Nexstar Media Group, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; unaudited. Nexstar operates television stations, The CW, NewsNation, digital media and related businesses. It owned, operated, programmed or provided services to 200 full-power TV stations across 116 markets and held a 75% interest in The CW.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net revenue | $1,132M | $1,269M | $3,629M | $3,724M |
| Operating income | $94M | $356M | $477M | $1,018M |
| Net income attributable to Nexstar | $25M | $289M | $232M | $768M |
| Diluted EPS | $0.70 | $7.30 | $6.37 | $18.81 |
| Operating margin | 8.3% | 28.1% | 13.1% | 27.3% |
Margins are calculated from reported revenue and operating income. Q3 distribution revenue was $598M (down 6.7%); core advertising was $391M (down 2.3%), political advertising $19M (versus $129M), and digital revenue $99M (up 15.1%). For the nine months, distribution revenue rose 3.4% to $2,023M, while political advertising fell to $36M from $240M.
Operating cash flow for the first nine months was $817M, down from $1,185M. Investing cash outflow was $137M and financing cash outflow $736M. Cash, cash equivalents and restricted cash ended at $164M, versus $220M at year-end 2022; unrestricted cash was $150M. Capital expenditures were $113M. The company returned approximately $659M to shareholders through buybacks and dividends during the period.
Debt was $6,866M net of financing costs and discounts ($6,904M principal); $124M was current. Nexstar reported approximately $544M of available revolving capacity in MD&A and was in covenant compliance. Its credit agreement includes a maximum first-lien net leverage covenant of 4.25:1. Floating-rate facility debt carried rates of 6.82%–7.82%; management estimated a 100-basis-point SOFR increase would raise annual interest expense and reduce operating cash flow by $42M, before tax. Interest paid was $335M for the nine months, versus $243M.
Material changes and drivers
- Q3 revenue declined 10.8%; nine-month revenue declined 2.6%. Lower political advertising in a non-election year and Q3’s weaker core advertising market were major factors.
- Q3 distribution revenue was affected by the DirecTV agreement’s interruption from July 2 until renewal on September 18, continued MVPD subscriber attrition and removal of partner stations from certain distributors. Higher contractual rates and The CW partly offset these pressures.
- Direct and SG&A costs rose 6.5% in Q3 and 6.7% over nine months, reflecting The CW, higher programming and affiliation costs, NewsNation expansion, staffing and digital sales expenses.
- Depreciation and amortization increased to $220M in Q3 from $142M, and to $731M from $431M for the nine months, substantially reflecting The CW programming-rights amortization. Higher interest rates also increased interest expense.
- The 2022 comparison includes a $54M Q3 gain on bargain purchase from The CW acquisition, as presented in the income statement. The 2023 quarter had no such gain.
Outlook, risks and notable items
The filing gives no numerical earnings or revenue guidance. Management said it expects retransmission fees to continue increasing over time, but also cited continued subscriber attrition and distributor negotiations. It believes cash, working capital and revolver availability are sufficient for operating needs, capital expenditures and debt service for at least 12 months from the filing date. Advertising is seasonal and generally stronger in the second and fourth quarters; management expected political advertising to be lower in 2023 than in 2022.
Key risks include substantial leverage, higher interest rates, a weaker advertising market, distribution disputes and FCC rule changes. Nexstar guarantees Mission’s senior secured debt; Mission had $356M of principal outstanding. The company also disclosed ongoing local-TV advertising antitrust class litigation, which it is defending, and an IRS appeal concerning Tribune’s 2009 Chicago Cubs transaction. The Tax Court had ruled there was no tax deficiency or penalty; the IRS appealed. A proposed $75M Mission acquisition of WADL-TV remained subject to approvals. Nexstar acquired WSNN-LD and KUSI-TV for a combined $38M. Subsequent to quarter-end, it declared a $1.35-per-share dividend and repurchased $38M of shares through November 7.
The company reported no material change in risk factors from its 2022 Form 10-K, and management concluded disclosure controls were effective.
Investor verification priorities
- Track retransmission renewals, DirecTV-related effects, MVPD subscriber losses and partner-station carriage negotiations.
- Assess whether advertising and distribution trends, including The CW’s operating results and programming costs, support future cash generation.
- Monitor floating-rate debt expense, covenant headroom, refinancing needs and the ability to sustain dividends and buybacks alongside debt service.
- Follow the Chicago Cubs tax appeal, advertising antitrust litigation, FCC ownership proceedings and approval status of the WADL-TV transaction.