Nexstar Reports Its 3Q Revenue Jumps 13%

Nexstar Media Group this morning reported financial results for the third quarter that included net revenue of up $693.4 million, up 13.3% from 3Q 2017.

The revenue numbers break down to:

• Local revenue of $189.4 million, down 4.1% from a year ago.
• National revenue of $71.6 million, down 5.8%.
• Retransmission consent revenue of $284.3 million, up 10.4%.
• Political revenue of $70.1 million, up 879.6%.
• Digital revenue of $69.3 million, up 25.2%.
• Trade and barter/other revenue of $8.2 million, down 55.1%.

Third quarter net income totaled $99.8 million, an increase of 137.3%. Broadcast cash flow came to $281.7 million, up 33.2%.

Perry A. Sook, Nexstar chairman, president and CEO, commented: “Nexstar delivered another quarter of record financial results with top line, profitability, and cash flow metrics exceeding consensus expectations. The 13.3% rise in third quarter net revenue and 53.2% increase in operating income reflect 18.0% growth in total television advertising revenue driven by our ability to capture exceptionally strong share of political spending in our markets and double-digit increases in retransmission and digital revenues, combined with the ongoing benefits of our expense discipline.

“With the strong operating leverage in our business model, Nexstar generated record third quarter BCF, adjusted EBITDA and free cash flow with these metrics growing 33.2%, 33.8% and 37.7%, respectively on a year-over-year basis.   Furthermore, our enterprise-wide focus on managing operations for current and future cash flow enabled us to bring about 24% of every net revenue dollar to the free cash flow line.

“In addition to the record third quarter operating results, Nexstar’s commitment to applying our growing free cash flow to drive shareholder returns was evident again in the third quarter as we allocated a total of approximately $180 million to return of capital, leverage reduction and strategic M&A initiatives.

“During the quarter, we paid our twenty-third consecutive quarterly cash dividend which amounted to $17.1 million and reduced total debt by approximately $145 million. In addition, we funded $17.4 million of the aggregate $20.6 million purchase price, including working capital, of the previously announced WHDF-TV and KRBK-TV station acquisitions with cash on hand.

“Importantly, Nexstar continues to allocate cash from operations to make meaningful reductions in our senior secured debt, with over 50% of our total capital allocation, inclusive of M&A, for the nine-month period going toward debt reduction. Subsequent to quarter-end, we made another $125 million in voluntary principal payments and $10 million scheduled principal payments on our senior secured debt bringing total leverage reduction to approximately $362 million through the ten-month period ended Oct. 31, 2018.

“With $437.3 million of year-to-date free cash flow before one-time transaction expenses and with fourth quarter 2018 political billings in the books, we are on pace to meaningfully exceed the high end of our 2018 gross political revenue guidance and to surpass our prior guidance for average annual free cash flow in excess of $600 million for the 2018/2019 cycle.

“Total third quarter television advertising revenue inclusive of political advertising grew 18.0% as Nexstar’s spot inventory management initiatives focused on maximizing the political revenue opportunity resulted in a nearly 10-fold increase in political revenue which more than offset the reduction in inventory available for local and national spot sales.

“Reflecting our presence in states with high levels of political spending activity, 2018 third quarter political revenue outpaced our budgets and consensus estimates and rose more than 50% on a same station basis over the 2014 period, the last comparable mid-term election cycle.

“With Election Day behind us, we are confident that 2018 fourth quarter results will similarly benefit from healthy political revenue contributions. The success of our spot inventory optimization strategies is further reflected by our relatively flat year-to-date local spot revenue and a modest low-single digit decline in national spot revenue, as our local sales teams continue to generate healthy levels of new business across our markets.

“Combined third quarter digital media and retransmission fee revenue of $353.6 million rose 13.0% over the prior-year period and accounted for 51.0% of net revenue, illustrating again the positive and ongoing shift in our revenue mix. Overall, the year-over-year increase in third quarter non-television advertising revenue reflects recent renewals of distribution agreements with multichannel video programming distributors and initial contributions from distribution agreements with OTT providers, the January 2018 accretive acquisition of LKQD, and organic growth across our profitable digital operations.

“With the renewal of retransmission consent agreements representing approximately 10.0% of our subscriber base in 2018 and more than 70% to be renewed in 2019, continued revenue growth from this source remains highly visible for 2019 and beyond.

“The rise in third quarter station direct operating expenses (net of trade expense) primarily reflects the growth in broadcast ad sales related to robust political spending as well as budgeted increases in network affiliation expense and expenses for LKQD. The 3.8% decline in SG&A expense primarily reflects our previously disclosed reclassification of certain digital administrative expenses to corporate expense. Third quarter corporate expense excluding non-cash compensation expense was in line with our expectations.

“With the operating momentum across our business and significant and growing net income and free cash flow, Nexstar has the financial flexibility to take a range of actions to enhance shareholder value including cash dividends, share repurchases, leverage reduction and pursuing opportunistic, accretive acquisitions.

“As always, we remain focused on actively managing our capital structure, cost of capital and maturities to provide the financial flexibility to support our near- and long-term growth. In this regard, we recently refinanced our Senior Secured Term Loan facilities and revolving credit facility resulting in an approximate $7 million reduction in the Company’s annual interest expense. In addition, during the first ten months of 2018 we allocated approximately $464.1 million toward debt reduction, opportunistic share repurchases and cash dividends while funding $114.4 million to acquire fast growing LKQD Technologies and television stations WHDF-TV and KRBK-TV.

“With our year-to-date progress on debt reduction and the biggest mid-term election cycle in the company’s history now behind us, we continue to expect Nexstar’s net leverage, absent additional strategic activity and discretionary capital returns, to decline to the mid/high 3x range by year-end.

“As one of the nation’s leading local media companies with a portfolio of premiere stations and digital assets, a strong balance sheet, and prodigious annual free cash flow growth, we continue to have the financial flexibility to reduce leverage, evaluate additional accretive strategic growth investments and expand our return of capital to shareholders.

“We are executing well on all facets of our business plan, including elevated production levels of local original content and service to local viewers and advertisers, continued operational improvements and further optimizing the company’s capital structure and cost of capital. Our disciplines in these areas have driven significant growth as well as consistency and visibility to our results.

“As we continue to benefit from record levels of political advertising in 2018, the ongoing renewal of our retransmission consent agreements and completion of recently announced tuck-in transactions, we have excellent visibility to delivering on or exceeding our free cash flow targets and a clear path for the continued near- and long-term enhancement of shareholder value.”

Read the company’s report here.