Q3 2020 Nexstar Media Group Inc Earnings Call
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Hi, Hugh Joseph and good morning, everyone. Thank you all for joining US to review next door's record third quarter operating and financial results.
During the third quarter, we continued to overcome most challenges presented by the pandemic. Thanks to the ability of our outstanding operating teams to adapt and dynamically manage the business for continued growth.
Nexstar delivered record third quarter, net revenue profitability cash flow and which eight with each of these metrics all exceeding nicely our consensus expectations.
As always Tom Carter is here with me on the call. This morning, as we announced a few weeks ago. Tom has assumed the additional responsibilities a president and Chief operating officer and will eventually be recruiting of CFO to replace himself as our team continues to focus on further leveraging nexstar physician as the nation's leading local media company and the value of the norm.
Ms volumes of content that we produce to ultimately create new value for shareholders I'll touch more on that subject in just a couple of minutes.
Third quarter net revenue increased 68, 5% and reflecting strong flow through in our model Nexstar generated record third quarter Bcf adjusted EBITDA and free cash flow with these metrics growing $128, 3% 209, 1% and 268, 3% respectively on a year over year basis.
Acquisitions.
Turning back to Q3, Nexstars industry, leading scale diversified revenue sources and consistent execution resulted in a 70.8% rise in third quarter total television advertising revenue as we benefited from the recovery in advertising spending across key categories and drove year over year increases in same station new to television.
Business as well as attracting a strong share of political spending in our markets, which by the way exceeded our internal projections next.
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The resumption, an auto category spending is complemented by a big resurgence and big box retail spending as well as AD spending in fast food home improvement attorneys alcohol furniture, and a new category of sports wagering.
Our new business strategies ongoing sales training education development and support and performance focus incentive structures have proven very effective in our ability to capture add spend both in broadcast ended digital.
Now more than ever viewers rely on television news to stay informed about everything from the latest pandemic developments to the Supreme Court nominations to consumers current appetite for political an election coverage. Similarly, the digital engagement statistics remain significant and continue to show a 20% increase over our prior year numbers.
In terms of unique users next door's digital property is ranked number one for local news number 15, and total news and information and number 36 overall in August as measured by Comscore with our market leaning stations deep local national reach of and Wgm's News nation.
Next door now produces over 268000 hours of content annually.
Third quarter distribution fee revenue rose 82, 6% year over year to $538 $4 million, reflecting a full quarter benefit of the retrans consent synergies from last year's Tribune media transaction, a renewal of 2019 retransmission consent agreements, representing approximately 70% of our subscriber base and Mdpv and OTT.
Fiber counts consistent with our expectations.
With approximately 18% of our subscriber base left to renew and reprice. This year continued growth from this source is projected for the balance of 2020 and beyond.
I'll remind everyone that more than 50% of our annual adjusted EBITDA is expected now to be derived from contractual distribution fee and equity income distributions.
Next door has solid visibility into our contractual distribution economics through December 2022, as in addition to the 2019 and 20 multiyear retrans consent agreements that were renewing which total approximately 88% of our subscribers. We also have the bulk of our network affiliation contracts with Cvs Fox and NBC under new long term.
[noise] agreements, which were completed in the back half of last year as a result over 80% of our big for affiliations are contracted through December 31 of 21 and over 70% of our big for affiliations are contracted through December 31 of 2022.
With our focus on generating free cash flow, we remain committed to actively managing our capital structure, our cost of capital and liquidity position to provide the financial flexibility to support our business and enhance our shareholder returns.
During the first nine months of 2020, we allocated approximately 906 $9 million toward debt reduction opportunistic share repurchases in cash dividends.
Additionally, nexstar maintains a strong balance sheet, including 409 $9 million in cash at September 30, with access to approximately 200 million under a revolving credit facilities with record year to date free cash flow historically, low LIBOR rates contractual distribution fee revenues and record political revenue we remain highly calm.
And our ability to maintain our liquidity position and path towards further deleveraging.
Our growth to date in 2020 reflect strong foundation of our assets our operations in our financial structure and the adaptability of our teams coast-to-coast take immediate actions to offset and in many cases overcome the economic impact of the pandemic, we implemented a range of cost cutting initiatives, which resulted in third quarter operating in corporate expense savings in excess of.
With that I will start a quick update on the Q3 capital markets activity, which reflect which is reflected in a partial quarter in the operating results and on the balance sheet at quarter end.
On nine three Nexstar Broadcasting, Inc, and mission broadcasting entered into an incremental secured revolving.
Credit facility in an aggregate principal amount of $280 million of which $250 million was allocated admission and $30 million allocated to nexstar concurrent with the closing of the amendment Nexstar also voluntarily prepaid $250 million of its existing term loan ebay with cash on hand, while Ms.
Cash and borrowed 225 from the aforementioned $250 million facility and repaid its term loan b three in full.
Since we've seen since April and into queue for same station distribute distribution fee revenue was up 38%.
Outsized from prior quarters due to the depressed 2019 Q3 levels related to the AT&T carriage dispute and continuing digital revenues were down 19% with local agency services up approximately 16% and station website revenue down approximately 10% due to softer local customer buying trends.
Related to the pandemic too.
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Third quarter operating cash taxes were $136.6 million, reflecting the previously disclosed shift of some tax expenses from Q2 to Q3 ongoing capex and transaction Capex of total approximately $34.2 million spectrum repack capex totaled approximately $19.4 million and we received.
Approximately $12.9 million in reimbursements from the FCC during the quarter as a reminder, we anticipate being fully reimbursed for all capex related to this spectrum repack as those activities wind down during 2021.
Third quarter total interest expense amounted to $77.3 million down from $93.2 million in 2019 cash interest expense was 72.9 compared to 55.4 in the prior year's quarter with the increase due to the incurrence of debt to fund Tribune, partially offset by lower interest rates and lower first lien borrowing level.
Yes.
Third quarter, adjusted EBITDA of $461 million and free cash flow of $223 million all before transaction expenses exceeded consensus expectations. This reflects the realization of synergies and growth related to the Tribune transaction robust political revenues the Q3 rebound in core.
Distribution agreement renewals executed in the second half of 2019.
Adjusted EBITDA and free cash flow include approximately $10 million in distributions from equity investments related to our 31% ownership in the TV food network.
Year to date, we've received approximately $207 million of TV food network distributions.
As a reminder, we received cash distributions from from TV food network on a quarterly basis with the largest payments recorded during the first quarter of each year.
For the fourth quarter of 2020, we anticipate reporting approximately $9 million in TV food network distributions for the fourth quarter were projecting recurring cash corporate overhead exclusive of stock comp and transaction costs to be approximately $30 million and we will come in for the full year well below our 2020 cash corporate overhead guidance of a.
Approximately $120 million non.
Noncash comp in the projection projected quarters. It is expected to be approximately $12 million and $48 million for the full year transaction expenses will be approximately $30 million for the fourth quarter.
Operating cash taxes are expected to be approximately 133 million in Q4, and we are still expecting operating cash taxes between 240 and $250 million for the year.
Fourth quarter Capex should come in at approximately $37 million for their full year expectation unchanged at approximately $160 million.
The investment related to the launch of news nation on September one came in as expected and we have prioritized capital expenditures to maintain maximum financial flexibility and incurred in the current environment mind.
Finally, we expect Nexstars cash interest expense to be approximately $7 million $70 million for the fourth quarter and $320 million for the full year, reflecting the interest rate savings related to the decline in LIBOR and the aforementioned refinancing of some of the senior notes.
Turning to the balance sheet, reflecting the capital markets transactions noted at the beginning of my comments and 162 and a half million of debt reductions in Q3 Nexstars outstanding debt at September Thirtyth was $7.88 billion and consisted of approximately $5.1 billion in.
First lien term loans with the balance in two senior sub note I'm, sorry senior note issuances.
The five in five states, which is approximately 1.8 billion and the new four and three quarters, which has a $1 billion face amount.
Total net debt amounted to approximately $7.5 billion as I mentioned before compared to $8.3 billion at 930 2019 net debt for the first lien covenant purposes was 4.9 billion with net cash limited to $200 million.
Our net lane first cover.
Covenant with our net first lien covenant ratio at 930 was approximately 2.69 compared to 3.52 at year end 19, which is well below our first lien covenant of four in a quarter. As a reminder, our first lien covenant permits net cat or netting of cash to a maximum of $200 million at any time.
Our total net leverage at quarter end was approximately 4.11 compared to 5.18 at year end 2019, as a reminder, nexstars only meaningful financial Covenant is our first lien debt, which is the aforementioned four and a quarter times.
At the onset of the pandemic pandemic Nexstar took immediate actions to adapt our business to operations in the current environment and to preserve liquidity in order to best position. The company for long term success as we return to normalized operations. In this regard we continue to prioritize ties cash retention and ended Q3 with approximately 410.
Million dollars of cash.
On hand, and approximately $200 million available under various revolving credit facilities at the same time during the quarter, we returned $150 million to shareholders through the repurchase of $1.3 million of class a shares and through our quarterly cash dividend payment of approximately $25 million. We also made the aforementioned hundred 62.
$1 in debt repayments during the quarter.
As reflected by the new revolver in the four and three quarter percent bond issue. During the first nine months of 2020, we have actively managed our capital structure cost of capital and liquidity position support our business and enhance shareholder returns year to date, we have allocated approximately $1.1 billion to our shareholder value creation not opportunity.
These including approximately $800 million in debt reductions $75 million in debt and dividend payments and $200 million in share repurchases with our share count now at 44 million shares. We believe these actions represent approximately $25 per share of value creation. We believe this is conservative given our.
Financial strength and the consistent execution, we have exhibit.
In September we announced that the board of directors approved an expansion of the company share repurchase authorization for up to an additional $300 million, bringing the total capacity under our share repurchase program to approximately $384 million at the time, reflecting their $1.3 million of 1.3 million shares repurchased during the quarter we ever.
Meaning authorization of approximately $260 million of share repurchases, our expanded repurchase authorization and reaches recent repurchase activity reflects our confidence in the company's growing free cash flow from operations and our long term commitments employing capital in a manner that can enhance shareholder value we.
Intend to remain Opportunistically aggressive in this front. In addition, the merger of Nexstar digital ink Nexstar digital LLC into Nexstar Inc. is estimated to increase the restricted payments capacity under the two outstanding bond issues by approximately $150 million, thereby allowing for more aggressive shareholder repurchase activity in the future.
Yeah.
Looking ahead with the continued double digit year over year growth in distribution revenue the upturn in core and what we now expect to be approximately $480 million in political advertisement for the year with a meaningful amount to be booked in Q4, we have an excellent visibility into the strong year end 2020 as such we remain.
Committed to our dividend payments and allocating the vast majority of our free cash flow towards leverage of that reduction and are confident in our exceeding our target for reducing total net leverage to the high three range by 12 31 2020.
While all remaining optimistic on while always remaining optimistic on share repurchases and potentially accretive acquisitions.
Nexstar has already made significant progress on our leverage reduction plan and we enjoy a strong cash position with additional capacity under our revolver in addiction. In addition, the reduction in interest expense related to our favorable LIBOR rates operating expense savings our capital expenditure prioritization and recent capital markets activity will also serve us well as we have.
Finished 2020 and began 2021 looking ahead into 2021 Q O Q1 will be the most like any quarter in 2020, given the strength early in the year and the offset in political revenue Q2, and three will be substantially over last over 2020, while Q4 will again see the cyclical impact of politico.
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Advertising and.
In summary, despite the unprecedented challenge of the pandemic, our scale leadership and flexibility our synergy realization and operations are generally our operations are generally in the results while our capital structure is in great shape.
With a cost of capital immaturity perspective that is favorable.
Were accelerated our we have accelerated our repurchase activity and will benefit from the organizational structure changes, we announced last month finally.
Finally, our service to our local communities and the local and National advertisers has never been stronger we continue to drive significant growth and have consistently and healthily and healthy have consistent and healthy visibility into our results and we remain confident in our ability to enhance shareholder value going forward that concludes the financial review for the call.
And I'll turn it back over to Perry for some closing remarks before Q and a.
Thank you very much Tom our results in 2020, and our comments today highlight the actions we continue to take to drive shareholder value, while maximizing shareholder value is a key focus for our management team supporting our local communities is the ultimate goal of the thousands of next of Nexstar nation employees, who work across our portfolio with a record.
Today now behind Us I want to close by briefly highlighting some of our employees the central work our core value of serving our communities with the local news and critical information. They need has allowed us to successfully navigate through evolving pandemic. In this regard Nexstar has produced year to date 77 separate town hall meetings addressing the space and.
Seasonal responses to the virus. Additionally, nexstar stations are produced 34 different specials related to recent civil unrest and race relations and our country as.
As a nation, we prepared for this year's election, Nexstar produced 117 debates in markets across the country covering gubernatorial Senate and local races, allowing the voters to hear directly from a candidate seeking their support.
Last month Nexstars local news operations earned a total of four National Edward Edward R., Murrow Awards, including a National Award for the exclusive series of Special Cross platform stories about immigration and everyday life, along the border of the United States and Mexico and earlier in the year 30, Nexstar stations received a total of 50 regional.
Murrow Awards mix.
Mexico is also proud to be honored with 61 Emmy Awards in 2020, and finally in October Nexstar received the 2020 Catalyst award, which recognizes a communications company that creates strategic programs through advanced meaningful social change.
We look forward to catching up with you with another positive reported in February having hunter, highlighting our Q4 results and on behalf of the entire Nexstar nation, Our board and our management team. Thank you for your continued interest support and for joining US today, Let's now open the call to cure day to address your specific areas of interest operator.
Thank you, ladies and gentlemen, if youd like to ask a question you may do so by pressing star one on your telephone keypad using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Please press star one to ask a question, we'll pause for just a moment hello, everyone an opportunity to signal for questions.
We'll take our first question from Dan Kronos with the benchmark. Please go ahead.
Thanks, Good morning, its new one for me.
First off just publicly congratulations Tom.
Well deserved obviously.
And then maybe Q Perry.
The Air Air core commentary is a lot more optimistic better frankly than I think the peer group right now.
Explicitly called out auto I'd love to hear more about.
Pacings, and what's driving that outperformance and optimism right now.
Well I think it's it's fits the fact and the facts are that we have seen sequential.
Monthly improvement in core advertising results since the low end of April.
And that continued uninterrupted through the third quarter with every month every month, finishing better than the month before in relation to the prior year.
And that is continuing in Q4 with the exception of October obviously half of our political revenue for the year came in the month of October. So there was displacement there, but even with all of that our fourth quarter auto pacing is better than 20 points better than where we exited auto fourq.
Three so.
The sports betting category is now a double digit millions per quarter business for us an eight digit category on our on our quarterly basis that didnt exist last year, and and Tim Bush and his teams have done a great job of generating new to television revenue, which is up substantially as we just reported on.
On a year over year and quarter over quarter basis. So our teams are really hustling and I just can tell you that.
The the results I think indeed.
Indicate that.
That's really helpful. And then obviously, there's been a lot of noise I think around net retrans lately just timing I think you are pretty clear Harry unless I Miss heard you just in the call that you still expect that to be a source of growth even with us.
Smaller footprint coming up at the end of this year. So I just want to confirm that you're still anticipating strong net retrans growth and 21.
Yes. They are yes, and we don't have any mismatch timing contracts. If you go back and look at our 10-K, you will see that we have approximately 18, we have 154 big four affiliates and we have approximately 18% of those coming up for renewal.
All in.
In 2021.
If you look at.
And we have approximately 18% of our subscribers on the Retrans revenue side.
Renewing between now and year end.
So we've got a much better Mitch much better better match of the you know the.
The renewing revenue and the renewing expense contracts. So we don't see any any material impediments from that perspective perspective, and they're also annual escalators in our existing contracts.
By and large reset at the beginning of the calendar year.
Perfect sort order and short answer to your question is yes, we expect continued net retrans growth.
Yes. Thanks.
Thanks, Thanks, Larry and Tom just just quickly gets and I don't know Perry I know you spend a lot of time discussing capital return.
You guys are probably going to end the year really within spitting distance of your original free cash flow guidance. Despite all the noise. We've had this year and with the incremental cost might have been a dance say that say that again.
Say that again, one more time.
I'm pretty sure you're going to end the year within spitting distance of your original free co that free cash flow guidance unless my math is wrong.
So feel free to correct me Tom.
But.
With you with your incremental cost savings here.
You guys have incredible Optionality at this point and I know Harry Theres. The FCC Supreme Court case, and there are some things that you could do but at what points.
How do you just view the balance here I mean, you guys have this tremendous amount of flexibility. So when do you get more aggressive on either the dividend or the buyback and I know you're focusing on debt near term, but just.
Just any incremental color there would be really helpful.
Well I can tell you that again, because it's factual and finally, Tom and I talk about this literally every day I mean, there are some small accretive acquisitions in the digital space that we're looking at there are will be occasional end market television opportunities I think we're waiting for clarity on the.
The Supreme Court.
Activities, which probably will come in may or June of next year as to what that landscape looks like.
And in the meantime, we have been very aggressive in reducing leverage and paying down absolute dollars of depth, while spending a fair amount of money on buying back stock and obviously our dividend is is constant and constantly increasing on an annual basis, something north of 20%. So.
We think maintaining that option value is right now, but the right thing to do but we know what all the options are but Dan I'd also point out we bought back almost 3% of our stock this quarter than in the <unk> in the third quarter.
So if you annualize that that's that is a.
It's a substantial amount of the stock and we see.
At current levels, we see that as being opportunistic and the potential going forward as well so.
I know a lot of people like to kill these when I say this but we can walk and chew gum at the same time I've been quoted on that several times, but I.
I think this is going to be an example of that because again the free cash flow in the fourth quarter because of the great work that we've done on political is going to be massive and so we have.
Some great Optionality and it's interesting and I guess I really never had a greater appreciation for this but the timing of the TV food network distribution. In Q1 Q1 is traditionally in the broadcast business Youre your low point of the year from a seasonality perspective, well, we don't have that.
Couple of anymore, because we got a massive infusion of cash from TV food network in February of every year. So Q1 is going to be another good quarter from a free cash flow perspective, so as I've said before I think weve got really good visibility and it gives us some great options and we'll be able to I think.
Execute in a number of different aspects simultaneously.
And you get the Super Bowl in 21 on CBS, so that doesn't hurt to either alright.
Congrats guys. It's just it's a great all around print thanks very much for the color.
Great. Thanks, Dan.
Well take our next question from Kyle Evans with Stephens. Please go ahead.
Hey, Thanks, Eminem push a little bit harder on the Supreme Court.
I appreciate the timing there the May June.
If we can get from that.
What was originally.
Got on the books.
Could you put some brackets around the opportunity there I know you have.
Preacher.
We had a good understanding of what you're doing.
Operating contribution was and I'm not sure I have that today.
I appreciate it.
Well Carl as you know the Supreme Court.
The Capex for the Supreme Court would deal with end market.
Ownership restrictions and has nothing to do with the national cap. So I would call your attention to the major markets CW in my network Stakes stations, we have that are tremendously successful, but our standalone operations that the opportunity to work to combine with other stations in market is is something we would certainly take.
Well look at.
If the opportunities presented themselves but.
Again, approximately two thirds of our markets operate.
Driving economic benefit for more than one station. So it's the other third and now the way the portfolio is constituted those many of those opportunities are toward the top end of our market list.
Got it.
You mentioned.
Sequential improvement in core since April.
Despite pressure in October could you put some brackets around kind of what you saw intra quarter threeq.
Give us a number.
I would I would say generally speaking.
Q3, as a quarter was down mid teens.
On a same station basis core.
And with the exception of October.
I would say, it's going to be down mid to high single digits.
So far in in Q4.
Thank you.
And then Terry ripped through those renewal metric.
21, and 22, I am sorry could you repeat it as again.
I'm, sorry, what was that.
Right kind of Retrans renewals you gave the network I thought there were network renewal numbers for 21 22 I.
Maybe I misheard that.
Well, it's not so much renewal, it's what we have booked and again. This is on page Cedar page 14, or page 16 of the 10-K, where we list out by the Big four affiliates one is coming up and if you. If you do the math through the end of 21, we have approximately 80% of our affiliates done.
If you think about that Thats call it 20% up for renewals, while we have 18% of our.
Our retrans renewals up between now and the end of 21.
So that's that's the synergy and the the.
The lack of.
Have any sort of arbitrage with regard to the Retrans revenue and the affiliation and then through the end of 22, we've got 70% of our network affiliations under contract. So really the the bulk of the renegotiation of the affiliation comes in 23.
And beyond.
Got it last one is WGN score.
Cereal to the model today.
In Threeq. Thanks.
Are you talking about WGN a.
Yes.
WGN A's.
Advertising revenue is a nine digit number.
Fairly low and then I would say, it's high single digits of total core advertising.
That's fair great. Thank you.
Well take our next question from Jack Silver with B. Riley. Please go ahead.
Okay, great. Thanks for taking the question just a high level one for me.
We've had a huge political cycle in 2020.
We've got maybe got couple more cycles of really healthy rate step ups on the Retrans side before you sort of reached the viewership and dollar share parity that you've talked about.
I'd be really interesting to hear from you guys. What you think drives the next leg of growth for Nexstar. Thanks.
Sure well, we're not done with political for this year, there will be one potentially to runoff races in in Georgia for a b. The run offs. We compare contested on January 15 of next year I.
I think youre going to see from our one nexstar approach and we spent literally a year, putting this together, where we brought digital and broadcasting and cable and everything under one roof in one piano.
One silo, if you will and the synergies not only financial but operating and sales go to market us synergies of this one company multi platform approach, while it may be a little walking in the weeds for to talk about with investors, but that is really what we see being the next leg of our organic growth.
And again, we think we have opportunity to make some select accretive acquisitions in digital.
I will tell you that in terms of Ats see 3.0, we have a dozen markets on the year and operating.
Or will by the end of this year and our target internally next year is to launch another 20 markets, where they TSC 3.0, and these are some big ones, Los Angeles, San Francisco, Dallas, Houston, Cleveland among others. So we are we hope to have by the end of next year approximately a third of the U.
Wes covered with Nexstar, a TSC 3.0 signals and again the the business case for that is both offensive and defensive it will allow us to put a four case signal out over the year and crew and Thats a noticeable to the difference over even current HD and it all.
So as an IP based transmission standard, which will allow people to ultimately seamlessly go from device to device.
And we think that that is the next leg of growth for the business, but we think the monetization period is probably still.
Four or five years off before that becomes meaningful so yes.
Again, if you look at the free cash flow generating power of this machine. This platform, it's going to give us optionality in terms of how we want to create value just with the amount of free cash that will will come out the come out the process here.
On an annual basis for the next several years.
When we after we did tribune and prior to relay that Supreme Court agreeing to take up.
The the FCC case.
With regard to end market ownership.
We are singularly focused on improving the operations and mining additional value from the assets. We have you can I think the poster child for that right. Now is news nation on WGN America, taking something from nothing reruns and turning it into a product that clearly has value.
Are you from our perspective, and we do from advertisers perspective, if you go back and look at the political coverage the largest advertiser and the political coverage on WGN America News nation was Facebook so.
So kind of strange bedfellows, I know, but they clearly see the value in this.
And also Perry mentioned it before its these large markets CW use that are have historically underperformed as a matter of fact as cws, they've underperformed underperformed to such a degree that in a number of the large markets were really more about local news than we are any sort of.
Secondary network affiliation with either the CW or my network. So it's really taking those assets that we believe to have substantial value and are just underperforming from a financial perspective and to make that rely and to realize that on the income statement in terms of greater potential.
I will and greater cash flows contributions to the financial side of the business. So there are strategic there our tactical areas that we're all working in both long and short term to create value.
Got it that's really interesting and then just on destination apologies if I missed this but.
In terms of viewership and engagement.
The new nation offering.
Any any numbers you can get as or if not.
You are shipping engagement meeting your expectations, yes.
Given that it's early days.
Sure well.
I guess I guess the.
Headline is that 12% of America knows that news nation is on WGN America in Prime time, seven nights a week. So that is job one is increasing awareness as you know the project basically finances itself other than the initial capex outlay, which is now in the rearview mirror.
Not renewing rerun contra.
Contracts allows us to invest in news nation launch and now going forward and expansion and we have plans to do that so I'm very pleased with the product I don't know if you have to see any of it on election night.
Tend to watch a little bit of it just about every night and.
We are we are working very hard and staying true to our mission of both.
Balance not bias and facts not opinion and and we have 35 correspondence from around the country from our Nexstar nation stations as well as our correspondents that news nation employs directly reported widmore livestock than anybody any any other news organization in the country, providing news from the states.
And localities where is happening not a roundtable of pundits talking about what was going on and that's our that's our point of differentiation and and again.
I can't tell you we've never had political revenue on WGN America, and its existence and this year that was a million dollars Facebook has never done business with WGN America pharma has I mean financials and never done business with WGN America, and they're on our advertising clients. So.
We're in it for the long haul and Im very pleased with the early results, but obviously awareness is the number one issue that we will attack as we continue to expand the product into more dayparts as as time goes on.
Got it okay. Thanks, Tom.
We'll take our next question from Craig Huber with Huber Research partners. Please go ahead.
Great. Thank you.
A housekeeping question first maybe I missed this but the retrans subs, how much upside down year over year I think you told US three months ago, It was down 5% to 6% for the second quarter.
It was down mid mid mid.
Mid five percents.
And it's down slightly less than the most recent quarter was on a trailing 12 basis, the best of any quarter seasonally us that way anyway, but I would say if it was down between five and 6%.
In on a trailing 12 basis last quarter, it's down between five and 5.5% currently on a trailing 12 month basis.
Okay, that's so slightly better.
Okay appreciate that and then.
I think you guys said for the month.
For October.
The fourth quarter of core advertising is down.
Mid to high single digits or the correct.
That is correct can.
Can you give us a sense I know, there's a huge amount of political displacement in October.
Can you give us until October.
Ended up doing.
No near term question.
I would say low double digits.
So have held up pretty well in the scheme of things. So I appreciate that.
Big picture question within your various markets what percent of the viewers do you think.
Consume your content for your big four TV stations over the air as opposed to through MPPD.
It's approximately it depends on the market, but the average across the company over the air viewership is approximately 15% to 16% of TV households.
I mean thats in terms of distribution, but because the over the air viewers have fewer choices necessarily the viewership in those homes to the over the air stations.
It would be higher.
Just because there is a fiber channel universe, it's maybe 40 or 50 channel universe.
Great Thats all I had thank you.
We'll take our next question from Bryan Kraft with Deutsche Bank. Please go ahead.
Hi, good morning.
Just had a few quick ones.
First any update on the relationship with Peacock incentivize moved at all yet.
Wanted to ask you also on the balance sheet. Just how are you thinking about the mix of bank versus bonds does it make sense to read to refinance more the term loans into fixed rate debt at this point.
Good morning interest rates are and then last one are you seeing any impact from I know the AD revenue trends are very encouraging.
But is there an underlying any kind of negative impact there from the lack of full broadcast schedules on your viewership.
For example is it hurting the lead ins to.
Evening news or anything thanks.
Ill answer the first and the last and leave the middle question for our CFO COO and president.
Now has more titles than me.
We obviously the networks through September and October did not were patch working together schedules I'll remind you that network primetime revenue that we generate here at Nexstar represents between 15 and 16% of our AD supported revenue where over half of our AD supported revenue comes from local news.
And those viewership levels have continued to be up.
Year over year, and they'd come down from the probably the high increases in second quarter, but were still up virtually across the board with with our local news product. So.
If anything it's been a net positive in the areas, where we make the most of our money, but there has been no real effect in terms of the networks patchwork quoting their schedule, so far but as you know that the big four are rolling out even as we speak there.
Their originals and returned to their series programming over.
Over over the month of November and I think it will look a lot more normal going going forward.
First question was up was about Peacock know, there's I mean, because it is what it is and currently doesn't include.
The local affiliates stream thats not their model is really kind of a video on demand model.
Discussions continue as to whether in involving the affiliates is a good thing or not but it's in it's in such infancy at this point.
It's not been a focus of of NBC or Comcast at this point so life goes on the on our with without the affiliates being a part of it.
That could change at some point, but I don't know that it's necessarily material.
With regard to the debt capital structure, we look at opportunistic refinancings all the time, obviously, we did that we upsize the bond deal slightly.
Above and beyond what was required to take out the $900 million of notes, but look the debt capital structure is driven by the strategy and the strategy continues to be at this point to look at acquisitions I would say ask.
Ask me that same question. This time next year and I'll have a better feel for.
Where the strategy is taking us just with regard to acquisitions versus return of capital to shareholders. If we go towards more return of capital to shareholders I wish I could definitely see a higher percentage of fixed rate debt I would just say, it's probably a little too premature to go there right now, but clearly I can say that would.
Beyond the playbook going.
Going forward.
Got it okay. Thank you are we also need something to pay down at our free cash it's hard.
It's more expensive to pay down fixed rate debt. So I think you'll continue to see a mix here. So we have optionality as to what to do with our free cash.
Fair point, great. Thank you.
Well take our next question from John Janedis with Wolfe Research. Please go ahead.
And the second a follow up one for Dan.
Coming off the top of the hour guys just headlines around the continuing are you seeing any change in advertisers' willingness to commit.
Into or out of the holidays. This feel like it much less of a concern and has the increasing digital engagement or changes you spoke to accelerated demand for the digital offerings.
Well, obviously engagement on our digital offerings is is up so yes, we're focusing on on that and turn broke and her team are building out.
Additional.
Additional offerings and updating our web sites to continue to make them, even more user friendly and improve the engagement time spent on site Thats standard operating procedure, but yes. All of that is going on we've not seen a reluctance at this point are pacing is solid for.
Post election through the end of the year here.
And again when you look at the categories that were that outperformed in Q3.
Medical healthcare home repair home improvement as we mentioned lottery and gambling sports betting and the various service categories and again. This 20 plus percent increase in pacing of auto for the fourth quarter and we're into the second month of the quarter now so it's not a timing issue its apps.
Dollar quantum being spent that's better than 20 points better than where we exited third quarter and results versus the prior year. So.
We're not back to flat, yet, but we we anticipate our exit velocity from fourth quarter being the best that it has been all year and the closest to flat that we have been now we'll have a leg down in first quarter as Tom mentioned earlier, because that's the only unaffected quarter for co, but you know in our in our.
TM, but after that I think you will see substantial increases over prior year because of the low base accused two and three in terms of core revenue performance during the.
What we hope is the worst of the pandemic.
Hi, just one last thing on gambling it feels like it's still early days there I mean does that have the potential to be a set top five or 10 category or are materially higher from here in terms of $10 million less run rate.
Well, yes, I think if you look at lottery and gambling all in it is a top 10 category and you've got state lottery business and all of that the gone is ongoing but for example, if it was.
Double digit if it was high teens all in the sports betting probably made up 70% of that in Q3, and we actually have more dollars on the books for Q4 than we exited Q3 in that category. So I see a growing it and I can tell you that we're talking to.
All of the companies involved in that business that want access to our distribution I'd like to produce long form and short form content for us in addition to buying advertising and and those discussions are ongoing. So I think we're fully engaged in the category. So.
I do expect that we will continue to grow because it's not fully built out now and again thats on a state by state basis, where the gambling is.
Permitted and.
As as that footprint continues to grow we think the category will continue to grow.
Thanks, a lot.
We'll take our next question from Steven Cahall with Wells Fargo. Please go ahead.
Thanks first let me just trying to understand some of the benefits of the reorganization. It seems like this is a pretty big deal. So im sure. This is a lot bigger than just the back office savings. So I was hoping you could just expand a little bit on what the potential long term revenue benefits are from that new initiative. Thanks, a quick follow up on the guidance.
Well I would say that there are a number of them, but one one area that we have not participated into a meaningful degree historically has been national partnerships, where again with a billion and a half page views and.
Broadcast signals that reach.
6% to 70% of the country, we have the reach that they're looking for and can tailor make information and well my.
Most of that are obviously consumer products.
Whether it be autos.
Used auto sales could be direct to consumer a number of areas, where we can do multi platform.
Delivery of of really good demographics and reach.
To some categories that really have not have kind of escaped asked because.
Our focus has been and continue we'll continue to be local but these are areas that we now with the addition of the.
First with a rerun payments.
Are are you in process of refining.
They are programming and do you think there will be any let down as perhaps the attentions news.
Yep, it's a little bit perhaps after the election.
Well, Jim I kind of turn the question around and say your fares a Democrat in the Whitehouse what is M. S. N B C. You're going to have to talk about and you know our focus has been on news and no opinion you know we're talking about expanding shows you know in the other day parts, which would be personality driven like.
A morning show.
We're talking about potentially launching Ah.
To borrow a P. B S term a crossfire show to have people on opposite sides of an issue debate that issue every night.
And we have some other things in the works and I don't want to.
Tip, our hand, there, but I.
Again, I think that we've got a swim lane here, which is give me then don't tell me what to think just tell me, what's going on and I will make up my own mind, which we think is the largest swim lane.
Potential rather than being to the far left or the far right and and it's also the right thing to do so we will continue to mind that and you know.
We are obviously a lot smaller than C N N or Fox at this point, but therein lies the opportunity and and we're pleased with.
You know the launch and the start and we think our prospects are good you know again opening up a whole new category of advertisers that by news that don't buy reruns of Bluebloods and then it.
It helps us validate our distribution revenue stream and quite frankly, when I look at the distribution revenue or affiliate fees that Fox and C. N N generate.
That is our largest opportunity, even even greater than the advertising opportunity, which in and of itself will continue to grow so.
Signal, but with 83.0 that can be three times that and not that we need you know 200 vision that's out there, but there are opportunities for ancillary uses of our spectrum and HCFC 3.0. In addition to being the wireless connector of the Internet of things, which I think is our highest and best.
Value creation opportunity, but.
There there are a lot of things given the scale that this company has uniquely and linear television to to generate.
Ancillary business opportunities and we have one digit that now that we own.
By this time next year, we might have to ditch and that's that we own in a couple of others. We partner with an addition to the folks that lease spectrum from us to to get their digits distributed throughout the country. So it's it's not a huge.
Revenue and profit category it is.
Double digit millions into the twentys of millions of revenue already and with the folks at least spectrum from US. It's you know into the Fortys and Fiftys millions of revenue and has a nice profit margin with it but that's in the scheme of a company that did over $1 billion net revenue. This.
This quarter this past quarter, so but it is it is an area for growth and again, we're mining those.
Mining all of those organic growth opportunities that we have given that.
The size and scope of the company we've assembled.
Okay. Thanks for your perspective.
We have no further questions in the queue I would like to turn the conference back to your speakers for any additional or closing remarks.
Well. Thank you very much everyone for joining us today, we look forward to reporting in early February our Q4 results and at that point, we'll give you our perspective on guidance for 2021 and 2022. So thanks for joining us and have a nice afternoon.
Ladies and gentlemen. This concludes today's conference. We appreciate your participation you may now disconnect.
And.
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