Good day and welcome to the Nexstar Media Group Third Quarter 2022 Results Conference Call. Today's call is being recorded. Now, I would like to turn the conference over to Joe Jaffoni, Investor Relations. Please go ahead.

Thank you Jake and Happy Election Day everyone. I'll read the Safe Harbor language and then we'll get right into the call. All statements and comments made by management during this conference call other than statements of historical fact may be deemed forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995. Nexstar cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those reflected by the forward-looking statements made during the call. For additional details on these risks and uncertainties, please see Nexstar's annual report on Form 10-K for the year ended December 31st, 2021 as filed with the Securities and Exchange Commission and Nexstar's subsequent public filings with the SEC. Nexstar undertakes no obligation to update or revise any forward-looking statements whether as a result of new information future events or otherwise. It's now my pleasure to turn the conference over to your host Nexstar Chairman and CEO, Perry Sook. Perry, please go ahead.

Thank you Joe and good morning everyone. We appreciate you joining us this morning on this election day to discuss Nexstar's record third quarter financial results. With me on the call today are Tom Carter, our President and Chief Operating Officer; and Lee Ann Gliha, our CFO. I'll start with a summary of recent highlights and developments followed by Tom's operational review as well as Lee Ann's financial review then we'll get to your questions. Nexstar delivered another period of outstanding financial results and shareholder returns including all-time high third quarter net revenue, adjusted EBITDA, and free cash flow. Our record top and bottom-line performance was led by strong year-over-year growth in political advertising, distribution, and digital revenue. Our ability to deliver record results and excellent shareholder returns quarter-over-quarter and year-after-year underscore the benefits of scale and the strength and the resiliency of our operating model and our ability to consistently generate substantial levels of free cash flow. In the first nine months and in the third quarter of 2022, we returned $730 million and $250 million respectively to shareholders through share repurchases and dividends. The nine-month shareholder return represents a 48% increase over last year and approximately 68% of our free cash flow. As today's election day, we have pretty clear visibility into our 2022 political revenue excluding the impact of any potential runoff elections. I'm pleased to announce that we booked total net political revenue for the fourth quarter of $260 million, which equates to $500 million net for the year as of today and that represents 103% of our election year 2020 as of election day. 2022 has not only been a record midterm election year for our political advertising, but it is nearing an overall record for our political advertising including presidential election years. Once again…

Thanks Perry, and good morning everyone. We generated another quarter of strong operating performance with all-time high record third quarter net revenue of $1.27 billion, reflecting strong year-over-year increases in total advertising revenue, distribution and digital revenues. Total television advertising revenue growth of 18.8% was driven by record third quarter political advertising revenue, which more than offset declines in core advertising, we like other media companies saw. Our 7.6% year-over-year core television advertising revenue decline was primarily driven by double-digit rates of decline in national spot advertising, which represents approximately 30% of our core TV ad revenues. The absence of Olympic and political inventory displacement also affected the quarter. Mitigating the impact of the national advertising market was our local television advertising revenue, which represents approximately 70% of our core television ad revenues. Local television advertising declined just 2% year-over-year, despite significant inventory allocations towards political during the quarter. This is in line with the historical trend with local advertisers maintaining more consistent levels of advertising spending throughout economic cycles. In total, about half of our categories increased versus the prior year quarter, including our top-performing categories of drug stores/medication, auto, home repair, manufacturing, attorneys and entertainment. We're extremely pleased to see automotive our largest advertising category in terms of dollars spent returned to growth in the quarter increasing at a mid-single-digit percentage over Q3 of 2021. In addition, Nexstar's local sales initiatives continue to deliver healthy levels of new business and our sales teams generated new local television advertising and center program revenues of $36.1 million for the quarter, which was up 4% over the prior year. The key categories responsible for core advertising revenue decline were sports betting and gambling, which I'll talk more about in a minute, government services due to the marketing funds related to COVID-19…

Thank you, Tom, and good morning everyone. We have continued to build on our progress in Q3, executing on our strategy, delivering record results and returning significant capital to shareholders. Bob and Perry gave you most of the details on the revenue side, so I will jump to the expenses followed by some points of guidance on Nexstar's business and The CW Network. Together third quarter direct operating and SG&A expenses increased by $28 million or 4%, primarily as a result of higher variable costs related to higher revenues, increased programming and other costs related to the move of NewsNation from syndicated programming to news programming, which is offset in our adjusted EBITDA calculation from reduced programming payments related to syndicated content, as well as a full quarter of expenses from The Hill. As a percentage of net revenues our total expenses decline given our focus on controlling expense growth and significant political revenue growth. Our corporate expense was approximately $52.5 million including non-cash compensation of approximately $17.2 million, which grew due in part to new grants associated with the CEO's new contract and approximately $2.4 million of onetime expenses associated primarily with the acquisition of the CW and various corporate development activity. Third quarter CapEx was approximately $36.7 million. Again, CapEx was lower than expected, primarily due to delays in receiving equipment due to supply chain disruption. Third quarter total interest expense increased to approximately $89 million, lower than expected, as interest rates did not increase as much as the forward curve predicted at the time of our last earnings call. Cash interest expense was approximately $86 million and compared to $67 million last year, due primarily to increasing interest rates offset in part by debt repayments and lower spreads on a portion of our debt from our refinancing…

[Operator Instructions] And we will begin with Dan Kurnos with The Benchmark Company.

Great. Thanks. Good morning. Three, if I can, I'll keep them quick. We'll start with the easy one. You guys are the only broadcaster to report above guide on political. We had heard from everyone else that there were geographic share shift. Obviously, you guys have done a great job and gotten a lot of very positive press around the exclusivity of the debate. And I don't know if you're getting incremental dollars from that. But just any incremental thoughts you have around why you guys outperformed on political?

Well, I think Dan, if you remember back to 2016, we had a similar situation, where we were the only company that achieved its political guidance for the year. I think it's because we take a very disciplined approach to our forecast model and certainly as it relates to political, the broadcast leadership team and our FP&A folks do a very deep dive into each race, each ballot initiative, how much money has been raised, who the candidates are, what happened the last time this race was contested. And there's a lot of work that goes into it. We just don't apply a factor to the past and come up with an estimate. I'm not saying that that's what other folks do. But there is a lot of work. I have a book that is three inches thick in my office that is our political buildup for 2022, and we'll have a similar one for 2024. So I think it's doing the work, doing the research and obviously staying close to your business.

All right. Fair enough, Perry. Tom, thanks for the education lesson on retrans. Just to be clear, as we look out, it sounds like no change to your net retrans forecast and I'm wondering, if there's anything underlying. You guys obviously, have scale in the MVPD side. I'm wondering, if you get some incremental benefits on the reverse side to that might help keep the blended average of linear and net closer to maybe the peer group?

Well, as I think you've heard us say many times, scale does matter in terms of negotiations on any one of a number of fronts. I'm not going to comment specifically, with regard to any specific network or MVPD. But with regard to 2023, no change in our expectations at this time. We're evaluating 2023 going forward. Obviously, we have a number of subscriber agreements with MVPDs that are up between now and year-end. Also as we mentioned before, we are seeing a slight uptick in attrition. All of that goes into the calculus with regard to 2023, but we're not changing our 2023 guidance at this point. As you know, we always give reiterated guidance and updated guidance in the first quarter of the year and we'll be doing that on a more informed basis, as we move through the negotiation cycle here and we have more data with regard to subscriber attrition trends.

Got it. And that was kind of my last question.

The only thing I would say, as Lee Ann mentioned, we are on track to over-deliver on 2022 free cash flow. So in terms of the 2022 2023 guidance we're in a really good spot.

That's really, what I was just going to get to at the end. I mean we had -- if we exclude, the blackout and I think mission is still dark, but small. If we exclude the blackouts and the CW we're, do you have any view on blended 2022 2023?

Are you talking retrans or free cash flow?

Free cash.

Well, the biggest impact is going to be interest rates I think, right? We will exceed our 2022 free cash flow projections that go into the guide. And that's despite a 300 basis point increase in interest. We're still gathering information because it is a free cash flow guide. We feel very good operationally, but we want yet to get a handle on interest rates and particularly interest rate increases for next year, that could take a bite out of our free cash flow. But that is the primary element I think that would determine any deviation from our established guide.

Got it. Perfect. Thanks very much. Appreciate the color, guys.

Our next question will come from Craig Huber with Huber Research Partners.

Thank you. My first question, retrans subs, what is -- if you could just quantify for us what is the percent change year-over-year for your retrans? Obviously, it got a little bit worse here, but what you usually talk about on a trailing 12-month basis.

Well, as I mentioned the way that we calculate it includes MVPDs, virtual MVPD's, the diginet and the streamers that has increased approximately 1% since the June quarter end.

And year-over-year, what is it versus a year ago when we roll it all up?

Yes.

Okay. And then talk a little bit more about political advertising. Political advertising for yourself and your peers generally it's come in lower than people expecting third quarter the fourth quarter is looking like you're -- what exactly is going on there from your perspective? I mean people have talked about shifting to other markets, overall fundraising lower than expected? And when did you maybe perhaps start to see political come in lighter than maybe you originally were thinking?

Well, I can't speak to our peers. I can speak to the numbers that we gave you. And we have 103% of what we had on the books at election day of 2020. I will tell you that particularly the PAC money as in a presidential year, the presidential money will move around based on races falling in or out of a competitive nature. But as we sit right now, we've got more money on the books for 2022 than we did at this time for 2020. Now, we had a two-month runoff election in Georgia -- actually two of them in 2020. And depending on who you talk to, there will either be or not be a runoff election in Georgia after tonight. So, -- but again we gave you our political number. It's slightly over $500 million for the year absent any runoff activity. And again we follow this closely and we know that when races become non-competitive that money PAC money and other money will be shifted to other markets. And we've been beneficiary of that in some and it's caused us to come up short of our expectations in a particular state. But overall again we are at and slightly ahead of our political guidance embedded in our guide.

My other question guys your comment earlier about LA Clippers in Los Angeles 15 NBA games as set you're going to show there on your guess KTLA TV station or assuming that goes well and I assume it will be. Are you hoping to be able to do that elsewhere? And what does that sort of mean for the regional sports networks? Is that where those games came from?

It is where the games came from and these will be 15 games that will be exclusive over-the-air. And it was done in consultation with and ultimately consent with the RSN. The RSN will have the rest of these games. These are not simulcast; these are exclusive over-the-air. And I think Steve Balmer is a well-respected owner in the NBA and we have subsequent had conversations with two other owners in the NBA about creating this similar type of, I guess, you would call kind of a welcome mat package right that could introduce to the over-the-air audience that may not receive -- that does not receive an RSN, a package of games that might have an interest in perhaps an RSN package or perhaps in a ticket package. So, I do think you'll see more of this as time goes on and we have been engaged in some early discussions with other teams in markets where we have CW, MyNetwork, or independent stations that could have the bandwidth to accommodate a slate of games.

And then my final question guys this is talk in the trade press about NBC potentially pulling their 10:00 P.M. entertainment programming and stuff and turn over that hour to the local affiliates stuff. If that does happen what do you think that means for your financials? Overall, would it be neutral good bad? How do you view that whole development potentially?

It would be good. We'll make more money with an hour of news at 10 than we do with an hour of network programming where A, we have all the inventory and B, I would expect if NBC goes from 89 hours a week of programmed -- network program time to 81 or 82 hours a week of network program time that we paid them less. So, -- but all around, listen, we have a number of FOX and CW and MyNetwork stations that program news is in that last hour of prime and they are extremely profitable.

Very good. Thank you.

Now we will move to a question from Jim Goss with Barrington Research.

Okay. Thanks. A couple of things, first on the CW, I was wondering if you could characterize the timeframe of the program and shift away from the Paramount and WBD content. And how big a share they might have, when you get to your end game?

So this is Lee Ann. The programming for the CW is in place for the 2022, 2023 broadcast season, so that extends through the end of August sort of September timeframe of next year. You'll see that programming that's consistent with what the program we spent historically on the air, through that timeframe. During this -- over the course of the next year, we're really working to develop our slates which will then come online in the 2023, 2024 broadcast season. We will have some carryover commitment for the CBS and WBD programming in that year, but it's minimal at that point.

Yeah. Warner's and Paramount are not precluded from selling us programming. It's just going to have to be a financial deal that we like. And there may be a couple of shows that distinguish themselves this year that we want to roll over into next year. I can tell you that Dennis Miller hired a very gifted program executive Brad Schwartz and Brad Schwartz on a much smaller budget, than we've given them at the CW was able to find and develop a show called is Schitt's Creek which we felt the -- your job is easy, just go find a couple more of those and we'll be in fine shape at the CW. But he has a very creative mind, very creative deal making and has a sharp eye for talent. So I like the direction that we're headed. And I think you'll like the shows that we think will appeal to a broader audience, more of a mix of scripted and unscripted than we have today. But I'm very excited at the progress in the early days.

All right. Thanks. And the one other thing I was going to ask about NewsNation as we get to the end of the political season, is this a competitive benefit to you moving into sort of a post-election cycle, or do you think political will still have an important role on NewsNation as you go through the years?

Well, obviously in times of a big news cycle all cable news network’s benefit. And we certainly saw that and are seeing that. But we're still in a build mode here. So we're gaining share of audience and gaining share of revenues as we build out here. So our job is to introduce likable, watchable new and in many cases well-known talent to the network as we expand our program schedule. But I will tell you that the ability to take what the broadcast division developed in these debates in Ohio and Pennsylvania and Texas and Illinois and Georgia and being able to stream those on our NewsNation app as well as broadcast three of them nationwide on the linear cable channel gave us huge credibility in the political arena. We did 50 debates as a company. And that's across the country. No other broadcaster can even come close to that. So I think that in Washington people see we are committed to the political process. And airing these debates unvarnished, we're not going to tell you what I think we're going to put them out there and let you determine what you want to think. And I think they have been and will be impactful in this election cycle. So I -- my hope is that that will continue to elevate our stature as a place to go for as an honest broker of information that will show both sides, be fair to both sides and let people determine what they think out with an unvarnished opinion on it.

I think that was very smart way [ph] to end the discussion. So that’s all I have. Thank you very much.

Now, we'll hear from Aaron Watts with Deutsche Bank.

Hi, everyone. Thanks for having me on. A couple of questions. First, nice to see auto and positive territory again. As best you can tell with the political crowd out has that momentum continued in the fourth quarter. And is it coming from the dealer level, the OEMs, et cetera? Any color there would be helpful.

Well, it's pretty much broad-based. We're seeing it across all three tiers with both manufacturers and individual dealer spending being ahead of the prior year. So it's all supply chain based as they have more vehicles to sell there is still pent-up demand. And so automotive being up 5% that's a great pattern I think. And ultimately I think as it gains momentum as more units are delivered to dealers this could be a tailwind for us in 2023 in terms of our core advertising.

Okay, good. And then Lee Ann just two quick ones for you. But I believe your cap stack is around 60% floating versus 6% now, correct me if I'm wrong. But do you have any rate hedges in place? And then finally as you think about the CW, once you're able to achieve breakeven there of sustaining would the plan be to sold into the restricted group with the TV station portfolio, or is it more -- most likely to remain separate for the duration?

Yeah. So on the first point, yeah, we're about 60%, little more than 60% floating. We don't have any hedges in place. The low interest rate history has really impacted positively the business being more floating than fixed. So we don't have that in place for -- from this place forward. The other thing on the CW in an unrestricted subsidiary I think we'll look to probably bring that back in at some point in the future once we get it to profitability.

Okay, great. Thanks very much.

We'll now take a question from Steven Cahall with Wells Fargo.

Thanks. So I just wanted to go back to guidance. I was a little unclear there. In my memory you typically give numerical free cash flow guidance most quarters. I think pretty much every quarter except COVID. So just to be clear at the moment, are you reiterating the free cash flow guidance that you've given before excluding the CW. And same question on retrans, because you've given a quantitative I think mid-teens retrans guidance for 2023. So should we assume that is reiterated as well? Thank you.

So I think with respect to our free cash flow guidance, I think what you heard Perry say that we're on track to overachieve the free cash flow that we had in the 2022, 2023 guidance for the 2022 period. So that's what we are stating here today.

And with regard to retrans, there is no change to our guidance for 2023 at this time. We'll be reevaluating that between now and year-end as we get more information on these contract renewals and more information more in-depth information on subscriber trends.

Got you. And then, Tom just with local down 2% in the quarter, including the crowd out, is your sense right now that you think core next year, kind of, any sense between flat up down based on how that's trending?

Let me take a stab at that. I think what we're seeing…

Sure.

And it's pretty much across the board in broadcast and cable networks and national spot national digital as well as direct response. National advertisers are demonstrating some caution and some pullback in anticipation of consumer weakness. However, local where the business owners look the customer in the eye at the checkout counter has been much more resilient because locally we are not seeing consumer weakness. The consumer is still spending. So I think that what you'll see obviously fourth quarter with a record level of political advertising. But in the first eight weeks of the quarter or six weeks of the quarter there will be some crowd out there. And again, we're right in the middle of putting together our budgets and doing our deep dive on categories and all of that kind of stuff. But operationally, we don't see a huge change in 2023 from what we've been delivering in 2022. The biggest question I think is interest rates. And we'll have more -- we'll share more information when we are confident that we have good information to share.

Thanks, Perry. And maybe a last one just on what you talked about with ATSC 3.0 being as big as it could be by the end of the decade. Do you at this point have any beta trials or test cases in terms of like business-to-business data casting? I would love an update on any work going on there? Thanks.

I think you can expect to see an announcement sometime from us between now and the end of the first quarter on that.

Thank you.

Moving on to a question from Barton Crockett with Rosenblatt Securities. And Barton, your line is open, you might be muted.

Okay. Sorry, can you hear me now?

Yes.

Okay. Sorry, about that. I wanted to ask a couple of questions about the, kind of, near-term numbers to make sure I understand what you're seeing and what you're saying. In terms of the subscriber churn, you said one percentage point, I assume additional kind of deceleration. And I think you were talking to around a 2% kind of decline in subs. So I think that's going to about 3%. So I want to confirm that I'm hearing those numbers in the ballpark of correct. So that's one. And then secondarily on ad pacing. You talked about the trends through the September quarter. I'm just wondering if you could talk about what you're seeing in core here in the -- I mean here in the December quarter what you're seeing in core particularly after the political maybe November, December what you're seeing in terms of pacing?

I'll take the first one and then I'll let Perry handle the second. What we said on the second quarter call in August was we had a low single-digit attrition rate for all subscribers are all areas that we're being paid for, again, MVPDs, virtual MVPDs NewsNation Diginet and the streamers. And that that's the amount that has increased by approximately 100 basis points. So it would be more along the lines of low to mid-single-digits as opposed to low single digits. Is that helpful?

That's helpful. Thanks for that. Care splitting it. It's important right now. I appreciate that.

Yeah. I would just say, we have to start with the fact that we announced this morning, we have doubled the political revenue on the books in the fourth quarter than we did in the third quarter. So obviously, there will be displacement in core that will cause core revenue comparisons to the prior year to be lower than the third quarter. But you should expect that in the fourth quarter with that level of political advertising. But thematically, I don't think we see much difference in the categories that Tom reported on that are up and down. It's pretty much the same story in fourth quarter. And it will be a slightly greater order of magnitude given that we had twice the political revenue on the books than we did in – with what we reported this morning for the third quarter.

But in terms of after political so from here forward, do you any sense of the pacings are they still on track still the same?

We don't usually give pacing on a month-by-month basis, but yeah, December pacing better than October absolutely in core.

Okay. All right. Great. Thank you.

Next up, we have Nick Zangler with Stephens.

Yes. Hey, guys. Congrats on the quarter here. You matched the political ad spend or ad revenue from the prior election and just coming off the Scripps call, they had suggested that the total political ad spend is coming in around $8 billion for the year. And I don't know the source, but just curious, if you agree or disagree with that statement, because obviously if true, it would suggest that you guys were able to post a flat result relative to F 2020 versus a material decline for the overall market. And then just relatedly, obviously, given your results and commentary or the results and commentary from others it would suggest that, there were some pretty weak ad spend results in some states. But again, given your result, it would imply that maybe some states experienced pretty strong growth above and beyond what they did in 2020. So just wondering, if you saw that as well?

Well, yeah, I mean we don't look at the macro other than our macro. So in states we – I cannot opine on Arizona political, because we don't have a state there – station there. I will tell you that the number one billing state for us or station right now is in Nevada, a single station will build more political revenue there than any other in our company. And that's because of obviously a very contested Senate race there. But states that were good for us, I think you heard Tom say, Ohio, Pennsylvania, Nevada, California and California had all kinds of things going on, the sports betting referendum as well as candidate races up and down the dial. We had more political in Texas than I think we anticipated given the governor's race and some of the house races that are purple at this point, and turning blue to red particularly in South Texas where we have a number of stations. So this happens, right? So that money will move around to support candidates when races become competitive. When they fall out of being a competitive race or outside of the margin of air, that money will go somewhere else. You'll see the same thing in 2024 once the presidential candidates are chosen for each party that they -- that money will follow the competitive states. If the state falls out of being competitive that money will move -- will drive up immediately. So it's the fact that we reach literally 68% of the country with our broadcast signals and have over 80% of all competitive races. I think that's one of the reasons and the fact that we really do a deep dive into forecasting and updating our forecast, I think, that's why you see our political performance where it is. And so -- and it's interesting. We have more money on the books today, as I said earlier, for 2022 than we had on the books this day, election day in 2020. We had a very important runoff in Georgia that was going to determine control of the Senate, two races there, as well as two runoffs going on there. And they went on for two months. If there is a runoff in Georgia it will be for one month. And we -- our stations are in Savannah, Augusta and Columbus. We're not in Atlanta. So it will have incremental impact if there is another race coming on, a runoff race. But again to be literally within $20 million of 2020 total for an off year or mid-year election cycle, is something we would call heroic, I think, in terms of the performance. And my compliments to our broadcast management team as well as our station and sales managers for maximizing this opportunity.

Yes. No, I totally agree. Do you think that broadcast in totality was a beneficiary of any potential shifts out from outside channels like -- do you think search and social media ad spend was diverted and maybe into broadcast, can you see that or feel that?

No. It's the story that gets sold every year and broadcast every year continues to take the lion's share of all political dollars spent. We'll do, probably -- it will be less than $20 million in political revenue across all our digital platforms and that's primarily get fundraising. It's not -- I think that the Internet has been seen as a fairly effective fundraising mechanism, but not necessarily a great get out the boat mechanism. So the politicians, time and again, prove that local TV works. And if you -- and that's as close to a direct response, if you spend the money and get elected it's kind of an affirmation that the system works.

Got it. Last one for me. That conversion that you talked about from vMVPDs. Obviously, that results in a negative impact to retrans fees or retrans revenue even though the profitability is unchanged I get that. But just I'm wondering if you - how should we think about the embedded impact of this transition within retrans fees, as we push forward and you continue to have fallout from the linear MVPDs into the vMVPDs. Is there like a -- is there like a negative 1% or negative 2% embedded headwind in your retrans growth because of that impact? Again, I understand the profitability is unchanged, but just on the top line there just so I understand that. Thanks.

We -- I haven't done that level of detail or I'm not in a position to comment with regard to the specific math on retrans revenue. But you are correct, it will affect retrans revenue, but will not affect our contribution from the distribution ecosystem from that perspective.

Yes. And just to put a finer point on it, I mean, it's less than 10% of our retrans revenue is coming from that source. So it's a small number.

Got it. All right. Very helpful. Thanks guys.

Ladies and gentlemen, this will conclude your question-and-answer session. I'll turn the call back over to Perry for closing remarks.

Thank you very much and thank you all for joining us today. Underpinning our performance this quarter and every quarter is our strong financial framework and the cash-generative nature of our business, which has enabled Nexstar to consistently deliver prodigious levels of free cash flow. Looking ahead, we continue to execute against our long-term strategies taking the necessary actions and making the required investments to shape the future of Nexstar, while delivering long-term growth and outsized returns to our shareholders. Thanks again for joining us today. We look forward to speaking to you again next February, when we report on our fourth quarter results. Have a great afternoon.

Ladies and gentlemen, this does conclude your conference for today. Thank you for your participation. You may now disconnect.