Earnings Call Transcript - NXST Q4 2022

Operator, Operator

Good day, and welcome to Nexstar Media Group Fourth Quarter and Full-Year 2022 Conference Call. Today's call is being recorded. And now I would like to turn the conference over to Joe Jaffoni, Investor Relations. Please go ahead, sir.

Joe Jaffoni, Investor Relations

Thanks, Priscilla, and good morning, everyone. I'll first read the safe harbor language, and then we'll get right into the call. All statements and comments made by management during today's conference call, other than statements of historical fact, may be deemed forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995. Nexstar cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those reflected by the forward-looking statements made during 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, 2021, as filed with the Securities and Exchange Commission and Nexstar subsequent public filings with the SEC. Nexstar undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. With that, it's now my pleasure to turn the conference over to your host, Nexstar Chairman and CEO, Perry Sook. Perry, please go ahead.

Perry Sook, Chairman and CEO

Thank you, Joe, and good morning, everyone. We appreciate you joining us today to discuss Nexstar's outstanding fourth quarter and full-year financial results. As always, with me on the call this morning are Tom Carter, our President and Chief Operating Officer; and Lee Ann Gliha, our CFO. I'll start with a summary of recent highlights and developments. That will be followed by Tom's operations review and Lee Ann's financial review, and then we'll open the call for questions from you. It's clear from our results that 2022 was a monumental year for Nexstar and a referendum on the power of the broadcast model and its ability to deliver audiences at scale and strong levels of free cash flow. Full-year net revenue, adjusted EBITDA and attributable free cash flow reached new all-time highs. We exceeded the $5 billion annual revenue milestone for the first time in the company's history, and we delivered record adjusted EBITDA and attributable free cash flow of $2.2 billion and $1.5 billion, respectively. Overall, our full-year top and bottom line performance was led by strong year-over-year growth in political advertising, distribution revenue, as well as digital revenue. Double-digit attributable free cash flow growth enabled us to return approximately 68% of our 2022 attributable free cash flow, or a record of $1.02 billion, to our shareholders in the form of share repurchases as well as dividends. In addition to posting another blockbuster year of financial results, Nexstar achieved a number of strategic and operational accomplishments that are positioning our company for future growth while enabling us to continue delivering the financial performance, cash flows, and shareholder returns that investors have come to expect from Nexstar. On the strategic side, we acquired a 75% interest in the CW network for no purchase consideration, adding a national broadcast platform to our portfolio, another asset in addition to NewsNation and ATSC 3.0 that will be capable of contributing long-term outsized growth to the company. Operationally, in the fourth quarter, we renewed and extended our network affiliation agreement with ABC on terms favorable to the company, and we successfully renewed and extended distribution agreements with our largest MVPD partners on terms that will enable Nexstar to enjoy continued annual growth in distribution revenue for the foreseeable future. Our ability to execute on these renewals just reinforces what we already know: that broadcast matters. Today, broadcast television remains the only place for content creators, sports organizations, team owners, and most importantly, advertisers to access local audiences at scale. We have developed these audiences over decades by consistently providing top-rated local news, sports, and entertainment content. We provide reach that no other medium can, especially for sports content. Our local markets are important for advertisers and brands. As the largest local broadcaster, Nexstar is important to both our network partners and our MVPD partners, which provides us with a very strong negotiating position. In turn, our portfolio of local and national media assets now provides nationwide reach on par with other broadcast networks, combined with local activation at a greater scale than any other broadcast network owner, creating a differentiated and highly attractive value proposition for advertisers, brands, and content owners in an increasingly fragmented marketplace. We continue to expand our capabilities and leverage our linear, digital, mobile, and streaming assets in new ways to deliver new levels of monetization, growth, and shareholder returns. Our ability to generate record results and excellent shareholder returns underscores the benefits of our unique scale, the strength of our operating model, and our ability to consistently generate substantial free cash flow. Nexstar was one of only four stocks that was up in all of media and entertainment in 2022, which we believe is a testament to our ability to create shareholder value through free cash flow generation, return of capital to our shareholders, and our ability to continue to grow our revenue streams. And we've seen a lot of our competitors in the media industry with broadcast assets taking notice, suddenly remembering the lion's share of their revenue and profit come from that tried and true, effective, and profitable broadcast media. Before handing the call over to Tom, I want to briefly touch on a few updates on our organic growth prospects. Starting with core advertising, with our portfolio of strong national and unparalleled local broadcast, we believe that Nexstar has the ability to improve our core advertising by uniting our go-to-market strategies under the One United Nexstar platform using data-driven strategies to achieve our clients' objectives. To that end, we have recently appointed experienced sales and advertising executive, Michael Strober, to the newly created position of EVP and Chief Revenue Officer responsible for leading the execution of a new advertising sales and go-to-market strategy for the company, which is designed to accelerate the monetization of our platform with a focus on the national advertising opportunity, which is roughly double the size of the local advertising market that Nexstar has predominantly served historically. Second, we continue to make significant progress building out NewsNation, America's fastest-growing cable news network. This past year, we expanded weekday news programming to 17 hours per day, made key journalist and editorial additions, and are completing production facility expansions in both New York City and in Washington, D.C. While it's still early, our strategy of providing unbiased news for all America is already delivering results, as NewsNation was the only cable news network to see double-digit growth in total viewers in 2022. Our programming continues to be recognized by watchdog groups for its independence, and we believe this is the type of content that journalists want to report and audiences want to watch. Our ability to attract top-tier talent and make good progress on ratings, with January 2023 marking NewsNation's highest-rated month to date, only reinforces that view. Third, we are already making progress with the CW, not only to bring the network to profitability but to create value for the entire Nexstar enterprise as a result of the acquisition. At the Nexstar level, we see the CW as instrumental to our ability to unlock the national advertising opportunity I discussed just a moment ago. And in our recent distribution and renewal negotiations, our ownership of the CW positively impacted the outcomes of those discussions by an amount that has already effectively paid for the investment that we'll make in the network. At the CW level, on the programming front, while we are locked into most programming for the '22, '23 broadcast season, we've already taken action to improve and diversify our content to better align with audiences through our exclusive multiyear broadcast rights agreement with LIV Golf. Beginning with the LIV Golf season, which kicked off last Friday, the CW will air 14 global events and stream the events live on our CW app. We have also begun to execute on our cost savings plan by reducing redundant functions at the network, and we've hired new top-tier executives with backgrounds at Fox, NBC Universal, HBO, POP TV, and Google to lead our programming and distribution strategies. These are results-driven professionals who share our excitement and vision for the network, and we continue to expect to achieve profitability by 2025. Finally, Nexstar continues to lead the industry in total deployment of ATSC 3.0, or NextGen TV, with markets reaching approximately 35% of U.S. households, and we have a goal of reaching 50% of the U.S. population with ATSC 3.0 signals via our stations by the end of this year. Discussions with potential technology and business partners for this service are ongoing, and we continue to believe the revenue opportunity for applications using our spectrum could rival our retransmission revenues by the end of this decade. In summary, we remain confident in our strategy, the quality of our assets, and the strength of our financial position. Consistent with our capital allocation priorities and focus on enhancing shareholder value, in January, the Board of Directors increased Nexstar's quarterly cash dividend by 50% to $1.35 per share per quarter, substantially exceeding our historical compound annual dividend growth rate of 25%. Our strong free cash flow enables us not only to increase the percentage of capital returned to shareholders in the form of dividends but also allows us to continue to opportunistically repurchase shares as well as reduce debt and pursue other strategic opportunities to further enhance shareholder value. Looking ahead, 2023 will benefit from the renegotiation of our distribution contracts, representing more than half of our subscribers during 2022, and 2024 will benefit from the Presidential election year, political advertising cycle, as well as additional distribution contract renewals at the end of this year. For the '23, '24 cycle, we expect to generate pro forma average annual attributable free cash flow of approximately $1.25 billion, inclusive of our approximate $90 million attributable to the investment losses associated with and tax benefits related to our turnaround of the CW. With all of that said, let me now turn the call over to Tom Carter for the operational review. Tom?

Tom Carter, President and COO

Thanks, Perry, and good morning, everyone. We had another strong quarter with a record fourth quarter net revenue of $1.49 billion, up 19.3% from the same quarter last year, mainly due to our solid political results and the addition of CW's results, although this was partially offset by a decline in core advertising, which was primarily affected by the softness in the national advertising market. Without the CW results, net revenue rose 14.3%. Core television advertising saw a year-over-year decrease of 3.3%. Excluding the CW's impact, core advertising declined approximately 8.7%, largely due to significant decreases in national spot advertising, which represents about 30% of our core television ad revenues, and political inventory displacement. On the other hand, Nexstar's local TV advertising revenue, making up about 70% of our total core TV ad revenues minus CW, significantly outperformed national advertising, only declining 2% year-over-year despite major allocations toward political during the quarter. This trend reflects historical patterns where local advertisers tend to maintain more stable ad spending throughout economic cycles. Early in Q1 of '23, we are observing similar results as we did in the fourth quarter for this revenue segment. Excluding the CW's impact, our leading categories this quarter were automotive, home repair and manufacturing, entertainment, paid programming, and air conditioning and heating. We are very encouraged to see the automotive sector, our largest advertising category by spend, continue its growth trend for a second consecutive quarter, with an increase of 23.5% compared to Q4 of '21. Furthermore, Nexstar's local sales initiatives are yielding healthy new business levels, with our sales teams producing new local advertising incentive program revenue of $37 million, unchanged from the previous year despite significant political displacement. The decline in core advertising revenue was mainly driven by issues in gaming, sports betting, insurance, direct response, medical health care, and radio, TV, cable, and newspapers. The softness in the insurance category was tied to specific industry challenges and some insurers shifting from local to national markets. Direct response continues to be hindered by weaker national advertising trends, while medical health care faced cuts in Affordable Care Act marketing funds compared to last year. The sports betting and gaming sector experienced the most substantial year-over-year drop due to fewer launches in the quarter and larger operators reallocating advertising dollars to network markets, along with decreased spending in established areas. Additionally, the fourth quarter saw advertising impacted as sports betting companies diverted their TV ad budgets to voter propositions aimed at legalizing online gambling in California. Bright spots included Ohio, where sports betting was legalized at the beginning of '23, and Missouri, influenced by spending in Kansas City for sports betting in Kansas, legalized in September of '22. Despite these trends, we anticipate continued spending in this category, though at a more moderate pace. The rise in sports betting advertising coincided with a decline in automotive advertising, leading to a reversal in the performance of these two segments. Regarding political advertising, Nexstar achieved fourth quarter political revenue of $265.9 million, bringing our full year political advertising total to $505.6 million, just 1% lower than the 2020 Presidential election year and up 32% pro forma compared to 2018, the last midterm comparison year. According to Kantar, total gross political advertising across all media increased by a record 3% over 2020 and showed significant growth compared to 2018, largely due to the competitiveness of the 2022 races and sports betting propositions in California. Local television broadcasting accounted for $2.4 billion in gross political advertising, a record for midterm elections, capturing over 50% of total spending in 2022, which represents a 38% increase compared to 2018. Television remains the preferred medium for political advertisers, with local television and local cable TV combined making up 70% of gross political ad spending. This is noteworthy since television offers a fixed amount of inventory and pricing is regulated on a per-candidate basis, unlike other media such as digital. Furthermore, digital political spending is mainly directed towards fundraising rather than messaging, as local television serves as the preferred platform for branding. Nexstar captured 13.8% of the total political television dollars, consistent with previous years. Political action committees and individual political advertising represented 50% of our political revenue, which is significant as there are no pricing limits for these advertisers and these funds can quickly pivot from one race to another during the political season, benefiting a large player like Nexstar that has operations in most competitive markets. Additionally, due to the wide reach of our portfolio, Nexstar produced and distributed nearly 50 political debates during the 2022 midterm election cycle, including high-profile races in Pennsylvania and Georgia, as well as the Texas gubernatorial race, which we also distributed nationally through NewsNation. We attribute our success in this exceptional midterm cycle to the advantages of Nexstar's scale and our careful analysis and planning on a state-by-state and race-by-race basis, which helped us exceed the midpoint of our initial full-year net political revenue guidance, aligning with pro forma levels between 2018 and 2020. We are looking forward to a strong 2024 election cycle. Now, moving on to distribution revenue. Our fourth quarter distribution revenue was approximately $616 million, unchanged from the previous year. Positive factors for this revenue category included the addition of CW affiliate fees, growth in virtual MVPD revenue, and MVPD rate resets and annual escalators. These were offset by some of our and our partner stations going dark on certain MVPDs related to ongoing contract negotiations and settlements affecting revenue tied to these new agreements, along with continued subscriber attrition in MVPDs. Overall, the decline in our subscribers increased to the mid-single-digit range, affected by a faster rate of MVPD losses, even as we saw continued growth in virtual MVPD and direct-to-consumer subscribers. Excluding the CW and the impact of going dark due to negotiation settlements, our distribution revenue would have shown low single-digit growth. Looking ahead, without factoring in CW affiliate fees and considering our recent contract resets, we project distribution revenues to rise by high-single to low-double digits for 2023, contingent upon the outcomes of ongoing negotiations by our partners with several MVPDs where they currently are off-air, along with our subscriber attrition projections. While we hold optimistic growth expectations for this revenue stream, until our partners finalize their ongoing negotiations, our growth rate will likely remain in the mid-single-digit range. CW affiliation fees will positively influence our year-over-year growth rates until we reach the acquisition date's anniversary. As Perry pointed out, we are very satisfied with the results of our recent affiliation agreement negotiations, which will positively affect our overall net retransmission revenue. On a net basis, we anticipate reverse compensation to rise at a mid-single-digit rate, thus slightly enhancing our distribution or retrans margin. Before reviewing other revenue segments, I would like to clarify how we believe investors should interpret our distribution revenue outlook and our evolving relationships with virtual MVPDs. Remember, Nexstar generates distribution revenues from our linear MVPDs like Comcast and Charter, virtual MVPDs like YouTube TV and Hulu, and other direct-to-consumer platforms such as Paramount Plus and Peacock. To provide some context, excluding the revenue generated from the carriage of NewsNation, which Nexstar negotiates independently, less than 10% of our gross distribution revenue comes from virtual MVPDs. About 40% of our subscribers will be up for renewal by the end of 2023, which will benefit our 2024 outlook, including several virtual MVPDs. We firmly believe we should manage our own future regarding virtual MVPDs rather than letting the network negotiate on our behalf. Currently, individual network affiliate boards lead negotiations with the networks for their affiliates, including station groups like Nexstar, to either participate in or opt-out of virtual MVPD agreements. Given the absence of regulation in the digital landscape, it's crucial that we stay united as an industry. Currently, the CBS affiliate board has advised CBS affiliates not to enter into agreements with fuboTV, a minor virtual MVPD, and we complied with this recommendation. The proposed terms were below market value, leading to CBS-affiliated stations, including Nexstar, remaining off that platform. As you know, many factors are in flux in these discussions with networks, especially CBS, where we have a linear agreement, virtual MVPD agreement, and a Paramount Plus agreement all expiring later this year. Our approach with fuboTV may not reflect our actions in other upcoming virtual contract renewals in 2023. Contrary to the networks' assertions, virtual MVPDs value local news and content because viewers actively seek it out. Consistent with our historical approach, we will not accept agreements that undervalue our content and services delivered by our stations. Our stance on this issue is not new; we have consistently advocated strongly during negotiations, considering many factors and leveraging various strategies. Now, returning to the other revenue items from the quarter, our Q4 digital revenues increased by 10.1% year-over-year to around $112 million. This revenue growth was driven by the addition of CW and year-over-year increases in Nexstar's local digital advertising and agency services, partly offset by weaknesses in national advertising and e-commerce. Excluding CW, digital revenue actually fell by 6.5%. On a consolidated scale, fourth quarter adjusted EBITDA rose by 19.8% from the previous year to $598.2 million, reflecting a 40.2% margin. Additionally, fourth quarter attributable free cash flow increased by 27.8% to $422.1 million. Excluding CW, fourth quarter adjusted net income rose 32% to $662 million, and free cash flow grew from 38.7% to $458.1 million. Nexstar achieved a 46.5% adjusted EBITDA margin and converted about 69% of adjusted EBITDA into free cash flow. While we're performing well in our business, ESG remains a priority for Nexstar, and we continue evolving our practices and disclosures to enhance our already strong profile. This year, we prepared an ESG report, which will be available on our website, outlining key principles, policies, and initiatives. The report includes disclosures for Nexstar following recommendations by the Sustainability Accounting Standards Board for companies in the media and entertainment sector. As highlighted in our report, throughout 2022, we carried out multiple ESG initiatives, including eliminating our Class B and Class C shares, which facilitated our inclusion in the S&P 400 Index. We announced plans allowing shareholders to vote on declassifying our Board of Directors and maintain a responsive Investor Relations function, which has led to several recognitions in institutional investors' annual surveys. Additionally, we continue to provide fact-based, unbiased news recognized for excellence, and our NewsNation cable network has been acknowledged by independent watchdogs for reliable, balanced, and trustworthy content. Nationwide and locally, Nexstar participates in over 1,600 community initiatives each year, contributing countless hours and helping raise millions for important causes. We are also committed to fair and ethical treatment of employees, fostering a positive work atmosphere, and implementing substantial diversity, equity, and inclusion programs, hiring practices, and mentorship initiatives. We're about to kick off our yearly shareholder outreach initiative where we discuss our initiatives and receive feedback from our top shareholders. Similar to previous years, we will communicate the outcomes of this process in our annual proxy statement. In summary, our record financial results for 2022 demonstrated continued performance in our key growth areas, including distribution, political advertising, new local direct advertising, and digital, with even greater potential for growth ahead. With that, I’ll turn the call over to Lee Ann for the financial review and update process. Lee Ann?

Lee Ann Gliha, CFO

Thank you, Tom, and good morning, everyone. Our 2022 fourth quarter and full-year financial results showcase the underlying strength of our scale and business model and our ability to continue delivering record results and significant capital returns to shareholders. Before I dive into my usual financial discussion, I wanted to take a minute to step back and discuss a few changes in our financial presentation that we've been foreshadowing. Since we own 75% and control the CW, the CW is consolidated into our financial results. Although it is a small part of our overall financial results, we've announced by analysts and investors to break out the impact of the CW. We also believe it is important to do so since we view the near-term losses of the CW as a proxy for purchase price, as we intend to bring the asset to profitability by 2025. In addition, for purposes of our credit agreement and indentures, we have designated the CW as an unrestricted subsidiary, and it is not included for purposes of calculating our covenants. To that end, on the cover of our earnings release and in the tables at the back of the release, you will be able to find selected financial metrics for Nexstar on a consolidated basis for Nexstar, excluding the CW, and also for the CW on a standalone basis. With respect to our free cash flow guidance, we've opted to use an attributable free cash flow figure that includes the cash flow of Nexstar and its interest in the Food Network and our attributable 75% interest in the losses of the CW and the related tax benefits of those losses. This seasonally attributable metric is a good proxy for the cash flow available to be reinvested or used to repay debt or return to shareholders. As always, you should use these metrics in connection with our reconciling schedules and financial statements that have been prepared in accordance with GAAP and are filed with the SEC. You should also note that we have streamlined the number of EBITDA and free cash flow metrics we are showing on our earnings release cover page. As such, we are opting to exclude transaction and onetime expenses from these figures. As always, the detail is provided in our reconciling schedules in the back. Because of the lack of information until now, the research analysts that cover us have had a variety of ways of showing our numbers. Some include the CW, and some exclude it, creating some noise in our consensus estimates. We hope to get everybody on the same page as much as we can after this call. Now, back to our regularly scheduled programming. As always, Tom and Perry gave you most of the details on the revenue side. So I'll provide a little color on the CW financial results and then jump to expenses, followed by some discussion on our guidance. We closed the acquisition of the CW on September 30, 2022. In the fourth quarter, the CW generated $66 million of revenue and $64 million of adjusted EBITDA losses in line with our expectations for the quarter. In addition, the CW was responsible for $30 million of onetime expenses comprised of restructuring charges and retention bonuses. The CW generates revenue primarily from national television and digital advertising, distribution fees from affiliates and virtual MVPDs, as well as some short-term continuing revenue from licensing content to an SVOD player. Since the CW programming schedule is locked in for the 2022, 2023 broadcast season, it won't be until the fourth quarter that you will be able to see the Nexstar playbook start to unfold. We continue to anticipate a low nine-figure investment and to achieve profitability by 2025. Moving back to Nexstar's expenses. Together, fourth quarter direct operating and SG&A expenses increased by $72.5 million, primarily due to the inclusion of the CW, including the onetime restructuring expenses of approximately $30 million I just mentioned. Excluding the CW, fourth quarter direct operating and SG&A expenses increased only $5.9 million as a result of higher variable costs related to higher revenues, increased programming and other costs related in part to the move of NewsNation from syndicated programming to news programming, which is offset in our adjusted EBITDA calculation from reduced programming payments related to syndicated content. Increased expenses were offset by a reversal of an accrual due to a settlement in connection with our distribution agreement renewals. As a percentage of net revenues, our total expenses declined given our focus on controlling expense growth and significant political revenue growth. Q4 2022 total corporate expense was approximately $49.2 million, including a noncash compensation expense of $18.2 million compared to $43.6 million, including a noncash compensation expense of $12.4 million in 2021. Noncash compensation expense grew primarily due to the CEO's new contract. Excluding onetime expenses included in this item, corporate expenses were effectively flat. Fourth quarter CapEx was $57.1 million or $56 million, excluding CapEx related to the CW. CapEx was higher in the fourth quarter than prior quarters in 2022, as CapEx that was delayed in the first three quarters of the year due to supply chain disruptions was finally fulfilled in the fourth quarter. CapEx for the full year, excluding CW, was $155 million, slightly higher than our expectation of $150 million due primarily to anticipated reimbursement and rebates that have not yet been booked. Fourth quarter total interest expense increased to $103.4 million from $70.2 million in the prior quarter due to the impact of increasing LIBOR and SOFR rates applicable to our floating rate debt. Cash interest expense was $100 million for the quarter and $323.6 million for the year, slightly lower than our $326 million expectation at the last call due to the impact of the actual versus projected yield curve and debt repayment. Fourth quarter operating cash taxes were $53.1 million, which includes $65.3 million attributable to Nexstar, excluding CW, and a $12.2 million benefit from the attributable tax-deductible losses from our investment in the CW. Overall, for the year, cash operating taxes were $334.1 million for Nexstar, excluding CW, implying a 25.5% pretax income rate and $321.9 million, including the tax benefit from the CW's attributable tax-deductible losses. We recorded $14.8 million in distributions from equity investments related to our 31% ownership in the TV Food network in the fourth quarter, which represents a 13.5% decrease over the prior-year quarter. These interim distributions are primarily for tax payments and are due to lower operating income this year compared to last year. Looking ahead, we project corporate overhead exclusive of stock comp and transaction costs to be approximately $36 million in the first quarter, and we expect overhead around $144 million for the year. Noncash comp is expected to be approximately $50 million for the first quarter and in the $67 million area for the full year, but will vary based on stock price and actual grants. For cash taxes, we use a 26.5% tax rate when calculating our estimated tax benefit before onetime and other adjustments. We are currently projecting cash CapEx of $35 million in the first quarter and $137 million for the full year. As a reminder, we typically spend less in CapEx in odd number nonpolitical years than in political years. We expect Nexstar's cash interest expense to approximate $110 million for the first quarter and $450 million for the year, reflecting current forward curve and expectations for debt repayment. The forward curve currently shows interest rates peaking in July and falling thereafter. Turning to the balance sheet. Nexstar's outstanding debt as of December 31, 2021, was $6.95 billion, down from $7.41 billion at year-end last year. Because we have 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 covenant ratio for Nexstar, excluding the CW at December 31, 2022, was 1.77x, which is well below our first-lien and only covenant of 4.25x. Our total net leverage for Nexstar, excluding CW at quarter-end, was 2.93x, down from 3.7x as of December 31, 2021, and 3.18% in Q3. As is typical in nonpolitical years, we expect leverage, which we calculate on a last 12-month basis versus a two-year average, to slightly tick up in 2023. But with our quantum of debt, we don't expect to tick up. However, we expect the leverage to fall again in 2024, which will be a political year. In 2023, we plan to allocate a portion of our free cash flow to reduce indebtedness, primarily from mandatory amortization payments. For the full year, we generated $1.5 billion of attributable free cash flow and generated approximately $188 million of net proceeds related to asset sales in 2022. We returned $1.02 billion, or 68% of our attributable free cash flow to shareholders in 2022, paying $142 million in dividends and repurchasing $880 million of stock, or 5.1 million shares, representing 12% of our shares outstanding as of December 31, 2021. The remainder of our attributable free cash flow went to repay debt. Other uses of cash included transaction expenses and other working capital items. As we move forward, we will continue to strategically deploy our cash in a manner that is consistent with our commitment to creating the highest shareholder value. For all the factors enumerated by Perry and Tom, we are excited about the prospects for 2023 and remain confident in our ability to enhance shareholder value and deliver on our new pro forma annual average annual attributable free cash flow guidance for the 2023 and 2024 cycle of approximately $1.25 billion, including $90 million of attributable losses and associated tax benefits in connection with our ownership interest in CW. Comparing this to our original 2022 and 2024 guidance of $1.4 billion, for the 2023 and 2024 average, we have about $110 million more interest expense given the movement in interest rates and a $90 million attributable loss for the investment in the CW. Excluding these impacts, our 2023 and 2024 free cash flow would have been $1.45 billion for comparison purposes. A few additional notes on our 2023 and 2024 free cash flow guidance before we open up for questions. From an operating perspective, these figures take into consideration our current best estimates for our core business based on current and expected trends as of today. We have assumed no material M&A or other one-time or unusual transactions for these figures. Free cash flow is deployed in the form of reinvestment, debt repayment, dividends, and share repurchases. We've also taken into consideration the forward curve in which we are in, which will impact our expected interest expense, given our significant floating rate debt load. Nexstar's consistently strong free cash flow generation remains one of our most powerful differentiators not only from our peers but from larger diversified media companies as well. We've returned $1.02 billion, or 68% of our attributable free cash flow to shareholders in 2022, and recently increased our 2023 dividend by 50% to $5.40 per share per year, representing a 2.8% yield. Our capital allocation priorities remain focused on value-enhancing organic initiatives in our business, accretive M&A, modest deleveraging, and shareholder returns through a mix of dividends and share repurchases. That concludes the financial review for the call. Operator, please open the line for questions.

Operator, Operator

Ladies and gentlemen, we will now begin the question and answer session. Our first question comes from Craig Huber with Huber Research Partners.

Craig Huber, Analyst

Great. Thank you. Just some nitpick questions, if I could start off with the CW. I think you said SG&A was up $5.9 million, excluding the CW. What was your direct operating expenses, excluding that the CW? And how are you seeing that tracking this new year? It's my first question.

Lee Ann Gliha, CFO

I'm sorry, how are our direct operating expenses tracking in...?

Craig Huber, Analyst

Well, I mean is there anything out of the ordinary we should know about your direct operating expenses this year, putting aside the CW and beyond the ordinary?

Lee Ann Gliha, CFO

Nothing out of the ordinary, no.

Craig Huber, Analyst

Okay. And then what was your retrans revenue if you just exclude the CW? What was that percent change including the hit, unfortunately, for the blackouts?

Lee Ann Gliha, CFO

You want to know what the distribution revenue was excluding the CW?

Craig Huber, Analyst

Yes, in the fourth quarter, I can provide that information.

Tom Carter, President and COO

Well, I think we gave that. It was up low single-digit percentage on an adjusted basis.

Lee Ann Gliha, CFO

He just wants to know what the amount of the CWs is at a high-teen number in relation to the revenue from the CW.

Craig Huber, Analyst

Okay. Great. And then a big picture question. I mean given all the controversy and uncertainty out there about the U.S. economy and given how large your footprint is on the TV station side, Perry or Tom or et cetera. What is your thought on where the U.S. economy is at right now? Are you feeling any increasingly worse about it now than you were, say, three months ago?

Perry Sook, Chairman and CEO

No, Craig, it's really interesting. Obviously, we spent a lot of time in front of local business owners and local advertisers. And they see the customer at the checkout counter or at the cash register, and they know that local consumers are spending and have factored in 7% mortgages and $3 and $4 gasoline into their daily lives. And are making choices and maybe moving some of that spending, and you're seeing higher net worth customers showing up at Walmart to buy some of their basic items. But the consumer is still spending, and local spending for us is hanging in there just fine in the first quarter. The weakness we see is in national, where national advertisers that obviously aren't as close to the end user and customer have paused or reduced spending due to a potential weakness in consumers going forward. So it's really a dichotomy where Main Street is coping and surviving just fine, and it's more the national advertisers that have pulled back on their spending in anticipation of a weakness in consumer spending, which at this point has not manifested itself in our numbers or at the local level.

Craig Huber, Analyst

Sorry. My last quick question, how much do you expect core advertising to be down in the first quarter, around mid single-digits? I know you mentioned that core for local is holding up pretty well, maybe down about 2%. But what about the overall for the first quarter?

Perry Sook, Chairman and CEO

For spending versus a prior year?

Craig Huber, Analyst

Prior year, excluding the CW, please?

Perry Sook, Chairman and CEO

It's a single-digit amount. We expect local advertising will achieve our budgeted numbers, which would show a slight increase in Q1. National will be down a low double-digit amount. And given the weighting of those numbers, we see, again, kind of a low single-digit decline year-over-year is what we're forecasting currently.

Craig Huber, Analyst

Great. Thank you, guys.

Operator, Operator

Our next question comes from Steven Cahall with Wells Fargo.

Steven Cahall, Analyst

Thank you. So maybe as expected, Tom, hoping we could just unpack some of the things you went through on retrans a little bit. So if I understood it correctly, is this that you expect retrans ex the CW to be up about mid-single-digit? And then if you get some of the current blackout renewals done, then accelerate into that new guidance. And I think that the prior guidance was mid-teens. So I was wondering if you could just help us kind of bridge the gap there. Is that cord cutting? Or any difference in rates that you're achieving or anything else we need to think about?

Tom Carter, President and COO

Well, again, I've said for the full year, we expect high single to low double-digit growth. And I think the only differentiating factor in that is how long the blackouts continue. In the first quarter and the first half of the year, I think it will be more pronounced. So we believe the first half will be more like mid-single-digits, and then it will grow into the full-year expectations in the back half of the year. And with regard to overall growth, again, if you look at our expectations, assuming no further blackouts and a quick resolution at low double-digits, the bridge between low double-digits and mid-teens would be increased attrition.

Steven Cahall, Analyst

Got you. Okay. And then on the reverse side, is there any change there to kind of the outlook that you gave a few months back? I know that was also, I think, mid-teens at that point. It sounds like your reverse is going to be up about mid-single-digit, and you just kind of went through what's going on, on the growth side. So is the change to the implied net just the difference in gross or anything else on the reverse comp side?

Tom Carter, President and COO

Well, no, I think I mentioned it in my comments that the growth in network affiliation is much more modest than our growth in retrans revenue. So you'll see our net retrans margin increase. I didn't give a specific, but it will be higher than the revenue growth.

Steven Cahall, Analyst

Great. And then, Perry, you mentioned that the recent distribution renewals effectively have paid for the CW deal. So maybe you could just put a little more context. Are your MVPDs kind of happy to pay you a higher affiliate fee for the CW now that you're pairing it with broadcast stations or any other kind of context you could put around that statement and whether or not that's been an incremental surprise or that was always part of the thinking when you bought the CW?

Perry Sook, Chairman and CEO

Right. I think it was all part of the thinking. We think the CW was undervalued for any number of reasons, mostly related to predecessor owners and parent company priorities and agendas. And then also when we're negotiating with the largest big four station group and you negotiate this all as a package, there is leverage inherent in that model. And so we are very pleased with our ability to continue to earn more for the CW. And obviously, with things like LIV Golf and other programming expansions, we're hoping to create more value so that we can ultimately extract more value as we go.

Steven Cahall, Analyst

Great. And then lastly, just on sports content. Last quarter, you announced the Clippers deal. We've seen a number of RSN groups now kind of get into a period of change. And one of your peers has also recently launched a service that's going to pick up regional or local sports rights. How do you see that kind of opportunity between both local stations and the CW? Do we know enough yet to know if it's a buyer's market? Is it still a little too early? I appreciate that. Thank you.

Perry Sook, Chairman and CEO

Well, I can tell you that the number of inbound inquiries as well as discussions that are going on with team owners the activity is frenetic around here. There are lots of discussions. I think our Clippers deal with Steve Ballmer and the Clippers putting a group of games on broadcast exclusively to expose that to the part of the market that is not inside the pay TV universe kind of broke the seal. And I think that other team owners have taken notice of that. There are a lot of conversations going on. I would expect you'll see us do more deals as time goes on. But I think to a certain extent, people want to see how the RSN plays out and what that means to them and then, therefore, how that influences their behavior going forward. But we have a receptive audience, certainly among NBA owners and NHL owners that see the value of broadcast TV and exposing and distributing their product to a much larger audience than is available in the pay TV universe.

Operator, Operator

Our next question comes from Dan Kurnos with the Benchmark Company.

Daniel Kurnos, Analyst

Thank you. Good morning. Perry, I'd like to follow up on that. How should we consider your willingness to make trade-offs with prime time programming? Specifically, how are we approaching this from either a CPM or viewership standpoint, particularly if you want to air content on CW? What is the trade-off between traditional programming and sports? Additionally, could you provide any directional insight into the impact of LIV Golf? It would be helpful to understand what these deals could potentially look like.

Perry Sook, Chairman and CEO

I believe our main goal is to create more value in the CW, and sports is certainly a new avenue we are exploring. We are pleased with the initial results from our first weekend of LIV Golf in Mayakoba, Mexico, which was viewed by over 1.4 million total viewers across the CW linear network and the CW app. This performance outperformed the average linear golf viewership this year, with a two-day average viewership that was 24% higher. Additionally, the linear broadcast ratings saw a 21% increase from Saturday to Sunday, which exceeded our expectations. Our affiliates and stations were very enthusiastic about these results, with CW affiliates in the top 10 markets earning about three times what the network made from this initial event. This indicates strong sales prospects, and I believe we will continue to grow as the season progresses. We are planning to add another hour of programming on Sunday nights to our prime time schedule. Our objective is to elevate the CW's profile alongside the major networks. This involves boosting the relevance and interest in our programming, offering more diverse content, with sports playing a significant role in aligning us closer to other network options available.

Daniel Kurnos, Analyst

That's helpful. And just another one, just on political, I know it's obviously early for '24, but I mean you have a really broad platform, and we've seen some creative ways that others have kind of attacked it, whether the CTV partnerships or what have you. And you guys obviously own some political-specific properties now. So I don't know how do we yardstick kind of '24 relative to whatever pro forma 2020 was if you have that number? And what kind of incremental opportunities or channels do you see heading into next year?

Perry Sook, Chairman and CEO

I can say that the guidance we provided this morning includes a record political number for 2024, significantly higher than what we experienced in 2022 and 2020. Therefore, we expect a record year. Our local platform, where political action takes place, aligns well with the open Senate races and the states likely to be competitive in the presidential election. We are very optimistic about political activities in 2024. Looking ahead, there will be a new show called The Hill on NewsNation at 5 o'clock from Monday to Friday, launching in April, which will serve as an excellent channel for newsmakers and politicians to reach a nationwide audience. We plan to be actively involved in the debate scene, similar to our participation in 2020. In 2022, we hosted 50 debates across our company, three of which were broadcasted on our national cable network for viewers outside of the contested states. We anticipate being more engaged in debates. With the combined strength of The Hill and NewsNation as national brands, along with our robust local stations, we will unify our sales efforts to showcase the opportunities ahead of us in 2024 and the future.

Daniel Kurnos, Analyst

Great. Thanks. I appreciate it.

Operator, Operator

Our next question comes from Nick Zangler with Stephens.

Nicholas Zangler, Analyst

Yes, hey guys. Thanks for giving me on. How would you gauge the risk, I guess, that the impasse with CBS over fuboTV carries over to the other vMVPDs like YouTube TV, Hulu TV, Sling TV? Are those negotiations coming up at all? And are we talking about the affiliates effectively drawing a line in the sand here, which could create spillover and impact these relationships with other vMVPDs as well?

Perry Sook, Chairman and CEO

Well, I'll go back to what Tom said in his prepared remarks is that total virtual MVPD revenue is approximately 10% of our distribution revenue. So if it were all at risk, that's the number that you're talking about. Right now, I think you can say that the fubo dispute is a dispute over money as well as governance issues. And so I think you'll see affiliates continue to press the point that we should negotiate our own agreements and that no one else should be negotiating on behalf of our content. And that and money are the two issues here. And I think for the long-term health of the local ecosystem, we talk to people at Roku, fubo, and other virtual MVPDs, and we ask them, what are they watching? And they say, the locals. And so not unlike traditional cable, where we are the most watched channels in the bundle, why would that be different in a virtual universe? And so we know we have value. And I think individually and collectively, we will recognize that value and are not willing to sell at a discount or to sell on an à la carte basis. So you have an inferior offering in the marketplace. If you don't have the local stations, I think that should tell you everything you need to know about the leverage in the discussions. And so if that means we have to go dark for a little while to make the point. I think our company, as well as others in the industry, have made the value judgment to do that.

Nicholas Zangler, Analyst

Understood. No, we heard it directly from fuboTV yesterday that they want that local content back, but understood there. And then just a second question here. It's great to hear auto continue to come back, obviously, a huge vertical for you guys. Curious if you could size that up a bit. I'm wondering how auto is performing when you look back relative to those pre-COVID levels. Are we bearing full normalization here? Or are there still significant room to run on auto getting back to maybe a more normalized rate in that 2019 pre-COVID era?

Perry Sook, Chairman and CEO

Yes, we are not back to 2019 levels yet. We are seeing some sustained healthy increases off of that lower base. I think we have another couple of years of these kinds of increases before we begin to approach 2019 levels, both from a national SAAR as well as unit spending. But it is certainly a tailwind in core advertising revenue that auto is up and up double digits, and we see that continuing throughout the year.

Nicholas Zangler, Analyst

So basically, auto is likely a multi-year tailwind as we continue to push for normalization, which would require SAAR levels back in the $17 million or million unit range seen in the pre-COVID era.

Perry Sook, Chairman and CEO

Yes. We see it as a multiple-year tailwind for our company, certainly.

Operator, Operator

Our next question comes from Jim Goss with Barrington Research.

Jim Goss, Analyst

Thank you. Your comments about rate of drawing attention to the CW. Could you talk a little bit about how else you are going to try to navigate that process of changing the content and publicizing the changes in the content to attract the desired audience since that transition could pause its own challenges?

Perry Sook, Chairman and CEO

Sure. Well, I don't think because other networks might be listening. We don't want to necessarily put our playbook out there, but I think you'll see as we move towards the upfront level and the programming schedule that will be displayed and deployed for the fall. I think you'll see some higher profile programming there, certainly in the unscripted than you have seen historically. Dennis Miller and Brad Schwartz and their teams are hard at work putting that together. They're fielding tons of pitches. We've signed some things. We haven't announced yet that I think will be of interest. And so I think it's an iterative process. It's a gradual process, but I think you'll see just generally less of a reliance on scripted, although we're not going to totally abandon the genre. But more reliance on unscripted, but a higher quality of unscripted, a higher profile, something that's maybe a little bit more noisy that will get some attention and get some eyeballs. And we'll continue to look for additional sports opportunities that may or may not be on weekend afternoons and may bleed into prime time upon occasion. I mean, we wouldn't rule any of it out. And we know that from everyone we talk to, people understand the power of broadcast and what broadcast has that no one else has, which is superior reach. And so we're interested, and quite frankly, very pleased with the reception we've had in the marketplace that there may be another voice out there, another national opportunity for distribution over the air and through the broadcast model. People are enthusiastic about engaging in those conversations.

Jim Goss, Analyst

Okay. Thanks, Perry. And the one other one with NewsNation. It seems like you're pretty much through with the reshaping process there. I wondered what the next steps are. And I assume you -- the initial bogey was to basically do better than we were with off-network sitcoms. Now you probably want to raise your sights in terms of the margins and the profitability you can generate with that station or the network. I wonder if you could talk about that a little bit, too?

Perry Sook, Chairman and CEO

Sure. Our next steps are clear. Elizabeth Vargas will join the network in April, and by the end of that month, we will have a 24-hour news schedule from Monday to Friday. This will include an expanded daytime lineup, the addition of the Hill, and Elizabeth Vargas's report show at 6 PM Eastern Monday to Friday. At this time, we expect to achieve a higher cost per thousand in news programming compared to off-network content. We've significantly increased our distribution revenue due to our news offerings and being one of just five networks instead of one of many general entertainment channels. Given the decline in general entertainment network ratings, our timing for this shift has been advantageous. Our profitability is improving, and we are reinvesting our syndicated programming expenses into journalism, which is driving this growth. Once we establish our 24/5 news schedule in April, our focus will turn to becoming a 24/7 news network, filling the 18 hours of programming on weekends that are currently dedicated to entertainment content with news. We plan to achieve this by the end of 2024, at which point we will operate as a fully 24/7 cable news network. Notably, January marked our highest cumulative audience since our launch, and while we are starting from a low base, we are the only growing cable news network, achieving double-digit growth in the fourth quarter. I emphasize that I am more concerned about our ratings three years down the line than I am about them three months from now. Our goal is to improve continuously, focus on delivering quality content, and not get bogged down by the day-to-day fluctuations. Our promotional campaign will launch in earnest in April, with around $100 million invested over the remainder of the year to enhance our visibility and showcase the talented individuals we have on the network. I'm proud of our team and am eager to build upon this talent as we expand our programming.

Operator, Operator

Ladies and gentlemen, since there are no further questions, I would like to turn the call back to Perry Sook for the closing remarks. Please go ahead.

Perry Sook, Chairman and CEO

Thank you. We continue to believe the investment case for Nexstar is very simple. Nexstar's stock has been one of the best short and long-term performing stocks in media, one of the highest percentage returns of free cash flow to shareholders in media, along with solid long-term growth prospects and a low valuation. We have a strong balance sheet with low leverage and excellent short-term visibility with multiple long-term material growth initiatives. '23 and '24 will benefit from new distribution agreements and as we've discussed, 2024 as the Presidential election and big political year. We also have multiple organic growth drivers, including NewsNation, the CW, and ATSC 3.0 that are being positioned to generate material growth for Nexstar in the future. As such, Nexstar shares represent a solid investment opportunity for existing and potential shareholders as we are the largest broadcast company with top-tier operational performance in the sector, but we trade at a very modest '23, '24 free cash flow yield. So thank you, everyone, for joining us today. We look forward to speaking to you again soon when we report our first quarter 2023 results.

Operator, Operator

This concludes our conference call for today. Thank you very much for your participation, and have a good day.