EARNINGS CALL

Nexstar Posts Flat 4Q Local Core Revenue

An apples-to-apples comparison of quarterly numbers factoring out the stations it added shows net revenue, excluding political, was up 12%; core spot revenue was flat; local spot revenue was up low single digits, retransmission consent income grew 40% and digital was up 10%.

The Nexstar Broadcasting Group of 4Q 2014 was not as large as the Nexstar of 4Q 2015. The growth in sheer mass enabled it to post gaudy comps in its latest financial results disclosure — but on a station-to-station basis, the numbers were good but much more down to earth.

EVP-CFO Tom Carter provided a collection of key apples-to-apples numbers: Net revenue, excluding political, was up 12%; core spot revenue was flat; local spot revenue was up low single digits, retransmission consent income grew 40% and digital was up 10%.

Wells Fargo analyst Marci Ryvicker noted that the more astronomical 30.8% gain in as-reported revenue surpassed Wall Street’s consensus 27.3%, as well as her own company’s 28.9% prediction.

Nexstar’s big event is its pending merger with Media General, expected to be completed late third quarter or early fourth quarter this year. The merged entity, said Chairman-President-CEO Perry Sook, will be known as Nexstar Media Group. It is expected to bring Nexstar’s leverage at closing to 5.5x, but that in turn is expected to be reduced to 4.5x by year’s end with the aggressive application of increased free cash flow to debt reduction.

A focus on localism is the underpinning of Nexstar’s strategy going forward, which Sook believes will position it for success in a multiplatform environment. However, the Nexstar definition of local programming is strictly limited to news; it has no plans to invest in other forms of programming on either a local or a national basis.

Sook is not looking for a great surge in growth on the core advertising front, which he believes closely tracks GDP. “We believe that the core television ad spend will be a low single digit grower,” he said, “and it is a cyclical business so it will either be at the high end of the range, low end of the range any quarter or month of the year.” Growth, he said, will come from distribution and political.

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Nexstar under Sook was a pioneer in bringing retransmission consent advertising into the broadcast mix, and remains a key component of the group’s strategy going forward.

Carter said that retrans income has gone from representing 5% of the group’s total in 2007 to the mid-30s currently, and that the growth was expected to continue. He explained: “That contractual revenue significantly changes the business profile of Nexstar, and all broadcasters for that matter, into the fact that we have a multi-platform revenue platform now whereas in 2007 retrans was a small portion, digital was in the early stages and not a meaningful contributor to revenue. The stability of that cash flow is paramount for our business model.”

Sook and Carter both weighed in on the recently-reported loss of an NBC affiliation at the company’s WHAG Hagerstown, Md. Sook said it was anything but a surprise, and was part of the company’s affiliation agreement with the network dating back to 2014. The reason for the loss is that NBC wants only one affiliate per market, and Hagerstown is part of the Washington DMA.

Carter minimized the situation. “It’s not as though we lost the affiliation to another station,” he said, pointing out that Nexstar knew this was coming and has been taking appropriate steps for some time. The primary step has been a strong investment in WHAG’s local news operation.

Sook does not expect consolidation in the MVPD universe — including the pending Charter/Time Warner Cable nuptials — to have a deleterious effect on broadcasters. Quite the opposite, in fact. He believes it will drive further consolidation in both the broadcast and programming sectors.

In fact, the Media General acquisition was made with that in mind — it’s a strategy to take Nexstar to the top of the broadcast heap in terms of scale.

Incidentally, the company added, the recent service disruption with Cox Cable during a retransmission consent negotiation impasse was the company’s first since 2005. Carter noted a seldom-mentioned cost to such a disruption. When they occur, he said the MVPD involved in the dispute typically pulls its advertising from the broadcast outlets, poking a revenue hole in the results of each station involved in the dispute.

The audience measurement future of the merged entity is a matter to be resolved. Media General just signed up for three more years with Nielsen in December. Meanwhile, Sook said that at Nexstar, “We have placed a pretty-good-sized bet with Rentrak/ComScore.” He explained: “The vast majority of our local clients don’t care about ratings, they care about is it opening my cash register at or around the advertising than it was before, so it’s not a necessary tool to conduct business on a daily basis in medium-sized or smaller-sized markets.”

With that in mind, he said the merged entity would be evaluating whether the Nielsen contract coming along with Media General is a useful tool or an unnecessary expense.

Like most interested observers, Nexstar is looking forward to record political income in 2016. It does not expect results to be dampened by the lack of spending by Republican front-runner Donald Trump. Further, it expects its own growth to be bested by its merger partner Media General, due to the latter’s excellent footprint in key battleground states Florida and Ohio.

Given the uncertainties attached to the spectrum auction, all of Nexstar’s guidance does not take it into consideration.


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