Nexstar Broadcasting Group, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015. The unaudited consolidated results include Nexstar and entities consolidated as variable interest entities (VIEs). The filing describes a television broadcasting business operating in one reportable segment. Unless noted otherwise, figures below are in U.S. dollars.
Financial performance and liquidity
| Metric | Q1 2015 | Q1 2014 / prior date | Change |
|---|---|---|---|
| Net revenue | $203.4 million | $133.8 million | Up $69.6 million, or 52.0% |
| Income from operations | $37.9 million | $27.7 million | Up 36.8% |
| Operating margin | 18.6% | 20.7% | Down 2.1 percentage points |
| Net income attributable to Nexstar | $12.9 million; $0.41 basic and $0.40 diluted per share | $7.4 million; $0.24 basic and $0.23 diluted per share | Up 75.5% |
| Cash from operating activities | $49.6 million | $44.7 million | Up $4.9 million |
| Cash used in investing activities | $438.7 million | $26.0 million | Driven principally by acquisitions |
| Cash from (used in) financing activities | $301.7 million | ($8.2 million) | Debt issuance and borrowing funded acquisitions |
| Cash and cash equivalents | $44.6 million at March 31, 2015 | $131.9 million at December 31, 2014 | Down $87.3 million |
| Total debt, including current portion | $1.544 billion | $1.236 billion at December 31, 2014 | Up $307.9 million |
Revenue mix: Retransmission compensation was $66.6 million, up 89.5%; digital media revenue was $19.3 million, versus $6.3 million; local advertising was $84.5 million, up 28.8%; and national advertising was $35.6 million, up 30.9%. Political advertising declined to $0.4 million from $4.0 million.
Liquidity: Current assets were $281.6 million and current liabilities were $136.4 million. The company reported $63.0 million of unused revolving commitments available under covenant calculations at quarter-end and compliance with its covenants. It repaid $30.0 million of revolving debt in April 2015. Management said available cash, expected operating cash flow and borrowing availability should cover working capital, capital expenditures, interest and scheduled principal payments for at least the next 12 months.
Debt and interest: Debt included $701.5 million of term loans, $42.0 million of revolving loans, $525.0 million principal of 6.875% notes due 2020 and $275.0 million of 6.125% notes due 2022. Net interest expense rose to $19.3 million from $15.2 million. The filing states a 100-basis-point increase in LIBOR would raise annual interest expense and reduce operating cash flow by approximately $3.4 million, based on quarter-end facility balances.
Material changes and transactions
- Q1 revenue growth reflected $58.6 million of incremental revenue from acquired stations and entities and a $16.4 million increase in retransmission compensation at legacy stations. These gains were partly offset by lower advertising, including the absence of prior-year Olympic and political spending.
- Operating expenses rose with acquisitions, higher programming costs and increased depreciation and amortization. Operating margin declined despite higher operating income.
- The company acquired CCA effective January 1 for $278.3 million, and completed acquisitions of KASW for $71.3 million, Yashi for $33.4 million and KLAS for $150.4 million. It also sold WEVV for $26.8 million and sold KPEJ and KMSS to Marshall, with that transaction eliminated in consolidation. Acquisition payments totaled $460.0 million in the cash flow statement.
- Nexstar issued $275.0 million of 6.125% senior unsecured notes due 2022 at par and used note proceeds and revolving borrowings in part to fund acquisitions. Quarterly dividends were $0.19 per share, versus $0.15 in Q1 2014.
Outlook, risks and unusual items
- No specific financial forecast or quantitative earnings guidance is provided. Management noted seasonality: advertising is generally stronger in Q2 and Q4, and 2015 is neither an election year nor an Olympic year.
- Management characterized the company as highly leveraged. Debt service uses substantial cash flow and may limit funds for operations, investment and acquisitions; refinancing and future borrowing depend partly on market conditions and covenant compliance.
- Regulatory risks include FCC media-ownership and joint retransmission-consent negotiation rules, potential changes to broadcast spectrum allocation and repacking, and evolving treatment of online video distributors. Changes to service agreements could reduce revenue or increase costs.
- The company guarantees Mission’s and Marshall’s senior secured debt. At March 31, Mission had $229.2 million outstanding and Marshall had $60.4 million outstanding. Certain VIE assets are unavailable to satisfy Nexstar obligations, and VIE creditors have no recourse to Nexstar’s general credit.
- Management said ordinary-course litigation was not expected to have a material adverse effect. Contractual indemnification exposures may be uncapped or undeterminable. No material changes to previously reported risk factors were identified.
- The quarter included a $0.5 million net loss on the WEVV disposal and $1.5 million in noncash representation-contract termination fees. Cash taxes paid were $5.9 million, primarily related to the tax gain on the station sale to Marshall.
Key facts for investors to verify
- How much of reported revenue and earnings growth is attributable to acquisitions versus legacy-station performance, particularly retransmission renewals and advertising trends.
- Acquisition integration, expected cost savings and the contribution of acquired stations and Yashi to future results.
- Debt balances, maturity schedule, covenant headroom, refinancing access and the effect of variable interest rates.
- Whether FCC rulings or appeals require changes to joint sales or retransmission arrangements, and the resulting effect on revenue and costs.
- Cash conversion and liquidity after acquisition spending, dividends, taxes and the April $30.0 million revolving-debt repayment.