VictoryShares US Large Cap High Div Volatility Wtd ETF

Third-quarter 2008 net revenues were $213.9 million, down from $240.2 million in Q3 2007, a decrease of $26.3 million or 10.9%. Operating income was $45.2 million versus an operating loss of $427.4 million in the prior-year quarter; Q3 2007 included $495.8 million of asset impairment and disposal charges versus $7.3 million in Q3 2008. Segment operating income was $73.3 million, down from $92.3 million, and free cash flow was $33.8 million versus $41.6 million a year ago. Net income was $28 million, or $0.11 per basic share, versus a net loss of $477.8 million, or $(1.71) per basic share, in Q3 2007. Interest expense declined to $30 million from $39 million. Management said it expects interest expense to decrease by approximately $5.2 million over the next 12 months. For full-year 2008, depreciation and amortization is estimated at $45 million and capital expenditures at $9 million to $11 million. Debt outstanding at September 30, 2008 was $2.1 billion and cash on hand was approximately $17.1 million.

Farid Suleman characterized the quarter as “yet another tough quarter,” with local and national revenues down and the network pressured by Paul Harvey and Rich Media. He said format changes in markets like Dallas, Atlanta, and Washington hurt near-term revenue but are intended as investments for the future, with ratings improving in Dallas and Atlanta and potentially turning positive in Washington. He was notably confident about the company’s ability to improve next year through market share gains, new revenue streams, and continued debt paydown.

Randy Taylor walked through the quarter’s financials: revenues of $213.9 million, operating income of $45.2 million, segment operating income of $73.3 million, and free cash flow of $33.8 million. He noted lower interest expense of $30 million, helped by lower rates and debt reduction, and said the company bought $160 million of debt in the quarter, contributing to a $32.5 million gain on extinguishment of debt. He also said the company reduced convertible debt by $254.8 million and senior debt by $109 million over nine months, with interest expense expected to fall by about $5.2 million over the next 12 months. Capex was about $1.9 million in the quarter, and the company estimated full-year capex at $9 million to $11 million.

Analysts pressed management on pacing, 2009 cash flow assumptions, covenant risk, and why the company was favoring convert buybacks over bank debt at times. Farid said pacing was down double digits but that political spending helped somewhat in October; he also said 2009 free cash flow of over $120 million assumes market declines in the 7% to 8% range, not growth. On covenants, Randy said the key leverage ratio was 8.5x at the end of Q3, stepping down to 7.75x at year-end and 7.25x at the end of 2009. Management also said the Fairness Doctrine talk would not materially change the business, and that it views debt reduction as the highest-return use of cash.