Nexstar Broadcasting Group Q3 2010 Earnings Call Transcript

Nexstar Broadcasting Group (NXST)

Q3 2010 Earnings Call

November 03, 2010 10:00 am ET

Executives

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» Nexstar Broadcasting Group, Inc. Q2 2010 Earnings Call Transcript
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Perry Sook - Founder, Executive Chairman, Chief Executive Officer, President, Chief Executive Officer of Nexstar Broadcasting Inc, President of Nexstar Broadcasting Inc and Director of Nexstar Broadcasting Inc

Thomas Carter - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

Aaron Watts - Deutsche Bank

James Boyle - Gilford Securities Inc.

Andrew Finkelstein - Lehman Brothers

Mark Rose

Marci Ryvicker - Wells Fargo Securities, LLC

John Kornreich - Sandler Capital

Bishop Cheen - Wachovia

Jonathan Levine

Presentation

Operator

Good day, and welcome to the Nexstar Broadcasting Group's 2010 Third Quarter Conference Call. [Operator Instructions] At this time I'd like to turn the conference over to your host, Nexstar President and CEO, Perry Sook. Please go ahead.

Perry Sook

Thank you, Nikki, and good morning, everyone. Before we begin, I just want to remind everyone that all statements and comments made by management during this conference, other than the statements of historical fact, may be deemed forward-looking statements within the meaning of Section 21 of the Securities Act of 1933 and Section 21A of the Securities and Exchange Act of 1934.

The company's future financial conditions and results of operations, as well as forward-looking statements, are subject to change. The forward-looking statements and comments made during this conference call are made only as of the date of today's call. We will also be discussing non-GAAP financial information on this call. And in compliance with Reg G, reconciliations of non-GAAP financial information to GAAP measurements are included in our press release issued earlier this morning.

So good morning, everyone, and thank you for joining us to review Nexstar's 2010 third quarter operating results. Tom Carter, our Chief Financial Officer, is here with me this morning, and after our brief remarks, we will open the call to your Q&A.

In 2010, Nexstar has consistently posted record quarterly financial results. The third quarter was no exception. Our television ad revenue strength, combined with growth from every other element of our revenue quadruple play, drove a 21.1% increase in third quarter net revenue. And our constant focus on expense management delivered great operating leverage and higher margins with our third quarter BCF broadcast cash flow increasing 54.5%, EBITDA, up 65.2% and free cash flow rising 91.3%.

Nexstar generated third quarter net revenue of $73.1 million, as I mentioned, the 21.1% rise from the year-ago period, with the increase being broad-based and illustrated by strong growth in local, national, political, retrans and e-MEDIA revenues, as well as growing management services revenue.

Core local and national revenue increased for a fourth consecutive quarter. Local advertising, our largest revenue source, grew at a higher rate in the third quarter than in the second quarter of 2010 despite tougher prior year comps for Q3 of 2009.

During the third quarter, we generated a 12% year-over-year increase in aggregate, local and national revenue, a 22.8% rise in television ad revenue, inclusive of political advertising. And the company's third quarter gross television ad revenue was $63.4 million, included approximately $6.7 million of political ad revenue, as the Nexstar stations are leaders in garnering significant shares of the political ad spend in our markets based on the strength primarily of our local news programming. Nexstar's ability to capitalize on the automotive advertising rebound extended into the third quarter. Auto category revenue was up 33% on a year-over-year basis, and it reached the highest quarterly dollar level so far in 2010.

Completing Nexstar's core television revenue growth is the new value we're creating for the further expansion of our quadruple play of revenue drivers, which include traditional media, subscription-based revenues or retrans, mobile and e-MEDIA revenue and station management agreements. In the aggregate, third quarter retransmission, e-MEDIA and management fee revenue rose 23.9% to $12 million for the quarter, and these higher-margin revenue streams accounted for 16.5% of our third quarter revenue. With diversified sources of growing revenue and a constant company-wide focus on expense management, we have strong operating leverage on our business model that is driving significant year-over-year cash flow and margin growth. The combination of the strong increase in operating income adjusted for one-time charges and the reduction in capital expenditures led Nexstar's 2010 third quarter free cash flow to rise 91.3% to $10.1 million.

Consistent with the progress made during his tenure as CFO, Tom and his team have continued to reduce debt in Q3, and he will review those specifics in just a moment. But first, let me review some other quarterly highlights. Third quarter retransmission fee revenue were above those of Q1 and Q2, and we reached a quarterly record level of $7.7 million. That's a year-over-year increase of 22.5% in retransmission fee revenue.

Q3 e-MEDIA revenue came in at $3.6 million, and that surpassed last year's third quarter by 20.6%. That marked the 16th consecutive quarter of growth for Nexstar's community web portal strategy and e-MEDIA revenue. We are having good early success with our mobile applications as well from both a utilization and a sponsorship standpoint.

The combination of the third quarter $800,000 fee revenue from our management services agreement came from the Four Points Media Group. It's important to note that in addition to the $500,000 quarterly base management fee revenue, we accrued incentive compensation of $300,000 in Q3 as the Four Points Group reached the 2010 full year broadcast cash flow, a threshold for our agreement, in the first nine months of the year. In addition, all of the BCF generated in Q4 will generate additional incentive fees to Nexstar, which we expect to be multiples of the incremental $300,000 we generated in Q3.

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