Nexstar Broadcasting Group, Inc. — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; unaudited. The filing registrant is Nexstar Broadcasting Group, Inc. (the company identified in the request as Nexstar Media Group). Consolidated results include Mission Broadcasting, which Nexstar consolidates as a variable interest entity despite not owning it.
Financial performance and position
| Metric | Q1 2012 | Q1 2011 / prior date |
|---|---|---|
| Net revenue | $83.6 million | $69.9 million |
| Income from operations | $17.5 million | $9.2 million |
| Operating margin | 20.9% | 13.1% |
| Net income (loss) | $3.0 million | $(6.3) million |
| Diluted earnings (loss) per share | $0.10 | $(0.22) |
| Net cash from operating activities | $26.0 million | $17.7 million |
| Cash and cash equivalents | $11.8 million | $7.5 million at Dec. 31, 2011 |
| Total debt, including current portion | $622.7 million | $640.4 million at Dec. 31, 2011 |
| Total assets / total liabilities | $578.2 million / $758.1 million | $595.0 million / $778.4 million at Dec. 31, 2011 |
Net cash used in investing activities was $4.0 million, primarily reflecting $4.1 million of property and equipment purchases. Net cash used in financing was $17.7 million, including net revolver repayments of $17.6 million. Cash increased by $4.3 million. Cash interest paid was $7.5 million, versus $4.5 million a year earlier. Stockholders’ deficit was $179.9 million at quarter-end.
Changes versus the prior-year quarter
- Revenue rose 19.6%, primarily from stations acquired in the second half of 2011, higher retransmission compensation, political advertising and a Four Points contract termination fee; terminated FOX affiliations partly offset growth. Acquired stations contributed about $6.4 million of revenue.
- Retransmission compensation increased 70.2% to $14.5 million, mainly from higher subscriber rates under renegotiated contracts and acquired stations. Political revenue rose to $2.8 million from $0.6 million, reflecting the election year.
- Operating income increased by $8.3 million. Operating expenses also rose, principally from newly acquired stations; interest expense declined 5.8% to $12.9 million.
- Operating cash flow increased $8.3 million, driven mainly by higher revenue, partly offset by acquired-business costs and increased cash interest.
Outlook, risks and unusual items
- Liquidity outlook: Management said available cash, expected operating cash flow and borrowing capacity should fund working capital, capital expenditures, interest and scheduled principal payments for at least the next 12 months. This is an assessment, not quantified earnings guidance.
- Borrowing capacity and leverage: The company reported $68.3 million of available unused revolving commitments at March 31 and compliance with debt covenants. It described itself as highly leveraged; debt was about 140.6% of combined capitalization. Nexstar guarantees Mission’s credit-facility obligations, with Mission debt outstanding of $45.0 million.
- Subsequent debt action: On April 12, Nexstar elected to redeem $34.0 million of its $37.9 million outstanding 7% Notes, scheduled for May 11. It expected an approximately $0.5 million extinguishment loss and planned to fund the redemption with cash, revolver borrowings or both, reducing available borrowing capacity if funded with the revolver.
- Revenue and regulatory exposure: Advertising is seasonal and generally stronger in the second and fourth quarters; management expected political advertising to increase in 2012. Potential FCC spectrum reallocation, ownership-rule changes and retransmission-consent rule changes could affect station operations, required investment or revenue.
- Asset and contingency risks: Management reported no impairment trigger at quarter-end, but adverse advertising-market changes could cause impairment of goodwill or intangible assets. The filing also describes indemnification obligations that may have no stated maximum, and ordinary-course litigation that management did not expect to have a material adverse effect.
- Four Points item: The management services agreement ended when the station sale closed January 3, 2012. Nexstar received $6.7 million, including a $1.9 million contract termination fee recorded in revenue.
Important facts for investors to verify
- Whether the $34.0 million note redemption was completed as planned, its funding source, and the resulting cash balance and revolver availability.
- Performance and cash generation of acquired stations, and the sustainability of retransmission-revenue growth and election-related advertising.
- Debt maturities, covenant headroom and the effect of interest-rate changes; the filing estimates a 100-basis-point LIBOR increase would raise annual interest expense by about $0.7 million.
- Developments in FCC spectrum, ownership and retransmission-consent proceedings, and any effects on Nexstar’s stations or local-service arrangements.
- Mission’s financial position and the practical exposure under Nexstar’s guarantee; consolidated reporting does not mean Nexstar owns Mission.