Nexstar Broadcasting Group's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Nexstar Broadcasting Group, Inc. (NXST)

Q2 2012 Earnings Call

August 7, 2012 10:00 pm ET

Executives

Perry A. Sook – Chairman, President and Chief Executive Officer

Thomas E. Carter – Executive Vice President and Chief Financial Officer

Analysts

Aaron Watts – Deutsche Bank Securities, Inc.

Edward Atorino – The Benchmark Co.

Barry Lucas – Gabelli & Co., Inc.

Presentation

Operator

Good day, and welcome to the Nexstar Broadcasting Group’s 2012 Second Quarter Conference Call. Today’s call is being recorded.

All statements and comments made by management during this conference, other than statements of historical facts, maybe 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 the conference call are made only as of the date of today’s conference call. Management will also be discussing non-GAAP information during this call. In compliance with Regulation G, reconciliations of this non-GAAP information to GAAP measurements are included in today’s news announcement. The company does not undertake any obligation to update forward-looking statements reflective of changes in circumstances.

At this time, I’d like to turn the conference over to your host, Nexstar President and CEO, Perry Sook. Please go ahead.

Perry A. Sook

Thank you, Tim and good morning everyone. Thank you all for joining us to review Nexstar’s 2012 second quarter results. Tom Carter is here, as always with me this morning. As evidenced by this mornings earnings release, business has never been better for Nexstar with another record quarter, led again by strong growth across all of our financial metrics.

Nexstar generated record second quarter net revenue, and with the operating leverage inherent in our model, the revenue increase resulted in our highest ever second quarter broadcast cash flow, adjusted EBITDA and free cash flow. I’ll give the details on those results shortly, but I’d like to first spend a minute kind of reviewing how we got here and where we’re going as a company.

Last month, we announced the Newport station acquisitions and their economic benefits for the company. And it’s evidence that Nexstar will drive significant value from this acquisition without materially altering our leverage profile. We have what I consider to be the industries most confident and focused group of managers and employees, and we’ve proven throughout our history that we can quickly and efficiently integrate and build new value from the acquired stations. Our recent Four Points management agreement also demonstrated how overlaying Nexstar’s management philosophies could very quickly improve operating performance, which allowed servers to get great value when they sold the group earlier this year.

The Nexstar team understands exactly what needs to be done to achieve the EBITDA and free cash flow accretion targets highlighted in our press release and call last month. Specifically, we expect the acquisition to generate approximately $55 million in additional EBITDA to Nexstar in year one. And the additional station operations are expected to provide free cash flow accretion in the first year to approximately 45% over the levels expected to be generated by Nexstar’s and Mission’s existing operations today. And we’ll finance the transaction and refinance our cap structure efficiently through the new $645 million senior secured credit facilities for which we already have financing commitments.

So while the second quarter results again demonstrate the efficacy of our operating and financing initiatives, the addition of the new stations and their economic contributions to Nexstar over the near and long-term will allow us to again take advantage of scale, and much more fully leverage our infrastructure, our operating disciplines and our local market presence, with the net result being a company that generates far more free cash flow than we can today.

In this regard, I’d remind everyone that since our 2003 IPO, Nexstar has generated a 37% compound annual growth rate of free cash flow for the two-year cycle starting with 2003/2004 through the two-year cycle that included 2009 and 2010, when we generated a total of $79.6 million in free cash flow. The significantly higher levels of post acquisition free cash flow will allow us to rapidly de-lever, while offering us the currency for additional growth and other initiatives to build shareholder value.

On the leverage front, we see the additional free cash flow positioning Nexstar to reduce leverage ratios pro forma for the acquisition to well below five times by the end of 2013, and dropping to their lowest levels ever in the Company’s history in the following years.

Tom and I will spend some additional time later on the call reviewing the key points of our Newport transaction, but in the over 30 year that we each have been in this business, we agreed that this is probably one of the strongest acquisitions that we have seen in terms of the immediate value it can bring to our company.

Moving back to Q2, our 17.7% rise in second quarter net revenue was highlighted by a 6.7% growth in core, 77.7% rise in retrans revenue, and an 8.4% growth in e-Media revenue. Our operating leverage and efficiencies continued to convert Nexstar’s solid revenue growth into cash flow as broadcast cash flow margins rose to 44.6% from 39.7% in the year-ago period. Again, we are benefiting from the scale and efficiencies, and we see this as a very positive read through for the addition of the Newport stations later this year.

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