Sinclair Inc (SBGI) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2011 Fisher Communications financial results conference call. My name is Cathy and I will be your operator for today. At this time, all participants are in a 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's call to Mr. Hassan Natha, Senior Vice President and Chief Financial Officer. Please proceed, sir.

Thank you very much. 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, 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 Securities and Exchange Commission, and available on the Investor Relations page on our website. 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. Colleen?

Thank you, Hassan, and good afternoon, everyone, and thank you for joining us. With only several weeks remaining in 2011, I would like to begin by giving you an update on the progress we have made this year and through the continued execution of our strategic plan. After that, I will discuss our performance in the third quarter. Following my remarks, Hassan will review our quarterly results in more detail. And as always, we'll open it up for questions at the end of our comments.

Over the past 5 years, we have successfully repositioned Fisher to better compete in today's dynamic media environment as well as guided the Company to emerge from the recession to deliver increased value for our shareholders, advertisers and the communities that we serve. Our focus has been on 3 fronts; driving operational excellence while tailoring our strong local brands to meet consumer and advertiser demands by developing and distributing more content over multiple platforms, adding and diversifying revenue streams through new platforms and digital sources, and seeking opportunities to add strength and flexibility to Fisher's capital structure.

We will continue to execute on the key principles that shape Fisher's performance. These include establishing strong leadership, establishing a culture of innovation, and focusing on strategy, structure, systems and skills that are essential to sustaining our operational momentum and financial growth. As consumers and advertisers use more platforms to satisfy their news and their entertainment needs, Fisher must continue to ensure that its content is on every device available to the audience. To do this, we are employing and continually refining a multi-platform workflow, while developing new approaches and solutions to a fast moving and changing media marketplace. Additionally, we continue to leverage our resources to create new multi-platform solutions for our advertisers and audiences, such as the Buzz Brands, Seattle and Portland Pulp and the continued development of our hyper local websites. Diversifying both our revenue and audience base is key to growing the organization and we are doing this by driving growth in our interactive business.

Our recent launches focus on delivering content aimed at the 18- to 49-year-old audience to enhance our already successful news oriented station websites. Buzz Brands reaches highly desirable niche audiences with lifestyle, medical and mental health-oriented sites. With our slate of digital products, Fisher offers a national TV and Web solution, a regional TV and Web solution through our stations and news websites, and a hyper local solution in our markets. Our goal is to reach all adult demographics and offer our advertisers a cost effective and targeted means to reach them. We are seeking to become the leading online media source at each of our markets by expanding our hyper local strategy through innovative advertiser and consumer programs, which includes our efforts with DataSphere Technologies, a Seattle-based company in which Fisher made a small investment a couple of years ago, developing customized and creative market solutions including TV, radio, Internet, mobile and social media integrated advertising programs, and aggressively seeking to fully utilize and monetize our existing spectrum through partnerships, multi-casting and mobile DTV.

With one of the healthiest balance sheets in our industry, Fisher continues to seek opportunities to maximize shareholder value and strengthen its financial flexibility. This includes maximizing the value of and leveraging our non-core assets, such as Fisher Plaza. We continue to work through the previously announced process to explore alternatives to maximize the value of the Plaza. The volatility in the economic markets has required additional time and effort as we continue to evaluate our options with respect to a possible sale or financing transaction. We will provide further updates as developments occur. Also at the end of last week, Fisher closed on the previously announced sale of its Montana radio properties to Star Radio for $1.8 million.

In summary, we are pleased with the progress we have made over the first 9 months of the year. We have increased our audiences across all of our media platforms and continue to grow sales creatively and rapidly, which has enabled our stations to outperform the market by taking more local advertising share while at the same time continuing to build financial flexibility. This positions us well for the future.

Now I would like to stay with us Fisher's third quarter performance. While the overall economy has been volatile and the advertising environment has been mixed, the Company achieved its revenue expectations for the quarter. Core television revenue increased 9%. This growth, combined with continued expense discipline, has helped to strengthen the bottom line. July, as is typical, was the softest month of the quarter. As the quarter progressed, our performance began to strengthen in August and in September. The impact of the earthquake and tsunami on Japan's auto supply chain held back auto advertising growth during the quarter as it was up just 3%. However, professional services increased by 26% and retail spending grew by 16%.

In the third quarter, Fisher's broadcast markets declined, as expected, due to 2010 political spending. However, Fisher's stations outperformed its markets by 50 basis points, and grew market share by 30 basis points. In the core business, Fisher beat the market by 760 basis points and grew market share by 10 basis points. In fact, this is the highest share for broadcast revenue in third quarter in the last 6 years at Fisher, and it is the highest year-to-date share of market revenue in the last 6 years. This shows the underlying core strength of our strategy.

Our advocacy journalism strategy has resonated with viewers and it is fueling our growth on-air and online. As a result of our strengthened on-air competitiveness, Fisher's local brand recognition is at its highest level in a decade and is contributing to the success of our interactive businesses. As a result of our commitment to producing the highest quality and quantity of local news and content, all of our big three TV stations rank number 1 or number 2 in our markets among key advertising demographics. In September, we launched the CW in Boise for our digital channel. The CW paired with our CBS station there offers duopoly economics combined with our mix of local and hyper local websites which further elevates our multi-platform solutions that provide consumers and advertisers greater variety in content and demographic reach. We have 1 Fox affiliate in the Fisher Group, located in Bakersfield, California. We recently completed the new affiliation agreement with the network that extends our relationship into 2014.

We are also pleased with the success of our digital platform. Since launching Fisher Interactive Network in 2008, the Company has made significant strides in generating new streams of revenue through online and other digital mediums. By moving its station branded sites to a common platform and creating an online sales organization, the Company has grown its online audience and revenues significantly. Developing media revenue, which includes Fisher Interactive Network and Buzz Brands increased 52% to $1.4 million, compared to $900,000 in the third quarter of 2010. The Company has now delivered 7 consecutive quarters of double-digit year-over-year revenue growth in this area. New media, which includes retransmission revenue and all other media revenue outside of commercial spot advertising revenue, represents 18% in total of our net television revenue. This is compared to 15% last year in third quarter.

Consumption of our digital content continues to grow at a very strong pace. Based on our September performance, our current run rate is expected to deliver approximately 400 million page views for the year, which would be about a 16% increase from 2010's page views of 344 million in total. The ever expanding reach of our content is impressive as we received nearly 15.5 million unique visitors on our websites during the quarter compared to 13.8 million during the same period last year. Compared to our local broadcast competitors, we rank number 1 or number 2 in all of our markets that comScore measures for unique visitors and for page views. With that, I'll turn it over to our Senior Vice President and CFO, Hassan Natha, who will give you more details on our third quarter performance.

Thank you, Colleen. In addition to the release of our third quarter financial results we plan to file our 10-Q with the SEC later this week. 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 cash flow and EBITDA. Definitions and reconciliation of these items can be found in our press release and official website.

For the third quarter, consolidated revenue was $39.7 million, which was a 5% decrease from the third quarter of 2010. TV core revenue increased 9% from the third quarter of 2010, which continues to reflect the strength in our core business. Net income was $1.4 million, or $0.16 per share, compared to $3.3 million, or $0.38 per share, in the third quarter of 2010. The 2010 results included a $2.9 million gain from net insurance reimbursements related to our 2009 Fisher Plaza fire and $300,000 pre-tax gain on the exchange of broadcast equipment.

As you know, 1 of our strategic objectives is to effectively manage our costs, while at the same time maintaining our competitive advantage. We have been able to achieve this goal by adjusting our operating model and cost structure to better reflect the environment in which we now compete. As a result, direct operating costs and selling, general and administrative costs for the third quarter of 2011 decreased $800,000, or 3%, compared to the same period in 2010. This marks the third consecutive quarter that the Company has been able to reduce its expenses. The decrease in direct operating costs, and selling, general and administrative costs for the third quarter included $1.5 million of savings related to the non-renewal of the KING-FM Joint Sales Agreement, a reduction in our total variable compensation and a credit resulting from our Company's revised vacation policy that was implemented in 2010. Some of these savings are offset by additional costs of $700,000 related to Plaza strategic review, investments in the Internet division and the resumption of the Company's matching contributions to the 401(k) plan for its employees.

EBITDA decreased 13% to $6.8 million in the third quarter of 2011, compared to $7.8 million during same period in 2010. The decrease in EBITDA was due to the expected decline in meaningful political revenue this year. We continue to have one of the strongest balance sheets in the industry. We ended the quarter with $27.3 million in cash and cash equivalents. Our ability to generate steady cash flow from operations has enabled us to strategically retire our senior notes. During the quarter, we continued that effort as we repurchased or redeemed $8.7 million of our notes. That has left us with a balance of $66.8 million at the end of the quarter, or a net debt balance of $39.5 million. Over the past 3 years, we have repurchased or redeemed $83 million or 55% of our senior notes.

Our trailing four-quarter operating cash flow, as defined by our senior notes indenture, was $39.4 million. The details of this calculation can be found on our website. Based on our total debt of $66.8 million at the end of the third quarter, and as a result of improved operating results and our debt reduction strategy, our debt to operating cash flow ratio decreased from 1.9 times at the end of June, 2011 to 1.7 times as of September 30, 2011, and interest expense decreased by approximately $800,000 or 34%, compared to the same period last year. During the third quarter, we made payments of $2.1 million for capital expenditures.

With that, I will now review with you the financial results of our 3 business segments, TV, radio and Fisher Plaza. For the third quarter, TV net revenue declined $1.5 million, or 5%, compared to the same period in 2010. Core TV revenue increased 9% over the third quarter in 2010. This was driven by growth in our top 5 advertising categories, auto was up 3%, professional services was up 26%, retail was up 16%, restaurants was up 9%, and telecom was up 1%. For the third quarter, TV operating expenses decreased by 5% compared to 2010. These results reflect the successful implementation of a number of strategic initiatives including a 17% reduction in program amortization costs which was a result of our continued efforts to reduce programming costs launched several years ago without affecting our results for our stations, the KIDK JSA and SSA, and the reduction of compensation and variable commissions. The savings fully offset the costs we incurred during the quarter to expand our fast-growing Internet business.

TV cash flow was $6.8 million, a decrease of $802,000, or 11%, from the third quarter of 2010. TV cash flow margin was 22% compared to 24% in the same period in 2010. The improving margins continues to be a priority for our management team. Excluding political revenues, our TV margin increased by 9% compared to the third quarter of 2010. And for the first 9 months of the year, excluding political, TV margins have grown by 7% over the comparable period in 2010. These positive trends reflect the strength of our core operations and our continued focus on execution of our strategic plan. Based on the results reported by some of our peers to date, Fisher's year-to-date TV revenue and BCF growth has outpaced its peers. Internet revenue, excluding convergence revenue or bundled revenue, which includes advertising generated on our stations' primary websites and our hyper local websites, increased 52% from the same quarter last year. Lastly, our Internet business, including convergence or bundled revenue, was profitable this year.

In our radio segment, revenue decreased 14% to $5.3 million in the third quarter of 2011. Revenues for the radio segment reflect the overall market decline, our format change at KVI, and the termination of our KING-FM JSA which occurred during the second quarter of this year. Radio cash flow was $1.5 million, compared to $2 million in the third quarter of 2010. Radio cash flow margin decreased to 28% in the third quarter of 2011, compared to 32% in the same period last year. Turning now to our Fisher Plaza segment. In the third quarter, Plaza revenue was $3.9 million which was an increase of 5% over the same period in 2010. Plaza EBITDA was $2.3 million or a 7% increase over the third quarter of 2010. Plaza operating costs decreased 12%, compared to the same period last year. This is primarily due to the timing of repairs and maintenance activity. Occupancy remained at 96% at the end of the third quarter. And with that, I'll turn the call over to Colleen.

Thanks, Hassan. And before we open the call to questions, I would like to conclude with a final comment. Our results for the quarter and for the first 9 months of the year reflect the strength of Fisher's iconic local brands and a relentless commitment to pursue what we call advocacy journalism and multi-platform solutions to the communities that we serve. And as we look ahead, we do believe the pace of change in the media business over the next decade will continue to increase with speed and intensity. Tomorrow's media companies, like Fisher, need focus, discipline, creativity and innovation to be successful. Fisher has demonstrated that it can rapidly assimilate new trends and shifting conditions to execute on its plans and deliver peer-leading results and lasting value for our stakeholders. And with that, I believe we are ready for questions. Operator?

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

Hi, Colleen, hi, Hassan. Thanks for the very detailed update.

Hello, Bishop. How are you?

Hi, Bishop.

I'm okay for a guy in my demographic. (laughter) The numbers are, I mean, they are kind of bumpy, but directionally you are heading where you want to head. So, let me focus on a couple of benchmarks that everyone is focusing on. Auto -- if you gave it, maybe I missed it, did you say how much auto was up in Q3?

3%.

3%. And then as we look into Q4, and I know you don't give forward guidance, but can you tell us, it is kind of a bigger than a bread box question -- if auto feels like it is stronger, the same, weaker in Q4, not sequentially but year over year?

You are right, Bishop. We don't talk about the forward-looking comments. But what I can tell you is we saw strengthening month-by-month-by-month in the third quarter, which really started to indicate, in all anecdotal information, as well as sourcing information from the dealers and from the manufacturers indicates that third quarter is a great example of kind of regrouping and figuring out how this tsunami and the parts were going to affect us. And we feel encouraged by the month-by-month growth.

Okay. And then, as long as I'm working it, how does it feel in Q4 in terms of the overall core? Does it feel like it is sustaining similar to Q3, gaining strength?

Well, as you know, the comparables make things a little more fuzzy. So, when you look at any fourth quarter evaluation in a broadcasting company, you are going to come across displacement revenue from the prior year when there is political spending in it. So, when you take that all into consideration, it is really hard to put a hard number on it. What I would say is, we've seen good, solid, strong quarter-by-quarter growth and stability, and I was extraordinarily encouraged when I saw the third quarter retail revenue up 16% when we've not seen that kind of growth for several years. So, I'm not giving any forward guidance, but I feel that third quarter holds a lot of promise for what we're going to be doing.

Okay. Fair enough. I'll move this right along, and then step aside. The balance sheet, you did, you brought back $8.7 million, that's face of the bonds, is that correct?

That is correct, Bishop.

Okay, so you have been whittling that down, almost -- and I think it's about $34 million, $35 million year to date, through the first 9 months?

That is correct.

Okay. So, it's almost kind of like $9 million, $10 million, $11 million a quarter. Is there -- given the free cash flow that you generate, and I don't know if you have any of the lumpy payments coming in, inflow, do you think you will be able to keep that up going forward?

I think, as we mentioned, Bishop, is that our strategy is to continue to repurchase our debt. It's one of our objectives in terms of using our cash flow. I think that we will continue to do that going forward.

Okay. And then last, I know you said you'll keep us posted on any change in monetizing Plaza, but what does it feel like in Seattle with the commercial real estate market?

I think the commercial real estate market continues to be strong in Seattle. The volatility in the capital markets does affect, and are affecting transactions out there. I think from our end, in terms of the Plaza process that we are undertaking right now, we are making good progress. And I think as we come up with anything, we'll absolutely inform everybody on that.

Okay. I'll leave you guys alone. Thank you very much. Have a great evening.

Thank you, Bishop.

Thanks, Bishop.

Our next question comes from the line of Barry Lucas of Gabelli & Co. Please proceed.

Good afternoon.

Hi, Barry.

Let me see if we can come at the Plaza issue a slightly different way, Colleen, since it's been about 6 months now. Have you narrowed the options that you are looking at? Has the Board narrowed the options? And maybe you could share at least a little bit of the thinking on how you perceive a sale/lease back or a straight sale, and pros and cons? Or any color you can lend there would be helpful.

Sure, I'm glad you asked that question. And as you know, we have been talking about this for some time. There have been many things in the current environment that are taking longer than we expected to go through this strategic review. And while we can't give you a definitive timeframe, which we are going to make an announcement, I am very confident that the process we are going through will result in a very good outcome for the Company. It's just these things take a little longer than you might expect considering the economic volatility that's going on.

Other than that, strategic process, as I mentioned before, was a robust process. It was a very good and healthy process. And I'd feel, again, confident that we are going to end with something that is a good outcome for the Company.

And to the extent you can expand upon that in terms of what you'd prefer, or what the puts and takes are?

Yes, as you know, there is very few examples of a television station paying rent. So, we've had to work through how that might impact operations. And when you navigate through separating a building that you built around the TV station, it is very complicated. But I, again, am confident that we can reach some outcome that all of us at the Company will think is a good outcome. And beyond that, it is really hard to speculate since negotiations are ongoing.

Okay. Thanks very much, Colleen.

You are welcome.

With no further questions at this time, I would now like to turn the call back over to Ms. Colleen Brown for closing remarks. Please proceed.

Yes, thank you, everybody, for joining us. As Bishop mentioned, we do feel we are directionally in the right place at this point in time. We've continued to see growth in all of the key fundamentals of our business, and we are looking forward to finding a way to move through this and wrap everything up so that we have a positive outcome as we end up the year. Thank you, everybody.

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