Nexstar Media Group, Inc. Q4 FY2020 Earnings Call

Management's remarks today may include statements that are not historical facts and could be considered forward-looking according to the Private Securities Litigation Reform Act of 1995. Nexstar warns that these forward-looking statements carry risks and uncertainties that could lead to actual results differing significantly from those anticipated. For more details on these risks, please refer to Nexstar's Annual Report on Form 10-K for the year ending December 31, 2019, as well as subsequent filings with the Securities and Exchange Commission. Nexstar does not commit to updating or revising any forward-looking statements in light of new information, future events, or other reasons. With that, I am pleased to hand the call over to your host, Nexstar Founder, Chairman, and CEO, Perry Sook. Perry, please proceed.

Thank you, Joseph, and good morning, everyone. Thank you all for joining us to review Nexstar's record Q4 results, including net revenue, profitability, and cash flow that again surpassed consensus expectations. As always, Tom Carter, Nexstar President, Chief Operating Officer, and CFO is on the call with me this morning. It's been an active and productive time at Nexstar, and I'm proud to report that in Q4 and over the course of 2020, we achieved or exceeded the most important of our operating, financial, and return of capital goals despite the challenges presented by the pandemic. I'll touch more on each of those items in just a moment. Today, Nexstar Nation is comprised of more than 12,000 talented team members across America united by a common commitment to localism, integrity, innovation, and growth. We credit our results to the resiliency and adaptability of our outstanding teams, as throughout the year, they dynamically managed our operations for continued free cash flow per share growth. I'm extraordinarily proud of Nexstar's dedicated employees, as they rose to address the unprecedented headwinds created by the pandemic and worked tirelessly to deliver on the value of the 2019 Tribune Media acquisition while providing essential services to our local communities during a difficult time for our country. We believe what we've accomplished since closing the Tribune transaction in late 2019 and throughout 2020 sets us up very well for 2021 and beyond to leverage our scale, our focus on operational excellence, and the growth of our digital properties, all generating significant free cash flow, reducing debt, and driving further total shareholder return. This is reflected in the guidance we initiated this morning for pro forma average annual free cash flow for the '21, '22 cycle of $1.27 billion. Simply put, Nexstar had an outstanding 2020 despite the headwinds. Our strong Q4 and full year operating results mark another year of record financial performance with all of our key metrics from net revenue to free cash flow growing at double-digit rates or more and coming in at the highest levels in the company's history for both the 3 and 12 month periods of 2020. The 25% rise in Q4 net revenue and 107% increase in operating income over the prior year highlight the ongoing value of our strategies focused on leveraging our local content and community involvement to generate record ad revenue and share in our markets, as well as develop high teens distribution revenue growth. Our ability to capture historic levels of election spending in our markets, which also substantially exceeded our 2020 guidance, combined with the strong operating leverage in our business model drove record Q4 adjusted EBITDA and free cash flow. For the full year, our enterprise-wide focus on managing operations for current and future cash flow enabled us to generate adjusted free cash flow of approximately $1.3 billion or about $30 per share, representing approximately 100% growth over the 2018 levels when we last had the benefit of the political cycle. Our consistent and rapid growth, as evidenced by comparisons of the 2016 presidential election year, when Nexstar generated approximately $8 in free cash flow per share, illustrates this point. So over four years, we've grown that important metric by approximately 275%. In 2020, we brought about 28% of every net revenue dollar to the free cash flow line, allowing us to invest in our platforms and make complementary accretive acquisitions while also paying down approximately $1 billion in debt and returning approximately $383 million to shareholders in the form of share repurchases and dividends, as we reduced our year-end outstanding share count to 43.3 million shares. So we essentially tripled our return of capital in 2020 over 2019 while reducing the share count by 2.4 million shares. With the combination of our recent 25% dividend increase, authorization to repurchase up to an additional $1 billion in shares, our strong free cash flow guide for '21, '22 and our already reduced share count, it's clear that we have the ability, commitment, and flexibility to further grow our free cash flow per share during the current two-year cycle. In the almost 25 years since we founded Nexstar, we have built the nation's leading local media company by focusing on the communities where we operate and the prudent use of leverage to support our strategies for growth and enhancement of shareholder value. Throughout our history, we have upheld our promise to our communities by expanding our local news programming and content to inform and entertain our viewers while providing premium local advertising opportunities at scale for advertisers, as well as political campaigns. At the same time, we consistently create new value for our shareholders through growing returns of capital, capital structure improvements, and a continued focus on leverage reduction. Looking now at the quarter, Q4 net revenue increased 25.1% and reflecting strong flow through in our model. Nexstar generated record Q4 adjusted EBITDA, free cash flow before one-time expenses with these metrics growing 64.5% and 122.1%, respectively. Throughout the quarter, we also made significant progress with our leverage reduction and return of capital initiatives, as we lowered net debt by $326.3 million and allocated $108.8 million to quarterly cash dividends and share repurchases, as we bought back 835,745 shares during the quarter. Reflecting our full year debt reduction of $1 billion, we ended 2020 with net total leverage at 3.6 times, marking another metric which exceeded the Street's expectations. Turning back to Q4, while robust demand from campaigns and issue advertisers this election season resulted in a reduction in inventory available for local and national advertisers in October and early November, we continued to generate sequential month-over-month core advertising revenue improvements in November and December, which were the strongest months of the year since the pandemic began. Nexstar's industry-leading scale, diversified revenue sources, and consistent execution resulted in a 37.3% rise in the Q4 total television advertising revenue, as we benefited from the recovery in advertising spending across key categories, which was offset by the allocation of inventory to political. Q4 television advertising revenue of $771.8 million includes political revenue of $298.3 million, which resulted in full year political revenue of $507.6 million, which substantially exceeded our Street guidance. At the same time, core advertising revenue of $473.5 million marks a significant increase over third quarter levels of $381.9 million, Q2 levels of $298.2 million, and Q1 levels of $417.4 million. Notwithstanding the allocation of significant ad inventory to political and the effects of the pandemic, our Nexstar local sales initiatives continue to generate solid levels of new business, with Q4 new to television ad revenue rising on both a quarterly sequential and year-over-year basis. In total, our sales teams generated $27.8 million of Q4 new to television revenue, which was a 9.9% rise over the third quarter and a 35% increase over the comparable 2019 period. Looking at Q1 and 2021, we continue to see strong core pacing data. We are highly encouraged by the advertising rebound across our station footprint, most notably in auto, our largest category, where in Q4 we grew auto ad revenue by 43% over where the third quarter finished. The resumption in auto category spending is complemented by a resurgence in ad spending in insurance, gaming, sports betting, home service, home repair, drug stores, packaged goods, grocery stores, and retirement and nursing homes. Our new business strategies, our ongoing sales training, and our performance-based incentive structure have all proven very effective in our ability to capture ad spend in both broadcast and digital. Distribution fee revenue rose 18.4% year-over-year to approximately $528 million, reflecting our renewal of distribution agreements in 2019, partially offset by the one-time impact of outages during distribution negotiations with a certain satellite provider in the 2020 fourth quarter. Subscriber trends across our platform continue to remain consistent with our expectations, and the ongoing distribution revenue growth in net retrans margins that we currently project in our guidance. With our successful renewal of 2020 year-end distribution agreements, representing approximately 18% of our subscriber base and 70% of our distribution base renewed in 2019, we have continued revenue growth from this source that is highly visible in 2021 and 2022. Nexstar has solid visibility into our contractual distribution economics, as I said, through 2022, as in addition to the 2019 and 2020 multiyear retransmission consent agreement renewals representing again 88% of our subscribers cumulatively. We also have the bulk of our network affiliation contracts with CBS, Fox, and NBC under new long-term agreements, which were completed in the second half of 2019. As a result, 85% of our big four affiliations are contracted through December 31 of 2022. This combined with the fact that in Q1, we will receive our cash distribution from our 31% ownership in the TV Food Network will help ease the historical seasonality that media companies face, with Q1 typically being the smallest quarter of the year. However, we will remind you that our Q1 comp to 2020 will be the toughest of 2021 and that we started last year very strong and benefited from political ad revenue before the advertiser pullback that began at the beginning of March. Q4 2020 total digital revenue declined 12.5%, as with the broadcasting and digital subsidiaries now operating together under the Nexstar Inc. umbrella, we are further de-emphasizing lines of business in digital that produced high volumes without substantial margins. Reflecting this focus, digital profitability was up substantially over the comparable prior year period. Following the acquisition of Tribune Media over the past year, Nexstar has transitioned its digital operations and focus to content first and audience development. As a result, Nexstar's digital properties delivered record growth and audience engagement in 2020, ranking number one in local news for every month of the year and reaching all-time highs across key performance metrics, including average monthly users of over 91 million, total page views for the year in excess of 7.8 billion, total multiplatform minutes of over 10.4 billion, and total digital video views exceeding 1.6 million, and those statistics are all according to Comscore. During the fourth quarter, we completed the strategic and operational alignment of our broadcasting and digital subsidiaries, and as a result, we expect a mid-seven figure expense savings in 2021 as the result of the synergies, efficiencies, and streamlined reporting structures. We are now in the process of leveraging our integrated content strategy across Nexstar's 400 digital touchpoints to drive increased monetization during 2021. We are laser-focused on accelerating the profitability from our digital properties, as we maximize the value of the content, national reach, and significant consumer digital usage across our multiple platforms. In the fourth quarter, we completed the first transit transaction under our new content-first strategy with the accretive acquisition of BestReviews, a leading consumer product recommendations company. BestReviews diversifies our digital content portfolio while presenting the company with new and significant revenue channels by leveraging our media content, national reach, and significant consumer digital usage across multiple platforms. As I mentioned at the outset of the call, we responded to the pandemic with great speed and intensity to adapt our business and to preserve the health and well-being of our teams while ensuring that we continue to prudently and diligently manage our cost structure and liquidity position. We implemented a range of cost-cutting initiatives, which resulted in operating and corporate expense savings approximating $75 million from our budgeted levels for last year. The strong foundation of our assets, operations, and financial structure enabled us to extract significant cost savings while preserving the incomes and jobs of our valued employees, so we could continue delivering uninterrupted service to our local communities during this critical time. In summary, despite the challenges presented by the pandemic, 2020 was a year of historic financial performance and growth for Nexstar. Nexstar continues to perform exceptionally well despite the challenges presented by the pandemic, thanks to our differentiated broadcast and digital content and sales programs, our continued robust distribution revenue growth, significant income from equity investments, and record levels of political ad spending. Our capital allocation activity highlights the fact that our free cash flow and active management of both the cost structure and the balance sheet provide us with financial flexibility to continue supporting our shareholder value creation initiatives. As a result, Nexstar remains highly confident in our long-term strategies of serving our communities, building our top line, maintaining close control of our fixed and variable costs, and optimizing our balance sheet. With all of that said, let me now turn the call over to Tom for the financial review and update. Tom?

Thanks, Perry, and good morning, everyone. As detailed in this morning's press release, the results for the three months ending December 31, 2020, and the comparable period from December 31, 2019, reflect the company's legacy Nexstar Broadcasting and Digital operations, along with the results from the Tribune Media stations acquired on September 19, 2019. The fourth quarter 2020 revenue for WGN America, also part of the Tribune acquisition, is included in core television advertising revenue and distribution fee revenue. A full quarter of contributions from Nexstar's 31.3% ownership stake in TV Food Network and other investments acquired in the Tribune transaction is included in the income statement under income or loss on equity investments net and in the cash flow statement under distributions from equity investments. All actual results reflect the impact of $14.3 million and $29 million in one-time transaction expenses from the respective quarters of 2020 and 2019. I will now review Nexstar's fourth quarter income statement and balance sheet data, followed by an update on our capital structure and some guidance points. In Q4, net revenue increased 25% to $1.38 billion. Total TV advertising revenue rose 37.3% to $772 million, driven by a more than seven-fold increase in political advertising to a record $298 million, which more than offset a 9.9% decline in core advertising to $474 million. Distribution fee revenue increased 18.4% to $528 million, with growth partially impacted by one-time outages due to carriage negotiations. Digital revenues declined 12.5% to $65 million due to the reduced emphasis on business lines with high volume but low margins. Consequently, digital profitability improved significantly over the prior period. As Perry mentioned earlier, October was notably affected by political advertising and saw a mid-teens decline. However, combined performance in November and December was flat compared to the prior year, giving us positive momentum as we moved into 2021. We are pleased with the progress made in recapturing our core advertising business. To mitigate the expected impact of COVID-19 on commercial advertising revenue in early 2021, Nexstar rolled out a range of cost-saving initiatives. These measures resulted in approximately $75 million in operating and corporate expense savings for the year compared to initial budgeted levels. In Q4, direct operating expenses, excluding trade expenses, were about $432 million, remaining essentially unchanged from the prior year. Q4 station SG&A expenses were approximately $219 million, reflecting growth due to broadcast ad sales associated with record political revenue. Same-station pro forma fixed expenses, minus programming costs, decreased by 7.4% over the previous year due to expense reduction measures linked to the pandemic and synergies from the Tribune acquisition. Further highlighting our expense control efforts, corporate expenses fell 14.6% to $54 million, including $14.3 million in stock-based compensation for the quarter. During this quarter, there were $14.3 million in one-time transaction costs, of which $7.4 million were cash expenses. Operating cash taxes for Q4 were approximately $125 million, totaling about $270 million for the year due to higher than reforecasted net income in Q4. Ongoing CapEx amounted to $49 million for the quarter and $157 million for the year. Spectrum repack CapEx reached about $5.4 million, with roughly $5.9 million in reimbursements from the FCC for the quarter. We expect to be fully reimbursed for all CapEx linked to spectrum repack as we approach the end of these activities later in 2021. Q4 total interest expense was $74.5 million, down from $107 million in 2019. Cash interest expense was about $71 million compared to $102 million last year, due to lower interest rates and reduced first lien borrowings. Q4 adjusted EBITDA was $671 million and free cash flow was $450 million, both before one-time transaction expenses, exceeding consensus expectations. This reflects record political revenue, month-over-month improvements in core advertising spending, strong double-digit growth in distribution revenue, and $16.7 million in higher than expected distributions from the TV Food Network. With the strong operating leverage in our business model, Nexstar reported an adjusted EBITDA margin of approximately 47.7% in Q4. For the entire year, Nexstar achieved $4.5 billion in net revenue, approximately $2 billion in adjusted EBITDA, and roughly $1.3 billion in free cash flow, all before one-time expenses. Our substantial year-over-year growth and margin expansion reflect our team's success in addressing the challenges of the pandemic while maximizing the value of the Tribune Media acquisition. Although the environment remains dynamic, full-year 2020 free cash flow aligned with our pre-pandemic expectations, and 2021 has started strongly. Therefore, we are maintaining guidance and anticipate generating pro forma average annual free cash flow of around $1.27 billion during the 2021-2022 cycle, which supports our perspective that Nexstar's growth trajectory for capital returns and shareholder value enhancement is on track. Looking ahead, we estimate recurring cash corporate overhead, excluding stock compensation and transaction costs, will be about $30 million for Q1, with total corporate overhead for the year expected between $115 million and $120 million. Non-cash compensation is expected to be about $12 million for the quarter and $52 million for the year. Transaction expenses in Q1 are projected to be around $5 million. Operating cash taxes should be approximately $12 million for the first quarter and about $280 million for the entire year. CapEx is expected to be around $28 million in the first quarter and $135 million for the full year. We anticipate Nexstar's cash interest expense will be roughly $70 million for Q1 and $285 million for the year, reflecting savings from the decline in LIBOR rates and recent refinancing efforts. We also received cash distributions from the TV Food Network quarterly, with the highest payment typically in the first quarter of each year. For the first quarter of 2021, we expect to recognize about $160 million in TV Food Network distributions, and around $210 million to $215 million for the full year. Regarding our balance sheet, following recent capital market transactions and a $326 million debt reduction in Q4, along with the BestReviews acquisition and Mission Broadcasting's purchase of WPIX TV, Nexstar's outstanding debt as of December 31, 2020, was approximately $7.67 billion, consisting of $4.9 billion in first lien debt, term loans, and revolver balances along with two tranches of senior unsecured notes at 5.625% and 4.75%. Total debt was about $7.5 billion as of December 31, 2020, down from $8.3 billion at the same time in 2019. Net debt for first lien covenant compliance is approximately $4.7 billion, with net cash at $200 million. Our net first lien covenant ratio at December 31, 2020, was around 2.8 times, a decrease from 3.52 times a year earlier, which is well below our first lien covenant of 4.25 times. It's important to note that the 4.25 times first lien covenant is our only major financial covenant on our debt. Our total net leverage at quarter-end stood at 3.6 times compared to 5.18 times at December 31, 2019, aligning with our goal of reaching the high threes by year-end 2020. At the start of the pandemic, Nexstar swiftly adapted our business to function in the current environment and preserve liquidity for long-term success as we transition back to normalized operations. As the business landscape improves and vaccination distributions begin, we strategically deployed cash during the fourth quarter in accordance with our commitment to enhance shareholder returns. In the three months ending December 31, 2020, we returned around $109 million to shareholders through the repurchase of 835,000 shares for approximately $84 million and our quarterly cash dividend payment of $24.5 million. Additionally, we made $326 million in debt repayments during this period. Furthermore, Mission Broadcasting completed the acquisition of WPIX TV and Nexstar finished the accretive acquisition of BestReviews, a leading consumer product review company. Throughout 2020, we effectively managed our capital structure, cost of capital, and liquidity to support our operations and enhance shareholder returns. For the full year, we invested around $1.1 billion in initiatives that create shareholder value, including approximately $800 million in debt reduction, $100 million in dividend payments, and about $282 million in share repurchases. With our share count now at 43.3 million at a basic level, we believe these moves represent about $25 per share in value creation, a conservative estimate given our robust financial position and consistent execution. In January, the Board of Directors increased Nexstar's quarterly dividend by 25% to $0.70 per share and authorized a share repurchase of up to $1 billion of our Class A common stock. This repurchase authorization underscores the appeal of Nexstar's free cash flow yield and the potential for accelerating share repurchases, particularly as our leverage decreases and large-scale acquisitions become rarer amidst the current regulatory climate. The over 20% hike in Nexstar's dividend for the eighth consecutive year and the significant share repurchase authorization will enable us to continue reducing leverage while providing industry-leading risk-adjusted returns to our shareholders. The dividend payout remains a modest low double-digit percentage of our free cash flow. Looking ahead to 2021, particularly concerning core revenue performance, Q1 will closely mirror the corresponding quarter of 2020, supported by strong performance last year and the offset from political revenue. Q2 and Q3 are expected to exceed last year's figures, while Q4 will again reflect the cyclical effects of the political cycle. Nexstar has made considerable headway on our leverage reduction targets, and we maintain a substantial cash-generating capacity with added capacity under our new revolvers. In conclusion, despite the unprecedented challenges posed by the pandemic, our scale, leadership, adaptability, synergy realization, and operational strategies have yielded results, while our capital structure is strong regarding cost of capital and maturity. Our service to local communities and advertisers remains robust. We continue to achieve significant growth and predict reliable visibility into our results, remaining confident in our ability to enhance shareholder value and deliver pro forma annual free cash flow of approximately $1.27 billion over the forthcoming two-year cycle. That wraps up the financial review for today’s call, and I'll now hand it back to Perry for some closing remarks before our Q&A session.

Thank you, Tom. In our more than 25 years of business and our 17 years as a public company, Nexstar's management team, board, and employees have weathered the dot-com bust, 9/11, the 2008 financial crisis and the recession that followed, and now the pandemic, and even last week, the snow apocalypse here in Texas. Each time, we've worked to support and sustain our employees, local businesses, and the communities in which we operate. This has always been a good approach to business and is more important today than ever before. In each case, Nexstar came out on the other side stronger and better equipped to deliver outsized returns to our shareholders, and our long-term record of value creation supports this, and this is also the case today. Our 2020 full year free cash flow of approximately $1.3 billion or about $30 per share, and our guidance for pro forma average annual free cash flow for the '21, '22 cycle of $1.27 billion underscore the strength and resiliency of our operations and our ability to continue to deliver free cash flow per share that is among the highest in the market. Our strong free cash flow generation is allowing Nexstar to meaningfully increase its return of capital initiatives, as reflected by our recent authorization to repurchase up to an additional $1 billion of shares, and our eight-year track record of dividend increases of 20% annually or more. At the same time, we are paying down debt, investing in our business, operations, and people, and completing select accretive opportunistic transactions. We look forward to reporting on our continued growth and accomplishments throughout 2021, and on behalf of the entire Nexstar Nation, our board, and our management team, thank you for your continued interest and support, and thank you for joining us this morning. Now, let's open the call to Q&A to address your specific areas of interest.

Thank you. We'll take our first question from John Janedis with Wolfe Research. Please go ahead.

Thanks. Good morning, guys. Tom, you spoke to this in your remarks, but can you talk more about uses of cash. I think the free cash flow outlook is probably around $30 a share and absence of some large scale M&A, what are the priorities as it relates to either reducing leverage or buying back stock? You've been doing a lot of both, but is there a preference? And then separately, can you talk more about expense trajectory, as the core revenue comes back this year, should we expect to see some of those costs restored? I'd assume that they are being down mid-singles isn't the run rate? Thanks.

Sure. As I mentioned in the call, 2020 was a significant year for deleveraging. We reduced our leverage from approximately 5.2 to 3.6. Some of this was due to digital initiatives, but we also paid down $800 million from our operations using our free cash flow of $1.3 billion. Additionally, we paid down another $200 million from the asset sale to Fox in Q1. As I previously mentioned, we had almost $400 million in return of capital. I can see those figures almost swapping positions in terms of debt repayment versus return of capital. Given the substantial deleveraging last year, we currently don't feel the need to pay down another $800 million in debt this year. If we lowered that to around $400 million, which aligns with what we returned to capital last year, we could potentially return between $400 million and $700 million to shareholders in a non-presidential year. Part of this will come as a 25% higher dividend, amounting to $125 million a year, while the rest will come from either acquisitions, which are somewhat limited on the broadcasting side, or stock repurchases. Essentially, you can see a shift in how we allocated our free cash flow in 2020 compared to 2021. Regarding expenses, we expect some to return, primarily in Q2 and to a lesser extent in Q3. By Q4, we started reinstating expenses, and they were still substantially lower than the previous year. It's worth noting that the 7.4% reduction also includes synergies we realized in Q4 of 2019 and 2020 related to Tribune. On a comparable basis for the entire year, I would expect our controllable fixed expenses to decrease in the low single digits, although it may not reach 7.4% for the full year, particularly as we begin to add expenses back, especially in Q2, which was the quarter we tightened our budget the most due to pandemic uncertainties. Does that answer your questions?

Yes. It's very helpful. Thanks, Tom.

We'll take our next question from Dan Kurnos with The Benchmark Company. Please go ahead.

Great. Thanks. Good morning. I understand why you wanted to go first. Regarding the free cash flow, Perry and Tom, it's at a high level right now. The guidance for free cash flow suggests it may be $100 million ahead of our projections. We are already $100 million ahead of the consensus estimates. Your implied guidance for 2022 is still in double digits above 2020 levels. I recognize that retransmission consent and net retransmission are supporting this, as you mentioned in your prepared comments, Perry. It’s clear that the outlook for linear is not grim as some might suggest. Could you provide some insight into your confidence regarding future advertising conversations? We believe in the positive trends, but what reassures you about the core business and the upcoming trends? Additionally, considering political advertising, it seems you might need to estimate a number close to a 10% decrease from 2020 levels to achieve your goals for 2022.

Sure. First of all, you've made some good calculations. One aspect that might be overlooked is the acquisition and integration of the Tribune Media assets. On the broadcast side, Tim Busch and his team have successfully incorporated those stations, making new business development part of the culture, which deepens our advertising strategy established over two days in 2020 and will continue throughout 2021 and beyond. This execution is crucial as we increase our market share in key areas by applying the Nexstar playbook across our expanded portfolio. Additionally, our digital business, if treated as a separate entity, operated at a 30% margin in 2020. Karen Brophy has built a fantastic team, and we're converting revenue to EBITDA at unprecedented levels, even before the acquisition of BestReviews, which only had a minor impact in 2020. This positive trend will carry into 2021 and 2022 and beyond. We are pleased with our renewal status on affiliation agreements, with over 85% secured through the end of 2022. The early expirations in 2021 have also been addressed through 2024, thanks to the excellent efforts of Dana Zimmer and her distribution team, who have successfully secured and monetized carriage for WGN and other assets within our larger platform. That said, I have advised our teams that if we see significant double-digit growth in the second quarter—like a 20% increase against a 40% decline from last year—we still have much ground to cover to return to previous levels. Looking at our guidance, we are still working to recover in 2022 and do not expect to exceed 2019 levels. Therefore, I believe our guidance is well-articulated. This company aims to exceed expectations, and we are confident in the numbers we released this morning.

Just a couple of comments, and I'll turn it over to Tim Busch, he can comment some on the political environment for 2022 and our early kind of analysis on that. Don't dismiss WPIX admission. Perry worked long and hard to get an option to buy back WPIX because of its size and scale. There are substantial synergies coming to the combined entities with Mission's ownership of WPIX. And as Perry mentioned, BestReviews and WPIX both closed, I want to say on the 28th and 29th of December of last year. So none of those results were in 2020. But all of those results will be in '21 and '22, and those are healthy contributors. So Tim, do you have any comments just generally on the landscape for political?

The landscape for '22 political is, you could probably assess, we have approximately 370 house seats of the 435 across the footprint of the company. The Senate races, we're going to have approximately 90% of those, as there are 34 seats up. I think we've got about 31, and on the gubernatorial side, we've got about 85% of the 36 seats, which is a strong footprint. Everything portends to be yet another robust race probably starting a little earlier in '21 all the way up through '22.

Great.

We are not expecting a return to the political revenue levels of 2020 in 2022 because that year was an exceptional case in terms of advertising spend. Your initial assessment related to political revenue is quite accurate.

Thank you so much for all the color, guys, and congrats on another excellent quarter.

Thank you.

We'll take our next question from Kyle Evans with Stephens. Please go ahead.

Thank you for the insight on the month-to-month core. Can you share what you’re observing in terms of pacing for this quarter?

Sure. Core ad revenue and digital ad revenue in January and February were already exceeding our budgets, similar to the networks. However, we had planned for a decline in core and networks in the first quarter compared to an outstanding first quarter of 2020. That said, based on our internal numbers, which we use for forecasting, we are ahead of plan for January and February as of this morning and expect this trend to continue throughout the quarter.

It's flattish a word that we can use?

To the prior year, no. That's a little out because, again, you'll remember we made our first quarter numbers in 2020 even though March fell off a cliff. So this is the toughest comparison of the quarter. I'll say that we're showing mid-single digit growth over our budget. But I would also tell you that this is a decline compared to the prior year, but that's the expectation we set, and obviously, we're delivering ahead of our internal expectations as of now.

Great. Maybe just to recap on sub counts for 2020 and specifically what you're seeing on the virtual side as well?

Sure. I would say that we ended 2020 slightly better than we had originally projected. The moderation in subscriber decline continued. If you look at our subscriber decline in the first half of 2020 compared to the second half, the second half was about 50% of the decline in the first half of the year. We continue to see growth, although this growth from a total subscriber perspective is comparable to the V-MVPD universe, even though it represents a substantially lower percentage growth since we are starting from higher numbers. However, growth continues in the V-MVPD. Throughout the year, total subscriber attrition came in at a mid-single digit rate, which includes the virtual addition compared to the traditional decline.

Got it. Lastly, could you recap how News Nation performed and share your strategic outlook for it? Are we going to refer to it as WGN or News Nation moving forward?

Well, as of next Monday, WGN America will be renamed News Nation, and that is concurrent with our expansion of programming adding additional hours to our primetime slate. So that will be our first expansion will be next Monday. There will be a second expansion later on in the year. And again, if you look at 2020 performance, WGNA/News Nation performed well ahead of budgeted expectations and has performed ahead of expectations in January and February as well. Having said that, the baby will be six months old on Monday, and obviously for us increasing awareness is job one. We feel we've got solid content, and I can't wait for the nation to see our new shows at 6 o'clock, 7 o'clock, and 10 o'clock that they view on Monday wrapping around the News Nation broadcast. They are very well produced, going to be very well done, but raising awareness is our number one opportunity here for continued growth on the ad side. On the distribution side, again, in Q4 and some of this triggered in the first quarter, but Dana Zimmer and her distribution team was able to gain 8.5 million subscribers, OTT subscribers for WGN America that where we had no distribution before and approximately 200,000 linear subscribers through the year-end renewal of distribution agreements where WGN was not carried. So it's important to be important in distribution, and you can use your scale as a company to accomplish our objectives, which we have certainly done. So very pleased with the progress. Obviously, we want the numbers to continue to grow, that will grow as awareness grows. And we are dedicating substantial internal resources, as well as external spend to make that happen throughout 2021. We think it will be a good year of growth for WGN America. Again, rechristened News Nation, as of next Monday, March the 1st.

Great. Thank you.

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

Thanks. Perry one further clarification on News Nation. To the extent that the political season has passed or at least taken a new shape, has that made any difference in terms of your sensitivity to the viewership patterns or when you're in an early growth phase, you really can't see the short trends in the midst of longer trends?

Well, our focus, as you know is on being down the middle unbiased presenting both sides of an issue balanced coverage, and I think we've accomplished that. There is something called the media bias chart, which was put out monthly by an organization called Ad Fontes Media. And in January of 2021, we were exactly on the middle of the unbiased line. It has every news organization from left to right, and so, third-party observers think that we're holding true to our mission of being down the middle. I'll tell you from a revenue perspective, WGN America had political revenue in 2020 for the first time ever approximately $1 million. And I think that was due to having intellectual property that people and political advertisers and campaigns wanted their message associated with. So we see that as an opportunity going forward. But at this point, our number one job is growing the awareness. Approximately 85% of America does not connect the dots between WGN and News Nation. And so our job is to make that easier. We think the rebranding will be a big part of that. And that we'll see not only growth, but continued advertiser growth, a reminder that advertisers are paying a substantial premium for placement in our editorial and news content to what they did in our syndicated content. So the more of that we have, the higher our ad revenue base can go. And again, our distribution base is pretty well locked in, and we'll be growing from a yield perspective as well.

And just I want to add one thing, as it relates to News Nation. It continues to be the story that as our syndicated programming rolls off, we're funding the expansion of the news product by repurposing those dollars that were previously expensed and paid on programming product into the news programming. So it's really a self-funding venture from our perspective and one, financially, that continues to make a lot of sense.

It's great to hear. One thing to note about the political landscape is that local television broadcasts have historically dominated this sector, but we’re seeing digital play an increasingly significant role. I know you’re involved in both areas. Can you discuss the transition towards more digital in political advertising and its potential effects? You've achieved excellent results, but have you noticed a shift in the balance favoring digital?

No. I would tell you that from a political perspective, we had virtually no political revenue across our digital platforms. All of our ad spend was on the cable network, as well as our broadcast stations. So despite that which is written, I think increasing percent of budgets are being spent on digital, as a fundraising mechanism. But as it get out the vote mechanism, it's still television that captures the lion's share.

Okay. You mentioned some success with new TV revenues in the fourth quarter. Can you provide examples of the categories that have started to emerge through your efforts?

Sure. And I'll let Tim Busch comment a bit more on this. But this is a metric that you hear me talk about on every earnings call that we have, how much new to television business that we generated in the prior quarter. It's a part of our culture. Managers and account executives are highly incented to develop new business and that's the lifeblood of our company and what will drive our growth. So Tim, do you want to talk a little bit about categories, I would say, it's a long tail, right. It's local advertisers going deeper into a market, as well as developing new sales programs and promotions that will gather larger spends in the marketplace. But in terms of new business, it is purely developmental. It's going through the Yellow Pages, going through the folks, who are advertising locally on Facebook and trying to convert those. But Tim, do you want to add some color to that.

So, we spent a lot of time on targeted training of our account executives. And to the categorical side, we'll spend about two to three categories a month in training on how to develop and how to further that influence on the local market level. Medical has been a big growth category for us, as well as furniture and retail, where we have seen a drop-off on digital use in retail locally. Bricks and mortar has been a big focus on the category side, as well as Tier 3 auto, and of course, integrating both digital and broadcast as well. But as Perry had noted, we also have projects that are geared unified across the company, about a dozen projects a year that will be specific to exclusive and unique projects we run inside that the each market across the entire platform that develop additional new dollars, new to television dollars.

For example, we're currently in Black History Month, and we have a significant company-wide initiative focused on creating stories that are unique, individual, and exclusive to us. Hispanic Heritage is another area where we plan to focus our efforts. Remarkable Women is our theme for Women's History Month. These initiatives serve as tools to attract new advertisers and increase spending from existing ones, beyond showcasing 30-second or 15-second commercials in our news, primetime, and other programming. They provide audiences with reasons to engage with our television station on a purpose-driven basis and promote these franchises, which has benefited our growth. It's important to note that this culture has been introduced to the Tribune acquired stations, and success tends to breed more success. The pandemic presented us with the opportunity to focus on brick-and-mortar operations that remained open when regular advertising spending was down or agencies were closed. Our team did an excellent job of generating new television business in a challenging environment while also ensuring they could earn commission income. Their compensation is linked to performance, especially in new business development, which is a key aspect of the Nexstar strategy.

Okay. Thanks for all the color. I appreciate it.

We'll take our next question from Aaron Watts with Deutsche Bank. Please go ahead.

Hey, Perry, hey, Tom, covered a lot of ground today. I appreciate all the detail. Just one question from me. There has been plenty written about the pressure on network primetime viewing. As we embark on a new year hoping you can give us the latest on what you're seeing in terms of themes and trends for audience ratings on your local programming? And how confident you're in maintaining stability there? And in your ad base, even if that erosion in prime continues?

Sure. I would advise against using the current fall season as a benchmark due to delayed programming and the gradual return of new episodes which affects regular viewing patterns. We expect things to stabilize once production becomes more consistent at the national level. Locally, we've observed significant increases in both our linear and digital platforms during the early months of the pandemic, specifically from March to June, followed by a slight leveling off. Nevertheless, we remain approximately 15% to 20% above pre-pandemic levels for local news on average. These numbers can vary by market and times of the day, but interest in local news has grown, especially during the day when more people are at home, and our late news viewership has increased as well. While it's challenging to provide a precise average across our 197 TV stations, I estimate increases in the high teens to 20% compared to pre-pandemic viewing levels. It's uncertain whether we will maintain this level or if we might see a decline later. Our goal is to retain as much of the increased viewership as possible, but the final outcome is difficult to predict accurately.

Okay, great. That's really helpful. Thanks, Perry.

We'll take our next question from Craig Huber with Huber Research Partners. Please go ahead.

Thank you. I’d like to start with this; you mentioned earlier that for the first quarter, the TV ad pacing number was tracking mid-single digits better than your budget. Was that comment referring to just January and February, or for the entire quarter? Also, could you provide some insights on the month of March? I have a few follow-up questions as well. Thank you.

It is common for the entire quarter. We are already tracking mid-single digits above our budget numbers for January and February. In March, we are looking forward to having March Madness back on our CBS affiliates, which had a significant impact on our revenue last March. We anticipate this trend will continue. Additionally, we generated over $60 million in political revenue in the first quarter, which is quite remarkable and accounted for more than 10% of that revenue this year. We have the necessary inventory available, and there will be minimal displacement. We budgeted conservatively compared to the previous year since 2020 was unaffected by the pandemic, but our performance has been strong. In fact, our national core revenue is significantly above our budget. As more vaccines are distributed and businesses, including restaurants, operate at higher capacities, we are observing a revival in all our markets. Furthermore, sports betting, which was a relatively small category in 2019 and early 2020, has now grown into a notable category for us, and we expect to see continued growth in that area throughout 2021.

I appreciate that. Can you also just comment a little bit further about what you're seeing in the auto category this quarter and also retail, please?

Yes, we are experiencing growth. While I won't provide specific guidance at the category level, we are seeing sequential growth compared to the previous quarter. Similar to what we observed in the fourth quarter, we are seeing growth compared to that period as well. It may not reach the 40% level, but we are still witnessing growth in both the auto and retail sectors. Some of this retail growth is driven by our new business development initiatives. Overall, we are observing growth and positive comparisons to the previous quarter. I believe that by the second quarter, we will see positive comparisons to the previous year across all areas.

I'd like to inquire about your expectations for net retransmission revenue for the year. You mentioned in the past that you were anticipating an increase. Can you provide any specifics on that?

It's exactly as we have said previously, which is up low single digits to low double digits.

Okay. Very good. And it's really…

No change, basically no change.

I appreciate that. Is that in your minds a similar decline in subscribers to what you experienced in the latter half of last year? What is embedded in that number, please?

It is embedded with a marker-oriented subscriber attrition amount.

Okay.

So I'm not going to get into the inputs into our budget process.

Okay, fair enough. Thank you.

We'll take our next question from Steven Cahall with Wells Fargo. Please go ahead.

Thanks. Maybe first on digital also. You've done some restructuring here combining Tribune and legacy Nexstar and now you've got BestReviews, and you talked about shedding some of that lower margin revenue. Could you just talk about maybe what this means for the next year or two? Is there a big EBITDA outlook that you expect to come from digital? I mean, you also talked about the new commissions for new businesses and how that may pull into there. So just trying to kind of understand what the growth path in that digital business looks like, and whether that's a meaningful driver of some of your free cash flow growth? And then, maybe, Tom, just one on retrans. I know you're renewing fewer subs this year than you did last year, but I think a lot of your retrans agreements are now longer in term. Does that mean that the pricing is spread a little more evenly over them, so that results in a little more steady growth in retrans? And I got one quick follow-up after that? Thanks.

All right. Well, let me...

I think there was five questions.

Let me address digital. In the first quarter, we will be comparing ourselves to previous periods as we have shut down or reduced focus on businesses that generated revenue without profit. Looking at digital now, I expect to see significant percentage growth in both revenue and profit compared to what we achieved in 2020, where we moved from marginal profit to a 30% margin, resulting in substantial profits that year. While we'll see notable percentage growth in digital, it is not expected to significantly impact the overall consolidated enterprise. Our goal is to improve what we have and what we've acquired, and in the digital space, we are making progress. I am very confident in our digital projections for the year across all business lines, and it is becoming an important part of our profit share. However, it currently remains the smallest segment of that share, but it is set to grow.

I'm sorry, I mind-numbing, and I didn't write down all the questions. What's next on the agenda?

Yes. I think Tom, the retrans question was kind of basically that you've got fewer subs renewing this year, but is your kind of pricing spread a little more evenly, so is the cadence of retrans revenue growth a bit more even now that you're doing longer term deals.

We are still influenced by the renewal cycle, experiencing some fluctuations. There is a general leveling out, but we still have significant renewals ahead. The next major renewal will occur at the end of 2022, marking the three-year period following the 2019 renewal, which will involve a considerable volume of renewals. While things are more stable now, we benefit from healthy annual increases, but we remain affected by the natural ups and downs linked to renewal patterns.

Yes. But let me just clarify, we're not doing longer term deals on the revenue side, those are all two and three year deals. We have been able to execute three and four year deals on the affiliation side in the past year. But all of that adds up and we continue to reiterate double-digit top line and margin growth from distribution revenue. So from that perspective, nothing has changed.

Great. And then, just a last follow-up. We're seeing some news of auto shipments being delayed on supply chain issues. Do you see any risk there to auto advertising?

They shut down the GM plant in Arlington last week, where all your Escalades, Suburbans, and Yukons are produced. I believe this is just a short-term issue. They are quickly working to increase chip production capacity, which if anything, raises demand. With lower supplies, prices are likely to increase, and the used car market remains strong, where most dealers earn their profits. Therefore, I don't view this as a risk factor for the automotive industry in the long run. I think it will just be a temporary setback.

I'd say it doesn't remove the demand. It just may shift the demand slightly out. So the demand is not going to go away.

Yes, great. Thank you.

And our last questions in the queue is from Alan Gould with Loop Capital. Please go ahead.

Thank you for the question. Perry, I have an inquiry regarding the NFL. Looking ahead, there are discussions about a potential doubling of the rights fees. I understand that 85% of your affiliate agreements are locked in until the end of 2022, and the number of advertising slots during NFL games is limited. How might a significant increase in NFL rights fees affect your future relationship with the networks?

Immediately, there is no impact because affiliation agreements are only negotiated when they come up for renewal. It's important to note that there is significant negotiation happening in the media, and I wouldn't be surprised if any price increase over time ends up being less than anticipated. We are discussing 10-year agreements, which should clarify the future regarding the NFL's status for at least the next decade. The agreements will provide stability for either eight or ten years. While it's possible that prices could double over the next ten years, it's manageable as annual increases could align with that expectation. More details will emerge, and I foresee these deals being finalized before our next report in April or early May. The positive takeaway is that at least for the near term, we’ll have clarity on where the NFL will reside. However, I predict that networks will eventually inform their affiliate groups that, as they are paying more, they will expect affiliates to contribute more as well. Affiliate groups might cover about 10% of the total rights deal costs, so increases could occur in the future, subject to negotiations. I expect to hear announcements regarding these deals before our first-quarter earnings release as the year progresses.

Okay. Thanks a lot.

At this time, there are no further questions in the queue. I would like to turn the conference back to Perry Sook for any additional or closing remarks.

Well, thank you very much for joining us. Obviously, we're very proud of the results that we were able to deliver for Q4 and 2020. We're proud of our return of capital to shareholders, and we're very confident in our guidance for the '21, '22 cycle. So we look forward to reporting back later in the year on our first quarter progress. Thank you very much for joining us, and have a great day.

Ladies and gentlemen, this concludes today's conference. We appreciate your participation. You may now disconnect.