Nexstar Broadcasting Group, Inc. NXST -0.10% (“Nexstar”) today reported record financial results for the first quarter ended March 31, 2014 as summarized below:
| Summary 2014 First Quarter Highlights | |||||||||||||||
| ($ in thousands) | Three Months Ended | ||||||||||||||
| 2014 | 2013 | Change | |||||||||||||
| Local Revenues | $ | 65,642 | $ | 59,934 | +9.5 | % | |||||||||
| National Revenues | $ | 27,189 | $ | 23,375 | +16.3 | % | |||||||||
| Local and National Core Revenue | $ | 92,831 | $ | 83,309 | +11.4 | % | |||||||||
| Political Revenues | $ | 4,003 | $ | 762 | +425.3 | % | |||||||||
| Digital Media Revenue | $ | 6,277 | $ | 6,500 | (3.4 | )% | |||||||||
| Retransmission Fee Revenue | $ | 35,129 | $ | 23,796 | +47.6 | % | |||||||||
| Network Compensation and Other | $ | 981 | $ | 1,125 | (12.8 | )% | |||||||||
| Trade and Barter Revenue | $ | 7,128 | $ | 7,418 | (3.9 | )% | |||||||||
| Gross Revenue | $ | 146,349 | $ | 122,910 | +19.1 | % | |||||||||
| Less Agency Commissions | $ | 12,516 | $ | 10,705 | +16.9 | % | |||||||||
| Net Revenue | $ | 133,833 | $ | 112,205 | +19.3 | % | |||||||||
| Gross Revenue Excluding Political Revenue | $ | 142,346 | $ | 122,148 | +16.5 | % | |||||||||
| Income from Operations | $ | 27,700 | $ | 17,818 | +55.5 | % | |||||||||
| Broadcast Cash Flow (1) | $ | 50,612 | $ | 39,797 | +27.2 | % | |||||||||
| Broadcast Cash Flow Margin (2) | 37.8 | % | 35.5 | % | |||||||||||
| Adjusted EBITDA (1) | $ | 42,108 | $ | 33,064 | +27.4 | % | |||||||||
| Adjusted EBITDA Margin (2) | 31.5 | % | 29.5 | % | |||||||||||
| Free Cash Flow (1) | $ | 25,255 | $ | 10,162 | +148.5 | % | |||||||||
CEO Comment
Perry A. Sook, Chairman, President and Chief Executive Officer of Nexstar Broadcasting Group, Inc. commented, “Nexstar’s strong operating and financial momentum continues in 2014 as reflected by our record first quarter net revenue, BCF, adjusted EBITDA and free cash flow. The 19.3% rise in first quarter net revenue again highlights the value of our long-term strategy to complete accretive acquisitions while evolving the traditional television broadcasting operating model into a diversified entity with high margin revenue streams. With strong core advertising trends, the cyclical return of political spending, our expanded digital media operations and visible retransmission revenue growth, we believe Nexstar is on track to generate record free cash flow throughout 2014.
“Reflecting growth in four of our top five, and seven of our top ten ad categories, as well as a 17.0% year-over-year increase in new business development, first quarter core ad revenue rose 11.4%, inclusive of 9.5% first quarter growth in local spot revenue and 16.3% growth in national spot revenue. Nexstar’s gross revenue growth in the first quarter excluding political was a robust 16.5% while first quarter political revenue rose over five-fold compared to the same period last year and by 43.3% over comparable first quarter 2012 levels.
“Strong gains in our core television operations were complemented by significant double digit growth in first quarter retransmission fee revenue which rose 31.0% on a quarterly sequential basis and 47.6% year-over-year to $35.1 million, which marks a record level of quarterly revenue from this source. With the renewal of retransmission consent agreements representing approximately 22.0% of our subscriber base in late 2013 we project highly visible and significant revenue growth from this source throughout the year. Digital media revenue declines were due to non-recurring revenue at Inergize related to contract buyouts in 2013, while station-level digital revenue grew by 18.4% year-over-year. Expected digital media revenue growth in 2014 will reflect our accretive acquisition in April 2014 of Internet Broadcasting Systems, a digital publishing platform and digital agency services provider that strengthens our position as a leading local technology and services provider for businesses. In total, retransmission fee and digital media revenue grew 36.7% year-over-year to $41.4 million and accounted for 30.9% of 2014 first quarter net revenue. By comparison, total first quarter 2013 retransmission fee and digital media revenue comprised 27.0% of net revenue and 22.3% of net revenue in the 2012 first quarter.
“With a focus on generating free cash flow, we remain disciplined in managing costs and in addressing our capital structure, leverage and cost of capital. 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 national and local revenues and the operation of acquired stations. Similarly, the increase in first quarter corporate expense reflect increased staffing and infrastructure to manage and operate the additional stations as well as the previously disclosed expected increase in non-cash stock compensation expense of approximately $1.1 million.
“As a result, first quarter 2014 BCF and adjusted EBITDA grew 27.2% and 27.4%, respectively. Notably, first quarter 2014 free cash flow grew 149% year-over-year and by approximately 100% over the first quarter of 2012, the previous political period.
“Over the last two years, Nexstar has actively and effectively executed its long-term strategy to identify and structure accretive transactions that expand our operating and revenue base to drive free cash flow growth. In March, Nexstar completed the acquisition of three stations in Des Moines, Iowa, Quad Cities, Iowa and Sioux City, Iowa from entities related to Citadel Communications, L.P. for $87.9 million. The acquisition of these stations marks Nexstar’s entrée into an important state for political advertising activity. Prior to completing the transaction, Nexstar operated these stations since last September pursuant to a Time Brokerage Agreement and following a successful integration, the operations and financial results are meeting our expectations. Last month, the FCC approved Nexstar’s purchase of five stations in Colorado and Florida which are being acquired for $33.5 million. These stations are being acquired from an intermediate seller and we expect to close this transaction as soon as practicable once all of the seller’s conditions have been met. Beyond these transactions, we have four transactions representing 29 stations pending before the FCC which we expect to close in 2014.
“Pro-forma for the completion of all pending transactions we believe Nexstar would 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. Notwithstanding our confidence in completing all announced transactions, our existing operations alone are expected to generate blended free cash flow of approximately $4.40 per share per year in the current 2014/2015 period. In addition, excluding the financings for pending transactions, our free cash flow generation from existing operations would result in Nexstar’s net leverage declining to approximately 3.8x at the end of 2014.
“In summary, despite delays in closing some pending transactions, our long-term strategies to enhance shareholder value remain 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 pending 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.”
The consolidated total debt of Nexstar, its wholly owned subsidiaries, and Mission (collectively, the “Company”) at March 31, 2014, was $1,067.6 million and senior secured debt was $541.9 million. The Company’s total net leverage ratio at March 31, 2014 was 5.52x compared to a total permitted leverage covenant of 7.25x. The Company’s first lien net leverage ratio at March 31, 2014 was 2.67x compared to the covenant maximum of 4.00x.
The table below summarizes the Company’s debt obligations:
| ($ in millions) | 3/31/14 | 12/31/13 | ||||||||||
| First Lien Revolvers | $ | - | $ | - | ||||||||
| First Lien Term Loans | $ | 541.9 | $ | 545.4 | ||||||||
| 6.875% Senior Notes due 2020 | $ | 525.7 | $ | 525.7 | ||||||||
| Total Debt | $ | 1,067.6 | $ | 1,071.1 | ||||||||
| Cash on hand | $ | 50.6 | $ | 40.0 | ||||||||
At March 31, 2014, the Company had deposits of $35.7 million on pending acquisitions totaling approximately $410.3 million.
Dividends
On April 25, 2014 the Board of Directors approved a quarterly cash dividend of $0.15 per share of Nexstar’s Class A common stock. The dividend is payable on Friday, May 30, 2014 to stockholders of record on Friday, May 16, 2014.
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