Belo Corporation's CEO Discusses Q1 2013 Results - Earnings Call Transcript

Apr.26.13 | About: Belo Corp. (BLC)

Belo Corporation (NYSE:BLC)

Q1 2013 Earnings Call

April 25, 2013, 11:00 am ET

Executives

Paul Fry - VP, IR & Corporate Communications

Dunia Shive - President & CEO

Carey Hendrickson - SVP & CFO

Peter Diaz - President, Media Operations

Analysts

Marci Ryvicker - Wells Fargo

Tracy Young - Evercore

Avi Steiner - JPMorgan

Davis Hebert - Wells Fargo Securities

Operator

Ladies and gentlemen, thank you for standing-by. Welcome to Belo Corp.’s First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode and then later we’ll conduct a question-and-answer session. The instructions will be given at that time. (Operator Instructions) As a reminder, this conference is being recorded.

And I would now like to turn the conference over to our host, Mr. Paul Fry, Vice President of Investor Relations. Please go ahead.

Paul Fry

Thank you, Laurie, and good morning. Welcome to Belo’s first quarter 2013 conference call. We issued a press release today announcing the company’s earnings and that release has been posted to our website at belo.com.

Today’s call will include comments from Dunia Shive, President and Chief Executive Officer and Carey Hendrickson, Senior Vice President and Chief Financial Officer. Also with us is Peter Diaz, President, Media Operations.

Before Dunia makes her opening remarks, let me note that our discussion will include forward-looking statements. Forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those statements. Additional information about these factors is detailed in the company’s press releases and public filings with the SEC, including the annual report on Form 10-K.

Also, reconciliations of non-GAAP financial measures discussed during this conference call to the most directly comparable financial measures presented in accordance with GAAP, including the reasons we believe that non-GAAP financial measures provide useful supplemental information for investors are posted on Belo’s website at belo.com under Investor Relations.

Now, I am pleased to turn the call over to Dunia.

Dunia Shive

Thanks Paul. The company’s total revenue grew almost 3% in the first quarter of 2013 compared to the first quarter of 2012 with gains in both core spot and total spot revenue. Also, our ongoing investments in interactive products and services contributed to a 22% increase in Internet revenue.

Our Super Bowl revenue totaled $3 million which was $1.4 million higher than last year and 34% higher than in 2010 the last time the Super Bowl aired on our CBS affiliates. Six of our top 10 categories were up in the first quarter.

Combined station and corporate operating costs were 4.1% higher in the first quarter of 2013 compared to the first quarter of 2012 due primarily to higher share based compensation expense associated with the company's higher stock price, higher programming expense associated with reverse compensation and higher sales related costs.

Our station EBITDA totaled $56.1 million in the first quarter of 2013 compared to $54.9 million in the first quarter of 2012. Our station EBITDA margin was 35%. While market conditions are soft in parts of the Northwest core revenue strength continues in Texas our largest region.

Now I will turn the call over to Carey to provide further details about our first quarter results.

Carey Hendrickson

Thank you, Dunia. As you saw in our press release today Belo reported net earnings per share of $0.16 in the first quarter of 2013 compared to net earnings per share of $0.14 in the first quarter of 2012. We generated total revenue of $160.3 million in the first quarter of 2013 which was $4.4 million or 2.8% higher than the first quarter of 2012.

Our core spot revenue excluding political was up about 2% with a 7% increase in national spot revenue and 1% decrease in local spot revenue. We had Super Bowl revenue of $3 million on our five CBS affiliates which was approximately $1.4 million higher than we had in the first quarter of 2012 on our four NBC affiliates.

Our core spot revenue growth came primarily from strength in the automotive, retail and telecommunications categories partially offset by lower spending in the healthcare, restaurants and entertainment and gambling categories. Other major categories that were up included financial services, grocery and related products and home improvement.

Political revenue in the first quarter of 2013 totaled just over $600,000 which was $1 million lower than in the first quarter of 2012. Our total spot revenue including political was up 1% in the first quarter of 2013 compared to first quarter 2012. Other revenue which is comprised primarily of internet advertising, retransmission revenue and barter and trade advertising was up 11% in the first quarter of 2013 compared to first quarter of 2012, including a 22% increase in internet advertising revenue and an 8% increase in retransmission revenue.

Station salaries, wages and employment benefits were basically flat in the first quarter of 2013. Our station programming and other operating cost in the first quarter of 2013 were up $3.3 million compared to first quarter of 2012, due to higher programming spends associated with an increase in reverse compensation and higher sales related cost associated with the company’s increase in internet core revenue.

Our corporate operating cost were $1.1 million higher in the first quarter of 2013, compared to first quarter of 2012, mostly due to higher share based compensation expense associated with the increase in the company’s stock price. Our depreciation expense totaled $7 million in the first quarter of 2013, down from $7.5 million in the first quarter of 2012. Our interest expense of $14.6 million in the first quarter of 2013 was $3 million lower than the first quarter of 2012 due primarily to lower debt levels associated with the early redemption of our May 2013 notes in November of 2012. Income tax expense increase $1.4 million in the first quarter of 2013 compared to first quarter of 2012, due to higher pre-tax earnings.

Our total debt at March 31, 2013, was $720 million. The company had $7.8 million drawn on it's credit facility and $5.1 million in cash and temporary cash investments at March 31. Our total leverage ratio as defined in our credit facility was 2.7 times at March 31, 2013. We invested $4.7 million in capital expenditures and made pension contributions up $4.3 million in the first quarter of 2013.

I will now turn the call back over to Dunia.

Dunia Shive

Thanks Carey. Before we go to Q&A, let me provide you a few remarks about the second quarter. Based on recent pacing, we currently estimate core spot revenue to be up 2% to 2.5% in the second quarter of 2013 compared to the second quarter of 2012. As we will cycle against $9.5 million in political revenue in the second quarter of last year, we currently estimate total revenue to be down 1.5% to 2% in the second quarter of 2013, with total revenue excluding political estimated to be up 3% to 3.5%.

Combined station incorporate operating costs are currently estimated to be up around 4% in the second quarter of 2013 when compared to the second quarter of 2012. Just as a reminder as I mentioned in February, due to the timing of upcoming renewals with MVPDs, the growth rate and retransmission revenue is expected to be higher in the second half of the year than in the first half of the year. Between July 1, 2013 and February 28, 2014 the company has renewals with six MVPDs covering more than 40% of below subscriber estimate. The company expects renewal for over half of these subscribers to be effective by October 1, 2013.

This concludes our formal remarks and now we will be glad to take your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And our first question from the line of Marci Ryvicker with Wells Fargo. Please go ahead.

Marci Ryvicker - Wells Fargo

Thanks I have a couple. The first one I just want to talk a little bit about M&A and I know you’ve looked in the past at assets, but its starting to feel like those who are buying have the ability to keep buying and those who have been less involved maybe losing their chance. So what’s your view on the M&A environment at this point?

Carey Hendrickson

Obviously I think we are very strong M&A environment. I don't necessarily agree that if you have not yet participated that you’ve lost your chance and without commenting specifically on what we’ve looked at or are looking at we are in the deal flow. Whether you move forward or not on a specific transaction obviously depends on several factors and putting price or cost synergies available to you versus other bidders including their duopoly creation or otherwise, and importantly where you are in your retran cycle versus another bidder. Then again look at the combination or the number of stations that you are after versus another bidder. So all of those considerations have to be taken into account, but I don't think that those who have not participated to date are kept from doing so in the future.

Marci Ryvicker - Wells Fargo

Okay, I am just going to fundamentals, can you just talk about the pace of business in the second quarter, is it relatively stable among all three months, is it improving sequentially or is it lumpy, any type of color there will be helpful?

Carey Hendrickson

If you look at the second quarter core overall, its better in terms of the pace today then first quarter core overall, but doesn’t necessarily look that way sequentially based on just pace, but we still have May and June to look forward to. April looks pretty strong. And overall though when you look at the core total first quarter versus second quarter, second quarter overall is stronger.

Marci Ryvicker - Wells Fargo

And then just quick question on the first quarter; what was the version performance between national and local spot in the first quarter?

Carey Hendrickson

I will say a couple of things on that. One of them is Super Bowl in the first quarter skew to national, so national is a little bit stronger there. There are also some accounts shifts between local and national. When you look at our markets, the local markets or the national markets versus against the audits, more of our local markets were down than our national markets so we had better national market performance by specific markets.

And then in terms of categories, the healthcare decline skewed local while the telecom increase we saw skewed national. So all those items kind of factored into a stronger national performance than local performance. When I look at second quarter both local and national currently on pace, both are in positive territory.

Operator

Our next question from the line of Doug Arthur with Evercore.

Tracy Young - Evercore

Hi, just the two questions, and this is Tracy Young. First question is on, you know you've done a great job of paying down debt, this is sort of Marci’s question, but you've done a good job of paying down debt. When we think about your prioritization for a free cash flow, the stock threshold, there was a shares picked up a little bit. So, should we think about stock buyback, dividend or a possible M&A as your priorities? And then the second question is probably for Peter, I've heard a lot of news or information about the healthcare, the ObamaCare, do you expect healthcare that category to start picking up more? Thanks.

Dunia Shive

Okay, Peter go ahead, I will come back to them.

Peter Diaz

On the second question the way we understand it is, we will start seeing some dollars probably late this year, November-December, it’s more of a 2014 event.

Tracy Young - Evercore

Great, thank you.

Dunia Shive

And back to your first quarter in terms of prioritization, I would put dividends and M&A ahead of share buybacks in terms of cash prioritization.

Operator

(Operator Instructions) We will go next to Avi Steiner with JPMorgan. Please go ahead with your question.

Avi Steiner - JPMorgan

Thanks. I have a couple here and I hopped on late so I apologize if this has been asked and answered. Can you just go over the expense increase, what's driving that, is it all reverse comp and again I apologize if this has already been asked and answered?

Dunia Shive

That's okay. Now I turn that over to Carey.

Carey Hendrickson

Yeah, it’s not all reverse comp. We don't comment specifically on the changes in reverse comp, but it was an important part of the increase but certainly not all of it. We had interactive sales related costs that were also substantially higher associated with the 22% increase that we had in our internet revenues in the first quarter and then we also had some higher advertising and promotion costs also.

And then as we also talked about in the release we had share-based compensation expense was higher because we have to reflect the change in the fair value of our stock and our stock price increased nicely in the first quarter, so therefore our share-based compensation increased as well.

Avi Steiner - JPMorgan

And then on the M&A front and I'm sure you are frustrated given you are up almost 90% over last year and still arguably underperforming, so let me ask the M&A question this way. Is a lack of activity in kind of mid and larger sized markets you know putting pressure aside for a second, but is it a function of some regulatory issues, is it lack of sellers, is it unwillingness enter in to JSA or SSA type structures or what's the bottleneck there and I'm assuming that you have no interest in smaller sized markets? Thank you.

Dunia Shive

I wouldn't say we have no interest in smaller sized markets. It really depends on how television station may fit into the profile of our group. It could be more concise as we do tend to like the mid to largest sized market, news present or competitive position. There's not a reluctance to look at JSAs. If you look at some of the deals that have been done, a lot of the deals have been done have, some of the stations there had allowed the buyer to create duopolies. We are in 15 markets, but they are 15 larger markets and we don't have the same number of markets that some of the other bidders do that have afforded them more duopoly opportunities than have been afforded to us when looking at some of these opportunities.

Operator

Our next question from the line of Davis Hebert with Wells Fargo Securities. Please go ahead.

Davis Hebert - Wells Fargo Securities

Good morning. Thanks for taking the question. I just had a question on retrans. You said you are 8% up year-over-year for Q1 and I believe you had said in the past the back half a bit stronger. So I wondered if you could provide a little color there and have you provided like a recent run rate of what your revenue is from retrans perspective?

Dunia Shive

Davis, we have not, but as I mentioned in my comments, just given the number of renewals we have in the second half of the year beginning with July 1, there is large one there. There is another one that comes due at the end of September. So we do have two of our top 10 providers that come due on July 1st and September 30 and we’ve got three smaller ones at the very end of the year. So they were really benefited, all of them would benefit in 2014 but we only get the benefit of these new deals in the second half of the year for 2013.

Operator

And I'll now turn the meeting back to Dunia Shive.

Dunia Shive

Okay, well, if there are no further questions, I want to thank everyone for joining us today and we will look forward to providing another update soon. Thank you.

Operator

Thank you. Ladies and gentlemen, this will conclude our teleconference for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.

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Belo (BLC): Q1 EPS of $0.16 beats by $0.01. Revenue of $160.3M beats by $0.85M. (PR)