Q4 2020 Nexstar Media Group Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the Nexstar Media group fourth quarter 2000, and 'twenty results call. At this time, we are getting additional participants and she began and just a couple of minutes. We appreciate your patience and ask that you. Please remain on line.
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Nexstar cautions that these forward looking statements are subject to risks and uncertainties.
And that may cause actual results to differ materially from those reflected by the forward looking statements made during this call.
For additional details on these risks and uncertainties thinks the next price annual report on form 10-K for the year ended December 31, 2019 flu and Matt Nexstar subsequent filings with the Securities and Exchange Commission Nexstar undertakes no obligation to update or revise any forward looking statements, whether as a result from new information future events or otherwise.
And now my pleasure to turn the conference over to your House, Nexstar founder Chairman and CEO Perry Sook Perry. Please go ahead.
Thank you Joseph and good morning, everyone and thank you all for joining US to review Nexstar has record fourth quarter results, including net revenue profitability and cash flow that all again surpassed consensus expectations as always Tom Carter next our president and Chief operating Officer and CFO is on the call with me this morning.
It's been and active and productive time at Nexstar and I am proud to report that in Q4 and over the course of 2020, we achieved or exceeded the most important of our operating financial and return of capital goals. Despite the challenges presented by the pandemic.
Perhaps more on each of those items and just a moment.
Nexstar nation is comprised of more than 12000 talented team members across America, United by a calm and commitment to localism integrity innovation and growth we credit our results to the resiliency and adaptability of our outstanding teams and throughout the year to day dynamically managed our operations for continued free cash.
Flow per share growth and I'm extraordinarily proud of Nexstar has dedicated employees as they rose up to address the unprecedented headwinds created by the pandemic and worked tirelessly to deliver on the value of the 2019 Tribune media acquisition, while providing essential services to our local communities during a difficult time for our country.
We believe what we've accomplished since closing the Tribune transaction in late 2019, and throughout 2020 sets us up very well for 2021 and beyond and to leverage our scale our focus on operational excellence and the growth of our digital properties and all generate significant free cash flow and reduce debt and drive further total shareholder return and this is reflected and.
And the guidance we initiated this morning for pro forma average annual free cash flow for the 'twenty, one 'twenty two cycle of $1 $2 7 billion.
Simply put Nexstar had an outstanding 2020, despite the headwinds and our strong fourth quarter and full year operating results Mark another year of record financial performance with all of our key metrics from net revenue to free cash flow growing at double digit rates or more and coming in at the highest levels and the companys history for both the three and 12 months peer.
<unk> 2020.
The 25% rise and fourth quarter, net revenue and 107% increase and operating income over the prior year highlight the ongoing value of our strategy is focused on leveraging our local content and community involvement to generate record AD revenue and share and our markets as well as develop high teens distribution revenue growth our ability to cash.
<unk> historic levels of election, spending and our markets, which also substantially exceeded our 2020 guidance combined with the strong operating leverage and our business model drove record fourth quarter, adjusted EBITDA and free cash flow for.
For the full year, our enterprise wide focus on managing operations for current and future cash flow enabled us to generate adjusted free cash flow of approximately $1 3 billion or about $30 per share representing approximately 100% growth over the 2018 levels. When we last had the benefit of the political cycle.
Our consistent and rapid growth as evidenced by comparison to the 2016 presidential election year, when nexstar generated approximately $8 and free cash flow per share. So over four years, we've grown that important metric by approximately 275% and.
And 2020, we brought about 28% of every net revenue dollar to the free cash flow line, allowing us to invest and our platforms and make complementary accretive acquisitions, while also paying down approximately $1 billion and depth and returning approximately $383 million to shareholders and the return and the form of share repurchases and dividends.
As we reduced our year and outstanding share count to $43 3 million shares so.
So we essentially tripled our return on capital in 2020 over 2019, while reducing the share count by two 4 million shares.
With the combination of our recent 25% dividend increase authorization to repurchase up to an additional $1 billion and and shares.
Our strength, our strong free cash flow guide for 'twenty, one 'twenty, two and are already reduced share count. It's clear that we have the ability commitment and flexibility to further grow our free cash flow per share during the current two year cycle.
And the almost 25 years since we founded Nexstar, we've built the nation's leading local media company by focusing on the communities, where we operate and the prudent use of leverage to support our strategies for growth and enhancement of shareholder value.
Throughout our history, we have upheld our promise to our communities by expanding our local news programming and content to inform and entertain our viewers, while providing premium local advertising opportunities app scale for advertisers as well as political campaigns at the same time, we consistently create new value for our shareholders through growing returns of capital capital struck.
Improvements and a continued focus on leverage reduction.
Looking now at the quarter four quarter net revenue increased 25, 1% and reflecting strong flow through on our model Nexstar generated record fourth quarter adjusted EBITDA free cash flow before one time expenses with these metrics growing 64, and 5% and hard and 22, 1% respectively throughout the quarter. We also.
Made significant progress with our leverage reduction and return of capital initiatives as we lowered net debt by $326 $3 million and allocated $108 8 million to quarterly cash dividends and share repurchases as we bought back 835000, and 745 shares during the quarter.
Reflecting our full year debt reduction of $1 billion. We ended 2020 with net total leverage at three six times marketing and other metric, which exceeded exceeded the street's expectations.
Turning back to Q4, while robust robust demand from campaigns and issue advertisers. This election season resulted in a reduction and inventory available for local and national advertisers and October and early November we continued to generate sequential month over month core advertising revenue improvements in November and December which were the strongest months of the year.
Since the pandemic began next.
And next door is industry, leading scale diversified revenue sources and consistent execution resulted in a 37, 3% rise and fourth quarter total television advertising revenue as we benefited from the recovery and average advertising spending across key categories, which was offset by the allocation of inventory to political.
Fourth quarter TV advertising revenue was $771 8 million includes political revenue of $298 3 million, which resulted in full year political revenue of 506 point I'm, sorry, $507 6 million.
Which substantially exceeded our street guidance at the same time core advertising revenue of $473 5 million marked a significant increase over third quarter levels of $381 9 million Q2 levels of $298 2 million and Q1 levels of $417 4 million.
Notwithstanding the allocation of significant AD inventory to political and the effects of the pandemic. Our next our local sales initiatives continue to generate solid levels of new business with fourth quarter, new to television AD revenue rising on both a quarterly sequential and year over year basis, and total our sales teams generated $27 $8 million of fourth.
New to television revenue, which was a nine 9% rise over the third quarter and a 35% increase over comparable 2019 period.
Looking at Q1, and 2021, and we continue to see strong core pacing data. We are highly encouraged by the advertising rebound across our station footprint and most notably and auto our largest category where in Q4, we grew auto AD revenue by 43% over where the third quarter finished.
And the resumption and auto category spending is complemented by a resurgence and AD spending and insurance gaming sports betting on service home repair drugstores packaged goods grocery stores and retirement and nursing homes, and our new business strategies, our ongoing sales training and our performance based incentive structure have all proven very effective and on.
Our ability to capture AD spend and both broadcast and digital.
Distribution fee revenue rose 18, 4% year over year to approximately $528 million, reflecting our renewal of distribution agreements in 2019, partially offset by the onetime impact of outages during distribution negotiations with a certain satellite provider and the 2024 quarter.
Subscriber trends across our platform continue to remain consistent with our expectations and the ongoing distribution revenue growth and net retrans margins that we currently project and our guidance.
With a successful renewal of 2020 year and distribution agreements, representing approximately 18% of our subscriber base.
And 70% of our distribution base renewed in 2019, we have continued revenue growth from this source that is highly visible and 2021 and 2022.
Nexstar has solid visibility into our contractual distribution economics as I said through 2022 and in addition to the 2019 and 2020 multiyear retransmission consent agreement renewals, representing again, 88% of our subscribers cumulatively. We also have the bulk of our network affiliation contracts with CBS Fox and NBC on.
<unk>, new long term agreements, which were which were completed in the second half of 2019 as a result, 85% of our big four affiliations are contracted through December 31 of 2022.
This combined with the fact that in Q1, we will receive our cash distribution from our 31% ownership and the TV food network will help to ease the historical seasonality that media companies face with Q1, typically being the smallest quarter of the year.
However, I will remind you that our Q1 comp to 'twenty and 'twenty will be the toughest of 2021 and that we started last year very strong and benefited from political AD revenue before the advertiser pullback that began at the beginning of March.
And fourth quarter 2020, total digital revenue declined 12, 5% as with the broadcasting and digital subsidiaries now operating together under the Nexstar Inc. Umbrella. We are further deemphasizing lines of business and digital that produced high volumes without substantial margins, reflecting this focus digital profitability was up substantially over the comparable.
And prior year period.
Following the acquisition of Tribune media over the past year Nexstar has transitioned its digital operations and focused the content first and audience development.
As a result, Nexstar digital properties delivered record growth and audience engagement and 2020 ranking number one and local news for every month of the year and reaching all time highs across key performance metrics, including average monthly users of over $91 million total page views for the year and in excess of $7 8 billion total multi platform.
And minutes of over $10 4 billion and total total digital video views.
Excrete exceeding $1 6 million and those statistics are all according to Comscore.
During the fourth quarter, we completed the strategic and operational alignment of our broadcasting and digital subsidiaries and as a result, we expect a mid seven figure expense savings in 2021 as a result of the synergies efficiencies and streamline reporting structures. We are now on the process of leveraging our integrated content strategy across Nexstar has 400 digital touch.
Points to drive increased monetization during 2021.
We are laser focused on accelerating the profitability from our digital properties as we maximize the value of the content national reach and significant consumer digital usage across our multiple platforms and the fourth quarter. We completed the first transit transaction under our new content first strategy with the accretive acquisition of best reviews, our leading consumer.
<unk> recommendations company best reviews, Diversifies, our digital content portfolio, while presenting the company with new and significant revenue channels.
By leveraging our media content and national reach and significant consumer digital usage across multiple platforms.
As I mentioned at the outset of the call. We responded to the pandemic with great speed and intensity to adapt our business and to preserve the health and wellbeing of our teams while ensuring that we continue to prudently and digitally diligently manage our cost structure and liquidity position, we implemented a range of cost cutting initiatives, which resulted in operating and corporate expense savings.
<unk> $75 million from our budgeted levels for last year.
The strong foundation of our assets operations and financial structure enabled us to extract significant cost savings, while preserving the incomes and jobs of our valued employees. So we could continue to delivering uninterrupted service to our local communities. During this critical Tom.
In summary, despite the challenges presented by the pandemic 'twenty and 'twenty was a year of historic financial performance and growth for Nexstar and.
Nexstar continues to perform exceptionally well despite the challenges presented by the pandemic. Thanks to our differentiated differentiated broadcast and digital content and sales programs and our continued robust distribution revenue growth significant income from equity investments and record levels of political ad spending.
Our capital allocation activity highlights the fact that our free cash flow and active management of both the cost structure and the balance sheet provide us with financial flexibility to continue supporting our shareholder value creation initiatives. As a result, nexstar remains highly confident and our long term strategies of serving our communities building our top.
Line, maintaining close control of our fixed and variable costs and optimizing our balance sheet.
With all of that said, let me now I'll turn the call over to Tom for the financial review and update Tom Thanks, Perry and good morning, everyone as outlined on this mornings press release, the actual results for the three months ending 12, 31, 'twenty and the comparable three month period, ending 12, 31, and 2019 reflect the company's legacy Nexstar broadcasting and digital operations.
And a full quarter of results from the Tribune media stations, which we acquired on September 19th 2019.
Fourth quarter 2020 revenue for WGN America also acquired and the Tribune transaction is included in core TV advertising revenue and distribution fee revenue a full quarter of contribution from Nexstar has 31, 3% ownership stake in TV food network and other investments acquired and the Tribune transaction is.
Included in the full income statement under income or loss on equity investments net and and the cash flow statement under distributions from equity investments.
All actual results reflect the impact of $14 3 million and 29 million of onetime transaction expenses incurred and the respective quarters of 2020 and 2019.
I'll now review Nexstar Q4 income statement and balance sheet data after which I'll provide an update on our capital structure and some points of guidance.
Fourth quarter net revenue increased 25% to $1 38 billion total television advertising revenue increased 37, 3% to $772 million.
Reflecting more than seven fold increase in political advertising to a record $298 million, which more than offset a nine 9% decline in core advertising to seven I'm, sorry, $2 $474 million.
Distribution fee revenue increased 18, 4% to $528 million with growth, partially offset by the onetime impact of outages relating to carriage negotiations with Ey and mvpds.
Digital revenues declined 12, 5% to $65 million due to our de emphasis of lines of business to produce higher volumes without substantial margins as a result digital profitability was up substantially over the prior period as Perry mentioned before I think it's important to note from a core advertising perspective.
October was affected obviously by the political advertising and was down a mid teens amount.
However in November and December on a combined basis was basically flat to prior year as Perry mentioned.
Giving us a good exit velocity on 2020 entering into 2021, and we feel really good about.
And the strides that have been made to recapture that core advertising business.
To offset the anticipated impact of Covid and 2019, I'm, sorry, COVID-19 on commercial advertising revenue late in the first quarter Nexstar implemented a range of cost cutting initiatives. The result, this resulted in operating and corporate expense savings approximately $75 million per the year compared to the originally budgeted levels.
Fourth quarter direct operating expenses net of trade expense were approximately $432 million essentially flat compared to the prior year, while fourth quarter station SG&A was approximately $219 million, reflecting growth and expenses associated with the broadcast AD sales related to a record political revenue.
Same station pro forma fixed expenses, excluding programming expenses were down seven 4% over the prior year due to the previously mentioned expense reduction activities and response to the pandemic and the implementation of synergies associated with the trivium transaction.
Further evidence in our active expense control and corporate expenses declined 14, 6% to $54 million inclusive of $14 3 million and stock based compensation expense for the quarter. During the quarter. There were $14 3 million of one time transactions costs of which $7 4 million were actually.
Cash expenses.
Fourth quarter operating cash taxes were approximately $125 million and approximately $270 million per year, reflecting the higher then re forecasted net income in Q4.
Ongoing capex totaled $49 million per the quarter and $157 million for the year.
From Repack Capex total approximately $5 4 million and received approximately $5 9 million of reimbursements from the FCC during the quarter. As a reminder, we anticipate being fully reimbursed for all capex related to spectrum repack as those activities wind down later here in 2021.
Fourth quarter total interest expense amounted to $74 $5 million down from 107.002 million 19 cash interest expense was approximately $71 million compared to $102 million last year with the decrease due to lower interest rates and lower first lien borrowing levels.
Fourth quarter, adjusted EBITDA of $671 million and free cash flow of $450 million, all before transaction expenses exceeded consensus expectations and reflect record level levels of political revenue sequential month over month improvements and core advertising spending, particularly in November and December continued strong double.
Distribution revenue growth and $16 $7 million and distributions from the TV food network, which were higher than originally expected.
With strong operating leverage and our business model Nexstar reported adjusted EBITDA margin of approximately 47, 7% and the fourth quarter for.
For the full year Nexstar generated $4 5 billion and net revenue adjusted EBITDA of approximately $2 billion and free cash flow of approximately $1 3 billion all before onetime transaction expenses.
Our significant year over year growth and margin expansion highlights our team's tremendous success and navigating the challenges presented by the pandemic to deliver on the value of the Tribune media acquisition.
While we continue to operate and the dynamic environment full year 2020 free cash flow was in line with our pre pandemic expectations and 2021 is off to a solid start as a result, we are reiterating guidance and expect to generate pro forma average annual free cash flow of approximately $1 $2 seven.
Billion over the 2021 2022 cycle, which supports our view that Nexstar is path to growth expanded returns of capital and enhance shareholder returns remain on plan.
Looking ahead, we project recurring cash corporate overhead exclusive of stock comp and transaction costs to be approximately $30 million for Q1, and we're expecting corporate overhead for the year to be between 115 and $120 million non.
Non cash comp is expected to be approximately $12 million for the quarter and $52 million per their full year transaction expenses in Q1 will be approximately $5 million.
Operating cash taxes are expected to be approximately $12 million and the first quarter and approximately $280 million for the entire year.
Capex should come in and approximately $28 million and first quarter and $135 million for the full year.
We expect Nexstar as cash interest expense to approximately $70 million for Q1 and $285 million for the full year, reflecting interest expense savings related to the decline in LIBOR rates and our recent refinancing activity.
As a reminder, we received cash distributions from TV food network on a quarterly basis with the largest payment recorded during the first quarter of each year for the first quarter of 2021, we anticipate recording approximately $160 million and TV food network distributions and approximately $210 million to $215 million.
For the full year.
Turning to the balance sheet, reflecting the recent capital markets transactions.
$326 million and debt reduction and Q4, the best reviews acquisition and the Debbie Pis TV purchased by mission Broadcasting Nexstar as outstanding debt at $12 31, 'twenty was approximately 767 billion and consisted of $4 9 billion of first lien debt and term loans.
And revolver balances and two tranches of senior notes senior unsecured notes.
At 5% and five 8% and four and three quarters per cent.
Total debt amounted to approximately $7 5 billion at 12, 31, 2008 compared to $8 3 billion at 12 31 19.
Net debt for first lien covenant purposes is approximately $4 7 billion with net cash limited to $200 million.
Our net first lien covenant ratio of 12, 31, 'twenty was approximately $2 two eight times compared to $3 five two times at year end 2019, which is well below our first lien covenant of 4.25% I'll remind you that that Im sorry, 400 prototypes I'll remind you that first and then that first lien covenant of four.
And a quarter times is our only meaningful financial covenant on our debt stack. Our total net leverage at quarter end was three six times compared to 518 times at 12, 31 19 and in line with our previously stated goal of reaching the high threes by year end 2020.
At the onset of the pandemic Nexstar took immediate actions to adapt our business to operate and the current environment and to preserve liquidity in order to best position. The company for long term success as we returned to normalized operations with the improving business environment and environment and broad vaccination distribution now getting underway during the fourth quarter.
We are strategically deploying our cash in a manner, that's consistent with our commitment to enhance shareholder returns.
And the three month period ended 12, 31, 'twenty and we returned approximately $109 million to shareholders through the repurchase of 835000 shares for approximately $84 million and through our quarterly cash dividend payment of $24 5 million.
During the quarter, we also made $326 million and debt repayments and addition mission broadcasting and completed the acquisition of <unk> TV and Nexstar completed the accretive acquisition of best reviews, a leading consumer product reviews company.
Through 2020, we have actively managed our capital structure cost of capital and liquidity position to support our business and enhance shareholder returns for the full year, we allocated approximately $1 $1 billion towards shareholder value, creating initiatives, including approximately $800 million and debt reduction from operation.
<unk> $100 million and dividend payments, and approximately $282 million and $282 million and shareholder repurchases.
With our share count now down to 43 3 million shares on a basic level. We believe that these actions represent approximately $25 per share of value creation. We believe this is conservative given our strength and financial position and consistent execution.
In January and the board of directors increased Nexstar as quarterly dividend by 25% to <unk> 70 per share per quarter and authorized the repurchase of up to $1 billion of our class a common stock the board's repurchase authorization and reflect the attractiveness of nexstar free cash flow yield and a potential acceleration of share.
Purchases as our leverage moderates and large scale acquisitions become more scarce given the current regulatory environment there.
And that 20, plus percent increase and nexstar as dividend for the eighth consecutive year and the implementation of a significant share repurchase authorization will allow us to continue delevering I'm, sorry, delivering industry, leading risk adjusted returns to our shareholders. The dividend payout remains a modest low double digit <unk>.
Tentage of our free cash flow.
Looking ahead at 2021 and speaking to the core revenue performance net Q1 will be the quarter, most like the comparable quarter of 2020, given the strength early last year and the offset on political revenue Q2, and Q3 will be up over last year, while Q4 will again see the cyclical impact of political.
All of the political cycle.
Nexstar has already made significant progress on our leverage reduction goals and we enjoy a strong cash generating position with additional capacity under our new revolvers in summary, despite an unprecedented challenge of the pandemic our scale leadership flexibility synergy realization and operations plans are generated.
Results, while our capital structure is in great shape from a cost of capital and maturity perspective, finally, our service to our local communities and local and national advertisers has never been stronger we continue to drive significant growth and have consistent and healthy visibility into our results and we remain confident and our ability.
That enhance shareholder value and deliver pro forma annual free cash flow of approximately $1 7 billion over the next two year cycle that concludes the financial review for the call and I'll turn it back over to Perry for some closing remarks before Q&A.
Thank you, Tom and our more than 25 years of business and our 17 years as a public company Nexstar as management team board and employees of whether the Dot Com bust 911, 2008, 2008 financial crisis, and the recession and that followed and now the pandemic.
And even last week, the Snowpocalypse here and the Texas. Each time, we've worked to support and sustain our employees local businesses and the communities and which we operate this has always been a good approach to business and it is more important today than ever before and each case nexstar came out on the other side stronger and better equipped to deliver outsized returns to our.
<unk> and our long term record of value creation supports this and this is also the case today are.
Our 2020 full year free cash flow of approximately $1 3 billion or about $30 per share and our guidance for pro forma average annual free cash flow for the 'twenty, one 'twenty two cycle of $1 $2 7 billion underscored the strength and resiliency of our operations and our ability to continue to deliver free cash flow per share.
That is among the highest in the market.
Our strong free cash flow generation is allowing nexstar to meaningfully increase its return of capital initiatives as reflected by our recent authorization to repurchase up to an additional $1 billion of shares and our eight year track record of dividend increases of 20% annually or more.
At the same time, we are paying down debt investing and our business operations and people and completing select accretive opportunistic transactions.
We look forward to reporting on our continued growth and accomplishments throughout 2021 and on behalf of the entire Nexstar nation, Our board and our management team. Thank you for your continued interest and support and thank you for joining US. This morning, now lets open the call to Q&A to address your specific areas of interest operator.
Thank you, ladies and gentlemen, if you'd like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal and reach our equipment.
And please press star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for questions.
We will take our first question from John <unk> with Wolfe Research. Please go ahead.
Thanks, Good morning, guys.
Tom you spoke to this and your remarks, but can you talk more about uses of cash I think the free cash flow outlook is probably around $30, a share and apps and some large scale M&A what are the priorities as it relates to either reducing leverage or buying back stock you've been doing a lot of both but is there a preference and then separately.
Can you talk more about expense trajectory.
As the core revenue comes back this year should we expect to see some of those costs restored I'd assume that being down mid singles and the run rate and thanks.
Sure.
As I mentioned on the call in 2020 is a significant year in terms of making a downpayment on deleveraging we took it from roughly five 2% to three six obviously some of that was because of digital but we paid down $800 million from operations from our free cash flow from our $1 3 billion.
And and free cash flow and we paid down another $200 million from the asset sale to Fox in Q1, and then we.
As I mentioned before I had almost 400 million and return of capital I could see those numbers.
Almost.
Swapping places in terms of amount of debt repayment versus return of capital given the substantial amount of deleveraging that took place last year, we don't feel the need or don't see the need currently to pay down $800 million more of debt this year.
Yes.
And then if that.
Amount came down to something approximately $400 million, which is kind of what we.
Return to capital last year that would give us on a non presidential year.
Robert Lee somewhere between four and $700 million to return to shareholders part of that is coming in the form of a 25% higher dividends. So that's $125 million a year, but the rest of it will come from <unk>.
Other acquisitions, which are somewhat muted right now on the broadcasting side, we still have a.
Lot of irons, and the fire from a digital perspective.
But the rest of it will come from stock repurchases. So long winded way of saying you can almost.
Flipped the two with regard to how we allocated our free cash flow and 2020% comparing to 2021.
With regard to expenses Youll see some of them return, probably primarily in Q2 and to a lesser extent and Q3 Q4. Our expenses, we started adding back expenses in Q4, and you can still see that that was down substantially over the prior year and keep in mind that seven 4%.
<unk> also includes the synergies that we were taking out in Q4 of 2019 and 2020 relative to.
Two tribune, so I would say.
On a comparable basis for the entire year, I would imagine or our controllable fixed expenses would be down low single digits, maybe not seven for the entire year as we start to add things back, particularly in Q2, which was the quarter, where we really tightened down the screws is too.
The greatest degree because of the uncertainty and the pandemic at that time is that responsive to your series of questions. Yeah. That's really helpful. Thanks, Tom.
We will take our next question from Dan Kronos with the Benchmark company. Please go ahead.
Great. Thanks, Good morning, and I can see why you guys and wanted to go first.
Youre on the free cash flow Perry.
Really.
And of high high level here, the free cash flow guide based on your remarks, a second ago.
It feels like it's maybe $100 million ahead of US we are already 100 million ahead on the Street your 2022 implied guide.
Double digits over 2020 so.
I guess I know I know retrans and net retrans or underpinning that you've talked about that in your prepared remarks Perry.
You can't find.
And with CTV companies, saying that the world is ending for linear and that clearly is not the case. So maybe if you could just give us some color on the confidence you have in advertiser conversations going forward, we've been believers, but just help us understand what gives you the confidence on core on sub trends and then obviously you have a big bulk.
And political but you'd have to sort of right and a number of it.
Ballpark ish, maybe 10% down or something from 2020 levels to really get you to where you want to be in 2022.
Sure I would say first of all you've got a pretty good back of the envelope going.
I would say the one thing that may be lost and all of this is the acquisition and integration of the Tribune media assets.
And the on the broadcast side, Tim Busch and his team are.
Have work those stations into a situation where new business is a business development is now a part of the culture and picks into that which we had for two days and 2020 that will have for the full year 'twenty, one and beyond and and I think the execution. There is something that is.
And as maybe not to be dismissed.
And as we're growing our shares in and these marketplaces and some of the major markets, where we're just running the nexstar playbook across a larger portfolio also on the digital side lost and all of this is that our digital business. If it were a separate business operated at a 30% margin in 2020.
Karen <unk> and her team she has assembled a great team and.
And we're operating now and converting revenue to EBITDA at a much higher level than ever before and Thats before the acquisition of best reviews, which contributed marginally and 2020, we will have for the full year of 'twenty, one and 'twenty two and beyond so.
Obviously, we like where we sit with our.
Renewals on affiliation agreements, we have over 85% of those locked through the end of 2022.
And nothing remaining now the early 2021 explorations have already been dealt with out through 2024 and so.
The Dana Zimmer and her distribution team has done a tremendous job of.
Not only gaining carriage and monetization for WGN, but for all of the assets under the now larger platform. So I do think execution as a part of this having said that one thing I've told our teams is listen if you see.
Substantial double digit pace and second quarter, if you're up 20% and pacing. If you were down 40% last year, we've got a long way to go to retrace, our steps and I will say that if you look at our guidance. We are still retracing our steps in 2022, we don't anticipate being back above 2019 levels. There. So I think the guidance is very.
Well constructed.
Anything you know this company to want to be and are positioned to over deliver on our promise, but we feel very confident and the numbers we put out this morning.
Just a couple of comments and I'll turn it over to Tim Busch and he can comment some on the political environment for 2022 and our early.
Kind of analysis on that day.
Don't dismiss WP IX admission Perry worked long and hard to get an option to buy back WP IX because of its size and scale.
There are substantial synergies coming to the combined entities.
With missions ownership of WPZ IX and as Perry mentioned best reviews, and WP IX both closed I want to say on the 28% and 29th of December of last year. So none of those.
Results were in.
2020, but all of those results will be in 'twenty, one and 'twenty two and those are healthy contributors. So Tim do you have any comments just generally on the landscape for political landscape for 'twenty two political as you could probably assess we have approximately 370 how seats.
Of the 435 across the footprint of the company.
And that races, we're going to have approximately 90% of those is there are 34 seats up I think we've got about 31 and on the gubernatorial side. We've got about 85% of the 36 seats, which is a strong footprint everything port tends to be yet another robust race, probably starting a little.
Earlier in 'twenty, one all the way up through 'twenty two.
And having said that we are not forecasting and 2022, a return to 2020 political revenues because we think that was in and of itself somewhat extraordinary event and AD spend so I think you are.
The back of the envelope that you asked about and early on and your question is pretty much on point as it relates to political.
Thank you so much for all the color guys and congrats on another excellent quarter.
Thank you.
We'll take our next question from Kyle Evans with Stephens. Please go ahead.
Hey, Thanks for the color on on the month to month core could you.
And you talk a little bit about what youre seeing and pacing and.
And this quarter.
Sure.
And on core core AD revenue and digital AD revenue and January and February we're already ahead of our budgets as the same four networks now having said that in core and networks, we did budget to be down in the first quarter versus an excellent first quarter of 2020, but in terms of beating our internal numbers.
Which we obviously use to make your forecast.
We're ahead of plan for January and February as of this morning.
And anticipate that trend continuing throughout throughout the quarter.
And it's flattish and where do we.
You can use.
To the prior year, that's a little out.
And again, you'll remember we made our first quarter numbers in 2020, even though March fell off a cliff. So this is the toughest comp of the quarter I will say that we're showing mid single digit growth over our budget, but I would also tell you that that is a decline to the prior year, but that's the expectation.
And that we that we set and obviously we are delivering ahead of our internal expectations as of now.
Great maybe just a recap on sub counts for 2020, and specifically what youre seeing on the virtual side as well.
Sure I would say that.
We ended 2020.
Quite honestly slightly better than we had originally projected I would say that the moderation and sub decline.
Continued if you look at our sub decline in the first half of 2020 compared to the second half. The second half was approximately 50% of the sub decline and the first half of the year and we continue to see growth, albeit.
And growth from a total subscriber perspective, this comparable and the VA MVP universe, even though that relates to substantially lower our percentage growth. Because obviously, we are operating off of a higher numbers, but growth continues in the <unk>.
And the <unk> and I will tell you that the entire year it came in.
At a mid single digit for total subscriber attrition.
And that includes the.
And the virtual add back to their traditional decline.
Got it and.
And then lastly, maybe just a recap.
GAAP of how.
News nation.
Perfect and maybe your strategic outlook, there and are we going to Tom how are we going to call that WGN and news nation going forward.
Well as of next Monday, WGN America will be renamed news nation and that is concurrent with our expansion of programming, adding additional hours to our primetime slate so that will be our first expansion.
We will be next Monday, there will be a second expansion and later on and the year and again.
And if you look at 2020 performance.
WGNA Slash news nation performed well ahead of budgeted expectations and has performed ahead of expectations and January and February as well.
Having said that the baby will be six months old on Monday, and obviously for us.
Increasing awareness is job one we feel we've got solid content and I can't wait for the nation to see.
Our new shows at six o'clock, seven o'clock, and and 10 o'clock that they view on Monday wrapping around the news nation broadcast.
Very well produce going to be very well done and.
But raising awareness is our number one.
Number one opportunity here for continued growth on the AD side.
On the distribution side.
Again in fourth quarter, and some of this triggered and first quarter, but.
Dana Zimmer and her distribution team was able to gain $8 5 million subscribers OTT subscribers for WGN America that where we had no distribution before and approximately 200000 linear subscribers through the year and renewal of distribution agreements with WGN was not carried so.
It is important to be important and distribution and you can use your scale.
As a company to accomplish our objectives with which we have certainly done so very pleased with the progress obviously, we want the numbers to continue to grow that will grow as awareness grows and.
We are dedicating substantial internal resources as well as external spend to make that happen throughout 2021, we think it will be a good year of growth for WGN America again, Rechristen news nation as of next Monday March 1st.
Alright, thank you.
We will take our next question from Jim Goss with Barrington Research. Please go ahead.
Thanks.
And one further clarification on news nation.
To the extent that the.
Political season.
Past or at least taken on a new shape.
Has that made any difference in terms of your sensitivity to the.
And the viewership patterns or linger and early growth phase you really can't see.
Share trends in the midst of the longer terms.
Well our focus as you know is on being down the middle unbiased presenting both sides of and issue balance coverage.
And I think we've accomplished that there is something called the media bias chart, which is put out monthly by an organization called Advantest media.
And in January of 2021, we were exactly on the middle of the unbiased line and it has every news organization from left to right and and so third party observers think that we are holding true to our mission of being down the middle I will tell you from a revenue perspective and <unk>.
And on Erika had political revenue in 2020 for the first time ever approximately $1 million and and I think that was due to having and.
Intellectual property that people and political advertisers and campaigns wanted their message associated with so we see that as an opportunity going forward, but at this point our number one job is growing the awareness approximately 85% of America does not connect the dots between WGN and news nation and.
And so our job is to make that easier. We think the rebranding will be a big part of that and and that we will we will see not only audience growth, but continued advertiser growth. A reminder, that advertisers are paying a substantial premium for placement in our editorial and news content to what they did in our syndicated.
Content. So the more of that we have the higher our AD revenue base can go and again, our distribution base is pretty well pretty well locked in and we'll be growing from a from a yield perspective as.
As well and just want to add one thing as it relates to news nation. It continues to be the story that as our syndicated programming rolls off.
We're funding the expansion of the news product by Repurposing. Those dollars that were previously expense and paid on programming product into the news programming. So it's really a self funding vent.
Venture from our perspective, and one financially that continues to make a lot of sense.
Okay, that's great.
One other from in terms of.
Political.
Uh huh.
On a local broadcast television broadcast and turned it on political and historically the digital has become an increasingly large component and I know you're on both sides, but I wonder if you could talk about the shift and political to incorporate more digital and the impact that might have.
<unk> had excellent results.
Has there been any shift from your balance in favor of digital mature.
And.
No.
I'd tell you that from a from a.
Political perspective, we had virtually no political revenue across our digital platforms.
All of our AD spend was on the cable network as well as our broadcast stations. So.
Despite that which is written and I think increasing percentage of budgets are being spent on digital as a fundraising mechanism, but as they get out the vote mechanism. It's still it's still TV that captures the lion's share.
Okay, and then finally.
You mentioned some success with new to television revenues that you're achieving on the fourth quarter can you give some examples of what sort of categories.
And that began to emerge through for your efforts.
Sure and I'll, let Tim Busch comment a bit more on this but this is a metric that you hear me talk about on every earnings call that we have how much new to television business that we generated in the prior quarter, it's a part of our culture.
Managers and account executives are highly incentive to develop new business.
And Thats, the lifeblood of our company and what will drive drive our growth. So Tim do you want to talk a little bit about categories. I will tell you. It's a long tail right. It's a local advertisers going deeper into our markets as well as developing new sales programs and promotions that will gather larger and larger spends in the mark.
Place, but in terms of new business. It is purely developmental and it's going through the the yellow pages going through the the folks that are advertising locally on Facebook and trying to convert those but Tim do you want to add some color on that so the we spent a lot of time on targeted training of our account executives and to the category.
Oracle side, we will.
Spend about two to three categories of month and training on how to develop and how to further that influence on the local market level.
Medical has been a big growth category for us as well as furniture and retail where we have seen a drop off on digital use and retail locally bricks and mortar has been a big focus on the category side as well as tier three auto and of course integrating both digital and broadcast.
And as well, but as Perry had noted we also have projects that are geared unified across the company by the day.
Doesn't projects a year that will be specific to exclusive and unique.
And projects that we run inside of each market across the entire platform that develop additional new dollars due to TV dollars.
For example, we are in.
Black history month, and we have a substantial companywide project around generating stories that are unique and individual and exclusive to us. Hispanic heritage is another area, where we will lean into remarkable women as our franchise for women's history month, and and again. These are users tools to attract new.
<unk> as well as increasing spend from other advertisers and addition to just selling 40 under 15 second commercials, and our news and primetime and other programming and so giving people a reason to interact and transact with the television station and on our purpose driven basis to promote some of these franchises has helped our.
Developments and so again.
Not lost and this should be that this is a culture that we have introduced.
Two the Tribune acquired stations and.
And and.
And they have been nothing breach success like success and then the pandemic was a perfect opportunity if regular advertising spending is down or advertising agencies are closed we have to go after the bricks and mortar operations that are open and and.
And the team really did a.
I think a superlative job of generating new to television business and a difficult environment. It was also a way to make sure that they were able to generate commission income. So those things they get compensated tend to get measured and tend to get done and so on.
Our compensation system at the local market level is pays a premium commission and incentives for new business development and.
Again, a part of the Nexstar playbook.
Okay. Thanks for all the color I appreciate it.
We will take our next question from Aaron Watts with Deutsche Bank. Please go ahead.
Yes.
Alright, Hey, Tom covered a lot of ground today I appreciate all the detail just one question from me Theres been plenty written about the pressure on network primetime viewing as we embark on a new year, hoping you can give us the latest on what you're seeing in terms of themes and trends for audience ratings on your local programming and how confident.
And you are and maintaining stability, there and and your AD base, even if that erosion and prime continues.
Sure well again first of all I would caution anyone using the fall season to date is any kind of a marker because of delayed programming and.
Epic new episodes being slow to come online and back into establishing a regular viewing patterns. So.
We anticipate that will will level off at a certain point when production is more consistent.
At the national level.
And I would tell you locally obviously, we saw tremendous increases and our linear and digital platforms early on and the pandemic March April May June and then a bit of a leveling off but we are still above I want to say by a 15% to 20% margin kind of average across the board above the pre pandemic levels.
Local news.
And it varies by market and day part, but we're seeing more interest and local news more interested news during the day if people are home and our late news has been has been growing as well as kind of a recap of the day's events. So.
And again, it's tough to give an arithmetic average across 197 television stations, but I would say roughly high teens to 20% increases over the pre pandemic viewing levels.
Whether we leveled off at this level or whether it will be another leg down later on I don't know our job is to try and hang onto as much of those increase viewers I will tell you during the during the pandemic I am sorry, but during the the Snowpocalypse last week.
All of our stations were running on generators and diesel I mean, they were providing the lifeline and people did not go to Apple TV <unk> to find out when.
And the water crisis was going to be.
With and Dallas Fort worth and what the local broadcast television who was and some cases, providing continuous coverage interrupt and prime time and it just proves that local journalistic organizations that provide solid reporting and coverage.
And on broadcast and it's really the only place to go because of the diminution of newspapers elimination of radio.
People people do not go to streaming services to find out when the water is going to be safe to drink and things like that there was substantial bump across our Texas markets at least those that have been measured and and overnight basis.
And our viewership to the local news during the last week of atypical weather events here in Texas and as that store and moved across the mid south and on up into the northeast the viewing patterns increase there as well at our owned and operated stations and I'm sure others, but.
I think that our goal is to try and maintain as much of that increase viewership that we can.
And ultimately settles out I don't think anyone really can can have a perfect handle on that.
And.
Okay, Great that's really helpful. Thanks Perry.
We will take our next question from Craig Huber with Huber Research partners.
Great. Thank you maybe I'll start with this and you've touched on this earlier.
For the first quarter of the TV AD pacing number if I heard you. Robert. Thank you said you were tracking mid single digits better than your budget does that comment for just January and February were for the whole quarter.
And also just be curious if you could just touch on the month of March.
And follow ups. Thank you.
It is common for the whole quarter I'm, telling you we are already mid single digits ahead of our budget.
Number is for January and February obviously in March we are knock wood anticipating having.
March madness back on our CBS affiliates.
And that was a substantial hit to our revenue and the month of March last.
Last year, so yes, we see this continuing on and.
And our and our revenue and obviously, we had a substantial amount of political I think it was over $60 million and political revenue and the first quarter, which was almost unprecedented and we will do 10% of that this year. So we have that inventory back there won't be any.
And any displacement to speak of so again, we budgeted down versus the prior year.
Because it was the panic.
And then make unaffected quarter and 2020, but we are performing handsomely and I would tell you that on the national side of our core revenue. It's double digits ahead of our of our budget. So.
I think signs of life out there and as the vaccine gets more fully disseminated businesses are opening and and restaurants opened to a higher capacity I think all of our.
All of our.
Markets are kind of seeing kind of that Renaissance and the other thing is <unk>.
<unk> betting, which was nary a category single digit millions.
And 2019 and the first quarter of 2020 has now become a double digit millions category for us So thats relatively a new category, but certainly a substantial growing category for us, which we think we will see throughout 2021 continued growth in that category as well.
I appreciate that can you also just comment a little bit further about what youre seeing on the auto category This quarter and also retail please.
Yes growth I mean, im not going to go down at the category level and give specific guidance, but we.
We are seeing sequential growth over the prior quarter and as we did in fourth quarter, we are seeing growth over fourth quarter.
Not at the 40% category, but we're still seeing seeing growth across across auto and and retail as well and again some of that retail development is through our new business development efforts, but we are seeing growth and positive comps too.
And to the prior quarter and I think come second quarter, you will begin to see positive comps to the prior year across the board.
Also to ask is on net retrans for the year, maybe I missed this but you said in the past you're expecting net retrans up. This year are you willing to quantify that at this point.
Maybe just touch on that please.
It's exactly as we have said previously which is up low single low double digits.
Okay very good and is there any we don't know chat and basically no change okay. I appreciate that and that and said in your minds Inc.
With a similar decline and subs and what you experienced in the back half of last year.
Embedded in that number please it is embedded with a market oriented subscriber attrition amount.
Okay.
And I'm, not going again and to the inputs into our budget process.
Okay fair enough. Thank you.
We will take our next question from Steven Cahall with Wells Fargo. Please go ahead.
Thanks, Matt.
First on digital so you've done some restructuring here and combining Tribune and legacy Nexstar and now you've got best reviews, and you talked about shedding some of that lower margin revenue.
Could you just talk about maybe what this means for the next year or two is there a big EBITDA lift that you expect to come from digital and then you also talked about the new commissions for new businesses and how that may fold and there. So just trying to kind of understand what the growth path and that digital business looks like and whether thats a meaningful driver of some of your free cash flow growth and.
And then maybe Tom just one on on Retrans I know youre renewing fewer subs. This year than you did last year, but I think a lot of your retrans agreements are now longer and term does that mean that the pricing is spread a little more evenly over them, so that results and a little more steady growth and and.
Retrans and.
And then I've got one quick follow up after that thanks.
Alright, let me was five questions. Let me, let me hit digital I mean.
You will see we will see.
First quarter, we will lap ourselves in terms of the businesses that have we've either shut down or deemphasize because they had revenue and no margin.
And as I look at digital now I think youll see.
Significant growth for digital on a percentage basis on both top and bottom line over what we produced in 2020, which again as a reminder, swung from marginal profit to a 30% margin, which was double digit millions profit in 2020.
You will see significant growth there on a percentage basis, but as it relates to the overall enterprise.
Double digit millions and.
And significant percentage growth on that it's not going to drive the needle of the.
Of the consolidated and enterprise, but our job is to take what we have and what we've acquired and make it better and and digital we're doing that.
Feel very confident and our digital projections for the year across all the lines of business and it's a growing contributor too.
Our profit pie, but again, it's today the smallest part of our smallest slice of that pie, but it will be growing.
I'm sorry.
Mind numbing.
I didn't write down on all the questions. What's next on the agenda.
Thanks, Tom and I leave the Retrans question and that is kind of basically that.
<unk> got fewer subs renewing this year, but is your kind of pricing spread a little more evenly. So is the cadence of retrans revenue growth a bit more even now that youre doing longer term deals.
I would say, we still are subject to the renewal cycle and the kind of the peaks and valleys as it relates to that so it is some.
And more.
And more muted and just generally leveled out, but you still have large and <unk>.
Renewals. The next large renewal for us will come at the end of 'twenty, two which is the three year cycle after the.
2019 renewal, where we will have a substantial amount of renewals. There. So it is a little bit more leveled out which is also helped by.
Some pretty healthy.
Interim step ups on an annual escalation basis, but I would say, we're still subject to some of.
On the sine wave associated with the renewal.
Highs and lows, but let me just clarify we're not doing longer term deals on the on the revenue side.
They're all two and three year deals, we have been able to execute three and four year deals on the affiliation side.
And.
And in the past year, but.
All of that adds up and we continue to reiterate double digit topline and margin growth from from distribution revenue. So from that perspective nothing has changed.
Great and then just the last follow up we've seen some news of auto shipments being delayed on supply chain issues do you see any risks there for auto advertising.
Well the shutdown the GM plant here and Arlington last week for week, and Thats, where all of your Escalades and suburban and Yukons are made and the country.
I think it's a short term blip if there is a blip.
And they are rushing to bring more capacity on line to produce the chips that will allow for that if anything that drives up demand I see where supplies are lower which means prices will be higher and and.
And the used car market continues to be very robust, which is where most of the dealers make most of their money. So I don't think it will be a risk factor to automotive over over an extended period of time I think it is a short term blip I was about to say.
It doesn't remove the demand it just may shift the demand slightly out so the demand is not going to go away.
Yeah, great. Thank you.
And our last question is and the Qs from Alan Gould with loop capital. Please go ahead.
Alright, Thanks for taking the question Perry and.
And I've got a question about the NFL looking out a little bit longer term, they are asking for plus or minus a doubling of the rights fees. Now I know you said, 85% of your affiliate agreements are are locked.
Walked into the end of 'twenty, two and you don't get that many AD spots and the NFL games, but what impact would a big increase and NFL rights have on your relationship with the networks going forward.
Immediately nothing.
Because you only negotiate your affiliation agreements when you negotiate your affiliation agreements and they're up for renewal I think the thing Thats lost in all of this is that and.
There's a lot of negotiation and depress that goes on so I wouldn't be surprised if the price increase over time comes in at less than that but at this at the same point, we're talking 10 year deals. So hopefully this will remove the question for time and memoriam or at least the next 10 years.
What happens to the NFL, they're going to have homes for up to 10 years, it's either and eight or 10 year deal and yes. It could price is double over 10 years.
And remember is the rule of 72, so I mean, maybe that's manageable.
And as compound annual increases to get to that number so.
And again more to be written I think the deals will be done before we report again to you in April but our early may but I do think that.
The good news is is the question will be settled at least for the near term investment horizon about where the home is but I anticipate over time then it works, we'll say to all of the affiliate groups. We're paying more money. We want you to pay more money the affiliate groups, depending on the network defray, maybe 10% of the <unk>.
And the overall rights deals so could that go up over time, yes, it might but again it will be a byproduct of negotiations and we will see where we all end up but I do expect that youll hear announcements on the on the deals before you here, our first quarter earnings announcement.
As the year goes on.
Okay. Thanks, a lot.
At this time Theres no further questions and the queue I would like to turn the conference back to Perry Sook for any additional or closing remarks.
Well. Thank you very much for joining us obviously, we're very proud of the results that we were able to deliver for Q4 and 2020, we're proud of our return of capital to shareholders and we're very confident and our guidance for the 'twenty. One 'twenty two cycles. So we look forward to reporting back later and the year on our first quarter progress. Thank you very much for joining us.
And have a great day.
Ladies and gentlemen. This concludes today's conference. We appreciate your participation you may now disconnect.
Okay.