Nexstar Media Group Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 27, 2025

There are 11 speakers on the call.

Operator

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

Speaker 1

Thank you, Shamali, and good morning, everyone. Thank you for joining Nexstar's fourth quarter conference call. Let me read the safe harbor language and then we'll get right

Speaker 2

into the call. All statements and comments made by management during today's call other than statements of historical fact may be deemed forward looking statements for purposes of the Private Securities Litigation Reform Act

Speaker 1

of 1995. Nexstar cautions that these forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those reflected by the forward looking statements made during today's call. For additional details on these risks and uncertainties, please see Nexstar's annual report on Form 10 K for the year ended 12/31/2023, as filed with the U. S. Securities and Exchange Commission and Nexstar's subsequent public filings with the SEC.

Speaker 1

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 Founder, Chairman and Chief Executive Officer, Perry Sook. Perry, please go ahead.

Speaker 3

And Leon Liha, our Chief Financial Officer. I'll start with a summary of recent highlights followed by Mike's operations review and then Leha's financial review. Our fourth quarter financial results mark a strong finish to another successful year for Nexstar in which we delivered $5,400,000,000 in total net revenue, the highest in our company's twenty eight year history. Our record fourth quarter and full year top line performance were driven by strong election year political advertising, highlighting the effectiveness of local television broadcasting and our presence in nearly 85% of the contested election markets across the country. In addition, we continue to grow distribution revenue, a testament to our position as the largest owner of local broadcast television stations carrying the most watched programming.

Speaker 3

For the full year, Nexstar generated $2,000,000,000 of adjusted EBITDA and $1,200,000,000 of adjusted free cash flow. We returned $820,000,000 or 68% of adjusted free cash flow to shareholders through share repurchases and dividends, reducing our shares outstanding by nearly 9% during the year and by one third over the last five years. Another $327,000,000 was allocated toward debt reduction resulting in record low net leverage of 2.91 times at year end, a historic low for the company, which positions our balance sheet well should there be any regulatory relief on the ownership front. In January, we announced the twelfth consecutive annual increase in the quarterly cash dividend underscoring the durability of our cash flows and reflecting a near 5% yield placing Nexstar in the ninety fourth percentile of all S and P 400 companies. The continued strength and consistency of our financial results and our shareholder returns in the face of what remains a dynamic marketplace environment highlights the value of our business model and the advantages of our unique competitive positioning as America's largest local television broadcaster.

Speaker 3

Broadcast television is the foundation for every multichannel pay TV service and every political campaign. And over the past year, the landscape has evolved just as we had anticipated. To start, the industry has made solid strides in adopting more financially sustainable models, including the rebundling of DTC products into Pay TV packages and the introduction of new value price skinny bundles, including the broadcast stations. At the same time, other major media companies have doubled down on broadcast, recognizing its unmatched viewership and audience reach, while making the smart decision to scale back underperforming cable networks. Estimates from leading data aggregators like S and P Global and Wall Street Analysts indicate that subscriber trends are poised for improvement.

Speaker 3

We've already seen early signs of that with Charter's commentary regarding their new video packaging. Above all, broadcast continues to be the gold standard for sports and news programming. While much was made of the two Christmas games that aired on Netflix, the ratings were 17% lower than the NFL matchups that aired on CBS and Fox the prior year, despite having the star power of Beyonce at halftime. And over at the NBA, the five game Christmas lineup on ABC and ESPN saw an 84% increase in ratings from 2023, aided by all five games being available on ABC versus only two the prior year. Closer to home, we saw the phenomenal launch of the twenty twenty five NASCAR Xfinity Series Racing on the CW Broadcast Network in Daytona on February, where we achieved a total audience of 1,800,000 viewers, a 93% improvement from last year when the race aired on FS1.

Speaker 3

And we repeated the success our second week in Atlanta generating an audience of over 1,300,000 viewers, the best performance for the Atlanta race in over eight years. That's the power of broadcast. And with traditional media companies owning 90 plus percent of the major sports rights, it's clear that broadcast remains the best way to reach and engage the largest audiences. While sports has dominated much of the conversation about the benefits of broadcast, we were all recently reminded about the importance of local news. As communities across Florida and North Carolina faced devastating hurricanes last September and residents in the Greater Los Angeles area battled destructive wildfires in January, Nexstar's local stations provided vital information, updates and support to those in need.

Speaker 3

In each case, our stations such as KTLA in Los Angeles, WFLA in Tampa, St. Petersburg, Florida and WSPA in Spartanburg, Asheville were there every step of the way demonstrating the power of local journalism to inform, connect and offer aid during some of the most challenging moments experienced by our viewers. The impact of these events on local communities made national news and we are proud of the crucial role that NewsNation played in delivering comprehensive coverage of these events to audiences all across America. Before reviewing some of the key achievements across our businesses in fiscal twenty twenty four, I would like to briefly address the potential for deregulation. The excitement around M and A opportunities is palpable and we're actively working with lawmakers through the NAB and our in house government relations team to create more equitable broadcast ownership rules.

Speaker 3

This will help level the playing field, allow broadcasters to continue to serve the local communities with local journalism and also to compete effectively with Big Tech and Big Media. We have a proven playbook for executing accretive value driven M and A, one we did on a smaller scale in January when we closed on the acquisition of WBNX TV in Cleveland, Ohio. This This acquisition created a new duopoly with our existing Fox affiliate in the nineteenth largest television market and WBNX will become the CW affiliate for Cleveland in September of this year generating further synergies for Nexstar. As M and A has been the key driving factor of our stock over the last fifteen years and as it becomes more of a possibility with the current FCC and the potential for deregulation, we look forward to further prepare our balance sheet for these kinds of opportunities and Leanne will provide more color on that later in the call. In 2024, NewsNation firmly established itself as a formidable player in the cable news landscape with top tier talent and reliable unbiased reporting.

Speaker 3

Today, NewsNation is a 20 fourseven news network fully distributed across all platforms with nationwide distribution comparable to or better than the other more established cable news networks. We've also achieved major news election for President Trump. This underscores not only the depth and expertise of our data analysts, but it also evidences the trust that our peers and our viewers place in our reporting. Our joint editorial relationship with The Hill has further strengthened our content offering, providing insightful perspectives on key issues. In terms of performance, since December of twenty twenty four, NewsNation has out delivered MSNBC seventeen times and CNN twice in the 02/1954 demo, proving that our approach is resonating with viewers who are looking for a fresh and balanced take on the news.

Speaker 3

The CW's transformation into a top tier broadcast network continued in 2024, driven by our strategy focused on high quality entertainment, unscripted live events and sports programming. WWE and NASCAR played key roles in reshaping the network's identity. On October, we drew 4,700,000 viewers across NASCAR, ACC and Pac-twelve Football in one afternoon. NASCAR, in particular, helped attract 20 new advertisers to The CW so far. These accomplishments highlight the network's ability to drive both audience engagement and value advertising partnerships, supporting our goals for continued growth and profitability.

Speaker 3

In 2025, approximately 40% of the programming hours delivered by The CW Network will be live sports. Turning to ATSC three point zero, in January 2025, we took a significant step toward harnessing the power and potential of ATSC three point zero with the announcement of the EdgeBeam Wireless Consortium, a new joint venture consolidating our prior joint ventures into one entity among Nexstar, The E. W. Scripps Company, Gray Media and Sinclair. This collaboration will enable us to deliver wireless data via ATSC three point zero transmission to businesses across the nation.

Speaker 3

In total, EdgeBeam wireless represents spectrum covering over 97% of The Continental U. S. And over 7,000,000,000 megahertz pops. In addition, we're happy to report that the new joint venture did sign its first paying customer last year in the digital signage space, demonstrating initial proof of concept. Looking ahead, we are energized by the significant prospects before us and we remain laser focused on executing on our 2025 objectives, which include renewing distribution contracts covering approximately 60% of our subscriber base, driving the CW further toward profitability and pursuing deregulation.

Speaker 3

With that, we are providing adjusted EBITDA guidance for 2025 in the range of $1,500,000,000 to $1,595,000,000 Mike and Leanne will provide more detail on that later in the call. Given our record 2024 revenue and our consistently strong financial results and outlook, especially in light of a dislocated broader media environment, you should be able to see how Nexstar's unique positioning is increasingly able to bend the curve in our favor. We have a massive scaled portfolio of broadcast assets unlike any other. Our position as a top three affiliate group for each of the big four broadcast networks makes us a key partner for the networks and for distributors. Owning the CW network allows us to control our own destiny by boosting both our owned and operated CW affiliate stations as well as the network profitability.

Speaker 3

Additionally, investments NewsNation and ATSC three point zero offer significant opportunities to deliver outsized growth and create outsized value going forward. Together, our assets generate consistently strong free cash flow, which we've used to create the clean balance sheet that we have today and to return capital to shareholders equal to 16% of our market cap in 2024. We invite you to watch and in fact join as we continue to bend the curve in our favor in 2025 and beyond. With all of that said, let me now turn the call over to Mike Beard. Mike?

Speaker 2

Thank you, Perry, and good morning, everyone. Nexstar delivered record fourth quarter net revenue of $1,500,000,000 up 14% compared to the prior year, primarily reflecting growth in advertising revenue due to strong election year political advertising as well as continued growth in distribution revenue. Record fourth quarter distribution revenue of $714,000,000 increased $10,000,000 or 1.4% over the comparable prior year quarter. Distribution revenue growth primarily reflects the benefit of distribution contract renewals in 2023 on terms favorable to the company, annual rate escalators, growth in vMVPD subscribers, the addition of CW affiliations on certain of our stations and the return of partner stations on one MVPD in January, which more than offset MVPD subscriber attrition. In January, Nexstar and our partner stations reached agreement with NBC to renew our affiliations in 33 markets.

Speaker 2

And as previously announced, we completed our CBS affiliation renewal in mid twenty twenty four. We view our relationships with the networks as symbiotic. The broadcast affiliate model provides significant advantages to the networks by reaching the largest audience for their programming, extending coverage to both pay TV households and over the air homes, which they cannot do on their own. Major sports, including the NFL, are committed to serving the broadcast audience sorry, the broadest audience possible to drive fan engagement. So that means a commitment to broadcast television, which provides 14% additional reach over the pay TV ecosystem alone, reaching 100% of television households.

Speaker 2

In addition, with networks only providing two to twelve hours of content daily, affiliates provide the other twelve to twenty two hours of programming through our highly rated local news and other local and syndicated programming, which helps increase overall viewership by offering a more complete product for our viewers. In 2025, we expect both gross and net distribution revenue to be relatively flat with twenty twenty four's record levels. With a very modest number of subscribers renewed in 2024, we expect the annual rate escalators in our contracts to be offset by continued subscriber attrition, although we remain optimistic that subscriber trends will improve as we move deeper into the year. However, later this year, we have approximately 60% of our subscriber base up for renewal, which we expect to benefit distribution revenue beginning in the first quarter of twenty twenty six. Fourth quarter advertising revenue of $758,000,000 increased $173,000,000 or 29.6% over the comparable prior year quarter reflecting a $223,000,000 year over year increase in election year political advertising to $254,000,000 which more than offset a $51,000,000 year over year reduction in non political advertising revenue or approximately 9% due to market softness and political displacement, which we estimate accounted for roughly half that reduction.

Speaker 2

In the twenty twenty four election year, broadcast television proved to be one of the few media to see growth with the overall market expanding from $7,960,000,000 in 2020 to September Specifically, according to estimates from Ad Impact, TV revenue rose from $4,460,000,000 to $4,530,000,000 Nexstar maintained a solid 13% market share of all television political advertising spending, generating $491,000,000 in political revenue, an increase over the $479,000,000 dollars we had previously reported through Election Day in 2020. Notably, the absence of the Georgia runoff election, which had been a significant driver in 2020 resulted in a slight dip from our record breaking political revenue in that cycle. Nevertheless, Nexstar remains well positioned for continued growth and we're confident in our ability to capture a larger share of political ad dollars in future elections. Looking ahead to the first quarter, non political advertising is currently forecast to be down in the low to mid single digits on a year over year basis, a sequential improvement over both Q4 twenty twenty four on an ad reported on an as reported basis and also when adjusting for the estimated impact of political displacement. While we continue to be impacted by a challenging television advertising market, including weakness in insurance advertising due to the recent natural disasters in Q4 and Q1 and continued weakness in automotive advertising, we are seeing sequential improvement both in local and national advertising.

Speaker 2

On the local side, the rate of local advertising decline is improving in Q1 due to increased revenue related to the Super Bowl on Fox featuring the Kansas City Chiefs, a market where we have the Fox affiliated station and double digit year over year growth in digital revenue. On the national side, the rate of national advertising decline improved primarily due to ratings and associated revenue from our new slate of programming. For the year, non political advertising is expected to be slightly up as weakness in television advertising is expected to be offset by strong performance of The CW due to our new slate of programming featuring WWE NXT and NASCAR Xfinity Racing and local digital revenue growth as we aggressively focus on utilizing our over 1,600 local sellers to sell cars and third party digital products. On the operating expense side, as part of our ongoing efforts to enhance efficiency and drive long term growth, Nexstar implemented a strategic operational restructuring CW and the Hill into the broader organization and reducing middle management within our ad sales division. Additionally, we focused on streamlining work processes at our local markets to improve overall productivity.

Speaker 2

This restructuring is expected to generate savings in the low to mid 8 figures in total operating expense in 2025 and will enable Nexstar to focus on initiatives that more directly impact our viewers, partners and customers as we continue to prioritize initiatives that represent our best long term opportunities. Now turning to the CW. In 2024, we improved cash flow at the CW by 127,000,000 exceeding our goal of more than $100,000,000 of improvement, which reduced our 2023 losses by approximately 50%. With the substantial majority of cost reductions for the network related to programming costs and overhead efficiencies now executed, in 2025, we are seeing our new programming investments begin to pay dividends. And just to put a few finer points on the new programming.

Speaker 2

In 2025, CW will have about four hundred hours of sports or sports related programming, which accounts for approximately 40% of the hours provided by the network, a dramatic change from the old CW that had no sports programming whatsoever. The 2025 schedule includes fifty two weeks of WWE NXT and thirty three weeks of NASCAR Xfinity Series races, both of which are proving to be strong ratings performers for us. As Perry mentioned, in the first Xfinity Series race of the 2025 season, notably the first with our own production, we attracted 1,800,000 average viewers peaking at over 2,200,000 for the highest viewership of the Daytona race since 2020. To provide some context for those of you who may be more familiar with Formula one, our Daytona NASCAR Xfinity race garnered 24% more viewers than the average of the three U. S.

Speaker 2

Based F1 races in 2024 that aired on ABC and ESPN and nearly 70% better than the full Formula one season average. And that Daytona momentum carried into the second race of the season last Saturday when over 1,300,000 average viewers peaking at over 1,500,000 tuned into the Xfinity race

Operator

in

Speaker 2

Atlanta. In the process, the CW delivered the best performance for the Atlanta Race since 2017. Remarkably, our Saturday race aired amidst a busy sports calendar and it performed better than the college hoops, PGA Golf and NHL that aired across Fox, CBS, NBC and ABC. Similarly, The CW has raised the performance of WWE NXT with audience improvement of 12% to date versus its 2024 average on USA, marking a 105% year over year improvement over what the CW was airing in that time slot previously and regularly beating big four network programming head to head. In fact, six weeks into 2025, NXT on The CW is enjoying its most broadly viewed quarter in the last five years.

Speaker 2

In 2025, we expect to cut losses at The CW by more than 25% from 2024 levels due primarily to growth in advertising driven by improved ratings and growth in distribution revenue. During 2025, we will reset affiliation agreements representing more than two thirds of the CW subscriber base, positively impacting the fourth quarter of twenty twenty five and 2026. Consistent with our prior guidance, we anticipate the impact of these resets in our advertising trajectory will enable The CW to achieve profitability during 2026. In addition, the company continues to benefit from moving CW affiliations to our owned and operated stations. During 2023 and 2024, we moved 17 affiliations to our stations with more to come.

Speaker 2

In summary, 2024 was a standout year for Nexstar and we remain excited about the company's future. As Perry mentioned, we believe the market is shifting in ways that will benefit broadcast television and that there is meaningful upside potential ahead of us with potential deregulation and actionable growth catalysts in 2026 given our distribution renewal cycle, the midterm elections and the Olympics. And consistent with our track record, we remain committed to delivering value to our shareholders in a thoughtful and disciplined manner And we will continue to explore every opportunity to maximize that value over the long term. With that, it's my pleasure to turn the call over to Leanne for the remainder of the financial review. Leanne?

Speaker 4

Thank you, Mike, and good morning, everyone. Mike gave you most of the details on the revenue side and on the CW, so I will provide a review of expenses, adjusted EBITDA and adjusted free cash flow along with a review of our capital allocation activities, our 2025 guidance and some perspectives on valuation. Together, fourth quarter direct operating and SG and A expenses excluding depreciation and amortization and corporate expenses were essentially flat, decreasing by $2,000,000 Increases in news and other program and other programming and content costs were offset primarily by reduced promotion costs in the quarter. Q4 twenty twenty four total corporate expense was $48,000,000 including non cash compensation expense of $20,000,000 compared to $45,000,000 including non cash compensation expense of $16,000,000 in the fourth quarter of twenty twenty three. The increase of $3,000,000 is primarily due to one time severance costs associated with our operational restructuring, while the increase in noncash compensation expense is due to new restricted stock grants and the timing of grants offset in part by a release of reserves among other factors.

Speaker 4

Q4 twenty twenty four depreciation and amortization was $220,000,000 versus $210,000,000 in the prior year quarter, an increase of $10,000,000 Of these amounts included in our definition of adjusted EBITDA is $98,000,000 related to the amortization of broadcast rights for Q4 twenty twenty four compared to $87,000,000 for Q4 twenty twenty three. The increase of amortization of broadcast rights by $11,000,000 was primarily due to programming costs at the CW as newly acquired programming premiered offset by a slight reduction of amortization of broadcast rights elsewhere at Nexstar. Please note that while Q4 CW programming amortization was up year over year, we do not expect 2025 CW programming amortization to be higher than 2024. Q4 '20 '20 '4 income from equity method investments, which primarily reflects our 31% ownership in TV Food Network declined by $5,000,000 in the quarter or 22% primarily related to TV Food Network's lower advertising revenue, but better than what we originally anticipated. Putting it all together on a consolidated basis, fourth quarter adjusted EBITDA was $628,000,000 representing a 42.2% margin and an increase of $179,000,000 from the fourth quarter twenty twenty three of $449,000,000 Moving to the components of free cash flow and adjusted free cash flow.

Speaker 4

Fourth quarter CapEx was $35,000,000 essentially flat for the fourth quarter of last year. Fourth quarter net interest expense was $104,000,000 a reduction of $11,000,000 from fourth quarter of twenty twenty three. On a cash basis, this compares to $101,000,000 in Q4 twenty twenty four versus $113,000,000 in Q4 twenty twenty three. The reduction in interest expense was primarily related to a reduction in SOFR and reduced debt balances. Fourth quarter operating cash taxes were $67,000,000 compared to $26,000,000 in 2023, an increase of $41,000,000 primarily related to increased pretax operating income in 2024 related to increased election year political advertising.

Speaker 4

Payments for capitalized software obligations and pension credits net of proceeds from disposal of assets and insurance recoveries were $11,000,000 versus $14,000,000 last year. Cash contributions from our partners in the CW were zero in the quarter versus $15,000,000 in Q4 twenty twenty three. In Q4, programming amortization costs were actually greater than cash payments by $13,000,000 as certain programming payments were deferred. Putting this all together, consolidated fourth quarter twenty twenty four adjusted free cash flow was $411,000,000 as compared to $245,000,000 last year. Now turning to our guidance for 2025, we believe 2025 adjusted EBITDA will be in the range of $1,500,000,000 to $1,595,000,000 Mike already provided some of the key assumptions that are embedded in our guidance, including one, our expectation for growth in net distribution revenue to be flattish in 2025 based on a slight improvement in subscriber attrition trends.

Speaker 4

Two, our expectation for non political advertising revenue growth to be slightly up as increases at The CW are expected to partially offset some of the continued headwinds in national and local and digital advertising growth is expected to more than offset the rest. Three, operating expenses will be reduced in the low to mid 8 figures of dollars due to our operational restructuring. And four, we expect the CW will continue to reduce its losses by another 25% in 2024 from 2025 levels. Key factors different from our current expectations could affect our outlook for adjusted EBITDA for 2025 either positively or negatively. Those factors include, among other things, the rate of growth of attrition of rate of growth or attrition of pay TV subs, the health of local and national advertising markets, our renegotiation of certain distribution and affiliation agreements on terms favorable to the company and the attributable net income related to our 31.3% ownership stake in TV Food Network.

Speaker 4

We do not intend to update this guidance on a quarterly basis. As a few additional points of guidance with respect to adjusted free cash flow, we are currently projecting CapEx of $120,000,000 to $125,000,000 for the year and $30,000,000 to $35,000,000 in Q1. Based on the current yield curve, we anticipate full year 2025 cash interest expense to be in the $375,000,000 to $380,000,000 area, an improvement of more than 55,000,000 from 2024 levels at the midpoint. We project Nexstar's cash interest expense utilizing the spread on our floating rate debt instruments, the current SOFR forward curve and the coupons on our fixed rate debt along with our expectations for debt repayments includes our mandatory amortization of approximately $125,000,000 plus a modest amount of additional repayment. Q1 interest expense is expected in the $95,000,000 range.

Speaker 4

Full year 2025 cash taxes are expected to be $260,000,000 to $270,000,000 an increase in the low 20s and millions versus 2024 as we are now using the annualization method for our federal income taxes, which enabled us to defer about $33,000,000 of income tax from 2024 to 2025. For cash taxes, we use a 26% tax rate when calculating our estimated tax before one time and other adjustments. The first quarter includes only a very small amount of state income tax in the $3,000,000 range. As a reminder, we use the cash that we deferred from 2025 or 2024 taxes into 2025 to optionally repay term loan B. We will pay this deferred income tax in the second quarter of twenty twenty five.

Speaker 4

In 2025, payments for programming are expected to be in excess of amortization by $40,000,000 to $45,000,000 due primarily to deferred programming payments from prior years and investment in programming for future years with approximately $7,000,000 of that in Q1. Turning to capital allocation in our balance sheet. Together with cash from operations generated in the quarter and cash on hand, we returned $230,000,000 to shareholders comprised of $52,000,000 in dividends and the repurchase of $178,000,000 of stock at an average price of $167.3 per share, reducing shares outstanding net of equity vesting by 2.7%. For the year, we returned $820,000,000 or 68% of our adjusted free cash flow to shareholders in the form of $219,000,000 of dividends and $6.00 $1,000,000 of share repurchases. Nexstar's outstanding debt at 12/31/2024 was $6,500,000,000 a reduction of $181,000,000 for the quarter as we made quarterly amortization payments of $31,000,000 and optionally repaid $150,000,000 of our term loan B.

Speaker 4

Our cash balance at quarter end was $144,000,000 including $16,000,000 of cash related to the CW. Because we designated the CW as an unrestricted subsidiary, the losses associated with the CW are not accounted for in our calculation of leverage for purposes of our credit agreement. As such, our net first lien rate covenant ratio for Nexstar at 12/31/2024 was 1.68x, which is well below our first lien and only covenant of 4.25x. Our total net leverage for Nexstar was 2.91 times at quarter end. As is typical in non political years, we expect leverage, which is calculated on an LTM basis versus a two year average, to increase during 2025 as adjusted EBITDA falls in non election years when political advertising is significantly lower.

Speaker 4

Our $2,025,000,000 dollars cash flow will be deployed first to fulfill our mandatory obligations, including debt repayments and pension and defined benefit plan contributions of approximately $145,000,000 the Cleveland Television Station acquisition for $22,000,000 and the anticipated 2025 dividend of approximately $225,000,000 In January, we announced our twelfth consecutive increase in our dividend, increasing quarterly dividend rate by 10%, which based on our stock price as of yesterday now represents an almost 5% yield, which as Perry mentioned puts us in the ninety fourth percentile of stocks in the S and P 400 for dividend yield. The remainder of our cash flow will be used to fund acquisitions should an opportunity become available. If no attractive strategic accretive acquisitions are available, we plan to repay debt and repurchase stock. In 2025, assuming no large scale M and A, we plan to optionally repay an incremental amount of debt and not reborrow the debt that was repaid during 2024 from the cash from deferred taxes. The additional optional deleveraging will prepare our balance sheet better for any potential M and A and should benefit us even if there is no M and A as many investors value us based on an EBITDA multiple.

Speaker 4

Based on that methodology, any debt reduction mathematically increases our equity dollar for dollar. Finally, we plan to continue to repurchase shares, which will continue to be the largest component of our capital allocation strategy, especially given our current valuation. In total, we anticipate returning almost two thirds of free cash flow to shareholders in 2025, similar to the level we returned in 2024. Before I turn it over to the operator for questions, I'd like to address the value proposition in Nexstar stock. As Perry mentioned in his remarks, the scale and scope of Nexstar is unlike any other player in the broader media industry, enabling us to bend the curve to achieve results that other operators cannot achieve.

Speaker 4

While this has been the case with our record setting revenue performance in 2024, it has not been the case with respect to our stock price over the last year. So that disconnect creates opportunity. Based on current street estimates and as of yesterday's closing stock price, we traded at a 6.3 times multiple of 24, 20 five EBITDA and a 21% free cash flow yield below the midpoint of the pack of comparable broadcasters despite achieving top tier margins and free cash flow conversion and the highest dividend yield and the highest overall return of capital to shareholders. A top tier multiple of seven to 7.5 times would imply a stock price of $197 at the midpoint, a 35% premium to yesterday's closing price. And if we applied the same valuation that Warner Brothers and Paramount did to their cable networks, which do not have the same prospects as the broadcast industry nor the same trajectory of revenue that we've been able to accomplish, which those estimates included a 10.5% WACC and a negative 3% perpetuity growth rate.

Speaker 4

But assuming the consensus estimates for the average adjusted free cash flow of $24.25 for Nexstar, applying those metrics, the math implies a valuation of $210 per share, a 43% premium to yesterday's closing price. And if deregulation comes to fruition and we are able to make accretive acquisitions as we have in the past and Pay TV subscriber attrition does flow, Nexstar and our industry should be rerated. So it should be a win win. Short term growth to value us like the premium curve bending company we are and then a rising tide floating all media boats with dereg and slowing attrition. We are believers in the near and long term value of our stock and we'll continue to deploy capital both to grow our business and maximize shareholder return by betting on ourselves.

Speaker 4

Ourselves. With that, I'll open up the call for questions. Operator, can you go to the first question?

Operator

Thank you. We will now be conducting a question and answer session. Our first question comes from the line of Stephen Cahall with Wells Fargo. Please proceed with your question.

Speaker 5

Yes. Thank you. So just on M and A, Perry, you have a great acquisition history between Media General and Tribune. I don't recall the free cash flow accretion off the top of my head of those deals, but I know it was significant. Nowadays, your rates are higher, but a lot of the peers are also higher.

Speaker 5

So do you still think there's a lot of similar levels of accretion for broadcast M and A opportunities as there have been historically if we do see some deregulation? And related to that, do you look harder potentially at how spectrum assets fit together when you think about broadcast and consolidation over the next decade? And then Leanne, just on the EBITDA outlook for the year, impressive work that you're doing on cost. I'm just wondering if is there any cost to achieve that is included in EBITDA or that impacts free cash flow? Or is all of that behind you and was largely done in 2024 with the benefits that eight figure number that you talked about rolling through in the guidance for 2025?

Speaker 5

Thank you.

Speaker 3

Well, Steven, that's a lot. Let me try and take the first part of that. As it relates to Media General and Tribune, they were 4060% accretive acquisitions, which we think we're probably at the high watermark of what we would be able to achieve on scale M and A. Having said that, we have been consistent saying that any acquisition to clear our screen is going to have to be substantially more accretive than buying back our stock, which is a high teens to 20% yield on our equity. So, we will maintain that same discipline.

Speaker 3

We are obviously in conversations and out there looking. If there's a love connection and regulations change that would permit the acquisition to go forward. And it's highly accretive. It's something we would strongly consider doing in the broadcast television space and the digital space. But if not, Leanne's told you plan B would be to continue to buy back stock and pay down debt.

Speaker 4

And then Steve, your other question, the expenses related to those operating cost savings are really behind us. You saw we took it's about a $12,000,000 1 time restructuring charge in the fourth quarter that got added back to our EBITDA and that was really the cost to implement that.

Speaker 5

Great. Thank you.

Operator

Thank you. Our next question comes from the line of Dan Kurnos with Benchmark. Please proceed with your question.

Speaker 6

Yes. Thanks. Good morning. Very comprehensive guys. Maybe first one, just on the sports front, what do you guys make of Major League Baseball and ESPN parting ways?

Speaker 6

Do you expect there's any opportunity for local broadcast to finally get access to the laggard child, so to speak? And then just to be clear, I guess, Leanne, on the distribution or Mike, I guess, are you assuming that the recent sub trend holds for the year? And can we just get a sense of the timing of the renewals? We got the CW in Q4, but the other 60%, is that all back end weighted? Thanks.

Speaker 2

Yes, I'll take the last one first. Yes, they're back end weighted, but not being specific in the second half of the year. With respect to sports, listen, I think what you're seeing we'll see where MLB shakes out, but we are confident that they will look for broader platforms. We did note that Commissioner Manfred referred to cable as a shrinking platform. So similar with what we saw with some of the deals that we've done also with the deal that NBA did, the net migration vis a vis broadcast has been to increase the number of games on broadcast rather than move to cable.

Speaker 2

So we think there will be opportunities out there. We're less interested in the local opportunities, given the fact that the RSN seem to have kind of gotten back on their feet and at least for the time being taken the lion's share of the local games. But at the national level, we think there will continue to be opportunities and we certainly think that our performance at the CW has put us on the map for any rights holder out there looking to do deals in the future.

Speaker 4

And then just to elaborate on what Mike said or in response to your question in terms of subscriber trends, our guidance assumes a slight improvement in the rate of subscriber attrition as is consistent with what the market is expecting in general. And then because those contracts are all back end weighted, the substantial majority of the benefit will be in 2026.

Speaker 6

Perfect. Thank you both.

Operator

Thank you. Our next question comes from the line of Benjamin Soff with Deutsche Bank. Please proceed with your question.

Speaker 7

Good morning. Thanks for the question. I'm wondering if you can talk about the progress you're seeing with respect to deregulation and what's your level of optimism that we could see changes this year? And then maybe could you talk a little bit more about the Edge Beam JV? How that helps you accomplish your goals and the progress you've made on ATSC to date?

Speaker 7

Thanks.

Speaker 3

Well, thank you. Yes, I've spent four different days in Washington, D. C. Since the first of the year, all on the Hill, visiting with lawmakers regarding the need for deregulation. And I feel the prospect is as good as it has been in my career to see meaningful ownership regulatory reform come to the broadcast industry.

Speaker 3

No one can with a straight face defend the current rules in the current environment. And I think there's a real understanding that preserving local journalism at the local market level is in the country's national interest. And to do that, you've got to have strong companies and strong companies need to be able to get bigger and grow and innovate. And so, that message quite frankly is resonating on both sides of the aisle. I think you'll see continued movement, both at the FCC and the DOJ in terms of understanding that current regulations are outmoded.

Speaker 3

And we are obviously pressing for progress on all fronts. And I think you'll see evidence of progress being made as the year goes on. Obviously, at the FCC, Chairman Carr has called this a break grass moment for local television. I know he is very interested in seeing the medium survive and have the ability to prosper and to continue to support local journalism and innovate. And so, I think I take him at his word, obviously, as the year goes on and the commission is fully constituted with five commissioners, three Republicans, two Democrats, you'll see activity increase under his purview.

Speaker 3

As it relates to the next gen TV generation and APSC three point zero and our consortium, This is next gen already reaches 75% of The U. S. Population. Our streaming and digital competitors are rapidly advancing and without our ability to modernize and innovate, we risk local broadcasters risk falling behind, ultimately putting the future of our free local service and local journalism at jeopardy. And individual broadcasters can't complete this transition alone, which is why we developed the consortium with Scripps and Gray and Sinclair.

Speaker 3

And there was a question earlier from Stephen about spectrum. This consortium stitches together spectrum that reaches 97%, which we view as a virtual nationwide footprint that will allow us to innovate and a set transition date would provide certainty to all the stakeholders, allowing the TV set manufacturers as well as the broadcasters, the pay TV operators all to plan effectively. And as you know, at this point, the NAV's petition for rulemaking, which is fairly unprecedented and certainly as it relates to spectrum, contemplates a two phase transition plan, which would ensure an orderly implementation. Phase one would be in February of twenty twenty eight, stations in the top 55 markets, which reach about 70% of The U. S.

Speaker 3

Population would complete the transition fully to ATSC three point zero, and remaining stations would complete that transition on or about February 2030. I think it's important to note that not only is regulatory clarity essential to completing this shift, it's time sensitive because our competitors are continuing to advance. We want to be free to be able to innovate and provide additional services, not only for viewers, but for businesses and the public at large. But that the industry, the broadcast industry is fully united behind this effort. And so, we think with all of those factors coming together, the prospect of spectrum monetization that I've been talking about for half a dozen years, I think is upon us and this consortium has a first mover advantage having stitched together spectrum that is a near nationwide footprint.

Speaker 3

So we're very optimistic that progress will come both to deregulation and to innovation of Next Gen TV under the current administration.

Speaker 7

Great. Appreciate the insight.

Operator

Thank you. Our next question comes from the line of Craig Huber with Huber Research Partners. Please proceed with your question.

Speaker 8

Great. Thank you. I have a few questions. I'll just do them one at a time to make it easier. On ATSC three point zero, Perry, just talk a little bit further about your expectations, how the revenue ramp for your company and the rest of your consortium may play out?

Speaker 8

How many more years you think it'll be that could be significant for you guys?

Speaker 3

Well, I think as most new businesses evolve, they start slowly and then grow suddenly. We there are a number of things that have to happen. We need to be able to sunset the ATSC one point zero or current transmission schema requirement, which would free up more spectrum for innovation. Then we have to complete the transition to three point zero, which should enable all stations in the market to fully participate in any data casting opportunities that might present themselves. And again, I think that if we are able to meet the transition date of February 28 that we proposed along with NAB and the petition for rulemaking, that's when I think you could see meaningful progress being made.

Speaker 3

In the meantime, we have signed clients and we have a lot of interest from others, particularly in the automotive space about the connected car and video and television in the car, as well as providing service updates with a better completion rate than the current satellite based updates provide. There's also the opportunity to develop a stronger national security with the BPS system, which is the broadcast positioning system, which is a would be a backup to our current GPS system. The United States is the only industrialized country in the world without a backup to its GPS system. And I don't have to tell you what happens if GPS goes out. But we can provide a terrestrial based system that would be a backup to the current satellite based system, less vulnerable to disruption.

Speaker 3

And we have developed the proof of concept of the timing element of this already with an atomic clock in Colorado with NIST and I won't get into the wonky weeds of all the development that's going on there. But both the DOT and the DOD have said it's in our national interest to have a backup GPS system. And we think that this transition would enable this industry, our industry to provide this and it would be superior to a second satellite based system. So again, I think you'll see announcements of clients and trials beginning and continuing throughout this year and the next couple. And I think that it would be probably 2028 if we were able to affect the transition of the top 50 markets, top 55 markets to a full ATSC three point zero transmission schema.

Speaker 3

I think that's when you'll see revenue take a step function forward.

Speaker 8

And then more near term question, can you guys just talk a little bit further about core advertising trends near term? Are there any maybe national advertising categories that you guys are seeing in green shoots and any significant change there, I guess positive or negative?

Speaker 4

There's nothing on specifically to call out positive on the advertising side. I think on the negative side, we talked about insurance and auto being two categories that have been more negative for us in the first quarter.

Speaker 8

And maybe if you could just talk a little bit further about what you're expecting for overall core advertising trends in the first quarter year over year?

Speaker 4

So what we talked about was that the first quarter core advertising trends are going to be down in the low single digit range.

Speaker 8

So what is it that you're seeing that's obviously a much better number than you guys were able to do last all four quarters last year, obviously part of it was hurt by crowding out. But what are you seeing better in particular that you want to highlight?

Speaker 4

It's slightly it's just a general improvement in the trend. It's not like anything heroic. I think we said that about half of the fourth quarter core decline is related to crowd out. So if you back that out, you get to something just shy of 5% decline in the fourth quarter, which low single digits is not too much of a difference from there. But we also have the benefit of improving performance given all the new great sports content that we've got on the air now.

Speaker 8

And sorry, if I could just ask one more. On the CW losses, you guys talked about it being down 25% or perhaps more in the new year that would probably put it down to a loss roughly $100,000,000 maybe a little bit better than that. How are you feeling about the point in time when you might be able to get to breakeven? Do you still think by late this year, early next year? How are you feeling about that, please?

Speaker 4

Yes. What we've said is we think we expect to get to profitability at some point during 2026. And that's still part of the our outlook and our what we're striving to achieve. We're on target to achieve.

Speaker 8

Okay, great. Thanks both of

Speaker 4

you. Thank you.

Operator

Thank you. Our next question comes from the line of Aaron Watts with Deutsche Bank. Please proceed with your question.

Speaker 9

Hi. Thanks for having me on. You've covered a lot of ground. So I'll just have one question. I've asked you in the past about moving towards investment grade status on your whole cap stack, because certainly your stewardship of the balance sheet has opened the door for that discussion.

Speaker 9

But in light of the speculation around deregulation in the space and your commentary there today, maybe I can ask about the balance sheet in a different way. How high would you be willing to take your leverage in the current environment to participate in industry consolidation?

Speaker 4

I don't think we're looking to max out on leverage and overextend ourselves by any in any way. So I think the question is, what is the comfortable leverage that the market could bear. And I know that the rating agencies always give you a little bit of a eighteen months sort of time period to kind of get your leverage back down to maintain ratings. But I think we'll have to just look and see this on a case by case basis and look at the deal, but we're not looking to create new headlines regarding being highly leveraged. That's one of the things that we have not done as a company historically.

Speaker 9

Okay, got it. Thanks, Leanne.

Speaker 4

Thank

Operator

you. Our next question comes from the line of Patrick Chole with Barrington Research. Please proceed with your question.

Speaker 10

Hi, thank you. With the CW and you mentioned you have a lot of renewals coming up later this year. With all of the sports rights that you have added to that network, could you maybe talk about any benefits you're seeing on the distribution side and the contribution that those rights are creating for the either your affiliate partners or for your distribution revenue so far?

Speaker 6

Well, I think to date,

Speaker 2

we're in the lifecycle of the CW, I guess I would think of it as we're in the show me phase of the lifecycle, right? And that's exactly what we're doing. We've been talking about programming that we've acquired and what was coming for quite a while and it's been gratifying over the last really over the last couple of weeks, but even longer than that over the last couple of months as NXT came online and we saw the end of last year's performance with NASCAR on the last eight races that we sublicensed from NBC. So in the world of distribution, you need to prove it out before you can actually monetize it. That's been our experience.

Speaker 2

And so we're in the proving out phase and we'll move into the monetization phase going forward. So no surprise, the value of programming in the distribution world is heavily centered in live programming, right? That distinguishes linear programming from SVOD programming. And the value in linear is in live news and sports, right? And certainly, from the sports side, you can see that notwithstanding headlines on subscriber erosion, big time sports continue to draw significant audiences, most recently with the Super Bowl setting yet another record, right?

Speaker 2

So we're optimistic with the performance of the programming that will translate into performance in the distribution deals that we have on the near horizon.

Speaker 4

And I would just want to just supplement something Mike said, because he's talking prospectively and talking about the differential between what we get for CW versus some of the other affiliations. We actually have been able to grow our distribution revenue for the CW to date with the new programming slate. We just think there's more to come.

Speaker 2

Agreed.

Speaker 10

Okay. Thank you.

Operator

Thank you. And we have reached the end of the question and answer session.

Speaker 5

I

Operator

would like to turn the floor back to Perry Sook for closing remarks.

Speaker 3

Thank you very much. In closing, I'd like to just tell you all, we remain confident in Nexstar's positioning to deliver and continue to deliver long term growth and value for our shareholders. Our financial results and competitive positioning in the industry coupled with organic growth opportunities as well as the potential of deregulation, all positioned us very well for continued success and free cash flow growth. When you look at the immense value we've created over the years and our future prospects, Nexstar's share price has never been more attractive even with the early moves today. We're consistently proven our ability to outperform and if history has taught us anything, it's that with long term don't bet against Nexstar.

Speaker 3

There's a lot more to come. I'd like to ask you all to stay tuned. I want to thank our teams for their hard work and dedication as well as our partners and shareholders for our ongoing support. We look forward to updating you on our next earnings call. Thank you very much everyone.

Operator

And this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

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Earnings Conference Call
Nexstar Media Group Q4 2024
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