Nexstar Media Group Inc (NXST) 2010 Q2 法說會逐字稿

Good day and welcome to Nexstar Broadcasting Group's 2010 second-quarter conference call. Today's call is being recorded.

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 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 over to your host, Nexstar President and CEO, Perry Sook. Please go ahead.

Thanks, Howard, and good morning, everyone. Thank you very much for joining us to review the 2010 second-quarter operating results for Nexstar Broadcasting Group. Tom Carter, our CFO, is on the call here with me this morning and we will after our brief remarks open the phone lines for your Q&A.

Nexstar's focus on building brands by leveraging localism has been proven to be a blueprint for both near and long-term growth for the Company. Our record second quarter and first half 2010 results reflect the strength of our core television operations and the ongoing success of our quadruple play of revenue drivers as the Company again achieved growth in all financial and operating metrics and solid increases from all of our revenue sources for the quarter.

Our Q2 financial results benefited from the broad-based advertising recovery and acceleration of the growth of national revenue and our success in garnering leading shares of political billings in our markets. Our 19.9% rise in second-quarter net revenue was impressive given that we significantly exceeded the industry revenue performance in last year's second quarter. And with our focus on managing the business for cash and paying down debt, we generated 53% growth in second quarter broadcast cash flow, a 62% increase in Q2 EBITDA and a 118% rise in free cash flow, all of which highlight what we feel is the tremendous operating leverage in our business model.

Importantly, while we have clearly demonstrated our positioning for emerging from the ad recession with a highly diversified business model is yielding strong year-over-year revenue margin and cash flow growth. The best part of our return to growth and deleveraging story will be evidenced in the second half of this year.

Our third-quarter bookings to date are pacing ahead of where we were at the same point in both Q1 and Q2 and we continue to see strong demand on inventory from national and political advertisers which is driving higher rates at our stations. Nexstar generated total second-quarter net revenue of $74.5 million which as I mentioned was a 19.9% rise from the year ago period, the increase being broad-based as illustrated by strong growth in both local and national as well as political retrans, e-media and mobile revenues and another quarter of contributions from our management services contracts.

During the second quarter, we generated 13.6% year-over-year increase in aggregate local and national revenue and when you include political, our revenue increased for the quarter was 24.6% in total television ad revenue. Speaking of the strength of our core television operations, market positions in news operations, we posted a 32.6% year-over-year increase in national spot revenue and a 7.8% rise in local spot revenue.

Our increase in total revenue derived from retransmission consent fees, e-media revenues and management fees was 12.8%. In total, the high-margins revenues from re-trans, e-media and management services increased to $11.1 million in the second quarter and in addition to the core revenue growth we're expecting, we also see continued growth from those sources in the back half of 2010.

Beyond the top line, our continued focus on expense management and achieving further operating efficiencies contributed to excellent year-over-year cash flow and margin growth. Excluding one-time charges and gains in 2010 and 2009 second quarters, our 2010 second-quarter operating income increased 255% to $15.5 million.

In addition, our BCF margin improved to 41.2%, an increase of 880 basis points and our adjusted EBITDA margin grew to 36.3%, an increase of 940 basis points versus the prior year. Reflecting the significant year-over-year operating income and growth and a reduction of capital expenditures, our 2010 second-quarter free cash flow rose to $10.9 million from $5 million in the comparable year-earlier period.

Looking at our balance sheet, Tom and his team have continued to be very active in the six-month year-to-date period with further progress in reducing debt and improving liquidity and Tom will review those specifics in just a moment. But let me first review some of the other quarterly and recent highlights.

Second-quarter retransmission consent fee revenues were $7.3 million consistent with Q1's quarterly record level and exceeded Q2 of 2009 levels of $6.4 million by 14.1%. Q2 e-media and mobile revenue came in at $3.3 million, surpassing last year's second quarter by 12.4% and marking the 15th consecutive quarter of growth for Nexstar's community web portal strategy.

In the second quarter we also recorded $500,000 of management fee revenue from our services agreement to manage the Four Points Media Group. Under that agreement we are entitled to earn performance-based incentive compensation above the base management fee which we anticipate recording in the back half of this year.

Nexstar generated $4.0 million in new local direct advertising in Q2 2010, representing 9.4% of our local billing and we improved this metric by 9% compared to what we did in Q2 of 2009. Our second-quarter political revenue reflected very heated Pennsylvania and Arkansas primaries and an Arkansas runoff election surrounding the contentious House and Senate races there as well as an open Pennsylvania gubernatorial seat. We also saw significant issue pack and party spending in the quarter which collectively drove an 8.5 fold year-over-year revenue increase to $6.8 million.

By way of comparison, we did $3.6 million of gross political revenue in Q2 of 2008. So the recent results served to confirm our high expectations for political advertise spending on our stations in the back half of 2010.

Taking a look now at category data, Nexstar was up in 17 of our top 20 advertising categories and we generated a 16% overall increase in revenue from our top 10 categories in 2010 in the second quarter. This was led by a 37% year-over-year increase in automotive ad spend.

The auto gains were across the board from both local dealers to corporate dealer group spending and this is our fourth consecutive quarter of improvements in the category. Just as in Q1, auto represented approximately 19% of our core billing for Q2.

The upswing is extremely broad-based and it includes both domestic and foreign brands, local dealers as well as the dealer groups. Based on the trends we have experienced and our Q3 pacings, we see continued upside as we head toward the second half of the year and we think the demand combined with the expected political billings, we also expect further positive impact on our inventory utilization as well as our rate.

I'll now turn the call over to Tom who will provide further detail on our financials and debt reduction after which I will come back to talk briefly about our outlook in the third quarter. Tom?

Thanks, Perry, good morning, everybody. I will review and reiterate some of the key Q2 line items on the Company's income statement and balance sheet. Core revenue, local and national ad spend was up 13.6% to $59.4 million. Political revenue was up 750% to $6.8 million. Retrans revenues were up 14% to $7.3 million and e-media was up 12% plus to $3.3 million. A note on adjusted EBITDA which increased 61.7% to $27 million.

During the quarter Nexstar incurred a $1.6 million non-cash charge related to the previously disclosed repricing of employee stock options, which is over and above our typical $300,000 quarterly run rate for non-cash option expense. These amounts are excluded from both the three and six-month adjusted EBITDA for 2010 and 2009.

The exact amounts for all four periods are included in the free cash flow reconciliation table which is on the last page of this morning's release. Reported income from operations in the three months ended June 30, 2010 of $14 million was impacted by the non-cash charge related to that repricing of the stock options while income from operations in 2009's second quarter benefited from a total of $4.7 million in net gains related to asset exchange and asset disposal and was impacted by a $200,000 charge related to a contract termination.

On a normalized basis, excluding these one-time charges and gains in 2010 and 2009 second quarters, but reflecting our typical $300,000 quarterly run rate for non-cash option expense, the 2010 second-quarter operating income increased 255% to $15.5 million. Overall, Nexstar's second quarter 2010 corporate expenses totaled $5.6 million which included the aforementioned $1.6 million one-time option expense charge. This compares to $3.7 million in the year ago period.

The increase also includes an accrual for a cash incentive compensation in 2010 which was not a factor in 2009. Excluding the non-cash compensation expense and the bonus accrual, corporate overhead would have been lower in 2010 than in the year-ago period.

Station direct operating expenses consisting primarily of news, engineering, programming, selling and general administrative expenses net of trade were $36.7 million for the three months ended June 30, 2010 compared to $35.2 million for the same period in 2009, an increase of $1.5 million or 4.5%.

The increase in station direct operating expenses and SG&A expenses for the three months ended June 2010 was primarily attributable to $900,000 in increased national and local sales commissions related to higher local and national and political revenue for the same period as well as $300,000 of incremental fees related to our outsourcing agreements associated with our our JSAs in Peoria and Rochester.

As Perry mentioned at the outset of the call, we remained active in reducing debt, improving liquidity, extending bank maturities and eliminating pricing increases on certain pieces of our capital structure and during the second quarter, Nexstar repurchased $2 million of its outstanding 7% senior subordinated PIK notes due 2014 and $2 million of our outstanding 13% senior PIK notes due also in 2014 both of which happened in the open market.

These repurchases followed the open market purchase of $1 million of the 13% PIK notes in the first quarter and the repurchase through the cash tender offer and consent to solicitation of approximately $34.3 million of these notes with a portion of the proceeds of the April 2010 refinancing. Subsequent to the quarter end, we have also repurchased an additional $5.6 million of the 7% notes divided between the cash and the PIK portions also in the open market.

In conjunction with the April notes offering, we extended our senior secured credit facility amendments and applied the net proceeds remaining after the tender offer together with borrowings and cash on hand to refinance existing senior secured credit facilities and for general corporate purposes. Under the terms of the new agreement, the principal amount available on the revolving credit facility was reduced to $75 million, $65 million available for Nexstar and $10 million for Mission and the term loan was reduced to $100 million, allocated $61 million to Nexstar and $39 million to Mission.

These credit agreement amendments also permitted incremental term loan B facilities of up to an additional $100 million for Nexstar admission and under certain circumstances to incur additional indebtedness and make restricted payments in each case in part to repurchase or extinguish existing debt. The new credit agreement eliminates the requirement that Nexstar maintain a consolidated minimum interest coverage ratio and a consolidated minimum senior leverage ratio and adds the requirement that we maintain a consolidated maximum first lien ratio based on the aggregate first lien indebtedness maintained by Nexstar and Mission.

It also changes the maximum/minimum covenant levels applicable to each ratio. Additionally, the credit agreement removes mandatory quarterly principal payments based on a computation of excess cash flow for the preceding 12 months.

Moving on to the capital structure and the balance sheet as of June 30. We've included a chart in the press release that details various levels on the various pieces of the capital structure.

We made significant headway on downsizing some of the most expensive pieces of our capital structure and in all, we reduced debt by $16 million during the quarter. Total leverage at June 30, 2010 was 7.5 times, down from 8.5 times at March 31, 2010 on a pro forma basis and versus the total permitted leverage covenant of 9.5 in the credit agreement.

First lien leverage was 1.2, down from 1.45 at March 31 and versus a 2.5 covenant in the credit agreement. Nexstar's outstanding debt at June 30 consisted of first lien debt comprised solely of the $100 million outstanding amount under the term loan as we eliminated all borrowings on the revolver, $317 million net debt under the 8 7/8 second lien senior secured notes.

This is semiannual cash pay with a maturity of 2017. The other debt outstanding, the 7% cash pay portion of the notes was $47.1 million at June 30. The PIK portion was $135.1 million and again that's a PIK security through January 15, 2011.

$50 million were still outstanding under the 11 3/8% notes and the 13% senior sub notes balance was reduced to $5.3 million. Again this is cash pay through -- it went cash pay on January 15 of this year. That was reduced through the tender offer as well as some open market purchases. Total debt on hand at June 30, 2010 was $654.5 million and cash was approximately $8 million.

Total interest expense in the second quarter of 2010 was $13.9 million compared to $8.9 million for the same period of 2009. Cash interest expense for the quarter was $10.7 million compared to $5 million for the same period in 2009.

Nexstar's Q2 CapEx of $4.9 million compares to $6.2 million in the second quarter of last year. CapEx on a year-to-date basis was $8.7 million and we project further total CapEx for the year to come in at approximately $12 million.

Just one note, of the $4.9 million in Q2 CapEx, approximately $0.5 million of that was offset by casualty insurance proceeds during the quarter. Overall, we are successfully managing operations in the balance sheet for cash and remain focused on further actions that can enhance the shareholder value largely through the allocation of free cash flow to reduce indebtedness during 2010. That concludes the overall financial review for the call and I will turn it back over to Perry for some closing remarks before Q&A.

All right, thanks, Tom. Great report. Q2 was another quarter of record performance and also a quarter of very solid performance for Nexstar.

As we continue to aggressively innovate through our practice of leveraging localism and developing new revenue streams, our businesses are running with increased efficiency across all functional areas. That all results in a very strong operating leverage and healthy free cash flow growth in our model. As a result, we continue to make good progress as we work to deleverage the balance sheet as Tom just mentioned.

We remain highly confident that 2010 will be a breakout record year for the Company and across all of our markets, we are a primary beneficiary of growth overall in advertiser spending, including strong continued demand by national advertisers and good work by our national rep firm for resurgence in the auto category, incredible levels of political and issue advertising and continued growth in total revenue from retrans, e-media, mobile and management fees. So with core net revenue in the back half of 2010 pacing ahead of plan, we are indeed on track to deliver record free cash flow for 2010.

As a reference point, our previous record for free cash flow was $28 million in 2007. And in 2010, year-to-date through the first six months of the year, we have generated $19.8 million of free cash flow.

Clearly, the second half of this year will allow us to build on our recent successes and we will do so with an eye toward creating more value for our shareholders. Thanks for joining us this morning and now, Howard, let's go to the phone lines to address Q&A in specific areas of interest.

(Operator Instructions) Bishop Cheen, Wells Fargo.

Hi Perry, hi, Tom. Thank you for the detailed update. Let me got to a question for the balance sheet first term. So it looks like you've totally repaid whatever was left on the revolver in Q2 after -- I know a lot of be the refinancing happened in the early part of Q2. So, Perry, you had like $69 million of revolver up before the refinancing and there is nothing currently drawn on it right now?

That's correct.

Okay, and then as you look forward because you are in this up cycle with momentum building, do you foresee any need to draw on the revolver as you go through the back half of 2010?

The only potential would be obviously for working capital or for more limited -- we have some limited capacity to draw on the revolver for restricted payments and other debt repurchases but it is somewhat limited. I don't see it being material.

Okay and then as I understand it then, the last piece of PIK paper still left -- there are PIKs I think through July of next year -- is the 7% PIK tranche?

That's correct. It starts accruing cash pay in January. The first actual cash payment is in July of 2011.

So it comes full cash pay in mid next year. So we're still PIKing through January and then the first cash coupon payment is actually made in July, is that correct?

That is correct.

So you have done a lot on the higher coupon stuff on the balance sheet. And I know you have fairly limiting constraints via the second lien notes plus a term facility.

But as you take your leverage down this year and I think you have demonstrated in the past you dramatically can delever in a more normalized up cycle like we're having in 2010. As you take that down, do you see foresee any flexibility to do equity enhancements, either one-time dividends, quarterly dividends, stock repurchases, etc.?

That's not really on the radar screen. We have some capacity to do a limited amount of that but again, it's not meaningful and I don't -- it's nothing that we talk about to any great degree.

Great, thank you very much. It's very helpful.

Jim Boyle, Gilford Securities.

Tom, what debt leverage range would be a reasonable goal for Nexstar in the out years?

I would say probably -- and Perry can chime in here with his own opinion -- I would say somewhere between probably between 4.5 and 5.5, around the five level. That's also being I would say somewhat realistic with regard to the odd-even year cycle and our ability to get there and stay there for a sustained period of time.

Terry, you mentioned 17 of the top 20 increased. Which three categories didn't increase in Q2 and were any of them top 10?

The only two top 10 that did not increase in Q2 is a similar report from Q1. One is paid program. Obviously we pulled back from our reliance on that revenue stream as there's more demand for our 30 second inventory, so the long form commercials because they're not necessarily as viewer friendly, so that category was down.

And then telecom once again because this is the last quarter you will hear that report in any major way. Because in our telecom numbers primarily in our Southwest markets, we had the last quarter of ALLTEL spending prior to their merger with Verizon.

Okay and you mentioned Q3 was ahead of Q2, Q1. Is that being driven by the top 10 ad categories, especially auto? Or is it still pretty much everything?

All categories seem to be robust in Q3 as well and core revenue will continue to be up in the same vein as you've seen from us in the first half of the year. Obviously when you add political into that, our core plus political increase will substantially exceed the 24.6% you saw in Q2 results released this morning.

So it seems like you're going to be better than 20%. Are you going to be better than 25%?

I think that is a reasonable assumption.

Okay and given the -- this double-digit revenue growth in the core, is that due mostly to higher sellout or to higher average advertising rates?

Well it's both. I mean advertisers are spending more money and we have a finite amount of inventories. We're selling more inventory but we're also selling it at higher rates. I think when you look at delivering a 13.6% increase in core revenue over Q2 of 2009 on top of an 8x increase in political revenue, our stations have done a great job of managing their inventory to maximize utilization and accommodate everybody.

And given your first half of this year, the adjusted EBITDA margins are higher than the first half of 2008, what range do you think is conceivable for all of 2010 given '08's full year was 33.8% for adjusted EBITDA margin?

Well again, we showed as I mentioned in my comments, a BCF margin north of 40 and an EBITDA margin in the mid 30s. Given that -- our only expenses that will vary in the back half of the year are our variable expenses, commissions and JOA profit-sharing payments, the incremental revenue dollars flow at a 70% plus margin to the bottom line once you've got your fixed costs. So I think it's reasonable to assume that those margins will trend upward in the back half of the year leading to a result that is better than what you saw in the second quarter when the full year is calculated.

Okay and final question on political. It used to be you had two up and down kind of cycles. Summer Olympics were always bigger than Winter Olympics and the presidential political year was always bigger than midterm political year and obviously 2010 looks like it's just going to kill 2008 given you're up 89% just currently.

Has political essentially gotten to a point now where that old cycle no longer exists? It just seems like they keep raising more money every cycle and they keep spending more money every cycle.

I would agree with the last part of your premise, Jim. I noticed in one of the trade e-mails that I get every morning that the AFL CIO this morning said they were taking the caps off of the $53 million spending that they had anticipated for the midterm elections.

I will tell you that in our Q2 in fact in the first half of this year, party spending and pack spending which usually makes up 10 to 15% is in excess of 35% of the total spending pool. So we don't know yet if that is a sustained trend but it is certainly a marked difference from the last three even year election cycles that we have gone through that the pack and party spending has been this high this early.

We think that's obviously part of what is leading to the dramatic increase when you compare our numbers to 2008, even back to 2006. I will also tell you that all politics is local and we are blessed in this even year cycle with our geography in Pennsylvania and in Arkansas and a contested governor's race in Texas for the first time since Anne Richards ran back in the day. And so we are -- our geography is also lending to these kinds of increases over anything we have done in our history.

It used to be TV used to take give or take about 80% of political ad spend. Do you think that is still roughly the vast majority piece these days with all this extra spending?

Yes I do. And again, our numbers are up by those kind of exponential amounts. So I think that our share is maintained.

The political consultants will tell you that the Internet is a great tool for political fundraising but it is not a good tool for political advertising. I believe again, political advertisers are looking for reach and a broad-based delivery of their message. So the inventories on our television stations is much more desirable to them than our inventory online.

Okay, logical. Thank you.

Matt Swope, Gleacher.

Tom, could we go back to the capital structure for a second? Could you tell us the current leverage through the second liens?

Hang on just one second. Let me do a quick calculation. That's not a covenant, so I don't necessarily follow that.

Right. The reason for -- just while you are calculating, the reason for the question is you don't have a maintenance covenant there but you do have an in currents covenant there. And just thinking about where you go next with the capital structure, how you compare versus that 5.5 times may speak to your flexibility to do more second lien debt, to think about taking out some of the nearer maturity stuff.

My back of the envelope calculation has it just below five times.

Okay and how do you think about that? Obviously that number is going to go lower as you report the third quarter and then the fourth quarter. As you get more capacity against that 5.5 times in currents, should you consider doing more debt there to take out some of the 2013 and 2014 maturities?

I would agree with your premise that it gives us more flexibility and what we do with that -- those funds are something we will have to determine once we get there.

How much -- maybe just to go through the nuts and bolts of what you can do rather than what you might do, how much flexibility do you have to go after the 11 3/8 notes at the hold co.?

There is a seven times in currents tests at the 7% notes. The 11 3/8 are at a hold co. and so we have to -- we have the RFP capacity and part of the RFP test is we have to be able to incur an additional dollar of debt and that's a seven times covenant at 11 3/8 -- I'm sorry, at the 7% which would then require an RFP to get to the 11 3/8.

Gotcha, so you are a little limited before you get below seven times although that looks like that's coming. And then obviously you have been kind to finding a way in the open market at the sevens and have almost got the 13s out now. Is there any limitation on how much more buying you can do of the debts at -- the loans at the op co. -- excuse me, the notes at the op co.?

We do have limitation in the credit agreement. It limits us in how much we can do based on an excess cash flow calculation.

If we just look at that number today or maybe at June 30, how big would that have been as far as your capacity to do that?

That's not a number that we have in the public domain.

But as you stated, you did buy some more back after the end of the second quarter.

That's correct.

Got it. That certainly make sense. And then, Perry, something that you have talked about in the past has been maybe the potential for more kind of management service agreements. Is there anything going there that you can fill us in on?

We continue to have discussions with a number of parties about a number of topics. That is certainly one of them. Those discussions are ongoing but nothing to report at this point.

And then another high-level question and this just maybe ties back to your leverage a little bit. But what do you think on the M&A front, Perry? Are you starting to see any movement there and is that something as your leverage comes down over the course of the year that you could be involved in?

We continue to look at things that are out there and there are things out there that could be acquired. But you know, we are evaluating even accretive acquisitions versus the concept of paying down our debt and we are seeing continued superior returns and paying down debt as use of our capital.

But we continue to run those calculus models with every opportunity that's out there whether it's a one-off or something of a larger scale. But we continue to believe that for the foreseeable future, the best bang bang for our buck is continuing to pay down debt and delevering the balance sheet.

Aaron Watts, Deutsche Bank.

Perry, on one hand, we're hearing a great outlook from you and a lot of your peers, we're seeing ad budgets get boosted up from advertisers. But then on the other hand, we hear about shaky consumer sentiment and other concerns with the direction of the overall macro economy.

Political obviously provides you a nice insulation to those issues and it doesn't sound like just from your comments you are seeing any real break in the positive momentum from the start of the year. So how do you think about sort of the concern that we read about in the press with regards to your core advertising going forward?

Well I can tell you that we touch a lot of our markets. I'm going to be in our Lousiana stations this afternoon and tomorrow visiting and asking those same questions. With our senior management team, we're doing these channel checks literally constantly and it's interesting because I get calls and Tom gets calls from investors and analysts saying not are you seeing any slowdown, how big is the slowdown in the back half of the year? And I can tell you that quite frankly we're just not seeing it.

My concern is that there is the potential we could talk ourselves into a double dip recession. But there's been no real change from even the first quarter of the year in terms of unemployment and the general economy and I don't know why the change in sentiment has gone from ebullient to more gloomy.

But I can tell you that in the markets that we're in, people are open for business, they are doing business and I think there's more confidence out there in the business community. I haven't seen hiring yet, but I have seen people extend advertising commitments, sign on for new programs and at this point last year when we would go to talk to advertisers, we would first have to coax them out from under their desk before we could have a conversation.

So on a comparative basis, I think that we are seeing continued momentum and there is really no sign of weakness by category, by geography. It is -- you know, we think it continued broad-based recovery and as far out as we can see which is literally through the end of the year, our pacings are continuing to be substantially ahead of where they were at this point in the prior year. And that's the best yardstick we have to measure at this point.

That's good to hear. I guess the other question I had just recognizing how important your news operations are to what you do, if I think back not too long ago, there was a lot of choppiness in the late-night arena with what was going on at NBC and the impact that had on everyone else including CBS and the late night and what that meant for your late news. And I'm just curious if what you have seen now versus when all that was going on, did you get a bounce back at any of your NBC affiliates? Have your CBS affiliates kind of normalized with late-night settling in now? Just curious how that looks.

We do chart internally quarter over quarter and year over year percentage contribution by affiliate and I can tell you I'm sitting here looking at the graph of ABC, CBS, Fox and NBC and the charts of Q2 versus Q2 of '09 have been virtually unchanged. It is all about the local news operation in terms of revenue share and market rank by and large.

I think that we have more salable inventory. People are more used to buying Law & Order on NBC at 10 o'clock than they were The Tonight Show. I think that that has provided a comfort level and I think our NBC stations continued to perform well and I think it's a more normalized environment. But if I look at the contribution by affiliate, year over year in our universe it remains virtually unchanged.

Jonathan Levine, Jefferies.

Most of my questions have been answered but I was wondering if you could talk a little bit more in terms of political and the trends and how we should think about it for the third quarter and the fourth quarter in terms of I guess overall levels for the full year as well as how you see that kind of playing out specifically in the fourth quarter.

Sure, I mean if you look at the political advertising revenue compared to 2008 which was our last election cycle, in the first two quarters of the year we have virtually doubled what we did in the first two quarters of those periods. So that gets you to a pretty heady number if you do that linear extrapolation for Q3 and Q4.

We are 90 days from the midterm election and that would require a lot of money to go on the books. But we feel pretty comfortable that our political revenue for the year will start with a number that is very high in the 30s or perhaps even starting with a four, into the 40s in terms of total political revenue for the year.

So hopefully that's helpful to you and that's probably above guidance we have given previously. But at this point, the trends seem to be very strong.

Tim Busch, our co-COO tracks fundraising down to the candidate level and the amount of money that people have raised is substantial. They're now starting to spend it in a material way in Q3 and Q4. So that's a neighborhood I think we're comfortable in with political revenue for 2010 compared to the prior years.

Just one question in terms of local and national. The year-on-year growth for local, positive but seems to be trailing. What you're seeing in national, it seems to kind of be accelerating. Can you talk a little bit what you're seeing in the third quarter?

Continuation of those trends. And again, to a certain extent, it's a math problem, right? Because our national revenue was down 40% and it's up 40%. We're not back to where we were doing that math two years ago.

But national took the biggest dip, it has seen the biggest resurgence. It's still not back to what we would consider to be a normalized level and local continues to grow. That's the area where we spend the bulk of our effort in building our businesses.

Local saw the least amount of decline in the recession and is obviously I guess you could call it tougher comps, but we continue to build. I could tell you that our local projection for third quarter increases is equal to or greater than what you saw in terms of an increase in Q2 of '10 versus Q2 of '09. National continues to rebound. We haven't yet lapped ourselves to get back to more normalized levels.

That's just one thing I was going to bring up. From a comp perspective we started to see recovery in national in September of 2009 and really grab hold in the fourth quarter of 2009.

So I think that's where the comps start to catch up with us just in terms of the recovery. So you may see a little bit of that in Q3 but only a month or so of that from a national perspective and then it will be more pronounced in Q4.

Edward Atorino, Benchmark Capital.

Lance Vitanza, CRT Capital.

I have three questions for you and I apologize if the first one you may have touched on earlier. But are your covenants generally set on a trailing 12 month basis or do they look to the past two years?

12 months.

12 months, okay. With respect to the political in the back half, obviously there's going to be a lot of it. But what ability do you have -- I know there's some limitations or my understanding is there's some limitations on your ability to increase rates. Can you talk a little bit about your ability to use the politicals to take rate up and how that plays into the crowding out of the local and national?

Sure, for federally elected candidates, the regulations require that you offer them the lowest unit rate per class of time. We have bifurcated our rate card into a five grid system, so grid five is immediately pre-emptible, grid one is fixed and there are gradations in between. So as long as you comply with those regulations, you can offer a (inaudible) per class of time.

You can also shift your -- and this may get too into the weeds -- you can shift your grids based on demand and we update our grids in politically active markets literally on an everyday basis to avoid refunds to the candidates. Now, for non-federally elected candidates and for issue party and pack money, they are exempt from those restrictions. So you literally can charge what the market will bear in terms of unit rates for any class of time.

So it sounds like anybody who is talking about crowding out ought to be at the same time able to take advantage of that in raising the rates?

If you know how to work your inventory and your rate card, you should absolutely be able to see a substantial increase in rate. Political advertising is generally targeted at local news programming because that is viewed as an active participatory experience versus entertainment programming that is more passive.

And so there are areas where you know that the bulk of the money is going to flow and we are literally on top of our rates as I said in politically active markets on a daily basis to make sure that we are able to accommodate everybody, that we limit our need to refund money to political advertisers because of the way that the system would work and to make sure that for our non-political advertisers, we've offered them [make good] inventory that is equal to or better than what they are not able to clear because the politicians have crowded them out.

Okay, terrific, thanks for that. Lastly, and I recognize that you are focused quite rightly on your balance sheet. But just in terms of thinking about the stock for a minute, there's no volume in your stock. What are you doing or what are you planning to do at some stage to correct that?

That's a multi-part question. I mean we have 10 million shares in the public domain that are in the public float. I think our average share volume is in the 50,000, 60,000 share per day range and we recognize that that is a not a significant volume.

What needs to happen in this sector is that three or four of the public companies need to consolidate into one and be capitalized properly so there's a $1 billion market cap out there. Literally when we and four of our peer companies go to equity conferences to present, cumulatively, we are a small-cap stock.

And so I would say that this is not so much a criticism or an observation of Nexstar as it is of the sector. There's just really not a meaningful amount of stock to buy.

And what needs to happen and what we are hopeful will happen is there will be consolidation of a bunch of these midmarket companies and they'll be bigger companies with stronger balance sheets and more equity and debt into the marketplaces that will justify for people the work that they need to do to be able to evaluate these companies.

Well that all sounds terrific but it's fairly pie in the sky. Is there nothing you can do on your own in the near term to help with the issue?

I really don't see it changing quite frankly in the near term. Because again, we're not going to issue equity and why would we at this point? We don't have a use of proceeds.

We do think though that if you look at the free cash flow just in the back half of this year and then for the next two years, it's a substantial, substantial number and we think that a dollar reduction in debt, there's a dollar contribution to the equity side of the balance sheet and that share price appreciation will happen naturally as we delever.

Even if the total enterprise value or multiples don't change, the equity will be more valuable. That may attract people that would like to see that kind of appreciation and it's a -- I don't want to say it's a sure bet, but there's nothing complicated about paying down debt with your free cash flow and sticking to that business model.

Okay, thanks a lot, guys.

(Operator Instructions) Bishop Cheen, Wells Fargo.

I just need clarification on something that was said. I know you have been using a lot of reference points, different reference points on the growth. But did I understand when you said that what you see right now is that the Q3 increase in the non-political will be equal to or better than the Q2 increase in your core non-political?

I think what I had said, Bishop, or what I had meant to say, if you look at gross television ad revenue which is local, national and political; the increase in Q3 will be substantially ahead of the 24.6% that we saw in Q2 in terms of growth.

But that includes -- you are including political in there, correct?

Right, the trends are equally as strong for local revenue and national revenue but I do expect that if we're going to accommodate the amount of political revenue we think that there will be out there in Q3 and that we're already starting to see manifest itself, that could tamp down those comps to the prior year.

As Tom mentioned, we started to see a bounce off the bottom in national in September. We weren't up nationally in September. We were left down but that will make the comp just a tad bit tougher. But thematically, double-digit growth in the core revenue in Q3 plus political is absolutely the direction that we (multiple speakers)

That is what I was looking for because I think rightly or wrongly, when we analyze it, we try and back out the political because like Q3, it's going to be a lot larger than Q2. And so we try and get like a bead on what your core national and local spot revenue is going to be and then do a separate analysis on the size of the political.

I think we're highly confident that the core revenue will be a double-digit increase excluding political in Q3.

Okay, and then so -- and then the other clarification that I may have misunderstood, when you said the way your political is growing, did you say it's going to be two times ahead? The way it grew in the first half of 2010, did you say it was twice the size of the way it was in the first half of 2008?

Yes, if you look at our political revenue for the first two quarters of 2010 versus the first two quarters of 2008, we literally booked double the number of political revenue two year period over two year period.

But you are not suggesting we extrapolate out and use that same magnitude for the full year of 2010?

I'm not suggesting that you not do that but we haven't done that. We haven't guided to that. That's a very heady number and I just don't know that in 90 days we can write that much additional revenue.

So that's not the guidance we are giving. But as I said, high 30s, perhaps into the low 40s is an area that we certainly believe is in the art of the possible and most likely probable.

And that's on a gross basis on the political?

Yes, sir. That is correct.

And then the last clarification, Q3, ongoing Q3, you have brought back 5.6 million [I take it face] of the 7% PIK notes.

7% PIK and some of that is cash pay as well.

Oh, for PIKs and cash pay. And is there like an average discount that you were able to buy it back in the open market?

Yes, it's around 90 and that will be more fully detailed when the Q is filed which we anticipate happening on Friday.

Okay, so that was my last question. The Q will come out on Friday. That's great. Thank you guys.

Andrew Finkelstein, Barclays Capital.

A couple questions. First, Perry, you guys have really been the leaders on retrans. I was wondering if you had any thoughts on CBS recently signing with Comcast for 10 years. Some of the analysts had speculated maybe $0.50 going to $1.00.

It seems like it's a long time to sign up that kind of agreement with rates accelerating. And so I was wondering what you thought there.

And would it have been better with you hoping to work more closely with the networks and their [O&Os] to get a deal for a broader group of the affiliates? And then maybe what does that mean for any sort of reverse comp?

Okay, as far as CBS signing up for 10 years with Comcast, you know I'm sure that both parties would not have agreed to that unless it was a deal they were agreeable to. I don't have any information and really would not add any value by speculating on the reasons behind it or the rates that are paid.

We have 16 agreements up this year in Nexstar that are -- and a half a dozen of those are meaningful in terms of their size and contribution. But those 16 agreements are still on 2005 economics, 1.0 economics which the good news for us is that in the discussions I've been having with the major MSOs who are up at the end of this year, there is an understanding that it is a different neighborhood than it was in 2005 when we were the only ones negotiating and asking for payment in exchange for distribution.

So our -- I feel very positive about our retrans revenue stream continuing to grow and there are escalators in our other contracts that could gain on a calendar year basis primarily. And so it is a continued stairstep up.

Do I think $0.50 to $1.00 is achievable? Absolutely. We're getting that today. So that is in the range of the payments that we do receive today from the 213 different MSOs that we do business with for distribution.

As it relates to reverse comp, I do think that all of the networks have expressed the desire for their affiliate stations to pay them more than they are currently paying them. I do think that will happen over time.

I think it will be about as gradual as network compensation declining which it went from a high watermark to zero over about 10 years. So I do think that the affiliates will pay a higher programming fee or payment to the networks than they do today for the various things that we pay the networks for today.

I do think that is manageable and I think that in concert with the networks getting retrans cash for their owned and operated stations hopefully once and forever more will take off the table the concept of networks going straight to cable. Because they now have superior distribution and a superior distribution to be able to command a premium and the dollars that they do in the ad market and the dual revenue stream to compete with cable which has always been the goal.

So I think that the structural change in the business is -- will ultimately be a long-term positive and given the fact that if you look at the broadcast model today, if you look at Nexstar's model today, half a dozen years ago we had one revenue stream which was selling advertising. Today we have four distribution revenue-- our television ad revenue, our e-media revenue, our mobile revenue and that is before we get into ancillary uses of the spectrum.

In our Company, relatively uniquely, we have a management services agreement which we will begin to report a substantial amount of earned incentive compensation before year-end in addition to the base management fee that we do and I can tell you our partner will be very happy to pay it because it means we've achieved record BCF levels for their company as well. So, I hope that has answered all of your questions. There may have been one in there that I missed and if so, please feel free to come back to me.

Just a follow-up, if you're getting that $0.50 to $1.00 now, where do you think the broadcasters could get that retrans [fee] let's say over the next three to five years in the next round of deals or what do you think is fair value? (multiple speakers) dollars in sight?

What I think is fair -- do I think that we get into the $1.00, $1.50 per sub range relatively consistently and sustainably over the next two retrans cycles? Absolutely.

When you look at the viewership, if we were paid based on if we as local television stations -- if distribution revenue was allocated based on viewership rather than currently vertical integration, we would be getting $3.00 and $4.00 per month because we are the number one viewed channel on the cable system as opposed to some of the other cable channels. It will take a while to get there but do I think that that is in the art of the possible over the next couple of cycles? I absolutely do.

Great, and then just switching gears a little, I don't know if anyone asked on the call, but just on auto, we've all heard the national guys doing great. Can you tell us more about what you're seeing out of the dealer side in the local?

Sure, if you look at -- in our Company and that's really all I can speak to, the local dealers represent approximately one-third of our ad spend. The dealer associations and manufacturer money represents two-thirds and in the second quarter, our entire automotive category was up 37% and the local dealers were up 31%.

Okay, so it sounds like local is not growing as fast but with that much growth out of the local dealers, I would think the local growth rate should be pretty good?

Certainly, for local dealers who have been there and they're the ones selling the cars, for their revenue to be up 31% Q2 versus Q2 of '09 I think is substantial. What you're seeing, the reason that the category is increasing at a rate faster than that is Dodge doubled their spending because they had cut in half the year prior.

We have seen a 75% increase from Toyota, obviously for structural reasons. Ford dealers are up 25%, General Motors is up by 50% in the company. And then smaller -- the Jeep dealers and the Lincoln-Mercury dealers and the Chrysler dealers and the Lexus dealers are all up anywhere between 25 and 89%.

That's kind of a return to spending. For local dealers who again didn't decline as much as the dealer group and factory money did in the recession, but for local dealers to be -- have spending up 31%, I mean that is money out of their pocket beyond the allocation to the dealer association or the factory holdback. That's a pretty strong expression of confidence and I'll take 31% from local car dealers any day.

That's great. Then last question, just with the political coming down the road and the resurgence and a better economic environment, is there any risk to the pacing number, that it's more just frontloading at this point? I'm sure you're taking a look at that issue. And we risk like a falloff as you go further into the quarter?

Yes, we do look at that. We have looked at that. I don't think the pace number is illusory.

We watched it all the way through second quarter and where we finished up was on top of where we were pacing. So it's not just an early booking obfuscation of the actual business results.

There are -- we do have visibility than we did. But when we build our forecast, it's on account by account basis. When the money comes in is important but it's not as important as how much money each account is -- we project to spend and what our good reasons are for why that would happen.

So I don't think that there's anything illusory about the pacing numbers here. They continue to be strong.

That's good to hear, thanks a lot.

(Operator Instructions)

I think we will sign off at this point. I think we've gone a little over an hour and that's a long conference call for the Company.

We appreciate everyone taking the time to join us. Again, our Q will be filed on Friday and we look forward to getting together with you again in three months time to report on the third-quarter operating results for next term. Thanks again.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone have a wonderful day.