Sinclair Inc (SBGI) 2012 Q2 法說會逐字稿

Welcome to the Fisher Communications Second Quarter 2012 Financial Results Conference Call. My name is Helen and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Hassan Natha, Senior Vice President and Chief Financial Officer. Mr. Natha, you may begin.

Thank you, Helen. 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 and services, and anticipated future operating results. These forward-looking statements include information preceded by or that includes the words believes, expects, or similar expressions.

These statements are based on current information and projections about future events, and are necessarily subject to a number of risks and uncertainties, and actual results may differ materially from expectations. Factors that could cause actual results to differ materially from those expectations are described in our Annual Report Form 10-K and Quarterly Reports on Form 10-Q as filed periodically with the Securities and Exchange Commission, and are 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. Thanks for joining us. Let me begin by saying we are very pleased with our second quarter results. Our strong results are based off of core advertising growth, particularly our local growth, which was up 12%. As I review the quarter's operational and financial highlights, I'll also discuss how our performance positions us to capture the many opportunities that lie ahead.

2012 is the first year in Fisher's 102-year history that we've operated as a pure media company. Given our strong broadcasting heritage and a long-proven history of innovation, we believe this as a unique advantage. After six years of focus on improving the Company's assets and re-balancing its portfolio, Fisher has transformed itself into a recognized leader in local media.

The Company has market-leading television and radio stations, as well as powerful local online and mobile products. Its non-core assets have been monetized and all outstanding debt has been retired, creating one of the strongest balance sheets in the industry. In short, Fisher has consistently and aggressively focused on creating value for its stakeholders, while at the same time positioning the Company to succeed in today's environment. The strategic plan, which was implemented in 2006, continues to build upon and enhances Fisher's strength.

Fisher's second quarter performance highlights the impact of this plan. TV net revenue was up 19% compared to the same period last year and TV core advertising was up 8%. Political revenue was only 2% of total broadcast revenue. Political spending is generally stronger in the second half of the year in Fisher's market.

Solid market revenue share gains were achieved again this quarter with Fisher's TV group growing 90 basis points over the prior year's quarter. In fact, Fisher has had core market growth in 22 out of the last 26 quarters in broadcasting. Television margins were 34% compared to 22% during the same period last year. Radio was 33% compared to 29% in the same period last year. And again, our broadcast margins are our highest margins for the second quarter in the last five years.

In addition, we completed key retransmission negotiations that are reflected in our second quarter results. Accordingly, retransmission revenue represents 17% of our net TV revenue in the quarter. Fisher's broadcast stations continue to perform very well, but we know that it takes more than that to be successful in today's market. According to Nielsen Research, the hours spent in viewing television continues to grow annually with people watching more video content, not only on TV, but across multiple platforms.

While linear TV is at the core of our business model, the growing consumption pattern also provides Fisher with opportunities. These opportunities include increasing the connection to consumers using all media platforms and successfully providing advertisers with a range of traditional and new digital solutions and products.

Success in the multiplatform market requires much more than simply adapting and redistributing existing TV or radio content. Creating growth through innovation requires fundamental changes in operating models, workforce skills, partnership strategies, and requires a uniquely adaptive culture.

Through Fisher's developing media division, we have launched industry-leading initiatives focused on hyper-local neighborhood websites and social media, as well as mobile DTV and technologically advanced mobile applications. For example, KOMONews.com equals the page view of all other TV stations combined in Seattle. KVAL.com and Eugene out-delivers the local newspaper website. Additionally, Fisher Interactive Network won first place for its use of social media in Seattle Weekly's Annual Readers' Choice Awards.

Over the last year, developing media's primary objective was to grow online audiences by leveraging all of the Fisher station brands and online products. And I am pleased to report that the popularity of our online platform continues to expand. At the end of second quarter, developing media's page views were up 52% and unique visitors were up 81% over the same period one year ago.

However, for the first time since 2009, there was a slight decline in Internet revenue in second quarter. We are disappointed in our Internet revenue results, but we have taken appropriate steps to address this, including reorganization of our sales efforts. We remain keenly focused on driving revenue in order to fully reflect the value of Fisher's page views and unique visitors and we continue to be excited about developing media's prospects.

The traditional broadcast model has been to put linear content in front of audiences and forge deep emotional connections with those viewers and listeners. The consumers now require broadcasters to also become true business-to-consumer organizations that evolve these audience relationships into direct two-way communications.

With an integrated, multiplatform approach, top customer service, focused product development and creative social marketing, Fisher is [linking] to local broadcast to broadband solutions. This is the revolution that is at the core of Fisher's transformation.

Before I turn the call over to Hassan, I'd like to address the topic that many of you are interested in and that's use of Fisher Plaza proceeds. As you know, the Board is committed to returning value to its shareholders, and following the strategic sale of Fisher Plaza, we have been evaluating a number of options to do just that.

Simultaneously, we have further improved our balance sheet by redeeming the outstanding senior notes earlier this year. The use of proceeds is an important decision and the Board is actively engaged in this process. We will, of course, keep you apprised of any developments.

In the meantime, Fisher is in a very solid financial position with strong cash balances and no debt. And as evidenced by our second quarter results, we continue to benefit from our strong operational performance.

And with that, I will turn the call back over to Hassan, who will review our second 2012 results.

Thank you, Colleen. In addition to the release of our second quarter financial results, we have filed our Form 10-Q with the SEC today. 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, broadcast cash flow, EBITDA and adjusted EBITDA, and definitions and reconciliations of these terms can be found in our press release.

Let me begin by reviewing our second quarter results. Fisher's consolidated revenue was $42.3 million, up 5% from the second quarter of 2011. When making comparisons to the prior period, it is important to note that our second quarter 2011 results included revenues from Fisher Plaza. Excluding Fisher Plaza revenues, Fisher's consolidated revenue increased 16% compared to the second quarter of 2011.

The Company reported net income of $4.3 million or $0.48 per share in the second quarter compared to net income of $3.6 million or $0.41 per share in the second quarter of 2011. EBITDA was $8.9 million in the second quarter of 2012, an increase of $1.1 million or 15% from the same period in 2011.

Adjusted EBITDA, excluding Plaza rent expense in 2012 and Plaza EBITDA in 2011, was $10.2 million in the second quarter of 2012, an increase of $4.9 million or 91% from the same period in 2011. Second quarter 2012 EBITDA included $1.3 million of Fisher Plaza rent expense and last year's second quarter EBITDA included $2.5 million of Plaza EBITDA. Broadcast cash flow increased 69% to $14.4 million, which reflects the increase in broadcast revenues.

Direct operating, selling, general and administrative and programming expenses for the second quarter of 2012 were flat compared to the second quarter of 2011. Last year's second quarter also included $850,000 in expenses related to the Company's 2011 proxy contest and $886,000 in savings related to the Company's revised vacation policy.

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-based TV, radio and Internet division operations and its shared service centers and corporate headquarters.

Accordingly, the Company incurred rent of $1.3 million during the second quarter. This rent expense includes straight line-based rent and common area charges. This rent expense was recorded in SG&A and not allocated to Seattle TV and radio stations and the Digital Media division to keep the comparisons to prior year expenses and cash flow consistent and transparent.

We ended the quarter with $91.9 million in cash, cash equivalents, short-term and long-term investments. All of the Company's short-term and long-term investments are in US treasuries. Cash used in operating activities for the year of $15.8 million consists of $9.2 million of cash generated from operations offset by $21.7 million in estimated 2011 tax payments, net of refunds, $1.5 million of debt extinguishment costs and $1.8 million of interest payments on the senior notes retired in 2012. Quarter-to-date capital expenditures totaled $1.3 million for the second quarter.

With that, I will now review with you the financial results for our two business segments, TV and Radio. For the second quarter, TV net revenue was $36.8 million, which was up 19% compared to the same period in 2011. Excluding political revenue, Fisher's second quarter net television revenue increased 17% over the same period last year.

TV core advertising revenue increased 8% from the second quarter of 2011. The increase was due primarily to local advertising spending in certain of our top categories, including automotive up 20%, professional services up 14%, and retail up 10%.

Retransmission revenue increased 89% from the second quarter of 2011, reflecting the renewals of retransmission agreements for the 2012 to 2014 cycle. Excluding the $700,000 of retransmission revenue attributable to the first quarter of 2012, total retransmission revenue increased $2.3 million or 68% from the second quarter of 2011. Political revenue increased 255% from the second quarter of 2011 to $943,000.

Internet revenue declined 5% to $1.3 million. Total developing media revenue, including multiplatform Internet related revenue, which is reported in TV core net advertising revenue, was 8% of TV core revenue for both the second quarter of 2012 and 2011.

TV cash flow was $12.6 million, an increase of $5.7 million or 82% from the second quarter of 2011. TV expenses were tightly managed and only increased 1% during the quarter. TV cash flow margin was 34.1% compared to 22.3% in the same period in 2011, as we benefit from increased revenues and the operating leverage of our business model and the Company's continued focus on operational efficiencies and expense management.

In our Radio segment, revenue decreased 2% to $5.6 million in the second 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 these results. Radio cash flow was $1.8 million, compared to $1.7 million in the second quarter of 2011. Radio expenses decreased 8% and as a result, Radio cash flow margin increased to 33.2% in the second quarter of 2012, compared to 29.1% in the same period last year.

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

Well, thanks, Hassan. Through its strategic plan, Fisher has achieved a number of operational and financial objectives. We believe continuing to work our plan and our focus on leveraging our strong local media brands with high-performing digital multiplatform businesses will drive results to benefit our stakeholders.

Thank you for listening. And with that, I believe we are open for questions. Operator?

Thank you. (Operator Instructions) [Robert Friedel, RTL].

Hi, thanks for taking the question. You mentioned that the cash balance is held in treasuries. I'm wondering if you could comment on what the duration or the maturities of instruments is? And then secondly, obviously, the acquisition environment is heating up here a little bit, and I'm just wondering if you guys are considering making any acquisitions with that pile of cash? Thank you.

Yes. Our cash balances -- we have a lot of investment and they mature all the way up to the second quarter of 2014.

Okay.

And regarding acquisitions, while we're always open to maximizing value, including growth through our strategic plan, we do believe there is an opportunity for duopoly, in-market duopolies that provide accretive opportunities for the Company. They make good business sense. Although we generally haven't seen a lot of opportunities in that area, we do believe that duopolies, in general, make sense.

Okay. Thanks very much.

You're welcome.

Mario Gabelli, Gabelli & Company.

I wasn't going to ask a question, but when someone talks about acquisitions, it's obvious that you've done a better job in terms of improving margins and internal growth. But you haven't talked about how you're going to reward the shareholders for their patience. So what are the options that are in front of you?

Hi, Mario. Thanks for the question. Obviously, we're considering -- the Board is considering all options. There are a number of them. I think, they are the typical kind of options. But on that note, we generally don't comment on Board deliberations, but you've been in this a while, you know all of the different operations that we could consider -- or options we could consider and we are looking very diligently at all of them.

Are you better off as a seller at 8 times cash flow or a buyer for the [management] of the existing shareholders?

That's a great question. I would have to say that at 8 times cash flow, depending on where you're trading theoretically, a company could benefit from our sales, but it also could benefit in an acquisition mode depending on where the company is trading.

Barry Lucas, Gabelli & Company.

To follow that.

Hi, Barry.

Hey, Barry. How are you doing?

Hi, Colleen. How are you?

Good.

One, [I would say] it's a housekeeping question. But the renewals on the retrans, was there any catch-up payment in that or is that kind of the quarterly run rate, $6.25 million that we should expect to see for the balance of the year?

Yes, Barry, that $700,000 of that related to the first quarter of 2012. And so, once you pull that out, you can use the rest as what our retransmission revenues for the second quarter.

Okay, thanks. And really to follow up just a bit on Mario's question. And that is, what is the timeline that you have? I mean, this process really shouldn't be open-ended. What are the elements that are going to go on? What are the milestones that we should be looking for? What point do you say that enough is enough, if you will, and make a decision?

Yes. That's a great question, Barry. I know that the Board's analysis of the different courses of action that they could take is taking longer than some have expected. But we really don't see a reason to set an artificial timetable or a deadline for such an important decision for the Company. And I can assure you that the Board remains very engaged on the issue and is focused on making the best decision in the best interest of all the shareholders.

And in the meantime, our balance sheet remains one of the strongest in the industry. And the Company continues to focus on improving the business. So again, we're focused on it, we're working on it. There isn't a definitive timetable set forth yet.

[George Dean, Core Partners].

Hi, guys. Congratulations on the quarter.

Hi, George.

Just a question, just a kind of a follow-up. I guess, the one thing that was a little surprising was given where the cash yields are today, I mean, your cash-rich balance sheet and just basically the accretive nature of a buyback. I mean you already have one in place. Was there really any specific reason why you're only able to, I guess, sort of barely purchase any shares at all over the quarter, was there a blackout or something that was prohibiting you guys?

Yes. That's also a good question. As you know, there is all kinds of rules and limitations for blackout during the period. And so it's very difficult for us to take in a lot of stock. I'm going to let Hassan [key] in as well.

Yes, the $25 million stock repurchase program continues to remain in place or in effect. Execution under the program, as you're aware, is subject to various legal and regulatory considerations with respect to timing and other matters. So it's just taking all those issues into consideration as to when we are in the market and when we're not in the market.

And then just, I know we talked a little bit about the M&A process. But one of the things, I think, you touched upon a little bit was -- it seems like you guys would have a few more opportunities here to pick up some of these stranded assets, in particular on the Newport deal that would just kind of make sense to us that that maybe you guys would be interested in the Eugene stand-alone, that thing is still remaining out there? Is that something you guys are looking at or have you guys already looked at and decided to pass?

George, as far as any future transactions or any deliberations or considerations, we really just don't comment on that. I do think there is value to be created by duopolies or seeing it all over the country and smart duopolies can make a lot in the sense for our marketplace, but we just can't comment and don't comment on any potential future transactions.

Mario Gabelli, Gabelli & Company.

Hi, Colleen. That question I have to ask in a public forum like this, because under Reg FD you have to disclose it to all the shareholders. It's clear to me that [Wilson Warren] about 30 years ago had a pretty good formula with regards to how to treat his shareholders, we were big fans of his at the time. And you guys can do that and I'm sending you another letter today if it wasn't already in your hands telling how you might structure a debt instrument to customize your own cash flows and EBITDAs to give you a flexibility on a going-forward basis.

And I also have to ask a question that everybody in the trade brings to my attention and that is that you have received a bid for the Company, all cash north of $40 or better from a strategic buyer. In the past, Fisher has not told their shareholders that they've had these opportunities, (inaudible) disclosure, what are your lawyers telling you about not disclosing something like that?

Well, Mario, as you know, we've had this in front of us a few times and we just don't comment on rumors, speculation, insinuation of any type and this falls into that category.

Well, suppose -- Colleen, I don't want to get argumentative, but to the degree that we can get somebody on their depositions to point out that they did send a bid in and that you guys talked about it and not disclosed it, is there a legal reason you won't disclose it for the shareholders?

Again, I appreciate your question, Mario. But it is not appropriate for me to comment on any kind of potential or future transaction or any kind of speculation or rumor, it's just not appropriate.

Okay. It was the last question for today. I will now turn it back to Colleen Brown for any closing remarks.

We do appreciate your patience and your working through all of these scenarios, as we continue to build not only the operational performance of the Company, but the strategies for returning capital to the shareholders. We have a great interest in serving our shareholders and listening to our shareholders. And I hope you do feel that we are as transparent as possible with all the work that we have done over the last few years, particularly to align our financial disclosure, so that you could see into the Company more clearly, which was one of our great focuses three or four years ago.

So with that, I'm going to wrap up and thank you for listening today. And we appreciate your attendance.

Thank you.

Thank you, ladies and gentlemen. This concludes Fisher Communications second quarter 2012 financial results conference call. Thank you for participating. You may now disconnect.