Beasley Broadcast Group Inc (BBGI) 2014 Q1 法說會逐字稿

Good day, and welcome to the Beasley Broadcast Group 2014 First Quarter Results Conference Call. Today's conference is being recorded. At this time, I will turn the conference over to Caroline Beasley. Please go ahead.

Thank you and good morning. Welcome to the Beasley Broadcast Group First Quarter Webcast. Before beginning, I'd like to emphasize that this webcast will contain forward-looking statements about our future performance and results of operations that involve risks and uncertainties described in the Risk Factor 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 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 in this morning's news announcement and on our website. I'd also remind listeners that following its completion, a replay of today's webcast can be accessed for five days on our website.

My remarks this morning will primarily focus on the first quarter, our balance sheet, and our markets. However, my remarks will be longer than normal given our results. Overall, we are disappointed in our first quarter revenue results, and in a moment I'll review the steps we are taking to address those items within our control in order to improve our performance going forward.

So for the quarter, actual revenue decreased 2.4%, and same-station revenue decreased 4.7%. Our same-station results reflect declines in our Philly, Miami and Vegas clusters, and these are our largest markets, and on a combined basis they represent over 60% of our total revenue.

Company-wide, on a same-station basis, local revenue decreased 10%, which was partially offset by an increase in national at 2.5%. On a positive note, digital revenue increased approximately 14.5% during the quarter, and our Fayetteville cluster was the shining star, as it generated a double-digit revenue increase.

We have five markets that report to Miller Kaplan, and these markets account for almost 80% of our revenue. In the first quarter on a combined basis, the total revenue in these five markets decreased to 0.3%, or was essentially flat while revenue at our station clusters in these markets declined by 4.3%.

I'll now review the performance of our large-market clusters for the quarter and the actions we are taking to offset the factors that weighed on first quarter.

Starting with Philly, market revenue increased 2.3% for the quarter with local down 5% and national increasing 13%. For the first time since Q2 2012, our Philly cluster underperformed the market, as we posted a revenue decline of 1.6% reflecting declines in local and digital partially offset by an increase in national.

First quarter local revenue in Philly was significantly impacted by the harsh weather with our stations being closed and equivalent of about three business weeks in January and February combined, which compares to just one day for their first quarter of 2013.

In March we incurred a significant number of local cancellations due to businesses closing in January and February, and weak overall customer traffic. Besides the weather, our station [stayed] very tough comps from 1/2/13 as our revenue in the year-ago period was up over 20% compared to the market that was up only 2%.

Finally, in January we strategically elected to reduce the number of units being played on our country station to further enhance our over-the-air products. And, as expected, we've seen our ratings improve in recent months and believe that revenue will follow.

Moving to Miami -- total market revenue was down almost 5% for the quarter with local down 10% and national increasing about 9%. Our cluster posted a decline of approximately 7% with local down 13% and national coming in basically in line with the market increasing about 9%.

The underperformance in our cluster was primarily driven by the decline in revenue at our AM sports talk station. There are four sports competitors in the marketplace battling for revenue share. And on a positive note, our two FMs outperformed the market in terms of revenue. I'll review our ratings in a moment, but as noted in our last webcast, since last fall our heritage rhythmic CHR station has two new format competitors.

Power 96 is holding its own, as we've taken steps to protect our station by adjusting programming and increasing promotions and advertising.

Going to Vegas now, the market bounced back from its double-digit revenue decline in fourth quarter as market revenue grew 3% in the first quarter. This was driven by a 17% increase in national and 28% increase in digital. These increases were partially offset by a 4.9% decline in local. However, our cluster posted a 9% revenue decline for the quarter. Our local and national revenue were down 18% and 2.9%, respectively, offset partially by increases in both digital and NTR of 24% and 64%.

Our clusters' revenue decline was partially attributable to the decline in prime rotator shares compared to last year. In first quarter, we began promoting our stations with TV and cash, and we are seeing positive results.

Also, as in Philly, our Las Vegas cluster faced very tough revenue comps. As in first quarter of last year, our cluster grew revenue over 15% compared to the market being down 6%.

Overall, we are disappointed anytime our revenue results do not match or exceed our markets, and we're taking several steps to improve upon Q1 performance. As mentioned before, we rolled out our new digital initiative in Q1 and in order to ensure effectiveness scheduled digital sales training with our AEs. This training took our sales teams off the street for two to three days in each market. We also took the time to train our sales teams on several new NTR initiatives, which resulted in them being away from customers and businesses for another day.

These initiatives coupled with the bad weather in the Northeast, as well as in our Southern markets presented a meaningful impact to our first quarter sales results. While it's hard to believe our Southern markets were closed for almost a week in total, and the broadcast tower collapsed for our largest station in Augusta, Georgia, due to ice.

While we were ready to endure certain short-term disruptions related to our new digital and NTR initiatives to drive long-term revenue gains, we did not anticipate the extreme first quarter weather and its impact on businesses and our markets.

So for the first quarter we were faced with the perfect storm, both literally and figuratively speaking.

Let's quickly review Q1 category data. On a combined same-station basis, our five largest categories decreased 1%, and these five categories account for almost 60% of our revenue. We generated increases in two of our top five categories, however, our top two categories, retail and auto, were down.

Moving on to our station ratings -- in Philly, our country station continues to improve its position and is now generating the highest ratings in the history of the station. XTU is now top three and three major demos with the largest growth coming from the younger demo, 18-34. And during the latest ratings book, XTU was number one with adults 18-34.

As mentioned earlier, we intentionally elected to lower the number of units per hour on the station and believe we will be rewarded by higher rates related to the great ratings.

At our CHR rhythmic station, WRDW, we are proud to report three consecutive months of positive ratings growth among adults, 18-34, and the station remains top 10 with both adults 18-34 and 18-49. So from a ratings standpoint, we feel very good about our position in Philly.

Over the past six months, there have been several changes in the Miami market including two new competitors targeting to 18-34 demo with both targeting listeners of our flagship station, Power 96. I'm proud to say that despite all the new competition, Power has held its rank in every key demo. Also, our country station, KISS, is seeing sustained rating strength.

As mentioned earlier, our sports station, QAM, saw a decline in ratings and revenue, which we attribute to the loss of our popular afternoon host last year. However, we expect QAM to grow from here, as on April 1st, the station began airing another highly rated sports talk show host.

In the Vegas market, all of our stations are performing well from a ratings perspective, but KKLZ and KOAS remain in the top five with adults 25-54. KCYE is top 10, and KBGS improved its position. However, when we look at prime rotator, and that's Monday through Friday, 6a to 7p, the day part on which many advertising agencies face their buying decisions, our flagship station, KKLZ struggled early in the first quarter. These shares have improved rapidly from January to March and continue to show signs of growth in the second quarter trends that we've seen today.

Turning back to the financials, actual station operating expenses increased 2.4%, and this reflects a full quarter of expenses from KBGS, which we acquired last fall. And then same-station operating expenses declined 0.3%.

Our actual SOI for the quarter decreased 12.2% while same-station station operating income decreased 13.7%. And corporate G&A excluding stock-based comp was in line with last year's first quarter number of $2 million. Stock-based comp expense increased to $356,000 for the quarter, and that compares to $137,000 last year in the first quarter.

Our interest expense for the quarter decreased approximately 40%, and this reflects both the lower cost of borrowing as well as reduced amounts on our outstandings.

During the first quarter, we recorded a significant rise in income tax expense. This is primarily due to a change to the federal income tax rate from 34% to 35%. Our overall effective rate is 40%, however, in the first quarter the effective tax rate was 78% reflecting these changes.

Turning to the balance sheet, during the quarter, we made repayments totaling $3.375 million against our debt, which was reduced to $103.5 million at the end of the quarter. The latest trailing 12 month consolidated operating cash flow was $29.6 million, and our total leverage ratio was at 3.5 times.

Our credit agreement allows us to receive the benefit of up to $10 million of total cash on hand, and in calculating that leverage, our net leverage at the end of the quarter was 3.16 times. And cash on hand at the end of the quarter was $12.7 million.

For the first quarter we spent almost $1.2 million in CapEx, and this amount is unusually high for us and includes several ongoing projects within the company. It includes the buildout of a backup transmitter site for several FMs in Fort Myers. We are moving our main antenna and transmitter for one of our FMs in Miami. We've upgraded several transmitters within our company, and we had to build out several FM translators in the company as well. And also this includes the rebuilding of the tower that fell down due to ice in Augusta, Georgia.

Looking ahead at the remainder of 2014, there are a few items I'd like to highlight. First, we will not incur two challenges that really impacted Q1; namely, the fierce winter weather in the sales training for our digital and NTR initiatives. With this training completed, our digital and NTR plans are progressing, however, we are seeing that the sales process is longer than over-the-air advertising.

Overall, recent initiatives in the areas of sales, programming, and the further expansion of our digital offerings, are expected to drive long-term revenue growth but are resulting in higher operating expenses on a short-term basis.

Second, our ratings in key markets remain strong. In Philly, we will begin to convert higher ratings at our country station into higher rates and revenue. In Miami, we see upside at our sports talk station, WQAM, and in Vegas our prime rotator shares for KKLZ have improved.

Third, our income tax expense should normalize in Q2 back to 40%, and our Q2 CapEx should be about the same as Q1 and then decreasing in Q3 and Q4.

That said, we continue to face some of the tough comps related to our outperformance relative to our markets in the first half of 2013, so we expect Q2 to remain somewhat transitional. The radio advertising environment in our markets remain healthy, and we've worked hard to maintain strong community involvement and a close connection with our listeners and advertisers.

We strongly believe that our organization-wide focus on strong core programming and targeted localism are the best foundation for improving revenue share in every market and expect these factors to be reflected in our results in the second half of 2014, which we will also see the cyclical return of some political advertising.

Looking at our capital structure, last year's re-fi lowered our cost of borrowing, and our leverage remains at the lowest level in over 10 years. We have consistently strengthened our balance sheet and lowered leverage by allocating cash flows from operation to further reduce our borrowing. And given our excellent progress on this front, we intend to evaluate future opportunities to return capital to shareholders.

And since re-initiating a quarterly dividend of $0.045 per share in December, we've paid a cash dividend in both January and in April.

On behalf of our corporate and station personnel, I'd like to thank you very much for participating on the call today, and should you have any questions, please feel free to give me a call. Thank you very much.

This does conclude today's conference. Thank you for your participation.