Nexstar Media Group, Inc. - 10-Q Summary (Period Ended Sept 30, 2012)
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for Nexstar Broadcasting Group, Inc. for the period ended September 30, 2012. Nexstar operates as a television broadcasting company, owning, operating, or providing services to 55 television stations and 11 digital multicast channels across 32 markets. The company consolidates the financial results of Mission Broadcasting, Inc. (Mission) as a Variable Interest Entity (VIE) due to local service agreements, debt guarantees, and purchase options, though Nexstar does not own Mission's equity.
Key Financial Metrics
| Metric | Three Months Ended Sept 30, 2012 | Nine Months Ended Sept 30, 2012 |
|---|---|---|
| Net Revenue | $89.95 million | $262.46 million |
| Income from Operations | $23.56 million | $64.53 million |
| Net Income | $9.56 million | $21.40 million |
| Diluted EPS | $0.31 | $0.70 |
| Operating Cash Flow (9mo) | $68.73 million | |
| Total Debt (Long-term + Current) | $615.25 million | |
| Cash and Equivalents | $12.24 million | |
| Unused Revolving Credit | $42.00 million |
Material Changes vs. Prior Period
- Revenue Growth: Net revenue increased 20.2% ($15.1 million) for the quarter and 19.1% ($42.2 million) for the nine months compared to 2011. Growth was driven by the acquisition of WEHT (Dec 2011), higher retransmission compensation, and a significant increase in political advertising due to the 2012 election cycle.
- Profitability: The company returned to profitability, reporting net income of $9.6 million for the quarter compared to a net loss of $6.3 million in the same period in 2011. Operating income surged from $8.3 million to $23.6 million.
- Expense Management: Amortization of intangible assets decreased by 24.0% ($1.7 million) quarter-over-quarter due to the full amortization of certain FOX affiliation contracts in 2011. Interest expense decreased 4.8% due to debt redemptions and refinancing.
- Cash Flow: Net cash provided by operating activities nearly doubled to $68.7 million for the nine months ended Sept 30, 2012, compared to $35.0 million in the prior year.
Guidance, Outlook, and Risks
- Acquisitions: Nexstar signed definitive agreements to acquire 12 stations from Newport Television for $285.5 million, expected to close in December 2012. Additional agreements were signed in October/November 2012 for stations in California and Vermont.
- Debt Refinancing: In October 2012, Nexstar commenced an offering of $250 million of 6.875% Senior Notes due 2020. Proceeds are intended to retire existing 7% Notes and 7% PIK Notes and repay portions of the senior secured credit facility. A tender offer for the 7% Notes was also launched.
- Liquidity: The company is highly leveraged. Management believes available cash, operating cash flow, and $42 million in unused revolving credit are sufficient to fund operations and debt service for the next 12 months.
- Risks: Key risks include FCC regulatory changes regarding media ownership and spectrum reallocation, the high level of indebtedness limiting financial flexibility, and the potential impact of economic conditions on advertising revenue.
Investor Verification Checklist
- Acquisition Closing: Verify the closing of the $285.5 million Newport acquisition and the subsequent California/Vermont deals.
- Debt Refinancing Success: Confirm the completion of the $250 million 6.875% Note offering and the successful tender offer for the 7% Notes.
- Covenant Compliance: Monitor compliance with financial covenants (leverage ratio, fixed charge coverage) given the high debt load and planned refinancing.
- Political Ad Revenue Sustainability: Assess the impact of the 2012 election year on revenue trends as the company moves into non-election periods.
- Mission VIE Status: Review the ongoing relationship with Mission Broadcasting and the status of purchase options to acquire Mission stations.