Sinclair Inc (SBGI) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2012 Fisher Communications, Inc. financial results conference call. My name is Janade 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, Mr. Hassan Natha, CFO. Please proceed.

Good afternoon, everyone, and thank you for joining us. Before we get started, let me remind you that this call contains forward-looking statements related 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 financial 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, in our 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.

Thank you, Hassan, and good afternoon, everyone. Thank you for joining us. Before we get to our quarterly performance, I wanted to address the use of proceeds from the sale of Fisher Plaza, in which many of you have expressed an interest.

Since we closed on the sale of Fisher Plaza four months ago, the Board has actively been pursuing and discussing options that it believes would create long-term shareholder value. The steps taken to date include a decision to redeem our remaining outstanding senior notes, and to create a stock buyback authorization. As announced in December, the Board approved a stock repurchase program to return value to shareholders, authorizing the repurchase of up to $25 million of our shares at open market or negotiated transactions over the course of 2012. Once the Board completes the evaluation of its options for the use of the remaining proceeds, we will update you as necessary.

It's an important decision, and our Board remains actively engaged in exploring potential alternatives to enhance shareholder value. As we stand, Fisher is in a very solid financial position with strong cash balances and no debt.

Moving on to the business results for the quarter. This is the first quarter where we are reporting without Fisher Plaza in the current year. Hassan will be talking more about that a little bit later. In 2012, Fisher's first-quarter broadcast revenues were flat compared to last year. We are disappointed with this number. Local revenue beat last year by 3%, but national revenue was off 12% last year. There was a softness in the national marketplace that requires a closer look. Our key markets were strong network spill markets, as well as strong test markets for a number of products in 2011.

Due to our audience strength, our stations disproportionately benefited from these two areas last year. There was no network spill or test market advertising in first quarter of 2012. This set of facts, along with a very weak showing in the financial category, contributed to reduced national performance in our markets. We do not believe this is a systemic issue, but rather a reflection of last year's first quarter's strong performance.

Despite delivering essentially flat broadcast revenue, we are very pleased that broadcast cash flow increased by 25% over the comparable period last year. This reflects our continued efforts to manage expense, without sacrificing quality, innovation or advertising opportunities. During the quarter, broadcasting expenses decreased by 4%. The cash flow margin for broadcasting in the quarter was 18.1%. This is up 360 basis points from the first quarter of 2011. We remain focused on improving broadcast cash flow and cash flow margins.

Political, expected to be a large contributor to television revenue for the second half of 2012, increased $431,000 from first quarter of 2011. The preponderance of the spending in first quarter was for a special congressional election in Oregon. Typically, for Fisher markets during election years, primaries are held in the second and third quarters, and a majority of political spending typically comes in the back half of these years.

The automotive category increased 4% over the same period last year. Dealership spending was strong, but offset by lower dealer group and manufacturing money. Retail spending increased nearly 11% across Fisher stations in the quarter. Seattle radio revenue was 3% under prior-year, primarily due to discontinuation of a long-running joint sales agreement in the market; but, as a result of the discontinuation of the JSA, radio tripled prior-year's cash flow.

Retransmission revenue increased 8%. We are currently in a retransmission cycle, and not all of our contracts are negotiated, nor were they completed prior to the end of the first quarter. As our contracts are completed, we will then book the ensuing revenue.

Developing media revenue was over prior-year by 9%. This area was also impacted by lower spending in tourism, slowing down their first-quarter revenue growth. Top categories for the Web are fairly consistent quarter-to-quarter. And in the first quarter, top categories were automotive, travel, home products and government.

In markets where comScore has data, the popularity of our television station websites consistently garners number one or number two local site ranking. For March, the Company's year-over-year page views were up 19% and unique visitors were up 38%. In March, komonews.com achieved total page views of 40 million, surpassing 20 million page views for the third straight month. According to comScore, in March, komonews.com exceeded the page views for all other TV sites in the market, combined.

Additionally, developing media has seen significant growth in both mobile adoption and social following. Likes to our station's Facebook pages have increased more than 200% year-over-year and quarter-over-quarter. And page view referrals from social networks have increased more than 70%, while mobile page views increased 33%.

Developing media continued its rollout of lifestyle sites with the launch of eugenepulp.com. Fisher's interactive networks lifestyle sites attract a social audience and bring a younger demographic audience to our advertisers. In recent years, there's been a continued increase of consumption of video and mobile devices. Over 34 million tablets are currently in use in the United States, and Apple alone has sold over 315 million iOS devices in total through last year.

Consumers are watching over four hours and 20 minutes per month of video on mobile devices, and over half of them are watching TV, using the Internet or mobile simultaneously. This trend, along with the enormous mobile revenue growth predicted by many in the industry, is driving our focus on mobile broadcasting. Through the Mobile500 Alliance, Fisher remains actively engaged in the efforts to accelerate the adoption of mobile digital television across the country. In 2012, through commercial trials and expanded launch markets, mobile DTV will increasingly be in the hands of the consumer.

In the next few months, KOMO in Seattle will launch the first commercial MyDTV product, featured at this year's CES and NEB shows in Las Vegas. This will allow our award-winning programming to broadcast to the mobile consumer in the car, on the bus or train, reaching them on the go. Across Fisher, the quality of our news product has garnered further recognition. KOMO TV news was the recipient of four Edward R. Murrow regional awards for investigative reporting, news series, writing and sports reporting. And KOMO NewsRadio won two regional Edward R. Murrell awards, winning for overall excellence and best newscast.

With that, I'll turn the call back over to Senior Vice President and CFO, Hassan Natha, for our first-quarter 2012 financial results.

Thank you, Colleen. In addition to the release of our first-quarter financial results, we plan to file our 10-Q with the SEC by the end of next week. Those documents include in-depth information regarding our financial results, so please refer to those sources for additional information.

Today, we'll be discussing certain non-GAAP financial measures, such as TV, radio and broadcast cash flow, and EBITDA and adjusted EBITDA. Reconciliations and definitions of these terms can be found in our press release.

Let me begin by reviewing our first-quarter results. Fisher's consolidated revenue was $33.9 million, down 10% from the first quarter of 2011. When making comparisons to the prior period, it is important to note that our first-quarter 2011 results included revenues from Fisher Plaza. Excluding Fisher Plaza revenues, Fisher's consolidated revenue was essentially flat compared to the first quarter of 2011.

Direct operating, selling, general, and administrative and programming expenses for the first quarter of 2012 decreased 5% or $1.7 million from the first quarter of 2011, primarily due to $600,000 of savings related to the non-renewal of the radio joint sales agreement, a reduction of $400,000 in bad debt expense, and a $500,000 reduction in program amortization expenses. Last year's first quarter also included $800,000 of expenses related to the Company's 2011 proxy contest, and $300,000 in savings related to the Company's revised vacation policy.

Improving the bottom line and continuing to adjust our operating model to lower costs without sacrificing quality, innovation, or advertising opportunities, remains the priorities of our management team. In connection with the sale of Fisher Plaza in the fourth quarter of 2011, the Company leased back its existing space in Fisher Plaza for its Seattle operations, which includes KOMO TV, KUNS, Seattle Radio, the Digital Media division, and the Shared Services Center, along with corporate headquarters.

Accordingly, the Company incurred rent expense of $1.3 million during the first quarter. This rent expense includes straight-line base rent and common area charges. This rent expense was recorded in SG&A, and not allocated to the Seattle TV and radio stations and the developing media properties, to keep the comparisons to prior years of expenses and cash flow consistent and transparent.

The Company reported a net loss of $1.9 million or $0.21 per share in the first quarter, compared to a net loss of $1.7 million, or $0.20 per share in the first quarter of 2011. EBITDA was $200,000 in the first quarter of 2012, a decrease of $2.5 million from the same period in 2011. Adjusted EBITDA, excluding Plaza rent expense in 2012, and Plaza EBITDA in 2011, was $1.5 million in the first quarter of 2012, an increase of $1 million from the same period in 2011. First-quarter 2012 EBITDA included $1.3 million of Fisher Plaza rent expense, as mentioned earlier, and last year's first-quarter EBITDA included $2.2 million of Plaza EBITDA.

Turning now to our balance sheet. We continue to have one of the strongest balance sheets in the industry. We ended the quarter with $90.3 million in cash, cash equivalents, short-term and long-term investments, compared to $176 million at the end of 2011. All of the Company's short-term and long-term investments are in US treasuries. Cash used in operating activities of $19.8 million consists of $1.9 million of cash generated from operations, offset by $21.7 million in estimated 2011 tax payments, net of refunds.

During the quarter, the Company used its strong cash position to redeem its remaining outstanding senior notes, making the Company debt-free. In addition, the Company invested $4.4 million in capital expenditures during -- related to digital equipment. Approximately $3.2 million of these capital expenditures are timing items, as they relate to the Q4 2011 capital expenditures, which were incurred at the end of the year to take advantage of the 100% deductibility under the tax rules. The 2004 capital expenditures of $3.2 million also had extended terms, and so those payments were made in the first quarter of 2012.

With that, I will now review with you the financial results of our two business segments, TV and Radio. For the first quarter, TV net revenue was $29.2 million, which was flat compared to the same period in 2011. Excluding political revenue, Fisher's first-quarter net television revenue decreased 1% over the same period last year. TV revenue declined primarily to lower advertising spending in certain categories, including pharmaceutical, financial services, and tourism, and this was somewhat offset by increases in retail and automotive categories.

Retransmission revenue increased 8% to $3.6 million during the quarter. Developing media revenue grew 9% to $1.3 million. Total developing media revenue, including multiplatform Internet-related revenue, which is reported in TV core net advertising revenue, was 6% of TV net revenue for both the first quarter of 2012 and '11.

TV cash flow was $5.3 million, an increase of $600,000, or 13% from the first quarter of 2011. TV cash flow margin was 18% compared to 16% in the same period in 2011, as we benefit from a lower cost base. The improvement in cash flow was due to the Company's continued focus on operational efficiencies and expense management.

In our Radio segment, Radio decreased 3% to $4.7 million in the first quarter of 2012. Revenues for the Radio segment reflect the overall market decline and the termination of a long-running radio joint sales agreement, which occurred during the second quarter of 2011. The results of Fisher's Great Falls, Montana radio group are reflected as discontinued operations for 2011 on our financial statements. Accordingly, the comparisons presented exclude those results.

Radio cash flow was $900,000 compared to $300,000 in the first quarter of 2011. Radio cash flow margin increased to 18% in the first quarter of 2012, compared to 5% in the same period last year. The increase was primarily due to the termination of the long-running radio joint sales agreement.

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

Thanks, Hassan. In summary, while there was a significant market softness in the national marketplace, particularly in Seattle during the first quarter, we were able to improve our broadcast cash flow by 25% compared to last year. We believe the strength of our broadcast stations and innovative digital platforms, along with our continued focus on efficiencies, provides Fisher a solid foundation to delivering long-term growth.

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

Thank you. (Operator Instructions). Barry Lucus, Gabelli & Company.

Colleen, maybe you could drill down a little bit further in the national -- while it's been kind of weak across the board, is surprisingly soft. Your big category, financial, and the auto category, which is only up 4%, how much of those two categories do you think account for the relative weakness in national?

Yes, that's a good question, Barry. First of all, regarding the Northwest markets, as you know, and as many of us in the broadcast industry know, the Northwest markets don't always exactly parallel what goes on in the rest of the country. And I would say that we see the Northwest come in -- experience a downward turn a little bit slower than the rest of the country, and come out of a downward turn a little bit slower than the rest of the country.

So, looking at auto specifically, we are very encouraged that auto is strong. We had a pretty good quarter in first-quarter last year. And in this quarter, across the US, we're just off by a few basis points in comparison. Seattle was strong. Some of the other markets were not as strong. But, in general, we feel auto is on track.

As far as what happened in national spending, when you go back and examine the first quarter of last year, we had a significant activity in the unwireds, or what is known as the network spill, as well as test marketing going on in the Northwest. And when you look back, those accounts predominantly either rolled out their products nationally, or, in the financial situation -- completely separate from the test market situation -- in the financial situation, they were really only at about 60% of typical billing in financial.

A lot of that has to do with just the timing of spending and the changes that were going on last year in first quarter, in the Northwest markets. We do see very good performance out of local. And we do anticipate that all that we have experienced in first-quarter of 2011 is the explanation for the variance. I am not particularly worried about -- I don't like it, but I'm not particularly worried about first quarter's national performance, based on what we typically see for the rest of the year.

Okay. And where is auto pacing now, since this should be your easiest comp, with Japanese inventory back in the market, as opposed to it disappearing 12 months ago?

Yes. For first-quarter, auto was up 4%. We're seeing a lot of activity from both domestic and foreign, as I think everyone is. I wouldn't say everything is being booked yet, and I don't think we've completely recovered inventories in the Northwest for auto -- actual auto inventory in the Northwest. But we don't comment specifically on where we're at with auto bookings. I do feel confident that we're on track and we are reflecting more similarly with the rest of the country.

Okay, last area has to be the cash, and sort of what is the Board looking for or looking at? Because 100% treasuries on $90 million is not getting anybody very much.

Yes, we're very, very aware of that. And I can tell you the Board is super active right now in evaluating the options, as you know, that there were many things they needed to sort through. But the bottom line is, they're very focused on providing value, returning value, and providing value and creating value over the long-term for the shareholders. This is our primary focus right now, and I'm very interested as well to work our way through all the options.

Okay. Thanks very much.

You're welcome.

Thanks, Barry.

And this concludes the Q&A session for today. I would now like to turn the call back over to Colleen Brown for any closing remarks.

Thank you for joining us today. We have made great strides to be transparent over the last few years at our investors' urgings, and we thank you for that. And I hope you find what we have put in front of you is allowing you more transparency into the Company. So thank you for joining us today.

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