Nexstar Media Group, Inc. — 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. The filing also reports fourth-quarter results. Financial statements consolidate Nexstar and certain independently owned variable interest entities (VIEs); acquired stations and businesses affect comparability.
Business context and results
Nexstar operates, programs, or provides services to 174 full-power television stations across 100 U.S. markets, reaching approximately 42.7 million television households. Revenue comes primarily from advertising, retransmission consent fees, and digital media.
| Metric | FY 2018 | FY 2017 | Change / context |
|---|---|---|---|
| Net revenue | $2.767 billion | $2.432 billion | Up 13.8% |
| Income from operations | $757.8 million | $505.6 million | Up 49.9%; operating margin approximately 27.4%, versus 20.8% |
| Net income attributable to Nexstar | $389.5 million | $475.0 million | Down; 2017 included a $322.2 million tax benefit from federal tax-rate changes |
| Diluted EPS | $8.21 | $10.07 | Lower year over year, affected by the tax-benefit comparison |
| Net cash from operating activities | $736.9 million | $109.1 million | Up $627.8 million; 2017 included substantial one-time tax payments and cash-flow timing effects |
| Capital expenditures | $106.2 million | $72.5 million | Higher, including station-repack spending |
| Net interest expense | $221.0 million | $241.2 million | Down 8.4% |
Fourth quarter: Revenue was $798.0 million, operating income $272.8 million, net income attributable to Nexstar $153.1 million, and diluted EPS $3.22. Fourth-quarter 2017 net income and EPS were unusually elevated by tax effects.
Revenue mix and material changes
- Retransmission compensation rose 12.6% to $1.121 billion, driven by rate escalations, contract renewals, acquired stations, and initial OTT distributor contributions. It accounted for 40.5% of 2018 revenue.
- Political advertising increased to $251.2 million from $26.9 million in 2017, reflecting the 2018 election year.
- Digital revenue increased 15.2% to $261.2 million, including acquired businesses and stations; Nexstar also reported declines associated with product rebranding and consolidation.
- Legacy-station local and national advertising fell by $41.5 million combined, amid changes in advertising mix during an election year. Reported local advertising was $797.7 million and national advertising $292.2 million.
- Acquisitions included video-advertising business LKQD for $97.0 million and television stations WHDF and KRBK. Nexstar completed the KHII acquisition in January 2019.
- In 2018 Nexstar repurchased 751,920 shares for $50.5 million and paid $68.6 million in dividends. The annual dividend was $1.50 per share; the board raised the quarterly rate to $0.45 beginning in 2019.
Debt, liquidity, and capital resources
- Year-end debt was approximately $4.0 billion, down from $4.36 billion in 2017; debt represented 68.2% of combined capitalization. The company prepaid $360 million of term-loan principal during 2018 and refinanced certain facilities, extending some maturities and reducing applicable margins by 25 basis points.
- Cash and cash equivalents were $145.1 million; working capital was $362.9 million. Nexstar reported $166.4 million of available revolving commitments and compliance with its 4.25-to-1.00 maximum first-lien net-leverage covenant at year-end.
- Senior secured borrowings had variable rates of approximately 4.27%–4.77% at year-end. Management estimated that a 100-basis-point LIBOR increase would raise annual interest expense by $24.5 million; no interest-rate hedges were in place.
- Marshall debt of approximately $51.2 million was due in 2019. The filing lists approximately $4.03 billion of principal maturities, including $762.5 million in 2022 and $624.6 million in 2023. Contractual obligations, including estimated interest and other commitments, totaled approximately $6.70 billion.
- Management stated that cash, operating cash flow, and available borrowings should fund working capital, capital expenditures, interest, and scheduled principal payments for at least the next 12 months. This is a forward-looking assessment, not a guarantee.
Outlook, risks, and unusual items
- Tribune transaction: Nexstar agreed to acquire Tribune for $46.50 per share in cash; estimated total transaction value, including refinancing Tribune debt, was $6.4 billion. Committed financing was obtained. The companies projected a late-third-quarter 2019 closing, subject to shareholder and regulatory approvals and other conditions. Station divestitures were required in specified markets and to meet the FCC national ownership cap. Tribune shareholders could receive additional consideration if closing was delayed beyond August 31, 2019.
- FCC repack: Nexstar recognized $29.4 million of FCC reimbursements in 2018. It estimated approximately $192 million of remaining repack costs, some or all of which may be reimbursable; full reimbursement was uncertain.
- Digital impairment: Nexstar recorded $19.9 million of goodwill and intangible impairment charges in digital businesses, citing competition, margin pressure, and forecast shortfalls. Goodwill and intangible assets totaled $5.44 billion, or 77% of assets.
- Antitrust matters: Nexstar settled a DOJ investigation through a consent decree without a financial penalty, agreeing to information-sharing restrictions and compliance measures. Separate consolidated private antitrust class-action litigation over alleged spot-advertising price coordination remained ongoing; Nexstar denied the allegations.
- Key operating risks: Dependence on advertising and retransmission revenue; cord-cutting and competition from digital media; rising network-affiliation costs; substantial debt and variable-rate exposure; FCC ownership, licensing, and regulatory changes; acquisition integration; and potential impairment of goodwill and intangible assets.
- Pension and accounting: The pension plan was underfunded by approximately $92.8 million on the balance-sheet measure; the filing also discusses other postretirement obligations. Adoption of the new revenue standard changed barter accounting and presentation but management said it did not affect operating income, net income, or cash flows.
Most important facts for investors to verify
- Whether retransmission-fee growth can offset weaker legacy local and national advertising and subscriber declines among distributors.
- Tribune closing conditions, required station divestitures, final financing terms, and the effect of the transaction on leverage and debt service.
- The extent and timing of FCC reimbursement for remaining repack costs.
- Progress and potential exposure in the private advertising antitrust litigation, beyond the DOJ settlement that carried no financial penalty.
- Digital business performance and assumptions supporting the valuation of goodwill and other intangible assets.
- Debt maturities, variable-rate sensitivity, covenant headroom, dividend capacity, and the cash-flow effects of acquisitions and capital returns.