Nexstar Media Group, inc (NXST) Q3 2021 Earnings Call Transcript | The Motley Fool

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Nexstar Media Group, inc (NASDAQ:NXST)
Q3 2021 Earnings Call
Nov 2, 2021, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Nexstar Media Group Third Quarter 2021 Results Conference Call.

I would now like to turn the conference over to Joe Jaffoni, Investor Relations. Please go ahead.

Joe JaffoniAnalyst

Thanks, Katie, and good morning, everyone. I’ll first review the safe harbor language, and we’ll get right into the call. All statements and comments made by management during today’s call other than statements of historical fact, may be deemed forward-looking statements for the purposes of the Private Securities Litigation Reform Act of 1995. Nexstar cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those reflected in the forward-looking statements made during the call. For additional details on risks and uncertainties, please see Nexstar’s annual report on Form 10-K for the year ended December 31, 2020, and Nexstar’s subsequent public filings with the Securities and Exchange Commission. Nexstar undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

With that, it’s my pleasure to turn the call over to your host, Nexstar’s Chairman, Founder and CEO, Perry Sook. Perry, please go ahead.

Perry S. SookChairman and Chief Executive Officer

Thank you, Joseph, and good morning, everyone. Thank you all for joining us to review Nexstar’s Third Quarter Financial Results, which highlight the competitive advantages of our scale and reach, our continued success in achieving a faster and stronger than anticipated recovery in core advertising and another period of double-digit distribution and digital revenue growth. Once again, our third quarter net revenue, adjusted EBITDA and free cash flow were nicely ahead of consensus expectations, reflecting growing momentum across our broadcast, digital and network divisions and their associated revenue streams. Tom Carter, Nexstar’s President and Chief Operating Officer, is on the call with me as always this morning. And we’re delighted to be joined this morning by Lee Ann Gliha, who has taken the CFO reins from Tom back in early August.

As I mentioned at recent investor events, Lee Ann is an accomplished finance leader with more than 20 years of experience in TMT investment banking and operations, and she was a sought after candidate at other scaled TMT entities, so we’re very fortunate to have her on our team to support our next phase of growth. Together, we will review the quarter, our outlook, our plans for continued growth investments, leverage reduction and capital returns and our confidence in achieving our upsized pro forma average annual free cash flow guidance of approximately $1.33 billion for the ’21/’22 cycle.

I’ll start with a summary of the quarterly highlights and recent developments, including our continued focus on accretive M&A and driving value through high-return growth opportunities. Tom will then provide an operations review, and Lee Ann will finish up by covering the financial report. With many pandemic-related challenges behind us, we are beginning to actualize the value of the scaled program and platform that we have created and have turned our focus from effectively managing through the pandemic to again aggressively pursuing growth. During the third quarter, we were able to leverage our platform via the accretive acquisition of The Hill, which has synergies across our businesses.

We also benefited from increased gaming and sports betting advertising revenue from our extensive presence in approximately 80% of the states where the betting — for sports betting is legal or expected soon to be legal, and we launched our second owned and operated multicast network, Rewind TV, to nearly 50 million homes. We also partnered with SportsGrid to launch its multicast network in nine of our markets and more soon to come.

Also in the quarter, we added 26 hours of programming to News Nation’s weekly schedule. Underpinning these initiatives was our continued focus on execution of our core businesses as we generated $254 million of free cash flow before transaction expenses in the third quarter, representing year-over-year growth of 14%. Year-to-date, we have generated free cash flow of $916 million. Near term, fourth quarter trends are pacing nicely ahead of expectations with 99% of our full year total advertising revenue budgets already on the books.

With the benefit of our recent growth initiatives and the return of political advertising, Nexstar is positioned for what is expected to be record levels of revenue and free cash flow in 2022. We clearly remain on track to meet or exceed our increased pro forma average annual free cash flow guidance of approximately $1.33 billion during the ’21/’22 cycle, which with 41 million shares now outstanding amounts to approximately $32.50 per share. With assets that have a nationwide reach of over 210 million people or in excess of 68% of all U.S. television households, LTM revenue of $4.8 billion, EBITDA of $2.1 billion and free cash flow of $1.4 billion, we have achieved a scale that puts Nexstar in a category of our own. We are 50% bigger than our next largest competitor in terms of broadcast revenue, and we will generate in 2022 free cash flow on par with ViacomCBS.

This scale affords us the resources and synergy potential to pursue organic and inorganic growth opportunities, which we may have not been able to consider before. As always, we view these opportunities through the lens of our long-term criteria of being accretive and complementary to our business. We will continue to look for acquisitions of stations in markets where regulations permit, also for content-driven television and digital assets and other complementary businesses where our scale or other synergies can drive returns.

At the same time, Nexstar’s deep financial capacity allows for further leverage reduction and return of capital initiatives, all of which were prominent in our Q3 ’21 playbook. In addition to the $138 million allocated toward accretive M&A in the third quarter, we allocated $80 million toward leverage reduction, while repurchasing $140 million worth of our Class A common shares. We also returned $29 million to shareholders through our quarterly cash dividend. Through the nine months ended September 30, Nexstar allocated approximately $493 million toward share repurchases and dividends, marking a 29% increase over $383 million in total capital return to shareholders for the full year of 2020.

All of this was done while we maintained a total net leverage ratio of 3.4 times. Looking ahead with respect to political, we expect 2022 to generate revenue somewhere between our 2018 and our 2020 political revenue results. Given our scale, we have an excellent coverage of a substantial majority of the competitive races where in approximately 80% of those markets, let me give you the details, in the House, there are 88 competitive races of which 75 are in states where Nexstar has a presence. In the Senate, there are races for 34 seats, 29 races in Nexstar markets, including seven of the nine most competitive races. There are also 29 gubernatorial elections in our markets, of which 12 are expected to be competitive.

All of which is to say we’re well positioned to do what we’ve done before. Historically, we’ve captured 12% to 15% of total U.S. broadcast political ad spending on television and all signals indicate that 2022 will be a very strong political year for Nexstar. Our Q3 acquisition of The Hill presents Nexstar with a fast-growing and profitable political digital news platform that has a nationally recognized brand known for delivering balanced political reporting as well as authentic opinions and perspectives. Strategically, The Hill is highly complementary to our broadcast stations, our leading digital platform and News Nation, Nexstar’s national cable news network and America’s source for unbiased news.

With synergistic opportunities across all three of our business lines, Nexstar is leveraging our leading sales force and omnichannel approach to content distribution to expand The Hill’s reach and revenue channels. We intend to further penetrate…

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