Nexstar Media Group, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Unaudited results. Nexstar operates local television stations and digital media, The CW, NewsNation, and other media assets; its reported results include consolidated variable-interest entities (VIEs). Amounts below are in millions unless noted.
Business context and financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $1,240 | $1,245 | $2,497 | $2,455 |
| Operating income | $179 | $334 | $383 | $663 |
| Income before taxes | $110 | $298 | $240 | $602 |
| Net income | $75 | $226 | $163 | $478 |
| Net income attributable to Nexstar | $96 | $227 | $207 | $479 |
| Diluted EPS | $2.64 | $5.56 | $5.61 | $11.54 |
| Operating cash flow | Not separately stated | Not separately stated | $679 | $809 |
Q2 operating margin was approximately 14.4%, versus 26.8% a year earlier; first-half operating margin was approximately 15.3%, versus 27.0%. The difference between consolidated net income and income attributable to Nexstar reflects net losses attributable to noncontrolling interests, including The CW.
Revenue mix and material period changes
- Q2 distribution revenue rose 7.7% to $696, while core advertising declined 2.2% to $404. Digital revenue increased 11.4% to $98.
- Political advertising fell to $9 in Q2 from $87, and to $17 for the first half from $110, because 2023 is not an election year. Total Q2 revenue was nearly flat; stronger distribution and digital revenue largely offset weaker core and political advertising.
- First-half revenue increased 1.7% to $2,497. Distribution revenue grew 8.4% to $1,424 and digital revenue rose 13.8% to $190; core advertising decreased 2.4% to $821.
- Operating income fell to $179 in Q2 and $383 for the first half. Direct operating costs and selling, general and administrative costs increased, while depreciation and amortization rose $119 in Q2 and $223 for the first half. The increase was primarily associated with The CW acquisition, including its programming-rights amortization.
- Net interest expense increased to $111 in Q2 from $76 and to $218 for the first half from $145, primarily reflecting higher rates on variable-rate debt. First-half equity-method investment income declined to $57 from $74, including lower TV Food Network earnings.
Cash flow, debt and liquidity
- First-half operating cash flow was $679, down from $809. Management attributed the decrease primarily to lower operating income, higher broadcast-rights payments and higher interest paid; cash interest was $214 versus $144.
- Cash and cash equivalents were $346 at June 30, 2023, plus $14 of restricted cash. Total current assets were $1,573 and current liabilities $836.
- Total debt was $6,895 net of unamortized costs and discounts, compared with $6,951 at year-end 2022; outstanding principal was $6,936. Debt was 73.1% of combined capitalization. Long-term debt, net of current portion, was $6,771.
- Unused revolving commitments available for borrowing were $545 in total, subject to covenant compliance. Nexstar was in compliance with its financial covenants; its first-lien net leverage covenant limit is 4.25 to 1.00.
- Variable-rate senior secured borrowings carried rates of 7.05%–8.05% at quarter-end. The company estimated that a 100-basis-point change in SOFR and U.S. LIBOR would change annual interest expense and operating cash flow by approximately $42, excluding tax effects; it had no interest-rate hedges.
- First-half capital returns included $315 of share repurchases and $98 of dividends. Nexstar also repaid $62 of scheduled debt principal. Cash, cash equivalents and restricted cash increased by $140 during the first half.
Outlook, management commentary and risks
- No quantified earnings or revenue guidance is provided. Management said it believes available cash, positive working capital and revolving-credit availability are sufficient for operations, capital spending and debt service for at least 12 months from the filing date.
- Management expects lower political advertising in 2023 than in 2022 and anticipates continued increases in retransmission fees over time, while noting ongoing MVPD subscriber attrition.
- DirecTV retransmission agreements in 113 station markets expired July 2, 2023; Nexstar said it was not providing services to DirecTV while negotiating renewal terms.
- Two proposed station acquisitions were disclosed: KUSI-TV in San Diego for $35, subject to customary adjustments, with preliminary FCC approval received August 3 and closing expected before year-end; and WADL-TV in Detroit for $75, subject to regulatory and customary approvals.
- Key risks include substantial leverage, rising interest rates and potential refinancing constraints; advertising-market weakness; retransmission negotiations and subscriber losses; and FCC ownership-rule changes. The filing also describes ongoing local-TV advertising antitrust class litigation and an IRS appeal in the Tribune Chicago Cubs tax dispute. Nexstar reported that the Tax Court found no 2009 tax deficiency or penalty, but the IRS appealed; the company said the tax impact was not material to its accounting at June 30, 2023.
- The company repurchased a further 337,587 shares for $60 from July 1 through August 7. The board declared a $1.35-per-share quarterly dividend payable August 24, 2023.
Most important facts for investors to verify
- Whether DirecTV retransmission negotiations restore service, and the effect of any prolonged interruption on distribution revenue.
- Trends in core advertising, political advertising and MVPD subscribers, alongside the durability of distribution-revenue growth.
- The CW’s ongoing costs and performance, including programming-rights amortization and losses attributable to noncontrolling interests.
- Debt refinancing needs, variable-rate exposure, covenant headroom and the sustainability of dividends and buybacks alongside acquisition spending.
- Regulatory status and expected closing of the KUSI-TV and WADL-TV transactions, and developments in the disclosed litigation and tax appeal.