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00:05 Good day, everyone and welcome to the Nexstar Media Group Fourth Quarter 2021 Results Conference Call. Today's call is being recorded. 00:15 And now at this time, I'd like to turn the call over to Joe Jaffoni of Investor Relations. Please go ahead..

00:22 Thank you, April, and good morning everyone. I'll just read the Safe Harbor language, and then we'll get right into the call and your questions.

All statements and comments made by management during today's 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 today's 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, 2021 as filed with the Securities and Exchange Commission, or the 10-K for the December 31, 2021 year which will be filed with the SEC on or about February 25, 2022 and Nexstar's subsequent filings, 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. 1:23 Thank you for your patience. With that, it's now my pleasure to turn the conference over to your host, Nexstar Chairman and Chief Executive Officer, Perry Sook. Perry, please go ahead..

01:32 Thank you, Joseph, and good morning everyone. Thank you very much for joining us today.

Nexstar's 2021 fourth quarter financial results mark the end of an outstanding year for the company as we achieved another record year with full year 2021 revenues exceeding what was also a record 2020, which as you will recall, included record political revenues.

In 2021 we grew revenues across each of core advertising, distribution and digital demonstrating the strength of our business and also the recovery of the ad market. Our fourth quarter and full year 2021 net revenue, adjusted EBITDA and free cash flow, all exceeded consensus expectations.

02:13 We are also pleased this morning to issue our guidance for average annual free cash flow for the 2022-2023 cycle of $1.4 billion annually, which again, will be a record amount of cash flow for Nexstar. Tom Carter, Nexstar's President and Chief Operating Officer; and Lee Ann Gliha, our Chief Financial Officer are also here with me this morning.

I'll start with a summary of recent highlights and developments, followed by Tom's operational review and Lee Ann's financial review, then we'll open for questions. 02:42 First, I'd like to comment that we're feeling good about the overall business environment.

So far in Q1 2022, our core advertising is pacing ahead of 2019 levels, which is a real testament to the strength of our business and the economy since our largest category auto, while recovering remained still somewhat challenged.

Q1 2022 has benefited from the Olympics and Super Bowl as we are the second largest NBC affiliate group, as well as early political impact spending in response to the upcoming Supreme Court nomination and other local and national political issues.

03:15 Local television advertising remains the gold standard for effective political campaigns because it has the biggest credible influence on voters. For 2022, we anticipate we will generate a record level of mid-term net political revenue eclipsing our pro forma 2018 midterm political revenue number of $383 million.

03:36 We also anticipate a recovery in the automotive category.

In addition, as Tom will cover later, we continue to see strength in the sports betting category with new states legalizing online sports betting, including New York, Connecticut and Louisiana and most recently, Illinois, which is expected to come online in March and we already have orders on the books.

03:57 Likewise, you can expect to see continued growth in our distribution revenue based on 2021 MVPD renewals and the annual escalators we have in all of our contracts. In 2022 we have contracts representing more than half of our subscribers up for renewal and repricing, which will benefit us in 2023.

In 2021, we significantly expanded programming at NewsNation, a 13 hours of original news programming per week day and we completed the accretive acquisition of The Hills digital political news platform bringing synergies across multiple of our business lines.

04:32 From a financial perspective, we are the only cable news network to launch profitably, while our audience for NewsNation is still modest, we are the fastest growing cable news network and advertisers are validating our strategy and NewsNation's unbiased content as we generate the same CPMs as our cable news network peers.

04:51 In the fourth quarter and throughout 2021, we continue to focus on leveraging Nexstar's industry leading scale and content platform to drive near and long-term growth, while creating value for our customers, shareholders and communities.

Over the course of the year Nexstar launched multicast network, Rewind TV, which together with Antenna TV, our other owned and operated network as well as our multicast services generate combined 8 figures of annual adjusted EBITDA.

05:19 In 2021 we deployed NEXTGEN TV in 17 markets, expanding our coverage to 29% of all US television households and we're on pace to launch additional stations to increase our reach to 50% of the US population by the end of this year.

Nexstar is among the nation's largest holders of spectrum and we believe our scale and national reach will be critically important to cultivating demand for its use. What we're most excited about are the myriad new revenue opportunities that our spectrum will represent.

05:51 Consistent with our capital allocation priorities and focus on enhancing shareholder value, in January, our Board of Directors increased Nexstar's quarterly cash dividend by 29% to $0.90 per share per quarter.

The double-digit increase in Nexstar's dividend for the ninth consecutive year, ongoing opportunistic share repurchases and our free cash flow growth will allow us to continue delivering industry-leading returns to our shareholders.

06:20 And of course, we will continue to pursue M&A opportunistically to drive shareholder value as we've done for our almost 26-year history. Our [Technical Difficulty] of saying at Nexstar, we'd like to read the financials from the bottoms up. We apply that ethos to pretty much everything that we do including our M&A.

06:38 In January, we released a new investor deck on our website, which I encourage you to review. The deck highlights the assets and scale of our business, the investment thesis for the company and how we plan to grow both in the short and long-term. Nexstar is a scaled business with a significantly larger footprint than other broadcasters.

We reach over 210 million people in the United States with our television signals and over 120 million monthly uniques with our digital assets making us the top 10 digital news and information property. We also have a differentiated free cash flow focused model which positions us well versus the larger diversified media interests.

07:16 For those of you looking to invest in Nexstar, we think this could not be a better time.

We have excellent 3 year visibility on the business with 2022 being a political year, 2023 benefiting from our expectation of increased retransmission revenue as more than half of our distribution agreements will be up for renewal towards the back half of 2022.

And in 2024 we have both the presidential election year, and we will also have the benefit of the increased revenue from 2023 distribution agreement renewals.

07:46 This solid expected financial performance will provide us with the financial flexibility to expand and pursue strategic organic growth initiatives, as well as accretive M&A, while supporting growing shareholder returns. 08:00 With all of that said, let me now turn the call over to Tom Carter for our operations review.

Tom?.

8:05 Thanks, Perry, and good morning, everyone.

We're extremely proud of the consistent growth of our operating results throughout the pandemic as well as the more than 12,000 members of the Nexstar Nation across the country who while serving their local communities have consistently demonstrated their ability to offset challenges putting Nexstar on a path for continued success and growth.

08:26 Operationally Nexstar's strong 2021 rebound continued in the fourth quarter.

Nexstar's net revenue of $1.25 billion top consensus expectations and excluding political advertising revenue, net revenue increased 13.8% over the 2020 fourth quarter, reflecting our success in delivering continued strong growth across all of our non-political revenue sources.

Core television advertising revenue quarter were $494 million increased 3.4% over the prior year's quarter as healthy demand from advertisers resulted in solid growth in 8 of Nexstar's top 10 advertising categories.

09:05 Q4 top gaining categories were entertainment, sports betting, medical healthcare, department stores and retail stores and telecom offset by continued declines in auto and insurance.

As we've done consistently for many quarters Nexstar's local sales initiatives continue to deliver healthy levels of new business with our sales teams generating new to television revenue of $37 million marking an increase of 33% over the prior year's quarter.

09:38 In comparison to pre-COVID market environment of 2019, Q4 2021 levels were still slightly below Q4 2019 levels due in large part to decline in automotive, but if we take out the high and the low scores, excluding automotive our weakest category, and sports betting, our best performing category over that timeframe, 2021 fourth quarter core television advertising exceeded pro forma 2019 levels and with growth across a wide swath of our advertisers.

10:09 We expect Nexstar's positive ad trends to continue, and as you heard Perry say, are pacing that way in Q1 of 2022. As mentioned, sports betting was a bright spot for us as it was a top 5 category in all of 2021 and in the fourth quarter.

We continue to see strength in 2022 in a category as new states such as New York, Connecticut and Louisiana have launched online sports betting in the fourth quarter of 2021 and early in 2022.

10:41 We anticipate a new law in Illinois, allowing remote registration for online gambling expected to take effect in early March to positively impact the online sports betting category through our stations in that state and our station in neighboring Missouri which has coverage in Illinois.

We are cautiously optimistic about this category given the continued spend we see in markets that we've been live in for a longer period of time, but we'll see how these sports book evolve their spending over a period of time.

11:12 We do know that local television has been an effective way for Sportsbooks to increase their brand awareness and attract new players to their sites and apps. The power of Nexstar's portfolio has also -- has been beneficial to us in capturing these sports dollars.

For example, we're seeing significant dollars in New York, where given the breadth of our assets we reached the entire state. Overall in Q4, 2021 approximately 57% of our core advertising was from the services category and 43% from goods, including 16% from auto.

11:44 Our concentration and services based businesses has helped insulate Nexstar from exposure to categories with supply chain disruptions like automotive. In addition, we expect that this should bode well for us in an inflationary environment where our customers have less near-term pressure on cost of goods sold.

12:03 In addition, our overall fixed cost infrastructure should be beneficial as we have a top line that can grow with inflation. Fourth quarter distribution revenue of 16.6% from the prior year rose 16.6% from the prior year to approximately $616 million, reflecting the renewal of distribution agreements in 2020 on better terms.

We continue to have good visibility into our net economics with all 4 of our big 3 affiliations contracted through December of 2022 and only our ABC affiliation agreement up at the end of that year.

12:41 We expect continued retransmission growth reflecting contract renewals on better terms representing a mid to high single digit percentage of subscribers in 2021 and more than half of our subscribers in 2022 resulting in a higher rate of growth from this revenue source in 2023.

13:01 Q4 digital revenue increased 56.3% year-over-year to approximately $102 million with digital adjusted EBITDA up substantially over the prior year period.

Our top line increase was driven by strong year-over-year growth in our local digital advertising revenue and agency services business and contributions from last year's acquisition of BestReviews and the full first quarter contribution from The Hill.

With the momentum of our audience development strategy and content we expect growth in our digital revenue and cash flow going forward.

13:38 Top-line growth of our non-political sources combined with expense management drove fourth quarter adjusted EBITDA and free cash flow before one-time transaction expenses of $499 million and $330 million respectively. Nexstar generated a 39.8% adjusted EBITDA margin and we converted approximately 66% of our adjusted EBITDA to free cash flow.

14:03 Before turning it over to Lee Ann, I'd like a moment to highlight our recent work and success on ESG initiatives as I know this is an important topic to our Board, communities and employees, shareholders and other constituents and stakeholders.

14:17 The Board of Directors recently took an action from a positive action from a governance perspective by unanimously voting to recommend that shareholders approve an amendment to the corporate charter to eliminate the Company's class B and class C common stock classes.

The class A common stock has been the only class of shares outstanding since 2013. So this is the cleanup to bring the charter-in lockstep with the practice to only have one class of voting stock, which is a good governance practice.

14:48 Additionally, from a governance perspective, we expanded our commitment to fair and unbiased reporting by management adding restrictions on our journalist direct involvement in local, state and national politics.

Nexstar almost formalized a policy prohibiting the Nexstar political action committee from soliciting or accepting contributions from Nexstar journalists and news personnel. 15:08 Having an unbiased and fair reporting process on all of our news products is a core tenant for Nexstar as evidenced by NewsNation, The Hill and our local TV news.

Regarding human capital management, we have significantly increased our disclosure around workforce demographics via our September 2020 census, which was disclosed in last year's proxy. We anticipate updating this information in our 2022 proxy in advance of this year's annual meeting.

15:38 Also in 2021 our workforce – for our workforce we established the diversity inclusion council and a mentorship program to support the success of these initiatives in May of 2021 we promoted Courtney Williams to the newly created position of Chief Diversity Officer, where she is responsible for leading the company's efforts to expand diversity in hiring, promotion and retention.

Ms. Williams also serves as Chairperson of the Nexstar D&I Counsel. 16:06 2021 was the first year of a multi-year partnership Nexstar has with Feeding America, which combined cash and incline contributions totaled more than $1.6 million in its first year. The combined efforts led Feeding America to name Nexstar a leadership partner.

From an environmental perspective media and entertainment has been judged by SASB to not exhibit primary characteristics of the key types of climate change risk, Nexstar, however, is in the process of building systems to better track our current power consumption levels in order to thoughtfully map a plan for future usage reduction and an increase in sourcing of sustainable power.

16:47 Additionally, we continue to look for ways in which we can reduce our overall carbon footprint by becoming more efficient. Some of our current initiatives include replacing lighting and transmission equipment that consumes less power.

17:01 In summary, we're excited not only about the strength and results of our existing platform but by the many organic and M&A growth opportunities in front of us. 17:08 With that, it's my pleasure to turn the call over to Lee Ann for the financial review and update.

Lee Ann?.

17:14 Thank you, Tom, and good morning everyone. The strong foundation of Nexstar's operations and financial position enabled us to achieve strong Q4 and full year 2021 results and position us for a great start to 2022. As Tom mentioned, net revenue for the quarter declined 9.5% from the prior year quarter, reflecting the political comparison.

Excluding political net revenue increased 13.8%. On the same station basis, net revenue declined 12.6% and was up 8.9% excluding political. 17:44 Same station core revenues were up 2% for the quarter and 8.7% for the year.

Distribution revenue was up 15.8% for the quarter, and 12.9% for the year and digital revenue was up 4.4% for the quarter and 11.1% for the year. For the full year Nexstar generated all-time high net revenue of $4.65 billion, up 3.3% over the prior year.

This impressive revenue achievement was driven by record core advertising, distribution and digital revenue which grew double-digits over 2020 levels and fully offset the $462 million cyclical year-over-year decline in political advertising revenue. 18:20 Excluding political net revenue increased 15.3%.

Fourth quarter direct operating expenses, SG&A and trade expenses all increased primarily as a result of higher core and digital advertising revenues as well as expenses from station and digital acquisitions including a full quarter of expenses from The Hill.

18:37 Total corporate expense was approximately $44 million including non-cash compensation expense of approximately $12 million. Fourth quarter CapEx was approximately $42 million. Spectrum repack CapEx totaled approximately $3 million, and we received $1.8 million of reimbursements from the FCC.

Fourth quarter total interest expense declined 6% to approximately $70 million. Cash interest expense was approximately $66 million and compared to $70.6 million last year due primarily to lower first lien borrowings and a lower interest rate. 19:06 Fourth quarter operating cash taxes were $72.5 million.

We also recorded $17 million in distributions from equity investments relating to our 31% ownership in TV Food Network in the fourth quarter and that entity continues to produce strong results. For the full year these distributions amounted to $239.5 million, up 7% over the prior year.

19:26 Looking ahead, we project corporate overhead, exclusive of stock comp and transaction costs to be approximately $35 million in the first quarter and we expect corporate overhead in the $140 million area for the year.

Non-cash comp is expected to be approximately $30 million for the quarter and $58 million for the full year, but will vary based on stock price in actual grams. 19:44 Operating cash taxes are expected to be approximately $374 million and $386 million for the full year.

Just to give you a little bit of color there, we use 26.5% tax rate when calculating our estimated tax before one-time and other adjustments. From a timing perspective, a small state tax payment gets made in the first quarter, 2 payments are usually made in the second quarter with 1 in each of the third and fourth quarters.

20:07 Cash tax should come in around -- sorry, Cash CapEx should come in around $41 million in the first quarter and $150 million for the full year, we typically spend more on CapEx and even numbered in political years than non-political years.

We expect Nexstar's cash interest expense to be approximately $68 million for the first quarter and $300 million for the full year reflecting current estimates for LIBOR and expectations for debt repayment. 20:30 Turning to the balance sheet, Nexstar's outstanding debt as of December 31, 2021 was $7.42 billion.

Total net debt amounted to about $7.4 billion at year-end, down from $7.7 billion at December 31, 2020. Net debt for first-lien covenant purposes is $4.6 billion. Our net first-lien covenant ratio at December 31, 2021 was 2.3 times, which is well below our first-lien and only covenant of 4.25 times.

20:57 Our total net leverage for covenant purposes at quarter end was 3.7 times. The slight increase over prior quarter is due to the fourth quarter political revenue from 2020 dropping out of the last 12 months covenant EBITDA calculation.

We expect leverage to reduce by the end of 2022 due to a combination of allocating a portion of our free cash flow to reduce indebtedness and increase the EBITDA given our outlook for the year. 21:17 For the full year, we returned $655 million or 53% of our free cash flow to shareholders in 2021.

The remainder of our free cash flow were to make acquisitions, on CapEx and repay debt. As we move forward, we will continue to strategically deploy our cash in a manner that's consistent with our commitment to creating the highest shareholder value.

For all the factors that enumerated by Perry and Tom earlier, we are excited about the prospects for 2022 and remain confident in our ability to enhance shareholder value and deliver on our new pro forma average annual free cash flow guidance of approximately $1.4 billion over the 2022-2023 cycle.

21:51 A few notes on our 2022-2023 free cash flow guidance before we open it up for questions. From an operating perspective these figures take into consideration our current best estimates for growth in the core business. We've assumed no M&A or other one-time or unusual transactions in these figures.

So free cash flow is redeployed in the form of debt repayment, dividends and share repurchases. We've taken into consideration the rising interest rate environment in which we are in, which will impact our expected increase given our significant floating rate debt load. 22:18 That concludes the financial review for the call.

I will turn it over to the operator to open the line for questions..

22:24 Thank you. [Operator Instructions] We'll first hear from Steven Cahall of Wells Fargo. Please go ahead..

22:49 Thanks. I've got one each for Perry, Tom and Lee Ann. Maybe first Perry, could you just provide us a little more color around the elimination of the B&C class shares? I always thought of those as maybe like a poison pill for times when the stock were down precipitously like in 2020.

So does the elimination of that suggest that maybe there is a better M&A environment out there? We've seen the company transact today with both strategic and financial buyers. So, any color on your thinking on the share price elimination would be great.

23:17 And then, Tom, what do you think happens to core ads this fall? Typically we model in crowd out pushing core down in the mid-term, it sounds like you might get auto back right around the time that political is there.

So, do you think the dealers are going to spend and pay those politically due straight or will there be some crowd out? 23:37 And then finally, Lee Ann I think you said you didn't join Nexstar to just pay the dividend and buyback stock. When do you think about M&A, what are some of the things that you're looking for in the marketplace? Thank you..

23:48 Well, that's a mouthful, Steve, but let me go ahead and get started here. The 3-class share structure was a visage when we were a controlled company with every partners at one time ABRY and I had B shares, which were 10 vote super vote shares which we eliminated when ABRY exit their position in the in the company.

24:14 So really just kind of cleaning that up and eliminating B&C class, C class shares were never issued, but I think you're right. It does create a much more shareholder friendly environment here that we have one class of stock, one share one vote, and so you can make of that what you will, but it's really seen -- it was an action taken by us.

We think that will provide a shareholder friendly result when shareholders vote on it in our annual meeting in June..

24:43 And Steve, just to follow up on that as well. It also makes Nexstar eligible for certain indices that exclude multi-share cast or multi-share class stock structures.

We're not able to be included in some of those indices now and after the action by the shareholders in June, we anticipate being -- we will be eligible and we anticipate hopefully being favorably viewed from that perspective.

25:13 With regard to your question on advertising, we do believe that auto will rebound to a degree in the back half of the year and will it be able to compete with a political heavy environment? We believe it will, but regardless, just the return of auto in general, whether it gets nominally excluded for a 6 or 8 week period in September and October or they have to push back to November or December, I think that everybody believes that there is a good degree of pent-up demand, and once inventory starts to flow you see the dealers competitive juices crack, and really want to push that inventory through their lot and offer there a lot into consumers.

26:03 So that's our thinking with regard to auto in the back half of the year.

Lee Ann?.

26:08 Yeah. And with respect to M&A, Nexstar has done a ton of M&A over the history, and that's created a lot of value for shareholders. And so, I anticipate that we'll continue to do the same going forward.

I think from our perspective what we would look for, I mean clearly, first, if we can do station M&A, that's our bread and butter, we know how to do that. That makes a lot of -- creates a lot of value. We would continue to do that to the extent there are opportunities within the current regulatory framework.

26:35 But then I think also, we're going to just look for businesses that we can leverage using our scale and the platform that we have. So that kind of pushes us towards more content-based businesses.

You can look at what we've done in the past with respect to The Hill where now we can utilize that content on NewsNation and other of our websites or for example BestReviews where we were able to air commercials about BestReviews that helped drive the traffic to the BestReviews website.

27:06 So those are the types of things that we'll think about and as we'll always be looking for what we can do to generate the best return for shareholders.

Operator?.

27:16 Thank you..

27:19 And next we'll hear from Dan Kurnos of The Benchmark..

27:23 Great. Thanks. Good morning, Perry everyman, there's a stroll down memory of late a few thousand percent to go. Just maybe one kind of complex multi-part question around retrans.

As you guys think about the evolution of the market now, we've heard from Paramount talking about flat affiliate growth and that's a combination of sort of more minimal step-ups on the growth side and also significantly for you guys no real step-ups on renewals on network comp or on the reverse side.

27:58 Clearly we think that the broadcast will be better on growth just given local news and how kind of the disparity between eyeballs in the bundle.

But just help us think through sort of the net retrans guide embedded in your free cash flow? And also as these guys continue to put more and more dollars behind streaming and streaming content how the evolution of their own premium bundle impacts that outlook? Thanks..

28:27 Well, I think as it relates to step-ups obviously that's driven by renewals. We have over 50% of our subs that will be repriced in 2022. Generally, all of that is in the back half of the year and primarily in the fourth quarter. So that will be the biggest driver.

Obviously, we have a lens into deals we just did at year-end 2021 coming that have influenced 2022. And as I think I've said earlier, our view is that we're going to move the goalposts in terms of what we think our ultimate potential is in terms of growing these numbers on a per sub equivalent even mitigated with a moderating level of sub-attrition.

29:14 We now think that our potential is greater than we have historically.

And as I think we've said in other calls, our retrans margin will always be north of 50% because of the makeup of our station portfolio when you look at our major markets, CW and MyNetwork stations in the top ten markets, those are all CW, MyNetwork are independent stations that literally have almost 100% margin on retrans and there are a lot of subs in those markets.

And so that just the basic makeup of our station group will allow us we think to produce net retrans margins if you want to think about it that way that are -- will be superior to the peer group as far as the eye can see..

30:05 Yeah, I guess, Perry, maybe just more in terms of the net retrans dollar growth.

Would you say now, just given the change and sort of the landscape that you are more confidence or are seeing equivalently confident in kind of the prior stated net retrans guide or outlook?.

30:23 Probably more confident, because our negotiations with the networks they realize that we pay for exclusivity and local distribution.

We monetize their content through local ad sales and through local distribution vis-a-vis retrans revenue dollars and the less and less exclusive that content becomes the less and less appetite we have to pay increasing premiums for it.

So, and I think the networks realize that because their asks are much more moderate in terms of reverse compensation than they have been historically. 31:00 So we feel, again, scale matters when you're the largest affiliate group for CBS, number 2 for NBC, number 3 for ABC, number 1 for FOX, number 1 for CW and number 1 for MyNetwork.

It's important to be important, because then the conversations I think become a lot more business focused and less emotional. And that's quite frankly the way we prefer it..

31:25 Got it. Thanks so much, Perry. Appreciate it..

31:30 And next we'll hear from Aaron Watts of Deutsche Bank..

31:34 Hi, everyone. Thanks for having me on. One quick follow-up on auto. I know you describe the category is challenged still.

How would you goalpost, is it flattish? Up a little bit? Down a little bit, but still lagging kind of the rest of the verticals you mentioned? Can you give any more granularity around that?.

31:58 Well, if I look at our fourth quarter results, it was not a high bar performance in 2021, but it was the best quarter of the year in terms of the least percent down to the prior year. And I think it continues on here in 2022. We still projected to be down versus the prior year, and it's anecdotal by nameplate.

You saw a lot of key ads in the Super Bowl and you can extrapolate that to growth in our automotive categories in the foreign. 32:37 And so I think that obviously it's supply chain related, and to a certain extent the way people are buying cars is a little different than it was in the past.

I read a stat last week that literally more than 25% of the cars that are being shipped to dealers have already been sold because of the backlog, people go on, they can't find it on the lot, what's available, what's on the truck, what's on a ship coming here and maybe I'll put down $1,000 to reserve that.

33:04 So we do think though that as time goes on and with the age of vehicles on the road with new models being introduced, there is still a desire for a showroom experience, notwithstanding the problems in some of these delivered to your door companies have had with title and other things like that.

So will it ever be 30% of our ad support, again? No, I don't think so, but will it be north of 20%? Yes. Is it now? No, just barely below that. So I think you'll see continued improvement in auto as the year goes on.

But we think it'll be kind of a back half of the year event before we start to see improving trends in the category, although it's kind of flat lined at a level we not happy with right now, but we're not really seeing wholesale declines in tier 1, 2 or 3 spending at this point from kind of the bar that was established in 2021..

33:57 That's helpful, Perry.

And based on the discussions you're having, do you feel that auto as a category for local TV can get back to pre-pandemic levels? Or has some of that maybe leaked towards digital or other outlets?.

34:13 Yeah, I don't think it's leaked.

I think it will be [indiscernible] was making a lot of money right now and they're going to have to spend some of that forward to get back to pre-pandemic levels and again the car buying experience, as I just said, maybe has changed in some quarters that is less reliant on showroom, but do we think it will get back to pre-pandemic 2019 levels? Yeah that's possible, I think.

Will it get back to 2015 levels? Maybe not. So I think it is possible gets back there. I'm not going to forecast whether that's a '22 event or '23 event, but I think that it's -- that kind of a horizon that we'd be looking at..

34:52 Okay, great. And one last one for me, maybe point towards Lee Ann. I've asked this of you all in the past, but wanted to refresh on your thoughts around leverage and based on your capital allocation policies, whether leverage is likely to trend up or down over the medium term from here.

And it seems like you could push towards investment grade credit metrics if you desire is that a goal that's appealing for the company?.

35:18 Yeah. Thank you. I think from our perspective, we'll probably continue to pay down a little bit of debt and our leverage will continue to decline as a result of the combination of that repayment and then also just our expectations for increases in EBITDA.

I think to get to investment grade we would have to pay down a lot more data and allocate more capital to that, and not necessarily sure that the benefit of being investment grade in terms of the lower potential interest rate that we can get is that meaningful vis-a-vis where else we can redeploy that capital either in the form of accretive M&A or share repurchases or the like.

36:00 So I don't think that being an investment grade company isn't necessarily something that we are targeting to accomplish in the medium term -- near or medium term..

36:12 Thank you very much..

36:17 Jim Goss of Barrington Research..

36:21 Thank you. I was wondering if you can comment on the changing blend of car advertising categories. It is good to hear that auto is improving. I wonder if you might also compare the values of new and emerging categories versus those that may have faded? And I know you mentioned gaming in particular is one that's getting more important.

Could you -- in that context, can you also discuss whether the MLB labor action is an opportunity or a risk?.

36:52 Sure. Well, just if I look at our fourth quarter top 10 categories, we mentioned that gaming and sports betting lottery, just all gambling taken together was up about 25% over Q4 of 2021, but retail was up 31% and home repair manufacturing up 21%, medical healthcare up 24%, attorneys commercials, we all love to hate, up 12% over the prior year.

So 8 of our top 10 categories were up over the prior year, and 5 of those 8 were up double digits and not insignificant double digits. Really we have no exposure to speak of to major league baseball. That's more of a RSN issue.

I mean the games that air on FOX, but that's network programming they will be replaceable, other network programming so it's really not an issue to us to speak of from a financial point of view. 37:57 So I think that's kind of our take on both the sports betting and also Major League Baseball.

As a fan, I'd like to see him play, but that's going to be up to others..

38:11 All right. And I’ll let one more go for a moment. I was wondering with the efforts in ATSC 3.0 getting up to 50%. I'm wondering if the early efforts provide any input to judge the revenue and profit potential that might emerge as the rollout continues.

Is it too early to tell anything, or are you getting any glimpses of the financial value?.

38:41 Yeah. Yes, it is Jim, a couple of things I'll say about that is that, we think you've got to build the toll road before you can charge people to drive on it. And all we're really doing now is activating 3.0 signals, it's not really a 4K viewing experience.

It's a pass-through of an up converted HD signal, but it's basically to light the light in the TV, which will hopefully increase awareness and adoption and help the technology be more fully distributed. 39:10 We are involved in a test with Scripps in Michigan, which I think I've mentioned before where Scripps has a station at Detroit.

We have stations in Lansing, Michigan and Grand Rapids, Michigan, both a Hollywood studio and an OEM are interested in driving a car across the state of Michigan and seeing what kind of an in-car viewing experience that is of either 3D navigation or sets in the headrest facing the back seat. And so there is interest in the technology.

There's interest in potential use cases. 39:46 But we've got to have a much more robust footprint of ATSC 3 signals. And again, you don't need to be broadcasting of 4K picture to take advantage of the ATSC 3.0 spectrum and signal utilization.

So the business case might come even sooner down the road than any 4K viewing experience might for local consumers, because of the way the transition has to take place. We don't have a second stick that we can develop into 3.0 like we did with analog to digital and then one day turn all the other ones off right now.

We have light houses for 3.0 signals and 1.0 signals during a transition. The transition is voluntary. So it won't be a big bang transition. It will be done kind of on a regional, maybe even market by market basis. 40:39 So it's hard, but it's not impossible.

But again, we agree with BIA/Kelsey that spectrum revenue or rental or high-speed data transmission revenue could one day rival what retrans is to the industry today and so that's why we are leaning forward.

40:57 I will note that we have had some conversations with Scripps because with their portfolio of Ion stations they and we now have an unduplicated reach of almost 92% of US television households and so, we're talking about getting together to discuss ways we could work together to further advance the business case of ATSC 3.0.

So, look for more to come on that as 2022 rolls on..

41:26 Okay. Thank you very much..

41:34 And next we'll hear from Craig Huber of Huber Research Partners..

41:39 Thank you. Tom I want to you, your retrans subs, I think in the last quarter you said it was down 4% to 5% on a trailing 12-month basis.

How is that number this quarter, please?.

41:52 Again it continues that same trajectory, improvement over 2020 and we believe that the fourth quarter was better than the average for the entire year, which was a mid to high 4% number for this year and a mid to high 5% number for 2020. So the trend has stabilized, and is positive from our perspective..

42:21 Okay. And my next question. I think in the last few conference calls, you guys have talked about your net retrans for the year, your expectations for 2022 up mid to high single digits.

Is that still holding your mind?.

42:34 On net retrans, yes, mid to high single digits..

42:40 Okay. And then I want to ask you guys, when you think about your small versus large markets you think about the different regions around the country that you have your TV stations.

Is there a material difference in the ad revenue performance? I was trying to get a -- here a gauge for you guys about how the local economy, so there is a significant difference out there in your various markets?.

42:59 If there was a difference, I think it's virtually disappeared, I mean at this point. Obviously the densely populated major markets have been a little slower to reopen then obviously markets in Texas or medium and smaller markets that are more socially distance.

So from our perspective, the major impact I think in ad revenue has been the introduction of sports betting into communities where it hadn't been before that's probably the biggest catalyst.

43:36 But I think at this point with major metropolitan areas like DC and others eliminating mask mandates and restrictions on restaurants and things like that, I think it's -- we don't notice a significant difference market by market, and there are multiple factors that go into -- multiple ingredients that go into baking that cake in every market, our individual performance and other things like that, but I don't know that you would see statistically meaningful variances, if we sort by affiliation, if we sort by geography, if we sort by market size.

So I don't think there's really much to see there..

44:18 And then I think I heard you guys say you are expecting your core TV ad revenue up in the first quarter year-over-year.

I assume that sort of means up low-single digits, maybe you could touch on that, but more importantly I would love to hear your thoughts on the higher inflation rates out there, the outlook for higher interest rates where you've sort of thought is that what that means to your core ad revenues as the year plays out? It's a positive, negative or sort of neutral in your mind to overall percent change? Thanks..

44:45 So historically inflation has been a friend to our business, because it gives us some ability for cover for pricing power and pricing increases. So, I don't think of inflation as a bad thing.

I can tell you that when Lee Ann and Tom and I were developing the free cash flow guidance which we gave, we absolutely incorporated a higher interest rate environment that may not be at this point fully recognized by everybody's estimate on the street, but we certainly have taken that into account through '22 and '23, and I think we're being conservative into where we might end up in terms of interest rates there..

45:25 And Craig with regard to our first quarter revenues, I do believe we think it's up, I don't think we characterize a percentage or a range for that at this point, but yes, we do believe that will be an improvement..

45:38 Great. That's all I had. Thank you..

45:44 [Operator Instruction] We'll now hear from Alan Gould of Loop Capital..

45:51 Thanks for taking the questions. I've got three. First in terms of M&A, you did say content related.

Just wondering what your appetite is for general entertainment versus news where you focus most of your efforts? Second, in sports gaming just wondering, it may be a little bit early to tell, but what you're seeing in retention spending in states after that initial big launch, and I do realize there is big states like Texas and California that haven't launched? And third on the fixed versus floating rate on your interest expense, I know keeping everything floating is certainly worked well for you.

Share any thoughts that maybe you might want to fix the interest rates given the proposed interest rate increases? Thanks..

46:38 So, maybe just take you from the bottom up as fixed versus floating rate. If we don't have -- it's not all floating. We have -- it's like 65%, 70% of our debt load is floating with the rest fixed. I think we're obviously keeping an eye on what the capital markets are doing.

I don't know that right now is the ideal time to do a fixed rate deal, but your point is something that we definitely take into consideration as we think about our capital structure going forward. 47:12 With respect to -- I think the sports betting continuation, it’s such a new market. I know you appreciate this.

It's just -- it's hard to sort of give you kind of like really good year-on-year numbers. I will say that we have had some markets that have been legal for a period of time that have really, really hung in there and done really well. We've had some markets that have declined as time is passed on.

So it's really been a little bit of a mix and if we still felt -- feel good about the business on a go forward basis as we are seeing new states launch..

47:48 The pace for first quarter in sports betting is still double-digit positive and some of that's new markets, some of that is existing markets where sports betting has been a category for 6 months or more.

It's usually a top 3 category in terms of ad revenue support and as Lee Ann says the category is so new that we haven't had much time to establish a trend line there, and it's arguable as we sit here in Dallas, Texas whether Texas will ever approve sports betting, which is why the largest casino in North America is a mile over the state line in Oklahoma.

48:21 And so that's why we think this will be primarily a local, state by state kind of an advertising category because we don't think it is necessarily going to be legal in all 50 states. And I have to -- some time has passed so, could you repeat the first question that you asked because I forgotten what the subject matter was..

48:41 Sure. Perry. It's M&A. I know you said content related is what you're probably looking at given the station caps.

And just wondering what your appetite might be for general entertainment versus what's historically been a little bit more of a news oriented focus on the company?.

48:59 Sure. Well, I think of it a little differently. I think we've built the company with local content, which is primarily our local news. We created a national content with our national cable news network. We had political content with The Hill, and so I think the things that you would see us add would be complementary to those.

So what are the big category holes or areas there you know sports and weather come to mind that complement what we have already.

I don't think you'll see us compete with Netflix for writers and producers to produce scripted entertainment programming, but obviously we air a fair amount of scripted entertainment programming vis-a-vis our syndication and network relationships.

49:43 So I think there is obviously a desire to have some control of your own destiny there, but at the end of the day it's not going to be the focal point for the company, could it be complementary to what our core competencies are. We'll see as time plays on..

50:01 Okay. Thank you so much..

50:12 Operator, anyone else with a question?.

50:16 And it appears there are no further questions at this time..

50:20 All right. Well, thank you all for joining us today. We're off to a great start in Q1 of 2022. We look forward to reporting those results to you in early May, and thank you very much for joining us today..

50:33 That does conclude today's conference. Thank you all for your participation. You may now disconnect..