Sinclair Inc (SBGI) 2009 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2009 Fisher Communications Incorporated financial results conference call. My name is Damali and I will be your operator for today. At this time, all participants are in listen-only mode. We will be facilitating a question and answer session towards the end of today's conference. (Operator Instructions).

As a reminder, this conference is being recorded for replay purposes. I'd now like to turn the presentation over to your host for today's conference, Mr. Joe Lovejoy, Senior Vice President and CFO. Please proceed.

Thank you. Good afternoon, everyone and thank you for joining us. Before we get started, let me remind you that this call contains forward-looking statements relating to the development of the Company's operations, products and services, and anticipated future operating results. These forward-looking statements include information preceded by or that include the words believes, expects or similar expressions. These statements are based on current information and projections about future events, and are necessarily subject to a number of risks and uncertainties, and actual results may differ materially from expectations. Factors that could cause actual results to differ materially from those expectations are described in our annual report on Form 10-K and quarterly reports on Form 10-Q as filed periodically 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 after the date of this conference call or to reflect the occurrence of unanticipated events.

A webcast of this call is available on the Investor Relations portion of our website and will be archived in audio form on the website for a limited period. With that, I'll turn the call over to Colleen Brown, our President and Chief Executive Officer.

Thanks, Joe and good afternoon. Thank you for joining us. In addition to Joe, we're joined by Rob Dunlop, our Senior Vice President of Operations. And then as usual, Joe and I will deliver some prepared remarks and then we will be opened -- we will open up the call for questions.

By now I hope you've had a chance to review our second quarter press release, which was issued this morning. Since we last spoke, we focused on four key areas. Obviously the economy continues to be at the forefront of our thinking and specifically, we've been changing our business model to become more efficient operators and we are adapting our operations to support the multimedia platforms we are developing. We've also been creating new revenue streams in an effort to diversify from traditional spot advertising. And we've completed all of our major cable retransmission negotiations and settled our dispute with DISH. And lastly, we've been working closely with our largest tenants here at Fisher Plaza to fully restore city power following the July 2 electrical incident. And Joe will be providing more details on this event and our remediation progress a little bit later.

But first, Fisher's financial performance continues to be affected by the economic environment, which has driven advertising spending to its lowest level since 2000. Fisher and the Northwest had a relatively good first half in 2008 compared to the rest of the country, making 2009's variances greater. Advertisers are continuing with a wait-and-see approach toward advertising buys until the uncertainty over the timing of any meaningful economic recovery can be determined.

During the second quarter, Fisher's television revenue fell 26% from the same period last year; excluding political, it fell 22%. Among our major advertising categories, second quarter spending was down 58% in automotive, 26% in professional services, and 25% in retail. In 2008, TV political spending was over $2 million and political spending is virtually absent in 2009, as is typical in a non-election year. And while we are clearly disappointed with the economic environment and its impact on us, we do believe the recession has masked the strengths of the Company and the significant operational improvements we've been making.

We are vigorously taking steps to shape our future and have a clear strategy in place to improve operations and move forward in the digital environment. We have a strong balance sheet and during these challenging times, we are very focused on keeping it that way. And we have a followed, dynamic management team that is implementing this critical strategy. Our strengths allow us to not only navigate through the economic cycle, but also to strengthen our operations, diversify our sources of revenue, leverage technical innovations, and improve our news content while continuing to strategically invest in digital opportunities. We believe that these initiatives have put Fisher in a position for sustained growth once the economy turns.

The foundation of our strategic plan is continuous improvement. You've heard me say that before. We believe this is our most essential mission at all times and particularly during periods of economic turbulence. Improving audience ratings is the top -- at the top of our priority list and we've recently completed the July ratings period. Ratings gains were made at our Seattle and Portland television properties, allowing them to solidify their positions in key newscasts and improving their competitive rank in each market. These are the only two markets for which we have received the most recent ratings data.

At Seattle Radio, our Adult Contemporary AC station, KPLZ or STAR 101.5 as it's known, became the number one radio station in the Seattle market in the key demos. We're particularly proud of that. With the help of our FM simulcast and despite the absence of the Seattle Mariners programming, KOMO News Radio also experienced significant ratings growth in its targeted demographic, moving into the top three in morning drive and into the number one position in afternoon drive. And as we've mentioned in the past, key measures for success include outperforming the market's revenue performance and increasing our share of the market's revenue. We accomplished this in the majority of our stations in the second quarter including our biggest properties, KOMO TV and Seattle Radio.

Driving new revenue streams has also been at the top of our priority. In second quarter, our broadcast operations generated significant revenue from new sources that include everything from new spot business to the sale of unique, non-traditional advertising to new revenue from retransmission consent agreements, which I will address in greater detail in a moment.

Our interactive segment, called Fisher Interactive Network, FIN, continues to improve its reach. In second quarter, the segment increased its average monthly page views by 13% and the percentage of online-related revenue as a percentage of our total television revenue increased 60 basis points from the second quarter. Fisher Interactive launched a new search project -- product in conjunction with DataSphere, a Seattle-based Internet company. In just ten weeks, we have added over 120 new advertisers to Fisher. This initiative is part of Fisher's broadcast-to-broadband strategy and it's critical for leveraging our content to reach consumers through new channels. We will continue to closely monitor these results and update you on future calls but I'm pleased to say that the preliminary results have been very promising.

In the next several weeks, we will formally announce the second stage of this initiative, which is aimed at increasing the breadth and the depth of our content offering and as importantly, offering new highly targeted advertising opportunities at varying price points to the thousands of small businesses in our markets. On July 5, Fisher Interactive launched its local news iPhone application in Seattle. In its first 30 days, this tool ranks as the top local news download application in the country.

Moving on to the use of our broadcast spectrum, during this past quarter, we launched a number of new programming channels in Seattle, Yakima, Tri-Cities, Boise, and Eugene. These channels are affiliated with The CW, DISH TV and the Retro Networks, and reside on what we call the dot two portion of our broadcast spectrum. These channels are broadcast free over the air in addition to our regular network-affiliated channels. The channels are expanding our audience reach with different genre and demographics, and leveraging our news and operational infrastructure across expanded revenue streams, all of which strategically benefit the Company. It's early in the process, but again we are encouraged by the demand for these products in the market.

In addition, we recognize the changing nature in which our viewers and listeners are getting the information that is valuable to them. We are active members of the Open Mobile Video Coalition and KOMO TV in Seattle is one of the four model stations in the country to demonstrate mobile broadcasting for device manufacturers. This new technology is cited as one of the highest demanded products among cell phone users and is expected to roll out over the next 12 months.

For several quarters, I've mentioned our ongoing efforts to renegotiate expiring retransmission consent agreements. And I'm pleased to report to you that we have now entered into new contracts with all of our key cable distribution partners and DISH Network.

Finally, I'd like to discuss our ongoing efforts to effectively manage our cost. We are keenly aware of the shifting realities of our business and the critical need to reduce our cost structure. Our personnel-related costs have declined 11% from the second quarter of 2008, a quarter in which we had already begun our reduction. We have moved aggressively to eliminate or renegotiate contracts and services where practical. Discretionary categories of spending have been reduced dramatically or eliminated altogether.

Total operating expense for the quarter is down 31% and total broadcast expense declined 26% in Q2, which includes the savings associated with the end of the Mariners broadcast contract. As you can see, while we are actively controlling our costs, we continue to make strategic investments in our businesses that enable us to capture new advertising sales and expand our content on to social and digital media platforms.

And with that, I'll turn the call back over to Joe.

Thank you. As Colleen mentioned, we issued our quarterly release of financial results this morning and we plan to file our Form 10-Q tomorrow. Those documents include in-depth information regarding our financial results. So please refer to those sources for additional information. Today, I'll be discussing certain non-GAAP financial measures such as broadcast cash flow and EBITDA. Definitions and reconciliations of non-GAAP items can be found in our press release, which is available on the Investor Information tab on our website at www.fsci.com.

To summarize our second quarter results, consolidated revenues for the quarter were $32 million, a decrease of 30% from the second quarter of 2008 and nearly half of this decline is due to the fact that 2009 is an off-political year and we did not renew the Seattle Mariners broadcast contract.

Loss from operations for the quarter was $2.1 million compared to a loss from operations of $3.5 million in the second quarter of 2008. Net loss was $2.1 million or $0.24 per share. During the second quarter of 2008, net income was $63.7 million or $7.29 per share, primarily due to the $67.4 million after-tax gain on our sale of Safeco's shares. Excluding that after-tax gain, net loss in the second quarter of 2008 was $3.7 million or $0.42 per share. And consolidated EBITDA in the second quarter was $1.2 million compared to $6.5 million during the same period in 2008.

And now I'll turn to the financial results for our three business segments, television, radio, and Fisher Plaza. Our television segment reported a revenue decrease of 26% in the second quarter. Without political spending, net revenue declined 22% from the same period last year. TV BCF was $1.1 million compared with $9.1 million in the second quarter of 2008. The Company reported a TV BCF margin of 5% in the quarter, a decrease from 29% in the second quarter of 2008. Despite our cost containment initiatives, the large decline in revenue produced this large change in margin, given the operating leverage in this industry.

As Colleen noted earlier, we executed many of our new retransmission consent agreements in the first six months of 2009, which contributed to our retransmission revenue of $791,000 in the second quarter of 2009, an increase of 6% from the same period last year. Now, several of our key cable retransmission contracts were executed in July, which will allow us to record approximately $2 million in retransmission consent fees attributable to the first half of the year in the third quarter of this year. We also entered into a new contract with DISH, as Colleen mentioned, in June and retransmission fees under this agreement began accruing as of that time.

In our radio segment, revenue decreased 49% from the second quarter of 2008, but keep in mind that much of that decline was anticipated given our decision last year not to renew the Seattle Mariners broadcast contract. I am pleased to report that without the Mariners contract's financial impact, radio broadcast cash flow was positive at $1.4 million in the second quarter of 2009 as compared with BCF of negative $6,000 in the same period of 2008. Our radio BCF margin for the second quarter of 2009 was 23% compared to 0% in the second quarter of last year. Excluding the Mariners contract, radio revenue decreased 21% and radio BCF declined 30% from the second quarter of 2008.

As Colleen alluded to earlier, in May, we entered into a local marketing agreement to simulcast KOMO 1000, our AM all-news radio station on an FM station. This enabled us to expand KOMO's reach to younger demos on the FM dial. Preliminary ratings show that the strategy is sound and we are beginning to see incremental revenue and cash flow from this station.

And now turning to our Fisher Plaza segment, which as a reminder includes the operations of our approximately 300,000 square foot mixed-use facility located near downtown Seattle. The facility includes two buildings and serves as home to our Seattle media properties, our corporate offices, and a variety of third-party tenants. Fisher entities currently occupy approximately 43% of the Plaza's rentable square footage.

In the second quarter, our Plaza segment reported revenues of $3.4 million and income from operations of $1.7 million, an increase of 8% and 29% respectively over the same period in 2008. The revenue increase resulted primarily from the addition of a new telecom tenant in February 2009. Fisher Plaza occupancy ended the second quarter at 96% compared to 97% at the end of the second quarter of 2008.

During the second quarter, our Internet division, FIN vacated approximately 4,400 square feet to become fully integrated with our other media properties. This move resulted in the slight vacancy increase year-over-year. The space is now available for lease and we're currently in discussions with prospective tenants for that space. We continue to seek out opportunities to reduce our own footprint within the Plaza and have identified further consolidation that should free up an additional 8,500 square feet to generate added cash flow and value to this asset.

And as Colleen addressed earlier, I want to take a moment to update you with the latest information regarding the electrical fire that occurred early last month at Fisher Plaza East. The actual damage was contained to a small area within a garage level equipment room. Since then, the East building has been powered primarily by a series of generators, which have been providing tenants full redundancy since July 12.

This past weekend, we successfully transitioned to the city's electrical service, which now powers a majority of that building's electrical needs. Later this month, we intend to migrate to 100% city power. We expect to have all the works completed later this fall. City power to Fisher Plaza West was not impacted by this incident. The cause of the electrical fire remains under investigation. Based on what we know today and our insurance coverage amounts, we do not expect the incident's financial impact to the Company to be material.

Now, I want to turn to a couple of other key financial metrics. Our trailing four-quarter operating cash flow as defined by our senior notes indenture was $16.9 million. Based on our total debt of $122 million at the end of the second quarter, our debt to operating cash flow ratio was 7.2. Now under our senior notes indenture, we currently have the ability to incur up to $40 million of additional indebtedness. In addition, we are currently limited to making no more than $10 million of restricted payments as defined in the indenture, which includes dividends and stock repurchases.

We ended the quarter with current assets of $92.4 million, which includes $58.5 million in cash and cash equivalents. We believe our stable balance sheet has provided us the financial flexibility to help navigate the Company through this challenging environment. We continue to use our strong cash balance to take advantage of the favorable market conditions to repurchase debt. During the quarter, we repurchased $12.8 million in aggregate principal amount of our senior notes for $11.4 million. This strategic use of cash resulted in a net gain of $1.2 million.

Our management team is taking appropriate measures to spend capital resources prudently. Aside from regulatory or essential equipment replacements, we are funding only those capital projects that provide a solid return on investment. Finally, this quarter, we started reporting Radio BCF with and without the effect of the Mariners broadcast contract. We believe this is an important way to measure our radio business, particularly in the first year following the termination of that contract which, as you know, significantly skewed our radio results in the past. This is the latest example of our ongoing effort to increase the level of transparency we provide to you.

And with that, I'll turn the call back to Colleen.

Thanks, Joe. And in summary, we continue to operate in the most difficult economic environment that probably most of us have ever seen. We expect the economic challenges we faced in the first half of the year to continue for the remainder of 2009, if not longer. Despite the prolonged recession and the uncertainty that surrounds near-term advertising, we believe that our strategy, which includes diversifying our revenue portfolio and leveraging the strengths of our core broadcast business, as we expand our broadcast-to-broadband strategy, is on the mark.

With our focus on a solid balance sheet, improving operations and executing our strategy for digital products, we believe we are well positioned to deliver sustainable growth once the economy -- economic recovery actually takes shape.

And with that, we will open the call for your questions. Operator?

(Operator Instructions). Your first question comes from the line of Bishop Cheen with Wells Fargo. Please proceed.

Hi Colleen, hi Joe, how are you?

Hi, Bishop.

Hi, Bishop.

Okay. So very thorough as usual. Let me just go to a couple of balance sheet items. Do you -- this is the June 30 snapshot. So, whether in -- are there any significant changes in your cash level, your debt level, or your commitment to lay out cash since June 30?

Since June 30, no.

Okay. I didn't think so, based on your disclosures. All right. So -- and then one housekeeping, the indenture in the bonds, which is the only thing left with covenants, is in OCF, operating cash flow versus in EBITDA and the internal-level LTM, you didn't give that. Is there a difference now? Because the big difference in OCF and EBITDA, I thought had always been the dividends and the dividends are now gone away. But on an LTM basis, I guess they did [count] into somewhere nine months ago or so, is that correct?

Yes. Generally, you are right. Historically, the big difference has been the Safeco dividends and now primarily it's really interest income, which as you know in this environment, there is not a lot of interest income given interest rates.

No. I know. I see that in my 201(k) everyday. All right, so the -- roughly once we roll out another quarter or two, the OCF and the EBITDA are going to be essentially thin?

That's true.

Okay. And so LTM, is the EBITDA much different from the OCF?

I'll have to look at that. The timing of the Safeco dividend last year in the third quarter to see --.

Yeah. I think they are about the same in my quick math. All right. So now we've got, let's say, seven times and change leverage. Colleen and Joe and anybody else, where would you like your leverage to be? How would you like your balance sheet to look in terms of -- living with these bonds, seeing maturity or placing the bonds with a credit facility? Your leverage and what your balance sheet should look like and when do you think you could get to that wish?

It's a lot of questions embedded in that question, as usual. Well, where do we want to see the balance sheet and our leverage level, I mean -- again, in this current economic environment, I think everybody is kind of estimating at their more conservative end. First of all, let me make the point that -- that ratio would be quite a bit lower in the mid-6 range if the retransmission money would have been counted as revenue because the contract wasn't signed until this quarter. So, I want to make that first point. But, I think, obviously, we would like to get our leverage a little lower. The balance sheet, we're very comfortable with the very strong balance sheet in the industry with the large cash balance. We're happy with that in today's environment. I probably missed one or two of your questions.

Well, I was just trying to think of -- if you can get your balance sheet and your P&L in [consort] together so that you have maximum flexibility?

Yes. And I believe we're down that path. Yes.

Okay. So, you think that -- have you hit bottom? Do you think that the rest of the way, it's -- I don't know what the slope is, but the rest of the way is upside or is this still very choppy or you just don't know?

Well, I think it's fair to say, Bishop, that nobody in the industry really knows, you read a lot, you hear a lot, people talk a lot, but I don't think anybody really knows. And so we're just waiting to see, we're being very conservative, we're -- our interest has been very stable at this point, controlling cost to the upmost, watching every nickel and let's see where it goes.

All right. The last question and I'll leave you alone. Do you have an actual cost-cutting target program? Have you articulated a number publicly as to how much cost do you think you can cut out on an annual basis?

That's a great question and just as soon as we think we've put something together, we think we need to do more or we need to do something differently. So I don't want to throw a hard number out, because it really does depend on the economics and as the economic environment either weakens or strengthens, it does depend on what happens to all kinds of contracts and talents and those sort of thing. As you know, syndication contracts, for example, are a big part of our expense and those are the kind of things that as the economy strengthens or weakens, you have more or less leverage. And so, we will wait and see how the economy moves.

Okay. Thank you for your patience and all the answers.

And as usual, Bishop, thank you for being first out of the gate.

Thanks.

We have no further questions. So I would like to turn the call back over to Colleen Brown for closing remarks.

That's great. Thank you very much, operator and thanks, everybody for listening today. These are difficult times and I know that the script here is on continuing to work very hard to improve the operations and the results of the Company. So thank you and we'll see you in a quarter. Bye-bye.

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