Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Gray Television, Inc. (NYSE:GTN)

Q1 2008 Earnings Call

May 9, 2008 10:00 am ET

Executives

Robert S. Prather, Jr. – President, Chief Operating Officer, and Director

James C. Ryan – Chief Financial Officer

Analysts

Victor Miller – Bear Stearns

Marci Ryvicker – Wachovia

Brian Broadbent – Highland Capital

James Goss – Barrington Research

Larry [Schnomacher] – Oppenheimer & Co

Dan Wright – The Daily News Record

David Taicher – Lowe’s

Operator

Welcome to the Gray Television’s first quarter earnings release conference call. (Operator Instructions) For opening remarks and introduction, I would like to turn the call over to Mr. Prather.

Robert S. Prather, Jr.

Welcome everybody to the Gray Television first quarter earnings call. I think we all know we’re living in some pretty interesting times these days. I guess we’ve got overall basically mostly good news. We finished at the top end of our guidance for the first quarter.

Our guidance wasn’t fantastic, but we did what we said we were going to do. We are feeling real good about the economy for most of the rest of the year especially in the second half. We think the political is going to be an all-time record spending. I think the Presidential was coming in a little slower than it did in 2004, but I think that was a unique situation and obviously this year is unique with the democratic primary still being contested, but the good news is we got big stations in Kentucky and West Virginia and we’re hoping the two democrats will continue to spend money on those two states, but we were a little ahead of budget for the first quarter in political; the second quarter may be a little behind, but we normally get between 85% and 88% of our political in the third and fourth quarters.

That’s has been our historical average over the years; so, we’re expecting some big numbers coming in the third and fourth quarters. Also we’re looking forward to the Olympics. Some of our biggest stations are NBCs and the Olympics in China should be big for us. I think we did $3.5 million in the last Olympics, and we hope we can do better than that this time – we should be able to. We got 284 days until the digital transition. I think this is fantastic for our industry. I think it’s great for Gray Television.

I think it’s going to be great for the consumer, viewers, and the advertisers; and I wish it was here tomorrow and I think it may be a little bumpy those weeks or so during the transition, but I think we’ll get through that pretty quickly. I don’t know if most of you saw, but Wilmington, North Carolina, has been picked as a test market and they’re going to try to test going forward digital there in September this year, I believe, it is. Here again, I think this is going to be great for our industry in the long run and I think it will be very good for us. We’re in a great position with our 40 digital channels on air already. So, we’re looking forward to going full digital.

Second quarter, I think we’re going to be doing okay. We’ve got a guidance out that – here again – not much growth, but that’s just the nature of the economy these days, and especially national advertising continues to be challenged all over the country it looks like and we’re part of that. I think the good news for us is that most of our markets are feeling the housing slump less than the rest of the country; here again, our idea of going after state capitals and university towns, I think, is paying off. I think most of our economies are stronger than the national average; so, I think we’ll fare well especially if this housing market continues to be gloomy going forward. We’re watching our expenses very closely.

We actually initiated early in January some cuts from our budgets and we think we’re probably saving $5 million in employment costs over a 12-month period and probably similar costs like that throughout the company. We’re looking at doing more hubbing. We’ve completed all our traffic hubbing. We’re looking at expanding our master control hubbing and we’re expanding our accounting hubbing, and our [inaudible] has the operation. So, we’re doing all these things which I think will make us more efficient in the coming months and the years ahead. We’re looking forward to, like I said, a huge political second half of the year. I think we’re in great position to break our all-time record there, and I think we should without any trouble, I think you’re going to see both in the Presidential and in a lot of the senate house races, a tremendous amount of money being spent, and I think we’ll be a big beneficiary of that.

On a personal note, I’ve been buying Gray stock – I hate to see the stock down this low. I will tell you right now. I’ve got 90% of my net worth in Gray stock; so, I hadn’t been fair until real lately, but I’ve got 100% faith in the strength of our company. I’ve bought shares as early as last week and I bought shares a month ago, and every time I buy them I think I’m stealing with the price I’m paying, so I guess I’ll just keep stealing more down, but I think our stock is way underway as are most of the television stocks right now. I think our whole industry has been unfairly painted with the old media brush, and I think we just got all get out there and show the world that we’re going to be in business and profitable and growing for a long time in the future.

I think our digital strategy is one of the things that is going to help us there. We are continuing to grow our digital. Our digital is very very profitable. We’ve deliberately cut our margins some this year because we insisted that all our stations hire a digital only salesperson; so every station we have as a digital only, at least one person, whose only job is to sell our new media product. We think this is going to pay off with big dividends in the years ahead. As I said, our digital revenues continue to grow and our digital profits continue to grow, so we think this is an area – here again – we feel like we want to be the number one news source in the towns we’re in and I think we all realize we live in a 3-screen world today; we got a TV screen, a computer screen, and a mobile screen, and we want to make sure we’re the number one source for local news, weather, sports, and events in our markets. So this is something we’re going to continue to do work on and we think we will continue to grow at a much faster rate than anything else we’re doing. At this point, I’m going to turn it over to Jim Ryan, our Chief Financial Officer and let him go through some of the numbers and then we’ll open it up for questions. Jim?

James C. Ryan

I’ll keep my comments relatively brief. Bob certainly covered all the highlights. First quarter, our total net revenues were up about 2% on the increase in political which we had expected. Also, we had a relatively strong growth in our internet which Bob alluded to a minute ago or two and we’re pleased to see the internet growth. Like a lot of people in the industry we did see softness in core local and national. Local was down about 2%, national down about 4%. A lot of that really reflects I think the general economic tone right now.

We also saw from a category standpoint similar to other people that have already reported softness in auto; our auto was down about 6%. Also, softness in teleco. Restaurants were down. Furniture was down a little. We did have some bright spots though. Our entertainment, medical, and supermarkets were up. Our financial category was actually flat year over year and so were the packaged goods department store categories. Operating expenses came in basically where we had expected, up slightly at about 2% as Bob mentioned. We have initiated some staffing reductions in the company that on a full 12-month basis would conservatively save us $5 million. About half of that will flow through the rest of this year and we’ll pick up the full value of that in ’09.

The guidance we’ve already put out for the second quarter – on the high side, we think we can be up a little. Political is coming in pretty well. We’ve seen a lot of activity in the last few weeks in North Carolina and in Indiana; both of those stations were earning about $600,000 each in the democratic primary which was actually good, we are pleased to see that. Certainly, West Virginia and Kentucky are now in play too, so we’re looking for that to be relatively strong for the next couple of weeks.

Turning quickly to a couple of comments on the balance sheet; total debt at the end of the quarter was $922.7 million. We had cash of $15.3 million which was basically consistent to where we ended up at the end of ’07. Leverage on a trailing 8-quarter basis was approximately 8 times. CapEx was very modest in Q1 at $2.9 million. I expect it to be modest again in Q2 and ramp up a little bit as we get late in the year and matched the CapEx with the political dollars. We had, for those that usually ask, cash taxes were negligible, $46,000; so that’s not an issue – on a total year basis, it’s about a million dollars for us this year. Bob, with that I’ll turn it over back to you.

Robert S. Prather, Jr.

We will take questions now.

Question-and-Answer Session

Operator

(Operator instructions) We will take our first question from Victor Miller - Bear Stearns.

Victor Miller – Bear Stearns

Jim actually, I’ll start with you and just… Obviously, ’08 was supposed to be a fairly significant banner year even on the core side industry – everyone thought it would be plus 8, would be fantastic for cash flow and great for debt reduction this year; so it seems like in general ’08 has been a little bit disappointing. So, I guess as you look into ’09 which could be a typical hammock year, how are you just looking at the balance sheet and how are you going to try to adjust the balance sheet and just try to increase the amount of free cash flow, would you look at asset sales, etc., as you try to de-lever? Secondly, Bob just talk about the auto business in general and lastly, maybe give us a sense of why you’re so confident in the ability to generate the record political – have you seen any markets where you can compare what you saw in ’04 versus what you’re seeing in ’08? Thanks very much. Bye.

Robert S. Prather, Jr.

Vic, let me answer you first. I’ll start out with the political and I’ll give you an example. We were a little nervous first quarter about political because Florida and Michigan were all of a sudden, there’s no democratic primary, and we’ve got two of our real real strong political stations in those markets. I think we had budgeted 600,000 or 700,000 or more in those two markets, and I think we got $40,000, but out of the blue comes a Supreme Court race in Wisconsin and we get over $800,000 in in March in a Supreme Court race in Wisconsin of all things, and what I think you’re seeing is – you know better than anybody because you keep a close eye on the national picture – there’s been more money raised than ever before – by the factor of about double I think – all the [527s] are sitting on the sideline until they know for sure who the two candidates are going to be – that money was coming in real early in ’04 as you will remember; we’re seeing none of that yet, but I think that money once the democrats decide on their candidate, republicans obviously know who theirs’ is, but there’s none of that money being spent that we know of or very little yet, and just based on the amount of money that has been raised and based on history, I just think there’s going to be a blow out year in the second half of the year. I don’t see anything that would stop that.

On the auto side, it’s the same old story. Our local auto is still basically good, is down a little bit, but the national continues to be very very soft, jumps all over the place; we’re actually doing well in some markets with the national auto and others is just bombing out completely; so I think the auto guys are struggling to figure out where to spend their money, how they spend their money, and just how much money they got to spend – they’re all hurting bad as you will know. I was talking the other day – Toyota is expecting a down year this year – so, when you’ve got an industry that’s got roughly 25% of its revenue coming from an industry that basically you could probably call sick right now, it’s going to create some problems for everybody. And Jim, I’ll let you answer the balance sheet question.

James C. Ryan

Vic, first of all looking ahead to the end of this year, I think even though the first part has been relatively slow and core with political and certainly we’ll get a little pickup in Q3 with Olympics in the core, I still think we, on a trailing 12-month basis, have an opportunity to have a leverage ratio on a T12 basis somewhere in the middle 5, and on an 8-quarter basis that would translate to something in the middle 6s. So, I think we can still make good progress on leverage reduction between now and the end of the year, especially given all that political is cash in advance and it is basically slated to go directly to debt reduction.

Looking ahead ’09 a little bit, in the big picture, I think our off year in ’09 is going to be less of a trough for us than historically for three major reasons: First of all, as you know, a reasonable number of our retransmission agreements come up late this year, basically the end of this year, so we will be negotiating for retransmission consent basically, and those will be ’09 dollars. So, that will be a new revenue stream to us and we’re very encouraged by the apparent success that other people in the industry have been having with either first and/or second round negotiations on that front and we are a couple of quarters away from having our opportunity. Secondly, as I mentioned, we have spent a lot of time – the first part of this year – trimming our cost structures. I think that better positions us in ’09. I don’t want to commit to an exact number, but I think right now, our ’09 total expenses are going to be under our total expenses for ’07.

And thirdly, as part of the expense number, we do get an automatic pickup starting in February of next year. It’s somewhere between $2 and $3 million of operating expense, but all those analogue transmitters are going to get turned off and there’s an immediate savings on the power build. So, I think we’re certainly focused on the leverage. As we said repeatedly, we want to work it down. We think we are in a good position at the end of the year to be bringing it down, and ’09 given the things I’ve mentioned, will be a better off year for us than we’ve had historically.

Robert S. Prather, Jr.

Vic, one other thing too that will help us in ’09 – we’re going to have the Super Bowl on NBC, which has been several years, and we’ve got five of our biggest strongest stations are NBC stations. Just to give an example, this year, in ’08, we’ve got five digital boxes, so we didn’t have a whole lot of Super Bowl revenue whereas on CBS we had, I think, [somewhere around 1000] last year. So, NBC ought to be a big January-February for us on the Super Bowl. So, I think 2009, my only concern and yet and I’ve talked about it before is – what kind of disruption just the actual transition in the middle of February – I’m hoping it won’t be much and I’m hoping these test markets will shake out anything they need to be doing ahead of time to make sure they don’t have a lot of problems when people go dark.

Operator

We will take our next question from Marci Ryvicker with Wachovia.

Marci Ryvicker – Wachovia

Thanks, I have a couple of questions; the first, are the staff cuts that you did in the first quarter done or did they continue into the second quarter, and where did the cuts come from for the most part?

Robert S. Prather, Jr.

I’ll take that Marci. They were in part first quarter and in part second, it’s a phasing approach. We didn’t have any black Friday so to speak. I’d say they were across the board involving virtually all of our stations. We asked all of our managers to go back, and they were very diligent in this, and look at their staffing and try to do it in an intelligent way within each station, so it wasn’t just a broad mandate of – axed out of this department or that department or axed in total. We tried to go about it in a smart way. We still had some of the best operating margins in the business and we don’t want to – while we need to cut in the efficient and more efficient, we want to do it in a smart way. About half the number obtained is coming through attrition, the other half as far as sheer body was coming from outright termination. By the end of second quarter virtually all of that would be done.

Marci Ryvicker – Wachovia

Okay, and then, you mentioned in the press release two different types of internet sales. Can you talk about how the direct internet sales are going to be a lot stronger in terms of growth? And can you just talk about the two different internet sales and what that would be?

Robert S. Prather, Jr.

Well, again as we’ve said before, our direct internet sales is right on the website. It is either the sale for video freerolls, it’s a sale for the banner, it’s a sale for the sponsorship of a content position. Whatever we sell directly in cyberspace, we call direct. We have another component which is smaller which is a related time sale where a client of ours is buying airtime to specifically promote, cross promote, or a roundtrip traffic, depending on how the client wants to work a campaign, that they are using on air to drive web in by sources. So, that piece is what we call internet related, and when we talk about total internet, we combine the two. We think the real long-term growth potential in the internet is the outright direct and that that will grow faster than a time sale supporting web.

Marci Ryvicker – Wachovia Capital Markets, LLC

Okay. One last question for your gentlemen. Now that you are breaking out retransmission, is the retransmission line just cash?

James C. Ryan

Yes. It is just cash.

Operator

We will take our next question from Brian Broadbent with Highland Capital. Please go ahead.

Brian Broadbent – Highland Capital

Hey guys. Just a first question is on the political. Can you compare and contrast ’04, ’06, ’08, where we’re at, and specifically on the soft money; what did you do in ’04 and what do you think is a reasonable assumption for ’08.

Robert S. Prather, Jr.

Brian, let me take that. First of all, we didn’t break out soft, but as I mentioned to Vic, we did have a good bid of [527] money early. In the first quarter of ’04 for example, we got 8% of our political, we got $3.5 million, and the first quarter of this year, we got 5%, a little over $3 million. So, here again, I think the soft money is sitting on the sidelines right now. I don’t think these guys – until they know exactly who the candidates are are going to really start spending a lot of money, but I think they are all sitting there and they are all piled up money waiting to spend it. So, here again, I think third and fourth quarter, we’re going to see a lot of that money pouring in. In general, like I said, the political, we actually finished up a little ahead of our budget for first quarter just because the Wisconsin thing came in and then because of the extended democratic, we actually got some real good money in Indiana and in North Carolina which we normally wouldn’t have gotten most likely. So, we’re looking – again like I told Vic – I think we’re going to have a record year and I think it’s going to be a better year for political spending in general.

Brian Broadbent – Highland Capital

And then on the Olympics, do you see any money being pulled out of the second quarter on the national and saved up for the Olympics?

Robert S. Prather, Jr.

I haven’t seen anybody or heard anybody talking about that. I wouldn’t think so, but that’s an interesting question, but I haven’t heard anybody talking like that. I don’t think that necessarily is going around. I think the Olympics are a big deal, but in the scheme of things of they’re not huge. So, it’s not like political where it just totally dominates the airways in September/October.

Brian Broadbent – Highland Capital

And can you explain why the retransmission dropped from the fourth quarter to the first quarter?

Robert S. Prather, Jr.

Jim, that’s a good question – I don’t know the answer to that. Jim, do you know?

James C. Ryan

I think first of all the first quarter had a pretty good run rate. I’d have to go back and look at fourth quarter and see Brian. To be honest, I don’t have a real good explanation. The dollars involved were not very large though if I recall. I would need to go back and look at that. We also, keep in mind, we broke everything out for the first quarter – we would just need to go back and look at that a little.

Brian Broadbent – Highland Capital

Got it.

Robert S. Prather, Jr.

Brian, I will tell you that we’ve done one deal this year for a small number of systems that we’re very happy with and based on that we were planning a real company-wide strategy to be ready to really negotiate all of these guys later in the year to make sure we get what we feel like is our fair share of the retransmission dollars and with so many strong stations that we’ve got out there, here again, I think we’re going to be in good shape to do some real good things on the retransmission front. But we’re going to be working harder and we obviously know it’s important to us as a company and it’s important, like I said, that we get paid our fair share.

James C. Ryan

Brian, I think, going back to the question about Q4 and Q1, part of it, and again, I have to go back and look, but we did do some chewing up in Q4 on our satellite agreements – just mechanically, we’re getting paid in arrears; by the time they do the calculations, it’s under cash. I think we’re taking that more on a pure cash basis and realized actually we needed to set up a little bit of receivables to chew it up to a pure GAAP number. I think that could have been part of it.

Brian Broadbent – Highland Capital

Okay. And was there any severance in SG&A and then also on the cost savings, what if any can be added back to EBITDA for covenant calculations?

James C. Ryan

The overall severance on the reduction is going to be – it’s not very large – it’s between $600,000 or $700,000, and that’s basically flowing in Q1 and Q2, and because of its size it doesn’t really constitute a special add back under the credit facility.

Brian Broadbent – Highland Capital

And the cost savings on either.

James C. Ryan

No.

Brian Broadbent – Highland Capital

Okay. And then, can you give us an update on the money market funds that are disclosed in the quarter and how much cash we’ve gotten and when you expect to get the rest.

James C. Ryan

Yes. The Columbia fund [inaudible] we had some money late last year invested in the Columbia funds. We currently have about $4.1 million left to go. We’ve collected the best part of $3 million out of the original balance and the mark-to-market has been relatively small. We took a charge in Q1 of about $70,000 to $80,000. Since the fund is in a liquidation state, fund management is a little careful in giving out a detailed timeline on distributions – I am sure you can appreciate that from their perspective. Our general sense is that a good portion of that should be collectible and distributed to us in the second half of this year. There may be 20% of the number left that won’t be distributed until ’09. I don’t currently expect this. We probably will see a lot of those distributions in Q2. I think the fund is indicating that it’s more of a second half of the year event on the distribution timeline that they are currently looking at.

Brian Broadbent – Highland Capital

And then on your cash balance, you have your cash balance and then the Columbia fund on top of that. Is that correct?

James C. Ryan

From what?

Brian Broadbent – Highland Capital

So you put a cash balance in the quarter.

James C. Ryan

That’s right. The cash balance of $15.3 is real cash in the bank. The Columbia fund is now classified as a marketable security and as I said we expect to collect the majority of that money some time in the second half of the year.

Operator

We will take our next question from Jim Goss with Barrington Research

James Goss – Barrington Research

Thanks. Good morning guys. Several questions; one, regarding the revenue guidance you gave for the second quarter which is flat to down 2% relative to the up 2% in the first quarter. What are the local and national assumptions that are going into that – may be start off with that?

James C. Ryan

Jim, I think the local assumption is that we think local may be flat to down a little in Q2. Nationally, we think it’ll be a little softer than maybe even the first quarter, probably in the minus 6 to 7 range, although I will say that its visibility is a little tough. Note that our auto in April relative to the first three months of the year seemed to improve a little – very slightly – but improved a little. So, I am very cautious – I am hoping that we’ll end up doing a little bit better than – certainly that the low side of the guidance is being overly conservative I guess is one way to phrase it.

James Goss – Barrington Research

Okay. And the comment, I think, Bob just made about political – about 5% coming in the first quarter – that’s implying you’re still holding to the $60 million plus full year notion – I presume?

Robert S. Prather, Jr.

Yes.

James Goss – Barrington Research

And I was wondering – how do you think that breaks down into the third and fourth quarters given that the Olympic money would fall in the third quarter – does it skew that up a little more than – I might be assuming right now…

Robert S. Prather, Jr.

Just to give you an example Jim, in 2004 we got 79% of our political in the third and fourth quarters; in 2006, we got 85% of our political in the third and fourth quarters; and this year, we’re estimating we’re going to get about 88% in the third and fourth quarters.

James Goss – Barrington Research

And between the third and fourth, does the third get a little more than….

Robert S. Prather, Jr.

No. The third is around 35%, the fourth quarter 53%, and that’s pretty historical there too.

James Goss – Barrington Research

Okay.

Robert S. Prather, Jr.

We actually got 60% in the fourth quarter of ’06 and I think we had about 5 or 6 days in November which really helped – ideally when the Tuesday in November falls as late as the 7th, you got more days in November, you get heavier then.

James Goss – Barrington Research

So, we have an earlier election this year.

Robert S. Prather, Jr.

Yeah. A little bit earlier this year.

James Goss – Barrington Research

The retransmission pattern – can you talk about the percentage of your station groups that are to be re-negotiated at either in certain quarters or certain years over the next couple of years.

Robert S. Prather, Jr.

We basically have around 60% of our subscribers coming up at December 31 this year, which is – we’ve got roughly 4.5 million total – so that’ll give you an idea. We’ve got some of the – we’ll be negotiating with Comcast, Time Warner, Charter – a lot of the big guys and then we’ve obviously got a lot of small cable operators in there too.

James Goss – Barrington Research

Okay. Are you dabbling with mobile content yet trying to figure out what will work on a cellphone platform?

Robert S. Prather, Jr.

We’re doing great in our cellphone. We have our websites available along with video streaming available and text messages, again, in all our markets. We’re doing extremely well. Our page views are just exploding there. We’re getting good advertising where people are just basically sponsoring the cellphone access to the website. So, we’re very very pleased with our cellphone strategy.

James Goss – Barrington Research

Okay. And probably, lastly, what are the covenants right now. Do they step down – and I think Victor asked about asset sales – I don’t think you got back to that. Are you willing to consider certain things since I think that is a factor – may be a nonfundamental earnings factor – that’s swaying on the stock.

Robert S. Prather, Jr.

Yeah. Jim, you want to answer that?

James C. Ryan

Jim, the covenant does step down at June 30 to 7.75; we’re very focused on that. We know where we need to be. We intend to be there. We are actively working on that in a prudent manner. As far as the end of the year, the covenant steps down again to 7.25 with the weight of the political in the second half of the year – we don’t see any issues there at all.

James Goss – Barrington Research

Do you think you need a certain bigger margin of safety to give investors more comfort, especially since next year even if you have a better-than-average year, that some of these numbers would like to reverse themselves just because of the way the cycles work.

James C. Ryan

Well, keep in mind that covenant is on a trailing 8-quarter basis. So, first of all we’ll have the benefit of the second half of each year’s political going forward for quite some time. Also, certainly I would think that ’09 in general should be a better year than ’07. I would certainly be expecting that the economy would be picking up as you move further into either late ’08 or into ’09. So, again, I think the dip in ’09 is not as pronounced as in prior years historically, and the 7.25 covenant…

Robert S. Prather, Jr.

We’ve got plenty of cushion there Jim.

James Goss – Barrington Research

And that doesn’t step down further in ’09?

James C. Ryan

It steps down to 7 at the end of ’09, and again, I think we’re comfortable with that.

James Goss – Barrington Research

Alright. Thanks very much.

Robert S. Prather, Jr.

Thanks Jim.

Operator

We’ll take our next question from Larry [Schnomacher] with Oppenheimer & Co. Please go ahead.

Larry [Schnomacher] – Oppenheimer & Co

Hey there guys. On behalf of Harvey, I have a couple of questions. And I’m sorry if they are repeats because I missed a little of the call. What do you think political revenues will be this year versus ’04 and ’06?

Robert S. Prather, Jr.

Larry, we’re thinking – we’re budgeting right now – right close to $60 million. We think we will achieve that or better hopefully. That versus ’06, it was $42.7 million and in ’04 it was…

James C. Ryan

Bob, [inaudible] pro forma was approximately $52 million or $53 million.

Larry [Schnomacher] – Oppenheimer & Co

In ’06?

James C. Ryan

’04.

Robert S. Prather, Jr.

’04, it was $52 million or $53 million on pro forma.

Larry [Schnomacher] – Oppenheimer & Co

Right. And ’06?

Robert S. Prather, Jr.

’06, it was $42.7 million.

Larry [Schnomacher] – Oppenheimer & Co

So a nice move up.

Robert S. Prather, Jr.

Yeah. From ’04, it’s about a 15% increase and I think we can easily achieve that.

Larry [Schnomacher] – Oppenheimer & Co

And generally why is local revenue so weak?

Robert S. Prather, Jr.

I think the economy has got a big main thing to do with it frankly. I don’t think anybody anticipated what was going to happen. The housing market I think has obviously hit a lot harder than anybody thought it would. And I think that in turn has affected – the real estate has affected the auto market – I think you just seeing a lot of domino effect on the economy because of what’s happening to real estate where you got a huge number of foreclosures going on, you got a huge number of people that are struggling to pay their house payment and not lose their houses, and all those things I think are having an impact on the economy right now.

Larry [Schnomacher] – Oppenheimer & Co

And finally, I know a couple of people have asked this – I heard pieces of it – retransmission agreements…

Robert S. Prather, Jr.

Yeah.

Larry [Schnomacher] – Oppenheimer & Co

They start renewing when?

Robert S. Prather, Jr.

December 31 is when we’ve got I think roughly 55% or 60% of our subs coming up for renewal, and we’ll be actually negotiating with all those guys in the fourth quarter of this year to start January 1 with a new deal.

Larry [Schnomacher] – Oppenheimer & Co

So that should be a net positive going forward

Robert S. Prather, Jr.

We definitely think it will be very positive. Yes. Oh yeah, we think we’re going to achieve some significant retransmission payments going forward.

Larry [Schnomacher] – Oppenheimer & Co

And lastly, is there still a buyback in place? Has that been used up?

Robert S. Prather, Jr.

Yes. There is a buyback. We’re not buying any shares right now because we think it’s more important to pay down our debt. We plan to use 100% of our free cash flow in the second half of the year to pay down debt, and as Jim mentioned, based on our political forecast and what we think we’re going to do, we should be on a trailing 12-month in the low 5’s debt to cash flow and in the mid 6’s on a trailing 8-quarter. So we think we’ll – our balance sheet would be in much better shape – and we’re going to be very tight on capital spending next year – probably we’ll do some local HD, but other than that, and just some maintenance, but fortunately all the digital transition will be behind us and we won’t feel it necessary to have a huge amount of capital expenditures next year.

Operator

We will take our next question from Dan Wright with The Daily News Record. Please go ahead.

Dan Wright – The Daily News Record

Good morning guys. Can you give me some revenue numbers for a specific station and how it compares with the same period last year?

Robert S. Prather, Jr.

We don’t normally break out specific stations – where are you from by the way?

Dan Wright – The Daily News Record

I was interested in WHSV in Harrisonburg, Virginia.

Robert S. Prather, Jr.

Yeah, we normally don’t give out specific numbers on stations. I can tell you that that station is doing very well and is one of our top preforming stations.

Operator

We will go next to David Taicher with Lowe’s. Please go ahead.

David Taicher – Lowe’s

And Jim? The question I have is – given that you stated many times that you believe the stock is undervalued, you put your money where your mouth is – the industry is being perceived negatively by the investment community. I’m just curious as to, given you a long track record managing the stations, whether or not there is any possibility of having some of the pools of money that are out there, be they private equity shops or firms that have specialized in the media industry in the past, have approached you about either looking to come in and help you acquire some stations that may be undervalued outside of your network, to be able to grow, or help you with some strategic approach to be able to enhance the value of the stock?

Robert S. Prather, Jr.

That’s a good question. Fortunately, we’ve got a lot of good friends in the investment community. We from time to time do hear – guys interested in teaming up with us. We frankly pretty much – you know our history – we like to buy when nobody else is buying, and right now, I think prices up until fairly recently have been way too high for us. There have been several deals done in the last 12 months – I thought it extremely high multiples – and I think that we’ve been concentrating on making sure we run our businesses as efficiently as we can in a challenging economic climate. That’s something we definitely would look at in the future if we saw stations that fit our profile – they were number one stations in good markets and we thought we had some operating upside to them – we would definitely consider partnership or a side-car type arrangement with private equity guys, and like I said, we’ve had talks with guys like that in the past, so that’s something that is on our radar, but not anything that upfront in the center right now.

Operator

Gentlemen at this time there are no further questions. Mr. Prather, I’ll turn the conference back over to you for closing comments.

Robert S. Prather, Jr.

Thank you very much. I want to thank everybody for joining us today. I promise you one thing – we’re going to be working hard to make sure that we turn this into a great year. As I said, I think the second half of the year everybody in our industry is going to have a smile on their face. And because of political, I think, the economy is going to pick up too. I think we’re hopefully getting near the bottom of this housing crunch and we’ll start seeing some positives and as we get close to the election, I think people start usually feeling better about things, but we will be concentrating on making sure we keep our expenses as tight as we can and looking for more ways to be more efficient than, as I said, hoping to have a great second half with the Olympics and political coming up. I always say, Jim and I answer our own phones and we’re always available. If anybody needs to call us, can call any time, and I look forward to talking to you at the end of our second quarter. Thank you everybody.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Gray Television, Inc. Q1 2008 Earnings Call Transcript

Check out Seeking Alpha’s new Earnings Center »

This Transcript
All Transcripts