Sinclair Inc (SBGI) 2004 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Sinclair Broadcast Group Inc. first-quarter 2004 earnings conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. David Amy, Executive Vice President and Chief Financial Officer. Thank you, Mr. Amy, you may begin.

Thank you, operator. In the room today with me are David Smith, President and CEO, and Lucy Rutishauser, Vice President, Corporate Finance and Treasurer. Before we begin I'd like to make our forward-looking statement disclaimer.

Certain matters discussed on this call may include forward-looking statements regarding, among other things, future operating results. Such statements are subject to a number of risks and uncertainties. Actual results in the future could differ materially and adversely from those described in the forward-looking statement as a result of various important factors as set forth in the Company's most recent reports filed on Forms 10-Q and 10-K filed with the SEC and as included in our first-quarter earnings release which we furnished to the SEC on an 8-K earlier this morning.

The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances. In accordance with FD, this call has been made available to the public along with the webcast of the call available on our website, www.SBGI.net, under the investor information page menu option "conference call". The webcast replay will be available until our next quarterly earnings release. Redistribution of this call is prohibited without the express written consent of the Company.

Included today on the call will be a discussion of non-GAAP metrics, specifically television broadcast cash flow, EBITDA, free cash flow and leverage. These metrics are not meant to replace GAAP measurements but are provided as supplemental detail to assist the public in their analysis and valuation of our company. In accordance with regulation G, a reconciliation of the non-GAAP metrics to the GAAP measures in our financial statements is provided on our website, again www.SBGI.net under the investor information page menu option "reports and filings".

Now let's turn to the financial highlights for the first quarter on a reported basis. Net broadcast revenues for the first quarter were 158.3 million, an increase of 3.8 percent or 5.8 million over first-quarter 2003. This exceeded our prior guidance given on our last earnings call for net broadcast revenues to be up 1 percent to 1.5 percent. The overachievement came from better-than-expected growth in our core business and approximately $1 million more in political revenues than we expected. Excluding political net broadcast, revenues in the quarter were up 2 percent.

Television operating expenses in the first quarter defined as station production and station SG&A expenses before barter were up 7.7 percent or $5.5 million over first quarter last year and that's due primarily to higher costs from our news expansion, higher sales expenses related to increased sales commissions on the revenues, and higher direct mail staffing production cost for the March mailer that we sent out. And we didn't have a mailer in the first quarter last year. Also an increase in general and administrative cost related to a reduction in bad debt expense last year and higher employer fringe (ph) and insurance costs.

Operating income in the quarter was 30.4 million, an increase of 1.3 percent over last year's result of 30 million due to the reasons we've already discussed. Interest expense net of interest income in the subsidiary trust minority interest expense line was down 3.1 million in the quarter due to the redemption of the HYTOPS and the lower cost of this debt (ph). Our diluted loss per share available to common shareholders in the first quarter improved to 3 -- 3 cent diluted loss compared to a 5 cent diluted loss per share in the same period last year. This improvement was due to the lower net interest expense, a gain on our equity investments, and this was offset by a higher income tax provision this year versus a benefit last year.

Television broadcast cash flow in the quarter defined as net broadcast revenues plus barter revenues minus station production expenses, station SG&A, barter expenses and program payments was $55 million or 1.8 percent lower than last year's broadcast cash flow of $56 million. The $1 million decrease was due to higher television operating expenses and program payments which was offset by the high revenues as we’ve discussed.

EBITDA, defined as the BCF less corporate expenses and minus the loss or plus the income from operating divisions was 47.3 million in the quarter or 3.5 percent lower than the $49 million from last year. And the $1.7 million decrease was, again, due primarily to the lower BCF and higher corporate expenses related to our News Central product which we have in our corporate expense line -- plus sales training expenses and some higher salaries.

We generated $1.4 million of free cash flow in the quarter, broadcast cash flow margins in the quarter were 34.8 percent versus 36.7 percent from last year and EBITDA margins in the quarter were 26.8 versus 28.7 percent last year. And so, with that, I'll let Lucy take you through the balance sheet.

Thank you, Dave. Cash on hand at March 31st was $16.4 million, capital expenditures in the quarter were $11.6 million. Debt on the balance sheet at March 31st was approximately 1 billion, 716.3 million. On February 9th we used $25 million of our cash balances to optionally prepay term B loans with the rate of LIBOR plus 225 basis points. This use of cash will save us approximately 900,000 in annual interest savings. This brings the amount of term B loans outstanding to 460.9 million. The full $225 million of the revolving line of credit remains undrawn.

On January 1st our indebtedness covenants stepped down by .5 of a churn at both the operating and the holding company levels. Based on trailing EBITDA, leverage at the operating company at March 31st was 6 times, well within the covenant of 6.5 times. And leverage at the holding company was 6.84 times; also well within its 7.5 times covenant requirement. There was approximately $124 million of borrowing capacity at quarter end.

David Smith will now take you through the first-quarter operating performance and our outlook for the second.

Thank you, Lucy. As discussed earlier, first-quarter revenues came in better than we had initially expected with most of that upside coming in the month of March. On a monthly basis time sales, excluding political, were down 3.1 percent in January primarily due to severe weather in the East where many of our markets are located, up 1.9 percent in February and up 6.6 percent in March. For the quarter local time sales were up 1.6 percent, excluding political, while national was up 2.6 percent.

Categories that showed increases in the quarter were automotive, services, paid programming and schools. Categories that were down were fast food, movies, and soft drinks, all of which we have spoken quite a bit about in the past. Political revenues came in much better than expected at 3.4 million versus our 2.1 million expectation and outpacing both the first-quarter 2000 and 2002 political revenues of 2.8 and 2.3 million respectively. 80 percent of our political revenues came from six states, all of which are considered presidential swing states. Those states were Florida, Ohio, Illinois, California, Maine, and West Virginia.

Revenues from our direct-mail initiatives in the quarter were 5.6 million flat to last year. As Dave mentioned, our sales expenses reflected the cost to produce a mailer in March issue this year while we didn't have that last year. However, because we are increasing the frequency of the program this year from two mailers to seven, with customers buying across multiple issues, the revenues are expected to be more back end loaded into the second half of the year.

All affiliate groups were up on an ex political basis except our ABCs which were down 2. -- or I'm sorry, 5.2 percent, primarily due to not having the Super Bowl this year. Excluding political, our CBS stations were up 12.8 percent, the UPNs were up 4 percent, our FOX stations were up 3.5 percent, NBCs were up 2 and The WB Group was up 1.3. On the News Central front, we expanded the 9 PM news on our FOX affiliates in Nashville and Oklahoma with a half-hour 10 PM news.

Turning to Q2, we are forecasting net broadcast revenues in the second quarter to grow by low single digit percents. Included in that assumption is about 3 million of political ad revenues versus 900,000 in the second quarter last year. Current pacings including political are up 2 percent in April, flat in May, and up 1.6 percent in June. All affiliate groups are pacing up except our WBs which are currently pacing down in part due to movies and soft drink category softness.

As we've talked about, the second half of this year is where we expect to see the revenue growth take off. Our expectation is for the back half of the year to grow by high single digit percents on the strength of political, our direct mail initiatives, and growth in core business. And as you know, that will drive our free cash flow.

I'd like to address one question that we get frequently and that is: what do we do with all the free cash? We are looking at a number of options. One thing we have already done, which Lucy discussed, was to pay down 25 million of our bank debt, saving us about 900,000 in annual interest costs. Another use will be to reinvest some cash flow back into our stations in projects that will provide a significant return to us. This year, we have decided to spend an additional 7 million to install new analog transmitters that will save us close to 1 million per year in maintenance and electric costs. These transmitters are low maintenance, very versatile in that they can be easily swapped out for digital or transferred to other markets.

We also have decided to earmark another 20 million for projects next year that will strengthen our signal coverage, reduce our rent expenses, and allow us to relocate and consolidate our operations in Buffalo where we currently operate out of two remote locations that are approximately 10 miles apart. Even after these investments in our operations we expect to have significant amounts of free cash flow remaining for discretionary uses such as debt repayment, stock buybacks and dividend payments, all of which we are currently evaluating.

Before we take questions, operator, I just want to take a moment to kind of announce to everybody that David Amy is celebrating his 20th year with Sinclair Broadcast. If you can imagine that, 20 years, this Saturday. So we want to thank him for all his years of service here and I must tell you that we are a much better company because of his efforts and integrity throughout the years. So with that, operator, we'll take some questions.

(OPERATOR INSTRUCTIONS) Bishop Cheen of Wachovia.

Good morning and, David Amy, congratulations. If you ever do write the kiss-and-tell book, I'm going to be the first to buy the copy.

Thank you, Bishop. I'm on about chapter 4 right now.

Okay. As usual, you guys have answered most of the questions. On the CAPEX, you talked about the cash basis for CAPEX. Can you refresh us in terms of book versus cap versus cash on your reporting of CAPEX?

You threw us there. You want to know the cash?

Yes. You talked about the cash outlay for CAPEX. Does that imply that you're going to report a higher number or different number for GAAP CAPEX?

It'll be -- the 11.6 that we reported for capital expenditures in the first quarter, that is the GAAP number and the full year CAPEX number that we're estimating is 47 million.

Yes, we're filing our 10-Q later today, Bishop. It's 11,626,000 is the number that you'll see in the Q on our consolidated statements of cash flow.

Lee Westerfield, Harris Nesbitt.

Thanks. For one question, may I get into the CAPEX a little bit further? Lucy, are we talking about $47 million now for CAPEX for this year and does the signal -- a catch-up on facilities upgrades that would be done over the next several years and if so, is there a quantification for how much you might want to improve facilities over the next two to three years versus prior outlooks?

Our prior outlook for this year was 40 million and for those of you that have talked to us on the road over the past few months, we had estimated about 10 million for next year. As David walked us through, we're going to spend an additional 7 this year, so that would bring our CAPEX estimate from 40 up to 47 for this year. And next year, we're going to spend an additional 20 million on the facilities, building out buildings, tower (ph), consolidating the Buffalo location. And so, that would take our estimate next year from about 10 million to about 30 million. And again, those will all be on projects where we will get a return on those investments.

I think that's very important to express the return. Just to give you an idea, one of the transmitters that we're installing in Baltimore here at WNUV, the WB affiliate, to give you an idea of the cost savings, it's about 1.2 million as far as the transmitter itself. And we'll be seeing about $300,000 of annual electric savings. So given that, it nearly pays for itself just in a few years.

Victor Miller, Bear Stearns.

Good morning. You talked about a $5.8 million increase in revenue in first quarter this year versus last year. You talked about 5.6 million being related to direct mail, 3.4 for political and another $600,000 for another factor. So that's about $9.6 million total, suggesting that the core business was down about $3.8 million, and you've talked about the second half of the year relying more heavily on the core business. Could you talk about what your expectations and why you think the core business is going to get so much brighter for the rest of the year given -- first of all, do you agree with what I said?

Victor, two things that are going to drive us in the second half of the year is the political numbers. Again, that's when we see the majority of our political revenues come in. And then also on the direct mail front. We were flat in the first quarter to last year, we'll have the majority of our mailers going out in the second half of the year and so that will drive the business. And as we do more direct mail, the line between the core television business and the direct mail will begin to blur and you really need to look at not so much as what's direct mail and what's TV but all of that being part of our core business number.

Jim Boyle, Wachovia.

Good morning. David, are advertisers placing earlier or longer schedules? Anything that would indicate that there's increased confidence in the economy?

I don't see any particular evidence of that, Jimmy, at this point. I think advertisers continue to do what advertisers do and that is just time the market and take advantage of buying opportunities. I don't see them buying like they did 25 years ago where they come in and buy for an entire year. Those days are over. It's a different business than it was then, completely. So the answer is no. But it's been like that, I mean, it's no shock to us. It's evolved from people buying for long periods of time into people buying very short windows.

Sean Butson, Legg Mason.

Thanks. Congratulations, David. Do you get some sort of a gift from David Smith there for your 20 years?

I don't know. I was so pleasantly surprised that he even mentioned that.

You have to let us know. On the local and national front, I was kind of pleasantly surprised to see national, it seems to be picking up. Do you think that's temporary just the fact that even ex political it's growing faster than local in the first quarter? Do you think that's temporary or do you think that will continue?

If I could predict that I think I'd go to Vegas and put some money on it. There are just no absolutes here, as you know. Our business is evolving and it's evolving like most things do, very slowly. We can't tell you where national is going to be six months from now any more than we can two months from now because they're becoming more and more like local buyers. They step in at the last-minute, place their buys and be as efficient as they can and that's the business anymore. The fact that national might be up and local down, it could flip 90 degrees in two weeks.

Drew Marcus, Deutsche Bank.

Good morning and, David, congratulations on 20 years. The -- two quick questions. Number one, would you expect going out to '06 that we could get back down to that 10 million of normalized CAPEX? And then number two, can you tell us the quantity of mailers that were done in the first quarter and, I guess, will the quantity change for each quarter? I guess just looking forward, do you think you'll ever think about providing something like pages kind of the way newspaper guys give out pages for their inserts -- either pages or quantity of mailers?

Let me just address the second part of that, Drew. We expect, generally speaking, that there will be somewhere between 6 and 7, 7.5, maybe up to 8 million mailers a month scattered across all of our cities. That's pretty much -- that's going to be the norm on a going forward basis. And that assumes it's a once a month transaction. It's entirely possible it will evolve into more than that only by virtue of doing more specialized pieces coupled with television, possibly every two weeks; we just don't know yet. We're still evolving this thing and we continue to like what we see, notwithstanding the fact that it's a very tough business. But the fact of the matter is there's an awful lot of money there and I think I -- I'm fond of saying we've been doing this now for roughly two years and we're still trying to figure out how to do it. But having said that, we're still generating a huge amount of money.

So this in large part requires us to adapt to the market and kind of feel our way into it and deal with the culture issues involved in selling spot versus selling new business coupled possibly to direct mail. So it really, really is a different -- a slightly different model than what we're all accustomed to from just a traditional spot perspective where we more or less just generally take orders. But we still are very excited about what we see and we're starting to see just things on a daily basis that just floor us in terms of some of the hits that we get from marketplaces.

So it's a good space and we're going to be there for the long term. But I can't tell you precisely where it's going to go. I just know it's only going to go up but I can't tell you how fast it's going to go up and how many mailers we're going to be doing two years from now or anything else.

Dave, if I can also just add to that. We did mailers in 34 markets in March and 37 markets in May. And as far as the page counts, what we don't want to do is we don't want people to think of this that we are a direct mail company. We are selling television advertising. The page count isn't the important thing. The important thing is how many new advertisers are we bringing into the television space? And just to throw out a couple of numbers for you to talk about the success of the program, we brought in over 650 new advertisers, never on TV before, with our March mailer and over 800 new advertisers with our May mailer. So those are really the more relevant statistics than page counts.

I think it's important not to get lost on, as Lucy says -- we're not really in the direct-mail business. We're in the business of developing local business. And as an addition to developing local business, one of the spiffs that one gets in that model is they get direct mail, which is a platform that they're comfortable with.

Just for the comp there for -- in March was just under 7 million, about 6.7, 6.8 million pieces that were mailed out. As far as the second part of your question regarding the '05 capital spending, we should be heading definitely in that direction back towards the level of maintenance, whether it's 10 million or 15 million, it's hard to say what that maintenance number might be.

But one thing I do talk about quite a bit is that there's a -- technology is advancing and advancing to the point where we should be looking at improving our operational performance significantly in regards to centralizing the number of station functions or regionalizing certain station functions. And to that degree that would not be classified as your typical maintenance but the return on those would be quite significant. So that's still in the future, the technology is advancing rapidly. So to that end we're looking at and evaluating how best to proceed.

Richard Rosenstein, Goldman Sachs.

Thank you. Two questions. First, in the direct-mail area, you started out by offering it as a means to use some of your unsold inventory or underutilized inventory. Can you give us an update on where you are in that in terms of how much is left to be used? And then at what point -- as you mentioned, the lines are blurring between direct mail and the core business -- would you start to see some of the inventory that you're already selling being utilized for direct-mail type customers? And then I have a separate question as a follow-up. Thanks.

Let me just say generically that all inventory is available and will be sold for the highest price for whomever wants it. Whether that comes by virtue of Ford Motor coming in or a movie guy coming in at the last minute saying, I want to pay 50 percent above the normal rate for that time period because I have to be on the air, we're indifferent to. What we're generally finding is there's a large arbitrage between what direct-mail people pay for advertising and what television people pay. And to some extent, people in the direct-mail business who are very comfortable paying and getting the return they expect and have for 10, 20, 30, 40 years will find television a different medium to be in.

Our inventory in some cases, in some markets, depending on how it's being managed, may be tight; in other cases it's not going to be tight. I don't think we're anywhere near the point yet where our bucket is full, and if it is, if it even approaches that line, then the rates will be raised. So I don't have the sense that we're ever going to be out of inventory. And while, yes, we may have more valuable inventory that's being sold to the traditional advertiser, I would tell you, that line is going to blur over time as these new advertisers mature and become comfortable with what television does for them and their business.

So I think the long-term objective of this is to bring in, in any typical market, 100 or 200 new advertisers into the television realm and by definition that's going to create competition for shelf space. That's a good thing for everybody in the marketplace. It's not going to happen today but it's going to happen over time.

And what that simply means is, it's obvious that -- and that is that as competition heats up for inventory, because there's 100, 200, 300 new advertisers in the bucket, it means rates are going to go up. And all boats will rise as a function of that. So we're simply the initial catalyst to start that boat lifting going on in all of our markets.

I don't want this to be confusing but day parts are not generic in terms of their value. So in a cost per thousand there's quite a range in how, depending on what day part we're selling, it can be as low as 0.3 cents per household up to 5 or 6 cents a household depending on the day part that we're selling. It could be prime versus 3:00 in the morning, that type of characterization. So there is literally a different value per household depending on the day part that you look at.

And in that regard, when direct marketing or direct-mail advertisers come into the space, they're looking at a different pricing model completely but they fall within that range that we have. So they'll fall into day parts that make the most sense from our standpoint. So that taking what Dave said as far as that inventories -- those inventories that are lower cost to us today or lower value to us today in terms of how we sell to a TV-only advertiser has a greater value to a direct-mail advertiser. So you'll see the lower end inventories come up in value.

The thing you have to appreciate is that direct-mail advertisers don't know from 2:00 in the morning in the household or 10:00 at night in the household or 4:00 in the afternoon at the household. Time periods and values of shows are irrelevant to them. The only thing they understand and want to get is into the household. And obviously they get that by virtue of television. And 10,000 people at 10:00 in the morning is fundamentally, from their view, no different than 10,000 people at midnight. The fact of the matter is, it isn't any different. A household is a household is a household. Next question, operator.

Bill Meyers, Lehman Brothers.

I guess sticking with the direct-mail theme. What is your direct-mail assumption embedded in your low single digit second-quarter guidance? And do you still see this potential as being about $80 million or 1 percent of your overall market share by 2006?

Bill, we have not given anybody any specific guidance in terms of what the number is going to be because it's so new for us and so problematic to calculate. But what I would tell you is that it's not uncommon for us to see and to have seen thus far marketplaces where we might do 1 percent or plus -- above 1 percent of the marketplace in what we believe to be the direct-mail number. I think it's clear, and we've talked about this on the roadshows from time to time, about how much money exists in the direct-mail medium versus the spot medium. And it's anywhere from 3 to 4, 4.5 times above what spot is.

So you can see very quickly when you start extrapolating the numbers that it really begs a larger fundamental question. And that is, if the direct-mail space per se is hypothetically four times as big as spot, why would anybody waste time in spot? And the answer to that is, because that's what we've done for 50 years and we'll keep doing that. But in the grander scheme of things, in a perfect world, if one could snap a finger or turn a light bulb off or turn it on, you would jump immediately to the larger pie because it's an easier pie to play in literally because it doesn't involve the complexities of demographics and time periods and TV shows and things of that nature. It's purely a household-driven enterprise.

So I think -- in kind of a roundabout way, I'm not necessarily directly answering your question other than to say that the direct-mail marketplace will, at some point in the future, be very competitive in terms of its size with what we do now in the context of spot. The only issue is what day because clearly the money is sitting there waiting to be exploited.

Ken Silver (ph), CRT Capital.

You mentioned higher news costs related to the central news operation in your release. Are these costs -- are these operations paying for themselves or are they still below breakeven?

Well, we've been doing this now for about a year and a half. Our infrastructure costs are pretty much -- I think we're pretty much near the end of it with few exceptions. I think probably the last infrastructure piece that we have to put in place is to effectively tie all newsrooms via computer to one centralized location to get the, as David talked about, to get the effective scale and use of the technologies out there.

Once that's in place, my sense is in the next year, year and a half we'll start to get the benefit of that scale. Whether or not we can sit down -- I certainly haven't done this but I'm sure we have the data someplace if we wanted to put it together -- whether or not the consolidated news operation that exists out of downstairs to this date has paid for itself, my gut is that it's probably well beyond that only by virtue of the fact that we're now launching newscasts in marketplaces. Just as an example, I think we talked about this. We launched a newscast recently in Nashville at 10:00, we already do a 9:00 newscast, we're now doing a 10:00 newscast. And that newscast is, by any measure, a huge success out of the box. The long-term benefit that we've talked about in that regard is is that I won't be buying television shows from syndicators for that time period ever again.

So news is a long-term business, it's not a short-term play. It will make and does make a huge amount of money for us and it is a relatively fixed cost business, unlike the Hollywood business. So we still believe fundamentally that it's the -- really the right long-term thing to do and it is a huge overall profit center for us, notwithstanding what we're doing on a centralized basis, it's a huge profit center for us and we're simply going to expand it and milk it.

Just to follow up a little bit with that. It's kind of like a bit of a "J" curve in terms of the news where initially we have a drop-off in ratings, because normally we're taking a popular syndicated repeat type of show off the other air, whether it's a Seinfeld or what have you, and replacing it with an hour of news. So initially you'd see a drop-off in the ratings. But our modeling and our view is that over a few years to really pay for itself with the infrastructure that we have in place, the kind of ratings that we need to produce to more than make up for the losses in the syndicated show and the savings that we see in the syndicated product going forward is minor.

So what I'm saying is the ratings that we need to generate in that news program are fractions of what you would normally consider as necessary to have a profitable news operations in these markets because of the technology that we have in place. And as Dave states, the long-term effect of news is significant. You don't start out with a big number in news like a syndicated show. A syndicated show you put on the air with a high number that degrades over time, whereas news you start off with a low number that grows over time. That has an inverse type of relationship in terms of viewership.

So we put all these news operations on over the last 12 months and they're in their infancy. And the ratings will be growing and -- significantly over the next year or two. That will more than make up for the costs that we're incurring today.

I'm very confident that in the next 18 to 24 months we're going to be able to report to you, here's how much money we generate in news and here's what it costs. That will be all-inclusive as a function of News Central, impact on day-to-day operations as well as technology, efficiencies as well as launching new newscasts off of already in-place platforms. Next question, operator.

Jim Boyle, Wachovia.

Good morning again. You mentioned the pacings for May were flat, is that just a normal blip or weakness or is it caused by something else?

Jim, one of the things you're going to have in May, and we've talked quite a bit about this, is that the one thing that's going to drag May down is the soft drinks and movies categories which we have not lapped. We'll lap those as we get into the end of the quarter. So that'll be one piece. And again, that's from a pacings standpoint where they are today not necessarily where the month may finish.

Paul Sweeney, Credit Suisse First Boston.

Thanks very much, good morning. I guess in honor of David's anniversary I need to throw a CFO question in there. So David, if you could just talk a little bit about the expense growth in the first quarter and your second-quarter guidance and I guess your full-year guidance in that 6 to 8 percent range, can you give us just a sense how much of that is core station growth versus direct mail or News Central? Can you break that out, do you break that out? And to the extent that the direct-mail and News Central expenses, you do think about them as incremental, when do you expect those to moderate and get down to an expense level which has been more in the Company’s norm? Thanks.

Let me just stress one thing for everybody's benefit because it seems to be somewhat confusing. When people refer to core business, you have to think in terms of our core business is built around selling spots every day in the marketplace -- everything we do is a core business. The fact that we might be coupling a direct-mail piece to core business in no way makes it anything other than what it is, core business. Just appreciate that as we go forward. We're in the business of selling new clients and old clients spot inventory on a daily basis. It’s advantaged by virtue of the fact that we can couple direct mail to it in many cases and move people from one space into another. We are not per se in the direct-mail business; we are in the spot business.

Thanks, Paul. As far as the costs that are in there, we talked, I guess the last quarter, maybe even the quarter before about the effect of the investments that we're making in the core business, as Dave says, and that includes the buildout of direct mail. So we're not only incurring the cost of the mailings, we're also incurring the additional cost of the staffing. We're adding salespeople in just about every single market -- sales management and every market -- sales training is a very important aspect of this process.

Just to give you some hard number here as far as first-quarter expenses, relative to the mailer, the mailer itself was just under a couple million dollars of postage and printing and then the staffing that we have built in place is another $0.5 million or so on top of that. So there's over $2 million of investment just in our, as you would say, our core business. That's just one mailer.

So as we go into the second half of the year, those costs will be on a per mailer basis, as we mentioned earlier, when we’re going from two mailers last year to seven mailers this year. So you'll see those costs in our projections and it's part of our operation as we go forward.

Victor Miller, Bear Stearns.

Yes, just on the expense side again, David. So roughly like 2.25 million or so is related to a direct-mail increase in expenses, that would get you your 60 percent gross margin that you like that you talked about. Could you also talk about what impact the new news have had on the expense base so we can get a sense of what the core expenses look like for the station? Thanks.

As far as the news, the figure, just under $10 million last year to $11.4, $11.5 million this year. That's nearly 1.7 million in additional news expenses that we're incurring in the first quarter. Are there any more questions?

Sir, at this time I would like to turn the floor back over for any additional or closing comments.

Thank you all. We appreciate you taking the time to tune in. If we missed anybody online here, feel free to give us a buzz and otherwise we'll see you at the end of the next quarter. Thank you.

Thank you.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day.