QUARTERLY REPORT

Nexstar 4Q Revenue Climbs 38%

Aided by the acquisition of Tribune Media properties, it reported net revenue of $1.1 billion, with core advertising growing by 76%.

Nexstar Media Group this morning reported financial results for the fourth quarter of 2019 that included net revenue of $1.1 billion, up 37.9% from $798 million in the same quarter of 2018.

The results reflect the impact of Nexstar’s acquisition of Tribune Media that closed on Sept. 19.

The revenue numbers break down to:

  • Core advertising revenue of $525,458,000, a 76% increase.
  • Political advertising revenue of $36,526,000, down 73.9%.
  • Digital revenue of $74,310,000, up 14.2%.
  • Distribution fee revenue of $445,831,000, up 56.7%.
  • Other revenue of $17,965,000, up 37.9%.

Fourth quarter net income totaled $113,851,000, a drop of 26.3% from $154,490,000 a year ago.

Perry A. Sook, Nexstar chairman, president and CEO, said: “Nexstar’s 2019 fourth quarter financial results capped an outstanding year for the company as we delivered another period of record off-cycle political year operating performance with net revenue, profitability, and cash flow metrics (before one-time transaction expenses) exceeding consensus expectations. Throughout 2019 we deployed Nexstar’s broad range of proven M&A, integration, financing, operating and other strategies to build scale and our competitive position, serve the communities where we operate, and create new value for shareholders. As a result, 2020 is off to a strong start as we embark upon a significant new free cash flow growth cycle which will fuel a material reduction in our net leverage while supporting our goals of driving shareholder returns.

“In 2019, we closed the highly accretive acquisition of Tribune Media creating the largest U.S. television broadcast station group; entered into deleveraging purchase and sale agreements with Fox Television Stations; completed new multi-year retransmission consent agreements representing approximately 70% of our subscribers; entered into new long-term network affiliation agreements with CBS, Fox and NBC and realigned our digital business to drive future growth and profitability. Our expanded operating base generated approximately $521 million in full year free cash flow before one-time expenses enabling us to invest in our broadcast and technology platform, while enhancing shareholder value through our return of capital and leverage reduction initiatives. During the year, we returned $82.8 million to shareholders in the form of dividends and, in the fourth quarter, we allocated $45.1 million of cash from operations to opportunistically repurchase approximately 440,000 Nexstar shares at an average purchase price of $102.57 per share, reducing our basic share count to 45.7 million outstanding class A common shares.

BRAND CONNECTIONS

“With the continued sharing of best practices between the Nexstar and Tribune organizations coupled with key factors including the Super Bowl on Fox, Summer Olympics on NBC, double-digit distribution revenue growth and expected record levels of 2020 election cycle spending, Nexstar expects to generate pro-forma average annual free cash flow in excess of $1.175 billion for the 2020/2021 cycle, marking an increase of over 15% compared to our guidance of pro forma average annual free cash flow for the 2019/2020 cycle of $1.02 billion. Our robust free cash flow from operations will be bolstered by meaningful net proceeds from recent purchase and sale agreements and reinforces our confidence in attaining our post-Tribune closing priority of reducing Nexstar’s net leverage ratio to 4.0x or below by the end of 2020, allowing us to evaluate additional return of capital options to enhance shareholder value.

“Turning back to our fourth quarter results, the continued strength of Nexstar’s legacy operations combined with a healthy, full quarter contribution from the Tribune Media assets, led to double digit growth in all of our non-political revenue sources. For the fourth quarter, net revenue rose 37.9% to $1.1 billion, as our increased scale and the ongoing execution of our strategies to leverage our premium local content and distribution significantly offset the 73.9% year-over-year decline in political advertising.

“Fourth quarter total television advertising revenue increased 28.2% to $562 million, reflecting a 76.1% rise in core advertising revenue, partially offset by the year-over-year decline in political advertising. Transaction related revenue gains, the inclusion of WGN America and recent distribution fee renewals resulted in a 56.7% rise in distribution revenue to a quarterly record $445.8 million, and a 14.2% increase in digital revenue to $74.3 million, also a quarterly record. Notably, active spending by Presidential and gubernatorial candidates of both parties in the fourth quarter, combined with our expanded scale in key primary states, resulted in record fourth quarter odd-year political ad spending of $36.5 million, or more than double the comparable 2017 fourth quarter levels. Excluding political, fourth quarter net revenue would have increased approximately 62% over the prior year period. The combined Nexstar and Tribune operations generated organic growth in core advertising revenue during the quarter.

“Total combined fourth quarter digital and distribution fee revenue of $520 million rose approximately 49% over the prior year period and accounted for 47.3% of net revenue, compared to 43.8% of net revenue in the prior year period. The year-over-year increase in fourth quarter non-television revenue reflects new distribution agreements reached in the second half of 2019 and Tribune Media revenue synergies related to the after acquired clauses in our retransmission consent contracts, WGN America, and our realigned digital operations. With our successful renewal of 2019 year-end retransmission consent agreements representing approximately 70.0% of our subscriber base and the approximate 15% of the base to be renewed and repriced this year, continued revenue growth from this source remains highly visible for 2020 and beyond.

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

“During the fourth quarter, we took actions to further optimize our balance sheet and capital structure as we completed the offering of an additional $665 million of 5.625% senior notes due 2027, which were issued with the same terms as our existing $1,120 million aggregate principal amount of 5.625% senior notes due 2027, as a part of the Tribune transaction financing. The net offering proceeds, together with cash on hand, were used to redeem Nexstar’s 6.125% senior notes due 2022 and 5.875% senior notes due 2022 and to pay related premiums, fees and expenses. By opportunistically accessing the capital markets, we were able to retire the most expensive pieces of our unsecured debt while addressing near-term bond maturities.

“In addition to our balance sheet and capital structure improvements, we continued to make significant progress in our integration of the Tribune Media assets into Nexstar’s platform, while extracting initial anticipated revenue and cost synergies and capitalizing on the many growth opportunities throughout our portfolio. In this regard, we have hired or promoted 11 general managers, added two regional vice presidents and promoted four finance department executives to support our expanded operations as well as added four corporate executives to manage content acquisition/WGNA, distribution, sales and corporate communications.

“On the local programming front, we expanded local news programming in our Portland and Sacramento markets, while launching a new state capitol news bureau in Missouri. We also began preparations for the summer 2020 launch of the WGN America News Nation primetime newscast, which will reach approximately 75 million U.S. TV households and will be complemented by the around-the-clock mobile news app newsnationnow. By leveraging the local market, regional and national expertise and resources of Nexstar’s 5,400 local journalists — which is more than any other broadcast or cable network — in 110 local newsrooms across the country including capitol news bureaus in 20 states, and reallocating financial resources from WGN’s syndicated programming toward News Nation, we intend to provide viewers with fact-based news and information without bias or opinion, while delivering attractive marketing solutions for national advertisers.

“In summary, 2019 was a year of significant growth and change at Nexstar Media Group that has positioned us well for the future. With the accretive transaction of Tribune Media, we have become America’s leading television broadcast station group with an unmatched 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. As the nation’s largest pure-play local broadcast television and digital media company, we now have truly national reach and coverage with Nexstar owned or operated stations reaching approximately 69 million U.S. television households.

“Our platform also benefits from the consistent and meaningful contributions from our 31.3% TV Food Network ownership stake and positive cash flow from our national cable network WGN America. At the same time, the active management of our capital structure and strong free cash flow growth has provided us with the financial flexibility to support our return of capital and leverage reduction initiatives including share repurchases, dividend payments, debt reduction and strategic business investments—all of which have delivered meaningful shareholder returns.

“In this regard, earlier this year the board of directors approved a 24.4% increase in the quarterly cash dividend to $0.56 per share beginning in first quarter of 2020. Looking ahead, we look forward to realizing the full value of the Tribune Media transaction later this year as we complete our proven integration and synergy realization game plan. With continued double-digit growth in distribution revenue related to recent contract renewals and what many expect to be substantial spending levels related to the upcoming 2020 presidential election cycle, we have excellent visibility to delivering on our free cash flow targets and a clear path for the continued near- and long-term enhancement of shareholder value.”

Read the company’s report here.

 


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