NXST

Nexstar Media Group, Inc. - 10-Q Summary (Period Ended June 30, 2012)

Business Context and Reporting Period

This is a Quarterly Report (Form 10-Q) for Nexstar Broadcasting Group, Inc. (Nexstar) and its consolidated Variable Interest Entity, Mission Broadcasting, Inc. (Mission), for the period ended June 30, 2012. Nexstar operates 55 television stations and 11 digital multi-cast channels across 32 markets, providing sales and programming services to additional third-party stations via local service agreements. The company operates as a single reportable segment: television broadcasting.

Key Financial Metrics

Note: The company reported a Net Loss of $2.6 million for the three months ended June 30, 2011, and $8.9 million for the six months ended June 30, 2011.

Material Changes vs. Prior Period

• Revenue Growth: Net revenue increased 17.7% year-over-year for the quarter and 18.6% for the six-month period. Growth was driven by newly acquired stations (WFRV, WJMN, WEHT), increased retransmission compensation, and higher political advertising due to the 2012 election cycle.
• Profitability: The company returned to profitability, reporting Net Income of $8.8 million for the quarter compared to a Net Loss of $2.6 million in the prior year quarter. Operating income rose from $12.9 million to $23.5 million.
• Expense Management: Amortization of intangible assets decreased by 25.1% ($1.8 million) for the quarter, offsetting incremental costs from new acquisitions. Interest expense decreased 5.5% due to debt redemptions and refinancing.
• Debt Reduction: Total debt decreased from $640.4 million at year-end 2011 to $609.3 million at June 30, 2012, following the redemption of $34.0 million of 7% Notes.

Outlook, Risks, and Unusual Items

• Major Acquisition: On July 18, 2012, Nexstar and Mission signed definitive agreements to acquire 12 television stations and Inergize Digital Media operations from Newport Television for $285.5 million. The deal is expected to close in December 2012.
• Financing: The company secured commitments for new $645.0 million senior secured credit facilities to finance the Newport acquisition and refinance existing debt (including 7% Notes and 7% PIK Notes).
• Liquidity: The company is highly leveraged. As of June 30, 2012, it had $48.0 million in unused revolving loan commitments. Management believes cash flow and borrowing capacity are sufficient for the next 12 months.
• Regulatory Risks: The company faces potential impacts from FCC rulemakings regarding media ownership, spectrum reallocation for wireless broadband, and retransmission consent negotiations.
• Unusual Items: A $1.9 million contract termination fee was recognized in revenue related to the sale of Four Points Media Group stations to Sinclair Broadcast Group in early 2012.

Investor Verification Checklist

• Debt Covenants: Verify continued compliance with the maximum consolidated total leverage ratio (7.50:1.00) and fixed charge coverage ratio (1.10:1.00) given the high debt load.
• Acquisition Financing: Confirm the closing of the $285.5 million Newport acquisition and the successful execution of the new $645.0 million credit facility.
• Political Ad Revenue: Assess the sustainability of revenue growth post-election, as political advertising is a significant seasonal driver for 2012.
• Retransmission Consent: Monitor ongoing negotiations with MVPDs, as FCC rule changes could impact the company's ability to negotiate jointly or sustain retransmission revenue levels.
• Interest Rate Exposure: Review the impact of potential LIBOR increases on the variable-rate portion of the senior secured credit facilities.