Sinclair Inc (SBGI) 2007 Q2 法說會逐字稿

Welcome to the Fisher Communications second quarter 2007 earnings conference call. This call is being webcast. At this time I will turn the call to Mae Numata, Senior Vice President, Chief Financial Officer and Corporate Secretary for Fisher Communications, Inc.

Good afternoon, welcome to Fisher Communications second quarter 2007 earnings conference call. With me on the call today are Fisher's President and Chief Executive Officer, Colleen Brown and Senior Vice President of Developing Media, Rob Dunlop.

Before we get started, I want to remind you this conference call contains forward-looking statements relating to the development of the company's operations, products and services, and anticipated future operating results. These statements are based on information available at the time they're made but are necessarily subject to the number of risks and uncertainties and actual results differing materially from expectations. Factors that could cause actual results to differ materially from these expectations are described in our annual report on form 10-K and quarterly reports on form 10-Q as filed from time to time with the Securities and Exchange Commission. The company undertakes no obligation to update publicly any forward-looking statements due to new information, events or circumstances that after the date of this conference call or to reflect the occurrence of unanticipated events.

Now, I will turn the call over to Colleen; following her comments, I will review the second quarter financial results and then we will open up the call to your questions.

Thank you, Mae.

The second quarter results reflect continued positive performance by the company's television assets, growth in our emerging market initiatives and growth in Fisher Plaza revenues and comprehensive expense management across the company. With our continued emphasis on ratings growth and revenue share growth, we are pleased to report continued improvement in the quarter. Revenue was up $41 million up 3% over prior year. This was driven by strength in the television revenue, which was up $1 million dollars to $27 million, increase of 4% over prior cycling over strong strong political revenue in the second quarter 2006. Fisher Plaza revenue was strong at $3 million, an increase of 37% over second quarter 2006 as a result of increased average occupancy, rental rates and service fees. Total occupancy was over 91% at the end of the quarter.

On a pro forma basis, our radio segment hosted a decline of 600,000 or 5% in the same period. During the quarter, we received FCC approval and finalized the sale of one small-market radio station. The five remaining radio stations of the Fisher Regional Radio Group continued to be held for sale and are accounted for as discontinued operations.

Income from continuing operations at $700,000 against the prior-year of $1.8 million, due to strategic content investment. Net income at $2.3 million was comparable to the prior year's quarter and includes income from discontinued operations and the gains of the sale of the radio station of $1.5 million.

Now, let me give you a little color on this performance. We continue in our turnaround mode and completed a number of strategic investments and portfolio adjustments during second quarter. In addition, our increased focus on delivering quality, local news, content and programming continues to improve the quality of our broadcast and resulting ratings improvement in each of our markets. Investment, [M&A book] and accelerated content efforts resulted in improvement in virtually all of our stations. For example, KOMO 4 news at 11 p.m. became the top-rated newscast Monday through Friday in the Seattle market. This has not happened in over a decade. On top of this encouraging achievement at 11, KOMO 4 news saw growth in every competitive newscast in the year-to-year comparisons. In the second quarter, Fisher station KOMO TV was the only in the country to receive two national Edgar R. Murrow awards, one of journalism's highest honors, further exhibiting our commitment to quality journalism while improving the success of this company.

Spanish-language broadcasting. Our Univision affiliates are beginning to pay off. Fisher recently completed the acquisition of four Spanish language low-power stations in eastern Washington; we have been operating these stations under an LMA for the past year. This acquisition helped us continue to expand into the growing Hispanic population and tap into the $1.4 billion advertisers are in Spanish language advertising. Additionally, on July 9th, Fisher debuted Noticias Noroeste, Northwest News, the Northwest's first locally-produced all-Spanish language commercial news program airing on its univision affiliates, KUNS-TV in Seattle, and KUNP- TV in Portland. Startup costs were incurred in the second quarter.

Internet. Launching new internet businesses, repositioning and realigning Fisher for success and growth in the new media world is a top priority for the company. During the second quarter, Fisher Interactive Network continued to expand, grow and extend strategic opportunities to better serve our customers' needs and drive our future as a premier media local company. The internet revenue represents 4% percent in comparison to 1% in the second quarter, 2006. Our web audience continues to grow; average monthly page views for second quarter for Fisher Interactive Network were 18 million in comparison to 15 million on a comparable-quarter basis, representing a 16% increase, thanks in part to success of our user-generated news initiative, YouNews TV, our network served more than 2 million video streams, a 46% increase over the prior year's quarter. In order to provide an interactive and informative site, the upcoming political season, Fisher launched a new political site, theundecidedvoter.com on June 29, 2007.

Shortly after the second quarter end, we completed the purchase of Pegasus news, a personalized local news and information startup based in Dallas. Through its proprietary technology, Pegasus news allows users to customize their own experience and receive relevant news, information and advertising about their interests. Often called hyperlocal for the in-depth neighborhood news it provides, Pegasus News is more than that and serves up a personalized look at the marketplace as a whole, covering national, regional and pertinent news to the users. This creates an exciting opportunity for advertisers who could leverage Pegasus technology target their ads and improve their reach to the customers. We have had a great response for the licensing rights of the product.

In summary, we're pleased with our turnaround efforts and the second quarter results; indeed our first performance is is on track. Fisher has and will continue to execute key strategic steps to not only continue our current operating performance but also build a competitive advantage for the future. We're part of the exciting and dynamic media face and operate in thriving markets. We see significant opportunity in front of us.

And with that, I will turn the call over to Mae with more details on the financial performance.

Thank you, Colleen. Again, welcome to our call today.

We issued our quarterly and year-to-date earnings release this morning and we plan to file our form 10-K by the August 9 deadline. Those documents include in-depth information regarding our financial results, so please refer to those sources for additional information.

Let me briefly summarize the sources by revenue for the first six months of 2007.

Television accounted for 68% of total revenue. Our two ABC affiliate stations, KOMO-TV in Seattle and KATU-TV in Portland, accounted for approximately half of the company's revenue for the first six months of 2007. Year-to-date 2007 revenue includes our new cluster of univision affiliated Spanish language television stations.

Radio accounted for 24% of total revenue excluding discontinued operations. As Colleen mentioned, we recently closed on the sale of the 19th of our 24 small market radio stations in Montana for $3 million. The remaining 5 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 the radio broadcast rights for the Seattle Mariners baseball team. Therefore, our radio revenue and expense that includes a built-in rights escalator is greatest during the baseball season. We have one season remaining with the Mariners under this contract.

And lastly, Fisher Plaza accounted for 8% of total revenues. We recorded a total revenue increase of 3% to $41 million in the second quarter of 2007, compared to $40 million in the second quarter of 2006. For the 6 month ending June 30, 2007, we reported revenue of $75 million compared to $71 million in the comparable 6-month period in 2006, a 6% increase.

Broadcasting revenue was higher in 2007, due to higher revenue in the television area compared to 2006 for both the 3- and 6-month period comparisons. The increases were due primarily to the addition of the Spanish language stations in the second half of 2006. On a pro forma basis, the English language stations' revenues were essentially flat for both the 3- and 6-month period comparison, a solid performance as we cycle against the 2006 political spending.

In comparison to the 6 months ending June of last year, year-to-date 2007 non-political local broadcasting revenues increased in most of our markets. Internet advertising and television retransmission compensation increased in the first six months of 2007 as compared to the same period of 2006. Our radio operations showed a slight increase in revenue. In a 6-month period ending June 30, 2007 as compared to the same period in 2006. We attribute the increased to rating on KOMO AM and KPLD FM. This increase was partially offset by lower revenues associated with our broadcast of the Mariners' baseball games.

Revenue at Fisher Plaza increased by $786,000 and $1.4 million in the 3 and 6 month period ending June 30, 2007 as compared to the same period in 2006. These increases were due primarily to increased rental and service fees, as well as increased electrical infrastructure fees and tenant reimbursement. With 3 consecutive quarters of profitability under our belt, Fisher Plaza's results continue to strengthen.

On operating expenses, total operating expenses increased 8% to $72 million in the first six months of 2007 as compared to the same period in 2006. Total operating expenses increased 8% to $38 million in the second quarter 2007, compared to the second quarter 2006. These increases were due primarily to increased news, selling general and administration and depreciation expenses.

News expenses increased 10% to $28 million in the first six months of 2007 as compared to the same period of 2006. These expenses increased 10% to $14 million in the second quarter of 2007, compared to the second quarter of 2006. These increases were comprised of investments in our news products and cost associated with our growing internet business.

SG&A expenses increased 7% to $28 million in the first six months of 2007, as compared to the period in 2006. The increases also -- excuse me, these expenses also increased 8% to $14 million in the second quarter of 2007, compared to the second quarter of 2006. These increases were comprised of costs associated with the addition of a Spanish language station and increase in news, research and development expenses and selling costs associated with our growing internet business.

Depreciation increased 17% to $6 million in the first 6 months of 2007, compared to the same period in 2006. Depreciation increased 20% to $3 million in the second quarter of 2007, compared to the second quarter of 2006. These increases are due primarily to depreciation associated with centralizing our inventory traffic system, the acquisition of the Univision stations and digital buildout.

We reported income from continuing operations of $700,000 in the second quarter of compared to the income of $1.8 million in second quarter 2006. Income from discontinued operations consisted of discontinued operating activities of $66,000 and a gain on the sale of the discontinued operations of $1.5 million. Second quarter 2007 consolidated net income was $2.3 million and flat last year. For the six month ending June 30, 2007, we reported a loss from continuing operations of $569,000 compared to income of $5,000 in the comparable period in 2006. With the additions of income from discontinued operations of $1.6 million, year-to-date 2007 consolidated net income was $1 million compared to $567,000 last year.

Cash and liquidity. We ended the quarter with cash and cash equivalents of $10 million and working capital of $31 million. Significant items affecting our cash flows include the previously-mentioned radio station sales, our purchase of a four low-powered Spanish language television stations in eastern Washington, and in addition to property plant and equipment.

As of the end of second quarter, 2007, we had our entire credit facility available to us. Our investment in Safeco stock was valued at $187 million as in June 30, 2007.

As part of our regular quarterly investor conference calls, we provide the trailing 4 quarter calculation information for our operating cash flows to defined by our debt agreement. Operating cash flow was $34 million, excluding the effect of our discontinued operations. The details can be found on our website along with adjusted EBITDA details.

That concludes the prepared portion of our presentation. Thank you for listening.

At this time, I ask that Sam assist us with responding to questions you that may have.

Thank you.

(OPERATOR INSTRUCTIONS)

Our first question comes from Bishop Cheen with Wachovia. Please proceed.

Good afternoon, thank you Mae and Colleen, hi, Rob.

Hi, Bishop.

I appreciate the granularity on the presentation. Very helpful. Let me just fill in a couple of blanks, I won't keep you long.

I want to talk about some of the, what looks to be Q1 and Q2 growth, different growth levels among radio and TV, then I want to talk with you a little bit about the internet and your vision of how much contribution you see there over, you know, we'll pick an appropriate timeframe and last, just to make sure I have this right, you use an OCF -- I think and maybe it's because of the differing mix of stations being discontinued, I had rounding about $31 million of EBITDA or OCF at the March 31 and now you boosted it up to 34 at and that's pretty good. I want to make sure that my map is working right.

Yes, and, Bishop, we do have the details on our website. Okay.

Okay. So that is posted now that we started the call because I checked earlier and I didn't see it up there for Q2.

Yes, it is.

Okay, great, I will go back and follow up with that if I have any questions.

On the pacing, you know, Q1 was such gang busters for radio and TV and Plaza seems to be gathering momentum. But for TV and radio, it looks like Q2 for the top-line started to slow some.

Yes.

Can you give us color on why that was?

Yeah, I would be happy to, Bishop. This is Colleen.

Number one, we started out very good in April with strong pacing and in May and June tapered off. I think we pretty much married, er, mirrored what was going on in the rest of the country. We were hit very hard with automotive being soft. In addition to that, we were hit with retail being soft. Considering all of that, we made what I would consider monumental effort to bring new clients to the television stations and to the radio stations. So, while we did get hit by those two categories, we had other categories that were stronger and other initiatives that help offset that. The categories that were stronger were mostly in the telephone category or the wireless category.

Okay. Yeah. We're hearing some of that in varying degrees and our expectations is that auto is probably not going to be having a great day at the beach unless they come up with the equivalent, you know, a massive rebate kind of advertising campaign post-9/11. Something of that magnitude, because there just seems to be in auto fundamentally.

You know, all of us speculate this is caused by the high gasoline prices which creates jitters in the automotive category and among consumers and retail spending, but Seattle's economy and Portland's to some degree as well, Seattle's economy is healthy. We're slightly different from the rest of the country. We don't have the degree of housing jitters, so there is an opportunity for us to perform here.

Well, yeah. I -- it would seem that way. Don't forget, Seattle has been to hell early and back.

Right.

Whereas the rest of the country's just experiencing the thrills that you guys went through.

We'll take it where we can get it.

Yeah. Okay. The internet. Your contribution seems to be as good as anybody's. It's grown like (inaudible); there is no rule of thumb and yet everyone has a rule of thumb. We have seen the growth of the internet contribution kind of go up 50% to 100% in the companies each quarter, year-over-year. Is that kind of hockey stick profile overmanaging the expectations? You have already gone from 1% of contributions to 4% of contributions in the 12-month period.

Yes, okay. What is your question, Bishop?

I am just wondering if the way you're growing should we expect that kind of magnitude of growth because for the rest of this year and into '08?

Let me just back up and I will say what I have said publicly in the trade associations and where I have spoken on panels. It's my belief the industry, the television industry can get 20% and I have said that publicly for the last year. As far as our growth, I can tell you backwards what we have done and we have pretty much doubled every year. It's a percentage of television. I am pleased where we're at today.

I would ask Rob to add a little color, the kind of activities that are going in the internet space without putting a bunch of numbers to it, since we're about to enter into our budgeting process. I think it would be a shot in the dark, but I think you can provide color for Bishop.

Sure, hi, Bishop.

Hi, Rob.

I think the important think this in this space is understanding where and how users and advertisers are interacting with this new media and with internet site. We have a slate of station-associated sites like most broadcast radio and television operators do. And that, you know, that kind of content and the granularity with which we bring that to the marketplace is important.

As Colleen mentioned on this call, you know, we have already begin to branch out on the beyond our station-associated sites with things like theundecidedvoter.com, which we launched at the end of June, which we feel is an important way of, once again, addressing community interests, but that site in and of itself is not specifically targeted as a station-associated site. It's not co-branded necessarily with our broadcast properties, it's new product and so it's a new vertical for us. We look at verticals as being associated with different forms of content in many ways.

Colleen also shared on this call our recent acquisitions with Pegasus News which, again s a group based in Dallas that provides timely hyperlocal content that we think is important for where media is going and providing unique, highly relevant information for both users and advertisers is another way in which we think we'll see exciting growth. So, we're looking at this space as not simply being confined to the ways in which we grow the station-associated sites but ways that we create new verticals and opportunities for users and advertisers to dig deep into their local marketplace.

And I will add on top of that, Bishop, we have been told, as well as researchers have shown us, that the Northwest, particularly Seattle, tends to be somewhat of a bellwether, and we may be a little bit ahead of the rest of the country just by nature of our market.

Yes, I would not disagree with that; in the 70s and 80s, it was said to have led the nation into recession and out of recession. So.

Hopefully we're a good sign.

We'll see if history repeats itself. Thank you, everyone. That was very helpful.

Thank you, Bishop, it's good to talk to you.

You, too.

(OPERATOR INSTRUCTIONS)

It looks as if we have no further questions in the queue at this time. I will turn the call back over to Mae for any closing remarks you can. Mae?

Ladies and gentlemen, thank you very much for joining our call. It was our pleasure and you know how to contact me if you have any further questions. And, Samuel, thank you very much for assisting us. Have a good day.

Thank you.

Thank you, Ladies and gentlemen, for your participation in today's conference. This concludes the presentation. You may now all disconnect. Have a great day.