Earnings Call Transcript - NXST Q4 2025

Operator, Operator

Good day, and welcome to the Nexstar Media Group's Fourth Quarter 2025 Conference Call. Today's call is being recorded. I will now turn the conference over to Joe Jaffoni, Investor Relations. Please go ahead, sir.

Joseph Jaffoni, Investor Relations

Thank you, Rochelle, and good morning, everyone. Let me 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 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, 2024, as filed with the U.S. 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 Founder, Chairman, and Chief Executive Officer, Perry Sook. Perry, please go ahead.

Perry Sook, CEO

Thank you, Joseph, and good morning, everyone. Thank you for joining us today. Mike Biard, our Chief Operating Officer; and Lee Ann Gliha, our Chief Financial Officer, are with me on the call, as always. Nexstar's fourth quarter financial results capped a year marked by strong execution and bold strategic action to shape our future of the business. We delivered on all key operational priorities in 2025, including successfully reviewing and renewing distribution agreements representing over 60% of our subscriber base, further elevating The CW and NewsNation to top-tier networks, extending our affiliation agreements with both ABC and MyNetworkTV, and pursuing regulatory reform through our landmark agreement to acquire TEGNA. These achievements, together with the return of midterm election political advertising in 2026, all set the stage for a very exciting year of growth ahead for Nexstar, as reflected in our stand-alone Nexstar pre-TEGNA full year adjusted EBITDA guidance of $1.95 billion to $2.05 billion. The rationale for the Nexstar-TEGNA combination is becoming increasingly clear. Consolidation is accelerating across the broader media industry from the Hulu-Fubo transaction to the proposed Charter-Cox merger to the upcoming sale of Warner Bros. Discovery. Against this backdrop, our transaction represents a pivotal and critical opportunity to establish a framework for local television broadcasters to more effectively compete with big tech and with big media while strengthening our ability to deliver high-quality local journalism to our communities. I'm pleased to report that we remain on track and are making great progress on our path to closing. Our HSR filings and our FCC license transfer applications have all been submitted. We have responded to all inquiries from the DOJ, the FCC, and the state attorneys general, and we continue to work with all regulatory and legal bodies to fulfill any remaining requests. Our expectation for close is by the end of the second quarter of 2026, and that remains unchanged. If we look at recent industry strategic activity, broadcast has been a consistently coveted asset because of the scale, reach, and results it delivers to premium programming, especially sports. The numbers speak for themselves. This past season, the NFL delivered its highest viewership in 16 seasons, up 7% year-over-year, largely driven by broadcast. In home and away markets, broadcast still delivers the majority of the NFL Thursday Night Football audience versus Amazon Prime. The NBA's return to broadcast fueled a 16% year-over-year increase in regular season viewership through mid-February, and that marks the highest average NBA audience at this point in the season since 2018. The NBA All-Star Game also benefited with the highest ratings in 15 years in its first year back on NBC. And finally, the Winter Olympics also delivered their strongest viewership in years. The data is clear when it comes to delivering scaled audiences for premium live sports and events; broadcast remains unmatched. In this regard, Nexstar's own sports-focused programming strategy is delivering excellent results and enabled The CW to exceed our financial expectations in 2025. The CW finished the year as the tenth most-watched ad-supported network and the second fastest-growing network overall, delivering a 19% year-over-year increase in viewership. In 2025, we improved the network's cash flow by an impressive 32%, and we anticipate continued financial improvement for the network as we move through 2026, with profitability expected by the fourth quarter of this year. The continued success of our long-term strategic focus on high-impact news and sports programming is further validated by the performance of NewsNation, which posted its strongest year ever in total day, primetime, and daytime viewership and in 2025 was the fastest-growing cable news network in the adult 25-54 demographic. Consumer awareness of NewsNation has increased to over 40%, its highest level to date with over 50% awareness among viewers of news. These results reflect the fact that NewsNation's programming and unique fact-based reporting is resonating with viewers looking for a balanced and impartial take on the news. Looking ahead, as we had anticipated and discussed on prior calls, we're beginning to see more stable subscriber trends. Smaller DTC platforms are being integrated into multichannel pay TV packages, and distributors continue to launch new value-priced skinny bundles, many focusing on broadcast and news programming. In Q4, Charter posted sequential quarterly growth in video subscribers, and overall, the data is encouraging to Nexstar's distribution outlook. While we are focused on closing our proposed acquisition of TEGNA, we remain equally disciplined in executing against Nexstar's core business. Beyond maximizing the political advertising opportunities presented by the midterm elections, our top two priorities in 2026 are digital optimization and expense rationalization. Digital is a key growth engine, and we continue to expand our audience reach, including local CTV apps now live in 108 markets, and broaden advertiser solutions across our owned and third-party inventory. Despite AI search headwinds, digital revenue grew high single digits in 2025 and double digits in our local business. And in 2026, we expect digital revenue to surpass our national advertising revenue, an important milestone that strengthens our long-term non-political advertising trajectory. At the same time, we are further streamlining and centralizing our operations, automating select production functions, aligning incentive compensation closely with performance, actions which we expect will drive additional operating expense reductions and enhanced execution across the company. Touching briefly on political advertising, the projected impact is about $10.8 billion in total political advertising for the '25, '26 election cycle, a record amount for the midterms, with broadcasting expected to capture nearly 50% of that total or about $5.28 billion. We expect to capture a low double-digit share of total broadcast political advertising spend for the current cycle as our positioning remains excellent with a presence in more than 80% of the contested election markets. In summary, our assets generate consistently strong free cash flow, which we've used to create the clean balance sheet that we have today to return capital to shareholders and pursue highly accretive M&A like TEGNA and have executed with our proven playbook and grounded in our steadfast commitment to localism. We are energized by the significant prospects before us, and we remain laser-focused on executing our 2026 objectives, including closing our acquisition of TEGNA, capitalizing on the midterm election political advertising opportunity, and continuing to optimize our business operations, all of which we anticipate will contribute to shareholder value creation. So now with all that said, let me turn the call over to Mike Biard. Michael?

Michael Biard, CFO

Thanks, Perry, and good morning, everyone. Nexstar delivered fourth quarter net revenue of $1.29 billion, a decline of 13.4% compared to the prior year, primarily reflecting the year-over-year reduction in political advertising, offset by better-than-expected growth in non-political advertising revenues. Fourth quarter distribution revenue of $720 million increased $6 million or 0.8% compared to the prior year quarter and primarily reflects increased rates, growth in vMVPD subscribers and the addition of CW affiliations on certain of our stations, offset in part by MVPD subscriber attrition. In 2025, we renewed distribution agreements covering more than 60% of our subscribers, extended our network affiliation agreements with ABC and MyNetworkTV to 2027, and renegotiated affiliation and vMVPD agreements for The CW covering about two-thirds of its subscribers. Looking ahead, we have approximately 30% of subscribers up for renewal this year. In 2026, on a stand-alone Nexstar-only basis, we are projecting distribution revenue growth to be in the low single digits on a gross basis and in the mid-single digits on a net basis for the full year. Our projections are based on our current and expected contract terms and an improvement in the rate of subscriber attrition. Turning back to our results for Q4 2025, advertising revenue of $549 million decreased $209 million or 27.6% over the comparable prior year, primarily reflecting a $233 million year-over-year decrease in political advertising to $21 million. However, non-political advertising was up 4.5% in the quarter, better than the expectation of a low single-digit decrease we mentioned in our last earnings call. We saw later-than-anticipated spending last quarter, driving broad-based improvement across all advertising segments, including local, national, network, and digital. Top advertising categories in the quarter were gaming, banking, attorneys, and sports betting driven by the legalization of online sports betting in Missouri. Auto was once again our largest declining category, but our focus on developing new digital advertising products with auto dealers partially offset that decline. For the first quarter, non-political advertising is currently forecast to be flattish on a year-over-year basis, primarily due to the negative relative impact of the Super Bowl airing on NBC this year compared to FOX last year where we have a stronger footprint. However, this negative comparison will be partially offset by the incremental advertising from the Winter Olympics on NBC. So far this year, we've seen strong viewership and advertiser demand for marquee sports content with more than a 20% increase in advertising for the 2026 Super Bowl and Milan Cortina Olympics compared to the comparable 2022 Super Bowl and Beijing Olympics. On the political side, we generated approximately $21 million in political advertising revenue during the quarter, primarily driven by Virginia's statewide general election and spending on general election spending and California's redistricting ballot proposition and early governor's race spending. With the return of the midterm election cycle in 2026, we look forward to once again demonstrating the value of broadcast television to candidates and campaigns looking to communicate to the electorate through political advertising on television. As Perry mentioned, we expect to generate a low double-digit percentage of total broadcast political advertising for the year. As a reminder, industry advertising forecasts are provided on a gross basis and Nexstar reports advertising revenue, including political, net of agency commissions. As in previous election years, we expect roughly 20% of our full year political advertising revenue to be earned in the first half of 2026, with the remaining 80% in the second half. Political advertising is also expected to impact non-political advertising, driving displacement in the back half of the year. On the expense side, we remain focused on continuously improving the operational efficiency of our business. And in 2025, we reduced recurring cash operating expenses by 1.6% as a result of the operational restructuring we implemented in Q4 2024 and Q1 2025 and continued rationalization of programming costs at The CW. Looking ahead, as Perry mentioned, you can expect us to deliver additional cash operating expense savings across the business in 2026. Turning to The CW, audiences are consistently showing up for our live sports lineup, and that momentum is translating into progress toward our financial targets. With its debut on CW Sports, the NASCAR O'Reilly Auto Parts Series, formerly the Xfinity Series, delivered its most-watched season in four years, up 10% year-over-year, averaging over 1 million viewers across 33 races. College football also posted double-digit gains, averaging 456,000 viewers per week with ACC matchups on The CW, up 26%. ACC men's and women's basketball is also off to a strong start this season, with total viewers up 35% through the first 10 games. And NASCAR on The CW has returned strong with the O'Reilly Auto Parts Series season opener at Daytona delivering 2.3 million peak viewers, including more viewers in the 18 to 49 demo for any edition of this race since 2018. The momentum continued last week in Atlanta, where we've delivered 1.4 million average viewers, representing the best performance for this race since 2016. With 100 additional hours of sports programming expected in 2026, nearly 47% of The CW schedule will be sports or sports adjacent. At the same time, we're strengthening our primetime lineup with premium entertainment, including Wild Cards, the final season of All American, Police 24/7, and refreshed game shows, Scrabble, hosted by Craig Ferguson and Trivial Pursuit, which will air not only on The CW but will also be licensed for syndication downstream. Our overall programming strategy is delivering results with The CW outperforming Big 4 primetime telecasts 273 times across total viewers and key demos in the 2024-2025 season. That's up from just 45 times a year ago. Similarly, NewsNation continues to hit consistent ratings milestones. In 2025, NewsNation remained the #1 fastest-growing cable news network in the 25 to 54 demo. For the year, NewsNation surpassed MS NOW 60 times and CNN 40 times in head-to-head telecasts across total viewers and in the 25 to 54 and 35 to 64 demos. This compares to the 2024 period when NewsNation surpassed MSNBC four times and CNN two times in head-to-head telecasts. So to close, I want to reiterate our confidence in our long-term outlook and the enduring strength of Nexstar's business model. Our programming strategy anchored by live news and sports continues to deliver results for The CW and NewsNation, and we remain committed to unlocking even greater value from these assets as our audiences grow. Our local programming strategy is similarly anchored by our unrivaled live news product and the proposed TEGNA acquisition will create a substantial and immediate value for shareholders while advancing the public interest by strengthening local broadcast journalism and providing an expanded range of competitive broadcast and digital advertising solutions across our portfolio of local and national assets. And with that, it's my pleasure to turn the call over to Lee Ann for the remainder of the financial review. Lee Ann?

Lee Ann Gliha, CFO

Thank you, Mike, and good morning, everyone. Mike gave you most of the details on the revenue side and on The CW, so I'll provide a review of expenses, adjusted EBITDA and adjusted free cash flow, along with a review of our capital allocation activities and our 2026 guidance. Combined fourth quarter direct operating and SG&A expenses, excluding depreciation and amortization and corporate expenses, decreased by $7 million or 0.9%, driven primarily by reduced commissions from sale of political advertising revenue in Q4 of '24, reduced news and production expenses, reduced promotions from our operational restructuring initiatives, and lower administrative and one-time expenses. Q4 2025 total corporate expense was $65 million, including noncash compensation expense of $20 million compared to $48 million, including noncash compensation expense of $20 million in the fourth quarter of 2024. The increase of $17 million is primarily due to one-time costs associated with our proposed acquisition of TEGNA and the impact of a reduction in the bonus reserve in the fourth quarter of '24 that was larger than the fourth quarter of '25. Q4 2025 amortization of broadcast rights included in our definition of adjusted EBITDA was $75 million, a reduction of $23 million from $98 million in the fourth quarter of '24, primarily due to timing of programming at The CW. Q4 2025 income from equity method investments, which primarily reflects our 31% ownership in TV Food Network reduced by amortization of basis difference, declined by $12 million in the quarter or 67%, primarily related to TV Food Network lower revenue. We also wrote down our investment in TV Food Network consistent with other companies in the entertainment cable network space. Putting it all together, on a consolidated basis, fourth quarter adjusted EBITDA was $433 million, representing a 33.6% margin and a decrease of $195 million from the fourth quarter '24 of $628 million. Moving to the components of free cash flow and adjusted free cash flow. Fourth quarter CapEx was $54 million, an increase of $19 million from $35 million in the fourth quarter last year, primarily due to an investment in real estate at one of our properties. Fourth quarter net interest expense was $91 million, a reduction of $13 million from the fourth quarter of 2024. On a cash basis, this compares to $89 million in Q4 2025 versus $101 million in Q4 2024. The reduction in interest expense was primarily related to a reduction in SOFR and reduced debt balances. Fourth quarter operating cash taxes were $33 million compared to $67 million in 2024, a decrease of $34 million, primarily related to decreased pretax operating income in 2025 related to decreased non-election political advertising. Payments for capitalized software obligations net of proceeds from disposal of assets and insurance recoveries were $6 million versus $4 million last year. In Q4, cash programming amortization costs were greater than cash payments by $19 million versus lower by $13 million in 2024 as certain programming payments were prepaid. Pulling this all together, consolidated fourth quarter 2025 adjusted free cash flow was $214 million as compared to $411 million last year. Now turning to our 2026 guidance. We believe Nexstar's stand-alone 2026 adjusted EBITDA will be in the range of $1.95 billion to $2.05 billion. Perry and Mike already provided some of the key assumptions that are embedded in that guidance, including: one, our expectation for gross and net distribution revenue growth to be up low and mid-single digits, respectively, based on contract renewals completed in 2025 and expected in 2026 and an improvement in subscriber attrition trends; two, political advertising revenue should be in an amount equal to a low double-digit market share of broadcast political advertising and will have a displacement impact on non-political advertising in the back half of the year; three, total operating corporate expenses and amortization of broadcast rights, excluding one-time charges, will again decline year-over-year due to our continued plans to affect our business by focusing on efficiencies and reducing programming costs; and four, we expect The CW will continue to reduce its losses by another 30% in 2026 from 2025 levels and achieve profitability in the fourth quarter. Key factors differing from our current expectations, which could affect our outlook for adjusted EBITDA for 2026, either positively or negatively. Those factors include, among other things, the rate of growth or attrition of pay TV subscribers, the health of the local and national advertising markets, our renegotiation of certain distribution and affiliation agreements on terms favorable to the company and the attributable net income related to our 31.3% ownership stake in TV Food Network. We do not intend to update this guidance on a quarterly basis. As a few additional points of guidance with respect to adjusted free cash flow, we are currently projecting CapEx of $125 million to $130 million for the year and $30 million to $35 million in the first quarter. Based on the current yield curve, we anticipate full-year 2025 cash interest expense to be in the $355 million to $365 million area, an improvement of $11 million versus 2025 levels at the midpoint. We project Nexstar's cash interest expense, including the spread on our floating-rate debt instruments, the current SOFR forward curve, and the coupons on our fixed-rate debt, along with our expectations for debt repayments, which includes our mandatory amortization of approximately $111 million. Q1 interest expense is expected in the $85 million range. Full-year 2026 cash taxes are expected to be approximately $315 million to $325 million range, an increase versus 2025 of $208 million due to an expected improved income, primarily a result of the election year. For cash taxes, we use a 26% tax rate when calculating our estimated tax before one-time and other adjustments. The first quarter includes only a very small amount of state income tax in the $2.6 million range. As a reminder, we will use the annualization method for tax, meaning tax related to the fourth quarter of '26 will be largely deferred to '27. In 2026, payments for programming are expected to be in excess of amortization by $25 million to $30 million due primarily to an investment in programming for future years, with approximately $1 million of that in the first quarter. Turning to capital allocation and our balance sheet. Together with cash from operations generated in the quarter and cash on hand, we returned $56 million to shareholders comprised entirely of dividends as we are conserving cash for acquisition of TEGNA. For the year, we returned $351 million or 42% of our adjusted free cash flow to shareholders in the form of $226 million of dividends and $125 million of share repurchases, reducing our year-end shares outstanding by 1% to 30.3 million. Nexstar's outstanding debt at December 31, 2025, was $6.3 billion, a reduction of $26 million for the quarter as we made quarterly amortization payments. Our cash balance at quarter end was $280 million, including $13 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 first lien covenant ratio for Nexstar as of December 31, 2025, for the last 8 quarters annualized was 1.71x, which is well below our first lien and only covenant of 4.25x. Our total net leverage for Nexstar was 3.09x at quarter end. Our 2026 cash flow will be deployed first to fulfill our mandatory obligations, including debt repayments of $111 million and $36 million of pension and defined benefit plan contributions, the anticipated 2026 dividend of approximately $228 million and to build cash balances to fund the acquisition of TEGNA. In January, we announced our dividend maintaining the same level as 2025 as excess cash will be used to fund the acquisition of TEGNA. Based on our stock price as of yesterday, our dividend represents a 3.2% yield, which puts us in the 73rd percentile of all dividend-paying stocks in the S&P 400 for dividend yield. With that, I'll open up the call for questions. Operator, can you go to our first question?

Operator, Operator

And we'll move on to our first question. We'll hear from Dan Kurnos with Benchmark StoneX.

Daniel Kurnos, Analyst

Great. Appreciate all the color as usual. Perry, as you might imagine, given the presidential tweet recently, I think investor anxiety around when we might get an FCC cap elimination has increased a little bit. So any color you can give us around wording, timing, and how that process might play out would be helpful. And then separately on the expense side, all of you really super helpful like kind of walk through the pieces. I guess, since you guys called out digital optimization and expense rationalization as your two priorities. Given all of the AI tools that are out there, what we're hearing from peers, what we're hearing from kind of the broader tech landscape, I mean how much of that is sort of embedded in the guide you've given this year? How much is applicable on, say, like content cost reduction for things like CW or NewsNation? Just any way you can help us frame up kind of the opportunity set you see there to continue sort of this expense reduction momentum would be helpful.

Perry Sook, CEO

Dan, I'll take the first part. I would hope to not characterize investor anxiety around the elimination of the cap and approval of our deal. I would hope that, that anxiety would turn into enthusiasm. We certainly appreciate the support of the President via his tweet and follow-on comments by the Chairman of the FCC and his support for the deal. And as to timing, that's really the purview of the regulatory agencies. We are working very diligently to complete all of the information requests. As things go, the FCC shot clock would technically expire on June 1 of this year. So we remain consistent in our belief that the transaction will close before the end of the second quarter. We are hopeful that we can close sooner than that, but we'll obviously continue to engage with the regulatory agencies to try and get to the desired result, not only on the national ownership cap but the approval of our transaction.

Lee Ann Gliha, CFO

On your questions about digital and expense, maybe I'll take digital first. I think that Nexstar has got a tremendous local sales force. We have over 1,500 sales folks across the country. Relationships with over 50,000 advertisers. Our advertisers really value our television products, but they also value our apps and our websites, and they are also increasingly looking for audience extension opportunities. And because we have those great local relationships, we're able to sell more and sell a broader audience, not just including our local television audience, but if somebody wants more entertainment or they want more different demographics, we can sell that and add that on to the portfolio. So we've had good success with that, especially on our local side, and that really has been driving the growth. And as Perry mentioned, this will be a good year for us because we do expect our digital revenue to eclipse our national television advertising revenue, which digital has a different trajectory, which should actually really help our longer-term growth with respect to net revenue. On the expense side, we are continuing to just look at the business in ways to optimize the operations. And are there ways that we could do things in a different way that's more centralized or to use new technologies to help create efficiencies in our local operations and even more centrally. And so we are just continuing to reimagine that. And that's one of the benefits we have because of the scale of our business. We just have a good opportunity to be able to do some of those things. And you saw it in our 2025 results, and you'll see it again in our 2026 results.

Operator, Operator

Our next question, we'll hear from Benjamin Soff with Deutsche Bank.

Benjamin Soff, Analyst

Another one on the regulatory side. Now that you're a bit deeper into that process, have there been any surprises so far in your conversations with regulators? And in particular, do you have a sense for how the DOJ might plan to view in-market consolidation? And what could that mean in terms of requiring any divestitures or not? And then I'm curious what you're seeing as far as the macro environment so far in 2026 as it relates to advertising.

Perry Sook, CEO

Sure. As it relates to the regulatory process, I mean, we continue to engage vigorously with the DOJ, and I think it provided some excellent material to them regarding the definition of the market or redefinition of video, which is where we really compete. Obviously, they have yet to render a decision. So we will obviously defer to their judgment. But I think that the information that we provided has been strong and we're laser-focused on that. So we feel very good about where we are, the dialogue we've had, the progress we've made, and the endorsements that we've received. But as to transaction particulars, we're just not there yet in terms of those expectations. But as we've reported historically, we expect that if there are any divestitures, they would be de minimis to the overall value of the deal.

Lee Ann Gliha, CFO

Yes. Regarding the overall macro environment, we feel reasonably positive about it. One key aspect we want to monitor within our advertising categories is the percentage of those categories experiencing revenue growth compared to those that are declining. In comparing the first quarter to the fourth quarter, we observe a higher percentage of categories that are growing. We had previously indicated expectations of stable performance in our non-political advertising for the first quarter, so we remain optimistic about the macro outlook.

Operator, Operator

And next, we'll move to Aaron Watts with Deutsche Bank.

Aaron Watts, Analyst

Just two questions. Lee Ann, maybe one for you to start. Just based on your performance to close out '25 and your view into '26, any change in your outlook for pro forma leverage once you close the TEGNA deal?

Lee Ann Gliha, CFO

Not really, no.

Aaron Watts, Analyst

Okay. Great. And then secondly for me on the advertising side, Perry, this question is a bit of an offshoot of one I asked you at the time you announced the TEGNA deal. The programmatic buying marketplace continues to grow and gain influence. How do you see that impacting your ad sales overall over the near-term horizon? And how are you currently participating or planning to participate in that marketplace with your ad inventory?

Perry Sook, CEO

Sure. Regarding programmatic digital advertising, part of acquiring TEGNA includes acquiring Premion, which is their programmatic digital advertising platform. We see significant potential in integrating that technology and sales force with our inventory, which is not currently on the Premion platform. This presents an opportunity for the business. While I wouldn’t strictly call it a synergy, we believe it will demonstrate its value over time. As for programmatic linear advertising, we are already engaged in this area to some degree with companies like ITN and Cadent, who are implementing a more manual version of programmatic for linear ads. We are collaborating internally and with external partners to develop a programmatic linear solution, and we are in the early stages of this initiative. It's essential to lower the frictional costs associated with purchasing linear inventory, and I believe technology can help achieve that. Our goal is to create a seamless system from pitch to payment, regardless of where the impressions are being accessed. This is my vision for the future. When asked about our immediate focus after closing the TEGNA acquisition, it's to advance this project. We've already begun working on it, and we're assembling a capable task force, with updates planned in the coming weeks. As a leading player in the advertising industry—recently ranked as the 18th largest by one analyst—we stand to gain a lot from streamlining the process of purchasing linear television and aligning it more closely with the buying process for digital inventory. Ultimately, it should all be managed as one inventory set with a unified process, seamlessly connecting pitch to payment. That's the gold standard we aim to achieve.

Operator, Operator

And next, we'll move to Patrick Sholl with Barrington Research.

Patrick Sholl, Analyst

I guess maybe just a quick follow-up on advertising. Could you provide just a little bit more detail on some of the categories that were increasing or decreasing? And as we start to lap the initial tariff headwinds, if you're kind of seeing any greater enthusiasm from the Supreme Court ruling?

Lee Ann Gliha, CFO

So with respect to just the categories, auto was our biggest decliner, but not by like any sort of outstanding amount. But we did see the rate of decline being offset within that category by good growth on the digital side. And we're actually seeing a pretty nice improvement in that auto trend into the first quarter. So we're feeling good about that. With respect to the other top categories, we had gaming and sports betting that was a great category in the fourth quarter. That was mostly due to the Missouri legalization. And then anything kind of other than that, even on the downside, nothing really was distinguished. I think I mentioned earlier that we did see more categories increasing than decreasing overall, and we're seeing that trend continue into the first quarter and be even a little bit better in the first quarter. So things are looking okay, I would say. And but there's nothing really like to read into the various categories, no outliers that are driving the transaction or driving the outcome one way or the other. With respect to the tariffs, I don't know that we've seen anything in particular there. I would remind you, I think one of the points that we always like to make is it's about 60% of our advertising revenue comes from services categories versus goods categories. So we do have a little bit of a natural hedge there because we are much more service-focused than goods-focused. But I wouldn't say that there's been anything that people have been talking about with respect to tariffs as of yet, but we'll keep you posted.

Operator, Operator

And next, we'll go on to Craig Huber with Huber Research Partners.

Craig Huber, Analyst

I've got a broad question here. The uses of AI in your operations, can you just give us some examples of things that are moving the needle that you're excited about that AI is helping you, whether it be on the cost savings front or enhancing your product to speed up things, etc.? Just some examples there would be helpful first.

Michael Biard, CFO

Sure, Craig, I'll take that. We have implemented some AI tools across the organization in our local newsrooms to enhance workflow and make processes more efficient. These tools enable us to take a story and optimize it for multiple platforms, and they help us locate sources of information and leads simultaneously. Looking ahead, we are in the early stages of deploying AI for our sales team, which we believe will improve prospecting, sales development, and workflow operations. Although it's still early days, we are optimistic about the potential benefits as this technology begins to be integrated into our industry.

Craig Huber, Analyst

And then my apologies, please go ahead.

Lee Ann Gliha, CFO

No, no, go ahead. Sorry, Craig.

Craig Huber, Analyst

Sorry, I wanted to also ask, just maybe an update on alternative uses of spectrum. I don't think we've heard about that lately. Maybe just sort of update us on what's happened in the last year and what maybe the plans are this coming year. I know it's a long way out to be meaningful for your company and your peers, but just sort of update on alternative uses of the spectrum, please.

Michael Biard, CFO

Sure. I think to underscore what you said it is a long way out before it's meaningful for us or our peers. So in the last year, as you know, we formed a joint venture with three of our fellow broadcasters EdgeBeam Wireless. That organization is really just at the early stages of formulating its management team and its go-to-market strategy. I think you'll see them in the coming year be in the market with products. They're out there right now talking with customers. I think, again, early days, but we're starting to see some early orders flow. Some of that is proof of concept. Some of it is actual revenue. But we're optimistic that, that business will take off and really demonstrate to the market the unique broadcast benefits of a broadcast spectrum for high-speed data transmission.

Operator, Operator

And Steven Cahall with Wells Fargo will have our next question.

Steven Cahall, Analyst

And I joined a little late, so I apologize if I ask anything that causes you to repeat yourself. On the regulatory process around TEGNA, the press has had a lot of information about the direction of the FCC. I think that one seems increasingly clear at least of the conclusion we're going to get. The DOJ is a little more of a black box, and I think the initial commentary is you expect minimal divestitures. I was just wondering if you could give us the latest and greatest on what your perception is as to how the DOJ is now looking at markets and what sort of a precedent this transaction could be kind of the future of how the DOJ looks at broadcast ownership within markets. And then also just a question on synergies. TEGNA has some good digital advertising businesses. I'm guessing that scale helps in political cycles. I don't think any of those benefits are in your synergy guidance. Do you have any experience with these from deals like Tribune or even CW that you could share in terms of where there could be some opportunities for kind of 1 plus 1 equals more than 2 in some of those revenues over time?

Perry Sook, CEO

I'm sorry, Steven, regarding the regulatory matters, as I mentioned earlier, we have submitted extensive information to the DOJ, including studies from economists we hired that discuss the marketplace definition and the necessity for redefining video, which is our area of competition. While we have shared this information, we have not yet received any clear feedback on how they are interpreting it. Concerning divestitures, we have not engaged in any discussions about them at this stage of the process. This doesn't mean that it won't come up later on. We maintain that if divestitures do occur, they would represent a minimal percentage and wouldn't significantly impact the deal. The DOJ operates somewhat like a black box, and disclosures are not required to be public. However, I have reviewed the information we've provided and the economic studies, which I believe are credible and persuasive. Ultimately, it's up to the individuals at the DOJ, and there have been personnel changes there, so new people are getting acquainted with the details. It's the responsibility of the DOJ and the FCC to form their opinions and make a final decision. We feel very positive about the work completed, the information submitted, the endorsements received, and our current stage in the process. Therefore, we are confident that we will reach a conclusion within the timeframe we specified.

Lee Ann Gliha, CFO

On the digital side, as Perry mentioned earlier, TEGNA has a business called Premion that focuses on the CTV market, which is growing nicely. We're excited about the chance to leverage our stations more significantly in that market. We're feeling positive about it. However, you are correct that we haven't included any revenue synergies aside from the retransmission synergies we've previously discussed in our synergy metrics. Regarding political markets, it ultimately depends on the specific markets and whether there are contested elections where funding is needed. One of the advantages of this transaction is that it increases our exposure to these political markets. We have a presence in Georgia but not in Atlanta. They have strong stations in Maine, a contested election market, and a station in Toledo, Ohio, which could also be a promising political market for us. Additionally, Phoenix, Arizona is another market where they have a larger station than we do. All these factors should contribute positively to our political landscape moving forward, and we're optimistic about closing this deal ahead of this year's election cycle.

Operator, Operator

And next, we'll hear from Jason Bazinet with Citi.

Jason Bazinet, Analyst

Okay. At risk of sharing my own ignorance, I'm going to ask this question. I think you said on the call that you think that digital ads will exceed your national ad revenues. And I think the last time you disclosed digital ad revenues is around $400 million. And I sort of think of your national ad revenues as being at The CW network and would have said it's already bigger than your national ads. So what am I missing?

Lee Ann Gliha, CFO

Yes. What you're missing is that CW represents national advertising, but it's actually a subset of network national advertising. We also generate significant national advertising at our stations, where national buyers seek to place their ads in local markets. That constitutes another aspect of what we consider national advertising.

Operator, Operator

That will conclude the question-and-answer session. I would now like to turn the floor back to Perry Sook for closing remarks.

Perry Sook, CEO

Thank you, operator. I appreciate everyone joining us today, and we're very pleased at the results that we were able to post for 2025, strong financial results solidly in line with our expectations that we set last year at this time. Despite the changing media landscape, our performance demonstrates that we have both durability and stability in our broadcast model and the operational execution expertise of this management team. We look forward to closing our pending acquisition of TEGNA and bringing that operational expertise to bear on our synergy plan and reinforcing our position as the largest local broadcast company in the United States. Thank you for your continued support over the last 22 years of quarterly earnings calls, and we look forward to updating you on our next earnings call in about 90 days' time. Thank you. Have a great day.

Operator, Operator

Thank you. This does conclude today's teleconference. You may now disconnect your lines.