Good day, and welcome to Nexstar Media Group's Fourth Quarter and Full Year 2023 Conference Call. Today's call is being recorded. I will now turn the conference over to Joe Jaffoni, Investor Relations. Thank you. Please go ahead sir.

Thank you, John, and good morning everyone. Let me just 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 2022 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. 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, Joseph, and good morning everyone. We appreciate you joining us today to discuss Nexstar's fourth quarter and full year 2023 results. With me on the call this morning are Mike Biard, our President and Chief Operating Officer; and Lee Ann Gliha, our EVP and CFO. I'll start with a summary of recent highlights and developments followed by Mike's operational review and Lee Ann's financial review then we'll take your questions. Nexstar's fourth quarter financial results outperformed consensus expectations in key financial metrics including adjusted EBITDA and attributable free cash flow. Validating the enduring strength reach and appeal of broadcast during the fourth quarter, we successfully completed all of our remaining distribution negotiations for Nexstar owned stations as we had expected. I'm also pleased to report that our partner stations were back up on DISH beginning in January. Nexstar's record fourth quarter and full year distribution revenue confirm once again that our distribution partners and their customers continue to value the highly rated broadcast and fast-growing cable news network programming that we provide. The completion of these agreements give us solid visibility for our distribution revenues in 2024 and beyond. As we move into 2024 an election year, we look forward to once again demonstrating the value of broadcast television to both candidates and campaigns looking to communicate to the electorate through their political advertising on our television stations. More on that in just a moment. Our 2023 results extend Nexstar's long record of consistently generating substantial free cash flow a trend that we expect to continue. On average for the 2022-2023 cycle Nexstar generated $1.8 billion of adjusted annual EBITDA and $1.2 billion of attributable free cash flow. Over that time frame, we returned an average of $910 million each year to shareholders in the form of dividends…

Thank you, Perry, and good morning everyone. Before reviewing our operating results in more detail, I'll briefly address the sports focused streaming product announced by FOX ESPN and Warner Bros. Discovery. As we and many industry analysts believe there was a significant misinterpretation in market overreaction, which appears to have abated somewhat as more information and understanding of the product has become available. First with respect to the composition of the proposed product, we have confirmation that it will function in the same manner as other vMVPDs that distribute our FOX and ABC affiliated stations. To be clear, Nexstar will have the option of opting in to secure carriage and compensation for our ABC and FOX affiliated stations. As such this would be an additive incremental revenue stream for Nexstar. The fact that the networks O&O and affiliate stations are a core piece of the product is no surprise and it reaffirms the critical importance of the broadcast platform to sports rights and distribution. Moreover, we believe the three JV partners understand the value of the linear ecosystem as pay-TV revenues remain vital to each of them. They've demonstrated this in their respective approaches to D2C, largely avoiding the strategies of some of their peers that have undermined the value of their own core linear networks. We note that Lachlan Murdoch clearly stated that the sole purpose of the sports product is to target cord nevers those already outside of the pay TV ecosystem in order to expand the audience for their sports programming and not shrink linear cash flows. The rumored pricing for the service supports this assertion, as it would not undervalue the linear services that carry and pay for the marquee sports that are the core of the offering, like some other D2C products in the marketplace…

Thank you, Mike and good morning everyone. Mike gave you most of the details on the revenue side and on the CW. So, I'll provide a review of the expenses, adjusted EBITDA, attributable free cash flow, along with a review of our capital allocation activities in our 2024 guidance. Together fourth quarter direct operating and SG&A expenses excluding depreciation and amortization and corporate expenses increased by $4 million. There were a couple of one-time items in Q4 2022 which impacted the comparison. Excluding those items, direct operating and SG&A expenses before corporate increased by $16 million, primarily due to increases in affiliation fees and other programming expenses, the expansion of new programming and expenses related to our in-house national sales force launch, offset by reduced commissions from the reduction of political revenue in a non-election year. Also included in our calculation of adjusted EBITDA, but not included in direct operating and SG&A expenses above, are the payments for broadcast rights of our stations and networks excluding the CW, which declined by $10 million in Q4, due primarily to reduced reliance on syndicated content. In addition there was $20 million of savings or a 22% reduction in amortization of broadcast rights as the CW as were able to reduce programming costs at the start of the 2023-2024 broadcast season as part of our cost reduction strategy. In Q4 2023, total corporate expense was approximately $45 million including non-cash compensation expense of $16 million compared to $49 million including non-cash compensation expense of $18 million in the fourth quarter of 2022. Q4 2023 depreciation and amortization was $210 million versus $231 million in the prior year quarter, due primarily to the reduction in programming expenses at the CW I mentioned a moment ago. Please note that the CW programming costs, which are…

Thank you. We will now be conducting the question-and-answer session [Operator Instructions] One moment while we pull for questions. And the first question comes from the line of Benjamin Soff with Deutsche Bank. Please proceed with your question.

Hey, guys. Thanks for taking the question. Appreciate all the color. I was wondering on the distribution side if you could parse out the organic growth rate after stripping out DirecTV and the addition back of the partner station. And then I was just wondering if you could drill a little bit more into how you're thinking about capital allocation, and how you plan to utilize the excess cash from this political cycle? Thank you.

Yeah. So on the first question about the pro forma, we did provide some decent amount of color on our third quarter call that will allow you to kind of back into that. But I'll just tell you the high single-digit growth rate drops down to mid single-digits when you pro forma out that impact on a year-over-year basis. With respect to our capital allocation, our strategy is going to continue to be opportunistic with respect to share repurchases to the extent that we can -- we have the cash to accomplish that and there's not other better uses of that cash. Obviously, we saw we increased our dividend by 25% this year. We do have mandatory amortization of about $125 million in terms of debt repayment. We'll probably repay a little bit more debt this year just because it's a political year and we have a little bit more excess cash flow. And then, we'll use the remainder of that cash if we don't have M&A to do to buy back stocks. We continue to be very undervalued.

Got it. Thank you.

And the next question comes from the line of Jason Bazinet with Citibank. Please proceed with your question.

I just had a question on the CW. You guys are making good progress narrowing the losses and I think you've said the goal is to get to break even by the fourth quarter of 2025. Is there anything that you'd call out that's meaningful that we should be aware of in terms of quarters where we might see the losses widen even though your long-term objectives are still on tack? And I'm thinking specifically of some of these sports rights sort of those costs sort of come into the P&L? Thanks.

Yeah. I think we're still on track and as Michael said, in the next couple of years and whether that's exactly Q4 of 2025 or with the writer's strike that kind of moves into the first part of 2026 I think is irrelevant. We are adding value, creating value there with the growth in audience, beating our competitors head to head upon occasion. I mean, those are all things that we hope to do. And again, adding sports on the weekends meaningfully impacts our CW stations that reach about 40% of the country because that's a day part that they weren't competing for sports cost per points or with live programming. So it's all good. We don't really factor that into our analysis how we're doing at the local stations. But there's been meaningful upside there in terms of local sales of the national sports product that we put on the CW. As it relates to the peaks and valleys, I mean, obviously Nexstar, the NASCAR will come in in 2025, which will increase our payments for programming. But you'll also see in 2025 a continued offset of our decrease in commitments to entertainment programming. So we think that you'll see program expense relative -- in total, be relatively static. And I don't know, Mike, if you have anything else you'd like to add to that?

No, I think that's right. I think we'll manage the cost on the existing business as we take on incremental cost with new rights that emerge.

Okay. Thank you.

And the next question comes from the line of Dan Kurnos with Benchmark. Please proceed with your question.

Thanks. Two from me. First, Perry, obviously, a lot of noise as you mentioned in your prepared remarks in the space. But on the retran side, sort of, a rehash of the fears around getting towards peak. I appreciate the pro-forma, it seems like the guide for this year is better than what others have been saying. And I know that there's some incremental carriage from CW embedded in there, but if you could give your updated thoughts on how gross and net proceed from here and parsing that out maybe big four and the impact of virtual just overall how you think about that line and it would be helpful to start within the follow-up on national after?

I think Mike was pretty clear in his commentary as in terms of kind of both the growth and net retrans guide here. There are puts and takes. We'll lap ourselves on DirecTV. The partner states are back on DISH. We budget for attrition pretty aggressively. And so that's embedded in our guide. And so I think to parse it much more than that. It might be interesting but I'm not sure really meaningful, because we're one company and all of these factors work together to get to the number that's embedded in what we talked about. If you have specific questions we can, I guess decide whether we want to answer them or not. But I think that what both Mike and I had said already are pretty descriptive as to how we think about it. But is there anything in particular that's on your mind?

I guess, Perry, is really just more on the broader outlook here if we're given the issues that have been raised around getting towards peak and the ability to raise rates faster than sub-attrition and your guide doesn't imply that in the near-term but just broader or longer term thoughts would be helpful from you.

Yeah, I just want to run one company here and I know what our results are like and we were very pleased with where we ended up with our negotiations and our rate increases continue to outpace the pace of cord cutting to deliver the net and gross increases that we have talked about on the call. And so all I can tell you is we're able to achieve that. Whether others can or not is quite frankly not my concern. We hope everybody does well and the ecosystem continues to prosper. We think that the whole Disney charter discussion that validated the value of local broadcast stations because they were never at issue. And as you know most franchise agreements for traditional MVPDs require the local stations to be carried and if we elect retrans require that they be paid to remain carried, and then everybody else that once a competitive program offering is going to have to provide the same services. So we actually think that validated the -- our place in the ecosystem, which is at the top of the food chain and then also the discussion about the new sports JV if that truly does bring more people into the pay TV universe in some way shape or form and we have the ability to opt-in and be paid to be a part of that offering that's good too. If on the margin that's incremental subscriber growth and we're all for it.

And the next question comes from the line of Steven Cahall with Wells Fargo. Please proceed with your question.

Thank you. So maybe just first, the distribution revenue outlook and net outlook was very, very helpful. I'm trying to do the math quickly here, but I think it implies that reverse is only going to be up about mid-single digit and I think you have an unfavorable comp there from the blackout, plus the FOX renewal and another big four this year. So, it looks like maybe you're starting to see some deceleration in the rate of kind of organic growth and reverse compensation expense when your peers have talked about that as well. So, I would love if there's any commentary on maybe longer-term reverse easing? And then Mike, thank you for the information on the sports JV. A lot of us have been left to speculate on that. So that's very helpful. As you just continue to see probably in the future more rotation to both the vMVPDs and streaming services like Paramount and Peacock. How do you think about, when you can kind of go back to the framework and reestablish your rates on a lot of those services, since there's probably going to be more subs on those, say five years from now and there are today? It's been an issue that's kind of been percolating in this industry in a long time. I don't think we've seen anything changes yet. So, just wondering, if there's any initiatives on that. Thank you.

I think both of your questions get to the nature of our relationships with our with our network partners. And I think those relationships are unique. None of them are identical inside each of those relationships there, they are multifaceted with lots of moving pieces, both economic and noneconomic. You mentioned the relationship in two cases with the D2C products that they have and our participation inside those. I think that gets to the fact that across our relationships each of them, we're not managing to a single feature. I know there's been some discussion about certain aspects of certain network affiliation agreements. We're not going to talk about any particular one, because that's not the way we approach those relationships. We approach them holistically and manage across the entire relationship to a net cost that you can see reflected in the guidance that we provided.

And the next question comes from the line of Alan Gould with Loop Capital Markets. Please proceed with your question.

Thanks for taking the question. I've got two. First, Lee Ann, I noticed you said you're paying down some debt. Do you have ambitions to become an investment grade rated, which you haven't in the past, but your balance sheet is certainly getting you in that direction? And secondly, on the sports front, has Nexstar signed any of the local teams away from the RSNs, I was wondering what the economics of that would be?

Just the one deal that I think we've given a lot of visibility to our station in Los Angeles and our Southern California stations have put together a package of LA Clippers games basketball with Steve Ballmer organization. And that we're in our second year of that and I -- we just renewed the deal for another year or two. And I can tell you that it is profitable to us. It's depending on the year a total package of approximately 15 games plus or minus and depending on how many preseason games we decide we want to put into that package. But the arrangement is profitable for our flagship station for those games KTLA, as well as the affiliate stations throughout Southern and Central California.

And I'll just say on the investment grade question, we're not actively working to try to get the company upgraded to investment grade. I think that has a lot to do with stating specific intentions about our balance sheet, which we are kind of not there yet. But -- and I also don't think from a cost of capital perspective, it's that differentiated in terms of where we are now versus where we would be. But what we are looking to kind of streamline kind of our political and non-political years a little bit with respect to the share repurchases. So that's been a necessitate maybe just a modest amount of debt repayment incrementally this year in a political year when we back to the cash flow.

Thank you.

And the next question comes from the line of Aaron Watts with Deutsche Bank. Please proceed with your question.

Hey, everyone. Thanks for having me on. Covered a lot of ground, I just had 1 follow-up on the network relationship side. I believe you currently have a mix of six and variable compensation agreements with your partners given the pressures on subscriber growth. Do you see a realistic path to moving all of your reverse comp arrangements to a more variable structure? Is that something that's been discussed at all to date?

Well, I think that you have to understand that our agreements are more new launched even than that. Even where we have what you might consider to be fixed arrangements, maybe there are collars around the bandwidth of both growth and contraction and there are all kinds of elements that go into baking the cake with each of our network we're on. As Michael said, I mean they are multifaceted, they are very complex, take a long time to negotiate. And money isn't always the only thing we talk about. So I don't want to speculate on our business relationship with any one network or any number of networks. And Michael, if you want to add any more to that, but there's a lot of pieces to that. I think that what we are -- what we have said consistently is we pay you for programming and exclusivity of that program. And to the extent the program is becoming less exclusive, it is less valuable to us, and we potentially will pay you less over time. And what form that takes, I think, would be to be determined. But there are dynamic discussions happening in real time. And I would just say that everyone at the table is aware of what's going on in the industry and that the sands are shifting under our feet. And there is sensitivity to that all around the table. Michael, I don't know if you have anything you want to add?

I would just add, having been on both sides of the table for those discussions, I think I have probably unique appreciation for the fact that they are each very different, complex. And as I said before, I think focusing on a single aspect of those relationships, I think, misses the point. Certainly, this is the point from our perspective, which is we're going to manage the entire relationship to the net loss. And I know there's been focus on the fixed cost aspect that some have talked about. At the right price, I would take fixed cost. It's all about how that cost works through our business, and that's what we're focused on.

Okay. That's really helpful. And then just lastly, Lee Ann, I heard your comments to another question around investment grade, whether you had that way or not. But maybe I can ask that a different way. Just given the increased scrutiny around leverage in the space, what is your leverage comfort zone, maybe it's where you're at today? And where would you like to see that level trend over the next couple of years?

We're very comfortable with where our leverage is today. And we obviously have an odd and an even year impact here, but I don't think we have any need to really kind of do any major deleveraging given the relative level of risk. I think this is a question that we get asked a lot. I mean we're going to be -- we'll be less than three times levered in total this year. I mean that -- so like I think this is actually one of the different factors we think that we have with the company. I mean I think a lot of -- we get a lot of questions about our leverage but that's because unfortunately some of our peers in our group are much more levered than we are. And I think this is where we sort of just keep pointing to our free cash flow and say look this is a differentiated business. And we feel very good about where we are from a business model perspective and from a leverage perspective. And I don't think that the questions that we get we think are kind of more a bounce back of maybe some questions that are happening with some of our peers that don't have the balance sheet that we have.

Yes, that’s fair point. Appreciate the time.

And the next question comes from the line of Craig Huber with Huber Research Partners. Please proceed with your question.

Great. Thanks. A few questions. I'll go one at a time here. Can you just talk a little further about your TV station core advertising trends what you're seeing in the first quarter versus what you saw in the fourth quarter? In particular what categories are doing significantly better or worse? Just how things are trending in please?

Yes, hey Craig, it's Lee Ann. Our advertising in the first quarter is norm slightly worse from a year-over-year percentage decline basis in the first quarter as it was in the fourth quarter. There's no specific category that is necessarily driving that. It's more of the same sort of level of broad-based decline that we've seen across our categories in the last few quarters. I would say we continue to be impacted on the national side and on -- in our larger markets, which are more challenged than some of our smaller markets. But there isn't anything in particular that we can point to say aha was sports betting that's been declining for some time now. So, I wouldn't think there's anything in particular that's I can call out.

Thank you for that. My second question--

Aside from the Super Bowl impact which Mike spoke about in the first quarter.

Okay. My second question please. Curious if you're budgeting for the distribution that you're expecting to get this year through equity method investment are you expecting a significant change one way or the other versus what you got last year?

[indiscernible] with network distribution?

Yes, exactly. That -- all that stuff rolled up, yes. That's roughly different this year you're thinking?

That's a national television network, right? We see what's going on in our business. So, we thought what happened last year. So, we expect that to be down this year versus last year. we've been talking about what those rate of decline has been all year. And I think just to refresh the first quarter payment which we've not received yet is the bulk of the -- the rest of the distribution from last year's earnings. So, it sort of lagged a little bit because the remaining payments we get for the rest of the year are tax payments related to the current year's the current year's income.

And the next question comes from the line of Jim Goss with Barrington Research. Please proceed with your question.

All right. Thanks. You've positioned NewsNation, particularly well it appears and I think I said recently that the electorate is something like 27% Democrat, 27% Republican and 42% independent. And I'm wondering, if you might talk about exploiting that potential going into this fiscal year. I know you've done debates and that's been particularly good in raising visibility. And also in terms of programming costs, I think a lot of the competitors in the news category in to repeat a lot of programming rather than have all originals. I wonder how you look at that. And finally in terms of – I was wondering if you've been able to identify certain demographics you've been attracting with NewsNation and advertiser groups that might be attractive to that demographic?

Jim, I will endeavor to cover that. If I miss something, let me know. As it relates to the repeat factor, we do repeat our primetime talk an opinion shows overnight, they actually do pretty well on the West Coast were watching those in primetime in real time. And so the cume of that audience is something that's useful for sales. The only other thing we repeat is on Sunday nights and Saturday nights, when we're in live news and early prime on the East Coast, we repeat that broadcast basically for the West Coast, immediately thereafter. But the rest of the programming is all original. And as we expand we see really no difference – no different pattern as to what we plan to do there. And we will be 24/7 with news programming here literally ahead of schedule in 2024 and earlier in the year than we had originally anticipated. As it relates to the demo, the audience for cable news, the audience for television in general, SKUs generally older, linear television and we're no exception to that. The primary pocket of audience that we're focused on is the 35 to 64 demographics slightly older than 25, 54. We're trying to bring advertisers along to that. We also think the two-plus audience is of value to some advertisers and we report that number as well. As it relates to the skewing of the audience to the electric. We have said, since the founding of this that, we thought the biggest swim lane in America were those people that were not on the lunatic left or the lunatic right, which is about 60% of America that we can agree on more than we disagree on. And our job is just building awareness. We started the network with a pretty…

Great. Thanks very much. Great comments. I think we'll leave it at that.

And the next question comes from the line of Barton Crockett with Rosenblatt Securities. Please proceed with your question.

Hi. Thanks for taking the question. I was curious about the competitive dynamics in the ad market. So you flagged some pressures, particularly in national and the bigger cities. We're all aware that there's a lot of new inventory that's coming in on some of the streaming services, taking ads, Netflix and Amazon Prime taking ads and, some of the fast services still growing. Is that a competitive -- is that a meaningful factor in the ad market? Do you think that's part of what's weighing on the market at this point? So if you could comment on that I'd be interested. And then the second question is just there's a lot of discussion about some of the big entertainment conglomerates perhaps restructuring. There was a flurry of activity before about Disney and ABC. Now there's a floor you have talk around Paramount maybe potentially FOX potentially Comcast. In general, if there was a broadcast network for sale what's your level of interest? What's the potential for you guys to be able to make something like that work if it were to become available? Thank you.

I'll speak to the last question first, and then let Mike speak more to advertising. But I would just say we buy things and we build things. If you look at the company, the stations drive our network that we own today and distribution uses all of that to gain distribution as well as distribution revenue for the entire portfolio. It's kind of like one building block on another. In theory, we could own a big four broadcast network in addition to the CW. I think we would say, never say never, but it would have to be like everything else we've ever bought an actionable transaction at a value that would make sense for us. So I think I would just leave it go at that, but we would not have an allergic reaction to having that discussion. But again, it would have to be the same kind of opportunistic acquisition that we have made in the 27-year history of the company. And the new entrants into the ad market are have tiny audiences at this point. And so they're not really a factor. I would just say that we're in some phase of a recession here. And whether we have a soft landing a hard landing a hockey stick recovery or whatever and advertising is generally a leading economic indicator and that is weighing more heavily on the market than any of these new entrants from my perspective. Michael, do you want to add some color?

Yes. I would add on the advertising point that I think our portfolio both in terms of where we focus our advertising and the lion's share of our advertising is local not national. And I think our sales force, which covers the country generally gives us a distinct competitive advantage versus the platforms that you mentioned. Also with respect to our growing portfolio of sports both with respect to the local TV stations and our national networks live programming gives us another advantage relative to where we think those other platforms will focus their advertising efforts.

Okay. Thank you.

Yes.

There are no further questions at this time. I would like to turn the floor back over to Mr. Sook for any closing comments.

Thank you very much operator. Just to close out our business fundamentals our financial track record and our free cash flow generation continue to remain strong, and we're confident that our capital allocation strategy will continue to drive industry-leading returns for our shareholders in 2024 and beyond. Thanks very much for joining us everyone. We look forward to speaking with you again in three months' time when we report our first quarter 2024 results. Have a good day.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.