LIN TV's CEO Discusses Q4 2012 Results - Earnings Call Transcript

Feb.28.13 | About: Media General (MEG)

LIN TV Corp. (TVL) Q4 2012 Earnings Call February 28, 2013 2:00 PM ET

Executives

Denise M. Parent – Senior Vice President and Chief Legal Officer

Vincent L. Sadusky – President and Chief Executive Officer

Scott M. Blumenthal – Executive Vice President-Television

Richard J. Schmaeling – Senior Vice President and Chief Financial Officer

Analysts

Eric Y. Katz – Wells Fargo Advisors LLC

Aaron L. Watts – Deutsche Bank Securities, Inc.

Edward J. Atorino – The Benchmark Company, LLC

David Saber – Wells Fargo Securities LLC

Barry L. Lucas – Gabelli & Co., Inc.

Tim Harrington – Citi Capital Advisors

Operator

Good afternoon, ladies and gentlemen and welcome to LIN TV Corporation’s Earnings Call for the Fourth Quarter and Full Year ended December 31, 2012. Today’s call is being recorded.

Now the Company will read a brief legal statement.

Denise M. Parent

This conference call may include forward-looking statements that involve risks and uncertainties. Factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include, but are not limited to, those described in the Company’s press release and filings made with the SEC, all of which are available in the Investor Relations section on the Company’s website at linmedia.com and on the SEC’s website at sec.gov.

Many of these factors are beyond the Company’s control and the Company undertakes no obligation to publicly update or revise any forward-looking statements unless required by applicable law. The company will also file with the SEC, a proxy statement, regarding the proposed merger of the Company that was described in our press release that was issued February 12, 2013. Stockholders are urged to read the proxy statement and other documents related to the transaction, when they become available because they will contain important information. Investors will be able to obtain these documents from the Company’s web site and the SEC’s website or by contacting the company directly.

Please also note that the company and its directors and executive officers maybe deemed to be participants in solicitation of proxies, when those proxies are solicited with respect to the proposed merger transaction. However this communication is not a solicitation of a proxy from any security note of the company. Investors my obtain information regarding the names, affiliations and interest of such individuals in the company’s filings.

Now I’d like to turn the call over to the President and CEO, Vince Sadusky.

Vincent L. Sadusky

Thank you, Denise, and welcome to our fourth quarter and full year 2012 conference call. I will begin with a review of our results and achievements. Scott Blumenthal, our Executive Vice President, Television will update you on station operations and Rich Schmaeling, our Chief Financial Officer, will provide financial results and guidance.

2012 was a terrific year for LIN Media for many reasons. We achieved record breaking revenue, EBITDA and EBITDA margin for both the fourth quarter and the full year. We closed up on the largest acquisition in our Company’s history in the fourth quarter expanding our footprint from 15 to 23 markets and increasing our coverage by nearly 4 million households.

These new stations provide an opportunity to grow our digital business, increase our bargaining power with pay-TV providers, networks and syndicators and a greater scale to amortize our digital technology and share services capabilities. In addition, we now provide services to CW, and My Network TV station in Albuquerque building on our strong presence in this growth market.

Political candidates favor strong local news channels to reach voters. We capitalized on our market leading news stations that produced an average of 5 plus hours of news per day to generate an unprecedented amount of political revenues. We successfully reached new three transmission agreements with pay-TV providers for almost half of the pay-TV subscribers in our markets, which better reflect the immense value of our television stations. Our ongoing events in the digital space resulted in record interactive revenues and growth. We issued notes at the lowest cost of borrowing our company record, and our total leverage ratio at year-end was 3.3 times including our acquisition, which is the lowest level that has been nearly a decade.

And finally throughout the year we worked hard to develop a successful plan to resolve the NBC joint venture on February 12, 2013 we completed the first of 2 transactions by removing the GECC note guarantee which had existed since 1998.

Our strong financial performance was largely a result of our ability to incrementally advance our strategy, generate significant political revenues, and capitalize on the rebound of the auto market. During this historical political year TV proved once again to be the most popular advertising medium claiming $3.6 billion in total political ad spending. Of that total spend $2.9 billion or 80% was on local TV, up 38% over 2010 and up 93% compared to the last presidential cycle in 2008.

Our stations leveraged their brand loyalty and unique advertising solutions to generate $45.5 million in net political revenues during the fourth quarter, and $76.5 million for the full year. We were pleased to see automakers and local dealers spend more of their budgets on local TV advertising as their sales volumes restored, according to a recent research report by Kantar Media, spot TV claimed 29% of the auto industry’s total ad spending in 2012, which is the level that it was at in 2008.

Our automotive advertising revenues grew 4% in the fourth quarter and 15% in the year compared to 2011. Our digital business continues to be a significant source of opportunity and differentiation for LIN Media. During the fourth quarter interactive revenues, which includes revenues generated by Lin Digital formally known as RMM and Nami Media set a new record by increasing 52% in the fourth quarter to $12.8 million compared to $8.4 million in the prior year.

For the full-year digital revenues increased an impressive 51% to $41.1 million compared to $27.2 million in 2011, and these amounts exclude our TV station websites. In 2012 Lin Digital opened its sales headquarters in New York City and expanded its sales offices to 29 U.S. cities. Since we acquired the business in late 2009 its revenue have grown approximately 270% and momentum is stronger than ever.

We’re committed to building our digital media ecosystem in a smart and strategic way by investing in companies that are on the forefront of the changing media landscape and launching our own initiatives. For example in 2012, in November we announced our new mobile marketing solutions business called Lin Mobile. Leveraging our companies 50 year history and strong relationships with local and national advertisers. Lin Mobile will help clients effectively market their products and services to an increasingly mobile centric population by delivering targeted and localized media across all dominant mobile devices.

The investments we made and continue to make in our core and digital products resulted in several significant achievements during the year. The average of Nielsen ratings analysis for the year showed that we operated the No.1 or No.2 local news stations in 87% of our news markets, in comparison to all the local media outlet that comes core measures 73% of our TV website ranked No.1 or No.2 for unique visitors.

When looking specifically at our broadcast competition that are measured by comScore everyone of our measured TV station website see the rank No.1 or No.2 for unique visitors. In addition to the 5% average hours of news that we are each day on our legacy stations. We furthered our commitments to providing continuous news coverage by live streaming and additional 30 million minutes of news on our television station websites.

Project news touch was a major innovation launched in 2012 to increase the consumption of our content on multiple screens. This single solution and uniform work flow process delivers the best app and mobile web experience to mobile devices. With the implementation of our own platform that we build and control, we drove 704 million mobile impressions to our brands, through multiple mobile screens in 2012, which is an increase of 68% year-over-year.

The strength of our local news brands is a result of our ability to embrace changing media habits, focused on superior multiscreen content production and distribution, investing in localism and committed training and sharing best practices throughout our organization.

Looking ahead to 2013, we are receiving mixed economic signals. Pacing started off slow in the first quarter, but it’s beginning to pick up. Two of our biggest priorities this year are to successfully complete step two of the NBC JV transaction and also to fully integrate our new television stations in order to capitalize on the combined benefits.

We made great strides last year towards achieving our goals of being the market leading local multimedia company and consumers and advertisers preferred choice for unique innovative and relevant content on all platforms. We look forward to building on our success in 2013.

Now I’d like to hand it over to Scott.

Scott M. Blumenthal

Thank you, Vincent. Good afternoon everyone. We successfully executed several operating initiatives in 2012 that were designed to enhance our market leadership and build upon the strong relationships we have with viewers and advertisers. For example accelerate our internal sales strategy program created more cross selling multi-platform opportunities, improve synergies, and standardize all sales operations at our legacy television stations. We also introduced to accelerate, the newly acquired TV stations, and we will continue to provide comprehensive training in 2013 to create a fully engaged and effective sales force that has all the tools that need to sell a faster array of targeted, multi-platform, marketing companies.

In addition we unveiled the new set of designs, graphics, and music for high definition in 12 of our stations in 2012. Currently 38 of our television stations are operating and producing in HD, which we believe enhances our competitive positions in those markets. The remaining stations all of which are part of the newly acquired group are expected to launch HD in 2013.

An important part of our strategy is to invest in local programing. In 2012, we launched our 12 local lifestyle program Living Dayton, and it’s air more than 32,000 local programing hours, as a result of our focus on localism, we can offer unique advertising opportunities beyond traditional spots, and create proprietary content for our web and mobile screens.

Our popular local life style programs also provided a unique platform for candidates to reach voters in 2012, which help to differentiate our stations in the local competition. As a result of our ongoing investments that focus on delivering superior local content, our stations receive some of the industry’s top awards in 2012. I would like to especially recognize WIVB in Buffalo, which earned two Regional Murrow Awards and the prestigious national Sigma Delta Chi Award by the Society of Professional Journalists. WISH-TV in Indianapolis also earned this Sigma Delta Chi award, which is truly special since only nine stations around the country were bestowed with this honor.

Our strategy also helped us to achieve terrific ratings through the November 2012 season period. 80% of our legacy stations, ranked number one or number two in their markets, with our big four legacy stations outperforming their affiliated networks by an average of 23%. And now we look forward to implementing our proven strategies with the newly acquired television stations, and capitalizing on their opportunities for growth in 2013.

We have deep local market knowledge and our stations are well known and trusted video partners. When combined with our continued investments in our people, processes and products, our compelling geographic footprints and our ability to optimize advertising inventory particularly in this historic collection year. Many of our stations increased market share and generated higher revenues than their competitors in 2012.

Local revenues which include net local advertising revenues, retransmission consent fees and television station website revenues increased 45% to $101.4 million compared to $69.8 million in the fourth quarter of 2011. For the full year, local revenues increased 24% to $316.5 million compared to $255.5 million in 2011. Net national revenues increased 25% to $32.7 million compared to $26.1 million in the fourth quarter of ‘11. And for the full year, net national revenues increased 12% to $107.3 million compared to $95.7 million in 2011.

Obviously political advertising helped drive gains throughout the year, I am particularly proud of the way our stations managed their inventory in political displacement to accommodate strong demand from non-political advertisers. Core local and national advertising sales combined which excludes political advertising sales as well as sales from our newly acquired TV stations decreased only 3% from the fourth quarter, and increased 3% for the full year compared to the prior year.

Our evaluation of post election quarter, fourth quarter sales demand our data, on the same station basis showed the core local and national advertising sales combined increase 6.5% compared to the same seven weeks of 2011.

As Vince mentioned automotive advertising, our largest category increased 4% for the fourth quarter compared to the prior year and represented 26% of local and national advertising sales.

Drilling down further, domestic was down 11% while foreign was up 24% and local dealer advertising declined by 2%. For the full year auto advertising rebounded by 15% year-over-year. Significant categories beyond auto had mixed results.

During the fourth quarter financial services, media communications, home improvement and as I just mentioned auto were all up compared to the same quarter last year. With regards to the 2012 full year, financial services, medical, entertainment and again auto were all up, while restaurants and retail were down in both the fourth quarter and the full year versus 2011.

And for 2013, the economy is yet to make a full recovery, but advertising is getting stronger as we move through the quarter. We are pleased with how the new stations are performing and how quickly they are adapting to our strategies and culture. We look forward to updating you on our progress throughout the year.

And now I would like to hand it over to Rich, who will discuss our financial performance.

Richard J. Schmaeling

Thanks Scott, and good afternoon everyone. During the fourth quarter our net revenues came in at a record $196.2 million, up 76% compared to last year’s $111.5 million and exceeded the high end of our guidance range which called for revenue of a $189 million to a $194 million. On a same-station basis, excluding the benefit of the television stations we acquired during the fourth quarter, our net revenues increased 40% to $155.7 million driven largely by stronger than expected political advertising.

For the full-year, our net revenues came in at a record $553.5 million, up 38%, compared to last year’s $400 million. On a same-station basis, our net revenues increased 28% to $513 million. Net political revenues came in at $45.5 million for the fourth quarter and $76.5 million for the full-year. On a same-station basis, net political revenues were $37.4 million, up 57% versus 4Q 2010.

For the full-year, on a same-station basis, net political revenues were $68.4 million, up 64% versus the 2010 cycle and up 76% versus the 2008 presidential cycle. Our Interactive revenues, which include revenues from LIN Digital and Nami Media, but excludes station website revenues increased 52% to $12.8 million for the fourth quarter and increased 51% to $41.1 million for the full year.

Our total station operating expenses for the quarter, excluding stock-based compensation increased 45% or $30.5 million to $97.9 million; about $21 million of that growth was attributable to the stations acquired during the fourth quarter. The remainder of the growth in operating expenses was driven largely by increases in variable selling expenses, programming fees paid to the networks and the cost of sales tied to interactive revenue growth.

For the year, station operating expenses increased 20% or $51.8 million to $300.3 million. On a same station basis, station operating expenses increased 12% to $289 million. BCF for the quarter was up 123% to $98.2 million compared to $44 million in the prior year. For the year, BCF was up 71% to $244.1 million compared to $142.5 million in the prior year.

Corporate expense excluding stock-based compensation and non-recurring charges associated with acquisitions, and divestitures were $8 million compared to $5 million in the prior year. Most of the increase relates to performance based bonuses including the RMM incentive compensation bonus.

For the year, corporate expenses were $25.5 million compared to $19.6 million in the prior year. Adjusted EBITDA set records for both the quarter and full year increasing $51.2 million or 131% to $90.3 million during the fourth quarter, and increasing $95.8 million or 78% to $218.7 million for the full year. EBITDA margin also reached record highs of 46% in the fourth quarter and 40% for the full year.

And free cash flow for the quarter was $62.9 million compared to $18.8 million in the prior year. As more fully discussed on our conference call on February 13 and in our related 8-K. Earlier this month, we executed the first of two transactions whereby LIN exited its joint venture with NBC in an exchange for $100 million contributions of the joint venture was released from its guarantee of $815.5 million note payable by the JV to GECC. As of the date of that transaction, LIN has no further obligations or funding liabilities related to the joint venture or the GECC guarantee.

As of December 31, 2012, we accrued this $100 million payment and accounted for the recognition of the $715 million taxable gain related to the formation of the joint venture. About $142 million of this gain will be characterized as ordinary income, which we intend to shelter with our NOLs and the remaining gain of about $573 million will be characterized as capital gains.

As more fully described during our February 13 call, in order to offset in whole or in part to recognize capital gains, LIN currently entered into an agreement to execute a transaction to covert into a partnership for tax purposes with the result that we expect to realize our capital loss between LIN’s basis and the stock of its sub LIN Television Corporation and a fair market value of this stock after the closing date of this transaction. We expect be able to complete this conversion within the next four to six months.

Turning to LIN’s debt and key credit metrics; at December 31, 2012 we had unrestricted cash on hand of $46.3 million and $75 million available under our revolving credit facility. Our net debt was $843.9 million, up 248.4 million from the end of last year largely due to the 290 million of new fixed and free 8% senior notes we issued in connection with the New Vision acquisition in October. Our consolidated leverage at year-end as defined under our senior credit facility was 3.3 times compared to 4.9 times at the end of 2011 and our amended covenant of seven times.

Our consolidated senior secured leverage ratio was 1.4 times compared to our covenant 3.75 times. As part of the re-pricing transaction we executed in December the company no longer has a timed interest coverage covenant that were referenced that metrics was 4.4 times at year-end.

The $100 million payments in the NBC JV was funded by a $60 million incremental term loan, a $25 million draw on our revolver and cash on hand. Pro forma for the JV transaction, our consolidated leverage ratio at year-end was 3.7 times and our consolidated senior secured leverage ratio was 1.7 times.

And as of December 31, 2012 the company had approximately 273 million of NOLs, 142 million of which we expect to utilize to shelter the ordinary income recognized as a result of the JV transaction. Focusing on the Outlook for the first quarter, we expect that net revenues will be up to 33% to 37% compared to net revenues of $103.2 million in 1Q 2012.

On a same station basis, we expect that net revenues will be up 4% to 7% compared to the prior year. For expenses, we expect that direct operating and SG&A will increase in the range of 48% to 50% for the first quarter compared to expenses of $63.6 million for the first quarter of 2012, driven largely by operating expenses of the acquired TV stations as well as increased publisher costs associated with the growth of Interactive revenue and growth in programming fees paid to networks.

On a same-station basis, we expect a direct operating and SG&A expenses will increase in the range of 13% to 17%, driven primarily by increases in network programming fees, cost of sales tied to Interactive revenue growth and other variable selling expenses.

I will now hand it back to the operator for questions? Operator?

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) And we will go first to Marci Ryvicker with Wells Fargo.

Eric Y. Katz – Wells Fargo Advisors LLC

This is actually Eric Katz for Marci. Just to clarify Rich, I think you mentioned earlier that same station direct OpEx and SG&A expenses were up 12%, was that for Q4 or for the full year?

Richard J. Schmaeling

I have to go back and look, we’ll come back to you on that Eric.

Eric Y. Katz – Wells Fargo Advisors LLC

Okay. And I guess for the guidance on the direct OpEx and SG&A of 13% to 17% for same station, is that 12% was for the quarter, is the reason that it’s a bit higher, because there is just more days in the quarter, since the acquisition costs in October?

Richard J. Schmaeling

Yeah, I think also you need to recall that concurrent with our announcement regarding the joint venture, we also announced that we have signed a new network affiliation agreement with NBC for our seven NBC stations plus satellites. and so that was starting to increase in a network programming fees and that 12% that I mentioned Eric was for the year.

Eric Y. Katz – Wells Fargo Advisors LLC

Do you have that from the quarter by any chance?

Richard J. Schmaeling

I’m sure, we look, we’ll find that just in a moment.

Eric Y. Katz – Wells Fargo Advisors LLC

Sure. And with regards to the New Vision revenue contribution of $41 million in Q4, would you able to tell us how much was local and how much was national?

Richard J. Schmaeling

Yeah. We don’t have that data, we’re not going to give that kind of detail, Eric.

Eric Y. Katz – Wells Fargo Advisors LLC

Okay, thank you very much.

Operator

Was that all you had sir?

Eric Y. Katz – Wells Fargo Advisors LLC

Yes, ma’am.

Operator

Okay, thank you. We will move on to our next question from Aaron Watts with Deutsche Bank.

Aaron L. Watts – Deutsche Bank Securities, Inc.

Hey, guys.

Vincent L. Sadusky

Hi.

Aaron L. Watts – Deutsche Bank Securities, Inc.

One follow-up on the expenses in the first quarter, is it fair to assume that those are the kind of step-ups year-over-year, we’ll be seeing this year because of the new agreements that are in place?

Vincent L. Sadusky

You’re referring to the operating expenses?

Aaron L. Watts – Deutsche Bank Securities, Inc.

Yeah, sorry. The 13% to 17% increase in TV expenses.

Vincent L. Sadusky

On the same-station basis, yeah. The expenses are going to increase, kind of at that level for out into the future.

Aaron L. Watts – Deutsche Bank Securities, Inc.

Okay, all right. And then just on the other side of the coin, can you give us any sense of kind of on a blended basis, what kind of rate your retransmission fee income is growing ad for 2013?

Vincent L. Sadusky

Yeah. we don’t separately call that out from local revenues, Aaron. Sorry.

Aaron L. Watts – Deutsche Bank Securities, Inc.

Okay, no problem, kind of address. And then I guess, Vince, you’ve seen days of medium leverage, you’ve seen days of high leverage and you see leverage where is that today. How would you describe your kind of comfort level now? Where you’re okay with leverage and where you would be okay with a going to define something out there to go by?

Vincent L. Sadusky

Yeah, it’s a great question. I think we’re comfortable at our leverage level now. The leverage of course, bumps up a bit in 2013, kind of the ideal phenomena despite a lot of cash flow and a lot of debt paydown. So as we think about kind of uses of our free cash flow, I think we’ve done a nice combination in the past of being really committed to getting leveraged down for years now, especially from kind of the ’08-‘09 timeframe. We’ve paid a lot of debt down. We’ve also engaged in share buybacks and we feel pretty good about kind of the very low repurchase price that we were able to buying shares throughout 2012, and prior.

And so as we look ahead, Rich has described our target leverage is kind of being in that 3% to 3.5% range, kind of 3-ish in an even year, 3.5% in an odd year. And that feels pretty good. If we were to find something that was very accretive for the Company and something we were very attractive to that. We think it has a potential for a great strategic value for the company. We’d certainly consider going above our 3% and 3.5% temporarily as long as we can soar our way out of it pretty quickly, but no plans for that at the moment.

Aaron L. Watts – Deutsche Bank Securities, Inc.

Okay, that’s helpful. And then on the political side, I think you did around $8 million back in 2011. As you look at your markets this year, any reason to think that should be materially different from two years ago?

Vincent L. Sadusky

Yeah. On a same station basis that doesn’t sound crazy to us. And of course we expect a little bit more than that with the addition of the eight New Vision markets.

Aaron L. Watts – Deutsche Bank Securities, Inc.

Okay, great. And last one from me, I appreciate you taking this. I guess this is a little bit bigger picture for your events, but as you think about kind of digital and mobile maybe specifically, is there a revenue model that you see today for the mobile device kind of independent of your TV platforms in the eyes of advertisers at least or I guess is it more of a bundled proposition keeping people with the LIN programming, the LIN stations, the LIN digital assets. Just curious about it.

Vincent L. Sadusky

Yeah, it’s a really good question. You’ve seen very different strategic approaches from broadcaster towards digital. Some folks have been very busy in acquiring digital assets. Some how, yeah, I think decided to keep those as kind of soloed businesses. You’ve seen other folks beside the core businesses what they want to stick to. Pretty clearly for us the digital strategy has been a major part of our strategic vision for the company and as each quarter takes off, we feel more and more comfortable about our capabilities, our internalization of the knowledge base, our expertise level folks were able to bring into the company and so ultimately the short answer is it’s a mix. We have these standalone sales offices that are out there competing with all the household named digital through what we offer through our technology, through our platforms, through listening better, providing better value, low overhead kind of all those things that it takes to win the business at the end of the day and that’s been a nice growth opportunity for us especially over this last year with at the expansion of the sales offices in the major cities and some great sales leadership and we had some great sales additions.

And then the synergy part of it really is around leveraging the existing television station sales force and that’s largely an educational process, a compensation process all those things that it takes that are very, very hard and it proven to be very, very difficult for traditional media companies to have an integration into that area. I’d say we’ve probably done it as well as anybody, but we still have a long, long way to go and ultimately our goal is to simply be able to sit down with a client at a table and not be their trusted advisor on television, but be their trusted media advisor whether it’s an agency or directly to a local business or regional business and just simply be well versed and be a really good tool for them as they have more choices and there is more data out there than ever from which to make buying decisions just to where to place your media, we want to be helpful and not go out there with just one tool we want to have a pretty, yeah, pretty full tool box and create value for our advertiser’s is the best we can, so it’s really a two prone strategy.

Aaron L. Watts – Deutsche Bank Securities, Inc.

Got it, okay. Thank you.

Operator

And we will hear next from Edward Atorino with Benchmark.

Edward J. Atorino – The Benchmark Company, LLC

Hi, just a couple of questions on your retrans, if you look at the improvements, if you look at the dollar improvement or the growth rate or as if you take the current month in sort of guys course it annualize that or if you got growth rate going which is pretty high.

Vincent L. Sadusky

Yeah it’s so if you digital map, that in had of you about what our retransmission consent fees are within local revenues, you would get to a pretty strong growth rate, and that’s consistent with our higher expectations or the outlook for the future, we do expect that there is a lot of headwind left in retransmission consent fee growth, and so we’re optimistic about the future.

Edward J. Atorino – The Benchmark Company, LLC

Is that both at the Lin stations and at the News stations or it’s most Lin Mobile.

Vincent L. Sadusky

It’s both Ed, because upon closing the New Vision acquisition for most of those stations and they related MVPD contracts we were able immediately have them step up to Lin rates, using our after acquired rates in our contracts, so we’re negotiating with an MVPD for all of the Lin stations in their market whether so called legacy win or new win.

Edward J. Atorino – The Benchmark Company, LLC

Not much Olympic revenues last year.

Vincent L. Sadusky

Did we have much to say or…

Edward J. Atorino – The Benchmark Company, LLC

Yeah.

Vincent L. Sadusky

Yes

Edward J. Atorino – The Benchmark Company, LLC

Would you give us the number?

Vincent L. Sadusky

Yes.

Edward J. Atorino – The Benchmark Company, LLC

Maybe you didn’t understood.

Vincent L. Sadusky

No we didn’t, but we are going to look it up, we’ll look, okay.

Edward J. Atorino – The Benchmark Company, LLC

No the sort of the, $50 question on television, if you go into the second half of the year there is this big pile of stuff that was there, that’s now gone called political, and you’ve got all of that or most of that time suddenly available. How do you look at the ability to replace say $1 of political with X percent of non-political this year versus last year. You know what I mean.

Richard J. Schmaeling

Yes, I think the way it’s historically worked is we intend to sell out just about all of our inventory, so it just simply gets reflect in pricing, and that really has everything to do with demand. So when a healthy market plays you’ll see – you’ve got a lot more inventory available especially in the fourth quarter to sell to core advertisers, we know that so we like to take as much share as we possible can, price appropriately and of course the advertisers have been long advertisers in television. They know that too and so that really gets reflected in price.

Edward J. Atorino – The Benchmark Company, LLC

The politicians, some pay top dollar and some don’t right looking backward?

Richard J. Schmaeling

Yes, have to provide lowest inter rate to your politicians, but last year…

Edward J. Atorino – The Benchmark Company, LLC

That is the lowest price? Okay.

Richard J. Schmaeling

To your politicians directly yes but not your issues guy.

Vincent L. Sadusky

So even if you sell, you don’t sell all the time, you might get a little inflation back to in there from better price dealer.

Edward J. Atorino – The Benchmark Company, LLC

Yeah, thanks, because it goes back to what you said at the top of the show that it’s about demand and demand drives pricing and without all that political demand, there is less demand against all of the inventory, and so…

Vincent L. Sadusky

There was a lot of demand in 2012.

Edward J. Atorino – The Benchmark Company, LLC

Yeah.

Scott M. Blumenthal

Those are big numbers.

Richard J. Schmaeling

So getting back to your question on the Olympics, we score keep about $3.5 million of incremental Olympics revenue. So revenue above what we would have expected to see.

Edward J. Atorino – The Benchmark Company, LLC

That’s what we’re looking. Thanks.

Richard J. Schmaeling

And then back to Eric’s question for our station operating expenses. Eric, they grew about 14% in the fourth quarter, same-station basis. Operator, can we move to the next question?

Operator

Absolutely, we’ll go next to David Saber with Wells Fargo Securities.

David Saber – Wells Fargo Securities LLC

Good afternoon. Thanks for taking the question. Just wanted to ask on 2012 with the pro forma EBITDA, including I guess for the LTM for New Vision was for the year?

Scott M. Blumenthal

Yeah. We’re going to lift it up, Dave.

David Saber – Wells Fargo Securities LLC

Okay. And then on the re-trends, you have new deals with NBC, ABC and FOX. Just wanted to know as a percentage of subscribers, how much are you paying I guess reverse re-trends right now?

Richard J. Schmaeling

Having calculated that, but it’s pretty, you could do it, pretty straightforward if you take a look and that kind of leave CVS. If you look at our CVS footprint, you can calculate that pretty well, it’s probably in the 20% plus range, I guess.

David Saber – Wells Fargo Securities LLC

Okay, and can you remind us when those feels are out for new, I think is kind of all over the map little bit if I remember correctly.

Richard J. Schmaeling

It is by and large our renewed affiliations with those three networks right over the long-term, three, four, five plus years.

David Saber – Wells Fargo Securities LLC

Okay, right.

Vincent L. Sadusky

So David our pro forma EBITDA is about $258 million.

David Saber – Wells Fargo Securities LLC

$258 million, okay great. And then on the $100 million capital contribution, did that hit your RP basket as defined in the bond and debentures?

Vincent L. Sadusky

They are in our, yes, against the bonds yes.

David Saber – Wells Fargo Securities LLC

Okay, and then just I wonder if you could comment about the M&A environment, hearing a lot of stations on the blocks, what’s your interest level is, you mentioned your comfort level at leverage, but just kind of trying to think about markets, market size, station affiliations anything that it might be a focus of yours?

Richard J. Schmaeling

Yeah, I think our strategy have been pretty consistent. We look at every thing at a minimum we get smarter and provide more benchmarks, we don’t win the day very often just given our kind of pretty straight ROI in turn of benchmarks, but we look at all, there is arbitrage opportunities, given our technology and our cost structure and depending on kind of the overlaps, oftentimes there’s opportunities in same market or adjacent market capabilities. Certainly, there is a retransmission fee, arbitraged opportunity for those who got the top stations in good scale, and have been able to negotiate favorable agreements.

So those are all things that we look at others, there’s few others that have those things as well. And it really comes down to value. So as far as what we’re interested in, we’re always interested in kind of these tuck-in opportunities as we’ve executed over the last couple of years, in some cases with where others have executed that and we’ve been able to help operate those television stations.

And then from a larger perspective, it’s something like a New Vision was a very good fit for us given it’s primarily big for affiliations, which we like kind of by and large midsize markets, kind of markets 20 down to about 75. We like that, that’s kind of our sweet spot for where we operate and how we can kind of invest in the stations and turn a decent cash flow on the outside opportunities. And that’s really I think kind of how we’d characterize the way we look at. These things are best that are being brought lots of market. but you certainly are seeing more and more of it as you’ve had a lot of kind of legacy deals from the mid-to-late 2000s that were kind of financial transactions, investment transaction and you’re seeing these assets free up as the financing markets are back. and there is a pretty good arbitraged opportunity from where the seller can get their price, meet their price expectations and the buyer can really buy down the turns pretty significantly and hit their internal ROI projections as well, and as we kind of said along, we think that’s whether it’s actually somebody else. we think that’s a really good thing for the industry to have this kind of consolidation and to more effectively be able to compete in a media world that’s very concentrated in terms of programming and distribution.

David Saber – Wells Fargo Securities LLC

Okay, that’s great color. Thank you for the explanation, I appreciate it.

Vincent L. Sadusky

Sure.

Operator

And we will hear next from Barry Lucas with Gabelli & Company.

Barry L. Lucas – Gabelli & Co., Inc.

Thanks and good afternoon. A couple of housekeeping questions and maybe just to pickup on our first point on the pro forma number. What would that pro forma 12 revenue number be in total and how much was the pro forma political?

Richard J. Schmaeling

So we gave you the pro forma EBITDA. we got the $258 million.

Barry L. Lucas – Gabelli & Co., Inc.

Right.

Vincent L. Sadusky

It’s political

Richard J. Schmaeling

Yeah. Political, full year this is – and so on a growth basis, they will be about $103 million.

Barry L. Lucas – Gabelli & Co., Inc.

Thank you. And total revenues?

Richard J. Schmaeling

And total net revenues would be about $660 million.

Barry L. Lucas – Gabelli & Co., Inc.

Okay, helpful. With the New Vision stations, I thought I saw your household reaches is 10.5%, so where we are at about 11 million, 12 million households, would that be what you would consider to reach now?

Vincent L. Sadusky

That’s right.

Scott M. Blumenthal

Yeah, it’s right.

Barry L. Lucas – Gabelli & Co., Inc.

Okay. And just to hit on couple other areas, on that, your guidance on OpEx again for the first quarter with revenues doing what to what they’re doing, the bulk of that change is programming costs associated with reverse comp?

Richard J. Schmaeling

Yeah. I think so on a same-station basis, we said 13 to 17. And it is like three pieces that are the main drivers, it is reverse re-trends and other comp back to the networks and you mentioned that we just signed new NBC agreements.

Barry L. Lucas – Gabelli & Co., Inc.

Right.

Richard J. Schmaeling

Its increases in cost of sales tied to interactive revenue growth, which is growing nicely and related to that we have cost of sales and also other variable selling expenses.

Barry L. Lucas – Gabelli & Co., Inc.

Okay, okay. Two more quickies I think, I think you’ve done a really job on the interactive side and you called out mobile as being particular success, but maybe you could just provide a little bit more color on what does that mean from a revenue standpoint or how are you getting paid for all those mobile viewers or what have you, the page view sound terrific, but what kind of dollars are we talking about?

Vincent L. Sadusky

Yeah. It’s a good question, we think that the mobile business is really similar to kind of web business and then the kind of what we are now calling the digital side of our business, separate and apart from the TV stations web sites, the kind of early days for us was to build a mobile presence using the concept from our television station.

So basically being able to access all our grade, weather, news, information, content for mobile devices, both phones and PDA’s and tablets. So that work is well underway and that’s where we get all those large numbers.

The revenue associated with that still feels like kind of early days of our website business. it’s still kind of getting advertisers kind of understand the business, so right they are getting really a terrific values because it’s not on of revenues.

We then see kind of the next evolution in our growth was through the acquisition of our amendment and then building out in digital, which gave us the ability to sell marketing solutions – online marketing solutions well beyond our television station website, it’s that really what our advertisers were looking for, they were spending with others and not with us so that’s been a nice success for us and next when we talk about mobile right now that’s what we’re currently referring to

We’ve looked at several entities to try to buy the kind of jumpstart that and we’re just unsuccessful, just given both mobile and social are things we’d like to offer to clients and M&A in that area is really hot right now and we feel over priced. So after several looks on the mobile side, we just decided that we will build it and we hired a very capable President with terrific experience and he is in the process of building out his team.

So right now, for that piece of the business, the revenue to-date has been zero since we haven’t been in that business and it’s obviously going to be little slower to build, much less expensive, but a little slower to build and we may the bill versus by decision just simply because of that what we saw as an overheated interactive M&A market around mobile.

Barry L. Lucas – Gabelli & Co., Inc.

Good, that’s helpful. Last area and your comments on expenses to build social media or buy social media and other Internet kind of things, there are a number of groups on the market whether or not that includes local TV and operating and we know Fisher is out there, but your larger peers in the main have been on the sidelines and, not talking about Nexstar and Sinclair, but the below can add charge of the world, have pretty much been in the background of this consolidation phase and yet it strikes me that they need to build the same kind of scale that you are building as they come back and sit down, either with the networks or the multichannel video provider, so where are they as you sit and observe everyday in this process?

Vincent L. Sadusky

Yeah, I don’t know other than everybody has their own strategic plan, their own vision of how much scale is enough and what station values will look like in the future and aggressiveness of the management team, willingness to sign up for synergies, attach your compensation to that. These are all the complex question that go into whether or not you want to participate in M&A, internal capital allocation decision, leverage those. I mean this as well as anybody. So it’s we kind of address all those things and put our best foot forward with the entities that we feel would be a strategic fit and that’s kind of how we take care of it, how others go about their business. I honestly don’t have any idea.

Barry L. Lucas – Gabelli & Co., Inc.

Okay. Thanks very much, Vince.

Vincent L. Sadusky

Sure.

Operator

And we’ll go now to question from Tim Harrington with Citi Capital Advisors.

Tim Harrington – Citi Capital Advisors

Yes, once you’ve converted from the corporations to the LLC, all the pieces together, will that allow you to use up almost all if not all of your various types of capital loss and operating loss of carryovers.

Richard J. Schmaeling

Yeah, to give a look Tim to our release on February 12, you will see that it depends on where our stock price is at the closing of the LLC conversion. So that’s 10.75 or less. We think we will have surviving NOLs, if it’s greater than that you start chewing into the remainder of our NOLs and it’s above like $12.20. We consume all of our NOLs. So we if you assume for example, that it’s 10.75 or less and we have some surviving NOLs we do expect to be built or use those before they expire.

Tim Harrington – Citi Capital Advisors

Yes. From some specifics, we have $15 a share clearly we will have used up all of the operating loss of carryover all of the capital loss carryovers and we might even be in a position to pay a little bit of taxes, that analysis right?

Vincent L. Sadusky

That’s correct.

Tim Harrington – Citi Capital Advisors

Okay. Also as a result of that transaction, I assume all of our assets get a stepped-up basis to reflect the fact that we have, this is a taxable transaction, is that correct?

Vincent L. Sadusky

Not our assets, so at the point of the conversion, it will be as if our shareholders sold their stocks. And so let’s say the closing price of the conversion is $10.75. Your new basis in our shares will be that closing price, and you will recognize gain or loss depending on your basis in our shares at that point in time. The internal basis of our assets will not change.

Tim Harrington – Citi Capital Advisors

Is there anyway to push that basis back down to the individual assets?

Vincent L. Sadusky

No, because that the only, so I think you may know that we’re converting LIN TV Corp, our holding company, and that holding company all it has is its ownership of the stock of LIN Television Corporation, and nothing is happening at the LIN Television Corporation and below, it’s just the only asset it has is the stock at LIN Television Corporation. So nothing is happening LIN Television Corporation and below.

Tim Harrington – Citi Capital Advisors

Okay. LIN Television station in turn has all these various subsidiaries that actually hold these individual stations, if one were to sell a particular station at a profit? Is there a way to effectively reduce that profit, because of the stepped-up basis that occurs up at the LLC level or…

Vincent L. Sadusky

No.

Tim Harrington – Citi Capital Advisors

In word to liquidate the LLC and everything else?

Richard J. Schmaeling

No, Tim, unfortunately, not, the inside basis of our assets that’s not changed. So…

Scott M. Blumenthal

Okay. So the only way to maximize that benefit would be to sell actually the entire LLC.

Tim Harrington – Citi Capital Advisors

Okay. I’m very pleased that we are able to move up the reporting to-date by more than two weeks from the initial expected data, maybe the future week we can report as quickly, because I know what you guys are going through in terms of the complexities drafting proxy, perspectives and all the rest of the stuff that we’ll have to go into that monster.

Richard J. Schmaeling

Yeah. We agree Tim, hopefully next year will be sooner.

Tim Harrington – Citi Capital Advisors

Yes. After we’ve got the LLC all of the three classes of the stock disappear and everybody is the same. So you don’t have super voting stock, that’s correct?

Richard J. Schmaeling

That’s incorrect.

Vincent L. Sadusky

The stock will convert like-for-like. So ABC like-for-like.

Tim Harrington – Citi Capital Advisors

Okay. So that in fact, what the lower level, there still is the A class, the B class or the C class?

Vincent L. Sadusky

Yeah. That’s the way it is today at LIN TV Corp. level and that’s the way it will be with LIN Media LLC.

Tim Harrington – Citi Capital Advisors

Okay. So I thought that LLCs could only have one class of stock.

Vincent L. Sadusky

No.

Tim Harrington – Citi Capital Advisors

Unlike S-Corp, so we guys deserved that.

Richard J. Schmaeling

That’s correct.

Tim Harrington – Citi Capital Advisors

Okay.

Richard J. Schmaeling

Well, thank you, Tim.

Operator

And we will move to our next question from [Abby Fernandez] a Private Investor.

Unidentified Analyst

Hi, I actually have hopefully a pretty easy question. You talked about interactive, but you don’t really talk about the advertising sales, you separate that out. can you define what you played in interactive and if you do track the digital advertising sales, what the growth rate was?

Vincent L. Sadusky

Yeah. So we decided a while back that we had sufficient interactive assets and generated sufficient interactive sales. Separating apart from our television station websites and our television station mobile sales that we would begin to include that as a separately identified revenue line item, and so that’s what’s in there, because the thought was, whether it’s retransmission fees or a TV station, we’re advertising associated with TV station, web properties, mobile properties, all those types of digital revenue are all apart and far so and tied into the station business. To say it in other way, you don’t generate those revenues without owning these television stations.

So we’re excited when you look at those numbers and a 50% plus growth number that we’ve described are all related to something that is differentiated from many of our peers, as it’s a separate business. You can view it as a separate business, separate apart from the TV station interactive business.

Richard J. Schmaeling

And it’s advertising revenues. So you look at the interactive revenues that is, advertising revenues from LIN Digital and Nami Media.

Unidentified Analyst

Okay. And from your TV stations, do you break out that growth rate for that digital advertising or it’s more seeing this as advertising for the TV station?

Scott M. Blumenthal

Yeah, it’s part of our local revenues caption in our reporting. Those are component of local revenues.

Unidentified Analyst

Do you have that broken out at all?

Scott M. Blumenthal

We don’t break it out separately.

Unidentified Analyst

Okay.

Scott M. Blumenthal

Thank you.

Unidentified Analyst

Thank you.

Operator

And our last question comes from a follow-up with Edward Atorino with Benchmark.

Edward J. Atorino – The Benchmark Company, LLC

No, it’s been answered in several ways. Thank you.

Scott M. Blumenthal

Okay, thanks, Ed.

Richard J. Schmaeling

Thank you, Ed.

Operator

And with no further questions in the queue I will turn the call back over to the President and CEO for closing remarks.

Vincent L. Sadusky

Okay, great. Well, thank you operator. Thank you all for your interest in LIN Media. We look forward to updating you throughout the year. Thanks.

Operator

And again that does conclude the call. We would like to thank everyone for their participation today.

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