Nexstar Media Group Inc (NXST) 2007 Q1 法說會逐字稿

Good day everyone, welcome to the Nexstar first 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 fact, may be deemed forward-looking statements within the meaning of Section 21 of the Securities Act of 1933, and of Section 21-A of the Securities and Exchange Act of 1934. The company's future financial conditions and results of operations, as well as forward-looking comments made during this conference call are made only as of the date of this conference call. Management will also be discussing non-GAAP information during this call. In compliance with Regulation G, reconciliations of this non-GAAP information to GAAP measurements are included in today's news announcement. The company does not undertake any obligation to update forward-looking statements reflective of changes in circumstances. At this time I would like to turn the call over to your host, Nexstar Chairman, President and Chief Executive Officer, Perry Sook. Please go ahead.

Thank you operator, and good morning everyone. I'd like to thank you all for joining us today as we review and discuss our 2007 first quarter operating results. Matt Devine, our Chief Financial Officer, is on the call with me this morning.

The first quarter of 2007 marked another period of solid performance by Nexstar, we exceeded our guidance and street expectations, and we posted gains in virtually ever reported metric, despite comparisons with the year ago period, which benefited from higher levels of political advertising and the Olympics, that combined, amounted to about $6 million in gross revenue.

We've been aggressive in developing Nexstar to realize value at the multiplatform world by adding ancillary revenue streams, and the first quarter results underscore the effectiveness of this strategy. Specifically the record first quarter revenue, BCF, and EBITDA reflect the benefit of leveraging the value of our local broadcast stations with new, recurring sources of revenue such as retransmission consent agreements, and our new media initiatives.

So now let me quickly run through the first quarter report card. Net revenue rose 3.7%, which is ahead of the upper end of our guidance of up 1.2% for the period. Gross local and national advertising revenue was up 4.1%; gross political advertising was 33% ahead of where we were in the first quarter of 2005, our last odd year comparison. Retransmission consent revenues were up 27% compared with first quarter of '06; new local direct billing totaled $3.6 million for the quarter, which is a new first quarter record for the company.

Broadcast cash flow was up 4.6%, and EBITDA increased 6.6% over our record first quarter 2006 levels. Operating income rose slightly, while our free cash flow declined, but the decline was largely due to the $2.9 million of year-over-year increase in Cap Ex for completion of our digital build outs. It's primarily a timing issue, and there's no change in guidance for the full year.

As defined in our credit agreements, our consolidated total debt, net of cash on hand, resulted in a leverage ratio of 5.74 times at March 31, which is in line with our December 31, 2006 levels. It's also a significant reduction from the 7.8 times at March 31 of 2006, and comfortably below our permitted leverage covenants of seven times.

With year-over-year revenue gains, our platform building, and revenue diversification strategies are delivering early successes against our goal of overcoming the odd year/even year revenue disparity caused by political advertising. Nexstar's first quarter revenue was essentially flat on a same station basis, and we recorded a modest year-over-year gain in same station EBITDA. However, during the first quarter retransmission consent agreements contributed revenues of $3.7 million compared with $3 million in the first quarter of 2006.

In addition, new media revenue, derived from the operations during the 2007 first quarter, amounted to a little more than $250,000, and this represents very early stage contributions of less than half of our markets. Most of those markets were enabled late in the quarter. The transition of our TV station websites into our community portal approach is on schedule for the entire platform to be active before the end of the third quarter. In total, retransmission and new media revenue accounted for approximately 7% of our Q1 '07 net revenue, and Nexstar's high margin retransmission and new media initiatives are expected to be significant, and growing contributors to our results on a going forward basis.

Furthermore, the company's focus on local sales and local news leadership in our mid-size markets, supports our expectations for continued leading revenue share in the majority of markets in which we operate.

As far as our category results in Q1, six of our top 10 categories were up compared to the prior year, including restaurants, paid programming, furniture, healthcare, telcom, and legal. Auto accounted for 22.2% of our core revenue versus the prior level of 24%, so we are seeing strength in other categories such as telcom, which was up double digits for us, as well as offsetting some of the softness in the auto category.

While the second quarter of 2007 is going up against tough '06 costs, we're looking for a flat to up 2.9 net revenue performance. This top line, when combined with our forecast for nominal station operating expense and corporate overhead increases on a dollar basis, will extend our momentum through the first half of the year. With all of that said, I'll turn the call now over to Matt Devine to provide deeper detail on our financials and our second quarter guidance. Matt?

Thank you Perry. This morning's release reflects Nexstar's ability to generate solid year-over-year gains and produce record setting results by overcoming the political and Olympic cyclical revenue contributions afforded during even numbered years.

Net revenue for the quarter ended March 31, 2007, grew 3.7% to $62.1 million, up from $59.8 million in the first quarter of 2006. Broadcast cash flow rose 4.6% to $20.8 million in the first quarter of 2007, compared with $19.8 million in the first quarter of 2006. Income from operations for the three months ended March 31, '07, and the three months March 31, '06, totaled $6.1 million each. The company generated a 33% broadcast cash flow margin in the first quarter of both 2006 and 2007.

$2.6 million of cash subscriber retransmission revenue was generated in the first quarter of 2007 versus $2 million in the first quarter of 2006. Nexstar's first quarter 2007 corporate overhead costs were $3 million, which includes $.5 million of non-cash employee stock option expense. In Q1 of '06 corporate overhead totaled $3.2 million, and included $400,000 in employee stock option expense. As you will recall, we adopted FAS123R, the expensing of stock options, on January 1 of last year.

First quarter 2007 EBITDA was a record $17.7 million compared to $16.6 million in 2006 first quarter. Free cash flow, or income from operations plus D&A and broadcast rights, loss on asset disposal net and non-cash stock option expense, less payments for broadcast rights, cash interest expense, Cap Ex and net cash income taxes was $2 million for the first quarter of 2007 compared to $4.9 million in the year ago quarter.

The company incurred $5.9 million of Cap Ex in Q1 '07, of which $3.7 million related to our HDTV build out in the first quarter of '07, compared with a total of $3 million of Cap Ex in the first quarter of '06, of which $1.2 million was related to HDTV build out. We project Cap Ex spending to total $15 million this year, compared with $24.4 million of Cap Ex incurred in full year 2006. Over half of this year's Cap Ex is committed for HDTV versus approximately $14 million spent for HDTV in 2006.

On a same station basis, Nexstar's 2007 first quarter net revenue was $59.5 million compared with $59.8 million in the first quarter of last year, while EBITDA was $16.8 million compared with $16.6 million in the same period of 2006. Same station results exclude the operating results of WTAJ and WLYH, for both the 2006 and 2007 periods, as these stations were acquired on December 29, 2006, and were under Nexstar's stewardship for approximately 90 days. We think this is a good indication of our company and our industry's ability to overcome the cyclical impact of odd/even year revenue streams that have historically significantly impacted our sector.

As far as the balance sheet goes, cash on hand at March 31 was $7.9 million compared with $11.2 million at 12-31-06. Our outstanding bank debt was $369.3 million compared with $370.1 million at December 31, '06, and reflects the borrowings at the end of the 2006 period to complete the accretive acquisitions of WTAJ and WLYH. Our 7% notes totaled $197.8 million, resulting in operating company net debt of $559.2 million at March 31, '07. Leverage at March 31, '07, as defined in our October 2005 amended senior credit facilities, is 5.7 times, consistent with December 31, 2006 levels. The October 2005 amended senior credit facility covenants provide for a total leveraged covenant of 7.0 through 12-31-07; although 2007 is a nonpolitical year, I believe that with the addition of WTAJ, along with growing re-trans and new media contributions we should end the year with leverage under six times so we remain very comfortable with our ability to comply with our covenants.

At the holding company level, our 11 3/8% notes total $116.4 million at March 31, '07, compared with $113.2 million at December 31, '06. Thus, total debt at the holding company was $683.5 million at March 31 of '07, compared with $681.1 million at 12-31-06. This represents leverage of about seven times at the hold co level. We project that we'll end 2007 with hold co leverage of about 7.25 times, which will position us well for further significant deleveraging as we enter the active 2008 political year.

Again, Cap Ex for the first quarter was $5.9 million compared with $3 million in the year ago period, approximately $3.7 million of Cap Ex are related to operating stations with full power digital broadcasting capabilities. We have about $31 million to spend on building out all of the remaining TV stations to full power digital and HD broadcasting capability over the next two years.

Our guidance for the second quarter is net revenue of $64.5 million to $66.5 million, compared with $64.6 million last year; station operating expenses of $39 million to $40 million, basically comparable to last year; and corporate overhead of between $3.8 million and $4 million, again, comparable to Q2 of '06. This concludes the financial review, I'll now turn the call back to Perry for some final remarks before Q&A.

Thanks very much Matt. We are committed to developing and undertaking new opportunities for our shareholders that will continue to grow shareholder value. So we believe as investors look at our company we hope that you focus on the fact that we're a leading mid market consolidator, we're a local news leader in the majority of our markets, and we are successful developing new revenue streams.

In leveraging our platform we anticipate further up side from our retransmission sources, reflecting not only annual escalations, but also layering existing agreements on to markets where the satellite companies are now offering local channels, as well as structuring new agreements with the telcom companies as they begin to offer fiber optic based television service in our markets; also from the upcoming next series of negotiations with the cable operators.

The majority of our current retransmission agreements were three years in length, they were completed in late 2005. As such, we'll be again negotiating with the cable operators regarding the value of our local broadcast station programming carried on those cable channels in our markets, shortly. Also we are close to a deal with one of the Telcos, which would set a new bar for retransmission consideration on a per-sub basis and we hope to be able to announce that shortly. Based on these factors, we're confident that this high-margin revenue stream will become an increasingly important component of our operating results.

And, with the launch in late of '06 of our new media initiatives, we expect that those will deliver a low-to-mid seven figure revenue stream for Nexstar in 2007. The transition of our TV station website into community serving portals is absolutely on schedule with the entire platform scheduled to be re-launched and re-enabled before the end of the third quarter.

In addition to our focus on new revenue streams, we continue to invest in our core business in local news programming, invest in personnel and sales tools to expand our competitive edge and serve our advertisers' changing needs. Nexstar's emphasis on serving communities in medium-sized markets has resulted in the development of strong local franchises that are well positioned to profitably compete for viewers and advertisers in both our core television business and our digital media platforms.

We remain confident that our ongoing approach of actively managing our station portfolio, appointing leading local management, developing new revenue streams and focusing on the balance sheet and our capital structure, will continue to build value for our shareholders.

With respect to our balance sheet, if you look at 2006, a political year, Nexstar was able to knock three turns off the leverage of the company without any asset sales. Now, if we look ahead to the end of 2008, or the completion of the next political cycle, Nexstar will be levered below five times simply by meeting The Street consensus estimates for operating results. So, there's tangible compelling upside to our security simply through the continued execution in our traditional ad-driven business and the benefit of our re-trans and new media initiatives.

Having said that, we do continue to market aggressively certain non-core, non-strategic assets so we've got multiple opportunities to drive our upside and to de-lever. The flip side of that is that we've looked at every transaction out there and we have a great understanding for valuations today and we also have a high level of discipline.

In closing, we believe that the first quarter results are impressive, particularly given the comparisons with last year. And the second quarter guidance, we think, should make it clear that the 1Q results in an odd year are not an anomaly. Our success by driving our industry innovation is serving us well and the outlook for '07 and '08, which is now on everybody's radar screen, promises to be one of the most robust political years ever. We feel that that all collectively only serves to drive our optimism.

With all of that said, let's open the phone lines to your Q&A and we'll be happy to address your specific areas of interest. Operator?

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And our first question comes from Victor Miller with Bear Stearns.

You said your re-trans in new media are about 7% of your first quarter net revenue but new media, obviously, being $250,000, wasn't that heavy a contributor. What kind of potential do you think you do have in terms of the percentage of your revenue for that? And what metric should we be watching, in terms of growth for that for the year?

Secondly, are you getting any early indications on the potential for political in this year? And lastly, you talked about gross national and local advertising up 4.1%. Was there a disparity in growth rates between those? And, you know, that would be helpful; thanks.

Sure, Victor. Trying to address those in order; we obviously expect linear growth in new media revenue as we were coming off a base of virtually zero in the first three quarters and a modest six-figure number in the fourth quarter as we began to roll out our new platforms. So, that growth will be hockey stick in nature, we feel, leading to the mid single digit revenue number that we've guided to.

And then, ultimately, with re-trans, you know, the numbers are up in the - north of 20% here in the first quarter. That probably is a good metric to apply to the remaining three quarters of the year for an annualized run rate on that expense - I'm sorry; that revenue to us.

Ultimately, we would expect that new media and re-trans should contribute, on an EBITDA basis each, 15% of our revenues; I'm sorry, of our EBITDA, which would obviously translate to a lower percentage of revenue but still something in the double digit range. And we feel that we can get there with the new media within approximately three years. And obviously, on an EBITDA contribution basis, we're virtually there on the re-trans piece of that.

As to political, our political revenue, as we indicated, was about a third higher than the first quarter of '05, which was the last odd-year to odd-year comparison. It was substantially ahead of our internal budget and second quarter is no exception. They're small dollars in an odd year but the percentage increases and the percentage over performance to our initial projections would indicate to us that the year should deliver political revenue that is beyond our internal projections, which, I think; we've said has been approximately 10% of what we did in the last even-numbered year of 2006. And we do see more activity there than anticipated, I guess, to put a point on it.

And then the final question, as far as the growth rates for first quarter, we did see growth locally over the prior year and basically flat national revenue comprising that approximate 4% increase. So, the local revenue for us was up, on a GAAP basis, about 6%, while the national revenue was approximately flat.

Thank you.

Our next question comes from Bishop Cheen of Wachovia.

Thank you, Perry; hi Matt. Let me just follow up on something Victor asked; really, your answer. I think you said re-trans and new media three years out, 15% contribution of EBITDA each. That would imply 30% of EBITDA in three years. Did I get that correct, Perry?

Yes, yes you did, Bishop.

Okay. And you said 20% area already re-trans. 20% of what? What is the 20%?

No, well 15%, approximately 15%; it's a couple of points lower than that but 12% to 15% of our EBITDA today is derived from re-transmission based (two people talking).

(Two people talking) Got it. All right. That takes care of that and then, talking about the new re-trans deals that you will be at the table on in '08, these were '05 deals that are coming up again for negotiation? About how many subscribers are you talking about?

Well both of our satellite deals are up for renewal in '08; one in mid '08 and one at the end of '08. We're already in discussions with both companies. They're interested in making the deals and made the first call. And then, in terms of the cable subscribers, of the 4 million cable subscribers that we have re-transmission consent agreements covering, approximately - it's a little less than half that will be up at the end. Well, it's about half, will be up at the end of '08; about 2 million subscribers. And the rest will dribble out over the next 12 months after that.

Got it. And now these are, also of this 4 million, most of them are - or, are most of them on escalators, annual escalators in the current in-place deals?

Bishop, I believe that I would be correct in saying that every re-transmission consent deal we have with every multi-channel video provider has an annual escalator.

Okay; great. And then, last question, Matt; don't want to leave you out. What is our availability, right now, as you are in Q2?

We have availability under our revolver, Bishop, of about $60 million right now.

of $6-0?

Yes.

Okay. Thank you, guys.

Our next question comes from David Bank of RBC Capital Markets.

Thanks guys, good morning. I was just kind of wondering if we could get an update on the divestiture picture and, you know, what you're thinking these days, Perry. Are you seeing any other properties on the market that are looking interesting? And, what do you think the market looks like for the ones that are non-core that you're selling? Or, I should say the ones of your non-core that you're maybe exploring the possibility of selling?

Sure. Well, obviously, as I think Matt has said and I've said in the past, we look at every transaction. And we'll only make acquisitions that are immediately accretive to the company and to our shareholders. So, we actively look at everything but having said that, you've seen the three deals that we've done since we've been a public company.

We are keenly aware of the valuation of our entire portfolio at 13 to 15 times station BCF, as well as each of the individual stations. And those have been the range of the recent private market transactions.

We remain engaged with certain parties on certain stations but again, we'll want to command full value for those assets, particularly given the status of the balance sheet and our de-leveraging program that Matt began in earnest in 2006 and our prospects for further de-leveraging in 2008.

But we have discussions ongoing with multiple parties on multiple markets and again are hopeful that we will bring something to bear fruit here and make an announcement that you all like in the not too distant future.

Okay, thank you.

Moving on, we'll take our next question from Jordan [Turano] with Brigade Capital

With regards to - just to retouch on the divestiture, it's been kind of the same thing for a while. I mean, can you at least give us an idea that you're getting closer to what you think fair value is for one or any of these stations? Or, is the bid/asked still pretty far apart?

No. I think it would be fair to say that we are getting closer to fair value on one and maybe more than one of these assets. And, as you know, there are increasingly more buyers out there in the marketplace. A lot of them are trying to put together larger platforms than one-off deals in trying to do multiple deals at one time. But I think that we are very close on price in a couple of these transactions and just working through diligence.

All right and then the second thing is, with regards to the 11 3/8%, the bank that marketed, obviously, very strong right now and what are your thoughts with regards to refinancing those 11 3/8%? I imagine bank debt would be the preferred source.

Hi, Jordan. This is Matt. You're correct in saying that bank debt would be the appropriate source to refinance the 11 3/8% out. We have initiated discussions with our bank group related to that. All that said and done, you know that we have to make an [A-Haido] payment in April of next year, to the tune of a little less than $50 million, which we could do today, obviously, under our revolving credit facility.

And, depending upon how our discussions go with our bank and our board, etc., etc., we may try to provide for additional availability to bring in some of those notes at a fair price.

Okay. Thank you.

(OPERATOR INSTRUCTIONS)

Our next question comes from Edward Antorino, with Benchmark.

My question was answered. It was about debt; thanks a lot.

(OPERATOR INSTRUCTIONS)

And we do have a follow up from Edward Antorino, with Benchmark.

Did I miss a comment on [placings], going forward? Did you mention that at all?

In the guidance, Ed, we gave second quarter guidance of local and national revenue of approximately flat to up 3%. That's total net revenue (two people talking).

(Two people talking). There was a little problem in the transmission. I guess I missed it; thanks; flat to up 3%; thanks.

Moving on, we'll take a follow up question from Mr. Bishop Cheen of Wachovia.

Thanks. Just, when we look at the guidance table, which is always useful that you guys give us, the Q2 '06 is actual without the acquisition of the stations that you really didn't even get - I don't even think you got LMA revenue from those stations until somewhere deep into Q3?

Yes. We closed on TAJ and its sister station on December 29 of last year, Bishop. And so you're correct to say that those properties' results are not in the '06 actuals.

Okay, so if we wanted to take - because, when you report, are you going to do - if you did it on a same station basis, you would just eliminate the newly acquired stations?

That's correct, Bishop and what we'll do is similar to what we've just done here today. We'll give you the GAAP results as well as the same station results.

Okay. All right; I guess that's as good as it gets. Thank you.

At this time we have no further questions. Mr. Sook, I'll turn the call back over to you for additional remarks.

All right, thank you. We appreciate everyone joining us today and we'll look forward to reporting on our second quarter results in about 90 days. Thank you.

Once again, that does conclude today's conference. Thank you for your participation and have a nice day.