Q4 2022 Nexstar Media Group Inc Earnings Call
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Speaker 2: fourth quarter and full year 2022 conference call.
Speaker 2: Today's call is being recorded and I now like to put the conference over to Joey Jaffani about the relation. Please go ahead sir.
Speaker 3: Thanks, Priscilla. Good morning, everyone. I'll first read the safe harbor language and then we'll get right into the call. All statements and comments made by management during today's conference call other than statements of historical fact, maybe deemed forward-looking statements for purposes of the Private Security's Tribal Dislogation Reform Act of 1995.
Speaker 3: Next are caution that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those reflected by the forward-looking statements made during this call. For additional details on these risks and uncertainties, please see NextRZ Annual Report on Form 10K for the year-end of December 31, 2021 as filed with the Securities and Exchange Commission.
Speaker 3: and store subsequent public violence with the SEC.
Speaker 3: Next, our undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information future events or otherwise.
Speaker 3: With that, it's now my pleasure to turn the conference over to your host, next our chairman, NCEO, Perry Sook, Perry, please go ahead.
Speaker 4: Thank you, Joe, and good morning, everyone. We appreciate you joining us today to discuss next-stars outstanding fourth quarter and full-year financial results. As always, with me on the call this morning, our Tom Carter, our President and Chief Operating Officer, and Lee Anglija, our CFO . I'll start with a summary of recent highlights in development.
Speaker 4: That will be followed by Tom's Operations Review and Leanne's Financial Review, and then we'll open the call for questions from you.
Speaker 4: It's clear from our results that 2022 was a monumental year for next star and a referendum on the power of the broadcast model and its ability to deliver audiences at scale and strong levels of free cash flow. Full-year net revenue, adjusted EBITDA and attributable free cash flow reached new all-time highs. We exceeded the $5 billion annual revenue milestone for the first-
Speaker 4: as well as digital revenue. Double digit attributable free cash flow growth enabled us to return approximately 68% of our 2022 attributable free cash flow or a record of $1.02 billion to our shareholders in the form of share repurchases as well as dividends. In addition to posting another blockbuster year of financial results, next.
Speaker 4: interest in the CW Network for no purchase consideration, adding a national broadcast platform to our portfolio, another asset in addition to news nation and ATSE 3.0 that will be capable of contributing long-term size growth to the company.
Speaker 4: Operationally in the fourth quarter, we renewed and extended our network affiliation agreement with ABC on terms favorable to the company, and we successfully renewed and extended distribution agreements with our largest MBPD partners on terms that will enable next-stars who enjoy continued annual growth and distribution revenue for the foreseeable future.
Speaker 4: Our ability to execute on these renewals just reinforces what we already know. That broadcast matters.
Speaker 4: Today, broadcast television remains the only place for content creators, sports organizations, team owners, and most importantly advertisers to access local audiences at scale.
Speaker 4: We have developed these audiences over decades by consistently providing operated local news, sports, and entertainment content. We provide reach that no other medium can, especially for sports content, were accessing the fan base both nationally and at local markets is important for advertisers and brands.
Speaker 4: As the largest local broadcaster, next star is important to both our network partners and our MBPD partners, which provides us with a very strong negotiating position.
Speaker 4: In turn, our portfolio of local and national media assets now provides nationwide reach on par with other broadcast networks combined with local activation at a greater scale than any other broadcast network owner, creating a differentiated and highly attractive value proposition for advertisers, brands,
Speaker 4: content owners in an increasingly fragmented marketplace.
Speaker 4: We continue to expand our capabilities and leverage our linear, digital, mobile, and streaming assets in new ways to deliver new levels of monetization, growth, and shareholder returns. Our ability to generate record results and excellent shareholder returns, underscores the benefits of our unique scale.
Speaker 4: the strength of our operating model and our ability to consistently generate substantial free cash flow.
Speaker 4: Next star was one of only four stocks that was up in all of media and entertainment in 2022, which we believe is a testament to our ability to create shareholder value through free cash flow generation, return of capital to our shareholders, and our ability to continue to grow our revenue streams. And we've seen a lot of our competitors in the media industry with broadcast assets take notice.
Speaker 4: Suddenly remembering the lion's share of their revenue and profit come from that tried and true effective and profitable broadcast medium.
Speaker 4: Before handing the call over to Tom, I want to briefly touch on a few updates on our organic growth prospects.
Speaker 4: Starting with core advertising, with our portfolio of strong national and unparalleled local broadcast, we believe that NextR has the ability to improve our core advertising by uniting our go-to-market strategies under the one United NextR platform, using data-driven strategies to achieve our client's objectives.
Speaker 4: To that end, we have recently appointed experienced sales and advertising executive Michael Strober to the newly created position of EBEP and Chief Revenue Officer responsible for leading the execution of a new advertising sales and go to market strategy for the company, which is designed to accelerate the monetization of our platform with a focus on the national advertising operation.
Speaker 4: programming to 17 hours per day, made key journalist and editorial additions and are a completing production facility expansions in both New York City and in Washington, D.C.
Speaker 4: While still early, our strategy of providing unbiased news for all America is already delivering results as news nation was the only cable news network to see double-digit growth in total viewers in 2022.
Speaker 4: Our programming continues to be recognized by Watchdog Groups for its independence, and we believe this is the type of content that journalists want to report and audiences want to watch. Our ability to attract top-tier talent and make good progress on ratings with January 2023, marking news nations highest rated month to date.
Speaker 4: All only reinforces that view.
Speaker 4: Third, we are already making progress with the CW, not only to bring the network to profitability, but to create value for the entire next-star enterprise as a result of the acquisition. At the next-star level, we see the CW as instrumental to our ability to unlock the national advertising opportunity I discussed just a moment ago.
Speaker 4: And in our recent distribution of renewable negotiations, our ownership of the CW positively impact the outcomes of those discussions by an amount that already effectively paid for the investment that will make a net worth.
Speaker 4: At the CW level on the programming front, while we are locked into most programming for the 22-23 broadcast season, we've already taken action to improve and diversify our content to better align with audiences through our exclusive multi-year broadcast rights agreement with Liv Golf.
Speaker 4: Beginning with the LibGolf season which kicked off last Friday, the CW will air 14 global events and stream the events live on our CWF.
Speaker 4: We also have begun to execute on our cost savings plan by reducing redundant functions at the network, and we've hired new top-tier executives with backgrounds at Fox, NBC Universal, HBO, POC TV, and Google to lead our programming and distribution strategies.
Speaker 4: These are results driven professionals who share our excitement in our vision for the network and we continue to expect to achieve profitability by 2025.
Speaker 4: Finally, next star continues to lead the industry in total deployment of ATSC 3.0 or next-gen TV with markets reaching approximately 35% of the U.S. households and we have a goal of reaching 50% of the U.S. populations with ATSC 3.0 signals via our stations by the end of this year.
Speaker 4: Discussions with potential technology and business partners for this service are ongoing, and we continue to believe the revenue opportunity for applications easier our spectrum could rival our retransmission revenues by the end of this decade.
Speaker 4: In summary, we remain confident in our strategy, the quality of our assets, and the strength of our financial position.
Speaker 4: consistent with our capital allocation priorities and focus on enhancing shareholder value. In January , the Board of Directors increased next-dars quarterly cash dividend by 50 percent to $1.35 per share per quarter, substantially exceeding our historical compound annual dividend growth rate of 25 percent.
Speaker 4: Our strong free cash flow enables us not only to increase the percentage of capital return to shareholders in the form of dividends, but also allows us to continue to opportunistically repurchase shares as well as reduce debt and pursue other strategic opportunities to further enhance shareholder value. Looking ahead, 2023 will benefit from the re-negotiations of our distribution country.
Speaker 4: generate pro forma average annual attributable free cash flow of approximately 1.25 billion inclusive of our approximate $90 million attributable to the investment losses associated and tax benefits related to our turnaround of the CW.
Speaker 4: With all of that said, let me now turn the call over to Tom Carter for the operational review. Tom? Thanks, Perry, and good morning, everyone. We generated another quarter of strong operating performance with all-time high, fourth quarter net revenue of 1.49 billion.
Speaker 5: Net revenue for the quarter increased 19.3% from the prior year quarter due primarily to our strong political results as well as inclusion of the results from the CW.
Speaker 5: partially offset by a decline in core advertising, primarily result of national advertising market softness.
Speaker 5: Excluding the results of the CW, net revenue was up 14.3%. Core television advertising decreased 3.3% year over year. Excluding the impact of the CW, core advertising was down approximately 8.7%. Primarily driven by double digits rates of decline in national spot advertising.
Speaker 5: which accounts for approximately 30% of our core television ad revenues and political inventory displacement.
Speaker 5: Next star's local TV advertising revenue, which represents approximately 70% of our total core TV ad revenues, excluding the CW, continues to meaningfully outperform national declining just 2% year over year despite significant inventory allocations towards political during the quarter.
Speaker 5: This continues to be in line with the historical trend, with local advertisers maintain more consistent levels of add spending throughout economic cycles.
Speaker 5: So far in Q1 of 23, we're seeing similar results to what we saw in the fourth corner with this revenue category.
Speaker 5: Excluding the impact of the CW, our top performing categories in the quarter were automotive, home repair and manufacturing, entertainment, paid programming, and air conditioning and heating. We're extremely pleased to see auto, our largest advertising category in terms of dollar spent. Maintain its growth trajectory for the second consecutive quarter.
Speaker 5: increasing 23.5% over Q4 of 21. In addition, NextR's local sales initiatives continue to deliver healthy levels of new business where our sales teams generating new local advertising and center program revenue of 37 million, flat to the prior year, despite significant political displacement.
Speaker 5: The category is primarily responsible for the core advertising revenue decline, more gaming sports betting, insurance, direct response, medical health care, and radio TV cable newspapers.
Speaker 5: The insurance category softness was primarily related to industry specific issues and the movement of some insurers from the local market to the national market.
Speaker 5: Direct response continues to be impacted by weaker national advertising marketing trends, and medical health care was impacted by reduced affordable care act marketing funds versus the prior year. The sports betting and gaming category experience the largest year over year decline.
Speaker 5: due to fewer state launches in the quarter, a general movement by larger sports betting operators of advertising dollars to the network market and reduced spending in more established markets.
Speaker 5: In addition, fourth quarter advertising was impacted as sports betting and gaming companies redirected total television advertising dollars to voter propositions to legalize online gambling in California.
Speaker 5: category Bright Thoughts included Ohio for sports betting was legalized beginning of 23 and Missouri driven by spending in Kansas City for sports betting in Kansas, which was legalized in September of 22.
Speaker 5: Despite the trends, we continue to expect to see spending in this category all be at a more modest clip. The ramp up of sports betting advertising came to time when automotive was declining, and now we see a reversal in the performance of these two categories. Turning to political advertising, next star generated fourth quarter political revenue of $265.9 million, propelling our full year of political advertising to $565.6 million, just 1% shy of the 2020 presidential election year results, and up an impressive 32% pro forma over 2018, the last midterm cop.
Speaker 5: According to Cantar, total gross political advertising on all media was up a record, 3% over 2020 and up significantly compared to 2018 driven in large part by more competitive races in 2022 in the impact of sports betting compositions in California.
Speaker 5: Local television broadcasts in January the $2.4 billion gross political ad dollars, a record amount from midterm election, capturing more than 50 percent of the total spend in 2022, representing a 38 percent growth over 2018. TV continues to be the gold standard for political advertisers.
Speaker 5: with local TV and local cable TV together representing 70% of gross political ads spending.
Speaker 5: This is particularly impressive since TV can owner and offer a fixed amount of inventory and the pricing which is regulated on a candidate specific on candidate specific funds has a limit versus other media like digital.
Speaker 5: Moreover, it should be noted that the digital political spending is primarily used for fundraising versus messaging as local television and a preferred medium for the choice of branding.
Speaker 5: Next, our cap captured 13.8% of total political television dollars in line with prior years. Pack and political advertising accounted for 50% of our political revenue. This is an important fact is there is no regulatory limit on pricing for these advertisers and these dollars get quickly shipped from race to race.
Speaker 5: as political season progresses and benefits a scale player like NextR since we have stations in the substantial majority of the competitive markets. In addition, because of the breadth of our portfolio, during the 22 midterm election cycle, NextR produced and distributed nearly 50 political debates including those high profile Pennsylvania and Georgia state races and the Texas gubernatorial race, which we also distributed nationally via news nation. We attribute our success during the record midterm cycle to the benefits of NextR scale and the meticulous annual.
analysis and planning on a state-by-state and race-by-array spaces, which has enabled us to nicely achieve the midpoint of our initial full-year net political revenue guidance range between Proforma 2018 and 2020 levels. We're looking forward to a solid 2024 election cycle. Moving to distribution revenue, fourth quarter distribution of approximately 616 million was flat to the prior year. Possibly impacting this revenue category in the quarter was the inclusion of the CW affiliates, as well as growth in the virtual NDPD revenue and NDPD rate resets and annual rate escalators. Offsetting these factors were the impact of ours and our partner stations going dark on certain NDPDs during the quarter.
in connection with a contract renegotiations, and the settlement of certain disputes impacting revenue in connection with these new contracts, as well as continued MVPD subscriber attrition. Overall, in the quarter, we saw an increase in the rate of decline in our subscribers to the single-inch range, which was impacted by a higher rate of MVPD declines offset by continued growth at virtual MVPD and DTC subscribers. Excluding the CW and the impact of going dark and other negotiation settlements,
our distribution revenue would have been up most single digits. Looking ahead, excluding the impact of the CW affiliate fees, given our recent contract recess, we expect distribution revenues to be up high single for low double digits for 2023, depending on the outcome of our partners ongoing negotiations with multiple, with a couple of MVPDs on which they are currently dark and inclusive of our, of our projections for subscriber attrition. While we have a higher expectations for growth in this wine item for the year,
increase, but at a mid-single digit rate, slightly improving our distribution or retrans margin. Before we're doing our other revenue segments, I'd like to provide some color on how we think investors should think about our distribution revenue outlook and evolving relationships with virtual MVPDs. As a reminder, next our generates distribution revenues from our linear MVP.
percent of our gross distribution revenue is derived from virtual MBPDs.
Approximately 40% of our subscribers are up for renewal by 2023 year end, which will benefit 2024, including several virtual NDPDs. We firmly believe that we should control our own to less destiny with regard to the virtual NDPDs instead of allowing the network to negotiate at our behalf. Currently the individual network affiliate boards lead the discussions with the network for the virtual NDPDs.
the agreement with FUBU-TV, a small virtual NDPD, and we have followed their recommendation. The proposed terms were below market, and as a result, CVS affiliate stations, including NXDAR, remain off the air on that platform. As you know, there are a lot of moving pieces in these discussions with the networks.
especially at CBS where there is a linear agreement, the MVP agreement, and a paramount plus agreement, all of which are up later this year. The actions we have taken with FUBU-TV may or may not be represented what we do elsewhere, as other virtual contracts come up for the renewal in 2023.
Contrary to the network's narrative, the virtual MBPDs want local news and local content because it's sought out by the viewers.
In line with our historical approach, we will not be accepting any deals that discount the value of our content, our stations deliver to these platforms. Our position on the matter is not new. We have always fought hard in negotiations with a number of factors that come into play and levers we can pull.
Now moving back to the rest of our revenue to light items in the quarter, two four digital revenues increase 10.1% year over year to approximately $112 million.
Revenue growth was driven by the inclusion of the CW and year-over-year increases in next-stars local digital advertising and agency services businesses, offset in part by softness in national advertising and e-commerce, excluding the CW digital revenue decline 6.5%. On a consolidated basis, fourth quarter adjusted EBITDA increased 19.8%.
over the prior year to $598.2 million, representing a 40.2% margin, and fourth quarter, a trimutable free cash flow increased 27.8% to 422.1 million.
excluding the CW, 4-quarter adjusted net income increase 32.5% to 662 million and pre-cash flow increase 38.7% to 4-quartered 58.1 million.
Next, our generated and adjusted 46.5% EBITDA margin and converted approximately 69% of adjusted EBITDA to free cash flow. And while we're executing well on our business, ESG also remains a priority for next hour and we continue to take actions to evolve our practices and disclosures to improve our already strong profile. This year we've prepared an ESG report which will be available on our website, outlining and keep vegetables.
policies and action. The report also contains disclosures. Four-next-star S- Suggested for Companies in the Media and Entertainment Industry by Sustainability Accounting Standard Board or SASB.
As you'll be able to read in our report throughout 2022, 2022, we executed on several ESC initiatives, including eliminating our Class B and Class C shares, which was cleared away for our inclusion in the S&P 400 index. We announced plans to allow shareholders to vote to declassify our board of directors.
and we maintain an active and accessible investor relations function resulting in several acknowledgments in institutional investors annual survey.
In addition, we continue to provide back-based unbiased news for which our sponsors have been awarded for the excellence, for which our reporters have been awarded for their excellence and our news-nation cable network has been recognized by independent watchdog groups as for its content being reliable, balanced, and trustworthy. Nationwide and locally, Next Star has involved in over 1600 community initiatives each year.
donating thousands of hours and helping to raise millions of dollars for the awardee causes. And finally, we continue to be committed to treating employees fairly and ethically and fostering a positive work environment as well as providing dedicated diversity, equity, inclusion programs, hiring practices and mentorships.
We're about to begin our annual shareholder outreach initiative where we discuss our initiatives and hear feedback from our top shareholders. And as in the past, we will provide the results of that process in our annual proxy state that. In summary, our record 2022 financial results reflected continues performance across our key near term growth areas, including distribution, political advertising, new local direct advertising and digital with even more to drive growth ahead of us.
or presentation that we've been foreshadowing.
Since we own 75% of control of the CW, the CW's consolidates for financial results. Although it is a small part of our overall financial results, we've been asked by analysts and investors to break out the impact of the CW. We also believe it is important to do so since we view the near-term losses of the CW as a proxy for purchase price as we intend to bring the asset to profitability by 2025. In addition, for purposes of our credit agreement and dentures, we have designated the CW as an unrestricted subsidiary, and it is not included for purposes of calculating our pollinant.
To that end, on the cover of our earnings release and on the table that the back of the release, you will be able to find selected financial metrics for next star on a consolidated basis, for next star excluding the CW and also for the CW on a standalone basis.
With respect to our free cash flow guidance, we've opted to use an attributable free cash flow figure that includes the cash flow of next star and its interest in the food network and our attributable 75% interest in the losses of the CW and the related tax benefits of those losses. Incidentally, attributable metric is a good proxy for the cash flow available to be reinvested to be used to repay debt or return to shareholders. As always, you should use these metrics in connection with our reconciling schedules and finish.
analysts that cover us have had a variety of ways of showing our numbers. Some include the CW and some excluded, creating some noise in our consensus estimates.
We hope to get everybody on the same page as much as we can after this call. Now back to our regularly scheduled programming. As always, Tom and Perry gave you most of the details on the revenue side, so I'll provide a little color on the CW financial result, and then jump to expenses followed by some discussion on our guidance. We close the acquisition of the CW on September 30th, 2022.
In the fourth quarter, the CW generated $66 million of revenue and $64 million of adjusted EBITL losses in line with our expectations for the quarter. In addition, the CW was responsible for $30 million of one-time expenses, comprised of restructuring charges and retention bonuses. The CW generate revenue primarily from national television and digital advertising, distribution seeds from affiliates and virtual MVPDs, as well as some short-term continuing revenue from licensing content to an S-bond player.
Since the CW programming schedule is locked in for the 2022-2023 broadcast season, it won't be until the fourth quarter that you will be able to see the next star playbook start to unfold. We continue to anticipate a low-9 figure investment and to achieve profitability by 2025. Moving back to next star expenses. Together, fourth quarter direct operating and S-GNA expenses increase $72.5 million, primarily due to the inclusion of the CW, including the one-time restructuring expenses of approximately $30 million, I just mentioned. Excluding the CW, fourth quarter direct operating and S-GNA expenses increase only $5.9 million, as a result of higher variable costs related to higher revenues.
Increase programming and other costs related in parts to the move of news nations from syndicated programming to news programming Which is offset in our adjusted e-podac calculation from reduced programming payments related to syndicated content
Increasing responses were offset by a reversal of an accrual due to a settlement connection with our distribution agreement renewal. As a percentism net revenues are total expenses declined given our focus on controlling expense growth and significant political revenue growth.
Two for 2022 total corporate expense was approximately $49.2 million, including noncash compensation expense of $18.2 million, compared to $43.6 million, including noncash compensation expense of $12.4 million in 2021. Noncash compensation expense grew primarily due to the CEO's new contract.
Excluding one-time expenses, including this item, corporate expenses were effectively flat. Fourth quarter cap-ax was $57.1 million for $56 million excluding cap-axe related to the CW. Cap-axe was higher in the fourth quarter than prior quarters in 2022 as cap-axe that was delayed in the first three quarters of the year due to supply chain disruptions was finally fulfilled in the fourth quarter. Cap-axe for the full year at SQW was $155 million, slightly higher than our expectation of $150 million due primarily to anticipated reimbursement and rebate that have not yet been booked. Fourth quarter total interest expense increased to $103.4 million from $70.2 million.
from our investment in the CWs.
Overall, for the year, cash operating taxes were $334.1 million for next-largest including CW, implying a 25.5% pre-tax income rate and $321.9 million including the tax benefit from the CW attributable tax deductible losses. We recorded $14.8 million in distributions from equity investments related to our 31% ownership and the TV Food Network and the
and we expect overhead around $144 million for the year. Non-cash comp is expected to be approximately $15 million for the first quarter and in the $67 million area for the full year, but we'll be very based on stock price and actual grants. For cash taxes, we use a 26.5% tax rate when calculating or estimated tax benefits.
Next, next are the cash interest expense to approximate $110 million for the first quarter and $450 million for the year, reflecting current Ford curve and expectations for debt repayment. The Ford curve currently shows interest rates seeking in July and falling thereafter. Turning to the balance sheet, next are the outstanding debt as of December 31, 2021 with $6.95 billion.
down from 7.41 billion at year-end last year. Because we have designated the CW as an unrestricted subsidiary, the loss is associated with the CW or not accounted for in our calculation of leverage for purposes of our credit agreement. As such, our net first-line coverage rate, sorry, our net first-line covenant ratio for next-to-art exclusion of CW at December 31, 2022 was 1.77 times.
which is well below our first lead and only covenant of 4.25 times. Our total net leverage for next start, excluding CW at quarter end, was 2.93 times down from 3.7 times as of December 31, 2021, and 3.18 and Q3. As of typical and non-political years, we expect leverage, which we calculate on the last 12 month basis versus a two-year average, to slightly tick up in 2023, but our quantum of debt we don't expect to tick up. But the leverage we expect to fall again in 2024, which will be a political year. In 2023, we plan to allocate a portion of our free cash flow to reduce indebtedness primarily from mandatory amortization payment.
For the full year we generated $1.5 billion for Tributable Free Cash Flow and generated approximately $188 million of net proceeds related asset sales in 2022. We returned $1.02 million or 68% of our Tributable Free Cash Flow to shareholders in 2022, paying $142 million in dividends and repurchasing $880 million a stock or $5.1 million shares, 12% of our shares outstanding as of December 31, 2021.
The remainder of our attributable free cash law went to repaid debt. Other use of the cash included transaction expenses and other working capital items. As we move forward, we will continue to strategically deploy our cash in a manner that is consistent with our commitment to creating the highest shareholder value. For all the factors that are numerated by Perry and Tom, we are excited about the process for 2023 and remain confident in our ability to enhance shareholder value and deliver on our new pro forma annual average annual attributable free cash law guidance for 2023, 2024 cycle of approximately 1.25 billion.
including $90 million of attributable losses and associated tax benefit connection with our ownership interest in the CW. Comparing this to our original 2022-2024 guidance of 1.4 billion, for the 2023-2024 average, we have about $110 million more interest expense given the movement and interest rates, and a $90 million attributable loss for the investment in the CW. Including these impacts, our 2023-2024 free cash law would have been a- a $90 million tax benefit, and a $10 million attributable loss for the investment in the CW.
1.45 billion for comparison purposes. A few additional notes on our 2020-23-24 free cash flow guidance before we open up for questions. From an operating perspective, these figures take into consideration our current best estimates for our core business based on current and expected trends of today. We have assumed no material M&A or other one-time or usual transaction these figures, so free cash flow is deployed in the form of reinvastment, doubt, or payment, dividends, and share it purchases. We've also taken into consideration the forward curve in which we...
We are in which will impact or expect and just expense given our significant floating rate debt load. Next, our consistently strong free cash flow generation remains one of our most powerful differentiators, not only from our peers but from larger diversified media companies as well. We've returned 1.02 billion or 68% of our attributable free cash flow to shareholders in 2022.
and recently increased our 2023 dividend by 50% to $5.40 per share per year, representing a 2.8% yield. Our capital allocation report priorities remain focused on value enhancing organic initiatives in our business, a creative M&A, modesty leveraging and shareholder returns through a mix of dividends and share approaches. That concludes the financial review for the call. Operator, please open the line for questions. Next, kills, no ladies and gentlemen, we will now begin the question and answer session.
If you have any questions, please press R1. And our first question comes from Craig Ober with search partners. Great, thank you. Just some nitpick questions if I could start off with on the CW. I think you said SGNA was up 5.9 million excluding the CW. What we should direct operating expenses, excluding that, this...
how you see that track in this new year. Is there anything out of the ordinary we should know about your direct operating expenses this year? Put aside the CW and anything out of the ordinary. Okay, and then what was your retrans revenue if you just...
single digit percentage on a adjusted basis. You just want to know what the amount of the CWS, a high team, high team number of amount of revenue related to the CWS.
Okay, great. And then a big picture question. I mean, given all the controversy and uncertainty out there about the U.S. economy and given how large your footprint is on the TV station side, a barrier, a tomor, etc. What is your thought on where the U.S. economy is at right now? Are you feeling any, increasingly worse about it now than you were say three months ago? Now Craig, it's really interesting. Obviously we spend a lot of time in front of local business owners on local advertisers and they...
they see the customer at the checkout counter or at the cash register and they know that local consumers are spending and have factored in, you know, 7% mortgages and $3 and $4 gasoline into their daily lives and are making choices and maybe moving some of that spending and you're seeing, you know
higher network customers showing up at Walmart to buy some by their basic items. But the consumer is still spending and local spending for us is hanging in there just fine in the first quarter. The weakness we see is in national advertisers that obviously aren't as close to the end user and customer have paused or reduced spending due to a potential weakness in consumers going forward. So it's really a dichotomy where you know main street is coping and surviving just fine and you know it's more than national advert.
Scouting the CW, please. It's a single digit amount. We expect vocal advertising will achieve our budgeted numbers, which would show a slight increase in Q1. National will be down a low double digit amount. And given the weighting of those numbers, we see, again, a low single digit decline year over year is what we're forecasted.
that you expect retrans XCW to be up about mid single digit and then if you get some of the current blackout renewals done, then it accelerates into that new guidance. I think that the prior guidance was mid-teens, so I was wondering if you could just help us bridge the gap there. Is that cord cutting?
or any difference in rates that you're achieving or anything else we need to think about. Well, again, I've said for the full year we expect high single to low double digit growth. And I think the only differentiating factor in that is how long the blackouts continue. In the first quarter and the first half of the year, I think it will be more pronounced. So we believe that.
at low double digits, the bridge between low double digits and mid teams would be increased And then on the reverse side, is there any change there to kind of the outlook that you gave a few months back? I know that was also, I think, mid teams at that point. That's it for this point.
It sounds like your reverse is going to be up about mid-single digit and you just kind of went through what's going on on the growth side. So is the change to the implied net just the difference in growth or anything else on the reverse side? Well, no, I think I mentioned it in my comments that growth in network affiliation is much more modest.
than our growth in retrans revenue. So you'll see our net retrans margin increase. I didn't give a specific, but it'll be higher than the revenue growth. Great. And then Perry, you mentioned that the recent distribution and renewal.
that statement and whether or not that's been an incremental surprise or that was always part of the thinking when you bought the CW.
But I think it was all part of the thinking, you know, we think the CW was undervalued for any number of reasons, mostly related to, you know, predecessor owners and parent company priorities and agendas. And then also when we're negotiating, you know, with the largest big four station group, and you negotiate this all as a package, there is leverage inherent in that model and and and
And so we are very pleased with our ability to continue to earn more for the CW and obviously with things like LiveGolf and other programming expansions, we're hoping to create more value so that we can ultimately extract more value as we go. Great. And then lastly, just on sports content.
opportunity between both local stations and the CW. Do we know enough yet to know if it's a buyer's market? It's still a little too early. Appreciate that. Thank you. Well, I can tell you that the number of inbound inquiries as well as discussions that are going on with team owners, the activity is frenetic around here. There are...
lots of discussions, I think our Clippers deal with Steve Balmer and the Clippers putting a group of games on broadcast exclusively to expose that to the part of the market that is not inside the PayTV universe, kind of broke the seal, and I think that other team owners have taken notice of that. There are a lot of conversations going on. I would expect you'll see us do more deals as time goes on, but I think to a certain next bit.
people want to see how the RSN plays out and what that means to them and then therefore how that influences their behavior going forward. But we have a receptive audience, certainly among NBA owners and NHO owners that see the value of broadcast TV and exposing and distributing their product to a much larger audience than is available in the Pay TV universe. Thank you. Our next question comes from Ben Krenos with the
is the impact of LibGolf, just so we have a sense of what these kind of deals could need to be helpful. Well I think our, as I stated earlier, our goal is to create more value in the CW. Certainly sports is one avenue that has never been pursued there before. I can tell you that our first, we're very pleased with our first weekend.
2-day average linear viewership was 24% higher than the average and important for us the linear broadcast ratings increased 21% from Saturday to Sunday. So all of which is to say those numbers exceeded our expectations and most importantly the affiliates as well as our own stations were thrilled.
I know that our affiliates and CW affiliates in the top 10 markets generated about three times the amount of money that the network generated for this first outing. And so it's selling very well. And I think we'll continue to grow as we get more into the season and more involved.
So I think that sports, I think adding another hour on Sunday night to the prime time schedule are all things you can expect in the future. And again, we want to make the CW a, I mean, it has, it distribution on par with the big four. So our job now is to continue to increase the profile relevance and interest in the programming offer more varied programming.
of kind of the tactics, you know, whether it's the CD partnerships.
or what have you and you guys obviously own some political specific properties now so
I don't know how do we yardstick kind of 24 relatives to whatever pro forma 2020 was if you have that number and what kind of incremental opportunities are channeled the heading into next year? Well, I would say, you know, first of all, that you know embedded in the guidance that that we issued this morning is a...
record political number for 2024 and it is up not in consequentially from what you saw in both 2022 and in 2020. So it will be a record year, the reach of our local platform, which is where the political game is played. Overlapse very well with the open Senate races, the states that are expected to be in play for the presidential.
presidential contest. And so we are very bullish on political 2024. I would say, you know, things that will exist by 2024 that don't exist today. There'll be a show called The Hill on News Nation at 5 o'clock Monday through Friday that will launch in April .
That would be that is a perfect conduit for newsmakers, politicians and others to reach a national audience. We anticipate being active in the debate business as we were in 2020 and 2022. We did 50 debates across our company, three of which we put on the national cable network to
to offer to all of America outside of the states in which they were being contested. I think you'll see us more active on the debate stage. Certainly when you look at the power of the Hill, which is a national brand in concert with news nation, which is a national brand.
and the strength of our local stations, which is the backbone of everything we do, I think you'll see all of that come together in a unified sales effort to highlight the opportunity available to us in 2024 and beyond. Thank you.
Great, thanks. I appreciate it. Our next question comes from Nick Zengler with the Stephen.
Yeah, hey guys, thanks for getting me on. How would you gauge the risk, I guess, that the impasse with CBS over Fubo TV carries over to the other VFB PDs like a YouTube TV, a Hulu TV, a link to the...
Are those negotiations coming up at all? And are we talking about the affiliates effectively drawing a line in the sand here, which could see and could create spillover, and impact these relationships with other VMVPDs as well?
I'll go back to what Tom said in his his preferred remarks is that you know total virtual MVPD revenue is approximately 10% of our distribution revenue so if it were all at risk that's the number that you're talking about you know right now I think you can you can say that the Fubo dispute is a
is a dispute over money as well as governance issues. And so I think you'll see, you know, affiliates continue to press the point that we should negotiate our own agreements and that no one else should be negotiating on behalf of our content. And that's really that. And money are the two issues here.
And I think for the long term health of the local ecosystem, you know, we talk to people at Roku, at Fubo, at other virtual MBPDs, and we ask them, what are they watching? And they say, the locals. And so, not unlike traditional cable, where, you know, we are the most watched channels in the bundle, you know, why would that be different in a virtual universe? And so we know we have value, and I think individually and collectively, we will recognize that value, and are not willing to sell the discount or to sell on an all-acart basis. So...
You have an inferior offering in the marketplace if you don't have the local stations. I think that should tell you everything you need to know about the leverage in the discussions. And so if that means we have to go dark for a little while to make the point, I think our company as well as others in the industry have made the value judgment to do that. Understood. No, we heard it directly from FULO TV yesterday that they want that local content back. But understood there. And it's just the second question here. It's great to hear auto.
We're not back to 2019 levels yet. We are saying, you know, some sustained healthy increases off of that lower base. I think we have another couple of years of these kinds of increases before we begin to approach 2019 levels, both from a, you know, a national star as well as...
as unit spending, but it is certainly a tailwind and core advertising revenue that auto is up and up double digits and you know we see that continuing throughout the year. So basically auto under the way you're describing auto is likely a multi-year tailwind as we continue to push to normalization which would require you know star levels back in that 17-ish.
million dollar or million unit range back in pre-COVID era. Yes, we see it as a multiple year tailwind for our company certainly. Got it. Thanks so much, guys. Our next question comes from Gene Goss with Barrington Research.
Thank you. Your comments about worth drawing attention to the CW. Could you talk a little bit about?
How else are you going to try to navigate that process of changing the content and publicizing the changes in the content to attract the desired audience?
So that transition could pose its own challenges. Sure. I don't think because other networks might be listening, we want to necessarily put our playbook out there. But I think you'll see as we move toward the upfront level and the programming schedule that gets...
that will be displayed and deployed for the fall. I think you'll see some higher profile programming there, certainly in the unscripted, than you have seen historically. Dennis Miller and Brad Schwartz and their teams are hard at work putting that together. They're fielding tons of pitches. We've signed some things. We haven't announced yet that I think you will be...
to the higher profile, something that's maybe a little bit more noisy that will get some attention and get some eyeballs. And we'll continue to look for additional sports opportunities that may or may not be on weekend afternoons, may bleed into prime time upon occasion. I mean, we wouldn't rule any of it out. And we know that from everyone we talk to, people understand.
the power of broadcast and what broadcast has that no one else has, which is superior reach. And so, you know, we're interested and quite frankly, you know, very pleased with the reception we've had in the marketplace that there may be another voice out there, another national opportunity for distribution over the air and through the broadcast model.
and people are enthusiastic about engaging in those conversations. Okay, thanks, Terry. And the one other one with newsmation seems like you're pretty much through with the reshaping process there. I wanted to, what the next steps are. And I assume you, the initial bogey was to basically do better than you were with off-network sitcoms.
Now you probably want to raise your sites in terms of the margins and the profitability, you can generate with that station or the network. I wonder if you could talk about that a little bit too.
Sure, you know, well, next steps for us, obviously Elizabeth Vargas joins the network in April and by the end of April we will have a program schedule that will be news 24 or five so we'll be 24 hour news network Monday through Friday by the end of April .
And that will include the daytime expansion, the addition of the hill, the addition of Elizabeth Vargas reports show at 6 o'clock Eastern Monday through Friday. And at that point, obviously we're getting higher cost per thousands in news programming than we did in off network programming.
We've been able to substantially grow our distribution revenue because of news content and being one of five networks rather than one of a hundred general and and retainment networks. If you follow the decline in general network general entertainment network ratings, we couldn't have made the pivot at a better time. And so yes our profitability has been enhanced and we're investing, you know, our syndicated programming expense back into journalism. That's what's driving the build out. And then obviously once
April comes and we're 24-5. We now set our sites on 24-7 and how we fill the 18 hours on Saturday and Sunday that are currently entertainment programming. You know, we have to fill that with news and so that will be the big lift and we'll have that piece done by the end of 2024 and then we'll be a 24-7 Kable-Dose Network. As I said in my remarks, January was the highest cumulative audience for the network since its inception. So...
You know, we continue to grow. The numbers are off of a low base, but, you know, we're the only cable net news network that is growing, and we continue to grow. We grew double digits in the fourth quarter. And again, I tell people, I don't care what the ratings are three months from now. I care what they are three years from now. Just do better. Continue to grow every day. And you know, don't get caught up in the minute to minute and all of the minutia, but just put out good product. And we'll continue to grow it. Our promotional campaign will kick off in earnest in...
in the month of April and you know between our stations and our paid media it's approximately a hundred million dollar investment through the balance of the year that you know will attempt to raise our profile raise our awareness level and continue to expose what I feel is the top tier level of talent that we have on the network I'm very proud of the folks we have on the air and the job that they do and we look to add to that as we continue to fill out these other hours and other day parts.
Thanks for all the color. Appreciate it. Our next question comes from Vartoon Crocus with Rosenblatt Security. Hi, thanks for taking the question. There are two topics I just wanted to ask a little bit about the first on this national feed. We just want to understand kind of one logistical thing. Thank you.
Are they able to see the local football game from the NFL on CBS or is it just like a national game on that national feature? Do they, you know, is there any leverage around the ability to see local games that somehow rights constructed by their agreement with you or not? Or is it really just news as you're willing to come to a level? When you're, when you referred to Bay, who are you talking about? Do you talk about the local station or the network? Yeah, yeah, I'm talking about if I was a football player.
feed. I think if this just goes to the end of football season, I guess we'll all find out, but I think they do have the right to include that in their feed at this point in time. Okay, so your leverage is really just your local content or local news. All right. And then because that's a lot, but yes, that is what people want us for is the local content. Okay. And then, you know, switching to ATFC, the
It was interesting to clarify with talking a little bit about their feeling about the importance of getting the FCC to move so that you can shut down the legacy stations, the ATC 1.0, to get really enough kind of capacity to generate meaningful revenues off of this. What's your feeling about that? I mean, it can generate revenues that are meaningful without that or is that kind of an necessity to free up that band with capacity. The current semi-passed requirement does constrain our capacity as to what we can do.
And I've recently been at the FCC meeting with the commissioners as well as the chairwoman. And I think that you're going to see the FCC engage with the NAB and develop probably some sort of a task force in a public private, you know, kind of an arrangement to explore the further development of ATSC 3.0. I think that is absolutely...
necessary to advancement here. I think again if we if we had a sunset for 1.0 even if it was several years hence that would you know cause the set manufacturers to begin to build to that standard less than the backward compatibility problem with those that don't have sets and the don't you know compatible sets and the dongles or receivers and...
And all of that has to be dealt with. And the consumer issues have to come first and foremost. And we need that too. We're not in the business of disenfranchising customers, viewers and advertisers. But I think if the public and private sector can sit down and talk about this holistically and kick around ideas, and I think that's coming. So I think if that happens, I think it'll be a positive day for the industry and a positive day for the growth and development of NextGen TV. And we're working independently with Sinclair and with other companies to develop business applications that can be used today, given the capacity constraints and enhanced GPS.
things are in the queue and on the way. Okay. Do you think you start revenues from that in 2024?
to clarify with saying that. Are you guys saying that at this point? Well, I mean, we have revenues from our spectrum right now. It's primarily in the form of multi-cast revenue and leasing spectrum to people for their multi-cast distribution. So it's not an inconsequential.
in the form of a test of the technology and people testing certain use cases, but I don't expect that anyone would sign on to a big contract until they had the chance to administer their tests. Okay, thank you. That's helpful.
Excuse me, ladies and gentlemen. Things are there are no further questions I would like to turn the call back to Paris for the closing remarks. Please go ahead.
Thank you. We continue to believe the investment case for next star is very simple. Next star stock has been one of the best short and long-term performing stocks in media. One of the highest percentage returns a free cash flow to shareholders in media, along with solid long-term growth prospects and a low valuation. We have a strong balance sheet with low leverage and excellent short-term visibility.
with multiple long-term material growth initiatives. 23 and 24 will benefit from new distribution agreements, and as we've discussed, 2024 is the presidential election and big political year. We also have multiple organic growth drivers, including news nation, the CW, and ATSE 3.0, that are being positioned to generate material growth for next hour in the future. As such, next hour shares represent a solid investment opportunity for existing and potential shareholders.
as we are the largest broadcast company with top tier operational performance in the sector, but we traded a very modest 2324 free cash flow yield. So thank you everyone for joining us today with a forward to speaking to you again soon when we report our first quarter 2023 results.
broadcast company with top tier operational performance in the sector, but we traded a very modest 2324 free cash flow yield. So thank you everyone for joining us today with it forward to speaking to you again soon when we report our first quarter 2023 results.
This concludes our conference call for today. Thank you very much for participation and have a good day. Thank you.