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Executives

Brad Edwards - IR

Roger Werner - President and CEO

Doug Langston - CAO

Tom Hornish - COO

Analysts

Mike Kupinski - Noble Financial

James Marsh - Piper Jaffray

John Kornreich - Sandler

Outdoor Channel Holdings, Inc. (OUTD) Q1 2010 Earnings Call May 5, 2010 5:30 PM ET

Operator

Good day, ladies and gentlemen, and welcome to the Q1 2010 Outdoor Channel Holdings Incorporated earnings conference call. My name is Derrick, and I'll be your operator for today. (Operator Instructions) As a reminder this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Brad Edwards. Please proceed.

Brad Edwards

Thank you, Derrick, and good afternoon, everyone. Before we begin, please recognize that certain statements on this conference call are not historical fact. They may be deemed, therefore, to be forward-looking statements under the Private Securities Litigation Reform Act of 1995.

In particular, statements about future results expected to be obtained from the company's current strategic initiatives are forward-looking statements. Many important factors may cause the company's actual results to differ materially from those discussed in any such forward-looking statements.

These risks and uncertainties are described in further detail in the company's filings with the SEC. You are directed to these filings for more detailed information. Outdoor Channel Holdings undertakes no obligation to publicly update or revise its forward-looking statements.

Please also note that we will be discussing non-GAAP financial measures within the meaning of the SEC rules. The company believes that earnings before interest, taxes, depreciation, and amortization or EBITDA, adjusted for the effects of share-based compensation expense and acquisition and integration costs provides greater comparability regarding its ongoing operating performance.

This information is not intended to be considered in isolation or as a substitute for net income or loss calculated in accordance with U.S. GAAP. A reconciliation of the company's U.S. GAAP information to EBITDA, adjusted for the effects of share-based compensation expense, and acquisition and integration cost is provided in the table attached to the company's 2010 first quarter earnings release, distributed earlier today and available on the Investor Relations section of the company's website at www.outdoorchannel.com.

Outdoor Channel is Nielsen-rated. Nielsen Media Research is the leading provider of television audience measurements and advertising information services worldwide. Please note that Nielsen estimates regarding Outdoor Channel's subscriber base are made by Nielsen Media Research and are theirs alone and does not represent opinions, forecasts or predictions of Outdoor Channel Holdings or its management. The company does not, by its reference today, imply its endorsement of or concurrence with such information.

Finally, we have allotted one hour for today's conference call. Outdoor Channel's President and CEO, Roger Werner, will begin with a brief overview of the ongoing progress being made with strategic initiatives being implemented at Outdoor Channel. Doug Langston, Outdoor Channel's Chief Accounting Officer, will then provide an overview of the financial results for the 2010 first quarter. Then we will open up the call to for a Q&A session. And as usual, Outdoor Channel's Chief Operating Officer, Tom Hornish, is also here with us and will participate in the Q&A. With the formalities aside, I'll now turn the call over to Roger Werner. Roger?

Roger Werner

Thank you, Brad, and welcome everyone to the first quarter earnings conference call. During this quarter we continue to witness an improving business environment across our markets. And we're pleased with the level of advertising demand growth that we're seeing in the current quarter.

First quarter results reflect the early stages of an ad market recovery, as well as our efforts to maximize our performance at the network. We continue to execute on our existing strategic plan, including building on our multiplatform leadership position in the Outdoor Segment, and strengthening relationships with viewers, advertisers and our distribution partners.

Our first quarter revenues increased 5% year-over-year. The results include a full quarter of contributions from our Winnercomm unit this year, compared to about two-and-a-half months in last year's quarter. So that accounts for a significant piece of that topline revenue growth.

At the legacy Outdoor Channel Business, total ad revenues declined 6.4% during the first quarter. Decrease reflects the reduced amount of inventory taken by a number of our time-buy producers, who were starting to feel the impact of the '08-'09 slowdown in the latter half of '09, and some lowered infomercial revenues as well. These were partially offset by higher spot sales and internet sales importantly.

I should note that in the prior year in '09's first quarter, our ad revenue actually increased year-over-year versus '08 in low single digits. So we outperformed the majority of our peers who posted declines in revenue at the height of the recession. In addition, as we stated on past calls, our business is impacted by seasonality with the bulk of our revenue occurring during the second half of the year.

So overall, we're reasonably pleased with first quarter's performance given that it's still early in the recovery and this is traditionally a lighter quarter for us in terms of ad revenue. In the current quarter, second quarter, our ad revenues are pacing up well in double digits as of May 1 and given our performance to date, importantly we remain optimistic that we can see meaningful topline growth for the full year, in ad sales.

So all in all we believe we're moving in the right direction. No doubt, the last 12 months was a tough period for most of us in the media business particularly those who are heavily dependent on ad sales. But our ad sales team under the direction of Marc Kidd and Greg Herington are doing a great job, monetizing the audience growth subscriber growth that we generated and they continue to leverage a strong brand and our unique position as a category leader, in serving the highly targeted outdoor audience.

Driving our continued confidence since the popularity of our content, which has fueled our ability to consistently deliver a highly engaged and attractive, highly concentrated male audience. Second, our success in the past year in expanding our subscriber base, which I'll talk about in a moment, in strengthening our online presence continues to enable us to deliver a better and better value proposition to our advertisers.

On the distribution front, as previously reported, we greatly expanded the reach of the network in the past year through a combination of new carriage deals and a series of packaging upgrades and new market launches nation wide. As of May 2010, our Nielsen Universe is now up to 36.4 million homes, which is an increase of 6.5 million subscribers or 21.5% over May of last year. This gives our ad sales force some increased resources as they approach the ad community, sometime on our network for the second half and then till 2011.

Over the past year, we've also expanded distribution rather for our high definition service. Outdoor Channel HD now exceeds 4 million total subscribers. Looking ahead, we continue to focus on growing the sub base and we remain in active discussions with our distribution partners with the goal of securing entry into some new markets as well as continued upgrading of our packaging in many other markets.

Turning to Winnercomm, our production services subsidiary; Winnercomm generated $5.7 million in revenue during the first quarter and produced adjusted EBITDA of negative $1.6 million. Winnercomm's bottomline would have improved significantly year-over-year, were it not for some ongoing accounting expenses and the write off of some customer relationships that we determined were headed for bad debt territory.

As we previously discussed, late last year. We move forward with the reorganization of Winnercomm, which included a work force reduction, several key executive appointments and the elimination of some lower margin lines of business. These efforts were aimed at right sizing the business and better aligning the unit with the Outdoor Channel parent company's objectives for the core outdoor channel business. While we're still yet to reap the full benefits of these efforts, Winnercomm's management team is doing a good job having a positive impact and we continue to be excited about the long term growth opportunities of that business.

Our Winnercomm folks just came off a really great weekend at Churchill Downs and their Derby Day race program this year's much better ad sales, delivered a much better ad sales picture than last. And we continue to feel good about a number of the businesses they're still in.

Finally as we've mentioned in the past, Winnercomm, like Outdoor Channel is skewed seasonally as the bulk of its revenues coming during the second half of the year, particularly in the fourth quarter. Yet the unit's costs tend to be more evenly distributed across all 12 months of the year.

So in summary and in conclusion here during the first quarter the business environment continued to improve, we continue to see some positive trends in the current quarter, which makes us optimistic for the full-year ahead. In 2010, we continue to execute on the gross strategy, which includes strategic programming investments, securing additional distribution gains and driving improving performance at Winnercomm.

Our balance sheet remains solid; and this supports our flexibility to invest in our business, as well as to consider potential acquisitions, which could accelerate our growth profile in the coming years.

And now, I am going to turn the call over to Doug Langston, our Chief Accounting Officer, who will review first quarter results and financial position in a little greater detail.

Doug Langston

During the first quarter, our total revenues increased 5% over the prior year period. Advertising revenues decreased 6.4% during the first quarter compared to last year. As Roger mentioned, the decline was due to a reduced amount of inventory taken by our time-buy producers and lower infomercial revenues, partially offset by higher online ad-revenues.

First quarter subscriber fees, were $4.8 million, compared to $4.7 million for the comparable prior last year. The growth in subscriber fees is driven by increased rate at new and existing service providers as well as subscriber increases at several service providers.

Turning to Winnercomm results, which are reported under production services, total production services revenues were $5.7 million in the first quarter compared to $4.5 million last year. As Roger noted, the 2010 first quarter included an extra two weeks of revenue given we acquired Winnercomm on January 12, 2009.

The total cost and services for the first quarter was $8.9 million compared to $8.8 million during the first quarter last year. This increase was due primarily to higher production and operation costs associated with the increased revenues from our production services segment.

Programming expenses declined 22% year-over-year in the first quarter, due in part to synergies recognized from utilizing Winnercomm as our original programming. Satellite transmission fees were down 1% year-over-year. Advertising expenses for the first quarter decreased 37.7% from the year ago due to decreased spending on promotional materials.

SG&A expenses for the first quarter increased 12.9% compared to the year ago period. The increase in SG&A expenses was primarily a result of increased legal, accounting and professional fees.

The company recognized a net loss of $1.5 million or $0.06 per diluted share and EBITDA adjusted for the effects of share-based compensation expense and acquisition and integration cost was negative $0.7million.

In the year-ago period, the company generated the net loss of $1.3 million or $0.05 per diluted share and EBITDA adjusted for the effects for the share-based compensation expense was break-even. The legacy Outdoor Channel business generated EBITDA adjusted for the effect of share-based compensation expense and acquisition and integration cost of $0.9 million during the first quarter, compared to $1.6 million in the year-ago period.

Our production and services segment generated a negative $1.6 million in EBITDA adjusted for the effects of the share-based compensation expense and acquisition and integration cost during the first quarter, compared to a negative $1.5 million in the year-ago period.

We continue to maintain a healthy and debt free balance sheet. As of March 31, 2010, the company had cash, cash equivalent and marketable securities totaling $55.2 million, working capital of $66.3 million and total shareholders equity worth $137.2 million.

That concludes our formal remarks, now Roger, Tom and myself will be happy to take any questions you have.

Question-and-Answer Session

Operator

And the first question comes from the line of Michael Kupinski from Noble Financial.

Mike Kupinski - Noble Financial

Advertising decelerated in the quarter from the fourth quarter, and it looks like you had a sequential drop in advertising per sub. I was just wondering if there was anything going on with rates; were you able to hold onto rates? And then, as you go forward are you getting a little bit of pricing and if you could just talk about where you are starting to see the strength as you go into the second quarters and, I guess, into the future? Are you starting to see the time-buys comeback and getting a little rate there and can you just give us a little color on what you are seeing in terms of the top-line advertising?

Roger Werner

I appreciate your involvement today and your question. Let me see if I can answer all the pieces of the question. Number one, we always see a fall off from fourth quarter to first quarter in both the absolute dollars of ad sales and probably in the per sub numbers. Well, so nothing unexpected there. We just add a couple of our, I would say weaker producers, guys with less sponsorship support, having to effectively cutback a little bit, going into 2010. A number of those guys, for example would have been 52 week a year time-buyers and they've now dropped down to 26 or 30 or some other number, just because of sponsor dollars weren't there.

Now, the second part of your question; are they coming back are we seeing a renewed energy and growth in demand? The answer is yes, and that applies to both, the spot sales side of our business, the internet sells part of the business, and the time-buy producer side of the business. The only piece of ad sales that is exhibiting any ongoing weakness is the infomercial piece, which is 10% or less of our total. Guessing now it's probably more like 8% or 9% of the total. And it looks pretty weak. It'll probably be down in low single digits for the year. But we still remain optimistic, the total ad sales for the full year will show meaningful growth year-over-year.

You had one other piece of your question related to pricing, how much of this is volume versus price. Our prices are growing a little bit, we are we are able to raise prices, but we are not able to raise them as rapidly as we did a few years ago, but that's understandable. We didn't anticipate that in this year's budget, but we continue to see demand and in fact are running close to sell out in the current quarter.

Mike Kupinski - Noble Financial

In terms of the parts that's seen the double-digit growth in advertising in the second quarter and so forth, are you starting to see the impact of the higher Nielsen numbers in that or is that yet to come, particularly in the second half as you kind of indicated?

Roger Werner

Mike, I think there's a lead lack effect on the Nielsen numbers. My guess is that, if we grew subscribers 6.5 million year-over-year, you know may-over-may; it may be six to 12 months from this may before we actually start to monetize that bump. We're selling out a full six months and that kind of growth gets baked in over time.

Mike Kupinski - Noble Financial

And Winnercomm's revenues were a little stronger than I expected, even taking into account the extra comparisons. Your thoughts on the revenue, because I know that you're right-sizing that business and I would imagine that the revenue outlook is going to be pretty bleak for the coming quarters in Winnercomm.

Roger Werner

Yes, let me comment on that. The revenue picture of Winnercomm isn't really bleak. In the core businesses of Winnercomm that we feel are really relevant to our channel business, the revenue picture is improving. I mentioned a minute ago the Kentucky Derby races, that full day race card, which is something Winnercomm has been producing for 20 plus years. They saw dramatic improvements in ad sales year-over-year for those races.

We're seeing improvement in their other lines of business as well. I think the Winnercomm business is going to look better year-over-year. And certainly, the Outdoor Channel core business is looking better as we look forward year-over-year. So where you may see a decline in Winnercomm revenues overall, is in areas in lines of business where we either felt that they were less relevant to our core objectives or achieving our core objectives for the channel.

Or business segments that were under-producing in terms of their financial contribution. So there is some ongoing, kind of pruning refocusing going on. And there may be some revenues that will give up, so that we can produce a better bottomline and improve synergy with the channel.

Mike Kupinski - Noble Financial

And for the full year, are we to expect that revenues in total for Winnercomm should be down year-over-year, right?

Roger Werner

Yes.

Mike Kupinski - Noble Financial

Okay. And then in terms of programming, they were significantly lower than expected, is that a good run rate for future quarters, the programming expense line?

Roger Werner

That a good question, Tom, and I am not so sure I can answer that as accurately as Mike might want.

Tom Hornish

Mike, it's Tom, it's down a little bit, a fair amount frankly, but that's primarily due to Winnercomm doing more of our own internal programming, so we capture that margin on the intercompany relationship. That's probably closer to that central run rate you have about 5.25, 5.3 for the year and that's probably closer in line with what we would expect for the year.

And, Mike, a second ago I think you said about add sales increasing in second quarter, we're talking about for the year, we're comfortable that everything coming back that give the cyclical nature of the advertising in our market, the first and second quarter we'll start seeing and making that up and start seeing the increases more so in third and fourth. So I don't want to set your expectations there for second quarter to see a big increase in second.

Mike Kupinski - Noble Financial

Okay, so the reference to the double digit growth in advertising for the second quarter, what were you referring to there?

Roger Werner

Spot sales and internet sales.

Mike Kupinski - Noble Financial

Okay

Tom Hornish

For the short form versus time-buy is kind of a repeat from the first, but we expect to make a significant portion of decrease with our year-over-year basis up in the short form spot buy in the internet.

Mike Kupinski - Noble Financial

Okay. But I guess in your second quarter of last year was your easiest comp. do you expect that advertising sales, ad revenues in total to be up year-over-year or do you think that it's still be down?

Tom Hornish

Yeah given that it was down last year and the markets improving on a short form even though the time-buy is down a little bit, I would expect the best from what we know right now and what we can see in the future, relatively flat to last quarter would be my best estimate. Roger I don't know if you have a better feel for it

Roger Werner

You know I really don't, Mike. I would hate to try to be too precise with you on this one, but it's an evolving story. The guys are running on or a little ahead of their budget for second quarter, which net-net should produce an increase year-over-year.

But as Tom said the important points we wanted to make are that given the full-year forecast and the improving demand picture in second quarter, we believe that for the year we can show topline growth in total ad sales that includes the time-buy and spot sales and internet sales; and even more than offsetting a little bit of softness on the infomercial side. So total ad sales should be up year-over-year for the full year.

Second quarter as Tom said, may be flattish, may be up a little. Could I suppose even be down a little, but I doubt it. But the real meaningful growth we're looking at is third and fourth.

Mike Kupinski - Noble Financial

Okay. And just one more question before I open it up for others. The SG&A expense is obviously elevated. You had mentioned that legal expenses were in there. Can you talk a little bit about how much the legal expenses were in the first quarter, whether or not they're going to continue going forward, and maybe the prospect of what type of run rate should we look for in the SG&A line?

Roger Werner

Yes, Mike, I may let Tom and Doug answer this too. But let me give you an overall comment, the 12% growth year-over-year in first quarter, we do not expect to apply on a go-forward basis. There are a number of, sort of, one time or exceptional expenses in there, including some governance related expenses some due diligence related work that our legal and accounting folks had to do on some projects we're looking at. The bad debt right off, I mentioned to you.

Tom and Doug, maybe you can provide a little more color to Mike, but Mike we're not looking anything like 12% year-over-year for SG&A more of low single digits.

Tom Hornish

Yes, Mike, it's Tom. I mean included in that category is some audit fees and some trade share timings expenses that came in first versus second quarter last year. And I don't think we want to get into breaking out the specific line items of the SG&A obviously. But it's a group of the things that kind of occurred on an aberrational basis for this quarter versus '09 first quarter.

Mike Kupinski - Noble Financial

And I guess a because of the compensation structure, Roger, that you had in the first quarter, you had a supplemental bonus in there $600,000 in the previous quarter. So you're (comping) against some of those supplemental bonuses. Shouldn't SG&A expenses be going down year-over-year?

Roger Werner

Yes, they probably should and probably would have this year, Mike, we're not for some of these exceptional onetime things that hit us.

Mike Kupinski - Noble Financial

But I mean in terms of the second and third quarters as you go forward, if a lot of these were aberrational in nature, would you look for SG&A expenses to be down year-over-year? I think that you mentioned that you're expecting it to be up single digits.

Roger Werner

Yes, they could be in a given quarter down year-over-year. Doug or Tom, I don't know if we can be too precise on that. But I think Mike's point is well taken. It could be down in a quarter.

Mike Kupinski - Noble Financial

Okay. I'll leave it open for others to ask questions. Thank you very much.

Operator

Your next question comes from the line of James Marsh with Piper Jaffray.

James Marsh - Piper Jaffray

Just a couple of quick questions. First, I wanted to talk a little bit about sponsorship and advertising. First, is there any trend in more sponsorship taking place on some of the shows? I've noticed Mossy Oak, obviously, but (vanilla) and some of these others, is there any underlying trend there?

And secondly, just related to advertising, I was hoping, Roger, you could maybe flush out what categories are doing well and which ones are not doing so well? And then I've got a follow-up related to affiliate sales.

Roger Werner

Well, in general the sponsorship trends that probably aren't any sort of meaningful changes in trend or changes in the basic structure of our market. As you probably know from past calls, we are putting more emphasis for our future growth. And some of the new categories are non-endemic categories that we haven't been that successful within the past.

And those would include beer and wine and travel and financial services and automotive, and automotive after market, and a variety of things. So to the extent that we can make some of those categories bigger contributors to the overall sponsorship picture, I think we enhance our future growth rates.

But we have not seen any fall off in interest or demand or dollars from our core Outdoor sponsors. Except to say that, the marine industry is still suffering, it's still weak. If things will recover there, people will buy and replace sports motors, but that's pretty slow, still pretty slow.

So I don't know if that helps you, if that answers the question that you wanted, but that's kind of a situation.

James Marsh - Piper Jaffray

That's helpful. And the second question I had is related to just affiliate sales and once you had quite a bit of success last year signing up new distribution deals, but I want to get a sense for what the outlook looks like from here and if you could just give us some color on potential affiliate sales going across 2010?

Roger Werner

Well Tom, you want to answer that one, I could make some general comments, but you may want to make some more specific ones.

Tom Hornish

Well, I think we've been talking about, James, before with the ad sale or with the affiliate sales incentive that we did last year, as far as revenue. Although we increased the subscriber counts and the revenue, we don't expect to have huge increases other than just a normal ongoing cost of living type of increase, that's in our ongoing agreements and everything.

But one thing that we're trying to do again this year, is still to grow that subscriber base and that still will entail incentives and dealings, and making sure that we don't want to follow (inaudible) with everything.

It's kind of hard and it's kind of early to really tell if we're going to get attraction to the extent that we got last year. I think we're kind of bumping up against the top end, but I think there's still some opportunity that may be not to the level that we had last year with the 6 million increase.

Roger Werner

Yes, I think I've made that point in the past. We're not planning on the same rate of growth this year that we enjoyed last. But we still think, there's a few million out there that we might be able to lay our hands on. And we are in active discussions with multiple distributors to try to make that happen.

Operator

(Operator Instructions) Your next question comes from the line of John Kornreich with Sandler.

John Kornreich - Sandler

A few questions. I'm sorry, I missed it. What do you have as your sub count at the end of March?

Roger Werner

The May number is $36.4 million Nielsen Universe estimate.

John Kornreich - Sandler

And what was it at the end of December?

Roger Werner

At the end of December, I don't recall the number. Tom, do you have a fix on them?

John Kornreich - Sandler

What was it a year ago?

Roger Werner

Year-over-year, it's up about 6.5 million homes.

Tom Hornish

It was at 29.4 or 29.9 about a year ago John.

John Kornreich - Sandler

And the end of December, you don't have right now, right?

Tom Hornish

Right.

John Kornreich - Sandler

Okay. How much were spot sales and internet up in the first quarter?

Roger Werner

Spot sales and internet, I don't have the breakout for you by those two segments. We normally don't provide that level of granularity, but they were up in double digits in first quarter year-over-year.

John Kornreich - Sandler

So, Tom, time-buy has absolutely collapsed.

Tom Hornish

Well time-buys were probably off double digits, old low double digits.

John Kornreich - Sandler

How does profitability typically compare on a spot sale versus a time-buy sale?

Roger Werner

We mean what would the profitability of a show be if we spent the production dollars our self and then sold all of the inventory in the show. It will vary, that is really going to be seasonal and it's going to be program specific. But in general, the time-buy business is a profitable segment of our business.

John Kornreich - Sandler

But not as profitable as short form?

Roger Werner

Again it depends. In some cases, it will be more profitable; in other cases, less.

Tom Hornish

John, 34.1 was our Nielsen count at the end of December '09.

John Kornreich - Sandler

And you're saying you're not going to be at 40 at the end of the year? You said you won't be up six?

Roger Werner

We won't be up six this year, we have a couple of million between $2 million and $4 million under discussion, whether we get it or not is anybody's guess, but we're working hard to get it. And I think there is realistic probability that we can get there, to get a couple of million.

But as we approach 40, we're approaching as Tom sort of alluded to a minute ago. Not necessarily receiving, but a near term kind of barrier beyond which we will perhaps have to consider other roots to subscriber growth, in other words they may involve other types of deals.

John Kornreich - Sandler

Any other type of incentives?

Roger Werner

Perhaps.

John Kornreich - Sandler

I'll circle back to that in a minute. You said that the second quarter was looking better, up double digits and you defined that as spot sales, basically, but that's no better than the first quarter.

Roger Werner

That's right. First and second quarter, and like we said, we're going to look fairly similar, and growth in our business sort of mirrors the seasonal peaks and valleys of our business. Third and forth quarter typically are much stronger quarters, delivering much more in absolute dollars. And this year because of the accelerating or improving, advertising sales climate, I think third and fourth quarter will be bigger beneficiary of that overall trend.

John Kornreich - Sandler

I have a balance sheet question. Why did cash decline $4 million sequentially? I know you had a net loss, so there's a little bit of bleed there, but what else there? And I mean the cap spending couldn't have been there.

Tom Hornish

Yes, there's a couple of things there and, Doug, you can jump in but there's a couple of things with some cash balance payout during the first quarter, down for '09, as well as we had some commitments for the subscribers that we're counting on. With the incentives, we had cash incentives that we had to payout. We incurred it. We hadn't actually paid the cash until the first quarter of 2010 from the growth in fourth quarter of '09.

John Kornreich - Sandler

Without being specific, and assuming no acquisitions, no share repurchase and so on, should we end this year with more cash than we started?

Roger Werner

Yes, I think we should.

John Kornreich - Sandler

What I'm saying is, is that you're going to have free cash flow this year?

Roger Werner

Yes, I think we will.

Tom Hornish

I think the real question is can we grow our free cash flow and that's what remains to be seen and we're hoping, that we can based on what we know right now.

John Kornreich - Sandler

And why wouldn't you grow your free cash flow, assuming you don't go back in the market to buy your stock and CapEx remains very low and you don't make any more acquisitions? I don't understand.

Roger Werner

We should unless our ad market falls apart on us.

John Kornreich - Sandler

Okay, of your $25 million or $24.5 million shares, how much is owned by management and founders?

Roger Werner

Quite a bit. The insiders, John, control about, I don't know, Tom, $43million or $44 million.

Tom Hornish

Yes, it's primarily the current management and the two Massie brothers is around there, but the rough number is about half if you include some of the earlier founders that are no longer involved with the management and everything?

John Kornreich - Sandler

So it's about half and half with the public.

Roger Werner

Yes.

John Kornreich - Sandler

Okay. The leading question that I want to ask you, every public share holder, probably every share holder would want to ask you. You get about 40% or 43% from subscriber fees. And basically, this is not going to grow, okay? The MSOs are taking the big beating on retransmission fees and fees from HGTV and ESPN and so on. They are not going to give you increases, aside from anything that you've built in, the 2% or 3% per annum. That's just not going to happen?

So I got 40% of my base not going to grow, and I just don't see how you can maximize value without selling this company. That's the way to get from $35 million subs to $60 million subs; that's how you get $0.25 a month on subscriber fees, when you folded into a bigger company. Can you give us some thoughts on down the road do you agree that in order to maximize value and maximize the expense of this company, you have to be part of a much bigger company?

Roger Werner

I think John. Yes, that's not so much a question is sharing your opinion with us and I think that fine and I tend to agree with you. We've said this in past calls that this business would be probably cash flowing, at least double what it does today, if we were part of a larger media company's portfolio. And indeed long term we've said and continue to say that being a stand alone network business is difficult and clearly not optimal.

So your point is well taken, we tend to agree with you. The real issue is the art of managing this full business is largely the art of timing, those kinds of things. We've been focused for the last three years on a kind of turn around situation here, to improving the fundamentals of the business, getting it's affiliation agreements all up to date and signed and getting the fees of where they needed to be and baking in some modest increases.

And I guess as an aside, I would say I don't necessarily agree with you that there will be no growth on 40% of our topline revenue. I think our business has a very strong consumer franchise we are a category leader in the outdoor category. This is programming that's very important to a very significant cross-section of the male cable and satellite subscriber universe. And I think given that we are about a $0.5 service right now, I think we are delivering a tremendous price value proposition to those distributors.

And I think there's some room to grow the fee. But none of us in management believe that there's huge growth in the fee, for all the reasons you identified our customers are running mature businesses, they're under margin pressure, and huge increases in fees are just not in the cards. So we think we can continue to grow the business, but clearly, the business could grow dramatically as part of a larger company's portfolio. No doubt.

Operator

Your next question comes from the line of Mike Kupinski with Noble Financial.

Mike Kupinski - Noble Financial

I just have a couple of follow up questions. Can you give us an update on the DISH distribution prospects there, contract there?

Roger Werner

An update on DISH, not really much to report Mike, just ongoing discussions where we still operate with them under an agreement, but it's a sort of a month to month agreement, and no real change in the last month or two.

Mike Kupinski - Noble Financial

Okay. I know that's been probably the most problematic one out there, Roger. What is the issue with trying to get them nailed down at this point? Because…?

Roger Werner

There is not so much of an issue getting them nailed down, Mike, they're paying the current rate. They are one of two distributors with an a la carte business, so they actually generate a profit on our channels distribution. We are not a net cost item to them, so we believe that they are happy to carry us and we're happy to have the distribution. And I would also remind you that they represent about just a little over 10% of our subscriber universe, they are not 20% or 30%. So, it's not like there is a crisis issue there that we have to resolve anytime soon, they are just like a lot of our distributors reluctant to involve themselves in any more complicated more conventional multi-page contract. They've been operating under a simplified agreement and we haven't been too heavy handed with them because they continue to pay their bills.

We're negotiating on an ongoing basis and I expect that we'll have something more conventional looking in the way of a relationship their by the end of the year.

Mike Kupinski - Noble Financial

Okay. And can you update us on the CFO search?

Roger Werner

Yes, it's well under way. We have an excellent candidate that is very close to being announceable, but I'm not going to jump the gun for his sake and ours, but we think we're pretty close to resolving that issue.

Mike Kupinski - Noble Financial

Great. And then finally, you talked a little bit about uses of cash. Can you talk about share repurchases? And if you can add a little bit more color on your strategic outlook for acquisitions?

Roger Werner

Well at the moment, the strategic outlook for acquisitions is not one that involves lots of cash or dramatic change in the basic nature of our business; we're just looking at some small add-on things at the moment as I've said. So nothing too dramatic there in the way of cash use or fundamental changes in what we do. I guess going forward, we contemplate a share repurchase program again as we have in the past couple of years. Yes, it's one of the options available to us. And there are many others including strategic partnerships or other means of getting shareholders the value we think they deserve.

So we as management and we as a board look at the issue of shareholder value and how do maximize it as an independent stand alone channel. We look at that every time we meet. That's an ongoing issue for us, the resolution of which is still not completely clear.

Operator

I would like to turn the call back over to management for any closing remarks.

Roger Werner

Tom and Doug, unless you have any closing remarks, I'd just thank our participants again for their interest in the company and we look forward to speaking with you guys again at the end of the second quarter.

Operator

Ladies and gentlemen, that concludes today's conference. Thank you for your participation, you may now disconnect, have a great day.

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Source: Outdoor Channel Holdings, Inc. Q1 2010 Earnings Call Transcript
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