Sinclair Inc (SBGI) 2002 Q1 法說會逐字稿

Good day, and welcome to the Sinclair Broadcast Group Incorporated's first quarter 2002 earnings results conference call.

Today's conference is being recorded. At this time I would like to turn the conference over to chief financial officer Mr. David Amy. Please go ahead, sir.

Thank you operator.

In the room with me today are David Smith, president and CEO and Lucy Rutishauser, treasurer and head of investor relations. Before we begin I'd like to make our forward-looking statement and to remind everyone that redistribution of this call is prohibited without the written consent of the company.

Certain matters discussed on this call may include forward-looking statements regarding among other things future operating results. Such statements are subject to a number of risks and uncertainties. Actual results in the future could differ materially and adversely from those described in the forward-looking statements as a result of various important factors as set forth in the company's most recent report on Form 10K filed with the SEC on March 29, 2002 and as included in our first quarter earnings release. The company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances. I'd like to along with that congratulate Lynn today for just a super story here in terms of going off with their IPO with a 14 times 2002 EBITDA. Congratulations to Lynn and a great IPO. First to return to our financial highlights for the first quarter on a reported basis, Sinclair's net broadcast revenues were up .6 percent, or $873,000 for net broadcast revenues of 150.6 million. The increase was due to strength in the local markets which were up about 2.6 percent, excluding political.

A total political advertising dollars for the quarter were 2.2 million. National was down, ex political about 7 percent and about 4.3 percent when you count in the national political dollars. Broadcast cash flow increased 1.5 percent or $798,000 for a broadcast cash flow of 54.8 million. The increase was due to the high revenues and almost $3 million of cost control savings that we were able to enjoy versus the forecast that we provided earlier.

This was offset by $2.8 million in higher film payments due to the new fall programs such as Raymond, Just Shoot Me, King of the Hill and some additional seasons for Friends, Frasier and the Simpsons. Our after-tax cash flow per sale was 11 cents, a decrease of 21.4 percent from last first quarter and 3 cents lower than last -- about 3 cents lower than last year with public -- but within the public guidance that we had previously provided. The decline in ATCF per share was due primarily to the higher film amortization costs associated with the new fall 2001 programs and with writedowns associate with the seasons I mentioned earlier on Drew Carey, Spin City and King of the Hill. The higher film amortization was partially offset by our higher revenues, our lower operating costs and lower interest expenses due to our recent refinancing activities and the higher current tax benefit that we're enjoying. Broadcast cash flow margins increased from 36.1 percent to 36.4 percent in the first quarter due to the reasons that I just discussed. For 2002 we have adopted FAZ 142, the accounting for goodwill and intangible assets and had we adopted 142 for the first quarter of '01 the impact would have been to reduce our amortization of intangibles by 23.3 million, or 23.8 million net [inaudible] taxes and this would have resulted in our recorded basic loss per share from continued operations to improve from a 46-cent loss per share to a basic loss per share of 18 cents our first quarter results also reflect the adoption of the new 142 impairment rules, which resulted in a 41.6 million dollar writedown net of taxes which related to our FCC licenses in eight markets. The total writedown is 64 million and the tax benefit there was 22.4.

The new rules also require that we test our goodwill for impairment and we expect to have that completed certainly by prior to the end of this year and that may also result in additional charges.

So with that I'll turn this over to Lucy, our treasurer and she'll take you through the balance sheet.

Leverage through the sub debt was 6.67 times on adjusted EBITDA of 237.4 million. This includes the receipt of a 43.6 million tax refund and a 30.4 million note receivable repayment, both of which were received in March and both of which were applied to pay down revolving debt. Leverage through the high top was 7.46 times on adjusted EBITDA of 239, the difference being the cash flow from our deposition own station from which the high top orders benefit. In March we took steps to improve our capital structure and take advantage of the low interest rate environment. We raised 300 million in 8 percent senior subordinated notes through 2012 which were used to pay down our senior bank debt. As a result of our operating performance and capital raising activities in the first quarter, not only did our total leverage decline by almost .4 turns but senior leverage at quarter end was 2.18 times and this is the lowest senior leverage that we've experienced in over four years so going back to December of 1997. The announced sale of our Indianapolis station which we expected to close in the third quarter would further reduce our total leverage by approximately another .4 turns so we're seeing our balance sheet quickly deleveraging before we even apply this year's free cash flow.

I'd like to turn the call could David Smith our president to discuss our operating performance in the first quarter and our outlook for the second.

Thank you Lucy. Good afternoon everybody. Briefly on a monthly basis, first quarter time sales were down 1.9 percent in January, up 4.8 percent in February, that being driven primarily by olympics and Super Bowl and down 2.2 percent in March.

Local was up 3.2 percent or up 2.6 excluding political while national was down 4.3 percent or down 7 percent excluding political. Our local revenue mix increased to 60.9 percent versus 58.5 percent last year finally breaking the 60 percent Mark for the first time.

Early results for the first quarter market share reports that come in on a market-by-market basis indicate that our shares are up slightly. That's good news.

Categories that were up in the quarter were services, which was up 33 percent, and auto, which was up 11 percent. Some of the weaker categories included fast food, which was down 12 percent. It's noteworthy, however, that every category either gained momentum or held its dollars as the quarter progressed and as you may recall, the typical pattern that has existed for approximately the last year is advertisers would book at a rate and then cancel and come back and renegotiate that rate and what we're starting to see is the inventory on television stations is starting to tighten, which means we're going to see that trend move away quickly because once it's gone, there's typically not somebody else to fill a slot so they can't play that game any longer, as we continue to tighten and become more healthy.

Political was 2.3 million versus 200,000 in the first quarter of last year. Super Bowl revenues were 2.9 million versus 600,000 last year when it was on the ABC and olympic revenues were about a million dollars.

Our Fox NBC and CBS stations were other better performers. Fox affiliates were up 8.5 percent, NBC was up 28.4 percent primarily due to the olympics and our CBS stations were up 9.9 percent.

The ABC station growth was flat despite the network's low ratings. Our WB stations were down 9.6 percent and our UPNs were down 12.3 percent, which doesn't surprise us and -- and for those of you who remember the last call, we had suggested to you that as the economy starts to return, the primary beneficiaries of the initial return are the -- typically the top three and or four stations in the marketplace and as it tightens up, it gradually trickles down to us. Turning to second quarter outlook, April time sales are down 2 percent while may is facing down only 1 percent and June is currently pacing up at 8 percent. Fox Group is pacing up 5 percent and our CBS stations are up 8. NBC is flat and ABC and WB are pacing down 3 percent while the UPN stations are pacing down 6 percent. The auto category continues to remain strong, particularly with the return of the General Motors Local [inaudible] groups, Dodge shifting to an 18 to 49 demo, which is our primary demo and the Fox affiliates and overall advertising [inaudible] interest by dealer groups and the manufacturers in general. Fast food and telecom are showing some strength. Currently no one category stands out as being materially weak in the second quarter.

Demand is showing signs of tightening, our visibility for future ad demands continues to be somewhat limited. We are, however, encouraged by the second quarter and are currently seeing signs of the quarter is beginning stronger as it progresses. The second quarter we're forecasting net [inaudible] revenues to be at 1 percent to 2 percent and broadcast cash flow to be flat to up 2 and a half percent. This would imply an ATCF per share of 37 to 39 cents. On a full year basis based on what we can see thus far, we believe that broadcast revenues to be up in the low single to mid single digit it percentages and broadcast cash flow to be up mid single digit it percents. inaudible] cash flow per share is expected to be up in the high single digits to low teen percents.

That's kind of a snapshot. Operator I think we're ready to start taking questions.

Thank you today's question and answer session will be conducted electronically. If you would like to ask a question, please do so by pressing the star key followed by the digit 1 on your touchtone telephone. To ensure all participants have the opportunity to ask a question, each person is limited to asking one question at a time. Once again, please press star 1 on your touchtone phone to ask a question. Take our if I remember questions from Victor Miller from Bear-Stearns.

Good morning or good afternoon. Sorry. Could you talk about just the process of the Court case where it stands now? You got a remand. Do you think the FCC will be forced to adopt a similar view on voice as they did with the radio TV cross ownership and if it does, do you think it will open up a lot more markets where you can do [inaudible] in some of your mid and small sized markets where you haven't been able to do so before? Thanks.

Well, I think as you know, Victor, the Court remanded the [inaudible] voices back to the FCC advising them that the rule was [inaudible] capricious and arbitrary and our sense is that the commission clearly is going to have to do something affirmative, which is to say that they're going to have to do something to continue a deregulatory process. Our industry is -- needs deregulation as soon as possible. We need a level playing field and hopefully, the courts if need be will -- will become more proactive about this as a function of cases that get put before them.

I wish I knew when the FCC was going to do something. I don't think anybody can read those tea leaves but I don't know how they don't in the final analysis come out and do something of a deregulatory nature and I think under the assumption that they are, which we believe they are, then clearly, all everybody is waiting for is the opportunity to find out what the number's going to drop to if it's going to drop as opposed to being totally vacated. If it's vacated, then it's kinds of let's go do what we got to do now. Notwithstanding what the FCC's challenges are in terms of deregulation, I don't think they honestly stop the creativity on the part of any broadcaster to get together and create financial models to accomplish the things necessary in order to to compete in the marketplace which we have done just recently in a number of markets, the most recent of which is Nashville, Tennessee, so we'd like to see it move quickly but absent that, we're proceeding to run our business and do what we need to do.

Our next question is from Bishop Sheen from Wachovia Securities.

Good afternoon. Just making sure of the math with my one question. You're using your quarter over quarter guidance based on the new pro forma without [inaudible] in there, would that be correct?

For the second quarter?

Yeah.

No, second quarter the guidance is over the reported.

It's over reported not over the -- the [inaudible] pro forma table.

inaudible] over reported.

Okay.

inaudible] for the full year, though, we're pulling the Indianapolis out beginning in the fourth quarter.

Right.

And that's [inaudible] also over reported.

Okay. Then your math for your leverage of the 6.7 -- 6.67 times, that is pre-- I mean, you get the EBITDA, but that is preproceeds of the Bloomington sale.

Correct.

Right.

cash proceeds, then the leverage will turn about another .4 decrease.

Exactly. All right very good thank you.

Thank you.

Our next question is from Tim Wallace from Bank of America securities.

Thank you very much. David I may be mistaken or David Amy, I don't know who the appropriate person is but is this the first time you've given full-year guidance in a long time? And then just a follow-up to that, could you remind us what the revenue loss from 9-11 was in your opinion third quarter, maybe the revenue and cash flow loss? Thank you.

Sure. As far as full-year guidance in a long time, last year would have been when we provided full-year guidance at the end of the year in our sort of our fourth quarter call. We didn't feel comfortable at all trying to provide full-year guidance to you at the -- you know, this year, so, you know, this is the first time that we're actually providing full-year guidance for 2002.

I take that as a very positive sign, David, if I'm not wrong here.

Yeah, I think I'd take it that way. It's -- we're saying, you know, like we say throughout our press release that, you know, we think we've seen a real turnaround or at least an end to what we've seen as a declining advertising revenue stream and an improvement we think, certainly improving as we go forward. We're cautious certainly I don't want to declare a turnaround, don't want to use that word actually but you know we're cautiously optimistic as to what we expect to see. Visibility is still a problem and you know we're hoping to eliminate that from our vocabulary when we talk about how we see the quarters and how we see our revenues going forward, but it's still a bit of a problem.

As far as the question on the amount of dollars that we lost as a result of 9-11 in the third quarter, that was approximately 7 -- I'm sorry, $5 million for the third quarter was 7 million in total and we took into consideration the first week of October.

That's revenue.

Yes.

And would cash flow be just using whatever your margin is for a proxy.

Absolutely.

Okay, thanks.

I'd also like to add one piece to the full-year guidance piece. If you recall last February, we were the only company that -- in broadcasting that came out with full-year guidance for '01, and throughout the year really updated on everyone on the full-year guidance so I mean I would say that we are actually just getting back to what we have done in the past.

Our next question is from Paul Sweeney from Credit Suisse First Boston.

Thanks very much good afternoon. David you mentioned visibility a couple times and hopefully won't have to talk about it too much more. Just could you put into context of kind of sell outs what your experience in terms of your inventory sell outs perhaps on a current month and a one or two month forward basis?

That's a good question, Paul. It's the challenge that, you know, we face as broadcasters to when we -- when to recognize sell out levels are just reaching to a point of -- that you know pricing needs to start moving up. Dave mentioned earlier just about the tightening and the inventory and that's clearly the -- something that's going on right now in the second quarter. We're seeing inventories tighten up as we move through the quarter and, you know, our ability to react to that and start moving prices upward is really an important issue in regards to how that top line will perform but it is a very positive trend and it's helping in regards to the visibility.

Thank you.

Next question from Drew Martin from Deutsch Bank.

I'll try to control myself and only ask one question. Political. You said you did 2.3 for the quarter. For the year, if we assume something in the 15 to $20 million area is that about right.

Yeah, I think that's -- that's pretty reasonable.

Thanks a lot.

Our next question is from Victor Vinton -- [Vinton Vickers] from JP Morgan Chase.

My question has to do with the WBs and UPNs. When do you expect those to start trending positive just based on the trends you're seeing now? In other words, when do you expect that advertisers will probably start moving down market and start, you know, buying the WBs and UPNs? Then just on Foxes, you had some very good growth relative to the network that's been reporting there. Could you just talk about the drivers of that growth at the Fox stations? Thanks. Besides the Super Bowl of course.

Well, [inaudible] then, it's purely a function of how fashion the market tight ebbs. The faster the market tightens, the faster the UPNs, WBs and some of these markets start to move -- you know, start to fill up. I can't tell you whether it's going to be the end of May or it's going to be sometime in June or whenever. We'll have to see how it plays out, but clearly, the historic trend is once everybody else fills, it starts. It just hasn't happened yet in an aggressive way that's allowed us to start lifting the rates but we fully expect it's going to. I wish I could tell you [inaudible], I wish I could be more precise about it but the fact of the matter is there is no visibility yet.

I would also just add that you know if you look at how they paced in the first quarter and how they're currently pacing, the WB was down 9.6 percent, UPN was down 12.3 percent in the first quarter and currently, the WB is pacing down 3 and UPN is down 6 so the trend is improving just from the first quarter to the sick.

Just not the same rate of speed the other guys are.

Next question from Richard rows even Stein from Goldman Sachs.

Thank you. Are you seeing a difference in performance in your duopoly markets. Maybe you could except if you are at which affiliations. Thanks.

That's a good -- we actually went through that analysis and were considering is it -- are we seeing a real difference in our duopoly markets, are we seeing it in single station markets? And by and large there's really -- they are all came of coming out about the same in terms of the overall performance so we really can't point to it and say the duopoly markets are performing better than the single-station markets in terms of the overall advertising revenue.

But we did see that, you know, the pattern exists, you know, in terms of the network affiliation, which we have been through and given you the numbers on those, but that's really the -- the main telling issue here is the, you know, the network affiliation and the conversations we have had regarding the WB and the Warner Brothers, I mean, [inaudible] stations.

Next question from Greg Cowlis [phonetic] phonetic] from Morgan Stanley.

Good evening guys. I had a quick question about your universal shelf. Given sort of the stratospheric multiples it looks like people are willing to pay for small and midsized markets inquisitors, are you considering using some of that shelf to do some equity and if so, are you looking to move into midsized markets or what sort of the strategic plan? I guess that's a question for David.

First of all, we're the king of midsized market. I don't think there's anybody in the country that is as big as us in the midsized markets. From a strategic perspective, I think what we've given a lot of consideration to is -- and that's primarily why I think you saw us divest of Indianapolis is if we can't effect the strategy we want to create a duopoly or other effective structure, then we need to think about moving out of that market if we can cost effectively and refocus our efforts and try to create structure in other markets, either midsized or above that.

We think we understand the -- the other than midsized market and are very comfortable with the idea that you can create structures in markets hundred plus as an example and get some significant -- on a percentage basis, some significant upside by putting two businesses together. We've now demonstrated that to ourselves as a function of certain things we've done and kinds of look forward to playing in that arena because we clearly understand it I think better than most, having been doing it now for approximately 11 to 12 years so we are the midsized guy looking to move into the smaller market arena.

Next question from Andy [VanHoden] from Deutsch Bank.

Thank you. My question's been answered.

Just a reminder if you want to ask a question it is star 1 on your touchtone phone. We will go next to Bill Meyers from Lehman Brothers.

Looking at visibility from a different angle, could you compare cancellation rates over the last few months? I guess in other words June looks very strong right now. We want to get a feeling of how predictable the [inaudible] is from a current standpoint.

Bill, I don't see anything out of the ordinary. I mean, I think what we're not seeing is the -- is the orders, you know, that have kind of been placed like the -- for the last year and a half where they come in and place large orders and two weeks later cancel them and downward trending of the economy. I think that day is over. It's back to some degree business as usual.

With minimal type stuff like that, if any at all, so I think that's one of the first signs that you see that the world has started to turn.

Bill, if anything, what we're hearing is that there's a lot of opportunity for us to have and see that number hold and maybe get better in some of our -- we're talking about our WBs and UPNs. There's a lot of markets we're hearing about stations, some of the major affiliates that have sold out already for late May and into June and their inventories are gone so that bodes very well for us.

Next question from Victor Miller from Bear-Stearns.

Just to follow up on the national market, could you tell us what you're seeing in the national market right now and in terms of pacing onto that 7 percent core number for first quarter then congratulations. I think you finally got the 14 licenses. Is that the Sullivan deal you announced in February of 1998 that's finally put to bed is that right?

Imagine that, Victor. We to pay off anybody.

Congratulations on that.

Isn't that a wonderful thing?

Yeah, that's a wonderful thing.

Stands by we are just trying to get the number, please.

A Yeah, Victor, currently national -- and this is excluding political -- April is pacing down in the, you know, the high single digit and same with May.

It appears there are no further questions at this time. I would like to turn the conference back over to Mr. David Smith for any additional or closing remarks.

Thanks very much operator.

Thanks everybody for taking the time to check in with us. I think as we've said and I suspect pretty much is becoming industry wide, I think we've seen the -- the larger part of the down turn is now behind us and I think we are clearly starting to move in the right direction again. I'd like to think that we would become the focus as an industry of Wall Street, especially given Lynn's very successful transaction they completed this afternoon. We think it bodes well for us as an industry as an overall so thanks very much for tuning in and anybody missed off line, feel free to give us a buzz.

That does conclude today's conference call. Thank you for your participation. You may disconnect at this time.