NXST - NASDAQ

Good day, and welcome to Nexstar Media Group's Second Quarter 2023 Conference Call. Today's call is being recorded. I will now turn the conference over to Joe Jaffoni, Investor Relations. Please go ahead, sir.

Thank you, Maria, and good morning, everyone. Let me just read the safe harbor language, and then we'll get right into the call. All statements and comments made by management during this conference call, other than statements of historical fact, may be deemed forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995. Nexstar cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those reflected by the forward-looking statements made during the call. For additional details on these risks and uncertainties, please see Nexstar's annual report on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission and Nexstar's subsequent public filings with the SEC. Nexstar undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or others. With that, 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, Joseph, and good morning, everyone. We appreciate you joining us today to discuss Nexstar's second quarter results. With me on the call today are Tom Carter, our President and Chief Operating Officer; and Lee Ann Gliha, our CFO. I'll start with a summary of recent highlights and developments followed by Tom's operational review and Lee Ann's financial review. Recently, some media executives have made public comments calling into question the future of linear broadcast. We respectfully disagree. What can't be questioned is that literally all of the video profit and 80% of the video revenue of the major integrated media companies are generated by the linear model today. Said another way, DTC strategies are reliant on the profits of the linear model to exist. We don't expect the DTV business to go away. We expect to coexist with them and for broadcast to continue to thrive. Linear is not going anywhere. Broadcast television continues to reach the largest audience with the highest amount of daily time spent of any video media and remains the most influential media for consumers purchasing and voting decisions. Our proprietary news content is widely consumed and valued by our audiences and our content partners, particularly those in live sports and our advertisers understand the power of the reach of the broadcast media. Our confidence that the broadcast model will continue to thrive is supported by our financial results. In Q2, we further extend our record of outperforming consensus expectations across all key financial metrics, including net revenue, adjusted EBITDA and attributable free cash flow. Our strong performance reflects the combination of the benefits of scale in our company-wide business relationships and our decentralized local and business unit management model which focuses on delivering exceptional news, sports and entertainment for our viewers and proven marketing solutions for advertisers at attractive operating margins. Our consistent free cash flow generation provides us with the financial flexibility to invest in our future while continuing to return capital to shareholders. In the first half of this year, we returned $414 million to shareholders for approximately $11.70 per share in the form of dividends and share repurchases, representing 86% of our first half attributable free cash flow. We are enthusiastic about our future with a number of organic growth initiatives, including our new in-house sales initiative that will leverage all of the assets of our platforms. The growth of the CW and NewsNation and ATSC 3.0's broad potential for future monetization. My optimism for Nexstar's continued growth is reflected by my position as a top 10 shareholder of the company and the company's largest individual shareholder and my recent contract extension, which goes into 2026. But as we look to the future, I'd like to take this opportunity to honor Tom Carter, who a few weeks ago, announced his retirement at the end of the year after 14 years at Nexstar. The day before Tom started back in 2009, our stock was at $0.82 per share and look where we are today. Tom has been and is and will continue to be a tremendous partner and friend. And during his tenure, he oversaw a period of unprecedented growth and expansion for the company, including the successful structuring, completion and synergy realization of highly free cash flow accretive transactions, including Tribune Media and Media General which cemented Nexstar's position as the nation's largest local television broadcaster. Since many of you know Tom firsthand, it goes without saying that he will be missed tremendously. Always a team player, Tom has already contributed to the one seamless transition we've had so far with our appointment two years ago of Lee Ann as our CFO, and he will continue to support our growth and transition in his capacity as senior advisor to me through the end of this year. What Tom previously signaling his intention to retire at the conclusion of his contract, the Board and I had ample time to identify a successor. Last month, we announced that Mike Biard, former President of Operations and Distribution at Fox Corporation will join us as President and Chief Operating Officer later this month. Mike's experience over Fox multiplatform content distribution strategy, affiliate relations, and business affairs for Fox Sports, Fox Entertainment and Fox News brings the perfect complement of capabilities for Nexstar's forward direction and growth. I and many of my Nexstar colleagues have previously known Mike for a good portion of his 23 years that he spent at Fox in Nexstar's role as the largest Fox affiliate group. Mike's experience, knowledge and energy are a great match for our team as we look to take Nexstar to the next level. At the Board level, part of our ongoing initiative regarding Board refreshments, shareholders approved this year, our proposal to declassify our Board of Directors. Going forward, each Board member will be elected annually beginning in 2024. And standing for election with the rest of the Board next year will be our newly appointed Board member, Tony Wells. Tony fills the Board position vacated by Dennis Miller, who stepped down in October to become President of the CW Network. Tony is a great addition for us. He was the former Chief Media Officer at Verizon and Chief Brand Officer at USAA, and he brings a deep knowledge of the national and local advertising landscape and experience and insights working within large enterprises. During Tony's career, he deployed billions of marketing dollars for some of the country's most high-profile brands. His experience and firsthand knowledge, which will benefit Nexstar as we grow our national assets of the CW, NewsNation and The Hill and further leverage our local broadcasting footprint, which is the largest in the industry. Let's move on to the CW as our excitement about that opportunity we see is even greater than when we acquired it. As you may know, our CW affiliates are our most profitable in terms of margins. Nexstar CW stations have already benefited from our acquisition through our distribution renewals last year and so far this year, but we also see further opportunities to grow distribution revenue not only at our stations, but on the affiliate side. Our thesis is straightforward, we believe that as a broadcaster run, broadcast network, the CW represents a better alternative and operator for station operators just as it has for us. In June, we announced that our stations in San Francisco, Philadelphia and Tampa will affiliate with the CW beginning in September. And last week, the CW announced that it had expanded and extended its network affiliation agreement with Hearst Television, which will also launch the CW on Hearst KQCA in Sacramento, California. This is one example of the interest by leading broadcasters and aligning with the new CW. To drive the growth of the network, we are making “Moneyball” inspired investments in content that matters to the broadcast viewer, including live sports in order to grow our distribution and advertising revenues. In less than one year of ownership, we've already secured the rights to a variety of sports properties, including LIV Golf, ACC football and basketball coming to the CW this September, the NASCAR Xfinity Series starting its engine on the CW in February of 2025 and sports-related programming such as Inside the NFL, which will premiere at 8:00 p.m. on September 5, and our sports documentary series, 100 Days to Indy, all of which are expected to accelerate the viewership and revenue growth for the CW ecosystem. In fact, with just these three agreements beginning in 2025, the CW will have 48 weekends per year of live sports programming. As our sports partners will tell you, broadcast television is the best medium for live sports as it delivers the highest ratings and widest distribution to their fan bases while providing promotion and engagement at the local level to drive attendance and ancillary revenue streams. One of the reasons NASCAR was attracted to us was that they know that they generate 40% greater audiences when their races are on broadcast. As we know, firsthand at our station in Los Angeles with the Clippers where we deliver audiences on average 100% greater in the demo than the incumbent RSN. Importantly, and reflecting our disciplined approach to content acquisitions, these new growth opportunities should increase our revenue without impeding our path to reach breakeven in 2025. If you think about it, over time, the CW is increasingly looking like Fox, with the same number of hours of weekday programming and its growing live sports portfolio. And with Mike Biard now on board, we have the team to get us where we want to go. Finally, touching on the writer strike, while we are confident that it will not hurt our forward progress with the CW, the majority of our fall slate was content that was already developed and for unscripted. In May, Nexstar international properties, the CW, NewsNation, Antenna TV, Rewind TV and The Hill had a productive upfront with the standout being NewsNation with a 25% growth in volume driven by its position as the fastest-growing cable news network in prime time. We're very proud of NewsNation. And during the quarter, we marked a major milestone with NewsNation becoming a 24/5 news network with the debut of expanded daytime programming, the launch of the network's first political ensemble program, The Hill and the addition of a new evening program called Elizabeth Vargas Reports. NewsNation recently broke the Whistleblower story about UFOs, with our news interviews on the UFO topic being entered into the congressional record, driving strong viewership of the hearings and afterwards. Supporting our large portfolio of assets, we're laser-focused on ad sales and measurement that better quantifies the research and the consumption of our content. On the ad side, we're working under the leadership of Chief Revenue Officer, Michael Strober, building an integrated national and local sales force that is capable of leveraging the breadth of the assets that Nexstar brings to bear, both locally and nationally and including linear, digital and OTT. We're already demonstrating to our sports rights agreements, how our one-two punch of national reach and local activation is attractive to sports property owners and the same goes for advertisers and brands. But to better monetize our assets, we need to make sure they're being accurately measured. And right now, we believe the current measurement tools under measure our audiences. To that end, we recently issued an RFP for our next-generation measurement company to help us better measure and better monetize. We hope for this process, we will identify a partner that can help us accurately measure and deliver value to our customers. In summary, we believe we're just at the beginning of the growth opportunities that we see for a scaled Nexstar. We have a collection of local and national assets that are really unicorn in this industry that we believe will continue to generate differentiated growth and tremendous shareholder value. With all of that said, let me now turn the call over to Tom Carter. Tom?

Thanks, Perry, and good morning, everybody. Before I dig into the operations review for the quarter, I want to thank Perry and the Nexstar Nation for allowing me to be part of the growth of this tremendous company. My time at Nextar building the business in good times and in bad and developing lifelong friendships has been the most rewarding professional experience in my life. I'm very excited Mike Biard was joining Nexstar, and I know I leave the company in good hands. I will be here through the end of the year in my role as senior advisor working to make sure the transition is as smooth as possible. After that, you'll find me on the golf course or in Colorado sitting by the fire, enjoying a nice cool mountain air. Something we haven't experienced in Dallas in quite a while. Now turning to the operating review. We generated another quarter of strong operating performance with net revenue of $1.24 billion, reflecting the benefit of the CW acquisition and strong quarterly distribution and digital revenues, offset by a decline in television advertising due to the absence of midterm political advertising and continued advertising softness overall. The continued impact of the removal of some of our partners' carriage related to continued negotiations with certain MVPDs also contributed to the quarter's decline. Core television advertising, which includes both our station group and our national network, but excludes any digital advertising revenue declined 2.2% year-over-year, including the CW core advertising was down 8.4% driven by double-digit rates of decline in national spot advertising, which accounts for 27% of our core TV revenues and is responsible for approximately 63% of the decline and a mid single-digit rates of decline in local advertising. This performance is consistent with the expectations we shared on our last earnings call. We continue to be impacted by our station presence in large markets, which tend to act more like top – more like national advertising market. To illustrate this a bit better for you, if we were to exclude our top 10 markets, and include digital advertising revenue as many of our peers do, our station core television advertising revenue would have declined only 3.6% year-over-year. In Q3 of 2023, we're seeing a slight improvement in the rate of decline of our overall core television advertising to what we saw in the second quarter due in part to the political displacement in Q3 of last year. Excluding the CW for comparability purposes, our top-performing categories in the quarter were auto, home repair and manufacturing, attorneys, air conditioning, heating and telecom. We're extremely pleased to see automotive, our largest advertising category in terms of dollars spent, maintain its growth trajectory for the fourth quarter, increasing 10% over Q2 of 2022. While overall, automotive spend remains below 2019 levels, we're encouraged by the continued rebound of this category and recent reports indicate that manufacturers now have millions of vehicles in inventory, which suggests that the category can continue to improve. The category is most responsible for the core advertising revenue decline were radio, TV, cable and newspaper, medical health care, gaming, sports betting, bank savings and investments and fast food and restaurants with about three quarters of our categories declining in the quarter. Turning to political. Nexstar generated second quarter political revenue of $9 million, reflecting the cyclical year-over-year decline in election year spending. We remain highly optimistic about our growth prospects for political advertising in 2024 election cycle with industry projections for $11 billion of spend in 2024 versus almost $9 billion in 2022. Again, we are extraordinarily well positioned to take share and dollars both locally and nationally. Nexstar delivered another period of quarterly distribution revenue growth with approximately $696 million in the second quarter, marking a 7.7% increase over the prior year. Revenue growth was driven by the renewal of our distribution agreements in 2022 on improved terms and annual rate escalators, as well as growth in virtual MVPD revenue and the inclusion of the CW. Our growth more than offset vMVPD – I’m sorry, MVPD subscriber attrition and the ongoing impact of the removal of some of our partner stations carriage related to continued negotiations with certain MVPDs. Subscriber addition was in the mid-single-digits and benefited from the increased carriage of our CW, MyNetwork and independent stations on YouTube TV. Excluding the CW, our distribution revenue was up 6%. As you’ve probably seen, beginning in July – beginning on July 2, despite our efforts to peacefully enter into a new contract, we ceased providing our current – our content to DirecTV in conjunction with our ongoing negotiations regarding a renewal of our distribution agreement with them. We will provide an update on our next quarterly conference call with regard to those negotiations. Record second quarter digital revenue increased 11.4% to approximately $98 million. Revenue growth was driven by the inclusion of the CW and year-over-year increases in Nexstar’s local digital advertising revenue and agency services business, which more than offset some weakness in our national digital advertising and revenues and e-commerce. Excluding the CW, digital revenue decreased 5%. On a consolidated basis, second quarter adjusted EBITDA was $331 million, representing a 26.7% margin and second quarter attributable free cash flow was $100 million. Excluding the CW, second quarter adjusted EBITDA was $405 million, representing a 34.6% margin and second quarter free cash flow was $131 million, amounting to 32% of adjusted EBITDA. With that, it’s my pleasure to turn the call over to Lee Ann for the remainder of the financial review and update. Lee Ann?

Thank you, Tom, and good morning, everyone. 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 results and then jump to expenses. In the second quarter, the CW generated $75 million of revenue and $74 million of adjusted EBITDA loss, exclusive of $3 million of one-time expenses comprised primarily of restructuring charges, all of which was in line with our expectations. Moving back to our consolidated expenses. Together, first quarter direct operating and SG&A expenses, excluding depreciation and amortization increased $32 million, primarily due to the inclusion of the CW. Increases in affiliation fees and the expansion of the local news at our Washington, D.C. Bureau and other local markets, as well as the expansion of our news programming at NewsNation were offset by reduced variable costs related to lower revenue, the gain on a depreciated asset for which we received insurance proceeds and even further offset in our adjusted EBITDA and free cash flow calculations by reduced programming costs at NewsNation related to reduced reliance on syndicated content. Q2 2023 total corporate expense was approximately $49 million, including non-cash compensation expense of $13 million compared to $50 million including non-cash compensation expenses of $13 million in the second quarter of 2022. Q2 2023 depreciation and amortization was $262 million versus $143 million in the prior year quarter due primarily to the acquisition of the CW. Please note that the CW’s programming costs, which are included in our definitions of adjusted EBITDA and free cash flow are accounted for in this line item as amortization of broadcast rights. For more information about this amount, please refer to the schedules in our earnings release. Second quarter CapEx was $41 million and in line with our expectations compared to $34 million in the second quarter last year. Last year’s second quarter CapEx levels were impacted by supply chain constraints. Second quarter net interest expense increased to $111 million from $76 million in the prior year quarter due to the impact of increasing LIBOR and SOFR rates applicable to our floating rate debt. Cash interest expense was $109 million for the quarter in line with our expectations. Second quarter operating cash taxes were $119 million as we have two payments in the quarter and reflected estimated tax payments based on expected income for the year at the time the payment was made. We received $25 million in Q2 distributions from equity investments related primarily to our 31% ownership in TV Food Network, which represents a 19% decrease over the prior year quarter. Q2 through Q4 distributions from TV Food Network are tax related distributions. The reduced amount reflects lower income at TV Food Network related primarily to lower advertising revenue. Looking ahead, we project corporate overhead exclusive of stock comp and transaction costs to be approximately $35 million in the quarter, and we expect corporate overhead around $141 million for the year given new executive hires and recent contract renewals. Non-cash comp is expected to be approximately $19 million for the third quarter and in the $65 million area for the full year. But will vary based on stock price and actual grants. For cash taxes, we use a 26.5% tax rate when calculating our estimated tax before one-time and other adjustments. The third quarter includes one income tax payment. Please note for calculating cash taxes, excluding the CW, only about 65% of Nexstar’s book depreciation and amortization is deductible for tax purposes. We are currently projecting net cash CapEx of $35 million in the third quarter and $156 million for the full year, including a portion of carryover CapEx from last year. Approximately $9 million of CapEx is funded by insurance proceeds. We expect Nexstar’s cash interest expense to approximate $110 million for the third quarter and $436 million for the full year reflecting the current forward curve and our expectations for debt repayment. The forward curve now currently shows interest rates peaking in October and falling thereafter. Turning to the balance sheet. Nexstar’s outstanding debt at June 30, 2023 was $6.9 billion, down slightly for the quarter as we made mandatory quarterly amortization payments of $31 million. Because we have designated the CW as 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 June 30, 2023 was 1.79x, which is well below our first lien and only covenant of 4.25x. Our total net leverage for Nexstar, excluding C W at quarter end was 3.03x. During the quarter, we in mission amended our credit facility in relation to our respective outstanding term loan B’s in order to provide for the transition to SOFR from LIBOR on industry standard terms. As is typical in non-political years, we expect leverage, which we calculate on an LTM basis versus a two year average, but not our total quantum of debt to slightly tick up throughout the year, but to fall again in 2024 as EBITDA will grow with the return of political advertising. Our cash balance was $346 million, including $75 million of cash related to the CW. For the quarter, we generated $100 million of attributable cash flow, we returned $189 million to shareholders paying $48 million in dividends and repurchasing $141 million of stock, which together with first quarter dividends and share repurchase – first quarter dividends and share repurchases totaled $414 million or 86% of our first half attributable free cash flow. 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. That concludes the financial review for the call. Operator, please open the line for questions.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Dan Kurnos with Benchmark. Please proceed with your question.

Great. Thanks. Good morning. Perry, first let say, Mike, great hire, you probably grabbed one of the most respected, toughest negotiators out there. He clearly has some big shoes to fill. Few people in the broadcast landscape are as respected person and professionally as Tom is. And I know you’ve earned your retirement, Tom, but obviously I wish you the best. Perry, just can you give us your thoughts on moving up in AAB around content spend? You called it a Moneyball strategy, it’s definitely a bigger step up in terms of what we’ve seen in broadcast from willing to spend on upfront licensing costs. So could you just kind of talk through sort of your willingness to kind of continue pursuing that and sort of the monetization strategy going forward?

Sure. I think that it’s consistent with our acquisition strategy just generally is that we’re going to take smart bets and some calculated risk with the thought that if things go according to plan, that these will pay out over the length of the agreements. We know what the market was with NASCAR for the Cup Series, which was out of our reach as we’re just now taking over this network, standing up sports on the weekends and we chose to make a considered bet for the Xfinity Series, which actually having the whole season gives us 33 weeks of weekend programming that rates right behind the NFL in terms of regular season versus regular season delivery. And the same with the ACC that was opportunistic and we moved quickly and we’re able successfully to jam it into the upfront selling season and monetize some of those matchups in the upfront. And so, it’s just like the entertainment programming that Dennis Miller and Brad Schwartz are putting together. It’s got to be something where we can own the backend, we can participate financially in the backend and not just be a barker channel for content that ultimately ends up on Netflix. And so that influences the programming that we go after, the programming we put on the air, the price we pay for it. And we were able to renew some of the incumbent series that have historically been on the CW at substantial discounts to what the predecessor owners were charging themselves or paying themselves. And that’s because we couldn’t get all of the rights that we want. So everybody’s cognizant this is a 15 year old network, but now has a startup mentality. The entrepreneurs that Dennis has brought in to run the various divisions, whether it’s digital, entertainment, unscripted, I mean, these folks are out there. They know the mandate, they’re on a mission, they see exactly the opportunity and they all will participate in the upside. So I say it’s Moneyball. We’re competing in the same league as the Big 4 networks but obviously we’ve got to do it on a budget and we’ve got to do it smartly and we’ve got to crawl, walk, run.

Got it. That’s helpful. And then just, I know Tom said you’re going to update us next call on the ongoing negotiation. The loss is kind of a new tactic. You’ve got NFL looming, I guess maybe Perry or Tom, just how do you think about resolution of these outages? You have a big chunk coming up in the back half of the year or two of sub renewal. So has anything really changed given the environment right now?

No, and if you look back, I think it’s instructed to look back four years in our renewal with a certain MVPD satellite company that we went off the air in July and we were able to reach agreement by the end of August, which is coincidentally about the time college and professional football kicks into high gear. I’m not going to predict the outcome here. I can tell you that our negotiating team has been in Los Angeles since Sunday, and we’re having meetings with our counterparties. We fully expect that we’ll be able to reach an agreement as we have historically with every other significant MVPD both past and future on commercial terms that are acceptable to both parties.

Got it. Super helpful. Thanks guys.

Our next question comes from Steven Cahall with Wells Fargo. Please proceed with your question.

Yes, thank you. And first just want to echo my congratulations as well, Tom and certainly good luck on the golf course. We’ll miss you a lot. Maybe just first on retrans to kind of follow-up with Dan’s line of thinking. I think folks are curious what you thought about when you started the year with the retrans guidance. There was always a range in there. I think cord cutting was part of that blackouts both previous and new might have been part of that. So is anything from your opinion occurring sort of outside of what you would’ve expected? July and August are pretty light for sports, so it’s probably not a huge surprise to most of us that you’re in a blackout right now. But we’d just love to get your context around how we should think about the current retrans guidance.

Yes. I mean, look, I think when we put the guidance together, we take into consideration the fact that we know at that point in time, and I wouldn’t say a whole heck of a lot has changed other than now we are in a blackout. And when we look at our guidance, we only take into consideration what we know at that point. And at that point I think we thought we would be able to come to some kind of agreement. So we’ll have to provide future updates on that as we go forward. But there’s nothing that’s sort of materially changed other than dark.

Thanks. And then on the Food Network Group distribution, I know it’s a little choppy quarter-to-quarter that’s been a really stable provider of cash flow and EBITDA historically. It maybe does face a little more cord cutting and advertising risk as a cable network. Just curious, from what you’re seeing, do you expect it to sort of remain at prior levels for the next year or two, or any change you’re seeing there?

Well, I think they’re not immune to some of the same factors that are national businesses most notably direct response. I would say, generally speaking that they’re having not any more luck than we are in that regard. So you might see a modest deterioration, but I think the good news is Warner Bros. Discovery has started to really prove themselves out with regard to the operating strategy that they have and specifically deleveraging, which doesn't necessarily affect us because there's no debt on the partnership. But just in terms of their ability to continue to allocate resources to new programming. And we believe, and they have told us that the Food Network is one of their three most important channels, at least from the discovery side, maybe not including HBO NOW, but they're very bullish on Food Network, and we are as well. So you may see some variability in the results, but nothing material from our perspective.

Thanks. And then just lastly, some of the media conglomerates have suggested that there may be linear networks – national linear networks up for grabs, that can include ABC, that could include some cable networks. I certainly won't ask you to speculate on anything specific. But just based on the possibility of a lot more coming to market and after having done the CW, do you find national networks to generally be a good fit given the strength you have in distribution or just any way to think about kind of bigger long-term M&A? Thank you.

Well, I think we start with the supposition or position that there are only five English language broadcast networks, commercial networks that operate and reach virtually 100% of the country. So that's a scarce resource and something that is special. Obviously, we feel as the local distribution partner, our link in the chain is obviously the strongest. So, I would say it would be totally situational, what was available at what price, what other assets come with. And – but I will point out that as it relates to the CW, it is not considered a Big 4 network for purposes of the Big 4 network exclusion rule at the FCC, which means you can't own two of the top Big 4. So legally, technically, it would be possible, but it would have to be the right deal at the right fit for us. And we would do with everything else. We look at everything.

Thanks a lot.

Our next question comes from Craig Huber with Huber Research Partners. Please proceed with your question.

Great. Thank you. Perry or Tom, can you just update us, if you would on your long-term plans for alternative uses for your spectrum?

Well, we are in two different business development arrangements, one with Sinclair called BitPath and one with Scripps. That is unnamed at this point, but both are going after different applications and uses of the spectrum, I think it's worth saying that particularly if you look at Scripps, and its spectrum assets and Nexstar with its spectrum assets, we reached 92% of the United States population on an unduplicated basis. So, we think that holds great promise. And we are in – we have – are in tests and in discussions with HPE. We have had discussions with the Hollywood studio as well as a major automotive manufacturer regarding uses in the car. We also are involved in with BitPath and trying to develop a technology that currently exists in South Korea that is enhanced GPS, which think of anything, any vehicle that needs to know where it is or you need to know where it is from a news fleet to a truck fleet to UPS trucks that we can provide 5G like location-based services at a fraction of the cost of the current 5G proposition. So that's just a handful of things that we're involved in. As an industry, I think one of the more interesting things to follow is, there is a mandate out primarily from the Department of Defense agencies to develop a GPS backup for the country because if GPS goes out, not only do navigation in your car doesn't work, but the gas pumps don't work because they rely on GPS to put that time stamp on your receipt. The ATMs don't work, I mean all kinds of things. So it has been deemed to be in the national interest to provide a 5G backup. And our industry because of its ubiquitous reach has the ability to provide that service. And we are in very preliminary as an industry in formal discussions about trying to fill that mandate as part of our transition to ATSC 3.0. So a lot of moving parts. I don't want to say there was one killer app, but I do think it is an opportunity for us to, as we continue to build out 3.0 presence around the country. Nexstar is the leader in terms of percent of the population reached with the 3.0 signal under our own power. We will continue to be that and continue to put markets on the air. We hope to have an announcement about New York City before the end of the quarter that would go on air before the end of the year. We think that's important to both regulators, set manufacturers and investors to understand that we're committed to 3.0. So a lot of things in the works, Craig, but those are the – some of the current thoughts on monetization.

And Perry, what are you thinking on that front? When you might see the first significant material slug of revenue? And when does it get really large for your company at the end of the decade? Both goes according to plan?

I think it will – I've been saying five years. So five years takes us into – toward the end of the decade. I think we will have proof-of-concept and revenue from counterparties as early as next year, but I don't think I would characterize it yet as significant. So I think, again, it will be kind of a crawl-walk-run scenario where those that have deployed 3.0 spectrum will be the first beneficiary, which I think will encourage others to move quicker to get to that point. Obviously, if we can do away with the simulcast requirement and not have to have too substantially similar signals on the air, one in 3.0 and in 1.0, if that and the whole 1.0 can sunset at some point, which will give us free up spectrum for more ancillary uses. So, we're working the legislative and the regulatory front there as well. But I do think that this 5G replacement could motivate a lot of folks to move faster, quicker.

And then my last question, if I could, just more near term. Just go through for me again, just some clear. Your 2Q core ad revenue, excluding the CW, what was that percent change year-over-year? And more importantly, what are you expecting to be for the third quarter, core, excluding CW, please?

I think it was in Tom's commentary that the, I believe the Q2 revenue, excluding CW was total revenue was what, down – you're talking about core advertising?

Core advertising, yes.

Core advertising was down 8.4%, and that was primarily driven by double-digit decline rates in national spot. And also, we are also impacted by the fact that we've got a lot of CW affiliates in those big markets that tend to be more national type focus. I think for the third quarter, we're seeing a slight improvement to the rate of decline, of our overall core television advertising revenue related to the second quarter, and that is due in part to the fact that there's a lot of displacement in the third quarter of last year because of political [ph].

Great. Thanks a lot guys.

Our next question comes from Benjamin Soff with Deutsche Bank. Please proceed with your question.

Hey guys, thanks for the question. I was wondering if you could elaborate a little bit on the issues with current measurement tools and how much you think they undercount your audience? And then you guys are standing up a national advertising platform, just wondering if you could elaborate a little bit more on how that initiative is going and where you see that opportunity going? Thanks.

Sure. Well, it depends on what service you want to use as your baseline. If you use Nielsen and compare that to Comscore, the audience under count is north of 20%, almost across the board. It's interesting when we look at our NewsNation national numbers and then we look at NewsNation delivery in the individual markets that we're in, that we get overnight numbers, they often add up to a number just in the metered markets that's greater than the number we reported for the whole country. So obviously, there is an issue in undercounting. We – with the CW measured sports on the weekend using the iSpot technology, which was a completely different measurement experience to what the incumbent provider would have provided. And so we have decided, as our – all of our measurement contracts expire at the end of this year that we put out an RFP to the measurement community saying, this is what we want you to design for. We'd like to see what you can present along these lines to bring measurement into the 20th century. We're currently operating with such outmoded and limited data that sometimes the margin of error is greater than the number we're discussing. So we'll see what comes from the RFP. It's a pretty quick turnaround. And it may be that we go with more than one measurement service to try and write this one for our national assets, one for our local assets, we will negotiate with our incumbent providers of Nielsen and Comscore, but they're invited to submit under the RFP as well and made the best company win. But in terms of standing up this One Nexstar is what we're calling it, which will be a unified sales force selling all of the assets of the company. This is basically a three-year project that started last year. We architected this in 2022. We are implementing the national piece of this as we speak this year, and then we will hold in the local piece of it next year. And what it's meant to be is that totally focused on the customer, whether we go to the agency holding companies, the local customer or clients, national clients directly. The focus is on here – we can do local activation at scale better than any other company out there because we reach approximately 70% of the U.S. population. So you can do a network buy-on news, you want to do a local news overlay in the states where your business is concentrated. We can do a deal as we did with the clippers. So we're into the NBA telecast, but because of our local relationship with the team, if you wanted a player to show up for an hour to sign autographs at a store opening or appear at a charity function. Those are the kind things that we can deliver. Again, local activation at scale. So we really feel that we're a unicorn in that regard and that we reach more direct consumers with our brands than any other company in media. So our view is, we want to train everybody to sell all of the assets of the company. And it's interesting that in every one of our markets, there is a top 100 national advertisers that is headquartered there. And so our local people can have those relationships, bring in subject matter experts to help develop a unified pitch – and our goal, obviously, at the end of the day is just to qualify for and earn a larger share of wallet, digital OTT, traditional broadcast, national broadcast, you want cable, you want broadcast, you want diginets. And so putting all of that together so that everybody has the same focus for going to market. So Michael Strober is our CRO. He has hired a Head of National Sales. He is in the process of hiring a Head of Local Sales and Activation. We're standing up our national sales force. And even in the middle of doing all of that delivered very good results for NewsNation in the upfront, 25% increase in dollar volume, 15 new advertisers and in a not very supportive market, I mean, the market is pretty rough out there. But we're selling a story of growth and there are precious few other folks out that are selling that. And the good news is the advertisers are responding. So all I can ask for with the CW and NewsNation now is take what you've had and grow it, and we're doing that on both fronts. So I'm often pleased, but never satisfied.

Great, thanks.

Our next question comes from Nick

Hey guys, congrats on the results, and congrats on a great run here. Thinking about your initial plan to shift the CW from scripted to non-scripted content did your original plans account for all of the sports content that you've accumulated thus far? Or has the shift to sports been a more favorable outcome post that acquisition as a result of acquiring the CW, which may potentially lead to a faster and higher profitability assumptions for the CW in the coming years?

I would say that we had sports in our mind's eye when we bought the CW. We were the only top five network that didn't program on weekends and we knew through our experience with the Clippers and in a larger context with the NBA that because of the collapse of the RSNs, there was a first for wider distribution. And I would say that the deals we made were opportunistic contracts that were up at the right time that we're the right size for us. We began a long cultivation of relationships at NASCAR that began literally at the time we closed the CW. Obviously, LIV was very opportunistic for us. They wanted a partner. We wanted to introduced sports on the weekends. And the simple fact is the first weekend LIV was on the air, our prime time on Saturday and Sunday, live telecast are our prime time ratings at those nights were up 20%, and I told our team and said, well, that's one of the reasons you buy sports. So you can recirculate audience and new audience into your other products. So, I would say that it was like a lot of acquisitions we've made opportunistic, but I feel good about the deals. And on paper, both ACC and NASCAR make money for the CW over time. And we feel good about where we will end up, and now it's all just about getting to the starting line with both of them literally and figuratively.

Understood. Thanks. And then just on the core revenues here, obviously, down 8%, excluding the CW. I'm wondering, in your view, if there is an element to this softness recently that could potentially reflect an acceleration of national spending to alternative channels such as Connected TV, in particular. And if so, obviously, maybe that would potentially limit what’s available for the broadcast channel and really resulting in what could be a secular – just secular pressure I guess, for core revenues for you going forward. Just your thoughts on that, whether you think that national advertising, in particular, is accelerating to...

I wouldn’t try and read too much into advertising as a cyclical business. We’re in an economic downturn and National is the most volatile piece. I mean, if you went back and look at 10 years of our earnings report, I think you hear us talk about National being the most volatile. So, I don’t see a sea change. I just see an economy in cautious advertisers and National are the first to pull their budgets. Those that are closest to the cash register, still see customers buying. They may be buying different things, but they want to capture that share of wallet. But Tom, you want to amplify some?

Sure. I was just going to refer back to the category information that I kind of quoted in my comments with regard to the top declining categories. Radio, TV, cable, newspaper, obviously, we’ve been in a dispute and been in disputes with various other media companies for some period of time, and that’s reflective of that. Medical healthcare obviously, we’re coming out of a couple of years of heavy government and medical spend from a COVID and a post-COVID perspective, and that has started to return back to more normal levels. Gaming and sports betting, again, a big rush to the door early on in the process on a number of large markets and now we’re seeing a more measured approach going forward in those markets where sports betting is already the case, and there are fewer large states left outside of Texas, Florida and California, when those hit, I think you’ll see sports betting take off again. Bank and savings and investments, obviously, it was a tough first quarter for banking in general, and I think that showed up in some of our numbers as well. So really, if you look at the categories, you can see why those categories may not be performing up to prior year’s dollar levels, relative to some of the particular sequencing and situations that they’re in as well.

Yes. And I would just say, I think also, we’re starting to see like slight lessening in terms of the rate of decline on the national side. So that just kind of goes back to what you’re seeing in the overall economy, which is everything seems to be getting better.

Really appreciate the color there. Thanks, guys.

Our next question comes from Alan Gould with Loop Capital Markets. Please proceed with your question.

Thanks for taking the questions and let me dito my congratulations to you Tom, on a terrific job and on your retirement. First question, there was no comment on the annual guidance, the 2023, 2024 cycle. Is that because of the lack of visibility due to the distribution agreement? Or can you reiterate that guidance? Well, I’ll take a few more, but I’ll stop here.

Look, I think we obviously have a situation here being dark on one of our MVPDs. And so we will kind of revisit all of this in the next quarter, as Tom indicated.

Okay. And in the wording, the ongoing negotiations, that was specifically with that one MVPD correct?

Yes.

Okay. And on the CW, this investment in sports, does that have any impact on your near-term profits? Or do you think the incremental ad revenue and affiliate fees potentially will offset the incremental sports costs?

There’s no material change in our near-term expectations for the CW with respect to the sports business. I think that we’ve made those decisions, I think, as Perry mentioned in the Moneyball type fashion, and are looking to generate more revenue to offset those costs.

Okay. And last question, how was the CW upfront this year?

CW upfront, I think, was pretty good in terms of the overall performance. Dollar volume basically flat with the prior year. Unit rates were up mid-single digits. And again, the money, the absolute dollars are not going to change our style of living, but it’s an important marker, I think, for us. The reaction to the new programming and the sports, obviously, with sports dollar volume was up. But Lee Ann, if you want to provide any more color on that, go right ahead.

Yes. Look, I think that the overall upfront market was down overall. I think that the CW has fared in line with what our expectations were for that business. And so I think, I also think that there’s a little bit less sold in the upfront and, yes on a calculated way because then they will provide us more opportunity with the scatter market as we’re seeing the – hopefully, the economy will continue to increase as the national market will come back and that will benefit us on the back end.

Okay. Thanks for taking the questions.

Our next question comes from Barton Crockett with Rosenblatt Securities. Please proceed with your question.

Okay, great. Thank you. And your retirement plan sounds great, congratulations, and thanks a ton for all the help. I wanted to ask a question about just beat a dead horse, but you’re not at this point, saying anything about your former guidance on retransmission. You’re kind wait until you get clarity on the distribution deals. Is that correct?

That is correct. Yes.

Okay. All right. And then in terms of the sports, the new commitments, are you thinking about the recoupment being you cover the sports rights cost on advertising alone? Or is there also an idea that this can give you leverage on affiliate fees for – yes, retransmission fees?

Yes. Look, I think absolutely, the focus is not only on advertising, it’s on retransmission fees, distribution fees or affiliate fees as what you would characterize that. It’s difficult to compete for sports rights without having a distribution revenue stream.

Okay.

And if you think about it, the timing of this has worked out really well because ACC sports begins this fall, September 9. So we’ve proven to the affiliates that we can deliver on this. And NASCAR starts in early 2025. So we’ve got some time from a NASCAR perspective in order to prove out sports with ACC and then be able to take that to the affiliates with a value proposition that we think is appropriate at that time to include sports. And let’s be honest, we’re going from sports weekends, something or in weeks, where we have sports something like 14 hours of programming from the CW to 25 hours or 30 hours of programming from the CW given Saturday and Sunday. So there’s a significant value proposition improvement that we want to put forth to the affiliates.

And I’ll just add as it relates to guidance, and we haven’t been specific, nor will we be, but the CW is in affiliate negotiations with a number of sizable affiliate groups, and there will be affiliation fee revenue upside to that, which is in our current guidance. So a lot of things, Lee Ann and I sat down yesterday, listed all the things that will happen between now and our next call. We may buy a business, we may sell a business. We’ve got the affiliate negotiations. We hope to settle the MVPD and virtual MVPDs that were off and increased our distribution. There is opportunity for increased distribution of NewsNation as a byproduct and a not insignificant way. So there’s a lot of ingredients that go into baking the cake. And so our thought is if there’s an update to guidance, let’s know as much as we can. And right now, we don’t know enough to change our guidance and don’t expect it will change in a material way. But in any event, there’s a lot of things that go into running this company and a lot of things that go into the guidance that we deliver, and it’s a multivariable equation, not a single variable equation, I guess, is the point I wanted to make.

Okay. I appreciate that, and that’s good for me. Thank you.

Our next question comes from Jim Goss with Barrington Research. Please proceed with your question.

All right. Thank you. And I’ll be the broken record and thank Tom. I congratulate you for a successful career and your important contributions to Nexstar. Might I ask about NewsNation going into the political year, I wonder if you might talk about any particular things you might be doing incremental to the network? Are you going to be doing a number of debates again? And will these be economic or reputational? And do you have plans to take that path to the next step of 24/7 now that you’re 24/5?

Sure. And I don’t want to give our playbook to any of our competitors, but we do plan to be as active in debates as we were last year, and those that have national implication and national interest will be offered to the cable channel as potential programming as those were wildly successful in 2022. And we will expand. We will be 24/7 by September 1, 2024 because that’s when the last of our syndicated programming commitments contracts will run out. So those plans have already been made, and we will begin to execute those here, staffing up for 2024 in about another month. And yes, that’s already in the model that we use for guidance. So – and I think you’ll see our panel show The Hill expand to the weekend, probably weekend mornings that will allow us more access to the movers and shakers in Washington. So there’s a comprehensive plan that includes more debates. We’re doing Town Halls. We’ve won with Kennedy. We’re doing some with the Republican and Democratic candidates as time goes on and opportunistically as they make themselves available to us. And those will be prime time events well promoted. As far as debates go, we don’t make any money on them. Those are all at the local level for – as a public service to our voters and at the national level as a service to those that, again, might be interested in the national implications of such because the debates, unless we find an underwriting sponsor are offered with no commercial interruptions for the full hour or more. So expect us to be as active, if not more, in 2024 on the political side.

Okay. Thanks. And one other one. Regarding CW, maybe the actors and writer strikes have come at a good time for you because you’re just redefining what your programming should be, but are there any strategic implications or workarounds you’re going to need to do with regard to the strike?

We have four shows that were planned in the 2023, 2024 season that we renewed from Warner’s and from Paramount that are all scripted shows that currently appear on the network. All of those are pushed at least now until 2024, and the farther the strike goes on, they get pushed further and further into 2024 and so those the only four shows affected everything else on the schedule is acquired programming that has already been produced or reality programming that is being produced. So we’ll have the most scripted as a percentage of our schedule with the commitments that we’ve made of any of the big five broadcast networks going into the fall. We also have a lot more high profile and noisy reality shows, which I think will bring attention to the network as well. So we kind of like our chances in this chaotic environment. And when others are afraid is when we tend to take some big swings. So I think that we’ll do well vis-à-vis our expectations, and hopefully that will help us prove in the scatter market that tech that we’re on is the correct one to grow the network.

All right, thanks very much.

There are no further questions at this time. I would now like to turn the floor back over to Perry Sook, Chief Executive Officer, for closing comments.

Thank you, Maria. Nexstar posted another strong quarter of financial results, and we continue to execute on our strategy focused on levering our linear digital, mobile and streaming assets in new ways to drive increased monetization and growth across our entire portfolio. While we are performing well now, we are very optimistic about 2024 as we will have the wind at our backs with what we anticipate to be an economic recovery, the full year impact of our 2023 distribution contract renewals, moderating losses at the CW and what is expected to be a record-breaking political year also in a declining interest rate environment. Our strong free cash flow allows us to return a significant percentage of that to shareholders in the form of dividends and share repurchases, while maintaining very modest leverage and pursuing strategic opportunities to further enhance shareholder value. Thank you, everyone, for joining us today, and we look forward to speaking to you again in November when we report our third quarter results. Maria, I’ll turn it back to you.