Nexstar Post-Merger 2Q Revenue Rises 139%

Nexstar Broadcasting Group today reported record financial results for the second quarter ended June 30 that included net revenue of $626 million. It was the first full quarter following the company’s acquisition of Media General.

The revenue numbers break down to:

• Local revenue of $238 million, up 143.8%.

• National revenue of $91 million, up 153.8%.

• Retransmission consent revenue of $253 million, up 158%.

• Political revenue of $6.5 million, down 43%.

• Digital revenue of $64 million, up 157.4%.

In addition, second quarter income from operations totaled $139 million, up 116.7%, while broadcast cash flow totaled $227 million, up 119.8%.

Perry A. Sook, Nexstar chairman, president and CEO, said: “Nexstar’s operating and financial growth momentum as well as our focus on shareholder returns was highlighted again in the second quarter as we delivered another period of record results with top line, profitability, and cash flow metrics exceeding consensus expectations.

“Our first full quarter of operations including the Media General assets combined with organic core advertising, distribution and digital media revenue growth and our focus on managing operations for current and future cash flow growth, resulted in all of our non-political revenue sources posting triple digit second quarter increases. Notably, 51% of our second quarter gross revenue was derived from non-core advertising revenue sources.

“The ongoing shift of our revenue mix reflects our long-term initiatives to build scale and diversify revenue through our focus on high growth retransmission and digital opportunities. Second quarter revenue growth combined with our expense discipline and focus on managing operations for cash flow, also drove triple digit BCF, Adjusted EBITDA and free cash flow growth (excluding transaction expenses and divestiture-related taxes and inclusive of a $13 million gain related to the sale of a former Media General facility) of 119.8%, 125.7% and 186.6%, respectively.

“In addition to the record second quarter operating results, Nexstar remained active on its commitment to enhancing shareholder value through capital returns and capital structure improvements. During the quarter we repurchased slightly over one million Nexstar shares, paid our 18th consecutive quarterly cash dividend and more recently completed a refinancing that is accretive to our net income and free cash flow.

“With the second quarter repurchase activity, our basic share count was reduced to 46.2 million. In addition, the interest savings related to the refinancing completed in July increased our average annual net income expectations, with free cash flow guidance for in the 2017/2018 cycle rising to approximately $574 million.

“Importantly, operating results continue to pace consistent with our internal forecasts and the Media General integration remains ahead of schedule, as to date we have realized over 90% of the $81 million of synergies that were to be achieved by year-end. As such, we remain confident that 2017 will mark the Company’s sixth consecutive year of record financial results.

“Continued strength of Nexstar’s legacy operations, combined with a healthy, full quarterly contribution from the Media General businesses, led to triple digit growth in all of our non-political revenue sources. For the second quarter, net revenue rose 139% to $626.1 million, as our increased scale and the ongoing execution of our strategies to leverage our local content and diversify our revenue sources significantly offset the 42.6% year-over-year decline in political advertising.

“Second quarter core television ad revenue growth of 146.5% was outpaced by a 157.9% rise in retransmission fee revenue and a 157.4% increase in digital media revenue. Reflecting transaction-related growth and our success in managing the political ad revenue opportunity during odd-year cycles, we reported second quarter political revenue of approximately $6.5 million marking a 238% rise over the comparable 2015 period.

“Excluding political, gross revenue grew 146.1% in the second quarter compared to the prior year, reflecting Nexstar’s unwavering commitment to localism, innovation and growth as we continue to successfully transition our television broadcasting operating model and content creation capabilities into a diversified platform with multiple high margin revenue streams.

“In this regard, combined second quarter digital media and retransmission fee revenue of $317.1 million rose 157.8% over the prior year period and accounted for 50.6% of net revenue, illustrating the positive ongoing revenue mix shift from 2016 second quarter levels when these operations accounted for 46.9% of net revenue.

“The year-over-year increase in second quarter non-television revenue reflects new distribution agreements reached in late 2016 with multichannel video programming distributors covering approximately 10 million subscribers, Media General revenue synergies related to the after acquired clauses in our retransmission consent contracts, and our expanded, profitable digital operations.

“The rise in second quarter station direct operating expenses (net of trade expense) and SG&A expense primarily reflects the operation of acquired stations and digital assets and increases in network affiliation expense. Second quarter corporate expense before non-cash compensation expense and costs related to the Media General transaction and certain divestitures was slightly below the low end of our expectations.

“During the second quarter and earlier this quarter Nexstar reached long-term extensions of our affiliation agreements with ABC and FOX, respectively, as well as OTT digital distribution agreements with both networks. Our new affiliation agreements support our goals for delivering great entertainment and information to viewers and advertisers anywhere, anytime and on any device, while creating a new revenue stream for Nexstar related to the OTT agreements.

“Looking forward, we are excited about the consortium established with Sinclair Broadcast Group to promote innovation and develop and explore products and services associated with ATSC 3.0. New ATSC 3.0 product and service offerings will create monetization opportunities such as virtual MVPD platforms, multicast channels, automotive applications, single frequency networks and wireless data applications, among others.

“During the quarter, we announced that Univision and Northwest Broadcasting joined the spectrum consortium expanding its total reach to approximately 90% of the nation. Last month we reached an agreement in principle with Sinclair to coordinate the transition of the over-the-air delivery of ATSC 3.0 in 97 U.S. television markets. Our tentative agreement includes 43 markets where both Companies own a television station, and a plan to spearhead the transition for shared ‘NextGen’ services in the 54 markets where either Nexstar or Sinclair owns or operates stations.

“Our collaboration with Sinclair demonstrates Nexstar’s commitment to making ‘NextGen’ television a reality for the communities and businesses we serve across America. Our research and analysis indicates that this market-based solution to the transition benefits broadcasters as well as television viewers who will soon have access to the enhanced over-the-air services of this new technology, thereby enabling us to remain highly competitive in today’s multi-platform environment.

“With the operating momentum across our business and significant and growing net income and free cash flow, Nexstar has the financial flexibility to take a range of actions to enhance shareholder value including our return of capital initiatives through the quarterly cash dividend and share repurchases, leverage reduction and pursuing opportunistic, accretive tuck-in acquisitions.

“As always, we remain focused on actively managing our capital structure to provide the financial flexibility to support our near- and long-term growth. In this regard, we recently refinanced our Senior Secured Term Loan facilities and revolving credit facility resulting in an approximate $15 million reduction in the Company’s annual interest expense, increasing net income and free cash flow approximately $9 million on an annualized basis.

“In addition to allocating $58.3 million of cash from operations to share repurchases during the second quarter, we also reduced term loan borrowings by approximately $66.4 million and have made additional pre-payments in the third quarter to-date. We continue to expect Nexstar’s net leverage, absent additional strategic activity, to be in the high 4x range at the end of 2017 before declining to the mid 3x range by the end of 2018.

“Recent government data indicates the U.S. economy rebounded between April and June, as businesses invested more and consumers purchased furniture, washing machines and other goods. We believe the second quarter domestic economic strength translated into July being the best month of the year thus far for core advertising at our stations. Looking forward, the third quarter will comp against last year’s Olympic programming and revenue but as Nexstar continues to execute very well in terms of operations, integration and synergy realization, we will maintain our growth momentum including record financial results in the quarter and second half of 2017.

“We also remain extremely well positioned for continued significant financial growth in 2018 given key factors including the Winter Olympics, Super Bowl on NBC, and heavily contested mid-term elections.”

Read the company’s report here.