Beasley Broadcast Group, Inc. (BBGI) Q2 2012 Earnings Report, Transcript and Summary

Good day, and welcome to the Beasley Broadcast Group 2012 Second Quarter Results Webcast. Today's call is being recorded. At this time, it is my pleasure to turn the call over to Ms. Caroline Beasley. Please go ahead.

Thank you, Maura. Good morning. Before I begin, 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. My remarks this morning will primarily focus on the second quarter results and our markets. And afterward, Bruce Beasley, our President and COO, and I will address a few questions that were e-mailed over. So overall, Q2 was another quarter where our focus on profitable revenue, expense management and leverage reduction drove growth in SOI and net income, which offset a small revenue decline. Revenue for the second quarter was down 2.8%. This decrease was primarily driven by weakness in the set-go [ph] market and was somewhat attributable to auto. However, we also saw declines in other markets such as Fort Myers and Vegas. The Fort Myers revenue decrease reflects the fact that in the year-ago period, we hosted a concert which contributed approximately $173,000 in net revenue in Q2 '11. However, we also saw a corresponding decline in our Fort Myers expenses this quarter compared to last year due to the concert. In Las Vegas, the revenue decline is related to lower management fees, which is primarily a result of the format change at KVGS last year. And as a reminder, Beasley receives the greater of $10,000 per month or 50% of the cash flow from the 2 stations that we manage in Vegas. And the format change had the near-term effect of reducing cash flow. On a consolidated basis, local revenue was basically flat for the quarter and national was down low- to mid-single digits at our stations. The national decline reflects weakness in Miami, Vegas and Fort Myers related to certain key categories such as retail. Political revenue in the quarter amounted to only about $70,000 with the majority coming from our Augusta and Vegas clusters. Second quarter SOI was 11.6% as the net revenue decline was more than offset by a 10.9% decrease in station operating expenses, and we'll provide more color on that in a moment. Miller Kaplan delayed several of our larger market reports for second quarter, so as a result, we will not be providing market data this quarter. However, we intend to resume this practice in third quarter provided that the data is available. Now let me give you some insight on net revenue pacing data for the quarter. April was the weakest month for BBGI where we saw a 7% decline. Included in the decline is the previously mentioned impact of the concert revenue in Fort Myers and general weakness in national for the month. Conversely, May and June posted 2% and 1% net revenue increases, respectively, as national strengthened during these periods. In Q3 to date, July is pacing closer to May levels. Let's now switch to a review of Q2 category data. Our 5 largest categories on a combined basis were flat for the quarter. These 5 categories accounted for 58% of our revenue. Individually, we saw an increase in auto. And drilling down further into auto, on a combined basis, it increased 11% as we generated double-digit increases in import auto advertising, but this was partially offset by declines in domestic auto spend. Auto import increases were led by advertising from Toyota and Honda. And the decline in domestic auto was primary due to a pullback from Jeep Chrysler. The retail, health and restaurant categories all posted slight declines for the quarter. Looking now at ratings. I'm pleased to report recent strength in several large markets. In Philly, WRDW, our Rhythmic CHR station saw its best 18-34 numbers in over a year. And in the latest monthly, was ranked #2 in its target demo. Our country station, WXTU, ended the June monthly book strong as well, ranked #7, 25-54. Moving on to Miami. Power is now ranked #3, 18-34, which is somewhat expected as we changed our morning show this April and anticipated a near-term decline, but this should be short lived. KISS, our country station, generated a 3.5 share 25-54 and had posted steady gains since January. Our Vegas market ratings have shown significant improvement this year. KKLZ, our Classic Hits station, is back up in the top 5, 25-54. And KOAS was ranked #6, 25-54 for the latest month. Our country and Bob stations continue to show ratings improvement as well. So our Vegas market is positioned well in terms of ratings at this time. And moving on to station operating expenses, we saw a decrease of 10.9% or $1.8 million in the second quarter. This includes an $800,000 credit from BMI as a result of a new license agreement. Also, as previously mentioned, we had cost savings of approximately $170,000 in Fort Myers based on our decision not to host a concert in the second quarter. And the remaining of the station operating expense reductions or about $800,000 reflect our ongoing focus on general expense savings. SOI for the quarter increased $1.1 million or 11.6%. And corporate G&A, excluding stock-based comp, totaled $1.8 million, and this is slightly down compared to second quarter of 2011. Stock-based comp expense during the quarter was $108,000, down from $172,000 last year in the second quarter. And our interest expense declined 31.5%. This reflects the rolloff of swaps in September of 2011 and continued reductions in borrowing costs due to repayments on our credit facility. Our effective tax rate for the quarter was approximately 39.2%, and Q2 current cash taxes were $1.3 million. Now turning to the balance sheet. During the quarter we made repayments totaling $3.2 million against the credit facility, and this reduced total bank debt to $120.2 million. The latest trailing 12-month consolidated operating cash flow was $28.9 million, resulting in a reduction in the leverage ratio to 4.16x at the end of the quarter. And this compares to our leverage covenant of 4.75x. Cash on hand at the end of the quarter was $15.4 million. We spent $331,000 in CapEx for the quarter and a little over $700,000 on a year-to-date basis. So to recap, while the industry and Beasley faced some revenue headwinds in Q2, we, again, delivered impressive SOI growth and bottom line results. Looking at the balance sheet, leverage was reduced to 4.16x compared to 4.6x at the end of last year, marking our lowest leverage ratio in over 10 years. Reducing leverage remains a corporate priority and our recent operating results have highlighted the value of this focus. Before we conclude the call, I want to quickly review the progress that the industry is making in ensuring that radio remains a highly relevant medium. HD Radio, particularly on mobile devices, continues to be a critical industry priority. Adoption of this technology will provide listeners the capability to have an interactive experience with their stations, while enabling us to provide advertisers with 360 marketing solutions. In addition, the NAB, along with Jeff Malyon's [ph] efforts and drive continue to advance the industry's endeavors to have FM chips embedded in mobile devices. So overall, the industry is doing the right things to ensure our bright future. And with that, we did receive a couple of questions that Bruce and I will review.

The first question, Bruce, I'm going to ask you, and the question is, is what are your expectations for political given some of the swing state markets that we're in?

Yes, political to date has been a little disappointing with less than half the spin compared to '08, however, with Beasley in some key swing states, we do expect to see political dollars given the strength of our stations in these markets.

Okay. The second question is, what kind of actions to enhance shareholder value is the company considering now that our leverage is at the lowest level in over 10 years? So I just want to address that. We will continue to shore up our balance sheet and our focus, as I just mentioned, is to reduce debt and reduce leverage. Along with that, though, we did exercise our option to purchase KOAS-FM in the second quarter. This is a station in Las Vegas. So we are bringing this under the Beasley umbrella shortly. We were able to extend the option to purchase KVGS at the same time, and our hope is, at some point in the future, to be able to bring that station under the Beasley umbrella. So we want to continue to build our portfolio to enhance our operating results going forward, however, we will do this in a selective and strategic manner as we're showing with the Vegas station. Finally, with no decision being made, there is the option of dividends and shareholder repurchases in order to return shareholder value. But again, no decisions have been made in that regard. So with that, that addresses a couple of questions we received and our comments. If you have any questions, feel free to call Bruce or myself, and thank you for your time this morning.

Ladies and gentlemen, that does conclude today's call. Once again, thank you, everyone for participating.