Beasley Broadcast Group Inc (BBGI) 2007 Q4 法說會逐字稿

My name is Bree and I'll be your conference operator today. At this time I would like to welcome everyone to the Beasley Broadcast Group 2007 fourth-quarter 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, Chief Financial Officer Caroline Beasley. Ma'am, you may begin your conference.

Thank you, Bree. Good morning and welcome to the Beasley Broadcast Group fourth-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'd also remind listeners this call is being web cast 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. As always, 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.

So for the quarter our revenues increased 0.4%. Actual fourth-quarter net revenue, SOI, and other metrics reported include $1.4 million in revenue from the Miami Dolphins, which the Company didn't have in last year's fourth quarter. BBGI exceeded its fourth-quarter guidance for a net revenue decline of 2%, as we generated better than expected cluster revenue in Philadelphia, Augusta, and coastal Carolina.

According to Miller Kaplan, total Philadelphia market revenue declined 4.1% in the fourth quarter, while our cluster revenues fell 1.4%. So we outperformed our market in Philadelphia. Our stations also outperformed the market in Miami. In total, market revenue increased 4.5%. Our cluster's total revenues increased 10.9%. These figures include the revenue contributions related to the Miami Dolphins broadcasts, which were partially offset by the $200,000 impact of not renewing the Florida Panthers at WQAM.

During the quarter, the Las Vegas market declined 5%, while our cluster revenue dropped 6.2%. Our Las Vegas cluster remains in transition following programming and changes at KKLZ and KFRH. And Bruce will discuss the recent management change in the market in just a moment.

The Fort Meyers market continues to be challenged, with quarterly market revenues 11.8% behind last year, and our cluster revenues declining 17.9%. This underperformance is partly due to an NTR concert that generated approximately $400,000 in fourth quarter '06, and was not held in fourth quarter of '07. In the 7 of our 11 markets that report to Miller Kaplan, our clusters outperformed our market on a total revenue basis, as total revenue declined approximately 2%, while the BBGI stations were basically flat. These numbers, again, do include the positive revenue contributions of the Miami Dolphins, and the negative impact of not having the Florida Panthers and the Fort Meyers NTR event in Q4 of '07 that we did have in Q4 '06.

We had another solid quarter with our interactive initiatives, as revenue accounted for 3.4% of the Company's total fourth-quarter revenue, representing an increase of 94% over fourth quarter of '06. And in fourth quarter we again surpassed the $1 million mark in quarterly interactive revenue, and we generated net margins in excess of 60% on this revenue. For the full year, interactive revenue accounted for 3.1% of total revenue, which represents 121% increase over 2006.

On a same-station basis for the fourth quarter, net revenue declined 3.8%, and this compares to our guidance for same-station revenue decline of 6%. Now just to remind everyone again, same-station revenue does not include the $1.4 million in revenue from the Dolphins, but does include the $600,000 negative impact of not having the Fort Meyers NTR concert and the Florida Panthers in fourth quarter of '07.

Station operating expenses increased 6.3%, and this increase was related to the Miami Dolphins contract. Without these expenses, same-station expenses declined 2.8%. And this primarily reflects decreases in expenses related to the Fort Meyers NTR event and the Florida Panthers contract.

Reflecting fourth-quarter revenue levels and station operating expenses, SOI declined 11.9% and same-station SOI declined 5.9%.

Corporate G&A, excluding stock-based compensation expense, was $2 million for the quarter, and for the year corporate G&A was $8 million. For the year, this represents an increase of $1.2 million, and this primarily relates to the continued development of our interactive support services. Stock-based compensation expense was around $550,000 in the fourth quarter, and for the year we recorded $2.4 million.

In the fourth quarter, we repurchased approximately 65,000 shares of BBGI stock for a total of $450,000. For the year we repurchased approximately 400,000 shares of BBGI stock for a total of $3.5 million. And since the time the Board initially authorized the repurchase program in 2004, we have repurchased a total of 1.3 million shares for a total of $11.9 million.

Our interest expense for the quarter increased 15% to $3.3 million, and this primarily reflects increased borrowings related to the JBR acquisition. In terms of interest expense for the year, it increased 50% to $13.8 million, and this increase reflects borrowings related to WJBR and KDWN acquisitions, as well as the expiration of interest rates swaps.

In the fourth quarter of '07, we did record a $2.2 million impairment charge and this related to the FCC licenses in our Wilmington, Augusta, and Boca Raton markets. Our tax rate for 2007 was approximately 42%. We incurred $10,000 in current taxes payable for fourth quarter, and $28,000 for the year. Total senior debt was $191 million and we had a leverage of 6.21 times at the end of the year. Cash on hand was $6.6 million. CapEx for fourth quarter -- we spent about $1 million, and for the year we spent about $3.3 million.

Now, turning to guidance for first quarter, as you all probably read in the press release this morning, we are projecting our revenues to decline 4%. And I want to go through that. About 3% of the 4% decline is coming from our Fort Meyers market, with 30% of the 3% decline coming from an NTR event which we had last year in first quarter that we're not doing this year in first quarter. We're also projecting a continued decline in Fort Meyers due to a ratings drop at WRHK and overall market softness. One point I would like to make is this week we did receive January Miller Kaplan, and the Fort Meyers market is down 16% for the month of January. So it continues to struggle.

We continue to project declines in Las Vegas related to KFRH and overall market softness. And we're projecting softness in our Fayetteville cluster. On a positive note, we're projecting that our Miami cluster will show gains in the first quarter. WPOW is making great progress and is benefiting from the changes made over the last year. Our country station in Miami still has its challenges, but we have begun to see stability there. And QAM, our sports station, is making progress on the spot side. However it is facing difficult comps, due to not renewing of Florida Panthers' and the Marlins' sports contract. Also, the Super Bowl was held in Miami in January of '07, which seems to have negatively impacted WQAM for the month of January. And our Philadelphia cluster is expected to be flat with a year ago.

Station operating expenses are projected to decrease 2% for the quarter. This decline represents expense savings in Fort Meyers, primarily from this NTR event, and also expense savings from not renewing the rights with the Panthers and the Marlins.

Corporate G&A, excluding stock-based compensation expense, is projected to be $2.1 million for the quarter, and $8.4 million for the year. Stock-based employee compensation expense is expected to be $500,000 the first quarter and about $1.8 million for the year. G&A expense -- we're projecting $800,000 for first quarter, and approximately $3.2 million for the year. And we are projecting $2.6 million in interest expense in first quarter, and approximately $10.3 million for the year. Our effective tax rate is 42%, and in terms of CapEx, we are projecting to spend approximately $725,000 in first quarter, and approximately $4.5 million for the year. This will be the guidance we're providing for first quarter and the year at this time, and we undertake no obligation to update this information until the next conference call.

And at this point, I'll turn it over to Bruce.

Thank you, Caroline. I'd like to spend my time this morning briefly addressing three areas that are of interest, I believe, to our financial community and form the foundation of our continued enthusiasm for the Beasley Broadcast Group's prospects. The first topic I'd like to address is the state of the industry, and how Beasley is faring in what has generally been characterized as a very challenging environment.

I'm going to start by saying the sky is not falling down in broadcasting, and our fourth-quarter results highlight the benefit of our strategies to target good growth markets, appoint qualified staff, program to listeners' preferences, sell locally and promote each station appropriately, which together will allow us to exceed market and industry performance.

During the quarter, on an [actual] basis, we recorded year-over-year revenue increases in seven of our top ten ad categories. And on a same-station basis, we recorded year-over-year revenue increases in five of our top ten ad categories. And if you look at our ad categories, 3.8% same-station decline is directly related to auto and political.

The second area I'd like to address this morning is how we fared relative to the operational and strategic goals that we established for BBGI in '07. On a big picture basis, we set out to manage our stations for industry out-performance, and we succeeded in that effort. But digging a little deeper, though, we entered '07 seeking to close the gap on our performance in Miami relative to the market.

A second area of focus for the Company in '07 was to strengthen the revenue contributions from KKLZ and KFRH in our Las Vegas cluster, following programming and on-air changes at these stations. We had recorded several quarters of double-digit revenue growth in Las Vegas, largely related to our country station, which we reformatted in Q4 '05, and the addition of KDWN-AM, our new soft station launched in late '06. But this market has been hit hard by the housing downturn, and revenue growth has slowed to 1% in '07, from mid-single digits in '06. We've moved the cluster in the right direction, but it's still a work in progress. And I'm going to provide a little more perspective a little further along in my presentation.

Another corporate priority in '07 was to begin demonstrating to advertisers the value of our interactive media initiatives. For the full year, interactive revenue grew to approximately $4.2 million. That's 121% rise over '06. And by Q4 we were generating net margins over 60% on this revenue.

We also set out to build our strength in Philadelphia and, while we recorded a small revenue gain in the market in '07 against the backdrop of a 2.6% decline in the market, we did succeed in elevating our overall market revenue share. All in all, things are working for us and while I'm pleased to highlight our '07 success, I'd also like to take this opportunity to review considerable opportunities we have for further growth and success in '08, even in markets where we've turned operations around and already strengthened our cluster.

As we reported this morning, our Miami cluster is now in great shape and with solid fall ratings where Power 96 and our sports station, WQAM, placed first and second in their target demos. We are confident that '08 will prove to be a very good year for the cluster. In addition, we expect upside related to the stabilization of our country station, which has weighed on the cluster's performance for most of '07. The summer and fall ratings book for Kiss Country brought the good news that a music tweak and the appointment of a new program director delivered the expected results. And we've been working with the sales team at the station to assure that they're selling that to the market. So improving performance at Kiss Country, combined with the momentum established at Power and QAM, we make for some important contributions for the Miami cluster in '08.

In Philadelphia, our cluster reported another period of market out-performance in Q4, which boosted our market revenue share slightly over where we were in '06. However, while we remain believers in electronic measurement technology and the value it can bring quality broadcasters like Beasley, we remain unsatisfied with the PPM sampling issue and the pace at which Arbitron is addressing this. It's clearly has impacted several quarters for us and other broadcasters in the market.

For those of you who don't know, PPM is under-sampling certain demos, particularly the 18-to-34 demo, and this hurts our rhythmic CHR station, Wired, there in the Philadelphia market. We are dealing with this problem on a first-hand basis, but we are hindered by the pace of correction and the information being fed to broadcasters, implying that Arbitron was back to and above its targeted sample size in Philadelphia. Though we have seen some improvement, this is simply not the case. As such, we remain of the opinion that it won't be until Q3 of this year that sample sizes and consistency of PPM data can be used to our benefit in selling our cluster.

Please don't misinterpret this. Overall, our Philadelphia stations are doing well and we are confident of their programming, people, and promotion. Early in '08 we named a new sales manager at Wired, and we're seeing positive results from the sales training and other initiatives already in place. We also installed a new NTR interactive sales manager there as well. With these changes, and the strong management and programming teams in Philadelphia, we had a very good January. I'd also like to note that we expected contributions in Philadelphia in Q1 from national, which is a direct reflection of our strong ratings in the market in our target demos. And this is in spite of PPM issues that we just reviewed.

In '08 we're continuing to aggressively move to turn around our Las Vegas cluster. After years of being one of the nation's fastest growing radio markets, Las Vegas has faced some challenges, largely related to the housing situation. In Q4 we closed the gap somewhat on our performance relative to the market, but our cluster still came in behind. As our third largest market, the health and growth of this cluster is priority. And I'm pleased to announce that after about six months search, we have finally found a person to lead our cluster there for our market manager. Goal one in Las Vegas is to achieve cluster performance that matches market performance. And we're well on our way, having cut a double-digit decline in Q3 in half in Q4. But this, of course, is not acceptable. The cluster, and particularly KFRH, remains a work in progress. A turnaround at KFRH, stronger contributions from our classic hits format at KKLZ, and news/talk station KDWN and our country station, Coyote, represents opportunities for our cluster to garner additional revenue share from the market.

Overall, our mid-size markets, including Augusta, Georgia, Fayetteville, North Carolina, Greenville/New Bern, North Carolina, again deserve acknowledgement, as in each market we are holding our number one position in terms of revenue share. However, while our revenue in the Fort Meyers/Naples market remains tops, our rock station, WRXK, which was the cluster's top biller, is taking a disproportionate brunt of the market turn. And this has hurt us in Q4 and also impacted us in Q1, as Caroline mentioned. We do have an all-out effort under way and are looking at the music, as well as the mix of talk to music, to determine both the most immediate and the longest lasting correction.

Lastly, I want to remind everyone that we believe our interactive success in '07 is just the beginning of what we are capable of in terms of developing this new revenue stream. We fully believe we will achieve our goal of having interactive represent 5% of the revenue, and we hope this proves to be an initial conservative threshold.

I'd like to thank our managers, sales people, on-air talent, programmers, promotion staffs, and everyone throughout the organization for stepping up to the challenge and insuring that we capitalize on the strong positions we've built in many outstanding radio markets. This team understands and appreciates the entertainment and marketing value of this medium, and is working on its shareholders' behalf to continue to distinguish ourselves from the rest of the industry.

And operator, with that, I'd like to open the floor to Q and A.

Thank you. (OPERATOR INSTRUCTIONS.) We'll pause for just a moment to compile the Q&A roster. Thank you. Our first question is coming from Tracy Young with Bear, Stearns.

Hi. I've actually got two questions. The first is, are you hearing from advertisers a positive reaction to Bill Parcells as general manager of the Dolphins? And also, your CapEx guidance seems to be a little bit higher than historical. Could you give us some guidance on that?

Yes. As far as what we've heard about Bill Parcells, that's only positive for the Dolphins. He's been a great coach in the past and has had winning teams, and we certainly believe that he's going to help us out with advertisers for the Dolphins. And, quite frankly, even though the Dolphins had a terrible year last year, advertisers still love them. So this is only going to help us.

And in terms of CapEx guidance, it is higher that what we spent last year. We do have two big projects included in this, one over in Miami and one in Las Vegas. And that is in addition to our HD conversions. So those two markets, Miami and Vegas, are what will make up the difference.

Okay. Thanks.

Thank you. (OPERATOR INSTRUCTIONS.) Our next question is coming from Lee Westerfield from BMO Capital.

All right. Thanks you, folks. Good morning.

Hi, Lee.

Hey.

Two questions from me. First, I think you said Philadelphia might be flat for this year, which I wonder if you could elaborate on a bit in terms of how that trend will develop. Secondly, Caroline, for the audience at large, do you mind just walking us through your debt structure at this point, your leverage and what covenant terms and so forth may come up in the near and distant future?

Okay. In terms of Philly, the guidance that I gave for first quarter was flat. While January proved to be a very good month for Philadelphia, we are seeing slowness in February and March. Now, what we've been told by our national rep firm, Philadelphia is one of two -- no, one of sev --

One of two markets.

-- one of two markets that we have that are actually pacing up in national. So for the month of January the increases that we saw were largely attributable to national. We're hoping this pans out, so therefore we're projecting local to be a bit soft. The market itself was down in the month of January 10%. So the Philadelphia market locally is down and is bringing down the market. National is pacing higher. So we're just trying to be conservative here and we're projecting a flat quarter for Philadelphia. Certainly for the year we expect growth from that market, but for the quarter we're expecting flat.

Thank you for clarifying. I misspoke when I said full year.

Okay. And then in terms of our debt structure, I have a revolver and a term. And, let's see, right now the covenant calculation is 6.25 times. It's 6.25 times through the end of the year. And for March 31, 2009, then the leverage calculation, or the leverage covenant, will go down to 5.75 times. There are no required principal payments. However, we are making principal payments on a monthly basis to our revolver.

Great. Thank you very much.

You're welcome.

Thank you. (OPERATOR INSTRUCTIONS.) Our next question is a follow up from Tracy Young with Bear, Stearns.

Actually, it's Victor Miller holding -- standing in for Tracy on the second question. Can you talk a little about a couple of the ad categories? Specifically, one thing I'm curious about in the first quarter and fourth quarter is the impact of TV tune-in dollars from maybe the writers' strike, and what impact that might have had in February, for example. Secondly, can you give us any sense of any real estate/home improvement-oriented categories, especially in your Florida and Las Vegas market? And then, generally, how you're seeing auto, retail, and telco, 'cause I heard there's quite a lot of mixed signals across the country on those categories. Thanks.

Okay. Victor, what I can do is address the impact of TV in fourth quarter. I do not have the numbers available for first quarter. Someone actually -- Lee asked me this question this morning earlier. Revenues were down in that particular category 12%, in the fourth quarter. So we're definitely seeing impact of the writers' strike. I would expect that they would still continue to be down in first quarter.

What percentage is that -- 5, 6, 7%? What kind of --

It's -- for fourth quarter it's 5.5%.

Of your revenue?

Yes.

Okay.

In terms of real estate, for the quarter we -- obviously, we saw a slight decline in real estate for the quarter. And that is -- decline in advertising is coming from Fort Meyers and also Vegas, as well as some of the other markets, Miami and Augusta. Interesting enough, Philadelphia was up in real estate. So -- but overall there was a decline. And in terms of the percentage of revenue, real estate is 2.4%, or was 2.4%.

Then on auto, retail and telco? And then I have a follow-up for -- one other follow-up. Thanks.

Okay. In terms of auto, auto was down, obviously, in fourth quarter. And it's pacing down in first quarter as well. It was off about 10% in fourth quarter. And right now it looks like it's going to be off about the same amount in first quarter. Telco was actually up for us, and the information that I'm getting from national -- I guess there's been a reclassification of one of the big advertisers --

AT&T?

-- (inaudible) from, you know, national to local. So it's a little bit gray out there at this point, but that's kind of what we're seeing.

One other follow-up. Bruce, I'm just curious. Even though the PPM is -- there's some issues in PPM, what I was struck by is when there was a leak of some rep data earlier this year. And what I found interesting was that the two PPM markets, Philadelphia was the only market top ten that was actually up in national and Houston was only down high-single digit relative to the numbers that were out at that point. And what I was struck by was that the two PPM markets actually were doing the best out of the top ten, twenty markets. So is that just coincidence, or do you think that the markets adjusted last year as PPM came in and now they're readjusting upward a little bit to the reality of PPM or is it just -- is there any takeaway at all from that, that coincidence or reality?

Victor, no I think it's coincidence. What Caroline was alluding to earlier, in the top 50 markets Las Vegas and Philadelphia were the only two markets that were up. And so, coincidentally, Philadelphia is a PPM market. Obviously, Las Vegas is not. And, again, we're a strong believer in that medium, but I think that's more coincidental than anything else.

Thanks.

Thank you. At this time there appear to be no furth -- oh, we have a follow-up coming from Lee Westerfield.

I couldn't resist, but it is a serious question and it's a far reaching one -- but in your HD broadcasts, are you guys encoding songs if people who happen to have the buy button for iTunes choose to, at this point?

We are not doing that just yet. We are hoping to embrace that technology in the future, but we are not set up to do that just yet.

Okay. Well, we'll wait and watch. Thank you.

Thank you. All right. Thank you, operator, and thank you, everyone, for attending today.

Thank you. This does conclude today's Beasley conference call. You may now disconnect and have a wonderful day.