Nexstar Broadcasting Group, Inc. — Q3 2011 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2011. The filing is for Nexstar Broadcasting Group, Inc. (the historical registrant name; not “Nexstar Media Group”). Unaudited consolidated results include Mission Broadcasting, which Nexstar consolidates as a variable interest entity.
Business context and financial performance
Nexstar operated, programmed, or provided services to television stations and digital multicast channels across 36 markets. The business is reported as one television broadcasting segment.
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Net revenue | $74.8 million | $73.1 million | $220.3 million | $216.3 million |
| Income from operations | $8.3 million | $12.9 million | $30.4 million | $36.6 million |
| Operating margin | 11.0% | 17.6% | 13.8% | 16.9% |
| Net loss | $6.3 million | $3.0 million | $15.2 million | $16.1 million |
| Net loss per share | $0.22 | $0.11 | $0.53 | $0.57 |
Q3 revenue grew 2.3%, while operating income fell about 36% and the net loss more than doubled. For the nine-month period, revenue rose 1.8%, operating income declined about 17%, and the net loss narrowed modestly. Higher operating expenses, including station costs, SG&A, and amortization, weighed on operating results.
Q3 revenue benefited from WFRV/WJMN, retransmission compensation, and eMedia growth, which more than offset a $5.0 million decline in political advertising. Retransmission compensation rose 30.5% in Q3 and 21.6% for the nine months; eMedia revenue rose 17.5% and 21.1%, respectively. Political revenue fell about 74% in both comparable periods, as 2011 was not an election year.
Cash flow, debt, and liquidity
- Operating cash flow was $35.0 million for the first nine months, down from $47.2 million. Capital expenditures were $10.8 million; acquisitions used $21.1 million. Investing cash outflow was $31.8 million and financing cash outflow was $19.0 million.
- Cash declined to $7.8 million at September 30, 2011, from $23.7 million at year-end 2010. Cash interest paid increased to $34.2 million from $26.6 million.
- Total debt, including current maturities, was $622.9 million, down from $643.1 million at year-end. The filing describes combined debt as 142.9% of combined capitalization. Stockholders’ deficit was $187.0 million.
- Unused revolving commitments available for borrowing were $68.2 million, subject to covenant calculations. Nexstar reported compliance with its covenants at quarter-end. Management believed available cash, operating cash flow, and borrowing capacity would cover expected needs for at least the next 12 months.
Material changes, outlook, and risks
- In July, Nexstar acquired WFRV and WJMN for approximately $21.5 million, funded with $19.1 million cash and $2.4 million in Class A shares. It also acquired GoLocal.Biz for $1.0 million.
- Nexstar agreed to acquire WEHT for approximately $18.5 million and sell WTVW licenses and equipment to Mission for $6.7 million. The FCC had approved the transactions; the company expected them to close December 1, 2011, funded with revolving borrowings.
- The company was exploring strategic alternatives, including a possible sale, but had selected no transaction and set no timetable. There is no numerical earnings or revenue guidance in the filing.
- Three FOX affiliations ended in 2011; the stations launched as independents. Nexstar was negotiating renewals for remaining FOX affiliates and expected a new agreement by Q1 2012. The terminations drove $3.0 million of incremental nine-month intangible amortization.
- Four Points agreed to sell its stations to Sinclair; Nexstar’s management-services agreement was to end at the earlier of closing or March 31, 2012, putting related management-fee revenue at risk.
- Key risks include high leverage and refinancing needs, interest-rate exposure, advertising cyclicality, potential impairment of goodwill and intangible assets, and regulatory uncertainty involving spectrum, media ownership, and retransmission consent. A 100-basis-point LIBOR increase was estimated to add about $0.6 million to annual interest expense. Nexstar also disclosed an antitrust suit against Granite; management said ordinary-course litigation was not expected to have a material adverse effect.
Investor facts to verify
- Whether operating cash flow and available revolver capacity remained adequate given low cash and substantial debt service.
- Subsequent closing, financing, and operating impact of the WEHT and WTVW transactions.
- Progress and terms of FOX affiliation renewals, and the revenue effect of stations operating independently.
- Outcome of the strategic-alternatives process and loss of Four Points management-fee revenue.
- Compliance with leverage and other debt covenants, and any developments in the antitrust litigation or FCC proceedings.