Beasley Broadcast Group, Inc. (BBGI) Q4 2011 Earnings Report, Transcript and Summary

Good day, and welcome to the Fourth Quarter and Full Year 2011 Webcast. I would now like to turn the call over to your host, Caroline Beasley. Please go ahead, ma'am.

Thank you, and good morning, and welcome to the Beasley Broadcast Group Fourth Quarter 2011 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 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 our website. I'd also remind listeners that following its completion, a replay of today's webcast can be accessed for 5 days on our website, bbgi.com. Investors can also find a copy of today's press release on the Investors or Press Room sections of the site. My remarks this morning will primarily focus on the fourth quarter results and our markets. Afterwards, Bruce Beasley, our President and COO, and I will address any questions that were emailed. The fourth quarter actual net revenue decreased 6.8%. About 1/3 of the $1.8 million revenue decline was attributable to political, while half of the decline reflects the combination of weaker national advertising in our markets in general, and some national advertising issues that were unique to BBGI. As discussed on our third quarter conference call in late October, we knew fourth quarter was going to be challenging on the top line, given continued economic volatility, the top political comps, and some of the issues we were facing regarding national. Given these factors, we took decisive actions on station operating expenses, lowering them by $800,000, or 5% in fourth quarter and in turn offsetting some of the negative operating leverage that comes with lower revenue. As such, SOI declined by $1 million or 9.5%. For the full year, actual net revenue declined 0.3%, or by $300,000, and given the $1.3 million decline in political revenue from 2010 to 2011, it's evident we would've recorded a revenue gain were it not for political. Again, by actively managing station operating expenses, which we reduced by 1.9%, which will have a $1 million increase in SOI, and this was 2.9% increase. Now before I get to specific market data, I want to address the national advertising issue a bit more. Overall national revenue in our markets that report to Miller Kaplan declined by 17.8% in the quarter, while our national revenue during the period was down 23.8%. I'll review our category data and some specific advertisers to shed light on this discrepancy. First, our 2 largest categories which have strong national components, retail and auto, posted declines for the quarter. These 2 categories combined accounted for 33% of our revenue and decreased a total of 10% for the quarter. Individually, retail was down 15%, while auto was down 2% for the quarter, and the auto decline is attributable to domestic as imports spending increased. The remaining 3 of our top 5 categories posted increases for the quarter, and our top 5 categories combined accounted for about 58% of our net revenue and on a quarter-over-quarter basis, revenue from these categories declined by 3%. Our fourth quarter national ad comp was also impacted by the fact that 3 of our top 10 advertisers from last year significantly reduced their total spend in Q4. First, GEICO pulled its advertising in Florida, and we have 11 of our 42 stations in Florida. These 11 stations account for 38% of our revenue. The GEICO change in the state really impacted us. Additionally, spending from Eastman Kodak did not return in Q4, and this perhaps was even be more impactful as we garnered 100% of their spending in Miami and Philly last year in the fourth quarter. Finally, we lost significant dollars from AT&T, which reduced their radio spend in 2011. Then moving to the market data, we have 6 markets that report to Miller Kaplan and the stations in these markets account for 83% of our revenue. And for the quarter, combined market revenue was down 5.2% compared to our stations, which were down 8.4%. And for the full year, BBGI outperformed its markets on a combined basis as our markets posted 1.9% decline compared with BBGI's clusters, which were down 0.6%. So let's go through the specific markets starting with Philly for the fourth quarter. The Philly market was down 4.4% compared to our stations which were down 9.7%. Our underperformance in the market was driven by our CHR station, WRDW, and the ratings challenges the station faced earlier in 2011. We addressed this issue head on and named a new PD at the station in Q3 and recently added new talent to our morning show. We have strong expectations now for WRDW's rebound and we'll be disappointed if the station doesn't perform in line with the market going forward. And our country station remains stable and continues to perform in line with the market. On an annual basis, the Philly market increased 0.2%, while our cluster outpaced this growth with a 2.4% year-over-year increase. And moving to Miami, for the quarter, the Miami market declined 6.7%, compared to our stations, which were down 10%. Our underperformance in the Miami market was driven by our country stations, WKIS, and a reduction in units at our Rhythmic CHR station, WPOW. We named a new PD for our Power in Q3, and she is already generating great progress. And KISS has turned in steady ratings increases for the last several months. In addition, we staffed up the sales department at WKIS. Elsewhere in Miami, our sport station, QAM, faced a host of challenges during the quarter, including the Dolphin's dismal season, the Miami hurricane pending sanction and, of course, the delay in the start of basketball season. On an annual basis, we outperformed the market, as Miami overall was down 4.6% while our stations were down 1.4%. Now heading out West, the Las Vegas market declined 4.6% for the quarter compared to our stations, which were down 12%. Our stations saw a decline in ratings in 2011. We've identified and addressed these problems. Currently we are seeing improvement in our ratings at our country station, KCYE, and our classic hit station. We did change format at one of the stations that we manage, so we expect to see a short-term drop in our management fees as a result. For all of 2011, the market, the Las Vegas market, was down 2.1 % compared to our cluster being down 5.8%. Now moving to Fort Myers. During the fourth quarter the market was down 2.5%, and our stations were down 2%. In Augusta, Georgia, the market was down 11.8% compared to our stations being down 10.3%. And finally, in Fayetteville, North Carolina, the market increased 3.3% compared to our cluster increasing 0.8%. Now moving on to station operating expenses, they declined 5%, or $800,000 for the quarter, and for the full year, station operating expenses declined 1.9%, or $1.3 million. Our station operating income for the quarter dropped by $1 million. However, SOI increase for the full year was $1 million. Now moving on to interest expense. For the quarter, interest expense was down 43%. This reflects the rolloff of swaps in March and September and continued reduction in our borrowing costs due to repayments on our credit facility. And for the full year, interest expense declined 26.5%. Our effective tax rate is approximately 40%, and in Q4, we paid current taxes of $1.1 million, and for the full year, $1.4 million. Now turning to the balance sheet. During the quarter we made repayments totaling $5.9 million against the credit facility, and that reduced our bank debt to $126.7 million at the end of last year 2011. The latest trailing 12-month operating cash flow is $27.5 million, and this resulted in a reduction in the leverage ratio to 4.6x at the end of 2011. And our leverage covenant at the end of '11 was 6.5x, and as noted before, we do have a leverage covenant step-down to 4.75x on March 31, 2012. Cash on hand at the end of the quarter was $13.6 million, and we spent $416,000 in CapEx for the quarter and $1.445 million for the full year. So to recap, although the fourth quarter results and the issue stays with national and political comps laid on our full year performance, we're pleased that our station clusters outperform the market on a full year basis. Other highlights for 2011 include the 26% rise in net income, the 3% or $1 million increase in SOI, and despite the challenges in Q3 and Q4, where our ongoing focus on costs and efficiencies, we increased margins to 35% from 34% in 2010. Looking at the balance sheet, we reduced debt by $15.3 million for the year and lowered our leverage from 5.24x at the end of 2010 to 4.6x at the end of 2011. And while we maintain strict cost discipline, we did not lose sight of the future opportunities presented to radio broadcasters as we expanded our digital capabilities and offerings, launched a new app for Android devices and converted to a new traffic system. We know that to compete today, we need to maintain our dual focus on our core content and new media. Now before we conclude the call, I want to quickly review the progress the industry is making in ensuring that radio remains a highly relevant medium. Throughout the year, NAB has tackled many of the key headline issues of today, including technological enhancements for radio, FM chips on mobile devices, performance cap and streaming. And at the same time, Gordon Smith and his team took proactive steps and preemptive measures on issues that could affect radio down the road, such as spectrum. Although 2011 has its challenges, overall the radio industry is in good shape, and we remain huge believers in the future of radio.

And with that, I'm going to turn it over to Bruce and ask one question of him that we received earlier today. And that regards political spending so far in our markets for our first quarter. Now, Bruce, can we talk a little bit about the kind of political dollars that we're seeing today?

Yes, sure Caroline. In looking at Q1 2012, it seems to be comparable to the local spending in 2010, and that's about $100,000 for the quarter. Even compared further, in Q1 '08, we had about $150,000.

Great. With that, we thank you for your time today and should you have any questions, please feel free to give Bruce or myself a call. Thank you.

Ladies and gentlemen, that does conclude today's webcast. We thank you for your participation.