Nexstar Media Group Inc (NXST) 2013 Q1 法說會逐字稿

Good day and welcome to the Nexstar Broadcasting Group's 2013 first 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 21-A of the Securities and Exchange Act of 1934. The Company's future financial conditions and results of operations as well as forward-looking 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 circumstance. 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 and good morning, everyone. I would like to thank you call for joining us this morning to discuss Nexstar's record first quarter results and our recently completed and recently announced transactions that will drive continued growth in 2013 and beyond. As always, Tom Carter our Chief Financial Officer is here with me on the call this morning.

The record first quarter net revenue extends Nexstar's strong operating and financial momentum in 2013 and led to record first quarter broadcast cash flow and EBITDA and record odd year free cash flow. With most of our peers already reporting you are probably aware that industry revenue improved in each month during the first quarter. This trend continues for Nexstar as well in the second quarter to date. As such we are well positioned to grow all of our non-political revenue sources throughout 2013 and Nexstar will generate record free cash flow this year, even without the benefit of record levels of political revenue we generated in 2012.

For the quarter net revenue rose 34.2% as the benefit of recently completed accretive acquisitions combined with the ongoing execution of our strategies to leverage our local content and diversify our revenue sources more than offset a total of approximately $4 million of revenue in the year-ago period related to non-recurring political advertising as well as the final payment under the Four Points management agreement last first quarter.

Station revenue excluding political advertising and management fee revenue from both Q1 2013 and Q1 2012 grew 40% reflecting the 32.6% increase in core television ad revenue, 64.2% increase in retransmission consent revenues, and the 57.3% growth of E-media revenue.

Combined first quarter retransmission fee and E-media revenue rose 62.7% to $30.3 million and these higher margin revenue streams accounted for 27% of our 2013 first quarter net revenue. That is the highest ever contribution to our quarterly revenue mix. First quarter 2013 broadcast cash flow and adjusted EBITDA grew 16.9% and 15.5% respectively inclusive of one time expenses of $1.3 million related to our recent capital markets and station group acquisition activities.

First quarter 2013 free cash flow grew 180% over the first quarter of 2011 the previous non-political period. Throughout 2012 and into 2013 Nexstar actively and opportunistically identified station acquisitions that adhered to our criteria for accretion as well as creating strong new local platforms.

Since mid-2012 Nexstar has completed the acquisition of 18 television stations in accretive transactions, and last month entered into a definitive agreement to acquire the stock of CCA and White Knight Broadcasting the owners of 19 additional television stations and 7 associated digital sub-channels in ten markets for $270 million in a transaction that is also expected to be immediately accretive upon closing. When completed later this year these stations will add seven more duopolies to our operating base, and overall the transaction will expand our geographic diversity and scale to 91 stations in 48 markets; 33 of those will be duopoly markets to us.

The long-term value being created from our platform building, our revenue diversification, and our capital structure strategies is highlighted in the economics of the recently announced CCA transaction which we expect to generate $100 million in net revenue and over $50 million in annual incremental broadcast cash flow beginning in 2014. Most significant to us on a pro forma basis, the CCA transaction will also lead to nearly $1 per share in additional free cash flow accretion. This free cash flow accretion is as I say on top of the significant free cash flow accretion related to our other recent acquisitions.

So layering on the CCA transaction we see pro forma broadcast cash flow-- I'm sorry pro forma cash flow rising to over $300 million in the 2014 and 2015 cycle. Considering our reduced share base of 29.1 million shares outstanding that average pro forma free cash flow share could approximate $5 per share in the 2014-2015 period.

While our primary focus is on extending our long-term record of free cash flow growth, our expanded scale and the very significant free cash flow being generated from our existing platform enables us to complete transactions like CCA without materially altering our leverage profile. Today's release notes that we ended the first quarter with net leverage of 4.24 or about in line with the December 31, 2012 levels which reflected the completion and financing of 10 of the 18 announced station acquisitions at that time.

The remaining 8 stations closed in the first quarter and were funded with cash on hand and a $70 million worth of debt funded under our revolving credit facility. Reflecting the accretive structure of the recently completed and announced transactions and lower blended cost of capital pro forma for the completion of the remaining station transactions that are announced, our net leverage expected to rise only slightly to the mid three times range by the end of 2014.

Tom will review our capital structure shortly but our strength in balance sheet provides us with a lower cost of capital and additional flexibility allowing us to continue to acquire other stations in accretive acquisitions, to continue to delever, to fund our recent share repurchase, as well as for dividends. And by the way, our second $0.12 quarterly dividend was announced and will be paid later this month. For Nexstar free cash flow is our primary performance metric and we believe our very visible prospects to generate significant free cash flow per share over the next and current two year cycles will be a principal point of interest to the capital markets.

With that Tom will now provide further details on our financials after which I will come back with closing remarks and then we go to your Q&A. Tom?

Thanks, Perry and good morning, everyone, I will start with a review of Nexstar's Q1 income statement and balance sheet data after which I'll provide an update on our capital structure and the recently announced transactions.

For Q1 2013, net revenue was $112.2 million which represented a 34.2% increase over the same period in 2012. Core revenue was $83.3 million, up 32.6% over the $62.8 million for Q1 2012.

Local revenue was up 31% to $59.9 million, national up 34.3% to $23.4 million, and political as is typical in an odd year was only $800,000 compared to $2.8 million in the previous year.

Retransmission fee revenues were $23.8 million, up almost 64% over the same quarter in 2012, which was largely driven as were a lot of these numbers by the acquisition of the Newport stations and the additional eight stations in Q1 of 2013.

E-media revenues were up to $6.5 million which represented broadcast cash flow of $39.8 million up 17% over 2012 levels and adjusted EBITDA of $31. -- I'm sorry $33.1 million with free cash flow standing at $10.2 million which was a record for us in a first quarter odd year non-political.

Nexstar's first quarter corporate expenses were $6.7 million compared with $5.4 million a year ago.

About $1 million of the increase is one-time in nature relating to recent capital markets and station group acquisition activity, with legal, accounting, professional services, and associated costs making up the million dollar amount. The remaining $300,000 reflected one-time station operating expenses related to the recent acquisitions most notably in Little Rock. We see our corporate overhead remaining above normalized levels for the next three quarters as we continue to incur transaction related expenses relating to the CCA acquisition and our most recent capital markets activities with regard to the ABRY secondary offering.

As a result, we expect our normalized quarterly corporate expense run rate of roughly $5.5 million to increase by approximately $500,000 to $1 million per quarter for the balance of 2013. Assuming the completion of the CCA station acquisition, and as disclosed touring the CCA conference call, beginning in Q4 of 2013 we expect corporate expenses to increase by an additional $375,000 per quarter as staffing and infrastructure is added to manage and operate the 19 additional stations.

Station direct operating expenses consisting primarily of news, engineering and programming, and selling, general and administrative expenses, which are net of trade expense, were $61.4 million for the three months ending March 31 2013 compared to $42.3 million for the same period in 2012. Of the $1.19 million increase about $300,000 as we mentioned before was attributable to the station group acquisition activity during the quarter.

The remainder largely reflects expenses for the 18 stations added in Q4 2012 and Q1 2013, and higher variable costs related to significant rise in core revenues. On a same station basis fixed expenses were up less than 2%. Turning to the balance sheet I will review a few of the key items as of March 31, 2013. Net leverage at March 31 2013 was 4.24 versus the permitted leverage covenant of 7.25. First lien leverage was 1.57 versus the 3.5 times covenant.

The only change to the capital structure during Q1 were the borrowings under the credit facility to complete the remaining station acquisitions that were announced in 2012 that Perry alluded to earlier. Specifically we borrowed $10 million under our revolver and $60 million on the first lien term loan as Mission funded the remaining amount due for its two stations in Little Rock from Newport. Also during the quarter we did fund the acquisitions of the Newport, California stations as well as the Burlington stations from Smith and the Granite acquisition in Fresno.

I will remind you that our first lien term loan was re-- loaded under the new $450 million senior credit facilities which are comprised of a $350 million Term Loan B and $100 million revolving credit facility. Both of those closed concurrent with the 10 station acquisition in December of 2012. With respect to the financing of the CCA acquisition the pro forma financial projections we've shared assumes new first lien debt of approximately $270 million at current market rates.

Given this expectation pro forma for the transaction expected new financing we expect to see Nexstar's weighted average cost of borrowings decline to approximately 6.1% from the current levels of approximately 6.6%.

Nexstar's outstanding debt at March 31 2013 consisted of first lien debt of $348.3 million on the term loan and $10 million on the outstanding under the revolver. The second lien bonds at $319.7 million, and the other debt, largely the senior unsecured bonds, at $250 million.

Total interest expense for the first quarter of 2013 was $16.5 million, compared to $12.9 million for the same period in 2012. Cash interest expense for the fourth quarter was $15.7 million, I'm sorry for the first quarter was $15.7 million compared to $12.1 million for the same period in 2012.

As average debt levels throughout the quarter reflected the borrowings noted earlier on the credit facility for recent acquisition. Nexstar's Q1 CapEx is $6.8 million compared to the same period in 2012 of about $4 million and the increase reflects the construction and equipment costs for our new broadcasting and news facility in Memphis where we now operate a duopoly and our initiatives to accelerate local HD originations.

Our CapEx in 2013 will be approximately $18.2 million which is consistent with what we said on the previous earnings call. So you can see that we front end loaded some of the full year budget to effect the changes in Memphis primarily. We believe our results again demonstrate we are successfully managing the top line, fixed and variable costs, and the balance sheet for cash, and remain focused on further acquisitions that can enhance value.

In this regard given our positive outlook for free cash flow we believe it was prudent and opportunistic to participate in ABRY's final share divestiture and repurchase approximately 365,000 shares of Nexstar stock for approximately $8.4 million. Looking forward, given the CCA announcement we expect to keep our cash on hand for the transaction and in order to deploy free cash flow to-- for debt reduction in advance of that acquisition. The integration and realizations of synergies of the 18 acquired stations we closed on is on track now in the second quarter of 2013 so we remain highly confident in our expectations for record 2013 results. That concludes the financial review for the call and I will now turn it back over to Perry for some closing remarks before Q&A.

Thanks, Tom. Nexstar was founded in the second quarter of 1996 and has been built through acquisitions over the last 17 years to the 91 station group that we will own following the completion of the CCA transaction. Our free cash flow growth over this period has been in lock step with our platform expansion. And our ability to integrate and operate new stations and extract the expected synergies is the primary factor in our exceptional long-term growth record.

The completed and announced transactions will bring further diversification and scale to our operations and bring visible and quantifiable financial benefits towards the creation of further value for shareholders without a material near term impact to our leverage. The Nexstar organization is energized by the planned addition of the 19 CCA and White Knight Broadcasting stations and the opportunities that presents. We have successfully integrated the first 18 stations acquired in Q4 of 2012 and Q1 of 2013 into our existing operating base and we are generating the expected financial returns now while extending our local market reputation for delivering leading newscasts and local community-focused content and programming and initiatives for advertisers.

Our activities on this front include appointing leading industry personnel in management, news, and sales, upgrading equipment and facilities to provide the most compelling local programming in each of the markets we serve. For example, as Tom mentioned, last week we announced that after months of planning and construction we will open a state of the art facility in Memphis, Tennessee, in June to support the operations of our three stations serving the Memphis and Jackson, Tennessee markets.

The facility features entirely new and expanded news production facilities, advanced broadcasting technology for HD origination and production, and airing of all programming and commercials and this is yet another example of Nexstar's organization-wide commitment to broadcasting excellence for local viewers and unparalleled marketing results for our advertising partners. We are confident that 2013 presents Nexstar with the prospects for further growth from all of our non-political revenue sources and we remain committed to identifying and acting on new opportunities to create further value for shareholders.

The Company's extended, expanded scale, strength in balance sheet, and application of our intellectual capital and operating skills to our significantly expanding operating platform is expected to lead to record financial results yet again for 2013. And I would like to say on behalf of Nexstar's team of talented and dedicated employees we thank you for your continued support and we look forward to reporting further progress on the Q2 call later in the summer.

With that, let us now open the call to Q&A to address your specific areas of interest. Operator?

(Operator Instructions). Our first question he will come from Marci Ryvicker with Wells Fargo.

Thanks. Can you talk about core revenue or unaffected spot revenue? The trends for Q1 and what you are seeing in the second quarter to date?

Sure, Marci. I think, first of all, same station net revenues excluding political were up in the low single digits in the first quarter. We did see an acceleration in core revenue January to February to March and that has continued into April as well with April being the best month of growth for the Company thus far in 2013.

And then Tom you mentioned about same station fixed expenses being up less than 2%. Does that include reverse comp?

No.

Okay. And then can you just talk about how much of station OpEx is fixed versus variable at this point?

Sure, and I guess just to be clear I think of it in two -- in three buckets. There's fixed, there's variable and then there's the network affiliation costs. Network affiliation costs, obviously, are going up not insubstantially as we realize for the first time some of the-- compared to previous years the full effect of some of our network affiliation agreements. But fixed expenses are-- if you think about them as three buckets, the fixed expenses are probably, I don't know, 70% of expenses with 30% being variable relative to sales. And so that is probably the biggest attribute. But you if you boil it all down and take out the affiliate expense, our fixed expenses we are up in the high-- high-- just below 2% I guess is a good way to put it.

Okay. And has the 70% versus 30% changed over time or has that been pretty much the same historically?

It changed over time just because we have taken affiliate expense out of the fixed and now have is that as a separate-- we think about that as a separate category.

Okay.

Obviously that is growing at a pretty substantial rate when you compare it to previous years when some of our station portfolio weren't paying any affiliate fees. I guess the good news now is, from that perspective, about 85% of our affiliates are paying reverse compensation or network affiliation fees, so the sticker shock if you will of stations going from not paying anything to paying something is well behind us.

Got it. Thank you both very much.

Thank you.

We go next to Aaron Watts with Deutsche Bank.

Good morning, guys. Could you give us a little color on some of the categories that were stronger for you in the first quarter and maybe those that were a little weaker and any distinguishable differences as you moved into the second quarter in those category performances.

Sure. On a same station basis which would exclude the stations we closed on in the first quarter automotive was up a single digit. Furniture was up a single digit. Schools and instruction were up double digits. Cable and other media advertising was basically flat as were attorneys. Fast food was down a mid single digit as was paid programming and medical. Department stores and retails were down about 10%. I think that rounds out pretty much the top ten.

Any differences in themes so far for 2Q for feels the same?

Actually 2Q looks a little more peppy I think at this point. We track 15 categories both nationally and locally, and on both local and national of the 15 more are up than down for both local and national. And the percentage increases are stronger in the second quarter on a pacing basis, business on books as of last Friday, than the finish in first quarter.

We are in much better shape after four weeks of the second quarter than we were four weeks of the first quarter.

Okay. That's helpful. And then Perry maybe just your high level thoughts. You made a couple of acquisitions recently. I know you see most of the books that come through on opportunities that may still be out there. Maybe talk about what is left, if there is still attractive assets that would fall into your sweet spot that you are still considering.

Yes, there are attractive assets that would fall into our sweet spot that we are still considering, Aaron. Obviously we will be very disciplined in the price we will pay. It has to be a deal that is good for our shareholders or we won't transact. Just in the market now with local TV and Fisher, that is somewhere in the high $2 billion worth of -- I'm sorry Allbritton and the local TV and Fox Co assets, that's almost $3 billion worth of assets in the marketplace. We think there is more to come.

The rolling M&A thunder here will probably continue through the balance of this year and 2014 probably at about the same pace as you have seen over the last 18 to 24 months. I think there are folks that are in the queue and we have calls from people that certain properties are on the market, quietly on the market being offered selectively to buyers to look at. It is not a full auction process and then there is still the principal-to-principal contact that we have with people in non-brokered deal its that we have been trying to cultivate for some time. There is plenty yet to do. And we will participate as long as we can do it the right way.

Okay. Thank you.

We he will go next to John Janedis with UBS.

Thank you. Can you guys talk about the weakness in ratings at the broadcast networks? are they having any noticeable impact on ad dollars and how are ratings for local news across our markets?

John, as you know we don't subscribe to Nielsen so we are not privy to quote ratings information. What we read and what the networks report to us. Obviously there has been a decline overall but a share shift where CBS is going to finish number one in 18-49 for the season. So give that we have a portfolio and the ratings transfer in prime time and other day parts from not one network to another, we are somewhat insulated from the hits and misses. Local ratings for newscast from where they were ten years ago have obviously declined in general. I would say thought, that is generally a more sticky broadcast viewed live not subject to DVR time shifting and so I think that in general and this is not a statistical opinion but just a general observation, I think local news ratings have probably declined less than entertainment programming over the same period of time.

Okay. Thanks. Tom, I know he there were a few ins and outs on your comments around corporate. But looking at the 14 is the net resultthat corporate run rate is somewhere around $6 million a quarter?

That would probably be a good number. Maybe a little bit more depending on some issues but I would say probably be between the high fives to the low sixes.

Okay. Great. Maybe one last question. Perry there has been talk in the press about the need to raise awareness for Obamacare later this year and the potential to use TV to help that effort. Is that a possible opportunity for you to you to offset some of the political comp?

It's entirely possible, John. The-- We hear from our national rep firm who is in Washington all the time, dealing with the agencies that place the issue and advocacy advertising, that this is a very distinct possibility. No one is yet prepared to size it or time it, but suffice it to say we are having conversations about the impact of health care law changes to our operating model and trying to prepare for those now and I think particularly as enrollment periods come up for either state run exchanges or whatever, you're going to see advertising competing for those dollars which we hear a lot of time in our state capital markets at the end of-- or at the beginning of an open enrollment period where the health care providers are competing for constituents. But we hear the same thing and I think it is real. I just can't quantify it or time it for you that there will be advertising and advocacy around the implementation of the healthcare laws beginning in 2014.

Thanks, Perry.

We go next to Mike Senno with Credit Suisse.

Good morning. I have one question around capital allocation, I know it is a little early, but with the buyback authorization just put in place and obviously the stock has run a bit so the yield is down, is there any context you can provide on how you intend to manage the dividend in terms of yield or free cash flow payout or perhaps the balance between dividends and buybacks looking forward?

One quick correction. The only authorization we had to buy back shares was from the ABRY offering. There is no other authorization out there other than to help effect the exercise of options. The board authorization was a one-time authorization around the ABRY final sale.

Having said that, obviously we are a couple of weeks away from paying our second dividend and we are excited about that. I think the general consensus that we have had and that the only discussions we have had around the board is that we will review the dividend annually and that won't come until later this year or early next year. But clearly, as we have said before, our thinking in the establishment of the dividend was obviously something that was meaningful but you also something that we knew had to be very sacrosanct and also have the ability to grow it over time. And so I think other than that there haven't been any specific discussions of percentage increases or percentages of free cash flow or any of those types of things but I think directionally, clearly, the concept and the point for the initiation was to do it so it could grow over time.

Thank you for that. Just one quick question in terms of station OpEx. Can you provide some context, I know that you finished closing some of the acquisitions during the quarter. It takes a little bit of time to integrate and recognize some of the cost synergies. On a run rate basis would you expect to see some benefit moving forward over the next couple of quarters sequentially from cost synergies you may have recognized late in the quarter or into April?

Yes, this is Perry. We closed on our Little Rock acquisition basically effective January 1, but the synergies from the consolidation and the reduction in force weren't realized until the end of February and then in Fresno, Bakersfield, and Burlington, stations we acquired during the quarter those synergies and reductions in force were basically realized at quarter's end. And a portion of the costs of severance as Tom mentioned was realized as station OpEx expense in the first quarter.

So yes, I think you will see on a run rate basis here continuing improving operating expense profile to the first quarter because with the exception of some operating expense savings yet to come in digital media and in Fresno particularly as we are building a hub there, those will come later on in the year. But the vast majority of the synergies that we identified and have told people that we would recognize have now been harvested as of the end of the first quarter.

And a lot of that had to do if you remember we received FCC approval to close Little Rock on December 11. There was obviously a scramble to get things done just to fund by the beginning of January and then obviously to execute on those cost take outs. And the same with regard to the Newport acquisitions and the Granite acquisition we he closed just a matter of a couple of business weeks after FCC approval so there wasn't a lot of time to effectuate the cost take outs and that's why it took a little bit longer than we would have like.

Particularly when it's involving personnel decisions. You want to make sure to be thoughtful and not just mindlessly hew to a model. We've done all of that, and as I said the vast majority of our synergies that we have broadcast in each of these acquisitions have been realized and basically the remainder will be realized in second quarter by the end of second quarter but the vast majority have already been realized as of the end of first quarter.

Great. Thank you both.

Thank you.

(Operator Instructions). We go next to Barry Lucas with Gabelli & Company.

Good morning. I have a couple this morning. Tom, maybe you could talk a little bit about normalized CapEx. If this year is a little bit elevated because of the building projects in Memphis and your building op facility in Fresno, where should that number be more or less with or without CCA?

Sure. Well--

Well, I think Barry if you look at CCA and there will be some new duopoly creation which will require some CapEx. I think the $18 million to $20 million range for this year is a good number to use. I also think that is a-- $20 million will be a good number for next year to use. After that, I think you can absent additional acquisitions it probably tails off to a mid teens number on a more normalized basis.

Great. Thank you. From a higher level when we think about all of the M&A activity we have seen over the last 20 months and what is in the hopper, what does this industry look like in two years when you have chewed through -- when the industry as a whole has chewed through Allbritton and local and some of the mom and pops out there. Who is the last man standing?

I don't know. I have envisioned this vision of our industry as starting to be realized that basically that the industry is very consolidated at the top. You have four companies that own the studios, the networks the stations in the most major of markets and then that ultimately there would be maybe half a dozen companies that are the local content producers, national distribution partners that are all properly capitalized, billion dollars plus equity market caps, probably reach 20% of the US or more and our $2 billion, $3 billion, $4 billion enterprises, and I think that would rationalize national content distribution and local content production. There is obviously industrial logic to the elimination of duplicate corporate overhead and duplicate functions and things like that.

I think it is starting to be realized. It may take-- I have been saying this has been the vision for half a dozen years and it has taken this long to get to this point and will probably take another, as you say, three or four years to get to that point. I do think you will have a group of half a dozen companies is that have substantial revenues and substantial holdings in the broadcast industry and then below that the next tier I think will necessarily be smaller.

I don't think you will ever eliminate the local owner that owns two TV stations in two markets in Oklahoma or has a presence in the northwest or whatever, and it has been in the family for generations. There may be-- those will continue perhaps ad infinitum. But I do think that in terms of public companies, obviously for us, both liquidity and value were important and I think a derivative of that is scale. Also making smart acquisitions is the key I think and so we will continue to be very disciplined about growing the group.

Having said that through all of that over the last two years we have been able to find enough to keep us busy that have continued to be strategic acquisitions. I envision that there will be the four national content producers and half a dozen local content producers that are national content distribution partners, and that will be the meaningful portion of the business and that probably happens over the next three to four years.

And just a follow-up on that for a sec, Perry. Where does Nexstar fit in that pantheon, if you will? What's your endgame?

I think we will -- We are obviously now a fully distributed public company. One share one vote. Owned by the public and management. And management's interests, I would like to say, have always been aligned with the shareholders because the two folks on this call have a meaningful personal investment in the Company and a meaningful opportunity to earn through options. I think that we will continue to attempt to grow the Company if it makes sense and drives value.

Obviously if someone has a number in mind we could be persuaded to be part of someone else's consolidation strategy but it would have to be a meaningful get for our current shareholders. As you know we put some changes in our by-laws, namely a staggered board and other provisions that would require any one ultimately ever wanting to take over the Company to have to effect a premium. And I think that was the right thing to do from a governance perspective and the right thing to do from a long-term perspective for our current and future shareholders.

We will continue to try and be one of those half a dozen companies but then again if someone else is willing to pay a significant premium for our Company that is obviously something that our Board and Tom and I would consider because at the end of the day we are here to do what is in the best interest of our shareholders.

Thanks very much.

We go next to David Hebert with Wells Fargo Securities.

Good morning, everyone. Thanks for taking the questions. You guys have been very duopoly driven in our M&A strategy. Wondering if you could talk about the revenue share in these duopoly markets and the margin differential as opposed to a single station market?

Obviously it differs depending on where you are on the food chain and the combination of the stations in these duopoly markets. But clearly we think our market share is typically 50% more or sometimes greater than 50% more in a duopoly market than in a single station market and typically our BCF margins in a duopoly market, because you are operating two stations off of one fixed cost base, typically that BCF margin is about 500 basis point higher in a duopoly market than in a non-duopoly market. That's-- it is not that hard to figure out why we are so interested in this when you think about those economic conditions.

Okay great. Thank you. As we talk about households that get over the air television, I guess generally speaking we talk about 10% across the nation. Does that number differ for you in your markets?

It is slightly is higher. On average today it is about 12% of our viewers across the 13.9% of the US that we reach or will reach with our pending acquisition, do not take a pay service on their primary set to consume our signal. Obviously that number is higher when you consider the set in the bedroom or the set in the den or the set in the kitchen but the primary -- and some of our markets it is as high as -- it is twice that, 25%. You can imagine some of the rural markets more agricultural oriented where the cable doesn't run all the way out to the farm or ranch.

On aggregate it is around 12% and that number has been rock steady for the legacy Nexstar stations for the last half a dozen years. There's been no meaningful churn. There are people that may go from a wire line cable service to a phone company service or satellite service but there has been no meaningful tick up in that number of those that consume us without the aid of a pay service. Obviously in our markets you can, if you want to do that, you just put an antenna on the roof or rabbit ears on top of the set and you are in business. But we have seen no meaningful increase in the over the air households as a percentage of our overall distribution.

That is good to know. And then another question on M&A. Most of the transactions we seen have been $300 million, $400 million in purchase price. Now, that we are talking about Allbritton, and local, and Fox Co. these are going to be sizeable transactions. Does this change the game in terms of what sellers is going to be looking for in terms of a multiple?

No, I think -- I have been buying TV stations since 1991 and I have seen multiples as low as 5.5 times when there was no credit available to as high as 13 times when there was maybe too much credit available but it has always generally come in the 8 to 10 range, and I think most transactions today -- virtually everything that has been announced with very few exceptions has been in that seller's multiple of 8 to 9 times. There's been very little done above that and a few done below that. I think that is just where things tend to come into in more of a steady state basis. We are involved in some of these processes and we have not seen any kind of multiple creep I would say.

Generally, the bigger the transaction the smaller universe of buyers unless you can parse it out and so that may have the negative effect on multiples because you have less competition for the assets. The Allbritton deal was a stock deal and you get no step up in basis. And theoretically that would trade at a discount to an asset deal. I'm not trying to negotiate in this call or anything. Everything is situational. We have not seen things trade away from us. We know exactly what our number is and every asset that we look for and we are involved in one station, two station conversations.

We are involved in eight station conversations, and we are involved in whole group discussions. But we have not seen much of a change in the landscape because I do believe that all in, M&A multiples are driven a lot by the amount of credit that is available to finance them and I think the while the cost of capital has come down the absolute leverage has remained steady state over the last two years.

Okay. That's interesting. And Allbritton, not to be too specific, but they have a D.C. station a top ten market and you don't see these assets come on the market very often. How do you look at a valuation of that station whether it's a cash flow multiple or the significant reach? And is that a market that you are interested in, being top ten?

Sure. I mean technically we are already in that market. We have an NBC affiliate in Hagerstown and the market is Washington, D.C./Hagerstown Maryland, so we're already in that market. We don't have full market distribution because we he serve a geographic area that is about 25% of the Washington, D.C. DMA and has spill-out into some other markets into Maryland and even into West Virginia and Pennsylvania there.

But I think again it is a stock deal so you have got to value Birmingham and Tulsa and D.C. And it is one number. You may internally allocate it differently but you are not going to be able to do that for your book purposes or tax purposes. I think things might be -- there might be more competition for a Washington, D.C. asset on a stand alone basis. However, this transaction is not currently structured that way. But I can tell you how we value it. It's got to be in a free cash flow accretive regardless of market size to the shareholders or we would not "pay up" for a trophy asset. That is just not in our DNA.

Right, okay. That's good to hear. Then, Tom, on the second liens, we're getting closer to that April 14 call date. Any thoughts about looking to do this sooner rather than later ? A refi?

David, we think about it all the time. I think, though, clearly the tactic of when that happens is really more driven by the strategy of the Company in terms of M&A and any catalysts for that. But having said that, clearly we understand the economics of the second liens, where that can be refinanced now, obviously the cost of that with regard to the premium, and so there are a lot of ingredients that go into baking that cake. But we do think about it a lot and have a couple of potential outcomes there that once we get a little bit closer to finding out where the plates stop spinning on some of these strategic items then we will effect that.

Okay. All sounds good. Thank you.

We go next to Tracy Young with Evercore.

Thanks so much for the color on the call. Going back to revenues I might have missed this but you did you talk about the telecom category and how that did in first quarter and where that is? Is that more of a top five category than it was previously and also how much of that is a percentage of your core revenue? Thanks.

Auto in the first quarter I believe was in the 25% range. Tom's flipping as I am to get you a final number. Telecom is of the top 15 categories that we track telecom for us is number 14 and it is currently down a very small single digit.

Q1 2013 was 24.3% for auto so right on Perry's 25%.

What do you think will help to continue the growth in the auto category? Is it going to be the dealerships? Is it going to be new products?

I think both, Tracy. I think the first derivative is new car sales, the SAR, and that seems to be other than a slight dip below $15 million on an annualized basis this past month that seems to be the number that would be up and drive growth. I know there is new model introductions coming this fall and a higher than normalized number of those. Obviously a lot of our markets are truck markets and trucks are just flying off the shelves, and I think it is a combination of things. I think you still have-- it is a market share business.

I think you have some advertisers and name plates that are more attuned to growing market share and we see the category continuing to be healthy again at 24% plus of our add ad supported revenues and that is just on-air. Online it is a much lower amount at this point. Of our television on air ad supported revenues it's 24%. We were as high as 27% so that would say we've got10% plus of head room before we start testing any new highs. Most everyone I talk to in the new car manufacturing business indicates that a steady state SAR is somewhere between 15.5 millionand 16 million vehicles and we are not the there yet so that would indicate that that's got another -- room to run.

I think you will continue to see the average age of the car on the road is ten years and things are just going to wear out. We feel good about automotive over the near term which for us is probably the next two to three years. I don't see any disruption in continued growth because we are really just growing back to where we were on both a SAR basis and a percent of ad revenue, and I don't see us testing any new highs until that growth will be completed and I think that probably-- we have another, as I said, two or three years of pretty substantial sustained solid fundamental growth in the category.

Great. Thank you very much.

With no additional questions I would like to turn the call back to Mr. Sook for any additional or closing comments.

Thank you very much everyone for joining us and thank you for your continued interest and support. We look forward to getting with you this summer to discuss our Q2 results and look toward the back half of the year. Thanks again.

And that does conclude today's call. Again, thank you for your participation. Have a good day.