Nexstar Q4 up 19%


Nexstar Broadcasting GroupNexstar Broadcasting Group Q4 net revenue was $138.1 million, up 18.9% from $116.2 million in Q4 2012. The increase was driven by a good bump in in national spot revenue. Local was a little softer than analysts anticipated. There was also a 19% YOY increase in new business development. Q4 ad revenue rose 47.4%. Nexstar saw a 67.1% rise in retransmission fee revenue and a 24.4% increase in digital media revenue which collectively more than offset the impact of a $25.8 million, or 94.4%, YOY reduction in political revenue.

Said Perry Sook, Nexstar CEO: “Fourth quarter results benefited from accretive station acquisitions completed in 2013, our revenue diversification initiatives, and ongoing focus on building new local direct advertising…In addition to the strong core ad revenue growth, total combined fourth quarter retransmission fee and digital media revenue rose 56.4% to $33.4 million, representing 24.2% of 2013 fourth quarter net revenue. By comparison, total fourth quarter retransmission fee and digital media revenue comprised 18.4% of net revenue in the year-ago period and 16.9% of net revenue in the 2011 fourth quarter.”

On 1/17, the board approved a 25% increase in the quarterly cash dividend to $0.15 per share of Nexstar’s Class A common stock beginning with the dividend declared for Q1 2014. The dividend is payable 2/28, to shareholders of record on 2/14.

FY 2013 revenue was $502.3 million, up 32.7% from $378.6 million in FY 2012.

Added Sook: “Our near- and long-term path to growth and the enhancement of shareholder value remains on plan and 2014 will see another period of record financial results as Nexstar will benefit from its expanded scale, new operating efficiencies and synergies related to recent and soon-to-be-completed acquisitions, the renewal in the 2013 fourth quarter of a significant number of retransmission consent agreements, an expansion of our digital media initiatives and the return of the political cycle and highly rated special event programming such as the winter Olympics.

Since July 2012, Nexstar has doubled the portfolio of television stations that it owns or provides services to as it and Mission acquired or agreed to acquire 55 television stations for $862 million. “Significantly, all of these transactions are accretive to free cash flow, strategically diversify our and Mission’s revenue and operating base and create additional duopolies or virtual duopolies. Upon completing all announced transactions, and consistent with our M&A criteria that emphasizes the development of duopolies, we will own or provide services to multiple stations in 37 of the 56 markets where we will operate. Our remaining pending transactions are before the FCC and are expected to close in the second quarter,” said Sook. “Pro-forma for the completion of these transactions we believe Nexstar will generate free cash flow in excess of $350 million during the 2014/2015 cycle, or average pro-forma free cash flow of approximately $5.85 per share per year, in this two year period. This level of free cash flow, which reflects continued reductions in our cost of borrowings, is expected to result in Nexstar’s net leverage declining to the mid-3x level at the end of 2014.”

Notes Marci Ryvicker, Wells Fargo Securities Senior Analyst:

“JSA REGULATIONS: There was no comment on the FCC’s JSA white paper other than to state it is delayed until 3/31. We did get some info here: i) 70% of revenue comes from markets where NXST operates more than 1 station (no breakout of JSAs, SSAs, etc.); ii NXST takes 30% of ad revenues from Mission as commissions, while the remaining 70% is recognized by Mission; and iii) there are expenses associated with that 30% ”commission”; thus, should JSAs ”go away,” the impact wouldn’t be ”financially significant.”

M&A: NXST expects Grant and Hoak to close toward the end of Q2 – they also mentioned that FCC approval of pending transactions are on hold given the JSA white paper. That said, mgmt continues to have discussions regarding potential transactions and has the capacity for an additional $250-300MM without additional equity or debt.

CORE AD TRENDS HEALTHY. Core spot was +6% (SS) in Q4 and accelerated into Q1–although this might also have something to do with the Olympics, which generated $8MM in Q1. SS core will likely be above that 6% number when the company reports Q1 in early May. Auto appears to be relatively healthy, +4% in Q4 and accelerating from that level in Q1.

RETRANS SHOULD REMAIN ROBUST. NXST repriced 22% of subs at y/e 2013 and will reprice another 42% in 2014. The CMCSA-TWC merger should have limited impact on retrans as they were paying roughly the same rates (and TWC is ”more difficult to deal with”). Additionally, more consolidation on the distribution side should support consolidation and deregulation on the content (i.e. broadcast) side. As NXST already pays reverse comp for 95% of its Big Four affiliates, net retrans should grow nicely in 2014 (we currently assume 58%).

POLITICAL WILL BE SIGNIFICANT. NXST has exposure to 22 gov, 19 senate, and 165 House races, which should generate high-teen to low-20% growth over 2012 political revenue (on a reported basis). “