Nexstar Broadcasting Q2 net revenue rose 16.4% to a record $146.9 million. That growth drove Q2 operating income of $34.9 million, broadcast cash flow of $58.7 Million, adjusted EBITDA of $49.6 million. Nexstar saw a 72% jump in digital media revenue in Q2 to $13.3 million. The higher mix of the digital business helped push up margins for the company.
The company’s Local Revenues segment saw stronger sales growth than the National Revenues segment.
Said Perry Sook, Nexstar CEO: “Our year-to-date financial results are in-line with our expectations and we remain confident that Nexstar will generate record free cash flow in 2014 based on core advertising trends and rising political spending in the second half of the year, contractual retransmission revenue growth and our expanded digital media operations. In addition, later this year we expect to close pending transactions which will result in the addition of 27 stations and benefit operating results in late 2014 and beyond.
Our 16.4% rise in second quarter net revenue generated 17.8% growth in BCF, a 15.5% increase in adjusted EBITDA, and a 48.5% rise in free cash flow. During the second quarter, television ad revenue inclusive of political advertising rose 6.3% with core local and national spot revenue increasing 1.3%, including a 4.0% rise in same station automotive advertising and year-over-year increases in six of our top ten categories. Reflecting our expanded platform and presence in states with high levels of political spending activity, 2014 second quarter political revenue rose by 270% compared to the same period last year and by 12.8% over comparable 2012 second quarter levels.
While political ad spending in our markets will accelerate in the second half of 2014, Nexstar’s gross revenue growth in the second quarter excluding political was healthy at just over 12% and reflects the 40.3% rise in retransmission fee revenue and 72.8% increase in digital media revenue. Recently renegotiated retransmission consent agreements combined with the growth of our digital publishing platform and digital agency services offerings resulted in a 47.9% increase in Nexstar’s total second quarter retransmission fee and digital media revenue to $48.2 million. Consistent with our revenue diversification objectives, these higher margin revenue streams accounted for 32.8% of 2014 second quarter net revenue up from 25.8% in the comparable period last year and 22.2% in the 2012 second quarter, the last political cycle.”
He added that looking forward, with distribution agreements representing over 40% of Nexstar’s subscribers up for renewal in 2014, they project ongoing significant revenue growth from this source in the remainder of 2014 and beyond. In addition, digital media revenue growth in the second half of 2014 will benefit from Q2 accretive acquisitions of Internet Broadcasting Systems, a digital publishing platform and digital agency services provider as well as cloud-based content management solutions provider Enterprise Technology Group.
During Q2, Nexstar initiated a transaction to promote diversity of media ownership among minority operators through the sale and post-transaction operational support of three network affiliated stations in three markets to a minority controlled media company.
Said Sook: “We believe the proposed transaction presents an innovative framework for introducing and developing a new, minority-controlled entrant to broadcasting, and for bringing additional news, information and specialized programming to the Shreveport, LA, Odessa-Midland, TX and Quad Cities, IA markets. This transaction is contingent upon closing other pending transactions which we expect to complete later this year.”
On July 25, 2014 the Board of Directors declared a quarterly cash dividend of $0.15 per share of its Class A common stock which will be paid on August 29, 2014 to shareholders of record on August 15, 2014.
Noted Marci Ryvicker, Wells Fargo Securities Senior Analyst: “NXST’s Q2 net revenue was more or less in-line with us yet did beat the Street. Q2 net revenue of $146.9MM (+16.4%) was just ahead of our $146.1MM (+15.8%) yet beat the Street’s $144.1MM (+14.2%) forecast, with local coming in a smidge ahead v. what we anticipated (local was +5.6%) and national in-line (-9%). We would note that these are as-reported growth rates. E-media also beat, while retrans, political, and trade/barter revenue were just slightly below our forecasts.
Q2 EBITDA, excluding one-time costs related to capital market activity (~$0.7MM), was nicely ahead. Whether we include or exclude the $0.7MM of one-time charges related to capital market activity. EBITDA came in nicely ahead, at $50.3MM (excl. the $0.7MM) vs. our $44.2MM and the Street’s $47.0MM. The beat vs. us came from SG&A, which was ~$35MM v. our ~$40MM expectation.
Q2 EPS came in ahead, largely due to the EBITDA beat. EPS came in at $0.34, better than our $0.29 estimate.
FCF/share was $0.95 vs. our $0.86 estimate – with the beat coming from higher EBITDA.
Net leverage at quarter-end was 5.35x, well below the company’s negative leverage covenant of 7.25x. NXST confirmed its expected leverage ratio of 3.8x by year-end 2014 pro forma for all announced acquisitions.
NXST reiterated its FCF guidance for 2014/2015. NXST continues to expect FCF for 2014/2015 to average or $5.85/share pro forma for all announced transactions, with current operations expected to generate FCF/share of $4.50.
BOTTOM LINE: Nice Q2 results – the EBITDA beat is important (to us at least) given that this is where the company has missed in the past.”