Business Context and Reporting Period
Company: Nexstar Broadcasting Group, Inc. (Nexstar)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2011
Operations: Nexstar operates 59 television stations and four digital multi-cast channels in 34 markets. It consolidates Mission Broadcasting, Inc. (Mission) as a Variable Interest Entity (VIE), providing sales and programming services to 25 additional stations owned by third parties. The company operates in a single reportable segment: television broadcasting.
Key Financial Metrics
| Metric (in thousands) | Q1 2011 | Q1 2010 |
|---|---|---|
| Net Revenue | $69,945 | $68,626 |
| Income from Operations | $9,166 | $9,824 |
| Net Loss | $(6,312) | $(3,673) |
| Net Loss Per Share (Basic/Diluted) | $(0.22) | $(0.13) |
| Operating Cash Flow | $17,706 | $14,293 |
| Cash and Cash Equivalents (End of Period) | $20,816 | $11,189 |
| Total Debt (Long-term + Current) | $626,982 | $643,100 |
| Unused Revolving Credit Commitments | $75,000 | $75,000 |
Material Changes vs. Prior Period
- Revenue Growth: Net revenue increased 1.9% to $69.9 million. This was driven by increases in local/national advertising ($1.9M), retransmission compensation ($1.1M), and eMedia revenue ($0.7M). These gains were partially offset by a $2.6 million decrease in political advertising, consistent with 2011 not being a federal election year.
- Operating Expenses: Total operating expenses rose to $60.8 million from $58.8 million. Increases were primarily due to higher bad debt expense ($0.5M), legal fees related to credit facility amendments and acquisitions ($0.3M), and sales commissions ($0.2M).
- Profitability: Operating income declined 6.7% to $9.2 million. Net loss widened to $6.3 million from $3.7 million, largely due to increased interest expense ($13.7M vs $12.0M) driven by higher rates on senior secured notes and a $0.35 million loss on debt extinguishment.
- Debt Reduction: Total debt decreased by approximately $16 million. Nexstar redeemed $12.5 million of 11.375% senior discount notes and repurchased $3.8 million of 7% PIK notes during the quarter.
Outlook, Risks, and Subsequent Events
- Subsequent Acquisitions: On April 7, 2011, Nexstar agreed to acquire WFRV and WJMN (CBS affiliates) for $20 million ($17.5M cash, $2.5M stock), expected to close in Q3 2011.
- Debt Refinancing: In April 2011, Nexstar amended its credit facility to expand Term Loan B by $50 million. Proceeds will be used to redeem the remaining $33.2 million of 11.375% notes on May 15, 2011.
- Liquidity: The company is highly leveraged. Management believes available cash, operating cash flow, and $75 million in unused credit facility commitments are sufficient to fund operations and debt service for the next 12 months.
- Regulatory Risks: The FCC is reviewing media ownership rules and spectrum reallocation for wireless broadband. Changes to retransmission consent rules or spectrum "repacking" could adversely affect revenue or require significant capital investment.
- Impairment Risk: While no impairment was identified, significant adverse changes in advertising markets could trigger non-cash charges to goodwill and intangible assets.
Investor Verification Checklist
- Debt Covenants: Verify continued compliance with the maximum consolidated total leverage ratio (8.00:1.00) and fixed charge coverage ratio (1.10:1.00).
- Political Ad Revenue: Confirm the seasonal impact of non-election years on Q2 and Q3 revenue projections.
- Acquisition Closing: Monitor the regulatory approval status and closing date of the WFRV/WJMN acquisition.
- Debt Redemption: Track the May 15, 2011 redemption of the 11.375% notes and the associated cash outflow.
- Interest Rate Exposure: Assess the impact of potential LIBOR increases on the variable-rate portion of the senior secured credit facilities.