Nexstar Media Group, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Nexstar operates television stations and digital media businesses, including NewsNation, and owns a 31.3% interest in TV Food Network. It owned, operated, programmed or provided services to 198 full-power television stations across 116 markets.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net revenue | $1.114 billion | $1.092 billion | +2.0% |
| Income from operations | $284.9 million | $305.0 million | -6.6% |
| Operating margin | 25.6% | 27.9% | -2.3 percentage points |
| Net income | $199.2 million | $157.7 million | +26.3% |
| Net income attributable to Nexstar | $200.9 million | $156.9 million | +28.0% |
| Diluted EPS | $4.42 | $3.30 | +$1.12 |
| Cash from operating activities | $448.3 million | $415.1 million | +$33.1 million |
Revenue growth reflected acquired businesses and higher distribution revenue, partly offset by lower political and core advertising revenue and station divestitures. Distribution revenue rose 13.0% to $621.2 million; digital revenue rose 17.6% to $66.4 million. Core advertising declined 1.4% to $411.7 million, and political advertising fell 90.2% to $5.4 million. Operating income declined as expenses increased, notably station direct costs and SG&A. The broadcast segment’s operating income decreased to $328.7 million from $363.0 million; “Other” segment operating loss narrowed to $43.8 million from $58.0 million.
Interest expense fell 28.9% to $72.1 million, primarily due to lower debt balances and LIBOR. Income from equity investments increased to $29.8 million from $14.2 million, mainly reflecting TV Food Network. The company received $177.7 million in TV Food Network distributions; this was a significant source of operating cash flow. Effective tax rate declined to 23.1% from 29.0%, including prior-year nondeductible goodwill expense and current-year state tax audit settlements.
Cash, debt and liquidity
- At March 31, unrestricted cash was $339.8 million, restricted cash $16.6 million, and working capital $646.5 million. Unrestricted cash and working capital were higher than at year-end 2020.
- Debt carrying value, including current portion, was $7.592 billion; outstanding principal was $7.662 billion. The company repaid $75.0 million of 2024 Term Loan B principal and $5.4 million of scheduled Term Loan A principal. Debt maturities begin in October 2023.
- Unused revolving commitments available for borrowing were $94.7 million for Nexstar and $3.0 million for Mission. Nexstar was in compliance with its financial covenants; its maximum first-lien net leverage covenant is 4.25:1.
- Investing activities used $22.8 million, including $32.1 million of capital expenditures. Financing activities used $238.4 million, including $121.0 million of share repurchases, $30.4 million of dividends, and debt repayments.
Changes, outlook and risks
- Management said Q1 results benefited from 2020 acquisitions and signs of recovery as vaccination and stimulus supported economic reopening. It said COVID-19 did not materially affect Q1 liquidity, but future effects remain uncertain and could affect advertising, distribution, workforce productivity and access to capital.
- Management expects distribution fees to continue increasing until it considers the relationship between viewers delivered and fees paid more balanced. It expected lower political revenue in non-election-year 2021 and potential core advertising benefit from the rescheduled Summer Olympics, if held as scheduled. The filing provides no specific earnings or revenue guidance.
- The company authorized a new $1.0 billion repurchase program in January. It repurchased $121.0 million of stock in Q1 and a further $49.6 million through May 3; $1.004 billion remained available as of the filing. A $0.70 per-share dividend was declared for payment in May.
- Variable-rate debt creates interest-rate exposure: management estimated a 100-basis-point LIBOR increase would raise annual interest expense and reduce operating cash flow by approximately $45.5 million. No hedges were in place.
- Approximately $27.6 million of station-repack costs remained expected; some or all may be reimbursable, but full FCC reimbursement was not assured. Management reported no Q1 impairment triggers but warned adverse operating or market changes could result in material future impairment charges.
- Material contingencies include ongoing local TV advertising antitrust class-action litigation, which Nexstar denies, and a disputed IRS matter concerning Tribune’s 2009 Chicago Cubs transactions. The IRS proposed $182 million tax and $73 million penalty, plus interest; Nexstar estimated approximately $225 million of taxes before interest and penalties if the IRS prevails, subject to tax payments and offsets. No tax reserve was recorded for the Cubs matter. A separate IRS audit dispute could increase current taxes by $40 million and deferred tax liabilities by $140 million if the IRS prevails; $11 million was recorded for certain contested issues.
- Two customers each accounted for approximately 12% and 13% of Q1 consolidated revenue, respectively, versus no customer exceeding 10% in Q1 2020. The company also guarantees Mission’s $327 million outstanding credit-facility debt.
Investor facts to verify
- Whether distribution revenue growth and retransmission contract renewals continue, and whether advertising recovers despite COVID-19 and lower political spending.
- Cash generation quality, including the size and sustainability of TV Food Network distributions relative to operating cash flow.
- Debt repayment, variable-rate exposure, covenant headroom and refinancing needs ahead of the October 2023 earliest maturity.
- Progress and potential financial exposure in the antitrust and tax disputes, and the extent of FCC reimbursement for remaining repack costs.
- Customer concentration and the capital-allocation balance among debt reduction, dividends and share repurchases.