Nexstar Media Group, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This is an annual filing, not a standalone Q4 report; quarterly figures below are from the filing’s unaudited quarterly data. Nexstar operates television stations and digital media businesses, and also owns WGN America and a 31.3% interest in TV Food Network.
Business context and significant transaction
Nexstar completed its $7.187 billion merger with Tribune on September 19, 2019, acquiring 31 full-power stations net of divestitures, WGN America, its TV Food Network stake and real estate assets. It sold 21 stations for approximately $1.36 billion, recording a net disposal gain of $96.1 million. Results include Tribune only from the acquisition date, so year-over-year comparisons are materially affected by acquisitions and divestitures.
Key financial results
| Metric | FY 2019 | FY 2018 | Change |
|---|---|---|---|
| Net revenue | $3.039 billion | $2.767 billion | Up 9.9% |
| Income from operations | $655.1 million | $757.8 million | Down 13.5% |
| Operating margin | 21.6% | 27.4% | Down 5.8 percentage points |
| Net income attributable to Nexstar | $230.3 million | $389.5 million | Down 40.9% |
| Diluted EPS | $4.80 | $8.21 | Down 41.5% |
| Operating cash flow | $417.5 million | $736.9 million | Down 43.3% |
| Capital expenditures | $197.5 million | $106.2 million | Up $91.3 million |
FY 2019 revenue included $1.369 billion of distribution revenue (45.0% of total), $1.335 billion of core advertising, $51.9 million of political advertising and $241.5 million of digital revenue. Distribution revenue rose 22.1%, including $96.5 million growth from legacy stations, while digital revenue fell 7.5%. Political revenue dropped 79.3% because 2019 was not an election year. Management reported legacy television advertising revenue declined $221.9 million overall, chiefly reflecting the political-advertising comparison.
Q4 comparison: Revenue was $1.100 billion versus $798.0 million in Q4 2018; operating income was $256.5 million versus $272.8 million; net income attributable to Nexstar was $113.2 million versus $153.1 million; diluted EPS was $2.36 versus $3.22. The filing does not provide a clear standalone Q4 explanation separating acquisition effects from underlying performance.
Debt, liquidity and capital allocation
- Year-end debt was $8.493 billion net carrying value, up from $3.981 billion in 2018, largely following the Tribune merger. Principal outstanding was $8.600 billion; debt represented 80.7% of combined capitalization.
- Cash and cash equivalents were $232.1 million, with another $16.6 million restricted. Working capital was $404.2 million. Available revolving commitments were $139.7 million, subject to covenant compliance.
- The company generated $417.5 million of operating cash flow and used $4.702 billion in investing activities, principally for Tribune. Financing activities provided $4.388 billion.
- The senior secured credit agreement requires a maximum first-lien net leverage ratio of 4.25 to 1.00. Nexstar reported compliance at year-end. Term loans have variable rates; the company estimated a 100-basis-point LIBOR increase would raise annual interest expense by $59.1 million.
- 2019 cash interest was $250.7 million. Nexstar paid $82.8 million in dividends and repurchased $45.1 million of shares. The board raised the quarterly dividend to $0.56 per share beginning in 2020.
Changes, outlook and risks
- Revenue growth was acquisition-led: management cited $483.8 million of incremental acquisition revenue, alongside distribution growth, offset by lower legacy television advertising, digital weakness and divestiture-related revenue reductions.
- Operating income declined despite higher revenue, with higher programming and network affiliation costs, acquisition-related corporate costs, depreciation and amortization, and a $63.3 million digital goodwill and intangible impairment. FCC repack reimbursements of $70.4 million and the $96.1 million station-disposal gain partly offset expenses.
- Management said available cash, expected operating cash flow and borrowing availability should fund working capital, capital expenditures, interest and scheduled principal payments for at least 12 months from the filing date. It expects distribution revenue to continue increasing, while noting competition and distributor subscriber declines as risks.
- Nexstar planned a three-hour live national prime-time newscast on WGN America beginning summer 2020. This was a plan, not a reported result.
- Important exposures include substantial leverage and variable-rate debt; cord-cutting and competition from streaming and digital advertising; retransmission-consent negotiations and network affiliation costs; FCC ownership and spectrum rules; and potential future impairment of goodwill and intangibles, which totaled $9.2 billion, or 65.6% of assets.
- Contingencies include the Chicago Cubs transaction tax dispute. Nexstar estimated potential federal and state tax of approximately $225 million before interest and penalties if the IRS prevails, partially offset by prior tax payments; no reserve was recorded. The local TV advertising antitrust class action remained pending. Marshall’s Chapter 11 filing resulted in deconsolidation; Nexstar reported a $13.9 million services receivable and Mission a $48.9 million loan receivable, which management considered collectible.
- Qualified pension plans were underfunded by approximately $387.8 million at year-end. A Tribune-related IRS tax dispute also remained unresolved, with proposed tax, penalty and interest amounts disclosed in the filing.
Most important facts for investors to verify
- Post-Tribune merger operating performance, integration costs, and the extent to which reported growth reflects acquisitions rather than organic trends.
- Debt reduction, first-lien leverage covenant headroom, refinancing needs and sensitivity to variable interest rates.
- Distribution revenue sustainability given subscriber losses, renewal terms, network revenue-sharing demands and evolving regulation.
- Resolution and potential cash impact of the Chicago Cubs tax dispute, antitrust litigation, Marshall bankruptcy and associated receivables.
- Whether digital operations stabilize following the impairment, and whether the company achieves expected FCC repack reimbursements and planned initiatives.