Nexstar Post-Merger 4Q Revenue Up 111%

Nexstar Broadcasting Group today reported financial results for the fourth quarter ended Dec. 31 that included net revenue of $654 million, up 111% from $310 million in the same period a year earlier. It was the third full quarter following the company’s acquisition of Media General and its portfolio of TV stations.

The revenue numbers break down to:

• Local revenue of $249 million, up 144%.

• National revenue of $98 million, up 172%.
• Core ad revenue of $347 million, up 152%.

• Retransmission consent revenue of $253 million, up 153%.

• Political revenue of $15 million, down 76%.

• Digital revenue of $64 million, up 148%.

In addition, third quarter income from operations totaled $141 million, up 148%.

Perry A. Sook, Nexstar chairman, president and CEO, said: “Nexstar’s record fourth quarter and full year financial results mark the conclusion of an active and transformational year for the company and another period of growth across all financial metrics that exceeded consensus estimates.

“The record results reflect the economic and strategic benefits of last January’s Media General transaction and our ability to extract synergies that were ahead of projections, combined with our ongoing success in leveraging our local content and community involvement, diversifying our revenue streams, driving operating efficiencies and optimizing the balance sheet and capital structure.

“Our expanded operating base generated approximately $469 million in 2017 free cash flow — and over $527 million before one-time expenses — enabling us to invest in our broadcast and technology platform and in select accretive acquisitions, to reduce net debt by approximately $400 million and return over $154 million to shareholders in the form of share repurchases and dividends. As a result, we ended the year with 46.0 million shares outstanding and a strong foundation for another record year in 2018.

“With the operating and financial growth momentum across our platform continuing in 2018, we expect Nexstar to benefit from several key factors including the Winter Olympics, Super Bowl on NBC, heavily contested mid-term elections, continued retransmission and digital revenue growth and the recurring free cash flow benefit to be derived, in future years, from the enactment of the Tax Cuts and Jobs Act. As such, Nexstar expects to generate average annual free cash flow of slightly in excess of $600 million for the 2018-2019 cycle, which reflects our assumptions for interest rate increases and the company’s transition to nearly a full tax payer in 2018.

“The 110.9% rise in fourth quarter net revenue drove operating income growth of 52.3% resulting in 66.3% growth in fourth quarter BCF, a 67.4% increase in adjusted EBITDA and an 81.7% rise in free cash flow (excluding transaction expenses), and approximately 24% of every net revenue dollar was converted to free cash flow.

“Contributions from our third full quarter of operations including the Media General assets combined with continued strength of Nexstar’s legacy operations led to triple digit growth in all of our non-political revenue sources and more than offset the 75.5% year-over-year decline in fourth quarter political advertising.

“Fourth quarter core television ad revenue increased 151.6%, while retransmission fee revenue and digital media revenue rose 152.5% and 148.3%, respectively. The continued shift of our revenue mix reflects our long-term initiatives to build scale and diversify revenue through our focus on high growth retransmission and digital opportunities.

“Reflecting transaction-related growth and our success in managing the political ad revenue opportunity during odd-year cycles, we reported fourth quarter political revenue of approximately $14.7 million marking an 86.8% rise over the comparable 2015 period.

“Excluding political, gross revenue grew 148.1% in the fourth quarter compared to the prior year, highlighting Nexstar’s unwavering commitment to localism, innovation and growth as we continue to successfully transition our television broadcasting operating model and content creation capabilities into a diversified platform with multiple high margin revenue streams.

“In this regard, combined fourth quarter digital media and retransmission fee revenue of $317.2 million rose 151.6% over the prior-year period and accounted for 48.5% of net revenue, illustrating the positive ongoing revenue mix shift from 2016 fourth quarter levels when these operations accounted for 40.7% of net revenue.

“The year-over-year increase in fourth quarter non-television revenue reflects new distribution agreements reached in late 2016 with multichannel video programming distributors, Media General revenue synergies related to the after acquired clauses in our retransmission consent contracts, and our expanded, profitable digital operations.

“The rise in fourth quarter station direct operating expenses (net of trade expense) and SG&A expense primarily reflects the operation of acquired stations and digital assets as well as anticipated increases in network affiliation expense. Fourth quarter corporate expense before non-cash compensation expense and costs related to the Media General transaction and certain divestitures was consistent with our expectations.

“Local broadcast television remains the most powerful segment of the media and advertising ecosphere and our strong local platforms command the greatest share of audience reach within a market. As the most trusted medium among viewers, with a brand safe environment and the greatest influence on consumer purchasing and voting decisions, local broadcast television is the unrivalled, leading provider of ROI-driven marketing solutions for brand managers, advertisers and political campaigns.

“The enduring value of Nexstar’s unique, locally-produced news programming and content married with marquee national network content and access to new and emerging digital distribution platforms is an unbeatable value and competitive proposition. In 2017, Nexstar forged agreements with all of the big four networks for participation in their OTT services and our solid relationships and common goals with the networks is the foundation of these agreements.

“In January 2018, we acquired LKQD, an enterprise digital video advertising technology infrastructure business, for approximately $90 million cash. The addition of LKQD supports our long-term strategic and financial growth objectives for Nexstar Digital and is immediately accretive to our operating results and free cash flow. By adhering to our disciplined acquisition and integration criteria, we acquired a leading, fast-growing, profitable, online video advertising business at an attractive valuation without materially altering our leverage position.

“As always, we remain focused on actively managing our capital structure to provide the financial flexibility to support our near- and long-term growth. Looking ahead, 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 the end of 2018.

“Longer-term, with the FCC’s recent rulings that support 21st century ownership rules and the voluntary adoption of new ATSC 3.0 standards for innovative Next Gen TV services, local broadcasters will bring consumers more localized programming content, mobile TV, advanced emergency alert systems and a host of other valuable, informative, and in some cases, critical services.

“At the same time our consortium with Sinclair and Univision is in the process of identifying opportunities to generate new spectrum-related revenue, which will be made possible by the Next Generation ATSC 3.0 broadcast standard.

“Last month, the consortium named former Pillsbury Winthrop Shaw Pittman LLP attorney and technology, spectrum and ATSC 3.0 expert, John Hane, as president. John’s appointment reflects the consortium’s shared goal of promoting spectrum utilization, innovation and monetization by advancing the adoption of the ATSC 3.0 transmission standard across the broadcast industry and he will identify and structure advanced nationwide business opportunities soon to be made available by the NextGen standard and aggregation of spectrum bandwidth.

“In summary, the fourth quarter marked a strong end to what was already a record year of financial performance for Nexstar. We continue to precisely execute on all facets of our business including operations, integration, synergy realization, optimizing the capital structure and cost of capital, and service to our local communities.

“Our disciplines in these areas have given consistency and visibility to our results, while supporting increased returns for our shareholders and in January we announced a 25% increase in the amount of our quarterly cash dividend. We are highly confident in our strong forward growth prospects as we follow the successful strategies we’ve established in terms of building the top line, maintaining close control of fixed and variable costs and optimizing the balance sheet.

“As we begin to benefit from what are expected to be record levels of mid-term political advertising in 2018, we have excellent visibility to deliver on our newly established free cash flow targets, while allowing us to reduce leverage, pursue additional select accretive acquisitions, pay dividends and take other actions for the continued near- and long-term enhancement of shareholder value.”

For the full year, net revenue grew 120% to $2.4 billion and net income totaled $475 million, up 410%.

Read the company’s report here.