Nexstar Media Group, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; unaudited. Amounts are in U.S. dollars and, unless noted, millions. Nexstar operates broadcast stations and digital properties, NewsNation and other networks, and owns a 31.3% interest in TV Food Network. Its reported results include consolidated variable interest entities (VIEs).
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Revenue | $1,245.1 | $1,131.6 | $2,455.2 | $2,245.5 |
| Operating income | $333.4 | $288.3 | $662.8 | $573.2 |
| Operating margin | 26.8% | 25.5% | 27.0% | 25.5% |
| Net income attributable to Nexstar | $227.5 | $200.1 | $479.1 | $401.0 |
| Diluted EPS | $5.56 | $4.51 | $11.54 | $8.93 |
| Net cash from operating activities | Not stated for quarter | Not stated for quarter | $809.0 | $595.6 |
- Q2 revenue rose 10.0%; operating income increased about 15.6%, and diluted EPS rose about 23.3% year over year. First-half revenue increased 9.3% and operating income increased about 15.6%.
- Q2 revenue mix: distribution $646.1 (up 4.7%), core advertising $413.0 (down 2.5%), political advertising $86.7 (versus $8.5), and digital $88.2 (up 20.2%). Political advertising was the largest driver of Q2 growth.
- First-half operating cash flow increased $213.4. Management attributed the rise primarily to higher operating income, improved timing of receivables collections, higher TV Food Network distributions, and lower broadcast-rights payments. Investing cash outflow was $14.8; financing cash outflow was $708.7.
- At June 30, cash and cash equivalents were $276.4, plus $15.6 restricted cash. Current assets of $1,455.0 exceeded current liabilities of $745.6. Management said cash, positive working capital, and revolver access were sufficient for operating needs, capital expenditures, and debt service for at least 12 months.
- Debt carrying value was $7,234.0 ($7,288.6 principal), versus $7,415.1 carrying value at year-end 2021. Available revolving commitments were $543.3, net of letters of credit, and Nexstar was in compliance with its financial covenant. Debt was 71.6% of combined capitalization, per management.
Material changes and capital actions
- Distribution revenue growth reflected subscriber-rate escalators and contract renewals, partly offset by MVPD subscriber attrition. Digital growth included revenue from a digital business acquired in 2021. Core advertising weakened in Q2, with automotive advertising affected by semiconductor-related vehicle supply constraints.
- Direct and station operating costs increased, including higher post-pandemic operating and promotional costs, NewsNation news programming costs, network affiliation costs, and costs associated with the acquired digital business. First-half direct operating expenses increased 7.4%.
- In June, Nexstar refinanced certain term loans and replaced its and Mission’s revolving facilities with facilities maturing in June 2027. The new facilities bear interest at term SOFR plus a leverage-based margin; Nexstar’s new Term Loan A has 5% annual principal amortization. Nexstar also prepaid $175.0 of Term Loan B and made $22.0 of scheduled principal repayments in the first half.
- Nexstar repurchased 2.4 million shares for $406.1 in the first half and paid $73.4 in dividends ($0.90 per share per quarter). After quarter-end, the board authorized an additional $1.5 billion repurchase program; $110.2 of shares were repurchased through August 4, and total remaining authorization was $1.622 billion.
- The company sold a Chicago real estate asset for gross proceeds of $45.3. TV Food Network distributions were $223.8 in the first half, including a substantial return-of-capital component reflected in cash flows.
Outlook, risks, and contingencies
- No formal earnings or revenue guidance is provided in the filing. Management expected political advertising to increase in 2022, an even-numbered midterm election year, and anticipated continued retransmission-fee growth, while noting MVPD subscriber attrition. Advertising is seasonal and typically stronger in the second and fourth quarters.
- Management said COVID-19 had not materially affected liquidity at the reporting date, but future effects, economic conditions, supply-chain disruptions, and the Russia-Ukraine conflict remain uncertain. Nexstar is leveraged and dependent on cash flow and access to financing to service or refinance debt.
- The floating-rate debt is unhedged. Management estimated that a 100-basis-point increase in SOFR and US LIBOR would raise annual interest expense and reduce operating cash flow by $45.0, excluding tax effects.
- Material legal and tax matters include ongoing local-TV advertising antitrust class litigation, with discovery underway and no trial date set, and disputes over Tribune tax matters. In the Chicago Cubs tax case, the Tax Court ruled that the transaction did not trigger the entire gain proposed by the IRS; further proceedings and possible appeals remain. Separately, if the IRS prevails in the 2014–2015 tax-basis dispute, Nexstar estimated increases of $15.0 in taxes payable and $71.0 in deferred tax liabilities. The filing states the ultimate outcomes remain uncertain.
- Nexstar guarantees Mission’s senior secured debt; Mission principal outstanding was $359.3. FCC ownership limits, retransmission-consent negotiations, and pending regulatory reviews could affect operations. The TV Food Network partnership agreement identifies December 31, 2022 as a specified potential liquidation date; Nexstar said it intended to renew the agreement.
Important facts for investors to verify
- Whether election-year political revenue and distribution-fee growth can offset core-advertising softness and higher operating costs.
- Debt reduction, refinancing terms, covenant headroom, and exposure to higher floating interest rates.
- The sustainability of operating cash flow, including the scale and timing of TV Food Network distributions and working-capital movements.
- Actual repurchases and dividends relative to cash generation, debt obligations, and available liquidity.
- Developments in antitrust and tax proceedings, FCC regulation, and renewal of the TV Food Network partnership agreement.