Sinclair Inc (SBGI) 2009 Q4 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Q4 2009 Fisher Communications Inc. financial results conference call. My name is Modesta, and I will be your operator for today. At this time all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Joe Lovejoy, Senior Vice President and Chief Financial Officer of Fisher Communications. Please proceed.

Good afternoon, everyone. Thank you for joining us. Before we get started today, 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 includes 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 SEC, 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 will turn the call over to Colleen Brown our President and Chief Executive Officer.

Thanks Joe. Good afternoon. As usual Joe and I will deliver some prepared remarks, and then of course we will open it up for questions. By now I hope you have had a chance to review our press release, we issued that this morning. To summarize our results for the quarter, consolidated revenue was $38.6 million. TV revenue declined 23%, however excluding net political revenue, TV revenue increased 8%. EBITDA was $4.1 million and net income was $1.1 million, or $0.12 a share. For the year, consolidated revenue was $133.7 million. EBITDA was $6.9 million, and net loss was $9.3 million, or $1.06 a share.

Our full year performance was negatively impacted by the US recession, which resulted in steep declines in advertising spending, historically high levels of unemployment, and weak consumer confidence. The year was also impacted by very little political spending, typical in off political cycle years. Excluding Political and Seattle Mariners broadcast revenue from 2008, consolidated revenue declined 9% in 2009 from the prior year. For Fisher TV stations, these trends resulted in core advertising declines, up 17% compared to 2008. This included automotive which fell 40% year-to-year, retail 23% year-to-year, Professional Services dropped 13% year-to-year. In the late fourth quarter we saw several encouraging signs that make us believe the worst of the recession is behind us, and that the industry is beginning to see recovery. For example in fourth quarter Fisher's nonpolitical advertising television revenue increased 4%.

As you have seen in the industry, advertising has improved in the first two months of the current quarter. It appears the Pacific Northwest however is a little slower coming out of the worst of it, but what we are seeing now is encouraging. Nationwide, local broadcast advertising is projected to increase by 5% according to the TBB, The Television Bureau. This expected growth is partly driven by increased auto spending, particularly as car companies and their dealers look to move new and existing inventory.

In addition we expect to benefit this year from increased political spending in our markets. We have gubernatorial races in Oregon and California and anticipate additional spending from initiatives and ballot issues in most of our markets. With the recent rule changes by the Supreme Court, we expect to see additional demand as the year progresses. While it remains difficult to predict the timing or the degree of economic recovery, we remain focused on issues that we believe are within our control. Fisher is taking aggressive actions to improve performance. This not only strengthens the Company in the near term, but will also enable the Company to emerge from the down cycle a much stronger competitor in all of our markets.

As you may recall in 2006 we developed a strategic plan to transform Fisher to a more diversified media company. Today we are better positioned to serve our local communities, as consumers respond to new technologies that influence their media consumption. The key elements of that strategy include strengthening the performance of our traditional broadcast business, expanding into new revenue sources, and developing a sustainable digital portfolio. And I am pleased that even during the recession and throughout 2009 we made solid progress in these areas that are very critical to our short-term and our long-term value creation.

On the broadcast side we have strengthened our ratings by improving our news and programming. We premiered the highly successful 'Dr. Oz' at four of our stations, and launched 'Regis and Kelly' in Portland. We are seeing strong news rating growth, and are continuing to win audience share from competitors. During the November ratings sweep period, 6 of our 7 television stations ranked either first or second in the key adult 25 to 54 demographic in prime time, early news, and overall station performance. This indicates that viewers increasingly are turning to our stations for the news and entertainment programming. We have also benefited from the structural and format changes in our radio business. In 2009 we began simulcasting KOMO news radio on an FM station as well as the AM station, which expanded the audience and advertiser reach of our popular all-news station in Seattle. Additionally STAR 101.5 radio station became the second ranked station in the Seattle market, compared to its number 8 rank a year ago. And recently we rebranded our conservative talk radio station, KVI, as FREEDOM 570, with an increased focus on local content. And our rating improvement is paying off with higher shares of the market's advertising revenue.

We finished our fourth consecutive year of improved market share growth for non-political advertising. In addition we have completed all of our key cable and satellite carriage agreements, and during fourth quarter we finalized agreements with DIRECTV and Bright House Networks, wrapping up the last of the negotiations until the next cycle. Finally we believe that our digital efforts will create new opportunities for the Company to expand its audience, to better service local communities, and to create new sources of revenue. We recognize that consumers are responding to technology, and changing the way they receive their content. Through Fisher Interactive Network we are developing new broadband channels to reach our audiences on a more personal scale. Currently Fisher Interactive Network, including our convergence revenue, is 3% of TV's revenue. But we believe it will become a more valuable contributor in our future.

We are encouraged by the initial success of several of our online initiatives, including our hyper-local website initiative. As you may recall, we launched this program last August, and in just six months we have created 125 neighborhood sites, and attracted over 1,500 local advertisers, many of whom are small businesses, who do not have the resources to advertise on our TV and radio stations, and are new to Fisher. These sites are tailored to a specific neighborhood, and offer local residents an opportunity to engage in dialogue, learn more about what is important in their community, and in addition, they offer an advertising outlet for smaller neighborhood and community advertisers. This provides our stations with a whole new way to reach and develop advertising.

The site also provides another distribution outlet for the daily stories and content that comes into our station newsrooms each day. Virtually all of the material that comes into our newsroom is now purposed to a site. Nothing is wasted. Discovery of content has been significantly improved, and user participation and commenting are key factors on the site. The FCC's recommended national broadband plan was just submitted to the Obama Administration, I believe just a few hours ago. It is our understanding that one component of the plan addresses voluntary participation in spectrum auctions, just how that would work and how that would play in Congress, and how the American public will react to this plan will likely be determined over the next few years.

Maintaining the rights to our existing air waves is a critical part of our strategy to deliver enhanced services to our viewers, including High Definition programming, our multi-cast offering, and mobile TV. We intend to continue to work diligently to ensure the spectrum we need for our future. Mobile DTV broadcasts have begun, and it is expected to rise to over 150 stations broadcasting by the end of the year. Mobile broadcast television is a technical and cultural extension of our over the air broadcast. Many expect that ad-supported free over-the-air mobile DTV will be the first business model. We believe that mobile DTV has the potential to reenergize the free over the air broadcast market.

With that, I am going to pause now, and turn this back over to Joe, to talk more about the numbers.

Thanks, Colleen. As Colleen mentioned, we issued our quarterly release of financial results this morning, and we plan to file our Form 10-K tomorrow. Those documents include in-depth information regarding our financial results, so please refer to those sources for additional information. Today I will be discussing certain non-GAAP financial measures such as TV and radio broadcast cash flow and EBITDA. Definitions and reconciliations of both terms can be found in our press release. As Colleen mentioned, we saw some encouraging trends in the fourth quarter of 2009, particularly in core TV advertising. Despite the positive momentum, consolidated revenue decreased 19% in the quarter to $38.6 million, driven by a loss of $11.5 million in net political revenue compared to the same quarter last year.

Reflecting the revenue decline and the high operating leverage within the broadcasting industry, EBITDA declined $8.3 million to $4.1 million in the quarter. However, net income improved for the quarter aided by several nonrecurring items. Net income for the fourth quarter was $1.1 million compared to a net loss of $47.7 million in the fourth quarter of 2008. Net income for the fourth quarter of 2009 included a $2.6 million pretax gain on our exchange of equipment under the Sprint/Nextel exchange, as well as pretax net insurance reimbursements of $1.3 million, related to the July electrical fire at Fisher Plaza. And remember net loss for the fourth quarter of 2008 included a $78.2 million pretax impairment charge. For 2009 full year consolidated revenue was $133.7 million and EBITDA was $6.9 million. Net loss was $9.3 million, which included the $2.6 million pretax gain on the Nextel equipment exchange, a $3 million pretax gain related to the debt retirement, and $2.7 million in pretax net expenses related to the Fisher Plaza fire.

As you know, maintaining a strong balance sheet has always been and remains one of the top priorities of our management team. We ended the year with cash of $44 million. We also recorded an $11.7 million income tax receivable at the end of the year, based on an expected tax refund from carrying back our 2009 loss to prior year income. Our high degree of liquidity continues to provide us the financial flexibility to more effectively manage the Company during the current economic downturn. We also continue to take a disciplined approach in controlling costs. During the year we reduced our direct operating costs in selling and general and administrative expenses throughout the Company by over $4 million, or 4% excluding the savings we realized by the 2008 decision not to renew the Seattle Mariners radio broadcasts, and $928,000 in contract termination costs we incurred in the fourth quarter. We continue to look to reduce expenses without jeopardizing our strategic growth initiatives. As we do take costs out of the business, we are mindful that we do not compromise our competitive advantage, our ability to produce quality news programming, and deliver advertising platforms that enables local commerce are the life blood of our Company.

This means continuing to invest in areas that will help us grow our business and create long-term shareholder value. For example, we have recently invested $1.5 million in DataSphere, a Bellevue, Washington based web technology and ad sales company. We have been using DataSphere's technology and sales solution to develop and monetize our hyper-local initiative. As Colleen mentioned, through our work with DataSphere, we have launched 125 neighborhood sites to-date. Since October our hyper-local page views have risen at a compounded monthly growth rate of nearly 16%. Our revenue from this initiative is still small, but it has grown at a compounded monthly growth rate of 19% since October. On future calls, we will update you on the key metrics of this initiative and we'll provide more financial insight when the numbers become more meaningful. During 2009, we also repurchased $28 million of our senior notes, at an average price of $87. We continue to believe notes repurchases represent a compelling use of our cash, and we may consider further repurchases in the future.

With that, I will now review the financial results for our three business segments, TV, Radio, and Fisher Plaza. For the fourth quarter TV net revenue declined 23% to $29.1 million, a $10.9 million drop in net political revenue did not offset a 4% increase in net core advertising revenue, and a $1.5 million increase in retransmission consent revenue. Internet revenue was flat year-over-year, with our hyper-local initiatives revenue contribution roughly offsetting a decline in traditional display ad revenue. Internet and retransmission revenue taken together increased 111% from the fourth quarter of 2008 to the fourth quarter of 2009. Excluding net political revenue, TV revenue for the quarter increased 8% versus the fourth quarter of 2008. TV BCF was $5.1 million, with a BCF margin of 18%, compared to 38% in the fourth quarter of 2008. For the full year, TV net revenue was $97.2 million, a decrease of 22% over 2008. TV BCF declined $25.5 million to $10.1 million, and BCF margin was 10% down from 29% in 2008.

In our Radio segment, revenue decreased 8% to $6.1 million in the fourth quarter of 2009. Radio BCF and margin were relatively flat from the fourth quarter of 2008 at $1.1 million and 17% respectively. Full year 2009 Radio revenue was $22.8 million, a 38% decrease compared to 2008. However excluding 2008 revenue associated with the broadcast of Seattle Mariners games, Radio revenue decreased 19%. For the year, Radio BCF increased $4.3 million to $4.1 million, and our Radio BCF margin improved to 18% from slightly negative in 2008.

Turning now to our Fisher Plaza segment which includes the operations of our 300,000 square foot mixed use facility located near downtown Seattle. Despite an occupancy level that remained flat year-over-year at 97%, Plaza revenue increased 5% to $3.5 million, due to contractual base rent increases and increased service fees. EBITDA which excludes fire related expenses improved 8% to $1.9 million. For the full year 2009 Plaza revenue was $13.7 million, a 5% increase from 2008. EBITDA was $8.1 million, an increase of 18% from 2008.

Again to summarize the GAAP and cash impact of the July electrical fire at Fisher Plaza, during 2009 the Company incurred $2.7 million of net fire related expenses, net of insurance reimbursement. From a cash perspective, the Company incurred $3.7 million of cash for mediation expenses, and $3.1 million of fire related capital expenditures, and to date we have received $2.5 million of insurance reimbursements. Based on the claim we have submitted to our insurance companies, we still have approximately $4.1 million pending reimbursement. The final amount and timing of the reimbursement remains subject to the insurance company's ongoing investigation of the claims. We intend to vigorously assert all claims as necessary.

Now I would like to update you on several of the key performance metrics that we use to evaluate ourselves. We believe these are important indicators for our investors as you monitor our progress. As you may recall in July of 2008 we started providing you additional transparency into our business, and we remain committed to keeping you informed regardless of our performance. You heard Colleen talk about our success a little earlier in ratings, which is a key metric for us of course. Two other key metrics are tied to converting those ratings gains into financial gain. Specifically we strive to exceed market revenue growth, and to grow our market share of revenue. I am happy to report that we have delivered on these metrics. In our audited TV and Radio markets our aggregate core or nonpolitical market share of revenue improved 90 basis points from the fourth quarter of 2008 to the fourth quarter of 2009. Excluding the net political revenue our markets declined 2% in the fourth quarter, but our stations were up 3%.

Next we strive to expand our online audience and diversify our affiliate base and geographic footprint. In terms of audience, page views increased 3% for the full year, and this was despite a spike in page views resulting from extreme weather that we had in the Northwest during the fourth quarter of 2008, which drove high usage of page views during that time. We have also begun to diversify our revenue stream as Colleen remarked earlier through our neighborhood initiative. Finally we are focused on improving financial metrics, like TV and Radio Broadcast cash flow, EBITDA, and earnings per share. Unfortunately in this area we have fallen short. Simply put, given the high operating leverage in the broadcasting industry, we have not and cannot do enough to offset last year's declines in market revenue. Despite cost reductions and gains in market share, we experienced declines in all three of these financial measures. The upside is that the high operating leverage works both ways. We believe our cost containment measures and gains in ratings and revenue shares, should have us well-positioned when the overall market improves. With that, I will turn the call back to Colleen.

Thanks, Joe. Before we open the call up to your questions, I would like to make a couple of concluding remarks. In an extremely challenging operating environment, we grew our ratings, continued to take advertising share, delivered new offerings to our viewers and business partners, and successfully launched our broadcast to broadband initiative through the neighborhoods, all while holding the line on our cost structure. As I look ahead, I am confident that our attention to these things, at least the things we can control during this challenging environment, will create long-term value for consumers, for our business partners, employees, and our shareholders alike. 2010 marks Fisher's 100th year of operation, and throughout the Company's history, our hallmarks have been a commitment to the regions we serve, a strong brand awareness and innovation.

As we build a 21st century media company we are combining these inherent strengths with technological innovation to deliver quality news and information to consumers on a 24/7 basis, publishing at all times broadcast and broadband businesses, superior advertising vehicles that enable local commerce and sustain vibrant and healthy local communities, and providing meaningful service to the communities we serve. While the success of these efforts have been masked by a difficult economy, I firmly believe that we have the right strategy in place to drive Fisher's leadership in media for years to come. With that, we will open the call for your questions. Operator?

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

Hi, thank you for the summary, Colleen and Jeff. I hope everyone is well.

Hi, Bishop.

I need some clarification on a few things. I am just going to skip around. I am a little confused. You have a receivable coming in 2010, and I know you mentioned the $4.1 million that is still subject to the insurance claim. Did you talk about another receivable coming in 2010, or is that the receivable?

No, it is separate. The $10 million which is estimated right now is based on the operating loss incurred in 2009 and bringing that back to the taxes we paid in prior years for the Safeco gains. We are able to bring that income to the taxes paid. And so that sits as a receivable on the balance sheet, and we do expect to receive it this year when we file our tax return.

Okay, but it is an accounting offset, or is it cash?

It is cash.

Cash. Cash is good.

Cash is good.

Alright, and then the $4.1 million is subject to the attorney's full employment act, however that works out.

That is what is pending with the insurance companies.

Right, insurance. Okay. Skipping to the, I guess the expenses, now when you file the K, I will go through because I don't think you said exactly on the fixed expenses how much you were able to cut in fiscal year 2009 on a percentage basis, but maybe I can figure that out. My question is, do you think all of the fixed cost expenses, not the variable costs, because you sell more advertising costs go up, but the fixed costs, do you think that is sustainable, or how much of it do you think you are going to need to start raising to unfreeze wages, or whatever it might be?

Bishop, this is Colleen, and I will take that question. I think obviously the variable costs move with revenue for the most part. Regarding the fixed costs, as the timing enables, and as the economy continues, we get to, we have the opportunity to look at each contract as it comes up. We take advantage of looking at and working with each contract, to make it more competitive in this environment. Is it sustainable? I think the real question is how this industry moves to more of a multi-platform brand management approach, where you are focused more on where you get your returns, and less on is it just coming from the television or the radio. Or specifically is it coming from the market and the brand. That is an advancement in multi-platform thinking that will I believe drive profit in the industry, as we figure that out. I think that personally, I think costs have to come down in the industry, and I think that Fisher's fixed costs have been able to come down. We have looked at this since 2005, and they have come down significantly, but what more is to do and what more is fixed is an ongoing evaluation/discussion, and we continue to make progress, and it is my plan to continue to make progress as we go forward.

Okay, so for any progress to get back to the line of scrimmage, where your cash flows were more in the 20s and sometimes above 30 on an LTM basis. It sounds like you have a revenue problem, and there is not much that is going to be achieved out of slashing costs. I am not trying to put words in your mouth.

No, you can look at it that way. Certainly in '09 we had a revenue problem, as did the whole industry. I think that paid services has really tapped into the television market place, and that has probably been our biggest issue. It is often suggested it is Internet, but really the most immediate intrusion into the industry has been cable and pay services taking money out of, and taking advertising to those services. As far as a revenue problem, I would suggest that 2009 was such an exceptional year, that it is too early to call what 2010 and 2011 are really going to look like going forward. But I would say that political is showing us that, especially with the recent ruling is going to be robust. The question is obviously how many races, depending on where your markets are, what kind of races, and the strong stations that have great news product will benefit from that, so just to what degree the correction will show itself is yet to be determined, but I still feel that 2009 was such an exceptional year. And as we are seeing across the industry already in this quarter, things are righting themselves. So it is a question of how much and when and how long it will take for it to right itself.

Right. Okay, looking also at incrementals, you've certainly invested a lot into trying to digitize your platform, and develop all the divergent new revenue streams. Currently you say it is roughly about 3% of TV revenue. How high do you think it can go in the next 2, 3, 4 years? I am not looking for a number in my lifetime. I am kind of looking for kind of a near term number being somewhat flexible, I'm saying two, three years out.

Yes, I have commented on this several years ago, and I believe that it made sense for a brand extension digital platform in the industry to move in the 20% category, and that was two or three years ago, and it was definitely public record, Bishop. I still believe that while what happened recently with the recession, and depending on how long that recession lasts, or the recovery of the recession lasts, I still believe that you are going to see that kind of percentage generated from digital platforms. Obviously in our industry it is a question of how you define digital platforms. We only defined it as Internet revenue. And others in our space add retrans in, some of them even add multicast in. I think we have to be careful to make sure we are comparing apples to apples, when we talk about this business. But I do believe that you are going to see continued growth in this area as we get smarter in this age of Google, and figure out how to market. I think that you are going to see a greater growth in the industry.

Alright, so in your fruit basket keeping the fruits all lined up the right way, your 3%, you are talking about Internet only and not retrans could grow to 20% some day, not including retrans?

Yes, That is what I said two or three years ago and I still believe that. In fact, I just saw it printed. I was reading something this morning by one of the experts that had published a white paper. And there was some discussion that that -- I mean that was their number too. I haven't had that conversation with them.

Right, everyone has got a number. I think my alma mater, the [Cakin] people put out a 14% number.

I think it depends on your markets. I think it depends on your size of markets. I think it is going to have some variables. I think that is not unreasonable. But again it depends on how quickly your markets are developing. I think it depends on what your platform is, how easy it is to use. There are so many variables. But you do see this as a brand extension.

Right. A couple more and then I will pass it on. I just want to get clarification, in the beginning of the call you talked about auto falling 40%, retail 22%, and Professional Services 17% by categories. Were you talking about for the year or Q4?

I believe --

That was the year.

The annual number.

That was the annual number?

Yes.

How much did Auto fall in Q4?

Auto, let's refer you back to the press release this morning, auto increased 14% for the quarter, retail declined 13%, and restaurants declined 14%.

Okay, so it was up 14% for the quarter, but down 40% for the year.

Correct.

Okay. That is an important turn. And on the retrans, all of your retrans are completed, and maybe I can circle back if you don't have the number handy. Can you tell us on the gross and the net number of homes, since everything on retrans tends to be driven up, and measured on a per home basis.

I don't have that off the top of my head, and I know we don't have it in this room, Bishop. And we have not -- not only do we not have factual numbers, because as you know they vary. And even if you think you know the number, when they actually pay you, it is different. So it is just not a certain number. I think it is fairly easy to get by market place, but we have not disclosed that number, nor do I have that in this room.

Right. But we can get sort of ballpark. And it is helpful as we look at going forward and all the incrementals it will help shore up traditional revenue.

Yes, there is no doubt. And you can do the math. We have got duopolies. It is not as simple as just saying how many subs do you have?

Right. This was all very helpful, and I will pass it on. Thank you.

Okay.

Our next question comes from the line of Barry Lucus with Gabelli and Company. Please proceed.

Thanks very much. Colleen, if we could just go down the road a little bit more on the retrans, $2.4 million in 4Q. I hope we can more than annualize that in 2010, given the importance of the contracts that came in toward the end of the year. Can you give us a ballpark on what that retrans could look like, either dollar amount or percentage?

Yes, what we said when we negotiated this is approximately $30 million over three years. And I think we disclosed that in a conference call in the fall. That is consistent. That is where we are at.

Okay. All right. That is helpful. Thank you.

Thanks, Barry.

It appears that was our final question.

Okay, great. Thanks, everybody. I know it has been a tough year, but I do believe that things are brighter in the industry, and we are going to try to take advantage of that. Thanks a lot.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.