Q2 2021 Nexstar Media Group Inc Earnings Call
Good day and welcome to Nexstar Media group second quarter 'twenty 'twenty..1 results call. Today's call is being recorded I would now like to turn the conference over to Joe just on any Investor Relations. Please go ahead Sir.
Thank you Shelby and good morning, everyone.
Just go through the Safe Harbor language, and then we'll get right into the call all statements and comments made by management during today's call other than statements of historical fact may be deemed forward looking statements for purposes of the private Securities Litigation Reform Act of 1995, Nexstar cautions that these forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from there.
As reflected in the forward looking statements made during the call for.
For additional details on risks and uncertainties. Please see Nexstar has annual report on form 10-K for the year ended December 31, 2020, and Nexstar subsequent public filings with the Securities and Exchange Commission net.
Extra on undertakes no obligation to update or revise any forward looking statements whether as a result of the new information future events or otherwise with the.
It's my pleasure to turn the call over to your host Nexstar, Chairman founder and CEO of Perry Sook Perry. Please go ahead.
Thank you Joe and good morning, everyone. Thank you all for joining us to review Nexstar second quarter, which highlights our success in achieving of faster and stronger than anticipated recovery in core advertising another period of double digit distribution revenue growth and profitable digital revenue growth overall of our record in the second quarter net revenue net income.
And adjusted EBITDA were all well ahead of extent of consensus expectations, while free cash flow represents the timing of our 2021 operating cash tax payments largely related to our operating results exceeding the prior estimates.
Our solid second quarter and first half of 2021 reflect the resiliency and the adaptability of our business and our long term strategy is to leverage our scale to drive topline growth through increased content monetization and diversification. We're extremely proud of the consistent strength of our operating results and of the more than 12000 members of the Nexstar nation across the.
The country, who while serving our local communities of offset many of the challenges presented by the pandemic, putting nexstar on a path for continued success and growth.
With our year to date operating results of pacing ahead of internal forecast. This morning, we increased our pro forma average annual free cash flow guidance for the 'twenty, 1 'twenty 2 cycle by $60 million to approximately $1, 3.3 billion or approximately $31.50 per share.
Tom Carter Nexstar as President Chief operating Officer, and until next week CFO is on the call. This morning with me and will review the quarter our outlook. Our plans for continued capital returns and our confidence in achieving our Upsized pro forma average annual free cash flow guidance for the 'twenty, 1 'twenty 2 cycle.
Before getting into the quarterly highlights we're very excited to welcome Leon glue and accomplished finance leader with more than 20 years of experience in TMT investment banking and company operations, who will assume the CFO role from Tom next week. We ended the appointment is another component of our previously disclosed operating structure changes to support our company's next.
Phase of growth.
Last November we combined our broadcasting and digital up the operating subsidiaries under Nexstar Media, Inc. To align the company's national leadership and local content production with its management teams and Tom assuming the addition of role of President and Chief operating Officer.
Lee and his background and relationships will be instrumental in advancing our strategic objectives as we execute our long term transition and further monetize our content our spectrum and other assets.
Overall, we're confident in the actions that we've taken over the past year and the management team that we've put in place we feel positions nexstar to continue providing outstanding content and service to our local communities, while extending our record of delivering exceptional financial results and industry, leading risk adjusted returns for our shareholders.
Just as a side note recent speculation regarding my retirement is just that and I look forward to working with Tom Leann, Andy Alford, our president of broadcasting Karen Brophy of our President of digital Sean Comped on our president of networks in all of our teams at corporate and across the country as we build on our strong growth momentum to continue delivering industry, leading capital return.
And creating new value for shareholders.
With respect to capital returns during the second quarter, we repurchased approximately $138 million of our class a common shares while returning of digital $30 million to shareholders through our quarterly cash dividend.
Through the first 6 months of 2021 nexstar allocated approximately $319 million towards share repurchases and dividends, while maintaining total net leverage well below 4 times by the end of this quarter, we will easily exceed the 383 million of total capital of returns to shareholders and all of 2020.
2021 repurchase activity to date on our board's remaining authorization to repurchase 916 million of additional shares underscores our confidence in the resiliency of our business model, our free cash flow prospects and our solid financial position.
Operationally nexstar strong rebound and start to 2020..1 continued in the second quarter with net revenue rising 23, 7% over the prior year to 1.13 billion as we more than offset the approximate $13 million year over year decline in political advertising our.
Our topline revenue growth combined with expense management with operating expenses as a percentage of revenue declining 400 basis points from last year's Q2, all drove our second quarter, adjusted EBITDA and free cash flow before onetime transaction expenses to $419.7 million and $181 million respectively net.
2 of our brought over 37 per cent of our Q2 net revenue to the adjusted EBITDA line before the 1 time expenses you can expect nexstar to further leverages the scale and operational excellence to generate significant free cash flow and the balance of 2021 and beyond.
Total television advertising revenue increased 35, 1% over the prior year, reflecting of 42% rise in core advertising revenue outpacing our expectations and highlight and growing demand for our premium local content and our national marketing solutions as we've done consistently for many many quarters nexstar local sales initiatives continue to deliver health.
The levels of new business, 1 of our sales team is generating a record $32.9 million of second quarter, new to television revenue, marking a 59% increase over the prior year on an 18% rise over the first quarter of 2021.
Nexstar has new business strategies ongoing sales training performance focused of net incentive structures. All continue to provide highly effective of results and they are key differentiators as we help businesses large and small with their recoveries and business building strategies. Looking ahead, we are 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 second quarter total revenue of Nexstar as top 10 AD categories was 53% ahead of the prior year and 44% ahead of our 2021 first quarter, we reported gains in all of our top 10 categories with the biggest dollar gains in our top 2 auto and attorneys from an overall growth standpoint, the lottery and sports betting category had the.
The biggest percentage increase growing by 282% over last year in this category remains super hot across all of our platforms.
The broad based rebound across our top 10 categories continues in Q3 of small and mid sized businesses have begun to return to the AD market.
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 and deeper into the year.
Moving on to Retrans second quarter, 2021 distribution fee revenue rose, 15% year over year to approximately $617 million. The gross reflects distribution agreement renewals in 2020, representing about 18% of our subscriber base. The additions related emissions broadcasting acquisition of W. P I X and stabilized subscriber trends across.
Our platform that remained consistent with our expectations and support the ongoing distribution fee growth of net retrans margin trends that we project.
We continue to have good visibility under our contractual distribution economics with over 85 per cent of our big for affiliations contracted through December 31 of 2022 weeks.
We expect continued retransmission revenue growth, reflecting our contract renewals representing of high single digit percentage of our subs. This year and approximately 65 per cent of our subscribers in 2022, resulting in a higher rate of growth from this revenue source going forward into 2020.3.
Distribution digital and other revenue growth continued to contribute to our ongoing revenue diversification push in the second quarter distribution digital and other revenue accounted for about 61, 8% of all net revenue.
Looking forward, we expect continued growth from all of our non political revenue sources for the balance of 2020, 1 with similarly high levels of overall revenue diversification.
Speaking of Digital's second quarter 2021, total digital revenue increased 57% of approximately $73.4 million with digital profitability up again substantially over last year. The results benefited from our actions over the last year to discontinue on deemphasize certain less profitable digital operations and lines of business as well as the strategic.
Operational realignment, we've spoke about affected last fall our.
Our top line increase was driven by strong year over year growth on our local digital advertising revenue our agency services business and contributions from last year's accretive acquisition of best reviews, which is fully integrated and performing well.
Nexstar has integrated content and audience development strategies continue to deliver impressive audience engagement stats with our media content and significant consumer digital usage across all of our networks and our 400 plus digital touch points.
We continue to build on Nexstar digital Twenty-twenty strength, when our properties delivered record growth in audience engagement ranking number 1 in local news for every month of the year and reaching all time highs across key performance indicators, including average monthly users of $91 million total page views of $7.8 billion total multiplatform minutes of.
$10.4 billion of total 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 disk for revenue going forward and combined with our realizations. This year of the mid 7 figure expense savings, resulting from our strategic operating alignment of our broadcasting and digital.
The businesses, we should see continued cash flow growth from digital.
In June Nexstar, Mark is 25th anniversary of the Companys founding over these 2 and a half decades, the company's transformational growth and financial success highlights our culture that is committed to the localism and operational excellence, we build upon that foundation with our innovation monetization and revenue diversification strategies and highly disciplined.
Approach to expense management, M&A and capital allocation, we now sit at the largest broadcast group on the top producer of local news in North America, and we're actively mobilizing our resources at scale to leverage the many opportunities we see across the business over the near and long term to deliver growing levels of content monetization.
Overall, we're confident the actions we've taken over the past year positioned nexstar to continue to provide outstanding content and service to our local communities, while extending our record of delivering exceptional financial results and industry, leading risk adjusted returns for our shareholders with that said, let me turn the call over to Tom for the financial review and update Tom.
Thanks, Perry and good morning, everyone. I'll now review Nexstar Q2 income statement and balance sheet data after which I'll provide an update on our capital structure on some points of guidance.
Second quarter net revenue increased 23, 7% to $1, 1.3 billion, excluding political of second quarter net revenue increased approximately 26%.
Total television advertising revenue increased 35, 1% of $432 million, reflecting a 42% rise in core AD TV revenue to 200, I'm, sorry, the $424 million and the anticipated year over year reduction in cyclical political advertise housing the 8.5 billion.
Abuse and fee revenue increased 15% to $616 million, reflecting distribution agreement renewals and mission broadcasting as acquisition of W. P IX in New York, both of which occurred at year end 2020.
Digital revenues increased 57% of $73 million with digital profitability up substantially over the comparable prior year period, reflecting the successful alignment of our digital operations and contributions from our 'twenty 'twenty December accretive acquisition of best reviews.
On a same station basis net revenues total net revenues were up 20% net revenues ex political were up 22% core advertising revenue was up 38%.
Distribution fee revenues were up 12, 5% and digital revenues were up 25 per cent.
The increase in reported second quarter of direct operating expenses net of the trade expense and SG&A expenses, primarily reflect higher revenues related to the recovery in core and digital advertising as well as expenses from our fourth quarter 2000, Twenty's station and digital acquisitions as a percentage of total net revenue.
Combined second quarter of direct Opex, and SG&A expenses declined 415 basis points, reflecting nexstar is ongoing emphasis on expense management and driving efficiencies across the organization.
Second quarter pro forma fixed expenses, excluding programming expenses were up 4% over the same period in 2020 as we started the add back certain expenses that were suspended in 2020 in response to the pandemic.
Total corporate expense of approximately $42 million, including noncash comp expense of approximately $10 million was in line with our guidance for the second quarter. During the quarter. We recorded 1 time transaction cost of slightly less than $1 million.
Ongoing capex totaled $33.5 million and was in line with our second quarter guidance spectrum Repack Capex totaled approximately $1 million and we received approximately $7 million of reimbursements from the FCC during the quarter. As a reminder, we anticipate being fully reimbursed for all cap capex related the spectrum repack.
As those activities wind down in the later this year.
Second quarter total interest expense of proxy out amounting to approximately $70 million down 15% from $82 million in Q2 of 'twenty cash interest expense was approximately $66 million compared to $78 million last year with the decrease due to lower interest the interest rates and lower first lien borrowing levels.
Second quarter operating cash taxes were $167 million and came in above our guidance of $110 million largely due to enhanced profitability in the first half of 2020, and our re forecast of associated taxes, and the timing of cash tax payments for the year during.
During the second quarter, we reported approximately $30 million in distributions from equity investments related to our 31% ownership in the TV food network as that entity continues to produce strong results.
Second quarter, adjusted EBITDA of $419 million increased 41% over the prior year exceeding our budgeted amount and with the strong leverage on our business model adjusted EBITDA margin of 37% improved 500 basis points meaningfully exceeding consensus expectations for free cash flow of $181 million was <unk>.
<unk> by the aforementioned timing of cash tax payments.
As Perry mentioned with our year to date operating results pacing ahead of our internal forecast, we are raising our pro forma annual <unk> and our average annual free cash flow guidance for the 'twenty..1 'twenty 2 cycles of my $60 million for approximately 1.33 billion, which supports our view the nexstar has passed the growth.
Did the returns of capital and enhance shareholder returns remains on plan.
Looking ahead, we project recurring cash corporate overhead exclusive of stock comp and transaction costs to be approximately $32 million for the quarter and we continue to expect corporate overhead of approximately $115 million to $120 million for the year.
Non cash comp is expected to be approximately $13 million for the quarter and less than $50 million for the full year transaction expenses of approximately $2 million for the third quarter.
Operating cash taxes are expected to be approximately $7 million $70 million for the third quarter and we are now projecting operating cash taxes of approximately $310 million for the full year on improved profitability largely realized in the first half of 'twenty 1 so far.
Capex should come in at approximately $33 million for the quarter on $135 million for the full year, which continues to be a static with our previous guide.
Guidance, we expect Nexstar as cash interest expense to approximately $70 million for the third quarter and $275 million for the full year, reflecting interest expense savings related to lower outstanding borrowings the decline in LIBOR rates and our recent refinancing activity for.
For Q3 of 'twenty, 1 we anticipate recording approximately $12 million on TV food network distributions, which were approximately $230 million for the full year.
During the second quarter mission broadcasting closed on a new $300 million term loan B facility.
The net proceeds for missions new term loan b were used to pay down borrowings under the existing revolving credit facility paid share service fees, the nexstar and for general corporate purposes. In addition, concurrent with the closing of the turmoil in the facility mission reallocated $255 million of its revolving credit facility commitments.
The 2 next stars availability at quarter end, there was a total of approximately $366 million available under the 2 revolving credit facilities, turning to the balance sheet, reflecting missions capital markets transactions outstanding debt at June 30 was at June 30, 'twenty, 1 was of approximately $7.6 bill.
And consisted of $4.8 billion and the term loans on revolver balances with the balance in 2 issues of senior senior notes.
At the Nexstar.
Total net debt amounted for approximately $7.3 billion at June 30th compared to $7.5 billion of December 31, 2020 net debt for the first lien covenant purposes was $4.6 billion with net cash limited to approximately $200 million. Our net first lien covenant ratio at June 30, 'twenty 1.
1 was approximately 2.1 times compared to 2.28 at year end 2020, which is well below our first lien covenant of 4 in the quarter times, our total leverage at quarter end was $3.3 compared to $3.6 at year end 2020, as a reminder of Nexstar is the only financial Covenant is on our first lien debt, which is the aforementioned.
For the quarter times as always we remain focused on actively manage our capital structure and I expect Nexstar is net leverage absent additional strategic activity to be well below 4 times at the end of 2021.
Consistent with our capital allocation priorities and commitment to enhancing shareholder value during the second quarter, we returned $168 million to shareholders through the repurchase of approximately 926000 shares for a total cost of $138 million and through our Upsized quarterly cash dividend payment of $30 million our team's success.
And generating faster and stronger than anticipated recovery in core advertising as well as our continued double digit distribution and digital revenue growth allow nexstar to generate year to date free cash flow of $665 million and returned $319 million to shareholders through share repurchases and dividends during the first 6 months.
'twenty, 1 reflect reflecting all shares repurchased to date Nexstar has approximately $42.2 million shares of class a common stock outstanding and has approximately $916 million available under our share repurchase authorization.
In addition to our return of capital initiatives Nexstar will continue to Delever on deliver on our leverage reduction plan following Nexstar and mission second quarter capital markets activity, we allocated approximately $80 million in cash from operations towards debt reduction earlier in July.
As Perry mentioned, we're very pleased to welcome to Nexstar land Leehar, who will be assuming the position of CFO on August 9th, allowing me to fully transition to my role as Chief operating officer.
In the coming weeks I'll be working with liane to ensure a seamless transition Perry the board of directors and I are confident in our ability to advance our strategic objectives, while extending the nexstar as long term record of outstanding financial results I look forward to work on the Lan and introducing her to our followers on wall Street over the coming months.
Looking ahead with operating momentum continuing in the third quarter of course across our businesses, we expect to generate year over year growth across all of our non political revenue sources throughout 2021, we enjoy a strong cash generating position, which provides us with the financial flexibility to deliver growing capital returns for shareholders, while reducing.
Debt and investing in our business in summary, our scale leadership flexibility and operating plans are generating 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 the <unk>.
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 of the.
To enhance shareholder value and deliver on our Upsized pro forma average annual free cash flow guidance of approximately $1.33 billion over the 'twenty, 1 'twenty 2 cycle or approximately $31.5 per share.
With respect to our ESG and local community initiatives, we continue to cultivate a culture that values collaboration inclusion diversity innovation integrity and celebrating each team members contributions and accomplishments.
Nexstar ESG is an ongoing mission we are in the early stages of integrating the philosophy and principles of ESG into our media businesses and the voting the time energy and resources necessary to keep <unk> at the forefront of our thinking.
We have always and continue to firmly believe that he is G is good for business and good for Nexstar. In this regard we continue to codify environmental human resources and other practices that we're doing into policies and of expanded our ESG disclosures on our corporate about corporate responsibility.
Couple of corporate social responsibility pages on our website.
I Hope you will take the opportunity to review the progress on this front that concludes the financial review for the call and all of them now I'll turn it back over to Perry for some closing remarks before Q&A. Thanks.
Thanks, very much Tom we continue to execute extremely well on our strategic priorities, including serving our local communities and driving increased content monetization, while allocating growing levels of free cash flow to capital returns for shareholders, maintaining modest leverage and pursuing accretive M&A and return focused investments in our business to drive future.
Growth.
Looking ahead, we have excellent visibility to delivering our new upsized free cash flow targets in the current cycle and a clear path for the continued near and long term enhancement of shareholder value as we follow the successful strategies. We have 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 <unk>.
Areas of added consistency and visibility to our results, while creating new value for our shareholders.
Our new guidance for pro forma average annual free cash flow for the 'twenty, 1 'twenty 2 cycle of $1.33 billion underscores the strength and resiliency of our operations and ability to continue delivering free cash flow per share of that is among the highest in the overall market.
Our strong free cash flow generation is borrowing nexstar to meaningfully increase its return of capital initiatives as reflected by our current authorization to repurchase up to an additional $916 million worth of shares in our 8 year track record of dividend increases of 20% annually or more.
We look forward to reporting on our continued growth and accomplishments and on behalf of the entire Nexstar nation, Our board and our management team. Thank you for your continued interest support and for joining US today. So now let's open the call the Q&A to address any areas of specific interest operator.
If you would like to ask a question. Please signal by pressing star 1 on your telephone keypad, if youre using a speaker phone. Please make sure your mute function is turned off.
Out of your signal to reach our equipment again press star 1 to ask the question well pause for just a moment to allow everyone an opportunity to signal for questions.
Yeah.
We'll take our first question from John Janda split Wolfe research. Thanks, Good morning, Perry ought to keep the Champagne on ice.
I had a couple of questions..1 is look I know, there's a lot of noise from last year between Covid and political advertising, but can you talk about what youre seeing an underlying growth in the third quarter and do you expect improvement in auto and then separately.
On a bigger picture of what the networks pushing sports viewership to their streaming platforms.
How are you thinking about audience trends and revenue opportunity of these over the next few years and to what extent of your local programming serves as a retention tool.
Sure.
First as it relates to the third quarter I was on the phone with the president of 1 of our rep firms yesterday.
And there they are projecting that they will deliver wood they'll be back to and perhaps even exceed 2019 levels on core revenue. The automotive category is still somewhat challenged through the supply chain disruptions, but in his words.
Of the advertisers coming out of the woodwork and I will tell you that that is an improvement of substantial improvement outlook for just 2.
2 weeks ago in terms of pending business and their ability to achieve and overachieve 19 levels for the balance of this year. So we're very pleased at the third quarter projections that our management teams of put together.
They are at or above our forecast on a collective basis and now we just have to execute.
But the underlying trend feels pretty good and the pacing with the support that as it relates to the sports programming.
Obviously.
There was more sports programming available on more of.
Outlets than ever before and all we can control is the ones that we're involved with which our network affiliations, but more importantly, our local content I think you hit the nail on the head you know from our perspective of our local content is the sticky part of what we deliver to the consumer.
And the only thing we're in control up quite frankly, so we continue to focus on.
Increasing the amount of local content differentiating the amount of local content and providing local content across all of our platforms digital mobile as well as the the linear TV. So.
That's the business will continue to focus on and continue to grow.
And so.
Some of the.
Diversification of our dispersion of sports audiences is somewhat of a self fulfilling prophecy based on how the.
The the copyright owners decide to distribute that content, we can't do a whole lot about that we can maximize the opportunity that we have.
And we've done very well with the Olympic advertising in our you know in a challenging environment in terms of having auto AD support there, but we also have other projects that we work on like remarkable women than you know.
<unk>, an African American heritage months, and all the things like that that our station projects with exclusive content that we think provides a differentiated offering into the marketplace and differentiate content for advertisers. So.
We have 1 coming up in September with feeding America, which will be a total company full month of September campaign to raise awareness.
For food and security and about hunger in America. So when we lean into these kinds of things we tend to get the whole company behind them support from a content perspective across the stations in the news nation and then also advertisers support for public service initiatives. So those of the things we will continue to focus on and try to do.
And and those of the things on which we're in control.
Okay. Thanks, a lot.
We'll take our next question from Tom <unk> with benchmark company.
Great. Thanks, good morning, another solid quarter guys.
On the call is digital used to be a pain points sometimes of the conversation.
Starting to get some momentum in the.
The other direction here, especially as you guys have really pruning the portfolio and optimize the I guess you mentioned in your prepared remarks, just about the basket of uses daily maybe just a little bit more color. There would be helpful. And how you think about either M&A for augment sizing that and kind of the growing diversification.
Versification strategy, there and then Perry, obviously, you guys announced.
Really no surprise the expansion.
Of the news nation programming, maybe just talk about performance of what Youre seeing there why you're kind of pressing ahead with that and sort of what we think are kind of next steps from here. Thanks.
All of that Dan I'll take the digital question, then I'll, let Perry address news nation, specifically from best reviews, its performing as expected double digit revenue growth improved EBITDA, we are making a good amount of investment in <unk>.
Best of reviews as well the number of reviews that they have done so far this year is about 5 fold of what it's done historically, so we're we're feeding the pipeline and if you go on.
Local websites from Nexstar, they're not all up and running yet but by the end of the third quarter will be across all of our websites on nexstar and that's obviously our own fulfillment and our own delivery of those customers. So that's a very good economic equation of equation for us. So we're very excited about that because it all.
Begins and kind of gives us an entry point into the consumer.
On a retail space, it's an affiliate model, so it's not advertising driven or advertising centric.
So it's kind of of diversification from a digital perspective, and I think youll see more of that going forward, but really when it comes down to is the biggest difference in our performance and our profitability. After we cycled out of some of the.
The prior businesses that we're in is we're a media company, we generate content and we distribute it.
We shouldnt be any different in digital than what we are in linear television or on <unk>.
Broadcast.
Is the <unk>.
Making good consumer content that is valuable and then monetizing it on as many different platforms. As we can that's what we're doing on digital I think we got away from that to a degree for a period of time and new management and digital has helped us refocus on that and I think that's of winning.
Winning financial proposal from our perspective as you can see from the.
From the engagement numbers from the user numbers et cetera.
Continuing to make great progress and be kind of a leader of the pack from that perspective as it relates to digital Perry and in terms of follow on acquisitions. You know we have a number of conversations ongoing including 1 that will happen later this afternoon and another 1 that will happen later this month.
Would be theoretically building on that content in news adjacent content that would with power our portfolio as it relates to the news nation.
We have announced an expansion in September which would be creating a morning show and then also bringing Dan Abrams to prime time and both of those announcements were certainly cheered by our advertiser base.
We've accomplished a couple of things I think I may have mentioned this on our last call. We're getting the same cost per point in the scatter market is C. N N and I thought that would take years to achieve now we're obviously getting smaller rates because our ratings are smaller but that were considered of our peer group in the news space is a significant accomplishment for us.
On Compton, and Michael corn, and the team in a short period of time, and we have virtually full distribution on the OTT platforms, which again I thought it would take longer than less than a year to achieve and that's owing to the strength of our distribution team Dana Zimmer and her team in Philadelphia that worked very hard to make sure we were well positioned.
<unk> out of the gate. So we have a major promotional campaign that will kickoff post labor day for news nation on our owned and operated stations, reaching 68% of the country as well as.
Of double digit millions.
AD spend commitment out outside of house on social media and other platforms.
And the crafted by the folks that Leo Burnett, the Chicago, 1 of the iconic brand of building agencies in the country. So we feel all of that the additional programming picking up additional shelf space as well as the promotional platform. We are number 1 job is to drive increased awareness when we launched news nation, 10% of the country knew what news name.
<unk> was we're not the 16%, but that means that 84% of the country has no earthly idea that's job 1 and as we raise I feel very confident on the content.
I'm not embarrassed by anything we put on the air and I'm not sure of that CNN in its infancy or Fox in its infancy could have said that about their news networks, but we are building on a very solid foundation. We are way ahead of where I thought we'd be structurally and will just continue to build out the the rest of the day parts. Once we launch our shows in September.
<unk>, we will program everything Monday through Friday, except for 10, a M to 5 P. So that's the focus for 2022 was filling out of the 24.7.
Broadcast schedule at least Monday through Friday, and then as we move toward 2023, we will attack weekends and build those out as well so I'm very pleased at the progress we've made.
The extremely pleased at the people that we've been able to attract particularly in the key management positions to help drive this and everybody sees it everybody gets it.
People, calling us, saying I see what you're doing I know, what youre doing and I want to be of part of it and that just doesn't happen certainly doesn't happen elsewhere in cable news to the best of our knowledge. So we feel we've got good momentum of the numbers are tiny but.
But again, we started with profitability and that will only build as the numbers continue to grow.
Got it thanks for the color guys and congrats on making the statement of the slow Perry.
I know you've made it.
Thank you.
We will take our next question for Jim Goss with Barrington Research.
Okay.
Thank you.
It is clear that the Nexstar has evolved into this very solid national the company I'm wondering as you review it in maybe at the 25 of your appointments good too.
Look back and forward discuss the key advantages you feel you gain with your exceptional of national footprint and the impact on your stations individually and collectively and enabling the.
Our national platform enabled in support of for news Nation. For example, perhaps the any greater exposure to regional and national spot ads or.
Any any other changes you would view and how do you look at the <unk>.
Benefits you get from the platform we've created.
I'd say first and foremost the the major benefit of the scale on again the scale came together in October of 19, when we closed on Tribune and last year. During the pandemic was our first full year of the integration and realization of the synergies that we promised and I feel that some of them was somewhat masked by the overall overhang of the pandemic.
But I think people are seeing now the earning power of the platform, but the number 1 beneficiary of scale is in distribution. When you reached 68% of the country that is a very powerful tool.
<unk> tool in negotiations to expand your distribution or increase your distribution revenue I would also say.
We have we.
We share content all the time across the platform not only with news nation, but with other stations that might be interested in the content as it applies locally and we've got a 24 person Washington Bureau that serves news nation and the and our owned and operated station group and we also have 7 people in Tokyo covering the <unk>.
Picks for news nation, and our station group, our NBC affiliates as well as custom content for non NBC affiliates, where an athlete might have been raised or gone to school in that marketplace and those kind of profile and we're generating an incredible amount of money, it's better than of 10 to 1 return on the investment of sending those people.
There because we of sponsors for this custom content outside of the the actual linear broadcast. So I also think in terms of people you know when you look at how we treated folks during the pandemic, we had no layoffs no forced unpaid leave no salary reductions and and I think.
Our people.
Realized that may be unique in the marketplace. The media marketplace certainly among the major companies.
And also it's now a great recruitment tool because you can start your career in the small market moved to a large market and end up on a national cable news network. If that is your aspiration you can do all of that without leaving the confines of the Nexstar nation, and I think that that benefit as well as the residual benefit of our actions towards.
Of our employees during the pandemic will continue to pay dividends as we recruit.
New people into the company on a going forward basis. So I think those of some of the topline things I think also our our balance sheet as of the.
The size and breadth of of our balance sheet and our financial position.
Because of being a large diversified company when you operate in 38 states youre pretty much of a proxy for the country and so we see a lot of things that perhaps aren't as readily apparent inside the beltway or in the northeast quarter all the time.
Which I think is a benefit for the company because where we're at the main street level here and Thats really where we play and we are just beginning to.
The build our national sales presence, Jim and that will be.
Come more into focus over the next year and a half 2 years, where not only do we have.
Digital platform that is Comscore top 10.
And number 1 for local news top tenant all news categories in terms of our aggregate.
Our aggregate statistics, we have of linear platform that reaches.
<unk> 68 per cent of the country. We have of cable news network. The reach 75 million homes put all of that together, that's a very powerful go to market opportunity and we're just we're in the probably the top of the first inning of being able to plumb, what that can mean to us over time, but we have a team that is on that and I think you'll see more to come.
Okay, Great just a couple of smaller things to them.
Once you cover the 10 to 5 spot.
Timeframe on news nation that would resolve the rights issues would.
Would you think of having of news nation App or <unk>.
Some of the distribution for them.
The editor.
Net.
Yes. Okay. Go ahead, we have of news nation App today and we are.
We are.
Putting considerable resources into that I want the app to be as important as the linear channel.
In terms of.
Breaking news and covering stories, especially now when we're not on the <unk> 24, 7%.
Your question May be around is there a streaming our direct to consumer opportunity with news nation content and we have discussed that we think with not a whole lot of incremental spend we can treat because theres. So much content and only a fraction of it makes it on the air that we could take some of this other content that doesn't may.
At the air from around the country and develop a streaming streaming opportunity for news nation, and but again I want to make sure we get our launches right in September and we're on a firm footing. There we are starting to see growth in the linear platform and then we can begin to focus on the elective, but I want to make sure we nail the required course work for.
<unk>.
Okay, and then the less on point of confirmation of the.
Mission stations totally included in your Retrans negotiations on affiliation agreements, providing scaled benefits benefits in both directions.
No.
As it relates to Retrans negotiations, we cannot negotiate on behalf of stations, we don't own in markets that we that Nexstar operates in.
Can and we are in New York on negotiating on behalf of picks because nexstar does not own the station in that marketplace and that is permissible under the under the FCC rules. So.
That's the only mission station at this point for which we negotiate.
Distribution revenue.
Alright, Thank you very much.
We will take our next question from Steven Cahall with Wells Fargo.
Thanks.
You said that speculation about your retirement is in fact, just that speculation I admit I was 1 of those speculators and maybe incorrectly so just to put a finer point on it does it mean you have no retirement considerations at this point and would expect to extend your contract and maybe on that topic with Lee and joining in her background in banking.
Can we maybe expect.
Any shift to the capital allocation priorities and in particular, maybe a bit more of a focus on.
On non station M&A.
And then Tom just on the free cash flow guidance I was wondering if you could speak to what you've got in there for auto was hovering over the next 12 months and maybe the bigger question is doesn't really even matter with the political crowd out and the Retrans acceleration next year as auto of a material part of that free cash flow guidance. Thank you.
While I'm not going to say that I am Nexstar and Nexstar has me if thats, what you are seeking but.
I founded this company there are a number of things I wanted to see through here. We spent 24 years of assembling what we have thus far and now we're obviously pivoting toward the highest monetization opportunity of our assets, which includes our spectrum, which will take some time.
So there are a lot of things I want to see through here and.
And so.
Don't want on negotiating on a conference call with the with those that will be my counterparties, but so.
Suffice it to say there is interest in extending the relationship beyond the current contractual date and no hurry to get around to that from my standpoint, we've got lots to do and.
But.
I think youll see maybe around beyond the.
The current end of the current contract God willing in the health of.
Supporting and all of that but.
So I think thats, probably about as far as I can go on that I'll, let Tom speak to the other points you raised.
With regard to auto going forward, Yes, we do project auto recovering in 2022.
I'm not going to give specifics with regard to what percentage of recovery et cetera, but we will see that I would say that the unintended benefit of all of this is auto.
Was a mid twenties percentage contributor to total advertising revenue historically right now I want to say, it's in the mid to high teens, we don't see it going back to the mid twenty's going forward because of number of categories.
Gaming and sports betting in particular have arisen during this last 18 to 24 months and those arent going away as well as other categories service in particular that we see continuing to be strong. So auto recovery is part of the projection I wouldn't say it has to do.
Driving factor in the projection because youre right political will be very robust in 2022, and the addition of that will more than exceed any.
Incremental addition from auto.
Just as an aside the service categories now on number 1 revenue category digitally.
Probably as intuitive when you think about all of the help wanted cash.
<unk> that are going on out there, but it is the plant that auto as our number 1 category and thats due to that category growing not necessarily auto diminished.
The diminishing.
Thanks, a lot for that color.
We'll take our next question from Kyle Evans with Stephens.
Hi, Thanks within core could you talk about what Youre seeing a little more specifically with regard to local national.
Regional differences and news nation, and I have 1 follow on.
Well.
There are some regional differences.
Think of.
The New York continues to kind of lagged behind the recovery.
Los Angeles, given the strength of our station has just been killing it all year.
Other stations on the West coast or.
Again, a bit lagging behind the middle part of the country in Texas or kind of open for business and just going at it so.
But theres no.
Theres no roughly even it's really situational market bye bye marketplace, but if I look at the our numbers in Q2 for for broadcast both local and national were up substantially.
We see.
Our strength in local the national but then I gave you commentary on on national rapidly improving their outlook just over the last couple of weeks. So.
And as it relates to news nation.
We took the.
The amount of money, we wanted to take in the upfront and I think we wanted to and we got.
Substantial CPM increases over the entertainment programming, where news nation programming is replacing that I think we held back money.
Inventory for the scatter market waiting for a new shows the debut and then being able to sell off of those numbers, which all of which we hope to be positive. So that was the strategy of our sales team, which I agree with but we.
EBIT, even a radio station in the Chicago, we've made money in the second quarter. So we had positive results news nation stations digital.
Our digital <unk> as well as radio so there wasn't the business unit in the in the company in the second quarter that didn't have positive cash flow.
So it's I would say, it's broad based Kyle let me put it that way.
Great and then maybe just any high level of updated thoughts you might have on the 2020 political cycle.
Well.
It continues.
<unk> continues to become more interesting as time goes on with the retiring senators in battleground States like Ohio, and Pennsylvania with.
The uncertain situation with the governor and California, and whether they'll be of recall and all of that so.
We did not project in our guidance that 'twenty 2 political would eclipse 2020.
But we're fairly close but the.
We never we continue to be.
Positively impressed with.
That dynamic in the fundraising that's going on and it's obvious I met with our <unk> team in Washington, a couple of weeks ago.
And both the Republican and the Democratic GR Representatives expect that these elections are for control of the house of control of the Senate, which in some ways.
More money could be spent there than we've ever seen in those races before we won't have a presidential overlay but.
I look at California, right now and we've got a couple of million dollars for the recall election will probably do 3 times that as the poll has continued to tighten and so we had none of that forecast that that was going to happen in our political for this year and that continues to be the thing will project race by race as we always do check the fund raising but then theres always.
The the unknown that ends up bringing more money and so we still don't project that will eclipse 2020, but.
Our outlook continues.
To improve in terms of the actual quantum of dollars, we'll see in 'twenty 2.
<unk>.
We'll take our next question from Craig Huber with Huber Research partners.
Yes, Hi, good morning, My first question on Retrans subs.
Last quarter. The leave you said it was down year over year in the low fives I think you said the trends of staples for so I assume that means down roughly 5% of the second quarter year over year.
The second quarter, which would show a sequential improvement on a trailing 12 basis compared to the first quarter.
Which isn't unexpected because the second quarter of last year is when we saw the majority of the disconnects relative to Covid. So the second quarter of this year, obviously would be expected to be better than the second quarter of last year.
Okay. And then also can you just speak a little bit more about sports betting obviously, it's grown like of wheat here for you what percentage of your core advertising is that and how optimistic are either where that can be the 2 or 3 or 4 years for now.
Well, it's become a <unk>.
Top 10 category for us very quickly and I don't think were going to give a percent of of total revenue.
But it's we expect it will move into the top 5 here as more states are approved for sports betting.
<unk>.
That it could become a double digit percentage contributor to our revenue about half of that now.
But it's obviously the fastest growing category, we have on a year over year basis.
And then my other housekeeping question in the past you've said you expect net retrans for this year at the up low double digits and for next year to be up mid to high single digits is that still.
Reasonable in your mind.
Yes.
Okay very good and then my last question I don't know if you have this at your fingertips, but be curious to hear about your news local news ratings.
Tracking here.
Not so much year over year, but first of all of it was 2 years ago before the pandemic.
Okay.
Again, it depends market by market and obviously, the shortcomings of Nielsen with their samples declining below the.
Minimum levels due to COVID-19 of no access to houses with meters, who fix them or turn them on or do whatever.
But I would say as a rule across a 116 markets. Our numbers are higher than they were 2 years ago Theyre down from the peak they were at their peak at this time last year second and third quarter, we were seeing.
Substantial double digit increases over the prior year, but declined.
The decline from that level too, but the steady state is still higher than where the ratings were 2 years ago.
That's an average across all of our markets but.
I think it applies particularly in our major markets.
That's all I have thank you.
And again, if you would like to ask a question. Please press star 1 at this time again that the star 1 if you would like to ask a question. We will take our next question from Alan Gould with loop capital.
Thank you I've got 2 questions 1 for Perry and 1 for Tom Perry you referenced the ditch.
Digital spectrum have you got do you continue to get much interest from the digital players for the access and use of that digital spectrum.
And Tom.
You mentioned.
Average at the end of the year would be well less than 4 times heck youre closer to 3 times the 4 times right now.
Any thoughts on leveraging up the even more to be more aggressive on share buybacks given.
The limitation to say broadcast acquisitions right now.
So I'll, let Tom answer the second question first and then I'll speak briefly to your first question for sure well.
It probably didnt escape you that the pace of stock buybacks increased in the second quarter relative to the first quarter I would say, that's probably a pretty good indicator of where we were.
Where we see the.
That activity going, especially in light of improved free cash flow relative to original expectations, but at the same time I think we are still.
More.
Opportunistic than I think people would probably give us credit for so it's a little bit depending on stock price, etc, but.
Do do we have.
A substantial amount allocated in the second half of the year for stock repurchases, Yes, I would say.
Our leverage will go back up.
In the fourth quarter as we lose based on a trailing 12 months basis as we lose political advertising from Q4 of 2020, So we're still going to be.
We will be below 4 times, it will be increasing above the 3.3 times we're at now.
We will continue to make modest.
Principal repayments, but the vast majority of the of the available free cash flow and I think of available free cash flow is free cash flow minus dividends will go to stock repurchases.
And I don't know that at this point in time, we imagine a scenario, where we would borrow money to buy back stock. It just doesn't feel like it's part of our DNA at this point, but we will continue to be opportunistic as it relates to the spectrum. We have at this point TV stations by the end of this year, we will have TV.
<unk> build out that cover approximately a third of the country.
And by the end of 2022, we expect Nexstar stations with the Nextgen Nextgen or atoc, threet auto covering 50% of U S television households.
Just in our portfolio, regardless of what others do so.
We have to build the the.
Total way before we can charge anybody to drive on it and so I think if we get the half of the country next year and with others, maybe that aggregate number of <unk> spectrum that's available.
Is something north of maybe 70% I think then you can begin to build use cases, I mean, we've got a.
Conjunction with other.
The broadcasters, who you will be hearing from in the next couple of weeks.
Have a test and automotive tests going on in Michigan.
Early stages of just looking at the art of the possible. So.
We continue to believe that this is a substantial value lever for our company and the industry, but first we've got to enable <unk> signals or next gen TV signals in our marketplaces.
And we are.
We're being aggressive in building out our platform.
To at least 50% of the country by the end of next year, we'll be able to receive that signal, which means that's that's the spectrum and the bandwidth on the part of the map that we can we can then begin testing and building use cases for <unk>.
Okay. Thanks, so much.
That concludes today's question and answer session speakers at this time I will turn the conference back over to you for any additional or closing remarks.
Thank you very much for joining us. This morning, we look forward reporting back in early November on our Q3 results have a great afternoon.
This concludes today's call. Thank you for your participation you may now disconnect.
Yes.
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During the day.
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