Fisher Communications, Inc. Q1 2010 Earnings Call Transcript

May. 3.10 | About: Sinclair Broadcast (SBGI)

Fisher Communications, Inc. (FSCI) Q1 2010 Earnings Call Transcript April 29, 2010 4:00 PM ET

Executives

Joseph Lovejoy – SVP and CFO

Colleen Brown – President and CEO

Analysts

Bishop Cheen – Wells Fargo

Matt Swope – Broadpoint Capital

Michael Checker [ph] – Mentor [ph]

Barry Lucas – Gabelli & Company

Sam Yake – BGB Securities

Operator

Good day ladies and gentlemen, and welcome to the Q1 2010 Fisher Communications Incorporated financial results conference call. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference (Operator Instructions).

I would now like to turn the call over to Mr. Joseph Lovejoy, Senior Vice President and Chief Financial Officer. Please proceed sir.

Joseph Lovejoy

Thank you. Good afternoon everyone and thank you for joining us. Before we get started, let me remind you that this call contains forward-looking statements relating to the development of the company's operations, products and services and anticipated future operating results. These forward-looking statements include information preceded by or that includes the words believes, expects or similar expressions.

These statements are based on current information and projections about future events and are necessarily subject to a number of risks and uncertainties and actual results may differ materially from expectations. Factors that could cause actual results to differ materially from those expectations are described in our annual report on Form 10-K and quarterly reports on Form 10-Q as filed periodically with the Securities and Exchange Commission.

The company undertakes no obligation to update publicly any forward-looking statements due to new information, events or circumstances after the date of this conference call or to reflect the occurrence of unanticipated events. A webcast of this call is available on the Investor Relations portion of our Website and will be archived in audio form on the Website for a limited period.

With that, I will turn the call over to Colleen Brown, our President and Chief Executive Officer.

Colleen Brown

Good afternoon. We are greatly encouraged by our first quarter results. Joe will go over the details in a minute, but the important headline is that consolidated revenue increased 24% year-over-year, led by a 31% increase in television revenue. We are seeing evidence that some economic turnaround is taking hold for the first time since the recession began, we experienced year-over-year growth in virtually all of our key categories.

In first quarter, this includes Automotive which was up 55%; Professional Services, which grew by 20%; and Retail, which was up 17%. And based on the growth that we saw during the first quarter, we believe that the positive trends that began last December will continue. Also, the broadcast industry is expected to benefit from increased political spending during the rest of 2010. These are positive developments for our business we believe we are well-positioned to benefit from this improved market outlook, which we will expect will drive growth in 2010.

As we begin to emerge from the worst economic and operating environment in the past 50 years, we remain confident in the long-term growth potential of our business. This optimism is underscored by the fact that broadcast media remains the most powerful medium and the most effective way to reach mass audiences. While the industry is clearly undergoing a dramatic transformation, television and radio continue to have staying power. Consumers most rely on broadcast channels for their news, information and entertainment. As I mentioned in our last call, maintaining the right to our existing airwaves is a critical part of our strategy to deliver enhanced services to our viewers, including high-definition programming or multi-cast offerings and mobile TV.

We intend to continue to work diligently to ensure the spectrum we need for our future. As a management team, our top priority is to continually improve operational performance. As you may recall, the key goals of this objective are to improve ratings and increase market share of revenue at our Fisher stations. We have made tremendous progress on these two key goals, and this progress has enabled Fisher to become a stronger market competitor. For example, in the February ratings period, Fisher TV stations were ranked either 1st or 2nd in the key Adult 25-54 demographic in early news in 6 of our 7 markets.

It is important to note that we were able to grow our ratings without the benefit of the Olympics, which aired on NBC affiliates. In March, Seattle’s KOMO TV became the top rated TV station in the early evening news in the coveted Adult 25-54 demo. As the economy continues to recover and improve, our ratings momentum has helped position us to capture a larger portion of the advertising spend in our markets. Joe is going to talk further about those numbers in a minute. And we continue to implement a multi-platform operational strategy to capture these revenues, lower cost and better align our resources.

Our second-top priority is to grow through new media initiatives of what we call our broadcast-to-broadband initiative. While this currently is a small part of our overall business, we believe it offers the potential for strong growth and it is an important part of our future business. We recognize the way consumers receive and use content is changing, and we are leveraging technological innovation with our traditional broadcast strength to move us deeper into super serving our local community.

Our online strategy is designed to complement our legacy business and enable us to take advantage of the market opportunities that are being presented through increased media fragmentation and the demand for more personalized and mobile content. This year’s competitive advantages are the strong brand recognition and long-standing connections to the communities we serve. In short, we have unmatched community expertise, and we are leveraging the strength as we expand our digital strategy. Part of our strategy is to diversify revenue, which we are doing through our hyper-local initiative. Since we launched our first set of neighborhood Website in the Seattle market last August, we have expanded this initiative to 124 hyper local Websites in six of our markets.

In fact, this initiative is gaining momentum nationwide. Through our work with DataSphere Technologies, this solution is rolling out to other broadcasters and hyper local Websites are being launched for these broadcast groups as well. In fact, in total, the hyper local solution is currently played in 30% of the country with more broadcasters in the pipeline. In addition to providing more localized content facilitating neighborhood dialog and involvement, these sites provide a cost-effective advertising alternative for small, local businesses to better target their key audiences.

We are currently serving over 1,500 advertisers with Fisher’s neighborhood sites, the vast majority of which are new to Fisher. Our ability to generate cost-effective online advertising solutions is becoming increasingly important as businesses, particularly small and mid-sized advertisers never served before by our industry turned to online advertising. This is an important source of revenue that we are working to capture, particularly if companies re-evaluate their print and direct mail spend.

We are seeing steady increases in our hyper local Websites where revenues grew at a compounded monthly rate of 27% during the first quarter. But we are not stopping there, we must continue to seek new ways to reach online audiences and the advertisers that are following them. To that end, we recently signed an agreement with Acme Television where we will oversee the operations of the Daily Buzz, our nationally syndicated morning television program. More significantly, we will have access to the show’s resources and brand in order to produce unique content that will be distributed on both traditional broadcast and newly-created digital platforms.

We are focused on these new media opportunities as we extend our strong brand, provide new ways to interact with viewers and promote community involvement and create additional advertising vehicles that we believe we can turn into successful businesses. I look forward to updating you no future calls as we move forward with our broadcast-to-broadband initiative.

And with that, I will turn it back over to Joe.

Joseph Lovejoy

Thanks Colleen. In addition to this morning’s release of our quarterly financial results, we planned to filed our Form 10-Q with the SEC next week. These documents include in-depth information regarding our financial results. So, please refer to those sources for additional information. Today, I will be discussing certain non-GAAP financial measures such as TV and radio broadcast cash flow and EBITDA. Definitions and reconciliations of these terms can be found in our press release.

To summarize our first quarter results, consolidated revenue increased 24% to $35.3 million. Net loss was $2.2 million versus a $4.3 million loss in the first quarter of 2009, a positive swing of $2.1 million. EBITDA turned positive at $1.8 million, and that compares to a negative $2.1 million in the first quarter of 2009, and we ended the quarter with $44.2 million in cash and cash equivalents and this balance does not include a $10 million tax refund we received in April. During the quarter, our direct operating expenses and sales, general and administrative costs increased by 8%, reflecting higher commissions and rev fees from the higher revenue and increased strategic investments in programming.

With that, I will now review a few of the financial results for our three business segments, TV, Radio and Fisher Plaza. For the first quarter, TV net revenue increased 31% to $26.6 million. The increase was primarily due to stronger advertising revenue and a $1.7 million increase in retransmission consent revenue. Retransmission consent revenue for the first quarter of 2009 exclude $906,000 attributable to that quarter but recorded later upon contract execution for applicable accounting rules. Adjusted for that, the year-over-year increase was 25%. These revenue increases led to the first year-over-year growth in TV BCF and BCF margin in five quarters. TV BCF was $3.2 million, an increase of $2.9 million over the first quarter of 2009, and BCF margin was 12% compared to 1% in the same period in 2009. Internet and convergence revenue, driven in part by the strong performance of our hyper local Websites was $980,000 or 3.7% of TV revenue.

In our Radio segment, revenue increased 8% to $5.3 million in the first quarter of 2010. The increased revenue was offset by higher sales commissions, LMA fees for KOMO FM and increased Arbitron fees associated with the switch to PPMs in the Seattle market. Also, first quarter of 2009 expenses benefited from the collection of a previously written-off receivable. Accordingly, regular BCF decreased by $144,000 to $356,000 and BCF margin decreased to 7%.

And now turning to Fisher Plaza, which includes the operations of our 300,000 square foot mixed foot facility located near downtown Seattle. In the first quarter, our Plaza segment reported revenue of $3.5 million, a 5% increase over the same period in 2009, EBITDA for Plaza increased 4% over the first quarter of 2009 to $1.9 million. In our continuing efforts to maximize both operational efficiencies and Plaza profitability, we recently integrated our corporate offices into our Seattle broadcast operations, which added approximately 8,500 rentable square feet now available for lease. As a result, occupancy at Plaza decreased from 97% at the end of 2009 to 95% at the end of the first quarter.

With respect to the July 2009 electrical fire at Fisher Plaza, we continue to work with our insurance carriers on our remaining loss claim and we will update you on this as appropriate. As we have done on prior calls, I would like to update you on several of the key metrics that we used to evaluate ourselves. Colleen already mentioned a couple of first quarter ratings highlights with you. We continue to outperform our market growth rates by converting those ratings to higher market shares of revenue. In our audited TV and radio market that have reported so far, our aggregate market share of revenue improved 130 basis points from the first quarter of 2009 to the first quarter of 2010. Ours stations nearly doubled their market’s growth rate year-over-year, and that’s despite being up against the Olympics.

Next, we continue to strive to expand our online audience and diversify our revenue. In terms of online audience, which now includes our hyper local traffic, page views increased 9% from the first quarter of 2009 to the first quarter of 2010. Finally, we remain focused on improving financial metrics such as TV and radio broadcast cash flow, Plaza EBITDA, consolidated EBITDA and earnings per share as we reported four of the five key profitability measures we track improved year-over-year.

We currently believe our cost-containment measures, our investment in quality programming and gains in ratings and revenue share position us well as the overall economy improves.

And with that, I will turn the call back to Colleen.

Colleen Brown

Thanks Joe. In summary, we are pleased that the worst of recession appears to be behind us and we are encouraged by the spending trends that we have seen so far from our advertisers. We will however continue to keep a close eye on our costs. We now believe there are reasons to be optimistic about revenue and earnings going forward.

Complementing the efforts at our TV and radio stations, we are aggressively expanding our digital portfolio as we seek to scale this portion of our business, and through all of this hard work, we are making Fisher a stronger, more competitive and more efficient company, and one that should be better positioned than ever to deliver long-term value to its shareholders.

So, operator, we are now ready for questions.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from the line of Bishop Cheen with Wells Fargo. Please proceed.

Bishop Cheen – Wells Fargo

Thank you. Hi Colleen, hi Joe.

Colleen Brown

Hi Bishop.

Joseph Lovejoy

Hello.

Bishop Cheen – Wells Fargo

Okay, thank you for the rundown. I have got a few questions here. First, let me tell you, the format that you are reporting in is great. It is very helpful and it is one that we have been looking for, so thank you.

Colleen Brown

Thank you Bishop.

Bishop Cheen – Wells Fargo

Okay. So, let me focus on – let me billboard it for you. Margins, radio and Plaza, I want to talk about the additional space and kind of the overall long-term strategy of monetizing Plaza and just double-check cash. So, I know that's a lot, but I think we can run through it quickly. Margins, it's got to be frustrating. Is it more of a topline thing? Is it more of a cost thing? Why are the margins more anemic than I know that you want them to be?

Colleen Brown

Well, in the first quarter, as you know, it’s always a challenge to have healthy margins and we should pick up steam. As typically years progress, you do improve your margins. I think that we have room to improve. Part of the issue in my opinion with margins in this environment is making sure we are consistently reporting our expenses with our peers and sometimes that’s not always the case. We continue to look at that and make sure that we do, but I do know that apples-to-apples, it’s always difficult to understand. As you know, we are a small company, and so therefore we look harder at EBITDA overall versus the margins and that’s what we are focused on is EBITDA specifically because of the way we are structured as a company.

Bishop Cheen – Wells Fargo

Right. Look, I have given up on trying to figure out why the radio margins are perpetually so thin.

Colleen Brown

On the radio part –?

Bishop Cheen – Wells Fargo

I know that maybe we will get it after baseball season, maybe we will see if getting rid of that five-year contract really did have a – maybe it was an eight-year contract. I can't even remember, but in TV, the margins consistently seem to be thinner than they should be.

Colleen Brown

We agree and we are working to fix that. On the margins on radio specifically, there is one disadvantage that this company has versus other companies and that we don’t have a full contingent of radio stations. And that is an issue that we are aware of.

Bishop Cheen – Wells Fargo

Right. Your stations are not as strategically clustered?

Colleen Brown

Correct. Okay, all right.

Bishop Cheen – Wells Fargo

Okay. All right. I am just bumping all around here. Plaza, before the great recession credit crunch, you were looking into a strategic alternative for Plaza, i.e., perhaps selling it, say a leaseback, what have you. Then the commercial real estate market took a hit, where do you think we are in that long-term strategy?

Joseph Lovejoy

I mean, we continue to monitor the markets which has improved macro, but certainly the real estate market and the financing market underlying that has not improved to a level that we would consider marketing, but when that time comes, assuming it comes, we will look at re-marketing the assets. Now, prior to that time, we are doing our best, and as you noted in the comments that we made, we are doing certain things like freeing up space that where we can to be able to release that out, generate revenue and thus EBITDA and thus create the value. So, when that time does come, we will be able to maximize the value for shareholders.

Bishop Cheen – Wells Fargo

Right. And then, where did you relocate to, to free up that space?

Colleen Brown

We were in Plaza West as corporate and we have moved into Plaza East and consolidated, just squeezed down space.

Bishop Cheen – Wells Fargo

Got it. I didn’t realize that you were in Plaza West. Okay. Well, that seems to make sense. All right. On retransmission, is there any big chunky contract renewals coming up in 2010 calendar?

Colleen Brown

No.

Bishop Cheen – Wells Fargo

All right. And then, in 2011, first half, are there any big chunky contracts up for renegotiation?

Colleen Brown

In retrans?

Bishop Cheen – Wells Fargo

Yes.

Colleen Brown

No.

Bishop Cheen – Wells Fargo

Okay. And then, on the cash – and I am not using decimals, I am just rounding. 44 of cash, but the $10 million tax refund came in, in April, which would be 54ish. Were there any big cash outlays so far in this Q2, and do you anticipate, other than your normal operating, is there anything that we are not thinking of that is a big cash outlay that would take a big chip out of your cash balance?

Joseph Lovejoy

No.

Bishop Cheen – Wells Fargo

Okay. All right. And then, the new media, I know it's small and I know you focus on it and I know you have been a champion for it, but man, is it small? Is it in the black?

Colleen Brown

It depends on how you slice it. It’s in the black with the revenue at 3.7%. Each element underneath those are at different levels of performance. Our hyper local is in the black. Our main sites are closed and obviously our convergence revenue and added with main sites, yes it is in the black.

Bishop Cheen – Wells Fargo

Okay. Look, I am all for new media, you know, iNet, iPads, iPhones, but I love eyeballs that go ka-ching.

Colleen Brown

Well, we do too, and fortunately for us, we have got ratings momentum.

Bishop Cheen – Wells Fargo

Okay. And last question and I will get out of here. So, 130 basis points increase, and I think Joe, you were talking about in your local market share?

Joseph Lovejoy

That is correct. In our –

Bishop Cheen – Wells Fargo

Okay. So, what is that increase up to?

Joseph Lovejoy

You know what, we don’t get into that specific detail.

Bishop Cheen – Wells Fargo

All right. So, in other words, you're averaging – you're using, what, only your audited markets, right? I don't know if all seven markets are audited or not.

Colleen Brown

Right. These are audited markets, Bishop.

Bishop Cheen – Wells Fargo

Okay.

Joseph Lovejoy

Most are audited.

Bishop Cheen – Wells Fargo

Okay. That pretty much does it. Thanks very much.

Colleen Brown

Thank you.

Joseph Lovejoy

Thank you Bishop.

Operator

Your next question comes from the line of Matt Swope with Broadpoint Capital. Please proceed.

Matt Swope – Broadpoint Capital

Yes, hi guys.

Colleen Brown

Hi Matt.

Joseph Lovejoy

Hi Matt.

Matt Swope – Broadpoint Capital

Just building on a couple of Bishop's questions, so pro forma, you sit here with cash somewhere in the mid-50s and debt only at $122 million, how do you – I know your bonds are callable now and the call schedule steps down in September. How do you think about that negative carry, and where do we go with the capital structure at this point?

Joseph Lovejoy

It’s a good question, Matt. The way we think about it is you have seen us make some acquisitions on the open market last year, and we still think the trading prices has approached hard now. Still providing a reasonable rate of return obviously if you look at from that perspective, but given that we are just coming out of this economic cycle, hopefully we are coming out of it, signs are we are. Our decision has been to keep a little higher cash balance, dry powder and just have cash, the good thing. And that’s kind of where we are right now. We continually look at the opportunity that open market purchases of additional note.

Matt Swope – Broadpoint Capital

Right. That's certainly fair enough. I mean, and maybe even expanding it to a bigger line of thinking, in Bishop's questions, you talked about maybe a little disadvantage by not having the cluster on radio. How do you think about M&A for the company as a whole, both from the sell side and buy side?

Colleen Brown

I will take that one. I think that on the M&A buy side, there are properties out there that sellers want to sell, but prices are still crazy. And so, it’s very difficult to, number one, finding the thing that you want to buy and afford to buy, and number two, a lot of the buyers in the marketplace still can’t get the kind of running you need to make some sort of a deal competitively. But I would say that on how we feel on the sell side, obviously our Board takes a hard look at all opportunities and we keep an open mind, and it’s really about building the value as strongly as we can in this environment for the shareholders.

Matt Swope – Broadpoint Capital

Yes, that makes sense, and it seems like you do have a lot of opportunities at this point as your capital structure gives you flexibility that you haven’t had in the past and others haven't had in the past. And maybe just a couple of nuts and bolts questions, you have talked about what I would call reverse retrans paid to ABC, where does that go through the financials, Joe?

Joseph Lovejoy

That’s not reverse retrans, we have programming fees.

Matt Swope – Broadpoint Capital

Okay. So, would that or does that get thrown into just what I guess we see as direct operating costs there?

Joseph Lovejoy

Yes.

Matt Swope – Broadpoint Capital

All right. And can you quantify that for us at all?

Colleen Brown

No, we have not put that out there, and it is under a threshold that it really is not necessary for us to go into that and we treat it just like we would any other programming fees.

Matt Swope – Broadpoint Capital

Okay. And as part of the arrangement you have with ABC in particular, as you go back in your next round with the MSOs, will you negotiate with ABC at that point?

Colleen Brown

We talked about this product two calls ago, and as I recall, the deal is such that on the next round, there is an arrangement for ABC to negotiate a floor. And if we want to pick up on that, we can or we can go ahead on our own. So, it’s kind of a dual-sided opportunity.

Matt Swope – Broadpoint Capital

I see. But they put a floor and that you kind of can't do any worse then.

Colleen Brown

They haven’t put a number in there. There are just saying they want to try on their own with us and come up with a number overall. And then if we choose or accept it, we can or we can try it on our own.

Matt Swope – Broadpoint Capital

And in that process, is there any ability to aggregate with other ABC affiliates around the country?

Colleen Brown

I think that we have to be very careful about doing that and we certainly consult our attorneys and make sure that we are following all the rules.

Matt Swope – Broadpoint Capital

Right. Yes. I guess right. I mean, it's obviously a potentially sticky issue, but given that you don't overlap and are negotiating kind of even footing with the network, I wonder if that's an antitrust issue or maybe not. I guess that's it?

Colleen Brown

Yes, we take full advantage of what we are allowed to do by law.

Matt Swope – Broadpoint Capital

Right. Got you. And then, just one last one, you mentioned your broadcast-to-broadband initiative. You guys are not part of the joint venture that I think there are 12 TV companies involved with, is there a reason not to be involved with that or do you want to go a different way?

Colleen Brown

Actually, the Pearl Group is made up of 12 of the largest broadcasters and we are not one of those.

Matt Swope – Broadpoint Capital

I see. Okay. That's great. Thanks for your time.

Colleen Brown

Thank you.

Operator

Your next question comes from the line of Michael Checker [ph] with Mentor [ph]. Please proceed.

Michael Checker – Mentor

Good afternoon.

Colleen Brown

Good afternoon.

Joseph Lovejoy

Hi Michael.

Michael Checker – Mentor

Hi. Just want to go back to sort of this question about the margins. And I would have thought, looking at the level of revenue particularly on the TV stations back in '08 and you're approaching it now, that you are just not dropping more to the bottom line, whether it is on an operating basis, EBITDA, broadcast cash flow, however you want to look at it. And just, the last 18 months, almost every company, be it in advertising space or just a plain old company, they have all squeezed the cost structure to an extreme, which I think you've done, but I am very surprised we didn't get the leverage with a snap back in revenue the way we have.

Colleen Brown

Yes, I would say that we did get a great improvement in our margins compared to last year. We are not proud that the margins aren’t higher, because I would like to see them higher, but what you are seeing is a reflection of some of the programming costs regarding improving ratings, and so, while our ratings have improved and we are converting that to revenue, we still have some momentum to gain in dropping that to the bottom line. I am very encouraged that we are on the right path here.

Michael Checker – Mentor

If I look at the first quarter of '08, EBITDA was over twice where we are on a margin basis, broadcast cash flow was a third higher. I mean, if we are spending more, why aren't we getting –?

Colleen Brown

Yes, ’08 for us out here in the North West was a good quarter compared to the rest of the industry. We actually were up and the rest of the industry was struggling in the first quarter. We didn’t even experience automotive to go down in the first quarter of 2008. So, in comparison for us, it really happened in the back half of ’08, the last six months of ’08. And so, we are up against pretty good comparables, but we would like to be back at ’08 levels, there is no doubt. I would also argue we came out of this a little bit later than the rest of the country even though we have come out a little bit stronger. We seem to ladies and gentlemen just a little bit, but again, I think the trend is right.

Michael Checker – Mentor

Yes. But we are talking about $1.3 million in differential in revenue, at least in the TV section. Yet your – it's just not dropping to the bottom line. And just looking at a lot of other companies, either in the radio space, TV space, they are – they seem to be dropping it down from the cost saves they have done over the last 18 months. And I just, I guess the question is we had an acquisition a couple of years ago in Bakersfield and that was supposed to give us some leverage, and where are we really having the problem? Is it our cost structure? Are we not getting the bang for the buck in the programming?

Colleen Brown

I don’t want to extend this conversation too long, but I will say that our efficiencies and return on the programming has been very satisfactory. And regarding Bakersfield, just coincidentally, first quarter – it was our highest margin station group. So, I am pleased with our Bakersfield acquisition. So, coming back, I think what pulled us down is the fact that we don’t have a full contingent of radio stations. However we are making –

Michael Checker – Mentor

But I am looking at the TV segment, skip radio.

Colleen Brown

Okay. And then coming back to television, I would argue that where we are at with our Univision [ph] has probably been with the slowest return, specifically the spending and the priorities of spending in a market start with the strongest stations and then drop down. So, we didn’t see the kind of profit returned or rebound in our Univision stations although it’s still a smaller part of our portfolio. We don’t disagree with you. We would like to see more on the bottom line, and I feel we are on the right track, and first quarter for us against 2008 is a tough comparison compared to our peers.

Michael Checker – Mentor

Okay, thank you.

Colleen Brown

Thank you.

Operator

Your next question comes from the line of Barry Lucas with Gabelli & Company. Please proceed.

Barry Lucas – Gabelli & Company

Good afternoon. Thanks for taking the question. Colleen, a little bit about the Daily Buzz, and maybe you talk about how you benefit, what the opportunity is, and given, as you just described, a relatively small complement of stations, including television stations, how do you maximize that benefit, and maybe you could size it for us?

Colleen Brown

Yes, thank you for asking that question. It’s a very small initiative right now. It fits into really what is the last of our strategic initiatives that we have put in front of us since the 2006 strategic plan, and that is to acquire, develop or create programming content, more content. How this is benefiting the company, we get paid. It’s a very small amount in comparison to the overall earnings of the company to run this thing for them. But we get access to everything on their side or everything on their television show. So, we get all of the people, the equipment, the branding, the content that we can then take out and make a part of our vertical and it’s like syndication to some degree in the Internet, make it part of our vertical in the neighborhoods and on our sites.

So, our sites will be more robust, which I believe is an important next step for the growth of the hyper local. So, if a full circle of coming back to feeding the Internet content and working with our advertisers to provide them content, they can sponsor. And as far as sizing goes, I still think that this has great potential, but it’s not a huge initiative on the part of the company. It is a business development initiative that initially is going to be very important to make our content more robust for the size and eventually also for our dot twos, our multi channels. But I don’t see it at this point as a huge announcement with great potential, but it’s very important for bolstering and further in the growth in our hyper local, in our multi channels.

Barry Lucas – Gabelli & Company

Okay, great. Thank you.

Colleen Brown

You are welcome.

Operator

Your next question comes from the line of Sam Yake with BGB Securities. Please proceed.

Sam Yake – BGB Securities

Yes, hello. Thanks for taking the questions.

Colleen Brown

Hi Sam.

Sam Yake – BGB Securities

I am just wondering, it seems to me that, by far, the best investment the company has is its own stock right now. And I am just wondering if you could give a comment, kind of following on what the other gentleman said about buying back bonds. To me, the attractive thing would be to buy back some stock at this point, and I would just like to get your thoughts on that.

Joseph Lovejoy

I mean, the Board looks at all considerations, but I will tell you the note, the covenants around the notes do limit, severely limit our ability to do so.

Sam Yake – BGB Securities

Yes, understand. They severely limit, but do they, you mean, they don't totally restrict, it is just very limited?

Joseph Lovejoy

True, yes.

Sam Yake – BGB Securities

So, what kind of limitations are there? I mean, how much could you buy back?

Joseph Lovejoy

As you might recall, there is a restricted payment sort of bucket if you will that’s based on cumulative cash flow and again the formula, but I mean, basically it’s around $7.5 million right now, that bucket.

Sam Yake – BGB Securities

$7.5 million? It just seems to me that where your stock is right now, it's extremely compelling and I know you can't do it when earnings are out, but now that they are out, I would just think you might be on top of that.

Colleen Brown

We are on top of it and we do evaluate it at the Board level, every Board session.

Sam Yake – BGB Securities

Okay, very good. And I had one other question. I think I recall from years back that Bill Gates through Cascade Investments, he owned over 5% of the stock, and I believe he had a representative on the Board. And I am just wondering, does he still have a representative on the Board and what, I think I saw in 13-D filing, he dipped below 5%, and I was just wondering what your thoughts were.

Colleen Brown

Yes, he did have a representative on the Board. They dropped below 5%. There was a change in the ruling that had, and I can’t remember exactly what happened, but it required disclosure, security numbers by the SEC for anybody who invested and at a certain level. And I think that there were many investors across the industry that took a second look at that, and have dropped below whatever the threshold was, which I think is 5%.

Sam Yake – BGB Securities

Okay, I see. Okay, thanks so much and best of luck.

Colleen Brown

Thank you.

Operator

Your next question is a follow-up question from the line of Bishop Cheen with Wells Fargo. Please proceed.

Bishop Cheen – Wells Fargo

Thanks. The question that you always get and most companies with bonds always get from equity holders who don't understand or the convoluted covenants on restricted payments. So, my question is, is there a critical mass, because I can't recall, I would have to go into your indenture? Is there a critical mass of bonds outstanding in which case that the covenants would no longer apply? So, theoretically, if you have 122 million out, and let's say that 50 got bought back it and was down to less than 75 million, the restricted payments covenants would still be in effect?

Joseph Lovejoy

They would be. There is no such release by virtue of getting that balance down other than zero.

Bishop Cheen – Wells Fargo

Yes, it's seems the magic number. Okay, and obviously, we don't have to spend time talking about all the options you could do to play with the balance sheet. I am sure you know them better than anybody. So, here's my question for you, Colleen. All things being equal, which they never are, but just for giggles, all things being equal, if you could make acquisitions or expand your platform for the stations or with strategic new media, broadband, software, services, some kind of an enhancement to, let's say, the future of the broadband multi-channel initiative, what do you think you would rather do?

Colleen Brown

It really depends on the analysis and how much I think we can make for the shareholders. If you just take a – there are so many variations on television stations and how you might been valued it, but it’s really, that’s very hypothetical. If you take a look at the Internet and what can be done through these different initiatives, we can afford the organic growth there, more than we can do anything in the mergers and acquisitions side right now. So, I like working with the Internet because just really what re-thinking it, you can re-purpose and you can parse and create value that we didn’t experience before. Even though it’s only 3.7% of our business, it is the fastest growing area, and it is what advertisers are asking for, and what we see happening on a hyper local side means we are definitely serving our community and creating what I consider an army of news gatherers we didn’t have before.

So, I think we are right on this bubble of this kind of a question, but the reality is organically we can more easily view Internet, and an M&A type situation really depends on what opportunity is put in front of us. I wish I could be more definitive, but I don’t think it’s that simple.

Bishop Cheen – Wells Fargo

Well, yes. I mean, obviously, it was a big pie in the sky question, but with no definitive answer required.

Colleen Brown

Bishop, I would say one thing I have seen, you know, I have worked for a lot of really broadcasters. This team gets it, this team knows Internet, and this is an environment where we live and breathe Internet, and so, I think we are on the front edge of how we think about multi-platforms, how we think about broadcast and broadband. What we have learned in this group and up here in Seattle is you are not the smartest guy in the room, you are not the only game in town, the Internet is a very huge persuasive element in this town and across the Northwest, and as a result, I think we think about it a little bit differently, and I think that we are able to work within that the ambiguity of the Internet and all that means in the complex competition that comes out in a way others can’t and don’t. And so, I like looking at and watching our team just maneuver because they get it and they can do it. And I am excited about that piece of it and what that might mean for looking at our traditional and legacy brand.

Bishop Cheen – Wells Fargo

Yes, I don't doubt it. But the way – one way to keep score is it all has to come down to the ROI.

Colleen Brown

No doubt.

Bishop Cheen – Wells Fargo

Within our lifetime, you know.

Colleen Brown

No doubt, and we all had a tough 2009. Obviously, it’s a very tricky thing to get returns on Internet when they are so small in the beginning and so small in the mix of things. But again, we are not looking at it as, is it Internet or is it television. Our broadcast-to-broadband strategy puts content right dead center with all the distribution mechanism from television to radio to dot two to Internet to mobile to anyway we could distribute this, content is the priority and then the purpose is obviously to touch more advertisers and more consumers, and as a result, I am more agnostic on the distribution as much as I am really interested in getting the most value for every piece of content we have in our company and on our stations, which is why the Acme deal is interesting and intriguing because if we can parse and utilize and sponsor more of this content, more content, we can make more money, and we can make it across geographic lines that we have not been able to do before.

Bishop Cheen – Wells Fargo

You are referring to the Daily Buzz?

Colleen Brown

Correct.

Bishop Cheen – Wells Fargo

Right. Yes. Well, stay tuned, sounds exciting.

Colleen Brown

Thank you. And I do think, one thing I will make a comment on because it’s clear the margins were the issue on this call. We will take a harder look at how we allocate, because we are going into this multi-platform concept, making sure that we are properly thinking about where the costs lie and also part of the goal here is by going multi-platform to be much more efficient with our costs and that is the whole initiative for this year.

Bishop Cheen – Wells Fargo

From your lips, Colleen, we would all like to see that.

Colleen Brown

Well, I think that the whole industry is moving in this direction. So, hopefully we will figure it out.

Bishop Cheen – Wells Fargo

Okay.

Colleen Brown

Thanks Bishop.

Bishop Cheen – Wells Fargo

Thank you.

Operator

And this concludes the question-and-answer portion of today’s conference call. I would now like to turn the call back over to Colleen Brown for any closing remarks.

Colleen Brown

Thanks everybody. I appreciate your time, and it is good to see the economy a little stronger, and the team is committed to improving and growing and creating value, and that’s we are focused on. So, thank you for the time.

Operator

Thank you for your participation in today’s conference call. This concludes the presentation. You may now disconnect. Good day.

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