Gray Media, Inc. (GTN) Q3 2013 Earnings Report, Transcript and Summary

Good day, and welcome to the Gray Television's Third Quarter 2013 Earnings Release Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Hilton Howell, President and Chief Executive Officer. Please go ahead, sir.

Thank you so much, Aaron, and good morning, and welcome, everyone. As usual, I will be making a few opening remarks followed by Jim Ryan, our Senior Vice President and our Chief Financial Officer. And then he will be followed by Kevin Latek, our Senior Vice President of Business Affairs. And then also as usual we'll be taking questions at the conclusion of our comments. It has been a busy and very productive quarter. Since our last earnings call, we completed and fully implemented our new management structure throughout the company. We designed and launched a new logo in corporate identity that is designed to focus on the Gray win as a brand for our broader company to add to the local brand in the communities, as is appropriate for 21st century company looking forward to its future as a television digital and mobile media provider. We launched a new corporate website with fully responsive capacities like all of our station websites that is now up and operating. It has significant investor information and access to download our local mobile applications with RoF-based and android-based. I encourage you to stop by gray.tv and take a look. I think, you'll be impressed. We completed our partnership with Excalibur Broadcasting and together with Excalibur, we closed on the acquisition of KJCT and Grand Junction, Colorado. With affiliations with ABC, CW and the Telemundo Networks. We sold recently $375 million of add-on bonds to our existing bond structure at 102 yielding 6.98% and paid down our senior bank facility with the proceeds. This past Monday, we announced a definitive agreement to acquire #1 stations in 3 entirely new markets for Gray. Our acquisition of Yellowstone Television brings us the #1 station in Cheyenne, Wyoming, KJWN affiliate with the CBS and the CW Networks…

Thank you, Hilton, good morning, everyone. As Hilton mentioned, total revenues was down because of the natural political cycle. But we're very pleased in the quarter that our local revenue was up 4%. Our national was down as expected going against very tough Olympic comps last year, if you recall. We had $4 million of local and national in the Olympics and an additional $1 million of political. If you adjust for the Olympic effect in 2012, we think our combined local and national, after giving effect to the Olympics to last year, would be up year-over-year about 6% on core x Olympics. Internet was up slightly in the quarter. Our retrans track is expected. Our Political, obviously, off-year is only $1.4 million. Our auto was up about 4.5% representing 26% of our total and has been trending well all year. Other categories that were up were in legal, home improvement, communications, entertainment, furniture, restaurant. The only categories that we had down during the quarter were medical, finance, supermarkets and department discount stores were down slightly. Our expenses were up only 3%, basically reflecting a routine compensation cost and are increasing reverse comp that we've talked about before. We are very pleased with the broadcast cash flow for the quarter on a '13 to '11. So it's an off-year to an off-year comparison, we're up 27% in broadcast cash flow and we are very pleased with that. We also had solid results for our year-to-date 9 months as well. Local was up about 4%, national was even, again going against some tough political comps, combined local and national for the 9 months is up 3, our auto for the year, 9 months to date is up a very healthy 8%, and essentially the same categories of the 9 months basis…

Thank you, Jim, and thank you, Hilton, earlier. I'm happy to follow Jim's comments especially when he tells us that our cash flow is up 27% over 2011. So it's a great lead in and I hope that all those footsteps with more good news. Last night, Bob Smith, the Senior Vice President for Midwest and West. Jason, I think, who's our Senior Vice President for media technology and myself returned from a few days out in Wyoming and Laredo we rollout on Sunday and then spend the next several days visiting on newer stations with Yellowstone. So I thought, I would just spend a quick moment talking about these stations. As you saw in the press release, each of these stations is the highest rank television stations in its markets according to be BIA revenue data and while that was one thing that attracted us to these stations, the most attractive feature of these stations was that we felt from what we could -- what we knew of these stations that they had, the commitment to local news and community involvement that distinguishes Gray Television. We believe from what we could tell before we acquired the stations, that they were able to exceed in the local markets without the resources that our Gray stations have. And we figured that a combination of those stations with a Gray workflow, Gray resources, Gray technology and the other indicators of our company and leaders within our company would allow these stations to really excel. So just briefly, let me tell folks because I have gotten a lot of questions about the transaction. So this transaction with Yellowstone literally began with a phone call on a Thursday evening and over the next literally several days, we were able to start and complete negotiation…

Operator, we'll open up for questions.

[Operator Instructions] And we'll go to Marci Ryvicker of Wells Fargo.

Eric for Marcy. So we've seen you make a nice tuck-in acquisition with Yellowstone and also launching ABC station. Does that sort of sum up the M&A strategy going forward? A lot of singles and doubles. Or do you think you can make a more sizable acquisition? Are there any larger groups that interest you?

This is Hilton. I think candidly, Eric, the answer is yes. There's nothing that we have that we're ready to talk about. But we are looking at larger transactions and we're also looking at smaller transactions and tuck-in acquisitions that would -- our markets and would add into our portfolio. Stations similar to what the Yellowstone stations are there.

Okay. And also, you have quite a bit of your retrans footprint coming up for negotiation over the next year or so. Does the strategy change or you think you can do bigger deals once you mark your retrans rates up to market?

Well, I think the answer, is yes. And I actually think, I'd like to take a moment to kind of brought in Kevin Latek, because we finished without going off the air and got very successful terms with DISH and made that announcement. We had very little thoughts and we hope that we can follow-up. We have one more large provider this year and then everything else with our current portfolio comes up at the end of 2014. And we're hoping that we end at similar productive and positive negotiations so that, they get what they need and we get what we need. And I think, that does help us a great deal. I think, regardless of whatever we have, we're picking up repricing on over 2 million subscribers in the fourth quarter. And then everyone else will reprice by the end of next year. And then we anticipate through 2014 that we're going to have an extremely strong political year. That will give us a great deal of added cash flow. One of the things that we're very pleased about is that Gray is, today, a significant contributor of free cash flow during the political years and in nonpolitical years. And one of the things that we like about this Yellowstone transaction, about the transaction with Grand Junction, is that we are able to acquire all of it without tapping any financial resources. It all came from cash on hand and cash, candidly, that came into the course of the year. And so those stations and the assets and the cash flow that they represent, are going to be able to allow us to continue to delever and continue to have operations to expand our footprint at the same time.

Great. I just have one more question. This maybe more for Jim. How is Q4 core pacing x political? And can you talk to the monthly pacing throughout Q3 and into November?

Q4 x political currently is pacing up about 10%. So we're pleased with the trend there. And, obviously, October, if you look at it sequentially during the quarter, October is up very significantly because of the political displacement. But November and December are -- they're currently pacing at healthy mid to mid-single or better digits as well. So the trend for the quarter looks good. Third quarter trend line was slower, first part of the quarter, I think, September picked up. And, again, we're liking the initial trends we're seeing for fourth quarter.

Eric, let me follow-up on one other things that I just like to mention with regards to these acquisitions because we kind of glossed over it. But within the Gray management structure, we're really excited about picking up these 2 Telemundo affiliations in Grand Junction and then in Laredo. Obviously, the television viewing population in Laredo is very heavily Hispanic. And the Telemundo there has a -- we think a tremendous amount of upside that has not been a pushed as well as perhaps it could be. And we're very excited to be part of that network now because these will be our first 2 stations. So hopefully that won't be our last.

[Operator Instructions] And it appears there are no further questions at this time.

All right. Well, thank all of you, for joining us on our conference call today and please feel free to reach out to us at any time if you have questions. We'll answer what we can. I hope that means, that we covered a great deal already with you guys and you don't need to have questions to answer, we'll have answered. But if not, let us know. Thank you for attending and thank you so much for your support and interest in our company.

This does conclude today's conference. We thank you for your participation.