Nexstar Media Group, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020, with fourth-quarter results shown separately. The filing was signed March 1, 2021. Nexstar operates local television stations and digital media businesses, owns WGN America (including NewsNation) and holds a 31.3% interest in TV Food Network. Results consolidate certain independently owned stations through variable-interest-entity arrangements. Comparisons are affected by the 2019 Tribune acquisition and 2020 acquisitions and divestitures.
Financial performance and liquidity
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Net revenue | $4.501 billion | $3.039 billion |
| Operating income | $1.375 billion | $655.1 million |
| Operating margin | 30.6% | 21.6% |
| Net income attributable to Nexstar | $811.4 million | $230.3 million |
| Diluted EPS | $17.37 | $4.80 |
| Operating cash flow | $1.254 billion | $417.5 million |
| Interest expense, net | $335.3 million | $304.4 million |
| Capital expenditures | $217.0 million | $197.5 million |
Annual operating margin is calculated as operating income divided by net revenue. Fourth-quarter 2020 revenue was $1.377 billion, operating income $530.5 million, net income attributable to Nexstar $364.2 million and diluted EPS $7.97. The comparable fourth-quarter 2019 figures were $1.100 billion, $256.5 million, $113.2 million and $2.36, respectively.
- Revenue mix: Distribution revenue was $2.153 billion, or 47.8% of revenue; core advertising was $1.571 billion; political advertising was $507.6 million; and digital revenue was $223.4 million.
- Balance sheet: Cash and cash equivalents were $152.7 million; working capital was $479.1 million. Total debt, net of financing costs, discounts and premiums, was $7.668 billion, versus $8.493 billion a year earlier. Debt was 75.3% of combined capitalization.
- Borrowing capacity and covenant: $95.7 million of revolving commitments was unused and available at year-end ($92.7 million Nexstar and $3.0 million Mission). Nexstar reported compliance with its maximum first-lien net leverage covenant of 4.25-to-1.00.
- Shareholder returns: Nexstar paid $101.0 million in dividends and repurchased 3.09 million shares for $281.8 million during 2020. The annual dividend was $2.24 per share.
Material changes versus prior periods
- Revenue rose 48.1%, reflecting $1.163 billion of incremental Tribune-related revenue, current-year acquisitions, higher distribution rates and a $455.7 million increase in political advertising as 2020 was an election year. Legacy-station core advertising fell $141.3 million, principally due to COVID-19 disruption and the shift in advertising mix.
- Distribution revenue increased 57.3% year over year, including higher subscriber rates, renewals and OVD distribution. Digital revenue declined 7.5%, to $223.4 million, amid COVID-related disruption and realignment of digital operations.
- Operating income and net income increased substantially, but the comparison reflects Tribune’s partial-year contribution in 2019, election-year political revenue in 2020, acquisitions, and differing transaction and impairment items.
- Cash from operations increased to $1.254 billion, supported by stronger revenue and $223.3 million of cash distributions from TV Food Network. Financing cash use included substantial debt repayments, dividends and repurchases.
Outlook, management commentary and risks
- Management said COVID-19 adversely affected results mainly in early Q2, followed by significant improvement through year-end. It said pandemic disruption had not materially affected 2020 liquidity, but future effects remained uncertain. No numerical earnings or revenue guidance was provided.
- Management expected distribution revenue to continue growing as retransmission rates rise, while noting that subscriber declines, negotiations, network revenue shares and regulatory changes could constrain it. The Summer Olympics were rescheduled to 2021; management expected a potential advertising benefit if held as planned.
- NewsNation launched on WGN America in September 2020. Nexstar planned to rebrand WGN America as NewsNation and expand its news programming beginning March 1, 2021.
- In September, Nexstar issued $1.0 billion of 4.75% notes due 2028 and used proceeds to redeem $900 million of 5.625% notes due 2024. It also prepaid $980 million of term-loan principal. Debt remains a significant risk, including variable-rate exposure; a 100-basis-point LIBOR increase was estimated to raise annual interest expense by $46.3 million.
- Unusual and nonrecurring items included a $50.7 million loss on extinguishment of debt, $57.3 million of FCC station-repack reimbursements, a $10.8 million noncash spectrum-relinquishment gain and a $21.4 million bargain-purchase gain on WDKY recorded as a Tribune purchase-accounting adjustment. The 2020 sale of three stations and a digital business generated a combined $7.1 million gain.
- Contingencies include the IRS dispute over Tribune’s Chicago Cubs transactions: the company estimated potential federal and state taxes of about $225 million before interest and penalties if the IRS prevails, while recording no reserve for that matter. A separate Tribune tax audit adjustment could increase current taxes by $40 million and deferred tax liabilities by $140 million if sustained.
- Other key risks include advertising sensitivity to economic conditions and media migration, retransmission consent and FCC ownership rules, pension underfunding, possible impairment of substantial goodwill and intangibles, and litigation. Two customers each represented approximately 11% of 2020 revenue. The company reported $8.8 billion of goodwill and intangible assets, or 65.9% of total assets. Its defined-benefit plans were underfunded, and the company disclosed $331.7 million of pension funding obligations, plus $29.6 million for other postretirement plans.
Important facts for investors to verify
- How much of 2020’s revenue and profit growth is sustainable after separating election-year political revenue, Tribune consolidation and other acquisition effects from legacy operations.
- Whether distribution-rate gains can offset MVPD subscriber losses, network fee demands and changing retransmission rules.
- Debt repayment capacity, variable-rate exposure, covenant headroom and the effect of dividends, buybacks and future acquisitions on leverage and liquidity.
- Outcomes and potential cash impacts of the Chicago Cubs tax dispute, Tribune tax audit adjustment, and remaining litigation and bankruptcy-related claims.
- Progress and economics of NewsNation’s expansion, BestReviews integration and digital-business performance; also monitor impairment assumptions for goodwill and FCC licenses.
- Whether pension funding needs, FCC repack reimbursements and customer concentration develop differently from management’s expectations.
PricewaterhouseCoopers LLP issued an unqualified opinion on the consolidated financial statements and stated that internal control over financial reporting was effective as of December 31, 2020.