Q1 2023 Nexstar Media Group Inc Earnings Call
[music].
Good day and welcome to Nexstar Media group's first quarter 2023 conference call.
Today's call is being recorded.
And now I'll turn the conference over to Joe just Tony Investor Relations. Please go ahead Sir.
Thank you Kyle and good morning, everyone. Let me read the Safe Harbor language and they get we'll get right into the call and your questions and answers 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 <unk>.
Payments 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 <unk> annual report on Form 10-K for the year ended December 31, 2022 as filed with the Securities and Exchange Commission and Nexstar subsequent public file.
<unk> with the SEC next.
Nexstar undertakes no obligation to update or revise any forward looking statements, whether as a result of new information future events or otherwise.
Thank you for patients with that and it's now my pleasure to turn the conference over to your host Nexstar, Chairman and CEO Perry Sook Perry. Please go ahead.
Thank you Joe Good morning, everyone. We appreciate you all joining us today to discuss next our first quarter results.
With me on the call today, Tom Carter, our President and C O L and Leann, we how our CFO I will start with a summary of our recent highlights and developments followed by Tom's operations review and Liam's Financial review next our first quarter financial results Mark a very strong start to the year for the company record first quarter net revenue.
These were driven by all time high quarterly distribution revenue and the benefit of the CW acquisition, which more than offset the cyclical year over year decline in political and Olympic advertising.
Net revenue adjusted EBITDA and attributable free cash flow. All came in ahead of consensus estimates extending our long term record of exceeding expectations. We returned nearly 60% of our attributable free cash flow or approximately $6 25 per share to our shareholders in the form of dividends and share repurchases in the quarter.
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While economic uncertainty and rapidly changing expectations regarding monetary policy are contributing to the turbulent markets the scale and the financial success and strength of our highly diversified and profitable operating model combined with our focus on execution drove excellent results and strong shareholder returns in the quarter.
Looking ahead, we remain positioned to perform well in the current environment with over 50% of our net revenue derived from contractual and recurring high Mark margin distribution revenue and two thirds of our core advertising revenue comprised of more resilient local advertising.
During the quarter and substance subsequent to quarter end Nexstar successfully reached new multiyear agreements with two of the largest virtual mvpds Youtube TV and Hulu.
In addition to extending carriage of our big four network stations, which were up for renewal. Both operators are now carrying Nexstar is my network and independent stations as well.
In addition to Hulu will continue to carry next doors owned and operated CW stations and Youtube TV will initiate carriage of our CW affiliates.
This year.
These agreements again validate what we already know to be true consumers and distributors value next Ars local content as America's largest local broadcasting company and one of the nation's largest producers and distributors of local and National News sports and entertainment content or television assets reach over 210 million Americans.
As such our stations networks and cable offerings continue to represent an attractive value proposition to virtual mvpds seeking to enhance the competitiveness of their video offerings.
Given the recent volatility in our share price performance driven by misplaced speculations surrounding distribution agreement and some negotiations it's important to step back for a moment and separate the reality from the noise first and foremost we stand behind our guidance of distribution revenue growth to be up in the high single to low double digits for 2023, excluding the benefit.
At the CW.
In the first quarter, our distribution revenue increased 9% over last year, despite the impact of the removal or removal of our partner stations uncertain M. B P DS related to ongoing contract negotiations.
Second since the first dollar of Retrans revenue that we generated almost 20 years ago distribution negotiations have always been hard fought by both parties there've been several cases in the past when typically private negotiations are played out publicly or nexstar or our partner stations have been forced to go dark until we reach a fair agreement.
For us this is business as usual weather nexstar is negotiating directly or indirectly through our network affiliation boards, we remain confident in the value that we bring to our distribution partners and with approximately 40% of our subscribers up for renewal. This year, we expect continued growth throughout 2023 and beyond.
In addition to posting another strong quarter of financial results. We continue to execute our strategy focused on leveraging our linear digital and mobile and streaming assets in new ways to drive increased monetization and growth across our portfolio.
We're also driving strong momentum across our organic growth initiatives first we're making significant progress on our operating plan for the CW, having executed the lion's share of our corporate overhead savings and making our key personal enel appointments are all by the end of the first quarter.
We also launched new sports and sports related programming, including live golf on the CW and 100 days to India Motorsports Darkies series following the drivers and teams from Indy car racing, leading up to the Indy 500.
We're extremely pleased with the early results of our live golf partnership despite being a completely new sports League and sports for the first time on the CW. Our ratings performance to date has been significantly exceeding previously aired programming on those stations during the time period.
Golf audiences are also increasingly engaging with live golf on the CW App for the most recent live golf event weekend in Singapore, the CW App audiences watched 496 minutes on average over the three day event and on the final day, they watched for over two hours on the App.
On the advertising front, our CW affiliates are already benefiting from increased local revenue and we expect national revenue on the network to grow over time as we are more events and establish a ratings track record.
With the Upfronts quickly approaching you have seen and can expect to see a variety of new programming announcements for the Cw's 'twenty three 'twenty four season consistent with our plan. Our programming lineup will feature a more diversified mix of scripted and unscripted shows, which we anticipate will drive ratings growth.
Several of the highly acclaimed new scripted series included in our summer and fall schedules have already been written and produced and are therefore not affected by the current writers strike.
Second news nation continues to build and grow with the first quarter, achieving the highest audience delivery to date during.
During the quarter, we launched all new news nation connected TV apps on a variety of major OTT and CTV platforms. We added key journalists and expanded our roster of political legal national security and medical contributors and.
In April news nation marked a major cable news milestone by become a 24 five news network with the debut of new expanded daytime programming as well as the launch of the network's political ensemble show The Hill and evening Evening News program Elizabeth Vargas reports.
Overall, our strategy to leverage our core competency and news to build a profitable differentiated and highly valuable National cable news network is delivering results.
We remain the fastest growing cable news network and the most watched genre of cable television with content that continues to be rated as unbiased untrustworthy by the leading watchdog groups.
We've all seen the major changes that are taking place at the incumbents in this space and we believe that this activity only strengthens news nation's ability to build awareness audience and profits.
Finally, we continue to make progress on our deployment of Nextgen TV or a T. S. E. Three point out in Q1, we launched three additional markets and as of today. We've completed the transition of stations covering 37, 5% of the U S population and we are well on our way to achieving our near term goal of reaching 50% of the country.
As discussed previously Nexstar partnered with Scripps to leverage the combined power of our station portfolios, which together reach over 90% of the country as.
As part of our partnership we're collaborating with Hewlett Packard enterprise and Sony to create powerful new high speed data solutions for businesses that are planning use cases and simulations with a variety of applications for vehicles utilized by agricultural businesses logistic companies and first responders.
The partnership and nationwide scale of our combined coverage demonstrates why the a T. S. E 3.0 opportunity is more actionable now than ever before thanks to the industry consolidation over the last decade, we're now in a position where just to broadcast operators working together can cover the majority of U S. TV households, while before it would require.
The collaboration of many operators and.
And aiding our effort last month at the Nab show FCC Chair, Jessica Rosen Morsel announced the future of TV initiative, a new effort designed as a public private partnership to ensure a smooth transition through a T. S. E. Three pointed out for broadcasters associated industries and the public we view this initiative as an important step.
Forward as regulatory support for the transition helps expedite our time to market.
We're also happy to have announced yesterday the acquisition of Ku S. I, an independent station in San Diego, the nation's third 30th largest television market.
<unk> is already a powerhouse local news organization and together with our Ueno station in the market Fox affiliate K S. WB TV, we will offer more local news and information programming than all the other local stations in the market combined the.
The acquisition will be instrumental in expediting, our transition to a T. S E <unk> in San Diego and will benefit economically from recapturing the CW affiliates on a primary signal when the affiliation becomes available in the market.
We expect the transition to close later this year and to be accretive once we're able to reprogram the asset with the CW programming.
In summary, we remain confident in our strategy and ability to continue to generate significant free cash flow.
Consistent with our capital allocation priorities and focus on enhancing shareholder value in January the board of directors increased next <unk> quarterly cash dividend by 50% to $1 35 per share per quarter substantially increasing our historical compound annual dividend growth rate of 25% our strong free cash flow enables.
This not only to increase the percentage of capital returned to shareholders in the form of dividends, but also to continue to offer tests opportunistically repurchase shares as well as reduced debt and pursue other strategic opportunities to further enhance value for our shareholders.
With all of that said, let me now turn the call over to Tom Carter for the operations review Tom.
Thanks, Perry and good morning, everyone. We generated another quarter of strong operating performance with all time high first quarter net revenue of 1.2 dollars 6 billion, a three 9% increase from the prior year.
Results were driven by the benefit of the CW acquisition and record quarterly distribution revenues, partially offset by a decline in TV advertising, primarily due to the absence of midterm political and Olympic advertising as well as continued advertising softness primarily in national which is the smaller part of our AD revenue mix.
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Excluding the results of the CW net revenue was essentially flat from the prior year quarter.
Core TV advertising decreased two 6% year over year, excluding the CW core advertising was down approximately eight 5%, primarily driven by double digit rates of decline in national spot advertising, which accounts for nearly 30% of our core television AD revenues.
<unk> local television AD revenue, which represents approximately 70% of our total core TV AD revenues, excluding the CW continues to meaningfully outperform.
National declining low single digits. This performance is consistent with our guidance we provided on our last call.
So far in Q2 'twenty three we are seeing similar results in the national market to what we saw in the first quarter with a modestly softening local market driven in part by a slowing rate of growth in automotive and by our unique exposure to local markets in the top 20, Dnas, notably New York, Los Angeles Chicago.
Go in Tampa, where local advertising markets behave more like national markets, excluding the CW, our top performing categories in the quarter were automotive home repair manufacturing attorneys entertainment and travel were extremely pleased to see automotive our largest advertising category in terms of dollar spent.
Pain its growth trajectory for the third consecutive quarter.
Increasing 12% over Q1 of 'twenty two.
Overall automotive spending remains below 2019 levels. We're encouraged by the continued rebound in this category.
The category is primarily responsible for our core advertising revenue softness.
Our gaming sports betting.
Radio television cable newspaper medical health care insurance and telecom the sports betting and gambling category decline was due to fewer states launching in the quarter and reduced spending in more established markets.
Turning to political Nexstar generated first quarter political advertising revenue of $8 million, reflecting the cyclical year over year decline in election year spending.
In April we experienced the earliest spending for a presidential race in the company's history with early bookings from the Trump the Santos and Biden packs as a result, we remain very optimistic about our growth prospects for political advertising revenue in the 'twenty three 'twenty four election cycle.
Nexstar delivered record quarterly distribution revenues of approximately 728 million, marking a 9% increase over the prior year revenue growth was driven by the renewal of distribution agreements in 2022, unimproved terms and the annual rate escalators as well as growth in virtual Mvpds revenue.
And the inclusion of the C W.
Our growth was achieved despite.
Mvpds subscriber attrition and the ongoing impact of the removal of some of our partner stations carriage related to continued negotiations with certain M D.
The estimated year over year subscriber attrition was in the low low to mid single digits, which include improved during the last quarter due to the positive impact of increased carriage of our CW My network and independent stations on Youtube TV.
Excluding the CW, our distribution revenue was up six 8%.
As Perry mentioned, including the benefit of the CW affiliation fees, given our 2022 contract resets. We continue to expect distribution revenue to be up high single digit to low double digits for 2023.
Depending on the outcome of distribution contracts, we have up for renewal the outcome of our partners' ongoing negotiations with a couple of the Mvpds on which they are currently dark and trends and M. B P D subscriber attrition.
GW district distribution fees will have a slight positive impact on our overall year year over year growth rates as we lap the acquisition date.
In the at the end of the third quarter we.
We continue to expect our affiliation expenses will increase in the mid single digit rate this year, giving a double digit rate of increase of net retrans net distribution revenue for 2023.
Record first quarter digital revenue increased 16, 5% to approximately $92 million revenue growth was driven by inclusion of the CW and year over year increases in Nexstar digital advertising.
Agency services.
Yes.
These were more than offset some weakness in e-commerce.
Including the see that digital revenue was down low single digits on a consolidated basis. The first quarter. Adjusted EBITDA was 491 million, representing a 39, 1% margin in the first quarter attributable free cash flow was 383 mode.
Excluding the CW in the first quarter adjusted EBITDA was 66 million.
Representing a 47, 2% margin in the first quarter free cash flow was 438 million amounting to 77% of adjusted EBITDA.
In preparation for Nexstar as 2023.
And annual meeting we conducted an extensive.
<unk> reached out to our shareholders during the first quarter to update them on the company's recent ESG initiatives.
Which we outlined in our last earnings call and to solicit their feedback on these matters.
We'd like to once again, thank our top shareholders for participating in our annual shareholder outreach initiative and for your candid feedback the input and recommendations of our shareholders who elected to engage with the company. We're presented the board of directors for consideration in the.
In summary. These efforts was included in our 2023 proxy filed at the end of April .
We remain focused on evolving our ESG policies and disclosures and a thoughtful manner that supports our employees and communities as well as our goals for growth and the enhancement of shareholder value. In this regard during Q1, we published next our first ESG report.
Document that communicates the company's efforts performance and goals in ESG, it's available on our website for everyone to access to access with that it's my pleasure to turn the call over to Leann for the remainder of the financial review and update Leann.
Thank you Tom and good morning, everyone.
Always commentary gave you most of the details on the revenue side. So I'll provide a little color on the CW financial results, our TV food network distributions and then jumped your expenses followed by some discussion.
Further discussion on our guidance.
In the first quarter, the CW generated $61 million of revenue and $75 million of adjusted EBITDA loss.
$7 million of one time expenses comprised primarily of restructuring charges all of which was in line with our projections and expectations.
As a reminder, the CW generates revenue primarily from national TV and digital advertising distribution fees from affiliates and virtual mvpds as well as some short term periodic continuing revenue from licensing content to an outside player.
Since the CW programming schedule is locked in for the 2022 2023 broadcast season, you'll be able to see the Nexstar playbooks Dr. Paul the only in the fourth quarter of this year.
Moving back to our consolidated expenses together first quarter direct operating and SG&A expenses increased $65 million, primarily due to the inclusion of the CW, which including the onetime restructuring expenses of approximately $7 million I mentioned, a minute ago accounted for $37 million of a difference with the remaining amount.
Due to due to increased affiliation fees due to increased distribution revenues and the expansion of local news out of Washington D. C Bureau, and other local markets as well as the expansion of our news programming that use nature news nation, which was partially offset in our adjusted EBITDA and free cash flow calculations by reduced programming costs at news nation related.
To reduce reliance on syndicated content.
Q1, 2023, corporate expense was approximately $48 million, including noncash compensation expense of $14 million compared to $47 million, including noncash compensation expense of $13 million in the first quarter of 2022.
Q1, 2023, depreciation and amortization was $249 million versus $145 million in the prior year quarter due primarily to the acquisition of the CW.
Please note that the CW programming costs, which are included in our definition of adjusted EBITDA and free cash flow are accounted for in this line item is amortization of broadcast rights for.
For more information on this amount please refer to the schedules in our earnings release.
First quarter, Capex was $37 million and in line with our expectations compared to $28 million in the first quarter last year.
Last year's first quarter Capex was artificially low given supply chain constraints and the Q1 'twenty three Capex increase also reflects some carryover capex from Q4 'twenty two that was paid in the quarter.
First quarter net interest expense increased to $107 million from $69 million in the prior year quarter due to the impact of increasing LIBOR and silver rate applicable to our floating rate debt.
Cash interest expense was $104 million for the quarter slightly lower than our expectation due to actual versus estimated interest rate and interest income.
First quarter operating taxes or $2 million as we only have a few state tax payments in the quarter.
We received $226 million in Q1 distributions from equity investments related primarily to our 31% ownership in the network, which represents a 17% increase over the prior year quarter.
Our TV food network distributions included $69 million related to our attributable share of the net proceeds from an accounts receivable securitization program at Warner Brothers Discovery.
The securitization is onetime in nature, we have excluded these proceeds from our definitions of adjusted EBITDA attributable free cash flow and free cash flow.
Over time, TV food network may increase or decrease in securitization program. If it chooses to reduce the program in the future and build back up its receivables balance we will amortize the propulsion proportional amount of Miss cash securitization distribution back into adjusted EBITDA and free cash flow accordingly.
Excluding the securitization distribution, our distributions from equity investments were lower by $36 million or 19% in the quarter versus last year of which approximately 60% was due to weakness in the national advertising market. It TV food network and the remaining 40% was related to our working capital investment in content.
Looking ahead, we project corporate overhead exclusive of stock comp and transaction costs to be approximately $35 million in the second quarter, and we expect corporate overhead around $138 million to $140 million for the year.
Noncash comp is expected to be approximately $60 million for the second quarter and in the $67 million area for the full year, but will be will vary based on stock price and actual grant.
For cash taxes, we use a 26, 5% tax rate when calculating our estimated taxes before onetime and other adjustments.
The second quarter includes two income tax payments.
We are currently projecting net cash capex of $42 million in the second quarter and $145 million for the full year, including a portion of carryover capex from last year.
We expect <unk> cash interest expense to approximate $110 million for the second quarter and $425 million for the full year, reflecting the current forward curve and our expectations for debt repayment.
Forward curve currently shows interest rates, peaking in union following thereafter.
Turning to the balance sheet Nexstar as outstanding debt at March 31, 2023 was $6 $92 billion down.
Down slightly for the quarter as we made mandatory quarterly amortization payments of $31 million.
We have designated the CW is an unrestricted subsidiary the losses associated with the CW are not accounted for in our calculation of leverage for purposes of our credit agreement.
As such our net first lien covenant ratio for Nexstar, excluding CW at March 31, 2023 was 173 times, which is well below our first lien and only covenant of four to five times, our total net leverage for Nexstar splitting CW at quarter end was $2 92.
As is typical in non political years, we expect leverage which we calculate on a last 12 month basis versus a two year average.
But not a quantum of debt just slightly tick up in 2023 at the fall again in 2020 for political year.
In 2023, we plan to allocate a portion of our free cash flow to reduce indebtedness primarily from mandatory amortization payments.
Our cash balance was $413 million of seasonally high level, given the timing of cash inflows in working capital requirement and includes $49 million of cash related to the CW.
For the quarter, we generated $383 million of attributable free cash flow, we returned $225 million or 59% of this attributable free cash flow to shareholders paying $50 million in dividends and repurchasing $175 million of stock, which together Mark a 15% increase over levels in the first quarter of 2022.
As we move forward, we will continue to strategically deploy our cash in a manner that is consistent commitment, creating the highest shareholder value.
On our prior call we issued our guidance for our average annual attributable free cash flow for the 2023 'twenty 'twenty four period, if we see a need to change this either up or down in the future. We will comment on that at that time.
Nexstar has consistently strong free cash flow generation remains one of our most powerful differentiators and mechanisms for shareholder value creation. While you probably think we're broken record, saying that at our current stock price Nexstar shares are significantly undervalued, our current stock price implies over a 3% dividend yield and over a 40 or 20% free cash flow yield.
Our 2023 and 'twenty 'twenty four attributable free cash flow equates to over 40% of our current market cap, meaning at this rate.
We generate cash flow equivalent to our entire market cap by mid 2027.
Not only do we have belief in the consistency of our core cash flows we have multiple organic growth drivers that will help us in the outer years, the CW news nation and E. T. A C. Three point out. So if you want to learn more I'm available to get you up to speed.
This concludes the financial review for the call operator can you. Please open the line for questions.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
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You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Our first question comes from Dan <unk> with benchmark. Please go ahead.
Great. Thanks, Good morning Super strong results guys, maybe just very high level, just as you think about kind of the sports landscape. We've seen some of the peer group also start to add some names.
Led the way with live.
TV acquisition focus on independents, just how do you think about kind of the broader opportunity for you here and just how do we also think about the contribution thus far you alluded to some incremental revenue synergies over time.
Sure I guess my my first comment would be everything old is new again, when I started in the business in the late seventies, and obviously throughout the eighties and into the nineties.
Independent television was the home for broadcast sports primarily.
Across the country and it's interesting in the conversations we've had with our team owners lead commissioners broadcast TV because of its superior reaches once again, the bell of the ball and if you're only distributed via cable you are missing a good portion of the marketplace.
The the conversations have been steady.
Steady and we continue to believe that they will yield results for for Nexstar additional results over time. So it's.
It's kind of a heartening to see that people are recognizing broadcast TV as the superior reach vehicle I would say as it relates to the.
Live Golf addition to the CW are CW affiliates of selling the heck out of it and because there is not really a network scatter market. The network is selling a modest amount, but the local stations are out building the network in terms of advertising sales by a substantial.
Margin at this point. So you know that's you know for CW affiliates that we're programming movies or syndication or paid programming and so this is all new and incremental revenue to them. So it's a net positive for the company that we think will grow overtime.
Got it that's helpful. And then Tom just on sort of distribution I think you had guided previously the front half would be sort of mid single digits and then accelerating from there.
One a little bit higher than mid single digits to start the year and I don't know if you had included.
The incremental carriage agreements that you signed with the virtual in that original guidance, maybe that one housekeeping question is just kind of how we think about.
The pace over the balance of the year given the initial Q1 outperformance.
Well I would say, yes, Q1 was a good quarter and.
Our entire year's budget did include renewals of the D. M V. P. D. So that was baked in there.
We're not changing our guidance at this point with regard to.
Overall retransmission revenue because we gave a range of potential outcomes and we still believe that that is in the cards in you know in that range, even though the first quarter was a slight over performance. So we're pleased with where we are but not.
So exuberant that we are prepared to change our guidance at this point.
Alright fair enough could start to hear guys. Thank you.
Our next question comes from Craig Huber with Hubbard Research partners. Please go ahead.
Good morning kind of a big picture question on contracts.
All of this controversy out there there's the trade press has picked up on for the virtual mvpds to host contracts being done by the broadcast networks as you know.
And your preference and your peers preference seems to be that you wanted to them yourself like you do for the legacy Mvpds when would that window sort of maybe open when the contracts.
Potentially.
Newell's, So you could actually maybe switch to that I mean, how many years out do you think that could potentially be if you could do those contracts yourself.
Virtual Mvpds contract renewals general generally have a contract tenor of two or three years, so to the extent that are.
A number of them were just renewed I think thats, probably going to be the window absent a.
Legislative Act or something that might accelerate the process I think that's a meaningful time too to revisit the issue.
At the time of contract exploration.
Okay. And then also can you help me with the Retrans sub declines all in in the quarter was down about mid single digits year over year.
Well I think we gave we gave.
We gave the overall decline is low to mid single digits, but that includes some addition of.
New carriage of our some of our CW My network and independent stations.
By virtual Mvpds, so that that's the contributing factor as to why our attrition actually went down slightly from the last quarter that we reported.
Just wondering sort of an organic basis sort of down mid single digits reasonable for us to expect.
We haven't commented on that but obviously it's.
If you think about legacy or same station it would be slightly.
Slightly lower than that low to mid single digit attrition for the overall group.
Okay. Thanks for that can you just give us a little bit more detail. If you would on your second quarter core advertising pacings here, excluding the CW sort, how that's tracking and be talked to some of the categories might be changing for the better or worse versus what we saw in the first quarter. Thank you.
I would say that second quarter core advertising pacing.
You know looks a lot like first quarter, I think that the national might be a point or two.
Behind our slower than first quarter at this point in time granted were only in the eighth day of May 9th day of May So.
We are.
I think optimistic that our results are going to be similar.
Our digital revenue continues to to pace.
Positive.
The network revenue, we just got a a mid six digit scatter buy in the past.
In the past week from Procter and Gamble. So you know I think that.
There is no question that.
There are economic headwinds out there but on.
On an all in basis, you know the core advertising revenue was probably pacing marginally worse than the first quarter results. Although I think you'll see an uptick in political advertising revenue vis vis expectations wont make up for all of it but you know there are lots of puts and takes.
Great. Thank you.
Our next question comes from Jim Goss with Barrington Research. Please go ahead.
Alright, thank you.
I was wondering with live golf.
You mentioned that no.
Even better than the prior programming, which probably isn't too surprising.
Typically the CW network would have pretty limited.
Relationships in terms of a couple of hours of Prime time, each night for the most part.
So I was wondering if you could talk about what that relationship is with this sort of newer programming in a different time frame comes a normal.
Well I would say that you know Dennis Miller, and Brad Schwartz, who were are heading up the CW in our programming efforts as well as their very talented executives in scripted and unscripted all of which are new or are talking to everybody in Hollywood and I think that was one of the most more pleasant.
Surprises are following our takeover is that you know when we responded hate the doors are open let's talk about doing business. The community responded I think it's in everybody's best interest that there is a you know.
Viable a fifth network competitor out there and so the committee's responded and again our goal is to broaden the appeal of the network. So you'll see everything from F Boy Island on the network to.
Series, It was announced yesterday our comedy called.
Chris with.
Malcolm Mcdowell as one of the primary leads so you know we're trying to broaden the appeal and were trying to broaden the.
The slate of programming as well in the full schedule will be announced on 90 days from today on may the 18th with all the pieces in place and the good news is on that schedule. There's only really two shows that will have any effect from the writers' strike. So we'll be able to cover that off pretty.
Pretty easily and the bulk of our scheduled rain intact, which should give us a bit of a competitive advantage over those that are more dependent on scripted.
Okay. Thank you and one other thing.
In terms of the Retrans outlook, you've painted a pretty.
If you picture with your experience.
I assume that the.
The increase in distribution revenues from them.
The mvpds.
<unk> is a big offset and I'm wondering if there's any other offset in terms of your net value.
Any any better bargaining power you might have with the broadcasting the streaming companies as they take a more conservative outlook towards their own program programming expenditures.
Well I'll comment and then Tom can add in any details re enter the streaming revenue as a percentage of our total distribution revenue was as a low double digit amount. So it you know even though those are increases that doesn't move the needle as much as contractual resets subscriber attrition that has been less than.
<unk> <unk>.
Projected internally at.
At least so far this year. So those are the primary puts and takes and the fact that we reset.
The economic relationship with 50% of our subscribers at the end of the year are providing driving the increase you know the 9% increase and that was in.
And in light of our partner stations mission and White Knight not being carried on the two satellite providers, which is not an inconsequential deduct from our advertising revenue when compared to the history.
And just to add to that we do have 40% of our subscribers up.
This year the majority of that is at the end of the year, but we will see you now.
See that as an opportunity for growth in 'twenty, four and also keep in mind that.
The change in the programming of the CW and additional programming at the CW such as live golf, We think we're going to bring added value to all of the CW affiliates and as those in network affiliation agreements come up for renewal, we expect to have a conversation with them with regard to what the appropriate value is for CW going.
Forward given the changes in the.
Additions, we're making to the CW that as Perry mentioned benefit the local CW affiliates meaningfully so far and we hope to be able to see that reflected in our increased affiliation fees going forward.
Alright, thanks very much.
Our next question comes from Spain, Jimmy <unk> with Deutsche Bank. Please go ahead.
Hey, guys. Thanks for the question.
In the past you've spoken about the fact that broadcast accounts for 40% or so of the <unk>.
TV viewership, but only.
Receives about 30% of the total fees. So obviously, that's a big tailwind when we think about your ability to get better pricing over time I'm. Just wondering if theres an update on that breakdown. Following this latest round of renewals and kind of what timeframe do you think we'll start to see that gap really start to close thanks.
Yeah, I think your percentages are a little out of whack you know we've said historically broadcast gets 30% through a third of our aggregate viewing and has taken you know kind of a high teens percentage of the.
The distribution revenue. So that's the gap that we're we're obviously trying to close that.
It's industry information and I don't know everybody else's results. So I can't give you an update on what the where the bid and the ask are in the industry am I going to say that we're very pleased with the renewals that we contemplated and optimistic about the renewals. We have ahead of us for 2023.
Okay. Thanks.
Yeah.
Our next question comes from Steven Cahall with Wells Fargo. Please go ahead.
Maybe first Tom I was wondering if you could talk a bit more just about your overall advertising strategy I think you've announced some new senior leaders in advertising this year and between the CW invest reviews and now the bigger schedule for news nation Theres, just a lot more in the advertising portfolio. So maybe you can talk about.
When you go to market at the local level, how much you're looking to hold back from the upfront and how you're using these different components to kind of focus on on more growth and share gains.
Sure and then Leann on this on the CW I think he said you've completed distribution deals that are effectively paid for it just wondering you know when we can expect maybe the CW to convert to a cash flow contributor.
And as we think about the re programming you know kind of what inning do you feel like we're in after what you've discussed for the 'twenty through 'twenty four season. Thanks.
Well I'll take the first question, Steve Yes, we've added quite a bit from a national perspective with regard to R.
Our sales team and you know if you think back on Nexstar It was very much.
Case by case National sales, we had news nation, which is a three year old entity and really has become come in is into its own over the last 18 months or so we had the hill.
Now we have the CW. So we're putting all of those together and and marketing those as a package for national advertisers. In addition to the fact that we you know we.
We have stations that reach 68% of the population so.
So we have an opportunity there to put together a.
Nexstar network, if you want to think about it that way from a station perspective. So that's really the the Avenue and where we're trying to make additional inroads that we haven't historically because we don't we didn't have the assets really to put together a package for national advertisers. That's the primary growth driver.
And the market that we are attacking them. We're in the middle of the upfront right now and I think those decisions.
The decisions with regard to sales and inventory allocation et cetera are ongoing.
So I think you know in the next.
60 days or so I think we'll have a better feel exactly how we how we how we look at that.
With regard to the national products that we have and then obviously the strength of our local sales force continues to be exhibited in the out in the.
Results that we're putting up from a local perspective and use use that as a funnel as well for multi market deals up to national with regard to advertisers that are looking to do regional buys and sectional buys with regard to our products.
With that I'll turn it over to Leann could talk a little bit more about the.
The trajectory of things.
Thanks, Tom.
You bet.
A few times.
The company, we had the 2022 2023 broadcast season was already program. So that was all of the programming that is currently generating those losses, but that will.
That will stay in place until unfortunately at the end of the third quarter of this year the fourth quarter will be the first year first period, where we can really kind of program.
And this is really going to be the 'twenty three 'twenty four broadcast season, and it's really a transition right.
Putting it in.
Couple of one carryover commitment all American coming into the.
The next broadcast season, but we'll really be able to put on that kind of our new slate and it's really our transition started broadcast period of moving to kind of the nexstar way of doing things, we're still anticipating that that will achieve profitability by 2025.
The current plan and we'll just have to see how things how things unfold, but we're you know we're happy about it you know we really got those.
Distribution revenue that earlier than we thought which really helps that.
Pay for that.
Pay for the investment.
Thanks, and then just a quick follow up I'm just done by location. Your your leverage is about the lowest level. It's been in a while you've talked about how under price do you think the stock is would you ever consider sort of holding leverage steady through the non political years to buyback more stock and smooth it out or should we.
The buyback tomorrow sort of track.
Our free cash flow is I E little less buyback and in the odd years, and then obviously accelerated in the even years with political thank you.
Yeah look I think for now our plan is to.
Just spend the free cash flow as we get it.
That means either doing that by paying down debt paying our dividends buying back stock or making strategic investment.
You know as we kind of evolve and Delever more.
Obviously always look to do.
What is the best for the shareholders and so we can revisit any of those thoughts in the future but for right now the plan is to execute on them.
Spending that free cash flow out of it.
Thank you.
Our next question comes from Barton Crockett with Rosenblatt Securities. Please go ahead.
Okay. Thanks for taking the question.
I was curious about wanting to make sure we understand.
The CW footprint and how that's evolving there obviously you guys are buying that San Diego station in talking about our transition.
I think that Cvs.
Within the news.
With plans to transition off of the CW for some of their stations, which I think are in some major markets.
So could you just.
Give us an update on.
The reach of the CW and what you expect in terms of transition from the CB.
CBS stations and maybe others.
And how that plays out over time.
Sure well I mean, let's start with the fact that the <unk>.
GW has the same population.
Population reach that Fox ABC, NBC and CBS do we all reached 130 plus million TV households, so.
Everyone is on parity there.
From a from a distribution perspective, we knew at the time of acquisition that CBS does not intent to renew the CW affiliation for their owned CW affiliates.
At the end of this season and we are went with their timetable is when they wanted to make a public announcement internally and externally which was obviously.
This past week so.
The good news is is we have multiple expressions of interest for affiliations and.
Virtually every market Nexstar has stations that could be easily converted to CW affiliates in three of those markets. So we do not anticipate any issue and in fact in a couple of markets we have.
Its too strong to call it a bidding war because the discussions haven't progressed that far but multiple expressions of interest people recognize the value of having the CW affiliation versus having no affiliation and so you know that will ultimately help us to drive price and terms and new affiliation agreements. So we.
We see this as an opportunity both to upgrade the.
The station group as well as improve its financials are as it relates to the network.
Okay. Thank you for that and then one other thing.
Was hoping you could give us.
Updated view on that.
The progress or the expected timing for material.
<unk> of <unk> 3.0.
And what you think is the likely kind of road for moving off of the requirement for broadcasting the legacy dual broadcasting the legacy.
Just one point.
And when you would be able to go just purely kind of three point Owen does there need to be like an antenna subsidy.
<unk> work with the FCC mandate, how does that kind of happen.
Well I think these are all things that will be discussed in this public private partnership to advance the.
The advancement, if you will of <unk> and <unk> Cur chairperson Rosen worst so committing to this partnership very much like the analog to digital transition, which was a industry.
Industry and FCC partnership to basically define the rules of the road in advance that obviously those are important things that have to happen for us to be able to activate a spectrum in a material way, we will ultimately have to do away with the one dato simulcast requirement, which means there has to be an ability to receive.
A $3 signal.
Many new sets all of the Sony television sets be manufactured have a three dot O receive.
Ability in them for.
For older sets there'll have to be some sort of a.
Commercial solutions, so that people, who are not a part of an M. B P. D universe can can receive.
Their current programming.
I think there is a there are commercial opportunities to solve that but these are all things that need to be considered.
The simple fact of establishing a sunset of one dato period.
Would incent set manufacturers to build to the new standard sooner as opposed to later and so all of these things go into the the discussion of.
You know, how we transitioned from one <unk> to three <unk> and we have to put the consumer first and I think we do that and everything else will kind of fall into place pretty pretty rapidly behind that.
We're still optimistic that.
This year, we will sign some sort of a commercial.
First case use case for certain applications of our <unk> that our spectrum. It will not be a huge financial contributor, but it'll be more of a proof of concept for certain verticals and and maybe more than one. So we think that things will begin to roll this year and pick up momentum.
And we've said by the end of the decade is when we expect.
A T a C three auto spectrum to meaningfully contribute to our financial profile.
Okay, great. Thank you.
Our next question comes from Nick <unk>. Please go ahead.
Yeah, Hey, guys just.
Back to that premium sports opportunity given some recent announcements how attractive would you say this content is T. Like what would you characterize the opportunity is a strategic priority number one and then you know when you think about these potential arrangements.
Is there really.
Is there an opportunity for the advertising revenues that you generate against the games themselves to generate generate a profit or is it really the shoulder programming like the pregame post game shows that really represent I guess.
The most lucrative aspect of the sports partnerships, just curious how how those might be arranged.
Well listen you know having done retrans negotiations for over 20 years, the thing that drives the economics, and Retrans or live news and live sports and you know there are other things that contribute but those are the primary drivers. So if you have them I think you are advantaged over not having them and so.
And you know the deals that we would do would be to make money on the advertising from the get go.
Soda programming would be a way to enhance that value, but we.
We would not take the position that sports.
Over the life of a contract would be a loss leader to accomplish our goals. I mean, you know we will find a way to make money.
We probably wont do the deal but the good news is I think at the local station level. It greatly enhances our offerings in the local community and at the network level, It's basically table Stakes and so I think you'll see us continue to explore those opportunities at both the national envelope of level.
As broadcast is invoke once again.
For some of US it never fell out of Vogue, but you know it's it's in Vogue in terms of a distribution mechanism and a way to achieve superior reach too.
Streaming and and traditional Mvpds.
Relationships.
Well I mean, I would imagine that the sports content opportunity is likely.
Most significant for Nexstar, specifically across the broadcast group just given your geographic footprint number one, but I mean, obviously I'm just wondering if you would agree but but then when you do go to market and then when Youre, having these conversations.
When the sports deals how do you market yourself I guess relative to the peer group and does the CW is national President's actually provide a pretty strong advantage to somehow as these conversations that are occurring.
For each of the conversations I think our individual I think youre right given the geographic geographic.
Location of our stations in major markets with sports teams is a plus the.
The fact that we have CW affiliates or independent stations or my network of affiliates in the top 10 markets with the exception of two.
We've got more shelf space, it's kind of hard to do a basketball or baseball deal with the big three affiliates, maybe even big four affiliate because of the amount of inventory that is claimed.
Already in those affiliation agreements so I would think that we have.
We have a good shot at activating these much like we did with the Clippers and Los Angeles, That's a CW affiliate, but we were able to clear 15, 15 games and I can tell you that it was a financial success for K T. L. A and we're in discussions on renewal as we speak.
Okay, great much appreciate it thanks guys.
Okay.
Our next question comes from Alan Gould with Loop capital. Please go ahead.
Yeah, Hi, Thanks for taking the question just to drill down a little more on the sports rights and the pricing of the sports rights. The team's got used to some pretty high fees from the RSM, which obviously turned out to be unsustainable. Yeah. What is the tone like in these contract negotiations.
Well of course, they want the money that had been paid and and superior reach and anything else. They can ask for.
The reality is that they're there will likely be a step down in economics, but that may transfer into other things in terms of increased reach might entice better attendance at the gate, but listen I think everybody every sports owner is going to go through this in real time and every rig Commission.
Or is it going to go through this in real time Theres a reason the RSA ends.
In bankruptcy because that business model is not sustainable.
So I think everybody gets it its just now you know what.
What is the new World Order, which I think includes broadcast I think there'll still be our S ends, but I think there'll be much smaller.
In terms of the amount of programming that they have from a particular team or league there'll still be cable, but I think you know none of this is zero sum I think youll see.
Broadcast with a traditional approach.
And perhaps even streaming and are trying to meet the customer where they are.
The good news is is that we see broadcast being a part of that both at the local level and potentially at the national level.
And Perry on the revenue side or a sense that some of the highest cable affiliate fee yeah, how close to the spring and independent of our CW station to the kind of retrans fees that you're getting from a big four network station.
Well it will certainly help wanted.
Okay and one for Leann.
We just didn't CW losses declined sequentially for the rest of the year based on.
Next Ares management, and then obviously start improving <unk> once you change the programming.
Yeah fourth quarter should be better than the other quarters in the year.
But should we assume two Q3 Q4 Q declined sequentially from the $75 million losses that you just reported.
Sequentially I mean, we still have all of the the programming.
In place that is related to the.
He spent the programming through the end of the broadcast season. So.
We also see losses in Q2, and Q3 Q4 should be better.
I'm not sure what you mean by sequentially, maybe we can chat offline, we can get a lot more color on that.
Okay. Thanks, Dan.
There are no further questions at this time.
Now like to turn the floor back over to Perry Sook, Chairman and Chief Executive Officer for closing comments.
Well. Thank you very much for joining us today, we continue to execute against our plan, taking the necessary actions and making the required investments to shape the future of Nexstar and to continue to deliver long term growth and industry outperformance in the face of economic uncertainty, we believe that nexstar remains an attractive investment with higher quality.
All of these factors, including stable earnings robust free cash flow generation return of capital to shareholders and higher credit quality at a reasonable valuation and thanks, everyone for joining US today, we look forward to speaking with you again, when we report our second quarter results in about 90 days.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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