Good day and welcome to the Nexstar Media Group 2019 First Quarter Earnings Call. Today's call is being recorded. I would now like to turn the conference over to Mr. Joe Jaffoni. Please go ahead, sir..

Thank you, Mike, and welcome everyone for joining the Nexstar Media Group 2019 first quarter conference call. Statements or comments made by management during this conference call may include forward-looking statements. Nexstar has based these forward-looking statements on its current expectations and projections about future events.

Forward-looking statements include information preceded by, followed by, or that include the words guidance, believes, expects, anticipates, could or similar expressions. For these statements, Nexstar claims the protection of the Safe Harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

The forward-looking statements contained in today's call, concerning among other things, the ultimate outcome and benefits of the announced transaction between Nexstar and Tribune Media and timing thereof and future financial performance, including changes in net revenue, cash flow and operating expenses, involve risks and uncertainties and are subject to change based on various important factors including the timing of and any potential delay in consummating the proposed transaction; the risk that a condition to closing of the proposed transaction may not be satisfied and that the transaction may not close; the risk that a regulatory approval that may be required for the proposed transaction is delayed, is not obtained or is obtained subject to conditions that are not anticipated; the impact of changes in national and regional economies, Nexstar's ability to service and refinance the outstanding debt, successful integration of the Tribune Media, including achievement of synergies and cost reductions, pricing fluctuations in local and national advertising, future regulatory actions and conditions on the television stations' operating areas, competition from others and the broadcast television markets served by Nexstar, volatility in programming costs, the effects of government regulation of broadcasting industry consolidation, technological developments and major world news events.

Unless required by law, Nexstar undertakes no obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in today's communication may not occur.

You should not place undue reliance on these forward-looking statements which speak only as of the date of today's call. For more details on factors that could affect these expectations, please see Nexstar's filings with the Securities and Exchange Commission. Well, thank you for your patience with that.

And now, it's my pleasure to turn the conference call over to your host, Nexstar Chairman, President and Chief Executive Officer, Perry Sook. Perry, please go ahead..

Thank you, Joe, and good morning, everyone. Thank you all for joining us today to review Nexstar's record 2019 first quarter operating results. Today, we'll review the quarter's progress and our outlook as well as other ongoing initiatives to drive free cash flow growth and shareholder returns in 2019 and beyond.

Most notably, the progress we've made toward completing the Tribune Media transaction, our ongoing vigilance in reducing leverage and the upside on this front related to the announced divestiture transactions. As always, our Chief Financial Officer, Tom Carter, is here with me this morning.

Before we start, I want to acknowledge my colleagues and our local news teams who worked tirelessly and passionately in pursuit of the highest ideals of their profession to provide credible, trustworthy news, and tremendous and sometimes lifesaving public service to our local communities in the 100 markets we serve across the country.

Their work was recently highlighted as they were bestowed a Walter Cronkite Award and a host of regional Edward R. Murrow Awards with our local news operations garnering 27 awards, including four for overall excellence.

Many of our award-winning entries highlighted the critical local news coverage and essential services provided by Nexstar stations, which ensure the safety of our local communities in times of emergency.

We're extraordinarily proud of our strong standings in our local communities where we operate, and I congratulate our colleagues that were honored and all of our more than 3,500 local journalists who are dedicated to delivering the highest-quality local programming and service while also giving back to our neighbors and the communities where we operate.

On to the results. 2019 is off to an excellent start for Nexstar and it highlights our expanded scale, ongoing diversification and commitment to localism, innovation and growth as we capitalize on the many opportunities to serve our local market viewers and our local market businesses.

Our record first quarter 2019 free cash flow reflects another period of operating growth and momentum, and also represents the start of an exciting year for Nexstar as we balance our focus on current operations, including preparations for the 2020 election cycle, and the significant level of retransmission consent renewals this year with the expected completion of the highly accretive Tribune Media transaction later this year.

We generated record first quarter net revenue despite the absence of non-recurring political and Olympic revenue, which led to first quarter operating income, net income and BCF, as well as adjusted EBITDA and free cash flow of $5.4 million of one-time transaction expenses.

For the quarter, we delivered about 20% of every net revenue dollar to the free cash flow line, which enabled us to generate free cash flow of $125.8 million or about $2.75 per share in Q1 of 2019 compared to $1.23 in Q1 of 2017, the prior non-political period.

So, in just two years, we've grown that important metric by over 120%, which has allowed us to invest in our people, our local media platform, and in complementary accretive acquisitions, while at the same time reducing net debt and returning capital to our shareholders.

In addition to our solid operating performance, during the first quarter and in early April, we announced three divesture transactions which addressed our commitment+ to comprehensive regulatory compliance while also moving us closer to completing the strategic and financially compelling Tribune Media transaction.

In the aggregate and concurrent with the closing of the Tribune transactions later this year, we will divest a total of 21 stations in 16 markets for gross proceeds of $1.36 billion. Total gross proceeds from the proposed station divestitures exceeds our initial projections by approximately 36%.

While the cash flow to be divested, inclusive of elimination of certain synergies, is less than those in our first projections.

These developments serve to reinforce our confidence that the Tribune transaction will result in approximately 46% growth in Nexstar's average annual free cash flow in the 2018/2019 cycle, I should say, to approximately $900 million or equivalent of $19.50 per share.

I'll now walk through the quarterly highlights, after which Tom will go through the numbers, indicating an update on our capital structure, 2019 expectations and other items of interest for those of you here on our call.

Again, Nexstar's record first quarter free cash flow before one-time expenses highlights our growth and our diversification and our ability to offset non-political, non-Olympic years, as we continue to grow retrans revenue and build new-to-television ad revenue.

In total, first quarter revenue rose by 1.8%, as television advertising revenue, excluding political advertising, declined by $8.5 million or 3.3%, reflecting the over $20 million of net Winter Olympics revenue recorded in the comparable 2018 period.

As we previewed with the pacings on our Q4 call, excluding political, Q1 TV ad spend increased by low-single-digits on a percentage basis in January and March, partially offset by a high-single-digit decline in February related to that absence of political - of Olympic ad spending.

In Q1 of 2019, five of our top 10 categories were flat to up and overall core revenue continues to reflect healthy levels of new business with our Q1 new-to-television ad revenue equaling $14.5 million, which was 5% over the prior year. Combined first quarter digital media and retransmission fee revenue collectively were $366.8 million.

That was a rise of 8.3% over the prior-year period and accounted for 58.5% of net revenue compared to 55.1% of net revenue in the first quarter of 2018, illustrating again the positive and ongoing shift in our revenue mix.

First quarter retransmission fee revenue increased by $38 million or 13.8% over the prior-year period, reflecting recent renewals of distribution agreements with MVPDs and growing contributions from the OTT distribution agreements.

At $314 million in the quarter, retransmission fee revenue reached the highest ever quarterly level in the company's history, and we expect our long-term distribution revenue growth to continue at a double-digit pace. We continue to see consistency in our pay-TV sublevels in our markets with continued growth in OTT SaaS.

Retransmission consent agreements representing approximately 10% of our subscriber base were renewed in late 2018 with more than 70% to be renewed by 2019 year-end continued growth from this source of revenue remains highly visible for us for 2019 and beyond.

As noted in our Tribune acquisition presentation from last December, once we complete the transaction, the Tribune stations are immediately party to our new distribution agreements and our rates and terms will account for approximately $75 million of the targeted $160 million of synergies we outlined at the time we announced the transaction.

Digital revenue declined by approximately $10 million due to over $1 million of Winter Olympic digital revenue recorded in the comparable 2018 period and our continued focus on pursuing only profitable digital revenue opportunities going forward.

Moving on now with a few additional updates on the Tribune transaction, which remains on track to our timeline to close in the third quarter. As I mentioned earlier, the $1.36 billion of gross proceeds from the announced station divestures was in excess of our initial estimate of $1 billion.

In addition, the blended multiple for all the stations to be invested amounts to about 10.6 times aggregate two-year average broadcast cash flow multiple of these stations.

As a result, our borrowings and leverage will be lower than anticipated at closing and we now estimate that our net leverage at closing the transaction will be reduced to approximately 5.1 times from our initial expectation of 5.3. In March, Tribune Media stockholders overwhelmingly voted to approve the transaction.

And in April, the Federal Trade Commission and DOJ approved Nexstar's divestiture of the scripts from a standpoint of the transaction compliance with the national ownership cap. And in late April, the divesture applications were all put on public notice with the public comment period for these applications ending on May, the 2h.

Nexstar has committed financing for the transaction, has made all required FCC and other regulatory applications, and we're now awaiting FCC approval, DOJ, as well as HSR approvals. Understandably, we have very high expectations for the value that the Tribune transaction brings the Nexstar shareholders.

Since 2011, Nexstar has completed a number of accretive transactions which have increased our scale and diversified our portfolio.

Our proven ability to significantly expand free cash flow through acquisitions, integration, and disciplined operating practices is reflected by Nexstar's financial growth over this period as net revenues grew from $306.5 million in 2011 to $2.8 billion in 2018, while free cash flow rose from $34.2 million in 2011 to $693 million in that same time period ending in 2018.

The Tribune transaction is a perfect match with all of our M&A criterion as it marks further progress towards our goal of improving our competitive position by strategically expanding our operating base to realize the benefits of scale, increase our strategic and financial flexibility, all driving shareholder value.

With our experienced management team, our operating discipline and our focused approach to managing our capital structure and cost of capital, we believe the Tribune acquisition will present another meaningful opportunity for Nexstar and its shareholders to grow value.

Notably, after giving effect to the transaction, the incurrence of debt, the transaction expenses, the expected first year synergy and the divestiture proceeds, we see a clear path to rapid deleveraging with the free cash flow generated from our soon-to-be expanded base of operations.

We continue to expect Nexstar's leverage to decline to approximately 4 times by the end of 2020.

In the first quarter, we completed visits to every Tribune Media operating location, a practice which has proven over our 23 years in business and many acquisitions to ensure that we integrate quickly and deliver operating and financial results that meet and usually exceed the expectations we provide at the time the deal was announced.

As we've said before, with a significant and growing free cash flow and the upcoming closing the Tribune transaction, Nexstar has excellent visibility to delivering on or exceeding our free cash flow targets in the current cycle and a clear path for the continued near and long-term enhancement of our shareholder value.

With all of that said, let me turn the call now over to Tom Carter for the financial review and update.

Tom?.

Thanks, Perry, and good morning, everyone. I'll start with a review of Nexstar's Q1 income statement and balance sheet data, after which I'll provide an update on our capital structure and some points of guidance. Total net revenue for Q1 of 2019 was $26.6 million, which represents a 1.8% increase over the same period of 2018.

TV ad revenue was down 6.1% to $253.2 million. The largest component of that decline was a political revenue decrease of $8 million from $9.3 million in Q1 of 2018 to $1.3 million in Q1 of 2019. Local and national revenue were down and combined approximately 3.3%.

During the quarter, as Perry mentioned, the largest driver of that was the lack of recurring Olympic revenue, which was in Q1 of 2018, as we saw the January and March results up low-single-digits on a same station - or on a same month basis within the quarter.

Retransmission fees were $314 million, which represents a 13.8% increase, and I'll just stop here for a second. Same station results don't vary significantly due to the relative immaterial nature of the acquisitions we made during the quarter. So, all of those statistics are roughly the same for reported results as well as same station.

The one difference is, retrans revenues were up 12.5% on a same station basis as opposed to 13.8% on a reported basis. Broadcast cash flow was basically flat, up 1.6% to $207.7 million and adjusted EBITDA was up 1% to $183.8 million prior to one-time expenses.

And as Perry mentioned before, free cash flow was $125.8 million prior to the one-time cash expenses. Excluding political, first quarter television advertising declined by $8.5 million or 3.3% as I mentioned before.

And again, the components of that were single-digit percentage basis increases in January and March, offset by a high-single-digit decline in February related to the 2018 Olympics.

First quarter non-television advertising revenue growth of 8.3% to $367 million reflects the 13.8% growth in retransmission fee revenue to $314 million, which was partially offset by a $10 million decline in digital revenue.

We're on pace with regard to our retransmission revenue expectations for the year and our subscriber levels also are consistent with our expectations due to continued strong vMVPD growth and new launches by vMVPD in some of our smaller markets.

As we previously stated in last quarter's call, we anticipate top-line growth in digital would be impacted in the near-term due to continued de-emphasis of non-profitable and marginally profitable lines of business.

The aforementioned marketplace changes and cyclical Winter Olympic net digital revenue recorded in prior years also impacted our growth in the first quarter. We expect improvement in our digital revenue growth in the second half of 2019.

As Perry mentioned, with retransmission consent agreements representing approximately 10% of our subscriber base renewed late last year and more than 70% to be renewed by year-end 2019, continued revenue growth from this source remains highly visible for 2019 and beyond.

First quarter station direct operating expenses net of trade expense increased approximately 5%, primarily reflecting budgeted increase in network affiliation expenses. Same-station fixed expenses, excluding those programming expenses, were down 0.3%.

The $4 million or a 3.4% decline in first quarter SG&A expense reflects the decrease in variable costs relating to additional political programming and sales that occurred in the first quarter of 2018.

First quarter corporate expense was in line with our expectations at $30.8 million, inclusive of $8.1 million of stock-based compensation and $5.4 million of one-time transaction costs related to the Tribune merger.

Excluding one-time transaction expenses and stock comp, recurring corporate expenses were essentially flat, which was in line with our guidance for the first quarter. Looking ahead to 2019 second quarter, we project recurring cash corporate overhead will be similar to Q1 levels, exclusive of stock comp and Tribune-related transaction costs.

Non-cash compensation is expected to approximately $9 million for the second quarter and $37 million for the year, reflecting the issuance of new equity incentive awards earlier this year. Cash transaction expenses, primarily professional fees that cannot be capitalized, are expected to approximately $5 million during the second quarter.

Turning to the balance sheet, I'll review the key items as of 03/31/2019.

Total net leverage at 03/31 was 3.57 times, which compares to 4.23 times at the end of Q4 2018 and the first-lien covenant level was 2.09 actual versus a covenant of 4.25, and that compares to 2.11 at the end of Q4 of 2018, so obviously gives us quite a bit of headroom relating to the leverage covenant.

Outstanding debt, net debt at the quarter end was $3.764 billion, inclusive of $129 million of cash. This amount compares to $3.84 billion at 12/31/2018 and $4.7 billion in January of 2017 when we closed the MEG transaction. Thus, in the first quarter, we reduced net debt by $71 million and funded debt by $92 million.

In addition, we quickly reduced debt - net debt by approximately $800 million since closing the Media General transaction through nine quarters of operation even though as - even as we've allocated capital to several other enhancement activities.

As it relates to funding our pending acquisition of Tribune Media, we intend to be opportunistic in tapping the markets and have $6.4 billion in committed financing initially provided by Bank of America Merrill Lynch, Credit Suisse and Deutsche Bank to fund the transactions' cash consideration.

Similar to our previous transaction, our intention is to have our pro forma capital structure reflect the proper balance of fixed and floating debt and an attractive weighted average cost of capital, prepayment and refinancing flexibility.

As Perry mentioned, during the first and second quarter, we entered into three agreements to sell a total of 21 stations in 16 markets for aggregate gross proceeds of $1.36 billion and we intend to use the net proceeds from the divestitures to fund the Tribune acquisition and to reduce debt.

At closing, which is anticipated in 3Q of '19, we expect our net leverage level of approximately 5.1 times compared to our prior estimate of 5.3 times.

Our net leverage ratio is based on LQA adjusted EBITDA after giving effect to the transaction, the occurrence of debt, transaction expenses and anticipated first year synergies of $160 million as well as the net divestiture proceeds amount.

With the free cash flow generated from this base of operations, we continue to expect Nexstar's net leverage to decline to approximately 4 times by the end of 2020.

We remain committed to applying our growing free cash flow to take further action to enhance shareholder value through our return of capital and leverage reduction initiatives, which in total amounted to $112 million in the first quarter, including approximately $21 million in dividend payments and the aforementioned $92 million in funded debt reduction.

Subsequent to quarter end, we have paid another $42 million on our term loan balance in April. First quarter interest expense amounted to $53 million compared to $55 million in the prior year, while cash interest was $51 million compared to $52 million in Q1 of '18. We expect cash interest expense to amount to approximately $50 million in 2Q of '19.

In Q1 of 2019, we paid operating cash taxes of only $1.8 million compared to a refund of $1.2 million of cash taxes in the prior year. We continue to expect cash operating taxes to amount to approximately $150 million for the full year of 2019, with approximately $44 million in cash tax payments in Q2.

Nexstar's CapEx for the quarter totaled $28 million, of which $13.2 million was related to station infrastructure investments, our platform, programming and digital operations, with the remaining $14.7 million for station repack and relinquishment of spectrum cost, which are fully reimbursable.

We expect second quarter CapEx for station operations to approximate $17 million, with an additional amount for repack CapEx. Free cash flow of $125.8 million, inclusive of the impact of $5.4 million of one-time transaction expenses.

And this compares to the consensus estimate of approximately $103 million, and we reiterate our guidance for the annual free cash flow in the 2018/2019 cycle of approximately $615 or $13.40 per share on a Nexstar stand-alone basis.

As it relates to management's focus on free cash flow generation, our positive outlook on Nexstar will continue to follow the approach we've successfully deployed in terms of building the top line, maintaining close control of fixed and variable costs and optimizing the balance sheet and capital structure.

This plan will continue to support our goals of generating significant free cash flow by allowing us to reduce leverage, pursue additional selective accretive acquisitions, pay dividend, repurchase shares and take other actions that can enhance shareholder value.

As Perry noted, we expect the Tribune transaction to result in approximately $900 million of average annual free cash flow in the '18/'19 cycle or $19.50 per share per year, representing growth of approximately 46% compared to the guide of $615 million of Nexstar's legacy operations.

We'll remind you that we do not intend to update our specific free cash flow guidance until we finalize all of the elements of the Tribune financing, which will happen later this year and have completed our full diligence. We look forward to reporting back to you later this year as we finalize these items.

In summary, Nexstar is executing well across all functions, including operations, integrations, synergy realization, our capital structure, and service to our local communities. Our disciplines in these areas have driven significant growth as well as consistency and visibility to our results.

With our financial results and the value we expect to derive from our pending accretive acquisition with Tribune Media, we continue to believe we have forged a clear path for continued near and long-term enhancement of shareholder value. That concludes the financial review for the call.

I'll now turn it back over to Perry for some closing remarks before Q&A..

Thanks very much, Tom. Looking ahead with the FCC support for the voluntary adoption of the new ATSC 3.0 standards for innovative next-gen TV services, the opportunity for increased advertising automation and our pending transaction with Tribune Media, I'm more than excited for what the future holds for our company and the overall industry.

The Tribune Media transaction represents a strategic and financially compelling growth opportunity for Nexstar and our shareholders and that will also further expand our geographic diversity and our audience reach.

Upon closing, Nexstar will be the largest local television group in the United States with a portfolio of 197 full power owned or operated television stations as well as one radio station in 115 markets. This is all pro forma for the required divestitures.

With nearly double the pro forma average annual revenue and adjusted EBITDA and approximately 46% growth in Nextar's pro forma average annual free cash flow in the 2018 and 2019 cycle to the number aforementioned of $900 million per year, this combined entity will be ideally positioned to compete in today's rapidly transforming industry landscape, while extending our long-term record of delivering greater levels of service to our local communities and increased returns for our shareholders.

As we begin to benefit from the initial contributions from Tribune later this year and the continued double-digit growth of combined retransmission and digital revenue, as well as a large number of distribution contract renewals at 2019 year-end, and what we all believe to be a substantial and possibly unprecedented spending levels for the 2020 presidential election cycle, collectively we have excellent visibility to delivering on our free cash flow targets, and in fact exceeding them, and a clear path for the continued near and long-term enhancement of shareholder value to our commitment to localism, innovation and growth.

With that, thank you for joining us on our call today. And now, let's open the call to Q&A to address your specific areas of interest.

Operator?.

[Operator Instructions] And our first question comes from Zack Silver with B. Riley FBR..

Perry, you got some interesting remarks at the Media Institute last month, some of the discussion around ATSC 3.0. And wondering if you could help provide some more detail on your thinking about revenue opportunities with that technology recognizing that it's early days still, but that would be helpful..

Sure. We are very much in the kind of crawl walk run stage as it relates to the transition to ATSC 3.0. We had a meeting internally in addition to our work in Phoenix. We're hoping that we will be able to transition another four markets to the dual 3.0, 1.0 transmission serving those local markets by the end of the year.

And the industry, along with Spectrum Co. and Pearl, have a more ambitious transition plan of approximately 40 markets by the end of next year. And obviously we have to build it before we can use it and have to have a fairly wide-spread platform, we think.

The things that we touched on in terms of potential revenue opportunities, there's obviously advanced advertising opportunities that we think will come to the fore.

We think that our 4G and wireless technology, if you will, of being the wireless interconnector of the Internet of Things could serve well in the autonomous auto industry whether it's navigation tools or providing video to the monitor and the back-of-the-head seat for the kids or other people in the car to watch.

And I could go on, but those are just some of the areas where we think we can add value by having this ubiquitous spectrum and the ability to connect one to many for data as well as additional video. We think conditional access could potentially play a part in the economic framework of all of this.

But as I said at the Media Institute, I said my belief is that perhaps the largest value creator of our ancillary use of our digital spectrum perhaps is something we haven't thought of yet. And I think in that goal, we have to build it.

They will come and my overwriting principle is, we're not going to try and sell something to the market, we're going to see what the market wants to use our spectrum for and we think that will ultimately create the highs and best use of that ancillary spectrum..

And then, one more, if I could. You've been getting a nice boost from new to TV local ad revenues, which I think is mostly coming from the legacy media general markets.

I'm wondering if you see that same opportunity with Tribute and if that is currently factored in to the combined company free cash flow guidance?.

It is not directly factored in but we do believe that there is an opportunity in each of the Tribune markets to increase our local focus, not only additional local programming but to increase our focus on developing new to television advertisers and additional direct business.

So, we think overlaying our playbook on the Tribune stations will lead to enhanced operating results beyond the operating synergies. I don't like to characterize synergies as things that could happen two, three, four, five years out.

To me that's just running the business well, but synergies for us are kind of what we can establish on the first tee at the date of closing but we see opportunities to increase local focus in each of the markets. We see opportunity to enhance operating efficiencies in each of the markets as well as WGNA and WGN Radio.

And I will tell you that, we're right now doing a deep dive into the financials and the budgets and the contracts post our initial site visits. And I would just say all in, I would expect that the $160 million in synergies will be guided up at the closing..

And our next question comes from Dan Kurnos with Benchmark Company..

Perry, no surprise that you guys continued to outperform on the distribution side, the retrans. Just curious, you guys gave a lot of color around subs, which was helpful. Obviously with the big step up and being able to negotiate Tribune in the back half of the year, it feels like - with Tribune, I should say.

It feels like we're all kind of undershooting on 2020. I mean I don't want to get ahead of our skis here. But just relative to what you're thinking about from both the growth and net perspective.

Do you have any kind of updated guide? Or at least high level thoughts on how 2020 looks?.

Well I think that - Dan, this is Tom. I think we feel very good about 2020. I mean we're just in the very early innings of the game, of looking at the renewals and the contracts and the puts and the takes as it relates to that. Both on a gross retrans and on a net retrans basis.

So, it's a little too early to tell, but clearly our results in Q1 exceeded our expectations. I think some of that really comes. We are seeing continued strong growth in the vMVPD category. Both from an organic growth perspective, with the exception of DirecTV Now, which took a half step back with their price increase.

But also due to continued launch of new markets by all the big MVPDs in our portfolio, which they were slow to move on over the course of the last 12 months. They're getting around to it now and we're seeing a take rate that's healthy from that perspective. So, the fundamental business, I think, remains very good for us, from a unit count.

And now, we're just trying to overlay on that. What's the art of the possible on a rate basis. And I think that still to come. But I think we'll stick with what we have until we have more definitive data..

Got it..

Dan, I would also remind you that Tribune brings a much higher quantum of CW affiliates, where we have a very high conversion margin of retrans gross to retrans net, if you want to keep score that way. So, I would say on the bias on an all-in basis you could probably bet the over at this point on a margin perspective..

That's super helpful and interesting commentary and kind of the down market, Tom. And then, Perry, just the kind of requisite question on core. Just any thoughts on pacings heading into Q2 and kind of category strength both in Q1 and Q2? Thanks..

Sure. Obviously we did a great job with the Olympics in 2018 in the first quarter, and that's somewhat colors our results on a comparable basis. But for the fact that we were down roughly 3%, obviously we recovered a lot of that $20-plus-million in ad revenue and $1 million-plus in digital revenue.

But as we said, if you extract February, we were up mid and I would say mid-plus single digits in January and March. March was better than January in terms of growth over the prior year.

And as we look at the second quarter schematically that mid-single growth on core continues and the only extraneous factor in Q2 of last year was obviously the political number grew more and displaced some inventory. But I would say that we would show better results on core in the second quarter than we did in the first.

I would say that our digital pace at the station level is better than it was in the first quarter. And - but we are still not going to be chasing unprofitable - I'm not going to try and buy revenue that is unprofitable to show top-line growth and give it back at a greater level than 100% on the bottom line.

And that's just a decision we made last year that will work its way through the system, and we do anticipate we'll be through that system probably by the time we turn to the back half of the year from a digital comp perspective, and you'll be able to see underlying growth on the revenue base that remains..

And our next question comes from David Joyce with Evercore..

Couple of questions on the regulatory front if you could please provide your thoughts about the DOJ workshop and then also where you think the FCC is on the quadrennial review and the national TV ownership cap? Thanks..

Sure well, I think most of read some of - read the press reports from the DOJ's workshops last week on market definition. I applaud the DOJ for acknowledging current realities and taking the step of having these workshops to get folks both from the digital and the television industries to testify around what the market truly is today.

So I think it was a very positive first step in what will probably be many steps for reconsidering those positions, but it was a good first step to address the marketplace realities as it relates to the competition that over the year television faces from not only digital, but other sources and so I think it was a good first step.

As it relates to the quadrennial review that is underway and we filed our comment, pardon me our comments last week. But as you may know, the national ownership cap specifically exempted from the quadrennial review process. So that is its own rule making proceeding.

We've obviously filed comments we said more on that recently in the last couple of weeks. But those are two separate proceedings. And again we are always hopeful that the FCC along with DOJ will continue to recognize that the current regulatory scheme is probably behind the times in terms of reflecting marketplace realities.

So, we will continue to lobby on that behalf and I'm hopeful that there will be change in the future..

Do you have any sense on the timing, any sort of update there?.

I really don't. I mean we, the quadrennial review obviously is an ongoing process. And we filed comments there will be a period to reply to those comments and all of that. When and if the FCC takes any action is totally under their purview. We're hopeful that they will, but obviously we have no insight into what they will do and when they will do it.

But particularly as it relates to the national ownership cap, that proceeding has been outstanding for a while and we hope that it would come to some sort of a conclusion at sometime this year..

Just a quick question on digital, is all that revenue generated from the liquid acquisition or do you have some of that activity outside of that asset?.

Yes, if you look at the reported digital revenue number it is made up of two basic components. One, is the revenue that we generate in our local markets on our local sites and that's about half the number. The other half of the number is what our digital subsidiary Nexstar Digital LLC generates from its various activities.

And so in the first quarter, we did see mid single-digit growth from our local site revenue and again that's up against the Olympic revenue of last year that was a 7-digit number on our local sites. So we will show growth over that.

I will tell you that in the second quarter we're pacing in the high single-digits make cross double-digits in the second quarter internally against our forecasts. And the Nexstar Digital piece again those are - that's digital programmatic video that's sponsored social post with Facebook and those kinds of things.

And obviously when you're dealing with Google and Facebook, they'll set the terms of the game, they'll set the rules of the game and sometimes they change those rules in midstream and some of that has happened here and we made a conscious decision that we're not going to go out and buy inventory to resell, buy inventory from publishers in the competitive marketplace and then resell that at a loss just for the sake of showing top line revenue growth but not - I read the financial statements from the bottom up.

So we made that decision about this time last year and it's working its way through the cycle and we will lap ourselves in the back half of this year.

And then I think you'll see the underlying growth of the revenue streams that we have chosen to stand behind and you did notice probably that we took an impairment charge in the fourth quarter related to the write-down of some of those unprofitable operations that we either inherited over and previously..

And just to put a finer point on it. On the Nexstar digital side, revenues are derived from a number of different lines of business, not just liquid. So it's our social media platform. It's our CMS system et cetera. So it's not - there are a number of contributors on the Nexstar digital side besides just liquid..

And our next question comes from Marci Ryvicker with Wolfe Research..

I just want to dig a little bit more in digital. What did you shut down and then I'm confused on your commentary, it will grow year-over-year, because you just lost $10 million in revenue.

So, maybe I'm confused as to how should the rest of the quarters look relative to that $52 million in Q1?.

Marci it's not - the part that's going to grow year-over-year is the local digital piece, the website piece.

The Nexstar digital piece will continue to show negative comps to the prior year definitely in Q2 and likely in Q3, we think that by the end of the year, Q4, hopefully it will return to a growth and clearly in 2020, it will have easier comps, but total digital revenue will not grow meaningfully for the rest of this year and it will continue to decline relative to 2018 results, show negative variances to 2018 results if that answers your question..

Yes.

And then can you talk about what you shut down? What was not possible?.

Sure, well, it's a number of names that you probably heard in the past. We shut down Federated Media, Dedicated media, Kickserv, Yashi we have pivoted hyphen to only profitable social growth and revenue association with Facebook.

But I would tell you that we now have a data science team that is going to generate a high-single digit revenue number against revenue that was a barely there a year ago. So we continue to evolve our digital portfolio and the revenue mix to meet the changing taste of the marketplace.

And again as I said there was a change of the rules that at Google kind of going into the first quarter that caused us to take a step back. We have now remedied that and we are now doing business with Google again. So I think you'll see sequential improvement in our digital revenues comp to the prior year.

But again we're not going to, for the sake of showing revenue growth, take a loss on that incremental revenue and that's just a decision I made to not chase unprofitable revenue and kind of build this portfolio for the long term.

We're also kind of changing our vision of what success looks like here when you look at putting Tribune and Nexstar together, not only from a linear perspective, but from a digital perspective and look at the size of that local media and information platform. It is a top comscore site in the country and also in the world, if it were a single website.

Now, can we develop an ad network that if you want do to homepage takeover that reaches, two-thirds of the country, we can do that now it be on a 130 different homepages, but can we deliver the same kind of effort.

With the added diversity of it being brand safe or purely local content and those are the things that Greg Raifman and his team are working on right now. And I'd much rather play the long game there then chase unprofitable revenue for quarter sake..

I agree, two clarifications for you Perry, it sounded like you said Q2 core maybe up mid singles.

So I just want to confirm that and the second thing is, in your prepared comments, I think I heard scripts got approval for the divestiture station from the DOJ and FTC, I just want to confirm that?.

The FTC approval and early termination of HSR in the Tribune acquisition related to these stations necessary for divestiture for the national ownership caps. So these were not overlap markets. So that was the piece that received early termination of HSR.

What is still an issue at the DOJ as DOJ now not FTC arms of the DOJ its DOJ is the overlap markets and they are, and have met with the divestiture buyers. Two of the three divestiture buyers have been in front of the DOJ recently.

So we think we could say that they are brand safe and known entities and the DOJ has said they need nothing further from either Nexstar or Tribune at this time, all of which we take as a positive sign as we move through the process and as from the SEC perspective as I mentioned, all the applications are on public notice, including the divestiture applications and that public comment period will end on May 27.

So potentially we could receive a grant at the end of June. I'm not attempting to bind the government to that, it's a big transaction. And they will take their time to make sure they are sure footed of their approvals.

But we at minimum still stand by our third quarter closing timeline and with the fact that that potentially could be slightly accelerated. Your question on core, if I said mid-single digits. That's kind of where we are currently pacing, we're not forecasting to finish, in the mid-single digits.

But we will see sequential improvement over the first quarter, I would say that would be more of a low single-digit growth over the prior year-on-quarter..

And our next question comes from Kyle Evans with Stephens..

Two part retrans question, Perry I think you mentioned double-digit retrans for the year.

Just want to clarify and make sure you meant at the net level and then on a related note, a lot of focus and commentary around the virtual MVPDs, what kind of visibility and escalators do you have on those subs given where those rates are negotiated in the way that money flows and I've got a follow..

Sure. With regard to the virtual MVPD is, we're still on a cash basis basically, so there's not a lot of visible into their sub counts yet. So we're not accruing that were recognized in the revenue as it comes in. So from that perspective, I think we're, we feel good about it and so real time exercise.

And just to be clear, we have not changed our guidance with regard to near-term double-digit growth in retrans revenue or if you want to think about it in net retrans contribution. I'll let Perry answer the question with regard to kind of the cadence of the virtual MVPD transaction and contracts..

It depends, Kyle, on the network and the virtual MVPD but a number of those agreements are up for re-pricing this year as well. And the initial offers from the network have been an increase, now we just negotiate the size of that increase.

So we continue to believe that the economics are going to be somewhere in the range of net dollars per subscriber to us will be roughly the same and obviously, we'll continue to negotiate with the networks who are providing the MVPD, the virtual MVPD agreements to us and it is our choice to opt-in or not.

And again, as Tom said a number of the, for example. DirecTV now and YouTube, Hulu PlayStation Vue, HBO have announced launching in more markets than they are currently launched in today and as they fulfill those commitments, we will benefit because we're in a lot of those markets that have been announced, but not launched as of today.

And as Tom said, we will find out in 30 or 60 or 90 days from now, what those launches mean in terms of incremental subscribers. But with that as the backdrop, our subscriber count over the last 12 months is absolutely exactly flat with the decline in traditional MVPD subs being up taken by the emergence of OTT sub.

So we're net at the same number where we were 12 months ago and against the backdrop of all of that and the puts and the takes, our retransmission revenue is up 13% here in the first quarter of 13.8% and we do project that we will have double-digit retrans revenue growth throughout the remainder of this year..

Could you give strategic kind of high level view of how you view the OTT and streaming markets, you've got three competitors that are kind of diving head first into that market with third-party ad networks and launching their own channels. Can you tell us what you have there today and kind of how you view that longer term. Thanks..

What we have in terms of OTT revenues?.

Yes..

Well, that currently is being fulfilled by our Digital division and it is an emerging and growing revenue source off of a very low base at this point in time, but we are competing in that space programmatically.

And it is a growing revenue stream for the digital division, small in the scheme of things but again, we do believe that there's opportunity there to continue to grow again using the programmatic capabilities that came with liquid..

I guess I'm asking, should we be expecting units to start a third-party ad network.

Would you be starting channels like your peers, or are you happy with what you have there today?.

Well I think that there are couple of things, first of all we. We have launched a direct to consumer product in San Francisco, we launched late last year. It's called [Cron-on], which is a 100% subscription revenues supported direct to consumer app with exclusive content. It is in its infancy.

But I can tell you that it is profitable in the early going And we continue to work with that product to broaden its appeal, and we think once we kind of have this figured out. I mean, our local news is our product that's the only thing we own, we rent everything else.

So any direct to consumer offering we have will be market-specific local, news, sports and weather specific, traffic specific and we look to rollout this client on, we charge 299 a month or 2999 for a year. Interesting the learnings we have it over half the subscribers we have right now signed up for a year, so they see value to the service.

But, but again we are in the top of the first inning of this ballgame.

In terms of our learnings internally and Tim Busch and his team along with Brett Jenkins, our CTO and Greg Raifman and his team are all collaborating on this product to see if there is an opportunity for us in the direct consumer space with exclusive local news and information offerings..

And our next question comes from Craig Huber with Huber Research Partners..

The first question on digital ad revenue.

Can you help us what percent of digital comes from the TV station suppose that the company level next level?.

It is roughly half of the total digital revenue comes from our local stations' sites that would be in our internal accounting and reporting classified as NBI revenue or an extra broadcasting digital revenue..

And if you could, that if you could switch over to costs, you sort of think your cost base for the last three quarters of this year. Put aside network compensation, how should we sort of model or think about the rest of your cost on a year-over-year basis..

Well, I think from a from an SG&A perspective similar to the first quarter, you're going to see that go down, simply because in 2018 we had larger some political expenses, not only from a sales perspective and a National Rep comp perspective, but also we did a number of specific local news, events focusing on political such as debates, et cetera, et cetera.

Additional half our programing around political events. So you will see SG&A moderate, continue to moderate over the year and then as I mentioned before, our fixed costs. We continue to drive that down wherever possible because you're exactly right.

We see continued growth in programing expenses, namely affiliate expenses and so we've got to keep a rein on all other controllable expenses. Knowing that that ones increasing at a significant, significant rate..

And then also on the court TV ad revenue number for the second quarter you said pacings, Perry is right now was up mid-single digits, you thought maybe more reasonable to expect up low-single-digits for the whole quarter. I want to make sure I have that right and also can you just speak about how auto specifically year-over-year in the first quarter.

How it's maybe trending you think in the second quarter. Thank you..

Yes, you are correct, knowing the cadence of the business and how outpacing evolves over the course of the quarter, we are pacing at kind of a mid-single digit level, but I'm not guiding that we will finish at that level. I think we'll finish slightly below that.

Just kind of the way business is written, business comes in throughout the quarter, as it relates to automotive ,automotive in the second quarter is will be better than the first quarter and first quarter results were better than fourth quarter in terms of comps to the prior year.

We're seeing growth from Chevrolet, General Motors, Subaru the only one that is down significantly as Dodge Chrysler Jeep that's been a recurring story and I'm sure you would hear that in your channel checks as well, but local dealer spending was about 36% of our category and that's a focus area for us in terms of generating growth.

Dealers are somewhat less profitable than they used to be.

So they're spending less on advertising, but we are focused on trying to sell where our picture local dealers as you don't need to buy five auto intenders sites because of duplication, buy one and put the rest of the money into the local TV, not only to build your brand, but create awareness for the auto intenders site that you are on.

In the second quarter, our Tier 3 our dealers are now pacing positive by up kind of a mid-single digit number. So overall, our automotive picture, we think is improving. It was about 23% of core revenue in the first quarter. So kind of hanging in at about the same level. So I hope that is responsive to your question.

If you're looking at overall product categories, attorneys were up, medical healthcare fast foods were basically flat, Cable was up, on repair was up, banking was up and then the categories that we're behind where, as we said, automotive, furniture paid programing and retail..

My last question, Perry. If I could ask. I just want to get a sense, given the market, you guys are going around the country. What's your sense of how the economy is doing out there. The local level, in your talk the people you're stations go visit them etcetera.

What's your sense with the governance of the economy is doing, but economists as is doing, what do you see out there?.

Well, I think we are in concert with the CNBC survey that was no released this morning saying that Main Street remains pretty bullish on the economy. I think of the folks that CNBC surveyed 60%,we expect their revenues to increase in the coming year and only 6% expected the revenues would go down.

I would tell you that, I think energy prices or maybe the one issue that affects businesses, if you're rolling trucks for plumbers, air conditioning repairment or whatever. And in fact auto purchases, but we have not seen any kind of a pinch of wages or inflation in any other way in our local marketplaces.

And I think the businesses that we talked to on a weekly basis or kind of - are kind of in this Goldilocks economy, the benefits of the tax, tax cuts of last year have probably at this point, just about LAP themselves and we are seeing continued GDP or nominal GDP growth in the single-digits.

I think people have made their peace with that and, but we don't see any, any storm clouds on the horizon, unless there were a particular spike in energy prices, which energy prices are up pretty handsomely over the last year. But I wouldn't characterize that as a spike. So the confidence level and Main Street, we think is pretty high.

And again, we talk probably the more auto dealers anybody else and just I'm looking at their trending and they're trending internally in terms of our pacing at the local retail level Tier 3 level is much improved over a year ago and even over two quarters ago going back to fourth quarter..

And our next question comes from Jim Goss with Barrington Research..

Perry, you made a comment in an interesting one earlier that about the gross to net CW, affiliate met spent there take you get. And I'm wondering if you have any sense, you could provide of how the Tribune stations you're acquiring Baird. In terms of add to revenue retrans mix, prior to the bump so get with being a part of your system..

Not really sure how to answer that James. I mean if you know, obviously we have their results. We have announced $75 million in retrans synergies and again a lot of that is coming from the CW and my network part of their portfolio. So obviously our results will be better than theirs, on a gross revenue and a net revenue basis.

But I'm really not sure that it's prudent to comment much beyond that. But again, as we've reiterated guidance not only free cash flow, retrans revenue, growth, retrans margin and I don't know. We can do much more than that and just say that we would reaffirm the guidance we've already given..

And then separate area, to the extent that you might continue to have an interest in M&A and unless there is a change in the ownership limits, your M&A would be focused on a continual refining of your station mix and in that context, are you, do you have, are you developing any biases in terms of wanting either more large stations versus small or certain geographic concentration or parts of the country Sunbelt or whatever that you have an interest in our network mix, that do you think you would be part of the determination of what sort of properties you'd be looking to acquire?.

I would say that it's driven by accretion of the acquisition. Obviously if you look at our portfolio today pre-Tribune, our revenue contributions, about 33% CBS about 27% NBC, Fox is about 11%. ABC is about 19% and the other 10% comes from CW, myNet and others.

So it's a pretty well diversified portfolio that mix will change some with a higher box contribution and higher CW minor contribution as a percent of the whole which will pushed down some of those other percentages with Tribune. And we're on 115 markets we're in more markets that we're not of the 210 in the country.

So we're pretty fully distributed by region and geography. But again, I think from our perspective, all money is green. And we'll go where the accretion is and the good deals are for our shareholders. And I think that we've been able to, to make almost any combination of stations work in terms of growth and accretion.

So we'll continue to run our same playbook on whatever opportunistic acquisitions we can make from this point going forward. And there is a real change that will create more opportunity for us..

And our next question comes from Clay Griffin with Deutsche Bank..

I could just follow up on the….

Clay, can you speak up please..

Sure. Can you hear me..

Just barely. Go ahead..

Okay.

Sorry, just wanted to clarify, I mean, I guess, the revenue benefit from the retrans as acquired clauses on the retrans agreement is pretty clear, but Perry, are you implying that there are also benefits on the affiliation side and to that extent that maybe at the CW and MyNet specific comment, but maybe if you could just comment broadly about when you step into those affiliation agreements on the stations that you're bringing in is, are you inheriting those as it is or are there elements to those affiliation agreements that changes well when you acquire those stations.

Thanks..

Clay. I'll take that one. We assume the agreement and stand in their shoes. The difference is twofold, one is the mix of stations that Tribune has which is much more heavily weighted towards CW and the higher margin because of that.

And then also given the legacy of Tribune with their recent M&A activity on the sell side, they did a number of short-term agreements with affiliates or with networks rather for their affiliations.

So a number of those come up, and we think that's when we'll get the first real benefit of the scale of the combined businesses because Nexstar will be renegotiating those affiliation agreements not Tribune. And so we think that that will allow us to maximize the net retrans margin for those new agreements. So it's really twofold, one is mix.

And then two is the sequence of the affiliation agreement maturities at Tribune, which we'll get to renegotiate and not have to fall back on Tribune's negotiation of those is that responsive?.

[Operator Instructions] And our next question comes from Davis Hebert with Wells Fargo Securities..

Just a quick question for Tom, you mentioned being opportunistic in the capital market the Tribune raise, would you anticipate also looking at expanding that opportunity set to include the 22 maturities..

Nothing is off the table..

Thank you very much for joining us today for our call this morning. We look forward to getting together in three months' time and reporting on our second quarter progress as well as progress towards the completion of the Tribune acquisition. So thank you very much for your time today. We'll talk to you again soon..

Thank you, ladies and gentlemen, this concludes today's teleconference. You may now disconnect..