Beasley Broadcast Group Inc (BBGI) 2009 Q2 法說會逐字稿

Good morning, and welcome to the Beasley Broadcast Group second quarter webcast. Before beginning, I would like to emphasize that this webcast will contain forward-looking statements about our future performance and results of operations that involve risk and uncertainties that are described in the Risk Factors section of our most recent Form 10-K. Today's webcast 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 in this morning's news announcement and on the Company's website.

I'd also remind listeners that following its completion, a replay of today's webcast can be accessed for five days on the Company's website, BBGI.com. Investors can also 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. Our remarks will focus on the second quarter results and our markets, after which we will address questions that were E-mailed to our Investor Relations inbox.

The overall downturn in advertising spending due to the economic recession continued to impact our operating results, with quarterly net revenue declining 24%. Nevertheless, with our disciplined approach to operations including Company-wide expense reductions and focus on our balance sheet, BBGI remained profitable in the second quarter.

The revenue decline was spread across all but one market, with our largest markets -- Miami Philly and Vegas -- accounting for approximately 62% of the overall decrease. On a comparative basis, the Company booked about 350 in political advertising in second quarter '08. So this accounted for about 1% of the second quarter '09 revenue decline.

Reflecting the overall second quarter industry weakness and Company-specific issues, in the five of our 11 markets that report to Miller Kaplan, our clusters under-performed their markets on a combined basis as total revenue in these markets declined about 23% compared to our clusters, which decreased about 26%. These five clusters account for 72% of the Company's total revenue.

Local revenue at our stations was down about 26% compared to the markets, which were down about 25%. So we performed almost in line with the markets on a local basis. However, in national revenue, our stations were down about 39% compared to the markets, which were down 22%. And Bruce is going to review this in a few minutes.

According to Miller Kaplan, the Philly market declined 21% compared to our station cluster, which was down 27%. We're disappointed that our stations again did not perform in line with the Philly market. We believe the under-performance is attributable to the ratings decline that was reported by Arbitron over the last year at our country station. And this is based on insufficient sampling of the relevant demos. Since the station ratings have been trending upward, the gap between the performance of our stations and the market decline has decreased by over 30% from Q1 to Q2. And we fully expect our cluster to resume performing in line with the Philly market.

In Miami, total market revenue declined 21%, while our stations declined about 23%. National continues to be the drag at the cluster, as the market was down 24% compared to our stations, which were down about 47%.

The Las Vegas market continues to remain among the most economically challenged in the country, with total market revenue down 31% compared to our stations, which were down 30%.

In Fort Myers, this market is also extremely weak, with quarterly market revenue down 32% compared to our cluster, which actually out-performed the market, being down 26%.

Despite the ongoing challenges in the current operating environment, BBGI reported another quarter of growth from our digital initiatives, with revenue from these sources rising 4.9%.

Our station operating expenses decreased 22%. This decline reflects lower sales expenses related to Q2 '09 revenue levels. Expense discipline across the board including a decrease in wages and an approximate 20% reduction in our work force compared with levels from second quarter of '08. And our station operating income decreased about 28%.

Corporate G&A for the quarter was $1.8 million, or down 11.4%. Stock base compensation expense was $243,000, or 37% down. Interest expense for the quarter increased 31% to $2.8 million, and this reflects higher borrowing costs.

During the quarter we made repayments totaling $2.5 million against a credit facility. And over the trailing 12-month period ended June 30, we've reduced our debt by $10.5 million. Our effective tax rate for the quarter was approximately 45%, and there were no current cash taxes.

Now turning to the balance sheet, as of the end of the quarter, total bank debt was $171 million. The latest trailing 12-month consolidated operating cash flow was $23.5 million for a leverage of 7.29 times. Cash on hand at the end of the quarter was $4.9 million. And we spent $157,000 in CapEx for the quarter and $369,000 for the year.

On May 29th we announced the sale of KBET AM, the license of 104.3 and the format and certain assets of 102.7 in Las Vegas. The FCC has granted the assignment of the two licenses. And we expect the closing to occur sometime in third quarter.

I believe today's report highlights the ability of our station and corporate personnel to effectively manage our portfolio of stations in this extremely challenging environment. And while this discipline and focus have positioned the Company to benefit when radio ad demand returns to normal levels, it is important to note that the Company remained profitable in the quarter, overcoming the decline in revenue and the 31% increase in interest expense.

I will now turn it over to Bruce, and then we'll address some of the questions that were E-mailed following his comments.

Thank you, Caroline. My remarks this morning are going to brief but pointed at the industry environment, Beasley's performance relative to its markets and our positioning going forward. The second quarter was much like Q1, with the overall impact of the negative economic and advertising environments outweighing Beasley's Company-wide cost-containment measures that we began putting in place late last year.

To remind you, these cuts included a head count reduction of approximately 20%, an across-the-board compensation reduction of 5%, consolidation of facilities, renegotiated talent and professional services contracts and, in some cases, reduced commissions. As such, total costs and expenses declined 21% in Q2, marking an improvement over the 18% reduction in Q1.

While our revenue decline for the second quarter will again be largely in line with the overall industry, we expect our expense reductions to result in an SOI decline that will again be better than our peer set.

On the top line, we are focused on our core radio broadcasting and interactive operations, with second quarter net sales reflecting the overall economic environment. Declines in spending from retail, auto, restaurants and health care -- our top four ad categories -- the impact of exceptionally weak real estate in several of our key markets including Miami, Ft. Myers, Naples and Las Vegas, underperformance by our group on national sales and the PPM situation in Philadelphia, which derailed the results of our country music station, that's our top biller in the market.

Revenue performance at our clusters and stations in our markets remain volatile as we see the declines abate from a month-end return. We aren't seeing strong trends of a deeper decline. But at the same time, we aren't seeing a clear path to improvements. And we hope this is an early indication that ad spending in our markets is finding a bottom from which we can see gains.

We have very solid operating and personnel structure in place to quickly benefit from a rebound in the advertising spending. I didn't want to suggest that we're there. But there has been incrementally more positive news of late on the housing front and consumer confidence levels. And since our last call, Chrysler and GM have emerged from their bankruptcies. And we've seen some recent stimulation at the dealer level as they promote the Cash for Clunkers Program.

Now I want to take a minute to address the under-performance by our group on national sales. First, as reported previously, we switched [our RF firm to Katz] late last year following the dissolution of [NRF]. Overall, I'm pleased with the service and the sales programs we're seeing from Katz, but second quarter national sales were in part impacted by the transition. This impact is more pronounced in Miami as our competitors entered into annual contracts last year before we had executed our agreements with Katz.

Our situation in terms of underperformance in national sales in Philadelphia is a continued and direct reflection of the issues Arbitron had with their 25 to 54 sampling, which resulted in reports of rating declines at our Heritage country station. With the stations reporting ratings positioning dropping from 6th or 7th to 13th or 14th, we saw a pretty significant drop in rates. This caused us to lose a whole point of revenue share in the overall Philadelphia market, as we went from a 9.9 revenue share in Q2 '08 to an 8.8 in Q2 '09. However, with the better listening samples, the station has moved back to 8th in the most recent ratings. In radio, as we all know, revenue follows ratings, and we think we're back on track with XTU as we saw a tightening of a gap between the station's performance in the market in each month of the second quarter. Given that XTU is our top biller in the market, we're looking forward to continued progress on the back half of the year to bring our overall Philadelphia cluster performance back in line with the market.

Elsewhere in Philadelphia, WRDW remains fairly resilient with a nice boost from interactive revenue and a benefit of changes early this year in sales management. Year to date, the station is down 12.6% in terms of revenue, compared with a market decline of 21.1%.

One more market I'd like to comment on with respect to national would be Augusta, Georgia. In this market, it was a case of a national buy coming into the market for urban stations. And we do not have any (INAUDIBLE) stations in that market.

Moving on to Las Vegas, second quarter results reflect reprogramming earlier in the quarter of Fresh 102.7 as 102.7 now, which resulted in low spot loads as the station got off the ground. As previously announced, we entered into an agreement during the quarter to divest this station. However, we remain very committed to Las Vegas. And upon completion of the sale we'll own three stations in Las Vegas including Coyote Country, which has a solid position with its country format, KKLZ FM, which is consistently outperforming the market, and News Talk 720.

That -- notwithstanding the current economic challenges, we continue to believe that Las Vegas remains one of the nation's most promising radio markets and that our cluster will be well positioned as the economy in the industry rebounds.

While we are thankful to all of our personnel at both the station level and the corporate level for their contributions during these times, our sales teams deserve special recognition for their perseverance and creativity in the current economic environment, as with closing ratios being smaller, they're making many, many more sales calls to ripe business. Company-wide our teams continue to step up to ensure that we capitalize on and fortify the strong positions we've built in our markets. And we're looking forward to reporting better results as the economy and ad markets rebound.

Now with that, we're going to address some of the questions that have been E-mailed to us this morning from the investment community.

So, Caroline, will you read the first question and identify who it came from?

Sure. The first question -- or couple of questions -- came from James Boyle. And Bruce, this one's for you. What metric or metrics suggest to you that the economy has merely bottomed and is not coming off of the bottom quite yet?

Well, we believe that we saw second quarter as our bottom purely and simply in our markets which Beasley participates.

Okay. In five years, does the radio industry have two major research vendors, Arbitron and Nielsen? Or one?

Our opinion is, based on broadcaster -- some broadcaster support for Nielsen, that we believe there will be to both Arbitron and Nielsen in five years out there competing against each other.

Okay, great. And then we have one other question regarding our cutting expenses. And they wanted us to take -- to comment on the steps that we've taken to reduce costs and confirm that the numbers haven't been materially affected by re-classes or divestitures.

I think that we've addressed the cost-cutting measures that have taken place in second quarter on the call today. But I would like to confirm that the numbers have not been affected by re-classes or divestitures.

And with that, that concludes all of the questions. I want to thank you for dialing in today. And look forward to speaking with you soon. If any of you have any follow-up questions or anything, feel free to give Bruce or myself a call. Thank you.