Nexstar Media Group Inc (NXST) 2009 Q3 法說會逐字稿

Good day and welcome to the NEXSTAR Broadcasting Group 2009 third quarter conference call.

Today's call is being recorded. All statements and comments made by management during today's comments 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 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 the non-GAAP information to GAAP measurements are included in today's news announce many. The Company does not undertake any obligation up to date the forward-looking statements reflective of changes in circumstances.

At this time I would like to turn the conference over to your host, NEXSTAR President and CEO, Perry Sook. Please go ahead, sir.

Thank you, Kevin. I'd like to say good morning everyone, and happy Veteran's Day. Thank you for joining to us review NEXSTAR's 2009 third quarter operating results. Tom Carter, our Chief Financial Officer, is on the call with me today, and after our brief remarks we will open the floor now your Q&A.

NEXSTAR's focus on growing new revenue streams and leveraging our lower platforms continue to serve us well on the quarter. During Q3 our multi-platform content distribution strategy, revenue diversification initiatives, and continued success in generating new local direct billing led to another period of solid revenue results, despite significant reduction inside political advertising and the overall downturn in ad spend due to the recession. Total third quarter net revenue amount to do $60.4 million, a 14.1% decline from third quarter revenues of $70.3 million in the year ago period. With the decline reflecting a $6.8 million or 87% reduction in gross political spending as well as the impact of the general economy.

Another way to gauge NEXSTAR's performance is to compare our Q3 '09 topline to 2007 rather 2008. You'll recall that Q3 of 2007 was the high point of the market, and looking at the business this way, our Q3 '09 is down 6.3% from our '07 levels, which we feel is fairly remarkable considering the significant change in economic conditions during that time span. Notwithstanding the current state of the economy, the third quarter extended our record growth from our retransmission consent, our e-MEDIA and our management fee revenue streams. In total, revenue from these sources increased to $11.4 million in the 2009 third quarter. That's a 28% rise over what we generated in the same period last year.

While we continue to generate record quarterly revenue from these high margin sources, NEXSTAR also achieved year-over-year and quarterly sequential improvement in new local direct billing as we began to see some recovery of television ad trends. As a result, NEXSTAR's 2009 revenue comparisons, excluding political, have improved on a quarterly sequential basis throughout the year with Q2 being better than Q1 and Q3 better than Q2 this year. With this trend extending into the fourth quarter to date, we are optimistic that traditional television add spend is stabilizing in our markets and we also expect to generate ongoing aggregate revenue gains from our retransmission consents, management agreements and e-MEDIA revenue activities.

In a moment, Tom will review the financials in more detail and the recent credit agreement amendments, but I will also jump ahead right now to report that as a result of our previously announced note re-purchases and our exchange offer, 2009 third quarter total interest expense was reduced by 25.3%, cash interest expense was down 52.2% from the same period last year. In addition, free cash flow of $5.3 million in the third quarter of 2009 represented a 40.8% rise from last year and benefit from reduced capital expenditures related to the completion of our digital television conversion spending and the reduction of the cash interest expense.

Before I turn the call over to Tom for a review of our financials, let me run through some of our Q3 highlights. Third quarter retransmission consent revenues of $7.9 million exceeded Q3 '08 levels of $6.2 million by 27.4%. In 2009, year-to-date we have generated $22.5 million in retransmission revenue. Q3 e-MEDIA revenue came in at $3 million surpassing last year's third quarter by 8.8%, and we are one of only a few public media companies showing growth in e-MEDIA revenue throughout 2009. In 2009, to date we have generated approximately $8.3 million in e-MEDIA revenue, or about 13% more than we did in the comparable 2008 period, and business on the books is for the full year is already ahead of last year's total.

In the third quarter, we reported $500,000 of management fee revenue from our agreement earlier this year to provide services for the Four Points Media Group and their community portal websites, their stations and websites. Having completed the first six months of this relationship, we believe this is proving to be a win-win for both parties.

New to television local direct billings totaled $3.93 million for the third quarter, representing an increase both over second quarter of $3.72 million as well as over 2008 third quarter billings of $3.71 million. Increased project and event selling and strong individual efforts at our local stations, contributed to this achievement, and this is yet another way that our Company is mitigating the impact of the challenging environment. On this front, one month ago, NEXSTAR launched a Company-wide information and education campaign entitled, "101 Reasons TV Advertising Works." This initiative, which can be found on our corporate website, also underscores NEXSTAR's commitment to developing new and creative ways to highlight the benefits of local television and its role as the most effective advertising medium for local businesses. We've had a positive response to this campaign in our markets and we feel it is playing a role in the improving trends we are seeing herein Q4.

During the quarter automotive ad spend comprised approximately 17.1% of core advertising spend. It was 23% in the third quarter of 2008 and 15.4% of our Q2 '09 ad spend revenue. Probably of more importance is that our 3Q auto spending on a dollar basis rose by 7.8% over Q2 levels and was 12.3% higher than Q1 levels. Our individual dealer spending has been pretty much constant for the past three quarters, whereas dealer group spending has been the catalyst of the auto category uptick. With this trend now underway, we believe we have seen the lows of the auto category add spending.

Our broadcast cash flow totaled $18.6 million in the third quarter of 2009. That's down 32% from the third quarter of 2008 and adjusted EBITDA came in at $14.6 million, down 37% from third quarter of '09. Free cash flow was $5.3 million compared with $3.8 million in the comparable period of 2008.

Now let me turn the call over to Tom to provide further detail on our financials and then we'll come back to talk a little bit about 2010. Tom?

Thanks, Perry.

I'd like to review some of the key Q3 line items on the Company income statement and balance sheet as well as comment on the recent credit facility amendments. Before I do that, as reported in this morning's press release, NEXSTAR broadcasting tests the impairment of its intangible assets whatever events or changes in circumstances dictate that such assets might be impaired. This testing resulted in a $16.2 million non-cash impairment charge in the September 2009 quarter, related to goodwill and broadcast licenses. In the year ago period, the Company recorded a $48.5 million non-cash impairment charge related to goodwill, broadcast licenses, and network affiliation agreements.

With regard to do P&L comments, net revenue of $60.4 million was down 14.1% compared to $70.3 million in Q3 '08. Broadcast cash flow in Q3 '09 was $18.6 million compared to $27.3 million in the previous years period. Adjusted EBITDA was $14.6 million, compared to $23.1 million in the previous year. Gross local revenues of $37.3 million were down 12% compared to Q3 '08's $42.4 million and gross national revenues were $13.3 million, down 18.9% compared to $16.4 million in the year previous period. Core revenue both local and national together of $50.6 million was down 13.9% compared to the same period in '08. We feel this is a good result relative to some of our peer group comparisons.

e-MEDIA revenues, as Perry mentioned earlier, were $3 million compared to $2.7 million in the year ago period and, an increase of 8.8%, and total retrans revenues were up 27.4% to $7.9 million in Q3 '09, approximately 80% of which was fee-based compensation. Management fees were $500,000 during the quarter, and trade and barter revenues were up approximately 9% to $4.7 million. In 2009 third quarter, the Company incurred a loss from operations of $13.6 million compared with $36.8 million in the year ago period, both of which reflect the impact of the impact charges that I discussed as well as the benefit of net gains on asset exchanges and disposals. Excluding these items, we're virtually break-even on an operating basis during the most recent quarter. Overall NEXSTAR's third quarter 2009 corporate overhead costs totaled $4 million, which included certain expenses associated with the credit agreement amendment, compared to $4.2 million in the year ago period. Third quarter 2009 corporate overhead included $400,000 of non-cash employee stock option expense while the year ago period included $500,000 of that same expense.

Moving on to the balance sheet, NEXSTAR's outstanding debt as of September 30, 2009, consisted of bank debt totaling $407.6 million, which was broken down into $322.6 million in outstanding term loans and $85 million outstanding on the revolver. The 7% senior sub-debt was broken into two categories, the cash pay, semi-annual cash pay portion of $46.9 million the PIK security, which PIKs through January 15, 2011 of $130 million. There was $50 million outstanding under the 11.375% senior sub-debt and $41.1 million under the PIK 12% debt and again that PIKs through January 15, 2010. Total debt stood at $675.6 million. However, for covenant compliance purposes under the credit agreement that amount is deemed to be $504.5 million since all of the PIK securities are excluded for that calculation.

Last month, NEXSTAR Broadcasting and Mission Broadcasting, borrowers under the senior secured credit agreement, both the term loan and revolving credit facilities, secured amendments from the lending group which adjusted certain financial covenants, the cost of borrowings and other conditions under the agreement. NEXSTAR's total leverage as calculated under the credit agreement for September 30, 2009, was 6.5 times compared to a covenant of 6.75 times, and our senior leverage covenant was 5.25 actual versus a covenant of 5.5. The amended NEXSTAR credit agreement revises the calculation of our leverage ratio to exclude netting of cash and cash equivalents against the debt calculations.

Pursuant to the amendments the maximum consolidated total leverage and maximum senior leverage ratio, again as define in the credit agreements, increased quarterly through 6/30/10 at which time the maximum ratios will be 10.25 times and 7.5 times respectively. Thereafter, the maximum consolidated total leverage ratio and maximum senior leverage ratios will decline on a quarterly basis through 3/31/2011, after which they will be 6.0 and 4.0 times, respectively. For the quarter ending 12/ 31/2009, the maximum consolidated total leverage ratio and maximum senior leverage ratios are 8.75 times and 7.0 times respectively. And we believe the amendment provides us with the leeway needed to avoid potential covenant issues as business continues to stabilize.

Our credit agreement continues to require mandatory prepayments of principal as well as a permanent reduction in the revolving credit commitments, based on the historical amortization schedule in a quarterly excess cash flow recapture. The credit agreement also places additional restrictions on the use of proceeds from asset sales, equity issuances or debt issuances, and allows the Company the ability, subject to covenant compliance and limitations, to maintain a restricted payments capability. The amended NEXSTAR credit agreement also increases the cost of borrowing, those details and the entire credit agreement facility amendments and modifications are available in the current report on form 8K filed by NEXSTAR on October 15 of this year.

Total interest expense in the third quarter of 2009 was $8.7 million, compared to $11.6 million in the same period of 2008. Cash interest expense for the quarter was $4.7 million compared to $9.9 million for the same period the previous year. Cash interest expense for the first nine months of 2009 was $17.9 million lower from the $30.5 million for the same period the previous year. NEXSTAR's Q3 CapEx of $4.9 million compares with $10 million in the third quarter last year as we concluded nearly all of the remaining spending required for our digital television station conversion. We expect our CapEx run rate to continue to decline on a quarterly basis through the end of 2010.

That concludes the financial review for the call and I will turn it back over to Perry for some additional comments and remarks before the Q&A.

All right. Thank you, Tom.

We believe today's report highlights the ability of our station, e-MEDIA, and corporate personnel to operate effectively in this environment and why this discipline and focus has positioned the Company to benefit as the advertising demand returns. Frankly, 2009 is the toughest year I've seen in my 29 years in the industry, but due to our foresight and ability to roll up our sleeves, I'm proud of the way we've managed and performed throughout this year and positioned the Company for the future. As we look forward to 2010, we are focused on a positive growth scenario, and this is before we consider the anticipated recovery of core ads spend.

Let's start by looking at next year's political landscape, in our New York, Illinois, Texas, Arkansas, Missouri, and Pennsylvania markets, in particular. Because of the contested nature of many of the local and statewide races, we see unprecedented activity in a nonpresidential election year. We already have 2010 orders on the books in the Illinois governor's race for the primary, and we expect to see more activity ramp up as we approach this and other Q1 2010 primary dates.

Retransmission revenue will also continue to grow again next year. We have successfully renegotiated over 180 of our 220-some agreements with the cable companies, sat. broadcasters, and other distribution partners with the remainder coming up for renewal at the end of this year and by the end of 2010. At that point, we'll mark the completion of our second cycle of renewal agreements. As we come up on the five-year anniversary of our historic path toward negotiating our first cash agreement, it's becoming apparent to us that because we were first in negotiating for retrans dollars that we are a cycle ahead of most of the rest of the industry. With most of our second cycle agreements now in force and with contractual escalators in place, we have in each of those agreements, 2010 will be another period of solid growth from this revenue source and will realize the full benefit of all of our round two contracts beginning in 2011.

As we see a stabilization of local economies our e-MEDIA revenue is also poised for continued growth next year. We believe that the rates will continue to increase over the mid-teen growth that we've achieved year-to-date in 2009. To remind everyone, our online strategies are to literally build community portals that is are only associated with the local TV stations by the fact that TV promotes it as a separate business. We remain focused on being the leading local online destination in our markets by creating hyper-local communities of interest and super-serving them with contents. About half of our advertising on local websites are from advertisers that have never used our television stations before, while the other half of our revenue is derived from convergence packages that we sell by using our online and on-air assets coupled together. We've record twelve consecutive quarters of revenue growth using this strategy. That represents the entire period that we've tracked this metric, and we've been successful because we are delivering both a very targeted audience and very high ROI for our local advertisers.

Last month we named a new Senior Vice President of e-MEDIA Sales, who is our revenue czar for this area and he is responsible for building revenue from our local community web portals and our contents and our product and service and sales groups. We are fairly unique in 2009 in continuing to report year-over-year growth in this revenue stream and we intend to launch additional interactive and on demand services that deliver media rich content to our consumers and opportunities for our local advertisers.

We are also anticipating something in the way of a recovery on the core ad revenue, though our crystal ball isn't saying exactly when and by how much. We fully expect automotive to rebound to levels higher than what we've endured throughout this year and the anecdotes coming out of Toyota, General Motors, and Ford are all very positive. Ford has already bought packages in a number of our markets for the 2010 Winter Olympics next February. The Olympics will air in prime time, and we think this can be another positive driver of 2010 first quarter comparisons.

In closing, the results in 2009 to date demonstrate that NEXSTAR has weathered the impact of the recession as we continue to leverage our traditional television broadcasting operating model into a multi-tiered model of high margin revenue streams. We expect substantial positive free cash flow for the Company in 2010 based on the return of significant political activity, the contractual growth in our retrans, our expanding e-MEDIA operations, the Olympics, and the notable reduction in CapEx spending related to the completion of our digital spend. Reflecting these factors and NEXSTAR's streamlined operating and cost structure, we're confident that even with modest increases in core ad spend, they will result in meaningful overall gains in our operating results.

Thank you again for joining us this morning, and now let's get to your Q&A and we'll address your specific areas of interest. Operator?

(Operator Instructions). First question, Bishop Cheen from Wells Fargo.

Hi Perry, hi Tom. Thanks for a very detailed overview. I have a couple of questions to fill in some blanks for modeling purposes. You gave every piece of your topline except net comp. Do you have that handy?

We are looking.

Okay. And then, on auto, it's helpful for you to tell us what it is as a percentage of core, but can you also tell us what it was down in Q3 both year-over-year and sequentially? The change, sequentially?

Sure, the automotive spend all in, as I said, was 17.1% of core billing and it was down 38% from the prior year. And that was up from the all time high-low of minus 43 in Q2.

Okay. While you are looking for that net comp, the IRS has a new change in the way that they treat NOLs and some companies are anticipating an actual cash refund in 2010 because of the change in schedule. A., I guess you're aware of it; and B., do you anticipate any benefit to NEXSTAR from the treatment of NOLs?

As it stands currently, we are not anticipating anything, but that could change as we continue to dive into 2010 and potential issues there.

Obviously, you've stayed away from any quantitative guidance. Can you shift into the hint mode?

Before we start hinting, how about if I give you some facts, and it relates to your network comp. question. Three months ended 9/30/08, network comp. was $850 million and you'll see it being roughly $500,000 for three months ending 9/30/09.

Right. That's not a shocker.

I guess, Bishop, as I would characterize core ad spend, which I'm sure everyone is interested in, core local and national finished ahead of those levels for 2008 in October and core local and national are pacing to do the same again in November and December.

At the same magnitude?

Well, I'm saying that October, core ad revenue finish ad head in 2009 finish ad head of 2008 levels. So the core ad spend ex-political was up. And is pacing again to do so in November and December.

Okay. Well, that is helpful. I will pass the baton, and I appreciate the answers.

Thank you, Bishop.

The next question comes from Jim Boyle with Gilford Securities.

Good morning. Perry, as the retransmission consent monetary payment poker chip pile gets ever bigger, it usually happens that the pioneers are taken for granted and everyone wants a piece of the pile. Going forward, how do you see how much of that should be shared with your network partners and whatever retransmission consents revenue that they can get, what share of that should rightfully be yours?

Well, I've not had any specific conversations, Jim, with any of the networks about this, since we don't have any affiliation agreements up for renewal this year, but having said that I am not of a minds and don't understand why the networks would feel like they are entitled to do a piece of a revenue stream that we develop that they have no hand in negotiating, documenting or collecting. I will say this. The local cable system in Stroudsburg, Pennsylvania, carries three NBC affiliates. The O&O is out of New York and Philadelphia and station in Wilkes Barre, Pennsylvania. I am being paid to be carried there. In St. Joseph, Missouri, the ABC affiliate from Kansas City is carried on the next channel to our ABC affiliate in that market on the local cable system. And I'm being paid to be carried there. And there are plenty more instances like that. With all due respects to my friends at the networks, I contend that the network programming is not, it's our local programming.

Having said that, I would say that we would entertain, as I've mentioned on previous calls, if the networks are able to negotiate better deals on behalf of all of the affiliates and their O&Os than I'm able to generate and negotiate as a small Company then I would be willing to share that upside with them on a 50/50 basis. And I think then they can say that they are generating value from the distribution system beyond the vast majority of the ad avails that they keep for themselves and the programming that we pass through, but they also would then generate money for their owned-operated stations. I can assure you, though, that if we had the earlier conversation of the networks asking for a share of our retrans revenue that we will fight just as hard to keep that retrans revenue as we did to create it in the first place.

Okay. And looking really deep into the future, given how technology is allowing television, local television as well as national television, content to be repurchased in a variety of manners and a variety of time whether upon demand and/or scheduled viewing across a variety of distribution channels, do you see in five, ten, fifteen years that you may not even need your off air towers any more?

Well, I think that broadcasting is point to multi-point distribution and it's digital now, and there is rich bandwidth there that we can deliver a signal to just about any device given the right reception technology. So from our perspective, we think that there will continue to be a 15% roughly average factor of the country that chooses not to sign up for a pay TV model. I don't think that public interest would be served beside disenfranchising those people. I think that our ability to deliver rich media content to multiple devices also serves the public interests. So I think there will always be an over the air broadcasting component to our multi-platform offerings.

Okay. Thank you.

Your next question comes from John Kornreich with Sandler Capital.

I have several questions, I'll just do them one by one. In retrans you talked about a quote "solid increase for next year." It looks like this year is going to come in around $31 million, $31.5 million. Could we get to $35 million next year? In total?

Yes.

Okay. Second question, CapEx, it looks like the third quarter didn't have any or certainly not much digital, and, yet, I thought it was pretty high. It was 8% or something like that, 7% of revenue, and obviously a much bigger piece of EBITDA. Am I right that CapEx is still running high or there's some special non-digital projects that were in the third quarter?

We hoped to turn on our last full-powered digital station this week that we've been operating at low power because of a tower issue in St. Joseph, Missouri. So there is still some additional ad spend -- or digital CapEx in our CapEx number. Third quarter should be, should be the end of that.

Okay. So the CapEx for the year comes in something like $17 million, maybe $18 million, could it be down around low teens next year?

I think the numbers you just quoted for the full year are going to be high.

That means the fourth quarter may only be $2 million or $3 million?

I think you could -- I'm comfortable saying they would be below $17 million for the year.

So, can't --

And then something in the low double digits for 2010.

That's good. Okay. Next, on political, what was the political net revenue in '08? Refresh my memory?

I can give you the gross number off the top for 2008, John. It was for the full year of 2008, $32.3 million.

Okay. You remember at all was '06 was?

I'm sorry?

You remember at all was '06 was? Can you roughly take a guess?

It was in that same neighborhood. Right around $33 million, I believe.

Okay. Next question is on expenses, operating expenses, if I'm doing my numbers right, your pre-overhead operating expenses were only down 3% and if you take out variable expenses, commissions and agency fees, it looks like the operating expenses weren't down at all. So can you tell me what's going on in operating expenses? Why aren't they down in the 8% to 10% area? Talk about going forward and concomitant with that ,if you take out that 80% of the $8 million of retrans fees out of revenue and out of SOI, because it's 100%, your margins are less than 25% on ad revenue or net ad revenue. That strikes me as very low even in a very tough climate. Maybe you can make a comment on that?

Sure. I will tell you that from an operating expense basis, we do have two acquisitions that are in the Q3 '09 that were not present in Q3 '08 that contributed a couple of points. All of the fees related to the debt exchange and, now in the third quarter, the credit facility amendment we have to expense those now. Those aren't capitalized so they are one time expenses.

That's in corporate. I'm talking about operating expenses.

Well, our -- let me get to the heart of the issue. I think our 2010 operating expenses will be flat to down, depending on commissions tied to revenues. Our FTEs at 12/31/08 were about 2,293. We project our FTEs at the end of this year to be about 2,040, that's an 11% reduction. I think it is one time fees and acquisitions that have masked this from the perspective that you're looking at.

And, this is my comment, that if you take out, say, $6 million of retransmission revenue and BCF, you are left with about $12 million of BCF from advertising on $53 million of non-retrans revenue which is a 22% margin, on core business. Well, it points to me that expenses are just aren't coming down as fast as, frankly, most other companies in the media business that we see.

I think we had a head start on most of them in terms of operating with -- lower operating expenses and some of the highest margins in the business. And I'm not sure, I understand the argument of taking a Chinese menu approach to the revenue build. I mean we have worked hard to diversify our revenue stream away from the core ad spend for many of the reasons that you suggest. So I think I would, at the end of the day, put our margins, our core revenue performance, and total net revenue performance against any other Company that's reported. I will put them up against any of them.

Last question. Are there any more opportunities to buy in debt at a discount? Or are you prohibited from that going forward? And I haven't looked, the 7% PIK notes. Where do they trade, roughly? Have you seen any quotes recently?

John, just a couple of comments on that. We did retain the ability for a restricted payments basket in the new credit agreement. We have to earn our way into that through free cash flow, but it is there and then secondly I've seen quotes in the 60s on the 7%.

Okay. Thank you very much for your help.

Our next question comes from Edward Atorino with Benchmark.

John asked a few of mine. I had some phone problems and got in a little late. Could you repeat what the actual national and local dollars were for the third quarter, so I can fill in a couple of lines in my model.

Sure. Local revenues for Q3 '09 were $37.3 million. National was $13.3 million.

National $13.3, and $37.3, right.

Correct.

Also, you gave a debt to cash flow number, was it eight something? Because the press release said six and change.

The current one is, total is 6.75.

Right.

The covenant level, 6.5, actual. What I said, I believe, what you are referring to was the 12/31 covenant level is 8.75, and 7.0 times.

12/31/08.

'09.

'09, okay.

That's what the covenant requirement is.

Oh, okay. I thought that was yours. Okay.

No.

So you're well under the cap then.

We are currently, yes.

And I guess that will hold up. In terms of pacing, the Journal earlier in the week had a very bullish article about retail with some of the big brand names, up large percentages I presume over low basis. What are you seeing in retail to any extent?

Well, as I think eye mentioned we are seeing --

Maybe I missed it.

We are seeing a pickup in newspaper local and national ad spend. Ore core revenues finish ad head of '08 in October and they are pacing to do so in November and December.

You talked about auto. I mean, this article sounded extremely bullish for retail for television. Didn't mention print at all. Just wonder if you are seeing what the journal said was a big up surge in retail from Target, Home Depot, et cetera?

I guess it depends on how you want to break out retail. Our department stores and retail makes up about 4% for billing and now furniture is, we break out as a separate category and up about 6%. So we have seen signs of life. I won't say that it's widespread at this point. We have seen selected upticks if you will.

Did you see any, looking at the fourth quarter, are you seeing any political money from all the stuff going on in Washington about the healthcare bill and all that stuff?

Yes, political, on the books in the month of October, was over $1 million. So we anticipate that will continue in November and December, even though the elections are over, the -- particularly the healthcare debate wages on so we expect we will report better than expected political for the fourth quarter.

And I think you said, what, $37 million was political for, was it '08?

'08, I told John, $32.3 million was -- $32.9 million was the gross number for 2008.

Have you booked any Olympic money, booked any Olympic money yet?

Yes, we have. We have, we are probably about 25% to 30% of our goal as of a week and a half ago, which was the last report in that we asked from our stations. And we expect a flurry of activity as people begin to place first quarter but we have several sponsor ships already sold. Most notably Ford has bought our platinum package in a number of our markets.

And you say costs in 2010, flat to down excluding any commission related.

Yes, excluding commissions costs in 2010, operating expenses will be down. Total expenses, depending on commissions, could be could be flat to down.

Thanks very very much.

Next question comes from Matt Swope with Broadpoint Capital.

Hi, guys.

Good morning.

Just back to the expenses line, the SG&A number was a lot lower than we've seen it in previous quarters. Can you help us understand where that might be going forward?

When you say SG&A on the operating expense for the stations or corporate expense?

No, the operating expense for the stations.

And you're referring to the $17.6 million number.

Exactly.

I think that's really where we are taking hold in terms of some of our centralization of business managers and the hubbing associated with that and traffic. I think you are going to see that continue to be a more moderate number going forward. And also keep in mind that to Perry's comments earlier, Q3 of '09 includes a full quarter of Jacksonville, WCWJ there, whereas Q3 2008 didn't have any expense for Jacksonville. So actually if you think about it in those terms the apples-to-apples is actually a little bit less.

Okay. In terms of -- is this a decent run rate to be thinking about it as a basis, excluding the variable portion as we model going forward?

I would say yes, and again to Perry's comments, depending on where ad revenues go, and most specifically, we are going to see a significant jump up in political in 2010. We do pay national rep. commissions on those dollars.

Sure. And, Tom, while I have you, now that you have the amendment out of the way and seem to have pushed the run way on that how do you think about the capital structure as a whole with all these little pieces of debt you've got mixed together now?

I think about it a lot, obviously, but we do have an RP basket capability. Obviously, we have to be in compliance, but we believe that's obtainable and we do get to replenish our RP basket out of free cash flow. A percentage of that on a quarterly basis, so we will be able to given the results that we anticipate, continue to address some of the other pieces of the junior capital structure.

Having said that, our focus here really is to continue to de-leverage and to reduce not only the senior debt, but all portions of the capital structure. We think that the fundamentals of the business will continue to improve through 2010, and at that point we can address in part or in whole all of the capital structure when fundamentals are better and, obviously, we've seen some of the technicals in the capital markets improve, and we continue to monitor that on an ongoing basis.

That certainly makes sense. Just a last one. You guys present a slide back that the Credit Suisse conference in June where you talked about the combination of e-MEDIA trends, political management service to generate revenue of $100 million in EBITDA from those sources of about $65 million. Then, when you presented the same slide a couple months later at the Deutsche Bank conference, you had revised that number downward to $90 million, didn't give an EBITDA number associated with that. Can you talk about why you cut that number from $100 million to $90 million?

I think it's because, in the intervening time, between the two conferences I hired a new CFO who I think advised that we under promise and over deliver on our expectations.

And, Matt, I would say the majority of that really come in the management agreement realm. We've had a lot of discussions there, but obviously we only have one fish in the boat right now. We are very happy with our Four Points and Cerberus relationship and we'd like to do more. We just haven't been able to ink any of those deals and I think that's where the majority of that delta comes from.

Okay. So the $100 million assumed that had you maybe another one or two of those agreements in place.

Correct.

Okay. Great. Thank you.

Our next question comes from Jonathan Levine with Jefferies.

Yes, thanks. Most of my questions have already been answered. Just a couple house cleaning ones. What was the amount of the expense that related to the credit agreement that you did in corporate expense in Q3 '09?

It would be approximately $.5 million dollars and we will see more of that -- and I'm sure everybody is aware of this. We had to include those expenses that were actually incurred in Q3 in Q3's financial statement. Even though the credit agreement was not closed until the 8th or 9th, forgive me for not knowing the exact date, we did incur substantial legal fees prior to that. And so those fees were included in Q3.

You'll see more fees in included in Q4 as items incurred between October 1 and the closing and then after action items for clean up and documentation. Most of those related to legal fees in Q3. In Q4, it will be legal fees and some direct costs associated with the amendment itself, the fees payable to the lending group. So you'll see more in Q4.

And from the magnitude standpoint, would it be in the $500,000 range or are you expecting it to be larger?

Still coming in. I would probably say that's probably a good place holder for the time being. One note, for covenant purposes, we are excluding those as one time events, so it doesn't effect our EBITDA for compliance, but obviously it does show up in our financial statements.

On a recent conference call of Sinclair, they highlighted that or commented that an agreement that they had with you in Peoria and in Rochester that that terminates in April of '10. Can you talk about what kind of cash flow that generates for you?

The Sinclair JOAs in Peoria and Rochester are set to expire in April of next year. There's been some discussion of a new deal but not much. If they do go away, it may well out pretty well for us as the political spending goes to the CBS affiliate side of the JOA, which are our own stations in Rochester and Peoria. In an even numbered year we have to share that political revenue under the terms of the JOA, so keeping 100% of the political revenue in New York and Illinois, both of which we expect to be big states in 2010 has the potential as we've done the math to contribute as much or more to our bottom line than our share of the JOA proceeds, so from a BCF perspective, it has the potential to be cash flow neutral.

You are assuming it's neutral to potentially positive?

It will depend on the order of the magnitude of the political, but obviously there are extra expenses in the JOA to support the Sinclair station. All of the expenses related to that would go away if this goes away. We keep 100% of the political revenue, which the preponderance of the political revenue in those markets is placed on our CBS affiliates, not the FOX affiliates. It does have the potential to be cash flow neutral next year and time will tell.

Do you have any agreements up for renegotiation with any of the networks, NBC, FOX?

Not any this year. The earliest is a CBS affiliation agreement in May 2010. That's the first time we will be at the table again with the networks.

Okay. Great. One more question. What was your cash balance? I may have missed that.

The cash balance at 9/30?

Yes.

I believe it was $19 million, approximately.

Okay. Then under the new credit agreement, everything over $15 million you now have to sweep against your bank debt?

That is a true statement. Keep in mind that the $19 million was prior to paying the expenses associated with the credit agreement.

Okay. Great. Thank you.

Your next question comes from Barry Lucas with Gabelli & Company.

Good morning, Perry, Tom. A couple of items here, start going back to political on the specific basis, have you seen any money from either Rick Perry or Kay Bailey Hutchinson yet in Texas.

Not as of yet, Barry.

And nothing booked, nothing at all or? A little surprising that neither one of them have been active yet.

Yes, we have a couple of requests pending, but we don't have any orders on the books.

As you look at the political landscape, how much optimism do you have? Can you beat $33 million of presidential year in 2010?

As 2010 shapes up, Barry, we have more Senate and governor races that are contested and just more in total than we have had at any point in our history. So without giving specific guidance on the number, when you look at the number that you just mentioned, I think so we could bet the over on that.

Great. Thank you. Super Bowl flips through CBS next year. You have more and bigger CBS stations than FOX's. What do you think the swing can be in a positive sense on a Super Bowl swap?

It's a one-day event, but we think the incremental is probably somewhere in the $1.5 million range. We think for Olympics it's probably about four times that.

I'm not sure if Jim Boyle was dancing around the question as he was talking about technology 10 or 15 years down the road, but there has been some discussion in Washington about pulling back spectrum from forecasters. How would you feel about that? Would you want to -- if had you guaranteed carriage on multi-channel distributors? Do you care? Are you better off with it?

I think we care a lot. Let me give you a quote from James Madison, a former president and the father of our constitution. "I believe there are more instances of abridgment of freedom of the people by gradual and silent encroachments by those in power than by violent and sudden usurpations," which I think will tell you our opinion very clearly. There is no bandwidth shortage now. This is an eventual problem that may need to be dealt with and there's no shortage of unused spectrum either.

Most of the unused spectrum is currently being held by other governmental agencies. The congressional act that granted broadcasters our digital spectrum and then the following massive unfunded mandate for we broadcaster to build it out provided for a 5% tax on revenue derived for uses other than television. So, I think the eventuality that you are talking about is already been accounted for by Congress and I don't think there's any further action required or needed quite, frankly, by the FCC. Our position there may be ancillary uses to the spectrum. There's already a provision from Congress that would require to us pay a tax on that if it's not used for television. So I say, let the market determine the highest and best uses of the spectrum, which includes HDTV by the way, which would go away if we didn't have enough spectrum to push it out to our consumers and I say let the market determine the highest and best use and let's keep the government out of it.

Thank you, Perry. Thank you, Barry.

Our next question comes from Aaron Watts with Deutsche Bank.

Hi, guys. Want to do jump in here at the end with more of a big picture question. With all the changes and shifts going on in the world of media right now, viewers have more and more channels or platforms to get their video, broadcast ratings being impacted by competition from among others, cable networks, we even have a cable company buying a network at this point or it looks like it. So can you just refresh us, Perry, on how you think and feel about the value of the local affiliates to the networks and how that's changed and how it may change and why you are still an important arm or part of the television picture as we go forward?

Well, sure. I think that the local affiliates are more valuable to the network than the network is to the affiliates. I think that if you look at -- NBC already has a general entertainment basic cable network. It's called USA and when they debut original programming, they are happy to celebrate a one national rating. I think it is this distribution system of branded local stations, and those branded local stations are the most important words that I'm saying here, are what allows the network to distribute beyond their own, owned and operated universe to create big event programming and Sunday night football and Olympics and those kind of things.

I think one of our most important assets is that we are in a local community. We have a 50 years old brand and both the buyers and the sellers on both sides of the cash register know who we are, and I think that the outlook long-term is that we need to think of ourselves as local broadcasters as more of a local service business and be less concerned about how we do what we do, but more concerned with what we do, which is to deliver local content in a local community and make the cash register ring for local advertisers and local businesses. And I'm not concerned about what screen that goes out on, how big it is, what the delivery mechanism is, but that's really what we are there to do, and I think if we keep our head around the business that way we are always going to have a business. I am not particularly concerned about the sabre rattling of broadcast networks going to a cable model.

I think I said in Q&A before that that's all predicated on ESPN like prescription revenue and that's more operating profit than all the cable companies, all the telephone companies and all of the satellite companies made combined. So how would that be paid for? It would be paid for with an increase of price to the consumers and I look at Congress bringing cable in to talk about why their rates are growing at three time the rate of inflation today. Can you imagine the political fire storm if every multichannel video consumer in the country was assessed a $12 a month tax on their bill. I don't think it will happen.

And again there is nothing wrong with the distribution system and I think if you look at our Company the way we positioned it, we've got the broadcast station, which is our reach vehicle, and then our online asset, which as you move through the purchase funnel and going are go from brand awareness to specific information on products complement each other very well, and I think we are very well positioned as a local service business as far as the I can see.

That's helpful. I get the question a lot, but I know you are in the thick of it, so I just wanted to get your updated thoughts. Thanks.

You bet. I get the question a lot, too.

There are no further questions at this time.

All right. Well, we'd like to thank you all for joining us on this Veteran's Day, and we look forward to, with the improving add trends in the fourth quarter, coming back in three months time coming back and reporting on our fourth quarter, 2009, results and hopefully then with a view toward 2010. Thanks again, everyone.

Ladies and gentlemen, that concludes today's presentation. You may now disconnect.