Nexstar 4Q Revenue Soars 22% To $798M
Nexstar Media Group this morning reported financial results for the fourth quarter of 2018 that included net revenue of $798 million, up 22.1% from $654 million a year ago.
The revenue numbers break down to:
- Local revenue of $216.5 million, down 1.5% from 4Q 2017.
- National revenue of $81.9 million, down 1.8%.
- Retransmission consent revenue of $284.5 million, up 12.3%.
- Political revenue of $140 million, up 1,020%.
- Digital revenue of $65 million, up 3.3%.
- Trade and barter/other revenue of 9.9 million, down 54.5%.
Fourth quarter net income totaled $154.5 million, down 59.3%. Broadcast cash flow totaled $379.9 million, an increase of 57%.
Perry A. Sook, Nexstar chairman, president and CEO, said: “Our strong fourth quarter and full-year operating results mark Nexstar’s seventh consecutive year of record financial performance, with all of our key metrics – from net revenues to free cash flow – showing double digit growth and coming in at the highest levels in the company’s history for both the three- and twelve-month period. The 22.1% rise in fourth quarter net revenue and 99.6% increase in operating income highlight the ongoing success of our strategies focused on leveraging our local content and community involvement to generate record shares of political spending in our markets, as well as continued distribution and digital revenue growth. Reflecting margin growth related to historic mid-term election spending and the strong operating leverage in our business model, Nexstar generated record year-over-year fourth quarter BCF, adjusted EBITDA and free cash flow growth (before one-time transaction related expenses) of 57.0%, 57.3% and 62.1%, respectively.
“For the full year, our enterprise-wide focus on managing operations for current and future cash flow enabled us to generate record free cash flow of $692.7 million before one-time transaction related expenses, representing approximately 31% growth over 2017 levels. We brought about 25% of every net revenue dollar to the free cash flow line allowing us to invest in our people, our local media platform and in complementary accretive acquisitions, while reducing net debt by approximately $400.0 million and returning over $120.0 million to shareholders in the form of share repurchases and dividends, as we reduced our year-end outstanding share count to 45.6 million shares. With 2017/2018 average annual free cash flow of over $610 million before one-time expenses on a reported basis (not including pro-forma adjustments), our near- and long-term path to growth and the enhancement of shareholder value remains on plan.
“With our long-term strategic focus on completing accretive transactions to enhance our overall competitive position and free cash flow growth, we were delighted to announce in December that we reached a definitive agreement to acquire Tribune Media. The proposed transaction is a strategically and financially compelling growth opportunity that further expands our geographic diversity and audience reach, with a combined pre-divestiture portfolio of 216 full power owned or serviced stations in 118 markets and a growing digital media operation with expanded reach. Upon closing, Nexstar will be the largest local television group in the United States and one of the nation’s leading providers of local news, entertainment, sports, lifestyle and network programming across all devices. The enhanced scale of the combined entity will enable Nexstar to better compete in today’s rapidly transforming industry landscape, while extending our long-term record of delivering greater levels of service to our local communities and increased returns for our shareholders.
“Financially, the Tribune Media transaction is expected to nearly double our pro-forma average annual revenue and adjusted EBITDA, will be immediately accretive upon closing and will result in approximately 46% growth in Nexstar’s pro-forma average annual free cash flow in the 2018/2019 cycle to approximately $900 million per year. Upon closing, we intend to allocate our free cash flow to debt reduction, increased returns of capital to shareholders and additional investments in our business to improve service to viewers and advertisers. Notably, we expect our net leverage ratio to approximate 5.3x at closing and to decline to approximately 4.0x by the end of 2020. As with our past acquisitions, we have developed a comprehensive regulatory compliance plan for required station divestitures and a detailed integration plan that will result in significant synergy realization. Nexstar has committed financing for the transaction and has made all required FCC and other regulatory applications, and subject to securing requisite approvals we expect to complete the transaction in the third quarter of 2019.
“Looking at the fourth quarter, our inventory management and pricing strategies enabled us to maximize our share of election spending in our markets and exceed our full-year political advertising revenue guidance. Fourth quarter television ad revenue inclusive of political advertising grew 38.9% reflecting a more than 10-fold increase in year-over-year political revenue and, as anticipated, a low single-digit decline in core spot revenue compared to the 2017 period related to displacement of ad inventory. Reflecting our expanded platform and presence in states with high levels of political spending activity, 2018 fourth quarter political revenue rose by 174.7% over comparable 2016 fourth quarter levels and increased 366.3% over the 2014 fourth quarter mid-term election cycle. While robust demand from campaigns and issue advertisers this election season more than offset the reduction in inventory available for local and national spot sales, November and December were the strongest months of 2018 for core advertising revenue when excluding February 2018, which benefitted from Super Bowl and Olympic related spending.
“Combined digital media and retransmission fee revenue increased 10.5% to $349.6 million in the fourth quarter and 13.1% to $1.4 billion for the full year, marking the first time in the company’s history that this combined metric has exceeded total annual television advertising revenue. Overall, the year-over-year increase in fourth quarter and full year non-television advertising revenue reflects recent renewals of distribution agreements with multichannel video programming distributors and initial contributions from distribution agreements with OTT providers, the early 2018 accretive acquisition of LKQD, and organic growth across our profitable digital operations. With the renewal of retransmission consent agreements representing approximately 10.0% of our subscriber base in 2018 and more than 70% to be renewed in 2019, continued revenue growth from this source remains highly visible for 2019 and beyond.
“The rise in fourth quarter station direct operating expenses (net of trade expense) and SG&A primarily reflects growth in expenses associated with broadcast ad sales related to record political revenue as well as budgeted increases in network affiliation expense and expenses for LKQD. Fourth quarter corporate expense excluding non-cash compensation expense was in line with our expectations and reflects our previously disclosed reclassification of certain digital administrative expenses from SG&A to corporate expense. Nexstar’s significant fourth quarter revenue growth combined with ongoing expense management resulted in substantial increases in fourth quarter BCF and Adjusted EBITDA margins which rose to 47.6% and 44.2%, respectively.
“In the 23 years since we founded Nexstar, we have demonstrated prudent use of leverage and the ability to source capital at attractive rates to support our strategies for growth and the enhancement of shareholder value. Through accretive transactions, we’ve strategically assembled a highly effective local broadcast and digital teams and a platform that delivers exceptional local content to inform and entertain our viewers, while providing premium local advertising opportunities at scale for advertisers and political campaigns. At the same time, our development of complementary retransmission and digital revenue streams have materially diversified our revenue mix and we continue to focus on implementing new standards and technologies to monetize the unrivaled reach, trust and influence of our leading local platforms. These are the drivers of our near- and long-term financial growth and have positioned Nexstar to continue investing in our business, while reducing leverage and aggressively return capital to shareholders.
“In summary, the fourth quarter marked a strong end to a record year of financial performance for Nexstar, as well as the beginning of what we expect to be a tremendous period of growth for the Company with our pending acquisition of Tribune Media. We continue to precisely execute on all facets of our business as we follow the successful strategies we’ve established in terms of building the top line, maintaining close control of fixed and variable costs and optimizing the balance sheet. Our disciplines in these areas have added consistency and visibility to our results, while supporting increased returns for our shareholders and in January we announced a 20% increase in our quarterly cash dividend. As we begin to benefit from initial contributions from Tribune later this year, the continued double-digit growth of combined retransmission and digital revenue, a large number of distribution contract renewals at 2019 year-end and spending related to the upcoming 2020 presidential election cycle, we have excellent visibility to delivering on or exceeding our free cash flow targets and a clear path for the continued near- and long-term enhancement of shareholder value.”
For the full year, net revenue grew 13.8% from 2017 to $2.767 billion; net income was down 18.3% to $388.3 million.
Read the company’s report here.