Nexstar Media Group, Inc. — FY 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are primarily with FY 2022. Filed February 28, 2024. This is an annual filing, not a standalone fourth-quarter report.
Business context
Nexstar is a diversified U.S. media company with local television stations and service agreements, a 75% ownership interest in The CW, NewsNation and digital properties, and a 31.3% equity interest in TV Food Network. As of January 2024, it owned, operated, programmed or provided services to 201 full-power stations in 117 markets. Financial statements consolidate certain independently owned variable interest entities (VIEs) under U.S. GAAP.
Revenue is led by retransmission and other distribution fees, followed by core advertising. Political advertising is cyclical and typically higher in even-numbered election years.
Financial performance
| Metric | FY 2023 | FY 2022 | Change / context |
|---|---|---|---|
| Net revenue | $4.933 billion | $5.211 billion | Down $278 million, or 5.3% |
| Operating income | $708 million | $1.312 billion | Down $604 million; operating margin was approximately 14.4% versus 25.2% |
| Net income | $270 million | $943 million | Consolidated net income |
| Net income attributable to Nexstar | $346 million | $971 million | Includes the reported net loss attributable to noncontrolling interests |
| Diluted EPS attributable to Nexstar | $9.64 | $24.16 | Down from prior year |
| Net cash from operating activities | $999 million | $1.403 billion | Down $404 million |
| Capital expenditures | $149 million | $157 million | Cash flow statement amount |
| Cash, cash equivalents and restricted cash | $147 million | $220 million | At year-end |
| Total debt, net of financing costs and discounts | $6.837 billion | $6.951 billion | Principal debt was $6.872 billion at year-end 2023 |
| Interest expense, net | $447 million | $337 million | Up $110 million, primarily from higher rates |
FY 2023 income tax expense was $131 million and the effective tax rate was 32.7%, versus $274 million and 22.5% in FY 2022. The 2023 rate reflected, among other items, tax effects related to The CW minority interest and changes in valuation allowances.
Revenue mix and material changes
| Revenue category | FY 2023 | FY 2022 | Reported change |
|---|---|---|---|
| Core advertising | $1.660 billion | $1.718 billion | Down 3.4%; excluding incremental CW revenue, down 7.0% |
| Political advertising | $66 million | $506 million | Down $440 million, reflecting the non-election year |
| Distribution | $2.727 billion | $2.571 billion | Up 6.1%; reported growth excluding specified effects was 9.6% |
| Digital | $395 million | $365 million | Up 8.2%, largely reflecting CW-related incremental revenue |
| Other | $85 million | $51 million | Increased |
Distribution growth reflected higher rates from contract renewals and annual escalators, partly offset by ongoing MVPD subscriber attrition and temporary carriage disruptions. A large MVPD interruption lasted 76 days in Q3 2023; partner stations were restored to that service in January 2024. Core advertising was affected by a weaker market and the absence of 2022 Olympic advertising, partly offset by Super Bowl advertising.
Operating expenses rose to $4.225 billion from $3.899 billion. Depreciation and amortization increased 42.1% to $941 million, including higher CW broadcast-rights amortization. Nexstar recorded $35 million of goodwill and long-lived asset impairment in 2023, compared with $133 million in 2022. Equity-method investment income fell to $104 million from $153 million, primarily as TV Food Network earnings declined. The CW segment reported a $202 million loss in 2023, compared with a $70 million loss in 2022.
Cash, debt and capital allocation
- Operating cash flow was $999 million; investing activities used $173 million and financing activities used $899 million. Cash paid for interest was $437 million.
- Nexstar repaid $125 million of debt principal and returned approximately $796 million to shareholders: $605 million in share repurchases and $191 million in dividends. It repurchased 3.78 million shares during the year.
- Year-end unused revolving credit commitments were $544 million, all reported available subject to covenant compliance. The revolving facilities mature in June 2027.
- Approximately $4.1 billion of debt was floating-rate. Management estimated a 100-basis-point increase in SOFR would raise annual interest expense and reduce operating cash flow by $42 million, before tax effects. The company had no interest-rate hedges in place.
- The senior secured facility includes a maximum first-lien net leverage covenant of 4.25 to 1.00. Nexstar reported compliance at year-end and stated it expected liquidity to be sufficient for operating needs, capital expenditures and debt service for at least 12 months from the filing date.
Outlook, risks and unusual items
No specific consolidated earnings or revenue guidance is provided in the filing. Management expects distribution fees to continue increasing over time, while acknowledging subscriber attrition. It is pursuing more cost-efficient programming and sports at The CW, expansion of NewsNation, digital monetization and ATSC 3.0 services. Nexstar reported reaching 50% of U.S. television households with ATSC 3.0 in February 2024; it views related data-transmission services as a potential future revenue opportunity.
- Leverage and rates: Debt and floating-rate exposure may constrain investment, acquisitions and shareholder returns; higher interest rates increase financing costs.
- Industry and advertising: Cord-cutting, streaming competition, economic weakness, audience changes and relatively fixed operating costs could pressure revenue and margins. Political advertising is highly cyclical.
- Distribution and affiliation: Subscriber declines, carriage disputes, unsuccessful renewals or less favorable terms for MVPD, OVD or network agreements could reduce revenue. Numerous major network affiliation agreements expire between 2024 and 2026.
- Regulation: FCC ownership limits and pending or changing broadcast rules may restrict acquisitions or affect station operations.
- Tax contingency: The IRS appeal concerning Tribune’s 2009 Chicago Cubs transactions remained unresolved. The Tax Court found no tax deficiency or penalty; the appeal was argued in February 2024, with a ruling expected in the second half of 2024. The company said the Tax Court decision’s tax impact was not material to its year-end uncertain-tax-position accounting, but the ultimate outcome remains uncertain.
- Other litigation: Nexstar remains involved in ongoing local TV advertising antitrust class-action litigation; the company denies the allegations. Management did not expect ordinary-course litigation to materially affect results, but outcomes are uncertain.
- Asset valuation: Goodwill and intangible assets totaled $8.0 billion, or 66.2% of assets. One digital reporting unit had no goodwill remaining after impairment; future impairment depends on operating performance and valuation assumptions.
- Pensions: Qualified pension plans were underfunded by approximately $171 million at year-end. Market declines or lower discount rates could increase pension expense or funding needs.
- Subsequent events: The quarterly dividend was raised 25% to $1.69 per share beginning in Q1 2024. Nexstar also reported $32 million of additional share repurchases through February 27, 2024 and a $40 million cash receipt related to BMI’s sale.
Most important facts for investors to verify
- Whether operating cash flow and distribution growth can offset declining MVPD subscribers, weaker core advertising and higher financing costs.
- The underlying profitability and cash requirements of The CW, including the cost and performance of its programming and sports rights.
- Debt maturity, covenant headroom and sensitivity to SOFR; confirm the availability of revolver capacity and the company’s ongoing compliance.
- The resolution and potential financial effects of the Chicago Cubs tax appeal, Tribune tax audits and local TV advertising antitrust litigation.
- The sustainability of dividends and repurchases given debt levels, cash generation, contractual restrictions and the company’s capital needs.
- Assumptions supporting goodwill and intangible-asset valuations, particularly for digital businesses, and the terms and renewal of the TV Food Network partnership agreement, which specifies a December 31, 2024 dissolution date absent specified action.