Sinclair Inc (SBGI) 2010 Q4 法說會逐字稿

Good day ladies and gentlemen, and welcome to the fourth quarter 2010 Fisher Communications, Inc. financial results conference call. My name is Crystal and I will be your Operator for today. (Operator Instructions). I'd now like to turn the conference over to your host for today, Mr. Hassan Natha, Vice President and CFO. Please proceed.

Thank you. Good afternoon everybody, 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 results. These forward-looking statements include information preceded by or that includes 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 these expectations are described in our annual report on 10-K and our quarterly reports Form 10-Q as filed periodically with the Securities & 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 Investors 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.

Thank you, Hassan. And good afternoon. With me today besides Hassan is Rob Dunlop, EVP Operations. As you will have seen from our press release, Fisher had a strong fourth quarter which contributed to a successful year of growth in 2010. Hassan will provide more details, comments on our financial performance later in the call, but I'd like to begin by summarizing our results.

For the fourth quarter Fisher's revenues were $57.6 million, our highest level in a decade, and our total television revenue grew 61%. Excluding political advertising, our television group improved by 13%. As for Fiscal Year 2010, our television revenue improved 40% and total nonpolitical revenue increased by 20%.

As a result of this strong performance, our consolidated revenue increased to $176 million our highest level in the last decade. EBITDA improved 401% hitting its highest level in 10 years, and net income was $9.7 million or $1.10 per share.

Our performance throughout the year reflects the continued competitive performance improvement of our stations combined with solid political spending and the strengthening of core advertising. While the economy and political cycle in 2010 certainly contributed to our success, our improving financial results were not simply due to political spending or the general economic rebound. Last year marked the fifth consecutive year in which our stations increased their share of core market revenue and exceeded core advertising growth rates.

Aggregate core television revenue in Fisher's audited markets increased by about 10% while Fisher improved by 15%. Over the last five years, Fisher's share of market revenue has grown 370 basis points, resulting in an additional $20.3 million in revenue for the Company.

We are proud of these accomplishments which reflect our successful strategy to improve the ratings performance of our news and entertainment programming and our ability to convert that growth into shareholder return. In short, we have worked strategically and we have worked hard to regain Fisher's momentum and to reposition the Company as a leader in local media innovation. This has not been an easy feat when you consider the starting point in 2005 before we implemented our strategic plan. In addition, the operating environment over the last five years, including the worst economic recession since World War II and increased media fragmentation resulting from the proliferation of new technologies has added complexity.

Yet since 2005, we have steadily improved the core fundamentals by which we monitor Fisher's progress. For example, we have increased audience share, expanded revenue share, beat market growth, reduced debt, and grown EBITDA. In addition, we have established new digital growth initiatives several of which are industry-defining, such as our hyperlocal neighborhood websites. We are also playing a leadership role in bringing mobile, digital television to the market.

As we have discussed in our prior calls, the management team remains keenly focused on improving our margins. For 2010 our TV cash flow margins were 28%. As we compare our margins with industry peers, it is worthwhile to note that unlike many of our competitors who are less geographically concentrated, Fisher's properties are primarily clustered in the Northwest. With the exception of Bakersfield, the revenue for each of our markets is lower than our DMA rank.

If the advertising spend in our markets reach their equivalent DMA rank we estimate that in 2010 Fisher would have generated an additional $20 million in revenue which net of our relatively low variable cost would fall directly to the cash flow line and our margins would be in line with the industry. This is not an excuse. Rather it's a fact that serves as our greatest motivation for creative and rapid revenue generation, cost discipline and strategic innovation to overcome this challenge.

Head-to-head, our competitive performance within our market is very strong. However, we realize in the wider US market in which we are measured we still have margin growth opportunity. Since this is our year-end call, I would like to take a moment to update you on how we are preparing Fisher to compete and win in today's ever-changing market.

As you know, our corporate strategy isn't just a plan to be implemented, it's about how we approach the future and more importantly where we believe the local media business is going. As you know, a core element of our strategic plan is to embrace new ways to distribute our content, shape it to our competitive advantage and leverage our traditional assets in building an integrated portfolio. We continue to believe that broadcasters who can successfully complement their traditional offering with new media platforms will be in the best position to capture a larger share of audience and advertisers as well as promote authentic engagement within the community.

Our network of media platforms which consists of English and Spanish TV, news and music radio stations, local news websites, hyperlocal neighborhood websites, mobile platforms and other social media initiatives are very difficult to duplicate. We believe this provides us with a competitive advantage in the marketplaces where we compete. In our traditional broadcast business, we have been able to use this strategy to grow share by improving ratings, increasing new business from new advertising categories and taking revenue from the competitors.

For example, we have grown our audience share sign-on to sign-off and in key newscasts, particularly in Seattle and Portland. Our stations have improved their market rankings, and increased share in key morning and early evening news time periods allowing us to deliver an increased audience base that is valuable to our advertising partners. Our drive for new business is focused principally on disenfranchised newspaper and directory advertisers. This means expanding our reach beyond the traditional advertising dollars available to broadcasters. We are targeting the entire market media spend by combining our inherent broadcast strengths with technological innovation to create multi platform solutions that are specifically designed to attract new advertisers to Fisher.

This is the primary reason we are so focused on expanding our digital capabilities. While Fisher Interactive Network is currently a small part of our revenue overall, we continue to be pleased with its growth. In 2010, total Internet and Internet-related revenue represented approximately 4% of our TV revenue and grew 73% year-over-year. This was driven by page-view growth and unique visitor growth of 13% and 38% respectively. Furthermore we are well positioned to expand our digital business this year through the growth of our hyperlocal neighborhood sites and our relationship with DataSphere Technologies, a Seattle-based technology and ad sales company.

Since we launched our hyperlocal program in August of 2009 we have established more than 120 neighborhood sites at Fisher. The sites which now average more than 2,000 advertisers per month have become an important contributor to our news and information eco-system.

As we have shared with you before, Fisher invested in DataSphere and began working with them to implement our hyperlocal solution across the country with other broadcasters. In addition to our small ownership stake in the company we have an agreement under which we receive a share of the revenue that is generated from new markets. During the term of this contract we expect this revenue stream to gain momentum as additional markets launch and mature.

Recently we also took a number of other steps to expand our broadcast to broadband initiative. This includes the launch of Buzz Brands, a nationwide, locally integrated, multi platform content and advertising solution for broadcasters seeking to expand their digital portfolios. Our first lifestyle vertical under Buzz Brands is galtime.com. The website is now available in 134 markets across the country, including the CW Plus 110 stations.

And finally, we are one of the founders and leaders of the Mobile500 Alliance which is an inclusive effort to bring mobile digital television products to consumers. We are excited about the potential that Mobile DTV advertising could have for Fisher and the entire industry and are working hard to make this offering a reality.

Now I'll turn it over to our Vice President and CFO, Hassan Natha, who will give you more details on the quarter and the year.

Thank you, Colleen. In addition to this morning's release of our fourth quarter financial results, we plan to file our form 10-K with the SEC on March 8. These 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 cash flow and EBITDA. Definitions and reconciliations of these items can be found in our press release.

As Colleen mentioned, Fisher benefited from strong political revenue and solid core advertising growth in the fourth quarter. For the fourth quarter, consolidated revenue was $57.6 million, an increase of 49% from the fourth quarter of 2009. The Company reported net income of $8.3 million, or $0.93 per share, compared to $0.12 per share in the fourth quarter of 2009.

EBITDA was $19.4 million in the fourth quarter of 2010, compared to $4.1 million during the same period in 2009. For the full year 2010, consolidated revenue was $175.9 million or a 32% increase from 2009. And EBITDA increased $27.7 million or 401% to $34.6 million.

Net income was $9.7 million or a $1.10 per share which included a $2.1 million pre tax gain on the exchange of broadcast equipment and $3.4 million pre tax insurance reimbursements related to the Fisher Plaza fire. This compared to a net loss of $9.3 million or $1.06 per share in 2009.

The Company's total operating costs were up 7% compared to 2009. Excluding one time gains such as Plaza fire insurance reimbursements and Sprint Nextel asset exchanges, approximately half of the increase was driven by variable compensation costs and one-time restructuring costs in finance, human resources and Radio. The other half of the increase is due to network programming costs and our development of the Fisher Interactive Network business which includes our Internet, Daily Buzz and Buzz Brand initiatives.

Over the past five-years, we have implemented new technologies to reduce operating expenses and improve work flow among multiple platforms. As a result, our workforce has shrunk by approximately 20% on a pro forma basis during this period.

As Colleen noted earlier, we remain focused on improving the bottom line. While our strong revenue growth over last year's fourth quarter did result in significant margin expansion in both TV and Radio, we continue to seek ways to adjust our operating model to lower costs and better reflect the environment in which we now compete. Maintaining a strong balance sheet has always been and remains one of our top priorities.

We ended the quarter with $52.9 million in cash and cash equivalents. This liquidity provides us with considerable financial flexibility which is important in this operating environment. We continue to strategically use our cash to repurchase our notes. During 2010, we repurchased $20.6 million of our notes which decreased total interest expense for the year by $1.7 million. And in January 2011, we repurchased another $2.6 million which leaves us with a current debt balance of $98.8 million.

As we go through the year, we will remain focused on using our cash in the most effective manner and this may include repurchasing additional senior notes. Our trailing fourth quarter operating cash flow as defined by our senior notes indenture, was $34.7 million. The details of this calculation can be found on our website.

Based on our total debt of $101.4 million at the end of the fourth quarter, and as a result of improved operating results in our debt reduction strategy, our total debt to trailing fourth quarter operating cash flow ratio decreased significantly from 14.7 times to 2.9 times.

With that I will now review with you the financial results of our three business segments, TV, Radio, and Fisher Plaza. For the fourth quarter, TV net revenue increased $17.7 million or 61% to $46.8 million. Our nonpolitical broadcast ad revenue increased 9% compared to the fourth quarter of 2009. This is a result of the increases in our key advertising categories, including automotive, retail, and professional services. Retransmission consent revenue increased 24%, or $569,000 from the fourth quarter of 2009.

For the fourth quarter, TV operating expenses increased by approximately 9% primarily due to commissions and programming costs. TV cash flow was $20.4 million, an increase of $15.3 million over the fourth quarter of 2009. TV cash flow margin was 43.6% compared to 17.7%in the same period in 2009. Internet revenue which includes advertising generated on our station's primary websites and our other hyperlocal sites increased 121% from the same quarter last year.

For the full year 2010, TV net revenue was $136.4 million, an increase of 40% over 2009. TV cash flow increased $27.5 million, to $37.6 million, and TV cash flow margin was 27.6%, up from 10.4%.

For the full year 2010, political revenue increased $20.1 million to $22.1 million. Nonpolitical core advertising increased 16%, and retransmission revenue increased $4 million or 49%. Internet revenue, excluding convergent sales, for the full year increased 105% to $3.5 million.

In our Radio segment revenue increased 17% to $7.1 million in the fourth quarter of 2010. Radio cash flow was $1.4 million compared to $1.1 million in the fourth quarter of 2009. Radio cash flow margin improved to 19.7% in the fourth quarter of 2010 compared to 17.4% in the same period last year.

For the full year 2010, Radio revenue was $25.3 million, or an increase of 11% compared to 2009. For the year, Radio cash flow increased $800,000 to $4.9 million, and our Radio cash flow margin improved to 19.2% from 18% in 2009. Excluding the impact of our reformat change costs at KVI Radio, Radio cash flow would have been $5.4 million for the year with cash flow margins of 21.5%.

Turning now to Fisher Plaza segment. In the fourth quarter Plaza revenue was $3.7 million or an increase of 7% over the same period in 2009. Plaza EBITDA was $1.8 million, a decrease of 8.3% over the fourth quarter of 2009. Decrease was largely as a result of a one-time expense of equipment removal costs.

For the full year, Plaza revenue was $14.4 million, an increase of 5% from 2009. EBITDA was $8 million compared to $8.1 million in 2009.

Occupancy remained at 96% at the end of the fourth quarter. With respect to the July 2009 electrical fire at Fisher Plaza, we have received approximately $6 million in insurance reimbursements to date which covers nearly all of our claim. And with that I'll turn the call over to Colleen.

Thanks, Hassan. And before we open the call up to your questions, I'd like to make some concluding remarks.

The turn around at Fisher is represented by a steady, five-year trend of operational improvements. Today stations that were once ranked third or fourth in the market are now rated either first or second, and radio stations that were ranked in the middle of the pack are now at the top of the market. We have built this momentum quarter-by-quarter, year-by-year, and now we are at the forefront of redefining local media.

Our strategy of combining the best of our traditional broadcast business with technological advancements has enabled us to create new digital platforms to meet the increasing demand for personalized media. Through these efforts we are creating lasting value for our consumers, advertisers and shareholders. That being said, we recognize there's more work to be done, and in order to sustain the significant operational and financial improvements that we have made since implementing the strategic plan in 2006 we must remain focused on transforming Fisher into the leading local media company in the Northwest.

And before we take your questions, I would like to remind everyone that today's call is to discuss our financial results and business performance. As such we will not comment on or answer any questions regarding Huntington Real Estate Investment Trust's unsolicited offer. Additionally, we will not comment on the proxy contest to be conducted by FrontFour Capital or related matters other than to say that we strongly disagree with their public assertions. We will of course have much more to say about the proxy contest at the appropriate time.

And with that I believe we are ready for questions. Operator?

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

Hi, everyone. Thank you for taking the question. Colleen, wow, you had a great year last quarter.

Yes. Thank you, Bishop.

So you got to be happy. You said it is five years in the making. Okay. I'll try to be quick. The first thing that jumps out at me, yes, it was terrific. You have $20 million roughly of political to replace. And I don't expect it to all come from one spot. But if you could give us some color on how you would like to go about replacing the $20 million. It's a two-year phenomenon. It's there and then it's gone. And then the other thing, if you can quantify, what new media is contributing. I haven't seen the K, you haven't filled it yet, but I think your protocol is you still don't do a separate line for Internet or a separate line for new media, if I'm remembering right.

That's correct. Yes.

And then the last thing I just want to hit you with was, any update on Plaza monetization divestiture. If you could just update us on what you were thinking about that.

Yes. I think I got all of your questions. If I miss one just jump in. On the revenue front, we don't do any kind of guidance or forward-looking kind of statements. But there are a couple of things.

You're right. We have a nut to crack in 2011 with replacing political revenue. I will say, if you watch television in the Northwest, it is pretty easy to see that there's still political revenue out there. And we are beginning to see, maybe not even just Fisher but as an industry, political revenue not necessarily being an every other year thing. We're seeing revenue this year as well. How much we don't know yet. But that's an interesting phenomenon that we hope continues.

In addition, we did have some displacement. How much is always very difficult to ascertain at this point. But we are seeing the continued pressure on inventory that we saw building in quarter-by-quarter growth in 2010 continuing to be present in 2011. So I think that bodes well. In addition, what we are doing with our multi platform seems to be in 2010 working. And as a result, I expect what has worked in 2010 to continue with this momentum into 2011.

Regarding the Internet, you're right. We don't break that out yet. I can let Hassan address any technical questions on when and why we would break that out. But right now it is still not of the size to be broken out separately. I am extremely encouraged that it grew 72% in 2010, and with all that we've got cooking right now I'm very excited about the promise of what 2011 and what these additional digital and multimedia opportunities present to the Company.

And then on the last question regarding Plaza monetization. We've said since the market fell apart in 2008 when financing was just no longer available to buyers, we have long said that the Board would consider monetization of the Plaza if and when the time was right. And that general consensus is still there. Obviously it's a Board decision. But we fully expect when the time is right to monetize the Plaza.

All right. That is all very helpful. Let me pass the baton. I may circle back. Thank you.

Thank you, Bishop.

Thank you, Bishop.

Our next question comes from the line of Mario Gabelli with Gabelli & Company. Please proceed.

Mario Gabelli, your line is open.

And we're not seeming to get any kind of response from his line. That was our final question. Oh, we have one from Michael Schechter with Mentor.

Great. Michael, you can go ahead.

Hi, Colleen. How are you?

We're good. We're having a thunderstorm. So just as a heads up.

Okay. Well, I hope it doesn't hit. Can you flesh out what you said about the DMA rank versus the revenue. Are you trying to say that the revenue for Seattle, the total pie is smaller than a lower ranked? And is it in every one of yours? And how can that actually be given the population base?

Yes. That's a great question and one that we have been studying. I actually have been aware of this for -- since I began working in the Northwest years and years ago.

The market ranks right now, the Seattle rank is two, possibly three depending on the Nielsen ranking gap between DMA and market. So yes, what we are saying -- and this is a well known fact -- we are saying that the revenue consistently in the broadcast space is ranked below the DMA size. And in Portland it's significant. It's about a 10, sometimes even 11 market rank discrepancy.

Does that mean the rates in the whole market are too low for the size of the market?

Yes. You could argue that it's rates. You could argue that it's demand. You can argue that there are categories missing. There's usually -- the answer is a combination of all three.

And before you move into the next question, we can only charge what the market will bear. And so as much as -- we have done a really good job. As you get more ratings you have more control on your own rates rather than being reactive. So we've done a really good job.

You can't do what we've just done with the markets across the board growing 10% and us growing 15% without holding rate or growing rate. So we've done our part, but again it's a market function.

Tell me about the categories that are missing. Because obviously demand is demand, rates are rates. But what is that?

Yes. That's a great question. One of the most obvious category differences between the Northwest markets and the markets that I've operated in in the past is the furniture category is not at all significant compared to other markets. Maybe not every market, but certainly it's a missing category for the Northwest. I don't know why that is. If it's just a lifestyle choice, if it's truly just we have more density here. I don't have the answer to that. We've talked about it at length, but in general, it's a category that's not a large category in the Northwest. For example.

I mean, what else is missing? I mean, is auto just as large a percentage as --

It is not typically as large as a percentage. We historically in the Northwest are not a domestic auto market. We are much more of a foreign car auto market. We're hoping that is going to change a little bit here, and we are seeing signs that the domestic category thinks they can compete up here. We have always been a very, very strong Toyota market.

Are there any other major categories missing or underrepresented? Because that obviously would go to demand and then rates, I would assume.

Yes. It's a combination of those two. There's some smaller ones, but I wouldn't say any other major categories.

So just looking at your margins and things, it sounds to me if you were to replicate your peers, you're talking about another $17 million of cash flow?

Yes. If we were more like the expenditures that DMAs demonstrate across the United States, yes, that's what we are saying. And that's a pretty straight math. We're not imagining that. That's a pretty straight math application to DMA rank against TV market rank.

And Fisher Plaza, I understand when the time is right. Right now it looks like the commercial market is booming, at least financing for it is.

Yes. It certainly has picked up. We've seen a lot of the financing let loose, particularly it seems in the last maybe four weeks. Financing seems to have gotten some traction. And therefore I think there's more activity.

Data center is a little more of a specialized case. Colo is even more specialized. But yes, we're seeing things boom.

But data center and colocation centres are hugely on fire. You've seen Verizon and a bunch of other big companies want to get into that space and (multiple speakers).

Yes. That's a great point, Michael. What is different about -- this is a mixed-use facility. And it's a boutique facility. So it's not a dedicated or one dedicated vendor, single-use facility.

And as a result, Verizon might buy a building, but I don't know Verizon's exact situation so I don't want to just quote that. But a company can easily just buy a building for a colo or for a data center space and use it exclusively for their use.

This is a mixed-use facility with retail as well as colo space in the data center. And it's also a boutique. So that means there's smaller clients in here. And that's a little more specialized.

That doesn't mean it's not doable. I think it is doable. It's just as we go through this conversation process, et cetera, the Board has to contemplate all of that.

If we look at 2008 which is when it all fell apart, and say you guys probably started thinking about this in 2006, 2007, how is the market today versus then?

That's a great question. The 2006 -- when we started contemplating it, the advice we got was to improve our -- we were not as competitive as we should have been in our cost per square foot and in our occupancy. And we were encouraged before we put the building on the marketplace to fix those two things. And we have done that. So by the time we got those fixed, we did the process of putting it up for marketing, and we had the process well along the way, including the biz in, and one by one they fell apart. What we have seen is in general for data center space there hasn't been a weakening of demand and we haven't seen a weakening of evaluation for the most part.

So you think things are back to where we were in 2006, 2007?

I think there's still uncertainty in the marketplace, so I wouldn't say we're back to it in the Plaza space or in the data center space, but I would say that things are getting back to where they were. In 2006 there was a lot of excitement, still sort of a new area in the data center space, particularly in the boutique data center space. Today that's a pretty well understood space, in my opinion, and I think that there's a more defined group of prospective buyers than there were in the past.

Well, good luck. And thanks for a good quarter.

Thank you.

Thank you, Michael.

We have a follow-up question from the line of Bishop Cheen with Wells Fargo. Please proceed.

Hi. Colleen, not to diminish any of the operating performances you have achieved, but I was also I guess focused on events as well. So a station M&A we have seen green shoots and more on some M&A happening, and clearly it's not anywhere near like it was in the front part of the decade. But I'm wondering if you think you see any daylight in the discontinued assets you still hold.

I didn't catch the last part of what you were saying?

Any daylight. I believe you're still holding some stations that you would like to sell. The radio?

Oh, I'm sorry. Okay. Is there daylight. That's a great question. We have continued to entertain conversations, but I would say that there's been no activity in the small, really small market radio sector. And whether or not they get traction and financing and who has an appetite for them, I think it's just starting to sort itself out. So my opinion on these small market radio stations is it will be a little while before there's some kind of traction in the marketplace.

Okay. That's fair enough. So don't hold my breath.

Yes. I just don't see it immediately. I think everybody is sorting radio out in the small marketplace. It's a very different animal than in the large markets.

Sure is.

Thank you, Bishop.

All right. Very helpful. Thank you, Colleen.

Thank you.

And there are no further questions.

Okay, everybody. Thank you for joining us today and getting through this thunderstorm with us. And we'll talk to you next quarter.

Thank you. Bye-bye.

Bye-bye.

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