Beasley Broadcast Group, Inc. (BBGI) Q2 2013 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to the Beasley Broadcast Group 2013 Second Quarter Results Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Ms. Caroline Beasley. Please go ahead, ma'am.

Thank you, Lisa, and good morning. Welcome to the Beasley Broadcast Group Second 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 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. You can also find a copy of the today's press release on the Investors or Press Room sections of the site. My remarks this morning will primarily focus on the second quarter, our balance sheet and our markets. So this was a solid quarter of actual and same-station revenue growth for our company. But before delving into detail, I want to remind everyone that operating expenses in last year's second quarter were reduced by $800,000 to account for a one-time music license fee settlement with BMI. So please keep this in mind when comparing Q2 '13 to Q2 '12 SOI operating income and net income. Also, even excluding the BMI benefit, we did see a rise in this year's second quarter operating expenses. I'll detail the other expense items in a few minutes, as well as the impact of the charge for the loss on extinguishment of debt and the prepayment fee. So actual net revenue for the quarter increased 8.3% and same-station net revenue increased 4.2%. Same-station net revenue excludes the revenue contribution from KOAS in Las Vegas, which we acquired in third quarter of '12. So our second quarter same-station revenue growth primarily reflects increases at our Philly, Fayetteville, Fort Myers and Augusta clusters. On a consolidated same-station basis, national and digital revenue increased approximately 20% and 70%, respectively, and more than offset a 2% decline in local revenue. Now we have 5 markets that report to Miller Kaplan and these markets account for about 76% of our total revenue. According to Miller Kaplan, total revenue in these 5 markets decreased 2.4% for the quarter while our station clusters in these markets grew by 8.4%. Just as in the first quarter, our Philly and Vegas clusters outperformed their markets and we saw another period of growth at our Naples-Fort Myers cluster as revenues -- as revenue rose by over 6%, while the market grew at 1%. So now, I want to review the performance of our large market clusters according to Miller Kaplan. Starting with Philly, market revenue was down 5.1% for the quarter with local down 8.9% and national coming in flat. Reflecting our strong ratings, we saw another quarter of great performance at our country-formatted WXTU, which led to us outperforming the market with our cluster revenue growth of approximately 12%, reflecting increases in local, national and digital. Moving on to Vegas, our cluster extended its positive trend in the second quarter as we again outperformed the market. The market was down 4.5%, compared to our stations which were up over 20%, and this is on a pro forma basis, including KOAS. In Miami, total market revenue increased 1.1% for the quarter with national increasing 16.2%, which was partially offset by local declining 4.4%. Our cluster slightly underperformed the market, posting flat revenue. National and digital for our cluster outperformed the market as we posted increases of 22% and 154%, respectively. However, these gains were not enough to offset the 7.7% decline in local. The underperformance in the market was due to our AM sports talk station as our 2 FMs outperformed the market. I'm pleased to report that during the second quarter, we hired a DOS for our Miami cluster. She's overseeing sales for the entire market and has responsibility for the sales managers at each of our stations. We expect this new structure to drive improvements in local sales and keep the positive momentum we've had this year with national. Now let's take a look at Q2 category data. On a combined same-station basis, our 5 largest categories increased 1% for the quarter and these 5 categories accounted for about 57% of our revenue. Specifically, we generated increases in auto and other, the health category was flat and retail and restaurants were down. Outside the top 5 categories, we continue to see significant increases in categories such as banking, insurance and telecom. Notably, AT&T was our largest advertiser during the second quarter, moving up from 19th a year ago. And we also saw higher spending in this category from Verizon and Sprint. So now let's take a look at our stations' ratings in our larger markets. In Philly, XTU has been seeing record numbers as the country format remains one of the hottest in the industry. Wired has seen improvement in the upper demos and as a result, it's closing the ratings gap with Clear Channel's top 40 and urban stations. In Miami, Power 96 continues to be a top 3 performer, 18-34; and Top 5 performer, 18-49. KISS Country remains very steady and is delivering competitive ratings with the other non-ethnic formats like rock and classic hits. Our sports station, QAM, competes well with other sports-formatted stations in the market but, as noted earlier, still has room to grow as its performance pulled down the cluster in Q2 in terms of revenue. In Vegas, the marketing campaign for KVGS BOB FM in Q1 helped drive the station to its best numbers since the format was launched in late 2011. Classic Hits KKLZ and Rhythmic AC KOAS remain among the Top 5 stations consistently in persons and/or females 25-54. KCYE, our country station, has been the leading country station in the market 25-54 for nearly 2 years. And I'm pleased to report that in June, the company entered into an asset purchase agreement and exercised its option to purchase KVGS-FM in Las Vegas and we've been operating under a management agreement since September of 2011. So let's take a look at station operating expenses. Actual station operating expenses increased 14.6%, that's inclusive of the BMI credit that we had in second quarter of '12. Excluding that benefit, actual station operating expenses rose by 8.7%. Additionally, actual Q2 '13 expenses represent the addition of KOAS in Q3 of '12, which accounted for about $400,000 of the total increase. And on a quarter-over-quarter basis, same-station operating expenses rose 11.7%, and almost half of that increase reflects the $800,000 BMI credit from Q2 of last year. In addition, $500,000 of the same-station increase was due to higher sales expenses related to reinvestments in our sales force, including sales management changes, hiring additional AEs and increased commissions, wages and bonus compensation related to the achievement of revenue goals. Finally, we incurred an additional $200,000 in expenses for increased streaming and other programming costs, including format changes in the Fort Myers market. Looking ahead at the third quarter, there are a few items that I would like to highlight. First, we recently announced the appointment of Justin Chase to VP of Programming. In this newly created position, Justin will oversee programming for all our stations while developing creative campaigns that extend these stations' on-air brands to the digital space. Justin has worked in our organization for the past several years in Vegas where he contributed to the cluster's strong ratings and revenue growth. Second, we will be expanding our digital offerings to nontraditional radio advertisers. And while we expect our existing digital revenue to continue to generate a healthy margin, initial margins from the expanded digital offerings are expected to be lower. And finally, as noted a few minutes ago, we recently realigned our Miami sales department with the appointment of a DOS. And while each of these initiatives are intended to drive revenue growth, we will, on a short-term basis, experience an increase in expenses in Q3, though we expect that it will be certainly be less than the same-station increase in Q2. Actual station operating income for the quarter decreased 0.7%, while same-station SOI declined 6.7%. And excluding the impact of the BMI credit from last year, actual and same-station SOI would have increased approximately $700,000 and $100,000, respectively. Our total second quarter interest expense increased approximately $1.1 million. Almost all of this increase reflects a $1 million prepayment fee paid when we refinanced the second lien debt on April 3. In addition to the prepayment fee recorded in interest expense, we recorded a charge for loss on extinguishment of debt of $1.3 million in connection with the amendment of the credit facility. These 2 items, combined with the impact of the operating expense credits, more than account for the net income decline from Q2 '12. Now turning to the balance sheet. During the quarter, we made repayments totaling $3.5 million, which reduced our debt to $112.2 million. The latest trailing 12-month consolidated operating cash flow was $30.9 million, resulting in a reduction in the leverage ratio to 3.63x. Our credit agreement allows the company to receive the benefit of $7.5 million of our total cash on hand in calculating net leverage. So reflecting the cash, our net leverage is 3.39x compared to a covenant of 5x. Cash on hand at the end of the quarter was $13 million. And we spent $565,000 in CapEx for the second quarter and year-to-date, we've spent $852,000. So to conclude, overall, this quarter was a period of good revenue growth on an actual and same-station basis, though SOI comps are sloppy due to the unusual operating expense credit in Q2 '12. Also, net income comps reflect the expense credit, as well as the loss on extinguishment of debt and the prepayment fee. Looking forward, we are excited about the strength of our ratings in key markets and we'll continue to reinvest in programming, personnel and expanding our digital offerings. As such, we expect our station clusters to exceed their markets' revenue performance. At the same time, we intend to continue to strengthen our balance sheet and lower our leverage by allocating cash flow from operations to further reduce our borrowings. With further progress on this front, we intend to evaluate future opportunities to return capital to shareholders. And with that, I thank you very much for your time today, and please feel free to call me with any questions. Thank you.