Nexstar Media Group Inc (NXST) 2005 Q3 法說會逐字稿

Good day and welcome to this NEXSTAR third-quarter earnings results conference call. Today's call is being recorded. All statements and comments made by management during this conference call, other than statements of historical facts, may be deemed forward-looking statements within the meaning of Section 21 of the Securities Act of 1933 and Section 21-A of the Securities and Exchange Act of 1934. Our future financial conditions and results of operations, as well as forward-looking statements, are subject to change. The forward-looking statements and comments made during the conference call are made only as of the date of today's conference call. We do not undertake any obligations to update forward-looking statements reflective of changes in circumstances.

At this time, I'd like to turn the conference over to your host, Mr. Sook. Please go ahead.

Thank you and good morning, everyone. Thank all of you for joining us today as we review and discuss our third-quarter 2005 operating results. In the room with me today are Bob Thompson, our Chief Financial Officer, and Shirley Green, our VP of Finance, who will be available for your questions. But let's get right to the results now.

NEXSTAR's reported net revenue for the third quarter of 2005 was $54 million, a decrease of 9.9% from net revenue of 59.9 million for the third quarter of 2004. Our core advertising revenues, which exclude political, decreased 1.8% while, as expected, our gross political revenues declined $5.9 million year-over-year.

In addition to operating largely without the benefit of political ad revenue in the 2005 period, I would also remind listeners that we did not have the Summer Olympics this year, which soaked up approximately $5 million of inventory during the 2004 third quarter.

The Company's new, local direct revenues developed in the third quarter totaled $3.1 million, reflecting our continued progress in bringing new advertisers into the door. We recently launched a local branding campaign to promote the benefits of advertising on our stations with the local merchants in our markets, and to date, we've had a very positive response and over the long term, we expect that to stimulate and drive demand for our inventory.

As far as our category results, our two top categories, automotive and fast food, were down each in the high single digits. Auto dealer group spending declines matched the local dealership declines in the quarter. Chrysler, Jeep and Toyota were our only major brands to post gains for the quarter, and losses from Dodge, Ford and General Motors contributed to most of the decline from our automotive sector. The category was clearly impacted by the employee pricing promotions that resulted in a shift from advertising to incentives that also squeezed dealer profits.

Other category declines came from department and retail stores, furniture, healthcare, attorneys, telecom, grocery stores, packaged goods and banks, while gains in categories were achieved in the entertainment, paid programming, insurance, soft drinks, agribusiness, and optical services categories.

We've nearly completed the rollout of our news ticker project across all of our markets and we now also have 14 markets involved in our Viewers Club initiative, and 12 markets marketing or Infoline feature.

NEXSTAR's third-quarter reported station-direct operating expenses, SG&A and cash programming payments increased slightly in the quarter from 32.4 million in Q3 of 2004 to 32.9 million in Q3 of 2005. Corporate overhead increased to 2.8 million in Q3 from 2.6 million in Q3 of '04. This resulted in an adjusted EBITDA of 13.8 million for the quarter versus $20 million in the third quarter of 2004.

On a pro forma basis, our Q3 2005 net revenues declined 11.9% and our station operating expenses decreased 2.1%.

With that, I will turn the call over to Bob Thompson, and Bob will provide you with some additional perspective on our third-quarter financials. Bob?

Thanks, Perry.

First, I'll give you our capital structure and then address some of the income statement items. Our cash on-hand at September 30 was $5.8 million; our debt at September 30 of '05, which takes into consideration a $6.5 million repayment of bank debt during the quarter, consisted of the following -- term loans of 348.5 million, and our 7% notes had accreted to 197.5 million at the end of the quarter, which resulted in operating company debt of 546 million, less our $5.8 million of cash on-hand yielded a net debt of $540.2 million at the operating company level. Additionally, at the holding company level, we had our 11 3/8% Notes, which had accreted to $98.5 million, giving us total debt through the whole co. of $644.5 million at September 30, 2005.

Leverage at September 30, as defined in our senior credit facilities, was 7.4 times versus the covenant of 7.5 times at the end of the quarter. Our operating company indebtedness was 546 million less the 5.8 million of cash on hand, yielding a net debt of $540.2 million. Last 12 months' EBITDA is calculated in accordance with our senior credit facilities of $72.8 million, and the covenant calculations exclude holding company level indebtedness of the $98.5 million. Additionally, we amended certain covenants under our senior credit facility in October of 2005, which provides for a total leverage covenant of 8.5 times at December 31 of '05; that steps down to 8 times at March 31 '06 and 7.75 times at June 30 and then 7.5 times at September 30 of '06, and then remains at 7 times through December 31, 2007.

Our CapEx for the quarter was $3.5 million of which 2.3 million related to DTV expenditures, and we spent $4.3 million on DTV year-to-date. Our total CapEx for the year will be approximately $14 million. An increase over our previous guidance of 11 to $12 million is due to expenditures in Rochester to consolidate our RROC, an UHF station, and the balance being timing of expenditures related to DTV that will fall into the fourth quarter of this year versus the early part of 2006. Our corporate overhead costs were 2.8 million for the quarter, and we're still on track with our guidance of 10 to 11 million for the full year, although that will probably trend towards the upper end of that range as we close out the year.

That concludes my review and I will now turn the call back over to Perry for some final remarks before Q&A.

Thank you, Bob.

Our guidance for the fourth quarter is for net revenues in the range of 58 to $59 million, which would represent a mid to high teens percent decline from the 70.5 million we delivered in Q4 of '04. Embedded in this guidance is a forecast of an increase of 1 to 2% in our core business, coupled with a decline in political spending of approximately $13 million for the quarter. Also included in this forecast is the effect of Hurricane Rita on our NBC affiliate in Beaumont, Texas, KBTV Channel 4, which was out of commercial operation for the first two weeks of the current quarter. We do maintain business interruption insurance and we expect to recoup a good portion of the lost revenue there.

Looking ahead to 2006, we continue to book advertising commitments for the Winter Olympics, which will occur in the first quarter. As of today, we have in excess of $2 million of orders on the books. As we're 12 months and 5 days away from the next general election, I think it's appropriate to note that, in 2006, our markets will host 17 statewide elections and several competitive Congressional and local elections. Our 13 NBC affiliate stations will see the benefits of the return of the NFL to our schedules in the fall of '06.

Operationally, in the past few months, we've made management changes in Evansville, Little Rock, Billings, Terre Haute and Rockford, which are already positively impacting our operations in those markets. Additionally, in 2006, we will enjoy a full-year benefit from the JOA in Rochester, New York with Sinclair and our hub operations that have been instituted this year in Abilene, Texas and in Little Rock, Arkansas. We will also be up against somewhat diminished revenue comparisons for the first ten months of next year in the markets affected by our retransmission dispute with Cox, as well as having the full-year benefit of the outcome of that and the other retransmission agreements that we have or will complete by the end of this year.

With that, Bob and Shirley and I will be happy to entertain your questions. Moderator, we will turn the call back to you.

Thank you. The question-and-answer session will be conducted electronically today. (OPERATOR INSTRUCTIONS). Victor Miller with Bear Stearns.

First of all, thanks for fighting the good fight on retrans, although it doesn't look like you can tell us too much about that. So let me ask you another couple of questions.

First of all, can we talk a little bit about the expense side? You've obviously really focused on that from the IPO through today. It looks like it's starting to decelerate in terms of the declines on the expense side. How much more do you think you have left in the business for that?

Secondly, you know, you have revised your covenants to 8.5 times leverage, so that's obviously not where you'd like to be. Having looked at what Emmis is getting -- and granted, those are far larger markets than the markets that you have, but obviously they are averaging 12.6 times EBITDA for their stations. Could you talk a little bit about how you want to reduce your debt and what your target level is for debt for year-end, 2006, between EBITDA growth and maybe asset sales?

Sure, Victor. I will speak to the first part of your question and ask Bob to speak to the rest.

The expense declines on a pro forma basis for the quarter were approximately 2.1% on a year-over-year basis. I would point you to the end of my comments that obviously we're in the process of finishing our consolidation effort in Rochester, and we will have the full-year benefit of the cost savings of consolidating the two facilities in Rochester, which will not be fully consolidated, by the way, until the very end of this year. In addition, in the third quarter of this year, we completed our hubbing operations in Abilene for four stations in the Abilene and San Angelo market, and in Little Rock for our stations throughout the state. So we will have the full benefit of that on an ongoing basis. There are still contracts in our operating expenses that our (indiscernible) given to buy out that we know we can renew with certain vendors or with competitive vendors for additional reductions. We continue to see we're in the midst of planning stages of a conversion of our newsrooms from analog to a totally digital format, and we think there will be productivity gains and expense savings on mundane things like tape and VCR head repair that are not insignificant amounts of money as we roll through that project.

So, I think you will continue to see, on a pro forma basis, operating expense declines. Obviously, the heavy lifting of the recently acquired stations and taking those costs out, by and large, a lot of that has been realized. But I think you'll still continue to see low single digit declines in operating expenses through the remainder of this year on a pro forma basis and into 2006.

I will turn the rest of the question over to Bob for his response.

Victor, as you noted, with respect to the covenants, we did modify those to allow up to 8.5 times at the end of the year. We don't expect to be all the way up to that level, but obviously we will finish the year higher than we had initially anticipated. As we look to 2006, we will continue to have a very focused effort on reducing our debt and paying down debt on the balance sheet with the additional free cash flow that will be generated from political and Olympic revenue next year.

Expect that debt through the op. co. company will be south of 6 times as we get to the end of 2006, and that's without the effect of any potential dispositions of stations, which we continue to work diligently on those efforts and are seeing traffic in the stations that we're looking at monetizing. But we don't have anything to report on those potential dispositions at this time.

Thank you.

Jonathan Jacoby with Banc of America Securities.

Good morning. Just a few questions here -- the first is I am curious if your fourth-quarter revenue guidance includes any "economic benefit" from the new retrans agreement that you signed with Cox, so we get -- obviously we are -- analysts try and extrapolate, but trying to get a sense on how we should look at that going forward. (multiple speakers).

Second question is just the CapEx guidance perhaps for '06. It seems like you pulled a little bit forward into '05. Does that mean '06 CapEx would go down?

To the first part of your question, there is a very minimal economic benefit that will accrue to the Company in the fourth quarter of this year as a result of the Cox agreement. The agreement's effective dates are basically January 1 of '06, so the bulk of that economic benefit will begin in 2006 and continue through 2010.

As it relates to our CapEx guidance, obviously we are focused on moving through the final parts of our digital conversion next year, and I think you will see CapEx in '06 relative to '05 increase, obviously as we will have more free cash flow to work with and we would look to accelerate some of the digital build as well as this digital newsroom project that will be productivity gains and EBITDA benefit to the Company.

We are still completing the '06 budget process, and we're not prepared to give guidance on the '06 numbers at this point in time. But that should hopefully give you a framework to work with.

I appreciate that. Then just a follow-up question, as you look into the fourth quarter, has there been any change in either national or local trends, from sort of the way the third quarter ended?

On a category basis, there's been no significant movement. I can tell you that our stations, in terms of pacing, are pacing to finish at a higher percent in the fourth quarter relative to the remainder, relative to the first three quarters of the year. I would say that automotive spending -- I would think that the worst of those declines are behind us at this point, but obviously we have two months of business left in the quarter. So we keep track of our managers' projections on a weekly basis. In each of the last three or four weeks, their perspective on the remainder of this year has improved. They've written up their internal projections. It's not a huge amount, but the anecdotes are positive in that, each of the last three weeks, we've seen an improvement in the perspective from the ground up.

Thank you.

(OPERATOR INSTRUCTIONS). Bishop Cheen with Wachovia.

Two questions -- one, just so we get everything right in our models and don't miss anything, on the Q4 guidance, the EBITDA level -- if you could give us that (indiscernible) on that.

Secondly, just following up. I know you said you had nothing new to report on dispositions, but just for the record, if I remember correctly, on the last call, Perry, you said that the dispositions were somewhere that you had in mind at that time at around 30 million, and they would be less developed cash flow assets. Please correct me if I'm wrong. You had also the Fredericksburg station -- you said was not included at that time in your possible disposition list.

I will answer the second part of the question, regarding the dispositions, and let Bob talk a little bit about any specific guidance. But we are marketing five stations in four of our markets that we are actively looking to dispose of and if we were to get in the range of what they've been evaluated at and we sell all of them, the total proceeds could be and would most likely be north of $50 million. As Bob mentioned earlier, while we are actively marketing those properties, we have no definitive agreements signed yet and I can't handicap the outcome but it is something we are aggressively pursuing. These are non-strategic assets; these are assets that don't meet our internal performance criteria, nor are geographically undesirable to us. But that would be the total take, if all went according to script and as we all know, life doesn't always unfold that way.

Bishop, with respect -- we haven't given specific EBITDA guidance, but with respect to the guidance that we have given for the quarter, net revenues of 58 to 59 and the station cash operating expenses of 34.2 to 34.7, along with a corporate guidance, you know, 10 to 11 for the full year and think towards the higher end of that. Hopefully, that will give you the components to narrow in on an EBITDA range.

That is fine. Perry, you had no comment on the Fredericksburg station being in or out of that list?

Yes, our station that is licensed to Hagerstown, Maryland?

Yes, sir.

That would not be one of the markets that would be in that four market, five station total.

Mike Clancy (ph) with Credit Suisse Asset Management.

Can you talk a little bit about the breakdown of local and national in the quarter, and also any ratings gains or losses at your stations?

As far as ratings gains and losses, we don't really track or report those and in many of the markets we're not subscribers to Nielsen, as I think I've mentioned before. In the third quarter, we would just be dealing with the July ratings book, which is not really meaningfully useful in the buy-and-sell process. Having said that, the information that I would've seen and published in other sources would indicate that there have been no significant changes to our ratings positions in markets where we subscribe to the ratings services.

Local revenues for the quarter were 36.2 million; national came in at 17.2 million; and political revenues were roughly $0.25 million for the quarter.

There appear to be no further questions at this time. Mr. Sook, I will turn the conference back to you.

All right, thank you, everyone, for joining us and obviously, as we continue to make progress on our cable retransmission consent, when we have agreements that are finalized and documented, we will be happy to announce as much as we can about those. We do anticipate additional progress on that throughout the quarter with some of the major MSOs in our universe.

Thank you all for joining us, and we will talk to you next quarter.

That does conclude today's conference. Thank you for your participation.