Nexstar Media Group, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Amounts are in millions except per-share data. Nexstar operates broadcast, cable-network and digital media businesses, including The CW, NewsNation and a 31.3% interest in TV Food Network. Its station portfolio reached approximately 39% of U.S. television households under the FCC’s methodology.
Key financial results
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net revenue | $1,257 | $1,210 | +3.9% |
| Income from operations | $204 | $329 | −38.0% |
| Operating margin | 16.2% | 27.2% | −11.0 percentage points |
| Income before taxes | $130 | $304 | −57.2% |
| Consolidated net income | $88 | $252 | −65.1% |
| Net income attributable to Nexstar | $111 | $252 | −56.0% |
| Diluted EPS | $2.97 | $5.99 | −50.4% |
| Net cash provided by operating activities | $494 | $519 | −$25 |
| Capital expenditures | $36 | $29 | +$7 |
Consolidated net income was $88 million; the filing reports a $23 million net loss attributable to noncontrolling interests, resulting in $111 million attributable to Nexstar. Operating cash flow less capital expenditures was approximately $458 million, versus $490 million in Q1 2022.
Revenue and material period-over-period changes
- Distribution revenue: $728 million, up 9.0%, primarily reflecting higher per-subscriber rates and The CW acquisition, partly offset by continued multichannel video subscriber attrition.
- Core advertising: $417 million, down 2.6%, amid a weaker national advertising market and no comparable NBC-affiliate Olympics advertising; The CW contributed $26 million of incremental revenue.
- Political advertising: $8 million versus $24 million, reflecting that 2023 is not an election year.
- Digital revenue: $92 million, up 16.5%, primarily due to The CW acquisition.
- Direct operating and selling, general and administrative expenses totaled $804 million, up from $738 million. The filing cites The CW, higher programming and affiliation costs, and increased news programming.
- Depreciation and amortization rose to $249 million from $145 million, largely because of $101 million more broadcast-rights amortization, principally associated with The CW.
- Interest expense increased to $107 million from $69 million as floating-rate borrowing costs rose. Senior secured facility rates were 6.69%–7.36% at March 31, 2023, versus 1.95%–2.95% a year earlier.
Cash, debt and liquidity
- Cash and cash equivalents were $413 million at March 31, 2023, versus $204 million at year-end; restricted cash was $14 million. Cash, cash equivalents and restricted cash totaled $427 million.
- Debt carrying value was $6.923 billion, including $124 million current; outstanding principal was $6.966 billion. Debt was 72.5% of combined capitalization.
- Unused revolving commitments of $543 million were available for borrowing, net of letters of credit and subject to covenant compliance. Nexstar reported compliance with its financial covenants.
- Management said cash, working capital and revolving-credit availability should meet operating needs, capital expenditures and debt service for at least 12 months from the filing date. Nexstar’s credit agreement includes a maximum first-lien net leverage covenant of 4.25 to 1.00.
- Q1 financing included $31 million of scheduled debt repayments, $176 million of share repurchases and $50 million of dividends, partly offset by a $24 million contribution from noncontrolling interests.
Outlook, commentary, risks and unusual items
- No numerical earnings or revenue guidance was provided. Management expects lower political advertising in 2023 than in 2022 and notes advertising is typically strongest in the second and fourth quarters. It anticipates continued increases in retransmission fees, while noting ongoing subscriber attrition.
- Management identified inflation, higher interest rates and other adverse economic conditions as risks to future results, cash flows and financial condition. A 100-basis-point change in SOFR and U.S. LIBOR would change annual interest expense and operating cash flow by approximately $43 million, excluding taxes; the company had no interest-rate hedges.
- The DOJ consent decree concerning alleged information sharing in local TV advertising remains in effect. Related private antitrust class-action litigation is in discovery; Nexstar denies the allegations. The filing says ordinary-course litigation is not expected to materially affect the company, but outcomes remain uncertain.
- The IRS appealed a Tax Court decision finding no 2009 tax deficiency or penalty related to Tribune’s Chicago Cubs transactions; Nexstar filed a cross-appeal. Separately, if the IRS prevails in a Tribune 2014–2015 audit dispute, the filing estimates $16 million of additional taxes payable and a $70 million increase in deferred tax liabilities.
- FCC media-ownership rules and retransmission-consent proceedings could affect station operations and carriage negotiations. TV Food Network’s partnership agreement specified a December 31, 2023 dissolution date absent certain actions; Nexstar said it intended to renew the agreement with its partner.
- Subsequent events: the board declared another $1.35-per-share quarterly dividend; Nexstar repurchased $35 million of shares through May 8. On May 8, it announced a proposed $35 million acquisition of KUSI-TV in San Diego, subject to regulatory and customary approvals and expected to close in 2023.
- Nexstar increased its quarterly dividend 50% to $1.35 per share in Q1 and repurchased 1,019,940 shares for $175 million. The filing also reports multi-year carriage agreements with YouTube and launches of NextGen TV in three additional markets.
Important facts for investors to verify
- Whether distribution-fee growth can offset core-advertising softness and subscriber attrition, and how The CW affects future revenue, costs and cash flow.
- Floating-rate debt exposure, refinancing needs and continued compliance with credit covenants amid elevated interest rates.
- Cash generation after broadcast-rights payments, dividends and repurchases; restricted cash should be distinguished from cash available for general use.
- Developments in the advertising antitrust litigation, Chicago Cubs tax appeals and Tribune tax-audit dispute.
- Outcome of TV Food Network partnership renewal and regulatory approval and closing of the proposed KUSI-TV acquisition.