratings, we're starting to see the revenue traction we'd expected and we're looking for improvements beginning in Q2 '08.

As noted before when we undertook establishing KDWN as the markets news and talk source we looked at a three-year time horizon. With the station's relaunch last September we were very pleased with the success it has achieved to date and all and all it's moving in the right direction as cume increases month-over-month while ratings have gone to a 2.3 in the summer to 12 plus from a 1.6 in the spring, 12 plus. We expect to keep building from here with KDWN and we like the station's prospects regarding some of the political ad dollars that will be around in '08.

Despite the near-term impact from real estate, Las Vegas is a solid growth market. We think our new stations have great potential so we're very excited about our prospects. We're confident that we will succeed with KFRH and KKLZ, just as we have with other turnarounds in Las Vegas and other markets. But the impact of KFRH and KKLZ will overcome the success of KDWN and [KCYE] country in Q4.

As Caroline indicated we see a small year-over-year cluster revenue decline in Q4. Long-term, we anticipate upturns in revenue from these stations beginning in mid '08.

Our managers and personnel in Augusta, Georgia; Fayetteville, North Carolina; Fort Myers, Naples, Florida; and Greenville and [Uber], North Carolina again deserve acknowledgment. As in each market we're holding our number one position in terms of revenue share. As always, I reiterate that with strong positions in many outstanding radio markets we see several areas for improvement that can drive further growth.

We remain committed to active station and portfolio management to improve our market and financial position in future periods and we are making tremendous progress with our interactive initiatives. Our recent station acquisitions are proving to be an excellent complement to our portfolio and our Hd rollout continues and will benefit from the industry's significant marketing backing in '08. Notwithstanding recent interest industry challenges and certain market issues we believe we are well-positioned in '08 and beyond to succeed and continuing to outpace market and industry growth.

Now with that operator, I'd like you to open the call up for Q&A.

(OPERATOR INSTRUCTIONS) Tracy Young, Bear Stearns.

Good morning, thank you for such a thorough review of Q3 and your outlook for [Q4]. I just have two questions. Can you give us a sense as a percentage of revenues the auto retail and real estate categories and also can you give us an update on HD radio, how many stations are multicasting?

Yes, Tracy. Hold on a sec. The percentage of revenue for auto for our Company is about 19% for the third quarter. And then in terms of -- what was share next question -- real estate?

Real estate and retail.

Okay 2% for real estate. It was 2.8%. So, it's gone down almost 1% year-over-year. And then retail is 18% of our revenue. And then in terms of a number of stations that are multicasting I believe that we had 10 stations -- eight stations that are multicasting.

James Dix, Deutsche Bank.

Good morning everybody. Just a couple of questions. If you could, Caroline, if you could give what your assumption is for what your markets are going to grow in the fourth quarter? And then I guess if you could talk a little bit about the differences you're seeing in markets where you think there is an impact of real estate, housing and those types of factors and markets where you don't see that.

Are there any particular ad categories where you're seeing it? And I'm just curious as to why you don't think you're seeing it in Las Vegas.

We are seeing real estate impacted in Las Vegas and in Fort Myers. I think what Bruce said was going forward while real estate is very weak in that market we have our own internal issues that are going on at our radio station so we are actually addressing both. But real estate -- those are the two markets that real estate is weak in within our Company.

James, we have some pretty large company specific issues in Las Vegas that without this getting the fact that real estate is down we have our own issues that we're dealing with and we believe that for our Company they're very positive issues.

And James, you can look to our other markets in terms of real estate, the real estate category. I know it appears that aside from these two markets -- Fort Myers and Vegas -- real estate is either flattish or even slightly up. But these are the two markets that really impact that.

And in terms of markets -- look, I guess what I assume is that our stations will overall perform in line with our markets. So the guidance that I've given to you will be the assumption that that is what our markets will be doing in the fourth quarter. I'm happy to go through that market by market offline if you would like. But in general, that is my assumption. I don't assume that we're going to underperform in our markets.

Well, I guess that would be adjusting for some of those onetime events you're talking about. So, like the concert and the political -- because I am assuming that you are not thinking that your markets overall are going to be down 6% of the same-station basis.

No, but after adjusting for the concert, no I don't -- think that political would definitely impact these markets because (inaudible) are gone. But the concert -- we could probably take a look at that.

And then just in terms of Las Vegas and Fort Myers is it the real estate category itself which is hurting the market or is it just related consumer spending categories? For instance are you seeing auto down more in those markets or retail down more in those markets? Or is it just really the real estate category?

I have not run specifically auto broken out by market. I did run real estate just because it went from 2.8% of our revenue last year to 2% of our revenue this year and I wanted to identify specifically which markets that decline relates to. So I mean I'm happy to go back and look at auto and see where that decline specifically is coming from. I would assume that it's pretty much spread out throughout our markets.

Particularly Fort Myers, James. It is such a real estate driven market that it will affect auto, it will affect consumer spending on dining out, on beer consumption on those sorts of things. So Fort Myers is probably escalated a little larger if you'd like under a magnifying glass because of real estate decline.

Okay and then just one final follow-up. Did you indicate what the auto category was in Q3 in terms of percentage growth or percentage decline rather?

It was 9% down.

Down nine; okay.

And that includes domestic and foreign.

(OPERATOR INSTRUCTIONS) Lee Westerfield, BMO capital.

Very nearly, in any event. Three questions if I may. The first one -- and this might be rudimentary -- Miami represents -- I should know by now -- but what percentage of your revenue? Second, in Philadelphia recognizing that the PPM and Arbitron is a bit of a work through in terms of its sample and by the way -- how do you see that playing out in terms of the quality of the books over the coming two to three books and your ability therefore to monetize what audiences you're gathering in that marketplace as they affect your revenue? And then third, I think you mentioned national spot was up for you 6%. How do you attribute that significantly outperforming the marketplace as a whole? Thanks.

I'm going to take your first and last question, Lee and then Bruce is going to dive into PPM issues. Miami accounts for 30% of our total revenue and then in terms of national for the Company, that was pretty much led by our Philadelphia market. We sold pretty high increases nationally in Philly and of course Miami was also up in national.

And then as far as the PPM impacts in Philadelphia -- you know what, Lee if you're an older targeted demo radio station, say 35 plus-ish there, the consistency in the indices are very -- they're really good. They are -- so it is very dependable data. As you get down to the 18 to 24 and the 25 to 34 demos it becomes more undependable for lack of a better word.

I have been told by Arbitron that the 18 to 24 demos should be at acceptable levels by the end of January and they're not even starting to work on new initiatives and incentives for the 25 to 34 until the end of February. So we see that demo 18 to 34 probably not being at acceptable levels until sometime third quarter of next year.

So it will be a little bit of volatility there. But a station like ours with Wired, which is -- folks listen to radio stations in Philadelphia we're going to find the opportunities there. It's a great -- I think the PPM is a great measurement source and I think it's the right thing for us to do but Arbitron has its work cut out on the young-end demo.

Bruce, to be sure is that a matter of recruitment out of the sample for the younger demographic being difficult in your view or some other factor that the way the sample in the younger demographics are employing their PPM for those that are in the sample for Arbitron? The reason I ask that question is at the end of the day this is the currency that you have to monetize and so if Arbitron is not getting it right and the demographics that you would like to cater to, what on their end or what on your end --choices do you have?

Well, the choices we have are we continue to let Arbitron know how unsatisfied we are with the results. And as far as young end demo goes, it's a lot of different things. I know they have put in new initiatives as far as currency goes. I guess -- and you should probably speak to Arbitron to be specific on these things and I am sure you will. But the initiatives that they have undertaken for the 18 to 24s look like they're starting to pay off but 25 to 34s are just sitting there going nowhere.

And again they plan no initiatives or incentives until February of next year. So we have got a lot of work to do with Arbitron. And again we're not very happy with what we are seeing there.

(OPERATOR INSTRUCTIONS)

Operator, I had a minor correction on the number of HD stations that are multicasting. I had said eight but it's actually 10. So I just wanted to shoot that answer out to Tracy so she can have her facts straight.

At this time there appear to be no further questions.

Thank you. We will talk with you guys soon.

Thank you. This does conclude today's teleconference. You may now disconnect.