Sinclair Inc (SBGI) 2007 Q4 法說會逐字稿

Welcome to the Fisher Communications fourth quarter 2007 earnings conference call. This call is also being webcast. A replay of this conference call will be available later this afternoon and can be accessed through Fisher's website at www.fsci.com. The conference call contains forward-looking statements relating to the development of the Company's operation, products and services, and anticipated future operations result. These statements are based on information available at the time they are made and are subject to a number of risks and uncertainties. Actual results may differ materially from expectations.

Factors that could cause the actual results to differ materially from those expectations are described in the annual report on Form 10K and the quarterly report on Form 10Q as filed from time to time with the Securities and Exchange Commission. The Company undertakes no obligation to update publicly any forward-looking statement due to new information, events, or circumstances after the date of this conference call or to reflect the occurrence of unanticipated events. All calls have been placed on a muted line during the presentation, and further instructions will be given prior to the Q and A session.

I would now like to turn the call over to Colleen Brown, President and Chief Executive officer. Please proceed.

Good afternoon, everyone, and thank you for joining us on Fisher Communications fourth quarter 2007 earnings conference call. Our fourth quarter earnings release was issued earlier this morning, and you can--it can be accessed through our website.

Joining me today on the call is Senior Vice President Rob Dunlop, and Mae Numata, Senior Vice President, Chief Financial Officer and corporate secretary. I will begin with the overview comments about 2007, and Mae will review the financial results. Rob, along with the rest of us, will field your questions after our comments.

Fisher generated record revenue of $160.4 million, a peer leading 4% increase from 2006. Since the even years are strong political years and the odd years are not, this 4% increase in an odd year represents the execution of our strategic plan. Year to year comparisons for Fisher are straightforward since we operate on a calendar year basis. EBITDA was $26.2 million for 2007, versus $29.9 million in 2006, versus $13.0 million in 2005. On the odd year to odd year basis, this represents a 200% increase in growth in EBITDA margins from 9.5% to 16.3%.

The decline from 2006 to 2007 reflects investments in local news, Univision affiliated Spanish language stations and Fisher Interactive. Overall, consolidated cash flow margin was 16% for 2007, 19% for 2006, and for comparison purposes, 8.5% in 2005. Television's cash flow margins were 40% for both quarter four in 2007 and Q4 in 2006; and for the year were 28% for 2007 and 30% for 2006, versus, for comparison purposes, 22% in 2005. We continue to show improvement both in odd year to odd year and even year to even year. We are especially encouraged that the fourth quarter margin in 2007 was equal to that of 2006. This indicates strong core operational improvement.

Radio cash flow margins were 22% for Q4 2007, and 29% without the Mariners. In '06 that compares to 30% and 38% without the Mariners. For the year, these margins, in 2007, were 5% and 29%, respectively; in '06, 9% and 29%, respectively. As we've stated before the Mariners contract has a significant impact on the radio margins. KOMO radio is in the last season of this contract.

Free cash flow for 2007 increased 42% to $8.4 million in comparison to 2006, again, solid progress in a non-political year. Our news investment is paying off. After seeing growth in the critical May book, our ABC affiliates continue to climb in the November sweeps, increasing ratings in major demographics. The stations are delivering results in local news with growth particularly in early news and late news.

All but one CBS affiliate grew ratings in key news programmings, and we anticipate improvements there with retooled news casts. KOMO-TV in Seattle had the unprecedented recognition of winning two Edward R Murrow awards in 2007, an indication that the quality of news continues at Fisher while returns to the Company improve. TV net revenue increased 3% year-over-year and fourth quarter decreased 1% with a split of 65% local revenue and 35% national revenue.

Our key focus has been to drive revenue creatively and rapidly through better inventory management, increased sources of revenue and concept selling. In addition, we improved our selling effectiveness through a number of different initiatives and saw increases in the telecom category, home products, and pharmaceutical. For the full year, all stations grew core business through a strategic focus on local initiatives. This improvement is a compelling accomplishment since our ABC stations had the Seahawks in the Super Bowl in 2006.

Additionally, after combining the Seattle TV and radio properties under one General Manager, we have experienced strong synergy and ratings growth for both radio and television. Despite the challenging radio marketplace, radio revenues were up 2% over 2006 and fourth quarter was down just 1%. On-line increased over 300% in 2007, and represented an industry leading 3.4% of television revenue. Web audiences continue to grow. For the full year unique visitors increased 29% and page views increased 11%. Time spent on the site increased this year by 25%.

Fisher Plaza revenue was solid at $2.8 million, and increase of 20% year-over-year, and 3% over fourth quarter 2006. Total occupancy was 97% for the end of the year. Revenue per rentable square foot increased 26% over prior year.

In summary, the work of our strategic plan is on track and I'm pleased with the Company's improved performance. We do recognize we still have more to do to improve operational performance and look forward to continuing the momentum we have established.

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

Thank you, Colleen, and again welcome to our call today. We plan to file our Form 10K by the March 17 deadline. Those documents include in-depth information regarding our financial results, so please refer to those sources.

Here's the headline for net income. For 2007, it was up significantly from the inclusion of the sale of some of our Safeco shares in preparation for the Bakersfield acquisitions. Setting the Safeco stock sale and our discontinued operations aside, net income was $4 million versus $6.3 million in 2006. The decline was due primarily to increased depreciation from digital implementation, expenses associated with our early stage Univision affiliates and our growing Internet business.

Let's drill down starting with the sources of our revenue for the full year 2007. Television accounted for 69% of total revenue, which was consistent with 2006, and an increase from 61% in 2005. Our 2 ABC affiliated statements, KOMO-TV in Seattle and K2-TV in Portland continued to account for approximately half of the Company's revenue. 2007 revenue also includes internet and our new cluster of Univision affiliated Spanish-language television stations.

Radio accounted for 24% of total revenue excluding discontinued operations which is consistent with 2006 and a decline from 33% in 2005 due to the sale of 19 small market radio stations in Montana and eastern Washington. Our remaining five small market radio stations in Montana continue to be held for sale. This group of radio stations has been carved out of the radio segment presentation and is disclosed under the caption "discontinued operations". The sale of these properties was slowed down by the magnitude of broadcast assets placed on the market, however, some new interest has been noted in the recent months.

Fisher Plaza accounted for 7% of total revenue, an increase from 6% in both 2006 and 2005. Now some further details. Fisher's fourth quarter 2007 revenue had a slight decrease to $44.1 million compared to $44.7 million in fourth quarter 2006 due to political revenue in 2006. In comparison to fourth quarter 2005, this represents 21.8% increase. Fisher's total annual revenue increased 4% to $160.4 million compared to $154.7 million in 2006, an increased 17% in comparison to 2005.

Broadcasting revenue was higher in 2007 due to increased revenue in both television and radio as compared to 2006. The increases were due primarily to the start-up of our Spanish language stations in the second half of 2006, and stronger national and local revenues at both our ABC and CBS affiliates as a result of improved selling efforts and stronger ratings. In addition, the growth in our Internet revenue continues. This is a solid revenue performance as we cycled against 2006 political spending.

Our radio operations showed a 2% revenue increase in 2007 versus 2006. We attribute the increase in improved ratings on KOMO AM and KPLZ FM. This increase was partially offset by lower revenue associated with our broadcasts of the Mariners baseball games. Internet advertising and retransmission revenue also increased in 2007 as compared to the same period in 2006, although at this point they remain a small percentage of overall total revenue.

Revenue at Fisher Plaza increased by almost $2 million in 2007 versus 2006. This increase was due primarily to increased occupancy as well as increased electrical infrastructure fees. With five consecutive quarters of profitability under our belt, Fisher Plaza's results continue to strengthen. Operating expenses increased 8% to $147 million during 2007 as compared to 2006. Total operating expenses increased 10% to $36 million in fourth quarter 2007 as compared to fourth quarter 2006. These increases were due primarily to increased news, selling, and depreciation expenses.

Let's drill down into these categories. News expenses increased 6% to $56 million during 2007 as compared to 2006. These expenses increased 3% to $14 million in the fourth quarter 2007 compared to the fourth quarter 2006. These increases were comprised of investments in our news gathering and additional local news programming, costs associated with our growing Internet business, and the addition of our Spanish language stations with a centralized local news cast.

Selling expenses increased 12% to $60 million in 2007 as compared to 2006. These expenses increased 23% to $17 million in the fourth quarter 2007 compared to the fourth quarter of 2006. These increases were comprised of sales costs associated with the addition of the Spanish language stations, increased commissions due to improved revenues, an increase in market research expenses, selling costs associated with our growing internet business and the built in rights escalator on the Seattle Mariners contract.

Depreciation increased 12% to $11.6 million in 2007 as compared to 2006. Depreciation increased 4% to $2.9 million in the fourth quarter 2007 compared to the fourth quarter of 2006. These increases are due primarily to depreciation associated with Fisher Plaza's continued infrastructure build out which was placed in service primarily during the second half of 2006. Our net results for the fourth quarter 2007 consolidated net income was $31.4 million. As mentioned earlier, this figure includes a gain from the sale of Safeco stock of $26.2 million net of tax.

In both years, fourth quarter consolidated net income was comprised of continuing and discontinued operations. Discontinued operations were de minimus in fourth quarter 2007. For the year 2007, we reported income from continuing operations of $30.2 million compared to income of $6.3 million in 2006. With the addition of discontinued operations of $1.7 million for 2007 and $10.5 million for 2006, 2007's consolidated net income was $31.9 million compared to $16.8 million in 2006.

We ended the year with cash and cash equivalents of $6.5 million and working capital of $18 million. In addition, we reported $52.4 million in restricted cash which was held in escrow as of year-end in preparation for the January 1, 2008, close on the Bakersfield acquisitions.

Significant items affecting our cash flows include the second quarter radio sale and purchase of the four low power Spanish language TV stations in eastern Washington, proceeds from the sale of Safeco stock, funds placed in escrow on the purchase of the Bakersfield stations and additions to property, plant, and equipment. As of the end of the year, we had our entire credit facility available to us. Our investment in Safeco stock was valued at $128 million as of year-end 2007.

As part of our regular quarterly investment--excuse me, investor conference calls, we provide the trailing four quarter calculation information for our operating cash flow as defined by our debt agreements. Operating cash flow was $31.6 million excluding the effect of discontinued operations. Our ratio of debt to operating cash flow improved from 8.3 times in 2005 to 4.8 times in 2007. 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 Eric assist us with responding to questions that you may have.

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Bishop Sheen. Please proceed.

Colleen and Mae, thank you for the very helpful update. How are you?

Good. How are you, Bishop?

I'm okay for a guy in my demographic. Okay, couple of questions. Just let me billboard what I would like to focus on, and again, your update was very helpful, and I'll-- Mae, I think you said the K--first question, K, you said will be out today?

No, it will be filed by March 17th.

I'm sorry, I missed that part. March 17th. Okay. So in the operating cash flow, just refresh our memory, the biggest component of the difference between what we'll call EBITDA and the operating cash flow, as in the credit agreement and the bond indenture, would be the dividends inflow from Safeco stock?

That is correct.

Okay.

And again, we would, in our modeling, have to adjust it for the 700,000 shares used as currency to complete the Bakersfield transaction.

That is correct.

Okay. You talked about--Colleen you said your investment in news is "paying off", and it seems to be. Can you give us some color and quantification is always welcome, on if it will also pay off on grabbing some political dollars that don't come often enough but certainly seem to be coming in 2008?

Yes, I can provide some color on that, Bishop.

First of all, it's being reflected in the ratings, and as you know, that's extremely helpful for our sales effort and our conversion. We don't have all the statistics in for quantifying the power ratios yet, but we know we have improved in that area. So it is converting to actual revenue, thus the reason we're better than our peers, at least those peers I've seen reporting.

In addition, the expansion of the different time periods in news has helped us with our inventory situation. We did have the fewest amount of spots being sold, and we have corrected that situation in 2007; and so we're a little more competitive on our fixed inventory base. In addition, the 11:00 news has greatly improved on our television stations, and we're monetizing that as well.

Great. All right. And then would you say that your Hispanic stations are growing at a faster pace, the same pace? The development of--because you started with--from scratch there. Is the slope of the growth at those stations still as strong now as it was a year ago?

Yes, I can speak for 2007. The Spanish language TV stations in '07 grew significantly. Remember, our Seattle station was a start-up January 1, 2007. So the slope is still pretty strong, because it takes a little while to get established, and certainly a little while to convert that to dollars, as well as the launch of the newscast. So, my assessment is we will experience continued growth, significant growth, but remember, it's a small base compared to all the other revenue, but it will be very strong and it is very strong.

Okay, and then from a P&L standpoint, the tax bite on whatever cash you might have to give for the gain on the sale of Safeco stock, and I guess that's the most significant tax bite because all of the other asset sales I think have already churned through, if I'm not mistaken; but on a cash basis, would that be--can you tell us, will it be incurred evenly throughout fiscal year '08? Is it all going to be bitten in one quarter? Any idea what the bite's going to be and when it's going to come?

Bishop, that was on the tax?

On the tax for the capital gain on the sale of the Safeco stock.

That will be impacted with--we will be impacted with our quarterly payment due March 15th.

Okay, so that will be a Q1 event?

Yes, it will be; on a cash basis.

On a cash basis, right. And can you quantify it for us? Can you give us any range on what you think that might be?

Yes, Bishop, I think that the tax folks are still giving us their expert opinion, so I think it would be premature for us to project that. But I do know that I'm pleased with the progress we've made with--we do still have operating losses to apply against this, so there is still some opportunity to affect the tax, and that is what they're working on.

No doubt. There's no lack of opinions from tax folks. Well, that's good thing, and I guess we'll see whenever the--

It won't be a straight--there will be some adjustments, because it won't be a straight-out amount as compared to the purchase price in the Safeco proceeds.

Okay. That's helpful. Thanks. All right, my last question, on this online business that you were building, and it seems to be responding, 3.4% of TV revenue, can you tell us again what is in the online business? Is it only online sales, are you also including any retransmission revenue? Just tell us what you put into the online line.

We'd be happy to. I'm going to ask Rob to comment on that.

Hi, Bishop.

Hi, Rob.

The--our online sector is really comprised of pure online revenue. So we do not co-mingle any of our retransmission fee revenue into a digital unit. I know some companies to do that, we want to look at our online and interactive efforts in a more pure basis just to make sure we're tracking with our performance there, so we look exclusively at what we're doing in terms of utilizing prerolls, and display--typical display ads and so forth throughout our web network.

Okay, thank you. Thank you for that clarification. I will pass the baton.

Thanks, Bishop.

Your next question comes from the line of Brian Corville with Tower View. Please proceed.

Yes, hi. Good afternoon.

Hi, Brian.

How are you guys?

Good, how are you today?

Pretty good.

First, I have a question about the results, and then a suggestion and some thoughts. Now, you mentioned going against the political comparisons that were difficult in the calls in the second and third quarter as well, I believe. You were still able to show some revenue growth, so did you just run up against a lot more volume in this quarter compared to the other two, or was there something else going on like maybe you're finally up against a quarter that had some revenue from acquisitions?

I'm not sure quite your question, but our revenue experience in '06 was focused on fourth quarter, and so our comparisons in '07 were more strongly compared to political expenditures in '06 in the fourth quarter. Is that what you're asking?

Well, this year you also mentioned second and third quarter on the call that you were comping--that you were comping political revenue.

I don't recall saying that. We'll go back and look at the scripts, Brian, but I don't recall saying that.

Okay, well, you definitely did, so I'll just--we can maybe discuss it after you reviewed it.

I'd be happy to discuss it further, and let me do a further look into that, but I don't recall talking in second and third quarter of '07 and comparing it against political because we generally don't get political in second and third quarter, unless I'm totally forgetting something, which could be the case but I'll double-check.

That's fine, we can discuss it offline.

And I have sort of suggestion, request, if you will. Going back to the second half of '06, there have been--you've done several deals that are material, maybe not in individually, but in the aggregate. Other than the incremental revenue contribution which you have put forth in the filings and on these calls, hasn't been a lot of disclosure that allows comparable analysis in terms of how the acquisitions are performing versus how the existing assets are doing.

You've got Bakersfield now, which is very large in relation to the size of the Company, so I do think there's a clear need for that to be presented in a way that's going to allow us to make comparisons, this first year especially. Whether that's proformas or you just are very detailed in the MD&A in the filings. And I think that's really important if the strategic plan is to continue to do deals, because we've got to have a way to evaluate how the acquisitions are doing as well as the performance of the assets that you already own. So I definitely urge you to focus on that going forward with Bakersfield.

Brian, appreciate that, and I know that we've discussed this in the past, and our thought is not to competitively put our station at a disadvantage by disclosing competitive information; but I will take it under advisement and continue to review and ascertain especially as it's not de minimus or it becomes an important part of what we need to explain to the shareholders.

Well, yes, that brings me to another comment, but I would just say that if you want to continue to do deals, then look at sort of best practices about what people disclose, and give us some information, so that we can be on board with this.

Now, that brings me to my next comment, which is about shareholder value in general. Like several of your long-term shareholders, we are long-term investors, we've been here for a while, been very patient. This board has overseen a great deal of value disruption in the last 10 years. Assets have been bought and sold, a fortune put in a building, the dividend omitted, and through it all, bottom line is that there's been no value realized by shareholders. I know there's been some turnover at the board level recently and there was a large shareholder that was added a few years ago, but it still hasn't changed.

The majority of the board is still the same, just in terms of actual value creation. So here we are, we've made $40 million of acquisitions so far, it will be $100 million with Bakersfield, all the operational improvements are good, and also I would say some long-term numerical goals that we can use to measure the progress on that side would be helpful, but I think it's really time that the board focuses on translating all this activity into creating some value for shareholders.

I appreciate your comments, Brian, and I'll pass them along.

Thank you.

We are showing no more audio questions in queue at this time. I would like to turn the call over for closing remarks.

All right, well, thank you everyone for joining us today; and I hope you continue to watch our momentum, and we'll continue to strive to perform and deliver 2008.

Thank you for your participation in today's conference. This concludes our presentation. You may now disconnect, and have a good day.