Nexstar Media Group Inc (NXST) 2009 Q1 法說會逐字稿

Good day, and welcome to Nexstar Broadcasting Group's 2009 first quarter conference call. Today's call is being recorded. All statements and comments made by management during this conference, other than statements of historic fact may be deemed forward-looking statements within the meaning of Section 21 of the Securities Securities Act of 1933 and section 21A of the Securities and Exchange Act of 1934. The company's 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. 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 conference call over to your host, Nexstar president and CEO, Perry Sook. Please go ahead.

Thank you, Don, and good morning, everyone. Thank you all for joining us this morning to discuss Nexstar's 2009 first quarter operating results and the current economic environment. With me today is Shirley Green, our Controller and Interim Chief Financial Officer. We accomplished a great deal this quarter in the face of a tough economic climate. Our multi-platform content distribution strategy drove industry-leading results, and reflects continued significant growth in retransmission consent and in e-Media revenues. Total first quarter net revenues amounted to $55.5 million compared to $63.7 million in the year-ago period. That's a decline of 12.9%. All in all, our strategy to build complimentary high margin revenue streams is serving us well in this environment and we made further progress in Q1, which will benefit our future results. The company also made terrific progress during the quarter with our ongoing leverage reduction initiatives, and we will realize significant future benefits based on both the repurchases and lower overall cash interest obligations.

During the first quarter, we repurchased approximately $29 million of our outstanding notes at a 65% discount to face value. Almost all of the repurchase notes were cash pay 11.375 securities, although we also picked up approximately $1 million of our 7% senior subordinated notes. We exchanged $143.6 million of the outstanding 7% senior subordinated notes due 2014, for $142.3 million of Nexstar's 7% senior subordinated pick notes due 2014. Together, the repurchases and the exchange will reduce our 2009 cash interest obligations by approximately $12 million. In addition, the company has implemented cost reduction programs to further offset the current environment, including the regional consolidation of back office functions, including traffic and master control and accounting, all of which will provide further operating cost reductions starting in Q2 of this year.

I'll run through some of our other Q1 highlights and then after that, I'll ask Shirley to provide a financial review of the quarter. Our quarterly retransmission consent revenues were $6.6 million, and that exceeded the Q1 2008 levels of $4.6 million by over 42%. In the first quarter, we announced new multi-year retransmission consent agreements, which are expected generate more than $75 million in revenue over the life of those agreements, and more than one third of that revenue will be realized in this year. The first quarter growth is a reflection of our success on that front. Q1 e-Media revenues came in at $2.4 million, exceeding last year's first quarter by 18%. Our new to television local direct billing for the quarter was $2.9 million, and even in this environment, that was a slight increase over the prior year.

During the quarter, our automotive spending comprised approximately 16% of our core ad spend, and that's down from 23% in the first quarter of 2008. Factory and dealer group spending were the weakest, led by -- and they led the decline -- the decline was led by the big four decrease in spending, our dealer group spending was down to a lesser amount. Beginning in the current quarter, we are reporting revenue from our new agreement to manage the seven Four Points Media stations. We will also have a full quarters contribution from KARZ, which we acquired in late January, and a partial quarter benefit of our ownership of WCWJ, which we closed on earlier in this month. Our broadcast cash flow was $14.2 million in the first quarter of 2009. That's down 33% from the first quarter of 2008. EBITDA including one-time expenses came in at $7.5 million, down 59% from the first quarter of '08. Let me now turn the call over to Shirley Green to provide further detail on our financials. After which I'll come back and run through some recent developments and our strategies that we have undertaken to weather the current environment. Shirley?

Thanks, Perry. I would like to review some of the key Q1 line items on the Company's income statement and balance sheet. First, let's start with the P&L. Our telegross revenues in Q1 of '09 were $61.5 million versus $71.2 million in Q1 of '08. Net revenue was $55.5 million versus $63.7 a year ago. Operating expenses were $41.3 million versus $42.4 million, and broadcast cash flow was $14.2 million this year over $21.3 million last year. EBITDA was $7.5 million this year versus $18.1 million of last year. Of our revenues, our local gross was $35.9 million this year versus $41.9 million last year. Our gross national revenue is $12.1 million in this quarter versus $16.2 million last year same quarter, and gross political revenues were $0.4 million this year versus $2.1 million last year. Our e-Media revenues, $2.4 million this year versus $2 million last year. Total retransmission revenue were $6.6 million this year versus $4.6 million last year and our trade and barter revenues were $4.3 million this year versus $4.4 million a year ago same quarter.

First quarter 2009 total operating expenses declined by 11% from the same period in 2008. The company incurred a loss from operations of $1.3 million for the three months ended March 31, 2009, inclusive of a $2.9 million reflected in our corporate overhead related to the exchange offer completed during the quarter, and a gain of $2.3 million related to asset exchange and disposals. In the year-ago period, Nexstar reported an operating loss of $0.1 million, inclusive of a one-time noncash contract termination charge of $7.2 million and $0.9 million in asset exchange gains. Overall, Nexstar's first quarter 2009 corporate overhead costs totaled $6.8 million, up from $3.2 million in the year-ago period. The increase is primarily due to the approximately $2.9 million of professional fees that I just mentioned, which were incurred for the debt exchange. First quarter corporate overhead included $0.4 million of noncash employee stock option expense. The company recorded an $18.6 million pretax gain related to the retirement of debt during the period.

Now, on our balance sheet, Nexstar's outstanding debt at March 31, 2009 consisted of bank debt totaling $391.3 million, 7% senior subdebt of $46.8 million. This was the remainder of our cash pay 7% that did not get retired in the exchange. The 7% senior subdebt, which is the pick security that we just entered into is $125.4 million. 11 3/8 senior subdebt of $50 million and the 12% senior sub pick debt of $38.6 million for a total outstanding debt of $652.1 million, plus our cash on hand of $12.1 million gives us a total net debt of $640 million at March 31. This compares with $646.3 million of outstanding net debt at December 31, 2008.

However, our outstanding debt for measuring covenant compliance was $476 million, since the pick securities are excluded. Nexstar's total leverage at March 31, 2009 was 5.06 times compared to a covenant of 6.5 times, and our senior leverage covenant was 4.03 versus the covenant of 4.5. Nexstar used approximately $10 million to retire approximately $29 million of outstanding indebtedness that had previously counted, in determining our leverage covenants. The company's Q1 2009 net repurchases consisted of retiring approximately $28 million of face value 11 3/8 senior discount notes at 34% and $1 million of cash pay 7% senior subnotes at a 41%. And the remaining quarters of 2009, the company will incur approximately $5 million of capital expenditures to complete remaining digital television conversion requirements, and cover maintenance CapEx. That concludes the financial review for the call. Now I'll turn the call back to Perry for some additional remarks before our Q&A. Perry?

Thank you very much, Shirley. Our high level of activity and financial performance in Q1 demonstrates that we are advancing our strategies to anticipate the needs of our viewers, our web users and our advertisers, while undertaking new initiatives to both delever our balance sheet and to build shareholder value. With a focus on driving industry innovation and building on our quadruple play of opportunities, in traditional media, subscription-based revenue, e-Media, and digital and mobile media platforms, we are consistently outperforming the industry, in terms of our operating and financial performance. And doing so, the Nexstar organization has differentiated itself in the industry, and this has led to new opportunities, such as the recently announced management agreements that allow us to leverage the skills and the operating discipline of our entire management team. We've positioned Nexstar extremely well to weather this current environment, and our revenue performance I think, bears this out. As I mentioned earlier, we have some new revenue layers that will come online as we move throughout 2009, so let me quickly review those.

First, we will look at specific situations to opportunistically build our station portfolio, which was recently expanded through the acquisitions of KARZ in Little Rock, and WCWJ in Jacksonville, Florida. These transactions met our disciplined acquisition criteria, as they are strategic, accretive and deleveraging. KARZ complements Nexstar's NBC affiliated Little Rock, KARK, and Little Rock now represents the 19th market where we provide services to more than one station. Our WCWJ acquisition marks Nexstar's entree into the state of Florida, and this station's financial results will also benefit from substantial retransmission consent revenue under our current contracts, and the launch of our proven community portal model for e-Media. The benefits of our second round of retransmission consent agreements, which was evident in Q1 with a 42% rise in revenue from this source will see more of the same throughout the year. We have several additional retransmission agreements that I will renegotiate in 2009, so we will realize further upside to the annualized run rate of our retrans revenue with significant growth in 2010, when we will have a full year benefit of the renegotiation of most of our major agreements.

We're also confident in achieving the continued double-digit revenue growth from our unique e-Media platform, both organically and through the launch of our community portals, and our new markets like Jacksonville. Our online initiatives are leveraging our brand, our content, and our local relationships of our television stations. And the strong usage trends and advertiser demand and innovation on the part of our e-Media team have positioned us well for continued growth from this revenue source. I'm also very excited about the recent agreement we announced with Four Points media group, owned by an affiliate of Cerberus Capital Management, whereby Nexstar will provide management services for Four Points seven television stations, in the four markets they serve. This alliance, I believe, is another endorsement of the company's leadership, and we are confident that the effectiveness of our operating strategies will be beneficial for both Four Points and for Nexstar. This completely new revenue channel presents tremendous opportunities for Nexstar, and we are in dialogue with others about ways that we could work together as well.

In closing, I would say our unique approach to managing convergence, creating opportunities allowed us to stand strong through some very difficult macro head winds in Q1, and it positions Nexstar I think with some level of resiliency for the rest of the year. We fully expect that our ongoing approach to actively manage our station portfolio, our balance sheet, and our capital structure by practicing prudent expense management and developing new revenue streams, all will allow us to continue to build and industry-leading business model and prosper in the economy as the ad markets rebound, and we will also benefit again next year from a substantial political revenue component. I would like to thank you again for joining us this morning, and now let's go to the phone for your Q&A and specific areas of interest. I'll turn the call back to Don.

Thank you.

(Operator Instructions)

And our first question comes from the line of Bishop Cheen with Wachovia. Please proceed.

Hi, Perry. Hi, Shirley. Thanks for taking the call. I have three very quick housekeeping questions, but I needed to ask you, to please add some color, talk about the separation of Matt Devine.

Well, Bishop as you know, it is our company policy not to talk comment about individual personnel matters, but I will just say that Matt's resignation was not prompted by me, or by the Board, and he indicated in his resignation notice to me that he was resigning for personal reasons, and that he plans to pursue other opportunities. And I really can't say much more than that.

Okay, but that's fine. That's, that is helpful color. Let me move to a couple of housekeeping things, just in random order. Talking about the $12 million less in interest expense, is that an annualized pro forma, or just for the remaining nine months of '09?

That would be an annualized number.

Annualized, that's what I thought. Okay. And then, the $75 million life of the new transmission, retransmission revenue, did I hear you right when you said one third roughly in 2009?

That is correct.

25 in 2009. And how much of that is cash, and how much of that is guaranteed advertising?

A little in excess of 80% of it is contractual cash payments, and a little less than 20% of it is contracted ad spend commitments.

Got it. Okay, and then on the Four Points media deal, can you quantify for us what it would mean for you in terms of at least the minimum guarantee fees for management?

Well, I think we reported publicly, and again, we've got a confidentiality provision around that agreement, but we did report publicly that there's a $2 million base management fee. And we have the opportunity to earn incentive payments, based on the incremental broadcast cash flow that we create. And in very round numbers, we think that there's incentive opportunity on annualized basis if we do what we think we can do, equal to or greater than the base management fee income.

Okay, and Shirley, the balance sheet rundown was very helpful with all the moving parts.

Yes.

And I take it that the ground has stopped shaking now, and that's pretty much what the balance sheet looks like today on May 15th? I mean there weren't other shoes to drop from those exchanges, correct?

That is correct.

Okay, and last, Perry, Q2, does it feel like Q1? Does it feel different? Can you give us color around that?

Yes, I think the trajectory of Q1, I'm sorry, Q2 is -- Q2 is pretty similar to Q1. We're not seeing significant changes in either direction. It's a lot like, a lot like the first quarter. Obviously Q2 has more revenue in it than the prior -- than first quarter, so the bar is set higher. But in terms of performance to the prior year, I think we'll be right in the same kind of neighborhood on percentage bases. We are writing business in the quarter, and that has sustained and much like first quarter, our internal projection model has improved as the weeks of the quarter have gone on. And we think that -- thematically, it feels a lot -- a lot like the first quarter did, Bishop.

Thank you very much.

Thank you.

And our next question comes from the line of Gene Neavin with Federated Investors. Please proceed.

Hi, there. I've got a few questions. First question is regarding the corporate expense line item. If I heard correctly, there is maybe $2.9 million of expense in that number related to the bond exchange, is that correct?

Yes, that is correct.

Okay. So if I take that expense out, the corporate expense line is still meaningfully higher than what I thought was probably a cost reduction quarter. Are there any other expenses in that corporate expense that is one-time in nature?

There are some charges for the restructuring of our (inaudible) operation.

How much would that be roughly?

About $400,000.

Okay, and then there -- you also said there was $400,000 of noncash stock compensation in the first quarter 2009. How much was in the first quarter 2008?

I think it was--

Similar.

Yes, roughly equivalent.

Roughly, okay. Okay, and I believe you gave this, but I didn't really hear it. What was local revenue for the first quarter year-over-year?

Local revenue was $35.9 million this year versus $41.9 million last year.

Okay, and how about auto? How did that do in the quarter?

Well, I reported automotive spend comprised 16% of our core ad spend versus the prior year, 23% and it was in absolute dollars, it was about a 40% decline.

Okay. All right. And -- can you just give a little more color on the timing of the retrans? Regarding how, how much retrans you saw come into this quarter versus how it's going to time for the remainder of the year, and even into 2010? I realize not all the contracts are renegotiated, but from what you have negotiated so far, is -- could you just talk about that a little bit?

Sure. If you take our first quarter number of $6.6 million, that's a pretty good, pretty good base run rate for 2009, just a four-quarter multiplication. We have a substantial retransmission agreement up for renewal at the end of June. And it is one of our top five, and we are already in discussions there. And then we have additional agreements that are smaller, but still significant with mid tier multi hundred thousand subscriber carriers that expire at various points in the fourth quarter.

Okay. How many subs are there in the June agreement?

It's a seven-figure number.

Okay. Okay. And the cost reductions that were discussed on the last conference call, have those -- are those in the first quarter numbers? Or is that something that we're going to see more of in the second, third and fourth quarters?

When you look at the regional consolidation of traffic accounting, and certain master control functions, those were, for all intents and purposes, completed first quarter, early second quarter. You'll begin to see the significance of those in the second quarter, and they will be fully realized on a run rate basis beginning in third quarter. But you'll get the bulk of the pickup, will begin to manifest in the second quarter.

Okay, and my last question, regarding covenants, it looks like with the bond exchange, you've probably -- the total debt covenant is maybe not as much of an issue, but the senior secured leverage covenant could get tight this year. Can you talk about what options you have, whether it's buying back bank debt below par, or possible equity cures, or is it just a matter of trying to get the EBITDA number right for the year?

Well, number of things work in our favor. First of all, our interest expense will be down significantly on a run rate basis. So that, that excess cash can be used to pay down debt. Secondly, our CapEx for -- as you saw, reported at the end of 2008 was approximately $33 million. It will be approximately $13 million for the year, and we reported a number in excess of 7, so there's about 5 from this point forward. So, that will again, rapidly free up cash on a go-forward basis for debt reduction. We, as I said, are in discussion not only operationally what to make sure that we are going to be in compliance. And by the way, our projection models internally under various scenarios show that we will remain in compliance throughout the year. But obviously we're in active negotiations about potential other management agreements that would further buttress EBITDA, beyond what the owned and operated stations produce. So we're very focused on it. And we feel very comfortable that particularly with the exchange and the other moves that we have made internally and externally here, that we will be -- that we will clear the bar.

Okay. Do you have the ability to buy back bank debt below par?

We, we do under certain circumstances. But obviously we -- we're going to be very good shepherds of our cash, in terms of making sure that we maintain liquidity through this environment and -- but we do have the ability to buy back debt, yes.

Okay. That's all I've got. Thanks a lot.

(Operator Instructions)

And Mr. Sook, there appear to be no further questions at this time I'll now turn the call back over to you. Please continue with your presentation or closing remarks.

All right. Well, thank you, Don. And thank you, everyone, for joining us this morning for a review and discussion of our Q1 results, and a bit of a look forward for the remainder of the year. We look forward to coming back to you in about three months time to report on the second quarter and our outlook for the back half of 2009. Thanks again.

And ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation, and we ask that you please disconnect your lines.