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

Thank you, Ryan and we'll get to management's presentation and comments momentarily as well as your questions and answers, but first I'll review the Safe Harbor disclosure. Statements and comments made by management during this conference call may include forward-looking statements. Nexstar 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; 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 risks that are conditioned to closing of the proposed transaction may not be satisfied and the transaction may not close; the risks that regulatory approval 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 outstanding debt; successful integration of Tribune Media including achievement of synergies and cost reductions; pricing fluctuations in local and national advertising; future regulatory actions and conditions in the television stations operating areas; competition from others in the broadcast television markets served by Nexstar; volatility in programming costs; the effect 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 this 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 conference call. For more information on factors that could affect these expectations please see our filings with the Securities and Exchange Commission. With that -- and thank you for your patience it is now my pleasure to turn the call over to your host Nexstar's Chairman President and CEO, Perry Sook. Perry, please go ahead.

Thank you, Joseph and good morning everyone. Thank you all for joining us today to review Nexstar's 2019 second quarter operating results. Today we'll review the quarter and our outlook as well as other ongoing initiatives to drive free cash flow growth and shareholder returns, most notably the progress we've made towards completing the Tribune transaction, our ongoing leverage reduction, as well as the upside presented by the financings and announced divestitures for the transaction. As always, our Chief Financial Officer, Tom Carter is here with me on the call this morning. Full year 2019 operating expectations before one-time expenses remain on plan. As we've shared before 2019 represents the start of the next significant growth cycle for Nexstar as we balance our focus on the upcoming completion of the highly accretive Tribune Media transaction with our current operations including our preparations for the 2020 election cycle and the significant number of 2019 retransmission consent agreement renewals in front of us. With respect to current operations, the second quarter results reflect improving spot television advertising trends and further progress in bringing value parity to our leading viewership of our local stations on MVPD and vMVPD bundles resulting in double-digit distribution revenue growth. These factors were offset by the absence of cyclical political advertising as well as approximately a $10 million payment in other revenue related to a onetime spectrum repack payment in our year-ago period. All told Nexstar's second quarter net revenue ex-political was up 2.7% compared to the prior year period. Overall, second quarter broadcast cash flow and adjusted EBITDA before one-time transaction expenses were in line with our expectations while free cash flow was impacted by the transaction costs and the timing of 2019 operating cash tax payments as well as capital expenditures. Our 2019 full year budgets…

Thanks Perry. Good morning everybody. I'll start with a review of Nexstar's Q2 income statement and balance sheet data, after which I'll provide an update on our current capital structure and some points of guidance. As Perry mentioned overall net revenue was down 1.7%, really driven by the lack of return in political revenue during the year and just as a note, same station results will approximate actual prior year results this quarter as acquisition activity in prior years does not materially affect the results there. Total spot revenue was down 1% to $267.6 million as Perry mentioned with local revenue being up and national revenue being down. The political revenue as I mentioned before decreased from approximately $32 million to $3 million for the quarter. And overall net revenue was up 2.7% which was driven really by the 13.8% retransmission fee increase during the year, which was as expected. Overall second quarter spot revenue advertising trends continue to show improvement over the first quarter 2019 levels with local and national spot revenue growth on a quarterly sequential basis of 6% and 7%, respectively. Second quarter non-television advertising growth of 8.9% to $370.5 million, reflects the 13.8% rise in retransmission fee revenue to $314 million, which was partially offset by $7.8 million reduction in digital revenue. As we stated on last quarter's call, we anticipate top line growth in digital would be impacted in the near-term due to our deemphasis of non-profitable and marginally profitable lines of business at the end of 2018 and in early 2019 in addition to certain marketplace changes that impacted select demand type platform customer buying in the first half of 2019. Nexstar's second quarter core digital advertising revenue as Perry, mentioned meaning our hyperlocal websites increased 16% year-over-year and our digital agency services business,…

Thanks Tom. With significant and growing free cash flow and attractive weighted average cost of borrowings and a long-term record of success in fully integrating acquired stations extracting synergies and enhancing operating results while improving our service to viewers and advertisers, Nexstar is prepared to complete the highly accretive acquisition of Tribune Media. As with our past transactions we've developed a comprehensive integration plan and we remain confident in our ability to deliver on the value of this compelling combination given our current operating management disciplines and our history of success in outperforming our synergy targets. In terms of capital allocation our substantial annual free cash flow combined with our strong balance sheet and attractive weighted average cost of capital will provide us with the financial flexibility to continue investing in our business and our employees, while meaningfully reducing leverage and returning capital to shareholders. Nexstar's organization-wide commitment to excellence and local content for viewers and users as well as unparalleled marketing results for our advertising partners has been fundamental to our success and our growth. With the pending increase in our geographic diversity and audience reach a large number of distribution contracts up for renewal between now and year-end 2019 and the return of the political cycle with the upcoming 2020 presidential election, Nexstar has excellent visibility to delivering on our free cash flow and leverage reduction targets in the current cycle and the continued near and long-term enhancement of shareholder value. With that I'd like to thank you all for joining us today. So now let's open the call for Q&A to address your specific areas of interest. Operator?

[Operator Instructions] We'll take our first question from Dan Kurnos with Benchmark Company. Please go ahead.

Yes, good morning. Hey Perry and Tom, look obviously with all the good free cash flow upside news the only thing unfortunately on people's mind is kind of the AT&T blackout. So Perry if maybe you want to address that whether Locast is playing a part in any of this? How you think that kind of resolves itself over time and the potential financial impact if you think there will be one short-term?

Well, with respect to AT&T and DirecTV, we continued to trade proposals and to negotiate. However, we're not going to do that publicly. So I'll just leave it at that. Locast is really not playing any factor in these negotiations. With the network suit last week I think you will see the beginning of the end of Locast and it will end up in the same dustbin that Aereo and FilmOn and others that have tried the same trick before. So I think at that point, we continue to make progress in our AT&T negotiations, and obviously, when we have something to announce we'll be sure to tell you.

And then just in terms of subs, Perry, you did say constant. I'm assuming that means flattish. Just in terms of visibility or any outlook to net retrans going forward would be helpful?

Dan your specific question with regard to subscribers, we've looked at this and on a total paid subscriber base year-to-date, we are down less than 0.1% and since 01/01/2018, we are actually up about 0.1% in terms of number of paid subscribers. Obviously, that's driven by continued growth in the OTT product and some reduction in traditional MVPD, but overall paid subscribers are basically flat.

Got it. And Tom just any change on the net retrans outlook I'm assuming not with that backdrop?

No. Obviously, we've got some pending deals outstanding. The puts and takes will affect it, but we don't believe it to be material and obviously, we -- earlier this week we announced a renewal for all of the legacy Nexstar stations, near-term renewals for Nexstar stations with CBS and we're pleased to get that announced and I think it came in as expected.

Prefect. Thanks guys.

Thank you. We will take our next question from David Joyce with Evercore ISI. Please

Thank you. Appreciate you gave us some color on the advertising, but was there anything that had decelerated during the second quarter? Or it was -- where there some crosscurrents of different sectors? And if you could delve into that some more and really what's your upside on the digital advertising this year given of course that you did shut down some of the digital businesses earlier in terms of how much more is digital playing a role in your overall negotiations with your advertisers? Thanks.

Well, I would say that in second quarter automotive actually was a category that strengthened versus first quarter and we reported kind of locally 6%, national 7% sequential improvement quarter-over-quarter. The strength in automotive is really coming from the development work of our local teams with the Tier 3 advertisers, which are our local dealers. We can see that continuing into third quarter. July revenue was in the books and core revenue and digital revenue book performed better than our second quarter numbers that we just posted this morning. Our digital revenue has got two components to it obviously roughly equal. One is the local digital revenue that is generated by our sites by our sales forces in our local marketplace. We reported as you heard Tom say earlier up double-digit percentages there. Obviously, the decline has been in our national digital revenue due to some market changes for supply-side dynamics as well as exiting some businesses that were unprofitable and we were cycling through that here in the back half of the year, but again our local digital revenue performed better in July than the results we posted for second quarter and we see that continuing through the balance of the year.

And how much of a role is the TIP Initiative on standardizing programmatic playing a role yet? What's the progress on that please?

Well, the interesting thing is that advertisers now are beginning to demand that people design and implement through the TIP interface standards, and that's actually a watershed event for us. This is primarily in the area of log reconciliation and kind of the back-office piece of that, but it is being adopted. And I would say we probably had more forward momentum in the second quarter than we've had for a while. And we expect for that to continue as we implement more lines of code if you will for other elements of the buy sell process. But right now, our efforts are focused primarily on trying to streamline and automate log reconciliation make goods and billing practices which obviously would save the agency's money which make us more attractive counterparties to do business with.

Great. Thank you very much.

Thank you. We will take our next question from Zack Silver with B. Riley FBR. Please go ahead.

Okay, great. Thanks for taking question. So post CBS renewal, do you guys still expect net retrans margins remaining at levels over around 50%? And then could you give us some updated thoughts on how you see the economic share of retrans over time evolving between the networks and the affiliates?

Sure. I'll take the first half of that question. And yes, our indication and the math that we're running continues to have net retrans margins in excess of 50% for the balance of this year and for next year. And I think once we get a hold of the Tribune properties, we'll be able to re-evaluate that longer term than that, but for the immediate future yes, in excess of 50%. And I'll let Perry talk about kind of longer-term trends.

Yeah, I mean long-term listen the networks negotiating and asking for more from us and we in turn are asking for more from the MVPDs and the revenue line is greater than the expense line. So if they move in tandem we actually increase our margins. So we see no change in outlook in that dynamic for the foreseeable future, and as Tom says, our foreseeable future is probably three years out post the Tribune transaction but just looking at the normal cadence of deals with networks and with MVPDs we see no change to the outlook or the ecosystem.

Okay. Great. And then I guess this is the second quarter in a row where the core has come in a little bit light of the informal guidance that you guys provide in your calls. Just wondering what you can say about that? And what dynamics are maybe causing less visibility inter-quarter?

Well, I think we view it as kind of a low single-digit world and I would say that national revenue for us coming in at 4.5% behind the prior year was less robust than we had expected, but other than that I don't think we see any changes. We've got to obviously weigh, the puts and takes of a trade war and tariffs and what that does to our various lines of business, but things that we can control, it's kind of a Goldilocks world right. It's not too hot, it's not too cold. It's just kind of plugging along. And again, total spot revenue down 1% is within our forecast range of the bandwidth.

And I will just add to that. I think from our perspective, we view the national dollar as being a lot more -- a lot faster money and quick to change. The local dollars obviously are stickier from our perspective. So I would say the national ad environment [Technical Difficulty] and I think we saw that towards the end of the second quarter.

Okay, great. Thank you, Perry and Tom.

Thank you. We will take our next question from Marci Ryvicker with Wolfe Research. Please go ahead.

Thanks. I appreciate you not wanting to negotiate with AT&T in public, but I think one of the reasons why your stock is down is the fact that you have reaffirmed your free cash flow guide and the market doesn't seem to believe you since you're dark on AT&T for a while. So are you assuming retroactive payments, like you've gotten historically or does your reverse go down enough, so you can hit the free cash flow guide? Anything you can talk to for the guide? And then specifically for Q3 retransmission consent revenue, I assume we should expect a sequential step down from Q2 at this point?

Marci, as I said in my comments, our guidance is based on a steady-state. We don't know what the outcome of any negotiation with AT&T is at this point, whether it be retroactive or otherwise. And so I think, we are sticking with what we have and the knowledge that we have until we have more concrete because we are not going to play a game of updating guidance based on any particular win that may be going one way or the other. When we have concrete information we will update our guidance accordingly.

And then, just a comment on Indianapolis as it relates to Tribune their press report saying that you might acquire either a waiver from the FCC or another station divestiture if you can comment on that.

Well, there is a talk for waiver in place in Indianapolis along with Tribune that owned the two stations that they own there. There would need to be a reauthorization of that waiver, which we fully expect in due course, so I don't think there is anything to see there. And I would just add Marci you know -- should know this that we have internal targets that are in excess of our guidance to get to our free cash flow numbers that we give you. So we are not going to comment on whether the AT&T deal will be retroactive or not, but we are confident that we will deliver our free cash flow guide and we will just put a period at the end of that sentence and that's what we will say.

Okay. Thank you.

Thank you. We will take our next question from Kyle Evans with Stephens Incorporated.

Hi. Thanks. I just wanted to follow on the digital questions from earlier and be a little bit more specific. Which quarter do you expect us to formally cycle some of those SSP, DSP national issues? And does that mean maybe growth in that piece of the business or just slower declines? And then I've got some follow-ons.

Well, I would say that the situation is somewhat self revolving as -- resolving as we move through the year, but in terms of lapping those unprofitable businesses, it will be through the balance of this year, but I think we've seen the bottom of what the marketplace changes would produce in terms of results for us and we are doing better than that now. So I would expect incremental improvement through the balance of the year.

If my memory is correct, I think, when you guys were last blacked out with Cox they pulled ads from the system. Is AT&T doing that?

The short answer is no, but I'm not going to comment beyond that.

Fair enough. And then maybe a longer-term outlook for the auto industry. I know it's been kind of a moving target for the last two years.

You know, that's not our primary business. I guess, we can all speculate, but listen I think that there is cost pressure in the automotive business. There is probably less profitability in the local dealerships than there was 10 years ago. So I think that is a pressure. I think there are a lot of folks competing for auto dealers' attentions. Our job is just as an example is to go to our local dealers and say listen there is no reason for you to be paying for six auto intender websites because there is virtual duplication pay for one and put the rest of that money back into television and we can not only help with your brand, with your image, but we can drive people to the one auto intender site that you do stick with. And that's having some resonance with our local dealers. We have also internally in our sales staffs designated an auto specialist in every market. That is his or her job to know as much about the car business as the people we are calling on and so I think that our job is to do a better job of being a partner rather than a purveyor to the auto dealers. And I think we are seeing the results of that in our internal numbers. And I think it will manifest itself over time, but I can't imagine that you're going to see fewer drivers and fewer cars on the road five years from now than you do today despite everybody's prognostications. So I think it's a steady-state business. Is it a double-digit growing business? It's -- the only -- the recent time when it has been it has been after a recession when it dropped down and we were up against easy comps. So -- but our automotive business is improving on a sequential basis. And again through the end of the year and absent credit or extraneous shocks or tariffs that would affect the price of some vehicles we don't see that changing in a material way.

Great. Thank you so much.

Thank you. [Operator Instructions] We'll take our next question from Jim Goss with Barrington Research. Please go ahead.

Thanks. I was wondering if there is an optimal network mix for your portfolios, from your standpoint. And since Tribune would have a different sort of mix of those networks I wonder if that shift sits well with you? Or have you adjusted for some of that with the divestitures you've made?

Sure. I would say the local news presence, local brand is every bit as important if not more important to the success of a station and its network affiliation. But having said that, pro forma for the Tribune transaction we will continue to be the largest distribution partner for CBS in terms of national reach. We will become the largest partner -- distribution partner for FOX in terms of national reach as well as the CW. We will be number two with NBC and number three with ABC. So I think it's important to be important in your network relationships and I think we have -- we will have that standing with every one of the networks.

Okay. And since history of yours suggests that you never really sit still once another deal is done what would a trade up of your station portfolio be within the -- keeping within the existing 39% cap assuming no change of that particular area?

I'm sorry Jim, I don't know -- when you said trade up, I'm not sure what you mean by that.

Yeah. I mean to the extent that you would have to probably divest something to make room for something else that would be more attractive. Is there something either related to this network mix or to get to a bigger NBC position or something else that you would be looking for like if you're trying to adjust your station portfolio without an ability to change the 39% reach?

Sure. Obviously, there is always opportunities to optimize things in our stations that underperform that we think we can make material improvements in. There were -- there was more interest in the divestiture process than we had stations to sell. So I think there may be some of those available as well, but yes there are chips to be played here. It's just that obviously that's tab three, four or five we've got to get sufficient about and get Tribune closed and then integrate it. And then I think you will see us try and look at continued value enhancements post closing.

Jim I would just add to that. I think that our goal would be to derive an economic benefit from more than one television station and any market that we are in and spread our fixed cost base across multiple revenue streams. So any time we have the opportunity to do that, whether it's pairing a CW affiliate, whether Big four affiliate or whether it's swapping to get two in markets and exit other markets. When we close on the transaction, we will be fairly close very close to the national ownership cap with UHF discount. So there is not a lot of cap room per se, but you can create cap room by exiting markets double up and others. And again, we will be opportunistic with that just like we are with the acquisition piece of the M&A.

Okay. And lastly, is there any shift in capital allocation priorities as your leverage goals are met? And sort of in a related area, are you thinking there would be some debt rating improvement that you should expect as you get down to four times or lower?

Well obviously there is a shift in capital allocation to debt repayment, but we've been pretty heavy on that over the course of the last eight months, since we entered into the Tribune transaction. We are not exclusively and we are not bound to only reducing debt. We can be opportunistic from a return of capital shareholder perspective, but clearly, our goal is to deleverage and the best way to effect that is to pay down debt and that's the allocation of free cash flow. So I think that's where you should expect the majority of it coming absent some dislocations in markets where we could have an opportunity to buy back stock but we are not there right now.

Okay. Thank you very much.

Thank you. We will take our next question from Clay Griffin with Deutsche Bank. Please go ahead.

Hi good morning. Perry, I’d love to get your initial thoughts on the potential House legislation -- legislative efforts coming from Scalise and Eshoo, maybe we could start there.

The Scalise, Eshoo I think notably there were no other cosigners on that legislation. So I think the prospect of it making out of committee are -- it's a very long path. So that would be our quick take on that.

Okay, great. And then just looking at just the growing volume of disputes across the industry both in terms of frequency and duration I guess, does that really have an impact on how you or maybe your network partners are approaching affiliation agreements from the perspective of fixed versus variable on the reverse side?

The short answer to your question is at least in the short-term, probably not. I would encourage you to look at -- there is connected tissue among all of these disputes or most of these disputes and it comes down to a couple of common denominators. And so, I don't think there is an industry issue. Look we're being aggressive, the networks are being aggressive everybody is being aggressive. So there is also I think the head of our trade association, Gordon Smith called this kind of a political maneuver to create noise in front of the stellar reauthorization discussions that will be had when Congress is back in session later this year. There could be an element of that that theater in this current environment but time will tell. And again we’re not negotiating in public or giving details of our negotiation in public and we'll continue to work constructively to make a deal that is good for the company and its shareholders and we’ll just leave it at that.

Okay. Maybe just one quick one for me. What can you tell us about NBC's upcoming streaming product in terms of integration of your content?

Don't know. We don't know enough about it yet. And so -- we were told at the affiliation meeting that in terms of our involvement it would probably look a lot like CBS All Access where there was a local streaming component, but the details of that have not been shared in detail with the affiliate bodies. So I guess we will all have to stay tuned.

Okay. Thanks.

Thank you. We will take our next question from Craig Huber with Huber Research Partners. Please go ahead.

Great, thank you. A few questions. Perry, if we could start with a macro commentary. If I could hear from you on what's your sense given the trade war, the tariffs what's your sense given you guys are in 100 markets or so around the U.S. when you talk to your various large advertisers out there, what's your sense on the U.S. economy now? What are you hearing from the ground please?

Well, I think that people are generally optimistic. I don't think people are wringing their hands just waiting for the recession to start. I don't get that sense from our advertisers at all. I will tell you that when you go into the Midwest and the upper Midwest where farmers have been told for a couple of years now that just to kind of eat it because the tariffs are a necessary element of the trade negotiation. Are they buying one fewer tractor or one less truck or whatever we don't -- I can't tell you but I would tell you that Mid-westerns and farmers are generally pretty stoic people and they are not going to wear their heart on their sleeve either, but I think that as I said earlier it's Goldilocks right? It is the longest expansion we've had post recession but it is also probably the most muted. So perhaps there is a math equation there where lower growth is sustainable for a longer period of time and so we reached the end of the business cycle. I would find it absent -- I find it hard absent an extraneous shock to the system that there would be a recession in an election year. I just think that forces combine to almost ensure that that doesn't happen particularly incumbent forces. So we are not anticipating any real change to the economic outlook here probably at least through the end of next year. I think let's get past the election and see what all that means and then we can have a better lens into 2021, 2022 and 2023 but at this point, we don't see anything hugely positive or negative affecting the economy here in the next 12 to 18 months.

Thank you for that. And I also want to ask you, Perry or Tom, your ad revenue for July I think you said -- obviously you said July was closed, it was better than the, I guess down 1% number you had for the whole second quarter. Should I infer that's maybe flat to up 1%, year-over-yea? That's the first question? My other question is before the second quarter, obviously the pace engine you were talking about, three months ago on a similar call you thought the quarter will be up 1% to 3%. Should I infer that the month of June, came in worse than expected?

I think, you could assume, all of that what you said. So, if core revenue was down in the second quarter 1%. We are better than that. So -- if you wanted to assume a flattish to slightly uppish. But I wouldn't get too enthusiastic there. And then, yeah, I think June particularly in national, we saw a drop off and decline of demand in the month. And so it performed worse than expected. But then, we came back in Q3, at this point with pacing that I think will stabilize.

And if I could ask a regulation question if I could. There's 39% ownership cap obviously for years. People have been expecting that to get changed here. What is sort of your sense, with an election year coming up here? Do you think it is going to get changed at all here in the next 1.5 years? And the corollary question is who actually has the jurisdiction at the end of the day? Do you think its Congress or the FCC, to be able to change that 39% ownership cap? Thank you.

Well that's the -- the second part of your question is the question because, it is an open debate in Washington as to whether the FCC has delegated authority or whether it's statutory authority with Congress. There are many people claiming to have been in the room, when it happened that have different views on what exactly did happen there. We are of a camp that the FCC has the statutory authority to change the cap. Others including our friends at Fox have taken a different position to that. But I would tell you that, I think political realities are setting in. I would not expect a change this year in the national ownership cap. But always be surprised. But we are not anticipating it even though, we are lobbying for it. But I would also tell you that, I think it gets even harder in an election year to make those kinds of changes. But again that is just one man's opinion. So we are not contemplating or counting on any change in the ownership cap to run our business, for the next 18 months.

Great, thank you very much.

[Operator Instructions] We'll take our next question from Davis Hebert with Wells Fargo. Please go ahead.

Hi, everyone. Thanks for squeezing me in here. Just one question for me on, the closing of the Tribune transaction, essentially all we are waiting for I think you said, is the FCC approval. Do you anticipate that in short order here? And if we do get that approval, you should be able to close, pretty quickly thereafter, correct? I just want to confirm that. Thanks.

Yes. We are waiting for the judge to sign the settlement with the DOJ. The DOJ's settlement of the suit that they brought with the settlement and that's the way things get approved at the DOJ. So, the judge has to sign off on that order. And the FCC has to grant the transaction. And we still believe that, that will be a Q3 event. We are very confident in that.

Okay, great. Thank you.

Thank you. It appears, at this time there are no questions. So I will turn the conference back over to our speakers.

All right, well, thank you very much for joining us today. We look forward to our next communication with all of you, which we would -- we expect will be to announce the closing of the Tribune acquisition. And to give you all an update on our pro forma 2019/2020 free cash flow guidance. Thanks again. And have a good day.

Ladies and gentlemen, thank you for joining today's conference call. The call has now concluded. Please disconnect your lines. And have a great day.