Beasley Broadcast Group Inc (BBGI) 2008 Q1 法說會逐字稿

Good morning. My name is Bre and I will be your conference operator today. At this time I would like to welcome everyone to the Beasley Broadcast Group Inc. 2008 first quarter 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). Thank you. It is now my pleasure to turn the floor over to your host, Caroline Beasley. Ma'am, you may begin your conference.

Thank you. Good morning. Welcome to the Beasley Broadcast Group first 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 factor 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 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 after the call ends. Investors also can find a copy of today's press release on the investors or press room sections of the site. Bruce Beasley, our President and COO is with me this morning. As always we will keep our remarks focused on the first quarter operations outlook and then open the floor to Q&A.

For the first quarter our net revenues decreased 4.6% to $29.4 million which was slightly behind our forecast for a 4% decline at $29.5 million as our Miami cluster revenue growth was slightly less than forecasted due in part to market softness. In the six of our eleven markets that report to Miller Kaplan our clusters outperformed their markets on a combined basis as total revenue in these markets declined 6.8% compared to our clusters which declined 6.1%.

According to Miller Kaplan, total Philadelphia market revenue declined 9% with spot sales down 10%. Our total cluster revenue increased 1% with spot sales basically flat. In Miami our stations also outperformed the market as total market revenue declined 4% with spot sales down 8%. Beasley's Miami cluster total revenues increased 0.4% in first quarter while spot revenue decreased 7%.

During the quarter, the Las Vegas market declined 5%. Our cluster revenue declined 15%. Our Las Vegas cluster remains in transition following recent management changes. The Fort Myers market continues to be economically challenged with quarterly market revenues 17% behind last year and our cluster revenues declining 27%. As noted when we provided first quarter guidance this underperformance was due in part to an NQR concert that generated approximately $250,000 in first quarter '07 which was not held in first quarter '08. Our classic rock station continues to post greater than market declines due to its ratings drop. Bruce will discuss the challenges in this market in a moment.

The Augusta and Coastal Carolina markets posted slight revenue gains for the quarter. We have another quarter of significant growth related to our interactive initiative with revenues from these sources rising 50% over first quarter '07 levels and interactive revenue accounted for 4.3% of the Company's total first quarter '08 revenue. We again surpassed the $1 million market in quarterly interactive revenue and we generated net margins in excess of 60% on this revenue.

Our station operating expenses decreased 4.1%. The decrease was related to the following -- savings from the first quarter '07 Fort Myers NTR (inaudible) mentioned above not held in first quarter '08. Number two, not entering into a new agreement with the Florida Panthers and Marlins. Finally, a TV promotional campaign in first quarter '07 in the Philadelphia market that did not recur in first quarter '08.

Our station operating incomes declined 5.7% or about $0.5 million. Corporate G&A excluding stock based compensation expense was $2.1 million for the quarter or an increase of approximately $100,000 which represents the Company's continued investment in interactive. Our stock based compensation expense was approximately $500,000 representing a 25% decline from first quarter '07.

Interest expense decreased 21% to $2.7 million from $3.4 million. This primarily reflects lower borrowing costs and voluntary repayments under our credit facility of $3.75 million. Our effective tax rate for the quarter was approximately 43% and there were no current cash taxes. The effective tax rate for 2008 reflects additional tax expense from the vesting of restricted stock.

Now turning to the balance sheet as of 3-31-08, total senior debt was $187.3 million and the latest trailing 12 month operating cash flow was $30.3 million for a leverage ratio of 6.18 times. Cash on hand as a 3-31 was $5 million and we spent about $0.5 million in CapEx for the quarter.

We had elected to discontinue the practice of providing specific quarterly revenue guidance. We expect our stations to generate quarterly net revenue growth or declines in line with the industry. However, in the second quarter of 2008, we will also incur an additional 3% impact to total net revenue compared with the second quarter of 2007 from our decision not to renew the Florida Marlins broadcast rights.

Also we have to consider the fact that Fort Myers and Las Vegas continue to be the markets having the biggest impact on the Company's revenue because of the housing and real estate environment. To illustrate this in the month of March, radio revenue in the the Fort Myers market was down 26% and radio revenue in the Las Vegas market was down 10%. As noted before, our stations are underperforming these markets. And for your information these stations account for about 20% of our total revenue.

Now moving onto expenses for second quarter. We expect a decline of 8% for the quarter. And the majority of the decline represents expense savings from not renewing the Florida Marlins in Miami. Our 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 projected to be $500,000 for the quarter and $2 million for the year.

G&A expense is projected to be $800,000 for the quarter and $3.1 million for the year. And we're projecting $2.7 million in interest expense for the quarter and approximately $10.8 million for the year. And our effective tax rate is 43%. We're projecting to spend about $1 million in CapEx for the quarter and expect to spend a total of approximately $4.5 million in CapEx for the full year. This does include HD conversions and completion of the Boston Tower upgrade as well as a couple of other projects we will have coming out later on in the year.

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

Thank you, Caroline. As everyone knows, the radio industry experienced about a 5% year-over-year advertising revenue decline in Q1 '08. According to the radio advertising bureau, March revenues were down 8% on the heels of a 2% decline in February and a 6% decline in January. Our results for the quarter were slightly better than the industry as we absorbed the impact of two very challenging markets including Las Vegas and Fort Myers both of which have endured very difficult economies related to the real estate downturn.

Elsewhere, the breath of our station portfolio serves us well in this difficult environment as we recorded revenue gains in Augusta, (inaudible) and Miami. We (inaudible) beat the market performance in Philadelphia and recorded significant revenue gains related related to our interactive initiatives.

Despite current market conditions, we've made progress in important markets like Miami and Philadelphia and have taken action to address Fort Myers and Las Vegas all of which bodes well for the Company's ability to quickly rebound from the downturn. We also believe we have further upside in our major markets like Miami and Philadelphia. We're getting solid contributions from our stations in Wilmington, Delaware and our midsize markets which are less dependent on national and continue to garner leading revenue share relative to their competitors.

In a moment I will review the highlights and challenges in our portfolio, the direct programming, personal and promotion actions we're taking to drive future results and some of the external factors affecting some of our markets. First, let's run through the top five (inaudible) category performance.

Retail was our top category and revenue was basically flat with last year. Auto was down and health-care, restaurants and entertainment were up. As we reported this morning, our Miami cluster continues to charge forward based on our formatting tweaks, ratings improvements and a significantly (inaudible) sales staff. Our revenue share in Miami rose 14.8% from 14% in last year's first quarter while we significantly (inaudible) former market in Q1 we saw some signs that the real estate market had held back overall market growth. As a very economically diversified market though, Miami is not as dependent on real estate as Fort Myers and we see a strong sales effort as the best offense in overcoming current market softness.

Still looking at Miami, our local, national, NTR, Internet and automotive sales initiatives drive success. In this regard, we've had a high level of success in Miami with Power 96, the number two biller in the market, and with WQAM, our sports station. During the quarter, we appointed Thomas Manning Vice President of Sales for our three station Miami cluster. Thomas also serves as GM of Power 96 where revenues surged over 25% last quarter.

In his expanded role, Thomas is now working with all three radio stations to help maximize the potential of the Miami cluster and promote growth not only as a cluster but as individual stations. While Power and QAM are in good shape, we continue to see upside from the cluster related to the stabilization of Kiss Country which accounts for almost one-third of our Miami cluster revenue.

Onto Philadelphia. In this market our cluster significantly outperformed the market in Q1 and we saw a nice increase in our overall revenue share there as well. We worked very hard on WXTU and Wired, our two leaders in this cluster and based on audience and listener research, we know they are incredibly solid radio stations. Unfortunately, because of the ongoing sampling issues related to the PPM technology deployment and Arbitron's inability to get this right, Beasley and other broadcasters in the market are suffering from unnecessary ratings and share volatility that we believe continues to impact our operating results.

For example, Arbirtron recently put in place an initiative to address their undersampling of the 25 to 34 demo. While we would like to be able to report that this action had the effect of stabilizing the key 18 to 34 demo, it in fact resulted in an undersampling of 18 to 24 demo as well as a substantial decrease in the 35 to 44 sample. This is extremely disruptive to ad buyers particularly those who use a one-book approach rather than a three-book average to make buying decisions. And like the boy who cried wolf, Arbitron is telling people -- PPM subscribers like Beasley that they will get it right in the next few months. Based on Arbitron's inability to rectify past errors we will see if they can meet this new deadline.

We have established a task force at BBGI comprised of internal personnel and external consultants to deal with Arbitron. And we want investors to know that we are focused on this situation and are determined to receive reliable audience measurement data. I would like to reiterate, that overall our Philadelphia cluster led by Wired and XTU are doing very well and we are confident at our stations programming, people and promotions. We just need to ensure that our assets, efforts and investments in this market deliver appropriate value to our shareholders.

Moving onto Las Vegas. Las Vegas cluster continued to suffer in Q1 with double-digit decline based largely on the underperformance of Coyote Country and Fresh and the overall impact of the economy. As our third-largest market the rebound of Las Vegas economy and our cluster remains a top priority and like Miami we're also emphasizing an improved sales effort as an avenue to improve our performance.

Last week we named Cory Cuddeback as Director of Sales for the Las Vegas cluster. A radio veteran of 20 years, Cory was most recently Director of Sales for Clear Channel's Las Vegas station group so he knows the market and he has a proven track record.

With KKLZ and Fresh having completed programming changes last fall we are mostly on track with the formats in music for these stations. By redirecting our sales effort we think we've set the stage for improved results by late '08. Notably our news talk KDWN posted a double-digit revenue increase in Q1 and we're delighted with the progress this station has continued to make since we purchased and reprogrammed it back in '06.

Overall, our midsize markets, Augusta, Fort Myers, Fayetteville and Greenville again deserve acknowledgment as in each market we're holding a number one position in terms of revenue share. However, while our revenue share in Fort Myers remains tough in the market our rock station, WRXK, which was the cluster's top biller is taking a disproportionate brunt of the market downturn and this significantly impacted our cluster's Q1 performance and accounted for almost $1 million in revenue decline.

As Caroline pointed out, this is partially attributable to an NTR concert that generated approximately $250,000 in Q1 '07 which was not held in Q1 '08. On a combined basis though, our other stations in this cluster outperformed the market.

As for WRXK we have been active in making changes at the station in terms of music, personnel and promotion. We made this station more music intensive, moved our popular morning show to afternoons and are conducting a billboard campaign which began last month. We expect to see the first results of these initiatives in late July or early August when the next bill comes out for the market and we're expecting that with some relief to the economy that we have a lot of revenue to regain in this market.

On our last call I indicated that our interactive success in '07 was just the beginning of what we're capable of in terms of developing this new revenue stream. Quarterly revenue growth continues to be impressive. It was 50% in Q1 and we remain on plan to achieve our goal of having interactive represent 5% of the revenue the next year.

With weekly radio usage well above 90% we have an incredible platform to offer advertisers and our interactive solutions put us on a more level playing field with the pure play new media ad companies. I would like to thank our managers, salespeople, on-air talent, programmers, promotions staff and everyone throughout the Beasley Broadcast Group for stepping up to the challenge and ensuring that we capitalize on the strong positions we've built in many outstanding rado markets. I look forward to reporting back to you on our progress after we report Q2 results. Now, operator, with that I would like to ask you open up the call to Q&A.

(OPERATOR INSTRUCTIONS) Lee Westerfield, BMO Capital Markets.

A few questions if I may. The first, Caroline, is going to relate to leverage, if you can refresh everybody (inaudible) memories as to the step-downs over time if we need to consider that as a factor. And secondly for you, Bruce, if I can understand a little bit better the differences if there are material differences in the margins for your online or your advertising for online versus that sold offline -- how is the sales force variously incented if at all differently?

Let me to address the step-downs real quickly. Right now the covenant level is 6.25 times and we have a step-down March 31, 2009 to 5.75 times and then there is another step-down March 31 of 2010 to 5.25 times. And then it keeps going the following year as well. Happy to go into greater detail if you guys want to go out to 2011 or whatever but that is over the next couple of years.

No, it's sufficient. I was really thinking about the March '09 once that presumably is cleared I would think the rest from there would be manageable.

Right.

As far as margins, interactive margins are greater than 60% while our offline margins are about half of that.

Tracy Young, Bear Stearns.

Two questions, the follow-up on the leverage question. What is your maximum allowed borrowing right now? And also did you see any political, during the quarter? Thanks.

So the maximum allowed, I guess -- I would like to respond to that two different ways. Based on the covenant level, we are able to borrow an additional $2 million. The availability on our revolver but certainly we would not be able to borrow that much because of the covenants is about $43 million.

And then moving onto political, for first quarter we saw about $150,000 in political. About 100 of that was from Las Vegas, 20/25 from the Philly market and then we saw some in Augusta and in our North Carolina market.

Okay, thanks.

(technical difficulty) your line is live.

Hypothetical question for you, Bruce and Caroline. Given not only the industry but your markets as well seem to have somewhat followed that mid to smaller markets are doing better than large markets. If you were ever offered a swap where you could get equal or higher value for one or a complete market of one of your larger markets and get some stations either existing smaller or midsized markets where you already operate or a new cluster in a smaller to mid market, in the big picture would that makes sense to you given what has been going on the last few years?

I think we have always said whatever is in the best interest of our shareholders we would consider and certainly swaps are something that we have talked about in past conferences and on past calls.

Right, I mean I think if we thought -- we would just have to see if it would makes sense, Jim. I don't think just swapping out of large markets might necessarily be the answer but you know you would have (multiple speakers)

But you wouldn't rule it out?

No, we definitely would not rule it out and you would have to see what you're swapping for and if you are swapping $8 million in cash flow for $20 million in cash flow then it would be probably a no-brainer.

Second question -- Bruce, on Arbitron PPM if you were off-track betting, what odds would you set for them given their September schedule to continue to roll out or restart rollout in the top four markets?

I hate to speak for Arbitron because I just to know. (multiple speakers)

No, speak for yourself since you are in a market where that is going on.

All I can say is that I would not want broadcasters to go through what we are going through now in Philadelphia. With Arbitron tweaking the sales and sub sales in the middle of us paying all kinds of money, I would hope they would not roll out Arbitron's new markets until the sales and sub sales are -- have proper samples. That's what I would hope to happen.

You may recall AC Nielson did an even more aggressive harsh approach when they rolled out the LPM but another business. Much thanks.

(OPERATOR INSTRUCTIONS) There appear to be no further questions. I would like to turn the call back to management for any closing remarks.

Thank you. Just like to thank everyone for joining us today and we look forward to speaking with you in a few months.

Thank you. That does conclude today's Beasley Broadcast Group Inc. 2008 first quarter conference call. You may now disconnect your lines at this time and have a wonderful day.