QUARTERLY REPORT

Nexstar 3Q Revenue Up 24% To $276M

CEO Perry Sook attributes the record results tosolid core revenue growth, our ability to maximize the Olympic and political revenue opportunities, growing retransmission consent revenues, impressive digital growth and the ongoing benefits of our results-focused operating disciplines.” The big driver was political of $25.5 million, plus a 23% gain in retrans revenue and $29 million in digital.

Nexstar Broadcasting Group today reported record third quarter net revenue of $275.7 million, an increase of 23.6% from $223 million in the same quarter a year ago. Core revenue (excluding political) was $131.4 million, an increase of 4.4%.

The revenue numbers break down to:

  • Local revenue of $94.9 million, up 7.8%.
  • National revenue of $36.5 million, down 3.6%.
  • Retransmission consent revenue of $98.3 million, up 22.8%.
  • Political revenue of $25.5 million, up 894.9%.
  • Digital media revenue of $28.6 million, up 42.2%.

Third quarter income from operations totaled $72.9 million, up 50.9%.

Broadcast cash flow rose 30.4% to $109.9 million.

Perry A. Sook, Nexstar chairman, president and CEO, commented: “Nexstar’s record third quarter financial results were highlighted by solid core revenue growth, our ability to maximize the Olympic and political revenue opportunities, growing retransmission consent revenues, impressive digital growth and the ongoing benefits of our results-focused operating disciplines. These factors drove record third quarter net revenue, which led to record third quarter operating income, BCF, adjusted EBITDA and free cash flow, and we brought about 21% of every net revenue dollar to the free cash flow line. Reflecting the benefits of scale and the strong operating leverage in our business model, Nexstar’s 23.6% rise in third quarter net revenue resulted in 30.4% growth in third quarter BCF, a 34.2% increase in adjusted EBITDA and a 26.6% rise in free cash flow.

“We are optimistic as we look toward the completion of 2016 based on the fact that in the fourth quarter to date we’ve exceeded our guidance of $100 million in full year political revenue while simultaneously driving low single digit core revenue growth and continued double digit growth from our retransmission and digital revenue streams. As a result, we remain confident in our guidance for Nexstar to generate record free cash flow in 2016, and on a stand-alone basis, the company is well on pace to achieve our guidance for annual average 2016-17 free cash flow of $250 million — or average pro-forma free cash flow of $8.15 per share per year.

BRAND CONNECTIONS

“We are looking forward to the upcoming completion of the acquisition of Media General and during the third quarter we priced our $2.75 billion term loan B facility, which when combined with the $900 million of senior notes issued earlier in the third quarter, comprise all of the primary financing to complete the transaction. Given that the cost of financing was below original estimates, interest expense for the combined entity will be approximately $60 million lower annually than the assumptions used in establishing the combined entity’s initial pro forma guidance for 2016/2017.

“On a tax adjusted basis the lower interest expense will result in approximately $40 million of additional pro forma annual free cash flow which increases our projected average annual free cash flow for the new Nexstar Media Group (NMG) in the 2016/2017 cycle to over $540 million. The Company’s increased free cash flow expectations assumes no changes in our clearly defined year one synergies of $76 million which we believe we can build on once we begin operating the combined entity and also assumes no net proceeds from the incentive auction.

“Following the completion of the acquisition, Nexstar Media Group will deliver free cash flow to our shareholders that is over 45% higher than Nexstar’s record stand-alone average pro-forma free cash flow per share per year of $8.15 based on NMG’s approximately 47 million shares outstanding.

“Nexstar’s third quarter core local and national television ad revenue rose 4.4%, which we believe to be among the best in the industry, as despite the allocation of inventory to political advertisers we generated flat or increased television ad revenue in four of our top six categories, including auto. In addition, Nexstar’s television ad revenue inclusive of political advertising grew 22.1% as our spot inventory management and pricing strategies enabled us to deliver a nearly 10-fold increase in year-over-year political revenue.

“Reflecting our expanded platform and presence in states with high levels of down ballot political spending activity, 2016 third quarter political revenue rose by a robust 40.3% over comparable 2014 third quarter levels and as noted, our 2016 fourth quarter results will include over $50 million of political revenue contributions, marking an end to a different but very successful year for Nexstar on this front.

“Notwithstanding the strong political ad spending in our markets, Nexstar’s gross third quarter revenue excluding political grew an impressive 13.5% inclusive of the 22.8% rise in retransmission fee revenue to $98.3 million and 42.2% increase in digital revenue to $28.6 million. Ongoing renewals of retransmission consent agreements combined with the growth of our digital publishing platform resulted in a 26.7% year-over-year increase in total third quarter retransmission fee and digital revenue to $126.9 million. These higher margin revenue streams increasingly diversify our revenue while complementing our core television operations and accounted for 46.0% of 2016 third quarter net revenue, up from 34.0% in the 2014 third quarter, the last political cycle.

“With our focus on growing free cash flow, we remain disciplined in managing costs and driving BCF and Adjusted EBITDA margins. The rise in third quarter direct operating expenses (net of trade expense) and SG&A primarily reflects higher variable costs related to the higher television advertising revenues and the operation of acquired stations and digital assets while total third quarter corporate expense was slightly lower than budgeted.

“With significant and growing free cash flow, an attractive, declining weighted average cost of borrowings and long-term record of success in fully integrating acquired stations, extracting synergies and enhancing operating results while improving service to viewers and advertisers, Nexstar looks forward to completing the highly accretive acquisition of Media General.

“Other than FCC approval and certain other customary closing matters, Nexstar and Media General have completed all of the steps and satisfied all of the merger agreement conditions necessary to finalize the planned transaction including securing Department of Justice and Hart-Scott-Rodino approval, entering into agreements to divest stations to achieve ownership and other regulatory compliance approvals (with the result being an expansion of station ownership in the US by minority operators upon closing), securing approvals from each company’s respective shareholders and putting in place substantially all of the necessary financing. During the third quarter, Nexstar filed a supplement to its waiver request with the FCC requesting prompt approval of its acquisition of Media General, so that upon closing of the acquisition, Nexstar may continue its initiatives across the combined entity, providing superior, unique local content and services to viewers and businesses in each of the communities it serves.

“If the FCC determines that it is in the public interest to grant our waiver request, we would await the completion of the FCC’s internal processing before the final consent could be issued, though at present there are no assurances from the FCC about when they might make a determination on the waiver or issue the consent.

“Looking ahead, with distribution agreements representing approximately 85% of Nexstar’s MVPD subscribers renewed in 2015 and by 2016 year-end, we project visible ongoing revenue growth from this source in 2017 and beyond. Similarly, Nexstar’s digital revenue growth in the 2016 fourth quarter remains strong and we are excited by the complementary nature of the combined Nexstar and Media General digital operations, which we intend to aggressively manage to profitability.

“With significant and growing free cash flow and the upcoming closing of the Media General transaction, Nexstar is positioned with the financial capacity and flexibility to reduce leverage while returning capital to shareholders. We have excellent visibility to delivering on or exceeding our free cash flow targets in the current cycle and a clear path for the continued near- and long-term enhancement of shareholder value through the Media General transaction.”

Read the company’s report here.


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