QUARTERLY REPORT

Nexstar 4Q Revenue Up 40%, Year Up 26%

The TV station group’s strong fourth quarter television ad revenue growth was complemented by a 64.6% rise in retransmission fee revenue and a 114.9% increase in digital media revenue.

Nexstar Broadcasting Group today reported fourth quarter and full-year net revenue of $192.8 million and $502.3 million, up 39.5% and 25.6%, respectively, from the year-earlier periods.

For the fourth quarter, it breaks down to:

  • Local revenue was up 2.8% to $77.2 million.
  • National revenue decreased 5.3% to $31.1 million.
  • Retransmission consent money rose 65% to $44.1 million.
  • Political revenue increased 2,201% to $35.4 million.
  • Digital media revenue climbed 114.9% to $14.2 million.
  • Gross revenue excluding political rose 17.1% to $176.6 million.
  • Income from operations rose 114.8% to $68.9 million.

For the full year of 2014, it breaks down to:

  • Local revenue was up 5.2% to $279.1 million.
  • National revenue decreased 3.1% to $109.9 million.
  • Retransmission consent money rose 53.3% to $155 million.
  • Political revenue increased 1,148% to $64.3 million.
  • Digital media revenue climbed 51.4% to $46.7 million.
  • Gross revenue excluding political rose 14.6% to $626.4 million.
  • Income from operations rose 67.8% to $173.2 million.

Perry A. Sook, Nexstar chairman, president and CEO, commented: “The 39.6% rise in fourth quarter net revenue concluded what was already a record year financially for Nexstar. Fourth quarter BCF, Adjusted EBITDA and free cash flow increases of 70.9%, 73.8% and 116.0%, respectively, reflect margin growth related to the significant operating leverage in our model as well as the value of our initiatives to maximize the political advertising opportunity, manage costs and actively expand our scale through strategic, accretive acquisitions. These factors, coupled with recently completed value-building transactions which added 27 stations as well as a leading digital media advertising and programmatic technology provider, have positioned Nexstar for continued near- and long-term growth. We expect 2015 to be the company’s fourth consecutive year of record free cash flow as our platform expansion and revenue diversification efforts have eliminated the cyclicality associated with political advertising.

“During the fourth quarter, we successfully managed inventory to maximize our share of election spending in our markets. Fourth quarter television ad revenue inclusive of political advertising grew 31.2% as Nexstar’s spot inventory management initiatives resulted in a 23-fold year-over-year increase in political revenue and flat core local and national spot revenue. Reflecting our expanded platform and presence in states with high levels of political spending activity, 2014 fourth quarter political revenue rose by 29% over comparable 2012 fourth quarter levels. Notably, excluding political, gross revenue in the fourth quarter grew over 17% from the same period in 2013, reflecting Nexstar’s further success in leveraging the value of our television broadcasting operating model and content creation capabilities into a diversified platform with multiple high margin revenue streams.

“Nexstar’s strong fourth quarter television ad revenue growth was complemented by a 64.6% rise in retransmission fee revenue and a 114.9% increase in digital media revenue which benefited from organic growth as well as our mid-year accretive acquisitions of a leading digital publishing and agency services platform and the provider of cloud-based CMS, engagement and monetization solutions. Nexstar’s annual retransmission revenue growth of 53.3% reflects both the 2013 contract renewals with our distribution partners and escalators. We expect our long-term distribution revenue growth trend to continue as in late 2014 additional contract renewals representing about 40% of the Company’s MVPD subscribers were completed and another 30% of our subscribers will be renewed in 2015. Fourth quarter 2014 net revenue rose 66% over the same period in 2012, the last Presidential election year, while free cash flow, our most important financial performance metric, was up over 127% over the same period which clearly illustrates the value creation related to our revenue diversification and platform building strategies.

BRAND CONNECTIONS

“Recently closed accretive acquisitions will build upon the leverage in our operating model throughout 2015 and beyond. Specifically, during the fourth quarter we completed the acquisition of seven stations in four markets from Grant Co. and early in 2015 we closed the largest acquisition in the Company’s history, adding the net operations of 18 stations in nine markets from Communications Corp. of America. This was followed by the completion of a single station transaction in Phoenix and completion of a single station transaction in Las Vegas thereby bringing our TV station portfolio to 107 stations under ownership or management, serving 58 separate DMAs and reaching approximately 17% of all U.S. television households. These transactions further diversify our operating base, create new duopoly markets, are financially accretive and, in the case of the Marshall Broadcasting Group Inc. (“Marshall”) transaction, fulfill Nexstar’s commitment to catalyze and support broadcast station ownership by minority-owned companies, which is also a key FCC initiative.

“We are pleased with the integration of the 27 recently acquired stations and are realizing the anticipated synergies and efficiencies we forecasted at the time the transactions were announced. Earlier this month we further broadened and diversified Nexstar’s digital video advertising offerings with highly-targeted optimization tools and programmatic capabilities through the acquisition of Yashi Inc. Yashi’s targeting and programmatic technology, combined with our existing digital offerings, further expands the innovative multi-platform marketing solutions that Nexstar offers to local and national advertisers, agencies and digital publishers while maximizing our multi-screen revenue opportunities. And by adhering to our established acquisition and integration criteria, we acquired a profitable, fast-growing online video advertising business at an attractive pro-forma Adjusted EBITDA multiple.

“With our focus on growing free cash flow, we remain disciplined in managing costs and driving BCF and adjusted EBITDA margins. The rise in fourth quarter station direct operating expenses (net of trade expense) and SG&A primarily reflects higher variable costs related to the higher local and political revenues, and the operation of acquired stations and digital assets also contributed to the year-over-year increase in corporate expense. Our significant revenue growth combined with ongoing expense management resulted in fourth quarter BCF and adjusted EBITDA margins improving substantially to 49.0% and 44.4%, respectively. Impressively, full year free cash flow rose 88.1% to $159.7 million while combined full year 2014 and 2013 free cash flow totaled $244.7 million.

“The combination of our operating successes and accretive station transactions has positioned Nexstar to return capital to shareholders through cash dividends while reducing leverage throughout 2015. Tomorrow, we will pay the first quarterly cash dividend of $0.19 per share of our Class A common stock following the board’s authorization last month to increase the quarterly cash dividend by 26.7 percent. Importantly, we believe the total annual capital allocation for dividends of approximately $23.7 million relative to our projected free cash flow continues to afford the company the liquidity and financial flexibility to further expand our marketing solutions platform through additional accretive station and digital media acquisitions, while reducing leverage and pursuing other initiatives that enhance long-term shareholder value.

“Looking forward, we project that with the addition of the 27 new stations and Yashi, Nexstar will generate pro-forma free cash flow of approximately $450 million during the 2015/2016 cycle, or average pro-forma free cash flow of approximately $7.25 per share per year as we ended 2014 with 30.8 million basic outstanding shares. Furthermore, with the free cash flow generated from this base of operations, we expect Nexstar’s net leverage, absent additional strategic activity, to be in the mid 4x range at the end of 2015 and to decline to the low 3x range by the end of 2016.”


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