Gray Media Inc (GTN.A) 2012 Q4 法說會逐字稿

Good day everyone, and welcome to the Gray Television's fourth quarter and year-end 2012 earnings release conference call. Today's call is being recorded. For opening remarks and introductions, I would like to turn the call over to Hilton Howell. Please go ahead, sir.

Thank you very much, operator. Good morning everyone, and welcome to the fourth quarter and 2012 year-to-date Gray Television earnings call. I will begin with a brief overview of our results, followed by Bob Prather, our President and Chief Operating Officer, who will offer his comments on our results, and then Jim Ryan, our Chief Financial Officer, will follow with additional thoughts on our financial results. Questions will as always be answered at the conclusion of our comments.

As you no doubt saw from this morning's press release, for the both the quarter and year-to-date 2012 Gray reported record total revenue, record broadcast cash flow, and record political revenue. Total revenue for the quarter increased by 50% to $126.6 million from $84.6 million a year ago, an increase of $41.9 million. For the year total revenue increased by 32% to $404.8 million from $307.1 million in 2011, an increase of $97.7 million. Broadcast cash flow less corporate expenses for the quarter was a record $64.5 million, against our previous record of $58.2 million set in the fourth quarter of 2010. For the year broadcast cash flow less corporate expenses was $176.1 million, against a previous record of $135.7 million, also set in the fourth quarter of 2010.

Obviously, political revenue drove this and set records as well. For the fourth quarter 2012 political revenue was $43.4 million against a previous record of $33.1 million in the fourth quarter of 2010. Year-to-date our political revenue was $86 million against 2010's previous record at $57.6 million.

Of our five largest nonpolitical advertising categories for the quarter, automotive increased by 10%, restaurants decreased by 5%, medical decreased by 7%, communications decreased by 7%, and furniture and appliances increased by 10%. For the full year automotive increased by 16%, restaurants decreased by 4%, medical increased by 7%, communications increased by 2%, and furniture and appliances increased by 8%. These record results were coupled with a complete [inaudible-background noise] and improvement in our balance sheet set in the fourth quarter.

We repurchased all of our remaining Series D Preferred Stock, sold $300 million in 7.5% senior notes due in 2020, and tendered for all of our outstanding $365 million 10.5% senior secured lien notes due in 2015, and we repaid all amounts due under our existing senior credit facility, and extended and entered into a new facility. Our weighted average interest rate on our new debt stands at 5.7% which represents an annual interest carry cost of roughly $50 million. With these new facilities in place, we expect to be able to significantly de-lever our balance sheet in the next several years.

In sum we candidly couldn't have been any more happy with the results that we have had in 2012, and look forward to 2013 with a great deal of optimism. I would also like to take this moment to recognize Ray Deaver. He retired from our Board at the end of 2012. He was an important and integral part of our Company and its governance, and he will be sorely miss. Thank you, Ray for your service.

Bob, with that I will turn it over to you.

Thanks, Hilton. Welcome everybody. I think Hilton summed it up pretty good, we had an all-time record year which we are very proud of. It was obviously a very good year for the TV industry in general. 2013 is another, we are off and running, but it is not going to be as robust a year for a lot of reasons. Obviously the political factor is a major factor that is not there. Also we had NBC, we had a record Olympics last year so we have got some pretty tough comps, but our stations are all doing good.

Every station we have is profitable. We are proud of the fact that we still have more number one stations than any group in the country. We want to keep it that way, and all of our stations that aren't number one that are number two. Their mantra every day is let's try to get to number one, sometimes that is not possible because the number one station is also very well-run, and they do a good job in the community, but we certainly try every day and it is a never say never type of attitude.

We got our NBC deal done with our NBC affiliates for last year it is a four year deal ending in 2015. We are all happy with it. I think we are, all of the groups have learned to live with these networks better. We have become a very important customer to all of them now, which I think makes us more important to them, and I think that will be true in the future. We have got our ABC stations coming up at the end of this year, and then CBS coming up at the end of 2014. Our three CBS digital stations we put on the air are all up and running doing very well.

We have got a couple more digital properties in motion right now. We hope to be able to announce soon that will add some more major networks to us, and I think it has been a great strategy for us. We have got 42 digital stations on the air right now. They are profitable, they are growing. I think they give us a lot of local presence that we can use in the future , and we want to continue this thing.

The other thing we are working on very hard is continuing our news dominance and adding to it, just to give you and example, we recently got out bid in a market for Dr. Phil, the competitive station paid more than three times what we were paying for it. We didn't want to go up that high, so we turned around and just read in an hour of news instead of having Dr. Phil there, it will be an hour we control.

We think we can make money with it, we are sure we can and add to our news dominance in that market so those are the kind of things that, our news is what we totally control, we own 100% of it, it is local which everybody in the world wants to be today is local. We have got those markets sewed up if we can continue to do the right job, and we plan to, so we are doing a lot of news research in markets, just to make sure we know what the audience is saying and thinking, not only about our product but about our talent. We are constantly trying to tweak our newscasts to make sure they are better, and it is something that is a daily process for everybody in the Company. Our news reel product continues to grow we are very proud of that.

I mentioned in the past the mobile product of mainly due to the iPad is just exploding. We are averaging about 150 million page views a month, and I think a year ago it was about 31% for mobile devices, it is over 60% now for mobile devices. So this is an area that we are focusing on. I think everybody in the business world has got to focus on mobile, because the mobile platform seems to be where everything is going. Google is paying attention to it, Amazon is paying attention to it, all of the big guys are wanting to be more mobile every day, or be mobile friendly let's put it that way, so we are going to continue to work on it real hard.

This year we are going to spend a lot of time, we are going to keep our expenses flat from last year, we are going to spend a lot of time working on continuing our automation and our efficiency in our news operations, trying to get much more efficient in how we gather news. It is a goal at all of our stations. We continue to improve on this every day. I think it will continue to be a number one priority for us in the year ahead.

I am looking forward to an overall good year. I think it will be better people think it will be depending on the macro economy, which we don't have much control over obviously, but I think in the markets we are in , we are in good markets, we are in very stable markets, and I think we have got a good chance to have another real good year this year. Jim is going to mention one of the things we are concentrating on is paying down some more debt this year, which we plan to do. This is our number one priority overall for the Company, is to continue to improve our balance sheet, and we will definitely be doing that this year and next year.

At this point I will turn it over to Jim Ryan, he can you a little more in detail about the numbers, and then we will open it up for questions. Jim.

Thank you, Bob. Good morning everyone. I think Hilton and Bob have talked a lot already about the operating results. I will spend a couple of minutes talking about the balance sheet a little bit. At the end of 2012 we had $835 million of debt outstanding, $535 million was in the senior facility, and then which prices at L475 with a 100 LIBOR floor, and then $300 million of the 7.5% notes. We were able to pay down voluntarily $20 million from free cash flow in December of 2012, to bring the senior balance down to the $535 million where we closed the year.

Cash on the balance sheet at the end of the year was $11.1 million, as both Bob and Hilton said, all preferred stock can be redeemed earlier in the year. Under our senior credit facility our operating cash flow is defined in the facility with $174.1 million, that is on a trailing eight-quarter average basis, so that brought our leverage covenant on the senior facility our total leverage covenant to 6.08 at the end of the year. On a T12 basis that would equate to a 4.73 leverage total leverage ratio, and if you just looked at the senior debt, it would be at under trailing eight-quarter the senior leverage ratio was 3.86,although there is no covenant on that. The covenant in the senior facility is just on total leverage.

Our total balance sheet is $1.2 billion. We had about 57.5 million shares outstanding. CapEx for the year net of insurance proceeds was $23.7 million,and that offset number reflected the build-out in the latter third of the year of the three new CBS digital stations that Bob referred to.

Total cash taxes for the year was $836,000. We have approximately $250 million of NOLs left to use. I don't foresee us being a significant taxpayer for quite a few more years yet. Next year's cash taxes would be in the same range or lower than the $836,000 in 2012. Programming payments for the year were $11.8 million, and our amortization, program amortization was $11.1 million.

In looking at 2012 our free cash flow, which I would define as our operating cash flow, less cash interest, cash taxes and our CapEx, actually rounds to $95 million. If you think of that on a Cash Flow Per Share basis, 2012 generated free cash flow of $1.65 a share. Thinking ahead over the next couple of years, I think that metric speaks very well for the Company. Certainly based on the full year guidance we have in today's earnings release for 2013, you can see that we expect 2013 to be significantly better from a cash flow perspective than 2011. With our cash interest at only $48 million in 2013, we certainly would be generating a significant amount of free cash flow in the off political year. I would say rough math probably puts you at around $40 million, which would probably primarily be used for debt reduction, and certainly we are well-positioned as we move into the 2014 political cycle as well.

With that, Bob, I will turn it back to you.

Thanks a lot, Jim. Operator, we are ready for questions now, okay.

Certainly. (Operator Instructions). We will take our first question from Aaron Watts, Deutsche Bank.

Morning, guys.

Hey Aaron. How are you?

I am good, thanks. So a few questions from me. I guess first just thinking about moving from the fourth quarter to the first quarter what you are seeing on the categories that are driving your guidance, any big changes from kind of what you talked about and saw in the fourth quarter?

I wouldn't say, Aaron, there are significant changes. Auto has been so far has been very healthy in first quarter, pace for the entire quarter is up over 10%, our auto in the month of January alone was up about 16%, so it is very healthy there. We have seen some slowness or softness in communications. Some of that is from our regional cellular operators like US Cellular, that was expected. That wasn't really surprising. We have seen a little softness from some larger, a couple of larger MSOs as well in some markets. We think that may be more just timing of their ad spend for their own product releases, and their own product placement. So we are not viewing that as a major red flag right now, but have seen some of that in first quarter. Restaurants has also been a little bit slower but not significantly different than what we saw in fourth quarter.

Okay. And then just thinking about rolling through the rest of the year and implicit in your full-year outlook for revenues, it is ramping up from the pace you are seeing in the first quarter. You have got Olympics kind ever going away there, but you have got probably and easier comp towards the end of year because of political pushout in 2012. I mean is there anything else driving kind of better operating performance as you roll through the year after the first quarter?

You are right about the Olympics. We were pleased we did $1.1 million with our 20 CBS channels. That is up 30% overall from the last time CBS had it although actually the additional channels certainly the three extra channels helped that somewhat, so actual same station basis would be up a very healthy 19%, 20%. We are very pleased to see that.

We do have sales initiatives for the year that are in process. Some of them are designed to roll out a little bit farther in the year. You are right, that as we get into especially third and fourth quarter, the core local national comps get easier, because of just the massive amount that political used in the inventory last year. So we think the year builds upon itself. On our internet, we are engaging in site redesigns that will be rolling out this year, which we think will help us be more saleable later in the year. We also are rolling out a mobile app tied to our Mom's site, which is a proprietary site within our overall Gray umbrella. That we think has a lot of sales potential for us later in the year, but it is a case of we have got to get the apps out, deployed and in use before are before we can start ramping up the selling efforts.

Okay. And then last one for me. This is a little bit more big picture, but we have seen a lot of M&A transactions in the space over the last 12 months. Gray hasn't participated in those. When do you think you would be able to participate in those to the extent you wanted to those that have extolled the benefits of increased scale, but I guess when do you think you get your leverage to a point where you could be acquisitive, or do you see yourself as a better asset seller of assets? Thanks.

That is a legitimate question. First of all, we have been very particular about the stations we have bought down through the years. First of all, for us to be looking at stations, it would have to fit our profile of being a number one or very strong number two in a market we liked, in a demographic area we liked, and then I think it would have to be very accretive, and frankly there are not many of those deals running around anywhere, and as I mentioned earlier and we have all mentioned our number one priority is paying down debt, so it would just have to be a very compelling deal. I think there are some things we can do in the do out of the year that might make sense, those kind of things, adding some more digital, especially the top four networks, where we can find areas where they are not being served properly. Those kind of things, but just going out and making deals right now, I think we are better off paying down debt as quick as we can, especially we ought to be able to pay down a decent amount this year, and then pay down a big chunk next year, and like I said, I have had a philosophy from day one, let's buy good stations in good markets, and try to make them better, and that is what we have tried to do for the last 18 years.

That makes sense. Alright. Thanks for taking my questions. I will see you guys in a couple of weeks.

Sure. Okay.

Moving on to Marci Ryvicker from Wells Fargo.

Hi. Good morning.

Hey Marci.

I have a couple of just clarification questions on the guidance. The first for the retransmission consent acceleration from the fourth quarter to the first quarter, is this just annual escalators, or do you have new deals coming up, or did you sign any new deals at the end of 2012?

Marci, it would reflect in part annual escalators that were built into the three year deals we struck that covered 2012, 2013 and 2014. We also to a certain extent as we have added the digital channels, especially those three CBS digital channels last year, there is some additional revenue coming in from those as well. We have one large MSO contract that will be up for renewal October 31 of this year. It covers roughly 1 million subscribers, and that is a very old deal, so we are obviously looking forward to our chance to reprice it to market.

Okay. And for the digital stations do you pay reverse comp to the networks on those?

Yes. And that is reflected in the overall expense numbers both in 2012 and in 2013.

Would those be at similar rates as to your non-digital stations?

It is hard to say, because those happen to be CBS, and we really don't have comparisons yet with the rest of our CBS portfolio. It may be a little bit better due to the nature of the facility. It is just we really don't know. It is hard to compare. I would say it is not terribly dissimilar from FOX, and NBC obviously involved a lot more stations, it would have been a, it was a different negotiation as well.

Okay. And I guess somewhat related, the broadcast expense guidance for all of 2013 of that plus 2% to 2.5% growth, what is the contribution from affiliation agreements? I think it is just NBC. Is that the bulk of the increase in broadcasting?

No. The bulk of the, some of the increase is really driven by benefit, employee benefit costs in healthcare and in pension. There is some increase year-over-year in the aggregate amount of reverse comp we are paying, so it would involve the stations we are already paying CBS for, which is a few channels, our NBC channels, and our FOX channels, that number in aggregate in 2012 was about 5.5 to 5.6, and because of the full year effect of additional channels and pricing escalators and all of those agreements, that number for 2013 is about 7. If you give me a minute, I will look it up.

Okay. In the meantime, the last question maybe it is for Bob. Your full year revenue guidance, do you have any expectation baked in for a pickup in the economy?

That is a good question, Marci. I think I would say our guidance is based on the economy being like it is right now. If it picks up, it will be even better. We try to wait until as late as possible to get our budget set, just to get a better idea what the economy is looking like, and I would say most of our managers are cautiously optimistic. I haven't heard anybody saying woe is me, we are really in for trouble. I just haven't seen that, and these guys are pretty close to the ground out there on what is going on a daily basis in the markets we are in, and I would say most of them or cautiously optimistic, and I think we will hit our numbers if stays like it is, and if it gets better we will be better.

Great. Thank you.

Marci, that 2013 number again stressing that it is in the aggregate, so it involves multiple networks and multiple channels, we are expecting about 7.1 versus a 5.6 for 2012.

Thank you. Very helpful.

Thanks, Marci.

Moving on to your next question from David [Seibert] from Wells Fargo Securities.

Hi. Good morning. Thanks for taking the questions everyone.

Hey. Sure, Dave.

I wanted to dig a little deeper on the core local national guidance for 2013. Just wanted to know what some of the drivers were to have local outperform, is it a heavier autos ad spend? Just trying to get more thoughts there?

First of all, it is partly the math. I mean and also our control of our local markets. Certainly with our space and dominance in many markets, we are really able to push the local a lot harder than the national, so I think that is reflective of the stronger growth rate.

I think our expectations on auto in general are that it is going to be very healthy all year long, so that is certainly helpful. And then national traditionally has been more of a price negotiation, and we are always very sensitive and careful about our pricing on our national, that we don't especially where we are strong number one, or even a very competitive number two, we are always sensitive about not diminishing the overall pricing in the marketplace, so we tend to be a little bit more picky on national business, if the price points look pretty low to us which can obviously skew the national number a little bit as well.

Okay. That is helpful. And then have you guys provided any guidance on CapEx for 2013?

It would be at a minimum of $15 million. There is a possibility it could go somewhat higher. Certainly not go past 20, but at a minimum 15, and a lot of that range would really depend on how strong the year ended up for us, and how well, if it hits our expectations or not. As Bob mentioned earlier, our continuing priority is to complete the HD build-outs where we haven't done them. We have got a few markets left. We have got to start and finish. We also have markets where we need to come back around, they have the basic capability, but we certainly want to augment it.

We are also in 2013 completing a building project for our North Carolina station, which we think is a long-term very, very good move for this station. We were also able to in late 2012 buy a building for our Colorado Springs facility, which was in a, as Bob describes it, it was in a giant quonset hut, and we will be completing the actual equipment build-out of that facility in 2013 as well. So at a minimum $15 million, and if the year goes well, it might be a little bit higher.

Okay. And then 2013 retrans up nicely double digits. I hate to jump ahead a year, but correct me if wrong, you guys have some pretty sizeable renewals in 2014, correct?

I had already mentioned that we have 1 million subs renewing on October 31 of this year. We have another approximately1 million subs that will renew 12/31 of this year, so certainly we have strong expectations for a significant increase in retrans as we get into 2014.

Okay. Fair enough. And then the last one for me on the expense side again, how do you guys see syndicated programming playing out over the next year or two?

Actually that costs has moderated. Our total cost over the last few years has come down a little bit. I think we don't see any big increases there over the next several years. I think by and large we feel we are in pretty good shape on the syndicated front, and as Bob pointed out, in some cases where the pricing is just getting way too rich on certain syndicated product, where it makes sense to us and where we can make money, we are just as happy to put in news.

Perfect. Thanks for the time.

Thank you.

Moving onto your George [Stein from Core Partners]. partners.

Hi, guys. Can you hear me?

Yes. We hear you good.

Just a quick question on the consulting revenue from Young Broadcasting. Just correct me if I am wrong, but there is a possibilities for you guys to see some incentive revenue in the second quarter when they have their audited financials?

Yes. We plan to, yes. And the contract was over in December, but they will definitely pay us an incentive payment as soon as their audit is done, yes.

Yes. I guess if I am thinking about it correctly even if their EBITDA is flat from 2010 to 2012, you are in line for probably more than $3 million?

I wouldn't want to speculate, but I think it will be a nice payment, yes.

Okay. That is all for me. Thank you very much.

Okay.

Next we will take a question from Barry Lucas from Gabelli & Company.

Great. Thanks and good morning, Bob.

Hey Barry.

A couple of quickies. One is a quibble on the expense guidance,somewhat similar to the revenue guidance, you have got a fairly healthy ramp in 1Q for your operating expenses--?

Barry, we always give raises in the first quarter, and that usually is why first quarter usually ramps-up and evens out as the year goes along.

Okay. Thanks for that.

Barry, you also have in Q1 this year we have got the additional digital CBS's operational, that wasn't there Q1 last year. Also, as the year goes on, we paid significant amounts in national sales rep commission last year because of the political revenue, and there is a natural savings on that as we progress through the year, and obviously without the political this year.

Thanks. Thanks for the color. Since you have indicated that priority one for free cash at least in the near-term is paying down debt, and you could be an enlightened observer let's say of the M&A market, how do you see that evolving this year?

I think there will be some more deals coming out this year. You just hear through the deal grapevine that there are several more groups thinking about putting themselves up for, as they say seeking alternatives, corporate alternatives, so I wouldn't be surprised to see some more come on the market. The ones that are out there for sale now, Barrington and Fisher, Comm Corp, I would assume something will happen on all those deals in the not too distant future. So there is definitely an appetite that wasn't there for basically no deals done, 2009, 2010, until late 2011 so it is nice to see that there are people wanting to buy, I think most the deals are strategic buyers now. I think the private equity guys are pretty much on the sideline right now, but we are probably better off as the industry for the strategic buyers to, there is an appetite for consolidation. There is no doubt about that. You are seeing more of that, and I think that will continue.

Great. Thanks ever Bob. One other and it is great to see the mobile traffic, and the downloads and the access that people have either via Smartphones or tablets, but how do you get paid for that?

We are selling sponsorships mainly on mobile. We have done a pretty good job of that. We pretty much cover our costs on the mobile. The problem with mobile for everybody in the business, the old saying about the internet turning dollars into dimes well, mobile turns dimes into pennies, and you have got to be aware that mobile, they are not going to get the kind of dollars that we have gotten in the past, but mobile is growing so fast, that it can make up for that in a lot of ways and we are looking nor new ways.

Apps are becoming more and more important. We are trying to develop more apps all of the time, to make sure we make it easier for people to access the information on the mobile, and I think obviously one of the key elements of mobile, and we are working trying to work on more is weather, and if you are walking around town and got your mobile, your Smartphone with you, and you want to know what the weather is coming up, there is no better place than going to your local station and see what the weather is doing. So I think this is an area where we can work on doing a better job on sponsorships, and making sure that we have got local weather apps that people can get to real easy.

Terrific. Thanks very much, Bob.

Any time, Barry.

(Operator Instructions). Moving on we will take our next question from Robert [Tanner], a private investor.

Okay.

Hello?

How are you doing sir?

I am doing good.

The earnings reports were sensational. They were outstanding. They were very exciting. How do you feel?

We liked them, too.

I am sure you did. I have been a fan of you all for so many years, and I have a great deal of stock in the Company, and I see great things in the future for Gray Television, and it just keeps getting better and better. Do you think today's earnings report will push the stock higher, since this morning there was a considerable drop in the stock as you have noticed, and so what do you think the reason for that is? What would that--?

I am not sure. We have had a real good run up of the stock for the last six months. There may be some people taking some profits now that we have got a new year going. As I said, I think we are going to be in for a died year this year and I think people will recognize that, we are still trading at a very low multiple of free cash flow, probably the lowest in the industry, and I think more investors are realizing that free cash flow is a very important element for any company, but we are very proud of our strong free cash flow, and we think more and more people in the market will recognize it.

I sure hope so, and it is very exciting. I look forward to come over there to Atlanta, and maybe coming in and visiting you.

We would love to see you. We are here all of the time, and we are easy to find, and Jim and I and Hilton we are all here, so you are welcome to come by any time.

Based on the earnings report for last quarter of last year, you do see very promising things in the future for Gray Television, don't you?

Yes, sir, I sure do.

Okay. Alright. So we just need to put it in the drawer for the long run, and in this fiscal year here coming up we can continue to just see escalation in stock prices, don't you think?

I hope so. That is what I have done, I have been buying the stock for a long time, and I think it is a good buy. I think it is a better buy than it has been in a long time, so I think we have got a very strong base of stations and markets, and a very strong management team, especially our GM's out at the stations, and I think we're in it for the long run being a very strong Company.

Okay. Do you think that there can be a possible proverbial bounce from today's report in the stock tomorrow?

I don't know. It is a good question. I'm not a stock market expert, but I would hope, I hope the market recognizes that we have got a real strong Company here so.

Okay. They should and will, but anyway, wonderful news, fantastic Company. Couldn't be better in my opinion.

Well, we appreciate the support, sir. We really do. Thank you very much.

Bless you.

Moving on we will take our next question from Dan Charleston from Global Credit Advisors.

Thanks for taking the question, and congratulations on a strong quarter and strong year. Question about the capital allocation use of free cash. You mentioned debt reduction. Do you think about if a target leverage ratio over the next year or two, and then I guess a follow-up would be, some of your competitors are paying out dividends on their common. Have you thought about that as a potential use of free cash? Thanks.

I think all of our options are on the table. Our Board studies things every quarter when we meet. We look at it, Jim and I keep a very close eye on the financial markets. I think right now, we need to get our debt to cap cash flow ratios a little stronger before we consider moves like that, but we have been a dividend payer in the past, and I don't see why we can't be again in the future, but I think in the short-term it is more important to spend the capital we think we need to spend and pay down debt.

Okay. And target leverage ratio, if at all?

Yes. I would really like to be down in the 4s in an election year, and then low 5s in a non-election year. I feel comfortable with those levels, I think TV groups in general probably feel comfortable with those levels, so I think that is kind of my goal personally, and I think Jim and I have talked about it, and Hilton and I think that is a good goal for us as a Company.

Okay. I appreciate it. Thank you very much.

Sure. Any time.

Next we will move on to Andrew Finkelstein from Barclays.

Okay. Andrew.

Hey Bob, hey Jim. How you doing?

Good. How are you doing?

Okay. A couple of bigger picture questions from me. Bob, I don't know,it seems like there has been some more pressure on the network ratings again. Just wondering if you are seeing any impact on your news ratings, or any of your shoulder programming from that?

Andrew, we haven't, but I do think there is concern about, it seems like a lot of the new programming has not hit for any of the networks there year pretty much. I think we are in great shape because CBS has got so many long-running leading shows on, but all good things come to an end. NBC can tell you that, they were on top for a long time, and when Seinfeld and Cheers and ER and all of those shows aged out, all of a sudden they looked up and said, where is the programming, I think new programming is important for the industry.

As I have said before, though luckily, most of our very strong stations are pretty much independent of the networks fortunes, year in and out our number one stations stay number one no matter what the fortunes of the network may have, and as I mentioned to you earlier, we are trying to put on more news. We want to be less dependent on the networks, and more in total control of our own destiny, so to speak, so I think we will continue to do that. The networks, there will be a new programming guru to come along at one of the networks, and they will all of a sudden have a bunch of new programs that everybody likes, but in the short-term like I said I don't think it affects us. I think if all of the networks ratings were declining year after year, we would be concerned too, but it just looks like everybody had kind of a bad year picking what would work so far, so I know I saw where CBS canceled a show this week that had two episodes, so they have got a lot shorter fuse than they used to have, too.

Right.

So I think you are going to see, it is amazing how much it costs to develop a pilot, and then to run two episodes, somebody lost a chunk of money there so.

Right. And then from the field, are you guys seeing any tougher competition from some of the other options on a local level whether it is local cable, radio or internet?

Yes. That is a great question. I think it is something I preach to our managers all of the time, that their competition is not only the stations in town, but it is Google, it is these, Hulu, it is all of these things, Netflix, that are out there that are taking eyes away from our broadcast, so I think it is very important that we are well aware that there is a lot of competition out there, and we have got to have compelling programming that will keep them coming back to us.

So far no change in what you are seeing at least from last year?

Not really, not really. I haven't seen any kind of drastic change, no.

Okay. And then just thought I would ask just given the change in landscape and some of the M&A activity, where you see the TV business going, do you think the smaller mid-sized markets that you guys are focused on is still the right place to be, or is there any need to have some larger market presence renegotiation?

We certainly hope so. We like the mid-size markets. We think the markets we are in most cases have better growth profiles than the bigger markets. I think in most cases they have got bigger demographics, especially university towns and state capitols, and we like the size markets we are in. We like the markets where we have got maybe four stations instead of 15 like they have got in some of the big markets, and we have done real well in these size markets, and that is where we want to keep our focus.

Okay. And then last one for me. I appreciate it.

Sure.

Just over time, how do you feel about the net retrans number to you guys, once you get through those network affiliation agreements, do you think you can continue to grow retrans on a net basis over time, or are we going to have to see some pull back in that profit line to you guys?

I would certainly hope so. That is one of my main goals. I think it is very important for us, this is great television, that we really pound home to the networks how important we are to them. We out index the networks in every single market we are in, and we bring a lot of viewers to them, not necessarily vice versa. I don't want to lose any of the networks, but we are an important source of eyeballs for them, and I think we need to emphasize that we are more important to them than a poor number three or a number four station in the market that has good a poor news product, and I think it is incumbent upon us to negotiate hard with these guys, and let them know, that hey we think we have got a better product out there than a lot of other people.

Does the spectrum auctions of voluntary, does that improve your position at all, if some of the smaller guys were to go?

Yes. It probably would. I mean I think those auctions are still way up in the air and way down the road. I don't think anybody knows what is going to happen. They may wind up being a lot more lucrative than anybody thinks, or they may be a bust. I think nobody knows right now, and until they actually get a process in place, and get Congress on board and everybody on board on exactly how they are going to do it, it is just a speculation that I am not enough of a prophet to figure that one out, but we are using our spectrum, we have got 42 digital channels on the air that are profitable for us. We saved a little space for live mobile, if we can ever figure out, the industry can figure out how to make that work right, so I think we are a poster child for making the spectrum work like it was supposed to work initially when Congress gave it to TV stations.

Alright. That is great. I appreciate it. Thanks.

Sure. Any time.

Moving on take our next Larry Schumacher from Morgan Stanley.

Hey Bob. How you doing?

Good, Larry. How are you doing?

Not bad. Likes like you guys did real well. I don't know if missed this or not, did you mention what the debt pay down strategy is, how much, how you plan on doing that, when, stuff like that throughout the year, I think it is key to the puzzle?

Yes. Yes. Jim, you want to answer that one?

Thanks guys.

Larry I commented that based on our full year guidance out there, and also even if you kind of look at what we did in 201, and know with our full year guidance that we expect 2013 to be a better operating cash flow year than 2011 by a relatively significant amount, and then $48 million of cash interest plus, even if you went on the high side of the CapEx number, you can easily get to a free cash flow number that is in the $40-plus million range, and you can do your own math, and everybody will probably come up with a slightly different answer based on their assumptions, but certainly that would not be unreasonable right now, and we have already said that free cash flow would be used to reduce debt. Now I would expect that our debt reductions would probably be more back loaded into the latter half to latter third of the year, but as we begin to build up some cash, and we clearly are not going to have a short-term use for it, we will, I wouldn't be surprised from time to time during the year we made some modest reductions as we went along.

Okay. So a number, or do we make our own up?

Well, I am saying that free cash is probably around $40 million, and most of that if not all of it would probably go to debt reduction. So what I think though, is that the reductions happen more in the second half the year than early in the year.

And is any debt rolling, or possibly renegotiated during the year?

Well, we just refinanced completely last fall our senior facility has a soft call for the first year at 101. So I guess you never say never, but it seemed to me you would have to be getting an extremely good reduction in rate to make it worth your while, and all of our maturities are long-term at this point, so there is no compelling need whatsoever to refinance anything. It would only be that the rate reduction was so attractive that it made sense, and never say never, but that would be a high class problem to have.

Okay. Great. Good luck for another good year.

Thanks, Larry, I appreciate it.

And we will take our final question from Alex [Carnelli from SM Investors].

Hi. How are you? Thank you so much for taking my question.

Hi. Sure.

Just for me one clarification on the 2013 revenue guidance. Are the production and other revenues are they embedded in the guidance, or should I think of adding something to reflect that?

That number is relatively small so we historically have not really commented on it in our guidance. It would be the production revenue is probably consistent with 2012. The other portion of that though, we did have about $1.7 million to$1.8 million in 2012 of copyright royalties that were baked, a copyright tribunal cleared out backlog years, from I think it was from 2004 or 2008 or 2009, maybe even longer. So that was kind of a windfall that certainly we wouldn't expect to repeat it, but other than that I would think generally those lines are relatively consistent year to year.

So it would be around $7 million to $8 million worth of pretty good margins, is that correct? It is tower rent call it. Is that correct?

It is tower rentals, it is commercial production, it is a few other odds ands ends. I think it was $8.9 million, call it $9 million in 2012. It would be like I said probably $2 million lower, simply because we won't have that royalty tribunal windfall that came in 2012 that was totally unexpected.

Okay. Thank you so much. I appreciate it.

Sure. Thank you.

And at this time I turn the conference back over to our speakers for any additional or closing remarks.

Thank you, operator. I want to thank everybody for being on our call. We appreciate your support. As I always tell you, you can call us any time, we are here, we answer our own phones. Look forward to a good year this year, and look forward to talking to you at the end of the first quarter. Thank you everybody.

Thank you. That will conclude today's conference. Thank you for your participation.