Nexstar Media Group, Inc. — Q1 2020 Form 10-Q
Period: Three months ended March 31, 2020; unaudited. Nexstar operates broadcast television and digital media businesses, including 196 full-power stations and WGN America. Results are consolidated and include certain variable-interest entities.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Net revenue | $1.092 billion | $626.6 million |
| Operating income | $305.0 million | $127.1 million |
| Operating margin | 27.9% | 20.3% |
| Net income attributable to Nexstar | $156.9 million | $54.9 million |
| Diluted EPS | $3.30 | $1.15 |
| Net cash from operating activities | $415.1 million | $124.6 million |
Net margin was 14.4%, compared with 8.8% a year earlier. Revenue comprised $549.7 million of distribution, $417.4 million of core advertising, $55.3 million of political advertising, and $56.4 million of digital revenue. The filing does not provide a consolidated EBITDA figure.
At March 31, cash and cash equivalents were $434.1 million, plus $16.6 million of restricted cash; working capital was positive $598.2 million. Debt was $8.142 billion in principal, or $8.047 billion net of financing costs and discounts. The company had $139.7 million available under revolving facilities, was in compliance with its financial covenant, and reported a nearest debt maturity in October 2023.
Investing cash flow was positive $351.0 million, reflecting station-sale proceeds and a $98.0 million Sinclair settlement receipt. Financing cash flow was negative $564.2 million, including $457.3 million of debt repayments, $72.6 million of share repurchases, and $25.7 million of dividends. Operating cash flow included a $170.4 million distribution from TV Food Network and was also affected by working-capital timing.
Material changes versus Q1 2019
- Revenue rose 74.2%; management attributed much of the increase to $424.7 million of incremental acquisition revenue, principally from the 2019 Tribune acquisition. The comparison also reflects station divestitures and Marshall’s 2019 deconsolidation.
- Distribution revenue increased, including $64.1 million growth at legacy stations, driven by rate escalations, contract renewals, and online-video distributor agreements.
- Political advertising increased to $55.3 million from $1.3 million, reflecting the 2020 election cycle. Legacy core advertising declined $15.9 million; legacy digital revenue was also pressured by weaker social-media and demand-side-platform business.
- Interest expense rose to $101.3 million from $53.0 million, primarily due to debt issued to finance the Tribune acquisition. The effective tax rate increased to 29.0% from 22.4%, partly because of nondeductible goodwill write-offs and lower excess tax benefits.
Outlook, risks, and unusual items
- Management said COVID-19 had not materially affected Q1 results or liquidity through March 31, but estimated that revenue and operating results for the rest of 2020 would be below its initial expectations. Core and political advertising were exposed to further disruption; the rescheduled Olympics were expected to reduce 2020 advertising and shift some revenue to 2021. The full impact was not reasonably estimable.
- Management believed cash, operating cash flow, and available revolver capacity would fund operations, capital expenditures, and debt service for at least 12 months from the filing date. It cautioned that leverage and economic uncertainty could constrain refinancing and future investment.
- Nexstar prepaid $430.0 million of term loans and recorded a $7.5 million extinguishment loss. It sold Seattle and Milwaukee stations for approximately $349.9 million and sold its sports-betting information website business for net consideration of $12.9 million. It acquired Charlotte stations for $45.0 million and KGBT non-license assets for $18.0 million.
- The Sinclair/Tribune litigation settlement included a $98.0 million cash payment and an agreement for Sinclair to sell Nexstar a station, subject to approvals. Mission also agreed to acquire certain assets of three Marshall stations for approximately $49.0 million, subject to approvals.
- Significant contingencies include the ongoing Chicago Cubs transaction tax dispute: the IRS proposed tax and penalty of $182.0 million and $73.0 million, respectively, plus interest; Nexstar estimated potential federal and state taxes of approximately $225.0 million before interest and penalties, subject to offsets. No tax reserve was recorded. Local TV advertising antitrust class litigation and Marshall-related litigation were also ongoing; Nexstar disputed the allegations.
- FCC ownership rules, station-repack reimbursement availability, pension-asset declines, and possible future impairment charges were identified as risks. No impairment triggering event was identified at quarter-end.
Important facts for investors to verify
- How much of reported growth and cash generation is recurring versus attributable to Tribune consolidation, asset sales, the Sinclair settlement, and the TV Food Network distribution.
- Advertising trends after quarter-end, particularly core and political revenue, and the realized effects of COVID-19 and the Olympics postponement.
- Debt reduction, interest costs, covenant headroom, and the availability of revolver capacity as operating conditions evolve.
- Developments and potential financial exposure in the Cubs tax dispute, antitrust and Marshall litigation, and FCC repack reimbursements.
- Completion and financial effects of pending station acquisitions, including regulatory approvals and transaction adjustments.