Nexstar Media Group has reported that its first quarter net revenue has risen by 74.2% to a record of $1.1 Billion for the period ended March 31, 2020.
The full Nexstar Media Group results for the three months ended March 31, 2020 reflect the Company’s legacy Nexstar Broadcasting and digital operations and full quarterly results from the Tribune Media stations which it acquired on September 19, 2019.
Perry A. Sook, Chairman, President and Chief Executive Officer of Nexstar Media Group said to investors; “Against the challenging economic environment driven by the onset in March of COVID-19 (“coronavirus”), Nexstar delivered record first quarter operating results with net revenue, profitability, and cash flow metrics all exceeding consensus expectations.
“Our strong first quarter financial results reflect healthy levels of core and digital advertising spending in January and February, robust political ad spending across several key markets, significant distribution revenue growth and a cash distribution from our 31% ownership stake in TV Food Network.
“The double-digit top line increase combined with our expense management disciplines and the strong operating leverage in our business model drove BCF, Adjusted EBITDA and free cash flow growth before transaction expenses of 107.0%, 207.6% and 242.2%, respectively, and we brought about 39% of every net revenue dollar to the free cash flow line. Following this promising start, beginning in March, the broadcast industry experienced a rapid change in market conditions due to COVID-19, which resulted in a significant decline in commercial advertising revenue in the last three weeks of March and into the second quarter.
“Given our outperformance in the first quarter, Nexstar was on well on track to meet our 2020/2021 pro forma average annual free cash flow guidance of $1.175 billion. However, the precise depth and duration of COVID-19’s impact on our operations is uncertain as conditions continue to evolve. As a result, and notwithstanding the revenue visibility afforded by our distribution agreements and cash distribution from our TV Food Network ownership stake, we are withdrawing our free cash flow guidance for the 2020/2021 cycle at this time.
“In 2020, over 50% of our annual revenue is expected to be derived from contractual distribution fee and political advertising revenue, which we do not expect to be materially impacted by coronavirus. Notably, Nexstar has solid visibility in terms of our contractual distribution economics through December 2022 as we completed new multi-year retransmission consent agreements representing approximately 70% of our subscribers at year-end 2019, as well as new long-term network affiliation contracts with CBS, FOX and NBC.
“Despite anticipated challenges in the coming months, Nexstar has a strong balance sheet including $434 million in cash at March 31, with access to an additional $140 million under our revolving credit facility. In addition, our nearest term bond maturities are in 2024 and in the fourth quarter of 2019 we completed an offering of an additional $665 million of 5.625% senior notes due 2027, which enabled us to retire the most expensive pieces of our unsecured debt.
“In the first quarter Nexstar took immediate actions to adapt our business to operate in the current environment and to preserve liquidity in order to best position the Company for long-term success as we return to normalized operations. In this regard, Nexstar allocated $457 million in funds from operation and investments toward debt reduction, lowering our first lien net leverage ratio from 3.52x at year-end 2019 to 3.04x at March 31, 2020, which is well below our first lien covenant of 4.25x.
“Additionally, the Company is benefitting from the more than 100 basis point reduction in LIBOR rates which lowered our cash interest expense. On the operating front, we have implemented a range of cost-cutting initiatives which will result in operating expense savings of approximately $40 million in the second quarter of 2020. We are proceeding with our investment related to the summer 2020 launch of WGN America’s primetime national newscast, News Nation, and have prioritized capital expenditures to maintain maximum financial flexibility.
“As a result, Nexstar’s business is well-positioned to withstand impacts related to the near-term decline in core advertising, which, given our revenue diversification initiatives of the last decade now represents about 40% of our total annual revenue in an election year. As such, we expect to be free cash flow positive in every quarter of 2020 and are confident in our liquidity position and ability to service our debt through these challenging times and do not anticipate any liquidity or covenant issues as we move through 2020.
“With our focus on generating free cash flow, we remain disciplined in managing costs, while paying dividends, repurchasing shares and pursuing other opportunities to enhance shareholder returns. In this regard, during the first quarter we allocated $25.7 million toward cash dividend payments and another $72.6 million to opportunistically repurchase 950,000 shares of Nexstar’s Class A common stock in the first quarter. Immediately upon seeing the extent of the COVID-19 outbreak in March, stock repurchases were halted in order to preserve cash to prioritize debt reduction.
“With our year-to-date progress on debt reduction, mid-teens pro forma net retransmission revenue growth, the biggest Presidential election in the Company’s history before us, the reduction in LIBOR rates and our participation in TV Food Network distributions, Nexstar now expects its total net leverage ratio to decline to approximately 4x by year-end or slightly higher than our prior estimate, while our year-end senior leverage is projected to be below 3.00x versus a 4.25x covenant.
“Looking at first quarter results, net revenue rose 74.2% to $1.1 billion, marking our first-ever billion quarter and reflecting our increased scale and the ongoing execution of our strategies to leverage the value of Nexstar’s local programming and unrivaled consumer reach. Total television advertising revenue increased 86.7% to $472.7 million, including record first quarter political revenue of $55.3 million and a healthy 65.7% rise in core advertising revenue.
“Notably, with active spending by Presidential candidates and our expanded scale in key primary states, 2020 first quarter political revenue outpaced our budgets and rose by 70% on a same-station pro forma basis over the 2016 period, the last comparable presidential election cycle. The inclusion of WGN America and recent distribution agreement renewals resulted in a 75.1% rise in distribution revenue to a quarterly record $549.7 million, and a 6.8% increase in digital revenue to $56.4 million. Excluding political, first quarter net revenue would have increased approximately 66% over the prior year period.
“Total combined first quarter digital and distribution fee revenue of $606.2 million rose approximately 65.3% over the prior year period. The year-over-year increase in first quarter non-television revenue reflects new distribution agreements reached in the second half of 2019 and our realization of Tribune Media revenue synergies related to the after acquired clauses in our retransmission consent contracts, WGN America, and our realigned digital operations.
“With our successful renewal of 2019 year-end retransmission consent agreements and the approximate 20% of the base to be renewed and repriced this year, continued revenue growth from this source is projected for 2020 and beyond.
“The rise in first quarter station direct operating expenses (net of trade expense) primarily reflects a full quarter of incremental expenses related to the operation of the acquired Tribune stations and budgeted increases in network affiliation expense as a partial offset to the rising distribution revenue. First quarter pro forma fixed expenses, excluding programming expenses, were down low single digits on a percentage basis.
“The country and the Nexstar Nation are now facing an unprecedented challenge with the onset of the coronavirus pandemic, which is impacting the health of our families, the businesses we rely upon, the economy, and the way we live our daily lives. In these difficult times, our top priority is the health and well-being of our employees, our customers and the local communities that we serve.
“As we all continue to navigate through the unique and evolving challenges related to the coronavirus, local news has never been more essential for Americans. As the most powerful and trusted voice in this country, more people are tuning into their stations’ local newscasts than ever before with significant year-over-year increases in local news viewership among adults 18+ since the COVID-19 outbreak.
“As the nation’s largest broadcast group and the top producer of local news programming and content, Nexstar and our talented and dedicated teams of leading local journalists are rising up to meet this moment by delivering essential, life-saving news and information to our viewers across our broadcast and digital media platforms.
“In summary, while the coronavirus has presented serious challenges for the entire broadcast industry, Nexstar’s leading local broadcast platform is well positioned to withstand this environment due to several factors including continued growth of distribution revenue and what are projected to be record levels of political spending in 2020. In terms of capital allocation, we believe that our free cash flow combined with the active management of both our cost structure and balance sheet will provide us with the financial flexibility to continue supporting our shareholder value creation initiatives.
“Looking ahead we remain highly confident in our long-term strategies in terms of serving the communities where we have operations, building the top line, maintaining close control of fixed and variable costs and optimizing the balance sheet. Our disciplines in these areas have strengthened the resiliency of our business and created an unrivalled local marketing platform, while supporting growing returns for our shareholders.”
The consolidated debt of Nexstar and independently-owned Variable Interest Entities (VIEs) including, Mission Broadcasting, Inc. and Shield Media, LLC (collectively, the “Company”) at March 31, 2020, was $8,046.9 million including senior secured debt of $5,364.8 million.
The Company’s first lien net leverage ratio at March 31, 2020 was 3.04x compared to a covenant of 4.25x. The Company’s total net leverage ratio at March 31, 2020 was 4.51x.