Nexstar Media Group, Inc. — Q1 2018 Form 10-Q
Business context and reporting period
Unaudited results cover the three months ended March 31, 2018, compared with the same period in 2017. Nexstar owned, operated, programmed, or provided services to 169 full-power television stations in 100 markets, and provided services to 36 additional stations. Results include consolidated variable interest entities (VIEs).
Key financial metrics
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Net revenue | $615.3 million | $540.3 million; up 13.9% |
| Income from operations | $117.6 million | $107.5 million; up 9.4% |
| Operating margin | 19.1% | 19.9%; prior-year results included a $57.7 million station-disposal gain |
| Net income attributable to Nexstar | $48.1 million; $1.01 diluted EPS | $6.0 million; $0.13 diluted EPS |
| Net cash provided by operating activities | $179.4 million | $(47.8) million |
| Capital expenditures | $21.1 million | $13.9 million |
| Cash and cash equivalents | $109.1 million | $115.7 million at December 31, 2017 |
| Debt, carrying value including current portion | $4.335 billion | $4.362 billion at December 31, 2017 |
| Unused revolving commitments available | $152.0 million | All available under covenant calculations |
Revenue mix included retransmission compensation of $275.9 million (+19.0%), local advertising of $193.3 million (+8.3%), national advertising of $67.0 million (+1.6%), political advertising of $9.3 million (versus $1.7 million), and digital revenue of $62.8 million (+38.4%). Revenue growth reflected acquired stations and LKQD, higher retransmission revenue, and election-year political advertising, partly offset by divestitures and the elimination of certain barter revenue.
Operating cash flow improved by $227.2 million year over year, reflecting higher revenue, working-capital timing, and lower interest payments. Operating cash flow less capital expenditures was approximately $158.3 million. The company reported $54.6 million of net interest expense and paid $62.3 million of interest during the quarter.
At March 31, current assets were $1.002 billion and current liabilities were $685.2 million. Nexstar repurchased 501,920 shares for $33.8 million and paid $17.3 million in dividends. The board later declared another $0.375-per-share quarterly dividend.
Material changes versus the prior comparable period
- Revenue increased $75.0 million, mainly from newly acquired stations, higher retransmission compensation, and political advertising.
- Operating income rose despite the absence of the $57.7 million station-sale gain recorded in Q1 2017. Corporate expenses declined $40.7 million, largely because the prior year included merger-related legal, professional, severance, and bonus costs.
- Net interest expense fell by $24.6 million, and the debt-extinguishment loss declined to $1.0 million from $31.8 million. These changes contributed to higher pretax income.
- Cash-flow comparisons are affected by retrospective adoption of cash-flow accounting standards. Revenue comparisons are also not fully like-for-like: Q1 2018 adopted ASC 606, including removal of certain barter revenue and expense, while prior-year figures were not restated. The company said adoption’s cumulative retained-earnings impact was not material.
Outlook, commentary, risks, and unusual items
- Management said available cash, expected operating cash flow, and available borrowing capacity should fund working capital, capital expenditures, interest, and scheduled principal payments for at least the next 12 months. It emphasized that Nexstar is highly leveraged and sensitive to economic and market conditions.
- Management expected advertising revenue to benefit in 2018 from the congressional election cycle and Olympics; it noted that advertising typically peaks in the second and fourth quarters. No specific numerical earnings or revenue guidance was provided.
- The company expected to incur approximately $230.8 million in spectrum-repacking costs through July 2020; some or all may be reimbursable. Full reimbursement is uncertain and depends on available FCC funding and actual costs. The filing recorded a $1.4 million FCC repack reimbursement in the quarter.
- A 100-basis-point increase in LIBOR would, based on quarter-end variable-rate debt, increase annual interest expense and reduce operating cash flow by approximately $28 million. Nexstar reported no interest-rate hedges.
- Nexstar acquired digital video advertising company LKQD for approximately $96.9 million. The sellers may receive up to $35 million in earnout payments subject to earnings and employee-retention conditions. LKQD contributed $7.0 million of revenue and $2.4 million of operating income from the acquisition date through quarter-end.
- Nexstar guaranteed debt of certain VIEs. Marshall had $52.2 million outstanding due in June 2018; the company stated it would be obligated to repay guaranteed amounts if relevant VIEs could not pay. Management reported covenant compliance at March 31, 2018.
- The Tax Cuts and Jobs Act accounting estimates remained provisional; management expected to complete its analysis in the second half of 2018, and final adjustments could affect tax obligations and the effective tax rate.
- FCC ownership-rule changes remained subject to appeals, and retransmission-consent and other regulatory developments could affect revenue or operating arrangements. The filing reported no material changes to previously disclosed risk factors and no litigation expected to materially affect financial condition or results.
Most important facts for investors to verify
- How much reported revenue and operating improvement reflects acquired businesses versus organic performance, and the effects of ASC 606 and the prior-year station-sale gain.
- Debt repayment capacity, refinancing needs, covenant headroom, and the impact of higher interest rates on variable-rate borrowings.
- Whether FCC reimbursements cover the expected repacking costs and whether station transitions proceed on schedule.
- LKQD’s future contribution and whether earnout targets and employee-retention conditions lead to additional payments.
- Final tax effects of the Tax Act and the sustainability of cash flow alongside dividends and expanded share-repurchase authorization.