Sinclair Inc (SBGI) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter and full-year end 2011 Fisher Communications Incorporated financial results call. My name is [Erin], and I'll be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session toward the end of today's conference. (Operator instructions) As a reminder, this conference is being recorded for replay purposes.

I would now turn the presentation over to your host for today's conference, Hassan Natha, Senior Vice President and CFO. Please proceed, sir.

Thank you, Erin. 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, similar -- 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 from materially -- 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 takes 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. Thanks for joining us. As you've seen from our press release, Fisher finished fourth quarter and full year 2011 in a strong operational and financial position, both with and without the sale of Fisher Plaza. It was a good year for the Company.

2011 marked the sixth consecutive year that Fisher delivered core revenue share growth across the Company. This success reflects the growth of our broadcast stations and developing media program, both entered 2011 with a real strong momentum and as a result of our continued focus on execution, our station finished the year ranked number one or two in the markets and we generated enviable Internet growth of 59%.

Our mission at Fisher is to reinvent local media for the benefit of all of our stakeholders. This means we are pursuing audiences and revenues beyond broadcasting, and actively competing in a very local -- in every local advertising category to help drive continued growth.

We are leveraging our assets to expand audiences and revenue through multi-platform initiatives and by hyper-serving our communities, both unique solutions that define Fisher's competitive advantage in our marketplace. And the plan is working. We have successfully transformed Fisher into a diversified local media Company. Since implementing the strategic plan, core market revenue share at our stations have steadily grown every year since 2005, that's six years in a row and 19 of the last 24 quarters of growth over the previous quarter's growth.

When you combine that with developing media's three year, 42% revenue CAGR and a 50% audience growth since 2008, we are well on our way to reinventing local media. These gains are hard fought, and reflect the focus and the expertise and commitment of our teams at Fisher. The management team is delivering on aggregated and integrate workflows, our news teams are delivering on the audience growth, and our revenue teams are turning audience growth in creative selling into additional revenue for Fisher.

As most of you know, the centerpiece of our strategic plan is our broadcasting stations, television remains the number one source for news and information, and our advocacy journalism approach strongly resonates within our markets and contributes to Fisher's audience growth.

As we continue to enhance our news performance, that strength fuels the growth of all of our platforms. For example, through the integration of our network affiliated station, our multicast channels and Seattle radio stations were driving our developing media to perform at higher levels. And to help you clarify, developing media includes our 15 main station sites or 121 neighborhood sites across the Company, six vertical sites and mobile applications, our most recent and strongest growth category.

While broadcast remains a dominant source for news information, technology is changing the way consumers are using media. Media companies are embracing the consumption patterns and discovering new ways to deliver news in content and shape the product and delivery to reach the consumer. And that's exactly what Fisher is doing.

The increasing popularity of our online offerings is clear. Page views across our digital network rose nearly 20% year-over-year. Our sites are consistently ranked as the number one or two TV websites in the markets. Seattle's KOMONews.com is ranked one of the top 100 national news sites in the country, and KVAL.com in Eugene is the top site in the market, beating even the newspaper's website.

Mobile app page views have exploded, growing from 2.4 million in December 2011 to 3.8 million in January 2012. And as many of you know, this is another way to generate page views and it's clearly growing quickly.

Combining all forms of media measurement into impressions, we've created a common measurement to describe our audience growth across all media platforms. For two years in a row, we have grown Fisher's audience impressions by 7% each year. On average, Fisher brands deliver over 0.5 billion monthly impression to advertisers.

With this approach, we have been able to deliver a wide offering of advertising price points, attracting the largest and the smallest of advertisers and leveraging our strong identifiable local brand names in each of our markets. Our continued focus is on growing the overall audience and turning that audience into revenue for the benefit of the stakeholders.

In addition to the strong overall performance of the broadcasting stations and developing media, one of the other major highlights last year was the sales of Fisher Plaza, which closed on December 15. Consistent with previous announcements to sell non-core assets, which included the Plaza, some miscellaneous real estate and the remainder of our regional radio group, we determined the market was healthy enough to move forward in 2011.

The Fisher Plaza sale resulted in gross proceeds of $160 million, as some of you know, the Plaza is of 300,000 square foot technical facility that is headquartered for Fisher as well as home to all of our Seattle operations. We occupy about 40% of the Plaza's two buildings and have signed a long-term lease to continue occupying that space. We also sold our remaining Great Falls, Montana radio stations at other non-essential real estate. Including the proceeds from these transactions, we ended the year with $176.5 million in cash and short-term investments.

You may have questions regarding how we plan to use the proceeds of the Plaza sale and the cash in our balance sheet, the board is evaluating several options that it believes would create long-term shareholder value, steps taken to date include the decision to redeem our remaining outstanding senior notes and to create a stock buyback authorization.

As we previously announced in December, the Board approved a stock repurchase program to return value to shareholders. The program authorizes the repurchase of up to 25 million of our shares in open market purchases or in negotiated transactions off the market at appropriate times over the course of the year. During 2011, we redeemed or repurchased nearly $40 million of our senior notes, reducing the amount of our outstanding senior notes to about $62 million at the end of the year.

In January, we completed the redemption of the remaining outstanding notes, making Fisher debt free. After taking this action, Fisher had $110 million in cash and short-term investments. Once the board evaluates its options for the use of the remaining proceeds, we will update you if there's anything to report.

And before I turn it over to Hassan, I would like to comment on some important industry developments. First, President Obama signed legislation last week that includes voluntary spectrum incentive auction authority. This bill includes all of the protection sought by the industry to ensure that local broadcasters continue to have a vibrant and robust future. And second, we remain actively engaged in the efforts to accelerate the adoption of Mobile Digital Television across the country. This includes our work in the industry to establish technical standards and policy parameters, as well as our leadership role with the Mobile500 Alliance for commercial development of new Mobile Digital Television services in the US.

In 2012, through commercial trials and expanded launch markets, Mobile Digital Television will increasingly be in the hands of the consumer.

And with that, I will turn the call over to Senior Vice President and CFO, Hassan Natha, who will review our fourth quarter and full year results.

Thank you, Colleen. In addition to the release of our fourth quarter financial results, we plan to file our Form 10-K with the SEC at the end of next week. Those documents include in-depth information regarding our financial results, so 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 and in our website.

Let me begin by reviewing our fourth quarter full year results. Starting with the fourth quarter, consolidated revenue was $46.4 million, down 19% from the fourth quarter of 2010. The decline was due to the expected decrease in political revenue in an off-cycle election year. However, TV core revenue increased 9% from the fourth quarter of 2010, reflecting the continued strength of our TV and radio stations.

During the fourth quarter of 2011, direct operating costs and selling, and general and administrative costs and expenses decreased 8%, or $2.7 million from the fourth quarter of 2010. This was primarily due to a reduction in compensation and related costs, savings related to the non-renewal of a long-running radio joint sales agreement and reduction in political advertising sales commissions. Program amortization costs decreased 17%, or $0.5 million.

The Company reported net income of $33.1 million, or $3.71 per share in the fourth quarter compared to the net income of $8.3 million, or $0.93 per share in the fourth quarter of 2010. Excluding the $26.7 million after-tax gain from the sale of Fisher Plaza, net income would have been $6.4 million in the fourth quarter of 2011 or $0.72 per share.

EBITDA was $11.9 million in the fourth quarter of 2011, which decreased from $19.3 million during the same period in 2010. The decrease in EBITDA reflected the decline in political revenue.

Now turning to our full-year 2011 results. For fiscal 2011, consolidated revenue was $164 million, down 6% from 2010. EBITDA decreased $5.3 million, or 15% to $29.2 million. Again, these decreases reflect the expected significant drop in political spending.

Net income in 2011 was $36.4 million, or $4.09 per share compared to net income of $9.7 million, or $1.10 per share in 2010. Excluding the after-tax gain from the sale of Fisher Plaza, net income for the full year 2011 would have been $9.7 million, or $1.09 per share. To achieve an EPS comparable to 2010 political year was quite an achievement for us in 2011.

2011 net income included a number of non-recurring pre-tax items, such as the $40.5 million gain on sale on Fisher Plaza, a $4.1 million gain on the sale of non-essential real estate, $1.6 million of proxy contest costs and $1.5 million in debt extinguishment costs.

Our 2010 net income also included some non-recurring pre-tax items, including the $3.4 million gain from net insurance reimbursements received from the Company's Fisher Plaza electrical fire insurance claim and the $2.1 million gain on the exchange of broadcast equipment.

In 2011, direct operating costs and selling, and general, and administrative costs decreased $2.5 million, or 2% compared to 2010, primarily due to a reduction in compensation and related costs. This credit also -- this also includes a credit from the Company's revised employee vacation policy and savings related to the non -- and also related to the non-renewal of our long-running radio sales -- joint sales agreement.

These cost savings were partially offset by expenses incurred in connection with the proxy contest related to the Company's 2011 Annual Meeting of Shareholders, increase in Developing Media division costs and the resumption of the Company's matching contributions to the 401(k) plan for employees. Program amortization costs decreased 9%, or $1.1 million. Our annual effective tax rate was 34% in 2011, down from 37.6% in 2010. The decrease primarily was due to the release of $1.8 million valuation allowance on our deferred tax assets in the fourth quarter.

We ended the year with $176.5 million in cash, cash equivalents and short-term investments compared to $52.9 million at the end of 2010. The increase reflects $162.1 million of net proceeds from the sale of Fisher Plaza, Fisher's Great Falls Montana radio stations and non-essential real estate, as well as $13.4 million of cash generated from operations. Capital expenditures for 2011 totaled $8.1 million. These investments were related to news production automation equipment and HD equipment upgrades.

In 2011, we repurchased or redeemed $39.6 million of our senior notes, which resulted in a reduction of $2.8 million of interest expense in 2011. At the end of 2011, our senior notes balance was $61.8 million. As Colleen mentioned earlier, in January, we redeemed our remaining senior notes for a total consideration of $62.7 million in cash, plus accrued interest of $1.8 million. As a result, we are no longer subject to the restrictive covenants contained in the senior notes indenture. On December 31, our trailing four quarter operating cash flow, as defined by our senior notes indenture, was $72.8 million. The details of this calculation can be found on our website.

Based on our total debt of $61.8 million at the end of the fourth quarter and as a result of improved operating results and our cash -- and our debt reduction strategy, our debt-to-operating cash flow ratio decreased from 2.9 times at the end of 2010 to 0.9 times at the end of 2011.

With that, I will now review the financial results of our three business segments, TV, radio and Fisher Plaza. For the fourth quarter, TV net revenue was $38 million, a decrease of $8.8 million or 19% from the same period in 2010. Excluding political revenue, Fisher's fourth quarter net television revenue increased 9% over the same period last year. Increases in TV core advertising, retransmission revenue and Internet revenue helped offset some of the expected decrease in political revenue in an offcycle election year.

During the quarter, TV core advertising revenue increased 9%, due in part to a significant increase in our top two advertising categories, auto, which was up 19% and professional services, which grew 26%. In addition, our retransmission revenue increased 14%. TV cash flow was $13.3 million, a decrease of $7.1 million or 35% from the fourth quarter of 2010. TV cash flow margin was 35% compared to 44% in the same period in 2010.

Developing media revenue, including Multiplatform Internet related revenue increased 52% to $2.1 million during the quarter. For the full-year, TV net revenue was $128.6 million or a 6% decrease over the same period in 2010. Excluding political revenue, TV net revenue was $123.7 million, an increase of 8% over 2010. TV cash flow decreased $5.9 million to $31.6 million, and TV cash flow margin was 25%, down from 28% due to the expected decrease in political revenue.

TV core advertising increased 7%, driven by the growth in automotive and professional service categories up 11% and 15% respectively. Retail spending also increased slightly. Retransmission revenue increased 10% to $13.4 million. Developing Media revenue, including Multiplatform Internet related revenue increased 53% to $7.7 million.

In our radio segment, revenue decreased 18% to $5.5 million in the fourth quarter of 2011. Revenues for the radio segment reflect the overall market decline. Our format change at KVI and the termination of our long-running radio joint sales agreement, which occurred during the second quarter of this year. The results of Fisher's Great Falls, Montana Radio Group are reflected as discontinued operations for 2011 and 2010 on our financial statements.

Accordingly, the comparisons presented exclude these results. Radio cash flow was $1.4 million compared to $1.3 million in the fourth quarter of 2010. Radio cash flow margins increased to 26% in the fourth quarter of 2011 compared to 20% in the second period of last year. The decrease in margin was as a result of our format change at KVI and the termination of a long-running radio joint sales agreement. Full-year 2011 radio revenue was $21.4 million or a decrease of 10% compared to 2010. For the year, radio cash flow increased $163 million (sic - see press release) to $4.8 million, and our radio cash flow margin improved to 23% from 20% in 2010.

Turning now to our Fisher Plaza segment. In the fourth quarter, Plaza revenue was $2.9 million, which was a decrease of 22% over the same period in 2010. The decrease in revenue was the result of the shorter period due to the completion of the Plaza sale, which closed on December 15. Plaza EBITDA was $1.3 million or a 25% decrease over the fourth quarter of 2010. Plaza operating expenses decreased 7% compared to the same period last year.

For the full year 2011, Plaza revenue was $14.3 million, a 1% decrease from 2010, the result of the shorter period due to the completion of the Plaza sale. Plaza EBITDA increased to $8.3 million. As part of the Fisher Plaza sale transaction, we entered into a 12-year lease for our corporate headquarters and the Seattle television, radio, and Internet operations to remain at Fisher Plaza. The Company has the right to extend the term for three successive five-year terms. In the fourth quarter of 2011, our rent expense was $133,000 for the period between December 15 to December 31. We expect that our recorded 2012 rent expense, excluding common area costs will be approximately $3.3 million. And with that, I'll turn the call back to Colleen.

Thanks, Hassan. And I just wanted to take a minute to acknowledge and thank the Fisher team for their great effort in 2011. The Company made significant progress in many key areas achieving virtually equal earnings per share compared to prior years in an offcycle political year, and is well positioned with its strengthened ratings, revenue approach, innovation and its ability to execute to be highly competitive as we move into 2012.

So with that, I believe we're ready for questions. Operator?

(Operator Instructions) Barry Lucas, Gabelli & Company.

Great, thanks, and good afternoon.

Good afternoon, Barry.

Colleen, maybe we start at the high level since you brought up spectrum and you detailed all the initiatives, the micro sites, the mobile applications. Fisher, a seller of spectrum, and any prospective auction down the road?

Barry, that's a conversation that we've had obviously over time. There's so many moving parts to what that spectrum really means. And until you sit down and see what the rules are written like and see the outcome, it really is going to be difficult to speculate on that. As you know, spectrum is needed in the largest of markets, but not necessarily markets the size of Fisher, but also as you know, it's really hard to justify the economics of giving up spectrum. So there's just too much to speculate on right now. Obviously, it's valuable. And until they navigate through the forward auction process, I think it's very hard for us to put our arms around our position at this time.

Okay. Two areas on revenues and anything special going on in Oregon and Washington for this political season that would suggest you do better or worse than 2008 or 2010?

Yes, that's a great question, Barry. Traditionally, our states are not -- the states that we operate in predominantly are not huge Federal races. We do have obviously the Governor's race in Washington and we've got your typical races across our markets. But what makes our markets unique is issue advertising and that does tend to drive our political billing. We usually don't know the status of issue advertising until well into the middle of the year, it's just the way issue advertising works in general in this part of the country.

So I think that what we are seeing is shaping up to be a very interesting political year. And obviously with Citizens' United, we're going to watch closely to see its impact as well on the spending in political. So nothing exceptionally new other than Citizens' United and our typical experience with issue advertising.

Okay. Two more quickies if I can speak, I mean, one, we got the February order report today and we're tracking above 14 million units on an adjusted basis. How is your auto tracking in the first quarter of '12? Are you seeing the strength to continue that you exhibited in the fourth quarter?

Yes, that's a great question. As you know, we don't give forward guidance, but in general, what you're seeing in the industry, as you pointed out, very good news regarding the 14 million or the status on the 14 million and what they expect to do with sales, we're not a heavy truck market, and I understand -- I haven't seen that report, but I understand a lot of that is actually fleet and truck movement. But we do expect after what we went through last year between the earthquake in Japan and then what happened ultimately, and the slowdown of the supply chain that we'll see a pickup in 2012, but we have no industry insight other than what you're reporting there.

Okay. And how would you prioritize the cash, if it were up to you today?

As you know, that's a Board decision and we're looking at all kinds of alternatives, as you can imagine. And once that decision is formulated and determined and once the Board makes a decision, we will get that information out.

Thanks, Colleen.

You're welcome. Thank you, Barry.

Thank you, Barry.

Michael Schechter, Mentor Partners.

Good afternoon.

Good afternoon.

Hi, Michael.

If I did the math right, looking at the EBITDA on broadcast cash flow of the three units and backing it away from the consolidated entity, it looks like overhead is running, I don't know, $15.5 million. Is that right or is there something else down in the outside of this?

No. I think that's correct.

What's in overhead and with the Plaza going away, do we have any reduction in overhead or--?

Yes, that's a good question. Whatever overhead we had associated with the Plaza was in the Plaza. So there's not any big change in that number. We like to think of that overhead as about a third, a third, a third, meaning a third in shared services, a third in the actual running of the Company, and a third in being a public Company overhead. Not perfectly delineated, but that's approximate.

Shared services as in --

The centralized Network Operation Center that is headquartered here in Seattle and provides satellite feeds for all of the television stations that are supported through master control in that facility, as well as centralized accounting.

HR and also traffic services.

Got you. And, I guess, on a going forward basis is a sustainable level, when I try to go back a couple years, it's hard with all the moving pieces, but is the -- is this a sustainable level going forward?

I'm not 100% clear on your question, Michael, but this is a pretty stable model and I think it's a very slim structure for a public company. I think we're doing it as efficiently as we can. Those are, I think, pretty minimum costs associated with running a public company. But on the centralized side, those costs could grow if you added more television stations to the centralized services. But for the most part, there is capacity there. So that's not the issue.

Okay. And the rent that kind of going forward the $3.3 million for 2012, will that fit in overhead or is that going to be a portions add on to the units?

I think we're going to show that separately because we -- we've had historical comparisons to our cash flow for TV and radio, and we want to be able to keep those historical comparisons. And so for the investors, we'll show our cash flow and then we'll show the rent separately, so that there's transparency to those numbers.

Okay. Thank you.

Thanks, Michael.

Thank you, Michael.

I would now like to turn the call over to Colleen Brown for closing remarks.

Well, thank you, everybody. It was quite a year in 2011 and we appreciate your taking the time to sit in on the call and ask questions, and we look forward to talking to you in the next quarter. Good bye.

Bye. Thank you.

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