Nexstar Media Group, Inc. — Q3 2021 Form 10-Q
Business context and reporting period. Unaudited results cover the three and nine months ended September 30, 2021, compared with the same 2020 periods. Nexstar operates or provides services to 199 full-power television stations in 116 markets, along with digital media and NewsNation. Its largest revenue sources are distribution fees and advertising.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $1,157.0m | $1,118.2m | $3,402.5m | $3,124.7m |
| Operating income | $277.4m | $343.6m | $850.6m | $844.9m |
| Net income attributable to Nexstar | $169.6m | $190.7m | $570.6m | $447.2m |
| Diluted EPS | $3.90 | $4.08 | $12.84 | $9.50 |
| Operating margin | 24.0% | 30.7% | 25.0% | 27.0% |
Q3 revenue rose 3.5%, but operating income fell 19.3% and diluted EPS fell 4.4%. For the first nine months, revenue rose 8.9%, operating income increased slightly, and attributable net income rose 27.6%. The filing reports no consolidated adjusted EBITDA figure in the provided text.
- Revenue mix: Q3 distribution revenue was $618.9m, core advertising $432.7m, political advertising $12.4m and digital revenue $81.1m. For nine months, the respective amounts were $1,857.0m, $1,267.9m, $26.3m and $220.9m.
- Cash flow: Nine-month operating cash flow was $881.7m, versus $877.5m. Investing used $193.8m, compared with $260.4m provided in 2020; financing used $646.7m, versus $960.0m. Cash, cash equivalents and restricted cash totaled $210.4m at September 30.
- Liquidity: Cash and cash equivalents were $193.8m, with $16.6m restricted. Current assets of $1,311.5m exceeded current liabilities of $711.0m. The company reported $363.2m of unused revolving commitments available under covenant calculations.
- Debt: Debt carrying value, net of financing costs and discounts, was $7,546.4m; outstanding principal was $7,611.0m. Nexstar prepaid $150m of term-loan principal and made $16.1m of scheduled repayments during the nine months. It was in compliance with its financial covenants.
Material changes versus the prior comparable period
- Q3 core advertising grew 13.3%, and distribution revenue grew 14.9%; digital revenue increased 46.8%. These gains were offset substantially by political advertising falling $120.0m, as 2021 was not a nationwide election year.
- Management attributed core-ad growth mainly to economic recovery, with some benefit from the rescheduled Summer Olympics. Automotive advertising weakened in Q3 amid semiconductor-related supply constraints.
- Q3 operating expenses increased to $879.6m from $774.6m, including higher acquired-business costs, programming costs and other operating expenses. Interest expense declined to $70.4m from $77.3m.
- In the nine-month comparison, lower interest expense and a smaller debt-extinguishment loss supported earnings; 2020 included a $44.8m debt-extinguishment loss. Equity-method income increased to $77.7m from $41.4m, primarily reflecting TV Food Network.
Outlook, commentary, risks and unusual items
- Management gave no numerical earnings or revenue guidance. It expected retransmission fees to continue increasing, while political advertising was expected to be lower in 2021 than in 2020. Advertising is seasonal and generally stronger in the second and fourth quarters and in election years.
- Management said COVID-19 had not materially affected liquidity and believed available cash, positive working capital and revolver availability would cover operating needs, capital expenditures and debt service for at least 12 months from the filing date. It cautioned that pandemic developments, vaccination challenges and supply-chain disruptions remain uncertain.
- Nexstar acquired The Hill digital media platform for approximately $137.5m in cash in August. Its post-acquisition contribution through September 30 was not significant. The company repurchased 2.7m shares for $403.2m and paid $89.5m in dividends during the nine months.
- Q3 included a $7.0m non-cash write-off of an equity investment and a $2.2m unrealized loss on another equity investment. The company received $222.4m in nine-month cash distributions from TV Food Network, primarily a return on capital.
- Key exposures include substantial leverage, floating-rate debt and broadcast regulation. The company estimated that a 100-basis-point LIBOR increase would raise annual interest expense and reduce operating cash flow by approximately $48.3m; it had no interest-rate hedges.
- Contingencies include ongoing local-TV advertising antitrust class litigation and legacy Tribune tax disputes. After quarter-end, the Tax Court issued an opinion on the Chicago Cubs transaction that rejected the IRS’s position in substantial part; the company was evaluating the opinion and potential appeal, and the court had not entered a final decision. The filing states no tax reserve was recorded for that matter.
- After quarter-end, Nexstar acquired several stations for nominal consideration, prepaid another $30m of term debt, and repurchased an additional $50.4m of shares through November 2. It also completed a pension annuity transaction transferring approximately $116.9m of plan assets and an estimated $117.5m of obligations.
Important facts for investors to verify
- Whether distribution-fee growth and core/digital advertising gains can offset the absence of election-year political revenue and rising operating costs.
- Debt reduction, refinancing needs, covenant headroom and the availability and cost of revolving credit, particularly given floating-rate exposure.
- The final outcome and financial implications of the Chicago Cubs tax case, the Tribune tax audit and the advertising antitrust litigation.
- TV Food Network distributions and partnership status: the partnership agreement identifies December 31, 2022 as a specified dissolution date absent qualifying action, and Nexstar said it intended to renew.
- Effects of the The Hill acquisition and subsequent station acquisitions, and the pace of share repurchases and dividends relative to debt reduction and liquidity.