Good day, and welcome to Nexstar Media Group's Second Quarter 2022 Results. 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, Anne, and good morning, 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 today's call. For additional details on these risks and uncertainties, please see Nexstar's annual report on Form 10-K for the year ended December 31, 2021, as filed with the U.S. 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. Thank you for your patience. With that, it's now my pleasure to turn the conference call over to your host, Nexstar Chairman and CEO, Perry Sook. Perry, please go ahead.

Thank you, Joseph, and good morning, everyone. We appreciate you joining us today to discuss Nexstar's record second quarter financial results. With me on the call today are Tom Carter, our President and Chief Operating Officer as well as Lee Ann Gliha, our CFO. I'll start with a summary of recent highlights and developments, followed by Tom's operations review and Lee Ann's financial review. Nexstar delivered another outstanding quarter of financial results and shareholder returns. Top and bottom line performance was driven by a strong year-over-year growth in political advertising and distribution and digital revenues. Net revenue, adjusted EBITDA and free cash flow came in well ahead of consensus, continuing our track record of exceeding expectations. These results validate what our company has proven so many times over the years. Regardless of the operating environment, our business model is resilient and built to outperform. In the first half and the second quarter of 2022, we returned $486 million and $284 million, respectively, to shareholders through share repurchases and dividends, marking all-time highs for both periods. In fact, in the first six months of 2022, we returned approximately 62% of Nexstar's free cash flow or approximately $12.16 per share to our shareholders. Since our last call, the financial markets have been hit by fears of a possible recession. While there's no doubt that companies across all industries are operating in an unpredictable environment, the breadth and reach of our platform and our customer relationships with over 40,000 businesses enable Nexstar to separate the reality from the noise. Based on what we're seeing, there is little to suggest that the current macroeconomic uncertainty will have a material impact on our business. This is consistent with recent positive corporate earnings results across a variety of industries as well as broad-based economic data, including…

Thanks, Perry, and good morning, everyone. Operationally, Nexstar had another great quarter, which drove all-time high second quarter net revenue results of $1.25 billion, reflecting strong year-over-year increases in total television advertising, distribution and digital revenues. Total television advertising revenue grew at 15.7% and was driven by a record second quarter political advertising revenue, which more than offset some softness in a few core television advertising categories. The 2.5% year-over-year core television advertising revenue decline was primarily driven by the categories of insurance, automotive, direct response, government spending related to COVID-19 and packaged goods. Positive performance was delivered by the categories of entertainment, home repair and manufacturing and related categories of carpet flooring and covering, air conditioning and heating as well as fast food and restaurants, among others. In addition, Nexstar's local sales initiatives continue to deliver healthy levels of new business with our sales teams generating new-to-television revenue of $36 million, up 10% over the prior year. Sports betting and gambling remained a top 10 category for our stations in the quarter but declined by mid-single digits year-over-year due to a pullback from sports betting companies, a seasonally low Q2 without the NFL and other key sports and a lack of new state launches in the quarter. The decline in sports betting was partially offset by growth from land-based casinos and lotteries. Despite the market's pressure on sports betting companies to curtail customer acquisition costs, we remain cautiously optimistic about this category as some of our larger states like Ohio have approved legalized online sports betting and will go live in January of '23 or like California, have a proposition on the November balance. In addition, a few smaller states where we have stations including Kansas and Massachusetts have recently approved sports betting. Record second quarter political advertising of…

Thank you, Tom, and good morning, everyone. The continuation of our strong top line growth and profitability resulted in another quarter of outperformance for Nexstar. Tom and Perry gave you most of the details on the revenue side, so I will jump to the expenses. Second quarter direct operating and SG&A expenses both increased as a result of higher revenues, continued recovery from the COVID-19 pandemic, increased affiliation in programming and other costs related to the move of News Nation from syndicated programming and 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 declined given our focus on controlling expense growth. Total corporate expense was approximately $50 million, including noncash compensation expense of approximately $13 million and approximately $3 million of onetime expenses associated with our debt financing and various corporate development activities. Second quarter CapEx was approximately $34 million. Again, CapEx was lower than expected primarily due to delays in receiving equipment due to supply chain disruptions. Second quarter total interest expense increased 8% to approximately $75 million. Cash interest expense was approximately $72 million and compared to $66 million last year due primarily to increasing interest rates. During the quarter, we refinanced the Company's senior secured term loans and revolving credit facilities, which reduced annual cash interest expense by approximately $10 million and extended our maturities. As part of the refinancing, we closed a new $2.425 billion Term Loan A facility and a new $550 million revolving credit facility and Mission Broadcasting closed a new $75 million revolving credit facility. The net proceeds of the new five-year Term Loan A and five-year revolving credit facilities were used to repay…

[Operator Instructions] And we'll take our first question from Dan Kurnos with Benchmark.

Yes. Can you guys hear me?

Yes, now we can.

Yes. All right. Sorry about that. Anyway, Perry, I just wanted to say if it's nice to see you re-up through 2026. I think that's a big win for everyone. And obviously, a record speaks for itself. In terms of my questions, I know you called out no real macro impact to core. I mean, it looks like Q2 softened maybe the margin as the quarter progressed and obviously, political blue out of the water. So kind of two things. One, I know we don't usually call for crowd out in 2Q. But how do we think about crowd out in the context of both Q2 and the forward outlook? And then with regards to the forward pacing in your prepared remarks, it sounds like pacings are kind of running similar to Q3 -- in Q3 to Q2 despite comping Olympics and obviously, the promises to be another massive uptick sequentially in political. So just can you help us take through the dynamics a little bit more there? You sounded pretty confident in your visibility and you did give some category color. So I'm guessing you're not seeing any changes in cancellation or indications to buy. But just any additional color there would be super helpful.

Well, thanks for your nice comments first and foremost. And then secondly, as it relates to Q3, I mean, July is in the books, and it looks like a carbon copy of Q2, distribution, digital, political leading the charge in terms of our growth to the upside with core revenue performing slightly under last year. And I think as you get -- and thematically, we see that through the remainder of the quarter. However, as you get into August and September here, there will be crowd out of political given that we expect a nine-digit gross political number in the quarter, which is substantially higher than we saw in Q2. So I think if you factor all of those things in, also looking at category pacing, automotive for the third quarter is pacing down a low single digit to the prior year. Two points on that. One is that automotive spend is now down to about 15% of our core ad spend, which is where it was in 2008 and 2009 during the recession and credit crisis. So quite frankly, we don't see it going any lower as a percent of our ad spend and think that it's only upside from here. We think the current conditions in supply chain and lack of inventory probably persist through the end of the year, but we think this will be a tailwind for us in 2023. As to the other categories, thematically, again, it looks a lot like Q2 in terms of category report and just the overall tenor and tone of our results.

And just to be clear, Perry, in terms of conversations with advertisers, the tone of your conversation here is obviously a lot different. Yes, I certainly appreciate your commentary, Internet guys or the streaming guys in terms of stickiness, which I think we've appreciated, but just wanted to be clear that those conversations continue, you're not seeing either any concerns around future elevated cancellations?

We have not seen elevated cancellations. I sat in traffic at 7:00 this morning driving to the office. The country is open for business, dealing with oil prices and supply chain issues. But -- that's been the case now for over a year, and we continue to put up the results that we have. So I think the numbers basically speak for themselves. And the reason we reiterated confidence in our outlook is because of the conversations we're having with 40,000 SMBs across the country.

Fair enough, Perry. Congrats on good quarter.

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

So I think that's the strongest buyback you've done in the quarter, at least in our model and maybe ever. You sound like you're very confident in the free cash flow outlook. So I was just wondering how we should think about the buyback. Are you doing this on a planned basis now, so it's sort of automatic? Are you more opportunistic because the stock price was a little bit more disconnected inter-quarter. And Lee Ann, you talked about reducing debt by year-end due to some required payments. Just wondering if you could help us with what that number is, so we can kind of think about how to allocate the free cash flow across those. And then just on net retrans, I'm guessing no change to the outlook that you previously provided for 2023, which I think is in the teens. As we've been tracking pay-TV subs on Q2 results, they do look like they're a little worse. So just wondering if that plays into your thinking at all for net retrans for next year.

Well, I'll take the first two. I think on the share repurchase, we -- it's a combination of being in the market and then also being opportunistic. I think you're right, this was a record quarter and a record first half of the year. We continue to plan to repurchase stock to the extent that we don't have other uses for our capital. And we are opportunistic. You can see all the disclosures in terms of we -- where we are buying back the stock. I would say on the debt paydown amount, so the new Term Loan A that we put in place has a 5% annual amortization requirement. So you can do the math with respect to what that is. And do you want to answer the question on the distribution?

Nothing that we've seen in the distribution numbers that our stations are producing has caused us to have any great alarm with regard to '23. Obviously, we've got five months left before we have to make that call with regard to what '23 looks like. But again, from a pricing perspective, we feel very good about where we sit, the renewals we have, et cetera, which is really the biggest driver of our retrans. So long-winded way of saying no change to '23 at this time.

Steven, I'll just add to that. Our distribution revenue is made up of any sub we get paid on, right? So traditional MVPDs, virtual MVPDs, News Nation, diginets and then also the streamers, Paramount Plus and Peacock, anywhere we're paid to be we count as distribution revenue. So all of that adds up to no change in our outlook. And in fact, year-to-date and trailing 12-month attrition still is less than what is in the numbers that make up the guidance that we give to you.

We'll now take our next question from Aaron Watts with Deutsche Bank.

Perry, I'll echo your comments. I'll be sticking around a little longer with us here. So first question around M&A and the acquisition pipeline, Perry or Tom, can you remind us where your focus is on this front at the moment? And how robust that pipeline is and whether you see being active and not sure you can comment, but there was a flurry of press reports a month or so ago about a specific target, any developments there.

Well, obviously, we don't comment on M&A rumors. So from that perspective, these will be very general comments. I think we've been pretty linear with regard to that we're very interested in content that can be used and digested across the number of distribution platforms we have, whether that be linear cable, broadcast, digital or through other means, either our own or other people's distribution. So I think you'll continue to see that being a level of focus for us because we feel we have a really good and widely distributed distribution platform. We reach 90% of the households and several hundred million people in the country. So we want to make sure that we have a broad offering of content to appeal to all of those people or as many of them as we can as opposed to what we've historically done, which has been very focused on news, which is great. But there's only so much news you can do, and I think it's our challenge to make sure we keep them engaged for longer periods of time, both on the television or any of their wireless or streaming devices with different types of content. And I think that's where our focus really has been of late and will be going forward.

And given your liquidity and the cash flow outlook you've walked us through, do you see being able to execute on M&A without it being too punitive to your leverage profile?

Yes.

Okay. Simple answer. All right. And then if I could squeeze in one more. And I think you alluded to it, it would seem that the streaming AVOD space is getting more crowded by today. Do you see the incremental inventory coming online as a threat to your share of the advertising pie, at least on the digital or national side. I'm just curious how you think about that evolving pressure there.

Well, I think it's yet to be determined, right? There's one pot of money and the extent that there are more fingers in the pot of money makes it more competitive for everybody. I think that what we offer is local activation at scale, which is our unique selling proposition. The fact that we are that branded connection for the last mile and that we are a reach vehicle where I would argue that everything else is much diminished by comparison in terms of the -- just the number of eyeballs. So we feel very confident about our place in the ecosystem, but also are fully aware that there are other folks looking to get into the advertising business potentially. We say, come on in, we've been in that business since the Company started 26 years ago, and we know how to measure, we know how to be good fiduciaries to our clients and fulfill requests and orders and those will all be new learnings for new entrants, which is why I think many of them are looking for partners. But again, our streaming capabilities are targeted and niche in San Francisco, Los Angeles and Chicago. We have a plus product that is basically a FAST channel -- local FAST channel that incorporates original programming as well as the plethora of news programming that we do. We will expand that judiciously across markets where we think it makes financial sense. We also, in the last quarter, stood up a FAST channel for The Hill. So if you're a true political junky and you not only want to know what's going on in Washington, what's going in West Virginia and Tennessee and Indiana and Texas, we have a wheel of programming that is suited for you. And so that was just stood up. We plan to stand up a News Nation FAST channel at some point later this year or early next year. So our focus on streaming or over-the-top will be very targeted, very specific because it's become a business of scale, and we yet to see that there is a clear path to financial viability over the long term. So that's our focus on streaming and, again, we think our superior value proposition is local activation at scale, which is what we do as a company every day.

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

Perry or Tom, maybe if you could update us on what you've talked about in the past about long term, you're looking to lease out an extra spectrum once you get ATSC 3.0 fully rolled out in your markets. I mean just update us on that who you potentially lease it out to, how you're thinking about that? What -- how much longer do you think you might get your first signed contract, how many years out you think that might be? And just to reiterate your kind of outlook at the end of the decade with a total revenue dollars that potentially could be for you guys? And I have a follow-up.

Sure. I would tell you that while we've gone public with the names of the counterparties, we are having discussions about distributed power opportunities, location-based GPS in terms of auto-correcting GPS with a terrestrial-based signal that can dramatically increase the accuracy, which we think is a huge addressable marketplace. We would anticipate, but I can't guarantee that we will have some test contract, if you will, with a counterparty by the end of next year that will begin to contribute revenue beyond what we earn from our spectrum today, which are digital multicasts and things of that sort. So I think it's a '23 event. I think it probably will be mid to late next year before we actually have a signed contract. And I think it will be more in the form of a test and a proof of concept. So the dollars won't be big, but I think it will be a crawl-walk-run approach to monetizing our digital spectrum.

And then also, if you could just kindly just update us a little bit further on the retrans sub number. I think you said down low single digits, which pleasantly surprised me. I think last quarter, you or Tom inferred it was down about 4.5% to 5%. I guess, typically, that's over trailing 12-month basis. Just maybe update us a little bit further on that. And then also maybe just curious your retrans dollar number in the quarter, the revenue was down about 3% sequentially. I mean just touch on that, too, please.

Well, the quarter was down because of onetime benefits in Q1 in terms of dollar benefits that were nonrecurring in Q2. I will tell you Q2 retrans exceeded our budget -- internal budget. So it wasn't a surprise to us with regard to the dollar volume there from that perspective. And with regard to total pay subscribers, we are seeing substantial growth in some of the direct-to-consumer products and vMVPDs, which has improved that number compared to earlier numbers where -- if you were to ex out some of those and make it on the same provider basis, it would be a little bit higher, but it is low single digits taken in total.

And then also maybe just on auto, I'd be curious to hear how much that was, I guess, down in the quarter. You guys said it was down slightly. It sounds like it's paced down for the current quarter.

How much it was down?

How much it was down in the second quarter? Yes.

Yes. It was down sort of a high single-digit percentage.

And then I guess lastly, Tom, that true-up, you talked out in the first quarter. Can you put a dollar amount around that?

Remember, it was south of $10 million. I don't have an exact number.

We'll take our next question from Alan Gould with Loop Capital.

A couple here. First on political. Perry, you talked about the federal election committee fundraising. I've seen data showing cash on hand is up versus 2020 at June 30. And -- do you think there's a chance that political will be greater than 2020 this year? Or was there just a big increase in spending that came in, in September, October back then?

Well, it's funny coming into this year, and everybody's question was, will we be able to make up the Bloomberg money from early 2020. And I think we proved that in spades, we're not ready to go there in terms of guidance, saying that political will be greater than 2020, but I wouldn't rule it out. And obviously, the game is played in September, October, right, and the first two weeks of November. So -- but every indication is that this will be a record midterm election. Given our geography specifically, we're right in the eye of the storm and the most competitive races and they're either Senate or gubernatorial is where the most money will be spent. There's a handful of house races that will spend a fair amount of money. But it's -- suffice it to say, our geography is fairly unique in that 80% of all competitive races will be contested in the Nexstar footprint. And we're preparing our stations for record political revenue and activity between now and the end of the year. And it's a weekly topic of conversation among the station group to make sure that we are prepared from an inventory and a pricing standpoint to maximize the opportunity.

And then on the corporate side, I love the buybacks. But in addition, the elimination of the B and C shares, the proposal to declassify the board, these nice corporate governance moves. Just wondering what's behind that, like opening the doors.

Shareholder feedback is behind that. I do outreach in the Q1 of every year to the top 30 shareholders, and it was pretty clear that declassifying the Board was, if not the number one -- universally the number one topic, clearly, a top topic for the vast majority of shareholders as it relates to corporate governance. On the B and C shares, it's really more making our -- well, that's corporate governance as well because, obviously, people are shying away from multi-class and super voting stuff, which was really the legacy there and it traces its lending agent, Nexstar, all the way back to the original IPO through the early part of the 2010s, when ABRY still controlled Nexstar. But doing away with that also allows us to be eligible for various index funds, which having -- even though we hadn't had any shares outstanding for the last 10 years, just the fact we had dual-class common stock, precluded us from being purchased into various index funds. And so now we are eligible for that, and that may create additional demand for our stock.

We'll take our next question from Barton Crockett with Rosenblatt Securities.

I wanted to ask a bit more about the lack of seeing any macro headwinds, which is so different from what we've been hearing through this earnings season from the certainly social media companies and to a lesser degree from some of the national TV networks where certainly the digital guys, their growth rates have inflected to a much lower level and the TV network guy sounds like they're seeing some deceleration. Your kind of core ad growth is really pretty steady, and that's for you guys and also seems to be similar for some of the other local TV players. I'm just wondering why do you think there's a difference in trajectory there.

I would say because we are least exposed to national advertising. It is the smallest revenue line on our P&L. And where we're seeing the resiliency and the stickiness is in local advertising. So the more you're exposed to national advertising, maybe the bumpier the road here over the near term. But quite frankly, that's not a huge area of exposure for us. And I think that would explain the differences in tone from what you're hearing.

Okay. And then you guys -- you don't want to talk about rumors, but I'm going to kind of walk close to that and ask it this way. So the owners of the CW have changed the programming slate meaningfully and have talked about a strategic review process since you guys obviously have a lot of CW stations that are meaningful. How should we think about that process and its meaning for Nexstar? Is it something that potentially poses some risks or some opportunities meaningful, not meaningful? How would you kind of characterize it?

Well, I think anyone that's paying attention could discern the industrial logic, right, of being the largest CW affiliate, kind of controlling your destiny there, distribution revenue tied to those stations and also potentially giving you a different point of leverage in negotiations with other networks, if you happen to own one. But I mean that's the industrial logic, but again, we have nothing to announce and won't have anything to announce until we have something to announce. So I think that's about as far as we'll go right there.

We'll take our next question from Jim Goss with Barrington Research.

One follow-up on Alan's question about political. Is there still an expectation that roughly half of the political advertising will be in the first six weeks of the fourth quarter? Is it typical? Or have you borrowed any of that with strength in advertising during the fairly aggressive primaries in early part?

I mean, the primary, I mean, I would say the -- where we have been pleasantly surprised, if you will, is in the strength of the primary -- the money around primaries. They've been more contested and more money spent than ever before. And if you listen to political prognosticators, you want to win an election, put 400 GRPs on TV the month before the election, that's how you win. So I would say that if history is any guy, half the money for the year will come in the fourth quarter. This is a historic event. So -- but I think that is still a fair proxy for how we expect the year to play out.

Okay. And I wonder if you could comment on sports betting monetization and potential integration with your programming. Will you be looking for ad revenues related to it or getting more directly involved? Just how do you frame that opportunity?

I was watching a sports video that was on the digital platform for PICCs and the pre-roll was from BetMGM. So I think it's already integrated. But Lee Ann is our sports betting expert. I'll let her add some more color.

Well, I would say, generally speaking, it's a regular way to advertising, either on digital or on television. So that's really how we monetize it. And we see -- obviously, as when you see new states come online, there's a real big push usually from the sports betting companies to advertise in the local markets and local television has been an excellent way for them to get their brand out and generate new revenues.

And believe me, we have various pitches and provide a number of product opportunities and product placement options for them. And some take advantage of it, others don't. But clearly, I think they're facing some headwinds of their own with regard to customer acquisition costs, et cetera. And so they're going to marshal their resources and deploy it where they can be most successful, and we think some of those states are immediately in front of us, like North Carolina, Ohio, in particular, for us, is already scheduled for January 1 of '23. So I think you'll see even in advance of that, more activity in that state.

I would also say watch the California ballot propositions that will be contested this November because of sports betting comes to California, that's obviously a huge market for us. We're in just about every major metropolitan area in the state. And so I think that sports betting will continue to be a category. And what we see is, a, some seasonality, people really bet around football, college and professional not so much in second quarter when it's hockey and basketball playoffs, but still money there. And it's chunky because as new states come online, there's a huge push for market share once everybody gets to a kind of -- where they hope to get to, they're going to go into more maintenance spend. But we definitely see it as a sustaining and ultimately growing category over time.

And just one follow-up to that. Will it give you more statistics you could use to enhance the viewing experience that you put on a split screen with ATSC or a related device, a cell phone or whatever that can make the -- enhance the overall experience and maybe improve your sales possibilities that way?

Well, we don't control the rights to most of the sports that we air. So that would be the province of the copyright holders and perhaps the originator, whether it's a network or a league. I will tell you that in ATSC 3.0 world, one of the demos we showed our Board this past week was a sports betting demo. And what I think it will do is, a, give us monetization opportunities where you can literally navigate seamlessly between your phone and your TV, but it also will make the viewing experience more sticky, which will help us with impressions, which will ultimately help us with ad sales.

We'll now take our next question from Courtney Bahlman with Barclays.

Congratulations on the results. Just a really quick follow-up to Steven's question on the debt levels. In the medium to longer term, is there a target range that you guys are kind of managing the business by that we should be keeping in mind? Any color there would be appreciated.

Yes. I think we are very comfortable with our debt levels as they are today. So I don't think that you're going to see any kind of material pain, one way or the other unless we have some kind of M&A transaction or something else to -- that we would need to execute on. As I mentioned earlier, so the numbers will come down just because of that.

[Operator Instructions] We will take our next question from John Kornreich with JK Media.

Yes, Tom, now that all your network partners are starting to divert some of their best programming on some occasions to their streaming services and away from you, how has the conversations on affiliate renewals gone in terms of real dollars? Is the balance starting to shift to you? And is it showing up? Or will it show up in terms of the reverse retrans?

Well, I think you know and a lot of the investors know that for the longest time, we have said that what we pay for is exclusivity, and any marginalization of our exclusivity will affect the way we view our relationship with these networks, vendors, whatever, they're not dissimilar to any other vendor where we purchase goods and services from. So the short answer is yes. I think they understand that that's part of their business model, whether they will admit that publicly, and they certainly won't admit it to us. But I think they understand that if they're using their content to generate revenues elsewhere, then they shouldn't expect that same revenue -- historic revenue growth from affiliates that they've seen historically. So I think we believe that, that is true and it is manifesting itself in our negotiations with them and our financial results.

And it appears there are no further telephone questions. I'd like to turn the conference back over to our presenters for any additional or closing remarks.

Thank you very much, operator. At Nexstar, we do what we say. We adjust when necessary, and we lean into growth opportunities wherever they materialize to create the highest value for our shareholders. As one of the Company's top shareholders, no one is more aligned with that commitment than me. Thanks, everyone, for joining us today. We look forward to speaking to you again when we report our Q3 results. Thank you.

And once again, that does conclude today's conference. We thank you all for your participation. You may now disconnect.