Gray Television, Inc. (GTN)

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Gray Television, Inc. (GTN)

Q2 2010 Earnings Call Transcript

August 12, 2010 11:00 am ET

Executives

Hilton Howell – Vice Chairman and CEO

Bob Prather – President and COO

Jim Ryan – SVP and CFO

Analysts

Bishop Cheen – Wells Fargo Securities

Larry Schnurmacher – Oppenheimer

Marci Ryvicker – Wells Fargo

Aaron Watts – Deutsche Bank

Barry Lucas – Gabelli & Co

Larry Haverty – Gamco Investors

Harry Dumont – Knighthead Capital

Steve Carboni – GE Capital

Matt Swope – Gleacher

Steven Weiss – Bank of America/Merrill Lynch

Presentation

Operator

Good day everyone and welcome to the Gray Television’s second quarter 2010 earnings release conference call. Today's call is being recorded. For opening remarks and introductions, I would like to turn the conference over to Mr. Hilton Howell, CEO and Vice Chairman. Please go ahead sir.

Hilton Howell

Thank you Cath, and good morning, and thank all of you very much for joining this teleconference to review Gray Television’s second quarter operating results. Bob Prather, our President and Chief Operating Officer; and Jim Ryan, our Chief Financial Officer are also on this call, and after our expected brief comments on the company’s results this quarter, we will have an open Q&A session to address any issues that any of you may have.

We released our earnings this morning, and they are posted on our Web site and available on the Internet as we speak, and we are very pleased that our operating results for the second quarter exceeded all of our initial forecasts. All of our major revenue classifications, local, national, Internet, political retransmission consent, and production and other revenue increased significantly most by double digits, while our consultant revenue has remained approximately the same.

Total revenue for the quarter and year to date has increased by 16%. Although our corporate and administrative costs were up slightly in the quarter, year to date they are down by 12%. These trends have led to our operating income increasing 102% for the quarter and 119% year to date, and our broadcast cash flow increasing by 49% for the quarter and year to date.

Obviously, this year is a political year and year to date we have recorded approximately $8.4 million with the great bulk of political expenditures yet to come. As you might expect, we are very confident with regard to the balance of the year. Although we covered this in great detail in our last earnings call on April 29, we issued $365 million of senior secured second lien notes due in 2015, which gave us a great deal more operational and financial flexibility, and we plan on using the free cash flow generated by our stations to continue to reduce our total debt going forward.

I would also like to publicly note some of the achievements at some of our stations for their broadcasting and commitment to their communities. WKYT in Lexington has won three Edward R Murrow awards; one for breaking news, another for continuing coverage, and then a third for its Web site for outstanding online journalism, and then the Kentucky Associated Press Award has awarded wkyt.com the Best TV Web Site in the State of Kentucky.

Further, WMTV NBC15 has also received two Edward R Murrow awards for Best Continuing Coverage and Best Feature and the Wisconsin Broadcasters Association has named it the Station of the Year and the Best News Operation of the Year. We are very proud of this recognition of our station as it is a strong reminder of the quality of our local news coverage, and our commitment to serving our local communities.

In summary, it has been a good and solid quarter, with improving fundamentals across the entire spectrum and we are looking forward to a strong finish in 2010. Bob, your comments.

Bob Prather

Thanks Hilton. I want to thank everybody for being on the call. As Hilton mentioned, we had a good quarter. I think the TV industry in general obviously is in a strong year. I think it is a testament to our industry that we bounced back much faster than most of Wall Street and contrary to what lot of us predicted, and I think we obviously all read the auto coming back strong and the television, which I think is good for us in the long run. We are hit by the auto industry, it was down tremendously last year. It is back up getting close to 2008 levels right now I think.

We are proud of the fact that we are running pretty much even with 2008 which was a very strong year for us. So, we feel very good about the future of the business in the short term and in the long term I think. An affirmation is that we pretty much across the board have had good category increases, probably the two main areas that we are down, one of them we can explain, communications, we were a big Alltel customer, and Alltel when was bought by Verizon, Verizon virtually shut off all the Alltel advertising in those markets, and they really have not picked back up. They usually spend several months assimilating phone companies when they buy. So we expect that Verizon will be coming back strong at some point in their market, but that has been the big difference.

One thing that we are concentrating on right now and Hilton and I were talking earlier, I think it has been a quiet quarter we think it is good. We have got a lot going on in the last couple of years. We are really working hard on local HD news. We have got virtually over half our stations at the local HD by the end of the year, I think this is extremely important, I think it is a comparative advantage. If you are local HD news, I think it is a disadvantage if there is a competitive market that has and you do not. We have been proud to have 24 number one stations for a long time, and we want those stations to stay number one, and very frankly, local HD is an important part of that. People are watching more and more HD and they want to see their local news in HD.

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