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Executives

Colleen Brown - President, Chief Executive Officer

Mae Numata - Senior Vice President, Chief Financial Officer, Corporate Secretary

Rob Dunlop - Senior Vice President Developing Media

Analysts

Bishop Cheen

(Brian Kato - Teraview)

Fisher Communications, Inc. (FSCI) Q4 2007 Earnings Call February 21, 2008 4:00 PM ET

Operator

Welcome to the Fisher Communications Fourth Quarter 2007 Earnings Conference Call. This call is also being webcast. A replay of this conference call will be available later this afternoon, and can be accessed through Fisher's website at www.fsci.com.

The conference call contains forward-looking statements relating to the development of the company's operations, products and services, and anticipated future operations results. These statements are based on information available at the time they're made, and are subject to a number of risks and uncertainties. Actual results may differ materially from expectations. The factors that could cause actual results to differ materially from those expectations are described in the Annual Report on Form 10-K and the Quarterly Report on Form 10-Q and as filed from time-to-time with the Securities and Exchange Commission.

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. All calls have been placed on a-muted line during the presentation and further instructions will be given prior to Q&A session.

I will now like to turn the call over to Colleen Brown, President and Chief Executive Officer. Please proceed.

Colleen Brown - President, Chief Executive Officer

Good afternoon everyone and thank you for joining us on Fisher Communications fourth quarter 2007 earnings conference call. Our fourth quarter earnings release was issued earlier this morning and it can be accessed through our website.

Joining me today on the call is Senior Vice President, Rob Dunlop and Mae Numata, Senior Vice President, Chief Financial Officer and Corporate Secretary. I will begin with the overview comments about 2007 and Mae will review the financial results. Rob along with the rest of us will field your questions after our comments.

Fisher generated record revenue of 160.4 million a peer-leading 4% increase from 2006. Since the even years are strong political years and the odd years are not, this 4% increase in an odd year represents the execution of our strategic plan. Year-to-year comparisons for Fisher are straight forward since we operate on a calendar year basis.

EBITDA was 26.2 million for 2007 versus 29.9 million in 2006 versus 13 million in 2005. On the odd year to odd year basis, this represents a 200% increase and growth in EBITDA margins from 9.5% to 16.3%. The decline from 2006 to 2007 reflects investments in local news, the Univision-affiliated Spanish language stations, and Fisher Interactive.

Overall consolidated cash flow margin was 16% for 2007, 19% for 2006, and for comparison purposes 8.5% in 2005. Televisions cash flow margins were 40% for both quarter four in 2007 and Q4 in 2006; and for the year over 28% for 2007 and 30% for 2006, versus for comparison purposes, 22% in 2005.

We continue to show improvement both in odd years to odd year and even year to even year. We are especially encouraged that fourth quarter margin in 2007 was equal to that of 2006. This indicates strong core operational improvement.

Radio cash flow margins were 22% for Q4 2007 and 29%without the Mariners; in '06 that compares to 30% and 38% without the Mariners. For the year these margins in 2007 were 5% and 29% respectively; in '06 9% and 29% respectively. As we stated before, the Mariners contract has had a significant impact on the Radio's margins. KOMO Radio is in the last season of this contract.

Free cash flow for 2007 increased 42% to 8.4 million in comparison to 2006, again solid progress in a non-political year.

Our news investment is paying off, after seeing growth in the critical May book. Our ABC affiliates continue to climb in November Sweep's increasing ratings in major demographics, the stations are delivering results in local news with growth particularly in early news and late news. Although one CBS affiliate grew ratings in key news programings and we anticipate improvements there with retooled newscast.

KOMO TV in Seattle had the unprecedented recognition of wining two Edward R. Murrow Awards in 2007, an indication of the quality of news continues at Fisher while returns to the company improve.

TV net revenue increased 3% year-over-year and fourth quarter decreased 1% with 65% local revenue and 35% national revenue.

Our key focus has been to drive revenue creatively and rapidly through better inventory management, increased sources of revenue, and concept selling. In addition, we improved our selling effectiveness through a number of different initiatives and saw increases in the telecom category, home products, and pharmaceuticals.

For the full year, all stations grew core business through strategic focus on local initiatives. This improvement is a compelling accomplishment since our ABC stations had the Seahawk in the Superbowl in 2006.

Additionally, after combining the Seattle TV and Radio properties under one general manager, we have experienced strong synergy and ratings growth for both radio and television. Despite the challenging radio marketplace, radio revenues were up 2% over 2006 and fourth quarter was down just 1%.

Online increased over 300% in 2007 and represented an industry-leading 3.4% of television revenue. Web audiences continued to grow. For the full year, unique visitors increased 29% and page views increased 11%. Time spent on the sites increased this year by 25%.

Fisher Plaza revenue was solid at 2.8 million, an increase of 20% year-over-year and 3% over fourth quarter 2006. Total occupancy was 97% for the end of the year. Revenue per rentable square foot increased 26% over prior year.

In summary, the work of our strategic plan is on track and I'm pleased with the company's improved performance. We do recognize. We still have more to do to improve operational performance and look forward to continuing the momentum we have established.

With that, I'll turn the call over to Mae to provide you with more details on the financial performance.

Mae Numata - Senior Vice President, Chief Financial Officer, Corporate Secretary

Thank you Colleen and again welcome to our call today. We plan to file our Form 10-K by the March 17 deadline. Those documents include in-depth information regarding our financial results, so please refer to those sources. Here's the headline for net income.

For 2007, it was up significantly from the inclusion of its sale of some of our and preparation for the Bakersfield acquisition. Setting the Safeco stock sale and our discontinued operations aside, net income was $4 million versus $6.3 million in 2006. The decline was due primarily to increased depreciation from digital implementation, expenses associated with our early-stage Univision-affiliate, and our growing Internet business.

Let's drill down starting with the sources of our revenue for the full year 2007. Television accounted for 69% of total revenue, which was consistent with 2006, and an increase from 61% in 2005. Our two ABC affiliated stations KOMO-TV in Seattle and KATU-TV in Portland continue to account for approximately half of the company's revenue. 2000 revenue also includes Internet and our new cluster of Univision-affiliated Spanish language television station.

Radio accounted for 24% of total revenue excluding discontinued operations, which is consistent with 2006 and a decline from 33% in 2005, due to the sale of 19 small market radio stations in Montana and Eastern Washington. Our remaining five small market radio stations in Montana continue to be held for sale. This group of radio stations has been carved out at the radio segment presentation and is disclosed under the caption "discontinued operations". The sale of these properties was slowed down by the magnitude of Broadcast assets placed on the market. However, some new interest has been noted in the recent months.

Fisher Plaza accounted for 7% of total revenue, an increase from 6% in both 2006 and 2005.

Now, some further details. Fisher's fourth quarter 2007 revenue had a slight decrease to 44.1 million, compared to 44.7 million in fourth quarter of 2006 due to political revenue in 2006. In comparison to fourth quarter 2005, this represents 21.8% increase. Fisher's total annual revenue increased 4% to $160.4 million compared to $154.7 million in 2006, an increase of 17% in comparison to 2005.

Broadcasting revenue was higher in 2007 due to increased revenue in both Television and Radio, as compared to 2006. The increases were due primarily to the startup of our Spanish language stations in the second half of 2006, and stronger national and local revenues at both our ABC and CBS affiliates as a result of improved selling efforts and stronger rating.

In addition, the growth in our Internet revenue continues. This is a solid revenue performance, as we cycled against 2006 political spending.

Our radio operations showed a 2% revenue increase in 2007 versus 2006. We attribute the increase and improved ratings on KOMO-AM and KPLZ-FM. This increase was partially offset by lower revenue associated with our broadcast of the Mariners baseball games.

Internet advertising and retransmission revenue also increased in 2007 as compared to the same period of 2006, although at this point there remains a small percentage of overall total revenue.

Revenue at Fisher Plaza increased by almost $2 million in 2007 versus 2006, this increase was due primarily to increased occupancy, as well as increased electrical infrastructure fees. With five consecutive quarters of profitability under our belt, Fisher Plaza's results continue to strengthen.

Operating expenses increased 8% to $147 million during 2007 as compared to 2006. Total operating expenses increased 10% to $36 million in fourth quarter 2007, as compared to fourth quarter 2006. These increases were due primarily to increased news, selling, and depreciation expenses. Let's drill down into these categories.

News expenses increased 6% to 56 million during 2007, as compared to 2006. These expenses increased 3% to $14 million in the fourth quarter of 2007 compared to the fourth quarter of 2006. These increases were comprised of investments in our news gathering and additional local news programming, costs associated with our growing Internet business and the addition of our Spanish-language stations with centralized local newscast.

Selling expenses increased 12% to $60 million in 2007 as compared to 2006. These expenses increased 23% to 17 million in the fourth quarter of 2007, compared to the fourth quarter 2006. These increase were comprised of sales costs associated with the addition of the Spanish language stations, increased commission due to improved revenues and increase in market research expenses, selling costs associated with our growing internet business and the built-in rights escalator on the Seattle Mariners contract.

Depreciation increased 12% to 11.6 million in 2007, as compared to 2006. Depreciation increased 4% to 2.9 million in the fourth quarter of 2007, compared to the fourth quarter of 2006. These increases are due primarily to depreciation associated with Fischer Plaza's continued infrastructure build-out, which was placed and serviced primarily during second half of 2006.

Our net results, for the fourth quarter 2007, consolidated net income was $31.4 million. As mentioned earlier this figure includes the gains in the sales of Safeco stock of 26.2 million net of tax. In both years fourth quarter consolidated net income was comprised of continuing and discontinued operations. Discontinued operations were de-minimus in fourth quarter 2007.

For the year 2007, we reported income from continuing operations of 30.2 million compared to income of 6.3 million in 2006. With the addition of discounted operations of 1.7 million for 2007 and 10.5 million for 2006, 2007's consolidated net income was 31.9 million compared to 16.8 million in 2006.

We ended the year with cash-and-cash equivalence of $6.5 million and working capital of $18 million. In addition we reported 52.4 million in restricted cash which was held in escrow as of year end in preparation for the January 1, 2008 close on the Bakersfield acquisition.

Significant items affecting our cash flows include the second quarter radio sale and purchase of the four low power Spanish language TV stations in Eastern Washington, proceeds from the sale of Safeco stock, funds placed in escrow on the purchase of the Bakersfield stations and additions to property plant and equipment.

As of the end of the year we had our entire credit facility available to us. Our investment in Safeco stock was valued at $128 million as of year end 2007. As part of our regular quarterly investor conference calls we provide the trailing fourth quarter calculation information for our operating cash flow as defined by our debt agreements.

Operating cash flow was 31.6 million excluding the effect of discontinued operations. Our ratio debt to operating cash flow improved from 8.3 times in 2005 to 4.8 times in 2007. The details can be found on our website along with adjusted EBITDA details.

That concludes the prepared portion of our presentation. Thank you for listening. At this time, I ask Eric assist us with responding to questions that you may have.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Bishop Cheen. Please proceed.

Bishop Cheen

Collen and Mae, thank you for the very helpful update. How are you?

Colleen Brown

Good. How are you Bishop?

Bishop Cheen

I'm okay for a guy, in my demographic. Okay, couple of questions. Just let me billboard what I would like to focus on and again you're update was very helpful and I think first question K you said will be out today?

Mae Numata

No, it will be filed by March 17th.

Bishop Cheen

I'm sorry, I missed that part, March 17th. Okay, so in the operating cash flow, just to refresh our memory, the biggest component of the difference between what we call EBITDA and the operating cash flow as in the credit agreement and the bond indenture would be the dividends in flow from Safeco stock?

Mae Numata

That is correct.

Bishop Cheen

Okay. And again we would in our modeling have to adjust it with the 700,000 shares used as currency to complete the Bakersfield transaction?

Mae Numata

That is correct.

Bishop Cheen

Okay. You talked about Colleen, you said you're investment in news is "paying off" and it seems to be. Can you some color and quantification is always welcome. If it will also pay off on grabbing some political dollars that, you know, don't come often enough, but certainly seem to be coming in 2008?

Colleen Brown

Yes, I can provide some color on that Bishop. First of all it's being reflected in the ratings. And as you know that’s extremely helpful for our sales effort and our conversion. We don't have all the statics in for quantifying the power ratios yet but we know we have improved in that area. So it is converting to actual revenue thus the reason we're up better than our peers, at least those peers I've seen reporting.

In addition the expansion of the different time periods in news has helped us with our inventory situation. We did have the fewest amount of spots being sold and we have corrected that situation in 2007. And so we're little more competitive on our fixed inventory base. In addition the 11 o clock news has greatly improved on our television stations and we're monetizing that as well.

Bishop Cheen

Great. All right, and then would you say that your Hispanic stations are growing at a faster pace, the same pace, I mean the development of, because you started with from scratch there?

Colleen Brown

Yeah.

Bishop Cheen

Is the slope of the growth in those stations still as strong now as it was a year ago?

Colleen Brown

I can speak for 2007. The Spanish language TV stations in '07 grew significantly. Remember our Seattle station was a start-up in January 1st of 2007. So the slope is still pretty strong because it takes a little while to get established and certainly a little while to convert that to dollars as well as the launch of the news cast. So my assessment is we will experience continued, growth significant growth. But remember it’s a small base compared to all the other revenue. But it will very strong and is very strong.

Bishop Cheen

Okay. And then from a P&L standpoint, the tax bite on whatever cash you might have to give for the gain on the sale of Safeco stock. And I guess that’s the most significant tax bite because all of the other assets sales I think have already churned through if I'm not mistaken. But on a cash basis with that be, can you tell us what would be incurred evenly throughout fiscal year of '08. Is it all going to be bitten in one quarter? Any idea of what the bites going to be and when it's going to come?

Mae Numata

And Bishop that was on the tax?

Bishop Cheen

On the tax for the capital gain on the sale of the Safeco stock.

Mae Numata

We will be impacted with our quarterly payment due March 15th.

Bishop Cheen

Okay. So that will be a Q1 event?

Mae Numata

Yes it will be.

Bishop Cheen

All right. So you will get…

Mae Numata

On a cash basis.

Bishop Cheen

On a cash basis, right.

Mae Numata

Yes.

Bishop Cheen

And can you quantify it for us? Can you give us any range on what you think that might be?

Mae Numata

Yeah Bishop, I think that the tax folks are still giving us their expert opinions. So I think it would be premature for us to project that. But I do know that I'm pleased with progress we've made with, and we do still have operating losses to apply against this. So there is still some opportunity to affect the tax and that is what they're working on.

Bishop Cheen

Right, no doubt. There's no lack of opinions from tax folks. Well that’s a good thing and I guess we'll see it whenever the…

Mae Numata

Yeah. It won't be a straight; there will be some adjustment because it won't be a straight out amount as compared to the purchase price in the Safeco proceed.

Bishop Cheen

That’s helpful thanks. All right my last question. On this online business that you are building and it seems to be responding 3.4% of TV revenue. Can you tell us again what is in the online business? Is it only online sales, are you also including any retransmission revenue or just tell us what you put into the online line.

Colleen Brown

We'd be happy to. I am going to ask Rob to comment on that

Rob Dunlop

Hi, Bishop.

Bishop Cheen

Hi Rob

Rob Dunlop

Our online sector is really comprised of pure online revenues, so we do not commingle any of our retransmission fee revenue into a digital unit. I know some companies do that. We want to look at our online and interactive efforts that are more pure basis just to make sure we are tracking with it our performance there so. We look exclusively at what we are doing in terms of utilizing pre-rolls and you know typical display ads and so forth through out our web network.

Bishop Cheen

Okay. Thank you for that clarification. I will pass the button.

Colleen Brown

Thanks Bishop

Operator

Your next question comes from the line of (Brian Kato with Teraview). Please proceed.

Brian Kato

Yes, hi. Good Afternoon

Colleen Brown

Hi Brian.

Brian Kato

How are you guys?

Colleen Brown

Good. How are you today?

Brian

Pretty good. First I have a question about the results and then the suggestion and some thoughts. You mentioned going against the political comparisons that were difficult in the calls in the second and third quarter as well I believe. You are still able to show some revenue growth, so did you just run up against lot more volume in this quarter compared to the other two or was it something else going on like may be you are finally up against a quarter that had some revenue from acquisition?

Colleen Brown

I am not sure quite your question, but our revenue experience in '06 was focused on the fourth quarter and so our comparisons in 07 were more strongly compared to political expenditures in '06 in the fourth quarter. Is that what you are asking?

Brian Kato

Well this year, you also mentioned second and third quarter on the call that you were comping political revenues.

Colleen Brown

You know, I don't recall saying that, we will go back and look at the script Brian. But I don't recall saying that.

Brian Kato

Okay. You definitely did so. We can maybe discuss it after you review it.

Colleen Brown

I will be happy to discuss it further and let me do a further look into that, but I don't recall talking in second and third quarter of '07 and comparing it against political, because we generally don't get political in second and third quarter, but I am totally forgetting something which could be the case, but I will double check.

Brian Kato

That's fine. We can discuss that point. And I have a sort of suggestion or question, if you will. Going back to second half of '06, there have been, you have done several deals that there are material may be not and individually but in the aggregate. You know other than the incremental revenue contribution which you have put forth in the file on these calls, hasn't been a lot of disclosure that allows comparable analysis in terms of how the acquisitions are performing versus how the existing assets are doing. Now you have got Bakersfield which is very large in relation to the size of the company, so I do think there is clear need for that to be presented in a way that's going to allow us to make comparison in this first year specially. Whether that's performance you just very detailed in the MD&A and the filings. And I think that's really important, if the strategic plan is to continue to do deals, because we have got to have a way to evaluate how the acquisitions are doing. As well as the performance of the asset that you already own. So I definitely urge you to focus on that going forward with Bakersfield.

Colleen Brown

Brian appreciate that and I know that we have discussed this in the past and our thought is not to competitively put our station at a disadvantage by disclosing competitive information, but I will take it under advisement and continue to review and ascertain especially as it not de minimus or it becomes an important part of what we need to explain to the shareholder.

Brian Kato

Well. That brings me to another comment, but I would just say that if you want to continue deal then look at sort of best practices what people disclose and give us some information so that we can be on board with this. Now that brings me my next comment which is about shareholder value in general, like several of your long-term shareholders, we are long-term investors. We have been here for a while, have been very patient. This board overseen great deal of value disruption in the last 10 years, assets have been brought and sold, fortunately into a building, the dividend omitted and threw it all bottom line as if there has been no value realized by shareholders. I know there has been some turnover at the board level recently and there was a large shareholder that was added a few years ago, but it still hasn't changed. Majority of the board is still the same just in terms of actual value creation. So, here we are. We've made $40 million of acquisition so far. We are 100 million with Bakersfield. All the operation improvements are good and also I would say some long-term numerical goals that we can use to measure the progress on that side would be helpful, but I think it's really time that the board focuses on translating all of this activity and creating some value for shareholders.

Colleen Brown

I appreciate your comments Brian. I'll pass them along.

Brian Kato

Thank you.

Operator

We are showing no more audio questions in queue at this time. I'd like to turn the call over for closing remarks

Colleen Brown

Well, thank you everyone for joining us today and I hope you continue to watch our momentum and we'll continue to strive to perform and deliver 2008.

Operator

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

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Source: Fisher Communications, Inc. Q4 2007 Earnings Call Transcript
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