EARNINGS CALL

Nexstar Talks Growth, Political, Auction

The broadcast group’s executives say its prospects going forward are bright with political ad revenue continuing to roll in. Retrans remains strong and the assimilation of Media General’s stations is on track to close this year. Speaking generally about the upcoming spectrum auction, CEO Perry Sook said deciding whether to sell could involve such things as clearing space under the FCC national ownership cap.

 

Nexstar Broadcasting was hitting on all cylinders during the first quarter of 2016, and it expects to keep it all going as it benefits from stations added in 2015, the addition of the Media General stations later this year  and the massive political spending that is pouring into its stations, executives told securities analysts following release of its first quarter numbers.

The group will celebrate its 20th year in June, a fact noted by CEO Perry Sook, who briefly looked back on its humble beginnings with a single station in Scranton, Pa. He highlighted the group’s upward mobility since, noting income of $896.4 million in 2015 compared to $306.5 million in 2011.

Sook also offered a few observations on the upcoming incentive auction, suggesting that the high level of declared interest by broadcasters will not necessarily result in a high level of spectrum selling. “I think that many broadcasters registered a lot of stations to hang around the hoop to see what happens.” In other words, if a station isn’t registered, it can’t participate, so it’s better to be in than not at this point.

Decisions will be made as the proceeding unfolds, he predicted, based on dollars potentially earned at auction versus earning potential as a going concern. For bigger groups, decisions may even involve clearly space under the FCC national ownership cap.

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Political was naturally a key growth category in the first quarter, the company said. Key political states for the group were Iowa, Nevada, Illinois, Arkansas, Texas, Missouri, New Hampshire, Vermont and Utah. More than half of the spending came from candidates, followed by PACs (40%) and the parties themselves.

Asked about the immediate prospects for the political category, both Sook and CFO Tom Carter are looking for more of the same, although Carter said revenues may be down slightly in 2Q as the presidential primary calendar winds down..

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However, Nexstar is banking on 16 primaries for state offices that are separate from presidential contests, of which there are four remaining in the quarter. Money is rolling in, directed at federal, state and local contests, and the end result is expected to be reasonably comparable to the group’s first quarter political results, the company said.

On the retransmission consent front, Sook said that 45% of its subscriber base was renewed in 2015, and another 45% comes up for renewal this year. “We expect highly visible and significant revenue growth from this source to continue in 2016.” He later added that the group sees no impediments whatsoever to continued growth in this category.

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In fact, retrans has been part of the motivation for the group’s aggressive M&A strategy. Carter observed that its growth helps it maintain an even negotiating footing with cable companies that are also experiencing a wave of consolidation

Carter said the group is in a good spot at the moment when reverse compensation is factored into the retransmission equation. Its contract with Fox comes up later this year, impacting 2017, and the good news is that Fox is its No. 4 network in terms of affiliates, minimizing the impact of a rate increase. The upshot is that net retrans — retrans minus reverse comp — should continue to post double-digit gains for years going forward.

Nexstar was one of the television groups that experienced a dip in Super Bowl stations as a result of the game’s annual shift from one network to another. Nevertheless, Sook was pleased with efforts of local Nexstar teams in monetizing the event.

Carter warned that there will be extra expense incurred going ahead in 2016, but it will largely be in the one-time category and generally related to the Media General acquisition. The group is getting close to putting the final touches on related asset divestitures as the transaction proceeds through regulatory channels toward closing later this year.

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Sook broke down first quarter core advertising results, saying that seven categories were flat to up, including automobile, fast food, furniture, attorneys, medical, paid programming and services. The three suffering reverses were schools, cable advertising and retail.

Discussing the trend toward consumers lowering the size of their MVPD programming lineups, Sook noted that cable TV started in Pennsylvania with a broadcast skinny bundle, and the broadcast bundle is still the key part of an MVPD offering. The advantage of skinny bundles for broadcasters is obvious — there is far less competition for viewer eyeballs.

Nexstar is interested in — and internally discussing — ATSC 3.0, but realizes there are still many issues to be resolved, including consumer set compatibility, before it will have any major impact on group operations. Its interest, noted Sook, is primarily in how it will strengthen its local operations. “We do local really, really well,” he said, “That’s our strength.” He conceded that there are other groups far better at taking on national initiatives.


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