Nexstar Media Group, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Figures are unaudited; dollar amounts are in millions unless otherwise noted.
Business context and reporting period
Nexstar operates television stations, digital media businesses and WGN America, and owns a 31.3% stake in TV Food Network. At quarter-end it owned, operated, programmed or provided services to 197 full-power stations in 115 markets. Year-over-year comparisons are substantially affected by the September 2019 Tribune acquisition: Q3 2019 included Tribune results only from September 19.
Financial results and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $1,118.2 | $663.6 | $3,124.7 | $1,939.2 |
| Operating income | $343.6 | $121.6 | $844.9 | $398.6 |
| Operating margin | 30.7% | 18.3% | 27.0% | 20.6% |
| Net income attributable to Nexstar | $190.7 | $(5.8) | $447.2 | $117.0 |
| Diluted EPS | $4.08 | $(0.13) | $9.50 | $2.44 |
| Operating cash flow | Not separately stated | Not separately stated | $877.5 | $316.0 |
- Q3 revenue rose 68.5%; nine-month revenue rose 61.1%. Growth reflects Tribune and other acquisitions, higher distribution revenue, and election-year political advertising, rather than solely organic growth.
- Q3 distribution revenue was $538.4, political advertising $132.4, core advertising $381.9 and digital revenue $55.2. Political advertising increased from $10.9 in Q3 2019; legacy-station core advertising declined $35.3, which management attributed mainly to COVID-19 disruption and the advertising mix.
- Nine-month operating cash flow increased to $877.5. Investing activities provided $260.4, while financing activities used $960.0. Capital expenditures were $170.2; operating cash flow less capital expenditures was approximately $707.3.
- Cash and cash equivalents were $409.9, plus $16.6 restricted cash, at September 30. Working capital was $669.5. Nexstar reported $197.7 of available revolving capacity and compliance with debt covenants.
- Debt was $7,882.5 net of financing costs and discounts, versus $8,492.6 at December 31, 2019. Outstanding principal was $7,966.9. The company issued $1.0 billion of 4.75% notes due 2028 and redeemed $900 million of 5.625% notes due 2024; it also repaid term loans. Q3 included a $37.4 debt-extinguishment loss. Nexstar identified October 2023 as the earliest maturity of its outstanding debt.
- The company repurchased 2.25 million shares for $197.6 during the first nine months and paid $76.4 in dividends. The quarterly dividend was $0.56 per share.
Material changes and unusual items
- Tribune-related acquisition effects materially increased revenue, operating costs, depreciation and amortization. The 2019 comparison also included a $63.3 goodwill and intangible impairment charge and a $96.6 gain on station and entity disposals, affecting comparability.
- TV Food Network equity income was $41.4 for the first nine months, after $110.8 of amortization of acquisition-related basis differences. Nexstar received $207.0 in distributions from the investment, materially supporting operating cash flow.
- Q3 included a $13.1 allowance for uncollectible amounts due from Marshall; nine-month bad-debt expense was $24.7. Accounts-receivable allowance was $29.1 at quarter-end.
- FCC repack reimbursements reduced operating expenses by $51.3 year to date. Nexstar also recorded a $10.8 noncash gain from final spectrum relinquishment in April.
- Subsequent to quarter-end, Nexstar reported a $34.8 pension contribution, a $7.0 investment in VENN, a declared $0.56-per-share dividend, and a $300.0 term-loan prepayment. A proposed $2.25 Marshall litigation settlement was subject to bankruptcy court approval as of the filing.
Outlook, risks and contingencies
- Management said COVID-19 hurt results most in early Q2, followed by improvement through the rest of Q2 and Q3 as businesses reopened. It expected full-year 2020 revenue and operating results to be below its original expectations despite the election year; the duration and financial effects of the pandemic remained uncertain.
- Management expected 2020 political advertising to exceed 2019, but said pandemic disruption could make it lower than initially anticipated. The Summer Olympics postponement reduced 2020 advertising and could benefit 2021 if the event occurs as scheduled. Management anticipated continued growth in retransmission fees.
- Nexstar is highly leveraged and exposed to economic, advertising, refinancing and interest-rate risk. A 100-basis-point increase in LIBOR was estimated to raise annual interest expense by approximately $49.6. The company warned that prolonged COVID-19 effects could impair asset values, weaken liquidity or restrict access to financing.
- FCC media-ownership rules and retransmission-consent regulation remain subject to proceedings and court review. The company also noted uncertainty over full reimbursement of repack costs; approximately $36.8 of further estimated costs remained, some or all potentially reimbursable.
- Material legal and tax exposures include ongoing local TV advertising antitrust litigation; the Marshall dispute and conditional settlement; and the IRS challenge to Tribune’s Chicago Cubs transactions. Nexstar estimated about $225.0 of federal and state tax before interest and penalties if the IRS prevails on the Cubs matter, and had recorded no tax reserve for it. A separate Tribune tax audit dispute could, if the IRS prevails, increase current taxes payable by $40.0 and deferred tax liabilities by $140.0.
Important facts for investors to verify
- How much reported growth and profitability came from Tribune and other acquisitions versus comparable legacy operations, and how advertising trends developed after quarter-end.
- Whether political-advertising strength and distribution-fee growth offset COVID-related pressure on core and digital advertising.
- Debt repayment, refinancing and covenant headroom, including the effect of floating-rate debt and planned acquisitions financed or guaranteed by Nexstar.
- Cash-flow quality, including the $207.0 TV Food Network distribution and other working-capital or one-time contributors.
- Updates on the Cubs tax dispute, Tribune tax audits, antitrust matters, Marshall settlement approval, and remaining FCC repack reimbursement and costs.