Nexstar Broadcasting Group, Inc. — Q2 2011 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2011. Unaudited results consolidate Mission Broadcasting, which Nexstar does not own but consolidates as a variable interest entity. The company operated or provided services to television stations across 34 markets.
Financial performance
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Net revenue | $75.5 million | $74.5 million | $145.5 million | $143.2 million |
| Operating income | $12.9 million | $14.0 million | $22.1 million | $23.8 million |
| Net loss | $2.6 million | $9.4 million | $8.9 million | $13.1 million |
| Net loss per share | $0.09 | $0.33 | $0.31 | $0.46 |
Q2 revenue rose 1.3%; operating margin was approximately 17.1%, down from 18.7%. For the first half, operating margin was approximately 15.2%, versus 16.6%. The smaller net loss reflected, among other items, substantially lower debt-extinguishment losses than in 2010.
Q2 revenue growth was supported by local advertising (+5.4%), retransmission compensation (+18.4%) and eMedia revenue (+22.5%). Political revenue fell $4.8 million to $2.0 million because 2011 was not an election year. For the first half, net revenue increased 1.6%, while political revenue declined $7.4 million.
Cash flow, debt and liquidity
- Six-month operating cash flow was $22.2 million, compared with $23.8 million. Investing cash outflow was $7.9 million, including $7.0 million of property and equipment purchases and a $1.0 million station-acquisition escrow payment. Financing cash outflow was $25.4 million.
- Cash decreased $11.1 million during the first half to $12.5 million. Operating cash flow less capital expenditure purchases was approximately $15.3 million; this is a simple calculation, not a company-reported measure.
- Debt carrying value, including current maturities, was $616.1 million at June 30, down from $643.1 million at year-end. Contractual principal maturities shown in the filing total $624.4 million. The company reported stockholders’ deficit of $183.4 million.
- The company had $75.0 million of unused revolving commitments available at June 30 and reported compliance with debt covenants. Current assets were $84.8 million and current liabilities $49.3 million; cash alone was $12.5 million.
- Management said available cash, operating cash flow and borrowing capacity should fund working capital, capital expenditures, interest and scheduled principal payments for at least 12 months, while cautioning that the company is highly leveraged. Six-month cash interest paid was $26.7 million.
Changes, outlook and significant developments
- Management attributed higher retransmission revenue to renegotiated agreements and higher per-subscriber rates. Higher eMedia sales also contributed to growth; these gains were partly offset by the expected decline in political advertising.
- In April, the company expanded its Term Loan B by $50 million, using proceeds for debt redemptions and repurchases and general corporate purposes. It redeemed the remaining $45.9 million of 11.375% notes and repurchased $7.5 million of 7% notes and $24.2 million of 7% PIK notes during the first half.
- In June, the board retained Moelis & Company to evaluate strategic alternatives, including a possible sale. No specific transaction was chosen, and there was no timetable or assurance of a transaction.
- The company closed its $21.5 million acquisition of WFRV and WJMN on July 1, funded partly by $19.3 million borrowed on its revolver and partly with 334,292 Class A shares. It also acquired GoLocal.Biz for $1.0 million in July.
- FOX affiliation agreements for three stations terminated or were due to terminate in June–August 2011. Two stations moved to independent programming; the filing describes continued negotiations regarding other FOX affiliations. The company also renewed ABC agreements through June 2017 for its nine ABC stations and announced a Bounce TV affiliation in ten markets.
- A July 29 credit amendment lowered the maximum total leverage covenant to 7.50:1 through December 30, 2012 and removed termination of more than three major-network affiliations as an event of default. The filing states the company was compliant with covenants at June 30.
- There was no quantified earnings or revenue guidance. Management identified potential risks from leverage and refinancing needs, interest-rate changes, advertising-market weakness, FCC rules and spectrum proposals, and retransmission-consent regulation. A 100-basis-point LIBOR increase was estimated to raise annual interest expense by about $0.4 million; the term-loan LIBOR floor limits the effect of smaller increases.
- The filing reports no known impairment trigger at June 30, but a material deterioration in advertising markets could lead to impairment of goodwill or intangible assets. Management expected ordinary-course litigation liabilities not to materially affect results; certain indemnification exposures have no determinable maximum. Nexstar also guarantees Mission’s debt, of which $38.6 million was outstanding at June 30.
Important facts for investors to verify
- Whether revenue growth and cash generation can persist as political advertising normalizes and affiliation changes take effect.
- Debt-service capacity, refinancing needs, covenant headroom and the effect of the July borrowing and amended leverage covenant.
- The financial and operational results of the WFRV/WJMN acquisition and any subsequent acquisitions or station transactions.
- Outcomes of the strategic review, FOX affiliation negotiations, and regulatory proceedings affecting retransmission consent, media ownership and broadcast spectrum.
- Whether intangible assets remain recoverable if advertising markets weaken; no impairment was recorded or triggered as of June 30.