Business Context and Reporting Period
Company: Nexstar Media Group, Inc. (Nexstar Broadcasting Group, Inc.)
Filing Type: Form 10-Q (Unaudited)
Period Ended: September 30, 2006
Operations: Nexstar owns, operates, or provides services to 46 television stations across the U.S. As of the reporting date, the company consolidated the financial results of Mission Broadcasting, Inc. (Mission) due to a controlling financial interest established through local service agreements and debt guarantees, despite Mission being independently owned. The company operates in a single reportable segment: television broadcasting.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended Sept 30, 2006 |
Nine Months Ended Sept 30, 2006 |
Nine Months Ended Sept 30, 2005 |
|---|---|---|---|
| Net Revenue | $63,588 | $187,975 | $166,648 |
| Income from Operations | $9,809 | $26,977 | $11,704 |
| Net Loss | $(3,941) | $(13,596) | $(42,623) |
| Net Loss Per Share (Basic/Diluted) | $(0.14) | $(0.48) | $(1.50) |
| Operating Cash Flow (9 months) | $30,408 (2006) vs $1,905 (2005) | ||
| Total Debt (Long-term + Current) | $640,809 (as of Sept 30, 2006) | ||
| Cash and Cash Equivalents | $13,097 (as of Sept 30, 2006) |
Material Changes vs. Prior Period
- Revenue Growth: Net revenue increased 16.3% in Q3 2006 and 12.8% for the nine-month period compared to 2005. This was driven primarily by a surge in political advertising (due to the 2006 election cycle), increased retransmission compensation, and revenue from the Olympic Games.
- Political Advertising: Political revenue jumped from $0.2 million in Q3 2005 to $6.3 million in Q3 2006. For the nine months, it rose from $1.4 million to $10.3 million.
- Operating Income: Income from operations improved significantly, rising from $3.2 million in Q3 2005 to $9.8 million in Q3 2006. For the nine-month period, it increased from $11.7 million to $27.0 million.
- Net Loss Reduction: The net loss for the nine months ended Sept 30, 2006, was $13.6 million, a substantial improvement over the $42.6 million loss in the same period in 2005. The 2005 loss included a $15.7 million charge for the extinguishment of debt.
- Interest Expense: Interest expense increased to $38.3 million for the nine months of 2006 (from $35.3 million in 2005) due to higher interest rates on credit facilities, though this was partially offset by lower debt balances compared to the refinancing activity in 2005.
- Stock-Based Compensation: The company adopted SFAS No. 123(R) on Jan 1, 2006, resulting in the recognition of stock-based compensation expense ($1.3 million for the nine months), which was not expensed in the prior year.
Guidance, Outlook, Risks, and Unusual Items
- Capital Expenditures: Management projects full-year 2006 capital expenditures to be approximately $23.0 million to $24.0 million, with a significant portion allocated to Digital Television (DTV) conversion ($9.5 million incurred in the first nine months).
- Pending Acquisition: On July 26, 2006, Nexstar agreed to acquire WTAJ (Altoona-Johnstown, PA) and WLYH (Harrisburg-Lancaster-Lebanon-York, PA) for $56.0 million. Closing is expected in Q4 2006 or Q1 2007, subject to FCC consent.
- Regulatory Risks: The company faces FCC regulatory scrutiny regarding the sale of KFTA to Mission. Equity Broadcasting Corporation filed petitions to deny the assignment and license renewals, alleging Nexstar improperly controls Mission. The outcome is uncertain.
- Debt Covenants: The company is highly leveraged (debt represents 113.9% of capitalization). It remains in compliance with debt covenants as of Sept 30, 2006, including leverage and coverage ratios. A downgrade in credit rating could increase borrowing costs or limit access to capital.
- DTV Conversion: The company must complete the transition to full-power digital broadcasting by Feb 17, 2009. Estimated costs for remaining stations are approximately $1.5 million per station.
Investor Verification Checklist
- Political Revenue Sustainability: Verify the extent to which 2006 revenue growth is attributable to the election cycle, which is not a recurring annual event.
- FCC Litigation Status: Monitor the status of the Equity Broadcasting petitions to deny regarding the KFTA/Mission transaction and potential impacts on the consolidation of Mission's assets.
- Debt Refinancing: Assess the company's ability to service $640.8 million in debt and refinance obligations maturing in 2008 and beyond, given the high leverage ratio.
- DTV Capital Requirements: Confirm the funding sources for the remaining DTV conversion costs estimated at $1.5 million per station for 34 stations.
- WTAJ Acquisition: Track the closing of the $56 million WTAJ acquisition and its impact on future cash flows and debt levels.