Good morning, ladies and gentlemen, and welcome to Media General Inc.'s Earnings Call for the First Quarter ended March 31, 2016. Today's call is being recorded. Now the company will read a brief legal statement..

This morning the company announced its first quarter 2016 results. The press release, along with supplemental data can be found on the company's website at www.mediageneral.com. When available, a full transcript along with a replay of today's call will also be posted on the company's website.

Today's presentation contains forward-looking statements which are subject to various risks and uncertainties. They should be understood in the context of the company's publicly available reports filed with the SEC, including sections in those reports concerning risk factors.

Media General's future performance could differ materially from its current expectations. The company undertakes no obligation to update these forward-looking statements.

Today's speakers will be the company's President and CEO, Vince Sadusky, who will provide high-level overview of our results and achievements; and Jim Woodward, the company's Chief Financial Officer, who will discuss our financial results and guidance. They will take your questions after their prepared remarks.

And now, I'll hand the call over to Vince..

Thank you, Andy. Good morning everyone, and welcome to our earnings call. So 2016 is off to a strong start. Total net revenues were at the high-end of our guidance growing 16% to $343 million, compared to the prior-year.

Political advertising came in above our expectations as a result of really spending in the primary battleground states of Iowa and South Carolina. We also benefited from Super Tuesday on March 1, as 15 of our strong local news markets took large shares of the political spend.

Our significant footprint with market-leading TV stations in swing states like Ohio, Florida, North Carolina and Virginia, position us very well for the general election. If you exclude political advertising, our total net revenues grew 11% compared to the prior year.

Adjusted EBITDA exceeded our guidance range, increasing 31% year-over-year to $94 million. This increase was driven by growth in ad revenue, higher pay-TV subscriber fees and expense synergies. During the first quarter, we reached new agreements with DISH Network and other pay-TV providers that account for 14% of the subscribers in our markets.

These agreements better reflect the value of our top-rated programming and unique local content, but the reality is local TV is still greatly undervalued. I believe there is a lot more room for growth and we will continue to work hard in order to receive our fair share.

On our last earnings call, I discussed our plans to transform our digital business and reposition it for growth and success. To recap, we established the new structure of leadership team, evaluated each revenue segment, and shifted our focus to the growth areas of local and social, building our historical successes.

We have the ability to continue investing in local and social while delivering a consistent profit margin. And to that end, we recently acquired the remaining stake of HYFN, an industry-leading social media advertising company, and can now fully capitalize on their proprietary technology and social marketing solutions that are in high demand.

Finally, we took significant actions to reduce our cost structure. As a result of our plan, digital revenues grew 25% in the first quarter versus the prior year. We are confident that our efforts will continue to deliver sustainable growth in 2016 and beyond.

Before I hand it over to Jim, I want to commend our stations for a terrific February ratings book. 72% of our big four TV stations ranked number one and number two in the local markets with adults 25 to 54, and 51% of our websites ranked number one and number two. In addition our TV stations took home 22 regional Edward R.

Murrow Awards as well as many other industry awards that recognized the superior journalism we provide to our local communities on our screens. We believe our great group of assets and strategy positions well to maximize revenue opportunities in 2016, including the Summer Olympics and robust political advertising.

Lastly, we announced an agreement with Katz Television Group to be our national rep firm. By having a single rep firm, we will benefit from a more focused sales strategy that leverages our significant footprint and scale.

This is an exciting year as we work towards our proposed combination with Nexstar, a $4.6 billion transaction and one of the largest ever in our industry. Uniting our two local media companies creates a stronger company that can better serve its local communities and adapt to the changing media landscape.

I am pleased with the progress we're making on our divestitures and integration plans and we look forward to closing on the transaction in late Q3 or Q4 of this year. Now I'd like to turn the call over to Jim..

Thank you, Vince, and good morning, everyone. Before I begin I would like to draw your attention to the financial statements and schedules on the Investor Relations page of our website, mediageneral.com. During the first quarter, our total net revenues were up 16% to $343 million.

Political advertising revenues were $16 million in Q1 of ‘16 versus $1 million and Q1 of ‘15. And as Vince mentioned, absent political, our total net revenues grew 11% compared to the first quarter of 2015. In addition to political, our revenue growth was driven by our ability to grow retransmission consent fees and a 25% increase in digital revenues.

Overall, our total net broadcasting revenues were near the upper end of our guidance at $306 million and our net digital revenues exceeded our guidance. Down a little deeper into revenues, net local revenues, which include net local advertising revenues and retransmission consent fees, increased 11% year-over-year to $230 million.

Net national revenues increased 1% to $50 million compared to the prior year. Core time sales increased slightly for the quarter compared to 2015, driven by a 4% year-over-year increase in automotive advertising, our largest category that represented 26% of core advertising sales.

We're pleased to see the automakers pushing hard to continue achieving record sales and pacing ahead of last year. In addition to auto, the retail, medical and restaurant categories also showed growth in Q1 versus the prior year. Net digital revenues grew 25% year-over-year to $38 million.

During Q1, we took additional steps to restructure our digital business. The result of our plan was evident as digital revenues exceeded our expectations. Excluding the increase in programming fees paid to the networks and variable sales costs, our operating expenses and SG&A decreased 2.6%.

If you include the programming fees and variable sales costs, our operating expense and SG&A for the quarter increased 11% year-over-year to $229 million. Corporate and other expenses, excluding stock-based compensation, was $8 million in the first quarter compared to $9 million in the prior year.

The decrease reflects our integration efforts and the realization of merger-related synergies. Adjusted EBITDA for the quarter increased $22 million or about 31% to $94 million compared to Q1 of ‘15.

Our growth in adjusted EBITDA was mainly driven by year-over-year revenue growth from TV advertising, retransmission consent fees and our continued focus on managing operating expenses. We recorded $66 million in merger-related costs due primarily to the $60 million break-up fee paid to Meredith.

Additionally we incurred $4 million in restructuring charges related to both the continuation of our digital turnaround and the loss of WAGT in Augusta, Georgia. Turning to Media General debt and key credit metrics. On March 31, 2016, we had cash on hand of $34 million, and $146 million of availability under our revolver.

Our net debt at the end of the quarter was $2.2 billion, leverage as defined under our senior credit agreement was 5x. Focusing on the outlook for the second quarter. We expect net revenues to increase in the range of 13% to 17% versus the second quarter of 2015.

Excluding political, we expect net revenues to increase in the range of 10% to 13%, mainly driven by increases in retransmissions consent fees and digital revenues. Net digital revenues are expected to increase 15% to 29% compared to $36 million in the second quarter of 2015.

For expenses, if you exclude the programming fees paid to networks and the variable sales costs, direct operating SG&A will be flat to slightly up compared to the second quarter of 2015.

Including programming fees paid to the networks and variable sales costs, we expect that direct operating and SG&A will increase in the range of 13% to 14% compared to expenses of $213 million in the second quarter of ‘15. We also expect corporate expenses excluding stock-based compensation to be between $8 million and $9 million.

And given our NOL balance, we do not expect any significant cash taxes. And now, I will turn it over to the operator for Q&A..

[Operator Instructions] And we'll go first to Marci Ryvicker with Wells Fargo..

Thanks. I have a couple of questions.

First, for the second quarter, is auto still pacing close to that plus 4%, and can you just give a little bit of color on your time core sale?.

Yes, sure thing, Marci. So auto is pacing up for the second quarter. I think what we saw was - on the core was really good growth in the majority of our markets and we had some markets that were just tougher geographically for one reason or another.

The Northeast was pretty tough, New England and New York State, and the San Francisco market was a tough market also. But that’s a handful of markets out of our 40-something-odd markets. The vast majority - when we looking at our pacing report and our core performance were green were up. So auto continues to pace up for Q2..

Thanks.

And then for political, are you expecting second quarter number to come in at or below Q1 just from a timing perspective, or should we expect that go up?.

Yes, we do. We actually think the second quarter will be a bit below the first quarter. The first quarter we were - we did better than we internally anticipated with the primary reason where we're positioned et cetera. Second quarter, the primary dollars look like they are going to wane given the current situation.

But the back half of the year prospects - by the speculation on the national races, but particularly for us we have a lot of very, very strong state races that will be heating up in the back half of the year..

Okay. And then last question, digital numbers came in great. Guidance was better than we thought. Are you through the majority of the transition in that segment? You have your sales people in place.

How should we think about where this target is [ph]?.

Yes, I think the way to think about it is we had a pretty significant effort on the national side last year, and with the advent of programmatic, it - I think we had a very attractive product offering but the margins were really challenged as a result of massive automation across the industry.

So after, I think, a year effort in that area we just decided we had to really build on our success.

And we had within those numbers, peeling back the onion, we had really good success, terrific growth on the social side and locally as well, introducing all these great products and services that are produced out of Austin to all of our relatively new television stations in our, just a year and a half old merger with Media General.

And that focus - and kind of adjusting the infrastructure accordingly, has really resulted in us turning things for us. So bit of a different strategy direction. We still have a national effort. We are still actually selling connected screen products.

They are still at attractive offering that I think can be built on for the company as it grows and gets bigger with Nexstar as well to be able to go out and have a fulsome offering of national digital products, as well as a pretty terrific TV footprint.

But it's really a matter of emphasis and investment shifting pretty significantly for us internally along with the leadership change..

Great. Thank you..

And we'll go next to James Dix with Wedbush Securities..

Good morning, guys. I had three questions for you. I guess, first, just looking at your core growth in that low-single-digit range and time sales, and then you have the broadcast network market which seems to be growing faster than that.

How do you rationalize the difference in growth between those two markets, because they would both seem to provide the highest reach with premium video context? Obviously to slightly different advertiser base, but I am still curious about that difference in how you see it and also see it playing out? And then, secondly just on broadcasting.

I mean, looking forward, how does broadcast advertising target, and how is its competitive position in targeting likely to change as video inventory becomes increasingly delivered by IP? And then I have one follow-up on the retrans. Thanks..

Yes, sure thing, James. So I think when we think about our business, it's an amalgamation of a lot of local businesses, so the vast majority of the money that we take in is local and regional, whereas the networks have national advertisers by definition. So we are impacted much more significantly by the local economies.

And whether or not - there is a new furniture retailer that is expanding in Providence versus maybe one contracted in Buffalo. And so that - if you look at it over the course of years, I think you’d see - there is a lot of consistency in our business.

We don’t have the highs and lows of these scatter market and the upfront market, which is, I think, comforting. And as we scale - I mean, we are a good-size company now covering 24% of the country, but then with Nexstar 40%, you’ve got a terrific, I think, portfolio theory opportunity.

So right now described a couple of markets that were soft and we have markets like Austin and national that are pretty strong growth markets. So it's a bit of different business in reality, plus just the other comment on that point is the political displacement as well, right.

So the vast majority of the dollars for political are spent in these terrific news products, localism, connection that's been proven over time. So for a group like ours that's got a lot of strong news stations in all these different geographies, we will get a disproportionate amount of political spend and that will crowd out some of the advertising.

We saw some of that in first quarter. Obviously you will see a lot of that in the third and early in the fourth quarter. And then your second question on the video IP. We can talk for hours about future video delivery and IP and OTT and all that.

But I think at the end of the day, it really comes down to two things, the amalgamation of large numbers of eyeballs, people that are contented to watch your content for long periods of time and the effectiveness of that advertising as its aired. So I do believe that - you start talking about some of the alternative video delivery systems.

The good news is we are in the conversation, even in the VOD world, there is still a lot of people that enjoy sitting back and watching Wheel Of Fortune and Jeopardy! and local news. And local news is recognized to be valuable, whether it's Apple service or view [ph] service.

The local stations with that unique local programming is something that is desired to have bona fide OTT service. I'm not sure exactly if that's where you were going with IP delivery or video but….

Yes. I was just wondering like the traditional attraction broadcast was just high reach, even if you didn't know exactly the detailed data on everyone you were reaching, like you would - like on the YouTube or any type of IP-delivered service. So as we….

Well, I think the system prep measurement will improve over time. I mean, there is several initiatives that Nielsen has undertaken. Clearly the comScore-Rentrak combination is something that they've been very aggressive in trying to refine the audience measurement that they deliver via the set-top box data.

And then further down the road, [indiscernible] May this year at the NAB about ATSC 3.0, there is real opportunity there to do a much better job of measuring through that direct transmission. So I do think that that piece of it will improve over time.

But I look at it as the glass half full, essentially it's a heck of a platform to be able to sell hamburgers and cars and furniture, if even with that system that's much less than perfect and you could argue in theory or to what the measurement you can get digitally.

And we know because we’re in the digital game, that advertisers continually come back because it's just very effective..

And we'll go next to Barry Lucas with Gabelli & Company..

Thanks and good morning. One question is a little bit a deep-dive, Vince, if you could.

Given the change in affiliation in Indianapolis, how did that station do in the primary? I mean, did you lose share of political dollars relative to where you thought you might have been?.

Yes, it’s a great question. So we - well we converted that station over to becoming non-bid for affiliate. It had pretty strong news to begin with. The news ratings are not quite as high as they were when we were an affiliate just because you don't have that terrific high recirculation of content programming and of CBS core.

So clearly it's still very competitive. Still one of the top-rated stations in the market with local news, and we actually expanded the local news in our marketplace. And so having a station like that we've got the flexibility to do a lot of coverage from the state capital - when the primary segment place in the marketplace and be relevant.

So that product - that news product because there is more of it, remains very, very relevant and effective for advertisers. As far as did our money go up or down on that station? So probably - that I actually - I don't have the answer to that..

Okay, thanks for that.

And could you comment on the impact in the quarter of the DISH dispute, and how that affects the run rate of retrans during the balance of the year?.

Yes. So, I mean, as you know, we don't really get into the details of the individual MSO agreements, but we had a protracted conversation. I think it was a good negotiation.

These are always difficult because you get an opportunity only every so many years to try to move closer towards the value of our audience delivery vis-à-vis what other networks are getting paid and then you’re done for several years. So it's kind of constant moving the bar up.

And as I say earlier, I think we still - the industry still has a long way to go. We were very pleased with the results. I guess, there is not much we can say other than you see the numbers. You’ve got the guidance for the next quarter and that effectively will be dealt into our run rate going forward.

But I'm not really sure what else I can say on that, other than we were pleased..

Thanks Vince..

Sure..

And we’ll go next to Aaron Watts with Deutsche Bank..

Hi guys..

Hi Aaron..

Just a couple of questions from me. And Vince, I apologize if I missed this, but I think I heard kind of core was up low-single-digits.

Was that in the first quarter, and then I'm curious, how that looks second quarter versus that?.

Yes, that’s first question. Second quarter is pacing flattish at the moment, but its pickup very stronger than April..

Okay, all right.

Anything discernable on the marketplace kind of moving things around, or just a little bit of a letup?.

Yes, it's really difficult to say. I think we had good advertising in the first quarter. I think in the back half of the year we've had a lot more advertising place earlier as our primary advertiser recognizing what’s going to take place with political.

And I think you have folks ramping up for a lot of big events that are coming up in the back half of the year including a month of Olympics where August is normally pretty slow advertising month. I think this year that's clearly going to be different..

Okay, helpful. And then just a follow-up on auto. I'm curious your view if auto sales ever do actually cool off at some point.

Is that good or bad for the amount of dollars you see the local dealers spending?.

Yes, it's a great question. We’ve looked at this, analyzed it in a bunch of different ways over the years. So I actually would have thought the increase in auto over the last three years or so would have been greater than it’s been, given the - how strong the growth has been in retail sales. It's been great.

I think we've had steady increases every quarter 25% of the business, so that's all very good, and actually one of the largest digital advertiser as well, so it's all good.

But I think a big part of it has to do with when sales are really robust, a lot of the incentives that you saw in a very competitive situation whether it’s an over-stop [ph] situation and trying to move [indiscernible] lots at the end of the year and they go for new models. Over the last three years or so, you really haven't seen a lot of that.

So we've actually had years where the automakers have had tough years and you’ve had a decline in auto advertising in the first couple of quarters, but then at the end of the third quarter and the fourth quarter you’ve had a really robust spending as you got competition over sales.

Whereas now it's a lot of - for the last three years, it's been a lot of imaging and really displaying the new models out there to people. But we really haven't seen a lot of incentive type programs. So he it will cool off eventually at some point. We hope it lasts as long as possible, and I think we'll have to wait and see what the impact is..

Okay, great. And last one for me. I value the insight you have in your crystal ball. So I'm curious as you think about the changing dynamics of how people are consuming video. For Media General, if you lose a traditional sub, a pickup perhaps a skinny bundle subscriber or over-the-top viewer.

How do you think about that trade-off in terms of the subscriber fees that you have coming in?.

Yes. So I think what you're seeing - you probably heard from other broadcasters as well is the OTT folks are trying to negotiate with the networks just from an efficiency perspective. They not have to have a negotiation with a lot of different program providers locally and regionally.

And the local broadcasters have been part of that conversation because, again fortunately, the want the live linear feed and they want local news in particular. So whether it’s CBS All Access or Sony Vue through some of the networks that are negotiating - that have negotiated those deals.

They are - the local broadcasters are included in the value chain.

And, I mean, unfortunately I can't talk about what those rates and amounts are, but it's a different dynamic because you see you’re having the networks negotiate with the OTTs and then it's the affiliate groups negotiating with the networks versus direct negotiation with the distributor as in the MSO world, and then a negotiation over program rights fees for the network programming with the networks.

So I think it's really a matter of this constant negotiation over relative value.

But in an increasing OTT world - I'm more comfortable today than I was two years ago for the reason that these conversations and some of the early deals have been cut include the local affiliates in the value chain which is great, and again it's something that's obviously needed by the OTT providers.

The largest ones have done their research and recognized that..

Okay, great. Thanks Vince..

Sure..

[Operator Instructions] We'll go next to Lance Vitanza with CRT Capital Group..

Thanks.

I just was wondering if you could provide any update on the FCC auction process either as it relates to you guys or just more generally?.

Yes, so it’s a delicate quite period now, so we really - there is not whole lot we can say about our strategy or our participation in the auction. But in general, you saw the notice come down. So I think we are ready to go.

Lot of the uncertainty in the processes - the kind of last mile here has been removed, 126 megahertz, so the FCC has decided that they are going to go for highest potential clearing target.

The auction will determine whether or not that is actually achieved based upon the demand side, but it seems as if at least preliminarily at the values that the FCC initially published by market for all 200 DMAs in the country, they've got the supply and the demand side they’ll determine.

But the rules of engagement have been determined, and as of the end of this month, war rooms had been setup. And at least as far as the supply side goes, we are ready to go..

And can you remind me what - or when rather we should expect to hear that this is all been concluded just from the standpoint of knowing what the demand side looks like in that part of the auction?.

Yes. So, on the supply side, it will depend on how many rounds it goes, right. If it goes two rounds, it will be over the first week of June. More than likely it will go multiple rounds, so that will put you into later June or maybe - and then they will have a start-up process.

They'll have provisional winners on the supply side and then they'll begin the demand side, and that will go, again, however many rounds anywhere from one to 50 rounds depending on the robustness and the competitiveness of that side as well. So I think it will be mid-summer some before you could possibly, I think, really have any data..

Thanks very much for your help..

Sure thing..

With no further questions in the queue, I'll turn it back over to CEO for any closing remarks..

Okay, terrific. Well, thank you all for your interest in the company. We look forward to keeping you updated..

And that does conclude today's conference call. We appreciate your participation..