Investor Relations

<< Back

Fourth-Quarter Conference Call Remarks
Thursday, January 27, 2014, 11:00 am EST

by George L. Mahoney, president and chief executive officer; James F. Woodward, senior 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 Fourth-Quarter 2013 Conference Call and Webcast.

Earlier today, we announced fourth-quarter and full-year 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, senior vice president-finance and chief financial officer.  I’ll now turn the presentation over to George.

Remarks from George Mahoney

Thank you, Lou Anne.  Good morning everyone, and thank you for tuning in. 

We’re very pleased to be able to give you this morning the first installment report on the new Media General.  A lot has happened since our third-quarter call on October 31st.

Specifically, less than two weeks after our last quarterly call, we closed on our all-stock merger with Young Broadcasting.

We said then that the November 12 tax-free combination of our two companies would be immediately accretive to free cash flow, and we talked about our strong balance sheet and attractive synergies.  

And soon after the closing of the merger, we paid off all the existing debt of both companies, using new credit facilities we’d arranged over the summer.  This refinancing lowered annualized cash interest expense by about $36 million, compared to both companies’ pre-merger costs. 

And our good performance and the strong balance sheet we mentioned now has allowed us to deliver on the net leverage we promised.  When we announced the merger, we estimated that leverage at 4.3 times by the end of 2013.  In fact, we closed out 2013 at 4.27 times. 

We also promised $30 million of total operating and financing synergies when we announced the merger, and we said they’d be realized in 12-15 months from the closing.  Today, our projected synergies stand at $44 million, including $29 million of financing synergies and at least $15 million of operating synergies.  We believe that operating synergies will go higher.

Let me pause for a moment to give you an overview of our new Company.

We own or operate 31 network-affiliated television stations in 28 markets.  Our stations reach 16.5 million, or 14%, of all U.S. TV households. 

We operate across the full range of market sizes, from San Francisco, the 6th largest DMA, to Rapid City, South Dakota, at #173.  Eight of our stations operate in the Top 50 markets, and an additional 14 stations are located in the Top 100 television markets.  Our merger provides new geographic breadth and diversity, better shielding us from the impact of any particular region or local economy.

The merger additionally balances our network affiliations. 

In addition to this portfolio diversification, our larger size increases our buying power and our negotiating leverage with vendors and others.

All of our stations have earned excellent reputations as leading local content providers.  “Local” is the name of the game for us. Our stations rank #1 or #2 in more than 60% of the 28 markets in which we operate.

In this election year, our presence in seven battleground states provides a strong opportunity with Political advertising.  Media General legacy stations already operated in Florida, North Carolina, Ohio and Virginia.  We’ve now added Young stations in Iowa, Michigan and Wisconsin.

In 2014, there are seven open Senate seats nation-wide.  Four of those races are in states where we operate: Georgia, Iowa, Michigan and South Dakota.  Additionally, we expect hotly contested Senate races in our markets in Louisiana, North Carolina and Tennessee.  There also will be two Senate races in South Carolina, where we have a large presence. 

Further in this even-numbered year, we expect seven competitive gubernatorial races in our states of Florida, Iowa, Michigan, Ohio, Rhode Island, South Dakota and Wisconsin.

And, we’ll benefit from competitive House races in a number of our districts.  One current example is a special March 11 election in Tampa, Florida, to fill the seat of the late congressman Bill Young.

You’re also reading almost daily about the strong audience and advertiser response to event programming – especially in sports.  And in this, our 9 NBC stations have benefited nicely from the 2014 Olympics in Sochi.  Legacy Media General had 8 NBC stations, and we’ve now added a very strong NBC affiliate in Davenport, Iowa.  In the 2010 Winter Olympics, our combined total revenues were $7.8 million.  This year, we beat that amount by nearly 50%, for a total of $11.6 million.  Sochi was very good for Media General.

And there’s more of this in store.  The merger allowed us to add four CBS stations to our legacy Media General count of eight.  And for that reason particularly, we’re delighted CBS has been selected by the NFL to air eight more games on Thursday nights in the fall.

In the nearer term, our 12 CBS stations already are seeing strong advertiser interest in the “March Madness” NCAA basketball tournament beginning next month and running into early April.

A huge driver in our industry’s consolidation has been the quest for increased retransmission revenues.  With our 31-station group, we’re participating more effectively than ever before in the rising retrans market.  In 2013, our retransmission revenues reached $94 million.  That’s up from $65 million in 2012.  And this year, we expect to increase our retransmission revenues by more than 40%.

We also have strong, and growing, Digital and Mobile platforms for all of our stations.  Here again, size matters.  With our merger, we have the infrastructure, products and people in place to grow audience, and revenue, at an accelerating rate.  A year ago, we talked about increasing our Digital revenues by numbers that were in the teens.  We delivered more than that.  Today, our expectations are accelerating, and our 2014 expectations exceed 20%.

So as I said, we’re very pleased to bring you this first installment report on the new Media General.  We’re delivering exactly as we promised.

And now I’d like to turn to Jim, who will discuss some highlights of 2013 and provide additional perspective on our expectations for 2014.

Remarks from James Woodward

Thank you, George. 

I’ll first provide some highlights of the full year 2013 that I think will be most helpful as you build your models for 2014.

First, let me explain that in accordance with generally accepted accounting principles, the merger was accounted for as a reverse acquisition.  While Media General, Inc. is the legal acquirer, and the name of the combined entity, for financial reporting purposes, the historical financial statements of Young, which was deemed the accounting acquirer, are now the historical financial statements of the new Media General.  Consequently, the official consolidated financial statements reported in our press release this morning included the Young operating results for periods prior to November 12, 2013.

That means these results do not include most of legacy Media General’s results in 2013 or any in 2012.  Because legacy Media General results represent more than half of the combined company’s net operating revenue and broadcast cash flow, we appended Supplemental Combined Company Information to the press release.  The “As Adjusted” results provide information for the combined company by including legacy Media General revenues and expenses for the period prior to November 12.  No adjustments were made to this data.  It was simply added together.  The combined figures in the supplemental information do not include any of the financing or operating synergies created by the merger. This supplemental information does not purport to be indicative of what would have happened had the merger occurred as of the beginning of 2013, nor is it indicative of results that may occur in the future.  However, we think the supplemental information on the combined company will be helpful to you.

In addition, to the extent that you want to build any prior years perspective into your models, you will find a wealth of historical information in the 8-K we filed on January 29, 2014, in other SEC filings related to the merger  and in previous Media General earnings releases.

My comments are going to focus on the combined company, using the numbers reported in the Supplemental Combined Company Information in the press release issued today. 

For the full year 2013, as expected, net operating revenue decreased from 2012 as a result of the near absence of 2012’s record Political revenue.  Net operating revenue in 2013 was $543.5 million, compared with $587.9 million in 2012.

Political revenue in 2012 was $113.4 million, compared with $7.9 million in 2013, a $105.5 million difference.

Local gross time sales increased to $313.5 million in 2013, compared with $309.1 million in 2012.  National gross time sales also increased in 2013, to $152.3 million, from $146.4 million in 2012.  Total core gross sales increased 2.3% over 2012.

Retransmission revenue in 2013 was $94 million, compared with $65 million in 2012.

Digital revenue was $19.6 million in 2013, compared with $15.7 million in 2012, a 25% increase.

Operating income for the full year 2013, excluding merger-related expenses, was $81.4 million.

Full-year depreciation and amortization for 2013 was $45.1 million, so full-year EBITDA, adjusted for merger-related expenses, was approximately $126.5 million. 

In 2013, a non-political year, Broadcast Cash Flow was $175.3 million.  We continue to focus intently on increasing our Broadcast Cash Flow and BCF margin, in particular when comparing odd-numbered years to odd years and even-numbered years to even years. 

I’ll next provide our current outlook for 2014.

As George indicated, Political revenues are expected to be robust.  Combined Political revenues in 2012 were $113 million and in 2010 were $69 million.  While we are not making a specific forecast today, we believe Political revenues will be greater than 2010, due to the number of competitive races in our markets that George detailed and expected heavy issues spending this year.

Retransmission revenues should increase by more than 40%, depending on subscriber counts, compared with retransmission revenues of $94 million in 2013.

Digital revenues are expected to increase by more than 20% from $19.6 million in 2013.

Expenses will increase in 2014, in particular for employee salary and benefits and for fees paid to networks.  The major component of fees paid to networks is commonly referred to as “reverse compensation;” reverse compensation in 2014 is expected to be approximately $50 million, compared with as adjusted $34 million in 2013.

Corporate and other expenses in 2014 are expected to be in the range of $37 million to $38 million, with core corporate expense accounting for approximately one-half of the total; the remainder is primarily for incentive compensation (including station management bonuses) and non-cash stock-based compensation.

In 2014, cash interest expense is expected to be approximately $39 million.

At December 31, 2013, the company has $681 million of net operating loss (NOL) carry forwards.  These NOLs are available to offset future income, enhancing our FCF.

Capital expenditures are expected to be $41 million in 2014 as we accelerate and complete the remaining build out of HD, ensuring that all of our stations are HD from end-to-end.  We will also make investment in our product that we expect to grow audience and market share.  This level of capital spending is unique to 2014, and beginning in 2015 and subsequent years, we expect capital spending to return a normal run rate of $15-20 million.

To recap our debt, as George reported, after the merger closed, we repaid the existing term loans for Media General and Young, including call premiums, transaction fees and expenses.  We also redeemed our 11-3/4% Senior Notes, which completed the refinancing process.  This refinancing lowered annualized cash interest expense by about $36 million, compared to both companies’ pre-merger interest costs. 

As we’ve said before, we planned to use $50 million from the new credit facility for contributions to qualified retirement plans.  In 2013, we contributed $6.2 million and we expect to contribute $46 million in 2014 ($45 million of which has already been made from cash on the balance sheet at year-end).

Lastly, and before I turn it back to George, our net leverage as of December 31, 2013, as defined in our credit agreement, was 4.27x based on Adjusted pro forma 2012-2013 average year  EBITDA of $199.4.  The maximum leverage per our credit agreement is 5.5x.  As George reported, our year-end net leverage was better than the 4.3x we projected when we announced the merger.

We expect 2014 to be a very good year and I look forward to sharing our results with you in future calls.

And, now I’ll turn it back to George.

Remarks from George Mahoney

Thank you, Jim. 

Before we move to questions, I’d like to add that we’re making excellent progress with the integration of Media General and Young.  With our values, management team and stations aligned, we’re sharing and quickly assimilating the best of what each company brought to our merger.  I’m very proud of what we’re accomplishing – and all that it portends.  It means the new Media General is well positioned to increase shareholder value.

We’ve also said we expect to be an acquirer in our industry’s continuing consolidation.  That continues to be the case. 

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

Top of page