Sinclair Inc (SBGI) 2012 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Third Quarter 2012 Fisher Communications, Inc. Financial Results Conference Call. My name is Lisa, and I'll be your operator for today.

(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, Senior Vice President and Chief Financial Officer. Please proceed.

Thank you. 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 results. These forward-looking statements include information proceeded by and that include 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 the Form 10-K and a quarterly reports, Forms 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 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. Third quarter marked a continuation of positive momentum at Fisher. During the quarter, we delivered strong financial results, as well as executed on our strategy to provide shareholder liquidity.

The strengths and steady performance of our core assets, combined with our strategic view and plan toward growth, positions Fisher very well to capture the many opportunities that lie ahead. It is in this context that I will review our third quarter operational and financial results.

As I mentioned last quarter, 2012 is the first year we are functioning as a pure play media Company. Our refined focus allows us and our team to execute more aggressively against our strategic plan and broaden our story as a leading local media platform Company.

Along with delivering strong Q3 performance and thoughtfully pursuing our strategic plan to deliver shareholder value, Fisher also executed on a onetime $10 per share cash dividend, and that was paid out on October 19.

So, let me now go through some of the highlights for Q3, and Hassan will speak to the financials in more detail as well as the mechanics of the dividend. Broadcast revenue was up 11%, and TV net revenue was 14%. Excluding political revenue, TV increased 5%, due primarily to strong retransmission growth.

The Pacific Northwest experienced a softening in national spot advertising, but locals held up fairly well. Automotive was strong, but spending was lower in professional services. This lower spending in professional services was due primarily from the uncertainty in the healthcare field until after the election is determined.

Political revenue increased to $3.6 million. While only eight or nine states took the lion's share of the presidential political advertising, none of the battleground states are in Fisher's market.

As you may recall, Fisher typically benefits disproportionately from issue advertising, which was the case again this year. I wanted to note that our Seattle station, KOMO, was the host for the gubernatorial debate for all Seattle TV stations, a strong validation of its leadership and reputation in the industry. In addition, during the quarter, with NBC Olympic programming on the competitors, we had to be extra creative and disciplined to drive results.

Third quarter's broadcast cash flow increased 44% to $11.9 million, reflecting the increase in revenue and the Company's continued focus on expense management. But critical to our momentum is the continued focus on our key strategic initiatives. First up is growing sales creatively and rapidly across our multimedia platform.

To this end, we successfully developed and signed our first multimillion dollar multimedia platform agreement with a major institution that will run their content, promotions, and branding across all of our Seattle property.

We are also working to diversify our revenue. One way to do this is to air additional channels on our digital spectrum. Another way to do this is to create opportunities for small to medium sized businesses to advertise at different price points. Examples of this in the quarter are the affiliation with MundoFox in Seattle and in Portland and the launch of Fox in Idaho Falls. These efforts position us to leverage our advertising relationships, our pricing strategies, and our media knowledge across all of our marketplaces.

In addition, while core revenue is up 19% at Fisher Interactive Network, the gains are offset by lower hyperlocal sales. As you may recall, Fisher was a founding investor in DataSphere, a leading provider of hyperlocal solutions and data metrics for the small to medium sized businesses. As we retool our hyperlocal efforts, we are well positioned at Fisher to grow internet revenue, with 20% growth in page views and 43% growth in unique visitors over prior year in the quarter.

And likewise, the development of our mobile platform is showing promising results, with the audience doubling over the prior year. And as we look to build the online business, the strength and growth rate of our audience continues to be a strategic asset for the Company. With that, I will turn the call over to Hassan, who will go over the third quarter results.

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

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

Let me begin by reviewing our third quarter results. Fisher's consolidated revenue was $39.9 million, up slightly from the third quarter of 2011. When making comparisons to the prior period, it is important to note that our third quarter financial 2011 results included revenues from Fisher Plaza. Excluding Fisher Plaza revenues, Fisher's consolidated revenue increased 11% compared to the third quarter of 2011.

The Company reported net income of $2.2 million, or $0.25 per share, in the third quarter compared to net income of $1.4 million, or $0.16 per share, in the third quarter of 2011. This represents an increase of 56%, year over year.

EBITDA was $5.4 million, a decrease of $1.5 million, or 22%, from the same period in 2011. Third quarter 2012 EBITDA included $1.4 million of Fisher Plaza rent expense, and last year's third quarter EBITDA included $2.3 million of Plaza EBITDA. Adjusted EBITDA, excluding Plaza rent expense in 2012 and Plaza EBITDA in 2011, was $6.8 million, an increase of $2.2 million, or 48%, from the same period in 2011.

Direct operating, selling, general, administrative, and programming expenses increased $2 million compared to the third quarter of 2011. The increase is related primarily to the Fisher Plaza rent expense of $1.4 million, increased network fees of $600,000, and related -- and costs related to strategic initiatives of approximately $800,000.

Additionally, last year's third quarter expenses were reduced by $852,000 in onetime savings related to the Company's revised vacation policy. Excluding these expenses noted above, our remaining 2012 expenses were 5%, or $1.7 million lower than 2011.

Broadcast cash flow increased 44% to $11.9 million, which reflects the increase in broadcast revenue. We ended the quarter with $103.8 million in cash, cash equivalents, and short-term investments.

As previously announced, the Company declared a onetime special cash dividend of $10 per share, payable on October 19. The Company used its existing cash and short-term investments to fund a dividend of approximately $89 million.

In addition, today we announced that the board declared a quarterly cash dividend of $0.15 per share on its common stock, payable on December 17, 2012, to record -- to shareholders of record as of November 30, 2012. This $1.3 million dividend will be funded from cash on hand.

Cash used in operating activities for the year of $1.9 million consists of $23 million of cash generated from operations, offset by $21 million -- $21.7 million of estimated 2011 tax payments, net of refunds, $1.5 million of debt extinguishment costs, and $1.8 million of interest expense on the senior notes retired in 2012. Quarter-to-date capital expenditures total $1.8 million. With that, I'll now review the financial results of our two business segments, TV and radio.

TV net revenue was $34.7 million, which, as Colleen mentioned, was up 14%, compared to the same period in 2011. Excluding political revenue, net TV revenue increased 5%, year over year. TV core advertising decreased 4% from the third quarter of 2011. The decrease was primarily due to political crowding and weak national advertising market.

Internet revenue declined 13%, year over year, to $1.2 million. As you aware, our internet unit consists -- includes the activities of our Fisher Interactive Network unit and hyperlocal revenues. Fisher Interactive Network revenue increased 19% during the quarter, and this was offset by decreases in hyperlocal revenue.

Retransmission revenue increased 83% from the third quarter of 2011. Political revenue of $3.6 million increased 285% from the third quarter of 2011. Total developing media revenue included internet, multiplatform, internet related revenue, which is reported in TV core net advertising revenue, was 9% of TV core net revenue for the third quarter -- for both the third quarter of 2012 and '11.

TV cash flow was $10.5 million, an increase of $3.7 million, or 55%, from the third quarter of 2011. TV cash flow margin was 30%, compared to 22% in the same period 2011, as we benefited from increased revenues, operating leverage of our business model, and the Company's continued focus on operational efficiencies and expense management.

In our radio segment, TV revenue decreased 2% to $5.2 million. Revenues for the radio segment reflect the overall market decline. Radio cash flow was $1.4 million, compared to $1.5 million in the third quarter of 2011. Radio cash flow margins decreased to 26% in the third quarter of 2012 compared to 28% in the same period last year. And with that, I'll turn the call back to Colleen.

Thanks, Hassan. And to recap, it was an active quarter, with a $10 per share cash dividend and the quarterly cash dividend, while the overall strength of our stations, a second revenue stream through retransmission fees, and political spending powered the quarter.

As we look ahead, we remain focused on expanding our trusted local news brands, as well as providing advertisers the highly effective broadcast and online mediums to better reach their customers. These are the hallmarks of Fisher and the pillars that will enable us to deliver lasting value to our audiences, business partners, and shareholders. And with that, I believe, Operator, we're ready for questions.

(Operator Instructions). Michael Schechter, Mentor Partners.

Afternoon.

Hello, Michael. How are you?

Good. Just a question on the hyperlocal. Given the downdraft, what are we spending on this? I mean --

Yes, that's a great question. Actually, the hyperlocal is -- you can almost equate it to the selling effort -- it's a third party selling effort, so we're spending, essentially, very little. It's mostly free cash flow, and we're in the middle of retooling that, so that we're moving away from telesales to another form of sales, and that's the reason for the downdraft. We fully expect for that segment of hyperlocal to continue to grow.

If I look at the internet segment, is it fully loaded with cost? Is it cash flow positive?

It's cash flow positive. The way we work with our internet is we have the -- what we call convergence, so we've talked about this before, Michael. A convergence revenue is booked within the television division. That's the way it's just always been done at this Company, but apples to apples comparison to other companies, you add convergence with our internet sales, and it is cash flow positive.

Okay. Thank you.

Yes.

Thank you, Michael.

Barry Lucas, Gabelli & Company.

Thanks, and good afternoon, Colleen.

Hi, Barry. How are you?

Hi, Barry.

I'm okay. Thank you. Bearing up with the storm, but --

We've been wondering about you all.

Thank you. Thank you for the thoughts. Couple of small items. One, given the Olympics on the NBC stations, is there any way you could tell how you did, either versus the last Olympics -- I guess what I'm trying to get a feel for is did you maintain share on a normalized basis?

Yes, that's a great question. It's hard to tell. We can put some antidotal to it, but it's really hard to tell what specifically went to Olympics. But what I can say to you is on the ratings, it -- the big markets, Seattle index is about 11% higher than the country, and Portland index is about 20% higher than the country, and if they got their money's worth in their selling, it probably indexed on revenue, to that extent. So, as a result, we did what we expected, so we planned well, but it's still a very, very popular programming and sales effort to go against every time it comes up.

Okay, thanks. On a totally separate issue, there's an [MPRM] filed with the FCC, and just, as you look across the two big stations and then, some of the other smaller stations that you have, you touched using the D2 channels. But how do you think about spectrum use, and, potentially, would you be a participant in an auction?

Yes, I know that you guys follow this fairly closely -- you, particularly, Barry, but the auction being a reverse auction and then a forward auction, as well as the complication of the treaties with Canada, really puts a lot of question as to how much planning should go into this, and how much interest would go into it, from our perspective?

In addition, we monitor how much of our spectrum we are using, and we are completely full up with all of our spectrum, and we certainly monitor how much income we make off of the various uses of the spectrum.

So, as far as Fisher goes, right now, economically, I can't see that there is a way. We've run this many different ways to participate, but obviously, as time goes by, and this becomes something that is more concrete, we'll continue to run the numbers and evaluate it and determine if there's anything there for us. But right now, it's still pretty speculative, and, as you know, the pressure is mostly in the big markets.

Right. Okay. That's it for me, Colleen. Thanks very much.

Yes. Thanks, Barry.

Thanks, Barry.

I would now like to turn the conference back over to management for closing remarks.

Well, thank you. It's been quite a quarter for us -- very competitive quarter, and we're looking forward to fourth quarter and moving into 2013. And we hope all of you are safe who are on the East Coast. Thank you very much.

Thank you. Bye-bye.

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