Beasley Broadcast Group Inc (BBGI) 2008 Q3 法說會逐字稿

Good morning. My name is Christel and I will be your conference operator today. At this time, I would like to welcome everyone to the Third Quarter Beasley Broadcast Conference Call. (Operator Instructions.) Thank you. Ms. Beasley, you may begin your conference.

Thank you, Christel. Good morning and welcome to the Beasley Broadcast Group Third Quarter Conference Call. Before beginning, I'd 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 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 me this morning. As always, we'll keep our remarks focused on the third quarter and operations outlook, after which we will open the floor to Q&A.

Before the quarter, our revenues decreased 8.2%. In summary, the revenue decline is attributable to the following -- 3% of the 8.2% was related to our election not to renew the Florida Marlins broadcast rights, which contributed approximately 900,000 of net revenue in Q3 '07. 2% was attributable to our Miami cluster as it posted a 5% decline excluding the Marlins, which compares favorably to the Miami market, which was down 10% for the quarter. 2% was from the Fort Myers cluster, which was down double-digits. And then, the final 1% was related to our coastal Carolina station as the market was down 10% to our stations -- compared to our stations, which declined 12%.

In the six of our 11 markets that report to Miller Kaplan, our clusters performed in line with our markets on a combined basis as total revenue declined 8.6%, compared to our clusters, which declined 8.8%. I'd also note that during our second-quarter conference call we indicated we expected to incur an additional 3% impact to our Q3 '08 net revenue, based on not renewing the Florida Marlins broadcast rights. Taking this factor into account, BBGI outperformed its markets in the third quarter.

According to Miller Kaplan, our Philly stations outperformed the total Philly market as our total cluster revenue increased 5% while the market revenue declined about 6%. In Miami, the total market revenue declined 10%, while our total Miami cluster revenues declined about 15%. This does include the negative impact of the Marlins. However, as just mentioned before, excluding the Marlin revenue from Q3 '07, our cluster revenue declined approximately 5% compared to the market decline of 10%.

The Las Vegas market remains economically challenged as during the quarter total market revenue decreased 8.8%. However, our cluster outperformed the market for the first quarterly period this year as it posted a revenue decline of 4.5%. The Fort Myers market saw quarterly market revenues 16% behind last year with our cluster revenues declining about 24%. In addition to Philly, Beasley's Augusta cluster also generated year-over-year gains with revenue of approximately 2.7% versus the market, which was 2.5%. I'm also pleased to report that we had another quarter of significant growth related to our interactive initiative with revenue from these sources rising 43% and accounting for 4.9% of the Company's total 3Q '08 revenue. We recorded about 1.5 million in interactive revenue and we generated net margins in excess of 50% on this revenue.

Our station operating expenses decreased 13% for the quarter. This decrease was related to savings from not renewing the Florida Marlins contract, lower sales expenses related to 3Q '08 revenue levels, and expense discipline across the board. And our SOI increased 5.9% for the quarter, or about $500,000.

Our corporate G&A, and this excludes stock-based compensation, was $1.9 million for the quarter or a decrease of approximately $300,000 or 12%. This reduction reflects a decrease in severance expense from Q3 '07 and other cost cutting measures offset partially by an increase from the Company's continued [investment] in interactive. Our stock based compensation expense was approximately $400,000 for the quarter, or 35% less than 3Q '07.

Interest expense for the quarter was down 43% to $2 million and this primarily reflects lower borrowing costs and voluntary repayment under our credit facility. During the quarter, we made repayments totaling %2.5 million and year to date we've made repayments of $12 million against the credit facility. Our effective tax rate for the quarter was approximately 43% and there were no current cash taxes.

Now, turning to the balance sheet, as of 9/30/08 total senior debt was 179.1 million and the latest trailing 12-month consolidated operating cash flow was 30 million for a leverage of 5.98 times. This compares to our leverage covenant of 6.25 times as of September 30, 2008, and then we had a step-down to 5.75 times at March 31, 2009. Cash on hand as of 9/30 was $5 million. CapEx for the quarter was $522,000. And year-to-date we've spent a total of $1.3 million.

Moving on to fourth quarter, we have discontinued the practice of providing quarterly revenue guidance, so let's talk about the expense assumptions. We are projecting a decrease of 7% in our station operating expenses for the fourth quarter. The projected decline represents across the board expense cuts at our stations and continued lower sales expenses.

Corporate G&A, excluding stock-based compensation expense, is projected to be $2.1 million for the quarter and approximately $8.1 million for the year, and this is lower--slightly lower than our prior expectations of $8.4 million. Stock-based employee compensation expense is projected to be $400,000 in fourth quarter and $1.7 million for the full year. G&A expense is projected to be $800,000 for the quarter and$3 million for the year and in interest expense we're projecting $2.4 million for the quarter and approximately $9.3 million for the year.

Our effective tax rate is projected to be 43%. And in terms of CapEx, we're projecting to spend 650,000 for fourth quarter and this will be a total of $2 million for the year. These are the expense assumptions we're providing for fourth quarter, end of the year at this time and we undertake no obligation to update this information till the next call.

I hope today's report highlights the ability of our station and corporate personnel to effectively manage our portfolio stations for profitability in this extremely challenging environment and why this discipline and focus has positioned the Company to benefit when radio advertising demand returns to more robust levels. I'll now turn it over to Bruce and we'll take questions following his comments.

Thank you, Caroline, and good morning, everyone. Beasley's third-quarter financial results reflect some of the preemptive measures we've been taking as the growing seriousness of the economic downturn became increasingly apparent earlier this year. While we certainly did not anticipate anything near what occurred over the last few months, we have been taking measures to streamline our operations while at the same time developing our sales and programming teams and allocating appropriate resources to further the growth of our interactive and off air revenue initiatives.

Beasley's total revenue declined 8.2% for the third quarter of '08 due primarily to the radio advertising marketplace declines in Beasley's markets and the impact of the sports contracts. Significantly, on a revenue basis when excluding last year's benefits from the Florida Marlins revenue, Beasley's three largest clusters that report to Miller Kaplan, that's Miami, Philadelphia, and Las Vegas, all outperformed their markets in the third quarter. In addition, our Philly and Augusta clusters posted third-quarter revenue gains. Our biggest sore spot continues to be our Fort Myers/Naples cluster, which was down [5%].

Our Q3 results reflect both our focus on the top line and on cost containment. And for those running through the income statement, you'll see that we've been very successful with cost reduction and containment programs, which don't impair our programming and sales efforts. There's still more to be accomplished on this front and we believe this effort has positioned Beasley with the right combination of resources and cost disciplines to quickly recapture momentum as radio advertising demand returns to a more robust level.

Last quarter, I mentioned the Company's 45-year history in the radio industry and the fact that over this period we've weathered some very ugly environments. We indicated that we thought this was a competitive strength of ours as we faced the current environment, and I think that our quarterly results certainly reflect this. I'll add that it's not just the age of the Company, but rather the well-seasoned veterans that lead our market clusters. This team understands how critical it is to both good and bad times that we collectively manage our clusters for the current economy and environment to generate operating income results that reflect the quality of our assets, while at the same time delivering great programming for listeners and solutions for advertisers.

In addition to keeping advertisers informed about the reality of the strength of radio, including the overall increase in listenership and rise in the listening in the [demo age] 14 to 24, we developed some sales approaches and strategies such as our one-day sales, which clearly address their desires to take advantage of the strength of radio as a path to addressing the pressures of the local economies.

As everyone knows, sales results correlate to the number of calls you're making. The one-day sales create another opportunity for our sales team to talk to advertisers and to bring forward the benefits of radio advertising. We've rolled this out in all our markets and we're offering advertising at an attractive rate in exchange for a multi-month [stock] package commitment. The traction with this initiative has been very positive. It provides us with some forward-looking visibility for our revenue and creates additional demand on our inventory.

We also couldn't be happier with the ongoing growth we are achieving with the integrated interactive and off air offerings that we've been so--that have been so successful for us. I'm glad to sound like a broken record on this front as these and other interactive efforts generated revenues which accounted for 4.6% of our total revenue in the first nine months of '08, which is up from 2.9% in the same period last year. And on a dollar basis, BBGI's interactive and off air revenue is up about 47% year-to-date.

Our third-quarter financial results highlight well our strategies to manage our operations for profitability in the face of an extremely challenging economic environment, which has placed huge pressures on two of our four advertiser groups, that being automotive and retail. Fortunately, we have a diversified advertiser base and have partially offset lost revenue with our approach to sales, to interactive revenue, the benefit of political buys, and we've more than offset the revenue downturn with cost management programs.

However, like so many others, we've experienced cancellations and reductions in core ad spending in fourth quarter to date. While the cancellations have seemed to stabilize, our managers, sales people, on air talent, programmers, [motion] staff, and everyone throughout BBGI will continue to step up the current challenges to ensure that we capitalize on the strong positions we've built in our markets.

Now, with that, Operator, I'd like to turn the call over to Q&A.

(Operator Instructions.) Your first question comes from the line of Lee Westerfield with BMO Capital.

Thanks. Good morning.

Hi.

Two questions for me. The first is, if you can walk us through specifically--and apologies. I had a slower time logging into the call, so if you've already remarked, I apologize for repeating the question. But if you can walk us through the impact of Miami, Las Vegas, and Fort Myers in your revenue performance versus other markets as those have been three of the more severely hit housing markets, presumably more challenged in the short run and presumably more likely to recover more steeply in the future.

The second question relates to the balancing between your--well, if you can discuss dividend versus leverage and the leverage outlook as you look into your budgets for 2009, and indeed, also, as you envision 2010, since I think there's a step-down in both 2009 and 2010 in your debt covenants.

Okay. So let's talk about the revenue impact in Miami, Las Vegas, and Fort Myers. As we mentioned before, revenue was down about 10% in the Miami market. Our total Miami market cluster was down almost 15%, but this includes the negative impact of the Florida Marlins. If you take that out of the mix, then we were down 5%. So same station, if you will, in Miami, we outperformed the market, but the market was still down 10%. The Fort Myers market was down 16%, and third quarter we were down about 24% for the quarter. And then, Las Vegas, the market was down almost 9%--8.8% and we were down 4.5%. So these three markets continued to struggle somewhat.

In terms of our leverage outlook, again, as mentioned before, we do have a step-down March 31 to 5.75 times. Our leverage right now is 5.98 times and we're focused on that step-down as of March 31. And we are getting ready as soon as we end this call today to go into budgets for all of our stations. So Bruce and I are anxious to see what these guys are coming in at.

Your next question comes from the line of Tracy Young with JP Morgan.

Good morning. Could you walk through--is it possible to walk through your results by month for the third quarter? Also, what was your political revenue in the quarter? And can you talk about your top three categories, how much they were down? Thanks.

Tracy, what was your first question? I couldn't hear what you said.

Sure. If you--I don't know if you can, but if you could walk through the 3Q results by quarter for revenues by month, so June, July--July, August, September.

Oh, by month.

Yes.

Okay. And then, your next question was--.

The [local] revenues for the quarter in the top three categories how much each of those trended down in the quarter.

Okay. So the results on a monthly basis, we are basically down--July was down about 3%, August down about 10%, September down about 10%.

Okay.

Political -- for the quarter we got about 400,000 in and obviously most of that came in September. And our top three categories are auto--well, retail is number one, auto is number two, and restaurant number three.

Okay. And how much was that again?

I'm sorry I didn't tell you that. Retail was down about 9%, auto was down 30%, and restaurants were down about 7%.

Okay, great. Thank you so much.

You're welcome.

(Operator Instructions.) We do have a follow-up from Tracy Young with JP Morgan.

Hi, again, since I can ask another question. Congratulations on your out performance in Miami, Las Vegas, and Philly. Can you talk a little bit more about that, some of the changes that you made to make the out performance? Thanks.

Yes. What we're starting to see in Philadelphia, we're starting to see Wired getting some revenue traction. We've been working very hard and also seeing some ratings benefits that we've worked hard over the past few months and years in that market. So Wired has really helped us there - Rhythmic CHR.

In Miami, we really have concentrated on our sales effort. As you may remember, Tracy, a while ago we promoted--or our General Manager, Thomas Manning, at Power 96, has a DOS for the entire market and he's brought his initiatives of--that he was so successful with gaining revenue traction at Power 96 across our whole platform there in Miami. And in Las Vegas, we're starting to see some benefits in ratings from our format changes that we did a few months ago. Now our products, we believe, are in good position. And we certainly--hopefully, we'll and we certainly plan on seeing the continued success in our Las Vegas cluster as we move forward. Those are some of the highlights.

Great. Thank you very much.

(Operator Instructions.) Your next question comes from Michael Kupinski with Noble Financial.

Thanks for taking the question. I just had--most of the questions have been answered already. But I just had a couple of small items. On your interactive revenues, I was just wondering in terms of the network rep that you're using there. Caroline, can you remind me, is it Pilot? And I was just wondering what your experience has been so far with them and if you're happy with the performance. I know that it's pretty strong performance, certainly, but relative to what some of the other radio broadcasters are seeing at this point. And in terms of I know that you've indicated you're not giving any particular guidance--revenue guidance. But I didn't know if you were talking about pacing data, that sort of thing. I don't know if you can give us any thoughts about how the quarter is pacing.

Mike, let's go back to the first question. I'm not really--I guess we're having--I'm having trouble hearing questions today. But you had asked about interactive revenue in the network or--?

Yes. Who exactly in terms of the network supplier--or who are you working with in terms of the rep for your interactive business?

Mike, I can answer that for you real quick. We really don't have--I mean, our--we don't have a rep at this point. We're all doing this on a local level through Beasley Interactive and our initiatives there. That is going to be an upside for us because we just installed Ando, which allows us traffic, our streaming, and a lot of other--because it's a lot of the great metrics that we can use in the future. So that's a bright spot for us because we haven't had a network to work with. It's all been done on a local level.

Okay, perfect. And then, on the pacing data, are you--you might be able to provide what the pacings are looking like in the fourth quarter.

Yes, I really am--I really don't feel comfortable providing revenue guidance. I mean, I can tell you pacings right now are not looking that great because of what's happened over the last 30 days or 45 days. But I don't--I don't feel comfortable providing any specific guidance there.

I can maybe just add a little color to that, Mike. It seems that cancellations have somewhat stabilized, which could change tomorrow. But over the last week or so it's seemed to stabilize.

Okay, perfect. Thank you very much.

You're welcome.

(Operator Instructions.) At this time, there are no questions.

Thank you, Christel, and thank you, everyone, for dialing in for our conference call today.

This concludes today's Beasley Broadcast Conference Call. You may now disconnect.