Nexstar Media Group, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; comparative period is Q1 2018. Nexstar owned, operated, programmed, or provided services to 174 full-power television stations in 100 markets. Financial statements are unaudited.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Net revenue | $626.6 million | $615.3 million | +1.8% |
| Operating income | $127.1 million | $117.6 million | +8.0% |
| Operating margin | 20.3% | 19.1% | +1.2 percentage points |
| Net income attributable to Nexstar | $54.9 million | $48.1 million | +14.1% |
| Diluted earnings per share | $1.15 | $1.01 | +13.9% |
| Net cash from operating activities | $124.6 million | $179.4 million | Down $54.8 million |
Revenue growth was led by retransmission compensation, up $38.0 million (13.8%) to $314.0 million. Local and national advertising fell 2.6% and 5.0%, respectively; political revenue declined to $1.3 million from $9.3 million, and digital revenue decreased 15.9% to $52.8 million. Retransmission compensation was 50.1% of revenue.
Cash and cash equivalents were $128.6 million at March 31, 2019, down from $145.1 million at year-end. Total debt, net of financing costs and discounts, was $3.893 billion, compared with $3.981 billion at December 31, 2018. The company prepaid $80 million of term loans during the quarter and repaid $11.8 million of scheduled maturities. It reported $166.4 million of available revolving commitments and compliance with its financial covenants. Management stated that cash, expected operating cash flow, and available borrowings should cover requirements for at least 12 months from the filing date.
Operating cash flow fell mainly because of the timing of receivable collections and vendor payments. Investing cash outflow was $13.8 million, including $28.6 million of property and equipment purchases; financing cash outflow was $127.4 million, including debt repayments and $20.6 million of dividends ($0.45 per share). Total assets were $7.097 billion and total liabilities were $5.198 billion at quarter-end. The filing reports $3.9 billion of debt as 67.3% of combined capitalization.
Material changes versus Q1 2018
- Higher retransmission compensation more than offset weaker advertising, including the absence of 2018 Olympic and election-related revenue.
- Operating income and attributable net income increased despite higher direct operating costs and corporate expenses. Corporate expenses rose $4.5 million, including higher legal costs related to the proposed Tribune acquisition.
- Net interest expense declined $1.6 million to $53.0 million, reflecting refinancing and debt prepayments, partly offset by rising LIBOR.
- Cash from operations decreased $54.8 million; management cited collection and vendor-payment timing, as well as operating-cost growth exceeding revenue growth.
- Capital expenditures increased to $28.6 million from $21.1 million, in part due to station repacking.
Outlook, transactions, risks, and unusual items
- Outlook: No specific earnings or revenue guidance is provided. Management expects advertising revenue to be lower in 2019 than in 2018 because 2019 is neither an election nor an Olympic year. It cited the usual seasonal strength in advertising in Q2 and Q4 and anticipated continued growth in retransmission fees.
- Tribune merger: The proposed cash acquisition and refinancing of Tribune debt was valued at approximately $6.4 billion, with committed financing up to that amount. Management projected a Q3 2019 close, subject to FCC, other regulatory, and customary approvals. The transaction was not subject to a financing contingency. Tribune shareholders could receive additional consideration of approximately $0.30 per share per month if closing had not occurred by August 31, 2019, subject to stated adjustments.
- Station sales: Nexstar agreed to sell 19 stations to TEGNA and Scripps for $740 million and $580 million, respectively, subject to customary adjustments and closing conditions. After quarter-end, it agreed to sell two Indianapolis stations for $42.5 million. These divestitures were expected to close with the Tribune merger.
- FCC repack: The company estimated $171.4 million of remaining station-repack costs, some or all of which may be reimbursable. It cautioned that full reimbursement is uncertain and depends on available FCC funds and incurred costs. Q1 repack reimbursements of $14.2 million were recorded as operating income.
- Leverage and interest-rate exposure: Nexstar characterized itself as leveraged and noted that substantial cash flow is committed to debt service. A 100-basis-point increase in LIBOR was estimated to raise annual interest expense and reduce operating cash flow by approximately $23.6 million; the company had no related hedge instruments.
- Legal matters: A DOJ antitrust consent decree related to alleged information sharing includes no financial penalty but requires compliance measures and monitoring. Consolidated class-action antitrust litigation alleging coordination in television advertising pricing remained ongoing; Nexstar denied the allegations.
- Accounting and other items: Adoption of lease accounting standard ASC 842 added operating-lease right-of-use assets and liabilities to the balance sheet, with no stated impact on operating results, cash flows, or equity. The quarter included a $1.7 million loss on debt extinguishment and $4.1 million of Tribune-related transaction costs.
Most important facts for investors to verify
- Progress and final regulatory status of the Tribune merger, financing terms, and whether all required station divestitures close as planned.
- Whether retransmission-fee growth can offset continued pressure on local, national, political, and digital advertising.
- Operating cash-flow conversion and the extent to which the Q1 decline reflects timing rather than recurring pressure.
- Debt maturities, covenant headroom, variable-rate exposure, and cash available after debt service and dividends.
- Final station-repack costs and the amount and timing of FCC reimbursement.
- Developments and potential exposure in the advertising antitrust class action and compliance with the DOJ consent decree.