Nexstar Media Group, Inc. Q1 FY2024 Earnings Call

Thank you, Maria, and good morning, everyone. I'll read the safe harbor language, and then we'll get right into the call. All statements and comments made by management during this conference call other than statements of historical fact, may be deemed forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995. Nexstar cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those reflected by the forward-looking statements made during this call. For additional details on these risks and uncertainties, please see Nexstar's annual report on Form 10-K for the year ended December 31, 2023, as filed with the Securities and Exchange Commission and Nexstar's subsequent public filings with the SEC. Nexstar undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. It's now my pleasure to turn the conference over to your host, Nexstar's Founder, Chairman and Chief Executive Officer, Perry Sook. Perry, please go ahead.

Thank you, Joseph, and good morning, everyone. We appreciate you joining us today. This morning, with me on today's call are Mike Biard, our President and Chief Operating Officer; and Lee Ann Gliha, our Chief Financial Officer. I will start with a summary of recent highlights, followed by Mike's operational review as well as Lee Ann's financial review, and then we'll get to your questions. Nexstar's first quarter results marked an excellent start to 2024 and what we expect will be another strong year for the company. We delivered record first quarter net revenue of $1.28 billion, driven by all-time high quarterly distribution revenue of $761 million. Adjusted EBITDA and adjusted free cash flow once again exceeded consensus expectations and more importantly, underscore the strong profitability of our business model. Our continued outperformance in the current environment is no surprise to us. We've been consistently clear in our view that broadcast is the bellwether of the pay-TV ecosystem. Consumers value the bundled programming offerings provided by pay-TV distributors that are anchored by our stations. And as the largest local broadcaster and owner of one of the nation's five major broadcast networks, as well as the nation's fastest-growing cable news network, Nexstar's importance to the industry is clear and further validated by our consistently strong financial execution, free cash flow generation and shareholder returns. I recently came across a Harvard Business Review article on the subject of disruption, which has been a recurring theme for many years now in the pay-TV industry. And in it, the authors note that corporate leaders have continually been told that the only way to innovate and grow is to disrupt their industries or even their own companies. But for disruption to be a success, there needs to be a clear trade-off between winners and losers. Looking at our industry, it's now been over 3.5 years since the majority of diversified media companies launched direct-to-consumer products, seeking to generate new value and profits in the digital world by disrupting their linear business models. To date, these products have generated billions of dollars of losses and market cap disruption. And because of the disruption, the linear business of these companies has also suffered, which, in our mind, is a lose-lose proposition. As a result, we expect to see direct-to-consumer and pay-TV programming bundles, content spending and pricing all to be rationalized across the industry, going forward. Better models are being developed with broadcast as the anchor, as it always has been, given viewer demand for our must-have local and national programming, including sports and special event programming that relies on our unrivaled reach to maximize audiences. The virtuous cycle of the broadcast business, combined with the strength of Nexstar's diversified portfolio of local and national media assets, including multiple growth drivers to support our long-term value proposition, will continue to fuel our financial momentum and strong shareholder returns. Before turning the call over to Mike, let me briefly touch on some of those growth drivers, starting with the CW. Nexstar has owned the network for just over a year, and we're making excellent progress as we continue our march towards breakeven. The CW's first quarter operating profit improved by $50 million year-over-year, driven by a $55 million reduction in programming costs. And for the full year, we expect the CW's operating profit to improve by over $100 million. In terms of viewership, the CW delivered sequential ratings growth in the first two quarters of the '23, '24 broadcast season, the first broadcast season where Nexstar controlled the programming lineup. And we're confident that the positive viewership trends will continue throughout the year. In fact, if I look back to this Tuesday, the most recent night for which overnight ratings are available, CW had its highest Tuesday performance of the season in both adults 18 to 49 and in total viewers, and Police 24/7 was the #1 new series premiere on the CW in the last three seasons. We're especially excited about the accelerated launch of the NASCAR Xfinity Series on the CW, with the final eight races of this season including all of the playoff races for this year, airing exclusively on the network beginning in late September as well as the WWE NXT launch on October 1. We're also finding other opportunities for the CW to leverage the benefit of being part of the larger Nexstar enterprise. To date, we have added 12 CW affiliations to our station group, which has led to significant additional operating profit on the station side of the ledger. And all of the work we have been doing to generate audience growth at NewsNation has begun to pay off as NewsNation has officially entered the zeitgeist. You may have seen our network featured in the series finale of Curb Your Enthusiasm last month in what may have been the funniest sketch on SNL in years, a NewsNation town hall event with Ryan Gosling as Beavis and Mikey Day as Butt-Head in the audience was, as we said, one of the funniest sketches on the network in years in Saturday Night Live. If you haven't Googled it, I highly recommend it. Significantly as of the May 2024 news report, NewsNation is now the second largest cable news network in pay-TV distribution, surpassing both CNN and MSNBC, as distributors recognize the value of NewsNation and what it brings to their consumer offering. And the consumers will get even more value for that distribution when we complete the News Nation expansion to 24/7 on June 1 of this year. We continue to make progress on our ATSC 3.0 initiative, surpassing our goal of 50% of the U.S. population served by ATSC 3.0 signals from a Nexstar-owned or partner station following the conversions in Chicago and San Diego this past quarter. We believe the earliest revenues generated from this spectrum will be from business-to-business applications that require moving large amounts of data to multiple devices simultaneously. We're also developing advanced applications for positioning and timing industry, think GPS, if you will, where we think our terrestrial broadcast capabilities provide us some unique advantages compared to satellite-based systems. In this regard, we are seeing interest from auto manufacturers, digital signage providers, device manufacturers and the Internet of Things industry and even content delivery networks, who are all looking to gain efficiency in the delivery of internet data using our broadcast technology. To commercialize our technology, we're pursuing new customers through our own business development activities as well as through joint ventures and with other broadcasters. Here's where the scale of our spectrum assets is our advantage as we are able to partner with one or maybe two other broadcasters to achieve nationwide coverage of spectrum. Looking ahead, we remain confident that Nexstar will deliver another strong year of financial results in 2024, given the successful renegotiation of our distribution contracts in 2023, significant presidential election year political advertising and reduced losses related to the CW network. We're focused on executing our strategy and leveraging the strengths of our platform to maximize every opportunity to drive continued strong growth and shareholder returns. Our confidence in the continued strength of Nexstar's business relative to our current valuation and our long-term growth prospects is further reflected by our capital allocation, including our recently upsized dividend as well as our now-announced first quarter share repurchases. With all of that said, let me now turn the call over to Mike Biard.

Thanks, Perry, and good morning, everyone. On our record first quarter net revenue of $1.28 billion, which compares to $1.26 billion in the prior-year quarter, an increase of $27 million or 2.1%, primarily due to growth in distribution revenue and partially offset by a slight decline in advertising and other revenue. All-time high quarterly distribution revenue grew $33 million or 4.5% to $761 million, primarily due to our successful renewals in 2023 on terms favorable to the company, annual rate escalators and the return of our partner stations on one MVPD in January, partially offset by MVPD subscriber attrition. As a reminder, Nexstar's distribution revenue includes retransmission revenue, carriage fees, affiliation fees and spectrum leasing revenue, which in aggregate accounted for approximately 59% of Nexstar's first quarter revenue. Excluding the impact of the removal of partner stations from certain MVPDs, subscribers grew in the quarter in the low single-digit range, reflecting the benefit of the increased carriage of our CW, MyNetwork and independent stations on YouTube TV and other vMVPDs, the addition of new CW affiliations at Nexstar stations and recent station acquisitions. Overall, advertising revenue, which includes core television advertising, digital advertising and political advertising revenue decreased 1% or $5 million compared to the first quarter last year, reflecting a year-over-year reduction in core and digital advertising, offset in part by a year-over-year increase in election-year political advertising. Excluding political, advertising declined 7% in the quarter, impacted by a continued challenging national advertising market and a slightly softer local advertising market as local advertisers and their customers show the strains of the high interest rate environment. That negative comparison was exacerbated slightly this quarter by the Super Bowl airing on CBS versus Fox, which was less favorable to us. So far, in Q2 2024, however, the trends are improving. We're seeing a much slower rate of decline versus the first quarter as we are currently pacing down in the low single digits as advertising headwinds begin to abate. In particular, we are starting to see some green shoots on the national side as advertisers respond to the large aggregated audiences we deliver, particularly in live sports and special events. And I'm pleased to report that we completed the seamless transition of national advertising sales in all 117 of our markets from third-party representation firms to our own sales force. We are already seeing dividends from this transition as we have an experienced, motivated sales force, creating new ways for advertisers to generate their best ROI while maximizing revenue across diverse sales channels in the full array of our unique asset mix. In addition, we are optimistic that the big data measurement services enabled by our recently expanded agreements with Comscore and Nielsen, together with additional advertising measurement services available in the marketplace, will help modernize linear television measurement to better highlight the reach and scale benefits our assets bring to our partners' messaging. Turning to political. In the first quarter, political advertising of $39 million increased by $31 million year-over-year but was down versus 2020 when the outsized primary runs by Bloomberg and Steyr boosted revenue during that presidential cycle. Excluding the impact of those two campaigns, our political advertising was up 29% in the quarter versus 2020. Overall, our market share of total political television spending was in the mid-teens, slightly ahead of our expected market share for the full year. Historically, the substantial majority of political television advertising spending comes in the 10 to 12 weeks before election day. In fact, despite the relatively muted presidential primary season, in March, BIA increased its estimate for 2024 political advertising spending to over $11 billion versus the $10 billion previously projected. We're already seeing some of this in new spending on ballot issues such as reproductive rights. In addition, a significant factor in the amount of political spending on our assets is control of the House and Senate as both are up for grabs in this election, driving campaigning that will benefit our bottom line. As the saying goes, all politics is local, and campaigns in packs deploy the lion's share of their advertising spending on the media they know has proven to help them win, local television. As we discussed on the last call, our audience overindexes on the actual electorate, with over 60% of voters in the last election aged 50-plus, according to Pew Research. Based on the experience of our station group in the last four election cycles, we expect to garner a low to mid-teens percentage of the political advertising spending on broadcast television. And with that, I'll turn the call over to Lee Ann for the remainder of the financial review and update. Lee Ann?

Thank you, Mike, and good morning, everyone. Mike gave you most of the details on the revenue side. So I'll provide a review of expenses, adjusted EBITDA and adjusted free cash flow, along with a review of our capital allocation activities. Before I jump in, a quick note on our new earnings release format. In an effort to make it easier for investors to focus on the key items management is focused on and since we have now owned the CW for over a year, so comparability is no longer an issue. We have simplified our reporting and our reconciliations. We will continue to provide you with key operating data in our MD&A commentary and on this call. In addition, in an effort to create better comparisons to others reporting in our sector, in the first quarter of 2024, we adjusted our definition of adjusted EBITDA to add back stock-based compensation and one-time expenses related to restructuring actions and to subtract out noncash pension credits. Please note that the guidance we issued for the year on our last call was based on our prior definition, and the net impact of these changes is a positive $52 million. We also adjusted our definition of adjusted free cash flow, which we previously referred to as attributable free cash flow, to subtract out noncash pension credits and payments for capitalized software obligations and to adjust for actual cash contributions from noncontrolling interest in lieu of adjusting for our partner share of losses in the CW, which we think gives you a better picture of our consolidated performance. The prior comparative year disclosures were also recast in the earnings release to conform with the current presentation. Turning to expenses, first quarter direct operating and SG&A expenses, excluding depreciation and amortization and corporate expenses, increased by $8 million. The increase was primarily due to the expansion of news programming and promotional expenses, offset by a reduction in severance at the CW by $7 million. Also included in our calculation of adjusted EBITDA but not included in direct operating and SG&A expenses above are the payments for broadcast rights of our stations. That declined by $8 million in the first quarter due primarily to a reduced reliance on syndicated content at NewsNation as we continue the transition to 24/7 news. Q1 2024 total corporate expense was approximately $55 million, including noncash compensation expense of $18 million, compared to $48 million, including noncash compensation expense of $14 million in the first quarter of 2023. Q1 2024 depreciation and amortization was $190 million versus $249 million in the prior-year quarter, a reduction of $59 million, due primarily to lower programming expenses at the CW. Please note that the CW's programming costs, which are included in our definitions of adjusted EBITDA and adjusted free cash flow, are accounted for in this line item as amortization of broadcast rights. For more information on this amount, please refer to the schedules in our earnings release and in our 10-Q. We received $129 million in Q1 distributions from equity investments, primarily related to our 31% ownership interest in TV Food Network, which represents an 18% decrease from the prior-year quarter. The reduced amount reflects lower income at TV Food Network, primarily due to lower advertising revenue. The distribution amount of $129 million includes $9 million related to the amortization of a portion of the distribution that was paid to us in the first quarter of last year related to the accounts receivable securitization and not included in our definition of adjusted EBITDA then. Putting it all together on a consolidated basis, first quarter adjusted EBITDA was $542 million, representing a 42.2% margin, an increase of $46 million from the first quarter of 2023 adjusted EBITDA and an increase in margin of 270 basis points from 39.5%, which included improvements in our net distribution margin year-over-year. First quarter CapEx was $44 million compared to $36 million in the first quarter of last year, an increase of $8 million primarily due to quarterly timing of capital projects. First quarter net interest expense increased to $114 million from $107 million in the prior-year quarter due to higher SOFR rates applicable to our floating rate debt. Cash interest expense was $112 million for the quarter. First quarter operating cash taxes, payments for capitalized software obligations, and proceeds from disposal of assets and insurance recoveries netted to $2 million, primarily reflecting timing of payments. During the quarter, we received $19 million of cash from our minority partners in the CW, reflecting amounts required to be contributed pursuant to the LLC agreement. And putting this all together, consolidated first quarter adjusted free cash flow was $403 million. Together with the cash from operations generated in the quarter on hand, we returned $168 million to shareholders, comprised of $57 million in dividends and the repurchase of $111 million of stock at an average price of $166.11, reducing shares outstanding net of equity vestings by 1.7%. Nexstar's outstanding debt as of March 31 was $6.8 billion, slightly down for the quarter as we made our quarterly amortization payments of $30 million. Our cash balance at quarter end was $237 million, including $90 million of cash related to the CW. Because we designated the CW as an unrestricted subsidiary, the losses associated with the CW are not accounted for in our calculation of leverage for purposes of our credit agreement. As such, our net first lien leverage ratio for Nexstar, excluding CW as of March 31, 2024, was 2.21x, which is well below our first lien and only covenant of 4.25x. Our net leverage for Nexstar, excluding CW, was 3.73x at quarter end. As of typical and nonpolitical years, we expect leverage, which we calculate on an LTM basis, versus a 2-year average default during 2024 as EBITDA will grow with the return of political advertising. As we move forward, we continue to strategically deploy our cash in a manner that is consistent with our commitment to creating the highest shareholder value. Before turning the call back to the operator for questions, I want to frame some thoughts regarding our business industry position and valuation. We continue to get questions based on the results, comments and capital structures of some of the other companies that operate in the local broadcast industry. While we understand the desire to compare notes in a sector where there are relatively small number of public companies, I know for those of you who've been around the sector for a very long time, Nexstar used to be just one of the pack. But times have changed, and Nexstar has changed. We are a very large company now, significantly outscaling the other broadcasters. And we built our platform over the past 10 years or so, we consistently highlighted the benefits and necessity of scale, including operational efficiencies and increased negotiating leverage. And as our results continue to demonstrate, our vision was spot on. Just to put it in perspective at the risk of stating the obvious, for the last 12 months ended March 31, 2024, we generated almost $5 billion of revenue. We have a market cap of $5.5 billion and an enterprise value of over $12 billion. Our revenue is more than 40% greater than the next largest local broadcaster. Our market capitalization is more than 110% greater, and our enterprise value is more than 65% greater. In fact, our enterprise value of $12 billion puts us on a path to approaching something like Fox Corporation, which has an enterprise value of $20 billion. Our LTM leverage was 3.7x and will be in the 2s by the end of the year. Our secured debt trades at or around par. The consensus annual free cash flow for Nexstar for the average of '24 and '25 of $1.1 billion could deleverage us by more than half a turn a year if we decided to do that and represents a whopping $33 per share on our stock price. Yet, we trade at only 6.4x '24, '25 consensus EBITDA multiple and a 21% '24, '25 free cash flow yield, both impacted by the short-term losses of the CW. We believe this all adds up to an undervalued company, which is why we have been aggressively active on share repurchases, which deliver a substantial and tangible return. We believe there is significant upside in our stock. Our free cash flow keeps flowing, and we are putting it to the best use to maximize shareholder returns. There is simply no comparable local broadcaster, and we will gladly put our record of operating execution and returns of capital and shareholder enhancement up against almost every company in the media telecom space. With that, I'll open the call for questions.

Our first question comes from Dan Kurnos from Benchmark.

Two high levels for Perry or Mike. Just on the core commentary, we keep hearing that core could be flat or better, even with crowd out in the back half of the year. So maybe just talk about some of the trends there. And now that you guys have really scaled NewsNation, CW and some of the other external platforms you guys have added, maybe thoughts on political, maybe even outside of local. Just how we should be thinking about political in 2024? And then for Lee Ann, just on the expense side, the underlying expense growth thoughts would be super helpful.

I'll start on political, and then I can turn it over to Michael to talk about core. And Lee Ann can provide the remainder of answers to your questions. But as it relates to political, as you know, it is primarily a local medium, a local business because that's where the voters vote. And broadcast is the preferred medium of choice, as you know, local broadcast, to deliver those messages to the electorate. Having said that, we recently expanded on NewsNation, Hill to a six-day. Sunday morning was the addition. It's an hour-long Sunday morning talk and issue show. And we offer that out to the CW affiliates at no charge if they were interested in picking it up for an additional complement to their local programming, and we cleared it in over 82% of the country. So we do think there will be moderate opportunities with both NewsNation and also with the CW to capture political dollars incrementally to what our stations are going to do. But having said that, the stations will contribute by far the largest percentage of our political revenue composition for this year. But when it gets to the presidential race and perhaps some pack money and even some ballot initiatives across multiple states, we do expect that there could be a national conduit to deliver those messages out to the electorate.

Sure. First, I want to clarify that our core does not include digital, which creates some confusion when comparing our performance with others in the industry. However, we are seeing some positive signs in the current quarter. We remain hopeful about the evolving business model, as we have established our own internal sales force instead of relying on external representatives. This change is generating some positive momentum as we approach the upfront for the first time. We are noticing increased interest in selling our local and combined national business on an upfront basis, which is something that has not typically occurred within our local sales.

And then Dan, on our expense side of things, we don't usually provide sort of detailed granular-level forecast. But there's nothing sort of unusual or an incremental expense build that's going to happen in the course of 2024, and that is embedded in the guidance that we have provided previously.

Our next question comes from Benjamin Soff with Deutsche Bank.

The first is a follow-up on political. I think last quarter, you guys said that you were expecting a low teens share of the market. And today, it sounded like your expectations for that have increased. So I'm just kind of wondering what you're seeing there and what that dynamic looks like? And then for the CW, I think you guys said that you're expecting a $100 million improvement. Obviously, you guys saw a pretty healthy improvement in 1Q. So just curious if you could talk through that as well?

I'll take the first question, and then Lee Ann will handle the second one. What we're seeing in our political experience in Q1 aligns with our projections for the rest of the year, which is in the low to mid-teens. As I mentioned in my opening remarks, it's slightly higher, but I want to emphasize that it's marginally different. Overall, from a broad perspective, it's consistent on a percentage basis with our expectations for the full year, so we feel pretty good about that.

Yes. And look, on the CW, I think you're starting to see just the benefit of our programming plan coming into fruition. We had a $50 million improvement in the first quarter. We expect over $100 million for the year. I think some of that's just due to timing of content and when those different programming expenses hit over the course of the quarter. That's why we just have a little bit more in the first quarter than we will have through the rest of the year on a quarterly basis.

Our next question comes from Steven Cahall with Wells Fargo.

Maybe first, just to expand on some of the advertising commentary. On local, I think you're different from your peers in terms of talking about local being a little softer in the quarter. It sounds like that's maybe starting to improve. So I was wondering if you could just expand on what you're seeing there? And you're also a bit different in seeing the green shoots on national. So wondering if that's a direct response at the CW or if that's more broad-based national improvement? Then just a political question, you talked about your new ad sales force and the improvements that's having. Should we assume that you'll have some of the same transformation in political, since I think you're guiding about kind of gross spend, but we model it on a net revenue basis? Is there any upside to the ability to flow that through using your own sales force? And then lastly, Lee Ann, I appreciate your comments about how unique Nexstar is. You said you'll probably be in the 2s in leverage by the end of the year, as you think about the strength in political. So just wondering what your run rate basis leverage is that you're comfortable with? And given some of that frustration, would you ever think about adding a bit of leverage if you're already low to buy back even more stock?

Let me answer the leverage question first. It's not been in our DNA to borrow money to buy back stock. We generate substantial free cash flow here. And nobody returns meaningful capital to shareholders like Nexstar does. Our annual dividend average since we instituted the dividend 11 years ago has been in excess of 25% annual increases. And we're two-thirds of the way through our $1.5 billion buyback authorization in less than two years. So and as was reported, Lee Ann retired 1.7% of the float in the first quarter. So we think we are appropriately aggressive, and we buy on the weakness in the marketplace and perhaps throttle back some as the stock price appreciates. But it's always a part of our calculus. But I would put our return of capital to shareholders up against any company that you cover. And I think we do quite well. So I think it would be fairly unlikely that we would borrow money to continue to buy back stock.

I believe there is some confusion in the sales figures that makes it challenging to compare our performance with other broadcasters. The markets we operate in are quite different, especially regarding our presence in larger markets. Additionally, our core business does not involve digital offerings, while others do. There have also been new digital products introduced that complicate these comparisons. Our main focus has been on national and larger initiatives. With the new sales team, we can approach the market in a way we haven’t before, concentrating on significant initiatives that can drive substantial growth for our business. We are hopeful that our combined local and national political sales efforts will open up new opportunities for us.

I'll just mention on political that we do intend to bring that sales force in-house to sell our political advertising at the station level in 2025. Given the size of the dollars and the quantum of dollars we expect to receive this year, we chose to slow roll that transition to make sure we hit on all the metrics and delivered our revenue, a promise not only to ourselves but to our shareholders. But I do think you'll see us stand up our political force as part of our national sales force representing our stations. All other political that we sell for any network or digital asset is all handled internally already. So you'll see that incremental change at the end of this year. And I think any time we can go to market with our entire portfolio at one stop, it creates an opportunity for incremental benefit. At this point, I think it would be too early to quantify. And next year, we'll not have these tsunami of political dollars that this year does. So I think the next comparable period would be 2026 versus '22 and '28 versus '24 to really see where the proof is in the pudding. But I would expect incremental revenue benefit, but who knows when we go to market with a unified package. What we're going to market with now nationally using our networks as well as local activation at scale using our stations is getting a great reception in the upfront market in the early going. However, no dollars are booked yet. So stay tuned.

Our next question comes from Craig Huber with Huber Research Partners.

I'll just take my questions one at a time, if I could, please. On the CW, could you maybe share with us what the revenue percent change was there year-over-year? And maybe talk about some of the wins you're having on the programming side. That's my first question.

Look, I would say, Craig, we're no longer going to externally disclose the CW numbers separately. It's now on a quarter. We've owned it for more than a year. So the quarter-over-quarter comparison is good. I would say, just anecdotally, it's still driven by the national advertising market, which is still not a positive place quite yet, even despite the green shoots.

What about the programming?

We have introduced several new programming initiatives, particularly in sports, aiming to appeal to a wider audience beyond just the 18 to 34 demographic. This broader focus has positively impacted our performance in the first two quarters of the broadcast year. The 2022-2023 broadcast season was largely determined when we acquired the company. In the current 2023-2024 year, we have seen two consecutive quarters of audience growth in prime time due to our programming efforts. We are optimistic about continued success for the remainder of the year, especially as some of the new sports programming we announced will debut later this year. Overall, we view our future prospects positively, as reflected in our first quarter results.

And then my second question. On NewsNation, can you maybe just give us a little further update there about how the ratings are trending there, how the profits are going?

Sure. The network has been profitable from day one because as you remember, we're financing the journalism expansion with the money that used to go to syndicated program expense. So we will complete that transition on June 1. We are the fastest-growing cable network in terms of total audience in prime time, which is where the bulk of the revenue lies. And as I reported in my remarks, we now are second only to the Fox News cable network in terms of cable news network distribution in the pay-TV universe with now more pay-TV homes than either CNN or MSNBC. So reception is not the problem. Awareness is the opportunity. Right now, we have about a 35% awareness of the channel in the monthly awareness surveys that we do. And when we started NewsNation, that was 11%. And so the more we can grow awareness, the more we think we will continue to grow the audience. We believe with the direct and indirect feedback that we get that our centrist approach, we call it the moderate majority, which is the demo and the folks we're trying to reach, and our balanced coverage coupled with the 5,500 journalists that are stationed in 40 states around the country that can be first on the scene for the tornadoes in Michigan or Oklahoma as well as our sizable Washington, D.C. Bureau that serves both our stations and our national assets; all of these things cumulatively, we think, continue to build on each other. But my goal, and I focused our senior management team, was what can we do to increase awareness of the network. We know that when we have content that is exclusive and sought out like the fourth and final sanctioned Republican presidential debate that more than 1 million viewers will show up at any one point in time. And so we know that they have no problem receiving the channel. Now our job is to continue to raise awareness, continue to put on content that is differentiated and interesting and that reaches the moderate majority that we believe comprises the majority of the viewers in this country.

Perry, my final question is about your opening remarks on the current state of the TV and streaming landscape, as well as the various products available. Could you share your thoughts on how you see the long-term dynamics between these different streaming options and traditional products competing in the market?

I believe the announcement from last night shows that there's a trend of rebundling assets in the industry. We've traveled globally to address this shift. Essentially, we’re seeing a return to the model of basic cable. One significant advantage of traditional cable is its seamless navigation, which allows viewers, especially those of a certain age, to switch channels easily—something many of us have always enjoyed. I anticipate that pricing will stabilize, especially as we see streaming services raising their prices. Consumers are becoming more aware of the costs associated with a la carte broadband packages and additional streaming services, which can surpass the expense of traditional bundles. Moreover, these a la carte options often lack the seamless navigation and variety that a traditional bundle provides. We will continue to back the bundle and support our distribution partners. However, we chose not to enter the streaming market because we view it as a less favorable business model, and we’re not looking to invest in a loss-making venture. There are many ways to reach consumers, but many want to stream because they lack broadcast assets that can reach everyone. They are looking to expand beyond the traditional pay-TV market, but we've been established in this space for a long time. In my opinion, while things change, they often end up resembling what they used to be.

I'm sorry, one more quick thing. Lee Ann, your expectation to get the breakeven profitability on a sustained basis for the CW, is that still late 2025, maybe early 2026?

Yes. We haven't changed anything on our point of view there.

Our next question comes from Jason Bazinet with Citi.

I have two quick questions. Lee Ann, I was interested in your comment about reaching 2x leverage. I was reviewing my model and had you at the high 2s for the political year. Were you really suggesting 2.0 or something in that range?

No. No. I said in the 2s, in the 2s.

In the second quarter, I apologize for missing that. Regarding my second question, could you please discuss the FCC's stance on your CW station in New York City and summarize your position with the FCC? How do you foresee this situation unfolding?

Yes, we issued a response regarding the FCC comment about the PICCs. We believe this request from the FCC is largely unvalidated and not based on accurate information. We are prepared to defend our position vigorously as we continue to navigate this process, which we expect will take some time.

Our next question comes from Aaron Watts with Deutsche Bank.

Two questions, if I may. The first, perhaps in parallel with, Perry, some of your remarks you've made already. But with the recent introductions of a couple notable streaming ad-supported offerings that are bringing more targeted video inventory online, do you see that as being a headwind for your business today or in the future? And maybe perhaps contributing to the lack of sustained momentum on the national side? And then secondly, I appreciate this isn't necessarily a new phenomenon, but perhaps topical with some of the NBA headlines. With sports commanding an even greater share of viewership, attracting the largest audiences and rights holders continuing to seek higher rights fees, how does that dovetail with commentary suggesting growth in network compensation should be moderating for you and other affiliate partners?

Let me begin with that, and then I’ll pass it over to Michael. The compensation we receive from affiliates for the CW is not substantial. Our goal is to enhance the value of these affiliation agreements, not only for the network's value but also to potentially monetize these agreements at a lower cost than what each affiliate group pays to the major networks. However, our success is measured differently. When I examine our sports agreements, our NASCAR deal exceeds seven years, we've secured a four-year contract with ACC Basketball, and we have a multiyear agreement with WWE NXT. In total, Nexstar has contracted for over 500 hours of sports that will primarily air on our CW network and our large CW affiliate group, reaching more than 35% of the country. It is clear to us, as well as evident in the industry trends, that live news and live sports attract viewers, drive distribution, and create value. Other networks seem to be following our lead in this regard. We believe we've made significant strides with 500 hours of sports and long-term agreements, positioning the CW well within this landscape. So far, the CW has aired just one season of ACC Basketball and is now in its second season of LIV, with major event programming yet to come. We anticipate that things will become quite exciting as we move into the fall.

Yes, I'll just add to that. If your question concerns the potential impact on reverse compensation due to potential NBA deals, I'd like to reiterate our previous statements regarding exclusivity. From our standpoint, the value concerning our network partners lies in exclusivity. I've mentioned before that exclusivity is crucial in our business, and we will have to wait and see what happens with these deals when they are announced and the value that will ultimately be delivered to our affiliated stations. Regarding your question on advertising, it's still early days. Reports indicate that some of the new players in the ad market and their ad-supported streaming services have high expectations for CPMs that have not yet been met by the marketplace. It remains to be seen how that develops. However, I want to emphasize the strength of sports, especially concerning the CW. Our future investments are heavily focused on sports, which not only helps us attract audiences but also drives advertising revenue. If we look back at the most recent quarter, we saw a clear and significant example of sports' enduring strength. The NFL set new records, college football set new records, and women's basketball set new records. Sports continues to show robust performance. I believe our programming will stand out, and our ability to monetize it will be significantly different than advertising in the SVOD products, thanks to our capacity to gather audiences for live programming.

Our next question comes from John Kornreich, J.K. Media.

If you extrapolate out about three years, given how you're trending now and given no change in station rules, you're going to be down very close to 2x in leverage and 25 million shares. Is there any point to going below 2x? Is there any benefit to it at all?

I mean, look, I think at that point in time, we would have to kind of reevaluate what our capital strategy would be. We obviously believe that a levered return gives shareholders a better total return. But we would have to see what the market looks like at that point in time. But that would be a very low leverage number, I agree.

Okay. I mean, the way things are going now, you're sort of in a slow-going private mode, frankly. And Perry, I mean where do you see this company in three or four years?

I believe our fundamental mission, John, remains unchanged: to provide content and assist local businesses in selling their products. That's essentially our purpose. When you eliminate all the extraneous factors, we operate on a straightforward business model. Considering the current stock discount relative to its fundamentals, we maintain that there are significant opportunities for investors. If we are the primary buyer of our stock, the company and its investors will benefit. I want to reference the article discussing the 100 baggers from the last 15 years, which you were familiar with, John. You asked me during that time about our free cash flow per share being higher than our share price in 2008, which it was. Investors who came on board in 2009 and remained invested until the end of last year would have seen returns exceeding 300% over that 15-year span, making it the third largest return of any public stock with a market capitalization over $500 million. I believe that long-term investors have been rewarded by our company. With our available resources, we view the balance sheet as a company asset. One of the ways we've achieved that exceptional return was by pursuing significant opportunities like Media General and Tribune. We are currently being very patient, considering both the cost of capital and the opportunities available, but we will continue to seek opportunities to grow the company and create more value for shareholders beyond the inherent 20% return from our stock buybacks. If a potential acquisition presents a risk-adjusted return of any scale, we would thoroughly evaluate it and aim to close the deal if conditions are favorable. However, I believe the company looks quite consistent, and if I had to wager, I think the company will be larger in three years than it is today. I can't specify what acquisition will contribute to that growth alongside our organic development, but I'm eager to pursue those possibilities and discover the outcomes.

Our next question comes from Jim Goss with Barrington Research.

I wonder if you might talk a little bit more about the Comscore, Nielsen effort to develop the linear and cross-platform audience measurement, information that should inform your national sales organization that you're now working with. Is there some measurable impact? Or is this primarily a supportive effort to the targeting efforts and pricing on the ends? Is there a way to look at it in some identifiable way?

I'll address this. We recently announced new partnerships with Comscore and Nielsen, and we're enthusiastic about the fresh data they will bring to their services. We hope this will provide us with enhanced insights about our viewers, allowing us to communicate effectively with advertisers regarding the scope and reach of our audience, which we believe is unmatched. However, regarding the tangible impact, it's still uncertain. We are actively collaborating with these providers to obtain the best possible information for our clients.

Okay. And should provide some upward bias to your ad revenues though, I would imagine?

Well, we've gone to the market in the upfront and said that Comscore would be our preferred currency upon which to transact. But I've found out in 45 years in the broadcast business, you can't make a lot of money trying to tell your clients what to do. So the clients will by and large big term dictate the currency, and we will obviously react and adjust as best we can. But Comscore is a much larger data set. And not surprisingly, we think it provides better numbers over the long term. But we will transact with our customers on the basis that they would like to transact upon.

Okay. One smaller thing. I was wondering, are there any other Nexstar stations to transition to the CW? Or are you pretty much through that process?

There are additional opportunities available, as we recently acquired a station that we plan to convert into a CW network in San Diego. We will consider other opportunities on a case-by-case basis as we progress. I'm glad you mentioned this because it’s an important aspect for us. We have successfully transitioned 12 markets, which has generated significant EBITDA for our stations, contributing to our overall strategy regarding this acquisition.

Okay. You mentioned that NextGen is now over 50% with the additions of Chicago and San Diego. Are there any priority applications at this stage? You've discussed the evolution of TV versus data and expressed ambitions to increase monetization. Can you provide an update on that aspect as well?

I am spending a significant amount of time on this, along with Brett Jenkins, our CTO. We have a dedicated business development team engaged in exploratory discussions for our company, as well as collaborating on the two partnerships we have historically maintained, one with Sinclair and one with Scripps. There is strong interest in our offerings. We recently finished a test with an auto manufacturer in one of our markets regarding both data and video delivery to vehicles. The initial feedback indicated they were impressed with the picture quality and signal stability using our 3.0 delivery system. This is a long-term development process since it's important to establish proof-of-concept and conduct trial tests before companies are ready to commit financially. I remain confident that you will learn about commercial clients before the end of this year, and we anticipate some revenue from these new applications could begin as early as later this year, although it is more likely to be next year. If we can eliminate the simulcast requirement, we will have more bandwidth to explore additional opportunities, which should lead to increased revenue. There's also a regulatory aspect to consider in this process. The frequency of discussions on this topic has significantly increased; the amount of time we are dedicating to meetings has more than doubled compared to last year. The pace has accelerated.

Our next question comes from Alan Gould with Loop Capital.

Perry, going back to the concept of big swings. The press is reporting that if Apollo and Sony are successful going after Paramount, I know it's a big if, they would then intend to sell the CBS stations. One, I know you guys looked at ABC when Bob Iger threw that no doubt there that it was potentially for sale. I know CBS has a lot bigger coverage. Would that even be a possibility just physically to do that? And two, what is the value of stations without the network?

There's a lot to consider here. First, I can't say that we've ever expressed interest in ABC. Others may have mentioned our name, but we've never confirmed or denied any rumors regarding potential acquisitions. Given our current station footprint, taking on CBS station assets would be quite challenging, especially with the existing regulatory environment. If that situation were to change, we might reconsider, but significant changes would need to occur for anyone to confidently pursue a complicated regulatory transaction right now. As for the value of stations without a network affiliation, WGN in Chicago is an independent television station set to rejoin the CW network. It produces 109 hours of local news weekly and typically ranks as one of the top billers in the market without being affiliated with a network for most of its operational history. Its brief association with the CW ended, but the CW is returning this fall, which will benefit the network more than WGN itself. While WGN will appreciate the return of sports programming, it has been involved in a mix of sports broadcasts in the region for some time. Strong television stations have always existed before TV networks and will continue to exist after. From my perspective, if you are dedicated to serving your community with quality local news and commercial opportunities, you can sustain your business. The specifics of programming you obtain and how you fill time outside of local broadcasting are secondary to that commitment.

Our next question comes from Barton Crockett with Rosenblatt Securities.

I wanted to ask a bit more about the advertising insights. Could you provide additional details on what is contributing to the improvement in the second quarter compared to the first quarter? Is it mainly due to enhancing your national sales force, moving beyond some Super Bowl-related comparisons, or is there a general sense that the advertising market is improving because the overall economic situation feels more favorable? Also, can you remind us about the split between local and national trends in your advertising revenues?

Yes. Local revenues account for just under 70%, typically between 65% and 70% of our advertising revenue, excluding political. Generally, we believe the national market is starting to stabilize, which is encouraging after several quarters of decline. We are beginning to witness some growth, particularly in the latter half of the year when comparisons will be easier. Additionally, certain categories like sports betting have decreased to a lower level, which offers some positive comparisons moving forward. Overall, from a national perspective, the market seems to be stabilizing rather than indicating significant change.

Okay. And is there anything you can elaborate at the local level? You said things were ...

Local has shown considerable resilience. We did notice some weakness in the first quarter, but it's not significant, which is why we haven't highlighted it. The local environment has remained quite stable despite the economic challenges in the advertising market.

We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Perry for closing comments.

Thank you, operator. Nexstar's consistent record of operating execution, cash flow growth and capital allocation, prioritizing strong shareholder returns continues to differentiate Nexstar from its peers and largely diversified media companies. And as I mentioned earlier, we were recently recognized by the Investor Relations service provider quarter ranking the 15 best stocks over the last 15 years for companies in the European Union and North America with a market cap of over $500 million. Nexstar was ranked #3 on that list with more than 300x return. Obviously, the only media and telecom company on that list. So while we look to the past to focus our goals for the future, it is one step at a time. We expect to build momentum through the second half of fiscal '24, and we remain excited about the many opportunities ahead of us to deliver long-term value to our employees, partners and shareholders. Thank you, everyone, for joining us today. We look forward to speaking with you again when we report our second quarter results.

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