Q1 2021 Nexstar Media Group Inc Earnings Call
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No I used to have the screen out of there.
[music].
Good day and welcome to the Nexstar Media group first quarter 2021 results.
Today's conference is being recorded I would now like to turn the call over to Joe <unk> Investor Relations. Sir. Please go ahead.
Thank you Katie and good morning, everyone I just need to read the Safe Harbor language and then we'll get right into the call Allstate lumps of comments made by management during today's conference call. Other than statements of historical fact may be deemed forward looking statements for purposes of the private Securities Litigation Reform Act of bunch of 95 Nexstar.
The Nexstar cautions that these forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those reflected by the forward looking statements made during the call.
For additional details on these risks and uncertainties. Please the nexstar. Its annual report on form 10-K for the year ended December 31, 2020, and Nexstar subsequent public filings with Securities and Exchange Commission Nexstar.
The extra undertakes no obligation to update or revise any forward looking statements, whether as a result of new information future events or otherwise.
With that it's now my pleasure to turn the conference call over to your House Nexstar founder Chairman and CEO of Perry Sook Perry. Please go ahead.
Thank you Joseph and good morning, everyone. Thank you very much for joining us to review Nexstar has record first quarter results with our net revenue profitability and cash flows handsomely exceeding consensus expectations. The first quarter clearly highlights the resiliency and adaptability of our business and the proven ability of our long term strategy to drive Tom.
Offline growth through increased content monetization and diversification while at the same time, leveraging our scale, reducing debt and allocating our growing free cash flow to return of capital initiatives, which are driving shareholder returns.
We're extremely proud of the record first quarter results and the more than 12000 members of the Nexstar nation across the country, who while serving their local communities of managed through and in most instances overcome the challenges presented by the pandemic, putting nexstar on a path for continued growth in the current quarter and beyond.
Before getting into the quarterly highlights I'd like to quickly review, our progress against our capital allocation priorities and long standing commitment to enhancing shareholder value in the first quarter, we allocated $80 million towards debt reduction and returned approximately $151 million to shareholders through dividends and share repurchases, thus, reducing our share count to approximately 40.
3 million shares Nexstar returned approximately 383 million to shareholders in the form of share repurchases and dividends in 2020, so with $151 million in the bank in Q1, we are well on pace to exceed that level. This year.
Tom Carter Nexstar, as President and Chief operating Officer, and CFO is also with US on the call. This morning will review the quarter our outlook our plans for continued capital returns and our confidence in achieving our pro forma annual average free cash flow guidance for the 'twenty, one 'twenty two cycle of $1 $2 7 billion or about $30 per share.
Nexstar started 2021 exceptionally strong with record first quarter net revenue, including double digit growth in distribution and digital revenue alongside our team's success in driving of recovery in core advertising.
<unk> first quarter net revenue grew 2% year over year to $1 1 billion as the ongoing execution of our strategy is to leverage our strong local content and diversify our revenue sources nicely offset the approximate $50 million in year over year decline in political advertising.
Top line growth of $178 million cash distribution from our 31% ownership stake in the TV food network and our expense manage bill of expense management vigilance combined to drive record first quarter, adjusted EBITDA and free cash flow before onetime transaction expenses to $572 6 million and 400.
$84 $7 million, respectively Nexstar.
Nexstar brought over 35 per cent of our Q1 net revenue to the operating EBITDA line before the food network distributions and onetime transaction expenses.
Can expect nexstar to further leverage its scale and operational excellence to generate significant free cash flow reduce debt and drive further total shareholder returns throughout 2021 and beyond.
First quarter 2021, total television advertising revenue, excluding political decreased just one 4% versus the prior year that outpaced our expectations and it reflects the growing demand for our premium local and national content and marketing solutions Nexstar as new business strategies ongoing sales training performance focused.
Incentive structures, all continued to prove highly effective as we capture broadcast and digital AD spend and healthy levels of profitable new business. Our sales teams generated $27 8 million of first quarter, new to television revenue marking of 149% increase over the same quarter. Prior year, we're extremely proud of our sales team's successes.
Delivering solid first quarter core advertising results when you consider that the first quarter of 2020.
Oh I'm sorry, the first quarter 2021 would be our most challenging core revenue comparison for the year, given our core strength last year prior to the onset of the pandemic.
Looking ahead, we're encouraged by the overall acceleration in economic activity and the improved trajectory of AD spending across our footprint as market conditions continue to improve.
In the first quarter total revenue for Nexstar as top 10 AD categories page, 9% the head of the prior year with gains in six of our top 10. In addition, five of our top 10 auto advertisers increased their spending year over year.
The redemption auto category spending is being complemented by the resurgence in insurance lottery sports betting home service and repair medical health care packaged goods grocery stores and auto aftermarket spending.
<unk> core strength is being achieved despite the out of inventory headwinds as a result of the chip in the supply chain issues were also of accomplishing this growth before all small and midsize businesses are fully returned to the AD market of trend, which we think bodes well for our business and one that could possibly accelerate as we move throughout the year.
With Nexstar as core advertising accelerating year over year, beginning in the second quarter. Our local sales teams are working hard to drive further revenue share gains as we move deeper into the recovery.
First quarter 2021 distribution fee revenue rose, 13% year over year to approximately 621 million, reflecting our 'twenty 'twenty renewal of distribution agreements across approximately 18% of our subscriber base the synergies related to the mission broadcasting the acquisition of W. P. I ex TV in New York as well as our annual contractual escalators.
Subscriber trends across our platform are stable and consistent with our expectations and support the ongoing distribution fee growth of net retrans margin trends that we continue to project.
Nexstar has solid visibility into the distribution economics and ongoing growth of this revenue stream is over 85% of our big four affiliations are contracted through December 31 of 2022.
Our retrans growth coupled with the Q1 cash distributions from our ownership stake in the food network has significantly offset the historic seasonality that media companies typically face in Q1.
One other note here on the significance of our ongoing revenue diversification initiatives in the first quarter total TV advertising revenue accounted for about 37% of net revenue while the distribution fee revenue was 56%. The balance of then came from digital and other sources looking forward. We expect continued growth from all of our non political revenue sources for the <unk>.
<unk> of 2021 with similarly high levels of overall revenue diversification.
Moving onto the digital first quarter 2021 revenue increased 18% over the prior year to approximately $66 $4 million with substantial profitability improvement, partially reflecting our actions over the last year to discontinue our deemphasize certain less profitable digital operations as well as the strategic operational realignment, we put in place last.
Fall topline growth was driven by the success of Nexstar has integrated content and audience development strategies as well as the full quarter contribution from our December 2020 accretive acquisition of the best reviews. Our integration of best abuse is progressing ahead of our plan and results are similarly favorable.
Nexstar digital network continues to generate strong consumer engagement with our content as well as significant digital usage across our 400, plus digital touch points last year of Nexstar digital properties delivered record growth in audience engagement ranking number one in local news for every month of the year and reaching all time highs across across the <unk>.
The performance indicators.
Including average monthly users of about $91 million total page views of $7 8 billion total multi platform minutes of $10 4 billion and total digital video views of $1 6 billion all according to Comscore.
With the momentum of our content and audience development strategy, we expect growth in digital revenue going forward and combined with the expected mid seven figure of expense savings this year, resulting from our strategic operational realignment of our broadcasting and digital operations conducted last year, we expect increased cash flow contributions from digital throughout 2021.
This June Nexstar will celebrate the 25th anniversary of our company's founding during this period. The company has grown from a single station to become the nations largest television broadcast operator as well as the top producer of local news in the country.
This growth has come thanks to our disciplined approach to growth through accretive acquisitions of focus on enhancing operating results of our acquired stations and organization wide commitment to localism and.
And at the same time the material diversification of our revenue mix has resulted in strong and consistent free cash flow generation affording us the financial flexibility to reduce leverage increased shareholder returns and to pursue additional accretive growth opportunities. While also investing in our business and our people.
As always we remain focused on activity managing are actively managing our capital structure and we expect Nexstar is net leverage absent additional strategic activity to continue the belief in the sub four times range throughout 2021 with that let me turn the call over to Tom Carter for the financial review and financial update Tom. Thanks.
And good morning, everybody I'll now review of <unk>, Q1 income statement and balance sheet data after which I'll provide an update on our capital structure and some points of guidance.
Q1 of 'twenty, one was a very good quarter for Nexstar net revenue increased 2% over the same period of the prior year and approximately the same amount on a combined pro forma same station basis net revenue ex political was up 7% to $1 $1 billion and up six per.
On a pro forma same station basis core advertising revenue local and national was down one 4% to $411 million, but on the TV station side was up 2% on the same station basis.
Political revenues as expected were down approximately $50 million due to the lack of political advertising in 'twenty, one compared to the first quarter of 'twenty distribution fee revenues were up 13% to 6600 $21 million and up 13% on a same station basis as well digital.
Revenues were $66 4 million, which was up 18% and that was up approximately 3% on a comparable basis with the difference really coming from the acquisition of best of reviews.
I might add that the digital the.
The digital business profitability continues to improve considerably during the year and we see that as a growth vehicle going forward from a profitability perspective adjusted.
Adjusted EBITDA was 571 million, which was up two 4% over the same period. The prior year and importantly, free cash flow was $484 million, which was up 14% over the same period the prior year.
Reported first quarter of direct operating expenses net of trade expense and SG&A expenses were affected by previous quarter's acquisitions and the realignment of Nexstar digital business. As a result, some expenses shifted from direct operating expenses into SG&A, making comparisons less meaningful on a direct.
Basis overall these combined expense categories increased 41 million, a six 8% increase which was attributable to the station and digital acquisitions during the period.
The first quarter pro forma of fixed expenses, excluding programming expenses were down three 8% over the same period in 2020 total corporate expense, including noncash compensation expense was in line with the company's guidance for the first quarter.
Corporate expense declined 18, 7% of $43 5 million inclusive of $11 6 million of stock based compensation expense in the quarter total corporate expense, including noncash compensation was in line as I mentioned before with the overall guidance and during the quarter, we were at $1 $2 million and one one time transaction.
<unk> costs.
First quarter operating cash taxes were only $5 5 million as the first quarter estimate of estimated payment is typically made early in Q2 ongoing capex totaled $27 5 million in the win was in line with our first quarter guidance.
Spectrum Repack Capex totaled approximately $4.4 million and we received approximately $5 4 million in reimbursements from the FCC during the quarter. As a reminder, we're anticipating being fully reimbursed for all capex related to spectrum repack as those activities wind down later this year.
First quarter total interest expense amounted.
Amounting to approximately $72 million down from over $100 million in 2020 cash interest expense was $68 4 million compared to almost $97 million last year with the decrease due to lower interest rates and lower first lien borrowing levels.
First quarter, adjusted EBITDA of 573 million and free cash flow of $485 million, all before transaction expenses meaningfully exceeded consensus expectation and reflect the ongoing recovery in core advertising strong double digit distribution of digital revenue growth and $178 million in distribution from the equity invest.
And that's primarily related to our 31% ownership in the TV food network.
Looking ahead, we project returning recurring cash corporate overhead exclusive of stock comp and transaction costs to be approximately $30 million for the second quarter and $115 million to $120 million for the year noncash comp is expected to be approximately $12 million for the quarter and $50 million for the full year with <unk>.
<unk> expenses of approximately $1 million to $2 million for the second quarter operating.
Operating cash taxes are expected to increase to $110 million in the second quarter as we are.
Make the estimate of payment for Q1, and still expected to be approximately $280 million for the full year Capex.
Capex should come in at approximately $35 million in the second quarter and $135 million for the full year. So no change there.
We expect Nexstar as cash interest expense to approximate 69 million for the second quarter and $285 million for the full year, reflecting interest expense savings related to lower outstanding borrowings the decline of LIBOR and our recent refinancing activity for the second quarter of 2021, we anticipate recording approximately $22 million.
In TV food network distributions and continue to think that that for the entire year will amount to approximately $220 million to $225 million.
Turning to the balance sheet, reflecting our most recent capital markets transactions and $75 million of voluntary payments in Q1 and $5 million of scheduled payments Nexstar as outstanding debt at 12, 31, 21 was approximately seven $6 billion.
On a total net debt amounted to approximately $7. Two 5 billion at March 31, 'twenty, one compared to $7 5 billion at year end 'twenty net debt for first lien covenant purposes is $4 6 billion with that amount of limited net netting of cash to $200 million.
Our our net first lien covenant ratio at 331, 21 was approximately $2 one four compared to 2.28 at year end and well below the first lien covenant of four in the quarter.
Our total leverage at quarter end was three four times compared to three six times at year end 2020, as a reminder, nexstar is the only financial Covenant is our first lien debt.
Leverage which is the aforementioned four in the quarter times.
As always we remain focused on actively managing our capital structure and expect Nexstar net leverage absent additional strategic activity to be as Perry mentioned below four times at year end 'twenty one.
In January of the board of Directors increased Nexstar is quarterly dividend by 25 per cent to 70 cents per share per quarter and authorized the repurchase of up to $1 billion of our class a common stock the board's repurchase authorization reflects the attractiveness of the nexstar free cash flow yield and the potential acceleration of share repurchases as of our leveraged mall.
Of the rates and large scale acquisitions become more scarce given the current regulatory environment. The 20 plus percent of increase of Nexstar as dividend for the eighth consecutive year and the implementation of our significant share repurchase will allow us to continue delivering industry.
The industry, leading risk adjusted returns to our shareholders at the same time, the current dividend payout remains a modest low double digit percentage of our free cash flow.
Consistent with our capital allocation priorities and commitment to enhancing shareholder returns during the first quarter. We returned 151 million to shareholders through the purchase of approximately 800000 shares of stock at an average price slightly below $150 per share for a total cost of $121 million.
And through our Upsized quarterly cash dividend payment increase.
Increased to $30 million. In addition, Nexstar continues to de lever on our leverage plan reduction I'm, sorry deliver on our leverage plan reduction, reducing our first lien debt balance by approximately $80 million.
Altogether during the first quarter, we allocated approximately $231 million in cash from operations towards dividend payments share repurchases and leverage reduction.
In preparation for Nexstar as 2021 proxy and annual meeting we conducted extensive outreach to our shareholders. During the first quarter to update them on the company's recent ESG initiatives and so sort of solicit their feedback on these matters. We also expanded the the disclosures in our 2020 10-K on our ESG initiatives and.
The corporate and responsibility section on our website, which we'll be adding to in the near future.
The input and recommendations from our shareholders, who elected to engage with the company were presented to the board of directors for consideration and a summary of those efforts will be disclosed in our 2020 proxy throughout the Companys history of the alignment of our commitment to our local communities and our commitment to our shareholders continues to be a key driver of our long term success as a result.
We remained focus on involved evolving our ESG policies and disclosures in a thoughtful manner that supports our employees communities as well as our goals for growth and enhancement of shareholder value you can find the copy of the proxy on the SEC website. It was filed middle of last week, and we expect the proxy to be mailed sometime.
Later this week.
In March we had of ratings review with S&P, which resulted in a one notch upgrade on our corporate issue rating to double B, a two notch upgrade to triple B minus on Nexstar secured debt rating and a one notch upgrade on our unsecured bond rating to B plus S&P's commentary centered around the rapid deleveraging.
Exist exhibited post Tribune acquisition and the approved economic recovery. We have similarly requested of ratings review for Moody's and we are awaiting a response on their review.
Looking ahead with operating momentum continuing in the second quarter, our cost of our businesses, we expect to generate year over year growth across all of our non political revenue sources throughout 2021, Nexstar has already made significant progress on our leverage reduction goals goals and we enjoy a strong cash generating position, which provides us financial flexibility.
Ability to deliver growing capital returns for shareholders, while reducing debt and investing in our business in summary, our scale leadership flexibility synergy realization and operating plans are generating results, while our capital structure is in great shape from a cost of capital and maturity perspective finally, our <unk>.
Most of our communities and our local and national advertisers has never been stronger the solid foundation of our assets and operations combined with the resiliency of our business model give consistency and visibility to our results as such we remain confident in our ability to enhance shareholder value deliver pro forma and deliver pro forma average.
Annual free cash flow of approximately $1 $2 7 billion over the 'twenty one 'twenty two cycle that concludes the financial review for the call and now I'll turn it back over to Perry for some closing remarks before Q&A.
Thank you Tom we continue to execute extremely well on our strategic priorities, including serving our local communities and driving increased content monetization, while reducing debt and allocating free cash flow to growing capital returns for shareholders. Looking ahead, we have excellent visibility to delivering on or exceeding our free cash flow targets in this current cycle.
And a clear path for the continued near and long term enhancement of shareholder value as we follow the successful strategies that we've established in terms of building the top line, maintaining close control of fixed and variable costs and optimizing the balance sheet. Our disciplines. In these areas of added consistency and visibility to our results are.
Aiding and enhancing value for shareholders.
Our guidance for pro forma annual average free cash flow for the 'twenty. One 'twenty two cycle is again, one $2 $7 billion and that underscores the strength and resiliency of our operations and ability to continue delivering 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 purchase up to an additional $1 billion of shares in our eight year track record of dividend increases of 20% per year or more.
We look forward to reporting on our continued growth of accomplishments throughout the year and on behalf of the entire Nexstar nation, Our board and our management team. Thank you for your continued interest support and thank you for joining US. This morning now, let's open the call to Q&A to address your specific areas of interest operator. Thank.
Thank you Sir if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Again, Please press star one to ask a question, we'll pause for just a moment to allow everyone the opportunity the signal for questions.
Thank you. Our first question comes from John <unk> with Wolfe Research.
Thanks, Good morning, guys.
You've got a good footprint. So can you talk more about the contribution from the gambling category, yeah cannot be top five longer term and then from a market perspective that the.
The larger markets lagged the rest of the portfolio due to COVID-19 and if so how do you see those rebounding as the move into the back half of the year.
Thanks, John of what your gaming is in conjunction with lottery and in all other gambling spend is already a top five category. In fact, it was the number of free category behind auto and attorneys and the in.
In the first quarter and we are we have every reason to believe that it will be a nine digit revenue contributor in 2021 as it relates to the markets Theres really no hard and fast rule I would say that the New York and and its reopening and recovery is lagging behind some of our other markets New York City, particularly.
Cargo is maybe a little further ahead, but it's still not as open or robust as some of our other markets, while the Los Angeles, even though in a N a.
A virtual lockdown until just very recently our station there is just absolutely killing it. So I don't know that you can apply any of any one size fits all to geography or market size, but generally the larger markets have have lagged behind the the middle and the rest of the country in terms of reopening, but we did see a fairly broad based support we are you know of.
Our 116 markets 104 exceeded their first quarter revenue and EBITDA budget, which means only 12 of 116 did not achieve that.
Benchmark so.
It's pretty robust and we're very heartened with the reopening in the city employees and all of that's going on in New York City, because we think of that will flow through drug directly to our revenues at WP IX as the year moves on.
Got it and part of it let me ask you the there've been a couple of cases, where some of the digital players of paid newspaper publishers for news content.
He said that is an opportunity at some points of the broadcast base.
I think we produce a lot of content on our own and we're you know in those partnership discussions there has never been in my view of an equitable split of the economics. So I you know at this point I think since we are the largest producer of local content across the country over 300000 hours a year of local news I think we have enough cash.
<unk> two <unk> to fund our own platform.
Okay. Thanks, and maybe one quick one for Tom can.
Can you give us an update on the buyback for the year and if it is ultimately not much on the M&A front does the grow absent of the deal.
Sure.
Well, obviously, we bought back of $121 million in the first quarter and that was basically in one month, because we were in a blackout period and the first part of the year.
I would say that that for a month for a quarter, that's probably a good representation for the quarter by quarter.
Wouldn't say, we're going to buyback of $121 million every month, but.
But I would say if you if you extrapolated the $120 million for an entire year that would be approximately 500 million I would say that's probably a good number maybe slightly more than that later in the year.
But that also has some variance based on you know.
If there is some potential M&A, although M&A I don't expect to be meaningful could be a low nine figure amount in total for the year, but that would potentially eat into the share repurchase program, a little bit, but I would say, we're on trajectory to be at or slightly in excess of $500 million for the year.
Thanks, so much of that.
Thank you. Our next question comes from Dan <unk> with benchmark company.
Yes.
Great. Thanks, Good morning, another nice print Perry.
First for you.
Any kind of talked about this and you guys have a really great visibility.
Thanks, Tom.
Free comment public commentary just around Retrans.
And.
Obviously, there are some tougher comps from the Mvpds and the back half of the year of so just kind of maybe if you want to give your own perspective on the Retrans cycle.
And how much the how much like the left on that.
Then Tom.
The fixed cost of getting down 4% year over year, you've done a great job kind of keeping that down I think it's hard for some of us to get sort of a handle on how much of the COVID-19 savings are continuing to just media sort of how we should think about expense growth over the balance of the year would be super helpful. Thanks, guys.
I think on Retrans and we May have said this on the last call.
I think in my own mind I have revised the thinking of the of where the goal line is I think we've actually moved the goalposts further down the field and that the upside is perhaps more than than I thought it might be on a on a big four basis or on the on a total revenue basis for our company. So we're.
Despite protestations of the contrary.
Retrans is not over and in fact, we're very pleased with the we do of trailing 12 month of the sub trend here and if I go back to the first quarter of last year are our actual attrition was somewhere in the mid to high 6% range on the annualized basis and in the first quarter of this year, it's in the low.
5% range on an annualized basis. So we think as we have said sub declines would would ultimately level off and and we're obviously able to with our portfolio achieve our unit rate increases and continue to drive double digit growth in both top and bottom line contribution so from that standpoint theres been no.
<unk> our perspective other than I think we maybe have more runway than I, originally thought three or five years ago.
And Tom on the cost side.
Oh on the cost side I apologize, yes, no I think look costs are going to be more difficult. It's more we're running up against some comps, especially in Q2, and Q3, which were the majority of our cost takeouts last year or so.
Cost takeouts on a on a comparable basis for Q2 and Q3 of this year will be more difficult I still think that we will we will clearly be down.
On a fixed basis, our variable cost will be up slightly because we expect meaningful growth over advertising revenues.
In Q2, and Q3 of last year, but our fixed cost will continue to decline during the year.
Perfect. Thanks, so much guys I appreciate it.
Thank you. Our next question comes from Jim Goss with Barrington Research.
Thanks.
Our first question.
<unk> relates to a comment you made in the text. The that you had noticed a difference in the pace of recovery in car advertising by geography, I Wonder if you might expand on that and talk about.
Of the applications, we should read into that.
Yeah.
Yes, as I said earlier, that's primarily pointed at New York, which New York City, which has kind of lagged behind.
Most of the markets in our universe. Unlike upstate New York that is that it's very robust in terms of comps to the prior year, but it's primarily New York City that had has lagged behind.
And with the announced reopening we think that business activity will begin to accelerate.
And that of like as I said, it's pretty pretty widespread.
<unk>.
Perhaps a little less in New York, Chicago L. A but again as I said earlier, our la station in that marketplace is killing it both digitally and in.
In linear TV and we think the secret sauce. There is they produce about 90 hours a week of local content, which is way more than anybody else in the market and people are very interested in what's going on these days so.
That's about the extent of the of.
The differences in the commentary.
Okay. That's great KTLA has always been a great station.
Are you.
In terms of TV food network, or you still totally pests of investor or their programming opportunities on your platform and using some of the content. They produce maybe as a special show or something of that nature.
That add Jim I sit on the board that is a possibility I would say right now food network is focused on maximizing their content with the new discovery, plus which we will participate in from the food network's perspective, we get a.
Cut of any advertising revenue on the food network channel as well as the cooking channel and we get a cut of a proportion of the subscriber fees on discovery plus keep in mind that there really are two drivers on discovery, plus it's H HGTV and the food network and the wheel.
Obviously on 31% of one of those too so it will be additive to our financial results. This year. It's just that obviously they are in the rollout position you know there's a large percentage of the subscriber base, that's through Verizon and Thats currently.
No charge subscriber.
The acquisition are in those charged subscriber fee there for a period of time, so it'll take some time to talk.
Flash out exactly what it looks like but it will be additive from our perspective this year.
Okay, that's great great insight and lastly, I might ask him.
If you of any expectations as to the FCC with the.
The new group in Washington in terms of ownership caps or two stations in the large market or anything else that you think might be of important to you.
Well certainly we don't expect much activity in the short term you know the the Supreme.
Court basically.
Overruled the third circuit court and now the the decision would be remanded to them to then.
Remand to the FCC to reinstate the old rules, that's all process and that's going to take a little while.
Obviously as you know it does nothing to affect the national cap or our ability to to add markets.
On a linear basis.
But it does allow us some opportunities for us to buy in the second stations in the market, where we couldnt with the eight voice test.
Currently in place that would be a marginal benefit to us and then all top four.
Combinations are still subject to approval on the case by case basis. So we don't really know what that bright line looks like or if there is a bright line. So I would say it will take a little while to sort all of that out, but obviously, we have a playbook of no.
What we think opportunities are in every one of the markets that we only operate of single station in and but I don't expect that will play out in a meaningful way.
So perhaps later this year and perhaps later on in 2022 and the cycle. So I wouldn't anticipate anything happening in the material nature in the very short term.
Okay. Thanks, very much I appreciate it.
Thank you. Our next question comes from Steven Cahall with Wells Fargo.
Thanks.
So maybe just the big picture question Perry and Tom I think there is now about 40 million homes that don't take any form of the bundle and and maybe never well in that pool of might be growing you've got a lot of cash that you're generating you've started to make some digital investments talked about digital growing and profitable profitability. This year, how do you just.
Think about targeting those 47 million households that aren't going to be participating in the traditional bundle and how you get your content in front of them in and using your balance sheet to maybe grow those assets over time many of a quick follow up.
Sure that's always been.
If you've followed us since we went public in 2003.
<unk> always said that approximately 15% of our teller.
TV households, do not consume us via the eight of the pay service. So that number has grown slightly but not a lot. So maybe we're down to the low <unk> in terms of the pay TV universe, which is traditional and virtual mvpds.
That's not that's not a material change in that certainly as I said earlier, the attrition has been far less than anything we have ever modeled and so we feel confident in our ability to continue to grow we do reach them every day over the year and you know that's you know that.
That was OTT before it was cool so they they also receive and consume our digital our digital <unk> and.
Antenna television has shown tremendous.
Tremendous dramatic growth over the last year and because when you re scan. Your TV you now have a new channel that you can you can watch if you are only consuming over the air. So we plan to launch a second digital network, which you've seen the press on called Rewind, TV, which will be focused more on seventies eighties and as opposed to 60%.
<unk>, which is antenna TV nostalgist. So there is an opportunity for us the mind that in the in the near term and then obviously our spectrum opportunities, which are further down the road.
We will target all households in and obviously the the ones that are most capable to receive of $3 signal without any intermediary or of the over the air homes and we think that's important over time, because if you think about the sports betting and all of the things. The profit. That's the good happen. There is the latency factor of up to 30 seconds in the stream.
<unk> products that are out there. So if you want to make a profit bet on whether the puck is going to drop chances are that the put into play is already over before you can get a bit down and a streaming service, which we think will make either of the traditional.
Cable broadband delivery or over the year more attractive for those that are attracted to sports betting. So we continue to serve that audience daily and again they have fewer channels. Therefore, our advertising is more valuable than those homes, because theres less competition, but again, we see incremental change and.
And not.
Not revolutionary change.
Thanks, and then maybe just on the balance sheet the comment of staying below four times, maybe implies that there'll be some upward pressure on leverages. The you move through the year. Just wondering if that reflects anything contemplated in terms of the uses of cash or if thats just the reflection of some more of COVID-19 impacted quarters hitting the.
The trailing eight quarter.
Calculation.
I would say, it's even more linear than that it's losing $400 million in political revenue in Q3, and Q4 of this year that pushes leverage up which is a natural occurrence.
Obviously in an odd number of year I don't think its anything with regard to capital allocation. It's just.
We did a yeomans job of back filling $50 million of lost political revenue in Q1, those numbers get rather large in Q3, and Q4, and we don't anticipate being able to make up for that lost revenue until 2022.
Great. Thank you for that.
Thank you. Our next question comes from Craig Huber with hub of research partners.
Yes, hi, Thank you I.
I guess my first question is can you just talk a little bit about the.
Of the television advertising pacings pacings of core pacings for the second quarter last year as you know I think it was down about 30% given the pent, sorry, <unk> 35 per cent a year ago, which given the pandemic I mean, how much of that you need to be able to make up this year, how close to the people get back to comparable apples to apples to us of 19 levels of AD revenue in the upcoming for this current quarter.
Well I can give you April results here.
And if you look at all AD supported revenue for the month of April was up 62% over the prior year.
The broadcast portion of that including political was up 73% over the prior year. So if I if I extrapolate that to 2019. We makeup we get into the low single digits down versus 2019 on our second quarter based on our internal projections versus second quarter of <unk>.
But obviously, we will make up of.
A lot of what we lost if not all or more in in Q2 from an AD supported basis.
And my next question. Please I believe in the past you've said you expect net retrans for the year to be up the low double digits is that still the case and just some of the preliminary basis do you think it will still be up next year.
Yes, and yes.
Very helpful. I like that Okay, and then next you touched on this a little bit the SG&A line up 10% year over year, but then you talked about some reallocation of costs in that line I don't want to get into accounting discussion here of Sonoma waste your time on that but what should we expect the SG&A line going forward.
It seems like the last two quarters, it's been roughly around $200 million each quarter SG&A is it reasonable to expect going forward, how should we think about that.
Really not in a position to talk about specific expense numbers for.
For Q2 or beyond.
I will say that I think the reallocation has happened in Q1, so that type of effect going forward. If you look at it.
Versus the prior year's quarter, there will be changes, but if you if you think about the new.
Allocation of total operating expenses ex corporate between sales and SG&A indirect I think that'll be Q1 will be representative of that those proportions going forward.
What was the biggest change you had to make in Europe.
Relocation of well, it's not really of change. It's just an allocation of cost of goods sold for digital products one of our selling third party.
Websites is.
Is it of direct operating expense or is it the sales expense.
And then my other question if I could ask just go through the percent of your Retrans subs.
The renewed last year what percent of up for renewal. This year I believe the role at year end what percentage of for next year. Please.
It's it was 18% last year. It is a high single digit this year and it's.
The number of moves around a little bit last I saw between 60 and 70% next year.
Okay, Great. That's all I had thank you.
Thank you our next question comes from.
With Deutsche Bank.
Hi, guys. Thanks for getting me on I appreciate the time, one follow up on the core ads, specifically auto it sounds like the category is performing better now just to be clear my correct to say that auto was still down year over year in the first quarter and then looking forward can auto returned to year over year of growth in the next couple of quarters given the supply.
The chain headwinds that you mentioned earlier Perry.
Auto was down.
In the first quarter, a low single digit versus the prior year the it depends on the chip.
Shortage I think I think at some point there'll be a tremendous pull forward of demand of people that are looking for cars. They can't find cars whether that bubble.
Exists in the third quarter or fourth quarter, I don't know, but I would anticipate is there I don't think it would be in the second quarter, Although our auto was performing relatively on par with the with the first quarter performance from a comp to the prior year.
Okay got it and then second we had seen some headlines a while back now around some of that works intent the priority to prioritize growth of their nascent streaming platforms, perhaps over that of the linear broadcast.
You had any further discussions with your partners around that curious your latest thoughts.
Thoughts there.
Well, we have discussions all the time.
Have their corporate priorities and we have ours.
And so I don't think anybody is going to change anybody's mind, I think we'll see down the road how streaming plays out.
And what.
What the churn rates are on these products I think there'll be probably.
The two or three winners and everyone else will be in a less good place and so we'll see where we are over the long term, we're not too excited about.
We don't get too excited about the about these things because you know.
Having been in the business 42 years, it seems the more things change the more they ultimately kind of gravitate back to a traditional model and so I.
I think that would tend to favor.
What we do over the long term, but obviously, we all have to work our way through these the shiny new things.
Okay got it that's helpful. One last one for me, we had a <unk> <unk>.
Notable announcement yesterday in the space from Green Meredith the latest of several consolidation transactions over the past couple of years and certainly Nexstar has taken part.
All of the all of this consolidation change the competitive dynamic at all on a market to market basis for you and then I guess more Holistically do you view of more scaled local television space overall as a positive relative to the evolving media landscape and some of the pressures facing the traditional distribution.
Channel.
Well I think that we are a big believer in scale not only nationally but for example, we are in every market in the state of New York now what unique content and advertising opportunities that we can we create that no one can compete with.
You can say the same thing about the state of Tennessee, and Illinois, and Missouri in California, and so we see real value in that and we think we are just beginning to.
Unlock some of that value now that we have all of our stations and digital properties under one roof. So.
I think it's good for the business I think healthy companies are good for the business and there is no question in negotiating video distribution. It is a business of scale scale matters and in some cases of the only thing that matters. So it's important to be important as we like to say.
The commentary you know listen I congratulate gray on their announced the acquisition of the Meredith stations and we did some internal work here and obviously.
If all goes according to plan the.
Constituted broadcast company will be approximately half the size of our company, which again I like to say that you know we're unique no. One has been able to create a company like ours and no one will be able to create a company like ours in terms of linear television because there just aren't that enough available transformative transactions out there so.
Again, we're happy with our scale and again are beginning to mine the.
The economic benefits of of that on a on a regional level on the state wide level and ultimately on a national level.
More to come.
Thanks Perry.
Thank you. Our next question comes from Kyle Evans with Stephens.
Tom Thanks for separating out the best reviewed.
Use of digital could you.
On the rough percent split between national and local.
In the digital segment, and then maybe give us some high level thoughts on M&A.
The segment.
Kind of I don't even I'm not sure I have at my access.
The local versus national.
Split.
For digital we don't think about it a lot that way. It is it is by far significantly more locally than it is nationally.
I don't have that exact percentage.
Okay Fair enough and then.
Maybe just some early thoughts on the 2022 political cycle.
2022 election cycle.
Okay.
Well listen we are we got our first orders over the weekend for the recall election in California, So don't discount 2021 in terms of being a political year that is maybe ahead of our expectations, but.
We obviously think that both the house and the Senate will be in play in 2022, who controls those I think if you look at some of the the early elections here.
The incumbent party, usually loses seats in the mid terms and we think this will be no exception and losing enough seats means losing control and the balance in both houses as per carrier. So we expect a lot of spend in those races. We also have several visible gubernatorial races in 2022 so.
We think it will be a very healthy year. There was a number of embedded in our guidance. It is somewhat less than 2020, but maybe not as far down as you would think but we are.
We anticipate the the political cycle to continue to grow and.
And the robust and the off cycle years, as well as the presidential election years.
Thank you.
Thank you. Our next question comes from Alan Gould with loop capital.
Thank you for taking the question numbers of excellent I was wondering if you can talk strategically about our big picture of what's happening in terms of ratings, particularly ratings of the local news and are you able to capture how much of the audience is moving from your local TV stations to your digital properties.
I would say the.
Compared to last year, when we saw a tremendous spike in 20 year highs in terms of local news viewership across virtually all day parts. There has been some decline from that.
Those high watermarks, although we are still collectively and again. This is the sum total of 116 markets viewership. We're still collectively ahead of <unk>.
Pre pandemic viewership levels for our local news products and it's literally across the board so.
We're glad that there is some stickiness to that and we think as we kind of transition into the next political cycle and all of that that will continue to be the stickiness there.
And as far as a rotation of our migration from.
From local TV to our local websites or apps.
<unk>.
We are beginning to mine data on our digital users and so we can tell where they come from and where they go but we can't tell if they were watching linear TV before that so I don't know that I have perfect data on all of the migration of our goal is to serve our viewers and our marketing partners across all platforms.
Forms all screens, using a common currency and to be relatively indifferent as to how the.
How they access our content and we are the excess or opportunities to <unk> to <unk>.
Help them sell things so.
That's kind of the model, we are building and where the puck is going but.
I don't think Theres any way really that we can efficiently track or accurately track rotation from digital to broadcast or vice versa.
Thanks, Perry if I could just follow up what is the common currency you're looking at using.
Well very simply it's impressions and so.
Broadcast television is really the only medium that sells ratings currently and if we also on impressions or better known as thousands across digital linear digit net cable networks broadcast.
And created a common currency I think it would be a boon to our business. There are initiatives out there the <unk> and the tip initiative are working toward this other companies in our business are working with us towards a conversion of of all of our audience metrics two of common currency of impressions.
It sounds so simple.
It's almost counterintuitive that it hasnt happened at this point, but there is increasing momentum because I think everybody sees what we see why would you sell the smallest number on the page, which is the rating when you have thousands that again every every other medium cells impressions of thousands and we're still selling ratings in televisions. So we've just got to make.
Our our business easier to do business with and I think the money will follow because obviously, everyone understands the superior value proposition.
Thank you.
Yeah.
Before we take another question I did.
Go back and look up some information on kind of a <unk> question.
About 65% local about 15% national and about 20%.
The consumer which is basically <unk>.
Best of reviews.
Thank you Sir our next question comes from John <unk> with J K media.
All of it.
I have a few very quick questions.
Tom.
I noticed that cash outlays for TV programming rights trending down is there anything of is that trend going to continue and why is that happening.
That's really all around WGN America announced news nation using less.
The syndicated programming as our some of our larger stations' locally or using less syndicated programming.
Because we're doing more of local news because this will continue.
Yes, Okay cap.
Capex for the year I may have missed that.
How does the $135 million John Alright, Okay.
What is the.
What is the difference between the 43 million shares in the 45 million fully diluted share what does that do to.
That's really outstanding options and.
Our issues.
Okay.
Could you confirm for me at stock based compensation is not part of the free cash flow calculation.
It's the stock it is a noncash item. So it is part of free cash flow.
So it's not part of free cash flow.
Add back to free cash flow. It is added back if you look at the press release that we put out there is a reconciliation of free cash flow on page eight and in that we add back.
Non cash.
Stock based compensation expense.
Okay.
That'll be maybe what 30 of 40 for the year.
It'll be about 48% to 50.
Okay.
That's the yes that is the unintended consequence of of higher stock price Okay.
Not today.
Anyway lastly, just the <unk>.
Quick incidental any thought being given to split the stock.
We've looked at that John and I have got studies on my desk that show there could be of benefit in the studies, saying Theres no no benefit to no long term benefit to that so.
No plans to do it currently and we've got other priorities that would be ahead of that in any event, but.
I'm not convinced that there is a long term benefits of doing it although.
We certainly ask the question on number of occasions.
Okay. Thank you.
Thank you. This concludes today's Q&A I would now like to turn the call back over to Perry Sook for closing remarks.
Thank you very much everyone for joining us we look forward to gathering together in three months time to update you on all of our initiatives and our operating performance for Q2.
Have a great afternoon.
Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect.
Tom.
Yes.
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All right.
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Yes.
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