Nexstar Media [NXST] Conference call transcript for 2022 q3
2022-11-08 12:40:09
Fiscal: 2022 q3
Operator: Good day and welcome to the Nexstar Media Group Third Quarter 2022 Results Conference Call. Today's call is being recorded. Now, I would like to turn the conference over to Joe Jaffoni, Investor Relations. Please go ahead.
Joe Jaffoni: Thank you Jake and Happy Election Day 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 31st, 2021 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. 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: Thank you Joe and good morning everyone. We appreciate you joining us this morning on this election day to discuss Nexstar's record third quarter financial results. With me on the call today 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 followed by Tom's operational review as well as Lee Ann's financial review then we'll get to your questions. Nexstar delivered another period of outstanding financial results and shareholder returns including all-time high third quarter net revenue, adjusted EBITDA, and free cash flow. Our record top and bottom-line performance was led by strong year-over-year growth in political advertising, distribution, and digital revenue. Our ability to deliver record results and excellent shareholder returns quarter-over-quarter and year-after-year underscore the benefits of scale and the strength and the resiliency of our operating model and our ability to consistently generate substantial levels of free cash flow. In the first nine months and in the third quarter of 2022, we returned $730 million and $250 million respectively to shareholders through share repurchases and dividends. The nine-month shareholder return represents a 48% increase over last year and approximately 68% of our free cash flow. As today's election day, we have pretty clear visibility into our 2022 political revenue excluding the impact of any potential runoff elections. I'm pleased to announce that we booked total net political revenue for the fourth quarter of $260 million, which equates to $500 million net for the year as of today and that represents 103% of our election year 2020 as of election day. 2022 has not only been a record midterm election year for our political advertising, but it is nearing an overall record for our political advertising including presidential election years. Once again local television remains the medium of choice for candidates to reach local voters at scale. And candidates are not alone in using broadcast as I'll talk about it in a minute. Sports organizations like the NFL and team owners like Steve Ballmer, content creators, and local advertisers all see the power and the broad reach of the local television broadcast audience, something Nexstar is uniquely positioned to offer at scale across the country. As part of our earnings call today, I'll cover three areas that have been top of mind for investors. First, I'll discuss the impact of the economic environment and how Nexstar's business is positioned well to offset these challenges. Second, I'll provide an update on our distribution renewals and why we continue to be confident of our ability to grow this revenue stream. And third, I'll briefly touch on the longer term growth drivers of our business including our recent acquisition of the CW and why Nexstar remains one of the best-positioned media companies to succeed in today's marketplace. Our business has several distinct competitive advantages that will enable us to continue delivering the financial performance, cash flows and shareholder returns investors have come to expect from Nexstar. We have a highly diversified revenue model. For several years now over 50% of our total net revenue has been derived from distribution revenue. This contractual and recurring revenue source has historically been resistant to periods of economic downturn. And with less than one-third of our third quarter revenue coming from core television and advertising, we are less dependent on advertising revenue than we ever have been before. Our audiences are valuable. 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. A great example of the power of broadcast is NFL Thursday Night Football where we can see what audiences prefer Amazon Prime or local broadcast. We pull the data from Nielsen for the first seven games and it shows that when NFL viewers have a choice of watching the game on Amazon Prime or watching on their local broadcast station, on average 73% of the NFL viewers are choosing to watch Thursday's games on their local broadcast station. This comes as no surprise to us. Local audiences prefer to watch via a station they have a relationship with, with shoulder and ancillary programming that resonates and via a technology that has no delay and provides seamless delivery. The attractiveness of our platform is further demonstrated by our new agreement with former Microsoft CEO and LA Clippers owner, Steve Ballmer who is bringing the LA Clippers back to broadcast television to help reach audiences that the Clippers are currently not able to reach. Our number one LA station KTLA along with a number of our other California base stations will air 15 NBA games of the Clippers, exclusively, over the air of this season. We have built an unparalleled competitive moat around our economically resilient local advertising business. Over the last 2.5 decades, we've developed a team of more than 1,500 local sellers and â excuse me, our stations have cultivated over 40,000 SMB and advertiser relationships in the 116 local markets we serve reaching over 68% of America. On the local level there is no one in the TV industry with greater sales resources and consumer reach than Nexstar. This isn't something the larger AVOD or streaming companies can easily replicate as it requires both local scale and meaningful investment. While some pure-play streaming companies are now embarking on an effort to replicate our business model, ours has proven and consistently and currently delivering today, the results only a platform of our scale and our efficiency can deliver. As I previously mentioned, we are a significant beneficiary of record-setting political television ad spend, which is not dependent on the economy. Look at the last two election cycles and advertising revenues accounted for approximately political advertising revenue, which accounted for approximately 10% of our total net revenue on average. Our focused approach to optimizing political advertising opportunity and our scaled presence in our markets representing over 80% of contested races gives Nexstar a distinct competitive advantage in capturing leading shares of our spending. Third quarter political revenue increased 49% on a quarterly sequential basis and was up approximately 28% over pro forma Q3 of 2018. As I mentioned earlier, we are on track to deliver record midterm election year revenue in Q4. We have an efficient operating model and we pay close attention to operating expenses and our balance sheet with only 3.2 times net leverage is in great shape. Taken together these factors continue to set Nexstar apart from others in the media industry and other industries, and will enable us to offset any near-term challenges, while extending our strong long-term record of growth and shareholder value creation. Turning now to our distribution agreement renewals. We recently reached a comprehensive multiyear distribution agreement with Verizon FiOS to carry Nexstar local television stations in 10 markets and Nexstar's fast-growing national cable news network NewsNation in all Verizon markets. We remain in active negotiations with the remainder of our distribution partners with now slightly less than half of our total subscribers up for renewal before year-end. While we did experience a slight uptick in the sub attrition rate in the third quarter, we continue to be confident in our ability to grow our distribution revenues even in the phase of MVPD subscriber attribution, given the continued disparity between the percentage fees, the broadcasters get paid versus the continuation of our stations to total viewership and the fact that we also get paid when a consumer moves to a virtual MVPD service. Moreover our recent Litman research report found that 66% of TV households and 73% of adults aged 45 or older, representing more than half of the adult population, have a pay TV service, providing us with an excellent base of entrenched consumers. Before I hand the call over to Tom, I want to briefly touch on three organic growth prospects that we believe can lead to material value creation for Nexstar shareholders over the long term, including NewsNation, the CW Network and ATSC 3.0. Starting with NewsNation, we continue to make progress, building up the nation's only unbiased national news network. NewsNation now offers 17 hours of news programming per day and remains the fastest-growing cable news network in the most watched genre of cable television by appealing to the majority of the population looking for an unbiased source for news. According to a recent Gallo poll , over 40% of GenX and over 50% of millennials and Gen Z view themselves as independent politically and Nexstar is building a profitable and differentiated national news network to serve those audiences. We will be a 24/5 news network in Q2 of next year and we anticipate being a 24/7 cable news network by the end of 2024. We continue to enjoy valuable content synergies between NewsNation, our local stations and The Hill. In the months running up to the election, several of our local TV stations hosted the only televised debates for key US Senate races in Ohio, Georgia and Pennsylvania and governors races in Texas and Illinois. We leveraged this exclusive to Nexstar content on NewsNation to drive increased ratings and awareness for the network. Nexstar Digital also launched the Hill Fast Channel building on The Hill success as an essential agenda-assetting read for lawmakers, policymakers and influential digital consumers from Capitol Hill to Main Street. Moving on to the CW. On September 30, Nexstar closed its previously announced acquisition of a 75% ownership interest in The CW Network. This transaction is expected to create value for Nexstar shareholders by solidifying the company's revenue opportunities as the largest CW affiliate group, diversifying our content outside of news and establishing Nexstar as a participant in the advertising video-on-demand services via the CW app. Operationally, we're off to an excellent start. We appointed Dennis Miller to President of the network. And as many of you know prior to his appointment, Dennis served on the Nexstar Board for eight years and he's a seasoned television executive with a long-term record of success in our industry. He knows Nexstar and how we run our businesses and we are confident in his ability and focus to improve the CW ratings, revenue and profitability. The CW is also continuing to make personnel appointments that will support our vision and goal for reimagining the CW with a focus on entertaining and profitable programming, both on air and through the CW app. We also continue to make progress on the rollout of ATSC 3.0 and we are accelerating our discussions with potential technology and business partners for this service. We continue to believe the revenue opportunity for the applications of services using our spectrum could rival our retransmission revenues by the end of this decade. In summary Nexstar's consistently strong results and free cash flow generation remain one of our most powerful differentiators from our peers as well as other diversified media companies. We feel very good about our year-to-date results and what we see for the balance of the year. Our resilient local advertising business, our ability to continue to grow distribution revenues and a stellar political advertising year has enabled us to achieve our 2022 objectives despite market headwinds, the absence of Olympics in the quarter versus last year and an increasing interest rate environment. Said more plainly, we are pacing to over-deliver on our 2022 free cash flow estimates that are embedded in our 2022, 2023 guidance. We expect fourth quarter to benefit continuation of strong political advertising trends, which we discussed earlier, while 2023 we'll see distribution revenue upside from renewals of agreements representing more than half of our subscribers. Looking forward, we expect 2024 to benefit from another record year for political advertising, due to the presidential election combined with the benefit of another wave of 2023 distribution agreement renewals for approximately 40% of our subscribers. With that, let me turn the call over to Tom Carter for our operational review. Tom?
Tom Carter : Thanks Perry, and good morning everyone. We generated another quarter of strong operating performance with all-time high record third quarter net revenue of $1.27 billion, reflecting strong year-over-year increases in total advertising revenue, distribution and digital revenues. Total television advertising revenue growth of 18.8% was driven by record third quarter political advertising revenue, which more than offset declines in core advertising, we like other media companies saw. Our 7.6% year-over-year core television advertising revenue decline was primarily driven by double-digit rates of decline in national spot advertising, which represents approximately 30% of our core TV ad revenues. The absence of Olympic and political inventory displacement also affected the quarter. Mitigating the impact of the national advertising market was our local television advertising revenue, which represents approximately 70% of our core television ad revenues. Local television advertising declined just 2% year-over-year, despite significant inventory allocations towards political during the quarter. This is in line with the historical trend with local advertisers maintaining more consistent levels of advertising spending throughout economic cycles. In total, about half of our categories increased versus the prior year quarter, including our top-performing categories of drug stores/medication, auto, home repair, manufacturing, attorneys and entertainment. We're extremely pleased to see automotive our largest advertising category in terms of dollars spent returned to growth in the quarter increasing at a mid-single-digit percentage over Q3 of 2021. In addition, Nexstar's local sales initiatives continue to deliver healthy levels of new business and our sales teams generated new local television advertising and center program revenues of $36.1 million for the quarter, which was up 4% over the prior year. The key categories responsible for core advertising revenue decline were sports betting and gambling, which I'll talk more about in a minute, government services due to the marketing funds related to COVID-19 running out, insurance, direct response and medical health care. The sports betting and gaming category declined by a mid-single-digit millions of dollars year-over-year due to fewer state launches in the quarter, a general movement by larger sports betting operators of their advertising dollars to the national market and reduced spending in more established markets. Most impactful for the quarter, however, was the redirection by sports-betting and gaming companies of television advertising dollars to voter propositions to legalize online sports game gambling in California. If we include the political advertising dollars Nexstar received related to those propositions, our sports betting and gambling category would have been up. We remain cautiously optimistic about this category as states continue to legalize online sports betting. Ohio, which is a large state for us, comes online in January of 2023. Kansas came online in September of this year, and Massachusetts is expected in 2023 as well. Third quarter political advertising of $129.3 million was approximately 28% ahead of pro forma 2018 Q3 levels. Nexstar benefited from strong spending around key races and primary elections for Senate seats in Nevada, Ohio and Pennsylvania and Governor races in Illinois, Texas, Oregon, Rhode Island, Pennsylvania, New Mexico, Ohio and Nevada. As a percentage of total political advertising, PAC issue spending accounted for 59% of revenue and candidate spending represented 41% of revenue. Record third quarter distribution revenue rose 3.7% from the prior year quarter to approximately $642 million, reflecting distribution agreement renewals in 2021 on improved terms and annual rate escalators more than offsetting subscriber attrition. While we did experience a marginally faster rate of subscriber attrition during the quarter, year-over-year sub growth and our retransmission fees in virtual MVPDs and other direct-to-consumer services continue to offset MVPD decline. We also continue to have good visibility into our net distribution economics with only our ABC affiliate up at the end of this year. With approximately half of our subscribers renewing in the fourth quarter, we continue to expect a higher growth rate from this revenue source in 2023. But taking a step back for a minute, I wanted to provide some color on how our investors should think about our distribution revenues more generally. Nexstar generates distribution revenues from linear MVPDs like Comcast and Charter, virtual MVPDs like YouTube TV and Hulu, and other direct-to-consumer platforms like Paramount Plus and Peacock. For our linear MVPD relationships, Nexstar negotiates these contracts directly to the MVPDs for Carriage. This is where our scale really comes into play and matters. We are by far the largest local broadcaster and typically the number one or number two affiliate in the broadcast networks and our stations generated a significant portion of the viewership for the MVPD services. We negotiate these contracts with the MVPDs typically once every three years. At that time of the contract renewal, we have historically seen significant step-up in rates owing to the relatively higher percentage of viewership our content delivers compared to the relatively low share of fees paid to us by the MVPDs versus other content owners. We also typically have annual escalators in these contracts. So you will see usually year-over-year increases in distribution revenues, especially in years like 2023 when we have renegotiated distribution contracts with more than half of our subscribers by the end of this year. Separately, we negotiated agreements with networks to pay them affiliate fees that return a portion of the linear distribution revenues to them. With respect to the virtual MVPDs, the broadcast networks including the CW, which we now control negotiate carriage. So Nexstar has paid a distribution fee that is net of the implied affiliation fee. On an apples-to-apples basis for our big four affiliates, the net subscriber rates we received from the virtual MVPDs are about the same as the net revenue per sub rates after affiliation fees we generate from our linear MVPD relationships. Given our renewal cycle, we have a little more than half of our subscribers renewing in 2022, which will drive distribution revenue growth even with subscriber attrition in 2023. This growth will continue into 2024 as we'll be renewing approximately 40% of our subscribers at the end of 2023. So we feel good about our growth on this line item and for the next two years and beyond. Now moving back to the rest of our revenue line items. Q3 digital revenue increased 5.7% year-over-year to approximately $86 million. This increase was driven by strong year-over-year growth in our local digital advertising revenue and agency services business and a full quarter contribution from The Hill. Our top line growth and continued expense management drove record third quarter adjusted EBITDA of $489 million and free cash flow of $294 million. Nexstar generated 39% adjusted EBITDA margins and we have converted approximately 60% of adjusted EBITDA to free cash flow. And while we're executing well on our business, we continue to take a leadership role in supporting communities where we operate. On the journalism front Nexstar Media Inc. stations earned a Sigma Delta Chi Award from the Society of Professional Journalists and four National Edward R. Murrow Awards from the Radio Television Digital News Association, including recognition for Excellence in Innovation, Breaking News Coverage, Digital and Podcast. Every day our newsroom produced fact-based and unbiased content and Nexstar's high standards of journalistic integrity enable us to develop and maintain trusted relationships with our audiences and our communities. In summary our results reflect continued strong performance across key near-term growth areas, including distribution, political advertising, new local direct advertising, and digital with even more opportunities to drive growth ahead of us. And while we cannot control how the economic situation evolves in the coming months, we have a well-established playbook with very clear actions we can take to preserve our cash flows and drive continued progress against our long-term growth strategy. Looking ahead, we remain focused on what we can control, maximizing our growth opportunities, maintaining our capital structure, serving our customers and communities and delivering results for our shareholders. With that, it's my pleasure to turn the call over to Lee Ann for the remainder of the financial review and update. Lee Ann?
Lee Ann Gliha: Thank you, Tom, and good morning everyone. We have continued to build on our progress in Q3, executing on our strategy, delivering record results and returning significant capital to shareholders. Bob and Perry gave you most of the details on the revenue side, so I will jump to the expenses followed by some points of guidance on Nexstar's business and The CW Network. Together third quarter direct operating and SG&A expenses increased by $28 million or 4%, primarily as a result of higher variable costs related to higher revenues, increased programming and other costs related 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, as well as a full quarter of expenses from The Hill. As a percentage of net revenues our total expenses decline given our focus on controlling expense growth and significant political revenue growth. Our corporate expense was approximately $52.5 million including non-cash compensation of approximately $17.2 million, which grew due in part to new grants associated with the CEO's new contract and approximately $2.4 million of onetime expenses associated primarily with the acquisition of the CW and various corporate development activity. Third quarter CapEx was approximately $36.7 million. Again, CapEx was lower than expected, primarily due to delays in receiving equipment due to supply chain disruption. Third quarter total interest expense increased to approximately $89 million, lower than expected, as interest rates did not increase as much as the forward curve predicted at the time of our last earnings call. Cash interest expense was approximately $86 million and compared to $67 million last year, due primarily to increasing interest rates offset in part by debt repayments and lower spreads on a portion of our debt from our refinancing in Q2. Third quarter operating cash taxes were $90.5 million. We recorded $11 million in distributions from equity investments related to our 31% ownership in TV Food Network in the third quarter, which represents a 29% decrease over the prior year quarter. These interim distributions are primarily for tax payments and are due to lower operating income this year versus last year. Looking ahead, excluding the impact of the CW, we project corporate overhead exclusive of stock comp and transaction cost to be approximately $32 million in the fourth quarter and we expect corporate overhead around $130 million for the year. Non-cash comp is expected to be approximately $18 million for the fourth quarter and in the $62 million area for the full year, but will vary based on stock price and actual grants. For cash taxes, we used a 26.5% tax rate when calculating our estimated tax before onetime and other adjustments. We now expect that cash taxes will be around $336 million for the year before any tax benefit the losses that the CW attributable to Nexstar given current expectations for the business. We are currently projecting cash CapEx of more than $51 million for the fourth quarter to get to our target of $150 million for the year. As equipment has been delayed due to supply chain issues, CapEx spend has been pushed into the fourth quarter. As a reminder, we typically spend more CapEx and even number to political years than non-political years. We expect Nexstar's cash interest expense to approximate $103 million for the fourth quarter and $326 million for the full year reflecting a continued increasing interest rate environment, net of our recent refinancing and expectations for debt repayment. Turning to the balance sheet. Nexstar's outstanding debt as of September 30, 2020 was $7.18 billion. Total net debt amounted to approximately $7 billion at quarter end, down from $7.2 billion as of December 31, 2021. Net debt for first lien covenant purposes is $4.2 billion. Our first lien covenant ratio at September 30, 2022 was 1.92 times, which is well below our first lien and only covenant of 4.25 times. Our total net leverage at quarter end was 3.18 times, down from 3.7 times at December 31, 2021 and 3.32 times in Q2. Also expected to positively impact our fourth quarter is the anticipated sale of one of our remaining real estate properties in Chicago for net cash proceeds of approximately $155 million. Transaction is expected to close later this month. We expect leverage to further decline by the end of 2022, due to a combination of allocating a portion of our free cash flow to reduce indebtedness, primarily from mandatory amortization payments and increasing EBITDA given our outlook for the year. As a reminder, the CW will be designated as an unrestricted subsidiary under our debt agreement and therefore will have no impact on our leverage ratio. The financial results of the CW will be consolidated with Nexstar's results in accordance with GAAP. We also intend to provide investors with supplemental financial presentation including non-GAAP measures for net revenue, adjusted EBITDA and free cash flow that reflect: one, Nexstar's operations excluding the CW and two, the CW operations on a standalone basis. So going forward with respect to our guidance, we expect to continue to report free cash flow guidance for the business excluding the investment in the CW, which I said will be separately reported until we bring it back in. In particular, keeping in mind, related to our Q4 and overall financial outlook. As we stated on our August investor call, based on our plans, we believe we can bring the CW to profitability by 2025 and we expect to invest a low nine-figure amount over this three-year period as we implement our plan. Given the network's existing programming commitments for the 2022, 2023 broadcast season, the majority of these losses will be weighted towards the fourth quarter of 2022 and in each quarter of 2023. Since there was no upfront consideration for us to acquire the network, we view this amount as a proxy for purchase price or an investment made over time, rather than as an ongoing drag on cash flow. We anticipate the CW will generate revenue just under $70 million in the fourth quarter with a comparable negative amount of adjusted EBITDA. In addition, as you have seen in the media, we are executing on our synergies and getting the right people in place there. So there will be an incremental low eight-figure amount of restructuring charges related to the CW in the quarter. Nexstar has an attributable interest of 75% in these figures and will be able to offset a portion of the losses against taxes payable at Nexstar. As we move into a more uncertain economic environment, we will reap the benefit of our disciplined financial management. We continue to focus on the DNA of Nexstar, that is free cash flow generation and we are confident in our ability to navigate proficiently through no matter what market conditions appear. At this time we remain well positioned to deliver strong growth in 2022 and continue to generate returns for our shareholders in the future. That concludes the financial review for the call. Operator, please open the line for questions.
Operator: And we will begin with Dan Kurnos with The Benchmark Company.
Dan Kurnos: Great. Thanks. Good morning. Three, if I can, I'll keep them quick. We'll start with the easy one. You guys are the only broadcaster to report above guide on political. We had heard from everyone else that there were geographic share shift. Obviously, you guys have done a great job and gotten a lot of very positive press around the exclusivity of the debate. And I don't know if you're getting incremental dollars from that. But just any incremental thoughts you have around why you guys outperformed on political?
Perry Sook: Well, I think Dan, if you remember back to 2016, we had a similar situation, where we were the only company that achieved its political guidance for the year. I think it's because we take a very disciplined approach to our forecast model and certainly as it relates to political, the broadcast leadership team and our FP&A folks do a very deep dive into each race, each ballot initiative, how much money has been raised, who the candidates are, what happened the last time this race was contested. And there's a lot of work that goes into it. We just don't apply a factor to the past and come up with an estimate. I'm not saying that that's what other folks do. But there is a lot of work. I have a book that is three inches thick in my office that is our political buildup for 2022, and we'll have a similar one for 2024. So I think it's doing the work, doing the research and obviously staying close to your business.
Dan Kurnos: All right. Fair enough, Perry. Tom, thanks for the education lesson on retrans. Just to be clear, as we look out, it sounds like no change to your net retrans forecast and I'm wondering, if there's anything underlying. You guys obviously, have scale in the MVPD side. I'm wondering, if you get some incremental benefits on the reverse side to that might help keep the blended average of linear and net closer to maybe the peer group?
Tom Carter: Well, as I think you've heard us say many times, scale does matter in terms of negotiations on any one of a number of fronts. I'm not going to comment specifically, with regard to any specific network or MVPD. But with regard to 2023, no change in our expectations at this time. We're evaluating 2023 going forward. Obviously, we have a number of subscriber agreements with MVPDs that are up between now and year-end. Also as we mentioned before, we are seeing a slight uptick in attrition. All of that goes into the calculus with regard to 2023, but we're not changing our 2023 guidance at this point. As you know, we always give reiterated guidance and updated guidance in the first quarter of the year and we'll be doing that on a more informed basis, as we move through the negotiation cycle here and we have more data with regard to subscriber attrition trends.
Dan Kurnos: Got it. And that was kind of my last question.
Tom Carter: The only thing I would say, as Lee Ann mentioned, we are on track to over-deliver on 2022 free cash flow. So in terms of the 2022 2023 guidance we're in a really good spot.
Dan Kurnos: That's really, what I was just going to get to at the end. I mean we had -- if we exclude, the blackout and I think mission is still dark, but small. If we exclude the blackouts and the CW we're, do you have any view on blended 2022 2023?
Perry Sook: Are you talking retrans or free cash flow?
Dan Kurnos: Free cash.
Perry Sook: Well, the biggest impact is going to be interest rates I think, right? We will exceed our 2022 free cash flow projections that go into the guide. And that's despite a 300 basis point increase in interest. We're still gathering information because it is a free cash flow guide. We feel very good operationally, but we want yet to get a handle on interest rates and particularly interest rate increases for next year, that could take a bite out of our free cash flow. But that is the primary element I think that would determine any deviation from our established guide.
Dan Kurnos: Got it. Perfect. Thanks very much. Appreciate the color, guys.
Operator: Our next question will come from Craig Huber with Huber Research Partners.
Craig Huber: Thank you. My first question, retrans subs, what is -- if you could just quantify for us what is the percent change year-over-year for your retrans? Obviously, it got a little bit worse here, but what you usually talk about on a trailing 12-month basis.
Tom Carter: Well, as I mentioned the way that we calculate it includes MVPDs, virtual MVPD's, the diginet and the streamers that has increased approximately 1% since the June quarter end.
Craig Huber: And year-over-year, what is it versus a year ago when we roll it all up?
Tom Carter: Yes.
Craig Huber: Okay. And then talk a little bit more about political advertising. Political advertising for yourself and your peers generally it's come in lower than people expecting third quarter the fourth quarter is looking like you're -- what exactly is going on there from your perspective? I mean people have talked about shifting to other markets, overall fundraising lower than expected? And when did you maybe perhaps start to see political come in lighter than maybe you originally were thinking?
Perry Sook: Well, I can't speak to our peers. I can speak to the numbers that we gave you. And we have 103% of what we had on the books at election day of 2020. I will tell you that particularly the PAC money as in a presidential year, the presidential money will move around based on races falling in or out of a competitive nature. But as we sit right now, we've got more money on the books for 2022 than we did at this time for 2020. Now, we had a two-month runoff election in Georgia -- actually two of them in 2020. And depending on who you talk to, there will either be or not be a runoff election in Georgia after tonight. So, -- but again we gave you our political number. It's slightly over $500 million for the year absent any runoff activity. And again we follow this closely and we know that when races become non-competitive that money PAC money and other money will be shifted to other markets. And we've been beneficiary of that in some and it's caused us to come up short of our expectations in a particular state. But overall again we are at and slightly ahead of our political guidance embedded in our guide.
Craig Huber: My other question guys your comment earlier about LA Clippers in Los Angeles 15 NBA games as set you're going to show there on your guess KTLA TV station or assuming that goes well and I assume it will be. Are you hoping to be able to do that elsewhere? And what does that sort of mean for the regional sports networks? Is that where those games came from?
Perry Sook: It is where the games came from and these will be 15 games that will be exclusive over-the-air. And it was done in consultation with and ultimately consent with the RSN. The RSN will have the rest of these games. These are not simulcast; these are exclusive over-the-air. And I think Steve Balmer is a well-respected owner in the NBA and we have subsequent had conversations with two other owners in the NBA about creating this similar type of, I guess, you would call kind of a welcome mat package right that could introduce to the over-the-air audience that may not receive -- that does not receive an RSN, a package of games that might have an interest in perhaps an RSN package or perhaps in a ticket package. So, I do think you'll see more of this as time goes on and we have been engaged in some early discussions with other teams in markets where we have CW, MyNetwork, or independent stations that could have the bandwidth to accommodate a slate of games.
Craig Huber: And then my final question guys this is talk in the trade press about NBC potentially pulling their 10:00 P.M. entertainment programming and stuff and turn over that hour to the local affiliates stuff. If that does happen what do you think that means for your financials? Overall, would it be neutral good bad? How do you view that whole development potentially?
Perry Sook: It would be good. We'll make more money with an hour of news at 10 than we do with an hour of network programming where A, we have all the inventory and B, I would expect if NBC goes from 89 hours a week of programmed -- network program time to 81 or 82 hours a week of network program time that we paid them less. So, -- but all around, listen, we have a number of FOX and CW and MyNetwork stations that program news is in that last hour of prime and they are extremely profitable.
Craig Huber: Very good. Thank you.
Operator: Now we will move to a question from Jim Goss with Barrington Research.
Jim Goss: Okay. Thanks. A couple of things, first on the CW, I was wondering if you could characterize the timeframe of the program and shift away from the Paramount and WBD content. And how big a share they might have, when you get to your end game?
Lee Ann Gliha: So this is Lee Ann. The programming for the CW is in place for the 2022, 2023 broadcast season, so that extends through the end of August sort of September timeframe of next year. You'll see that programming that's consistent with what the program we spent historically on the air, through that timeframe. During this -- over the course of the next year, we're really working to develop our slates which will then come online in the 2023, 2024 broadcast season. We will have some carryover commitment for the CBS and WBD programming in that year, but it's minimal at that point.
Perry Sook: Yeah. Warner's and Paramount are not precluded from selling us programming. It's just going to have to be a financial deal that we like. And there may be a couple of shows that distinguish themselves this year that we want to roll over into next year. I can tell you that Dennis Miller hired a very gifted program executive Brad Schwartz and Brad Schwartz on a much smaller budget, than we've given them at the CW was able to find and develop a show called is Schitt's Creek which we felt the -- your job is easy, just go find a couple more of those and we'll be in fine shape at the CW. But he has a very creative mind, very creative deal making and has a sharp eye for talent. So I like the direction that we're headed. And I think you'll like the shows that we think will appeal to a broader audience, more of a mix of scripted and unscripted than we have today. But I'm very excited at the progress in the early days.
Jim Goss: All right. Thanks. And the one other thing I was going to ask about NewsNation as we get to the end of the political season, is this a competitive benefit to you moving into sort of a post-election cycle, or do you think political will still have an important role on NewsNation as you go through the years?
Perry Sook: Well, obviously in times of a big news cycle all cable news networkâs benefit. And we certainly saw that and are seeing that. But we're still in a build mode here. So we're gaining share of audience and gaining share of revenues as we build out here. So our job is to introduce likable, watchable new and in many cases well-known talent to the network as we expand our program schedule. But I will tell you that the ability to take what the broadcast division developed in these debates in Ohio and Pennsylvania and Texas and Illinois and Georgia and being able to stream those on our NewsNation app as well as broadcast three of them nationwide on the linear cable channel gave us huge credibility in the political arena. We did 50 debates as a company. And that's across the country. No other broadcaster can even come close to that. So I think that in Washington people see we are committed to the political process. And airing these debates unvarnished, we're not going to tell you what I think we're going to put them out there and let you determine what you want to think. And I think they have been and will be impactful in this election cycle. So I -- my hope is that that will continue to elevate our stature as a place to go for as an honest broker of information that will show both sides, be fair to both sides and let people determine what they think out with an unvarnished opinion on it.
Jim Goss: I think that was very smart way to end the discussion. So thatâs all I have. Thank you very much.
Operator: Now, we'll hear from Aaron Watts with Deutsche Bank.
Aaron Watts: Hi, everyone. Thanks for having me on. A couple of questions. First, nice to see auto and positive territory again. As best you can tell with the political crowd out has that momentum continued in the fourth quarter. And is it coming from the dealer level, the OEMs, et cetera? Any color there would be helpful.
Perry Sook: Well, it's pretty much broad-based. We're seeing it across all three tiers with both manufacturers and individual dealer spending being ahead of the prior year. So it's all supply chain based as they have more vehicles to sell there is still pent-up demand. And so automotive being up 5% that's a great pattern I think. And ultimately I think as it gains momentum as more units are delivered to dealers this could be a tailwind for us in 2023 in terms of our core advertising.
Aaron Watts: Okay, good. And then Lee Ann just two quick ones for you. But I believe your cap stack is around 60% floating versus 6% now, correct me if I'm wrong. But do you have any rate hedges in place? And then finally as you think about the CW, once you're able to achieve breakeven there of sustaining would the plan be to sold into the restricted group with the TV station portfolio, or is it more -- most likely to remain separate for the duration?
Lee Ann Gliha: Yeah. So on the first point, yeah, we're about 60%, little more than 60% floating. We don't have any hedges in place. The low interest rate history has really impacted positively the business being more floating than fixed. So we don't have that in place for -- from this place forward. The other thing on the CW in an unrestricted subsidiary I think we'll look to probably bring that back in at some point in the future once we get it to profitability.
Aaron Watts: Okay, great. Thanks very much.
Operator: We'll now take a question from Steven Cahall with Wells Fargo.
Steven Cahall: Thanks. So I just wanted to go back to guidance. I was a little unclear there. In my memory you typically give numerical free cash flow guidance most quarters. I think pretty much every quarter except COVID. So just to be clear at the moment, are you reiterating the free cash flow guidance that you've given before excluding the CW. And same question on retrans, because you've given a quantitative I think mid-teens retrans guidance for 2023. So should we assume that is reiterated as well? Thank you.
Lee Ann Gliha: So I think with respect to our free cash flow guidance, I think what you heard Perry say that we're on track to overachieve the free cash flow that we had in the 2022, 2023 guidance for the 2022 period. So that's what we are stating here today.
Tom Carter: And with regard to retrans, there is no change to our guidance for 2023 at this time. We'll be reevaluating that between now and year-end as we get more information on these contract renewals and more information more in-depth information on subscriber trends.
Steven Cahall: Got you. And then, Tom just with local down 2% in the quarter, including the crowd out, is your sense right now that you think core next year, kind of, any sense between flat up down based on how that's trending?
Perry Sook: Let me take a stab at that. I think what we're seeingâ¦
Steven Cahall: Sure.
Perry Sook: And it's pretty much across the board in broadcast and cable networks and national spot national digital as well as direct response. National advertisers are demonstrating some caution and some pullback in anticipation of consumer weakness. However, local where the business owners look the customer in the eye at the checkout counter has been much more resilient because locally we are not seeing consumer weakness. The consumer is still spending. So I think that what you'll see obviously fourth quarter with a record level of political advertising. But in the first eight weeks of the quarter or six weeks of the quarter there will be some crowd out there. And again, we're right in the middle of putting together our budgets and doing our deep dive on categories and all of that kind of stuff. But operationally, we don't see a huge change in 2023 from what we've been delivering in 2022. The biggest question I think is interest rates. And we'll have more -- we'll share more information when we are confident that we have good information to share.
Steven Cahall: Thanks, Perry. And maybe a last one just on what you talked about with ATSC 3.0 being as big as it could be by the end of the decade. Do you at this point have any beta trials or test cases in terms of like business-to-business data casting? I would love an update on any work going on there? Thanks.
Perry Sook: I think you can expect to see an announcement sometime from us between now and the end of the first quarter on that.
Steven Cahall: Thank you.
Operator: Moving on to a question from Barton Crockett with Rosenblatt Securities. And Barton, your line is open, you might be muted.
Barton Crockett: Okay. Sorry, can you hear me now?
Operator: Yes.
Barton Crockett: Okay. Sorry, about that. I wanted to ask a couple of questions about the, kind of, near-term numbers to make sure I understand what you're seeing and what you're saying. In terms of the subscriber churn, you said one percentage point, I assume additional kind of deceleration. And I think you were talking to around a 2% kind of decline in subs. So I think that's going to about 3%. So I want to confirm that I'm hearing those numbers in the ballpark of correct. So that's one. And then secondarily on ad pacing. You talked about the trends through the September quarter. I'm just wondering if you could talk about what you're seeing in core here in the -- I mean here in the December quarter what you're seeing in core particularly after the political maybe November, December what you're seeing in terms of pacing?
Tom Carter: I'll take the first one and then I'll let Perry handle the second. What we said on the second quarter call in August was we had a low single-digit attrition rate for all subscribers are all areas that we're being paid for, again, MVPDs, virtual MVPDs NewsNation Diginet and the streamers. And that that's the amount that has increased by approximately 100 basis points. So it would be more along the lines of low to mid-single-digits as opposed to low single digits. Is that helpful?
Barton Crockett: That's helpful. Thanks for that. Care splitting it. It's important right now. I appreciate that.
Perry Sook: Yeah. I would just say, we have to start with the fact that we announced this morning, we have doubled the political revenue on the books in the fourth quarter than we did in the third quarter. So obviously, there will be displacement in core that will cause core revenue comparisons to the prior year to be lower than the third quarter. But you should expect that in the fourth quarter with that level of political advertising. But thematically, I don't think we see much difference in the categories that Tom reported on that are up and down. It's pretty much the same story in fourth quarter. And it will be a slightly greater order of magnitude given that we had twice the political revenue on the books than we did in â with what we reported this morning for the third quarter.
Barton Crockett: But in terms of after political so from here forward, do you any sense of the pacings are they still on track still the same?
Perry Sook: We don't usually give pacing on a month-by-month basis, but yeah, December pacing better than October absolutely in core.
Barton Crockett: Okay. All right. Great. Thank you.
Operator: Next up, we have Nick Zangler with Stephens.
Nick Zangler: Yes. Hey, guys. Congrats on the quarter here. You matched the political ad spend or ad revenue from the prior election and just coming off the Scripps call, they had suggested that the total political ad spend is coming in around $8 billion for the year. And I don't know the source, but just curious, if you agree or disagree with that statement, because obviously if true, it would suggest that you guys were able to post a flat result relative to F 2020 versus a material decline for the overall market. And then just relatedly, obviously, given your results and commentary or the results and commentary from others it would suggest that, there were some pretty weak ad spend results in some states. But again, given your result, it would imply that maybe some states experienced pretty strong growth above and beyond what they did in 2020. So just wondering, if you saw that as well?
Perry Sook: Well, yeah, I mean we don't look at the macro other than our macro. So in states we â I cannot opine on Arizona political, because we don't have a state there â station there. I will tell you that the number one billing state for us or station right now is in Nevada, a single station will build more political revenue there than any other in our company. And that's because of obviously a very contested Senate race there. But states that were good for us, I think you heard Tom say, Ohio, Pennsylvania, Nevada, California and California had all kinds of things going on, the sports betting referendum as well as candidate races up and down the dial. We had more political in Texas than I think we anticipated given the governor's race and some of the house races that are purple at this point, and turning blue to red particularly in South Texas where we have a number of stations. So this happens, right? So that money will move around to support candidates when races become competitive. When they fall out of being a competitive race or outside of the margin of air, that money will go somewhere else. You'll see the same thing in 2024 once the presidential candidates are chosen for each party that they -- that money will follow the competitive states. If the state falls out of being competitive that money will move -- will drive up immediately. So it's the fact that we reach literally 68% of the country with our broadcast signals and have over 80% of all competitive races. I think that's one of the reasons and the fact that we really do a deep dive into forecasting and updating our forecast, I think, that's why you see our political performance where it is. And so -- and it's interesting. We have more money on the books today, as I said earlier, for 2022 than we had on the books this day, election day in 2020. We had a very important runoff in Georgia that was going to determine control of the Senate, two races there, as well as two runoffs going on there. And they went on for two months. If there is a runoff in Georgia it will be for one month. And we -- our stations are in Savannah, Augusta and Columbus. We're not in Atlanta. So it will have incremental impact if there is another race coming on, a runoff race. But again to be literally within $20 million of 2020 total for an off year or mid-year election cycle, is something we would call heroic, I think, in terms of the performance. And my compliments to our broadcast management team as well as our station and sales managers for maximizing this opportunity.
Nick Zangler: Yes. No, I totally agree. Do you think that broadcast in totality was a beneficiary of any potential shifts out from outside channels like -- do you think search and social media ad spend was diverted and maybe into broadcast, can you see that or feel that?
Perry Sook: No. It's the story that gets sold every year and broadcast every year continues to take the lion's share of all political dollars spent. We'll do, probably -- it will be less than $20 million in political revenue across all our digital platforms and that's primarily get fundraising. It's not -- I think that the Internet has been seen as a fairly effective fundraising mechanism, but not necessarily a great get out the boat mechanism. So the politicians, time and again, prove that local TV works. And if you -- and that's as close to a direct response, if you spend the money and get elected it's kind of an affirmation that the system works.
Nick Zangler : Got it. Last one for me. That conversion that you talked about from vMVPDs. Obviously, that results in a negative impact to retrans fees or retrans revenue even though the profitability is unchanged I get that. But just I'm wondering if you - how should we think about the embedded impact of this transition within retrans fees, as we push forward and you continue to have fallout from the linear MVPDs into the vMVPDs. Is there like a -- is there like a negative 1% or negative 2% embedded headwind in your retrans growth because of that impact? Again, I understand the profitability is unchanged, but just on the top line there just so I understand that. Thanks.
Tom Carter : We -- I haven't done that level of detail or I'm not in a position to comment with regard to the specific math on retrans revenue. But you are correct, it will affect retrans revenue, but will not affect our contribution from the distribution ecosystem from that perspective.
Lee Ann Gliha : Yes. And just to put a finer point on it, I mean, it's less than 10% of our retrans revenue is coming from that source. So it's a small number.
Nick Zangler : Got it. All right. Very helpful. Thanks guys.
Operator: Ladies and gentlemen, this will conclude your question-and-answer session. I'll turn the call back over to Perry for closing remarks.
Perry Sook : Thank you very much and thank you all for joining us today. Underpinning our performance this quarter and every quarter is our strong financial framework and the cash-generative nature of our business, which has enabled Nexstar to consistently deliver prodigious levels of free cash flow. Looking ahead, we continue to execute against our long-term strategies taking the necessary actions and making the required investments to shape the future of Nexstar, while delivering long-term growth and outsized returns to our shareholders. Thanks again for joining us today. We look forward to speaking to you again next February, when we report on our fourth quarter results. Have a great afternoon.
Operator: Ladies and gentlemen, this does conclude your conference for today. Thank you for your participation. You may now disconnect.
