Nexstar Media Group, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Financial statements are unaudited. Nexstar operated, programmed, or provided services to 199 full-power television stations across 116 markets, plus one AM radio station; its broadcast portfolio includes NewsNation and a 31.3% stake in TV Food Network.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net revenue | $1.132B | $914.6M | $2.246B | $2.006B |
| Operating income | $288.3M | $196.3M | $573.2M | $501.3M |
| Net income attributable to Nexstar | $200.1M | $99.6M | $401.0M | $256.5M |
| Diluted EPS | $4.51 | $2.13 | $8.93 | $5.43 |
| Operating margin | 25.5% | 21.5% | 25.5% | 25.0% |
Q2 revenue rose 23.7% year over year, while operating income increased 46.9%. For the first half, revenue rose 11.9% and operating income 14.4%. Growth in Q2 reflected recovery from pandemic-affected advertising in Q2 2020, 2020 acquisitions, and higher distribution and digital revenue. Calculated operating margins use reported operating income divided by net revenue.
- Revenue mix, Q2: Distribution $616.9M (+15.0%); core advertising $423.5M (+42.0%); digital $73.4M (+57.3%); political advertising $8.5M versus $21.6M a year earlier. Distribution was 54.5% of revenue.
- Profit drivers: Q2 income from equity-method investments was $27.1M versus $11.3M, primarily reflecting TV Food Network. Net interest expense fell to $70.1M from $82.3M. Q2 also included a $7.9M unrealized gain on an equity investment. The prior-year quarter included a $10.8M spectrum relinquishment gain and a $3.9M contingent-consideration expense.
- Cash flow, six months: Operating cash flow was $595.6M versus $717.3M. Investing cash outflow was $43.1M, compared with $321.9M of inflow in 2020; prior-year inflows included station-sale proceeds and a $98.0M litigation settlement. Financing cash outflow was $391.9M. Cash, cash equivalents and restricted cash ended at $329.9M, including $16.6M restricted cash.
Balance sheet, debt and liquidity
- At June 30, 2021, total debt carrying value was $7.620B, versus $7.668B at year-end 2020; outstanding principal was $7.689B. Cash and cash equivalents were $313.3M. Total assets were $13.288B and stockholders’ equity was $2.625B.
- Unused revolving commitments totaled $365.7M, all available under covenant calculations. The company reported compliance with its financial covenants; its senior secured facility requires a maximum first-lien net leverage ratio of 4.25:1. Management said cash, working capital and revolver access should be sufficient for operating needs, capital expenditures and debt service for at least 12 months.
- Six-month debt repayments included $75.0M of voluntary Term Loan B prepayments and $10.7M of scheduled Term Loan A payments. Nexstar paid $60.2M in dividends and repurchased $258.9M of stock during the half. Mission issued a $300.0M Term Loan B due 2028, primarily to repay $268.0M of revolving borrowings.
- Floating-rate debt creates interest-rate exposure: a 100-basis-point LIBOR increase was estimated to raise annual interest expense and reduce operating cash flow by approximately $49.0M. No hedges were in place.
Changes, outlook and risks
- Management attributed much of the advertising recovery to reopening and economic improvement after the pandemic-related weakness in Q2 2020. It cautioned that COVID-19 variants and the pace of economic normalization remained uncertain.
- Management expected the rescheduled Summer Olympics in July 2021 to support Q3 core advertising at NBC-affiliated stations, and anticipated further retransmission-fee increases as contract rates reset. No numerical full-year guidance was provided.
- Management expected lower political advertising in 2021 because it was not an election year. Advertising is typically seasonal, with stronger second and fourth quarters and stronger election-year demand.
- FCC ownership-rule changes following a Supreme Court ruling took effect June 30, 2021, including elimination of the television JSA attribution rule. Nexstar subsequently entered new JSAs and exercised options to acquire several stations, subject to FCC approval and other closing conditions; management projected closings in 2021. Purchase prices were not stated as fixed amounts.
- The company remains highly leveraged. Other risks include potential economic weakness, programming-cost increases, FCC regulation and possible incomplete reimbursement of station-repack costs. The FCC had reimbursed $12.3M in the first half of 2021; future reimbursement shortfalls could increase costs.
- Material contingencies include ongoing local TV advertising antitrust class-action litigation, which Nexstar disputes, and a disputed IRS matter related to Tribune’s historical Chicago Cubs transactions. The IRS asserted tax, penalty and interest claims; Nexstar had recorded no tax reserve for that matter and cited tax payments made after 2009 that could offset amounts due. A separate IRS audit dispute could, if the IRS prevails, increase current taxes by $40M and deferred tax liabilities by $140M; $11M was recorded for certain contested issues.
- After quarter-end, Nexstar prepaid another $75.0M of Term Loan B on July 28, declared a $0.70-per-share dividend, and repurchased $52.5M of stock through August 2. The remaining repurchase authorization at filing was $863.6M.
Investor verification points
- Assess how much revenue and earnings growth reflects durable core advertising and retransmission trends versus pandemic recovery and acquired stations.
- Verify cash conversion and working-capital trends: first-half operating cash flow declined despite higher earnings, with higher tax payments and timing of receivable collections cited as factors.
- Monitor leverage, variable-rate exposure, covenant headroom and the cash impact of buybacks, dividends, debt prepayments and proposed station acquisitions.
- Track FCC approvals and closing terms for the exercised station options, as well as the outcome of the FCC repack reimbursement program.
- Follow developments in the antitrust litigation and Tribune tax disputes, including potential amounts payable and available offsets.