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Executives

Bruce Beasley - President and COO

Caroline Beasley - CFO

Analysts

Tracy Young - Bear Stearns

Lee Westerfield - BMO Capital

Victor Miller - Bear Stearns

Beasley Broadcast Group Inc. (BBGI) Q4 2007 Earnings Call February 14, 2008 11:00 AM ET

Operator

Good morning my name is Brae and I will be your conference operator today. At this time I would like to welcome everyone to the Beasley Broadcast Group 2007 fourth quarter results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer period. (Operator Instructions)

It is now my pleasure to turn the floor over to your host, Chief Financial Officer, Caroline Beasley. Ma'am, you may begin your conference.

Caroline Beasley

Thank you Brae. Good morning and welcome to the Beasley Broadcast Group fourth quarter conference call. Before beginning, I would like to emphasize that this call will contain forward-looking statements about our future performance and results of operations that involve risks and uncertainties that are described in the risk factors section of our most recent Form 10-K.

This call 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 on the company's website.

I would also remind listeners this call is being webcast live over the Internet and that a replay of the call will be available on our corporate website, BBGI.com, for five days after the call ends. Investors can also find a copy of today's press release on the investors or pressroom section of the site.

As always we will keep our remarks focused this morning on the fourth quarter, our guidance and operations outlook and then open the floor to Q&A. Bruce Beasley, our President and COO is with me this morning.

Before the quarter, our revenues increased 0.4%. Actual fourth quarter net revenue, SOI and other metrics reported include $1.4 million in revenue from the Miami Dolphins, which the company didn’t have in last years fourth quarter. BBGI exceeded its fourth quarter guidance for a net revenue decline of 2% as we generated better than projected cluster revenue in Philadelphia, Augusta and Coastal Carolina.

According to Miller Kaplan total Philadelphia market revenue declined 4.1% in the fourth quarter while our cluster revenues fell 1.4%. So we out performed our market in Philadelphia. Our stations also out performed the market in Miami. In total, market revenue increased 4.5%. Our clusters total revenues increased 10.9%. These figures include the revenue contributions related to the Miami Dolphins broadcast, which were partially offset by the 200,000 impact of not renewing the Florida Panthers at WQAM.

During the quarter, the Las Vegas market declined 5% while our cluster revenue dropped 6.2%, our Las Vegas cluster remains in transition following programming and changes at KKLV and KFRH. And Bruce will discuss the recent management change in the market in just a moment.

The Fort Myers market continues to be challenged with quarterly market revenues of 11.8% behind last year and our cluster revenues declining 17.9%. This under performance is partly due to an NTR concert that generated approximately 400,000 in the fourth quarter ‘06 and was not held in fourth quarter of ’07.

In seven of our 11 markets that report to Miller Kaplan our clusters outperformed our market on a total revenue basis as total revenue decline of approximately 2%, while the BBGI stations were basically flat. This numbers again do include the positive revenue contributions of the Miami Dolphins and the negative impact of not having the Florida Panthers, and Fort Myers, NTR event in Q4 '07 that we did have in Q4 '06.

We had another solid quarter with our interacted initiatives as revenue accounted for 3.4% of the companies total fourth quarter revenue representing an increase of 94% over fourth quarter of '06. And in our fourth quarter we again surpassed the $1 million mark in quarterly interactive revenue, and we generated net margins in excess of 60% on this revenue. For the full year interactive revenue accounted for 3.1% of total revenue, which represents a 121% increase over 2006.

On a same-station basis for fourth quarter, net revenue declined 3.8% and this compares to our guidance for same-station revenue decline at 6%. And just to remind everyone again, same-store revenue does not include the $1.4 million in revenue from the Dolphins, but does include the $600,000 negative impact of not having to put Myers, NTR concert, and the Florida Panthers in fourth quarter of '07.

Station operating expenses increased 6.3% and this increase was related to the Miami Dolphins contract. Without these expenses same-station expenses decline 2.8%, and this primarily reflects decreases in expenses related to the Fort Myers NTR event and the Florida Panthers contract.

Reflecting fourth quarter revenue levels and station operating expenses, SOI declined 11.9% and same-station SOI declined 5.9%.

Corporate G&A excluding stock-based compensation expense was $2 million for the quarter and for the year corporate G&A was $8 million. For the year, this represents an increase of $1.2 million and this primarily relates to the continued development of our interactive support services.

Stocked-based compensation expense was around $550,000 in the fourth quarter and for the year we recorded $2.4 million.

In the fourth quarter, we repurchased approximately 65,000 shares of BBGI stock for a total 450,000. For the year, we repurchased approximately 400,000 shares of BBGI stock for total $3.5 million, and since the time the Board initially authorized the repurchase program in 2004, we had repurchased the total of 1.3 million shares for a total of $11.9 million.

Our interest expense for the quarter increased 15% to $3.3 million and this primarily reflects in increased borrowings related to the JBR acquisition. In terms of interest expense for the year, it increased 50% to $13.8 million and this increase reflects borrowings related to WJBR and KDWN acquisitions, as well as the expiration of interest rates swaps.

In the fourth quarter of '07, we did record a $2.2 million impairment charge and that's related to the SEC licenses in our Wilmington, Augusta and Boca Raton markets. Our tax rate for 2007 was approximately 42%, we incurred $10,000 in current taxes payable for fourth quarter and $28,000 for the year.

Total senior debt was $191 million and we had a leverage of 6.21 times at the end of the year. Cash on hand was $6.6 million. CapEx for fourth quarter, we spent about a $1 million and for the year we spent about $3.3 million.

Now, turning to guidance for the first quarter. As you all probably read in the press release this morning, we are projecting our revenues to decline 4%, and I want to go through that. About 3% of the 4% decline is coming from our Fort Myers market with 30% of the 3% decline coming from an NTR event, which we had last year in the first quarter that we're not doing this year in first quarter.

We're also projecting a continued decline in Fort Myers, due to a ratings drop at WRHK and overall market softness. One point I would like to make is this week we did receive January Miller Kaplan and the Fort Myers market is down 16% through the month of January. So it continues to struggle. We continue to predict declines in Las Vegas related to KFRH and overall market softness and we're projecting softness in our Fayetteville cluster.

On a positive note we are projecting that our Miami cluster will show gains in the first quarter, WPOW is making great progress and is benefiting from the changes made over the last year. Our country station at Miami still has challenges that we've begun to see stability there and QIM our fourth station is making progress on the soft side, however it is taking difficult counts due to not renewing the Florida Panthers and the Marlin sports contract.

All said as Super Bowl was held in Miami in January of 07, which seems to have negatively impacted WQAM for the month of January. And our Philadelphia cluster is expected to be flat with the year ago.

Station operating mix expenses are projected to decrease 2% for the quarter. This decline represents expense savings in Fort Myers primarily from this NTR event and also expense savings from not renewing the right with the Panthers and the Marlins.

Corporate G&A excluding stock-based compensation expense is projected to be $2.1 million for the quarter and $8.4 million for the year stock based employee compensation expense is expected to be $500,000 in the first quarter and about $1.8 million for the year. D&A expense we are projecting $800,000 for first quarter and approximately $3.2 million for the year and we’re projecting $2.6 million in interest expense in first quarter and approximately $10.3 million for the year.

Our effective tax rate is 42% and in terms of CapEx we’re projecting to spend approximately $725,000 in the first quarter and approximately $4.5 million for the year.

This will be guidance we're providing for first quarter and the year at this time and we undertake no obligations to update this information until the next conference call and at this point I’ll turn it over to Bruce.

Bruce Beasley

Thank you Caroline. I would like to spend my time this morning briefly addressing three areas, they are interest I believe to our financial community and form the foundation of our continued enthusiasm for the Beasley Broadcast group’s prospects.

The first topic I would like to address is the state of the industry and how Beasley is fairing and what has been generally been categorized as a very challenging environment.

I am going to start by saying that the sky is not falling down in broadcasting and our fourth quarter results highlight the benefit of our strategies to target good growth markets, appoint qualified staff, programs to listeners preferences, sell locally and promote each station appropriately, which together will allow us to exceed market and industry performance.

During the quarter on actual basis we’ve recorded year-over-year revenue increases in seven of our top ten ad categories and on a same-station basis we recorded year-over-year revenue increases in five of our 10 ad categories. And if you look at our ad categories 3.8% same-station decline is directly related to auto and political.

The second area I would like to address this morning is how we faired relative to the operational and strategic goals that we established for BBGI in ’07. On a big picture basis we set out to manage our stations for industry outperformance and we succeeded in that effort, and digging a little bit deeper though, we entered '07 seeking to close the gap on our performance in Miami relative to the market.

Our second area of focus for the company in '07 was to strengthen the revenue contributions from KKLG and KFRH general Las Vegas cluster following programming and on-air changes throughout these stations. We had recorded several quarters of double-digit revenue growth in Las Vegas, largely related to our country station which we reformatted in Q4 '05 and the addition of KDWN-AM our new soft stations launched in late '06.

But this market has been hit hard by the housing downturn and revenue growth has slowed to 1% in '07 from mid-single digits in '06. We moved the cluster in the right direction but it's still a work-in-progress and I'm going to provide a little more perspective, a little further along in my presentation.

Another corporate priority in '07 was to begin demonstrating to advertisers the value of our interactive media initiatives. For the full year interactive revenue grew to approximately $4.2 million that's a 121% rise over '06, and by Q4 we were generating net margins of over 60% on this revenue.

We also set out to build our strength in Philadelphia and while we recorded a small revenue gain in the market at '07, I guess the backdrop of 2.6% decline in the market we did succeed in elevating our overall market revenue share.

All-in-all, things are working for us and while I'm pleased to highlight our '07 success, I'd also like to take this opportunity to review considerable opportunities we have for further growth and success in '08, even in markets where we've turned operations around and already strengthened our cluster.

As we reported this morning our Miami clusters is now in great shape and with solid fall ratings where Power 96 and our support-station WQAM, placed first and second in there target demos, we are confident that '08 will prove to be a very good year for the cluster.

In addition, we expect upside related to the stabilization of our country station, which has weighed on the cluster's performance for most of '07. The summer end fall ratings both for Kiss Country brought the good news that at music tweak and the appointment of a new program director delivered the expected results, and we've been working with the sales team at the station to assure that they are selling that to the market.

So improving performance of Kiss country, combined with the momentum established at Power and QAM, will make for some important contributions for the Miami cluster in '08.

In Philadelphia, our cluster reported another period of market out-performance in Q4, which boosted our market revenue a share slightly over where we were in '06. However, while we'll remain believers in electronic measurement technology and the value it can bring to quality broadcasters like Beasley, we remain unsatisfied with the PPM sampling issue and the pace at which Arbitron is addressing this. It's clearly impacted several quarters for us and other broadcasters in the market.

For those of you who don't know PPM is under-sampling certain demos particularly the 18 to 34 demo, and this hurts our Rhythmic CHR station wired in the Philadelphia market. We are dealing with this problem on a first-hand basis, but we are hindered by the pace of correction and the information being fed to broadcasters implying that Arbitron was back to and above its targeted sample size in Philadelphia.

Though we have seen some improvement, this is simply not the case. As such, we remain of the opinion at it won't be until Q3 of this year that sample size and consistency of PPM Data can be used to our benefit in selling our cluster.

Please don't misinterpret this. Overall, our Philadelphia stations are doing well, and we are confident of their programming, people and promotion. Earlier in '08, we named a new the sales manager at Wired, and we're seeing positive results from the sales training and other initiatives already in place. We also have installed a new NTR interactive sales manager there as well.

With these changes and the strong management and programming teams in Philadelphia, we had a very good January. I’d also like to note that we expected contributions in Philadelphia in Q1 from National, which is a direct reflection of our strong ratings in the market in our target demos and this is in spite of PPM issues that we just reviewed.

In 08 we're continuing to aggressively move to turn around our Las Vegas cluster. After years of being one of the nations fastest growing radio markets Las Vegas has faced some challenges, largely related to the housing situation.

In Q4 we closed the gap somewhat our performance relative to the market but our cluster still came in behind. As our third largest market the health and growth of this cluster is priority and I am pleased to announce that after about six months search we've finally found a person to lead our cluster their for our market manager. Goal one in Las Vegas is to achieve cluster performance that matches market performance and we're well on our way have incurred a double-digit decline in Q3 and half in Q4 but this of course is not acceptable.

The cluster and particularly KFRH remains a work-in-progress and turn around in KFRH, stronger contributions from our classic hits formats at KKLZ and news/talk station KDWN and our country station Coyote represents opportunities for our cluster to garner additional revenue share from the market.

Overall, our mid-size markets including Augusta, Georgia, Fayetteville, North Carolina, Greenville and New Bern North Carolina again deserve acknowledgement, as in each market we're holding our number one position in terms of revenue share.

However, regarding our revenue share in the Fort Myers Naples market remains tops, our rock station WRXK, which was the cluster top biller is taking a disproportionate brand of the market turn and this has hurt us in Q4 and also in fact in Q1 as Caroline mentioned

We do have a whole lot of an underway, and are looking at the music as well as the mix of talk to music to determine both the most immediate and the longest lasting correction. Lastly I want to remind everyone that we believe our interactive success in '07 is just the beginning of what we are capable of in terms of developing this new revenue stream.

We fully believe we will achieve our goal of having interactive represent 5% of the revenue and we hope this proves to be an initial conservative threshold. I'd like to thank our managers, sales people, on-air talent, programmers, promotion staffs and everyone throughout the organization for stepping up to the challenge and ensuring that we capitalize on the strong positions we built in many outstanding radio markets.

This team understands and appreciates the entertainment and marketing value of this medium and is working on our shareholders behalf to continue to distinguish our self from the rest of the industry. Operator with that I would like to open the floor to Q&A.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question is coming from Tracy Young with Bear Sterns.

Tracy Young - Bear Stearns

Hi, I have actually got two questions. The first is, are you hearing from advertisers, a puzzled reaction to sell Bill Parcells as General Manager of the Dolphins? And also your CapEx guidance seems to be a little bit higher than historical. Could you give us some guidance on that?

George Beasley

As far as what we've heard about Bill Parcells, that's only positive for the Dolphins. He has been a great coach in the past and has had winning teams and we certainly believe that he's is going to help us out with advertisers or the Dolphins. And quite frankly even though Dolphins had a terrible year last year, advertisers still loved them. So it's only going to help us.

Caroline Beasley

And in terms of CapEx guidance, it is higher than what we said last year. We do have two big projects included in this, one over in Miami and one in Las Vegas, and that is in addition to our HD conversion. So those two markets Miami and Vegas will make up the difference.

Tracy Young - Bear Stearns

Okay, thanks.

Operator

(Operator Instructions) Our next question is coming from Lee Westerfield from BMO Capital.

Lee Westerfield - BMO Capital

Thanks folks, good morning.

Bruce Beasley

Hi, Lee.

Caroline Beasley

Hey.

Lee Westerfield - BMO Capital

Two questions if I may. First, I think you said Philadelphia might be flat for this year, which I wondered if you can elaborate on a bit in terms of how that trend will develop. Secondly, Caroline, for the audience at large, do you mind just walking trough your debt structure at this point, your leverage and what covenant terms and so forth may come up in the near and distant future?

Caroline Beasley

In terms of Philadelphia, the guidance that I gave for first quarter was flat. While January proved to be a very good month for Philadelphia, we are seeing slowness in February and March. Now what we’ve been told by your National Rep firm, Philadelphia is one of two markets that we have that are actually pacing up in National. So for the month of January the increases that we saw were largely attributable to National. We're hoping this pans out. Therefore we are projecting local to a bit soft. The market itself was down in the month of January 10%, so the Philadelphia market locally is down and is bringing down the market, national is pacing higher. So, we're just tying to be conservative here and we're projecting a flat quarter for Philadelphia. Certainly for the year, we expect growth from that market, but for the quarters, we're expecting flat.

Lee Westerfield - BMO Capital

Thank you for clarifying. I misspoke when I said full year.

Caroline Beasley

Okay, and then in terms of our debt structure, I have a revolver and a term. Right now the covenant calculation is 6.25 times through the end of the year, and for March 31st 2009 then the leverage calculation or the average covenant will go down to 5.75 times.

There are no required principle payments. However, we are making principle payments on a monthly basis to our revolvers.

Lee Westerfield - BMO Capital

Great, thank you very much.

Caroline Beasley

You're welcome.

Operator

Thank you. (Operator Instructions) Our next question is a follow-up from Tracy Young with Bear Stearns.

Victor Miller - Bear Stearns

Actually it's Victor Miller standing in for Tracy on the second question. Can you talk a little bit about couple of the ad categories specifically, one thing I'm curious about in the first quarter and fourth quarter is the impact of TV tuning dollars from maybe the Writers strike and what impact that might have had in February for example? Secondly, can you give us any sense of any real estate home improvement oriented categories especially in your Florida and Las Vegas market, and then generally, how you are seeing auto retail and Telco, because I heard there is quite a lot of mixed signals across the country in those categories. Thanks.

Caroline Beasley

Victor what I can do is address the impact of TV in fourth quarter. I do not have the numbers available for first quarter. Someone actually asked me this question earlier; revenues were down in that particular category, 12% in the fourth quarter. So we are definitely seeing an impact of the Writers strike. I would expect that they would still continue to be down and first quarter.

Victor Miller - Bear Stearns

What percentage of that is that 5%, 6%, 7% what kind of --

Caroline Beasley

For the fourth quarter it is 5.5%.

Victor Miller - Bear Stearns

Of your revenue?

Caroline Beasley

Yes.

Victor Miller - Bear Stearns

Okay.

Caroline Beasley

In terms of real estate for the quarter obviously we saw a slight decline in real estate for the quarter and that is decline in advertising is coming from Fort Myers and also Vegas, as well as some of the other markets; Miami and Acosta. Interesting enough, Philadelphia was up in real estate. But overall there was a decline and in terms of the percentage of revenue, real estate is 2.4% or about 2.4%.

Victor Miller - Bear Stearns

And on auto retail, Telco, and then I have a follow up for -- one other follow up, thanks.

Caroline Beasley

In terms of Auto, auto was down obviously in fourth quarter and it's pacing down in the first quarter as well. It was off about 10% in fourth quarter and right now it looks like it's going to be offset for the same amount in first quarter. Telco was actually up for us and the information that I am getting from national, I guess there has been a reclassification of one of the big advertisers.

Victor Miller - Bear Stearns

AT&T?

Caroline Beasley

You know [national per local]. So it's a little bit grey out there at this point but that kind of worries me.

Victor Miller - Bear Stearns

One other follow–up; Bruce I am just curious; the PPM, and what I was struck by is a leak of some rep data earlier this year and what I found interesting was that the two PPM markets Philadelphia was the only market top 10 that was actually up in national and Houston was only down high single digit relative to the numbers that were out at that point. And what I was struck by is that the two PPM markets actually were doing the best out of the top 10-20 markets. So, is that just coincidence or do you think that the markets adjusted last year as PPM came in and now they are readjusting upward a little bit to the reality of PPM or is there any takeaway at all from that coincidence or a reality?

George Beasley

Victor, I think its coincidence, what Caroline was alluding to earlier. In the top 50 markets Las Vegas and Philadelphia were the only two markets that were up. And so coincidentally Philadelphia is a PPM market. Obviously Las Vegas is not and again we're a strong believer in that medium but I think that’s more coincidental than anything else.

Victor Miller - Bear Stearns

Thanks.

Operator

Thank you. We have a follow up coming from Lee Westerfield.

Lee Westerfield - BMO Capital

I couldn’t resist, but it is a serious question and it’s a far reaching one but, in your HDA broadcasts, are you guys encoding songs if people who happen to have the buy button for I-tunes choose to at this point.

Caroline Beasley

We're not doing that just yet. We're hoping to embrace that technology and the future of that. We are not set up to do that just now.

Lee Westerfield - BMO Capital

Okay, I will wait and watch. Thank you.

Caroline Beasley

Okay, thank you. Alright, thanks to you operator, and thank you everyone for attending today.

Operator

Thank you. This does concludes today's Beasley conference call. You may now disconnect and have a wonderful day.

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Source: Beasley Broadcast Group Q4 2007 Earning Call Transcript
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