Q2 2022 Nexstar Media Group Inc Earnings Call
[music].
Good day and welcome to Nexstar Media group's second quarter 2022 results today's call is being recorded I would now like turn the conference over to Joe Zhou for any Investor Relations. Please go ahead Sir.
Thank you Ann and good morning, everyone I'll read the Safe Harbor language and then we'll get right into the call all statements and comments made by management. During this conference 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.
Cause actual results to differ materially from those reflected by the forward looking statements made during today's call for additional details on these risks and uncertainties. Please see next door's annual report on Form 10-K for the year ended December 31, 2021 as filed with the U S Securities and Exchange Commission and Nexstar subsequent public filings with the SEC next door.
It takes no obligation to update or revise any forward looking statements, whether as a result of new information future events or otherwise. Thank you for your patience with that it's now my pleasure to turn the conference call over to your host Nexstar, Chairman and CEO Perry Sook Perry. Please go ahead.
Thank you Joseph and good morning, everyone. We appreciate you joining us today to discuss next our record second quarter financial results with me on the call today are Tom Carter, our President and Chief operating officer, as well as Lee <unk> our CFO .
I'll start with a summary of recent highlights and developments followed by Tom's operations review and Lee and his financial review.
Nexstar delivered another outstanding quarter of financial results and shareholder returns top and bottom line performance was driven by a strong year over year growth in political advertising and distribution and digital revenues.
Net revenue adjusted EBITDA and free cash flow came in well ahead of consensus continuing our track record of exceeding expectations.
These results validate what our company has proven so many times over the years, regardless of the operating environment, our business model is resilient and built to outperform.
In the first half and the second quarter of 2022, we returned $486 million and $284 million, respectively to shareholders through share repurchases and dividends, marking all time highs for both periods. In fact in the first six months of 'twenty 'twenty. Two we returned approximately 62% of next year's free cash flow.
Approximately $12 16 per share to our shareholders.
Since our last call the financing markets have been hit by fears of a possible recession, while there's no doubt that companies across all industries are operating in.
Unpredictable environment, the breadth and reach of our platform and our customer relationships with over over 40000 businesses enabled nexstar to separate the reality from the noise.
Based on what we're seeing there is little to suggest that the current macroeconomic uncertainty will have a material impact on our business.
This is consistent with recent positive corporate earnings results across a variety of industries as well as broad based economic data, including consumer spending employment levels, and payrolls and industrial manufacturing all of which remain healthy and.
In addition, we have the benefit of the 2022 mid term election cycle, which by all accounts will be another record year for political AD spend as such we continue to have solid visibility on our free cash flow outlook.
Let me briefly highlight some of the reasons why nexstar is uniquely positioned for growth in the current environment the scale and diversity, we've achieved through consolidation or distribution arrangements and digital content M&A have fortify the strength of our margins and our earnings power and have created the best operating model in the industry.
For several years now over 50% of our total net revenue has been derived from distribution revenue. This contractual and recurring high margin revenue source has historically been resistant to periods of economic downturn, we have a solid foundation for continued visibility in the second half of 2022 and with over half of our subscribers up for renewal at year end, we expect.
<unk> growth in this this period as well as beyond.
Looking at the last two election cycles political advertising revenue was accounted for approximately 10% of our total net revenue on average our focused approach to optimizing the political advertising opportunity at our scaled presence in markets representing over 80% of contested races gives nextera distinct competitive advantage in capturing Lee.
Adding shares of spending.
Second quarter political revenue more than tripled on a quarterly sequential basis and was up approximately 80% over pro forma Q2 2018.
Our political revenue is also pacing more than 40% ahead of 2020 year to date levels setting us up nicely as we head into the second half of the year.
Importantly fund raising which is a key indicator for political AD spend increased 76% over Q2 2018. According to the federal election Commission we.
We expect fundraising levels to accelerate as we move through the year, given those positive trends and recent events.
Together these factors reinforce our confidence that we will generate record midterm election, net political advertising revenue for 2022 meaningfully exceeding pro forma 2018 levels. The strength of this revenue source should also help offset continued weakness in the automotive category and any general economic weakness that may arise.
With only 33% of our total net revenue derived from core TV advertising, we are simply less dependent on this revenue source than ever before while Q3 core TV advertising at the station level is pacing slightly behind 2021 primarily due to political squeeze out softness in national advertising and a comp to Q3 of 2021 which included.
The Tokyo Olympics, there are several bright spots among our advertising categories.
First approximately half of our TV advertising categories are pacing up for the quarter. The station categories that are pacing up the most in third quarter to date include some of our most stalwart categories, such as attorneys drugstores home repair manufacturing as well as telecom and entertainment.
Categories that are pacing down the most in Q3 include sports betting insurance and government services, most of which is unrelated to the economy ports.
Sports betting has seen a pullback, although Kansas in Massachusetts recently approved bills legalizing on online sports betting in Ohio will launch on January one of 2023.
Government services have been impacted as state sponsored COVID-19 funds have begun to expire but on the whole we feel good about the strength of our local advertisers the economy and our expectations for our consolidated net revenue.
On the cost side, our operating expenses are largely fixed our balance sheet and capital structure in both in great shape. Our leverage is only three three times and it's going lower the recent refinancing of our senior secured term loans and revolving credit facilities reduces our annual cash interest expense by approximately $10 million a year, while also extending our maturities.
We're halfway through what we expect to be another year of record financial performance for the Nexstar nation, and our shareholders as I mentioned earlier, we continue to have excellent long term three year visibility on our growth trajectory.
In addition to political revenue this year and the presidential election in 'twenty 'twenty four both 23 and 24 will benefit from the district, the distribution agreement renewals covering virtually all of our subscribers during that period, which we expect will materially benefit our cash flow.
As a result, we remain confident in our ability to generate pro forma average annual free cash flow of $1 4 billion on the 'twenty two 'twenty three cycle and we will continue to deploy that cash flow to maximize our shareholders' returns.
The boards recent approval of a new $1 $5 billion share repurchase authorization further further highlights our confidence in <unk> free cash flow growth outlook.
The strength and consistency of our results and free cash flow generation remains one of Nexstar is most powerful differentiators from our peer group as well as larger diversified media companies.
But beyond all of these great characteristics of our business I am very enthusiastic about our organic growth prospects. We have a scale now that will enable us to capitalize on new opportunities that we were unable to do before as a more regionalized player. We continue to make progress at news nation. We are the fastest growing cable news network and the most watched genre of cable.
TV.
We offer 86 hours of news programming per week, which is four times more than we had at our launch less than two years ago and.
And as you probably saw our reputation as the unbiased news network helped us the land, Chris Cuomo, which adds to an already fantastic group of award winning anchors and journalists that should help accelerate our growth.
We also continue to make progress on the rollout of a T. S. E. Three pointed out watching and four additional markets this quarter and accelerating our discussions behind the scenes with potential technology and business partners for this service.
With our proven business model Nextera has a very long runway ahead of it while the CEO of a streamer that is now facing new competition is wrong fleet predicting the demise of our sector by the way something we've been hearing for over 25 years, while at the same time now copying our business model, we will intend to keep just doing what we do best executing innovating <unk>.
Feeding estimates and growing and creating shareholder value.
We have one of the best performing stocks in the media sector and are only in the early innings of harvesting the potential of our platform and its probably not lost on investors about nexstar stock has more than doubled over the past two years next Netflix holders of last half of the value of their shares as we say in the TV business stay tuned.
With that I'll turn the call over to Tom for the operations review Tom.
Thanks, Perry and good morning, everyone operationally Nexstar had another great quarter, which drove all time high.
Second quarter net revenue results of $1 5 billion, reflecting strong year over year increases in total TV advertising distribution and digital revenues.
Total television advertising revenue grew at 15, 7% was driven by <unk> and was driven by a record second quarter political advertising revenue, which more than offset some softness in a few core television advertising categories.
The two 5% year over year core TV advertising revenue decline was primarily driven by the categories of insurance automotive direct response government spending related to COVID-19 and packaged goods.
<unk> performance was delivered by the categories.
Entertainment home repair and manufacturing and related categories of carpet flooring and covering.
Air conditioning, and heating as well as fast food and restaurants among others.
In addition next door is local sales initiatives continue to deliver healthy levels of new business with our sales teams generating new to television revenue of.
$36 million up 10% over the prior year.
Sports betting in gambling remained a top 10 category for our stations in the quarter, but declined by mid single digits year over year due to a pullback from sports betting companies.
Seasonally low Q2 without the NFL and other key sports and a lack of new state launches in the quarter the.
The decline in sports betting was partially offset by growth from land based casinos and lotteries.
Despite the market's pressure on sports betting companies to curtail customer acquisition costs, we remain cautiously optimistic about this category and some of our larger states like Ohio have approved legalized online sports betting and will go live in January of 'twenty, three or like California have a proposition on the November ballot.
In addition, a few smaller states, where we have stations, including Kansas in Massachusetts have recently approved sports betting.
Record second quarter political advertising of $86 7 million was approximately 80% ahead of pro forma 2018, Q2 levels Nexstar benefited from strong spending around key races in primary elections or Senate seats in Ohio, and Pennsylvania and gubernatorial races in Illinois, New York, Pennsylvania.
Ohio, and Alabama as.
Percentage of total second quarter political advertising Pac and issue spanned accounted for approximately 41% of the revenue.
Governor incentives candidate spending represented approximately 37% of the revenue with all other political spending accounting for the remaining 22%.
Record second quarter distribution revenue rose four 7% from the prior year quarter to approximately $646 million, reflecting distribution agreement renewals in 'twenty, one on improved terms and annual rate escalators, we continue to see stabilizing low single digit rates of subscriber attrition which takes into.
Attrition by the Mvpds offset by year over year growth in the virtual Mvpds and other direct to consumer services, such as Peacock and Paramount plus.
In addition, we have good visibility into our net Retrans economics with only our ABC affiliation agreement up at the end of the year.
With more than half of our subscribers are set to renew at year end, we continue to expect higher rates of growth from this revenue source in 2023.
Q2, digital revenue increased approximately 20% year over year to $88 million.
This increase was driven by strong year over year growth in our local digital and digital advertising revenue and agency services business and contributions from best reviews, and a full quarter of contribution from the Hill.
Our topline growth second quarter cash distribution from our I'm, sorry, our topline growth second quarter cash distributions for our TV food network ownership interest and continued expense management.
Drove second record second quarter, adjusted EBITDA of $486 3 million and free cash flow of 219 million Nexstar generated a 39% adjusted EBITDA margin and we converted approximately 45% of our adjusted EBITDA to free cash flow.
And while we are executing on our business. We continue to take a leadership role in supporting the communities in which we operate in June Nexstar celebrated its 26th anniversary with our annual founders' day of caring and event, where the company's employees receive paint tied off to volunteer on behalf of a local charity nonprofit organization or public service agency selected by.
Their stations this year nexstar employees across the country provided approximately $17 17000 hours of community service, including litter pickup in beautiful <unk> of local parks donating more than 700 units of blood via local blood drives donating more than 18000 pounds of food through various food drives.
And preparing more than 3000 meals for those dealing with food insecurity.
On the journalist on the journalism front Nexstar stations earned a total of 31 regional Edward R. Murrow Awards from the radio television Digital News agency.
Association, rather including recognition of our overall.
Excellence best newscast digital and ex excellence in diversity equity and inclusion.
Everyday our newsrooms produce back based on unbiased content and <unk> high standards of journalistic integrity enable us to develop and maintain trusted relationships with our audiences and communities next <unk> Board of Directors also took another positive step in strengthening the company's corporate governance practices by voting to recommend that shareholders approve.
Move an amendment to our charter to declassify the board at our next annual meeting of shareholders, which will be held in 2023 in summary, no matter the market dynamics Nexstar strong execution and consistent performance is the one constant that investors can count on.
Looking ahead, we remain focused on what we can control maximizing our growth opportunities managing our capital structure, serving our customers and communities and delivering results for shareholders with that it's my pleasure to turn the call over to Leann for the remainder of the financial review and update Leah. Thank you Tom and good morning, everyone. The continuation of our strong <unk>.
<unk> growth and profitability resulted in another quarter of outperformance for Nexstar.
I've been very 80, most of the details on the revenue side, So I will jump to the expenses.
Second quarter direct operating and SG&A expenses, both increased as a result of higher revenues continued recovery from the COVID-19 pandemic increased affiliation and programming and other costs related to the move of mutation from syndicated programming and news programming.
Which is offset in our adjusted EBITDA calculation from reduced programming payments related to syndicated content.
As well as a full quarter expenses from the hill as a <unk>.
Tentative net revenues, our total expenses declined given our focus on controlling expense growth.
Corporate expense of approximately $50 million, including noncash compensation expense of approximately $13 million and approximately $3 million of one time expenses associated with our debt financing and various corporate development activity.
Second quarter Capex was approximately $34 million again, capex is lower than expected.
Due to delays in receiving equipment due to supply chain disruption.
Second quarter total interest expense increased 8% to 7% to approximately $75 million cash.
Cash interest expense was approximately $72 million and compared to $66 million last year, due primarily to increasing interest rates.
During the quarter, we refinanced the company's senior secured term loan.
The credit facility, which reduced annual cash interest expense by approximately $10 million and extended our maturities as part of the refinancing we closed a new $2 $45 billion term loan facility and a new $550 million revolving credit facility and mission broadcasting closed a new $75 million revolving credit facility.
The net proceeds of the new five year term on a five year revolving credit facility were used to repay existing indebtedness and refinancing modestly upsize existing revolving credit facility commitments.
Second quarter operating cash taxes were $175 million, which includes two quarterly cash tax payments in the quarter.
We recorded $31 million in distributions from equity investments related to our 31% ownership in TV food network in the second quarter with represents a 5% increase over the prior year quarter.
We completed the sale of one of our remaining Chicago real estate assets for gross proceeds of $45 3 million in cash we still hold additional real estate in Chicago and Los Angeles that we will continue to work to monetize.
Looking ahead, we project corporate overhead exclusive of stock comp and transaction costs to be approximately $33 million in the third quarter and we continue to expect corporate overhead a bit lower than the 130 $135 million area for the year due to lower than expected legal expenses and favorable healthcare costs due to open positions.
Cash comp.
I need to be approximately $60 million for the third quarter and in the <unk> $57 million to $60 million area for the full year, but will vary based on stock price and actual grant.
For cash taxes, we use a 26, 5% tax rate when calculating our estimated cash of a one time and other adjustments. We continue to expect that cash taxes will be around $380 million for the year given current expectations for the business.
Cash capex should come in around $44 million in the third quarter, and we still expect $150 million for the year. As a reminder, we typically spend more capex in even numbered political years and non political years.
We expect <unk> cash interest expense to approximate $91 million for the third quarter and $326 million for the full year, reflecting a continued increase the interest rate environment net of our recent refinancing expectation for debt repayment.
Turning to the balance sheet <unk> outstanding debt at June 30 of 2020, Q with $7 3 billion total net debt amounted to approximately $7 billion at quarter end down from $7 2 billion at December 31, 2021, net debt for first lien covenant purposes is $4 2 billion.
Our net first lien covenant ratio at June 32020, with two one times, which is well below our first lien and only covenant of four five times. Our total net leverage at quarter end was $3 three two times down from three seven times at December 31, 2021, and $3 four three times in Q1.
Leverage to reduce by the end of 2022 due to a combination of allocating a portion of our free cash flow to reduce indebtedness, primarily from mandatory amortization payments and increasing EBITDA given our outlook for the year.
In the second quarter, we returned $284 million to shareholders through share repurchase and dividends, which is a record quarterly amount in the first half of 2022, we returned approximately 62% of next our year to date free cash flow or nearly $12 16 per share to shareholders.
I'd ask you to spend a minute to reflect any figures I come from an investment banking background, where we do all sorts of discounted cash flow calculations on expected free cash flow to determine value any way you look at it the figures here imply that there is significant value yet to be seen.
Going forward, we will continue to strategically deploy our cash in a manner that is consistent with our commitment to creating the highest shareholder value we.
We have a track record of consistent execution and shareholder value creation across any economic cycle cycle, given our competitive positioning operating model and capital allocation framework, we remain well positioned to deliver strong growth in 2022, we're confident in our ability to deliver on our free cash flow target.
And that concludes the financial review for the call operator can you open the line for questions.
Yes, ma'am, thank you and if he 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.
Right.
Once again that is star one if you would like to ask a question.
And we will take our first question from Dan <unk> with benchmark.
Ban through 2020.
Yes can you guys hear me.
Yes, now we can hear you know I.
I guess, maybe I guess.
Yes, sorry about that anyway, Perry I guess I just wanted to say, it's nice to see you re up through 2026, I think thats a big win for everyone and obviously your record speaks for itself.
In terms of my questions I know you've called out no real macro impact to core it looks like Q2 soften maybe at the margin as the quarter progressed, and obviously political blew it out of the water so kind of two things one.
I know, we don't usually call for crowd out in Q2, but how do we think about crowd out in the context of both Q2 and the forward outlook and then with regards to the forward pacing in your prepared remarks. It sounds like pacings are kind of running similar to Q3 in Q3 to Q2, Despite Comping Olympics.
Obviously, what promises to be another massive uptick sequentially in political so just can you help us think through the dynamics a little bit more there it sounded pretty confident in your visibility and you did give some category color. So im guessing youre not seeing any changes in cancellation or indications to buy but just any additional color there would be super helpful. Thanks.
Well thanks for your nice comments first and foremost and then secondly, as it relates to Q3 I mean July is in the books and it looks like a carbon copy of Q2 distribution digital political all leading the.
Leading the charge in terms of our growth to the upside with core revenue performing slightly under last year and I think as you get and thematic Lee we see that through the remainder of the quarter. However, as you get into August and September here.
There will be crowd out of political given that we expect.
A nine digit gross political number in the quarter, which is substantially higher than we saw in Q2. So I think if you factor all of those things and also looking at category pacing automotive for the third quarter is pacing down a low single digits to the prior year.
Two points on that one is that automotive spend is now down to about 15% of our core AD spend which is where it wasn't 2008 and 2009 during the recession and credit crisis. So.
Quite frankly, we don't see it going any lower as a percent of our AD spend and think that it's only upside from here. We think the current conditions in supply chain and lack of inventory probably persist through the end of the year, but we think this will be a tailwind for us in 2023.
The other categories thematic Lee again, it looks a lot like Q2.
In terms of category report and just the overall tenor and tone of our results.
And just to be clear Perry in terms of conversations with advertisers.
Just the tone of your conversation here is obviously a lot different.
And yes, I certainly appreciate your commentary right.
Net guys or the streaming guys insurance stickiness, which I think we've appreciated but just wanted to be clear that the cause those conversations continue youre not seen either any concerns around future advisor elevated cancellations.
We have not seen elevated cancellations.
I sat in traffic at seven o'clock this morning driving to the office.
Country is opened for business dealing with oil prices and supply chain issues, but that's been the case now for over a year and we continue to put up the results that we have so I think the numbers basically speak for themselves.
And the reason, we reiterated confidence in our outlook is because of the conversations we're having with 40000 smbs across across the country.
Fair enough thanks for the color and congrats on good quarter.
We will now take our next question from Stephen <unk> with Wells Fargo.
Thanks, So I think thats, the strongest buyback you've done in a quarter at least in our model and maybe ever.
You sound like you're very confident in the free cash flow outlook. So just wondering how we should think about the buyback are you doing this on a planned basis now so it's sort of automatic are you more opportunistic because the stock price was a little bit more disconnected inter quarter, and Lee and you talked about reducing debt by year end due to some <unk>.
Wired payments just wondering if you could help us with what that number is so we can kind of think about how to allocate the free cash flow across those and then just on net retrans I'm guessing no change to the outlook that you previously provided for 2023, which I think is in the teens as.
<unk> been tracking pay TV subs on Q2 results. They do look like here a little worse. So just wondering if that plays into your thinking at all for net Retrans for next year. Thank you.
Well I'll take the first the first two I think on the.
The share repurchase is a combination of being in the market and then also being opportunistic.
I think you're right. This was a record quarter and a record first half year.
We continue to plan to repay.
To the extent, we don't have other uses for our capital.
We are opportunistic you know you can see all the disclosures in terms of.
Where we are buying back the stock.
I would say on the on the debt.
Debt pay down amounts so the new term loan a that we put in place has a 5% annual amortization requirement.
So you can do the math with respect to what what that is.
And do you want to answer the question on the distribution.
Nothing that we've seen in the distribution numbers.
Our stations are producing has caused us to have any great alarm with regard to 'twenty. Three obviously, we've got five months left before we have to make that call with regard to what 23 looks like but again from a pricing perspective, we feel very good about where we sit the renewals, we have et cetera, which is really the big.
August driver of our Retrans, so long winded way of saying no change to 'twenty three at this time.
Steven I'll just add to that.
Our distribution revenue is made up of any sort.
We get paid on right. So traditional mvpds virtual Mvpds news nation digitally and then also the streamers Paramount plus in Peacock.
Anywhere where we're paid to be we count as distribution revenue so.
All of that adds up to no change in our outlook and in fact the.
Year to date and trailing 12 month attrition still is less than what is in the numbers that make up the guidance that we give to you.
Great. Thanks very much.
We will now take our next question from Aaron Watts with Deutsche Bank.
Everyone. Thanks for having me on in parallel.
So that comp will.
Are we sticking around a little longer with us yet.
So first question around M&A and the acquisition pipeline Perry or Tom can you remind us where your focus is.
That's front at the moment, then how robust that pipeline is and whether you see being active and then not sure you can comment, but there was a flurry of press reports a month or so ago about a specific target any developments there.
Well, obviously, we don't comment on M&A rumors.
So from that perspective, these will be very general comments I think we've been pretty linear with regard to that we're very interested in content.
And content that can be used and digest it across the number of distribution platforms, we have whether at the linear cable and broadcast.
Digital or.
Through other means either our own or other peoples distribution. So I think youll continue to see that being a level of focus for us because we feel we have a really good and widely distributed distribution platform we reach.
90% of the households in several 100 million people in the country. So we want to make sure that we have a broad offering of.
Content to appeal to all of those people or as many of them as we can as opposed to what we've historically done which has been very focused on news, which is great. But there is only so much news you can do and I think it's our challenge to make sure we keep them engaged for longer periods of time, both on the <unk>.
<unk> or any of their wireless or streaming devices with different types of content and I think thats, where our focus really has been of late and we will be going forward.
And giving given your liquidity and the cash flow outlook, you've walked us through do you see being able to execute on M&A without being too punitive to your leverage profile.
Yes.
Okay simple answer.
Alright, and then if I could.
Squeeze in one more and I think you alluded to it it would seem that the streaming.
Space is getting more crowded by the day.
Do you see the incremental inventory coming online as a threat to your share of the advertising pie we used on that.
Digital our national side I'm curious just curious how you think about that evolving picture there.
Well I think it's yet to be determined right. There is one pot of money and the extent that there are more fingers in the pot of money makes it more competitive for everybody I think that.
What we offer is local activation at scale, which is our unique selling proposition. The fact that we are that branded connection for the last mile.
And that we are reach vehicle, where I would argue that everything else is.
Much diminished by comparison in terms of just the number of eyeballs.
So we feel very confident about our place in the ecosystem, but also are fully aware that there are other folks looking to get into.
The advertising business potentially.
Say come on and we've been in that business since the company started 26 years ago and we.
We know how to measure we know how to be good fiduciary to our clients and fulfill.
Quest in orders.
Those will all be new learnings for new entrants, which is why I think many of them are looking for partners.
But again, we are streaming.
Capabilities are targeted a niche.
In San Francisco, Los Angeles, and Chicago, we have a plus product that is basically a fast channel local fast channel that incorporates original programming as well as the plethora of news program that we do we will expand that judiciously across markets, where we think it makes financial sense.
We also in the last quarter stood up a fast channel for the hill. So if you're a true political junkie and youre not only want to know what's going on in Washington, What's going on in West, Virginia, and Tennessee, and Indiana and Texas.
We have a wheel of programming that is suited for you and so that was just stood up we plan to stand up a new nation fast channel at some point later this year or early next year. So.
Our focus on streaming or over the top will be very targeted very specific.
Because it's become a business of scale and we get to see that there is a clear path to financial viability over the long term so.
That's our focus on streaming.
And again, we think our superior value proposition is local activation at scale, which is what we do as a company every day.
Alright, I appreciate the thoughts thank you.
Our next question will come from Craig Huber with Huber Research partners.
Great. Thank you.
Tom maybe if you could update us on when you talked on the past about long term and looking to lease Saudi extra spectrum. Once you get <unk> fully rolled out in your markets. I mean, you just update us on that who's potentially lease it out to how youre thinking about that.
How much longer do you think you might get your first sign contract. How many years out do you think that might be and just to reiterate your kind of outlook.
At the end of the decade with total.
Does that potentially could be for you guys I have a follow up thank you.
Sure I would tell you that wow.
We've not gone public with the names of the Counterparties, we are having discussions about distributed power opportunities location based GPS in terms of auto correcting GPS with a terrestrial based SYGMA.
Signal that can.
Dramatically increase the accuracy, which we think is a huge addressable marketplace.
We would anticipate.
But I can't guarantee that we will have some.
Test.
Contract, if you will with a counterparty by the end of next year that will begin to contribute revenue beyond what.
What we earn from our spectrum today, which are digital multicast.
Things of that sort so I think it's a 23 events I think it probably will be mid to late next year before we actually have a signed contract and I think it'll be more in the form of a test in a proof of concept. So the dollars won't be big but I think it'll be a crawl walk run approach too.
Monetizing our digital spectrum.
And then also if you could just kindly just update us a little bit further on the Retrans sub number I think you said down low single digits, which pleasantly surprise me I think last quarter you were Toms inferred it was down about four 5% to 5% I guess technically that's over trailing 12 month basis.
Maybe update us a little bit further on that and also maybe just curious your retrans dollar number in the quarter. The revenue was down about 3% sequentially and we just touch on that too. Please.
Well the quarter was down because of one time benefits in Q1.
In terms of dollar benefits that are nonrecurring in Q2, I will tell you Q2, retrans exceeded our budget internal budget. So it wasn't a surprise to us with regard to.
The dollar volume there from that perspective, and with regard to total pay subscribers.
We are seeing substantial growth in some of the direct to consumer products and <unk> mvpds.
Which has improved that number compared to <unk>.
Earlier numbers were.
If you were to ex out some of those and make it on a same same provider basis, it would be a little bit higher but.
It is low single digits.
Taken in total.
And then also maybe just just on auto would be curious to hear how much that was down in the quarter. You guys said it was down slightly it sound like it's based on the current quarter.
How much it was down how much it was down in the second quarter.
Yeah.
Yes.
Sort of high.
High single digit percentage.
Yes.
And then I guess lastly, Tom that true up you talked about the first quarter can you put a dollar amount around that thank you.
First of all remember.
It was probably it was it was.
South of $10 million I don't have an exact number.
Okay, great. Thanks, guys.
We will take our next question from Alan Gould with loop capital.
Hi, Thanks for taking the question a couple here first on political.
Perry you talked about the federal election Committee fund raising I've seen data showing cash on hand is up versus 2020 at June 30.
Do you think theres, a chance that political will be greater than 2020 of this year or was there just the big increase in spending that came in in September October back then.
Well, it's funny coming into this year you know everybody's question was what we'd be able to make up the Bloomberg money from from early 2020, and I think we proved.
That in spades.
We're not ready to go there in terms of guidance, saying that political will be greater than 2020, but I wouldn't rule it out.
And obviously the game is played.
And September October right in the first two weeks of November so.
But every indication is that this will be a record midterm election, given our geography specifically.
We're right in the eye of the storm and the most competitive races in there either Senate or or gubernatorial is where the most money will be spent there is a handful of house races that we'll spend a fair amount of money but.
Suffice it to say our geography is fairly unique in that 80% of all competitive races will be contested and the nexstar footprint.
We are preparing our stations for record political revenue and activity between now and the end of the year and it's a weekly topic of conversation among the station group to make sure that we are prepared from an inventory and a pricing standpoint to maximize the opportunity.
And then on the corporate side I love that.
<unk>, but in addition, the elimination of the B and C shares the proposal to declassify. The board. These nice corporate governance moves just wondering what's behind that.
Yes.
Turning to doors.
Shareholder feedback is behind that.
I do outreach in the Q1 of every year to the top 30 shareholders and it was pretty clear.
That declassify the board was if not the number one universally the number one topic clearly a top topic for the vast majority of share.
Shareholders as it relates to corporate governance on the B and C shares, it's really more making are set well that's corporate governance as well because obviously people are shying away from.
Multi class and Super voting stock, which was really the legacy there and it traces its lending agent next door all the way back to the original IPO.
Through the early part of the 2000 tens when average still controlled nexstar, but doing away with that.
<unk> allows us to be eligible for various <unk>.
Index funds, which.
Having even though we hadn't had any shares outstanding for the last 10 years. Just the fact, we had dual class common stock precluded us from being purchased into various.
Index funds and so now we are eligible for that and that may create additional demand for our stock.
Okay. Thanks, a lot Tom.
Well take our next question from Barton Crockett with Rosenblatt Securities.
Hi, Thanks for taking the question.
I wanted to ask a bit more about that.
Lack of seeing any macro headwinds, which.
It's so different from what we've been hearing from through this earnings season from.
Certainly social media companies and to a lesser degree from some of the national.
Television networks.
We're certainly the digital guys their growth rates have been selected to a much lower level.
And the television network I sound like Theyre seeing some deceleration.
Your kind of core outgrowth is really pretty steady.
And Thats for you guys and also seems to be similar for some of the other local TV players I'm. Just wondering why why do you think there is a difference in trajectory there.
I would say because we are least exposed to national advertising. It is the smallest revenue line on our P&L and where we're seeing the resiliency and the stickiness is in local advertising.
So the more you were exposed to national advertising, maybe the Bumpier the road here over the near term, but quite frankly, that's not.
It's not a huge area of exposure for us and I think that that would explain the differences in tone from what youre hearing.
Okay, and then you guys.
You don't want to talk about rumors, but I'm kind of kind of walk close to that and <unk>.
Ask it this way so the owners of the CW have changed the programming slate.
Meaningfully and I've talked about our strategic review process. Since you guys. Obviously have a lot of CW stations that are meaningful.
How should we think about that process and it's meaningful next or is it something that potentially poses some risks or some opportunities.
Meaningful meaningful how would you kind of characterize it.
Well I think anyone that's paying attention could discern the industrial logic rate of being the largest CW affiliate.
Kind of controlling your destiny there.
Distribution revenue tied to those stations.
And also.
Potentially.
Giving you a different.
Point of leverage in negotiations with other networks, if you happen to own one, but I mean, that's the industrial logic, but again.
We have nothing to announce.
Won't have anything to announce until we have something to announce so I think that's about as far as we'll go right there.
Okay, alright, well, thanks for indulging that I appreciate it thank you.
We will take our next question from Jim Goss with Barrington Research.
Yes.
Thanks for taking the question.
One follow up on Alan's question about political.
Is there still an expectation that roughly half of the political advertising will be in the first six weeks of the fourth quarter as is typical or have you borrowed any of that with the.
The strength in advertising during the year.
Fairly aggressive primaries.
Earlier.
No.
Primary Edinburgh, I mean, I would say the where we have been.
Pleasantly surprised if you will is in the strength of the primary.
The money around primary they'd been more contested.
More money spent then.
Never before and.
<unk>.
If you listened to political Prognosticators, you want to win an election put 400 <unk> TB the month before the election and Thats. How you win so I would say that if history is any guide half the money for the year will come in the fourth quarter.
<unk>.
This is a historic event, so but I think that that is still a fair proxy for how we expect the year to play out.
Okay, and I wanted to I Wonder if you could comment on sports betting monetization and potential integration with your programming.
Would you be looking for AD revenues related to it are getting more directly involved.
How do you frame that opportunity.
I was watching a sports video that was on the digital platform for picks in the pre roll was from that MGM. So I think it's already integrated but leann is our sports betting expert I'll, let her add some more color look I would say generally speaking.
Regular way.
Advertising either on digital or on.
On TV, so that's really how we monetize it.
And we see obviously as when you see new states come online there is a big plus usually from a sports betting companies to advertise in the local markets and local TV is an excellent way for them to get their brand out and generate new revenues.
And believe me we might give you.
Various pitches and provide a number of product opportunities and product placement options for them.
Some take advantage of it others don't but clearly I think they're facing some headwinds of their own with regard to.
Customer acquisition costs et cetera, and so theyre going to <unk>.
Marshall their resources and.
Deploy it where they can be most successful and we think some of those states are.
Immediately in front of us like a North Carolina, Ohio in particular for us.
As already scheduled for January one of 'twenty, three so I think youll see even in advance of that.
More and more activity in that state I would also say watch the California ballot propositions that will be contested this November because of sports betting comes to California.
That's obviously a huge market for us we're in just about every major metropolitan area in the states and so.
I think that sports betting will continue to be a category and what we see as a some seasonality people really bet around football College and professional not so much.
In second quarter, when it's hockey and basketball playoffs.
But still money there.
And then it's chunky because as new states come online there is a huge push for market share once everybody gets to a kind of.
They hope to get to they're going to go into more maintenance spend but.
We definitely see it as a sustaining and ultimately growing category over time.
And just one follow up to that will it give you more statistics you could use to enhance the viewing experience.
The split screen with it.
SB.
Three.
Or on a related device cell phone or whatever that can make the enhance the overall experience and maybe improve your AD sales possibilities that way.
Well, we don't control the rights to most of the sports that we are so that'd be the province of the copyright holders and perhaps the.
Originator, whether it's a network or a league.
I will tell you that in <unk> and <unk> World one of the demos. We showed our board. This past week was a sports betting demo and what I think it will do is give us monetization opportunities where you can literally navigate seamlessly between your phone in your TV, but it also will make the view.
Doing experienced more sticky, which will help us with impressions, which will ultimately help us with AD sales.
Okay, Yeah, that's where I was headed.
Thank you very much I appreciate it.
We will now take our next question from Courtney <unk> with Barclays.
Thanks, so much congratulations on the results. Thanks for the question just a really quick follow up to Stephen's question on the debt level.
In the medium to longer term Mr. A target range that you guys are kind of managing the business by that we should be keeping in mind any color there would be appreciated. Thank you.
Yes, I think we are.
We're very comfortable with our debt levels as they are today.
Don't think that youre going to see any kind of material.
Change one way or the other unless we have some kind of M&A transaction or something else is that we would need to execute on.
Alright, very hot demand. Thank you.
I mentioned earlier, so the numbers will come down just because of that.
Alright, great. Thanks, so much.
Okay Final reminder, that is star one if you would like to ask a question.
We will take our next question from John Kornreich with JK media.
Yes, Tom.
Now that all your network partners are starting to divert some of there.
Best programming.
On the occasions to the streaming services and away from you.
How has the conversations on our affiliate renewals.
In terms of real dollars.
It's a balanced starting to shift to you and is it showing up or will it show up in terms of the.
Reverse.
Retrans.
Well I think you know in a lot of the investors know that for the longest time, we have said that what we pay for is exclusivity and any marginalization of our exclusivity will affect the way we view our relationship with these.
Networks vendors, whatever theyre not dissimilar to any other vendor where we are.
Purchase goods and services front. So the short answer is yes, I think they understand that that's part of their business model, whether they will admit that publicly and they certainly won't admit it to us, but I think they understand that if they're using their content to generate revenues elsewhere, then they shouldnt expect that same.
Revenue historic revenue growth from.
From affiliates that they've seen historically, so I think we believe that that.
Is true and it is manifesting itself in our.
Our negotiations with them and our financial results.
Okay. Thanks, Tom.
And it appears there are no further telephone questions I would like to turn the conference back over to our presenters for any additional or closing remarks.
Thank you very much operator at Nexstar, we do what we say, we adjust when necessary and we lean into growth opportunities wherever they materialize to create the highest value for our shareholders as one of the company's top shareholders. No. One is more aligned with that commitment than me. Thanks, everyone for joining US today, we look forward to speaking to you again when we report.
Our Q3 results. Thank you.
And once again that does conclude today's conference. We thank you all for your participation you may now disconnect.
[music].
Yes.