Sinclair Inc (SBGI) 2006 Q3 法說會逐字稿

Good day, ladies and gentlemen. Thank you for your patience and welcome to the Third Quarter 2006 Fisher Communications Inc. Earnings Conference Call. My name is Fab and I'll be your coordinator for today. [OPERATOR INSTRUCTIONS] As a reminder this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Jodi Colligan, Vice President of Finance and acting CFO. Please proceed.

Good afternoon, this is Jodi Colligan. Welcome to our Third Quarter 2006 Conference Call. At this time I'll turn the call over to Colleen Brown, our President and CEO.

Good afternoon, welcome to our Third Quarter 2006 Conference Call. With me here at our Seattle offices is Jodi Colligan, our VP of Finance and acting Chief Financial Officer. Jodi will provide you with a financial overview in a moment and we will both be available for questions later in the call. Also with us today in Seattle is Rob Dunlop VP/Developing Media, Joe Lovejoy, VP Strategic Planning with responsibilities for our 100+ market. I'll begin with a few overview comments.

Driven by a 13% gain in television revenue Fisher developed a third quarter operating income of $1.9 million against a prior year of $304,000. In addition year-to-date total revenue gain is 9% and operating income was $6.9 million compared to a year-to-date loss of $5.3 million in 2005.

Let me give you a little color on this performance. The third quarter started out slowly, ABC prime time programming in July created a softer sales environment than we expected. Although for the most part, we are pleased with ABC's fall season's performance. Our market did not have highly contested political races as some parts of the country did, nor was issue advertising as strong in third quarter. Compared to prior year, we saw strength in retail, cellular advertising and healthcare categories but softness in domestic automotive. Political races were slow to break but October political was stronger. Local has been strong all year. Political is about 3% of our revenues this year compared to about 1% last year.

There were also a number of strategic investments made to improve our operating performance including product initiatives in Seattle, changes in personnel and the build-out of the Fisher Interactive Network. We're in the turnaround mode. We're beginning to see the results of the execution of the strategic plan.

As our industry is in transition from a broadcast-centric model to a content-centric model Fisher has and will continue to execute key strategic steps to not only improve our current operating performance but also build our competitive advantage for the future. In Seattle, we created the company's first television duopoly with the announcement of the new Univision affiliated station that launches January 1, 2007. Fisher completed its stock purchase of African-American broadcasting of Bellevue for $16 million.

As previously announced we purchased 25% of the stock in June for $4 million and completed our purchase of the remaining 75% in September. The transaction was funded by a combination of cash flow from operations and temporary borrowing from our $20 million revolving line of credit. This station remains a ShopNBC station until the end of the year. Channel 51, KWOG, which is now KUNS is a full power station with a similar coverage area to our promo TV station in Seattle. It will serve the Puget Sound region with the most popular programming in Spanish language television. In fact, all of our Spanish language stations are being fed or will be fed out of our [inaudible] island satellite uplink facility, an existing facility that was previously unused.

In July, 2006, we announced that we entered into a local marketing agreement to manage four low powered television stations in eastern Washington and an option agreement whereby we have the right to acquire the stations until June 30, 2007. The stations currently provide Univision programming to the Yakima-Pasco-Richland-Kennewick television market in Washington.

As announced on November 3rd, we also purchased two Oregon television stations for $19.3 million, one low power and one full power from Equity Broadcasting. This completed the second duopoly for Fisher. This transaction was initialized -- initially announced in December. And included the purchase of two low power Idaho TV stations that was finalized in May. The Boise stations are airing [inaudible], the Univision sister network and the Portland Univision stations have been run by Fisher since July and under our JSA.

We also closed on the sale of 18 of our 24 small market radio stations located in Montana and eastern Washington for $26.1 million. This transaction was a like kind exchange for the Portland station. The remaining six stations were excluded from the original sale to secure FCC approval. One of these stations is expected to receive FCC approval soon and is expected to be sold to the buyer of the original 18 stations. All six stations continue to be held for sale.

In sum, the sales of our small market radio stations and the purchase of Spanish language stations in the Seattle, Portland and Boise markets as well as the LMA in Yakima enables Fisher to leverage the synergies and infrastructure of our clusters of northwest television stations. Furthermore the purchase of these stations in our key markets creates an opportunity to enjoy duopoly economics and expand our service to the Hispanic community which will align Fisher with the fastest growing population segment in each of our key markets.

As I mentioned earlier we continue to focus on improving our core operation performances and building our business for the future. In the last six months we built out the Fisher Interactive Network. Year-to-date page views for the Fisher Interactive Network we refer to as FIN, totaled just over $142 million, which compares to $105 million for the same period one year ago. This presents a 35% increase. In fact, for all of 2005 Fisher's page impressions were about $140 million. And as you know Fisher is based in a tech savvy market where broadband penetration is high. Consumers are wired by multimedia. We recognize the need to offer robust web initiatives to sustain and build page impressions.

Video is one of these key initiative that will drive performance for FIN. Our network has served approximately 19.5 million video streams in the first nine months of 2006. This is a 324% increase over the 4.6 million streams Fisher did in the same period last year. In all of 2005, Fisher's video streams were approximately 6 million. We are already 225% ahead of that number. And now I'll turn it over to Jodi Colligan.

Jodi Colligan: Thank you, Colleen. Before we discuss our financial results, let me remind you about forward looking statements. Comments made during our call today may include forward looking statements. These statements may be identified by the use of forward looking terminology such as anticipate, believe, continue, could, estimate, expect, intend, may, might, plan, potential, predict, should or will or the negative thereof or comparable terminology. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward looking statements are only predictions that involve known and unknown risks and uncertainties, many of which are beyond our control.

These risks and uncertainties include those discussed in our quarterly report on Form 10-Q for the quarter ended March 31, 2006 filed in May 2006 under the heading Risk Factors. We plan to file our third quarter 2006 Form 10-Q within the next few days. Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward looking statements. The forward looking statements are made only as of today's date. We do not undertake any obligation to update any such statements or to publicly announce the results of any revisits to any such statements to reflect future events or developments. With that accomplished, let's discuss our financial results.

Revenue. We issued our quarterly press release earlier today and as I mentioned we plan to file our form 10-Q within the next few days. Those documents include a great deal of information regarding our financial results. So please refer to those sources for additional information. Let me briefly summarize the sources of our revenue for the first nine months of 2006. Television accounted for two thirds of total revenue. Radio accounted for 27% of total revenue excluding discontinued operations. As Colleen mentioned we recently closed on the sale of 18 of our 24 small market radio stations in Montana and eastern Washington for approximately $26.1 million. The remaining six stations continue to be held for sale.

Accordingly this group of radio stations has been carved out of the radio segment presentation and is disclosed under the caption discontinued operations. Remember that we have radio broadcast rights for the Seattle Mariners baseball team. Therefore our radio revenue and expense is greatest during the baseball season, the second and third quarters.

Fisher Plaza accounted for 6% of total revenue. We reported a total revenue increase of 9% to $38.7 million in the third quarter of 2006 compared to $35.6 million in the third quarter, 2005. For the nine months ended September 30, 2006, we reported revenue of approximately $110 million compared to $101 million in the comparable nine month period in 2005, also, a 9% increase. Broadcasting revenue was higher in 2006 due to higher revenue in all areas compared to 2005 for both the three and nine month period comparisons including national, local and political advertising as well as paid programming. These increases were complemented further by higher revenue at Fisher Plaza as a result of increased occupancy levels.

In comparison to the nine months ended September of last year year-to-date 2006 local broadcasting revenue increased at most stations. Spot revenue was up primarily due to better inventory management and more aggressive sales policies. Our radio operations showed improved revenue in the nine month period ended September 30, 2006 as compared to the same period in 2005, primarily as a result of increased local and political revenue. We attribute the increase to improved ratings on KOMO AM and KPLZ along with better inventory management. However, this increase was partially offset by radio revenue from our Seattle Mariners broadcast rights, which decreased in the nine month period ended September 30, 2006, as compared to the same period in 2005. Primarily as a result of decreased revenue during broadcast of the Mariners' baseball games.

Operating expenses. Total operating expenses increased 4% to $36.9 million in the three month period ended September 30, 2006 as compared to the three month period ended September 30, 2005. The increase in the third quarter of 2006 was due to increased television costs primarily from investments in our news products at certain stations, startup costs incurred for our Spanish language stations, increased commission expense as a result of increased local revenue and station related severance cost incurred during the third quarter of 2006. Operating expenses decreased 3% to $103 million in the year-to-date period ended September 30, 2006 compared to the same period in 2005. The decrease in 2006 was due primarily due to decreased programming costs, lower levels of depreciation, lower pension related cost and reduced severance cost incurred in 2006.

Net results. We reported a loss from continuing operations of $784,000 in the third quarter of 2006 compared to a loss from continuing operations of $1.1 million in the third quarter of 2005. The third quarter of 2006 net loss includes the tax expense adjustment of $388,000 as a result of an audit of the 2003 Federal tax returns. Including income from discontinued operations amounting to $113,000, third quarter 2006 consolidated net loss was $671,000. For the nine months ended September 30, 2006, we reported a loss from continuing operations of $779,000, compared to a loss of $7.7 million in the comparable period of 2005. Including income from discontinued operations amounting to $675,000, year-to-date 2006 consolidated net loss was $104,000.

Discuss cash and liquidity. We ended the quarter with cash and short-term investments of $1.9 million. We had working capital deficit of $1.7 million primarily due to the acquisition of African-American broadcasting of Bellevue and additional deposits toward the purchase of two Oregon television stations. These transactions were funded by operating cash flows net short-term borrowing of $13 million from our $20 million credit facility. As of today, November 6th, we have $2 million outstanding under our credit facility and $18 million is available to us. We intend to finance working capital, debt service and capital expenditures primarily through operating activities. Our investment in Safeco stock was valued at $176.9 million as of September 30, 2006.

As we've done over past quarters I would like to take a few minutes to go over operating cash flow as defined under our debt agreement. As defined and based on trailing four quarter period ended September 30, 2006, we calculate our operating cash flow to be $26.9 million, excluding the effect of our purchase of African-American broadcasting and our sale of Fisher Regional Radio Group. Let me walk through the summarized calculations. Consolidated net income for the trailing four quarters was $1.7 million. Exclude the effect of income taxes, in this case that results in a reduction of $3.6 million because we had a tax benefit in the four quarter period. Add back interest expense for the period in the amount of $13.8 million, add depreciation and non cash amortization for the four quarter period totaling $14 million, add back net of non cash program amortization over cash paid for programming.

These amounts are found in our statements of cash flows. The amount is an add back of $1 million. On a pro forma basis, the subsequent exclusion of Fisher Regional Radio Group as discontinued operations reduces operating cash flow by $1.7 million to $25.2 million. Also the subsequent inclusion of the Spanish language TV stations increased its operating cash flow by approximately $2.7 million to $27.9 million. In all cases our trailing 12 month cash flow is sufficient and in compliance with our debt covenants. That concludes the prepared portion of our presentation. At this time, I will ask the operator to assist us with responding to questions you may have.

Thank you. [OPERATOR INSTRUCTIONS] And your first question comes from the line of Bishop Sheen with Wachovia. Please proceed.

Hi, everybody. Thank you for all the details. I may or may not have followed along. The -- just a couple of procedural things. So we're all on the same page. The operating cash flow, which is the equivalent of EBITDA, after corporate overhead? Or are you talking about before any expense of corporate overhead?

It includes corporate overhead.

Okay. So let's say it's a pretty good surrogate. Pro forma on an LTM basis with the addition of the TV stations were something like $27.9 million?

Yes.

Okay. That's helpful. And then on the debt, we know we have the 150 bond and then the revolver was drawn upon to help bridge for the transactions. Is there any revolver drawn at this point?

As of the end of the quarter, at this point we have $2 million drawn on our revolver and at the end of the quarter it was $13 million.

So it was 13. So for apples-to-apples it was something like 163 of total current and long-term debt roughly?

Exactly.

Okay. And now it's as we're in November, something like only two drawn. Okay. What transactions are left in terms of pending transactions? I know that we have some stations that we're waiting to close on, the divestiture.

Bishop, the only thing remaining is the completion of the agreed-upon transaction after we receive FCC approval on the radio station KAAK in Great Falls. That would be sold -- the intent is it will be sold to Cherry Creek the buyer of the original 18 stations.

Right.

Then there are five remaining and they are being marketed as we speak. So they are all-

Okay. So we can't talk about what they will bring because you don't know they're in market?

Right.

Of the onesy or twosies still going to Cherry Creek does that represent any financial inflow yet to be received by Fisher?

Yes, it does. It represents -- we'll recognize the proceeds once that sale is transacted. It was not included in the transaction recently completed.

Right. So when you said in the press release and certainly it was announced before, forgive me if I get it wrong, something like $26.2 million was the original.

Right. Well, it will be an additional 3 million for that station.

That's what I'm looking for. So there's something like 3 million of proceeds coming in to Fisher?

Once that sale is complete for that one individual station, yes.

Right. And we expect that it's going to be complete in calendar 2006?

We talked about that the other day and we're hoping that that's the case, the buyer is hoping that's the case but we're still waiting for FCC approval.

Yes, I know the longest roads between two points go through the FCC. Okay. All right. And then that's pretty much it for all the moving parts? You have everything else under your belt, correct?

Right.

All right. And then just -- this is grand inquisition, Fisher Plaza, how are we doing on occupancy. Is it steady, is it still going up? Certainly it has risen like a hockey stick over time?

Yes, I've been pleased at the progress we've been able to achieve this year. We're at 93% at this moment, we're committed at 89%. So we will essentially be full up. We continue to improve across all rental rates. Demand in the market is healthy, particularly for expensive co-location and data center space. So we continue to improve in that area and I'm very pleases at our progress to date and expect for us to continue to improve on our performance.

Okay. That would imply that just is not peculiar to Fisher Plaza, it's inherent to the industry. You no longer -- as you get to fuller occupancy, you don't have to offer the teaser rates and the discount on the first six months or whatever the package

Right. We are in a much stronger position. And, in fact, the demand, particularly the for expensive Co-Lo, say as I mentioned the data space, really has increased the value of the square footage rental rates that we have in the buildings, both buildings. But beyond that the marketplace has been healthy, and not just healthy in rentals, but healthy in this specific space and particularly in this niche area of us being downtown.

All right. Last question. Fisher Pathways, when we go through the released Qs and the K to come, much down the line, when we look, will we see Fisher Pathways broken out as a separate operating division with matched revenues against expenses?

I don't anticipate that we're going to break it out. It's still very minimus, the whole picture.

Okay.

But it is a very worthwhile effort on our part to continue the operation.

All right. Thank you. I will pass this on.

Thank you, Bishop.

[OPERATOR INSTRUCTIONS] Your next question comes from the line of [Tom Kerr]with Reed Conner. Please proceed.

Hi, guys. Just kind of a summary on the television markets. At this time, do all of your television markets have duopolies or in the process of getting a duopoly? And secondly, what are the margin indications of a duopoly in those markets versus when they were stand alone.

That's a great question. We're on our way, we're not there yet. Eugene is the only market without a second opportunity to sell. We still have an LMA operating in the Yakima marketplace, so we don’t own that, but we operate it like a duopoly. So we are close to be complete with duopoly-like economics. It's not 100% yet for various reasons, but we're on that path. As far as the economics in these marketplaces as you can imagine the large markets are much more economic-friendly than the smaller markets and you can expect typically, depending on obviously your affiliation and how it duck tails into what you're doing and how you could repurpose anywhere from 50 to 70, even sometimes upwards of 80% in a duopoly operation. I think these things are going to end up being more in the 60 to 70% range for us. Partially because we will have to produce some news, that is our intent in the Spanish language, which will have some costs. And also because it's still a growing marketplace, and there is still some education that will have to be done.

And that 60-70% margin exactly of what?

On the second station, thank you for clarifying that. On the second station. So it will help us. We're already seeing it help us on our margins. And how it will play out will be -- should be worth at least five, maybe even six points immediately as we mature these things.

Okay. Thanks.

Next question.

There are no further questions in the queue at this time. I would now like to turn the call back over to management for closing remarks.

Well, great, I'm glad everyone on the call was interested in what we're doing. We feel like we're on the right track. We're working to plan and we're seeing a lot of good performance. So I don't want to overstate it and I also don't want to understate it, but we feel pleased to where we are today, and we’re looking forward to graphing this year up and moving into 2007 and getting on with our strategic plan. So thank you, everyone. .

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.