Nexstar 4Q Revenue Up 23% To $310 Million

Nexstar Broadcasting Group today reported record fourth quarter 2016 net revenue of $309.9 million, an increase of 22.8% from $252.3 million in the same quarter a year ago. Core revenue (excluding political) was $138.1 million, a decrease of 4.2%.

The revenue numbers break down to:

• Local revenue of $101.9 million, down 0.8% from the year-ago quarter.

• National revenue of $36.2 million, down 12.5%.

• Retransmission consent revenue of $100.3 million, up 22.8%.

• Political revenue of $60 million, up 661.2%.

• Digital media revenue of $25.7 million, down 12.1%.

Fourth quarter income from operations totaled $92.5 million, up 37.3%.

Broadcast cash flow rose 39% to $145.4 million.

Also included in its earnings statement was news that Media General sold $479 million worth of spectrum in the FCC spectrum auction. Nexstar closed on its $4.6 billion acquisition of Media General in January, but that deal had a carve out that entitled Media General shareholders to its auction proceeds. Nexstar sold no spectrum in the auction, the company said.

Nexstar went on to say that “none of the spectrum Nexstar offered was selected during the auction process because prices available in the auction fell below the value we ascribed to it. Based on these factors, the value of each CVR is estimated to be worth between $1.70 and $2.10 calculated by using the estimated gross proceeds, less estimated transaction expenses, repacking expenses and taxes.”

Perry A. Sook, Nexstar chairman, president and CEO, said: “Our strong fourth quarter and full-year operating results mark Nexstar’s fifth consecutive year of record financial results based on the ongoing success of our strategies to leverage our local market content and community involvement, execute and integrate accretive acquisitions, maintain cost controls and optimize the balance sheet and capital structure.

“The 22.8% rise in fourth quarter net revenue resulted in BCF, adjusted EBITDA and free cash flow growth of 39.0%, 44.9% and 23.9%, respectively, and reflect margin growth related to the significant operating leverage in our model, the ongoing benefits of our management disciplines and our strategic initiatives to maximize the political advertising opportunity.

“For the full year, Nexstar’s legacy platform generated approximately $7.98 of free cash flow per share, or 18.4% growth over 2015 levels, which has funded capital returns to shareholders through quarterly cash dividends and 2015 share repurchases. With January’s completion of the highly accretive Media General transaction, Nexstar is the leading media company committed to localism and innovation and is positioned for continued near- and long-term growth, including our sixth consecutive year of record financial results projected for 2017.

“On Jan. 17, 2017, we completed our $4.6 billion acquisition of Media General marking a significant milestone in Nexstar’s 20 year history of growth. Financially, the transaction is expected to more than double our revenue and adjusted EBITDA, and Nexstar expects to generate average annual free cash flow in the 2017/2018 cycle of approximately $565 million, or approximately $12.00 per share, per year based upon approximately 47 million shares outstanding and our current estimate of approximately $81 million of year one synergies and a substantial rise in 2018 cash taxes.

“As an industry leader with a portfolio of premiere stations and digital assets, a strong balance sheet, an attractive weighted average cost of capital, and significant free cash flow, we are extremely well positioned to immediately reduce leverage, evaluate additional accretive strategic growth investments and expand our return of capital to shareholders.

“During the fourth quarter, our inventory management and pricing strategies enabled us to maximize our share of election spending in our markets and exceed our full-year political advertising revenue guidance of $100 million by $8.5 million.

“Fourth quarter television ad revenue inclusive of political advertising grew 30.3% and reflect a near eight-fold increase in year-over-year political revenue and, as anticipated, a low single-digit decline in core spot revenue compared to the 2015 period related to displacement of ad inventory.

“Reflecting our expanded platform and presence in states with high levels of political spending activity, 2016 fourth quarter political revenue rose by 69.7% over comparable 2014 fourth quarter levels and increased 119.5% over the 2012 fourth quarter presidential election cycle. Notably, excluding political, gross revenue grew 2.9% in the fourth quarter and 12.1% in the full year compared to the same respective periods in 2015, highlighting Nexstar’s further success in leveraging the value of our television broadcasting operating model and content creation capabilities into a diversified platform with multiple high margin revenue streams.

“Nexstar’s strong fourth quarter television ad revenue growth was complemented by combined fourth quarter retransmission and digital media revenue growth of 13.6% to $126.1 million.

“Retransmission revenue growth of 22.8% in the fourth quarter and 32.2% for the full year reflects both the 2016 contract renewals with our distribution partners and annual escalators. Record programmatic advertising volume in the year ago period created a challenging year-over-year comparison and was the primary factor in the 12.1% decline in fourth quarter digital media revenue.

“Importantly, Nexstar’s full year digital media revenue of $101.8 million was up 13.2% over the 2015 period and exceeded our full year guidance by $2.0 million. Reflecting the ongoing benefits of our revenue diversification strategies, total fourth quarter retransmission fee and digital media revenue represented 40.7% of 2016 fourth quarter net revenue compared to 30.3% of total net revenues in 2014 fourth quarter, the last even-year political cycle.

“We expect our long-term distribution revenue growth to continue as in late 2016 we reached new distribution agreements with multichannel video programming distributors covering approximately 10 million subscribers. On a pro-forma basis, and given the after acquired clauses in our retransmission consent agreements, upon acquisition the Media General stations were immediately party to the rates in all of our distribution agreements.

“Fourth quarter 2016 net revenue and free cash flow rose 60.7% and 31.0%, respectively, over the same period in 2014 during the mid-term election cycle and grew 166.7% and 198.2%, respectively, over the same period in 2012 during the last presidential election year, clearly illustrating the value creation related to our revenue diversification and platform building strategies. With our focus on growing free cash flow, we remain disciplined in managing costs and driving BCF and Adjusted EBITDA margins.

“The rise in fourth quarter station direct operating expenses (net of trade expense) and SG&A primarily reflects higher variable costs related to the higher political revenues, increases in network affiliation expense and the operation of acquired stations and digital assets. Fourth quarter corporate expense declined slightly versus the prior year and full year corporate expense was in line with our guidance. Nexstar’s significant fourth quarter revenue growth combined with ongoing expense management resulted in substantial increases in fourth quarter BCF and Adjusted EBITDA margins which rose to 46.9% and 43.5%, respectively.

“Four-hundred-seventy-eight days passed from the time we made our first public offer to acquire Media General to the closing of the transaction. During that period we visited each Media General station and digital business location and our executive and corporate management teams developed a strategic plan for each station and digital business to ensure that they will operate with the disciplines and focus of the Nexstar legacy businesses. As a result, when the transaction closed in mid-January, we immediately began to execute our 120-day integration plan and synergy realization strategies. On Jan. 18, Nexstar announced several senior management changes and appointments to support the growth and success of the expanded platform.

“For the broadcasting business segment, we promoted Tim Busch to serve as president of Nexstar Broadcasting Inc. and announced three newly-created regional management positions.

“We also moved quickly to fill open general manager positions and have hired or promoted eleven new television station GMs to-date with further appointments to be made shortly. In addition, we plan to double the size of our Washington, D.C., bureau and will be re-engineering and relaunching Bite Size TV. We are also in the process of adding sales resources to the former Media General markets and are transitioning stations onto the same operating systems and shared platforms and services including digital, sales management, traffic and graphics, among others.

“For the digital business, we have begun the process of merging all our digital products into one company under the Nexstar Digital brand, with a unified market strategy and message. Nexstar Digital offers media companies and advertisers a comprehensive suite of leading digital solutions and services focused on optimizing audience targeting, user engagement and the overall performance of online, mobile and multimedia content and marketing campaigns, by making smart investments in people and companies that are accretive and complement our core competencies.

“Almost 21 years ago, Nexstar started with one station in Scranton, Pa., and has grown to 171 stations in 100 U.S. markets as a result of our disciplined operating and cost management practices, revenue diversification initiatives and the success we are achieving in identifying, financing and integrating accretive acquisitions. With the free cash flow generated from this base of operations, we expect Nexstar’s net leverage, absent additional strategic activity, to be in the high-4.0x range at the end of 2017 and to decline to the mid-3.0x range by the end of 2018.

“The combination of our operating successes and accretive station transactions has positioned Nexstar to reduce leverage while allowing for the return of capital to shareholders through cash dividends. Last week, we paid our quarterly cash dividend of $0.30 per share of our Class A common stock, marking a 25% increase over the prior quarterly dividend level. Reflecting the issuance of shares in the Media General transaction, the annual capital allocated to dividend payments at this time of approximately $56.4 million relative to the total free cash flow that Nexstar now generates, provides us with ample liquidity to reduce leverage, evaluate additional accretive acquisitions and pursue other initiatives to enhance long-term shareholder value.”

Read the company’s report here.