Beasley Broadcast Group Inc (BBGI) 2008 Q2 法說會逐字稿

Hello?

Hey, [Joe].

Hi.

Good morning. My name is Nelson and I will be your conference operator today. At this time, I would like to welcome everyone for the Beasley Broadcast Group Second Quarter 2008 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)

Thank you, it is now my pleasure to turn the floor over to your host, CFO Caroline Beasley. Ma'am, you may begin your conference.

Thank you, Nelson, and good morning. Welcome to the Beasley Broadcast Group 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 operation 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 ten of [Reg F-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 pressroom sections of this site. Bruce Beasley, our President and COO, is with you this morning. As always, we'll keep our remarks focused on the second quarter and operations outlook, after which we will open the floor to Q&A.

So moving on, for the quarter, our revenues decreased 10.9%. In summary, the quarter-over-quarter revenue decline is attributable to four primary areas -- 25% of the 10.9% decline was related to the Las Vegas cluster. Another 25% is related to the Fort Myers cluster. Also 25% is related from not having revenue from the Florida Marlins in Q2 and then the final 25% is related to the reduction in revenue at our stations in coastal Carolina and in Miami. In the six markets that report to Miller, Kaplan our clusters did not perform in line with our markets on a combined basis.

As total revenue in these markets decline 9.4% compared to our clusters, which declined 12.5%. However, in the first quarter conference call we noted that we expected to incur an additional 3% impact to our net revenue from our decision not to renew the Florida Marlins and this factor counts for the majority of the variance between BBGI and our market.

So if you exclude the negative impact of the Marlins, we would have performed in line with our market. According to Miller, Kaplan our [affiliate] stations outperformed the market as our total cluster revenue increased 0.4% while market revenue declined 4.5%. In Miami, our stations underperformed the market as total market revenue declined 11.4%. Our Miami cluster total revenues declined 15%. However, if you exclude the impact of not carrying the Marlins, then our cluster revenue declined approximately 5% compared with the market decline of 11.4%.

The Las Vegas markets continue to be economically challenged and during the quarter total market revenue decreased 13% while our cluster revenue declined 23%. Also, the Fort Myers market saw a quarterly market revenue 20% behind last year with our cluster revenues declining about 26%. And our classic rock station continues to post greater than market to market decline. And this is related to its ratings drop.

The coastal Carolina market also declined for Q2, posting an 11% decrease and our cluster was down almost 11%. Augusta was the only BBGI market posting year-over-year gain with revenue increasing 2% while our cluster increased approximately 1%. We had another quarter of significant growth related to our interactive initiatives with revenue from these sources rising 33% and accounting for 4.6% of the Company's total revenue.

We recorded about $1.4 million in quarterly interactive revenue and generated net margins in excess of 60%. Our station operating expenses declined 11% for the quarter, the decrease was primarily related to savings from not renewing the Florida Marlins sports contract and lower sales expense related to the decline in revenue. And our SOI declined 10%.

Corporate G&A, excluding stock-based compensation, was $2 million for the quarter, this reflects an increase of approximately $100,000, which represents the Company's investment in Interactive. Stock-based compensation expense for the quarter was approximately $400,000 and this represents a decline of 38%. Interest expense for the quarter decreased 40%, which primarily reflects lower borrowing costs and voluntary repayment under our credit facility during the period, which totaled $5.75 million and year-to-date we've made voluntary repayments of $9.5 million.

Our effective tax rate for the quarter was approximately 43% and there were no current cash taxes. And turning to the balance sheet, total senior debt was $181.6 million and the latest trailing [twelve] month operating cash flow was [$29.2 million] for a leverage of [6.21 times]. Cash on hand was $3.2 million. CapEx for the quarter, we spent $323,000 and year-to-date, $827,000.

Now moving onto third quarter, effective second quarter of '08, we continue the practice of providing specific quarterly revenue guidance and indicated that going forward we expect our stations to generate quarterly net revenue growth or declines in line with the industry, with the possible following exceptions -- just as in second quarter, we will incur an additional 3% impact to total revenue based on our decision not to renew the Florida Marlins broadcast rights.

Also to consider, and as mentioned last quarter, the Fort Myers and Las Vegas markets continue to have the biggest impact on the Company's revenue because of the housing and real estate environments. The Miami market is being headlined as well, and these three markets account for approximately 50% of our total revenue.

Now, let's review our expense assumptions for third quarter. We expect a decrease in expenses of 7% for the third quarter, and this decline represents extensive savings from not renewing the Florida Marlins in Miami. Corporate G&A, excluding stock-based compensation expense, is projected to be $2.1 million for the quarter and approximately $8.4 million for the year.

Stock-based compensation is expected to be $400,000 in third quarter and $1.8 million for the year. [D&A] expense, we're projecting [800] for the quarter and approximately $3 million for the year and interest expense, we're projected $2.5 million for the quarter and approximately $9.8 million for the year.

[For effective] tax rates, 43%. CapEx, we will spend approximately $1 million in the third quarter and we expect to spend a total of approximately $3 million for the year, which is a decline of about $1.5 million from our original projection. This will be the expense guidance we're providing for third quarter in the year at this time, and we undertake no obligation to update this information until the next conference call. I thank you very much and now we'll turn it over to Bruce.

Thank you, Caroline, and good morning, everyone. As we've discussed on recent calls, the radio industry and traditional media in general is facing a host of challenges. According to the radio advertising bureau, June industry was down 9% with May down 8% and April was off about 1%. General economic softness is impacting both national and local businesses with category weakness, most pronounced for us in retail, automotive and telecom.

Excluding the impact of the lack of the Florida Marlins revenue in Q208, the Beasley clusters that report to Miller, Kaplan number one performed roughly in line with our markets on a combined basis. Our Miami results significantly exceeded the market and number three overall, our stations exceeded the industry's performance.

Our Philadelphia stations continue to buck the industry trend, as did the Augusta cluster, with both recording modest revenue gains. In addition, our Interactive initiatives continue to gain traction and build revenues. However, the Las Vegas and Fort Myers markets continue to endure very difficult economies related to the real estate downturn and some clusters specific issues in these markets resulted in our biggest quarterly revenue hit in terms of dollars.

I'll say it again, it's a challenging time, not only in media but in the economy at large. In light of the environment, it probably makes sense to devote this morning's comments to reviewing the general strategic approach we are taking to ride this out in getting things back on track. All broadcasters are in the same boat when it comes to the challenges of the general economy. Our advantage comes from a 45-year history of operating in the industry, which includes weathering some past very ugly environments.

In this regard, the most important thing that we are doing is emphasizing the quality of our stations in terms of broadcast and programming and backing that up with the appropriate level of promotion. It sounds basic, but with the fragmented competition out there for consumer's time, it is absolutely imperative that we give people reason to listen to our station. In a minute, I'll talk about the expense manage initiatives in place. Though I'll tell you now that we aren't pulling back on spending in areas such as listener research or promotion that are vital to the healthy operation of our station portfolio.

Our Chairman, George Beasley, has guided us to understand that when times are tough, great people work together. They work hard and they are resourceful. I think the second quarter results demonstrate the discipline and focus we have instilled company-wide in controlling and managing cost. The press release and Caroline's comments highlight how we've cut total cost and expenses as well as cost of services, station SG&A and corporate SG&A, as well as interest costs.

We've had every market manager review their clusters station by station, expense by expense, person by person, and to get every contract out to determine if renegotiation is an option. The expense cuts are being carried out on a prudent matter such that they don't impact our competitive or market positions and they contribute to our ability to record a 12.4% rise in Q2 net income and a 10.3% gain year-to-date.

But we know we won't save our way to prosperity and that there are few problems that cannot be solved by increased revenue. So we're also addressing the sales [functions], including making sure our sales staffs are fully staffed. We've been very clear in making our station personnel understand that simply shrugging your shoulders and using the economy or local market as an excuse for performance is unacceptable. There is business out there and if we aren't aggressively out there pursuing it, someone else will.

Also, we have our ongoing initiative to further capitalize on the integrated Interactive offerings that have been so successful for us thus far. In '08, we've recorded impressive revenue from programming -- programs such as our high school texting promotion, streaming [pre-roll] ad sales and the online half-price store area. These and other interactive efforts accounted for 4.5% of our total revenue for the first half of '08, which is up from 2.9% in the same period last year.

Throughout the Company, I am encouraged by our commitment to capitalize on the strength of radio, to embrace innovative and new ways of doing things and to reinvent radio as a formidable technology-driven media and capable of competing with any other medium. There is a bright future in radio and BBGI is rising to the current challenges.

On the whole, radio now reaches about 260 million Americans every week and we have about 4.4 million weekly listeners in markets that we still consider to be some of the most attractive in the country. Florida and Nevada are routinely pointed to for their housing woes, but if the past continues to be an indication of the future, these markets will be among the first the recover.

Also, in less than two years we've made significant progress toward our goal of deriving 5% of our revenue from Interactive activities and we're going to set the bar higher for this metric as we continue to enjoy these new sources of high-margin revenue. Our HD radio investment and build-out is ongoing with 26 stations broadcasting in HD and 13 multi-casting. Over 500,000 listeners have purchased HD radio and nine of the major auto manufacturers are or will be offering HD receivers in new models.

Finally, the challenges experienced in early PPM markets are finally starting to see some, and I say some improvement, but they still have a long way to go. For example in Philadelphia, the 25 to 34 and other initiatives put in place in March wound up displacing some stations rankings and Arbitron has not provided a satisfactory explanation for that to us as of yet. With that said, we do believe electronic audience measurement will ultimately live up to its promise of enabling radio to compete with other forms of digital media.

I'd like to thank our managers, sales people, on-air talent, programmers, promotion staff and everyone throughout the Beasley Broadcast Group for stepping up to the challenge and insuring that we capitalize on the strong positions we've built in many outstanding radio markets just beginning to find their way into our income statements. With that said, I'd like to ask the operator to open the call up for Q&A.

Thank you.

(OPERATOR INSTRUCTIONS)

Our first question is coming from Tracy Young of JPMorgan.

Hi, I've got two questions for Bruce and two questions for Caroline. So, Bruce, can you tell us what retail, auto and telecom are down for second quarter, and also can you talk about the market shares first that you saw in Philadelphia and some of the performance that you've seen there? And then for Caroline, can you talk about your changing CapEx guidance and also on the interest expense, the interest expense guidance that you're giving for third quarter is similar to what I was expecting, so I'm wondering why the decline in second quarter? Thanks.

Tracy, I'm going to let Caroline take those two questions you posed [today], because she's going to have some numbers that we're going to have to pull out for you real quick.

Tracy, I didn't hear the second one, but the first question was you wanted to know how much retail and auto was down and --

Yes, and telecom.

-- and telecom? Okay. Retail in second quarter was down 20% for us, auto was down 28% and telecom was down 20%.

And the market share.

In. Philadelphia?

In Philadelphia. Is this revenue share?

You are looking for the market share revenue-wise, Tracy?

Yes. Just normally you give some detail in how you perform in different markets in Philadelphia, obviously you outperformed the market, so any detail you could give.

Okay, well our share obviously grew. I'll have to -- let me see. Let me get that real quickly for you because I don't have it right --

Or, Bruce, if you could talk about some of the station performance.

Well, we're seeing good performance at both Wired and WXTU. They are both contributing well to the overall performance of our cluster there and I think Caroline has those numbers you're looking for.

Okay, so the share for the second quarter grew from 9.4% last year to 9.9% this year.

Okay, thanks.

Okay. CapEx, we did reduce it $1.5 million and that's primarily due to just projects moving into next year and it's just for whatever reason they have been delayed until next year. They are large projects and just things aren't coming together this year as we had expected, so they're having to be postponed until next year.

Okay.

And then the interest expense, yes, it was down and I think our average interest rate for the quarter was about 4.5% and we are very happy about that.

Okay. Thanks.

Thank you.

(OPERATOR INSTRUCTIONS)

Our next question is coming from Lee Westerfield of BMO Capital.

Good, thank you. Good morning.

Hi.

I think two questions, Caroline. And I apologize if you mentioned this in the initial remarks, (inaudible) and didn't get in the call as early as I had hoped. I want to walk through leverage [tests] now and over the next year-and-a-half, I think currently 6.75 times, stepping in 5.75 times and then 5.25 times.

Anyway, if you could remind us of those leverage conditions, the government issues. And then secondly, Bruce, if you could elaborate a little bit on your comments about the PPM concerning its rollout and, more importantly, what impact, if any, it might be having in the short run on your ability to monetize your true audiences? Thanks.

Okay, Lee, let me answer your questions regarding leverage. The covenant currently is 6.25 times and we came in at 6.21 times for the third quarter. 6.25 times, the covenant will be through 12-31 and then on March 31st there is a step down to 5.75 times and then there is another step down March 31, 2010, to 5.25 times and then another one in 2011 to 4.75 times.

Lee, will PPM in Philadelphia, what we've seen happen is Arbitron did a pretty darn good job with the 25 to 34 initiative and we're seeing our Wired, our (inaudible) CHR doing a whole lot better there, but what we can't quite understand is when that 25 to 34 and other initiatives were put in place back in March or maybe February, we started seeing some other radio stations, quite frankly, older [in] radio stations started being displaced in their ranking.

And one of those was our country station, WXTU had been a consistent fifth, sixth, seventh 25 to 54. All of a sudden when these new initiatives take place, was down to tenth, eleventh. And so we're trying to understand what happened there and that's why I say I think Arbitron has done a pretty good job, but they have, I think, a long way to go.

One thing that PPM does do, and I think it shows, is that when they make changes, it will show in the industry. It will show in the marketplace. Now, we've got to make sure that the changes they make reflect what the market actually is demo-wise, subsale-wise, gender-wise, so forth and so on. So those are the things that we're going through right now and having discussions with Arbitron.

Thank you.

Thank you.

(OPERATOR INSTRUCTIONS)

There appear to be no further questions at this time.

Thank you, Nelson, and thank you, everyone, for dialing in today. We look forward in speaking with you next quarter.

Thank you. This does conclude today's Beasley Broadcast Group Second Quarter 2008 Results Conference Call. You may now disconnect and have a wonderful day.