Conference Transcript - NXST 2026-08-24

Operator

Very pleased to have Nextar Media with us today, both Perry Sook, CEO of Nextar, and Leigh-Anne Gleeha, CFO. Thank you both for coming.

Perry A. Sook, CEO

Thanks for having us.

Operator

So I want to start, this is sort of a dumb question, but maybe an easy question for you to answer. When I look at all of the TV station broadcasters out there, you guys seem to be operating better than anyone. And I don't quite understand what it is that makes you different. Like at some level, like the business, don't take this the wrong way. It doesn't seem like the most complicated business. And the corollary is there don't seem to be as many degrees of freedom, right? It's not like there's a new product cycle or some, you know, but yet you guys have distinguished And so I just want to start right there. What is it about your mindset or philosophy or the way you run the business that has allowed you to become distinctive among all the broadcasters?

Perry A. Sook, CEO

Well, I will give you, you know, kind of top of the waves from my perspective. And then I'll let Leanne, who just celebrated a recent anniversary with the company, who came in with fresh eyes that maybe her perspective would even be more interesting to you. But, you know, from our from from my perspective, first and foremost, you know, I came out of sales and management. So, you know, we have a revenue generating sales oriented culture at the company that that's important. I tell people the two things that we do, we produce a product, which is local content, and we help local businesses sell things. And that's our reason to exist. So I tend to agree with your premise that at the core, this is a very simple business. Those are the things we do. And so let's focus on those. um i'm the third largest shareholder of the company and uh and so you know share price performance and company performance are very near and dear to my heart and as a consequence this is the only thing that i do i mean this is this gets full-time attention from not only me but the rest of the management team so um and and i'm not indicting any other company i'm just saying that's the way we do it and and i think you know we're very proud of our results i think they do speak for themselves. And that when you think about over-the-air broadcasting, we don't think that we do have a peer. We think that our comp set is more like, from an EBITDA perspective, like Fox pre-Roku and Paramount pre-Warner Brothers Discovery. From an EBITDA perspective, we think we're entirely competitive with them from a financial wherewithal. So I'll let Leanne speak Because she came in with a fresh perspective and I think, you know, has formed some of her own opinions that might be similar to yours.

Operator

Now, you said anniversary. It's been two years. Is that right? Five. Five years? Come on.

Lee Ann Gliha, CFO

Five?

Perry A. Sook, CEO

Yeah.

Lee Ann Gliha, CFO

Okay. Yeah, yeah. I've been with the company for five years. I mean, I think, you know, Perry and the team have built just, you know, a great organization, you know, really focused on, as Perry said, you know, making sure that we're delivering a product that our viewers want to see, you know, unbiased, fact-based news. making sure that we have the journalistic freedom and ability to tell the stories that we need to be able to tell that can attract our local news viewers. The sales-focused culture, I think, is incredibly important in making sure that the advertisers are getting what they need, but then also evolving our business model as we need to. As we've been able to see advertisers are gravitating towards more digital services, we're selling more digital services on top of our linear services, which has helped grow our business. We are an incredibly, as Perry said, because he is a shareholder, but I think just in general, we have a very profit-focused organization. One of the things that we do every year is effectively a zero-based budget. We are very focused on every single dollar that we spend and making sure that it's being spent appropriately. And if there are efficiencies to ring out of the business, we will look to ring those efficiencies, you know, out of the business, which has been great. And then I think, you know, the other side of things is just on the scale side. You know, we've been focused on M&A and growing the business, but doing it in a thoughtful way, doing it in a way that will help us generate more profit, more ability to put dollars back into the business, help us continue to grow and focus on our journalism and our news programming, and making sure that everything we do is going to be something that's going to generate good shareholder return. You know, the acquisition of Tegna was one of those things. And then I think we've been focused on kind of pushing the envelope where we can. So Perry created the joint sales agreement and shared services agreements, which helped us create some operational efficiencies. He was the first to create a distribution revenue model for the industry, which has helped grow. So we've been sort of ahead of the curve in that regard. And then I think the last piece of it is just on capital allocation, right? We are very, very focused on making sure we have a good balance sheet that is strong and able to support the operations of the business, but then also, you know, make returns for our shareholders, either in the form of dividends, debt repayment, or share rate purchases. So those things have been all kind of come together in a package.

Operator

I just want to unpack one thing you said. You said distribution model. Can you just unpack what you mean?

Lee Ann Gliha, CFO

Oh, I just meant that he was the first to get, you know, cash compensation for retransmission revenue.

Operator

So I think the market has been, has unfairly punished your stock in the wake of this EGNA controversy. You know, I've gotten, you know, there's a lot of investors that are sort of sympathetic to that view, to be honest with you. Um, but I think it would be quite helpful just to, if you can just go through just so as a level set, the key dates that are in your mind's eye in terms of what investors should be keeping their eye on in terms of from the legal process, because I think that the shorthand from most investors is, oh, this is just a deal stock. There's an overhang until we get resolution and everyone sort of throws up their hands. And if they own the stock, they sell it and they move on. And I could be wrong, but I think like perhaps it's more nuanced than that. So can you just go through the key dates and sort of maybe trying to spell the this is just a deal stock. We're in deal purgatory for the next X number of years.

Lee Ann Gliha, CFO

Well, yeah, I mean, we definitely feel like we are an undervalued stock, you know, regardless of whether or not something happens here. But we feel positive about what the potential outcome is going to be. And just in terms of the timing, what we are seeing is a couple of different near-term things that are going to happen. So the first thing we've got on the schedule with respect to the litigation is we have appealed the preliminary adjunction to the Ninth Circuit. And the Ninth Circuit has agreed to hear oral arguments on that appeal. and that's this is breaking news I guess it's November 17th is the date we had said it was going to be in the fourth quarter but we now have a date it's November 17th that we will be heard on that appeal and the in the appeal we are trying to do a couple of different things the first thing we're trying to do is we're trying to narrow the scope of the preliminary injunction so the the core argument from the plaintiffs is the markets where we have a big four television station and Tegna has a big four television station, yet the preliminary injunction applies to the entire operation of Tegna. So we cannot do any integration at all with respect to that. So if we can narrow the scope of the preliminary injunction to be focused just on those overlap markets, that potentially could have some benefit in terms of our ability to execute our plan on the non big four overlap markets and then on the corporate synergies and the like. So that would be helpful if we were able to win that. The other thing we're trying to do with the appeal is to really dismiss the states from the case. And so that's the other piece of it. And if we're able to do that, then it becomes just a lawsuit between DirecTV and Nextar. So that's the sort of near term. Now, we don't know. There is no sort of date in terms of when the appeals court needs to actually rule after they hear the argument. So we will, you know, we'll have to just see how that plays out. Then subsequent to that from a litigation perspective in July of 2027 is early July is when we will be actually having the trial on the litigation. That is in the same court with the same judge that issued the preliminary injunction. So we will work through that process And then we'll see where that goes after that.

Operator

So even though you said there's no date for when the appeal decision will come down, does it have to come down before we actually start this court date in California? In other words, it seems like before everyone's going to go present evidence, we have to understand the scope of what the claim is.

Lee Ann Gliha, CFO

So again, they're separate courts, so they have their own timelines, but hopefully that will be the case.

Operator

And then when you said one of the things that you're also trying to do, I get the shrink the scope of the litigation to the duopoly markets, but then you said the other argument you're making is the state AG shouldn't be involved. If they're not involved, is there an implication for investors in terms of what that means? Shrinking the scope, I think investors get. You could go realize some synergies. So let's say that you win that and the state AGs get kicked out and it's just you versus DirecTV.

Lee Ann Gliha, CFO

What's the so what for investors if that – Well, I think at that point it becomes more – just more clearly a commercial dispute between the two parties.

Operator

So it therefore raises the scope for an easier settlement or a settlement? Is that the implication?

Lee Ann Gliha, CFO

Well, I think you have to think about what is DirecTV trying to accomplish and then what are we – what can we provide in terms of that whole analysis? I don't know that it changes anything from a litigation perspective, but it does kind of narrow, you know, the number of parties that have to be involved in any.

Perry A. Sook, CEO

I think there's a larger implication potentially for down-the-road M&A that if the states are not given standing as this second approval layer of federal approvals, that that could remove a somewhat chilling effect on M&A. Right. Right. We have to go through a second layer of approval state by state, depending on what any particular state was thinking at that point in time. So I think there there could be a larger read through beyond our transaction to downstream. But that may be done on a case by case basis. So I'm not sure that it's a one size fits all solution, if you will.

Operator

Yep. And let's say that both of these arguments, to sort of narrow the scope and just narrow it to DirecTV versus Nexstar, if both of those fail, should investors just think, okay, we're going to this California case and we're just going to be on trial? Or are there other alternatives at your disposal?

Perry A. Sook, CEO

Well, I think any adverse decision, we have the right to appeal, right?

Operator

So appeal the appeal.

Perry A. Sook, CEO

Yeah, I think that's that's I don't want to sit here and discuss our entire trial strategy and open court, so to speak. But, you know, there could be an appeal to the appeal. It depends on how close we are to the actual trial and, you know, what what else has happened in the intervening time. But, you know, I think, again, there this could play out, you know, appeals and whoever loses, you know, may appeal. And, you know, we may get to relitigate it another time.

Operator

Okay. That's great. So back in 2022, you got 75% of the CW. And I think, maybe I have this incorrect. Is it this year that the CW is going to hit profitability? Okay. Which is great because I think the losses, maybe I'm making this number up like 250 or something. It was like very substantial. Okay. Hundreds of millions of dollars. Okay. So that's great. So you guys are making a lot of progress. One of the things that you said on the last earnings call, and this is just my own ignorance about your business, is you swabbed your CBS affiliate for a CW. It became an O&O in a handful of markets. There were sort of four smaller markets. And I looked at that as a layman and said, even if I was only getting net retrans of a CBS number, it feels larger than getting all of the money for CW. But I guess that's wrong.

Perry A. Sook, CEO

Is that what's going on or well i think that's exactly the calculus that you have to make particularly in some of these smaller markets where sports rights may not uh carry the same freight that they do in larger and or nfl specific markets since the nfl we're talking about but um i mean part of our reason for buying the cw was offensive that we saw it as a underperforming asset and therefore our owned and operated cw stations were underperforming in the day parts program by the network that we thought we could do it better. We thought we could introduce sports and give those stations and that network another audience to go after. And all of that is proving out in real time. And we're very pleased with the progress. But we also bought it as a defensive measure that, you know, that should we enter into negotiations with some of the big Ford networks that proved to be, you know, highly contentious, that we potentially have a default alternative to provide network programming to that station to complement its local programming. And again, if you look at net retrans, you know, it's as EF Hutton used to say, it's not what you earn, it's what you keep. Right. You know, I think you could look at some of the smaller market, big four affiliates and perhaps their margin is nowhere near what the margin is on retrans for CW affiliates.

Operator

Understood.

Perry A. Sook, CEO

And so, you know, that's entirely part of the calculus.

Operator

Okay.

Perry A. Sook, CEO

And it's also, you know, CBS in our affiliate negotiations, which are obviously now concluded, that's basically the only lever they had. You either take my offer or we start to peel stations And so that was part of their lever in this negotiation. But in each of the markets, we had the opportunity to step up and make the CW the primary affiliation for those for those stations. And that's a good thing. You know, we are our first our group zero game on the CW, which was Florida State versus New Mexico State, generated two million viewers, which is the largest audience for the CW for sports ever. And the largest audience CW has had in, you know, many, many, many years. So the things that we saw as opportunity are proving out now.

Operator

I watched that game. I was part of the tune. What can you unpack a little bit? Because when I think of when you said in the smaller markets where sports may not carry as much weight, I tend to think of a retrans payment as a dollar per household. And it doesn't really matter how big or small the market is. Right. The value of sports would be as valuable in Tupelo, Mississippi as it is in Manhattan. Sure, there's more people in Manhattan than Tupelo, but on a per household basis, why would sports be less valuable in smaller markets? That's where you've lost me.

Perry A. Sook, CEO

You can't get the advertising premium per se on distribution. You're right. But I think the other piece of that is you have to look at the, you know, if you're paying that network on some sort of a fixed fee arrangement and subscribers go down, so your costs go up and your margin goes down, it depends on the makeup of the pay TV universe in that particular marketplace. If it is substantially satellite dependent and seeing, you know, substantial double digits decline in top line revenue on a fixed fee basis, you know, those lines can come very close to crossing, right? And so I think that, and so, so I think it's, it's, it's the revenue, you are correct, but the revenue is variable based on the number of subs, but if the expense is a fixed fee, then understood that figures into the equation. I got it.

Operator

No, that's super helpful. Thank you for clarifying that. So you recently announced something that I thought was interesting, which is ESPN and Roku will distribute CW sports and CW entertainment content. And that was sort of, you know, interesting and new to me. It reminded me a little bit of, I guess it's a little different, but Peacock getting distributed through YouTube. It just feels like there's some things going on where, that are a little bit novel in this sort of shift to digital that we haven't really seen in the past. So can you just talk about it? What drove your decision to?

Perry A. Sook, CEO

Sure. Well, it was the classic build, buy, or partner scenario, right? We want to build the distribution of the CW and sports, we could spend a billion dollars trying to build something. We could spend multi-billion dollars trying to acquire something, or we could partner with ESPN. And there was an exchange of value between ESPN and us for us to give them the rights to distribute this programming. But again, we're the only network that doesn't have its own streaming product. So we were the free agent to be able to do that. And of the aforementioned 2 million viewers of the Florida State, New Mexico State game. A quarter million of those came through the ESPN app on the very first weekend of football. So it has done what we thought it would, which would appeal to those that prefer to watch their programming through a streaming. We've got our pile on the ESPN app. I think ESPN would love to become the Walmart of sports over time, but it's hard to do that with NBC when they've got Peacock or Paramount with CBS. And so we were not only the test case, but a very good partner for both. And the same with Roku and our entertainment programming. It just broadens our distribution faster than we could build it or buy it on our own.

Operator

Understood. That's great. So can I ask about M&A a bit? One of the things, many years ago, I used to cover the cable sector. And when we would see two cable companies sort of merge, I had this rule of thumb, which was for every million subs that you added, you could sort of do the rate card math and you would save 50 cents per sub per month on your affiliate fees. And so you could go out and say, if company A is 5 million and company B is 10 million, and you put the two together and say, okay, ProForm, it's 15. You could say, all Right. 15 versus five for the small guy. He's going to save his scales increased by 10 million times 50 cents per sub per month. He's going to save five dollars and the pro forma 15 versus the 10. He's going to save 250. And you could go through and just very quickly do a pretty good job of estimating the programming synergies as there's a more scale on the distribution side. When we read about Charter and Cox coming together, and some people even think Comcast and Charter will eventually merge, are there these mechanistic things with rate cards where it immediately becomes a headwind for Nexstar at all? Or is it more everything is a negotiation, there are no formulaic sort of rate cards that say, this is the price, I don't know if my question makes sense, this is the price based on your scale.

Perry A. Sook, CEO

Well, you know, it depends on the counterparties, right, and what the agreements say, but I would say that we don't have situations where, you know, party A is paying X and party B is paying, you know, half of X. I mean, our rates are a lot more harmonized, so there's, you know, the Charter Cox situation does not provide a headwind necessarily to Nextar or Tegna, to the best of our knowledge. And so I would say it's a lot more nuanced than that, you know, whether the distributor has after-acquired clauses and or does the station group, the content holder, have after-acquired clauses and how those marry with one another. But I don't see it as a headwind per se, certainly not right away. I mean, obviously, one of the reasons that we are doing M&A is because look at the counterparties that we negotiate with. It's Comcast. It's now Charter. It is DirecTV. It is YouTube TV, you know, and big tech and right on down the line. And so if our entire industry was one company, that still wouldn't be as big as the smallest big tech company that we are sitting across the table from. So there is a need to continue to grow and to to have more balanced negotiations with those with which with whom we negotiate. And so that's one of the industrial logics driving our M&A strategy. Also, you know, buying assets that we can run better and and or run more efficiently and drive synergies is another tenet of our M&A strategy. But I think we've been kind of the poster child for scale M&A in our particular sector, but it has a particular sense of urgency now as those we do business with are scaling at the same time. So you can never run in place and make any progress. So we will continue to look to grow our company's size, scale, footprint, sphere of influence for all of those reasons. Okay.

Operator

If anyone in the audience has a question, if you raise your hand, we're happy to get you a mic. So can I ask about ATSC 3.0? You guys have been very kind in trying to get me up to speed on this. And then it feels like there's this new vector potentially that people are talking about as an opportunity, which is that it could end up becoming sort of, you know, low band spectrum that could help the star links of the world get sort of in-home penetration as they sort of try and become, you know, a true wireless service. is that is that sort of the the is that a is that in the potential use case of ATS3 that it frees up some spectrum and you just sell it and would you call it the leading sort of opportunity or in your mind's eye is it sort of a lagging opportunity look I think it's definitely on the list of

Lee Ann Gliha, CFO

things that could potentially be a use for our spectrum I mean we there is a very we have a scarce resource in terms of low-band spectrum and powerful low-band spectrum. We're looking at all of the different potential opportunities for this. I think, as you probably know, we've created a joint venture with three of our peers, Scripps and Sinclair and Gray, and it's called Edgebeam Wireless. Edgebeam Wireless represents effectively the spectrum of all four companies. That's a huge benefit, we think, because we've got now spectrum that is in that JV today, this is excluding Tegna, about 7 billion megahertz pops of spectrum. And it covers, you know, north of 97% of the country, so nationwide coverage. So when you think about, you know, what a counterparty is going to want in terms of being able to lease spectrum from us, you lease that excess spectrum from us, it's really going to, it's very important to have that nationwide capability, because, you know, a market here or a market there, it's not going to really be that exciting or that useful. There's a number of things that have to happen, obviously, before we can really kind of monetize this and execute on it. You know, right now, every single station we have has about, you know, has six megahertz of spectrum. We currently broadcast through ATSC 1.0, and that is the transmission technology that most of the television sets have that can receive, you know, receive our signal. we are also broadcasting in 3.0. And 3.0 has the capability of broadcasting everything that we're doing in 1.0 using less spectrum. So just rough justice, if you think about six megahertz of spectrum that we're utilizing today, we can do everything pretty much in maybe two megahertz of spectrum. And so it really would free up a lot of capacity. But in order to do that, we first have to stop broadcasting in 1.0 to free that up. And that's going to really require that you have, you know, a critical mass of people that can be able to receive the signal in 3.0 television sets. Converters have to be out there before we could kind of drop 1.0, free up that spectrum, and then utilize it for third-party purposes or, you know, third-party high-speed data transmission services or, you know, whatever else we want to do. But, you know, we think it's, you know, a highly valuable asset. We believe that, you know, from our perspective, we really They want to create another leg to the stool in terms of revenue, another potential for, you know, ongoing value creation rather than just kind of a one and done, you know, sale process, which, you know, a sale process would take a significant amount of time anyway, would have to go through the government and that whole process. Okay.

Perry A. Sook, CEO

So, yeah, 5G, lower cost 5G replacement, complementing satellite distribution of Starlink. Our signal penetrates buildings and things of that sort. So, all of those use cases are under study by our EdgeBeam consortia. We meet with the CEO of EdgeBeam on a regular basis, and we continue to be very focused on monetization, but, you know, long-term monetization. I mean, digital signage we can do today and are doing some of probably wouldn't cover the cost of lunch at this convention today, what we're generating in revenue. But there are proof cases out there, whether it's in-car video or navigation, fleet management, GPS precision, but any number of high-speed data transmission cases. And there's even some very wonky things that we're talking about that could be very interesting, require a higher level of coordination of spectrum partners, creating spectrum pairs for two-way compatibility. But those are those are the things that we're talking about and thinking about. And it continues to be part of our future. And everybody wants to know when are we going to see money? And, you know, I would argue that we're making money from our spectrum today with our digital multicast that we either generate vis-a-vis distribution and advertising or somebody leases space from us for their digital multicast. But, you know, again, that's just kind of transitional use of the spectrum until we have the ability to use more of it for high-speed data casting and other services. That's great.

Operator

Leanne, I was maybe not paying attention or writing too fast. I missed the megahertz pop number that you gave under EdgeBeam. Oh, it's about 7 billion megahertz pop. 7 billion. Okay, thank you. All right. So advertising. So I keep reading about the K-shaped economy and everyone seems a little bit nervous, but the economy seems to be doing reasonably well. Having said that, there was some commentary that you guys made earlier in the year and some other broadcasters made it about sort of potential political crowd out and maybe the underlying strength wasn't that healthy. And so the nonpolitical part of your advertising business feels a little bit like less, I don't know, less strong than what we're hearing from the outdoor companies or the digital companies. Is that true? Is that a fair characterization? And if so, what underpins it, do you think? Is it auto sales, like weak auto sales?

Lee Ann Gliha, CFO

Oh, I think, look, I think we were down mid-single digits on a nonpolitical basis in the first quarter. We've guided basically to the same in the second quarter, maybe slightly better. I think outdoor does not have anywhere near the level of political advertising that television broadcasting have. So, you know, when you think about the types of things that are impacting that non-political advertising, there's really kind of three components. Number one is crowd out, right? If we sell an ad for political, we cannot sell it for commercial. So it does have a direct impact on that rate of growth. And in a strong political environment, it's a bigger impact. So that's number one. Number two is really just the general pressures that we're seeing in kind of advertising from the proliferation of CTV and additional advertising inventory that's available to advertisers. So that's been an impact for us. But that's been something we've been dealing with for a short time. And then we are seeing some economic impacts. We are seeing some of our customers telling us, hey, you know, we don't love the impact of the war. We don't love the impact of these tariffs. We have overall sort of economic hardships that are impacting the overall business. So those are the kind of the three impacts. Nothing is kind of off the rocker, off the radar screen in terms of what's going on. And so, you know, we feel we feel good about the business and we feel like we've got a good, sustainable business on a go forward basis. We did get asked a question in the first quarter because everybody's like, well, what's going on with these network cable network businesses that seem to be doing better? And what we discovered was Nielsen did make a change in the in the ratings. And that really went from, you know, a lot of these cable networks were having, you know, negative ratings growth to actually all of a sudden having positive ratings growth. And they were able to monetize that in the in the scatter market. But that's the cable network side of the business. We are primarily a local advertising-based business. There is a positive impact that's happening right now in terms of Nielsen. We'll see what the actual or a potentially positive impact, let me just be precise, in terms of their changing in rating, where they are making some adjustments to the way that local is measured to make it more on par with how national advertising is measured. And so that could have a positive impact, but we'll have to see how that plays out.

Perry A. Sook, CEO

And political is ripping right now, you know, in what we're seeing is crowd out used to be basically an October problem. And now it may be a Labor Day through the election kind of a problem in the highly contested markets. You probably saw where in a press conference, the president said he was going to spend four to five hundred million on the midterms. um he has spent almost no money out of MAGA Incorporated to date so that money has yet to get dropped in he just uh he just released the first 10 million dollars to support Ken Paxson in Texas um over the weekend as well so if that money moves into the market that that time has not yet been reserved and so uh you know we're we're we're seeing you know record levels of spending and earlier spending, you know, because early voting starts in states like North Carolina in two to three weeks here. So the election will begin. And so I think you're going to hear and see more about political here right up through the election, but starting earlier than it has certainly in the midterm before.

Operator

In years past. We got some, I don't know if there are some news items related to this, but a handful of investor questions about this lowest unit price. You know, From what I can read, it doesn't seem – I mean, first of all, it's very complicated, but I would love for you to just – what can you say about lowest unit prices? Is it a big change, small change? Does it matter?

Lee Ann Gliha, CFO

Yeah, something we've been already dealing with, right? So with respect to the political advertising, we must provide political candidates the lowest unit rate for the advertising that they provide. What the Supreme Court ruling allowed now is for party money to be also subject to that, coordinate basically with the candidates and have access to that lowest unit rate. Right now, the party money is about 5% of our overall political advertising revenue. And so, you know, we feel like it's a very manageable amount of money that can be managed through the system with respect to what rates we're providing. And then we also think there's a potential positive in the sense that we know that linear advertising or linear political advertising is among, if not the most effective form of advertising for politics, getting people out to the vote and then actually securing the vote. And so we think that parties in coordination with their candidates, there actually may be more money that could potentially swing towards our business because, hey, now we can have access to that lowest rate and access to that advertising that is actually so much more effective than what they have seen in other areas. So we're not seeing it as a negative for this cycle. We think that we'll be able to manage right through that. Yeah.

Perry A. Sook, CEO

And even get just a tiny bit more wonky. It's lowest unit rate by class of time. So if you have a multi-grid rate card and you manage your grids accordingly and aggressively, you'll do just fine.

Operator

Yeah. Okay. Well, that's great. We're out of time. But Perry, Leanne, thank you. Thank you so much. Appreciate it.

Perry A. Sook, CEO

Yeah, absolutely.