Nexstar Media Group, Inc.

Good day and welcome to Nexstar Media Group's third quarter 2023 conference call. Today's call is being recorded. I'll now turn the conference over to Joe Jafani, Investee Relations. Please go ahead, sir.

Thank you, Shamali, and good morning, everyone. I'll read the safe harbor language and then we'll get right into the call. All statements and comments made by management during this conference call, other than statements of historical fact, may be deemed forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995. Nexstar cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those reflected by the forward-looking statements made during the 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, 2022, as filed with the Securities and Exchange Commission, and Nexstar's subsequent public filings with the SEC. Nexstar undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. With that, it's now my pleasure to turn the conference over to your host, Nexstar Chairman and CEO, Perry Suk. Perry, please go ahead.

Thank you, Joseph, and good morning, everyone. We appreciate you all joining us today to discuss Nexstar's third quarter results. With me today on the call are Mike Baird, our President and Chief Operating Officer, as well as Leehan Guihak, who is our CFO, also here listening in and available for questions on what will be his final earnings call, Senior Advisor Tom Carter. I'll start with a summary of recent highlights and developments, followed by Mike's operations review and then Leanne's financial review. Next, our third quarter financial results primarily reflect the year-over-year decline in cyclical political advertising, as well as the net distribution revenue impact related to our successful negotiation with DirecTV. It was a tough negotiation for both sides, but ultimately we reached an agreement and are pleased with, which was consistent with our internal expectations. The agreement and all other distribution and network partner agreements reached year-to-date, as well as our 2022 renewals were all completed in a manner that was for us quote-unquote business as usual, in recognition of the value that Nextar brings to its partners. We expect favorable terms of those agreements as well as other upcoming renewals to drive continued high-margin distribution revenue growth in the coming periods. As has always been the case during contested negotiations, whether ours or others, there's a lot of noise and at times misinformation that's put out to the public by those seeking to take advantage themselves by talking their own book. At Nexstar, we would like to deal in the realm of facts. That's why we published a new investor deck on our website last month, and we hope you'll have a chance to review it if you have not already. This data-driven report details the importance of broadcast television in the current and future TV ecosystem, as well as Nexstar's positioning as the largest company with consistently top-tier financial performance in the sector. Today, I'm going to provide you some additional facts and perspectives from recent events. First, Nexstar's consistent record of strong operating execution and free cash flow generation is predicated on the strength of our model and our disciplined approach towards managing the business for the long term. Now, that includes distribution negotiations, and while the vast majority of our distribution renewals are negotiated without fanfare or disruption of service, there are times when it does happen. Nexstar has always done and will continue to do what is necessary to bring us closer to achieving fair compensation for the tremendous value our stations bring to our distribution partners. Our continued success in these negotiations is no surprise to us, which obviously brings me to my second point. Broadcast television is the undisputed leader in viewership with the most watched programming. Each of the big four broadcast networks generates viewership roughly four times greater than ESPN. And on top of that, Nexstar's own non-network content generates about half the viewership of our stations. According and adding to our leverage, Nexstar is the largest local broadcaster in the United States and the first, second, or third largest affiliate group of the big four networks, the CW and My Network TV. So the most watched broadcast network content plus highly engaging local news and local content equals a must-have for distributors everywhere. who need us to provide their customers with the content they spend the most time watching. Third, the broadcast distribution model is not going anywhere because we continue to command the widest reach. According to a TBB survey, that's the Television Bureau of Advertising, broadcast television reaches 76% of the population on a daily basis versus 54% for cable only and 36% for SBOD services. We are the only and best way to reach the biggest audience, something that sports organizations, most importantly the NFL, recognizes and require in their rights agreements. This creates a virtuous cycle where sports organizations looking to maximize their audience reach to grow revenues, local engagement, and franchise value seek out broadcast as the preferred medium, which begets viewership, which begets distribution, and on and on and on. This is only amplified by the significant amount of time audiences spend with our local news and our other local content. The broadcast affiliate model benefits the networks by extending the reach of their content, including Major League Sports, to the widest possible audience, enabling them to maximize advertising revenues and receive significant affiliation fees, which they cannot match on their own. Fourth, we believe that the Disney Charter Dispute Resolution supports our business model. In that agreement, the premium broadcast network content carried on ABC-owned television stations and the ESPN network got paid, the Disney Plus DPC content got re-bundled, which should help reduce MBPD attrition, and derivative cable networks were dropped, freeing up dollars to be reinvested in the premium channels like ours. Finally, we've received a lot of questions about virtual MBPD rates being lower than net MBPD rates. Well, that's been spun in kind of a negative way, and it's not really consistent with how we view the world. If you look back at our conference call one year ago, we said that our virtual rates were about the same as our net MBPD rates. Then at the end of 2022, we renegotiated a number of our MBPD contracts and obviously increased our rates. So as a result of those successful negotiations, our net MBPD rates are now higher than our B-MBPD rates. That's not bad. That's good. That's progress. But all that's missing, you know, all of that does miss the bigger picture, that we have multiple agreements with the participants in the ecosystem related to different parts of our business, and each agreement is on a different timetable. So you really can't look at this topic in a vacuum without arriving potentially at some incorrect conclusions. So I'll just reiterate, we expect to grow our net distribution revenues as contracts come up for negotiation and renegotiation. Shifting gears for a moment to our economy, our core television revenues continue to be impacted by a soft advertising market led by weakness in national. We're seeing some improvement on this front as the third quarter rate of decline improves sequentially from second quarter, and we're continuing to see improvement in the fourth quarter to date. We view this trend more or less as the typical impact that we would see in a cyclical economic environment rather than anything secular. We remain confident in our business model and our continued ability to generate significant free cash flow, and we're putting our money where our mouth is by accelerating our repurchase activity to take advantage of our low stock price for the benefit of our long-term shareholders. In the third quarter, we repurchased $199 million worth of our stock, almost half of which was executed during September. Excuse me. Year-to-date, we repurchased $514 million of stock, And since December 31 of 2019, when we started our repurchase program, we have reduced the shares outstanding by over 25%. Subsequent to quarter end, we continue to be in the market pursuant to a 10B51 program, and we have over $700 million left on our current authorization to continue to execute on our repurchase strategy. Looking ahead, we remain bullish about Nexstar's future and pleased with the progress we're making on our organic growth initiatives. News Nation now remains the fastest-growing cable news network in prime time and has established its position as a bona fide major news network. We only expect to accelerate our audience growth from here. We have an exciting announcement coming up later this week, so please stay tuned. In addition, as you will hear more from Mike later, we have already begun making moves to leverage the unique and scarce resource of the CW Broadcast Network to increase our audience, reduce the overall cost of operations, and drive towards profitability. Since we acquired the CW one year ago, we've secured rights for compelling sports programming with Live Golf, ACC Football, and Basketball, and as you saw yesterday, WWE Next, which is now announced as joining the CW network in the upcoming season. The NASCAR Infinity Series will also join in 2025, and we have related programming of Inside the NFL, which airs currently on Tuesday nights. Together with our excellent slate of scripted and unscripted entertainment content, we're setting the stage for the CW to grow ratings, advertising, and distribution. And now that we're out from under most all of the required contracted programming for the current season, we can start to see the impact of our efforts. Early indications of the results of our strategy are positive. Ratings of ACC football on the CW have been very positive, attracting new advertisers to the network. In addition, the CW's recent affiliation renewal cycle, completed this past quarter, was an improvement over the prior cycle, and we've reduced the losses at the CW year-to-date by over $75 million from the prior owner's performance. And, of course, we continue to make progress on our APSE 3.0 development, working with several potential business partners on developing a test case for spectrum use. Finally, as we look for ways to grow revenues and leveraging our scale portfolio of television assets, we'll be bringing the majority of our national sales efforts in-house beginning in January of 2024. We believe that there's no one better to sell our linear and digital ads to advertisers than us. And as we've discussed before, Nexstar has a unique portfolio. Together with our partner stations, we are by a wide margin the largest local television broadcaster, covering over two-thirds of the country including eight of the top 10 markets, as well as 17 of the top 25 DMAs. This scale provides us the ability to effectively offer advertisers near national reach, but also local activation in key selected markets with just our portfolio alone. Adding to that our scaled national properties of the CW, News Nation, Antenna TV, and The Hill, we have critical mass to engage advertisers with our own go-to-market strategies and bespoke advertising packages designed to maximize the next-star inventory and create excellent ROI for our clients. As we discussed on the last call, measurement is a key piece of this strategy, and we're working through the process to identify our next-generation measurement partner or partners, which can provide us the data we need to execute on our strategy. Over time, we believe we should be able to generate more revenue at a better margin than if we continued to outsource our national sales efforts. Nearer term, the remainder of 23 and 24 will benefit from the successful renegotiation of our distribution contracts during the year, and 2024 will have a significant benefit of being a political year, which we expect to be particularly strong. Now I'm going to turn the call over to Mike, who joined us in mid-August. As we discussed on our last call, Mike is a seasoned broadcast television veteran. Having most recently served as president of operations and distribution at Fox Corporation, His experience overseeing Fox's multi-platform content distribution strategy, business affairs, and affiliate relations for Fox Sports, Fox Entertainment, and Fox News brings the perfect complement of capabilities to support Nextar's growth objectives. So, with all of that said, let me now turn the call over to Mike.