Good day and welcome to Nexstar Broadcasting Group's 2015 First 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 Sec 21 of the Securities Act of 1933 and Sec 21-A 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 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, sir.

Thank you, operator, and good morning everyone. I would like to thank you all for joining us today to discuss Nexstar’s record first quarter results, a recently completed transaction and the upcoming launch of our new network affiliated station, all of which will drive continued growth in 2015 and beyond. As always, Tom Carter, our CFO, is with me this morning. The record first-quarter net revenue that the reported extend Nexstar’s strong operating and financial momentum into 2015, and this led to record first quarter BCF EBITDA and free cash flow all of which were well ahead of consensus expectations. We are well-positioned to continue to grow all of our non-political revenue sources throughout 2015 and we expect this year to mark the company’s fourth consecutive year of record free cash flow as our platform extension and revenue diversification efforts will more than replace the record levels of political revenue we generated in 2014. In addition to our record Q1 results, we are pleased to announce this morning the creation of two new network affiliated stations within our portfolio. First, in Lafayette, Louisiana Nexstar’s KLAF will launch on July 01 as the NBC Affiliate serving Lafayette. Currently, Lafayette does not have an end market NBC Affiliate. The station will be operated in conjunction with Nexstar’s KADN, our FOX affiliate serving that market. And at the same time on July 01, Nexstar’s KYLE will launch as the MyNetworkTV affiliate serving the Waco-Temple-Bryan, Texas market. KYLE will be operated in conjunction with Nexstar’s KWKT, our FOX affiliate in Waco. Previously, there was no stand-alone MyNetwork affiliate serving that market. With the creation of the NBC affiliate in Lafayette and the MyNetworkTV affiliate in Waco, we stand to further optimize the value of our platform and portfolio through efficient reallocation of our existing…

Thanks, Perry, and good morning everyone. I will start with a review of Nexstar’s Q1 income statement and balance sheet data, after which will provide an update on our capital structure and details related to our recently closed transactions. Net revenue for Q1 of ’14 increased 52% to $203.4 million over the same period in 2014. Core revenue increased 29.4% to $20.1 million, that was comprised of $84.5 million of local revenue and $35.6 million of national revenue, both up approximately 30%. Political revenue was down from $4 million in Q1 of 2014 to approximately $400,000 this last quarter. Retransmission fees grew 89.5% to $66.6 million. Digital media revenues grew 208% to $93.3 million as we recognized revenue from some of our recent acquisitions. All of this contributed to a 50% increase in broadcast cash flow to $75.7 million, adjusted EBITDA of $64 million and free cash flow being up 70% to $42.9 million. On a same station basis, net revenue was up 8.3%. Core advertising revenue on a same station basis was up approximately 0.5% and back during one time activity related to the Olympics in Q1 of 2014 which we evaluated at 50% displacement rate, our increased super bowl revenue from NBC in Q1 of 2015 and the timing differences relating to a contractual advertiser between the first quarter of 2014 and the first quarter of 2015. We remain disciplined in managing our cost and then addressing our capital structure, leverage and cost to capital as complements to our operating strategy and focus on driving free cash flow. First quarter station direct operating expenses, net of trade expense and SG&A expenses rose 67.9% and 40.2%, respectively and included approximately $700,000 of transaction expenses related to the capital markets and transaction acquisition activity in the first quarter. The increases…

Thank you, Tom. Looking ahead, we continue to see GDP like growth for our core ad revenue and as such we’ve structured Nexstar’s operating model to leverage our high revenue services, including digital media, retrains and political. With distribution agreements representing an excess of 80% of Nexstar’s MVPD subscribers up for renewal in 2015 and 2016, the ongoing growth from this revenue source in 2015 and beyond is highly visible. Similarly, digital media revenue growth in 2015 will further benefit from projected double digit organic growth, as well as our recent accretive acquisitions. And those of you who have followed our activity for the past several years know that Nexstar has established in the key political markets and we expect to see political revenue growth as an even bigger contributor going forward with the likelihood that we will see some presidential primary dollars even later this year. Our focus on near and long-term free cash flow growth as the driver of enhanced shareholder value remains the foundation of our play book. We continue to see attractive potential acquisition targets and we have headroom for expansion from the standpoint of our current 18% U.S. television household reach, compared to the currently mandated 39% cap. We are confident that 2015 will see another period of record financial results as Nexstar benefits from our expanded scale, our new operating efficiencies and the synergies related to recently completed acquisitions, as well as the renewal of significant number of re-transmission consent agreement and the expansion of our digital media subsidiaries. With the free cash flow generated from our current operations, we believe that Nexstar’s net leverage absent additional strategic M&A activity will remain in the mid-four times range at the end of this year and decline to below three times range by the end of 2016. With that I’d like to thank you again for joining us today and so let’s open the call now to Q&A to address your specific areas of interest. Operator?

[Operator Instructions] And we will take our first question from Aaron Watts with Deutsche Bank.

Hi guys, thanks. I am curious what you are seeing in terms of the core ad environment. I think you talked about excluding kind of lot of noise up a little bit in the first quarter, how is it feeling in the second quarter relative to that?

For a core ad revenue perspective, April finished with a low single digit growth over the prior year and core digital revenue was up double digits as expected and at this point Q2 is pacing ahead of where we finished in Q1. So we are not seeing any slowdown in our core revenue business and as we say kind of GDP growth as expected.

Okay. Perry any weakness in your Texas markets, heard mixed things from other, you obviously have a large presence there, tell us what you are seeing?

No, we are not seeing weakness in our Texas markets. And following up on that yesterday afternoon, we looked around and called around and they are performing at or above kind of the rest of the portfolio. So, no material difference in either direction in the state of Texas for us.

Great. Last one for me a little bigger picture. But heard some comments on the spectrum auction from some of your contemporaries and varying views on participation on that. But just with that in the backdrop, how are you thinking about M&A opportunities going forward with that auction still looming out there, you finding it more difficult to kind of proceed with those opportunities or are there fewer of them, just your sense of the environment ahead of that?

I think we’ve been pretty consistent saying we are involved in kind of the one-off discussions that probably totaled somewhere in the $100 million to $100 million plus range. And we are involved in more strategic discussions that are in various stages of development. But no one at this point is asking for a spectrum put or anything like that. I think people realize there are a lot of moving parts in the spectrum auction and so much yet to be written even around the auction rules and that someone needs to sell for state purposes or for shareholder contribution purposes or portfolio diversification. They are not pinning their hopes on the if comm [ph] of the spectrum auction and business is getting done. So we’ve got seen that effect. The conversations that we are in just generally as we get closer to the auction that may change. But at this point, I would not it’s not a factor.

Is it a little bit – does it make the hurdle a little bit higher for something of a little bit larger scale do you think?

Again, I think, people in the broadcast business that have a going concern business probably realize the fundamentals of that. And, again, when you are talking about a public company, and someone due to – two public companies to merge, you kind of have a – you have an option on the spectrum anyway because nobody is really going away. So I’m not sure that – again, it has not affected discussions that are going on today and discussions are still going on. So from our perspective, until – until, we know more, it’s hard to have anything other than a hypothetical view and there are competing hypothetical views of the spectrum auction and how it will play out. But we don’t have enough information to have anything other than a hypothetical view at this point.

Understood. All right, great. Thank you.

Our next question comes from James Dix with Wedbush Securities.

Good morning, gentlemen. A couple of things. I guess, first, are you seeing much variance in growth by affiliation type? Obviously, FOX has had some strong ratings recovery and with Empire that’s rolling off the air. So we’ve heard various things about some of the ad trends at the various affiliation types. So I’m curious what you are seeing with that? And then, second, just in terms of your digital growth, especially with your acquisitions rolling in, roughly how – what are the biggest chucks of that digital revenue in terms of online video advertising sales, display advertising, other types of sales? And then just one follow-up on the use of free cash flow. Thanks.

Sure. Well, I will start with affiliations. It’s good to have a portfolio because, as you know, some networks [audio gap] some gain basically, right? So, our CW stations are performing ahead of expectation substantially. However, CW MyNet represents less than 10% of our portfolio. FOX stations are slightly underperforming the big three currently and the FOX stations represent a smaller percent of the revenue in our portfolio. Then each of the big threes individually, I would say, ABC, CDS and NBC are all performing kind of on top of each other and if anything FOX might be performing slightly behind. Your question on digital, if you look at the number that’s reported and look at that as kind of a run rate, I think it’s fair to say that approximately half of that revenue was generated in digital advertising or agency service, sales, in our local marketplaces, so kind of at the TV station at the local market level. And half of it is external revenue, the Yashi and LAKANA generate from companies outside the Nexstar portfolio. And both are growing at double-digit growth levels, both the external services revenue as well as our internal – our digital – organic revenue, I guess, I would say, manufactured and generated at the local market level. So, I don’t know how of it -- Yashi is programmatic digital video entirely. LAKANA is agency services, CMS and other things on top of that. And then it’s add supported revenue at the local station level, probably 95% and 5% today is agency services provided by our companies that we sell through into the local marketplaces. And within those various buckets, you got typical banner ads, you got video pre-rolls. We build a lot of local content verticals whether it’s exports category or if it just marrying people that are into plants and gardening with advertisers that are landscape architects and things like that. So it’s a very, very local business at the individual market level. So I hope that’s responsive to your question. But our digital business on an all in basis has a lot of individual components to it and I’m happy to report that both the ad sales as well as the services revenue and the programmatic video are growing at double-digit rates with the digital programmatic video growing at the highest double-digit rates of them all.

Okay. That’s very helpful actually. And then just the follow-up on plans for use of free cash flow. As you look down the road, you are looking at M&A opportunities; you certainly indicated that those tend to be the highest and best uses of free cash flow when they are available. But I’m just wondering over the next couple of years, given the visibility that you have in the free cash flow and the potential for your leverage to come down, whether you have any thoughts on potentially doing other things like more share repurchases or maybe dividends and things like that? Thanks.

Sure. This is Tom and I will take that question. It all comes back really to accretive M&A and we are a believer in the industrial logic of that both on a one-off transaction as well as scale combinations of transformative transactions. So every dollar that we pay down gives us availability to do those accretive M&As. In the mean time, as I mentioned, we paid down $30 million so far this year and we will pay down some more before the end of the second quarter. So the free cash flow goes to pay down the revolver and then, in our way of thinking, will be used and redrawn at some point to do accretive M&A. If the accretive M&A doesn’t happen or whatever reason, valuation issues or otherwise, and then clearly we believe our leverage at year-end 2016, absent any other meaningful transactions will be something approximating three times. And if that’s in fact that case, we don’t plan on staying like at three times for very long because I think we would use some of the free cash to return to shareholders rather than pay down debt. But all of that is assuming that no M&A happens in the interim. So I think it’s kind of a multi-variable equation. Really it’s focused on M&A and reinvesting at excellent return on capital rates and M&A. And then if that doesn’t happen, obviously, we don’t have a aspiration to be an investment grade company. And so being at three times leverage really doesn’t anybody greatly from that perspective. So it’s really – it’s a flexible process and a flexible place we put ourselves in. But we think M&A can be meaningful, especially in light of the fact that every dollar we can use to pay for transactions with debt is a dollar less that we would have to do in terms of equity issuance in a meaningful M&A transaction.

Great. That’s very helpful. Thank you.

We will take our next question from Marci Ryvicker with Wells Fargo.

Thanks. I just have one. Perry and Tom, if you saw or had a target in mind that you really, really wanted from an M&A perspective, would you consider going hostile if you have to?

Well, that’s a hard question to answer generically or in a public form even. But I would say that given the long tail approval process, our board has not – through the SEC and other regulatory, our board has not shown a propensity when the question has been asked historically and recently to go into a hostile type of environment. Once you’ve done that, you can’t take it back. That then becomes maybe the last deal that you do or attempt to do. So I don’t see us going into any kind of a hostile environment per se. I think down the road, can you outline the benefits of potential combinations or things like that? And we are pretty democratic, our shareholders all have the same one boat that Tom and I and other shareholders do. So I think that those are things that you could potentially demonstrate to the marketplace and that the shareholders decide but I don’t see us being an aggressor in a hostile way anytime in my tenure and in the near future.

Got it. And I do have a fundamental question. Just in terms of local news, it does sound like local news has become healthier, any commentary or color around your portfolio with regards to local news?

Well, we continue to expand the amount of local news we do in our marketplaces and I think that’s a testament to – we wouldn’t deploy those resources there if we didn’t think that there will be [ph] return on that investment. For example, we just expanded our local news in Champaign Illinois in the quarter, added another 2.5 hours a week in a high-profile time period. I think as we move forward, we see opportunities to do that in some of our newly acquired stations both in CCA and in Las Vegas. And so, we believe in local news. And I think we said before that you got a player in local news in the marketplace, local news revenue can represent up to 55% of the ad supported revenue on the TV station and that dwarfs any other revenue source whether it would be Networth [ph] of sports or syndication or anything like that. And so, yes, we think that the demand for local news quickly is moving now closer to a political period and even the soft money that’s trying condition the primary voters before the election period and those kinds of things, they are veracious consumers of local news. And so – and particularly in midsize markets where you may only have three or four local voices, we think local news is our calling card.

Got it. Thank you very much.

[Operator Instructions] And we will take our next question from Davis Hebert with Wells Fargo Securities.

Good morning, everyone. Thanks for taking the questions. I wanted to ask a question about the local market level. On the call yesterday, Lamar’s CEO Sean Reilly mentioned seeing a pretty robust environment from the local perspective and he said – he felt it was a recovery more on Main Street, not necessarily Madison Avenue. Just curious if you are seeing that sort of robust activity at the local market level?

I think, again, we feel that the medium size market – lot of the headlines are written in New York about New York. And we talk to major market operators that are seeing challenging macro environments vis-à-vis advertising perhaps at the television station level in the most major markets. And quite frankly, we are not seeing that. Robust maybe too strong a word when you are predicting GDP type growth, but we are seeing stability and growth and we continue to believe and continue to deliver kind of absent special events and extraneous activities kind of the low to mid single digits here in terms of core advertising growth. And again we believe in developing new to television revenues that helps to drive some of growth. And our account executives, and local managers, and sales managers are incented to do that rather than just handling advertising agencies and existing accounts. And again, I would say, it’s a stable and growing revenue source for us that we are very close to those accounts and business and feel that the local revenue was more sticky than the national revenue. So, I guess, if you wanted to kind contrasted Main Street versus Madison Avenue, I mean we’ve always been on Main Street, our views really haven’t changed in terms of the stability and growth characteristics of local market advertisers.

Okay, that’s helpful. And then running some math on the digital commentary, I think you’ve talked about the digital business staying at $75 million a year run rate. And if I look at the Q1 results, it was a little under $20 million, which I guess would imply an $80 million run rate. Is that the right way to look at it? Or is there some seasonality factors there? Just curious if you are performing better than expectations on the digital side.

I think there is some seasonality, but quite honestly their seasonality is not material different than televisions. I think you will see an upswing in Q4 relative to that. Also keep in mind that that $19.3 million only included two months of Yashi, so it wasn’t three month of the digital video programmatic in that. So I think you are going to see –long way to answer, yes, it’s over $80 million on a run rate currently and we expect it by year-end to be nearing $100 million in run rate.

Okay. That’s helpful. And then on the leverage side, in calculating LTM pro forma EBITDA, I get around $344 million. Just wanted to clarify if that’s – if I’m in the ballpark there.

We haven’t commented on pro forma EBITDA, so I can neither confirm nor deny.

Okay. And last question, your bonds that you issued recently on the 6.125% have performed pretty well. Just curious how you are thinking about the 6.875% bonds that become callable later this year, especially relating to the different covenant packages between the two?

We are not overly concerned with the 6.875% covenant package. It gives us enough flexibility to operate our business. Quite honestly, the first stated call is in November of this year of 6.875%. I think we will know – we will have a lot more information over the next six months about what the M&A environment looks like. Our perfect scenario would be to leave those in place and issue more debt and do an accretive M&A trade. If that doesn’t happen, then we have the opportunity because of our relatively light first lien leverage of 2 times relative to 4 times covenant. We could go back and issue more first lien debt to help us offset in a cost buying in or calling 6.875%. I just don’t think that that’s the trade we want to do right now given some of the possibilities that we see in front of us from an M&A perspective in the next six months, but I think as we move closer to the call date and as we get more information on potential M&A and the likelihood of something in the reasonable near future, then we can make a more influenced decision.

Okay. And then if I could follow-up on a comment made earlier Tom around the 3 times leverage, I may have missed the timeframe by which you could achieve that.

3 times by the end of 2016.

Okay. Got it. Thank you.

And I think that’s consistent with what we said before.

Yeah.

We will take our next question from Tracy Young with Evercore.

Hi, I’ve got a couple. I’m sorry if I missed this, but did you give 2Q same station revenue growth, how auto did in Q1 and core expense growth for Q2 do you think.

We did not but we think that core same station will be similar to what it has been and will be which is low single digits.

And as to Q1 Tracy, we did say that auto as a category all in was down slightly. But if you take out the auto advertising inclement that went to the Olympics, we were actually flat for the quarter.

Okay. Did you have a music license benefit in Q1?

Yes.

And how much was that?

It was approximately $1 million.

$1 million, okay. And then lastly, you announced these two affiliation agreements in Lafayette and Waco. Are there more markets? Generally, are there more markets ready to do kind of addition of a network?

Potentially, we are not in the business of trying to take other people’s affiliations or anything like that, these are just opportunities. It’s the play we ran in Champaign, Illinois and in Northwest Arkansas where we had two stations, one kind of virtually a translator of the other where we were able to multiplex to get the signals around the geographic constraints of the marketplace but also to be able to launch a separate call letter which qualifies as a separate station under our distribution agreements, the exact people and additional set of inventory to sell. And so there are a couple of opportunities like that, but nothing we are close to announcing right now.

And keep in mind these are things that you just walk down the sidewalk and pick up off the ground. You have to manufacture these. So it’s something that takes a little time. There is some multivariable equation in terms of having to deal with the network as well. So these things do take some time and the development period is not unlike an M&A deal, and that it takes months or quarters to develop.

Okay. Thank you.

We will take our next question from John Kornreich with JK Media.

Hi, would you care to affirm, I think you once a firm that reaffirmed your outlook for double digit net retrains growth in the next “few years”?

That has not changed. So, yes, we will reaffirm that.

Okay. And I missed it, so real quickly, you said how many MVPD deals come up this year versus ’16?

What I said, in ’15 and ’16, this year and next year in excess of 80% of our subscribers will be reprised.

Okay. Thanks.

And that was up against approximately 40% in 2014, and that adds up to more than 100% because not every deal is a three year deal.

Thank you.

Thank you, John.

[Operator Instructions] And we’ll take our next question from Michael Kupinski with Noble Financial.

Tom, I think on the – in terms of the debt leverage question, I think your 3 times would imply the 0.5 turn lower than what you indicated in the first quarter. I think you were saying 3.5. Are you just indicating a range of 3, is that – you’re going to be changing your guidance there.

I’m sorry for 2016?

2016. I think you said it 3 times and I think in the first quarter you did say 3.5 times. And that really is giving a 0.5 lower, are you just implying the range?

I think it’s within the variable that it’s going to be closer to 3 times than 3.5 times.

Okay. And in SC NAB, I think obviously one of the key components coming out of the NAB is about, what was talking about programmatic buying and I was wondering if you are seeing anything that’s significant in that to date and if you can add something that you plan to embrace?

It is something that we would plan to embrace. We have not seen anything of significance to date on the TV station side. Obviously we are into digital programmatic in a big way, that’s what Yashi is all about. We see opportunities to grow that business rather dramatically, both organically and then within our portfolio. But we think that any programmatic can be defined a lot of ways. I think if we can make our business more efficient to do business with, not from a CPM perspective, but from a buying and paying of invoices and automate that process, I think that will be a huge step forward in getting dollars to increasingly flow with the medium. There is no one that I know disputes the value proposition of broadcast television advertising. It’s just people at the level regarded incentive medium to do business with. And I think if we can help to automate the back office processes of placing orders and then paying orders, I think if our industry can do that then I you will see a period of sustained growth that maybe greater than GDP just because everyone realizes the value proposition.

Thanks. And quite a few broadcasters are actually looking at non-traditional revenues, NTRs in their local and I was wondering in your local advertising display, do you have any significant NTRs in there now or do you plan to have other NTRs like lighter than and things like that, that might be significant in that as a contributor.

I think every quarter, when you go back for half a dozen years, we report on the amount of new to television revenue that we have generated in the quarter and as a percent of our total local and NTRs or co-op or anything like that is used as a lever because when you go and talk to a individual car dealer, he doesn’t have an ad budget for the various buckets. He has one ad budget and the best idea is get the money, whether it’s digital or television or billboard or radio or cars.com. And so I think at the local market level, you’ve got to have the best ideas and you go into that business not to talk about your business and your ratings, but you’re going to talk about that business and how you can help them so 20 more pickup trucks by model day at the end of the month. And if that works, you get invited back the next month. So ideas are the current fee and I would say we all the time pull all the levers to get the – to earn the largest share market of the local businesses that we do business with.

And how much of NTRs account for your local advertising at this point?

I am not sure how you’re defining NTRs, but I would say that non-traditional revenue which is the definition of NTR. I don’t know that we even track that. It’s a tool as opposed to means to an end and I am glad if other people are discovering it, but I think it’s been a normal course of operation for us since the company was founded 19 years ago.

Okay, fair enough. Thank you.

[Operator Instructions] And it appears, there are no further questions at this time.

Alright. Before we go, I just want to take a moment to recognize our senior management team and our operators some of which are sitting around the table here today. The Q1 results that we posted were against the backdrop of closing on 17 stations from CCA closing our Phoenix, Las Vegas and Yashi acquisition. And as you know, that involves on the day one of ownership, a new financial system, new accounting system, good traffic system on boarding of hundreds of employees and I am happy to report not only the results we are against that backdrop but all of that was done in first quarter. All of those integrations are ahead of schedule, all of the synergies are also ahead of expectations. And the good news is, that’s all in the review mirror. So as we move throughout the rest of this year and next year, the acquisition and integration has been done, and we are now hyper focused and laser focused on operations and maximizing the return on the investments that we made. So I look forward to reporting our second quarter results 90 days from now and I think you will see the benefit of that activity and the integration behind us, because now we are just focused on running the business. So thank you all for joining us today and we look forward to getting together to report our second quarter results three months from now.

Thank you for your participation. This does conclude today’s call.