Gray Media Inc (GTN) 2010 Q1 法說會逐字稿

Good day, everyone. Welcome to the Gray Television first quarter 2010 earnings release conference call. Today's call is being recorded. For opening remarks and introductions, I would like to turn the call over to Mr. Hilton Howell, CEO and Vice-Chairman. Please go ahead, sir.

Thank you, operator. Good morning, everybody, and welcome to Gray Television's first quartering 2010 conference call. I will begin with a brief overview of the highlights of the quarter and our activities year to date, and then Bob Prather, our President and Chief Operating Officer will update you on our operations, and Jim Ryan, our Chief Financial Officer will review our financial results. We will also have a question and answer session right after the completion of our brief remarks. I'm happy to report that it has been a very busy and productive quarter and year-to-date.

Last quarter, I said that it was beginning to be fun to be a broadcaster again, and I'm happy to repeat that this quarter has been the same. Operationally, our net revenues have increased to $70.5 million from $61.4 million from the quarter previously, and an approximate 15% increase, which has really been driven by increases in each and every of our advertising categories. We've seen some of our competition that have had bigger percentage increases during the quarter, but we feel that our operations are doing very well and are on plan, and that in terms of comparisons from quarter-to-quarter, we had sort of a smaller drop in the previous year than perhaps some of our other competitors have, but we're very pleased with the results so far in this quarter, and the uniform really improvement we're seeing in the advertising environment. Many of you, if not most of you, may have met with or been in a meeting with Bob and Jim, because we've completed a lot of transactions that I'd like to summarize this quarter and then year-to-date. As I'm sure all of you know, on March 31st at the end of our quarter, we amended our senior credit facility, which in and of itself gave us a great deal more flexibility, but 12 days ago on April 29th we issued $365 million of second lien notes due in 2015.

We used the majority of the funds to reduce our senior credit facility that we just amended at the end of March. Also on the 29th, we repurchased $60.7 million of our series D base amount preferred stock and $14.9 million in accrued dividends thereon. At the same time, we issued approximately 8.5 million new common shares. And all of these transactions taken together we feel have helped to tremendously improve the balance sheet and has moved us substantially toward our stated goal of deleveraging Gray Television in the immediate presence and for the next several years. With that let me turn it over to Bob Prather.

Thank you very much. Welcome, everybody. The television business is definitely looking better. I think everybody in the industry can quote Mark Twain, that reports of our death are greatly exaggerated. I think a year ago everybody was predicting gloom and doom for TV, and we've definitely come back strong. As Hilton mentioned, we did have a good quarter. We did get our debt refinancing done, which I'm very proud of. I think he we hit it just at the right time. We probably have a rougher time doing it today than we did a couple weeks ago, but I'm glad we got it done. One other thing he mentioned that's interesting, regarding our comparison to our peer group, last year first quarter we were down 13.6%.

These are the public companies that reported during that quarter. I won't give you their names, but percentages down 23.6%, 27%, 18.9%, 19.8%, 20%, 19.1%, 22.9%, 31%, 20.5%, 18.4%, and the television bureau survey of 600 stations was down 27.9% first quarter of last year. So I think once again this validates our strategy of buying university town and state capital's as many TV stations as we can because we think these markets fared better in this rough economy than the last couple years, and I think they will continue to grow and prosper in the future as the economy gets a lot better. So I think we're in real good shape there. Everybody's asking about young broadcasting. The judge in the Young Broadcasting bankruptcy ruled in favor of the first lien banks. We hope the confirmation will be sometime in the next 15 to 25 days. At that point we will be able to actively be involved in the managing of the Young properties again, and we think we've got a really strong future ahead of us with the Young stations. They've been performing better.

We think there's still a lot of upside to go in the Young markets they're in. We did do a deal with DirecTV for retran. We signed a five-year deal that we're very proud of that we think will be very good for us over the next five years. Considerably higher rate than they were paying in the past, so we feel very good about that. Then the main thing, I think, we feel the best about is just in general advertising is up. It's up across the board. There's basically only three categories that were down of our major categories. One of those is kind of unique to us, was TELCO, because we had a lot of AllTell markets, AllTell was bought by Verizon last year, and they cut off all advertising in those markets till they get those AllTell market assimilated. So that was a big blow for us last year, going into this year. Restaurants are still down, and furniture and appliances, electronics are still down. Virtually all the other major categories are up. Mostly a lot of double-digit, auto is up 43% for us, which we feel very good about, and we think it will continue, but we feel very good about the year. The political climate continues to look very strong.

I think both Republican and Democrats are raising record amounts of money, and there's some major fights going on out there in battleground states. There's 16 Senate races in our states that we have TV stations with six open seats, and I think 15 governors races with 10 open seats. So there's plenty of political money being spent. We're looking for, potentially, for a record year there. I think this year will turn out to be a good year. Our primary goal, we hope to pay down a good bit of our debt by the end of the year based on having a strong year. At this point I'll turn it over to Jim Ryan our Chief Financial Officer and let Jim go into more detailed numbers. Jim?

Thanks, Bob. Good morning, everybody. I'm going to keep my comments relatively brief, because I think things are laid out pretty well in the release we've already published as well as the 10-Q, if it isn't filed yet, it will be filed a little later today. As Bob said, we're very pleased with where the quarter came out. Of course we talked about this a little bit in our call that was about a month ago discussing fourth quarter. Overall, the numbers came in just a little bit better than we had anticipated, and we were pleased with that. Locals up 11%, excluding political.

National's up 8%. As we commented, the quarter build from mid-February through the end of March improved steadily, and again we were pleased to see that. Bob already covered pretty much the categories being up, and the couple that were down. Olympic revenue for the quarter was about $2.8 million. Super Bowl revenue was about $860,000. We were pleased with where we came out with both of those. I had asked what the relative split would be locally and nationally on those numbers, and we don't have exact figures for that, but by and large I'd say the proportional local and national is pretty much the same as our normal split between local and national in those two categories. One thing to note, I think, that is a very encouraging sign is that both our broadcast cash flow and operating cash flow, certainly we expected it, and it is up very, very significantly over first quarter 2009, but we're also pleased to say that it's up over first quarter 2008, and we think that's a good sign.

Our BCF is up about 6% over 2008 levels, and actually our operating cash flow is up closer to 10%. So again, we're pleased to see that. Guidance for second quarter is again, very solid. We're very pleased with what we're seeing so far for second quarter. Our expectations for the year is that the year would be building as we went along. Bob already commented that our downs last year may not be quite as much as others, so our percentage ups might not look quite as high either, but it will be a relative comparison all year long. In second quarter, we're currently basically right on top of plan, and we're pleased to see that. Of course we were ahead of plan, as we commented before. In first quarter, on a six-month basis, we're running about $4 million up in revenue from where we actually anticipated we'd be for the year. So again, we're pleased to see that, and pleased with where we're seeing second quarter develop. Turning briefly to the balance sheet, obviously, again, we're very pleased with the refinancing transactions.

The total debt number at 3/31 was 814. Our leverage on our senior facility was at 843, which is a trailing a quarter basis, and of course, with the amendment to the senior facility we now have ample covenant cushion out through our maturity dates in 2014. The programming payments for the quarter were $3.9 million, amortization was basically the same. We had really no cash taxes in the quarter and would only expect approximately $100,000 in cash taxes for the year. So we're in very good shape for a pre cash flow position as the year progresses, and especially as the political comes in heavy in the back end of the year, be in a good position to paying down debt from free cash flow. CapEX for the quarter was $2.9 million, and still think $15 million for the year is a reasonable number for us. At this point I'll turn it back to Bob.

Thank you. Operator, I'd like to open it up for questions now, please.

Certainly. (Operator Instructions). We'll hear first from Larry Schumacher with Oppenheimer.

Hi, Bob.

Larry, how you doing?

I'm doing good. Congratulations on the seemingly turnaround that's happening.

Thank you. Feeling better.

What year and amount was the highest EBITDA the company has shown and how close will the Company be to that?

In 2004 we had right at $132 million at cash flow, our record political year. $53 million in political that year. I can't give any definitive numbers for the year, but, I think some estimates out there from some of the other people that cover us, in the 1-teens, 120 level. Depending on the political, it could go above that, political could be $50 million. I think we budgeted $43. We're looking for a strong political year based on the way some of the races are shaping up in a lot of our key markets.

Great.

So all-time record is right at 132.

Terrific. Good luck. Thank you.

Thanks, Larry.

Our next question comes from Marci Ryvicker with Wells Fargo.

Thanks. It's Marci Ryvicker.

Hey, Marci.

Going into Q2 guidance, with local and national both up 6%, it definitely looks like a slow-down from the first quarter of 11% for local and 8% for national, both excluding political, but your peers all seem to be at the same level in the core business or accelerating. Is this just comp related, or is there something else?.

Jim, you want to take that?

Again, Marci, I think we feel very good about what we're seeing for second quarter. We're right on our plan. It's a little difficult to comment on what other people are seeing. There may be a little bit of mix in the market sizes as well. Traditionally, in prior recoveries, larger markets tend to come back a little bit quicker and a little bit stronger, than the mid to smaller size, and people with exposure to that may be seeing that a little bit more in advance than we are, but that would be, in my mind, something that's very normal. So if that's part of it, I'd be very glad to be seeing that and hearing that, because it would bode well for us a little farther down the road.

Okay. And then for re-transmission consent revenue, it looks like there's a slight slow-down from Q1 to Q2 in terms of your guidance. Is this just a timing issue or something else?

It's just a little bit of a timing issue. For the year, you can kind of extrapolate from Q1 to Q2, and we're right around a $18 million a year number for a full year basis.

Does that include DirecTV?

Yes.

Okay. Thank you.

Thanks, Marci.

Our next question comes from Harry Dumont with Knighthead Capital.

Hi there. Thanks for taking the question. Quick one for you, then a more detailed one. It seems like talking to most of the broadcast guys, I think everybody says on the revenue line you hope to get back to 2008 levels, and then on the on the EBITDA line, or BCF line, you generally hope to exceed that. Looks like you're kind of on track to exceed it. I guess the question is, do you think you can get back to the, close to the $330 million of revenue you did in 2008? I think it was $327. That would be my first one, then I have a couple of detailed follow-ups.

Jim, you want to answer that on the revenue for the year?

I think we've said this a couple times, kind of in the big picture, that with a strong political, I think you could be in a zip code of looking like 2008. From a cash flow standpoint, I think you're again looking at a zip code of 2008 levels, which obviously would make us feel pretty good. As far as a run rate on the TV expenses, we're probably tracking at or below the 2006 level with a, call it on a rounded basis about 193.

Okay. Got it. Could you just remind us what the political was in the fourth quarter of 2008? Obviously a big dealt here for this year.

Fourth quarter political 2008 was $27 million and change, which was about 56% of the total.

Right.

We had over 50% in basically every political cycle, and it will vary a little bit, but anywhere from 50% to 60% of the political lands in fourth quarter.

Right. Then one other topic. Could you, you guys provided some guidance or some numbers here in terms of your internet. You said you had $649 million, etc., 230 million paid views for the quarter. Could talk about how many, sort of, unique users came to your websites? And then also I'd love to be able to correlate that to the actual number of viewers that you have for all your stations across the board, just to get a sense of what kind of conversion you're getting on viewers that are actually then following up and going to the websites to catch more news, sports, weather, traffic, etc. And if you have any numbers on sort of engagements, how long do they stay there.

Harry, I don't know if we've got those in front of us, we can get them to you, we can get them out to everybody. That's a good question, that's a reasonable question. We think our websites are doing extremely well, and are very popular with our viewers, but that's a good question to answer. We'll try to get back to you with an answer on that.

I appreciate it, Bob. Thank you so much.

Okay.

(Operator Instructions). We will go next to Bishop Sheehan with Wells Fargo Securities.

Hi, everyone. Thanks for taking the question.

Hi, Bishop.

You've certainly done a lot of work on the balance sheet, we don't need to focus on that. I know you have done this before, earned your way down to a more moderate set of leverage metrics --

We'll do it again.

-- that you feel more comfortable with. It takes a year or two, or whatever.

Right.

But that's because one road to value has seemingly been closed to everybody, and that's M&A, which you've done, too.

yeah.

Can you give us your sense of where we are in the M&A cycle, what you foresee has been a buyer and a seller, and any prospects that you might think going forward where you could adventure way down to lower leverage?

Bishop, I really, until the banks open their checkbooks again, I don't see much M&A happening. I think it's hard to do stock deals these days. Not people want to take stock, even if you've got a good company, you just don't see much of that anymore. The only thing that might push some deals, get going, if people worried about the capital gains rate going back up again, which the Democratic administration is signaling they want to raise dividends and capital gain rates, but I just don't see a merger and acquisitions, kind of like real estate construction, it feeds on financing. When financing is available, a lot of deals get done and when financing's not available, very few deals get done. I think that's the situation we're in right now. Also I think last year valuations got down so low, I don't think anybody that knew the business wanted to sell at the kind of valuations that looked like stations were being valued at.

Now that valuations have moved back up, people are more interested, but I'll be surprised if any major deals get done. There may be some one off deals done later this year, but I think it's still going to take for the banks to actually be loaning money. And also, as you well know, virtually all the major public broadcasters have done a refinancing in the last six months, starting with Sinclair and BELO, and then Lynn next door to us, have all done refinancings in the last 60 days. There again, I think the banks and lenders like our paper a lot, and the rates, they're getting a very good yield, but I just don't see M&A financings, maybe later in the year, but not right now, I think.

Very helpful. Spot-on assessment of everything.

Thanks, Bishop.We'll go next to Matt Swope.

We'll go next to Matt Swope with Breecher & Company.

Hey, guys.

Hi, Matt.

Just building on Bishop's question Bob. Taking a longer view, you guys have a lot of leverage now. You used to have the $925 million term loan, did the preferred to get that down some, now the debt is up pretty high again. Would you consider, one, the M&A's market better, selling a few stations to reduce leverage?

I don't want to say never to anything. We're very happy with all our stations, all our stations are profitable. I think here again we'd have to make sure we got a high enough multiple to justify giving up the cash flow and paying down enough debt where it made sense. But, we've got attractive markets. Like I said, I'd never say never to anything. I think that would obviously be a major decision for our board and senior management, if something like that came along. But in the short-term, I just don't see anything like that happening.

Right, okay. That's helpful. Then on the Young deal, Jim, can you just remind us how the accounting works for this? You're accruing toward the $2.2 million for the full year, but then if you were to achieve any incentive, how does that work and when does that flow into revenue?

The first chance of incentive fees would be at the end of 2010. So it really be a case of getting well down into this year, and most likely actually at the end of the year to know what the final results are, to know what if anything may be there. It's one of those that is certainly out there, certainly a distinct possibility, but, be a ways down the road before the numbers and results are clear enough to know what we could be accruing for our year-end.

Okay. So we wouldn't expect to see anything before probably fourth or maybe third quarter at the earliest?

I would probably say fourth, but just to be conservative, but, if there's something showing up in third it will be good for everybody.

Right, right. And then for what you've already recognized there, has the cash come in for the 2009 component?

We've been paid very promptly according to the terms of the agreement consistently since we started the agreement.

You have not actually been in there yet, is that right?

We have initially we were very active and involved. We had our regional vice presidents in almost daily contact. They listed the stations several times. Then when the competing offer came in, we were advised by the counsel and consultants for the banks to, just wait till that decision was rendered by the judge, which was rendered I guess about three weeks ago. Currently we're waiting for the final confirmation order, and the actual asset exchange, at that point we think we'll be able to get back in there and actively get involved in helping manage the stations.

I see. That makes sense. And then on the CapEx, Jim, you mentioned the 15 million number again. Is that still the max allowed under the credit agreement?

With the springing events tied to the pay-down of the $300 million, there's actually no CapEx limitation going forward. We are subject to both on the senior credit facility we're subject to a first lien leverage maintenance test, which, again, has ample cushion in it, as well as a fixed charge cut with ample cushion, but no flat-out CapEx requirement, although, again, I think right now the $15 million, we view that as a reasonable number for this year.

And thinking a couple years ahead, is that the kind of number we should be using for the next couple years, too?

Yes. I think it's a good number to use for the next couple of years.

That's great. Thanks, guys.

Thank you.

At this time we have no further questions. I'd like to turn things back over to Mr. Bob Prather for closing remarks.

Thank you, operator. I want to thank everybody for joining us today. We appreciate your support very much. Especially we appreciate your support. A lot of you guys have been with us through the rough times in 2008, 2009, now things are picking up, we hope we can all enjoy greener pastures ahead in our business. And it looks like things are going to be good in the future, but thanks again, everybody. As always, you can reach us anytime. We answer our own phone, be glad to answer any other questions, and we'll definitely get back some information more on the internet and get that out to everybody as soon as we can. Thank you, everybody. We look forward to talking to you on our second quarter call. Thank you, operator.

Once again, ladies and gentlemen, that concludes our conference. We appreciate your participation.