NXST - NASDAQ

Good day, and welcome to the Nexstar Media Group's Second Quarter 2025 Conference Call. Today's call is being recorded. I'll now turn the conference over to Joe Jaffoni, Investor Relations. Please go ahead, sir.

Thank you, Melissa, and good morning, everyone. I'll start by reading 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 this 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, 2024, 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 otherwise. It's now my pleasure to turn the conference over to your host, Nexstar Founder, Chairman and Chief Executive Officer, Perry Sook. Perry, please go ahead.

Thank you, Joe, and good morning, everyone. We appreciate you all joining us today. Mike Biard, our Chief Operating Officer; and Lee Ann Gliha, our Chief Financial Officer, are with me here this morning. Nexstar delivered another solid quarter of financial results with our second quarter net revenue, adjusted EBITDA and adjusted free cash flow, benefiting from better-than-expected advertising revenue, stable distribution revenue and strong expense management. Overall, our core advertising business remains resilient, while the pay TV landscape continues to evolve as we had anticipated. Though we have yet to see a definitive turnaround in video subscriber trends, we are encouraged by consistent early signs of improvement with good reports in recent weeks from 2 of our largest MVPDs. For the first half of 2025, Nexstar generated adjusted EBITDA of $770 million and adjusted free flow of nearly $450 million. We returned $238 million or 53% of adjusted free cash flow to shareholders through share repurchases and dividends, reducing our shares outstanding by about 1% while also allocating $132 million to debt repayment. Near the end of the quarter, we refinanced the company's credit facilities and term loans, further strengthening our capital structure and our financial flexibility by extending maturities, which positions our balance sheet well in anticipation expected regulatory relief on the ownership front. The case for local broadcast ownership deregulation remains strong and extends far beyond competitive fairness. It's becoming increasingly clear that bias, acknowledged and now admitted in editorial coverage by legacy national networks, false information provided by AI and social media disinformation are making it almost impossible for Americans to distinguish between fact, opinion and fiction. We firmly believe that Nexstar and the local broadcast industry at large are a solution to these threats. Every day, our local national news teams bring the public unbiased fact-based news reporting and information from 113 newsrooms in markets across the country and nationally on NewsNation. We employ almost 6,000 journalists in total, which is more than any other media company in the United States. Our news teams all adhere to a strict journalistic code of ethics and are dedicated to bringing communities trusted information and local stories that matter to them. For example, in Central Texas, during the immediate aftermath of the devastating Guadalupe River flooding, our local reporters were on the ground, providing essential news coverage and safety information to our local communities as well as national audiences via NewsNation. In addition to covering those events, Nexstar station teams in Abilene, San Angelo and Austin came together to raise nearly $1.4 million for flood victims during a one-hour telethon. Many also volunteered at local relief organizations to help gather and distribute supplies to those in need. Meanwhile, on Big Tech social media platforms, charlatans chasing clicks, circulated misleading videos, some AI-generated and others recycled from unrelated disasters in different states or countries, falsely claiming to depict the Central Texas floods. Others exploited the tragedy by creating fake fund raising pages to scam [well meaning] donors. This kind of misinformation and [malfeasance] undermine search and rescue efforts, erodes public trust and diverts critical resources from legitimate relief organizations. Unfortunately, this is just another clear example of how Big Tech's unchecked reach and prioritization of engagement over accuracy fuels the rapid spread of fake news. Nexstar's commitment to high-quality, trustworthy journalism continues to deliver strong viewership earning trust along with local and national aficionados. Ad Fontes, the respected third-party media watchdog has rated virtually all news programming provided by Nexstar local stations as well as NewsNation as politically neutral with a reliable rating of -- reliable for both analyst analysis as well as reporting. In the second quarter, our local journalists earned 52 Regional Edward R. Murrow Awards for outstanding journalism and exceptional locally produced news programming. Public trust and local broadcast journalism remains strong with American citing local television news as the #1 most trusted news source according to a 2024 [TBB] survey. Audiences of all ages and demos are turning into our local news and to other programming with nearly half of Nexstar's 2024 station viewership coming from non-network programming. That last point is important. We've seen the number of publications misrepresent data from the latest Nielsen Gauge reports by stating that streaming accounts for over 50% of total viewership. The data reflected in that report only includes information from Nielsen's national panel. It completely excludes local station viewership of local content, which we know to be substantial. If you look exclusively at national viewership of long-form, ad-supported programming, the metric that matters most to advertisers, broadcasting and cable together account for 70% of total ad impressions. We believe that the continued strength of our broadcast and cable news assets is a direct result of our long-term strategic focus on high-impact news and sports programming. We began in 2019 by converting WGN America, the entertainment network we acquired in the Tribune acquisition into NewsNation. We made a similar strategic decision with the -- our acquisition of the majority stake in The CW broadcast network in 2022, shifting its focus from scripted series to more broad-based and audience expanding programming, including a full slate of live sports. I'm proud to share that we achieved several operational milestones during the quarter, highlighting the continued success of our strategies. In April, we celebrated NewsNation's 1-year anniversary of expanding its news programming to become a 24/7 cable news network. In June, NewsNation was ranked the #1 basic cable network for year-over-year growth with overall viewership increasing by nearly 50% and by 67% in the adults aged to 25-54 demographic according to Nielsen. We believe NewsNation's programming and unique fact-based reporting is resonating with viewers who are looking for a refreshingly balanced and impartial take on the news. And at The CW, we've now achieved 5 consecutive quarters of audience growth and The CW was the #8 ranked network in total audience for the first half -- total audience growth, I should say, for the first half of 2025. This is a direct result of the success of our programming strategy, including the introduction of sports, which now accounts for over 40% of our total programming hours. Turning to regulatory reform. There have been significant positive developments since our last earnings call. In mid-July, the FCC moved to refresh the record on the national ownership cap, opening the door for a new order from the FCC to modify or eliminate the cap perhaps by the end of this year. We filed our comments on Monday in that proceeding. And on July 23, Eighth Circuit, they vacated a Top-Four rule, which prohibits the owner of television broadcast stations from owning 2 of the Top-Four rated stations in the local market, finding that the FCC's historical justification for retaining the rule was arbitrary and capricious. We applaud Chairman Carr, vocal support of the court's decision, describing the FCC's prior retention of the Top-Four prohibition as a decision to retain a regulation that does not match marketplace realities. In summary, the continued success and consistency of Nexstar's financial performance reflects our stable diversified revenue base, disciplined operations and continued execution across our portfolio. With our unmatched scale, robust free cash flow and consistent track record of delivering value, we remain well positioned to seize the significant opportunities that lie ahead. We were energized by the prospects of regulatory reform, and we remain laser-focused on executing on our 2025 objectives, which include renewing upcoming distribution agreements, continuing The CW's path to profitability next year, and preparing for significant midterm election activity again in 2026. With that said, let me turn the call now over to Mike Biard. Mike?

Thanks, Perry, and good morning, everyone. Nexstar delivered second quarter net revenue of $1.23 billion, a decline of 3.2% compared to the prior year, primarily reflecting the year-over-year reduction in political advertising. Second quarter distribution revenue of $733 million was essentially flat compared to the prior year quarter primarily reflecting the modest number of subscribers renewed in 2024 compared to 2023 and MVPD subscriber attrition, partially offset by contractual rate escalators growth in vMVPD subscribers and the addition of CW affiliations on certain of our stations. Although the industry continues to see subscriber attrition, we note recent earnings reports from our distribution partners suggest marginal improvements in subscriber trends. Several industry observers have noted Charter's trending video performance with at least one highlighting video as a significant opportunity in the context of the Cox transaction. We're encouraged by those trends and continue to monitor the space closely as we work to secure agreements that are better aligned with the value Nexstar delivers to our partners and their customers. Advertising revenue of $475 million decreased $47 million or 9% over the comparable prior year quarter, primarily reflecting a $36 million year-over-year decrease in political advertising. Nonpolitical advertising declined by 2.5% year-over-year, slightly better than our expectations. Nonpolitical advertising was impacted by a high single-digit decline in good-based advertising of which more than half was attributable to the automotive category and a slight reduction in services-based advertising, though this segment remains much more stable and resilient overall. Contributing positively to the quarter, we saw growth in key categories, including attorneys and home repair, along with improved performance from some of our national digital businesses, including BestReviews. We generated approximately $9 million in political advertising revenue during the quarter, primarily driven by issue spending related to the One Big, Beautiful Bill, the New York City Mayoral primary and the Virginia primaries. Looking ahead to the third quarter, nonpolitical advertising is currently forecast to be down in the low single digits on a year-over-year basis. This is despite the comp of 2024 Olympic-related advertising and the benefit in part from the lack of political crowd out in the quarter. Although some broader economic headlines may suggest caution, our view of the advertising outlook remains stable for now. As we noted on last quarter's call, approximately 15% of our total revenue is tied to goods-based businesses that could be impacted by tariffs. Turning to CW. As Perry mentioned earlier, we continue to see favorable returns on our programming investments, with sports now accounting for more than 40% of the CW's programming hours, and we continue to build the CW Sports portfolio. During the second quarter, we renewed our agreement with the Pac-12 conference to nationally broadcast 9 college football games this fall, including a new Pac-12 double feature on Saturday, September 6, showcasing 2 of the key schools that will anchor the expanded Pac-12 conference next year. We also announced a multiyear partnership with the Professional Bowlers Association to air 10 live events on Sunday afternoon beginning in 2026. And in July, we announced a multiyear agreement with Professional Bull Riders to be the exclusive live broadcast partner of the PBR team's series on Saturdays and Sundays. The CW will air the first of 11 PBR events this year this coming Saturday, August 9. Our sports programming continues to perform well, demonstrating both the power of broadcast television and the CW network specifically. Both WWE NXT and NASCAR Xfinity racing ratings are up 7% and 16%, respectively, versus second quarter of last year when those events were primarily on cable. Moreover, our entire CW programming strategy is working. As mentioned, we've seen 5 consecutive quarters of primetime ratings growth, elevating the CW in position as the eighth most watched network overall for the first half of this year. On any given night, CW is now beating the Big 4 networks with regularity, with 126 instances since the beginning of this broadcast season in October 2024 versus 53 in the entire prior season, firmly establishing the CW as a major broadcast network. In the second quarter, as expected, the CW's profitability improved by $21 million year-over-year, driven by reduced amortization of broadcast rights and lower operating expenses following our Q4 restructuring. Our outlook for the year remains unchanged, and we continue to project improved profitability of about 25% in 2025 over 2024 with our continued expectation of achieving profitability in 2026. In addition, the company continues to benefit from moving CW affiliations to our owned and operated stations. During the quarter, we finalized agreements to move 3 additional CW affiliations next month to Nexstar stations in Charlotte, North Carolina, Erie, Pennsylvania and Elmira, New York. To close, let me reiterate confidence in Nexstar's long-term outlook and the enduring strength of our broadcast business model. Our news and sports-focused programming strategies continue to deliver demonstrable results for the CW and NewsNation, and we remain committed to unlocking greater value from these valuable assets as our audiences continue to expand. As the industry continues to evolve, we believe the momentum is shifting in favor of our core businesses, and we remain committed to pursuing opportunities that drive long-term value for our shareholders. With that, it's my pleasure to turn the call over to Lee Ann for the remainder of the financial review. Lee Ann?

Thank you, Mike, and good morning, everyone. Mike gave you most of the details on the revenue side and on the CW. So I'll provide a review of expenses, adjusted EBITDA and adjusted free cash flow, along with a review of our capital allocation activities. Together, second quarter direct operating and SG&A expenses, excluding D&A and corporate expenses declined by $13 million or 2%, primarily driven by our operational restructuring initiatives undertaken in the fourth quarter offset in part by increased variable expenses related to our growth in digital revenue. Q2 2025 total corporate expense was $64 million, including noncash compensation expense of $21 million compared to $54 million, including noncash compensation expense of $20 million in the second quarter of 2024. The $10 million increase is primarily due to onetime expenses associated with the refinancing we completed in the quarter. Q2 2025 depreciation and amortization was $197 million versus $208 million in the comparable prior year quarter, a decrease of $11 million. Of these amounts included in our definition of adjusted EBITDA is $79 million related to the amortization of broadcast rights for Q2 of 2025 compared to $87 million for Q2 2024. The decrease in amortization of broadcast rights by $8 million was primarily due to lower programming costs of CW versus the comparable prior year quarter. Q2 2025 income from equity method investments, which primarily reflects our 31% ownership in TV Food Network, declined by $5 million versus the comparable prior year quarter, primarily related to TV Food Network's lower revenue. Putting it all together on a consolidated basis, second quarter adjusted EBITDA was $389 million, representing a 31.7% margin and a decrease of $25 million from the second quarter 2024 of $414 million. Moving to the components of free cash flow and adjusted free cash flow. Second quarter CapEx was $29 million, a decrease from $37 million in the second quarter of last year due primarily to timing of CapEx projects and lower total amount of CapEx in nonelection years. Second quarter net interest expense was $97 million, a reduction of $16 million from the second quarter of 2024. On a cash basis, this compares to $94 million in Q2 2025 versus $110 million in Q2 2024. The reduction in interest expense was primarily related to a reduction in SOFR and Nexstar's reduced debt balances. Second quarter operating cash taxes were $140 million compared to $164 million last year. Payments for capitalized software obligations and pension credits net of proceeds from disposal of assets and insurance recoveries were $14 million versus $16 million in last year's Q2. Cash distributions from the Food Network were $11 million in the second quarter, which amount is captured in our free cash flow and adjusted free cash flow definition. This amount reflects our pro rata share of distribution to cover tax from our proportionate share in the income of the JV. Included in the second quarter's adjusted EBITDA, but excluded from adjusted free cash flow is $11 million of income for amortization from equity method investments, which is primarily our pro rata share of Food Network net income in the second quarter of 2025. In Q2, programming amortization costs were lower than cash payments by $2 million compared to Q2 '24 as certain deferred programming payments were paid. Putting this all together, consolidated second quarter 2025 adjusted free cash flow was $101 million as compared to $77 million in last year's Q2. A few additional points of guidance with respect to adjusted free cash flow. We are currently projecting CapEx of $25 million to $30 million in Q3. Based on the current yield curve and our mandatory amortization, Q3 interest expense is expected to be in the $93 million range. Q3 2025 cash taxes are expected to be in the $35 million to $40 million range. And in Q3 '25, cash distributions from the Food Network are expected to be in the low to mid-single-digit million dollar range, and payments for programming are expected to be in excess of amortization by about $25 million due primarily to the prepayment of future programming payments and payment of deferred programming. Turning to capital allocation and our balance sheet. Together with the cash from operations generated in the quarter and cash on hand, we returned $106 million to shareholders comprised of $56 million in dividends and the repurchase of $50 million of stock at an average price of $159.71 per share, reducing our shares outstanding. During the quarter, we completed the refinancing of our revolver, Term Loan A and Term Loan B and Mission completed the refinancing of its revolver. In connection with the refinancing, we extended our maturities on our revolvers and Term Loan A to June 2030 and extend the maturity on our Term Loan B to June 2032. In addition, we increased the size of our revolver to $750 million and eliminated the 10 to 11 basis point credit spread adjustment across all the facilities we refinanced. In addition, we converted our covenant calculation to reflect a last 8 quarters annualized EBITDA calculation for the denominator to better align with broadcast industry practice and better reflect our leverage across an election year where we generate additional political advertising revenue and a nonelection year when we do not. We closed the refinancing on June 27, and Nexstar's outstanding debt at June 30, 2025, was $6.4 billion, a reduction of $101 million for the quarter as we made optional repayments on our debt balances. Our cash balance at quarter end was $234 million, including $23 million of cash related to the CW. Because we designated the CW as an unrestricted subsidiary, the losses associated with the CW are not included in our calculation of leverage for purposes of our credit agreement. As such, our net first lien covenant ratio for Nexstar at June 30, 2025, which is now calculated on the last 8 quarter annualized basis was 1.81x, which is well below our first lien and only covenant of 4.25x. Total net leverage for Nexstar was 3.9x at quarter end. These leverage statistics are calculated pursuant to the description in our credit agreement. With that, I will open up the call for questions. Operator, can you go to our first question.

[Operator Instructions] Our first question comes from the line of Dan Kurnos with the Benchmark Company.

Obviously, nice print, guys. Perry, just any quick thoughts on Chairman Carr continuing to write letters to the networks? And if there might be any changes coming in the way the affiliate relationships are handled? And then from an M&A perspective, how do you think about the in-market opportunity versus cap expansion if the cap does get raised? You've obviously got JSAs to go after. You have a very enviable balance sheet position. So if there's any way to frame broadly sort of what you might be looking at or any size parameters to consider that would be super helpful.

We'll start working backwards on that. I would say that as far as acquisition opportunity, growing our national footprint probably has more strategic importance to the company than simply doubling in markets where we had a single station, which is -- we're already kind of doubled up in about half of our markets. But again, what will govern our M&A activity is what has always governed what is the highest and best use of our cash and balance sheet in the interest of growing shareholder value. And so I don't know that I can make a blanket statement about that. I think that from our perspective, there are a number of conversations going on. And I would say just broadly that everybody is talking to everybody. Out of that, we hope to find a love connection that would allow us to create shareholder value well beyond what would be created by simply buying back our own stock. So that's kind of a broad brush of the M&A landscape. Obviously, with the balance sheet, we would be willing to increase our leverage profile slightly for the right acquisition. And then leveraging the free cash flow of the target, I mean, you can do your own math to determine what the upside of those could be. As it relates to Chairman Carr and sending letters to the networks, from our perspective, that's at this point between Chairman Carr and the networks. And we obviously have a -- we'll have a vested interest in the outcome. But I think that the administration and Chairman Carr wants to make sure that the relationships are in some semblance of balance. It's a symbiotic relationship. The networks need us to distribute their programming and their advertising. We rely on the networks for programming. Although to the extent that network by network, one of the things we buy from the network is exclusivity in addition to the programming, to the extent that programming is less and less exclusive, it is less and less valuable to us. So we'll make our case with the networks in private negotiations. And I think it's certainly proper for Chairman Carr to take a look at the relationship and determine if things are in balance or if things have swung too far one way or the other, and we certainly applaud him for asking the questions.

Our next question comes from the line of Jason Bazinet with Citi.

I just ask a 2-parter on M&A, if that's okay. Point number one is would you say it's important to you to increase your O&Os in the CW as you think through M&A scenarios? Or is that sort of something that you can continue to do organically as you've been doing since you've got control of the CW? And my second one is, do you mind -- I think you've indicated on the last call that you don't feel like you need all of these rules to be solidified before you might announce a transaction. And do you mind just elaborating on what ends up happening if you have a transaction that's announced and let's say, a broadcaster or a pay TV firm challenges, whatever the FCC decides in court? Like how -- it seems very complicated to me. So anything you can add would be helpful.

Sure. As it relates to the rules and regulations has promulgated currently by the FCC, I mean there are waiver processes in place to get the waiver to own 2 of the Top-Four rated stations in the marketplace. So perhaps what I was referring to, that rule doesn't have to change for those kinds of transactions to happen, and you see some folks have proposed transactions like that, that will go through the regulatory process. I think it's important to understand that the FCC has a regulatory process, when you file an application and then it gets put on public notice. People can comment and then the reply comments and the FCC will do its work. And so that all takes time. And I think what I was referring to is other things can happen during that time as well. for example, just the FCC could choose to rule on this refresh the record proceeding and could choose to based on the Eighth Circuit ruling, choose to make changes, or at least develop a proceeding that could lead to changes in the end market regulations. So nothing happens in a vacuum. And any transaction we propose would provide regulatory remedies under the current rules, but realizing those rules could change and some of those former regulations could become moot during the pendency of a transaction. So I think that all of that would have to be taken into account by the parties and the counterparties before going down that road, but we think it's entirely possible that 2 things can happen at the same time.

That makes sense. And on the CW O&Os. Is that a strategic priority?

Well, listen, it is a positive outcome to certain M&A activity if we can increase the footprint of our owned stations at the CW. Obviously, that provides a financial benefit to the CW, but also to the local station that may or may not be earning distribution revenue at the level that we earn for our CW stations. So it is not the #1 strategic priority, but it is certainly something we look at when looking at transactions. And if that is a byproduct, it tends to benefit the company more than one way.

Our next question comes from the line of Steven Cahall with Wells Fargo.

So on the CW, you talked about, I think, 40% of time is now aired with sports. I was wondering what additional sports opportunities you see out there in terms of leagues or parts of leagues that you think can continue to grow that, assuming that, that is, in fact, the strategy of the CW to continue to add more sports as a percentage. And then the second question, I was just wondering if you could go a little bit deeper on the ad market. So it sounds like things are performing about as expected, maybe even a little bit better. I was wondering if you could talk about maybe how much digital is growing? And then any trends between what you're seeing at local stations versus your national revenue, which I think is a little bit bigger for you than it is for a lot of your peers.

I will speak to the second part of that question, Steven, and then ask Michael to speak to the first part. But the bright spot in our ad support in the second quarter was at the national network level, and part of that is NewsNation being the #1 basic cable network for year-over-year growth in the month of -- as of the month in June and the CW moving into the eighth ranked network in terms of total audience for the first half of 2025. So dollars are following the eyeballs, which are leading to increased revenues at the -- at our National Networks business. So that certainly is a positive performing better than our internal expectations in the quarter and certainly year-to-date. And Michael, I'll turn it over to you to respond more to the sports question.

Yes, it's a good segue. I mean part of what we're seeing in the performance of the CW is driven by the addition of sports. We now have a little bit of a track record under our belt. Certainly, the advertising community is responding to the consistent ratings that we've delivered. I talked about in my opening remarks, the consistent performance year-on-year that we've seen, particularly at Xfinity, I think were 20-plus races into the year. We've seen consistent week after week growth. Certainly, the industry was responding to it. If you look at motorsports as a whole, the industry is starting to talk about the Xfinity performance and particularly the smart decision that NASCAR made to vest its rights with CW for the long term. So I think in terms of looking forward, yes, there are other opportunities out there, and we absolutely are interested in pursuing them. I think if you look broadly at categories, college sports is one that we're interested in. We certainly had some success with the ACC and the Pac-12. We have ongoing discussions with some others in that space right but nothing I can announce today.

Our next question comes from the line of Benjamin Soff with Deutsche Bank.

I wanted to first ask about virtual MVPDs. It sounds like this is one area the FCC could look into. So can you remind us where the economics for these services stand today compared to the traditional ecosystem? And what's your level of optimism these rules could get changed? And then there's some new sports-centric streaming services launching soon. I'm curious if you think these products might impact the broader pay TV ecosystem or not?

Maybe I'll just start with just on the economics in terms of -- I think your question was just around the vMVPDs versus the MVPDs. Those are really sort of the same -- no change in terms of what we've been talking about historically there. Obviously, MVPDs, we have the ability to negotiate directly so we get paid on a gross basis. The virtual MVPDs, we are -- we work through the networks and we get paid on a net basis. And we're looking to kind of grow both revenue streams over time as we renegotiate these contracts. I'll turn it to Mike to talk about some of the stuff that was launched recently or is going to be launched.

Yes, I think it's going to be launched later this month. I think the question is really around FOX One and the ESPN D2C app. I think the headline is we're optimistic they will be neutral and potentially a net positive for the pay TV business. And I'll start with the fact that both companies, both Disney and FOX remain highly invested in the success of pay TV and they've both been expressed about intentionally designing their respective D2C products and business models and make them complementary to pay TV rather than cannibalistic. And that fact is pretty clear on the pricing of each which is respectful of their wholesale pricing with pay TV distributors. Specifically at $50 combined for FOX and ESPN, most folks would agree that pay TV is an attractive alternative given the relatively modest incremental cost for a significantly more robust set of programming, especially sports. And by the way, a good chunk of that incremental programming is owned by Disney, who will have a broad slate of networks not available through ESPN, right, Disney Network, FX, Nat Geo, for instance. FOX's product will be a little different in that regard, but they've been clear about their intentions repeatedly saying that their product is narrowly targeted at the cordless audience. Further, both have bundled these products with their pay TV deals, making them an added feature for pay TV subs. And that model goes back to the Disney Charter deal in the fall of '23. And at the time, you may recall, we were on record that we believe that would ultimately be a good thing for the health and viability of pay TV, including our business. And as I mentioned in my prepared remarks, Charter's pursuit of that model seems to be proving that out in the positive video sub trends that we've seen. Incidentally, I see Disney deal with the NFL as a further investment in pay TV, given that they did not acquire ownership of or the digital rights to Red

Our next question comes from the line of Craig Huber with Huber Research Partners.

Perry, I wanted to ask you if you could, what is your updated thoughts on the business environment, the economic environment here in the U.S.? How are you feeling about that right now, say, where your head was at coming into this calendar year? And then, Lee Ann, I do want to ask you, just some housekeeping questions. Maybe I missed this, what were the CW losses in the quarter? Were they materially different than I think you had about $41 million loss a year ago? And do you still think you're on track to have CW losses for the year down about 25%?

Maybe I'll just take that one -- that one first. We did -- in Mike's comments, you did talk about the CW losses in the quarter were better by about $21 million. We do still expect to improve the total losses by about 25% over the course of the year and achieve profitability sometime in '26.

I would say, Craig in terms of the ad environment, in terms of our forecast for the year and our internal budgeting and metrics, I think it's performing about as expected. There are puts and takes, as you can imagine. As we look at our forward pace, we're pleased at the forecast, and we certainly don't see any denigration in our forward-looking pace numbers versus what we've delivered in the first half of the year. Obviously, the back half of the year has a lot more political revenue impact which means more crowd out, which means more inventory available back for general market advertising. So that's something we experienced in the back half of every odd year. But at this point, we have -- things are unfolding, we think, pretty much as expected. And everybody keeps waiting for the shoe to drop. And quite frankly, we haven't seen it. We think that the ad trends and the economy are what they are. And I think tariff uncertainty may lead to uncertainty, but it hasn't led to a freezing up of people's either spending or intentions to spend. And I take all of that at this point in time as a net positive.

Our next question comes from the line of Alan Gould with Loop Capital Markets.

I've got 2, please. First, can you give us a comment on the pacings or what you're seeing the trends in digital advertising? And secondly, any surprise in the comment letters in the refresh proceeding? And what are the next steps? I think there's refined comments? And then what has to happen next before the FCC could make some changes?

Maybe I'll just take the first on digital. Digital continues to be an area of focus for us and an area of strength in terms of growth. We're seeing that grow overall kind of the mid-single digits and then at a higher rate at our local business. So that's digital.

In the refresh proceeding, obviously, our comments, we feel stand for themselves. I think in terms of everything else that I've read thus far and I haven't read all of them, I think everybody is pretty much talking their own book. I was -- I won't say I was shocked to see that pay TV industry does not want to see the national ownership cap go away. That's been their predictable response to any deregulation in our space for quite some time now. So I think at this point, the comment period has ended. There'll be a reply comment deadline later this month. I believe it's August 22. And at that point, it will go under advisement to the Chairman and his staff and others at the commission, and we'll see what comes a bit after that point. But I certainly think that the Chairman initiating the refresh proceeding in the case he feels there are lots of rules on the books, some of which have nothing to do with us. Some things have to do with telegraph regulations that are still on the books. And I think that his goal is to eliminate unnecessary regulation, whether it affects the telegraph industry or the broadcast industry. And we applaud that effort to do that, and we want to participate via our comments and suggestions as part of that process. But as to the timing of an outcome, I really can't predict that. That is up to the Chairman and his staff.

Our next question comes from the line of Patrick Sholl with Barrington Research.

I just had a couple more questions just on the ad market. Just as you've been adding sports programming to CW, could you just talk about like where your ad rates stand relative to some of your broadcast peers that you're getting much higher up in terms of like the viewership level for CW?

Yes, sure. I think we have a pretty good handle in the marketplace for like-to-like programming. So we know what Xfinity NASCAR rates were last year. We feel good about that. We've actually seen pretty sizable growth in rates year-on-year. So both volume and rates. Same with the college sports. So each category sort of has its own marketplace with pretty good handle on that, as I said, and we feel we're doing on par or better really in each case.

Okay. And just on the -- in terms of like the broader ad market, I guess you addressed this a little bit, but can you just maybe talk about like just within the categories, how -- if there's been any sort of adjustment in how they've been shifting their spending between Q2 and Q3. I know you provided like the overall trajectory for your overall pacing for Q3. Just kind of a little bit more detail on some of the dynamics there.

Yes. I would say not from a category perspective, there's not a whole heck of a lot of difference in terms of what we -- in terms of the categories that are up and the categories that are down. We continue to see strength in attorneys and home repair and manufacturing. Those continue to be good performers for us. And then on the negative side, we continue to see auto be a problem area for us on that end. So I think there's not like a -- there's various things that come in and come out, but like nothing worth noting.

Our final question this morning comes from the line of Khadir Richie with Richie Capital Group.

Okay. I just had a quick one. Given the potential for the opportunities on the M&A on the horizon and the success you had in the past, does the attractiveness of these potential opportunities? Has it led to any internal adjustments of the previously announced time lines for leadership transition?

I'm not sure. Are you speaking about me?

Yes. Yes. Just -- if the attractiveness of any kind of consolidation has led you to rethink your planned retirement.

I had no plans to retire. I'm not going anywhere anytime soon. And typically, in terms of any announcement regarding an employment agreement, that comes toward the end of the current employment agreement. And they're -- quite honestly a lot of things going on here right now, and that's not at the top of the list yet. But I don't think you have to worry too about my engagement here, being the third largest shareholder, I am very engaged every day, all day and have vested interest in the outcome of everything we do.

Okay. Great. I appreciate that. I must have misunderstood some comments from a call about a year ago.

Ladies and gentlemen, this concludes our question-and-answer session. I'll turn the floor back to Mr. Sook for any final comments.

Thank you very much, operator, and thank you all for joining us here today. We appreciate your time, and we look forward to reporting on our third quarter results in early November. And with that, we will bid you a good day, and we will ask you all to disconnect. Thank you very much. Bye now.