Nexstar Media Group, Inc. Q1 FY2022 Earnings Call

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

Thank you, Anna, 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 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 Securities and Exchange Commission, as well as 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 Founder, Chairman, and CEO, Perry Sook. Perry, please go ahead.

Thank you, Joseph, and good morning, everyone. Thank you for joining us today. We appreciate you joining with us here today to discuss Nexstar's record first quarter financial results, which include the highest quarterly free cash flow in the company's history. With me on the call today are Tom Carter, President and Chief Operating Officer, and Lee Ann Gliha, our CFO. I'll start with a summary of recent highlights and developments, followed by Tom's operational review and Lee Ann's financial review. So while the equity market is testing new levels of volatility, it was another boring, beat consensus expectations, no drama quarter here at Nexstar, the type of performance investors should know to expect from us. Our outstanding results represent an excellent start to what we expect will be another year of record financial performance for our shareholders and for NewsNation. First quarter, top and bottom line performance was driven by strong year-over-year growth across all of our revenue sources, as well as the first quarter cash distribution from our TV Food Network ownership interests. Net revenue, adjusted EBITDA, and free cash flow all came in well ahead of expectations, continuing our track record of exceeding consensus expectations. A recurring theme this earning season for companies across all industries and all market caps are Wall Street's concerns about the economic and business impact of supply chain issues, high inflation, and rising interest rates. With that in mind, let me spend a few minutes reviewing why Nexstar is entering the second quarter from a position of strength, which we will build upon to create new value for shareholders this year and going forward. First, 55% of our total net revenue is derived from distribution revenue, which is contractual. This is a recurring revenue source that provides us with a solid foundation for continued growth, not only in Q2 but through the balance of this year and beyond. As we've commented in quarters past, we continue to see stabilizing low single-digit rates of subscriber attrition. Second, as you know, 2022 is a political year where we will benefit from strong shares of political advertising spending, given our scale and our presence in many of the key battleground states. In Q1, we delivered strong, early political results with our revenue up 40% over pro forma Q1 of 2018. Importantly, fundraising, which is a key indicator for political ad spend, increased 91% over Q1 of 2018 according to the Federal Elections Commission. We expect fundraising levels to accelerate as we move through the year, given these positive trends and recent events. As America's largest local broadcasting company, we have the scale and resources to produce and distribute the most comprehensive political news and live debate coverage in our markets. We are also realizing meaningful content synergies between our broadcast operations and NewsNation, as well as our accretive acquisition of The Hill. These distinct competitive advantages reinforce our confidence that Nexstar will deliver record midterm election net political advertising revenue in 2022, meaningfully exceeding our pro forma 2018 levels. Third, in Q1, core advertising, which represents 35% of our net revenue was up 4%. Of our core advertising revenue, 59% is from services, 26% is from goods, and 15% is from auto. Given that mix and large exposure to the services industry, we are somewhat insulated from the supply chain and inflation issues elsewhere. And while it is true that auto continues to be a challenged category, overall, we're pacing very close to last year in that category. Looking forward, there are many bright spots among our advertising categories. Experiential-based businesses of entertainment and travel are back in a big way post-pandemic, and medical healthcare, home repair, manufacturing, and fast-food restaurants are also pacing up very nicely. Fourth, while a smaller percentage of our revenue, our core digital in our digital agency services business is growing at a mid-teens rate and shows no signs of slowing. Fifth, our operating expenses are largely fixed and insulated from inflationary pressures while our advertising rates can increase with inflation. And last, our balance sheet and our capital structure are both in great shape. Our trailing 12 months leverage is 3.4 times, and we had a borrowing cost below 4% in the first quarter. Looking a bit further out, we continue to have excellent long-term three-year visibility on our growth trajectory. In addition to political revenue this year and the presidential election in 2024, 2023 and 2024 will benefit from distribution agreement renewals from virtually all of our subscribers over this period, which we expect will materially benefit our cash flow. As a result, we remain confident in our ability to generate pro forma average annual free cash flow in excess of $1.4 billion over the '22, '23 cycle, and we will continue to deploy that cash flow to maximize shareholders' return. In terms of our longer-term prospects, we are positioned to benefit from both organic and inorganic growth opportunities. On the organic front, NewsNation continues to move forward towards our goal of becoming a 24/7 cable news network. Ratings continue to grow every month as consumer awareness builds, making NewsNation the fastest-growing national cable news network further validating the value of our strategy to bring consumers balanced and unbiased news. In this regard, in the first quarter, NewsNation was regarded and recognized by several media watchdog organizations, including Ad Fontes Media, NewsGuard, and AllSides for its trustworthiness and lack of bias. In the first quarter, we further expanded our NewsNation programming and now offer 60 hours per week of live news, analysis, and talk. The value of our NewsNation strategy was recently validated by Moffett Nathanson in a research report, which highlighted that in 2021 the top three cable news networks were responsible for 59% of the viewing time of all of the top 20 cable networks. With our early progress and achievements, our commitment to profitably growing this asset remains unchanged. We also continue to lead the industry in launching next-gen TV markets with ATSC 3.0 technology. In Q1, we launched three more markets and a fourth one in April, marking progress towards our goal of covering half of all US television households with an ATSC 3.0 signal by the end of this year. As one of the nation's largest holders of broadcast spectrum, we are excited about both the enhancements to our core business as well as the myriad new revenue opportunities that this technology upgrade will enable us. The continued industry momentum around ATSC 3.0 was evident at the NAB show in April, and we're analyzing more and more potential monetization models for this asset. For example, BitPath, a business in which we are an investor, demonstrated the use of an ATSC 3.0 broadcast network signal to improve and correct GPS signals. Since our powerful land-based spectrum can overcome certain weaknesses inherent in a satellite signal, this could have wide application for delivery services, driverless vehicles, drones, or any other service where mobile devices must be aware. Shifting to new capital allocation. Our disciplined approach allows us to capitalize on the best opportunities to create the greatest long-term value for our shareholders. In January, we announced our ninth consecutive annual dividend increase to $0.90 per share per quarter, representing a compound annual growth rate of 25% since our dividend was initiated. We will continue to deploy cash with a shareholder-friendly focus through a mix of dividend payments, share repurchases, and debt reduction, while also continuing to pursue accretive M&A and investing in our business for future growth. Nexstar's consistently strong performance continues to validate the value creation potential of our current capital allocation strategy. In summary, we remain confident in our near- and long-term growth opportunities. Nexstar's powerful diversified platform produces and distributes some of the most compelling local and national news, sports, and entertainment content in America with the best margins in the broadcasting industry. We have excellent three-year visibility on this and our ability to deliver on our free cash flow targets, given expected strong midterm and presidential political advertising as well as distribution agreement renewals, representing a significant percentage of our subscribers over this period. As such, we have a solid foundation to continue driving near and long-term growth and the enhancement of shareholder value in spite of the market and other world events. With that, now let me turn the call over to Tom Carter for the operations review. Tom?

Thanks, Perry, and good morning, everyone. Operationally, Nexstar had a very strong start to the year. We delivered an all-time high first quarter net revenue of $1.21 billion, driven by strong year-over-year increases across all of our core and political advertising, distribution, and digital revenue sources. Overall, television advertising revenue grew 8.3% versus Q1 of '21, and core television advertising of $428 million was a first quarter record and increased 4% over the prior year quarter. Healthy demand from advertisers, aided by the Olympics, resulted in solid growth in 19 of Nexstar's top 25 advertising categories, which more than offset continued weakness in automotive advertising. Our top-performing categories were entertainment, medical healthcare, travel, telecom, and gaming, sports betting. 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 $35 million, marking an increase of 27% over the prior year. Sports betting and gambling continue to be a top five category for us in the first quarter. Growth in the category was driven primarily by spending from land-based casinos and from sports betting advertising in states where online sports betting was recently legalized, such as New York, Louisiana, Connecticut, and Illinois, offset in part by declines in the first quarter of '21 in some states where gambling and sports betting is more mature. Despite the public pressure on sports betting companies, we still believe this category has legs, and there are a number of large states such as Ohio, where we are virtually in every market in the state, which are expected to legalize online sports betting in the near term. As you know, Nexstar has a presence in approximately 80% of the states where legalized sports betting is or will be launched. So we remain very well positioned to generate continued growth from this category as new states pass legislation. As Perry mentioned, the political television advertising environment in Q2 remains healthy despite recent macroeconomic challenges, and we're optimistic that these trends will continue to improve as we move throughout the year. Political advertising got off to a strong start in Q1 with revenue of $24 million, which is approximately 40% ahead of pro forma 2018 Q1 levels. Nexstar benefited from strong spending around key races and primary elections for Senate seats in Ohio and Pennsylvania and governor races in Illinois, Texas, and Alabama. As a percentage of our total first quarter political spending, PAC issue spending accounted for approximately 39% of revenue, gubernatorial and Senate candidate spending represented approximately 37% of revenue, with all other political spending accounting for approximately the remaining 24%. Record first quarter distribution revenue rose 7.5% from the prior year quarter to approximately $668 million, reflecting distribution agreement renewals at the end of '21 on improved terms and rate escalators. We continue to see stability and improvement in our subscriber trends, aided by increased VMVPD subscribers. In addition, we have good visibility into our net distribution economics with all of our big four affiliations contracted through December of '22 and only our ABC affiliate agreements up at the end of this year. With more than half of our subscribers set to renew at year-end '22, we continue to expect a higher rate of growth from this revenue source in '23. Q1 digital revenue increased 18.5% year-over-year to approximately $79 million. This increase was driven by strong year-over-year growth in our local digital advertising revenue and agency services businesses and contributions from Best Reviews and a full quarter contribution from The Hill. With the momentum of our content and audience development strategy, we expect strong digital revenue growth going forward. Top line growth and our first quarter cash distribution from TV Food Network, owners from our TV Food Network ownership interest, combined with our expense management, drove record first quarter adjusted EBITDA of $643 million and an all-time high quarterly free cash flow of $560 million. Nexstar generated a 53% adjusted EBITDA margin, and we converted approximately 87% of adjusted EBITDA for free cash flow. In preparations for Nexstar's 2022 Proxy and Annual Meeting, we conducted extensive outreach to our shareholders during the first quarter to update them on the company's recent ESG initiatives, which were outlined on our last earnings call and solicited their feedback on these matters. For the input and recommendation of shareholders who elected to engage with us, was presented to the Board of Directors for consideration, and a summary of these efforts was included in our 2022 proxy filed at the end of April. Throughout the company's history, the alignment of our commitment with our local communities and our commitment to our shareholders continues to be a key driver of our long-term success. As a result, we remain focused on evolving our ESG policies and disclosures in a thoughtful manner that supports our employees and communities as well as our goals for growth and the enhancement of shareholder value. With that, it's my pleasure to turn the call over to Lee Ann for the remainder of the financial review and update. Lee Ann?

Thank you, Tom, and good morning, everyone. We had another strong quarter of results for our shareholders and are optimistic about the opportunities in 2022. Tom and Perry covered most of the revenue details, so I'll move on to expenses. In the first quarter, direct operating and SG&A expenses both rose mainly due to higher core political distribution and digital advertising revenues, along with a full quarter of costs from The Hill. Total corporate expenses were about $46 million, including approximately $13 million in non-cash compensation and around $1 million in one-time costs. The decrease from our expectations was mainly because legal fees were lower than anticipated. First quarter CapEx was about $28 million, with Spectrum repack CapEx totaling approximately $750,000, and we received $1.7 million in reimbursements from the FCC. CapEx was less than expected due to delays in receiving equipment caused by supply chain issues. First quarter total interest expense decreased by 4% to roughly $69 million. Cash interest expense was about $66 million compared to $68 million the previous year, mainly due to lower first lien borrowings of about $347 million, offset by a rise in LIBOR of roughly 15 basis points during the quarter and refinancing part of the revolver in Q2 2021. Our first quarter operating cash taxes amounted to $3.2 million, attributable to a small state tax payment. We reported $193 million in distributions from equity investments related to our 31% ownership stake in TV Food Network during the first quarter, representing a $15.3 million increase over the same quarter last year. Looking ahead, we anticipate corporate overhead, excluding stock compensation and transaction costs, will be around $36.5 million in the second quarter, and we expect corporate overhead to be in the $140 million range for the year. Non-cash compensation is projected to be about $14 million for the second quarter, and we continue to forecast $58 million for the entire year, though this may vary based on stock price and actual grants. For cash taxes, we applied a 26.5% tax rate when estimating our tax before one-time and other adjustments. Typically, two tax payments are made in the second quarter, with one each in the third and fourth quarters. We expect cash taxes to be in the vicinity of $390 million to $395 million for the year given current business expectations. Cash CapEx should be around $35 million in the second quarter, with a full-year expectation of $150 million. We generally invest more in CapEx during even-numbered political years compared to non-political years. We also forecast that Nexstar's cash interest expense will be about $75 million for the second quarter and $320 million for the year, reflecting updated LIBOR estimates and anticipated debt repayments. As for the balance sheet, Nexstar's outstanding debt as of March 31, 2022, was $7.26 billion. Total net debt stood at approximately $7 billion at the end of the quarter, a decrease from $7.2 billion on December 31, 2021. The net debt for first lien covenant purposes was $4.3 billion. Our net first lien covenant ratio was 2.1 as of March 31, 2022, which is well below our covenant limit of 4.25x. Our total net leverage at quarter-end was 3.4x, down from 3.7x at the end of 2021. We expect to reduce this leverage by the end of 2022 by using some of our free cash flow to pay down debt and increasing EBITDA based on our outlook for the year. In the third quarter, we returned $195 million, or 35% of our free cash flow, to shareholders through share repurchases and dividends, while allocating another $155 million, or 28% of our free cash flow, to reduce debt. Going forward, we will continue to strategically manage our cash in a way that aligns with our commitment to maximizing shareholder value. Our business is performing exceptionally well, as reflected in our Q1 results. We remain well positioned for strong growth in 2022 and are confident in meeting our average annual free cash flow guidance of about $1.4 billion over the 2022-2023 cycle. That wraps up the financial review. Operator, please open the line for questions.

And we'll take our first question from Dan Kurnos with the Benchmark Company.

Great. Thanks. Good morning, Excellent quarter, Perry. I'll leave the course value questions for everybody else. I know it doesn't sound to be in the case there and just ask one on retrans. Given the real strong start to the year and what we've heard from kind of all of you guys now as the MVPD upside, you guys have guided gross to kind of mid-to-high singles for the year. Is there to either the gross or the net outlook given kind of the strong start to the year? And then on political, obviously, given the draft leak and everything else and what we've seen from fundraising even in the last couple of weeks, in the last few days, I guess, I should say. We've seen some forecast out there around '22, looking more like '20 rather than '18. So I don't know if that's the right benchmark. It's too early in the cycle, but just help us think through how much closer we might be getting to that yardstick?

I'll take the political question. And we obviously, if you follow the company, you know that we like to underpromise and overdeliver on our political forecast because, obviously, we don't control the money until it's raised. But everything would indicate that it will be a record off-year mid-term election for us from a revenue perspective. And we think it will be substantially ahead of 2018, but we are not yet ready to go there to say that it would be to the 2020 levels. But as you know, more than half the money will come in a 6-week period between Labor Day and Election Day. And so until we get closer to that date, anything that we would do would just be to fuel speculation. So we're comfortable with what we said on the call thus far. And I'll let Tom talk about the distribution revenue.

Sure. Dan, thanks for the question. Yes. We're pleased with the distribution performance, especially with regard to attrition saying at moderated levels and, quite honestly, levels that were better than we had budgeted for. But it's a little too early for us to change our guidance with regard to the entire year after the first quarter. So I think we're going to stick with where we were, which was kind of mid-single digits.

Okay. And maybe just Perry or Tom, just if I could sneak one more in just on capital allocation, just given sort of the uncertainties out there, but also perhaps the opportunities that might provide. I know you guys have a long track record of generating shareholder value with any deals you've done, and there's certainly been plenty of speculation out there. I'm just wondering if there's any kind of difference and change of balance on how you would allocate capital? Obviously, stock working today, but if the market continues to be a little bit more finicky, just how we should think about your cash boarding and repurchase activity versus M&A appetite?

Yes. I believe that as we've stated in the past, mergers and acquisitions will remain a priority for the company. Historically, this has created the most shareholder value, and we aim to continue this trend moving forward. If we can identify suitable accretive transactions that complement our existing business, that will be our primary use of cash. If such opportunities are not available, we will consider using our funds to pay down debt or repurchase shares. You may have noticed that we have a slightly higher cash balance on our balance sheet at the end of the quarter, and we are aware of our current stock price. Therefore, we are focused on ensuring that we allocate capital effectively for the benefit of our company and our shareholders.

I appreciate it. Thank you very much guys and congrats on the quarter.

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

Thanks and good morning. Maybe just first, you held free cash flow guidance for the 2022, 2023 cycle. Lea Ann, I think when you were listing off some of the cash guidance line items, the one that really seemed to move the most was cash interest, I think, going from about $300 million to $320 million. That's kind of small in the context of your free cash flow overall, though. So just wondering if those are the sort of things that are keeping you a little more conservative at the moment? Or if it's anything else like the ad market?

Yes, I think that's absolutely right. The LIBOR curve continues to move against us. For both 2022 and 2023, we expect higher rates going forward, which is one factor working against us, along with a slight increase in taxes due to improved expected performance. However, I believe we are in a good position for now, and as the year progresses, we will continue to reassess.

And then, Perry, we talked a little bit about NAB about retrans rates. And I'm kind of backing into some rates this quarter of probably over $5 on average per sub. I know there's some markets where you have some mix of stations, so that's not necessarily a big for rate. But it does seem like retrans is getting to rates that was probably not contemplated a few years ago. Your big four affiliate network friends are also driving those rates a lot higher. Do you all think that there is a ceiling out there as sports rights continue to go up? Do you feel like stabilization of the ecosystem supports a lot of rate increase ahead? Just love to kind of get your view as to where we are in the rate cycle?

Well, first of all, we certainly considered the rate you mentioned a few years ago. Recently, I have adjusted my expectations regarding what is achievable. Given the importance of live local news to our offerings and to consumers in our communities, I believe we can push further than I initially thought possible three or four years ago. Is there a limit? Ultimately, it's a negotiation influenced by market conditions and the agreement between two parties. However, I believe we can exceed what I previously expected and certainly surpass the figures you referenced earlier.

And then lastly for me, Fox said this morning they expect to keep their key sports content exclusive to the linear broadcast and to not license it like some of the other big four networks have. Going forward, do you see a difference in your relationship maybe with Fox and those companies that are launching a la carte streaming services with broadcast content on it? And could that affect the way you think about reverse comp?

Well, as I've said historically, we have good relationships with all of our network partners. But one of the things we pay for is exclusivity in that content on a market-by-market basis. And to the extent that content is less and less exclusive, it would follow that it would have less and less value. Now each network provides more programming or less programming than the other. So those discussions are nuanced. But obviously, we're paying for the rights to bundle the network programming with our local programming for resale to advertisers and to distributors. And to the extent that, as I said, some of that programming is less exclusive, then it inherently has less value to us, and we'd be willing to pay less for it.

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

Two here. Tom, you mentioned that the sports gaming in the more mature markets offset some of the growth in the older markets. What are you seeing? Can you quantify what change you see as sports gaming becomes more mature in a marketplace? And secondly, can you discuss what sort of a crowd-out effect we should expect from the political advertising as the year goes on, what crowd-out effect as non-core?

Sure. I'll take the political question, and then I'll throw sports betting to Lee Ann. We will see some crowd out in the fourth quarter, but our expectation is that we will see growth in Q3 and Q4 over '21 levels even with the crowd out. And then we're just talking about how much growth will we see. But I think we're very confident and optimistic with regard to the back half of the year overall, even with a pretty sober view on auto advertising. So I'll let Lee Ann tackle sports betting, no pun intended.

Yes, that sounds enjoyable. I believe that sports betting is still in its early stages, and there are many variables at play with new states legalizing it and various operators making different moves in the markets. However, the launch of new states continues to drive our growth. As Tom mentioned, New York, Louisiana, and Illinois are strong markets for us. When we look at the top five states, three of them were among the first to launch. We are seeing spending patterns, but we find ourselves in a dynamic market and are focusing on upcoming states. We see potential in Ohio, and California has measures on the ballot. We anticipate growth from several other states in the future.

And we think that the local broadcasters are really at an advantage here. Because as sports betting moves into new states, you can target those states. And for example, I think I mentioned we're in every market in Ohio, say two. And we're in basically every market in North Carolina. So when sports betting firms target those states, they don't have to buy nationally to their goals, they can buy locally. And we think that we're in 80% of the states where sports betting either is legal or expected to be legal, that we will benefit disproportionately from that.

We'll now take a question from Craig Huber with Huber Research Partners.

Great. Can you guys maybe just talk a little bit further about the advertising environment, just expand upon what you said before? And I'd be curious if you could maybe give us a core advertising pacing number for the second quarter year-over-year. I mean is it being up 2%, 3%, 4%? I mean how is that looking so far? Maybe talk about auto as well, if you would, please?

Sure. I'll start and then others can add. We actually saw a slight acceleration in April results versus increases over the prior year versus our Q1 finish. Broadcast, digital, and networks were all up versus the prior year versus their percentage increase versus the prior year in Q1. So we think that's a positive sign. Obviously, April is in the books. And I would say thematically, the quarter from a core and category perspective looks a lot like the first quarter. I mean, automotive is trending slightly down from the prior year, but not as much as maybe some others have reported. And the other categories that have been driving our growth of entertainment and gaming and services and all of that continue to drive that. So in the first quarter, six of our top ten categories showed increases to the prior year, and 19 of our top 25. So we don't see things thematically that much different in the second quarter than that we have one month of the quarter in the books. So we see continued growth in core along the lines of what we saw in the first quarter.

So basically, all the macro issues out there so far, you're not feeling the pinch on that. I mean, your numbers speak for itself, your commentary does, but just inflation, higher interest rates, obviously the Ukraine issue, supply chain issues, obviously hurting to certain categories and stuff. But you're powering right through that your advertising is quite strong. It's a message you're saying here.

That was all there in the first quarter, and we posted the results we did. So it's all there in the second quarter. We're living with the current rate of inflation, the price of gasoline, 5% mortgages, and results are what they were in the first quarter; nothing really has changed as we have moved into the second quarter. So when you track 50 categories, some are going to be up, some are going to be down on a comparative basis. But, again, if I look at our pacing throughout the quarter, it looks a lot like the first quarter in terms of where we think we'll end up.

Great. And my last question, if I could. For the digital side of things, maybe if you could talk a little bit further about the organic revenue growth there and maybe separate between the local side versus national and how the performance went in the quarter and maybe what your outlook is in the second quarter, please?

Sure. Well, as I think we mentioned, local was very strong from a local digital perspective, seeing double-digit increases both in our digital agency services, which is our selling broad websites as well as our owned and operated websites. National was less robust in the first quarter because of some of those issues. The Hill, in particular, with the Ukraine conflict, saw a decrease in advertising for a period of time at the beginning of that. Subsequent to that, over in the last half of April and early May, advertising revenue has returned because advertisers just didn't want to be associated with that news. So I would say thematically that local is performing as or better than expected, and national is probably slightly behind our expectations but still positive.

And we'll now take a question from Jim Goss with Barrington Research.

One question I have involves the ATSC 3.0 in terms of the monetization devices you plan to use. For example, you brought up the notion of improving and correcting GPS signals. How would you get paid for that, delivering information and sort of a consultancy or some other way? And on a related basis, I think you framed out in the past that all of the things you're going to do with this new technology could have a potential opportunity over time on the scale of retrans if I'm not mistaken. Could you tell me if that was a correct recollection?

Yes, Jim. We believe that by the end of this decade, the total revenue from monetizing the additional uses of our spectrum could match our current distribution revenue, which is projected to exceed $2.5 billion this year. This represents a significant opportunity for value creation in our business, which is why we focus heavily on it. At NAB, I observed two demonstrations. One was about correcting GPS signals, highlighting the vast addressable market for location-based services. The second demonstration was related to distributed power, showing various applications such as utilities communicating with each other and with consumers, potentially offering incentives to manage energy use. We see a wide range of opportunities in these areas and consider ourselves as providing the infrastructure that others can utilize for their innovations with this spectrum. The BitPath consortium, in which we participate, has developed an open-source toolkit that includes all the essentials for leveraging the spectrum effectively. We envision the market determining the best uses of the spectrum while we act as the facilitator.

Okay. That's a great analogy, the toll road idea. In terms of how you would collect those tolls, have you thought about how that might work or any examples you've come up with at this stage?

Sure. We could lease a portion of our spectrum in each market to Netflix, allowing them to reach 68% of the country, especially if they need higher speed delivery or are experiencing throttling from traditional providers. This would enable point-to-point wireless mobile services, and the arrangement would consist of straightforward lease payments. While I wouldn't dismiss the possibility of investing in businesses with specific use cases, we currently generate revenue by leasing our spectrum for Diginet. This includes monetizing our own content through advertising or leasing portions of our spectrum to others for Diginet distribution. I believe the future will be similar to that. Spectrum is typically valued on a per-capita basis while retransmission rights are valued per subscriber, making the comparisons somewhat similar. Looking ahead, we see potential use cases in connected cars, digital signage, telemedicine, and interactive television, among others. Our goal is to let the market determine the best use of the spectrum and provide developers with the necessary tools. We'll figure out the business relationships as these uses emerge. To monetize, we simply need the ATSC 3.0 signal broadcasted. Currently, we face some restrictions during the transition because of the limitations of available spectrum. However, we are making adjustments to transition from 1.0 to 3.0 signals. By the end of the decade, we anticipate numerous opportunities, including in education and distance learning. We view ourselves as the wireless connector of the Internet of Things, with many potential applications. We are optimistic about ATSC deployment, aiming to have stations covering 50% of the population with the 3.0 signal by the end of this year. We will continue to be at the forefront of developing the business case, use cases, and monetization strategies.

I'm curious about your neutral stance with NewsNation. Do you think you might be in a unique position to hold panels that include diverse political viewpoints, potentially attracting audiences from both sides of your competitive landscape?

We are currently implementing that approach. If you observe our prime time programming, you will see guests from opposing viewpoints discussing their perspectives, with our hosts and moderators acting as referees and occasionally sharing their own opinions, clearly indicating when they do. Importantly, NewsNation aims not just to present balanced viewpoints but also to cover stories that other networks overlook. We were the first to report and interview the car wash operator involved in the recent situation with the former correction worker and the convict she was with, thanks to our connections in Huntsville, Alabama, where the jailbreak happened, and in Evansville, Indiana, where we have a station. During that time, we were interviewing individuals live on air while other cable networks relied on phone interviews. Our local knowledge is a significant asset. Recently, we dedicated a week to trucking on NewsNation, highlighting the American trucker and discussing the trucking industry, including the growing presence of women in the workforce as truck drivers. You won’t find such stories on other cable news networks. We are covering vast regions of the country and stories that may not receive attention elsewhere. We believe this is where we can truly demonstrate our value while remaining unbiased and apolitical. We plan to launch a new show titled The Hill before the end of the year, leveraging our ownership of the digital asset, which will feature a Washington D.C. panel format. However, we don't intend to fill our entire lineup with such programming. We believe in a smart mix. Last week, we reached our highest demographic ratings between 5 and 11 p.m. since our launch, and every week, we see progress in various programs. While the ratings are still modest, they are on an upward trend, and I encourage people not to focus solely on the ratings but on the growth. This is a long-term journey, not a quick race. I am proud of what we broadcast daily and have never felt embarrassed by any aspect of our programming throughout the year. We believe it creates a valuable environment for viewers seeking information without biases, and it is also an appealing space for advertisers due to the professionally produced and non-toxic content.

Great. Thanks so much.

We're hearing no more questions, operator. Thank you very much to everyone for joining us this morning. I apologize. Actually, you do have some callers in queue. We'll take a question from follow-up from Craig Huber with Huber Research Partners.

I wanted to ask Perry about your comments regarding the future uses of spectrum. You mentioned that you expect to reach 50% of the U.S. population by the end of this year. Your TV coverage, as you mentioned, is around 68%. When do you anticipate starting to finalize your first contract for this new use of renting out the spectrum? How far along is that process?

We currently generate around $80 million a year from ancillary uses of our spectrum. We're already monetizing it, either through distribution or advertising. It's not sitting unused, even with a mix of 1.0 and 3.0 spectrum. As I mentioned in our last call, when you look at the combined spectrum of Scripps and Nexstar, we reach an unduplicated 92% of the U.S. population. This creates a viable business opportunity. We are just starting discussions on potential collaborations that wouldn't need a formal consortium. We need mutual agreement between parties. Once we reach 50% on our own, I believe we could partner to reach about 90% of the population, leading to practical applications within the next two years.

And we'll take our next question from John Kornreich with J.K. Media.

Did I miss the Food Network distribution amount of the first quarter? And then I have a couple of follow-ups on that.

Yes, the food network distribution amount in the earnings release. And you can see it's $193 million. It was up $15 million.

And that was up $15 million?

Yes.

Okay. Does that represent roughly 90% or so of what you're going to eventually receive for the year?

The distributions are delayed, which is linked to the earnings from the Food Network in the previous year. This reflects the distributions that pertain to the partnership.

If you look historically, the first quarter has been less than 90% of the total.

Less than?

And I don't know exactly what the number is, but my guess is it's probably closer to 75% or 80% of the total.

Okay. And finally, the distributions that are made by Food Network, do they represent virtually 100% of all free cash flow? Or do they retain something?

It's based on their pretax earnings, and we get 31.3% of that.

And 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, operator, and thank you all for joining us today. In periods of market uncertainty, one thing has remained true thoughtful investors who have taken advantage of market volatility to buy Nexstar shares have never been disappointed, given our consistent financial outperformance, our industry-leading free cash flow generation, and our low leverage. So thanks, everyone, for joining us today. We look forward to speaking with you again when we report our second quarter results. Have a great day.

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