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Hassan N. Natha - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Colleen B. Brown - Chief Executive Officer, President and Director


Barry L. Lucas - Gabelli & Company, Inc.

Fisher Communications (FSCI) Q4 2012 Earnings Call February 28, 2013 4:30 PM ET


Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2012 Fisher Communications Earnings Conference Call. My name is Chanel, and I will 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 Mr. Hassan Natha, CFO. Please proceed.

Hassan N. Natha

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, services and anticipated results. These forward-looking statements include information preceded by and 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. The actual results may differ materially from expectations.

Factors that could cause actual results to differ materially form these expectations are described in our annual report on the Form 10-K and the 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 statement 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?

Colleen B. Brown

Thank you, Hassan, and good afternoon, everyone, and thanks for joining us today. We appreciate your continued support and interest in Fisher Communications. Today, we'll be discussing our 2012 and fourth quarter financial highlights as well as the major milestones from the past 12 months. But first, I will start off by briefly addressing the recent announcement made by Fisher. On January 10th, it was announced that our company's Board of Directors has decided to explore and evaluate strategic alternatives intended to enhance shareholder value, which could result in, among other things, a possible sale of the company. As we indicated at that time, Fisher does not intend to disclose developments with respect to this strategic review until such time that the board has determined the outcome of the process or otherwise deemed disclosure appropriate. As such, we will not be making comments on or answering any questions related to this topic on the call today.

Now moving forward, looking at 2012, it was a very good inaugural year for Fisher as a pure-play broadcaster. Fisher eliminated expensive senior debt, distributed over $93 million to shareholders through a one-time dividend, share repurchases and our first quarterly dividend in a decade. And the company is positioned for strong, continued success with this momentum.

Just recently, we were pleased to announce that our flagship station, KOMO-TV, based in Seattle, became the #1 station in local news in the market. It has been at least 15 years, according to Nielsen, since this has been last achieved, and we believe this station is in position to become now the new perennial market leader.

Again, our Hot AC station in Seattle, KPLZ, beat the competition and ranks #1 in Morning Drive. And I'm also pleased to announce that KOMO Radio has moved into the #1 news spot, topping its direct competition for the first time in 4 years.

As you know, audience growth further enables financial performance. Fisher, for the seventh consecutive year, grew its broadcast core market revenue share. Fisher's growth nearly doubled that of the overall market growth for the year. And in spite of the fact that 2012 was an election year, our TV core market share improved by 20 basis points year-over-year.

This is particularly notable given that none of our stations are affiliated with the NBC network and therefore did not have the benefit of Olympics or Super Bowl programming in the year.

For the quarter, TV net revenue was up 23%, thanks in large part to political revenue and strong retransmission revenue growth. For the year, Fisher generated TV net revenue of $147 million, which is up 15% over the prior year.

Fisher's TV segment for the year delivered a 33% BCF, which is higher than 28% BCF in 2010 and 26% delivered in 2006. Despite the fact that political stimulus is substantially higher in those years compared to 2012, we continued to demonstrate margin expansion and are highly competitive in our markets. And while we were pleased with the increase in political revenue in the fourth quarter, I should mention that, unlike many of our peers, the states within which we operate do not typically garner presidential ad related spending that accompanies major election years. Rather, what drives our political billing is typically issue advertising.

As we highlighted last quarter, the Pacific Northwest experienced a softening in national advertising. With respect to Fisher, this weakness was within the professional services, automotive and entertainment categories. Uncertainty and concerns over the fiscal cliff weighs heavily on the advertisers, but the impact from which was felt across the broader industry.

While the macroeconomic environment was choppy, Fisher's adjusted EBITDA grew 71% and earnings per share increased 35% excluding the sale of Fisher Plaza.

Switching to digital, one of the greatest opportunities in our industry today is the consumption of video and audio content on multiple devices. I am pleased to report that the popularity of our online platform continues to expand. At the end of fourth quarter, Fisher's interactive page views were up 36%, and unique visitors were up 33% over the same period 1 year ago.

For the full year, our Internet platform delivered remarkable audience growth, with total page views reaching over 0.5 billion. Consistent with what we've discussed in recent years, we're in the process of retooling our Internet efforts. So while Internet currently represents a smaller part of our business, we're optimistic about its long-term prospects. And likewise, the development of our mobile platform continues to show promising results, with moble apps sessions increasing over 70% and mobile app page views more than doubling year-over-year. In fact, in the fourth quarter, nearly 1 in 5 Fisher interactive page views took place on a mobile device.

As you may have heard us discuss before, we believe in, in market duopolies. We believe they present attractive opportunities for the company, leading to improved operating efficiencies and economies of scale. So looking forward, we are pleased that we announced in November our agreement to acquire operating assets of KMTR TV in Eugene, Oregon. We expect to operate KMTR TV alongside our #1 ranked TV station, KVAL, in the market. We anticipate the acquisition will close in the first half of 2013 and it will be immediately accretive.

To wrap this up, the quality and value of our local brands and the strength of our strategic plan is reflected in our financial performance.

And with that, I will turn the call over to Hassan, who will provide a more detailed review of the fourth quarter and full 2012 financial results.

Hassan N. Natha

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 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, broadcast, cash flow, EBITDA and adjusted EBITDA. Definitions and reconciliations of these items can be found in our press release.

Let me begin by reviewing our fourth quarter results, highlighted by strong revenue growth and margin increase. Fisher's consolidated revenue was $52.1 million, up 12% from the fourth quarter of 2011. When making comparisons to the prior period, it is important to note that our fourth quarter 2011 results included revenues from Fisher Plaza. Excluding Fisher Plaza revenues, Fisher's consolidated revenue increased 20% compared to the fourth quarter of 2011. The increase is due primarily to an increase in political and retransmissions revenue, partially offset by the expected decline due to the displacement of core revenue.

The company reported net income of $8.6 million or $0.96 per share compared to a net income of $33.1 million or $3.71 per share in 2011. Excluding the $26.7 million after-tax gain on the sale of Fisher Plaza, net income would've been $6.4 million in the fourth quarter of 2011, or $0.72 per share.

Direct operating, selling, general, administrative and programming costs increased 5% or $1.8 million. This year's results included the increase in Plaza rent expense of $1.1 million, $1.5 million of network programming fees, $800,000 of costs related to various strategic initiatives and $800,000 of stock compensation expense related to the special dividend.

2011 expenses included a credit related to our company's revised vacation policy and Plaza operating expenses.

Excluding the items noted above our remaining operating expenses were 4% lower over the same period last year.

EBITDA increased 38% or approximately $4.5 million to $16.3 million from the same period in 2011. Adjusted EBITDA, which excludes Plaza rent expense in 2012, Plaza EBITDA in 2011 increased 65% or $6.9 million over the same period.

With that, I will now review the financial results of our TV and radio segments. TV net revenue for the fourth quarter was $46.7 million, up 23% compared to the same period in 2011. Excluding political revenue, net TV revenue decreased 2% year-over-year. The decrease was primarily due to political crowding and weak national advertising market, consistent with broader industry trends, which were offset by an increase in retransmission revenue due to renewed contracts.

Internet revenue declined $500,000 due to our reorganizational efforts, including a decline in hyperlocal and other third-party royalties.

Retransmission revenue increased 81% from the fourth quarter of 2011. Political revenue of $12.9 million increased 267% from the fourth quarter of 2011.

TV cash flow increased 55% to $7.4 million (sic) [$20.7 million] from the fourth quarter of 2011. TV cash flow margin was 44% compared to 35% in the same period last year as the company benefited from increased political and retransmission revenues, continued focus on operational efficiencies and expense management and the operating leverage of our business model.

Revenues and cash flow for the radio segment were flat compared to the fourth quarter of 2011 due to the soft radio advertising market.

I will now review our full year 2012 results. For fiscal 2012, consolidated revenue was $168.2 million, up 3% from 2011. Excluding Fisher Plaza revenues in 2011, Fisher's consolidated revenue increased 12% compared to 2011. Direct operating, selling, general, administrative and programming costs increased 1% or $2 million. Last year's results included one-time savings of $2.1 million related to the company's revised vacation policy and $1.6 million of proxy cost.

And this year's results include an increase in Plaza rent expense of $5 million, $1.8 million of cost related to various strategic initiatives, $2.2 million of network programming fees and $900,000 of increased stock compensation expense related to the special dividend. Excluding the items noted above, our remaining operating expenses were 2% lower year-over-year.

EBITDA was $30.8 million, up $1.7 million or 6% compared to 2011. Adjusted EBITDA, which excludes Plaza rent expense in 2012 and Plaza EBITDA in 2011 increased 71% or $15 million to $36 million compared to the adjusted EBITDA of $21 million for the full year 2011.

TV net revenue for the year was $147.3 million, up 15% compared to the same period in 2011. Excluding political revenue, net TV revenue increased 5% year-over-year due to an increase in retransmission revenue from renewed contracts, partially offset by political crowding and weak national advertising markets.

Internet revenue declined $600,000 due to our reorganizational efforts and a decline in hyperlocal and other third-party revenues.

Retransmission revenue increased 66% year-over-year, and political revenue increased to $18 million or 274% from the same period last year.

TV cash flow increased $17.2 million (sic) [$17.4 million] of 55% to $49 million. TV cash flow margin was 33% compared to 25% in the same period in 2011 as the company benefited from increased political and retransmission revenues and operating leverage.

Revenues for the radio segment were marginally down compared to the fourth quarter of 2011 due to a soft advertising market. Radio cash flow increased 14% due to operating efficiency.

Our annual effective tax rate was 37% in 2012 compared to 34% in 2011. The increase was primarily due to the release of a $1.8 million valuation allowance on our deferred tax asset in the fourth quarter of 2011.

Now moving to the balance sheet and cash flow metrics. We ended the year with $20.4 million in cash and cash equivalents. Net cash provided by operating activities was $31.3 million after excluding $21.7 million of net income tax payments related to the gain on the Plaza sale.

Capital expenditures for the year 2012 totaled $8.9 million. $3.2 million of these expenditures related to 2011 asset purchases paid in the first quarter of 2012.

We also made a number of capital allocation and liquidity decisions that significantly benefited Fisher's shareholders. We retired the remaining $62 million of the 8 5/8 senior note debt in the first quarter of 2012. We returned also $93 million to our shareholders through dividends and share repurchases, which includes our fourth quarter share repurchases of approximately 98,000 shares for a total of $2.4 million.

Finally, in the fourth quarter, we entered into a $30 million revolving line of credit that provides further liquidity.

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

Colleen B. Brown

Thanks, Hassan. As was evident, 2012 was a year of significant accomplishment for Fisher. The company not only drove audience growth to deliver solid financial performance. It also delivered on its goal to return value to its shareholders. Now as we begin 2013, we remain focused on leveraging our operating momentum and continuing to drive value to our audiences, business partners and to our shareholders.

And with that, I believe, operator, we're ready for questions.

Question-and-Answer Session


[Operator Instructions] And your first question today comes from the line of Barry Lucas with G & Company.

Barry L. Lucas - Gabelli & Company, Inc.

Could you maybe provide a little more color on the auto category in 4Q and what you see happening in 1Q '13?

Colleen B. Brown

Yes. Obviously, Barry, I'm happy to talk about auto for our fourth quarter. We saw a softening, but it was still a very good quarter for auto overall. What we did see was first quarter and for the industry the whole year in 2013 beginning to strengthen. I think the industry is feeling fairly good that the opportunity for auto sales to pick up is very strong. In addition, it helps to have a little bit of pressure against the inventory, which we saw in political spending in the fourth quarter. So as we move forward, I think the industry and Fisher believes that the auto category is going to be a very good one for 2013.

Barry L. Lucas - Gabelli & Company, Inc.

Okay. And maybe just drilling down a bit more on that fourth quarter, your core was down 11 and you touched on auto. But what happened post the election?

Colleen B. Brown

That's an excellent question, Barry. We saw post-election auto pick up a little bit, not a whole lot, but a little bit compared to during the election. While we don't see lowest unit rate crowding because of the political expenditures is in the category of issue advertising, so we don't see the lowest unit rate element factoring in. We did see a lot of crowding during a real intense period around the elections, which did affect our ability to clear auto. But after the election we saw nice and solid pickup for advertising across dealer groups and manufacturing.

Barry L. Lucas - Gabelli & Company, Inc.

Great. I know you're not going to answer anything about the strategic review. But let me try it this way. You bought a little bit of stock in the fourth quarter. Does the strategic review process prohibit, inhibit your either desire, ability, what have you to repurchase stock in the open market?

Hassan N. Natha

Yes, Barry, it's Hassan here. It does in a certain extent. And the thing, as I explained to you before, Barry, is we can usually only buy when we don't have any material nonpublic information out there. So until we file our K and then until we have some additional information to communicate to the shareholders, we'll not be in the marketplace buying shares in the marketplace.


[Operator Instructions] And we have no further questions in the queue, so I'll turn the call back over to management for any closing remarks. Actually, we have a follow-up question from the line of Barry Lucas.

Barry L. Lucas - Gabelli & Company, Inc.

If nobody's out there, Colleen, I'll take one more crack. You're doing great work on mobile, and actually Vin Sadusky was commenting earlier on a similar topic on the LIN call. But people are using mobile applications, there's no doubt about it. How do you get paid for all this intense mobile use?

Colleen B. Brown

Well, it's early days, certainly. But we have been known to step out there with some leadership in the mobile area, whether or not it's through mobile apps or actual mobile broadcasting. As you may know, we're currently experimenting with Jeep Chrysler on the mobile broadcasting, and they've been a great partner to learn and work with. And Nielsen is doing the measurement ratings. And we're in the middle of that, I guess, experiment, if you will, to determine just what we're learning from it. I would say early days, but I'm very encouraged by what Nielsen is showing us and what we're able to discern from the actual statistics on mobile broadcasting. As far as the mobile app, I think that that's very exciting and interesting, but we haven't found a huge opportunity to make money on mobile apps. I will say, though, that tweeting has become very interesting on the social side, and it's particularly so as people are interested in a particular program on primetime. The combination of tweeting with primetime programming, particularly primetime programming, has been remarkable. And last night was a great example of it, where Nashville was running hot into our late news on KOMO television and there was a very intense tweet-up planned. And it was run more like an intense promotion. And as a result, you could see we retained 100% of all viewers from Nashville going into our late news, which just typically does not happen. And so we're excited by that and encouraged that there's an opportunity to use tweeting to make a little more money. And whether or not by itself it will make money, I don't know. But I do believe that the combination is going to make us some money. And I'll just add then, here we are finishing up February with Nielsen. And KOMO once again was the top television station, news station in the Seattle market, which it's just been a really long 15 years. And it looks like they're actually going to deliver on that perennial market leader status that we've been shooting for all these years.

Barry L. Lucas - Gabelli & Company, Inc.

Okay, that's helpful. So let me see if I have this straight, Colleen. This may not be a lot of money to be made in this -- and I don't know if you would treat it as a cost center. But it's clearly a necessity to retain audience engagement and provide a leg up versus the competition. So are these ancillary products are something that at this point you have to offer, regardless of whether there isn't a lot of money to be made?

Colleen B. Brown

Yes, I do believe you have to offer them, and I do believe that eventually we'll sort out how to make the money out of it. And anecdotally, I am confident that using some of these tools is helping our overall ratings and we can prove that. And in fact, we did a project with Nielsen last year, where they used our stations as an experiment and it popped our number about 3% in the shows where we were actually using social media to emphasize the television shows they are watching. So we believe that there's a combination that's going to make money. We just have not sorted out exactly what the incremental benefit is.


And there are no further questions in queue. Would you all like to make some closing remarks?

Colleen B. Brown

Yes, thank you, operator. I just want to thank everyone for their continued interest and support of Fisher. Obviously, as we go through a strategic alternatives review, these are very interesting times. There's a lot going on. It's a very good time to be in television. And I'm just excited as we move through this year and we see the industry continue its development, and particularly all of these new opportunities that we have in front of us. So thank you very much.

Hassan N. Natha

Thanks. Bye-bye.


Ladies and gentlemen, thank you so much for your participation today. This concludes the presentation, and you may now disconnect. Have a great day.

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