QUARTERLY REPORT

Nexstar 3Q Revenue Drops 4.2% To $664M

The quarterly numbers reflect the 12-day contribution and expenses from the acquired Tribune stations. Total spot revenue grew 11% to $290,213,000.

Nexstar Media Group this morning reported financial results for the third quarter that included net revenue of $663,575,000, down 4.2% from $693,015 in the same quarter of 2018.

The results reflect the impact of $34 million and $1.3 million of one-time transaction expenses incurred in the quarter from Nexstar’s acquisition of Tribune Media that closed on Sept. 19.

The revenue numbers break down to:

  • Local revenue of $208,338,000, a 10% increase.
  • National revenue of $81,875,000, up 14.3%.
  • Retransmission consent revenue of $294,808,000, a 3.7% rise.
  • Political revenue of $10,899,000, down 84.5%.
  • Digital revenue of $58,137,000, down 16.1%.
  • Trade and barter/other revenue of $9,518,000, up 16.2%.

Third quarter net income came in as a loss of $5,178,000, a drop of 105.2% from $99,828,000 a year ago.

Perry A. Sook, Nexstar chairman, president and CEO, said: “Our active third quarter and recent strategic initiatives have positioned Nexstar for its next free cash flow growth cycle and significant near-term leverage reduction. In connection with completing the highly accretive Tribune Media acquisition in September, we divested 21 stations and completed the transaction financing on more favorable terms than originally anticipated. Collectively, these actions reduced leverage at closing to levels significantly below prior expectations.

“Yesterday, we announced purchase and sale agreements with Fox Television Stations which will position Nexstar as a broadcast and digital leader in the fast growing Charlotte market and add to our already strong presence in the Carolinas. The Fox transaction furthers that leverage reduction effort and these transactions reduced our pro forma net leverage ratio at Sept. 30, 2019, to 4.3 times.

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“With our expanded and diversified operating base, expectations for significant 2020 political spending, and the benefit of recent and soon-to-be completed distribution agreement renewals, we remain confident in generating record levels of free cash flow next year and reducing the company’s total net leverage ratio to below 4.0x at Dec. 31, 2020.

“During the third quarter and more recently, we entered into new network affiliation agreements with CBS and Fox marking Nexstar’s successful completion of a majority of the outstanding network affiliation agreement renewals for 2019. These renewals provide confirmation and visibility of our net retransmission revenue growth expectations in 2020 and beyond.

“On the operating front, we worked quickly to optimize our platform and leverage our increased scale with the expansion of Nexstar’s news bureaus, local news and other programming in several markets. We also named proven broadcasting industry executives from Tribune to drive growth at WGN America and through content acquisition; from our distribution revenue streams; and to oversee communications, media relations, employee communication and the company’s intranet and public facing corporate website.

“In addition, we appointed operating leaders to oversee broadcast and digital in key markets including Dallas, Fresno, Des Moines, Tampa and Spartanburg and elevated members of the Nexstar operating, sales and finance teams to new roles to acknowledge their ongoing contributions to Nexstar’s growth.

“At the time of the Tribune closing, we raised our anticipated first year transaction operating synergies target to approximately $185 million from approximately $160 million and the Tribune Media integration and synergy realization plans are proceeding on schedule. Taken together, these developments are reflected in our pro-forma average annual free cash flow guidance for the 2019/2020 cycle of approximately $1.02 billion which represents nearly 60% accretion relative to the legacy Nexstar operations. Given the Tribune acquisition was a cash transaction, our outstanding share count remains at approximately 46.1 million and we remain focused on the disciplined management of our share base and capital structure as another means of enhancing shareholder value.

“Reflecting overall improvements in core television ad trends, the twelve day contribution from the acquired Tribune stations (net of divestitures), the lack of displacement related to last year’s political advertising, and the impact of one-time ad revenue losses related to distribution negotiations with AT&T, third quarter local television ad revenue grew 10% while national ad revenue increased 14.3% resulting in total TV spot ad revenue for the quarter rising 11.2%. Nexstar’s third quarter net revenue, excluding political, increased 4.8% compared to the prior year period, marking a quarterly sequential improvement in the growth rate over second quarter levels.

“For the 2019 full year, we continue to expect low single-digit growth in non-political television advertising revenue versus the comparable 2018 period. Overall, third quarter broadcast cash flow, adjusted EBITDA and free cash flow before one-time transaction expenses and one-time revenue losses and expenses related to distribution negotiations with AT&T were largely in-line with expectations.

“Combined third quarter retransmission fee and digital media revenue of $352.9 million were essentially flat with the prior year and accounted for 53.2% of net revenue compared to 51.2% of net revenue in the 2018 third quarter, reflecting lower levels of political advertising in the current period, the ongoing shift in our revenue mix, the impact of the distribution negotiations with AT&T and twelve days of Tribune results (net of divestitures). Despite the AT&T impact, retransmission fee revenue increased by approximately $10.5 million or 3.7% over the prior-year period, as overall subscriber levels remained largely constant.

“Total third quarter digital revenue declined by approximately $11.2 million or 16.1%, as we continue to cycle through certain market place changes that occurred earlier this year. Nexstar’s third quarter local digital advertising revenue generated year-over-year percentage growth in the mid-teens range and our local digital agency services business also achieved healthy growth over 2018 third quarter levels.

“Our recent platform expansion further strengthens Nexstar’s ability to deliver superior engagement across all devices, including large-scale reach to online users as combined active users of Nexstar and Tribune Media websites would be the nation’s top site for news and information as ranked by Comscore and we have begun exploring models that would allow us to monetize this massive usage.

“We’ve also recently begun transitioning our advertising sales to a cost-per-impression model to provide more qualitative data to advertisers regarding audience consumption of our content across all of Nexstar’s broadcasting, digital, mobile, and streaming video platforms. In the meantime, we are re-allocating approximately 20% of our broadcast journalist and sales resources to mine and harvest the digital opportunity presented by our reach and the usage of our websites.

“The rise in third quarter station direct operating expenses (net of trade expense) primarily reflects incremental, partial quarter expenses related to the operation of the Tribune stations (net of divestitures) and the growth in budgeted increases in network affiliation expense as a partial offset to the rising retransmission consent revenue. Third quarter pro forma fixed expenses, excluding programming expenses, were down low single digits on a percentage basis.

“Our management of our capital structure as a means of driving free cash flow allowed us to act on a range of opportunities to enhance shareholder value in the third quarter through our return of capital and leverage reduction initiatives which included reducing Nexstar legacy funded debt by approximately $60.3 million and returning approximately $21.0 million to shareholders through our quarterly cash dividend.

“As the largest local broadcast television group in the United States with national coverage, an expanded presence in top 50 DMAs and a diverse portfolio of valuable media assets, Nexstar is well positioned to compete aggressively both locally and nationwide. Given the significant free cash flow from our expanded base of operations we can both materially reduce leverage and increase our return of capital to stockholders while investing in our business, growth prospects and team members to improve service to viewers and advertisers.

“We are confident that this focus, combined with our proven operating and integration strategies and the near-term commencement of the 2020 political cycle will enable us to extend our strong record of long-term shareholder value creation.”

Read the company’s report here.


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