Nexstar Media Group, Inc. (NXST) Q1 2010 Earnings Report, Transcript and Summary

Good day, and welcome to Nexstar Broadcasting Group's 2010 First Quarter Conference Call. [Operator Instructions] All statements and comments made by management during this conference, other than 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 is 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 be discussing non-GAAP information during this call. In compliance with Regulation G, reconciliations of these 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 and circumstances. At this time, I'd like to turn the conference over to your host, Nexstar President and CEO, Perry Sook. Please go ahead.

Thank you, Karen, and good morning, everyone. Thank you all for joining us to review Nexstar's 2010 First Quarter Operating Results. Tom Carter is with me this morning here in the room, and after our brief remarks we will open the floor to Q&A. 2010 is off to an excellent start for Nexstar with another strong quarter led by robust growth in all of our financial and operating metrics. Nexstar's solid first quarter 2010 results confirm our view that the initial increases in core advertising activity generated in late 2009 are gaining momentum in 2010. In addition, Nexstar's commitment to leveraging our local platform by building out on our quadruple play of revenue drivers continues to serve as well and our record first quarter net revenue reflects solid growth from all of our revenue sources. Furthermore, we believe that our 23.7 rise in first-quarter net revenue will be a high watermark in the industry and is even more impressive as we also significantly exceeded industry revenue performance in the year ago period. In addition to record first quarter revenue, we also posted record broadcast cash flow, record EBITDA and record free cash flow. These results highlight growing margins and the significant operating leverage in our diversified business model, as well as the initiatives we undertook throughout 2009, positioned Nexstar to benefit from the strengthening economy and the strengthening and improving ad environment. Tom and his team have been very active in the year-to-date period with further success in reengineering our balance sheet to improve liquidity, extend our bank maturities and eliminate pricing increases on certain pieces of our capital structure and Tom will review that activity in just a moment. Nexstar generated total first quarter net revenue of $68.6 million, a 23.7% rise from the year ago period. With the increase being broad based with a strong growth in local, national, political, retries [retransmission], e-MEDIA and revenues from our management contract. During the first quarter, we generated a 17.6% year-over-year increase in aggregate local and national revenue and a 23.1% rise in gross ad revenue which would be inclusive of our political advertising. Speaking to the strength of our core television operations and our market positions, Nexstar generated a 16.2% year-over-year increase on local spot revenue and a 21.8% rise in national spot revenue. As well as a 40.9% increase in total revenues derived from retransmission consent, e-MEDIA and management fees. In total, the high-margin revenue from retrans, e-MEDIA and management services increased to $10.8 million in the first quarter and we will see continued growth from all of these sources as we move throughout 2010. Our continued focus on expense management and achieving further operating efficiencies resulted in record 2010 first quarter operating income of $9.8 million and free cash flow of $8.9 million compared to negative free cash flow in the year ago period attributable to the loss from operations related to expenses incurred for the exchange offer completed in the first quarter of 2009. Reflecting the success of our diversification efforts, we've successfully transitioned the traditional television revenue model from a one-legged, ad-supported, distribution-dependent entity into a multi-tier business model that uses our core on-air television advertising operations as a foundation. With most of our peers having now reported, we believe that our first quarter results demonstrate once again our pursuit of new revenue opportunities and the expansion of our local platform to include revenue drivers and traditional media, subscription-based revenue, e-MEDIA and station management services agreements as a path to near and long-term growth. Our focus on building brands by leveraging localism is embraced throughout Nexstar and it will be reflected in our results throughout the year. With the ad environment improving and auto and many other key advertising categories increasing, upcoming quarters will benefit from higher levels of overall ad spending also from significant political revenue and continued growth of total revenue derived from retrans, e-MEDIA and management agreements. Let me quickly review some of the other quarterly and recent highlights after which Tom will give a deeper dive into our financials. First quarter retransmission consent revenues were $7.4 million, that's a quarterly record and exceeded our 2009 Q1 levels of $5.3 million by 39.9%. Q1 e-MEDIA revenue came in at $3.0 million, surpassing last year's first quarter by 25.9% and marking the 14th consecutive quarter of growth for Nexstar's community web portal strategy. In the first quarter, we recorded $500,000 of management fee revenue from our services agreement to manage the Four Points Media Group. Our management agreement began at the end of the first quarter of 2009 and is a fixed fee of $2 million as we reported and we earned performance compensation as we generate broadcast cash flow for the station group above a specified threshold. These performance comp revenues will be recognized in Q4 of this year, just as they were in Q4 of 2009. Moving on now to new television local direct billing, Nexstar generated $3.6 million in new local direct advertising revenue in Q1 of 2010 which represented 8.6% of our local billing. And we improved this metric by 23% relative to what we did in Q1 of '09 The healthier economy, increased project selling, focused individual sales efforts across our station portfolio, contributed to the 23.1% rise in gross local, national and political revenue during the quarter. Political was helped from primaries in Texas and Illinois and issue an advocacy spending, which collectively drove the eightfold revenue increase to $3.2 million in Q1, and we have a high expectation for political spending on our stations throughout 2010. Looking briefly at some category data, Nexstar generated 13% overall increase in billings from our top 10 advertising categories in the first quarter of 2010, led by a 40% year-over-year increase in automotive ad spend, with gains across the board from local dealers and corporate and dealer groups spending. As a category, automotive ad spend represented 19.5% of our core ad spend, the highest level in the past five quarters. This upswing is extremely broad based as it includes domestic and foreign marks, as well as local dealers and dealer groups. Based on the trend we've experienced and our Q2 pacing, we see further upside as we head towards the second half of the year and we think the demand, along with expected political bookings, will have a cumulative effect of a positive impact on our inventory and also our rates. Broadcast cash flow totaled $25.6 million in Q1. That's an 80.2% increase over the first quarter of 2009. Our adjusted EBITDA came in at $20.9 million, that's 180% growth over Q1 of 2009. Free cash flow was $8.9 million which compared to negative free cash flow in the first quarter of 2009. As I said earlier, that was impacted by cost during the period related to our exchange offer. In other business, Nexstar's joint sales and shared services agreements with Sinclair, for WYZZ in Peoria, Illinois and WUHF TV in Rochester, New York have been extended through December 31 of 2013. We also have reached a new multi-year affiliation agreement for our Johnstown/Altoona CBS affiliate, WTAJ TV which is the top-rated station in that market. Let me now turn the call over to Tom to provide further detail on our financials after which I'll come back and talk briefly about our outlook going forward. Tom?

Thanks, Perry. Good morning, everybody. I'll review some of the key Q1 line items on the company's income statement and balance sheet. First, to recap some key year-over-year categories. As Perry mentioned, net revenues were up 23.7% to $68.6 million for Q1 of 2010. Broadcast cash flow was up 80.2% to $25.6 million in Q1 of 2010 compared to $14.2 million in Q1 of '09. Adjusted EBITDA was $20.9 million in Q1 of 2010 versus the $7.5 million in Q1 of '09. Gross local revenues were up 16.2% to $41.7 million. Gross national revenues were up 21.8% to $14.7 million compared to $12.1 million the prior year. Core revenue for us, which is local and national, was up 17.6% to $56.4 million. Political revenue was up and returned from $400,000 in Q1 of '09 to $3.2 million in Q1 of 2010. Retrans revenues, as Perry mentioned, were up almost 40% to $7.4 million and e-MEDIA revenues were up a healthy 26% to $3 million for the quarter. In 2010's first quarter, the company generated $9.8 million of income from operations compared with the operating loss of $1.3 million in the year ago period. The '09 results were impacted by softer Q1 '09 revenue and almost $2.9 million of expenses which were reflective in corporate expenses related to the exchange offer completed during that quarter. Overall, Nexstar's first quarter of 2010 corporate expenses totaled $4.8 million which included approximately $200,000 in additional expenses related to the 2009 bank amendment process and the collateralization that the company backed. And this 2010 corporate expense for the first quarter compares with $6.8 million in the year-ago period, inclusive of the aforementioned $2.9 million exchange offer cost. Corporate overhead for the first quarter of 2010 and 2009 included approximately $300,000 and $400,000 respectively of non-cash employee stock option expense. Direct station and sales and SG&A expense totaled $35.9 million during Q1 of 2010 compared with $34.5 million in the same period last year. Of the $1.4 million period-to-period increase, approximately $1.1 million was associated with sales commissions and expenses related to the significantly higher levels of revenue. As Perry mentioned at the outset of the call, we've been very active in addressing the balance sheet to improve liquidity, extend bank maturities and largely eliminate pricing increases on portions of our capital structure. During the first quarter of 2010, Nexstar purchased approximately $1 million of outstanding 13% senior subordinated payment in kind notes due 2010 at a discount. Following this, in April of 2010, the company completed a $325 million principal offering of 8 7/8 senior secured notes due 2017. This financing, along with the subsequent bank financing, both closed in April 19. The company, during this refinancing period with its banks, changed the bank facility; and among other things, extended the maturities, reduced the aggregate borrowing capacity, amended the financial covenants and provided additional flexibility. Under the terms of the new credit agreement, the principal amount available under the revolving facility was reduced to $75 million, with $65 million allocated to Nexstar and $10 million allocated to Mission. The Term Loan B was reduced to $100 million with $61 million allocated to Nexstar and $39 million to Mission. The credit agreement amendments also permitted additional Term Loan B facilities up to an aggregate of $100 million, permit Nexstar and Mission under certain circumstances to incur indebtedness and make restricted payments. In each case, in part to repurchase or extinguish existing liabilities. The new credit agreement eliminates the requirement that Nexstar Broadcasting maintain a consolidated minimum interest coverage ratio and a consolidated maximum senior leverage ratio and institute a requirement to maintain a consolidated maximum first lien indebtedness ratio, based on the aggregate fist lien indebtedness maintained by Nexstar and Mission, and changes to maximum and minimum covenant levels associated with each ratio. Additionally, the credit agreement removes mandatory quarterly principal payments based on a computation of excess cash flow for the preceding 12 months. We used proceeds from the April 2010 note offerings together with borrowings under the amended senior credit facilities and cash on hands and completed a tender offer to repurchase approximately $34.3 million of the outstanding 13% notes. This represented approximately 82.5% of the outstanding aggregate amount principal of these notes, approximately $7.3 million of the notes remain outstanding currently. Now, I'll move on to some of the balance sheet and the pro forma balance sheet for the recent offerings. At 3/31 of 2010, on the company's balance sheet was bank debt totaling $387.3 million which was comprised of $318 million outstanding under the term loans and $69 million outstanding under the revolver. I want to note here that we did reduce borrowings under the credit facilities by $11.4 million during Q1 of 2010. The 7% senior subnotes, obviously, are in two tranches. There's $47 million outstanding under the cash paid portion and $134.7 million outstanding under the PIK portion. And just as a reminder, that security is payment in kind through January 15 of 2011. At 3/31 of 2010, we had $50 million outstanding of the 11 3/8 senior sub-debt and at that time we had -- $41.6 million outstanding under the 13% subnotes and again as a reminder, those went cash pay on January 15 of 2010. Total debt on the balance sheet as of March 31, 2010 was $660.6 million. On a pro-forma basis, Nexstar's outstanding debt at 3/31/2010 consisted of the following -- and again, this pro forma for the offerings that occurred on and closed on April 19: First lien debt, $15.7 million outstanding under the revolver and $100 million outstanding under the term loan. Second lien debt consisted of the 8 7/8 notes, again $325 million, semi-annual cash pay interest, maturity at 2017. Additionally, there were the 7% sub-debt, the $47 million cash pay tranche and the 134.7 million PIK tranche. On the 11 3/8 notes, the aforementioned $50 million, and as I mentioned earlier, the 13% senior sub-debt notes were reduced to $7.3 million outstanding. All of this resulted in total debt of $679.7 million. We had $11.2 million in cash on the balance sheet at quarter end. Pro forma leverage of 3/31/10 was 8.53 versus the new covenant of 10.25 and first lien leverage was 1.45 versus the covenant of 2.5. Overall, we remain focused on the balance sheet in further actions that can enhance shareholder value and we plan to allocate free cash flow in 2010 to debt reduction. Total interest expense for the first quarter was $12 million compared to $9.9 million for the same period of 2009. Cash interest for the first quarter was $8.5 million compared to $8.2 million in the year ago period. Nexstar's Q1 CapEx at $3.8 million compares with $3.2 million in the first quarter of last year as we completed the remaining project in Joplin for our new facility there. We expect our CapEx run rate to decline on a quarterly basis through the end of 2010. That concludes financial review for the call and now I'll turn back over to Perry for some additional remarks before Q&A.

Thanks a lot, Tom. Given at that we ended the first quarter well ahead of our plan and Q2 is showing good pacing, we have a high level of optimism in 2010 being a record year for you Nexstar as we continue to benefit from growth in overall ad spend including a strong resurgence in the automotive category as well as significant political revenue and continued growth of total revenue from retrans agreements from e-MEDIA and from our management services agreements. And with core and net revenue in 2010 to date pacing ahead of our internal plan, we expect to generate record free cash flow in 2010 as well. Our first quarter results demonstrate that Nexstar is reaping the benefits of leveraging our core television broadcasting operations into a multi-tiered model of high-margin revenue streams. With all of the options available for consumers these days, television viewing remains at record levels across all demographic groups and advertisers recognize that broadcast television is the most effective medium for driving awareness and building both traffic and brands. Given that now over 74% of our core revenue is derived from local advertisers, Nexstar is and always has been very focused on building brands for local advertisers by leveraging our localism. We have developed direct relationships with the owners and managers of these businesses in our markets where we operate and we incentivize our local sales teams substantially based on their ability to develop these new advertiser relationships. Over the long term, we've been very successful in leveraging the strength of our news programming in the high levels of political advertising in both even and odd years. The already high 2010 budgets for state and local candidacy spending is being complemented by a broad range of advocacy spending and we're also benefiting from the current high levels of partisanship. Combine these factors with a Supreme Court's campaign finance ruling and the contested local and stat-wide races in Pennsylvania and New York, Indiana, Illinois, Arkansas, Texas, it's clear that 2010 will be among our best, if not, the best year ever for political revenue for our company. On the distribution front, we have recent second round deals with approximately 200 cable DDS and telco distribution partners and our retransmission revenues will rise again in 2010 by a substantial double digit amount as we have escalators in our contracts on their anniversary dates. We have about a dozen agreements that I will be renegotiating near the end of this year which will complete the second cycle renewals. And looking forward, we'll have the full year benefit of all of those new agreements and their escalators and their new per subscriber rates for 2011 so this will continue to be a growing revenue stream for Nexstar. On the management fee revenue line, we brought excellent operational efficiency improvements to the 7.4 stations and the tailwind provided by the strength in ad environment is bolstering the already improving results. In total, this new revenue stream delivered about $1.8 million in revenue in 2009 to the company and we will benefit in 2010 from a full year of the agreement being enforced and from the expected overall improvements in the operating results for the seven stations, which will entitle us to earn additional performance compensation. The e-MEDIA operations continue to record record year-over-year double digit revenue gains as we have successfully leveraged our local content and our local business relationships of our television stations to build our unique local online portal business. Revenue from Nexstar's EBITDA operations is proving to be recurring, sustainable and profitable and we're pursuing several areas to continue further growth. For example, early in 2010, we announced an agreement that brings Nexstar's market-leading local content from our 33 local community web portals to mobile users. Since entering into this agreement, we've generated impressive levels of new sponsorship revenue for our mobile service. Finally, I will once again note that Nexstar's annual capital expenditures peaked at approximately $31 million in 2009, primarily based on the extremely high levels of spending for mandated digital conversions that we completed in early 2009. Capital expenditures were reduced to $19 million last year as we completed those conversion investments and our CapEx will approximate $12 million this year. With the revenue increases we're generating and the leverage inherent in the operating model, Nexstar is poised to generate record free cash flow in 2010 which will be applied to debt reduction and new value-creating initiatives. As a reference point, our previous record for free cash flow was $28 million in 2007 and we generated $8.9 million in free cash flow in the first quarter of this year, our seasonally weakest quarter. So we don't think that our record is a stretch. With that, I'll turn the call back over to Karen, our operator, to begin the Q&A so we can address your specific areas of interest.

[Operator Instructions] And Our first question comes from the line of Stephen Weiss of Bank of America.

The first, Perry, your tone certainly sounds pretty encouraging still as we enter into 2Q. But given the events of the last week, I have to ask if you've seen any change in tone given what we saw in the stock market in Europe over the very recent week or so? And I wasn't sure if you mentioned pacings for 2Q. And then my second question basically relates to, I've read that there's been some renewed rumblings of the ad tax coming in certain states maybe. I saw Pennsylvania cited some variation in New York and maybe half of other states have it in various forms of review. I was wondering if you had any comments or color you could add on that?

Sure. No, actually, Stephen, we wrote up our pacings last week. We, every Friday, kind of calibrate our projection for the current quarter, and we wrote up our projection for Q2. Without giving specific guidance, our core revenue pacing is in the high-teens right now. Our political revenue on the books for the second quarter is already over our budget amount. And we are seeing substantial activity now, not only from candidate races, but from issue advertising that has started to come on to the fore. We wrote in excess of $1.250 million in political, just last week, for the second quarter.

And then on the ad tax question?

Yes. The state associations are already all over this and are lobbying, obviously, with states strapped and stretched to find dollars that there is the prospect that this will be discussed. We don't think any action in any state, as far as we can tell, that we operate in is imminent. But the Texas Association of Broadcasters, the Pennsylvania Association of Broadcasters, of which we have general managers and corporate folks on the board, same in New York state, same in Illinois and Missouri. And in the other states we operate in are taking a very proactive approach to attempt to swat this down for about the 10th time, and I think we will continue to be successful in that regard.

And our next question come from the line of Jim Boyle of Gilford.

Perry, can you tell us how the Q1 revenue growth was on a month-by-month trend? Did it build throughout the quarter? Or was it just strong throughout the quarter?

February was the strongest month, and that's based primarily on Olympic and Super Bowl both falling in the month. But the second best month, in terms of increases over the prior year, was March and not January. So I think that we -- and as we look into the second quarter, again, although those pacings have continued at March like increases over the prior year, so we think that the revenue growth in our core ad spend is sustainable, certainly, throughout the first half of the year and into the second half of the year as well. And, obviously, the pleasant surprise is that political is above our expectations in the second quarter already. And we think we'll continue to grow as we're only sitting here in the early stages of May.

And Jim, this is Tom. Just one other quick point on political. I went back and looked, political in Q1 of '08 was $2.1 million, and we're at $3.2 million in Q1 of '10. So just kind of back to the most recent even year, we're seeing substantial increases.

And, Perry, many of your TV station group peers have mentioned that their Q2, either forecast guidance, bookings or pacings to date were as good or better than Q1. Any reason why you'd be different from your peers?

Well, I think that we reported our core revenue growth in the very high-teens for Q1. Obviously, there was Olympic and Super Bowl. But we have guided generally to core revenue growth of high-teens for Q2 as well. So I think you could count us among the folks that feel that the core revenue growth is sustainable in Q2.

And on political, as you mentioned, Tom, Q1 was rather remarkable being up 600% year-on-year in compare to '08. In '08, you had $33 million for the full year. Is it likely you might beat that by at least 10%, given what's gone on to date, the Supreme Court ruling and the issue advertisers?

Well, again, we're up about 50% in Q1 of '10 over '08. We don't think we're going to be up 50% for the entire year, but I think we've been pretty clear, we believe we'll beat the '08 total number. And what we've seen to date hasn't changed our mind on that.

So you'll beat it by a considerable amount, but you don't want to a throw range at it?

Not yet. Again, we're kind of in the third inning of this game. And as we all know, the game is played in the eight weeks prior to the election in November. So do we feel good about it? Yes. Are we ahead of budget and expectations -- and by the way, the expectations were pretty peppy, yes. But we're not ready to declare victory yet.

But you're in third inning and a lot of your batters have already hit homers.

I would say, Jim, that the number that you threw out is in our forecast range. And I would also say it's not at the upper end of our forecast range.

On the adjusted EBITDA margin, that was about 31.4% compared to 28.4% in Q1 from your last, even chronological year back in '08. The '08 full year margin was 33.8%. Is it likely that 2010 margin's going to be below or above that, given the economy and advertising continue to be about where they are now?

I would bet the over.

Yes, we've taken a substantial amount of cost out of the business through some automation of business processes and just in 2009 some additional headcount reduction. None of those positions are coming back. And if you look at our fixed expenses, we'll be flat to down for the year. The only expense that will rise will be variable expenses for commissions in concert with revenue. All-in, even at our plan, which we're currently exceeding, was a low-single digit increase in revenues for the full year, driven by the variable expense for commissions.

And finally, on the retransmission consent payments being shared with your network partners, where does that stand currently as you continue to renew some affiliations during this year?

Well, we have made one deal. And so that's really all that I have to comment on at this point, and that was with our station in Johnstown-Altoona with CBS. And without going into the specifics of that deal, other than to say that very early on in the discussion, CBS made it clear to me that they were not after a piece of our retrans [retransmission] revenues, but rather they were looking to affiliates in their renewals to help support CBS' investment in programming by increasing the fees that we currently pay to the network. And as in most negotiations, neither party got what it asked for. Obviously, the terms of the deal were ultimately acceptable as both parties signed the new agreement. And I think we're in the early innings of the ballgame, we've only done one agreement thus far. And these new or increased fees, market really hasn't been set yet. I think it will play out, literally, over the next couple of years as more affiliation agreements are up for renewal. I could see the proposed Comcast-NBC merger ending up playing a significant role in kind of setting the market for these types of discussions, perhaps even the process for retransmission consent negotiations going forward. As always, I believe that you get what you negotiate. And if either side becomes too aggressive in their position, there will likely be repercussions. I continue to maintain that the best outcome long term would be for the networks to negotiate with the MVPDs [multichannel video programming distributor] on behalf of their affiliate body, and then develop a framework for sharing that incremental revenue that's created in the process. So I think that, as Tom says, we're in the third inning of political. I think we're probably in the top of the first as it relates to these agreements, but the financial impact, certainly, of the deal that we've done will be immaterial.

Our next question is from the line of Aaron Watts of Deutsche Bank.

Perry, just on some of the pacings that you're seeing and then your discussions with your local guys. Has the rebound continued sort of broad base, where you're seeing a majority of the categories in positive territory? And then also with auto, are you seeing that hold up as well?

To your last question first, yes, we're seeing auto continue to hold up and show similar increases to our Q1. I was buoyed this morning by seeing the Chrysler is announcing a new branding campaign and predicting a big ad spend to go along with that, that will show up later on this year. I think from a broad-based standpoint, if I look at our -- we had 18 categories in 2010 Q1 that contributed $750,000 or more to our top line, and 16 of those 18 categories were up. It included automotive, fast food, furniture, medical, attorneys, radio, TV, cable, newspaper, schools, various service accounts, retail, which had been a suspect category for television for a while, department stores, they were all up over the prior year. The only two categories that weren't up were for very, very obvious reasons. One was paid programming. And, obviously, as we can sell more commercials, we cut back on the amount of long-form programming we air, because that's not ultimately necessarily very viewer-friendly. So that was a conscious decision on our part. And then telcom, which was related primarily to our Southwestern states, and the merger of Alltel with Verizon that eliminated ad spend from that one account, which was a significant number for us in the first quarter, and that's not rolling off. But those were the only two categories that were down. Every other category was up, and we've not been able to say that in several years.

And then national, still feeling a little stronger than local?

Marginally, not unlike first quarter where there was about a five basis point better pace on national, but that fell off of the lower comps coming off a much lower base. So, yes, I would say that trend is continuing into the second quarter on about the same order of magnitude.

And in your experience, looking back in the past, is that's a pretty typical occurrence and would you expect local to start to catch up as we move through the year?

Well, I think that, again, it's driven by national comps being so artificially depressed in 2009, kind of the anomaly. I think we would take 16% growth in local on an ongoing basis. And as I said earlier, it's now almost three quarters of our core ad spend, which we predicted the continued move there, and we invest a lot of time and a lot of money into development of local account executives and local business relationships and all of that. And again, I think that we would be more than thrilled if that kind of pace continued throughout the year, and national outperforms to get back up to kind of a more normalized level for national. And then later on, the political revenue on top of that, which, again, we expect to be substantial.

I know we hash through some of these just a few weeks back, but as you think about potential consolidation among local broadcasters and think about the future of the industry, does consolidation makes sense? Does it need to happen? If cap markets remain open for the foreseeable future, is consolidation possible? Or do you think that balance sheets are still a little bit overleveraged to let the door open for that?

I have been saying for half a dozen years that I think consolidation in this space -- it's very consolidated at the top. You've got the vertically integrated network studio, major market owner/operators, and then you've got three dozen companies like Nexstar, public and private, of any consequence that are the distribution partners. And we think those three dozen companies should probably become half a dozen at the end of the day, that scale matters, efficiencies would be created, there'd be more stock to buy and properly capitalized companies. And we just think that, that's the natural evolution of the business. If you look at the cable industry and the radio industry, consolidation has already, by and large, happened in those industries, and it has yet to happen here. The governor, the National Ownership Cap (sic) [National TV Ownership Cap], I mean there was no pure-play company that is even halfway there, outside of the network-owned and -operated companies, in terms of reaching the 39% cap. So we think it does need to happen. About the only way it could probably happen with strategics right now would be through some sort of a merger. I don't think anyone's got, at this point, balance sheet superiority to be able to lead the charge. But by the same token, I am personally aware of more than one conversation of substantial private-equity sponsors the don't have a current legacy capital structure in the business, that the concept of roll-up has started to be bandied about in meetings again. So I do think it will happen. And one of the first place is it may happen is some of these companies that have just gone through a recent restructuring, currently in or just out, those are owned by unnatural holders at this point in time. And I know there's more than one piece is running around in the sponsored community of trying to roll up a number of those, and then perhaps finding an operating company to actually manage that entire business.

[Operator Instructions] And our next question in queue is from the line of Barry Lucas of Gabelli & Company. Barry Lucas - Gabelli & Company, Inc.: Perry, in terms of milestones, you put this one CBS affiliate to bed in terms of the renewal. What's coming up next? In particular, even though ABC is maybe a small part of your station lineup, they seem to have been a little bit more aggressive. So what's on the horizon in terms of other affiliate renewals?

And then it's all in the K by date, but we have 11 FOX affiliates that expire this year and eight ABC affiliates, again, primarily our ABC affiliates on our smallest markets that expire at the end of the year. We also have two NBC affiliates that expire at the end of the year. Barry Lucas - Gabelli & Company, Inc.: And just switching gears to the balance sheet, the next maturity or next important date for balance sheet is going to be which?

Well, we still have a small $7 million chunk of the picks. But, really, the next maturity after that, the new revolver matures on 12/31 of '13, which is just inside of the 7% notes, which mature in January '14. So that's really the next big chunk. Barry Lucas - Gabelli & Company, Inc.: And with the refinancing, Tom, what would you say the all-in cost to debt is now?

I would say it's probably 7%, 7.5%.

And our next question in queue is from the line of Matt Swope of Gleacher & Co.

Tom, maybe just building on that thought on the balance sheet, as you say, you have kind of 2013 and then 2014. You guys mentioned you used free cash flow to pay down some, presumably, bank debt this year. Guys, a couple of questions around that. You've got to probably do another $100 million term loan you mentioned. You've got the 5.5x returns passed on the second lien. How do you look at both timing of maybe doing some of the 2014 maturities early in ways you may do it, as in different parts of the capital structure?

Well, I'm not often asked to give away the playbook. The only thing I will correct you is the new bank agreement is significantly more flexible with regard to our RP [repurchase agreement] capacity. And so, yes, we will pay down bank debt but we will opportunistically look to buy bonds going forward. Clearly, we want to clean up the remaining portion of the 13 percents, which were not tendered, on my hit list. After that, it's 11 3/8%. But we do have a 7x incurrence test, in addition of the 5.5x incurrence test, 5.5x through the secured credit and 7x through the opco [operating company] credit. So there's a couple of hurdles that have to be reached there, but we are very focused on reducing debt. I think we've been pretty clear on that. And our free cash flow in 2010 will be substantial, not withstanding higher overall interest costs because of the financing we put in place. But the quid pro quo for the higher weighted average cost of debt is the fact that we do have significantly more flexibility in the RP basket. So again, without knowing exactly what we're going to do yet, directionally, that's where we're headed.

I see. And you think -- especially with 11 3/8%, as you mentioned them, that maybe you would go after those open market rather than a broader tender for the whole issue? Again, further asking to give away the playbook.

We're going to look at all of our options with regard to those as well as -- the remaining 13 percents and, quite honestly, what I've seen, the 7 percents are trading at the larger discount. So that's obviously a deleveraging move as well.

Just one last one on this topic, the 5.5x at your second lien is may be a gating factor now, which you want to do something more, first lien or second lien? Would it make some sense to let that test lower as your EBITDA increases over the course of this year, and then maybe do something more first or second lien?

We have that capacity, correct. Yes, that's one of the things, but in order to get below 5.5x and below 7x is a later-in-2010 event. EBITDA, basically, has to grow to get there, but we feel pretty good about those prospect.

And our next question is from the line of Harry DeMott of Knighthead Capital.

Under what circumstances can you issue the other $100 million of term loan? And would that just be an add-on to the existing loan? Or is that a sort of separate loan that you have to go out and syndicate?

It's something that we have to find buyers for, and it's subject to covenant compliance, which again is the -- it's incurrence at 5.5x for the second lien notes and it's maintenance at 2.5x for the first lien debtholders. And, obviously, 7x for all of the opco debt. So there's kind of three hurdles we have to reach. And then obviously, you've got to have appropriate use for those funds, which would be more than likely refinance other debt, and there's RP kind of needle that you have to thread there as well. So there's a matrix of things that we monitor and keep track of in order to do that.

What's outside the opco now?

The only thing that's outside the opco is the 11 3/8%, $50 million. That's the only piece of holdco debt remaining.

And then what are you paying on your banks now?

1% LIBOR floor and 4% LIBOR margin. The LIBOR floor is only applicable on the term loan, not on the revolver.

And I show no further questions in queue at this time.

Alright. Well, I'd like to thank everybody for joining us today. And we look forward to reporting our Q2 results, which are shaping up nicely in about 90 days. So thanks again for your time and your attention this morning. Have a nice day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day. Thank you.