Nexstar Revenue Hits 1Q Record $255.7M

Nexstar Broadcasting Group today reported net revenue climbed 26.7% to $255.7 million in the first quarter ended March 31.

Core revenue (excluding political) was up 7.6% for the quarter to $129.2 million.

The numbers break down to:

• Local revenue rose 11% to $93.8 million
• National revenue was virtually flat (-0.4%) at $35.5 million.
• Retransmission consent revenue was up 46.2% to $97.3 million.
• Political revenue skyrocketed 3,165% to $11.8 million.
• Digital media revenue rose 16.7% to $22.5 million.
• 1Q income from operations increased 52.8% to $58 million.

Perry A. Sook, Nexstar chairman, president and CEO, commented: “Nexstar’s strong operating and financial momentum continues in 2016 as we exceeded consensus estimates with record first quarter net revenue, BCF, adjusted EBITDA and free cash flow. The 26.7% rise in first quarter net revenue was attributable to advertising strength in key categories complemented by our ability to monetize the Super Bowl through coordinated multi-platform revenue initiatives; political advertising spending which exceeded our expectations; continued robust retransmission fee growth; and, another quarter of double digit digital media growth. Overall, we believe our record first quarter results continue to highlight the value of our long-term strategy to transform our traditional television operating model into a diversified media entity with high margin revenue streams while building scale through accretive acquisitions.

“With solid core advertising trends; upcoming special event programming including the Rio 2016 summer Olympics; the cyclical return of significant political spending; our expanded digital media operations; and, visible retransmission revenue growth, Nexstar is on track to generate record free cash flow throughout 2016 and our fifth consecutive year of record financial results. As such we remain confident in our pro-forma 2016/2017 free cash flow projection for Nexstar of approximately $250 million of average annual free cash flow, or average pro-forma free cash flow of approximately $8.15 per share per year on a stand-alone basis.

“In addition to the record first quarter operating results, we are making continued progress towards the completion later this year of our acquisition of Media General, including regulatory and SEC filings, financing-related rating agency meetings and reviews, station divestiture marketing and post-acquisition integration, facilities and personnel planning. The new Nexstar Media Group will increase our legacy broadcast portfolio by approximately two thirds and more than double our audience reach while presenting opportunities related to the increased scale and complementary nature of the combined digital media operations, which we intend to aggressively manage to profitability.

“Financially, the transaction is expected to more than double our revenue and adjusted EBITDA and will be immediately accretive upon closing. Using what are currently conservative expectations for the cost of financing the transaction and identified year one synergies of $76 million, Nexstar Media Group will generate over $500 million of average annual free cash flow with annual free cash flow per share expected to approximate $11.15 per year over the 2016/2017 period on a pro forma basis. We intend to initially allocate free cash flow to leverage reduction and expect covenant leverage to approximate 4.5x by year end 2016, assuming no net proceeds from the incentive auction.

“First quarter core ad revenue rose 7.6%, inclusive of 10.9% first quarter growth in local spot revenue and we saw growth in five of our top six, and six of our top ten ad categories, as well as a 12.7% year-over-year increase in new business development. Nexstar’s gross revenue growth in the first quarter excluding political was a robust 19.9% while first quarter political revenue rose to nearly $12 million marking a nearly three-fold rise over first quarter 2014 levels during the last political cycle. Strong gains in our core television operations were complemented by continued significant growth in first quarter retransmission fee revenue which rose 19.1% on a quarterly sequential basis and 46.2% year-over-year to $97.3 million, which marks a record level of quarterly revenue from this source.

“With the renewal of retransmission consent agreements representing approximately 45.0% of our subscriber base in 2015 we project highly visible and significant revenue growth from this source throughout the year. Digital revenue growth was driven by organic growth in our markets and contributions from LAKANA, our digital media services company. In total, retransmission fee and digital revenue grew 39.6% year-over-year to $119.8 million and accounted for 46.9% of 2016 first quarter net revenue. By comparison, and reflecting our continued progress in building our non-core revenue pillars, total first quarter 2015 retransmission fee and digital revenue comprised 42.6% of net revenue and 30.9% of net revenue in the 2014 first quarter.

“The rise in first quarter station direct operating expenses (net of trade expense) and SG&A primarily reflects higher variable costs related to the significant increase in core revenues and the operation of 20 additional stations acquired in 2015. The $4.1 million increase in corporate expense reflects increased staffing and infrastructure to manage and operate the additional stations but was higher than our expectations due to approximately $4.3 million in non-recurring expenses associated with professional fees related to the Media General transaction. Even with these one-time expenses, first quarter adjusted EBITDA grew 28.4% while free cash flow was up 21.3% over the prior year and rose over 106% from first quarter 2014 levels when we last had a significant level of political advertising.

“This June will mark Nexstar’s 20 year anniversary. Over the last two decades the company has been built through a disciplined approach to acquisitions, a focus on enhancing the operating results of acquired stations and digital media properties, and an overarching commitment to localism. Consumers’ brand awareness and purchasing decisions are every bit as strong, if not stronger, locally, where businesses operate and transactions take place. Local diversified media companies like Nexstar are highly competitive in today’s multiplatform world because we provide superior local content that is unique and relevant to each of the local communities we serve across the United States while offering local businesses, advertisers and brands unparalleled 24/7 marketing opportunities across all screens and devices.

“With significant and growing free cash flow and the expected closing later this year of the Media General transaction, Nexstar is positioned with the financial capacity and flexibility to reduce leverage while returning capital to shareholders and in January we announced a 26.3% increase in the amount of our quarterly cash dividend. As we continue to benefit from what are expected to be record levels of political advertising in 2016, the ongoing renewal of our retransmission consent agreements and completion of smaller transactions announced in the second half of 2015, 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.”