Nexstar Media Group Inc (NXST) 2008 Q2 法說會逐字稿

Good day and welcome to NEXSTAR Broadcasting Group 2008 second-quarter conference call. During the presentation, all participants will be in the listen-only mode. Afterwards,we will conduct a question and answer session. (OPERATOR INSTRUCTIONS)

As a reminder, this conversation is being recorded, Tuesday, August 5th, 2008. All statements and comments made by management during this conference, other than statements of historical fact may be deemed forward-looking statements within the meaning of Section 21 of the Securities and Exchange Act of 1933 and Section 21-A of the Securities and Exchange Act of 1934.

The Company's future financial conditions and result of operations, as well as forward-looking statements are subject to change. The forward-looking statements and comments made during this conference call are made only as of today's date of conference call.

Management will also be discussing non-GAAP information during this call, in compliance with Regulation G reconciliation of this non-GAAP information to GAAP measurements are included in today's news announcements. The Company does not take any obligation to update forward-looking statements reflective of changes and circumstances. At this time, I would like to turn the conference over to your host, NEXSTAR's President and CEO, Perry Sook. Mr. Sook, please go ahead sir.

Thank you, operator and good morning, everyone. Matt Devine, our Chief Financial Officer is here with me this morning. I would like to thank all of you for joining me today as we discuss NEXSTAR's second-quarter 2008 operating results.

After the brief remarks that both Matt and I have prepared, we'll open the phone lines to question and answer. During the second quarter we will continue to execute our strategies for growth in the face of a difficult advertising market and a slowing economy.

NEXSTAR's record, I emphasize record, second-quarter operating results included BCF and EBITDA that exceeded our guidance, revenue that was in line with our guidance range and results include strong year-over-year increases in political e-media and retransmission consent revenues.

Second quarter 2008 net revenue of $70.7 million included approximately $3.1 million of net political advertising revenue up from $68.7 million of net revenue in last year's second quarter, which included approximately $1 million of net political ad revenue.

Our television stations are performing well from an audience perspective. Our sales teams are working aggressively to attract new advertisers to the medium and we have demonstrated our skills in capturing outside shares of political advertising in our markets.

In addition, we're also making considerable progress in expanding our digital media presence and round two retransmission agreement negotiations are certainly headed in the right direction.

Given the current environment, we're focusing on aggressively controlling our costs while continuing to make strategic investments in the e-media platform and completing our digital build-up. Furthermore, we remain focused on our balance sheet and de-leveraging plan and remain on tract to end 2008 with a total debt leverage ratio of approximately five and a half times.

Now, let me review some of our Q2 highlights.

Our new direct billing totaled $3.7 million for the second quarter. Quarterly re-transmission revenues were up 14% to $4.8 million. We're also ahead of Q1 '08 levels. E-media revenue rose three fold to $2.6 million and is 30% ahead of Q1 '08 levels. Year to date we have generated over $4.6 million of e-media revenue. We remain on track to double our 2007 e-media revenue, which totaled $5.1 million.

Free cash flow totalled $11.1 million in the second quarter of 2008, versus $9.6 million in the second quarter of 2007. Our top 10 category billing decreased 6.8% with auto and fast food down 6.7%, and 11% respectively. Four of our top 10 categories were up year over year with medical, telcom and retail posting gains of about 1% and legal rising 7.6%.

During the quarter, our automotive spending comprised approximately 22% of our core advertising, which is in line of the levels we achieved in Q1 of '08 and the second quarter of last year. With the continued growth in our e-media revenues and our retransmission consent, we're making solid progress against our goal to derive in excess of 30% of the Company's EBITDA from new, non-traditional, high-margin revenue initiative. As noted, our corporate and station level personnel are exercising discipline expense management. At the same time, we continue to allocate resources to our further development promising digital initiatives.

In this regard, last month we brought on board Yahoo veteran Todd Porch as Senior Vice President of e-media. Todd has over seen the Company's e-media operations, including our 28 local community web portals and our e-media content, product, service and sales teams, while continuing to build our next layer of revenue drivers in areas such as internet-related partnerships, third-party distributions, which will extract even more value from our local content. After Matt's financial review I will come back and run through some of our growth drivers and strategies for continued success in 2009 and beyond. But for now, let me turn the call over to Matt for additional details on our Q2 financial results.

Thanks Perry. I would like to review some of the key year-over-year Q2 line items on the Company's income statement and balance sheet.

On the income statement, our total gross revenues came in at $79.2 million up from $77.1 million in the year-ago quarter. Net revenue as reported in our earnings release and as Perry mentioned came in at $70.7 million up from $68.7 million a year ago. Operating expenses totaled $42.1 million in the quarter versus the year ago quarter of $41.9 million. Broadcast cash flow grew to $28.6 million, compared with $26.8 million in the year ago quarter. EBITDA came in at $25 million even versus $23.6 million in Q2 of 2007.

Gross local revenues were $45.7 million versus $46 million in the year ago quarter. Gross national were down to $17.8 million versus $19.3 million in the year ago quarter. Gross political came in at $3.6 million versus $1.2 million last year. E-media revenues again $2.6 million versus $900,000 in the year ago quarter. Cash retransmission revenues, $3.5 million versus $2.9 million last year. Total retransmission revenues of $4.8 million in in the quarter up from $4.2 million last year and trade and barter was flat at $4.6 million in both second quarters of this year and last year.

The Company generated a 40.5% broadcast cash flow margin in the second quarter of '08, compared to 39% even in the second quarter of '07. As Perry noted, the growth in our digital and political revenues overcame the declines in our core and other revenue lines including network compensation.

NEXSTAR's second quarter '08 cost over head totaled $3.6 million included $600,000 of noncash employee stock option expense. And that was consistent with last year's quarter.

Free cash flow, as defined in this morning's announcement, again, was $11.1 million versus $9.6 million in the year ago quarter. And the Company incurred approximately $3.9 million of CapEx spending in the second quarter, most of which is related to our HDTV buildout. The Company's quarterly positive net income of $3.9 million versus the second quarter of '07 net loss of $1.3 million is primarily due to one, a $2 million increase in net revenues .Two, a $730,000 reduction in operating expenses. Three, an interest expense reduction of approximately $3 million. And all of these positive variances were off set by an increase of approximately $550,000 in income tax expense.

In spite of very challenging economic times, you can see that the Company is making real progress in managing both it's P&L through cost containment and its balance sheet through deleveraging.

As far as some balance sheet numbers go, cash on hand at June 30, '08 was $15.6 million compared to $16.2 million at year end '07. Our outstanding bank debt totaled $354.9 million at June 30, compared with $356.7 million of December of last year. Our 7% notes totaled $198.2 million at June 30, 2008.

Total leverage at June 20, 2008 was 6.67 times, The October 2005 amended senior credit facility covenants provided for a total leverage covenant of 6 3/4 through basically year end. Our fully accreted 11 3/8% notes totaled $130 million at March, 31 '08 and became cash pay effective April 1 of '08 totally $83.1 million as of June 30 of '08.

On April 1 of '08, NEXSTAR redeemed approximately $46.9 million of the principal amount of these 11 3/8% notes. Thus, ensuring that they would not be high-yield discount obligation pursuant to the IRS code.

The principal payment was funded with cash generated from operations and from borrowings of the Company's Senior Secured Credit Facility. And finally, our 12% Senior Subordinated PIK notes, which were issued on June 30 of '08 amounted to $35 million.

Thus, total net debt was $655.6 million at June 30 of '08 and that is down compared to $665 million at year end 2007.

I would like to reiterate at year end 2008, we are projecting total leverage excluding our $35 million of PIK notes of approximately five and a half times.

Our guidance for the third quarter is net revenue of between $70.5 million and $72 million, and that compares very favorably with $64.5 million in last years third quarter. We expect our station operating expenses to come in somewhere between $43 million and $44 million.

We expect our corporate overhead to be in a range of $3.3 million to $3.5 million, up slightly from $3.1 million last year. That concludes the financial review for the call.

And if there are modeling questions I will be available in the office and we'll address them specifically.

I would like to now turn the call back over to Perry for some final remarks before question and answer.

Great. Thanks very much, Matt.

Before we go to question and answer, let me highlight the basis for our Company's specific optimism for the balance of 2008 and 2009. First, national political spending is pacing towards record levels for this election year. Given our geography including the battleground states of Pennsylvania, Indiana and Missouri, coupled with several hotly contested statewide races in these states and others, suffice it to say that we are really looking forward to the next 13 weeks from today.

Second, about our retransmission revenue stream continues to grow and we expect substantial increases in our first subscribe for revenue in this renewal cycle which runs through the end of 2009.

We're close to finalizing a significant retransmission renewal that will recognize the importance of locally produced video content, while raising the bar for retransmission consent consideration on a first subscriber basis. We are confident that this trend will continue through our renewal cycle thus generating high revenue growth from this channel and the remainder of this year in 2009, and in 2010.

Third, our e-media activities momentum and results are moving full steam ahead as strong usage trends, advertising demand and innovation on the part of our e-media teams are positioning us well for continued growth.

We have rolled out new features, functions including user-contributed video capabilities, auto classified, a new local search feature, custom micro sites and expanded classified, including jobs, real estates and personals. And we're working right now to improve the user experience and ease of use of our sites.

We expect continued quarterly sequential growth in e-media revenue in Q3 and Q4 of '08 with total 2008 e-media revenue growing 100% from the initial $5.1 million that we recorded in 2007.

With a full year run rate of these new products and features, and more to come in 2009, we expect similar growth from our projected 2008 levels.

Finally, our corporate and station-level personnel are and will continue to exercise disciplined expense management. Thereby, offsetting the impact of soft national and local economies. Not withstanding our current market valuation, NEXSTAR in 2008 is consistently achieving record operating results and out-performing the industry by adhering to our core strategies for growth, including building out our mid-market platform, producing leading local news both on air and online and developing new revenue streams. While the economy has emerged as a strong headwind for all businesses today, we are are confident that NEXSTAR will continue to achieve record financial results in 2008 by attracting strong shares of political advertising in the second half of the year, while further growing our retransmission revenue stream and focusing on extracting value from the convergence of technology, digital media and traditional advertising.

We expect our ongoing approach to actively manage our station portfolio, appointing leading local management teams, developing new revenue streams and focusing on our balance sheet and capital structure will continue to serve investors well. In closing, thanks again for joining us. Now, lets get to your Q&A to address specific areas of interest. Operator.

Thank you, ladies and gentlemen. (OPERATOR INSTRUCTIONS) Our first question coming from Bishop Sheen from Wachovia.

Good morning, this is David [Sabare] calling in for Bishop. A few questions, first of all the ad environment back half of 2008 and into 2009, just got off one of your peers' conference call and they were pretty bare in the ad environment.

And the M&A environment. I know that you guys have said you may be interested in selling some noncore marketing assets. Just curious on your insight there.

And then as far as the covenants, you guys feel pretty good about the rest of the year and into 2009, given the soft core advertising outlook.

And finally, if you could comments on your free cash flow going forward. Thanks.

Dave, this is Matt Devine, let me grab a couple of those items for you. As far as the covenants go, I think you can tell that as we reiterate on this call, we expect that we'll be levered down to about five and a half turns by year end. You know that will give us at least a full turn okay, of comfort -- our debt covenant. So we feel pretty good about that. We have seen our month of July, and we're happy with what we're seeing there. And so we really don't have any major concerns about covenant compliance.

Free cash flow will continue to be utilized to build out our DTV platform, so that we're in compliance by February of '09 and any excess free cash flow will continue to be thrown at our outstanding debt. We envision getting below five turns sometime mid-next year. And so we will lay the focus on the continuing deleveraging of our balance sheet.

And I'll speak a little to ad environment and the M&A environment. I would say that third quarter to us and both Brian Jones and Tim Bush have been in our market in face to face meetings building our third quarter forecast from the bottom up.

You know I would say it is the same as our first two quarters.We really don't see any headline movement one way or the other. In fact July our local revenues on an internal reported basis were 1% ahead of the prior year. Now that is not spectacular growth, but it's not a calamite, either.

We think that the guidance, basically, would provide for similar core revenue growth or lack thereof in the third quarter, as to what we just reported for second quarter, with political and e-media revenue being the drivers of the positive revenue growth in the quarter.

So we don't really see any change in tone in the back half of the year and the first half of the year's other than the virtual tsunami, political revenue that we would expect over the next thirteen weeks with the election. Thirteen weeks from today.

As to the M&A environment, we would consider monetizing certain non-strategic assets. Matt has been running point on that process, but again, the credit market is an impediment there to people getting financing or delivering committed financing and that would be an absolute requirement before we would commit to -- cut one of the cattle from the herd, if you will.

So we're going to be very careful there in terms of moving down the road only with people that can demonstrate committed financing. So the process is a little bit slower and more tedious in this environment than perhaps we would like.

Okay, great, thanks.

Our next question coming from the line of Edward Atorino from Benchmark Capital.

Hi, good morning. A pretty nice performance overall. Again, as the previous caller said there were some comments at a previous call. Could you tell us -- everybody knows the disaster. Could you talk about some other categories, just go down some of your top five. Pluses an minuses, not much you can do about auto. And what was auto speaking on a year to year basis? What was auto, I should say?

Sure, auto in Q2 was down 6.7% all in for us.

That's not bad.

No, and I will tell you that we've worked very hard on the local dealer side. And that may be why on the comparison our automotive result where it looks a little better than others. We have seen a decrease in factory money from the national and regional shops. But again our automotive spending was down about 7%, as we said.

That is down about 20% --

It was 22%, Ed, on our nonpolitical revenues in the quarter. Fast food was down 11% and that has more to do with specific accounts moving in and out of network or spot. And it that is been a category that has been volatile. Because one account, like Pizza Hut, can move their money in network in the third quarter. And that network would affect us. Paid programs was down a little bit as was the furniture category.

Medical and Telcom were both up about a percent. Department and retail stores for us was up 6% for the quarter. And insurance was down kind of double digits. Attorneys were up 7%, and those were the top categories for us in terms. We have four up, six down, all in, you know, you call virtually flatish local revenue. There is no question that national revenue was down over the prior year. We kind of see more of the same happening over the back half of the year with the exception of political revenue will start to compound now as we march closer to the election.

I might have missed your saying this, could you contrast the local versus national. You may have said that and I don't remember what was said.

Yes, let me give you a little more insight to it, Ed. Gross local revenues in the quarter came in at 45.7 million, versus 46 million in the year ago quarter. So that is down about 1%. National came in at 17.8 million versus 19.3 million. So that is down 8%. So if you look at the core revenue, we're down a little under 3%. Actually 2.75%.

That is actually not bad.

Well, you know it is not bad, but we like it when the arrow is going the other direction. But thank you.

Business is pretty tough. Other question, there was a big article in Ad Age that the cpg's may be cutting numbers. They talked mostly about the magazine business. Do you do a lot of cpg business? And have you heard of any budget cuts from your market from Colgate and D&G and those guys?

Again, packaged goods as a category for us represents less than 2% of our revenue.

Okay, it doesn't matter, got you.

Just a small piece of it -- other category highlights for you, in terms of non-top ten categories that -- our ag billing was up almost half a million in the quarter.

And that obviously doesn't affect the northeast or New York, but it certainly affects Champagne and Peoria and our mid-west markets. Drug stores were up. The lotteries, which is kind of an in and out business. The lottery business was up over 400 grand. Carpets, radio, cable, satellite was up half a million dollars for us. A lot of that is tied to mandatory spending and some of our retrans agreements. Those are some of the categories where we did see signs of life in the second quarter.

Terrific, thanks.

(OPERATOR INSTRUCTIONS) Our next question coming from the line of Stacy Finerman from Goldman Sachs. Please go ahead.

Hi, my questions have been answered .Thank you.

Thank you. Our next question coming from the line of Tracy Young from J.P. Morgan. Please go ahead.

Hi, I don't know if you said this but how much are you expecting in politicals for the third quarter? And have you seen any issue advertising? And what do you expect for the full year?

Sure, Tracy, we haven't given specific political guidance for the third quarter. But let me give you the kind of breakdown of the political revenue on the books for the year as of -- as of yesterday afternoon. Approximately 30% of that revenue was issue advertising. 35% was tied to the presidential election. About 19% for Congress, both Senate and House of Representative races that are active. About 16% of our revenue was tied to state and local offices. And again in 2004, just as a comparison,n we finished with about 33% of our revenue coming from issue. 18% presidential, 25% congressional, and about 24% state and local. And obviously, the the revenue as we said as we go from month to month through the third quarter, at the end of each month will double the prior, an October will be four times that.

And I think we feel comfortable with our guidance of the $30 million for net political for the year. And from all accounts, the money will continue to flow in. We're probably booking on the order of half the three quarters a million a week right now. And that will continue to grow throughout the quarter. And then obviously, multiply by a factor in the month of October.

All right, thank you.

Our next question coming from the line of Linda [Carn] from Credit Suisse. Please go ahead.

Thank you, can you just tell us what the revenue in EBITDA from the quarter of the KTV acquisition? How much revenue or cash flow did that represent?

Yes, Linda, KTV is immaterial. In the quarter it threw off approximately $200,000 of broadcast cash flow. Since KTVE is married up with KARD in that marketplace, it is kind of difficult to dissect what the incremental revenue off of that would be.

But I would say if it generated about $250,000 broadcast cash flow in the quarter. You could probably slap a 40% margin against that to calculate the incremental revenue.

Okay, thank you.

You're welcome.

Mr Sook, I'll turn the call back to you for closing remarks, sir.

All right, well thank you all for joining us today for our conference call. As Matt mentioned, if there are specific modeling questions or we have areas of interest that did not get answered on the call, please feel free to give him a call.

And we'll look forward to talking to you again in three month's time to report our third quarter operating results. Thanks, again.

Thank you ladies and gentlemen, this does conclude the conference call for today. We thank you all for your participation and ask that you please disconnect your lines. Have a great day, everyone.