NEXSTAR MEDIA GROUP, INC. The following discussion and analysis should be read in conjunction with our Condensed Consolidated Financial Statements and related Notes included elsewhere in this Quarterly Report on Form 10-Q and the Consolidated Financial Statements and related Notes contained in our Annual Report on Form 10-K for the year endedDecember 31, 2019 . As used in this Quarterly Report on Form 10-Q and unless the context indicates otherwise, "Nexstar" refers toNexstar Media Group, Inc. and its consolidated subsidiaries; "Nexstar Broadcasting " refers toNexstar Broadcasting, Inc. , our wholly-owned direct subsidiary and which onOctober 1, 2020 was renamedNexstar Inc. ; "Nexstar Digital" refers toNexstar Digital LLC , our wholly-owned direct subsidiary; the "Company" refers toNexstar and the variable interest entities ("VIE") required to be consolidated in our financial statements; and all references to "we," "our," "ours," and "us" refer toNexstar . As a result of our deemed controlling financial interests in the consolidated VIEs in accordance withU.S. GAAP, we consolidate their financial position, results of operations and cash flows as if they were wholly-owned entities. We believe this presentation is meaningful for understanding our financial performance. Refer to Note 2 to our Condensed Consolidated Financial Statements for a discussion of our determinations of VIE consolidation under the related authoritative guidance. Therefore, the following discussion of our financial position and results of operations includes the consolidated VIEs' financial position and results of operations.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). All statements other than statements of historical fact are
"forward-looking statements" for purposes of federal and state securities laws,
including: the risks and uncertainties related to the global COVID-19 pandemic,
including, for example, expectations regarding the impact of COVID-19 on our
businesses and our future financial performance; our ability to obtain financial
and tax benefits from the recently-passed Coronavirus Aid, Relief, and Economic
Security Act ("CARES Act"); any projections or expectations of earnings,
revenue, financial performance, liquidity and capital resources or other
financial items; the impact of pending or future litigation; the effects of
governmental regulation and future regulation on broadcasting; competition from
others in our broadcast television markets; volatility in programming costs; any
assumptions or projections about the television broadcasting industry; any
statements of our plans, strategies and objectives for our future operations,
performance, liquidity and capital resources or other financial items; any
statements concerning proposed new products, services or developments; any
statements regarding future economic conditions or performance; any statements
of belief; and any statements of assumptions underlying any of the foregoing.
Forward-looking statements may include the words "may," "will," "should,"
"could," "would," "predicts," "potential," "continue," "expects," "anticipates,"
"future," "intends," "plans," "believes," "estimates" and other similar words.
Although we believe that the expectations reflected in our forward-looking
statements are reasonable, actual results could differ from a projection or
assumption in any of our forward-looking statements. Our future financial
position and results of operations, as well as any forward-looking statements,
are subject to change and the inherent risks and uncertainties, including those
described in our Annual Report on Form 10-K for the year ended December 31, 2019
and in our other filings with the United States Securities and Exchange
Commission ("SEC"). The forward-looking statements made in this Quarterly Report
on Form 10-Q are made only as of the date hereof, and we do not have or
undertake any obligation to update any forward-looking statements to reflect
subsequent events or circumstances.
39--------------------------------------------------------------------------------
Executive Summary 2020 Highlights
• During the third quarter of 2020, net revenue increased by
or 68.5% compared to the same period in 2019. The increase was primarily
due to the incremental revenue from acquisitions of
increase in distribution revenue and political advertising revenue of our
legacy stations of
increases were partially offset by a decrease in revenue from core
advertising of legacy stations of
business disruptions caused by COVID-19 and change in the mix between core
and political advertising as 2020 is an election year, a decrease in net
revenue from station divestitures of
decrease in digital revenue of our digital businesses and legacy stations
primarily due to the combined effect of business disruptions caused by
COVID-19 and realigned digital business operations. Our deconsolidation of
the Company's operating expenses by $5.3 million .
• On
million in our share repurchase authorization to repurchase our Class A
common stock. During the three and nine months ended
repurchased a total of 1,300,000 shares and 2,250,000 shares of our Class A
common stock for
cash on hand. As of
under our share repurchase authorization was $259.2 million , net of all
repurchases made.
• During the three and nine months ended
total of
respectively, from our 31.3% equity method investment in TV Food Network.
• For each of the first three quarters of 2020, our Board of Directors
declared and paid cash dividends of
Class A common stock, or total dividend payments of $76.4 million .
• On
with the Secretary of
In connection with this change, effective on
merged its two primary operating subsidiaries,
operating subsidiary of
and digital businesses are now operating under the
2020 Acquisitions OnJanuary 27, 2020 , we acquired certain non-license assets associated with television stationKGBT-TV in theHarlingen -Weslaco -Brownsville -McAllen, Texas market fromSinclair Broadcasting Group Inc. ("Sinclair") for$17.9 million in cash. OnMarch 2, 2020 , we completed our acquisition of Fox affiliate television station WJZY andMyNetworkTV affiliate television station WMYT in theCharlotte, NC market fromFox Television Stations, LLC ("Fox") for$45.3 million in cash. The acquisition from Fox allowed us entry into theCharlotte, NC market. OnSeptember 1, 2020 ,Mission Broadcasting, Inc. ("Mission"), one of our consolidated VIEs, completed the acquisition of certain assets of the three television stations formerly owned byMarshall Broadcasting Group, Inc. ("Marshall"): KMSS serving theShreveport, Louisiana market, KPEJ serving theOdessa, Texas market and KLJB serving the Quad Cities,Iowa /Illinois market which allowed it entrance into these markets. The purchase price for the acquisition was$53.2 million , of which$49.0 million was applied against Mission's existing loans receivable fromMarshall on a dollar-for-dollar basis and the remaining$4.2 million in cash was funded by cash on hand. OnSeptember 17, 2020 , we completed the acquisition ofWDKY-TV , the Fox affiliate in theLexington, KY market, from Sinclair for$18.0 million in cash, funded by cash on hand. The acquisition from Sinclair allowed us entry in theLexington KY market. 40
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2020 Dispositions
On
OnMarch 2, 2020 , we completed the sale of Fox affiliate television station KCPQ andMyNetworkTV affiliate television station KZJO in theSeattle, WA market, as well as Fox affiliate television stationWITI in theMilwaukee, WI market, to Fox for approximately$349.9 million in cash, including working capital adjustments. Our proceeds from the sale of the stations were partially used to prepay our term loans. Future Acquisitions OnJuly 8, 2020 ,Nexstar assigned to Mission its option to purchase CW affiliated station WPIX in theNew York, NY market from Scripps. On the same date, Mission notified Scripps of its exercise of the option for a purchase price of$75.0 million , subject to customary adjustments, plus accrued interest pursuant to the option agreement. OnAugust 28, 2020 , Mission signed a purchase agreement to acquire WPIX. The acquisition is subject toFCC approval and other customary conditions and Mission expects it to close at the end of 2020. Mission expects to fund this acquisition through a new borrowing that is to be guaranteed byNexstar . Upon Mission's acquisition of WPIX,Nexstar intends to enter into a local service agreement and option agreement.Nexstar previously acquired WPIX through a merger with Tribune but simultaneously sold the station to Scripps onSeptember 19, 2019 . UnderNexstar's sale agreement with Scripps,Nexstar was granted an assignable option to purchase the station. OnAugust 7, 2020 ,Nexstar assigned to Mission its option to purchase the assets of WNAC, the Fox affiliated full power television station serving theProvidence, Rhode Island market, fromWNAC, LLC . On the same date, Mission entered into an Assignment and Assumption Agreement withNexstar and notifiedWNAC, LLC of its exercise of the option. The purchase price is equal to a base purchase price, plus an escalation amount per day from the date of the option agreement until the completion of the acquisition, minus a credit for an outstanding loan (all defined in the option agreement). Mission expects to fund this acquisition through new borrowing that is to be guaranteed byNexstar . The proposed acquisition has receivedFCC approval and Mission expects it to close in the fourth quarter of 2020.Nexstar currently provides services to WNAC under an LMA which it intends to continue with Mission upon its completion of the acquisition.Nexstar also intends to enter into an option agreement to purchase WNAC from Mission. OnAugust 7, 2020 ,Nexstar also assigned to Mission its option to purchase KASY, KWBQ and KRWB from Tamer. KASY (MNTV affiliated), KWBQ (CW affiliated) and KRWB (CW affiliated) are full power television stations serving theAlbuquerque, New Mexico market. On the same date, Mission entered into an Assignment and Assumption Agreement withNexstar and notified Tamer of its exercise of the option. The purchase price is equal to a base purchase price, plus an escalation amount per year from the date of the option agreement until completion of the acquisition, minus a fixed monthly credit from the date of the option agreement until completion of the acquisition (all defined in the option agreement). Mission expects to fund this acquisition through new borrowing that is to be guaranteed byNexstar . The proposed acquisition has receivedFCC approval and Mission expects it to close in the fourth quarter 2020.Nexstar currently provides services to these stations under an SSA which it intends to continue with Mission upon its completion of the acquisition.Nexstar also intends to enter into an option agreement to purchase the stations from Mission. OnAugust 10, 2020 ,Nexstar assigned to Mission its options to purchaseWXXA-TV , the Fox affiliate in theAlbany, NY market, andWLAJ-TV , theABC affiliate in theLansing, MI market, from Shield ("Shield Stations"). On the same date, Mission entered into an Assignment and Assumption agreement withNexstar and notified Shield of its exercise of the options to purchase the stations. The purchase price of these stations was$20.8 million . Mission expects to fund this acquisition through new borrowing that is to be guaranteed byNexstar . The proposed acquisition of the Shield Stations has receivedFCC consent and Mission expects to close it in the fourth quarter of 2020.Nexstar currently provides services to the Shield Stations under JSAs and SSAs which it intends to continue with Mission upon its completion of the acquisition.Nexstar also intends to enter into an option agreement to purchase the stations from Mission. 41
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Debt Transactions
• During the nine months ended
hand. We also made an additional prepayment of
balance of term loans pursuant to the mandatory prepayment requirement of
the amended credit agreement of
prepayment resulted from the disposition of certain television station
assets in the Seattle, WA and Milwaukee, WI markets to Fox.
• During the nine months ended
principal maturities of $53.3 million under our term loans.
• On September 3, 2020 , Nexstar and Mission amended their respective creditagreements. The amendments provide for a new senior secured first lien
revolving credit facility (the "2020 Revolving Facility") in an aggregate
principal amount of
allocated to
This is in addition to the
credit facilities under
agreements, respectively.
• On
capacity under its existing revolving credit facility to
also drew upon
the proceeds to repay in full its outstanding principal balance under its
term B loan amounting to $224.5 million .
• On September 25, 2020 , Nexstar Broadcasting issued $1.0 billion 4.75%senior unsecured notes due 2028 at par ("4.75% Notes due 2028"). The net
proceeds from the issuance were used to redeem the
senior unsecured notes due 2024 "(5.625% Notes due 2024") in full and pay
related premiums equal to 102.813% of the principal amount, accrued
interest and fees and expenses. The remainder of the proceeds was used for
general corporate purposes.
Impact of COVID-19 Pandemic
In March 2020 , the World Health Organization declared the outbreak of
Coronavirus Disease ("COVID-19") a pandemic and the President of the United
States declared the COVID-19 pandemic a national emergency. The virus continues
to spread throughout the U.S. and the world and has resulted in authorities
implementing numerous measures to contain the virus, including travel bans and
restrictions, quarantines, shelter-in-place orders, and business limitations and
shutdowns. While we are unable to accurately predict the full impact that
COVID-19 will have on our results from operations, financial condition,
liquidity and cash flows due to numerous uncertainties, including the duration,
severity and containment measures, our compliance and the measures we have taken
around the pandemic situation have impacted our day-to-day operations and
disrupted our business and operations, as well as those of our key business
partners, affiliates, vendors and other counterparties, and will continue to do
so for an indefinite period of time. To support the health and well-being of our
employees, business partners and communities, a vast majority of our employees
worked remotely since mid-March 2020 until the end of April 2020 when we
partially resumed our normal onsite workplace setting. On May 1, 2020 , the
shelter-in-place orders in the state of Texas were lifted and we fully resumed
our normal corporate workplace setting, subject to continuous monitoring.
42
-------------------------------------------------------------------------------- The disruptions caused by COVID-19 had an adverse impact on our business and our financial results mostly in the first part of the second quarter in 2020. This was followed by a significant improvement in our financial results in the remaining part of the second quarter and in the third quarter of 2020 as certain areas throughoutthe United States permitted the re-opening of non-essential businesses which has had a favorable impact to the macroeconomic environment and to the Company's revenue. As ofSeptember 30, 2020 , we remained profitable. Our current year results were also higher than our prior year results primarily due to contribution from our acquisition of Tribune inSeptember 2019 and revenue from political advertising in 2020. As ofSeptember 30, 2020 , there have been no material changes in our customer mix, including our advertisers, multichannel video programming distributors and online video distributors. The disruptions from COVID-19 did not have a material impact on our liquidity. As ofSeptember 30, 2020 , our unrestricted cash on hand and positive working capital were$409.9 million and$669.5 million , respectively, both of which increased from ourDecember 31, 2019 levels of$232.1 million and$404.2 million , respectively. We continue to generate operating cash flows and we believe we have sufficient unrestricted cash on hand and have the availability to access additional cash up to$172.7 million and$25.0 million under the respectiveNexstar and Mission revolving credit facilities (with a maturity date ofOctober 2023 ) to meet our business operating requirements, our capital expenditures and to continue to service our debt for at least the next 12 months as of the filing date of this Quarterly Report on Form 10-Q. We currently estimate that overall revenue and operating results for the remainder of fiscal 2020 will be lower than initially anticipated at the beginning of fiscal 2020, despite that 2020 is an election year. The full extent of the impact of the COVID-19 pandemic on our business operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity and impact of the COVID-19 pandemic, and any additional preventative and protective actions that theU.S. government, or the Company, may direct, which may result in an extended period of continued business disruption. Further financial impact cannot be reasonably estimated at this time but may continue to have a material impact on our business and results of operations and may also have a material impact on our financial condition and liquidity. We will continue to evaluate the nature and extent of the impact of COVID-19 on our business in future periods. The CARES Act OnMarch 27, 2020 , the CARES Act was signed into law. The CARES Act provides opportunities for additional liquidity, loan guarantees, and other government programs to support companies affected by the COVID-19 pandemic and their employees. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, deferral of contributions to qualified pension plans and other postretirement benefit plans, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. In particular, under the CARES Act, (i) for taxable years beginning before 2021, net operating loss carryforwards and carrybacks may offset 100% of taxable income, (ii) NOLs arising in 2018, 2019, and 2020 taxable years may be carried back to each of the preceding five years to generate a refund and (iii) for taxable years beginning in 2019 and 2020, the base for interest deductibility is increased from 30% to 50% of EBITDA. We elected not to defer the remaining cash contribution requirements to our qualified pension plans under the CARES Act. We intend to continue to review and consider any available potential benefits under the CARES Act for which we qualify, including those described above. TheU.S. government or any other governmental authority that agrees to provide such aid under the CARES Act or any other crisis relief assistance may impose certain requirements on the recipients of the aid, including restrictions on executive officer compensation, dividends, prepayment of debt, limitations on debt and other similar restrictions that will apply for a period of time after the aid is repaid or redeemed in full. The CARES Act is not expected to have a material impact on the Company's Condensed Consolidated Financial Statements. 43
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Overview of Operations
As ofSeptember 30, 2020 , we owned, operated, programmed or provided sales and other services to 197 full power television stations, including those owned by VIEs, and one AM radio station in 115 markets in 39 states and theDistrict of Columbia . The stations are affiliates ofABC ,NBC ,FOX ,CBS , The CW, MNTV and other broadcast television networks. Through various local service agreements, we provided sales, programming and other services to 36 full power television stations owned by independent third parties, of which 35 full power television stations are VIEs that are consolidated into our financial statements. See Note 2, "Variable Interest Entities" to our unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for a discussion of the local service agreements we have with these independent third parties. We guarantee full payment of all obligations incurred under Mission's and Shield's senior secured credit facilities in the event of their default. Mission is a guarantor of our senior secured credit facility, our 4.75% Notes due 2028 and our 5.625% Notes due 2027. Shield does not guarantee any debt within the group. In consideration of our guarantee of Mission's senior secured credit facility, Mission has granted us purchase options, exclusive of stations in theShreveport, Louisiana ,Odessa, Texas and Quad Cities,Iowa /Illinois markets, to acquire the assets and assume the liabilities of each Mission station, subject toFCC consent. These option agreements, which expire on various dates between 2021 and 2028, are freely exercisable or assignable by us without consent or approval by Mission or its shareholders. We expect these option agreements to be renewed upon expiration. We do not own the consolidated VIEs or their television stations. However, we are deemed underU.S. GAAP to have controlling financial interests in these entities because of (1) the local service agreementsNexstar has with their stations, (2) our guarantees of the obligations incurred under Mission's and Shield's senior secured credit facilities, (3) our power over significant activities affecting these VIEs' economic performance, including budgeting for advertising revenue and, in some cases, advertising sales and hiring and firing of sales force personnel and (4) purchase options granted by each such VIE, exclusive of Mission stations in theShreveport, Louisiana ,Odessa, Texas and Quad Cities,Iowa /Illinois markets, which permitNexstar to acquire the assets and assume the liabilities of each of these VIEs' stations at any time, subject toFCC consent. In compliance withFCC regulations for all the parties, each of the consolidated VIEs maintains complete responsibility for and control over programming, finances and personnel for its stations. InDecember 2019 ,Marshall , a VIE previously consolidated by us and the owner of three television stations, filed a voluntary petition for Chapter 11 protection in theU.S. Bankruptcy Court for the Southern District of Texas . Effective onDecember 6, 2019 , the bankruptcy court ordered the cancellation of certain contracts between us andMarshall , including the JSAs. As a result of these developments, we evaluated our business arrangements withMarshall and determined that we no longer had the power to direct the most significant economic activities of the entity and thus we no longer met the accounting criteria for a controlling financial interest in the entity. Thus, we deconsolidatedMarshall's assets, liabilities and equity effective inDecember 2019 . OnMarch 30, 2020 , Mission, a VIE consolidated byNexstar , entered into an asset purchase agreement to acquire certain assets of the three television stations previously owned byMarshall : KMSS serving theShreveport, Louisiana market, KPEJ serving theOdessa, Texas market and KLJB serving the Quad Cities,Iowa /Illinois market. OnApril 1, 2020 , the acquisition was approved by theBankruptcy Court for the Southern District of Texas . OnSeptember 1, 2020 , Mission completed this acquisition which allowed it entrance into these markets. (See "Executive Summary-2020 Acquisitions" above for additional information). Upon closing of the acquisition, the SSAs betweenNexstar andMarshall were terminated. OnSeptember 1, 2020 , Mission entered new SSAs withNexstar for the stations it acquired fromMarshall .
See Note 2, "Variable Interest Entities" to our unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for additional information on VIEs.
44
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Regulatory Developments
As a television broadcaster, the Company is highly regulated, and its operations require that it retain or renew a variety of government approvals and comply with changing federal regulations. In 2016, theFCC reinstated a previously adopted rule providing that a television station licensee which sells more than 15 percent of the weekly advertising inventory of another television station in the same DMA under a JSA is deemed to have an attributable ownership interest in that station. Parties to existing JSAs that were deemed attributable interests and did not comply with theFCC 's local television ownership rule were given untilSeptember 30, 2025 to come into compliance. InNovember 2017 , theFCC adopted an order on reconsideration that eliminated the rule. That elimination became effective onFebruary 7, 2018 . OnSeptember 23, 2019 , a federal court of appeals vacated theFCC 'sNovember 2017 order on reconsideration. The court later denied petitions for en banc rehearing; onNovember 29, 2019 its decision became effective; and onDecember 20, 2019 theFCC issued an order that formally reinstated the rule. The court's decision has been appealed to theU.S. Supreme Court , which has granted certiorari and will review the decision. If the Company is ultimately required to amend or terminate its existing JSAs, the Company could have a reduction in revenue and increased costs if it is unable to successfully implement alternative arrangements that are as beneficial as the existing JSAs. TheFCC has repurposed a portion of the broadcast television spectrum for wireless broadband use. In an incentive auction which concluded inApril 2017 , certain television broadcasters accepted bids from theFCC to voluntarily relinquish their spectrum in exchange for consideration. Television stations that did not relinquish their spectrum were "repacked" into the frequency band still remaining for television broadcast use. InJuly 2017 , the Company received$478.6 million in gross proceeds from theFCC for eight stations that now share a channel with another station, one station that moved to a VHF channel in 2019, one station that moved to a VHF channel inApril 2020 and one that went off the air inNovember 2017 . The station that went off the air did not have a significant impact on our financial results because it was located in a remote rural area of the country and the Company has other stations which serve the same area. Sixty-one (61) full power stations owned byNexstar and 17 full power stations owned by VIEs were assigned to new channels in the reduced post-auction television band. All of these stations have ceased operating on their former channels and are operating on their new assigned channels, although the Company will continue to incur costs to convert certain stations from interim to permanent facilities on their new channels.Congress has allocated up to an industry-wide total of$2.75 billion to reimburse television broadcasters, MVPDs and other parties for costs reasonably incurred due to the repack. During the three and nine months endedSeptember 30, 2020 , the Company spent a total of$19.4 million and$49.3 million , respectively, in capital expenditures related to station repack which were recorded as assets under the property and equipment caption in the accompanying Condensed Consolidated Balance Sheets. During the three and nine months endedSeptember 30, 2019 , the Company spent a total of$19.9 million and$56.3 million , respectively, in capital expenditures related to station repack which were recorded as assets under the property and equipment caption in the accompanying Condensed Consolidated Balance Sheets. During the three and nine months endedSeptember 30, 2020 , the Company received$12.9 million and$51.3 million , respectively, in reimbursements from theFCC related to these expenditures which were recorded as operating income in the accompanying Condensed Consolidated Statements of Operations. During the three and nine months endedSeptember 30, 2019 , the Company received$20.4 million and$54.0 million , respectively, in reimbursements from theFCC related to these expenditures which were recorded as operating income in the accompanying Condensed Consolidated Statements of Operations. As ofSeptember 30, 2020 , approximately$36.8 million of estimated remaining costs in connection with the station repack are expected to be incurred by the Company, some or all of which will be reimbursable. If theFCC fails to fully reimburse the Company's repacking costs, the Company could have increased costs related to the repack.
Seasonality
Advertising revenue is positively affected by national and regional political election campaigns and certain events such as theOlympic Games or theSuper Bowl . Advertising revenue is generally highest in the second and fourth quarters of each year, due in part to increases in consumer advertising in the spring and retail advertising in the period leading up to, and including, the holiday season. In addition, advertising revenue is generally higher during even-numbered years, when state, congressional and presidential elections occur and when advertising airs during theOlympic Games . As 2020 is an election year, we generally expect an increase in political advertising revenue in 2020 compared to 2019. However, due to business disruptions caused by COVID-19, our revenue from political advertising may be less than we initially anticipated at the beginning of 2020 but the ultimate outcome is unknown at this time. Additionally, the rescheduling of the 2020Summer Olympics to 2021, also due to the COVID-19 pandemic situation, decreased our advertising revenue in 2020 but is expected to increase our advertising revenue in 2021 if theSummer Olympics are to occur when scheduled. 45
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Historical Performance
Revenue
The following table sets forth the amounts of the Company's principal types of
revenue (in thousands) and each type of revenue as a percentage of total net
revenue:
Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Amount % Amount % Amount % Amount %
Core advertising $ 381,929 34.1 $ 290,213 43.7 $ 1,097,548 35.1 $ 809,668 41.7
Political advertising 132,387 11.8 10,899 1.6 209,294 6.7 15,363 0.8
Distribution revenue 538,376 48.1 294,808 44.4 1,624,636 52.0 923,050 47.6
Digital 55,231 4.9 58,137 8.8 158,332 5.1 167,209 8.6
Other 8,160 0.9 5,670 0.9 26,975 0.8 13,159 0.7
Trade revenue 2,120 0.2 3,848 0.6 7,873 0.3 10,785 0.6
Total net revenue $ 1,118,203 100.0 $ 663,575 100.0 $ 3,124,658 100.0 $ 1,939,234 100.0
Results of Operations
The following table sets forth a summary of the Company's operations (in thousands) and each component of operating expense as a percentage of net revenue:
Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Amount % Amount % Amount % Amount %
Net revenue $ 1,118,203 100.0 $ 663,575 100.0 $ 3,124,658 100.0 $ 1,939,234 100.0
Operating expenses
(income):
Corporate expenses 39,699 3.6 63,252 9.5 128,572 4.1 125,838 6.5 Direct operating expenses,
net of trade 420,929 37.6 318,043 47.9 1,276,452 40.9 899,637 46.4 Selling, general and administrative expenses, excluding corporate 186,845 16.7 119,831 18.1 509,599 16.3 343,663 17.7 Depreciation 36,611 3.3 29,363 4.4
107,787 3.4 84,890 4.4 Amortization of intangible assets
69,265 6.2 42,443 6.4 209,360 6.7 115,538 6.0 Amortization of broadcast rights
31,968 2.9 18,452 3.0 104,916 3.3 46,749 2.3 Trade expense
2,162 0.2 4,284 0.6 8,337 0.3 11,597 0.6
Reimbursement from
the FCC related to
station repack (12,873 ) (1.2 ) (20,417 ) (3.1 ) (51,347 ) (1.6 ) (54,020 ) (2.8 )
Goodwill and
intangible assets
impairment - - 63,317 9.5 - - 63,317 3.3
Change in the
estimated fair value
of contingent
consideration
attributable to a
merger - - - - 3,933 0.1 - -
Gain on
relinquishment of
spectrum - - - - (10,791 ) (0.3 ) - -
Loss (gain) on
disposal of stations
and entities, net - - (96,608 ) (14.6 )
(7,025 ) (0.2 ) (96,608 ) (5.0 )
Total operating
expenses 774,606 541,960 2,279,793 1,540,601
Income from
operations $ 343,597 $ 121,615 $ 844,865 $ 398,633
46
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Three Months Ended
The period-to-period comparability of our consolidated operating results is affected by acquisitions. For each quarter we present, our legacy stations include those stations that we owned or provided services to for the complete quarter in the current and prior years. For our annual and year to date presentations, we combine the legacy stations' amounts presented in each quarter.
Revenue Core advertising revenue was$382.0 million for the three months endedSeptember 30, 2020 , compared to$290.2 million for the same period in 2019, an increase of$91.8 million , or 31.6%. The increase was primarily due to incremental revenue from Tribune stations of$135.4 million and current year station acquisitions of$5.9 million , partially offset by a decrease in revenue from station divestitures of$12.4 million . Our legacy stations' core advertising revenue decreased by$35.3 million , primarily due to the business disruptions caused by COVID-19 and changes in the mix between our core and political advertising. Our deconsolidation ofMarshall inDecember 2019 also resulted in a$1.8 million decrease in revenue. Our largest advertiser category, automobile, represented approximately 18% and 23% of our core advertising revenue for the three months endedSeptember 30, 2020 and 2019, respectively. Overall, including past results of our newly acquired stations, automobile revenues decreased by approximately 34% during the quarter. The other categories representing our top five were medical/healthcare and home repair/manufacturing, which increased in 2020, attorneys, which decreased in 2020, and insurance which remained flat. We currently estimate that overall core advertising revenue for the remainder of fiscal 2020 will continue to be negatively impacted by the business disruptions caused by COVID-19. The full extent of the impact of the COVID-19 pandemic on our business operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that theU.S. government, we, or our business partners, may direct, which may result in an extended period of continued business disruption. Further financial impact cannot be reasonably estimated at this time but may continue to have a material impact on our core advertising revenue and our overall results of operations. Additionally, the rescheduling of the summerOlympics to 2021, also due to the COVID-19 pandemic situation, decreased our advertising revenue in 2020 but is expected to increase our advertising revenue in 2021. Political advertising revenue was$132.4 million for the three months endedSeptember 30, 2020 , compared to$10.9 million for the same period in 2019, an increase of$121.5 million as 2020 is an election year. Of the$121.5 million increase,$39.4 million was attributable to incremental revenue from Tribune stations we acquired in 2019,$4.9 million was attributable to current year station acquisitions, and$77.9 million was attributable to our legacy stations. We expect an increase in political advertising revenue in 2020 compared to 2019. Distribution revenue was$538.4 million for the three months endedSeptember 30, 2020 , compared to$294.8 million for the same period in 2019, an increase of$243.6 million , or 82.6%. The increase was primarily due to incremental revenue in 2020 from Tribune acquisition inSeptember 2019 of$160.5 million and current year station acquisitions of$12.9 million , partially offset by a decrease in revenue from station divestitures and deconsolidation ofMarshall of$12.8 million and$4.3 million , respectively. Our legacy stations' revenue increased by$87.3 million primarily due to the combined effect of scheduled annual escalation of rates per subscriber, renewals of contracts providing for higher rates per subscriber (contracts generally have a three-year term), contributions from distribution agreements with OVDs and increase in revenue in 2020 resulting from the temporary disruption of distribution agreements with AT&T/DirecTV fromJuly 2, 2019 toAugust 29, 2019 . We anticipate continued increase of retransmission fees until there is a more balanced relationship between viewers delivered and fees paid for delivery of such viewers. Digital media revenue, representing advertising revenue on our stations' web and mobile sites and other internet-based revenue, was$55.2 million for the three months endedSeptember 30, 2020 , compared to$58.1 million for the same period in 2019, a decrease of$2.9 million , or 5.0%. Our digital businesses' revenue decreased by$4.0 million primarily due to the business disruption caused by COVID-19 and realigned digital business operations. Our legacy stations' revenue from web and mobile sites also decreased by$3.2 million primarily due to the business disruption caused by COVID-19. These decreases were partially offset by incremental revenue from Tribune stations we acquired in 2019 of$5.5 million , less a decrease in revenue from station divestitures of$1.3 million .
Operating Expenses
Corporate expenses, related to costs associated with the centralized management of our stations, were$39.7 million for the three months endedSeptember 30, 2020 , compared to$63.3 million for the same period in 2019, a decrease of$23.6 million , or 37.2%. This was primarily attributable to a decrease in severance and payroll-related costs, audit, legal and professional fees and stock-based compensation associated with our acquisition of Tribune in 2019. 47 -------------------------------------------------------------------------------- Station direct operating expenses, consisting primarily of news, engineering, programming and station selling, general and administrative expenses (net of trade expense) were$607.8 million for the three months endedSeptember 30, 2020 , compared to$437.9 million for the same period in 2019, an increase of$169.9 million , or 38.8%. The increase was primarily due to expenses associated with Tribune stations and other businesses we acquired in 2019 of$153.0 million (including network and programming costs of$104.5 million ) and our current year station acquisitions of$13.2 million . In addition, our legacy stations' programming costs increased by$26.2 million , primarily due to network affiliation renewals and annual increases in our network affiliation costs and an increase in selling, general and administrative expenses. In the third quarter of 2020, we also recorded a$13.1 million provision for uncollectible amounts due fromMarshall . These increases were partially offset by a decrease in expense from our station divestitures of$11.8 million , a decrease in expense due to our deconsolidation ofMarshall inDecember 2019 of$3.8 million and a$29.6 million decrease in the operating expenses of our digital products due to lower revenue. Depreciation of property and equipment was$36.6 million for the three months endedSeptember 30, 2020 , compared to$29.4 million for the same period in 2019, an increase of$7.2 million , or 24.7%, primarily due to incremental depreciation from the Tribune stations and other businesses we acquired in 2019 and current year station acquisitions, partially offset by station divestitures and deconsolidation ofMarshall , and increased depreciation from newly capitalized assets related to station repacking activities. Amortization of intangible assets was$69.3 million for the three months endedSeptember 30, 2020 , compared to$42.4 million for the same period in 2019, an increase of$26.8 million , or 63.2%. This was primarily due to increased amortization from the Tribune stations and other businesses we acquired in 2019 and current year station acquisitions, partially offset by decreases in amortization from certain fully amortized assets, divested stations and deconsolidation ofMarshall . Amortization of broadcast rights was$32.0 million for the three months endedSeptember 30, 2020 , compared to$18.5 million for the same period in 2019, an increase of$13.5 million , or 73.3%. The increase was primarily due to incremental amortization from the Tribune stations and other businesses we acquired in 2019 and current year station acquisitions, less decreases from station divestitures. This increase was partially offset by a reduction in amortization costs on our legacy stations due to renegotiation of certain film contracts which resulted in reduced distribution rates. Certain of the Company's stations, including certain Tribune stations, were assigned to new channels ("repack") in connection with theFCC 's process of repurposing a portion of the broadcast television spectrum for wireless broadband use. These stations have vacated their former channels by the prescribedFCC deadline ofJuly 13, 2020 and are continuing to spend costs, mainly capital expenditures, to construct and license the necessary technical modifications to permanently operate on their newly assigned channels. Subject to fund limitations, theFCC reimburses television broadcasters, MVPDs and other parties for costs reasonably incurred due to the repack. During the three months endedSeptember 30, 2020 and 2019, we received a total of$12.9 million and$20.4 million , respectively, in reimbursements from theFCC which we recognized as operating income.
Income on equity investments, net
Income on equity investments, net was$15.9 million for the three months endedSeptember 30, 2020 , compared to$3.2 million for the same period in 2019, an increase of$12.7 million . The increase was primarily attributable to our 31.3% equity in earnings of TV Food Network, less the amortization of basis difference. OnSeptember 19, 2019 , we acquired our 31.3% ownership stake in TV Food Network through our merger with Tribune.
Pension and other postretirement plans credit, net
Pension and other postretirement plans credit, net was$10.8 million for the three months endedSeptember 30, 2020 , compared to$2.6 million for the same period in 2019, an increase of$8.2 million , primarily attributable to pension plans and other postretirement benefits we assumed through our merger with Tribune onSeptember 19, 2019 .
Interest Expense, net
Interest expense, net was$77.3 million for the three months endedSeptember 30, 2020 , compared to$93.2 million for the same period in 2019, a decrease of$15.9 million , or 17.1%. The decrease was in conjunction withNexstar's redemption of 6.125% and 5.875% Notes and a decrease in interest expense on our term loans due to the combined effect of reduction in principal and London Interbank Offered Rate ("LIBOR").
Loss on Extinguishment of Debt
During the three months endedSeptember 30, 2020 , loss on extinguishment of debt was$37.4 million primarily due to loss on redemption of our$900.0 million 5.625% Notes due 2024, and prepayments on our term loans of$250.0 million . There was no loss on extinguishment of debt as there was no debt prepayment or transaction that would result in recognition of such loss during the same period in 2019. 48
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Income Taxes
Income tax expense was$65.2 million for the three months endedSeptember 30, 2020 compared to$39.5 million for the same period in 2019. The effective tax rates, which decreased in the current year, were 25.6% and 115.1% for each of the respective periods. In 2019,Nexstar recorded an income tax expense of$12.8 million attributable to nondeductible goodwill written off as a result of the Nexstar Divestitures related to the merger with Tribune (See Note 3), or a 37.3% decrease to the effective tax rate in 2020. Additionally, the goodwill impairment loss recorded in 2019 was not deductible for purposes of calculating the tax provision and resulted in an income tax expense of$11.1 million in 2019, or a 32.3% decrease to the effective tax rate in 2020. Also, certain transaction and severance costs thatNexstar incurred in connection with its merger with Tribune in 2019 (See Note 3) were determined to be nondeductible for tax purposes. This resulted in an income tax expense of$6.0 million in 2019, or a 17.6% decrease to the effective tax rate in 2020. The Company calculates its year-to-date provision for income taxes by applying the estimated annual effective tax rate to year-to-date pre-tax income or loss and adjusts the provision for discrete tax items recorded in the period. Future changes in the forecasted annual income projections, including changes due to the impact of the COVID-19 pandemic, could result in significant adjustments to quarterly income tax expense in future periods.
Nine Months Ended
The period-to-period comparability of our consolidated operating results is affected by acquisitions. For each quarter we present, our legacy stations include those stations that we owned or provided services to for the complete quarter in the current and prior years. For our annual and year to date presentations, we combine the legacy stations' amounts presented in each quarter.
Revenue
Core advertising revenue was$1,097.5 million for the nine months endedSeptember 30, 2020 , compared to$809.7 million for the same period in 2019, an increase of$287.8 million , or 35.6%. The increase is primarily due to our incremental revenue from Tribune stations and other businesses we acquired in 2019 of$457.9 million , and an increase in revenue from our current year station acquisitions of$11.9 million , partially offset by a decrease in revenue from station divestitures of$33.0 million . Our legacy stations' core advertising revenue decreased by$143.9 million , primarily due to the business disruptions caused by COVID-19 since mid-March of 2020 and changes in the mix between our core and political advertising. Our deconsolidation ofMarshall inDecember 2019 also resulted in a$5.0 million decrease in revenue. Our largest advertiser category, automobile, represented approximately 17% and 22% of our core advertising revenue for the nine months endedSeptember 30, 2020 and 2019, respectively. Overall, including past results of our newly acquired stations, automobile revenues decreased by approximately 36% in 2020. The other categories representing our top five which decreased in 2020 were attorneys, medical/healthcare, furniture and fast food restaurants. We currently estimate that overall core advertising revenue for the remainder of fiscal 2020 will continue to be negatively impacted by the business disruptions caused by COVID-19. The full extent of the impact of the COVID-19 pandemic on our business operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that theU.S. government, we, or our business partners, may direct, which may result in an extended period of continued business disruption. Further financial impact cannot be reasonably estimated at this time but may continue to have a material impact on our core advertising revenue and our overall results of operations. Additionally, the rescheduling of the summerOlympics to 2021, also due to the COVID-19 pandemic situation, decreased our advertising revenue in 2020 but is expected to increase our advertising revenue in 2021. Political advertising revenue was$209.3 million for the nine months endedSeptember 30, 2020 , compared to$15.4 million for the same period in 2019, an increase of$193.9 million , as 2020 is an election year. Of the$193.9 million increase,$68.2 million was attributable to the incremental revenue from Tribune stations we acquired in 2019,$5.8 million was attributable to our current year station acquisitions, and$120.9 million was attributable to our legacy stations. We expect an increase in political advertising revenue in 2020 compared to 2019. Distribution revenue was$1,624.6 million for the nine months endedSeptember 30, 2020 , compared to$923.1 million for the same period in 2019, an increase of$701.6 million , or 76.0%. The increase is primarily due to incremental revenue in 2020 from Tribune acquisition inSeptember 2019 of$536.9 million (including$12.3 million revenue from copyright cable royalty received in second quarter of 2020) and our current year station acquisitions of$28.8 million . Our legacy stations' revenue increased by$195.4 million , primarily due to scheduled annual escalation of rates per subscriber, renewals of contracts providing for higher rates per subscriber (contracts generally have a three-year term), contributions from distribution agreements with OVDs and increase in revenue in 2020 resulting from the temporary disruption of distribution agreements with AT&T/DirecTV fromJuly 2, 2019 toAugust 29, 2019 . These increases were partially offset by a decrease in revenue due to station divestitures of$46.1 million and deconsolidation ofMarshall of$13.1 million . We anticipate continued increase of retransmission fees until there is a more balanced relationship between viewers delivered and fees paid for delivery of such viewers. 49 -------------------------------------------------------------------------------- Digital revenue, representing advertising revenue on our stations' web and mobile sites and other internet-based revenue, was$158.3 million for the nine months endedSeptember 30, 2020 , compared to$167.2 million for the same period in 2019, a decrease of$8.9 million , or 5.3%. Our digital businesses' revenue decreased by$22.9 million primarily due to the business disruption caused by COVID-19 since mid-March of 2020 and realigned digital business operations. Our legacy stations' revenue from web and mobile sites also decreased by$5.3 million primarily due to the business disruption caused by COVID-19 since mid-March of 2020. These decreases were partially offset by incremental revenue from Tribune stations and other businesses we acquired in 2019 of$22.7 million , less a decrease in revenue from station divestitures of$3.5 million . Operating Expenses Corporate expenses, related to costs associated with the centralized management of our stations, were$128.6 million for the nine months endedSeptember 30, 2020 , compared to$125.8 million for the same period in 2019, an increase of$2.7 million , or 2.2%. This was primarily attributable to an increase in payroll and bonuses of$1.7 million , an increase in stock-based compensation of$3.2 million due to new equity incentives granted, and increase in legal fees of$5.4 million primarily attributable to the ongoing litigation inherited from Tribune, and an overall increase in overhead costs, including property rentals, hardware, communications and software licenses, of$13.4 million . These increases were partially offset by decreases in severance and professional fees of$9.6 million and$11.3 million , respectively, primarily associated with the Tribune acquisition in 2019. Station direct operating expenses, consisting primarily of news, engineering, programming and station selling, general and administrative expenses (net of trade expense) were$1,786.1 million for the nine months endedSeptember 30, 2020 compared to$1,243.3 million for the same period in 2019, an increase of$542.8 million , or 43.7%. This was primarily due to expenses associated with the Tribune stations and other businesses we acquired in 2019 of$525.4 million (including network and programming costs of$352.9 million ), and expenses associated with our current year station acquisitions of$26.6 million . In addition, our legacy stations' programming costs increased by$84.1 million , primarily due to network affiliation renewals and annual increases in our network affiliation costs. In the third quarter of 2020, we also recorded a$13.1 million provision for uncollectible amounts due fromMarshall . These increases were partially offset by a decrease in expense from our station divestitures of$43.9 million , a decrease in expense due to our deconsolidation ofMarshall inDecember 2019 of$11.3 million and a$59.5 million decrease in the operating expenses of our digital products due to lower revenue. Depreciation of property and equipment was$107.8 million for the nine months endedSeptember 30, 2020 , compared to$84.9 million for the same period in 2019, an increase of$22.9 million , or 27.0%. The increase was primarily due to incremental depreciation from Tribune stations and other businesses we acquired in 2019 and current year station acquisitions, partially offset by station divestitures, and increased depreciation from newly capitalized assets related to station repacking activities. Amortization of intangible assets was$209.4 million for the nine months endedSeptember 30, 2020 , compared to$115.5 million for the same period in 2019. This was primarily due to increased amortization from Tribune stations and other businesses we acquired in 2019 and current year station acquisitions, partially offset by decreases in amortization from certain fully amortized assets and divested stations. Amortization of broadcast rights was$104.9 million for the nine months endedSeptember 30, 2020 , compared to$46.7 million for the same period in 2019, an increase of$58.2 million , or 124.4%, The increase was primarily due to incremental amortization from Tribune stations and other businesses we acquired in 2019 and current year station acquisitions, less decreases from station divestitures. This increase was partially offset by a reduction in amortization costs on our legacy stations due to renegotiation of certain film contracts which resulted in reduced distribution rates. Certain of the Company's stations, including certain Tribune stations, were repacked in connection with theFCC 's process of repurposing a portion of the broadcast television spectrum for wireless broadband use. These stations have vacated their former channels by theFCC -prescribed deadline ofJuly 13, 2020 and are continuing to spend costs, mainly capital expenditures, to construct and license the necessary technical modifications to permanently operate on their newly assigned channels. Subject to fund limitations, theFCC reimburses television broadcasters, MVPDs and other parties for costs reasonably incurred due to the repack. During the nine months endedSeptember 30, 2020 and 2019, the Company received$51.3 million and$54.0 million , respectively, in reimbursements from theFCC which it recognized as operating income. InApril 2020 , we completed a station's conversion to a VHF channel representing our final relinquishment of spectrum pursuant to theFCC 's incentive auction conducted in 2016-2017. Accordingly, the associated spectrum asset with a carrying amount of$67.2 million and liability to surrender spectrum of$78.0 million , were derecognized, resulting in a non-cash gain on relinquishment of spectrum of$10.8 million . This gain was partially offset by a$3.9 million increase (expense) in the estimated fair value of contingent consideration liability related to a merger and spectrum auction. 50
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Income on equity investments, net
Income on equity investments, net was$41.4 million for the nine months endedSeptember 30, 2020 , compared to$2.1 million for the same period in 2019, an increase of$39.3 million , primarily attributable to our 31.3% equity in earnings of TV Food Network, less amortization of basis difference. OnSeptember 19, 2019 , we acquired a 31.3% ownership stake in TV Food Network through our merger with Tribune.
Pension and other postretirement plans credit, net
Pension and other postretirement plans credit, net was
Interest Expense, net Interest expense, net was$260.8 million for the nine months endedSeptember 30, 2020 , compared to$197.5 million for the same period in 2019, an increase of$63.3 million , or 32.0%. The increase was primarily due to interest incurred on term loans issued onSeptember 19, 2019 and on 5.625% Notes due 2027 issuedJuly 3, 2019 which were both related to the financing ofNexstar's acquisition of Tribune and have full nine months-worth of expense in 2020, partially offset primarily by a decrease in interest expense in conjunction withNexstar's redemption of 6.125% and 5.875% Notes and a decrease in interest expense on our legacy term loans due to the combined effect of reduction in principal and the LIBOR.
Loss on Extinguishment of Debt
Loss on extinguishment of debt was$44.8 million for the nine months endedSeptember 30, 2020 , compared to$3.7 million for the same period in 2019, an increase of$41.1 million , primarily due to loss on redemption of our$900.0 million 5.625% Notes due 2024, and an increase in prepayments on our term loans of$500.0 million in 2020 compared to the prior period. Income Taxes Income tax expense was$166.9 million for the nine months endedSeptember 30, 2020 compared to$82.6 million for the same period in 2019. The effective tax rates, which decreased in the current year, were 27.3% and 40.3% for each of the respective periods. In 2019,Nexstar recorded an income tax expense of$12.8 million attributable to nondeductible goodwill written off as a result of the Nexstar Divestitures related to the merger with Tribune (See Note 3), or a 6.3% decrease to the effective tax rate in 2020. Additionally, the goodwill impairment loss recorded in 2019 was not deductible for purposes of calculating the tax provision and resulted in an income tax expense of$11.1 million in 2019, or a 5.4% decrease to the effective tax rate in 2020. Also, certain transaction and severance costs thatNexstar incurred in connection with its merger with Tribune in 2019 (See Note 3) were determined to be nondeductible for tax purposes. This resulted in an income tax expense of$6.0 million in 2019, or a 2.9% decrease to the effective tax rate in 2020. 51
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Liquidity and Capital Resources
The Company is leveraged, which makes it vulnerable to changes in general
economic conditions. The Company's ability to repay or refinance its debt will
depend on, among other things, financial, business, market, competitive and
other conditions, many of which are beyond the Company's control, for instance,
uncertainties surrounding the business outlook caused by Coronavirus Disease
2019 ("COVID-19"). In December 2019 , COVID-19 was reported and has spread
globally, including to every state in the United States . In March 2020 , the
World Health Organization declared COVID-19 a pandemic and the United States
government declared a national emergency with respect to COVID-19. COVID-19 has
created and may continue to create significant uncertainty in global financial
markets, which may reduce demand for our advertising, retransmission, and
digital services, impact the productivity of our workforce, reduce our access to
capital, and harm our business and results of operations.
In the third quarter in 2020, our financial results continued to improve as
certain areas throughout the United States permitted the re-opening of
non-essential businesses which has had a favorable impact to the macroeconomic
environment and to the Company's revenue. As of September 30, 2020 , we remained
profitable. Our current year results were also higher than our prior year
results primarily due to contribution from our acquisition of Tribune in
September 2019 and revenue from political advertising in 2020. As of September
30, 2020 , there have been no material changes in our customer mix, including our
advertisers, multichannel video programming distributors and online video
distributors. The disruptions from COVID-19 did not have a material impact on
the Company's liquidity. As of September 30, 2020 , the Company's unrestricted
cash on hand amounted to $409.9 million and the Company had positive working
capital of $669.5 million , both increased from the December 31, 2019 levels of
$232.1 million and $404.2 million , respectively. As of September 30, 2020 , the
Company was in compliance with its financial covenants contained in the amended
credit agreements governing its senior secured credit facilities. The Company
believes it has sufficient unrestricted cash on hand and has availability to
access additional cash up to $172.7 million and $25.0 million under the
respective Nexstar and Mission revolving credit facilities (with a maturity date
of October 2023 ) to meet its business operating requirements, its capital
expenditures and to continue to service its debt for at least the next 12 months
as of the filing date of this Quarterly Report on Form 10-Q. The Company also
believes its leverage is well positioned to withstand the current challenges as
the nearest maturity of its outstanding debt will not occur until October 2023 .
The Company will continue to evaluate its liquidity, its best use of operating
cash flow and the market conditions to determine if further steps are necessary.
Overview
The following tables present summarized financial information management
believes is helpful in evaluating the Company's liquidity and capital resources
(in thousands):
Nine Months Ended September 30,
2020 2019
Net cash provided by operating activities $ 877,488 $ 315,982
Net cash provided by (used in) investing
activities 260,362 (4,582,153 )
Net cash provided by (used in) financing
activities (960,012 ) 4,455,085
Net increase in cash, cash equivalents and restricted cash$ 177,838 $ 188,914 Cash paid for interest$ 290,250 $ 178,882 Income taxes paid, net of refunds$ 201,979 $ 68,627 As of September As of December 31, 30, 2020 2019 Cash, cash equivalents and restricted cash$ 426,516 $
248,678
Long-term debt, including current portion 7,882,540
8,492,588
Unused revolving loan commitments under senior secured credit facilities (1) 197,662 142,662
(1) Based on covenant calculations as of
million and $25.0 million unused revolving loan commitments under the
respective Nexstar and Mission senior secured credit facilities were
available for borrowing.
52
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Cash Flows - Operating Activities
Net cash flows provided by operating activities increased by$561.5 million during the nine months endedSeptember 30, 2020 , compared to the same period in 2019. This was primarily due to increases in revenue (excluding trade) of$1,188.3 million , distributions from our equity investments in TV Food Network of$207.0 million , source of cash resulting from timing of accounts receivable collections of$38.7 million , and collection of copyright cable royalty receivable of$13.9 million . These increases were partially offset by an increase in our corporate, direct operating and selling, general and administrative expense (excluding non-cash transactions) of$525.9 million , cash paid for interest of$111.4 million , payments for broadcast rights of$100.1 million , use of cash resulting from timing of payments to our vendors of$13.9 million , and higher tax payments of$133.4 million .
Cash Flows - Investing Activities
Net cash flows provided by investing activities were$260.4 million during the nine months endedSeptember 30, 2020 , compared to net cash flows used in investing activities of$4,582.2 million in the same period in 2019. In 2020, we sold two television stations and our sports betting information website business for$349.9 million and$12.9 million in cash, respectively. We also received$98.0 million of cash proceeds from settlement of litigation between Sinclair and Tribune, which we acquired inSeptember 2019 , and collected Mission's loan receivable of$49.0 million fromMarshall . These increases were reduced by the cash payments the Company made to acquire a total of six television stations and certain non-license assets for total cash consideration payments of$132.3 million . InSeptember 2019 , we completed our acquisition of Tribune for a total cash purchase price of$7.187 billion , less$1.289 billion of cash acquired. Substantially concurrently with our Merger with Tribune, we sold the assets of 21 full power television stations in 16 markets for a cash consideration of$1.353 billion , including preliminary working capital adjustments and net of related fees. We also received$1.2 million in proceeds from disposal of assets. Our capital expenditures during the nine months endedSeptember 30, 2020 were$170.2 million , an increase of$59.9 million compared to the same period in 2019, primarily due to increased capital expenditure requirements from Tribune stations and other businesses we acquired in 2019, partially offset by station divestitures. Other activity included a decrease in reimbursements from theFCC for station repack costs of$2.7 million .
Cash Flows - Financing Activities
Net cash flows used in financing activities were
In 2020, we made payments on the outstanding principal balance of our term loans of$957.8 million (including$680.0 million inNexstar's debt prepayments and Mission's full repayment of its term loan B of$224.5 million ), redeemed our$900.0 million unsecured senior notes and paid$25.3 million premium on such redemption, paid dividends to our common stockholders of$76.4 million ($0.56 per share during each quarter), paid deferred financing costs of$10.7 million associated with our new$1.0 billion senior unsecured notes, repurchased common shares of$197.6 million , paid cash for taxes in exchange for shares of common stock withheld of$6.8 million resulting from net share settlements of certain stock-based compensation, and paid for finance lease and software obligations of$12.7 million . These decreases were offset by the proceeds from the issuance of our new$1.0 billion senior unsecured notes issued at par and from Mission's drawing from the revolving credit facilities of$225.0 million . In 2019, we issued$1.120 billion new 5.625% Notes due 2027,$670.4 million new Term Loan A (net of lender fees), and$3.041 billion new Term Loan B (net of lender fees) which were all used to partially fund the acquisition of Tribune and received$1.75 million in proceeds from exercise of stock options. The cash flow increases were partially offset by the repayment of term loans of$215.4 million , payments for debt financing costs of$70.7 million , payments of dividend to our common stockholders of$62.1 million ($0.45 per share each quarter), cash payment for taxes in exchange for shares of common stock withheld of$9.8 million , payment for noncontrolling interest of KHII of$6.4 million , payment for capital lease of$6.4 million and uses of cash from other financing activities of$6.9 million .
Our senior secured credit facility may limit the amount of dividends we may pay to stockholders over the term of the agreement.
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Future Sources of Financing and Debt Service Requirements
As ofSeptember 30, 2020 , the Company had total combined debt of$7.9 billion , net of financing costs and discounts, which represented 77.9% of the Company's combined capitalization. The Company's high level of debt requires that a substantial portion of cash flow be dedicated to pay principal and interest on debt, which reduces the funds available for working capital, capital expenditures, acquisitions and other general corporate purposes.
The following table summarizes the principal indebtedness scheduled to mature
for the periods referenced as of
Total 2020 2021-2022 2023-2024 Thereafter
Nexstar senior secured credit
facility $ 4,935,915 $ 5,357 $ 79,967 $ 1,958,955 $ 2,891,636
Mission senior secured credit
facility 225,000 - - 225,000 -
Shield senior secured credit
facility 20,950 287 3,903 16,760 -
5.625% Notes due 2027 1,785,000 - - - 1,785,000
4.75% Notes due 2028 1,000,000 - - - 1,000,000
$ 7,966,865 $ 5,644 $ 83,870 $ 2,200,715 $ 5,676,636
We make semiannual interest payments on the 5.625% Notes due 2027 on January 15
and July 15 of each year. We make semiannual interest payments on our 4.75%
Notes due 2028 on May 1 and November 1 of each year. Interest payments on our,
Mission's and Shield's senior secured credit facilities are generally paid every
one to three months and are payable based on the type of interest rate selected.
The terms of our, Mission's and Shield's senior secured credit facilities, as
well as the indentures governing our 5.625% Notes due 2027 and 4.75% Notes due
2028, limit, but do not prohibit us, Mission or Shield, from incurring
substantial amounts of additional debt in the future.
The Company does not have any rating downgrade triggers that would accelerate
the maturity dates of its debt. However, a downgrade in the Company's credit
rating could adversely affect its ability to renew the existing credit
facilities, obtain access to new credit facilities or otherwise issue debt in
the future and could increase the cost of such debt.
The Company had $197.7 million of total unused revolving loan commitments under
the senior secured credit facilities, all of which were available for borrowing,
based on the covenant calculations as of September 30, 2020 . The Company's
ability to access funds under its senior secured credit facilities depends, in
part, on our compliance with certain financial covenants. Any additional
drawings under the senior secured credit facilities will reduce the Company's
future borrowing capacity and the amount of total unused revolving loan
commitments. As discussed above, the ultimate outcome of the COVID-19 pandemic
is uncertain at this time and may significantly impact our future operating
performance, liquidity and financial position. Any adverse impact of the
COVID-19 pandemic may cause us to seek alternative sources of funding, including
accessing capital markets, subject to market conditions. Such alternative
sources of funding may not be available on commercially reasonable terms or at
all.
On July 8, 2020 , Nexstar assigned to Mission its option to purchase the CW
affiliated station WPIX in the New York, NY market from Scripps. On the same
date, Mission notified Scripps of its exercise of the option to purchase the
station for a purchase price of $75.0 million , subject to customary adjustments,
plus accrued interest in accordance with the option agreement. On August 28,
2020 , Mission signed a purchase agreement to acquire WPIX. Mission expects to
fund this acquisition through new borrowing that is to be guaranteed by Nexstar .
The proposed acquisition is subject to FCC approval and other customary
conditions and Mission expects it to close at the end of 2020. Upon Mission's
acquisition of WPIX, Nexstar intends to enter into a local service agreement and
option agreement.
On August 7, 2020 , Nexstar assigned to Mission its option to purchase the assets
of WNAC, the Fox affiliated full power television station serving the
Providence, Rhode Island market, from WNAC, LLC . On the same date, Mission
notified WNAC, LLC of its exercise of the option and simultaneously entered into
an Assignment and Assumption Agreement with Nexstar . The purchase price is equal
to a base purchase price, plus an escalation amount per day from the date of the
option agreement until the completion of the acquisition, minus a credit for an
outstanding loan (all defined in the option agreement). Mission expects to fund
this acquisition through new borrowing that is to be guaranteed by Nexstar . The
proposed acquisition has received FCC approval and Mission expects it to close
in the fourth quarter of 2020. Nexstar currently provides services to WNAC under
an LMA which it intends to continue with Mission upon its completion of the
acquisition. Nexstar also intends to enter into an option agreement to purchase
WNAC from Mission.
54
-------------------------------------------------------------------------------- OnAugust 7, 2020 ,Nexstar also assigned to Mission its option to purchase KASY, KWBQ and KRWB from Tamer. KASY (MNTV affiliated), KWBQ (CW affiliated) and KRWB (CW affiliated) are full power television stations serving theAlbuquerque, New Mexico market. On the same date, Mission notified Tamer of its exercise of the option and simultaneously entered into an Assignment and Assumption Agreement withNexstar . The purchase price is equal to a base purchase price, plus an escalation amount per year from the date of the option agreement until completion of the acquisition, minus a fixed monthly credit from the date of the option agreement until completion of the acquisition (all defined in the option agreement). Mission expects to fund this acquisition through new borrowing that is to be guaranteed byNexstar . The proposed acquisition has receivedFCC approval and Mission expects it to close in the fourth quarter of 2020.Nexstar currently provides services to these stations under an SSA which it intends to continue with Mission upon its completion of the acquisition.Nexstar also intends to enter into an option agreement to purchase the stations from Mission. OnAugust 10, 2020 ,Nexstar assigned to Mission its options to purchaseWXXA-TV , the Fox affiliate in theAlbany, NY market, andWLAJ-TV , theABC affiliate in theLansing, MI market, from Shield. On the same date, Mission notified Shield of its exercise of the options to purchase the stations and simultaneously entered into an Assignment and Assumption Agreement withNexstar . The purchase price of these stations was$20.8 million . Mission expects to fund this acquisition through new borrowing that is to be guaranteed byNexstar . The proposed acquisition of the Shield stations has receivedFCC consent and Mission expects it to close in the fourth quarter of 2020.Nexstar currently provides services to the Shield Stations under JSAs and SSAs which it intends to continue with Mission upon its completion of the acquisition.Nexstar also intends to enter into an option agreement to purchase the stations from Mission. OnSeptember 1, 2020 ,Nexstar's Board of Directors approved$300 million inNexstar's share repurchase authorization to repurchase its Class A common stock. As ofSeptember 30, 2020 , the remaining available amount under the share repurchase authorization was$259.2 million , net of all repurchases made. Share repurchases may be made from time to time in open market transactions, block trades or in private transactions. There is no minimum number of shares thatNexstar is required to repurchase and the repurchase program may be suspended or discontinued at any time without prior notice. OnOctober 9, 2020 ,Nexstar contributed$34.8 million in cash to the Tribune qualified pension plans.Nexstar projects no additional cash contribution to its qualified pension plans during the remainder of 2020. OnOctober 19, 2020 ,Nexstar acquired 2,927,522 shares in Series A Preferred Stock of VENN, a live 24/7 streaming network for gaming and entertainment based inLos Angeles, CA , for a total cash consideration of$7.0 million .
On
On
Debt Covenants
Our credit agreement contains a covenant which requires us to comply with a maximum consolidated first lien net leverage ratio of 4.25 to 1.00. The financial covenant, which is formally calculated on a quarterly basis, is based on our combined results. The Mission and Shield amended credit agreements do not contain financial covenant ratio requirements but do provide for default in the event we do not comply with all covenants contained in our credit agreement. As ofSeptember 30, 2020 , we were in compliance with our financial covenant. We believeNexstar , Mission, and Shield will be able to maintain compliance with all covenants contained in the credit agreements governing their senior secured facilities and the indentures governing our 5.625% Notes due 2027 and 4.75% Notes due 2028 for a period of at least the next 12 months fromSeptember 30, 2020 .
Off-Balance Sheet Arrangements
As ofSeptember 30, 2020 , we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or VIEs, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. All of our arrangements with our VIEs in which we are the primary beneficiary are on-balance sheet arrangements. Our variable interests in other entities are obtained through local service agreements, which have valid business purposes and transfer certain station activities from the station owners to us. We are, therefore, not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships. As ofSeptember 30, 2020 , we have outstanding standby letters of credit with various financial institutions amounting to$23.7 million , of which$20.3 million was assumed from the 2019 Tribune acquisition primarily in support of the worker's compensation insurance program. The outstanding balance of standby letters of credit is deducted against our unused revolving loan commitment under our senior secured credit facility and would not be available for withdrawal. 55
--------------------------------------------------------------------------------
Summarized Financial Information
Nexstar Broadcasting's (a wholly-owned subsidiary ofNexstar and herein referred to as the "Issuer") 5.625% Notes due 2027 and 4.750% Notes due 2028 are fully and unconditionally guaranteed (the "Guarantees"), jointly and severally, byNexstar Media Group, Inc. ("Parent"), Mission (a consolidated VIE) and certain ofNexstar Broadcasting's restricted subsidiaries (collectively, the "Guarantors" and, together with the Issuer, the "Obligor Group "). The Guarantees are subject to release in limited circumstances upon the occurrence of certain customary conditions set forth in the indentures governing the 5.625% Notes due 2027 and the 4.75% Notes due 2028. The Issuer's 5.625% Notes due 2027 and 4.75% Notes due 2028 are not registered with theSEC . The following combined summarized financial information is presented for theObligor Group after elimination of intercompany transactions between Parent, Issuer and Guarantors in theObligor Group and amounts related to investments in any subsidiary that is a non-guarantor. This information is not intended to present the financial position or results of operations of the consolidated group of companies in accordance withU.S. GAAP. Summarized Balance Sheet Information (in thousands) - Summarized balance sheet information as ofSeptember 30, 2020 andDecember 31, 2019 of theObligor Group is as follows: September 30, 2020 December 31, 2019 Current assets - external $ 1,304,636 $ 1,291,730 Current assets - due from consolidated entities outside of Obligor Group 175,487 171,344 Total current assets $ 1,480,123 $ 1,463,074 Noncurrent assets - external(1) 10,358,163
10,869,745
Noncurrent assets - due from consolidated entities outside of Obligor Group 292,843 92,494 Total noncurrent assets $ 10,651,006$ 10,962,239 Total current liabilities $ 649,443 $ 904,811 Total noncurrent liabilities $ 10,334,777$ 10,733,488 Noncontrolling interests $ 6,391 $ 6,250
(1)
in unconsolidated investees. These unconsolidated investees do not guarantee
the 4.75% Notes due 2028 and 5.625% Notes due 2027. For additional
information on equity investments, refer to Note 6 to our Condensed
Consolidated Financial Statements.
Summarized Statements of Operations Information for the
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