Investor Relations

<< Back

Third-Quarter Conference Call Remarks
Thursday, October 31, 2013, 11:00 am EDT

by George L. Mahoney, president and chief executive officer; James F. Woodward, vice president, finance and chief financial officer, and Lou Anne J. Nabhan, vice president, corporate communications

Welcome from Lou Anne Nabhan

Thank you and good morning.  Welcome to Media General’s Third-Quarter Conference Call and Webcast.

Earlier today, we announced third-quarter 2013 results.  The press release is on our website.  A transcript of the comments from today’s call will be posted immediately after the call, and a replay will also be available.

Today’s presentation contains forward-looking statements, which are subject to various risks and uncertainties.  They should be understood in the context of the company’s publicly available reports filed with the SEC, including the section on Risk Factors.  Media General’s future performance could differ materially from its current expectations.

Our speakers today are George Mahoney, president and chief executive officer, and Jim Woodward, vice president-finance and chief financial officer.  I’ll now turn the presentation over to George.

Remarks from George Mahoney

Thank you, Lou Anne, and good morning everyone.  Thank you for tuning in to our call. 

I’ll begin with our third-quarter results.

As expected, our total revenue decreased in the quarter as a result of the near absence of last year’s record Political and Olympics revenues. 

Total station revenues this year, less agency commissions, were $78.5 million, compared with $93.8 million last year. 

Local gross time sales were $43.7 million, compared with $47.4 million last year.  National gross time sales this year were $22.9 million, compared with $24.9 million last year. 

Core revenues – that is, Local and National gross time sales combined – were $66.6 million this year, compared with $72.2 million in the year-ago quarter.  Excluding $10.3 of Olympics incremental revenue from last year, the prior-year comparison becomes $61.9 million, and it represents a year-over-year increase of 7.6% – in line with the guidance we provided last quarter. 

Also adjusting for the Olympics, all major advertising categories increased in the third quarter this year. 

Digital revenue continued to grow and increased 21% from last year’s third quarter.  This increase represents an acceleration from the excellent growth we saw in first and second quarters of this year, when our digital revenues increased 18% and 17%, respectively. 

We continue to expand our digital audience.  When comparing the second quarter of this year to the third quarter, we experienced a 21% increase in traffic growth across all platforms. 

Retransmission revenues this year were $13.2 million, compared with $9.4 million last year, a 41% increase, despite having not yet renewed our contract with DISH. 

We’d planned to have the benefit of that new contract on July 1, but we voluntarily extended our agreement until September 30.  Then, September 30 passed without a contract, and our stations have been dark on DISH since that date.  It’s important that we reach an agreement that begins to provide Media General with revenue that’s more commensurate with the audience we deliver – and that’s the point of our negotiation.

Before we turn to our CFO, Jim Woodward, for more particulars on the quarter, let me say that we continue to focus intently on increasing our Broadcast Cash Flow.  In the third quarter of this year, broadcast cash flow increased by 21%, from $19.3 million to $23.2 million, compared to the previous odd year of 2011.  And, our BCF margin increased to 30% this year from 29% in the third quarter of 2011.  That’s exactly what we’ve promised, and we’re pleased with this progress.

Let’s now hear from Jim, and I’ll give you an update on our transaction with Young after that.

Remarks from James Woodward

Thank you, George. 

Operating income in the third quarter of 2013 was $8.2 million, compared to $22.5 million in third quarter of 2012.  The decrease is due primarily to the virtual absence of Political and Olympic revenues in 2013.  In addition, this quarter’s operating income included $1.2 million of merger-related expenses.

Total operating costs in the third quarter decreased by approximately $1 million, or 1.3%, to $70.3 million, compared with $71.3 million last year.  This decrease is attributable to lower Corporate and Other expenses.

Station production expenses increased 1.6%, due to an increase in affiliate fees.   Station selling, general and administrative expenses increased 8.3%, due to merit increases, and because of two items for which there were revenue offsets:  sales incentive trip expenses and higher revenue sharing expense from our increased digital media revenues.  Our stations continued to deliver a strong performance managing discretionary spending in the third quarter.

Corporate and other expense decreased $4.3 million, mostly attributable to the absence of a $3.3 million severance charge recorded in the third quarter of 2012 and savings resulting from the reduction in corporate staffing that we implemented in the second half of 2012. 

Partially offsetting the savings was additional expense related to the increase in our stock price and the impact on our stock-based compensation plans. During the quarter Media General’s stock price increased from $11.03 to $14.26, a 30% increase in value.

Our core Corporate expense in the third quarter was $4 million this year, compared with $5.6 million last year, a nearly 30% decrease, and is attributable to last year’s corporate restructuring and our ongoing efforts to manage expenses.  When we announced our corporate restructuring, which was undertaken in response to the sale of the newspapers, we communicated an annual target of $20 million in core corporate expenses.  We now expect that number to be $17.5 million, a $2.5 million or 13% improvement.  We continue to look for additional opportunities.

Total interest expense of $20.3 million was flat to last year.       

Tax expense was $2.5 million in the third quarter, compared with $3.4 million last year.  Tax expense continues to be non-cash and related to our “naked credit” issue as previously discussed in our public filings.  Our Net Operating Loss (NOL) carry forward for tax purposes was approximately $350 million at the end of the third quarter. 

Our merger with Young Broadcasting may partially restrict our ability to utilize the existing NOL, but preliminary estimates indicate that we would be able to utilize approximately $300 million.  In addition, Young has existing NOLs of approximately $200 million, which are currently subject to an annual use limitation of $11.1 million. A study is under way of the combined NOL position that will determine the total available and maximize the annual utilization; the study will be finalized after closing.  Preliminary findings are encouraging, and we would expect to utilize approximately $500 million of combined NOLs over 15 to 20 years.

EBITDA in the third quarter, adjusted for merger related expenses, was $15.4 million this year, compared with $28.5 million last year.  The year-over-year change mostly reflects this year’s lower Political and Olympics revenues. 

Capital expenditures in the third quarter were $4.4 million, compared with $3 million last year.  The current quarter spending was spread over all stations and mainly for equipment upgrades and replacements, vehicles, and building and set improvements.

As previously announced, our new credit agreement will be in place following the completion of our merger with Young Broadcasting.  As a reminder, the new credit facilities consist of a $60 million, 5-year revolving credit facility and an $885 million, 7-year term loan. The revolving credit facility interest rate is LIBOR plus 2.75%.  The term loan interest rate is LIBOR plus 3.25%, with a 1.00% LIBOR floor.  In addition, there is a $32 million term loan that will replace certain debt on Young’s balance sheet.  It has an interest rate of LIBOR plus 3.25%.

Proceeds from the new credit facilities will be used to fund a $50 million contribution to Media General’s pension plan and to repay all of the outstanding debt of Media General and Young Broadcasting, including associated call premiums, transaction fees and expenses.  Our new financing will reduce the combined current annual cash interest expense for the two companies from $75 million to $39 million.

As we look to the future and our merger with Young Broadcasting, we’re excited by the opportunities the merger will provide for our shareholders, employees and customers. With that goal in mind, we are working daily and diligently with the Young management team to ensure a smooth transition and integration of the two companies.

We’re on track to capture the expected $15 million of operating synergies we’ve discussed with you before.  We continue to expect to realize the majority of the savings within the first 12 months after closing and, will continue the process to evaluate and uncover additional savings opportunities. 

And, now I’ll turn it back to George.

Remarks from George Mahoney

Thank you, Jim.  Let’s talk about where we stand on our merger with Young. 

A week from today, on Thursday, November 7, we will hold a Special Shareholders Meeting to consider and vote on the matters necessary to complete the merger.  And provided there’s a good result there, and our FCC approvals also are in hand, we expect to close on the transaction very quickly after the shareholders’ meeting. 

I traveled to almost all of the Young stations in the last quarter.  What I found further confirms that both Young and Media General approach their markets in the same ways.  That shared broadcast vision will further animate and strengthen the smooth integration Jim described.  And that, in turn, means we’ll be in a position to capitalize even more quickly on our new, combined strength.

Media General expects to further enhance shareholder value as a result of several benefits of the merger:  our strong balance sheet and enhanced credit profile, our new long-term financing that significantly reduces interest expense – and so allow us to re-pay debt even more quickly, and the net operating loss carry forwards that continue after the closing, which will favorably impact our cash taxes.

As we’ve said, together Media General and Young are positioned to participate actively in our industry’s consolidation – and to do so far better than either Media General or Young Broadcasting could have done alone.

All together, it’s a very bright future.

And now, we’ll be pleased to take your questions.

Top of page