EARNINGS CALL

Nexstar Down-Ballot $ Trumps Weak National

3Q core advertising was bolstered by flat-to-positive growth in four of its top six categories, said CEO Perry Sook. He added: “Year-to-date ... we have well-exceeded our guidance of $100 million in full-year political revenue” ($50 million of that will be attributed to 4Q). Wells Fargo Securities analyst Marci Ryvicker was not only on the same page as Sook regarding the meeting of political guidance, she said the feat was the high note of the quarter for the group.

The odd characteristics of the 2016 Clinton-Trump battle for the presidency have knocked a hole in many television group’s revenue expectations, but Nexstar Broadcasting Group executives told listeners to its third quarter financial results call today that they have met guidance due to strong spending in other races.

In other news, the company fully expects that it has held its final call under the NBG banner. It will be known as Nexstar Media Group once if completes its acquisition of Media General Group, and event expected to take place this quarter.

All the arrows pointed up on the Nexstar 3Q financial spreadsheet, led by a 23.6% gain in net revenue that included a 4.4% gain in core advertising income along with the usual big year-over-year gain in political accompanied by strong double-digit growth in retransmission consent and digital income.

Pro forma results were more in line with what other television groups have been reporting. According to EVP-CFO Tom Carter, on a same-station basis, net revenue was up 14%, local spot was flat, core spot revenue was down less than 1%, same station retrans was up 15% and same station digital was up 20%.

Discussing political, Chairman-President-CEO Perry Sook said: “Year-to-date as of this morning we have well-exceeded our guidance of $100 million in full-year political revenue” ($50 million of that will be attributed to 4Q).

Wells Fargo Securities analyst Marci Ryvicker was not only on the same page as Sook regarding the meeting of political guidance, she said the feat was the high note of the quarter for the group.

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Sook said that Nevada, Wisconsin, Pennsylvania, Missouri and Indiana were its biggest political states, and said that displacement was not as big a factor in the remainder of its footprint.

He also touted the benefit of political, noting that it brings in a higher margin than does advertising from the company’s 52-week advertisers.

The lack of spending in the presidential was very much a factor — Sook said it was down 40% from what the Obama and Romney campaigns spent in 2012 — but he added that the company enjoyed a 70% increase in senatorial income and a 30% gain in gubernatorial income.

Core advertising was bolstered by flat-to-positive growth in four of its top six categories, said Sook, who listed auto, attorneys, medical and retail as the four. He added that 12 out of the next 15 categories were up.

Auto was one of the flat categories, and Sook said it is expected to be flat once again during the fourth quarter.

The group also received better-than-expected Olympics results from its 21 NBC affiliates, which are present in about one third of its markets.

Fully 85% of Nexstar’s stations are subject to 2015-16 retransmission consent contracts, including 45% done or to be done this year, said Sook. The fruits of these contracts will enrich quarterly balance sheets throughout the coming years, with clear visibility into retrans income expectations for both 2017 and 2018.

Sook said he’s expecting continued growth in the digital category, in part because its footprint is largely outside the biggest markets. “We will be a profitable digital company without peer in our space as we target mid-size markets where the number of local content producers and competing digital options are not as great as they are in the major markets.”

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Sook sells competing with brands such as Facebook to his own staff. He tells them: “Don’t think that these national entities are not in the local markets, and our job is to play both offense and defense and be out there with products and services that rival those of the national brands but supported by the local brand and the local sales force and local fulfillment where if you have a problem you can pick up the phone or walk down the street and talk to somebody and you’re not dealing with a call center.”

Sook believes this approach will ensure continued double-digit growth in the category.

Asked about market clustering, Sook was bullish on having a strong footprint within the borders of a single state, as it does in places like New York, Pennsylvania, Louisiana and Alabama. The primary advantage is the mass and wherewithal to open a capital city news bureau, gaining a significant local news advantage over competitors lacking the scale to make a similar investment.

Along with investments in station infrastructure, news has been a primary capital expenditure, with 12 markets receiving recent local news enhancements.

Carter repeatedly noted that all of Nexstar’s financial reporting includes no assumptions of any spectrum auction benefit. Sook did note that the possibility exists that stations it may sell at auction could possibly increase the group’s cap room and lead to acquisition possibilities.

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However, the focus will be on debt reduction and de-levering in the aftermath of the Media General acquisition.

At its 2Q financial results call, Nexstar said it was hoping to have the Media General group transaction completed by now. Although that didn’t happen, it at least was able to move the ball toward the goal line.

“Throughout the third quarter,” said Sook, “we made important progress toward the upcoming completion of our Media General transaction which will result in what we now believe to be 40% growth in our annual pro forma average free class flow in 2016-17 relative to what we’re generating as a standalone company.”

He noted that the vast majority of the pre-closing tasks have been completed, including both Hart-Scott-Rodino and Department of Justice approval.

Carter said that more favorable borrowing conditions have allowed it to beat guidance on the cost of deal-financing credit, which will result in a $4 million increase to the company’s free cash flow total by year’s end.

Pretty much all that’s left is approval from the FCC and each company’s shareholders.

As for when the FCC nod comes, Sook said that Nexstar has been assured that the commission is working on it, and that approval is not contingent in any way on what is going on with the spectrum auction. Sook fully expects to have Media General in the fold sometime during 4Q.

He noted that full guidance on financials and synergy will be provided prior to closing.


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