Nexstar Media Group, Inc. — FY 2021 Form 10-K
Reporting period: Year ended December 31, 2021, compared primarily with FY 2020. This is an annual report, not a standalone fourth-quarter results report. Unless noted, financial amounts below are in U.S. dollars.
Business context
Nexstar operates local television stations, NewsNation, digital media businesses and related assets. At year-end, it owned, operated, programmed or provided services to 199 full-power television stations and one AM radio station across 116 markets. It also held a 31.3% interest in TV Food Network. Financial statements consolidate certain stations owned by independent third parties because Nexstar determined it was their primary beneficiary for accounting purposes.
Financial performance and liquidity
| Metric | FY 2021 | FY 2020 | Change |
|---|---|---|---|
| Net revenue | $4,648.4 million | $4,501.3 million | Up 3.3% |
| Operating income | $1,175.4 million | $1,375.4 million | Down 14.5% |
| Net income attributable to Nexstar | $834.6 million | $811.4 million | Up 2.9% |
| Operating cash flow | $1,214.8 million | $1,254.2 million | Down $39.3 million |
| Capital expenditures | $150.8 million | $217.0 million | Down $66.3 million |
| Cash, cash equivalents and restricted cash | $206.5 million | $169.3 million | Up $37.2 million |
| Total debt, net of financing costs and discounts | $7,415.1 million | $7,668.0 million | Down $252.9 million |
Operating margin was approximately 25.3%, versus 30.6% in 2020; net income attributable to Nexstar was approximately 18.0% of revenue in both years. The company reported $363.2 million of unused revolving credit commitments available at year-end. Current assets of $1,412.7 million exceeded current liabilities of $787.3 million. Management said it expected available cash, working capital and revolver capacity to cover operating needs, capital expenditures and debt service for at least 12 months from the filing date. Nexstar was in compliance with its debt covenants at year-end.
Revenue mix was led by distribution fees: $2,472.9 million (53.2% of revenue), up 14.9%. Core advertising was $1,761.7 million (37.9%), up 12.1%; digital revenue was $322.6 million (6.9%), up 44.4%; and political advertising was $45.2 million (1.0%), down from $507.6 million in the 2020 election year. The company received $239.5 million in cash distributions from its TV Food Network investment. Its net income from equity method investments was $124.6 million after basis-difference amortization.
Changes, capital allocation and unusual items
- Revenue grew modestly despite the $462.4 million decline in political advertising, reflecting recovery in core advertising, higher distribution fees and contributions from acquired businesses. Political revenue is cyclical and was unusually high in 2020.
- Operating income declined as operating expenses rose and FCC station-repack reimbursements fell to $19.7 million from $57.3 million. FY 2021 expenses also included a $23.0 million impairment on Chicago real estate classified as held for sale. In 2020, the company recorded a $10.8 million gain on spectrum relinquishment.
- Net income increased slightly despite lower operating income, supported in part by higher equity-method income, lower interest expense and lower income tax expense. Interest expense was $282.7 million, down 15.7%; the effective tax rate was 24.1%, versus 26.9%.
- Nexstar acquired The Hill digital news platform for approximately $137.7 million in cash in August 2021. It also prepaid $280.0 million of term-loan principal and repurchased 3.6 million shares for $536.7 million. Dividends paid totaled $118.2 million, or $2.80 per share.
- A $12.5 million pension settlement gain contributed to the reported pension and postretirement plan credit. The qualified pension plans were underfunded by approximately $104.7 million at year-end; management expected no required qualified-plan contribution in 2022 following pension funding relief.
Outlook, risks and contingencies
No formal consolidated earnings or revenue guidance is provided in the supplied filing text. Management anticipated continued growth in distribution revenue as retransmission rates rise, and planned to convert stations in 20 additional markets to ATSC 3.0 in 2022, targeting coverage of about 50% of U.S. households. NewsNation was airing 13 hours of original news programming daily. Management also cited recovery in business conditions but said future COVID-19 effects and supply-chain disruption remained uncertain.
- Leverage and interest rates: Debt represented 72.2% of combined capitalization. A 100-basis-point increase in LIBOR was estimated to raise annual interest expense and reduce operating cash flow by $46.9 million. The first-lien net leverage covenant ceiling was 4.25 to 1.00; the filing does not state the actual year-end ratio.
- Revenue and competition: Distribution revenue depends on subscriber-based agreements and renewals amid pay-TV subscriber declines. Advertising remains exposed to economic conditions, audience migration to streaming and digital media, and election-cycle volatility. Two customers each contributed approximately 12% and 13% of 2021 revenue.
- Regulation and affiliations: FCC ownership rules and pending reviews may affect acquisitions and local-service arrangements. Network affiliation agreements expire at various times through 2024, and renewal terms could involve higher fees or other changes.
- Contingencies: In the Chicago Cubs tax dispute, the Tax Court’s October 2021 opinion rejected the IRS’s claim that the full proposed gain was taxable, but unfavorable portions may be appealed and the penalty issue remained unresolved. The filing estimates potential federal and state taxes of approximately $225 million before interest and penalties if the IRS ultimately prevails, subject to prior tax payments. A separate Tribune tax audit, local television advertising antitrust class action, and remaining Tribune bankruptcy claims and appeals also remain relevant.
- Assets and pensions: Goodwill and intangible assets totaled approximately $8.7 billion, or 65.4% of assets, creating impairment sensitivity to operating forecasts and market conditions. Pension obligations are sensitive to asset returns and discount rates.
Important facts for investors to verify
- Reconcile the $7.4 billion debt balance, scheduled maturities, variable-rate exposure and covenant headroom against the company’s cash generation and capital allocation plans.
- Track distribution-fee growth against MVPD subscriber declines, renewal outcomes and the concentration of revenue among two major customers.
- Assess the durability of post-pandemic core advertising and digital growth, while accounting for the unusually high 2020 political-advertising comparison.
- Review updates on the Chicago Cubs tax matter, Tribune tax audit, advertising antitrust litigation and remaining Tribune bankruptcy claims or appeals.
- Monitor the Chicago property sale, impairment assumptions, pension funding status and whether planned ATSC 3.0 expansion generates meaningful revenue.
- Confirm subsequent dividends and buybacks against debt covenants and liquidity priorities; the filing reports a $0.90 quarterly dividend beginning in 2022.