Beasley Broadcast Group, Inc. (BBGI) Q4 2013 Earnings Report, Transcript and Summary

Good day, and welcome to the 2013 fourth quarter results conference call. Today's conference is being recorded. At this time, I would like to turn the call over to your host, Ms. Caroline Beasley. Ms. Beasley, you may begin.

Thank you, and good morning. Welcome to the Beasley Broadcast Group fourth quarter 2013 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. My remarks this morning will primarily focus on the fourth quarter and full year results, our balance sheet and our markets. As noted in our third quarter webcast, we knew that fourth quarter revenue would be challenging, given the $1.2 million in political advertising received in 4Q '12. While we were not able to fully offset these political dollars, we saw improved advertising in December after cycling off the political comps in October and November. So for the quarter, actual net revenue decreased 0.5% and same-station net revenue decreased 2.6%. Excluding the benefit of approximately $1.2 million in political advertising in 4Q '12, 4Q '13 same-station net revenue rose approximately 2%. And for the full year of 2013, actual full year revenue rose 4.7%, while same-station revenue increased 1.9%. 4Q '13, same-station revenue results reflect declines in our Vegas and Miami clusters, primarily due to the political comps. On a consolidated same-station basis, local and national decreased 1.7% and 21% respectively, with the decline in national primarily attributable to approximately $1.1 million in national political advertising booked in 4Q '12. And I'm very pleased to report that digital revenue rose approximately 40% during the quarter. Now we have 5 markets that report Miller Kaplan, and these markets account for about 76% of our total revenue. In the fourth quarter, on a combined basis, our clusters outperformed in the markets as total revenue in these 5 markets decreased 4.1%, while revenue at our station clusters declined by 2.6%, which again was primarily attributable to the cyclical nature of political advertising. So let's take a look at our 3 largest markets in terms of revenue. Starting with Philly; market revenue increased 4% for the quarter, with local down 0.7%, and national increasing 5.5%. Our Philly cluster again outperformed the market, with revenue growth of approximately 10%, reflecting increases in local, national and digital as we saw another quarter of great performance at XTU. In Miami, total market revenue was down 9% for the quarter, with national being down almost 21%, and local down almost 9%. A cluster also outperformed the market, posting a decline of approximately 4.7%, driven by outperformance in local and digital revenue. As noted in prior quarter's webcast, in April, we hired a DOS in Miami, who's overseeing sales for the entire market. She has responsibility for the sales managers at each of our stations. As expected, this has driven improvements in our local sales results in the second half of '13. Moving on to Vegas, we saw the brunt of the impact of political comps, as almost half of our 4Q '12 political revenue was generated from Vegas. In 4Q '13, the market was down 16.4%, compared to our stations, which were down 18.4%. And for the full year, each of our clusters that report to Miller Kaplan outperformed the revenue in their market, as total combined market revenue was down 2.2%, compared to our stations that increased 5.5%. And these are the stations that report to Miller Kaplan. Looking now at Q4 category data. On a combined same-station basis, our 5 largest categories increased 2% for the quarter, and these 5 categories accounted for about 59% of our revenue. Specifically, we generated revenue increases in 3 of our top 5 categories: Auto, health, and other, while retail and restaurants were down for the quarter. Outside the top 5, we saw notable increases in the insurance, travel and telecom categories. The increase in the insurance category is in part due to the increased spend from GEICO and Progressive. Telecom increased due to higher spend from AT&T, Verizon and MetroPCS. Moving now to our station's ratings in our larger markets. In Philly, XTU capped the banner year with improvements in the fourth quarter, while XTU remained top 5 in the core Adult 25-54 demo. We've seen tremendous growth with the younger demos of 18-34 and 18-49, where the station is now top 3 in both. And a special congratulations go out to XTU's Morning Show, Dock and Andie, who won the prestigious CMA award for Major Market Personality of the Year. Elsewhere in Philly, our CHR Rhythmic station, Wired 96.5 finished the year, again ranking top 10 among adults 18-34 and 18-49. And over the last 6 months, Wired has also performed well in the 25-44 demo. Moving on to Miami. Power 96 delivered its best ratings quarter of this year despite a new format competitor, which launched in November. Power ranked number 1 or 2 among adults 18-34 in all of the survey periods of the quarter, and top 5 in the 18-49 demo. In the last several weeks, a second station in the Miami market changed format. So now, Power 96 is facing 2 new competitors, but let me assure you, we intend to aggressively protect our heritage station in the market. And Power has won format challenges in the past. Moving on, KISS Country has now generated 4 consecutive survey periods of positive growth growing ratings results. And let me just comment on KISS for a moment. This past Sunday, they held their 29th Annual Chili Cookoff, where over 20,000 of their closest friends attended. It was a very successful event, and it really showed the power of local radio. So kudos goes to everyone over at KISS. Moving on to Vegas. Our urban LV station, KOAS, is delivering tremendous growth, with increases in 4 consecutive survey periods, making it one of the top-rated stations in the market. Elsewhere, BOB FM remains competitive in the adults 25-54 demo, and consistently a top 10 station in the market. Our country station, KCYE, has a 2:1 rating fleet over its direct competitor. And our flagship station, KKLZ continues to be one of the top adults 25-54 stations in the market. So moving back to the financials. Q4 '13 actual station operating expenses increased 2.5% for the quarter, and same-station expenses rose 0.6%. Reflecting the fourth quarter decline in revenue due to the political comps and station operating expenses, actual SOI for the quarter decreased 5.2%, while same station SOI decreased 7.4%. Corporate G&A, excluding stock-based comp, totaled $2.1 million for the quarter, and this is in line with last year's fourth quarter. Stock-based comp for the quarter was approximately $187,000, compared to $88,000 in fourth quarter of '12. Interest expense for the quarter decreased approximately 34%, and most of this reflects the lower cost of borrowing resulting from the repayment of the second lien holders on April 3rd. And as a reminder, in Q2 '13, the company incurred a $1 million prepayment fee when the second lien debt was refinanced. In addition to the prepayment fee recorded and interest expense, we recorded a charge in Q2 for loss on extinguishment of long-term debt of $1.3 million. And both of these items impacted net income and earnings per share for the full year 2013 results. Turning to the balance sheet. During the quarter, we made repayments totaling $3.375 million, and that reduced our debt to $106.875 million. The latest trailing 12-month consolidated operating cash flow was $30.5 million, resulting in a reduction in the leverage ratio to 3.5x. And this compares to a leverage ratio of 3.78x at the end of 2012. Our credit agreement allows the company to receive the benefit of $7.5 million of cash on hand in calculating net leverage. So reflecting the cash, our net leverage at the end of 2013 was 3.26x, compared to a covenant of 5x, and compared to the net leverage ratio of 3.61x at the end of 2012. Cash on hand at the end of '13 was $14.3 million. We spent about $700,000 in CapEx for the quarter and about $2.8 million in the year. Looking ahead at operating results for the first quarter, there are a few items I'd like to highlight. We're beginning to expand our digital offerings to nontraditional radio advertisers. To support this initiative, we hired our new digital sales team, which went to work effective January 1st. With these new products and focus on sales, we expect digital revenue to increase going forward. However, and reiterating our expectation from prior webcast, initial margins from this initiative are expected to be lower. In addition to this, we continue to focus on strengthening and monetizing our core digital assets, streaming and display, and are in the process of relaunching all of our websites to be more content focused, with higher focus of user interactivity. And as of today, we're about halfway through this project, and believe the updated look and expanded functionality are resonating well with our listeners and advertisers. But to conclude, overall revenue trends this quarter were consistent with the help we saw throughout '13, although comps were, as expected, strained by the benefit of political advertising in the fourth quarter, 2012. In '14, we remain focused on ensuring that our station clusters match or exceed their market's revenue performance, while further strengthening our balance sheet. We have strong station clusters and ratings in key markets and excellent leadership in personnel across our company. We're reinvesting in a return focused manner in programming, personnel and expanding our digital offerings. And we believe our focus on our core content and new media opportunities position Beasley well. Looking at our capital structure. We're realizing the benefits of the Q2 refi, which has lowered our cost of borrowing and our leverage to the lowest level in over 10 years. As such, we continue to strengthen our balance sheet and lower leverage by allocating cash flow from operations to further reduce our borrowings. With progress on this front, we intend to evaluate future opportunities to return capital to shareholders. And as announced in December, we reinitiated a quarterly dividend of $0.045 per share, with the first dividend paid on January 10. So with that, that concludes my comments. I thank you very much for your time today, and should you have any questions, please feel free to give me a call. Thank you.