Good day, and welcome to Nexstar Media Group Fourth Quarter and Full-Year 2022 Conference Call. Today's call is being recorded. And now I would like to turn the conference over to Joe Jaffoni, Investor Relations. Please go ahead, sir.

Thanks, Priscilla, and good morning, everyone. I'll first read the safe harbor language, and then we'll get right into the call. 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 this call. For additional details on these risks and uncertainties, please see Nexstar's annual report on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission and Nexstar 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. With that, 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 today to discuss Nexstar's outstanding fourth quarter and full-year financial results. As always, with me on the call this morning 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. That will be followed by Tom's operations review and Lee Ann's financial review, and then we'll open the call for questions from you. It's clear from our results that 2022 was a monumental year for Nexstar and a referendum on the power of the broadcast model and its ability to deliver audiences at scale and strong levels of free cash flow. Full-year net revenue, adjusted EBITDA and attributable free cash flow reached new all-time highs. We exceeded the $5 billion annual revenue milestone for the first time in the company's history, and we delivered record adjusted EBITDA, attributable free cash flow of $2.2 billion and $1.5 billion, respectively. Overall, our full-year top and bottom line performance was led by strong year-over-year growth in political advertising, distribution revenue as well as digital revenue. Double-digit attributable free cash flow growth enabled us to return approximately 68% of our 2022 attributable free cash flow or a record of $1.02 billion to our shareholders in the form of share repurchases as well as dividends. In addition to posting another blockbuster year of financial results, Nexstar achieved a number of strategic and operational accomplishments that are positioning our company for future growth while enabling us to continue delivering the financial performance, cash flows and shareholder returns that investors have come to expect from Nexstar. On the strategic side, we acquired a 75% interest in the CW network for no purchase consideration, adding a national broadcast platform to our…

Thanks, Perry, and good morning, everyone. We generated another quarter of strong operating performance with all-time high fourth quarter net revenue of $1.49 billion. Net revenue for the quarter increased 19.3% from the prior-year quarter due primarily to our strong political results as well as inclusion of the results from the CW, partially offset by a decline in core advertising primarily a result of national advertising market softness. Excluding the results of the CW, net revenue was up 14.3%. Core television advertising decreased 3.3% year-over-year. Excluding the impact of the CW, core advertising was down approximately 8.7%, primarily driven by double-digit rates of decline in national spot advertising, which accounts for approximately 30% of our core television ad revenues and political inventory displacement. Nexstar's local TV advertising revenue, which represents approximately 70% of our total core TV ad revenues, excluding the CW continues to meaningfully outperform national declining just 2% year-over-year despite significant inventory allocations towards political during the quarter. This continues to be in line with the historical trends with local advertisers maintain more consistent levels of ad spending throughout economic cycles. So far in Q1 of '23, we're seeing similar results to what we saw in the fourth quarter with this revenue category. Excluding the impact of the CW, our top-performing categories in the quarter were automotive, home repair and manufacturing, entertainment, paid programming and air conditioning and heating. We're extremely pleased to see auto, our largest advertising category in terms of dollars spent, maintain its growth trajectory for the second consecutive quarter, increasing 23.5% over Q4 of '21. In addition, Nexstar's local sales initiatives continue to deliver healthy levels of new business with our sales teams generating new local advertising incentive program revenue of $37 million, flat to the prior-year despite significant political displacement. The category is…

Thank you, Tom, and good morning, everyone. Our 2022 fourth quarter and full-year financial results showcase the underlying strength of our scale and business model and our ability to continue delivering record results and significant capital returns to shareholders. Before I dive into my usual financial discussion, I wanted to take a minute to step back and discuss a few changes in our financial presentation that we've been foreshadowing. Since we own 75% and control the CW, the CW is consolidated to our financial results. Although it is a small part of our overall financial results, we've announced by analysts and investors to break out the impact of the CW. We also believe it is important to do so since we view the near-term losses of the CW as a proxy for purchase price, as we intend to bring the asset to profitability by 2025. In addition, for purposes of our credit agreement and indentures, we have designated the CW as an unrestricted subsidiary, and it is not included for purposes of calculating our covenants. To that end, on the cover of our earnings release and in the tables at the back of the release, you will be able to find selected financial metrics for Nexstar on a consolidated basis for Nexstar, excluding the CW and also for the CW on a standalone basis. With respect to our free cash flow guidance, we've opted to use an attributable free cash flow figure that includes the cash flow of Nexstar and its interest in the Food Network and our attributable 75% interest in the losses of the CW and the related tax benefits of those losses. Seasonally attributable metric is a good proxy for the cash flow available to be reinvested to be used to repay debt or return to shareholders.…

Ladies and gentlemen we will now begin the question-and-answer session. [Operator Instructions]. And our first question comes from Craig Huber with Huber Research Partners.

Great. Thank you. Just some nitpick questions, if I could start off with on the CW. I think you said SG&A was up $5.9 million, excluding the CW. What was your direct operating expenses, excluding that the CW? And how are you seeing that tracking this new year? It's my first question.

I'm sorry, how our direct operating expenses tracking in...

Well, I mean is there anything out of the ordinary we should know about your direct operating expenses this year, putting aside the CW and beyond the ordinary?

Nothing out of the ordinary, no.

Okay. And then what was your retrans revenue if you just exclude the CW? What was that percent change including the hit, unfortunately, for the blackouts?

You want to know what the distribution revenue was excluding the CW?

Yes. In the fourth quarter, yes. I just able to get -- yes, please.

Well, I think we gave that. It was up low single-digit percentage on an adjusted basis.

He just wants to know what the amount of the CWs at high-teen, high-teen number of -- amount of revenue related to the CW.

Okay. Great. And then a big picture question. I mean given all the controversy and uncertainty out there about the U.S. economy and given how large your footprint is on the TV station side, Perry or Tom or et cetera. What is your thought on where the U.S. economy is at right now? Are you feeling any increasingly worse about it now than you were, say, three months ago?

No, Craig, it's really interesting. Obviously, we spent a lot of time in front of local business owners and local advertisers. And they see the customer at the checkout counter or at the cash register, and they know that local consumers are spending and have factored in 7% mortgages and $3 and $4 gasoline into their daily lives. And are making choices and maybe moving some of that spending and you're seeing higher net worth customers showing up at Walmart to buy some by their basic items. But the consumer is still spending and local spending for us is hanging in there just fine in the first quarter. The weakness we see is in national where national advertisers that obviously aren't as close to the end user and customer have paused or reduced spending due to a potential weakness in consumers going forward. So it's really a dichotomy where Main Street is scoping and surviving just fine, and it's more the national advertisers that have pulled back on their spending in anticipation of a weakness in consumer spending, which at this point has not manifested itself in our numbers or at the local level.

Sorry. My last quick question, core advertising for the first quarter. How much -- are you expecting that to be down, but roughly mid single-digits? I know you said core was -- for local was holding up pretty well, maybe down about 2%, it sounds like. But about the overall though -- for 1Q?

For spending versus a prior year?

Prior year, excluding the CW, please?

It's a single-digit amount. We expect local advertising will achieve our budgeted numbers, which would show a slight increase in Q1. National will be down a low double-digit amount. And given the weighting of those numbers, we see, again, kind of a low single-digit decline year-over-year is what we're forecasting currently.

Great. Thank you guys.

Our next question comes from Steven Cahall with Wells Fargo.

Thank you. So maybe as expected, Tom, hoping we could just unpack some of the things you went through on retrans a little bit. So if I understood it correctly, is this that you expect retrans ex the CW to be up about mid single-digit. And then if you get some of the current blackout renewals done, then accelerates into that new guidance. And I think that the prior guidance was mid-teens. So I was wondering if you could just help us kind of bridge the gap there. Is that cord cutting? Or any difference in rates that you're achieving or anything else we need to think about?

Well, again, I've said for the full-year, we expect high single to low double-digit growth. And I think the only differentiating factor in that is how long the blackouts continue. In the first quarter and the first half of the year, I think it will be more pronounced. So we believe the first half will be more like mid single-digits, and then it will grow into the full-year expectations in the back half of the year. And with regard to overall growth, again, if you look at our expectations, assuming no further blackouts in a quick resolution at low double-digits the bridge between low double-digits and mid-teens would be increased attrition.

Got you. Okay. And then on the reverse side, is there any change there to kind of the outlook that you gave a few months back I know that was also, I think, mid-teens at that point. It sounds like your reverse is going to be up about mid single-digit, and you just kind of went through what's going on, on the growth side. So is the change to the implied net just the difference in gross or anything else on the reverse comp side?

Well, no, I think I mentioned it in my comments that the growth in network affiliation is much more modest than our growth in retrans revenue. So you'll see our net retrans margin increase. I didn't give a specific, but it will be higher than the revenue growth.

Great. And then, Perry, you mentioned that the recent distribution renewals effectively have paid for the CW deal. So maybe you could just put a little more context. Are your MVPDs kind of happy to pay you a higher affiliate fee for the CW now that you're pairing it with broadcast stations or any other kind of context you could put around that statement and whether or not that's been an incremental surprise or that was always part of the thinking when you bought the CW?

Right. I think it was all part of the thinking. We think the CW was undervalued for any number of reasons, mostly related to predecessor owners and parent company priorities and agendas. And then also when we're negotiating with the largest big four station group and you negotiate this all as a package, there is leverage inherent in that model. And so we are very pleased with our ability to continue to earn more for the CW. And obviously, with things like LIV Golf and other programming expansions, we're hoping to create more value so that we can ultimately extract more value as we go.

Great. And then lastly, just on sports content. Last quarter, you announced the Clippers deal. We've seen a number of RSN groups now kind of get into a period of change. And one of your peers has also recently launched a service that's going to pick up regional or local sports rights. How do you see that kind of opportunity between both local stations and the CW. Do we know enough yet to know if it's a buyer's market? Is it still a little too early? I appreciate that. Thank you.

Well, I can tell you that the number of inbound inquiries as well as discussions that are going on with team owners the activity is frenetic around here. The -- there are lots of discussions. I think our Clippers deal with Steve Ballmer and the Clippers putting a group of games on broadcast exclusively to expose that to the part of the market that is not inside the pay TV universe kind of broke the seal. And I think that other team owners have taken notice of that. There are a lot of conversations going on. I would expect you'll see us do more deals as time goes on. But I think to a certain extent, people want to see how the RSN plays out and what that means to them and then, therefore, how that influences their behavior going forward. But we have a receptive audience, certainly among NBA owners and NHL owners that see the value of broadcast TV and exposing and distributing their product to a much larger audience than is available in the pay TV universe.

Thank you.

Our next question comes from Dan Kurnos with the Benchmark Company.

Great. Thanks. Good morning. Perry, maybe just to follow-up on that a little bit. How should we think about your willingness to trade off in kind of prime time sort of programming, like how are we thinking about either from a CPM or a viewership perspective, if you wanted to put stuff on CW sort of that trade-off between sort of traditional programming and sports. And if there's any way to kind of I don't know, directionally size the impact of LIV Golf, just so we have a sense of what these kind of deals could be -- would be helpful?

Well, I think our -- I guess I stated earlier, our goal is to create more value in the CW. Certainly, sports is one avenue that has never been pursued there before. I can tell you that our first -- we're very pleased with our first weekend of LIV Golf across the first three days from Mayakoba, Mexico. LIV Golf was viewed by over 1.4 million total viewers across both the CW linear network as well as our digital platform, the CW app, compared to the average linear golf game on television year-to-date LIV Golf's two day average linear viewership was 24% higher than the average. And important for us, the linear broadcast ratings increased 21% from Saturday to Sunday -- so all of which is to say those numbers exceeded our expectations. And most importantly, the affiliates as well as our own stations were thrilled. I know that our affiliates and CW affiliates in the top 10 markets generated about 3x the amount of money that the network generated for this first outing. And so it's selling very well and I think we'll continue to grow as we get more into the season and more involved. So I think that sports, I think adding another hour on Sunday night to the prime time schedule, are all things you can expect in the future. And again, we want to make the CW -- I mean, it has a distribution on par with the big four. So our job now is to continue to increase the profile, relevance and interest in the programming, offer more varied programming and sports is obviously a big piece of that, that can put us more on par with the other network choices that are out there.

That's helpful. And just another one, just on political, I know it's obviously early for '24, but I mean you have a really broad platform, and we've seen some creative ways that others have kind of attacked it, whether the CTV partnerships or what have you. And you guys obviously own some political specific properties now. So I don't know how do we yardstick kind of '24 relative to whatever pro forma 2020 was if you have that number? And what kind of incremental opportunities or channels do you see heading into next year?

Well, I would say, first of all, that embedded in the guidance that we issued this morning is a record political number for 2024, and it is up not inconsequentially from what you saw in both 2022 and in 2020. So it will be a record year. The reach of our local platform, which is where the political game is played overlaps very well with the open Senate races, the states that are expected to be in play for the presidential contest. And so we are very bullish on political 2024. I would say, things that will exist by 2024 that don't exist today. There will be a show called The Hill on NewsNation at 5 o'clock Monday through Friday that will launch in April. That would be -- that is a perfect conduit for newsmakers, politicians and others to reach a national audience. We anticipate being active in the debate business as we were in 2020. And in 2022, we did 50 debates across our company, three of which we put on the national cable network to offer to all of America outside of the states in which they were being contested. I think you'll see us more active on the debate stage. Certainly, when you look at the power of The Hill, which is a national brand in concert with NewsNation, which is a national brand; and the strength of our local stations, which is the backbone of everything we do, I think you'll see all of that come together in a unified sales effort to highlight the opportunity available to us in 2024 and beyond.

Great. Thanks. I appreciate it.

Our next question comes from Nick Zangler with Stephens.

Yes, hey guys. Thanks for giving me on. How would you gauge the risk, I guess, that the impasse with CBS over fuboTV carries over to the other vMVPDs like YouTube TV, Hulu TV, Sling TV? Are those negotiations coming up at all? And are we talking about the affiliates effectively drawing a line in the sand here, which could see and could create spillover and impact these relationships with other vMVPDs as well?

Well, I'll go back to what Tom said in his prepared remarks is that total virtual MVPD revenue is approximately 10% of our distribution revenue. So if it were all at risk, that's the number that you're talking about. Right now, I think you can say that the fubo dispute is a dispute over money as well as governance issues. And so I think you'll see affiliates continue to press the point that we should negotiate our own agreements and that no one else should be negotiating on behalf of our content. And that and money are the two issues here. And I think for the long-term health of the local ecosystem, we talk to people at Roku at fubo at other virtual MVPDs, and we asked them, what are they watching? And they say, the locals. And so not unlike traditional cable, where we are the most watched channels in the bundle, why would that be different in a virtual universe? And so we know we have value. And I think individually and collectively, we will recognize that value and are not willing it to sell at a discount or to sell on an à la carte basis. So you have an inferior offering in the marketplace. If you don't have the global stations, I think that should tell you everything you need to know about the leverage in the discussions. And so if that means we have to go dark for a little while to make the point. I think -- our company as well as others in the industry have made the value judgment to do that.

Understood. No, we heard it directly from fuboTV yesterday that they want that local content back, but understood there. And then just a second question here. It's great to hear auto continue to come back, obviously, a huge vertical for you guys. Curious if you could size that up a bit. I'm wondering how auto is performing when you look back relative to those pre-COVID levels. Are we bearing full normalization here? Or are there still significant room to run on auto getting back to maybe a more normalized rate in that 2019 pre-COVID era?

Yes, we are not back to 2019 levels yet. We are seeing some sustained healthy increases off of that lower base. I think we have another couple of years of these kinds of increases before we begin to approach 2019 levels, both from a national SAAR as well as unit spending. But it is certainly a tailwind in core advertising revenue that auto is up and up double-digits, and we see that continuing throughout the year.

So basically, auto under -- the way you're describing it. Auto is likely a multi-year tailwind as we continue to push to normalization, which would require SAAR levels back in that $17-ish million -- or million unit range bag in pre-COVID era?

Yes. We see it as a multiple year tailwind for our company, certainly.

Got it. Thanks so much guys.

Our next question comes from Jim Goss with Barrington Research.

Thank you. Your comments about rate of drawing attention to the CW. Could you talk a little bit about how else you are going to try to navigate that process of changing the content and publicizing the changes in the content to attract the desired audience since that transition could pause its own challenges.

Sure. Well, I don't think because other networks might be listening. We want to necessarily put our playbook out there, but I think you'll see as we move towards the upfront level and the programming schedule that will be displayed and deployed for the fall. I think you'll see some higher profile programming there, certainly in the unscripted than you have seen historically. Dennis Miller and Brad Schwartz and their teams are hard at work putting that together. They're fielding tons of pitches. We've signed some things. We haven't announced yet that I think will be of interest. And so I think it's an iterative process. It's a gradual process, but I think you'll see just generally less of a reliance on scripted, although we're not going to totally abandon the genre. But more reliance on unscripted, but a higher quality of unscripted, a higher profile, something that's maybe a little bit more noisy that will get some attention and get some eyeballs. And we'll continue to look for additional sports opportunities that may or may not be on weekend afternoons may bleed into prime time upon occasion. I mean, we wouldn't rule any of it out. And we know that from everyone we talk to, people understand the power of broadcast and what broadcast has that no one else has, which is superior reach. And so we're interested and quite frankly, very pleased with the reception we've had in the marketplace that there may be another voice out there, another national opportunity for distribution over the air and through the broadcast model. And people are enthusiastic about engaging in those conversations.

Okay. Thanks Perry. And the one other one with NewsNation. It seems like you're pretty much through with the reshaping process there. I wondered what the next steps are. And I assume you -- the initial bogey was to basically do better than we were with off-network sitcoms. Now you probably want to raise your sights in terms of the margins and the profitability you can generate with that station or the network. I wonder if you could talk about that a little bit, too?

Sure. Next steps for us, obviously, Elizabeth Vargas joins the network in April. And by the end of April, we will have a program schedule that will be news 24/5. So we'll be a 24-hour news network Monday through Friday by the end of April, and that will include the daytime expansion, the addition of the Hill, the addition of Elizabeth Vargas reports show at 6 o'clock Eastern Monday through Friday. And at that point, obviously, we're getting higher cost per thousands in news programming than we did in off-network programming. We've been able to substantially grow our distribution revenue because of news content and being one of five networks rather than one of a 100 general entertainment networks. If you follow the decline in general network -- general entertainment network ratings, we couldn't have made the pivot at a better time. And so yes, our profitability has been enhanced, and we're investing our syndicated programming expense back into journalism. That's what's driving the buildout. And then obviously, once April comes and we're 24/5. We now set our sights on 24/7 and how we feel the 18 hours on Saturday and Sunday that are currently entertainment programming, we have to fill that with news. And so that will be the big lift, and we'll have that piece done by the end of 2024 and then we'll be a 24/7 cable news network. As I said in my remarks, January was the highest cumulative audience for the network since its inception. So we continue to grow the numbers are off of a low base, but we're the only cable news network that is growing, and we continue to grow. We grew double-digits in the fourth quarter. And again, I tell people, I don't care what the ratings are three months from now. I care what they are three years from now, just do better, continue to grow every day and don't get caught up in a minute-to-minute and all of the minutia, but just put out good product and we'll continue to grow it. Our promotional campaign will kick off in earnest in the month of April and between our stations and our paid media. It's approximately $100 million investment through the balance of the year that will attempt to raise our profile, raise our awareness level and continue to expose what I feel is the top-tier level of talent that we have on the network. I'm very proud of the folks we have on the air and the job that they do, and we look to add to that as we continue to fill out these other hours and other dayparts.

All right. Thanks for all the color. I appreciate it.

Our next question comes from Barton Crockett with Rosenblatt Securities.

Hi, thanks for taking the question. There are two topics I just wanted to ask a little bit about the -- first on this national feed. I just want to understand kind of one logistical thing. Are they able to see the local football game from the NFL on CBS? Or is it just like a national game on that national feed? Is there any leverage around the ability to see local games that if somehow rights constructed by the agreement with you or not? Or is it really just a news as you only kind of look all?

When you refer to Bay, who are you talking about? You are talking about the local station or the network because...

Yes, yes. I'm talking about like if I was a fubo subscriber in Portland where you have the coin station, can I see the Seahawks on Sunday on CBS or not? If that's a local game? Or am I giving some national game like the [indiscernible]?

On the CBS -- the CBS white feed, if you will, yes, you probably can see that game on that feed. I think if this dispute goes to the end of football season, I guess we'll all find out, but I think they do have the right to include that in their feet at this point in time.

Okay. So your leverage is really just your local content, your local news. All right. And then...

Yes, don't value. Because that's a lot. But yes, that is what people want us for is the local content.

Okay. And then switching to ATSC. It was interesting Sinclair was talking a little bit about their feeling about the importance of getting the FCC to move so that you can shut down the legacy stations, the ATSC 1.0 to get really enough kind of capacity to generate meaningful revenues off of this. What's your feeling about that? I mean can you generate revenues that are meaningful without that? Or is that kind of a necessity to free up that bandwidth capacity?

The current simulcast requirement does constrain our capacity as to what we can do. And I've recently been at the FCC meeting with the Commissioners as well as the Chairwoman. And I think that you're going to see the FCC engage with the NAV and develop probably some sort of a task force in a public private kind of an arrangement to explore the further development of ATSC 3.0. I think that is absolutely necessary to advancement here. I think, again, if we had a sunset for 1.0, even if it was several years, hence, that would cause the set manufacturers to begin to build to that standard, lessen the backward compatibility problem with those that don't have sets of compatible sets on the dongles or receivers and all of that has to be dealt with and the consumer issues have to come first and foremost. And we need that, too. We're not in the business of disenfranchising customers, viewers and advertisers. So -- but I think if the public and private sector can sit down and talk about this holistically and kick around ideas, and I think that's coming. So I think if that happens, I think you'll -- it will be a positive day for the industry and a positive day for the growth and development of NextGen TV. And we're working independently with Sinclair and with other companies to develop business applications that can be used today, given the capacity constraints and enhanced GPS and distributed power and some other use cases that are not very bandwidth-intensive. And I think you'll see, again, in 2023, some test cases and use cases that will be developed that again is -- we'll be seeing this forward progress in the development of ancillary revenues from NextGen TV spectrum. So we're very bullish on it. Obviously, the simulcast requirement needs to sunset at some point and there needs to be a sunset of 1.0 and an endorsement of 3.0 as the new transmission standard. And I think when those things begin to line up, I think you'll see development accelerate. But we're very bullish on the prospects and think these things are in the queue and on the way.

Okay. I mean do you think you start revenues from that in 2024, Sinclair was saying that. Are you guys saying that at this point?

Well, I mean, we have revenues from our spectrum right now it's primarily in the form of multicast revenue and leasing spectrum to people for their multicast distribution. So it's not an inconsequential number. But -- so there is revenue flowing from ancillary uses of our spectrum today. But in terms of the things, I'm talking about there could be a very modest amount. It would be more in the form of a test of the technology and people testing certain use cases. But I don't expect that anyone would sign on to a big contract until they had the chance to administer their tests.

Okay. Thank you. That's helpful.

Ladies and gentlemen, since there are no further questions, I would like to turn the call back to Perry Sook for the closing remarks. Please go ahead.

Thank you. We continue to believe the investment case for Nexstar is very simple. Nexstar's stock has been one of the best short and long-term performing stocks in media, one of the highest percentage returns of free cash flow to shareholders in media along with solid long-term growth prospects and a low valuation. We have a strong balance sheet with low leverage and excellent short-term visibility with multiple long-term material growth initiatives. '23 and '24 will benefit from new distribution agreements and as we've discussed, 2024 as the Presidential election and big political year. We also have multiple organic growth drivers, including NewsNation, the CW and ATSC 3.0 that are being positioned to generate material growth for Nexstar in the future. As such, Nexstar shares represent a solid investment opportunity for existing and potential shareholders as we are the largest broadcast company with top-tier operational performance in the sector, but we trade at a very modest '23, '24 free cash flow yield. So thank you, everyone, for joining us today. We look forward to speaking to you again soon when we report our first quarter 2023 results.

This concludes our conference call for today. Thank you very much for your participation, and have a good day.