In earnings conference call, the broadcaster’s president, Perry Sook, says that ” if you look at the equity prices of almost everyone in our peer group, it’s like shopping at a 99-cent store.”
Perry Sook, president-COO of Nexstar Broadcasting, offered advice to skeptics during this morning’s earnings conference call: Don’t bet against us.
Sook’s counsel came in response to a comment from John Kornreich of Sandler Capital questioning Nexstar’s viability: “Your company has virtually no equity value, you bought back bonds at 35 cents on the dollar, capital markets are saying you’re not going to make it.”
Sook dryly noted that while “I try not to take it personally … if you look at the equity prices of almost everyone in our peer group, it’s like shopping at a 99-cent store.”
Along with Gray and LIN, Nexstar shares have been trading under $1 for several months.
Equity meltdown notwithstanding, Nexstar is aggressively acting to reduce debt, shore up liquidity and bolster revenues, Sook and Matt Devine, executive vice president-CFO, noted.
“If only a handful of companies survive in 2009, we’re going to be one of those companies,” Sook vowed.
Nexstar is confronting sector-wide and company-specific challenges with “eyes wide open,” he said.
The company sees the downward trajectory of local and national ad revenues continuing for the first half. Local declined 11 percent in the fourth quarter, national 17 percent. Local’s first-quarter drop will be similar, national’s worse, Sook indicated.
Second-quarter results likely will reflect a similar downward trend before the picture begins to improve in the third quarter, he said.
Key elements of Nexstar’s plan for financial management in tough times includes continuing to reduce operating expenses, increasing efficiencies in part through regional hubbing, growing e-media (Internet and mobile) and retransmission consent revenues, and reducing debt.
Nexstar’s fourth-quarter and year-end 2008 results suggest the financial strategies are helping. (See Nexstar results story here.)
The company projects about $25 million in retrans revenues this year and something north of $15 million in e-media revenues.
“If we’re $15 million on e-media, I would be substantially disappointed,” Sook said. “I expect a substantial increase this year and a substantial increase next year.”
Nexstar reduced overall debt last year by 2.8 percent to $646.3 million compared to 2007. It’s continuing on that path this year by buying back 11.375-percent notes and 12-percent PIK (payment in kind) notes. In addition, the company announced in late February an offer to swap $146.3 million in 7-percent notes for an equal amount in PIK notes.
That transaction, if adequately subscribed, would let Nexstar forgo cash interest payments for 18 months and remove the $146.3 million from covenant requirements for that period.
Recent reports from various broadcast sector analysts have highlighted the possibility that liquidity and leverage challenges put Nexstar in jeopardy of violating a key loan covenant requiring it to maintain debt at no more than 6.5-times EBITDA this year.
That ratio was 6.18-times at year-end 2008, comfortably under the covenant-mandated 6.5-times triggered on Dec. 31 and a substantial reduction from the 8.3-times ratio at the end of 2007, Devine noted.
Factor in cash flow generated by pending acquisitions of WCWJ Jacksonville, Fla., and KARZ Little Rock, Ark., and the pro-forma leverage ratio is 6.13-times, according to Devine.
Nexstar is paying about $15.5 million for WCWJ and about $3 million for KARZ. Those prices translate into under five times expected cash flow for the stations. At the height of the station deal market two years ago, deals were averaging around an 8.5 multiple with some transactions hitting as high as the mid-teens.
“I don’t see a liquidity event,” Devine said.