Nexstar Media Group, Inc.

Good day and welcome to Nexstar Media Group's second quarter 2023 conference call. Today's call is being recorded. I will now turn the conference over to Joe Gifoni, Investor Relations. Please go ahead, sir.

Thank you, Maria, and good morning, everyone. Let me just read the safe harbor language and then we'll get right into the call. All statements and comments made by management during 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. Nextar 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 the call. For additional details on these risks and uncertainties, please see Nextar's annual report on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission, and Nextar's subsequent public filings with the SEC. Nextar 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, Nextar Chairman and CEO, Perry Sook. Perry, please go ahead.

Thank you, Joseph, and good morning, everyone. We appreciate you joining us today to discuss Nextar's second quarter results. With me on the call today are Tom Carter, our President and Chief Operating Officer, and Leanne Gliha, our CFO. I'll start with a summary of recent highlights and developments, followed by Tom's operational review and Leanne's financial review. Recently, some media executives have made public comments calling into question the future of linear broadcast. We respectfully disagree. What can't be questioned is that literally all of the video profit and 80% of the video revenue of the major integrated media companies are generated by the linear model today. Said another way, DTC strategies are reliant on the profits of the linear model to exist. We don't expect the DTB business to go away. We expect to coexist with them and for broadcasts to continue to thrive. Linear is not going anywhere. Broadcast television continues to reach the largest audience with the highest amount of daily time spent of any video media and remains the most influential media for consumers' purchasing and voting decisions. Our proprietary news content is widely consumed and valued by our audiences, and our content partners, particularly those in live sports and our advertisers, understand the power of the reach of the broadcast medium. Our confidence that the broadcast model will continue to thrive is supported by our financial results. In Q2, we further extend our record of outperforming consensus expectations across all key financial metrics, including net revenue, adjusted EBITDA, and attributable free cash flow. Our strong performance reflects the combination of the benefits of scale in our company-wide business relationships and our decentralized local and business unit management model, which focuses on delivering exceptional news, sports, and entertainment for our viewers and proven marketing solutions for advertisers at attractive operating margins. Our consistent free cash flow generation provides us with the financial flexibility to invest in our future while continuing to return capital to shareholders. In the first half of this year, we returned $414 million to shareholders, or approximately $11.70 per share, in the form of dividends and share repurchases, representing 86% of our first half attributable free cash flow. We are enthusiastic about our future with a number of organic growth initiatives, including our new in-house sales initiative that will leverage all of the assets of our platforms, the growth of the CW and News Nation, and ATSC 3.0's broad potential for future monetization. My optimism for Nexstar's continued growth is reflected by my position as a top 10 shareholder of the company and the company's largest individual shareholder, and my recent contract extension, which goes into 2026. But as we look to the future, I'd like to take this opportunity to honor Tom Carter, who a few weeks ago announced his retirement at the end of the year after 14 years at Nexstar. The day before Tom started back in 2009, our stock was at 82 cents per share. And look where we are today. Tom has been and is and will continue to be a tremendous partner and friend. And during his tenure, he oversaw a period of unprecedented growth, and expansion for the company, including the successful structuring, completion, and synergy realization of highly free cash flow accretive transactions, including Tribune Media and Media General, which cemented Nexstar's position as the nation's largest local television broadcaster. Since many of you know Tom firsthand, it goes without saying that he will be missed tremendously. Always a team player, Tom has already contributed to the one seamless transition we've had so far with our appointment two years ago of Leanne as our CFO, and he will continue to support our growth and transition in his capacity as senior advisor to me through the end of this year. With Tom previously signaling his intention to retire at the conclusion of his contract, the board and I had ample time to identify a successor. Last month, we announced that Mike Baird, former president of operations and distribution at Fox Corporation, will join us as president and chief operating officer later this month. Mike's experience over Fox's multi-platform content distribution strategy, affiliate relations, and business affairs for Fox Sports, Fox Entertainment, and Fox News brings the perfect complement of capabilities for Nexstar's forward direction and growth. I and many of my Nexstar colleagues have previously known Mike for a good portion of his 23 years that he spent at Fox in Nexstar's role as the largest Fox affiliate group. Mike's experience, knowledge, and energy are a great match for our team as we look to take Nexstar to the next level. At the board level, part of our ongoing initiative regarding board refreshment, shareholders approved this year our proposal to declassify our board of directors. Going forward, each board member will be elected annually beginning in 2024. and standing for election with the rest of the board next year will be our newly appointed board member, Tony Wells. Tony fills the board position vacated by Dennis Miller, who stepped down in October to become president of the CW Network. Tony is a great addition for us. He was the former chief media officer at Verizon and chief brand officer at USAA, and he brings a deep knowledge of the national and local advertising landscape and experience and insights working within large enterprises. During Tony's career, he deployed billions of marketing dollars for some of the country's most high-profile brands. His experience and firsthand knowledge, which will benefit Nexstar as we grow our national assets of the CW, NewsNation, and The Hill, and further leverage our local broadcasting footprint, which is the largest in the industry. Let's move on to the CW, as our excitement about that opportunity, we see, is even greater than when we acquired it. As you may know, our CW affiliates are our most profitable in terms of margins. Next, our CW stations have already benefited from our acquisition through our distribution renewals last year and so far this year, but we also see further opportunities to grow distribution revenue not only at our stations but on the affiliate side. Our thesis is straightforward. We believe that as a broadcaster-run broadcast network, The CW represents a better alternative and operator for station operators, just as it has for us. In June, we announced that our stations in San Francisco, Philadelphia, and Tampa will affiliate with the CW beginning in September. And last week, the CW announced that it had expanded and extended its network affiliation agreement with Hearst Television, which will also launch the CW on Hearst KQCA in Sacramento, California. This is but one example of the interest by leading broadcasters. in aligning with the new CW. To drive the growth of the network, we are making, quote, moneyball-inspired investments in content that matters to the broadcast viewer, including live sports, in order to grow our distribution and advertising revenues. In less than one year of ownership, we've already secured the rights to a variety of sports properties, including live golf, ACC football, and basketball, coming to the CW this September, the NASCAR Xfinity Series starting its engine on the CW in February of 25, and sports-related programming such as Inside the NFL, which will premiere at 8 p.m. on September the 5th, and our sports documentary series, 100 Days to Indy, all of which are expected to accelerate the viewership and revenue growth for the CW ecosystem. In fact, with just these three agreements beginning in 2025, the CW will have 48 weekends per year of live sports programming. As our sports partners will tell you, Broadcast television is the best medium for live sports as it delivers the highest ratings and widest distribution to their fan bases while providing promotion and engagement at the local level to drive attendance and ancillary revenue streams. One of the reasons NASCAR was attracted to us was that they know that they generate 40% greater audiences when their races are on broadcast. As we know firsthand at our station in Los Angeles with the Clippers, where we deliver audiences on average 100% greater in the demo than the incumbent RSN. Importantly, and reflecting our disciplined approach to content acquisitions, these new growth opportunities should increase our revenue without impeding our path to reach breakeven in 2025. If you think about it, over time, the CW is increasingly looking like Fox, with the same number of hours of weekday programming and its growing live sports portfolio, and with Mike Baird now on board, we have the team to get us where we want to go. Finally, touching on the writer's strike, while we are confident that it will not hurt our forward progress with the CW, the majority of our fall slate was content that was already developed and or unscripted. In May, next to our international properties, the CW, NewsNation, Antenna TV, Rewind TV, and The Hill had a productive upfront with the standout being NewsNation with a 25% growth in volume, driven by its position as the fastest growing cable news network in prime time. We're very proud of NewsNation and during the quarter we marked a major milestone with NewsNation becoming a 24-5 news network with the debut of expanded daytime programming, the launch of the network's first political ensemble program, The Hill, and the addition of a new evening program called Elizabeth Vargas Reports. NewsNation recently broke the whistleblower story about UFOs with our news interviews on the UFO topic being entered into the congressional record driving strong viewership of the hearings and afterward. Supporting our large portfolio of assets, we're laser-focused on ad sales and measurement that better quantifies the research and the consumption of our content. On the ad side, we're working under the leadership of Chief Revenue Officer Michael Strober, building an integrated national and local sales force that is capable of leveraging the breadth of the assets that Nexstar brings to bear both locally and nationally, and including linear, digital, and OTT. We're already demonstrating through our sports rights agreements how our one-two punch of national reach and local activation is attractive to sports property owners, and the same goes for advertisers and brands. But to better monetize our assets, we need to make sure they're being accurately measured. And right now, we believe the current measurement tools under measure our audiences. To that end, we recently issued an RFP for a next-generation measurement company to help us better measure and better monetize. We hope through this process we will identify a partner that can help us accurately measure and deliver value to our customers. In summary, we believe we're just at the beginning of the growth opportunities that we see for a scaled Nexstar. We have a collection of local and national assets that are really a unicorn in this industry that we believe will continue to generate differentiated growth and tremendous shareholder value. With all of that said, let me now turn the call over to Tom Carter. Tom?