Good day, and welcome to Nexstar Media Group's first quarter 2022 results call. Today's call is being recorded. I'm gonna now turn the conference over to Joe Jaffoni, Investor Relations. Please go ahead, sir.
Thank you, Anna. Good morning, everyone. Let me just read the safe harbor language, and then we'll get right into the call. All statements and comments made by management during today's call, other than statements of historical fact, may be deemed forward-looking statements for the purposes of the Private Securities Litigation Reform Act of 1995. Nexstar cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those reflected by the forward-looking statements made during the call. For additional details on these risks and uncertainties, please see Nexstar's Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission, as well as Nexstar's subsequent public filings with the SEC.
Nexstar undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. With that, it's now my pleasure to turn the conference over to your host, Nexstar Founder, Chairman, and CEO, Perry Sook. Perry, please go ahead.
Thank you, Joe, and good morning, everyone. Thank you for joining us. We appreciate you being with us here today to discuss Nexstar's record first quarter financial results, which include the highest quarterly free cash flow in the company's history. With me on the call today are Tom Carter, 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 and Lee Ann's financial review. While the equity market is testing new levels of volatility, it was another boring beat consensus expectations, no drama quarter here at Nexstar. The type of performance investors should know to expect from us. Our outstanding results represent an excellent start to what we expect will be another year of record financial performance for our shareholders and for the Nexstar nation.
First quarter top and bottom line performance was driven by strong year-over-year growth across all of our revenue sources, as well as the first quarter cash distribution from our TV Food Network ownership interest. Net revenue, adjusted EBITDA and free cash flow all came in well ahead of expectations, continuing our track record of exceeding consensus expectations. A recurring theme this earnings season for companies across all industries and all market caps is Wall Street's concerns about the economic and business impact of supply chain issues, high inflation, and rising interest rates. With that in mind, let me spend a few minutes reviewing why Nexstar is entering the second quarter from a position of strength, which we will build upon to create new value for shareholders this year and going forward. First, 55% of our total net revenue is derived from distribution revenue, which is contractual.
This is a recurring revenue source that provides us with a solid foundation for continued growth, not only in Q2, but through the balance of this year and beyond. As we've commented in quarters past, we continue to see stabilizing low single-digit rates of subscriber attrition. Second, as you know, 2022 is a political year where we will benefit from strong shares of political advertising spending, given our scale and our presence in many of the key battleground states. In Q1, we delivered strong early political results with our revenue up 40% over pro forma Q1 of 2018. Importantly, fundraising, which is a key indicator for political ad spend, increased 91% over Q1 of 2018, according to the Federal Election Commission. We expect fundraising levels to accelerate as we move through the year, given these positive trends and recent events.
As America's largest local broadcasting company, we have the scale and resources to produce and distribute the most comprehensive political news and live debate coverage in our markets. We are also realizing meaningful content synergies between our broadcast operations and NewsNation, as well as our creative acquisition of The Hill. These distinct competitive advantages reinforce our confidence that Nexstar will deliver record midterm election net political advertising revenue in 2022, meaningfully exceeding our pro forma 2018 levels. Third, in Q1, core advertising, which represents 35% of our net revenue, was up 4%. Of our core advertising revenue, 59% is from services, 26% is from goods, and 15% from auto. Given that mix and large exposure to the services industry, we are somewhat insulated from the supply chain and inflation issues elsewhere.
While it is true that auto continues to be a challenged category, overall, we're pacing very close to last year in that category. Looking forward, there are many bright spots among our advertising categories. Experiential-based businesses of entertainment and travel are back in a big way post-pandemic, and medical healthcare, home repair, manufacturing, and fast food restaurants are also pacing up very nicely. Fourth, while a smaller percentage of our revenue, our core digital and our digital agency services business is growing at a mid-teens rate, and that shows no signs of slowing. Fifth, our operating expenses are largely fixed and insulated from inflationary pressures, while our advertising rates can increase with inflation. Last, our balance sheet and our capital structure are both in great shape. Our trailing 12-month leverage is 3.4 times, and we had a borrowing cost below 4% in the first quarter.
Looking a bit further out, we continue to have excellent long-term three-year visibility on our growth trajectory. In addition to political revenue this year and the presidential election in 2024, 2023 and 2024 will benefit from distribution agreement renewals from virtually all of our subscribers over this period, which we expect will materially benefit our cash flow. As a result, we remain confident in our ability to generate pro forma average annual free cash flow in excess of $1.4 billion over the 2022/2023 cycle, and we will continue to deploy that cash flow to maximize shareholders' return. In terms of our longer term prospects, we are positioned to benefit from both organic and inorganic growth opportunities. On the organic front, NewsNation continues to move forward towards our goal of becoming a 24/7 cable news network.
Ratings continue to grow every month as consumer awareness builds, making NewsNation the fastest growing national cable news network, further validating the value of our strategy to bring consumers balanced and unbiased news. In this regard, in the first quarter, NewsNation was regarded and recognized by several media watchdog organizations, including Ad Fontes Media, NewsGuard, and AllSides for its trustworthiness and lack of bias. In the first quarter, we further expanded our NewsNation programming and now offer 60 hours per week of live news analysis and talk. The value of our NewsNation strategy was recently validated by MoffettNathanson in a research report which highlighted that in 2021, the top three cable news networks were responsible for 59% of the viewing time of all of the top 20 cable networks. With our early progress and achievements, our commitment to profitably growing this asset remains unchanged.
We also continue to lead the industry in launching NextGen TV markets with ATSC 3.0 technology. In Q1, we launched three more markets and a fo urth one in April, marking progress towards our goal of covering half of all U.S. television households with an ATSC 3.0 signal by the end of this year. As one of the nation's largest holders of broadcast spectrum, we are excited about both the enhancements to our core business as well as the myriad new revenue opportunities that this technology upgrade will enable us. The continued industry momentum around ATSC 3.0 was evident at the NAB Show in April, and we're analyzing more and more potential monetization models for this asset.
For example, BitPath, a business in which we are an investor, demonstrated the use of an ATSC 3.0 broadcast network signal to improve and correct GPS signals, since our powerful land-based spectrum can overcome certain weaknesses inherent in a satellite signal. This could have wide application for delivery services, driverless vehicles, drones, or any other service where mobile devices must be position aware. Shifting to new capital allocation, our disciplined approach allows us to capitalize on the best opportunities to create the greatest long-term value for our shareholders. In January, we announced our ninth consecutive annual dividend increase to $0.90 per share per quarter, representing a compound annual growth rate of 25% since our dividend was initiated.
We will continue to deploy cash with a shareholder-friendly focus through a mix of dividend payments, share repurchases, and debt reduction, while also continuing to pursue accretive M&A and investing in our business for future growth. Nexstar's consistently strong performance continues to validate the value creation potential of our current capital allocation strategy. In summary, we remain confident in our near and long-term growth opportunities. Nexstar's powerful, diversified platform produces and distributes some of the most compelling local and national news, sports, and entertainment content in America with the best margins in the broadcasting industry. We have excellent three-year visibility on the business and our ability to deliver on our free cash flow targets, given expected strong midterm and presidential political advertising as well as distribution agreement renewals representing a significant percentage of our subscribers over this period.
As such, we have a solid foundation to continue driving near and long-term growth and the enhancement of shareholder value in spite of the market and other world events. With that, now let me turn the call over to Tom Carter for the operations review. Tom?
Thanks, Perry, and good morning, everyone. Operationally, Nexstar had a very strong start to the year. We delivered all-time high first quarter net revenue of $1.21 billion, driven by strong year-over-year increases across all of our core and political advertising, distribution, and digital revenue sources. Overall, television advertising revenue grew 8.3% versus Q1 of 2021, and core television advertising of $428 million was a first quarter record and increased 4% over the prior year quarter. Healthy demand from advertisers, aided by the Olympics, resulted in solid growth in 19 of Nexstar's top 25 advertising categories, which more than offset continued weakness in automotive advertising. Our top performing categories were entertainment, medical healthcare, travel, telecom, and gaming sports betting.
In addition, Nexstar's local sales initiatives continued to deliver healthy levels of new business, with our sales teams generating new to television revenue of $35 million, marking an increase of 27% over the prior year. Sports betting and gambling continue to be a top five category for us in the first quarter. Growth in the category was driven primarily by spending from land-based casinos and from sports betting advertising in states where online sports betting was recently legalized, such as New York, Louisiana, Connecticut, and Illinois, offset in part by declines versus the first quarter of 2021 in some states where gambling and sports betting is more mature.
Despite the public pressure on sports betting companies, we still believe this category has legs, and there are a number of large states, such as Ohio, where we are virtually in every market in the state, which are expected to legalize online sports betting in the near term. As you know, Nexstar has a presence in approximately 80% of the states where legalized sports betting is or will be launched, so we remain very well positioned to generate continued growth from this category as new states pass legislation. As Perry mentioned, the core television advertising environment in Q2 remains healthy despite recent macroeconomic challenges, and we're optimistic that these trends will continue to improve as we move throughout the year. Political advertising got off to a strong start in Q1, with revenue of $24 million, which is approximately 40% ahead of pro forma 2018 Q1 levels.
Nexstar benefited from strong spending around key races and primary elections for Senate seats in Ohio and Pennsylvania, and governor races in Illinois, Texas and Alabama. As a percentage of our total first quarter political spending, PAC issue spending accounted for approximately 39% of revenue. Gubernatorial and Senate candidate spending represented approximately 37% of revenue, with all other political spending accounting for approximately the remaining 24%. Record first quarter distribution revenue rose 7.5% from the prior year quarter to approximately $668 million, reflecting distribution agreement renewals at the end of 2021 on improved terms and rate escalators. We continue to see stability and improvement in our subscriber trends, aided by increased vMVPD subscribers.
In addition, we have good visibility into our net distribution economics with all of our Big Four affiliate affiliations contracted through December of 2022, and only our ABC affiliate agreements up at the end of this year. With more than half of our subscribers set to renew at year-end 2022, we continue to expect a higher rate of growth from this revenue source in 2023. Q1 digital revenue increased 18.5% year-over-year to approximately $79 million. This increase was driven by strong year-over-year growth in our local digital advertising revenue and agency services businesses, and contributions from BestReviews and a full quarter contribution from The Hill. With the momentum of our content and audience development strategy, we expect strong digital revenue growth going forward.
The top line growth in our first quarter cash distribution from our TV Food Network ownership interest, combined with our continued expense management, drove record first quarter adjusted EBITDA of $643 million and an all-time high quarterly free cash flow of $560 million. Nexstar generated a 53% adjusted EBITDA margin, and we converted approximately 87% of adjusted EBITDA to free cash flow. In preparations for Nexstar's 2022 proxy and annual meeting, we conducted an extensive outreach to our shareholders during the first quarter to update them on the company's recent ESG initiatives, which were outlined on our last earnings call, and solicited their feedback on these matters.
The input and recommendation of shareholders who elected to engage with the company was presented to the board of directors for consideration, and a summary of these efforts was included in our 2022 proxy filed at the end of April. Throughout the company's history, the alignment of our commitment with our local communities and our commitment to our shareholders continues to be a key driver of our long-term success. As a result, we will remain focused on evolving our ESG policies and disclosures in a thoughtful manner that supports our employees and communities, as well as our goals for growth and the enhancement of shareholder value. 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?
Thank you, Tom, and good morning, everyone. We delivered another strong quarter of results for our shareholders and remain very constructive on the opportunities up ahead of us in 2022. Tom has already gave you most of the details on the revenue side, so I will jump to expenses. First quarter direct operating and SG&A expenses both increased primarily as a result of higher core political distribution and digital advertising revenues, as well as a full quarter of expenses from The Hill. Total corporate expense was approximately $46 million, including non-cash compensation expense of approximately $13 million, and this number included approximately $1 million of one-time expenses. The decrease from what we expected was primarily due to lower legal fees than expected. First quarter CapEx was approximately $28 million.F
Spectrum repack CapEx totaled approximately $750,000, and we received $1.7 million of reimbursements from the FCC. CapEx was lower than expected in the first quarter, primarily due to delays in receiving equipment due to supply chain disruptions. First quarter total interest expense declined 4% to approximately $69 million. Cash interest expense was approximately $66 million and compared to $68 million last year, due primarily to lower first lien borrowings by approximately $347 million of face value, offset by higher LIBOR of approximately 15 basis points over the quarter, and refinancing a portion of Mission's revolver with Term Loan B, which occurred in the second quarter of 2021. First quarter operating cash taxes were $3.2 million, reflecting a small first quarter state tax payment.
We recorded $193 million in distributions from equity investments related to our 31% ownership stake in TV Food Network in the first quarter, which represents a $15.3 million increase over the prior year quarter. Looking ahead, we project corporate overhead exclusive of stock comp and transaction costs to be approximately $36.5 million in the second quarter, and we continue to expect corporate overhead in the $140 million area for the year. Non-cash comp is expected to be approximately $14 million for the second quarter, and we continue to project $58 million for the full year, but will vary based on stock price and actual grants. For cash taxes, we use a 26.5% tax rate when calculating our estimated tax before one-time and other adjustments.
As a reminder, in terms of timing for the remaining tax payments, two payments are typically made in the second quarter, with one in each of the third and fourth quarters. We expect that cash taxes will be closer to a $390-$395 million range for the year, given current expectations for the business. Cash CapEx should come in around $35 million in the second quarter, and we still expect $150 million for the full year. As a reminder, we typically spend more on CapEx in even-numbered political years than non-political years. We expect that Nexstar's cash interest expense to approximate $75 million for the second quarter and $320 million for the year, reflecting updated estimates for LIBOR and expectations for debt repayment. Turning to the balance sheet.
Nexstar's outstanding debt at March 31, 2022 was $7.26 billion. Total net debt amounted to approximately $7 billion at quarter end, down from $7.2 billion at December 31, 2021, and net debt for first lien covenant purposes was $4.3 billion. Our net first lien covenant ratio at March 31, 2022 was 2.1, which is well below our first lien and only covenant of 4.25 times. Our total net leverage at quarter end was 3.4 times, down from 3.7 at December 31, 2021. We expect leverage to reduce by the end of 2022 due to a combination of allocating a portion of our free cash flow to reduce indebtedness and increasing EBITDA, given our outlook for the year.
In the first quarter, we returned $195 million or 35% of our free cash flow to shareholders through share purchases and dividends. We allocated another $155 million or 28% of our free cash flow towards debt reduction. Going forward, we will continue to strategically deploy our cash in a manner that is consistent with our commitment to creating the highest shareholder value. Our business continues to perform at an exceptionally high level, and this is clearly evident in our Q1 results. We remain well positioned to deliver strong growth in 2022 and confident in our ability to deliver on our pro forma average annual free cash flow guidance of approximately $1.4 billion over the 2022-2023 cycle. That concludes the financial review for the call. Operator, can you please open the line for questions?
Yes, ma'am. Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, that is star 1 if you would like to ask a question. We'll take our first question from Dan Kurnos with The Benchmark Company.
Great. Thanks. Good morning. Excellent boring quarter, Perry. I'll leave the core sky falling questions for everybody else, even though it doesn't sound to be the case here, and just ask one on retrans. You know, given the real strong start to the year and what we've heard from kind of all of you guys now as the MVPD, the upside, you guys have guided gross to kinda mid- to high singles for the year. Has there any change to either the gross or the net outlook given kind of the strong start to the year?
on political, you know, obviously given the draft leak and everything else and what we've seen from fundraising, even in the last couple weeks, in the last few days, I guess I should say, you know, we've seen some forecasts out there around 22 looking more like 20 rather than 18. So I don't know if that's the right benchmark. It's too early in cycle, but just help us think through, you know, how much closer we might be getting to that yardstick. Thank you.
I'll take the political question. We obviously, if you follow the company, you know that we like to underpromise and overdeliver on our political forecast because obviously we don't control the money until it's raised. Everything would indicate that it will be a record off-year midterm election for us from a revenue perspective. We think it will be substantially ahead of 2018. We are not yet ready to go there to say that it would be, you know, to the 2020 levels. As you know, more than half the money will come in a six-week period between Labor Day and Election Day. Until we get closer to that date, anything that we would do would just be to fuel speculation.
We're comfortable with what we've said on the call thus far. I'll let Tom talk about the distribution revenue.
Sure. Morning, Dan. Thanks for the question. We're pleased with the distribution performance and with, especially with regard to attrition staying at moderated levels and quite honestly, levels that were better than we had budgeted for. It's a little too early for us to you know, change our guidance with regard to the entire year after the first quarter. I think we're gonna stick with where we were, which was kind of mid-single digits.
Okay. Maybe just Perry or Tom, just if I could sneak one more in just on capital allocation, just given sort of the uncertainties out there, but also perhaps the opportunities that might provide. I know you guys have a long track record of generating shareholder value with any deals you've done. There's certainly been plenty of speculation out there. I'm just wondering if there's any kind of difference in change of balance on how you would allocate capital, obviously the stock's working today, but you know, if the market continues to be a little bit more finicky, just how we should think about your cash hoarding and share repurchase activity versus M&A appetite.
I think as we've always said, you know, from an M&A perspective, that's gonna be a priority for the company. That's how we've created the most shareholder value historically and how we expect we'll continue to create shareholder value going forward. That's, you know, if we can find good accretive transactions that are complementary to our existing business, that will be what we use our cash for. I think absent that, you know, we definitely will look at, you know, opportunistically, you know, do we use the dollars to pay down debt, or do we use the dollars to repurchase shares? I think you probably noticed we have a little bit of an extra cash balance on our balance sheet as of the end of the quarter. We also noticed where our stock is today.
You know, from that perspective, you know, we obviously are very, you know, looking forward to making sure we're allocating that capital in the right way that's gonna be the best for our company and our shareholders.
Awesome. Solid response from the full triumvirate. I appreciate it. Thank you very much, guys, and congrats on the quarter.
We'll take our next question from Steven Cahall with Wells Fargo.
Thanks, good morning. Maybe just first, you held the free cash flow guidance for the 2022/2023 cycle. Lee Ann, I think when you were listing off some of the cash guidance line items, the one that really seemed to move the most was cash interest, I think going from about $300-$320. That's kinda small in the context of your free cash flow overall, though. Just wondering, if those are the sort of things that are keeping you a little more conservative at the moment or if it's anything else like the ad market.
No, I think that's absolutely right. I mean, you know, the LIBOR curve continues to move against us. You know, I think it's both for 2022 and 2023, you know, the outlook is for higher rates going forward. That's one of the factors going against us as well as, you know, obviously a little bit of increase in terms of the taxes as a result of improved expected performance. You know, I think that, you know, we're good where we are right now, and as the year progresses, we'll continue to revisit that.
Thanks. Then, Perry, we talked a little bit about NAB, about retrans rates, and I'm kinda backing into some rates this quarter of probably over $5 on average per sub. I know there's some markets where you have some mix of stations, so that's not necessarily a Big Four rate. But it does seem like retrans is getting to rates that was probably not contemplated a few years ago. You know, your big four affiliate network friends are also driving those rates a lot higher. Do you all think that there is a ceiling out there as sports rights continue to go up? You know, do you feel like stabilization of the ecosystem supports a lot of rate increase ahead? Just love to kinda get your view as to where we are in the rate cycle.
Well, first of all, we certainly contemplated the rates you spoke about a few years ago. What I've said is that, you know, recently I have moved the goalpost as to what I think is in the art of the possible. Given how valuable live local news is to the bundle and to the consumer and to the value proposition that we present in our communities, I think we can go farther than perhaps I thought we could, you know, three or four years ago. You know, is there a ceiling? Ultimately, it's a negotiation, so it's what the market will bear and what two parties can agree to.
You know, I think we can go further than certainly where I thought we could ultimately reach a few years ago, and certainly well beyond the numbers that you stated earlier in your question.
Thanks. Then lastly for me, Fox said this morning they expect to keep their key sports content exclusive to the linear broadcast and to not license it like some of the other Big Four networks have. Going forward, do you see a difference in your relationship maybe with Fox and those companies that are launching à la carte streaming services with broadcast content on it? Could that affect, you know, the way you think about reverse comp?
Well, as I've said, historically, and, you know, we have good relationships with all of our network partners. You know, one of the things we pay for is exclusivity in that content on a market-by-market basis. To the extent that content is less and less exclusive, it would follow that it would have less and less value. Now, each network provides more programming or less programming than the other, so those discussions are nuanced. Obviously, you know, we're paying for the rights to bundle the network programming with our local programming for resale to advertisers and to distributors. To the extent that that, as I said, some of that programming is less exclusive, then it inherently has less value to us, and we'd be willing to pay less for it.
Thank you.
We'll take our next question from Alan Gould with Loop Capital.
Thanks for taking the question. Two here. Tom, you mentioned that the sports gaming in the more mature markets offset some of the growth in the older markets. What are you seeing? Can you quantify what change you see as sports gaming becomes more mature in a marketplace? Secondly, can you discuss what sort of a crowd-out effect we should expect from the political advertising as the year goes on, what crowd-out effect it has on core?
Sure. I'll take the political question, then I'll throw sports betting to Lee Ann. We will see some crowd-out in the fourth quarter, but our expectation is that we will see growth in Q3 and Q4 over 2021 levels, even with the crowd-out. You know, then we're just talking about how much growth will we see. I think we're, you know, very confident and optimistic with regard to the back half of the year overall, even with a pretty sober view on auto advertising. So I'll let Lee Ann tackle sports betting.
No pun intended.
Well, that was a good pun. I like that. You know, I think, you know, sports betting, I think I've said this in quarters past, it's just too early and there's just, like, a lot of different moving pieces with new states coming online and, you know, the different operators doing different things in the markets. You know, what continues to be a driver for us is new states launching. Obviously, Tom talked about, you know, New York, Louisiana, Illinois being good markets for us. We continue to have, as we look at, you know, sort of our top five states, you know, three of them are, you know, states that launched, you know, early on in the process.
You know, we continue to see, you know, spend, but, you know, we're obviously in a little bit of a dynamic market here and are focused on, you know, new states that as they come online, we think we mentioned Ohio could be large. I think, you know, California's got something on the ballot. There's a number of other states that we will look forward to seeing growth in going forward.
We think that the local broadcasters are really at an advantage here because as sports betting moves into new states, you can target those states. For example, I think I mentioned we're in every market in Ohio, save two. We're in basically every market in North Carolina. So when sports betting firms target those states, they don't have to buy nationally to achieve their goals, they can buy locally. We think that given that we're in 80% of the states where sports betting either is legal or expected to be legal, that we will benefit disproportionately from that.
Absolutely. Can you just remind us what percentage of your core sports betting represents these days?
It's like 5 or 6%. I'm just trying to find the number here on my,
Okay.
It's a little over that. It's about 7% for the quarter.
Thank you.
That's gaming and sports betting altogether.
Once again, that is star 1 if you would like to ask a question. We'll now take a question from Craig Huber with Huber Research Partners.
Great, thank you. Can you guys maybe just talk a little bit further about the advertising environment? Just expand upon what you said before. I'd be curious if you could maybe give us a core advertising pacing number for the second quarter year-over-year. I mean, is it tracking up 2, 3, 4%? I mean, how is that looking so far? Maybe talk about auto as well, if you would, please.
Sure. I'll start and then others can add. We actually saw a slight acceleration in April results versus increases over the prior year versus our Q1 finish. Broadcast, digital and networks were all up versus the prior year, versus their percentage increase versus the prior year in Q1. We think that's a positive sign. Obviously, April's in the books. I would say thematically, the quarter from a core and category perspective looks a lot like first quarter. I mean, automotive is trending slightly down from the prior year, but not as much as maybe some others have reported. The other categories that have been driving our growth of entertainment and gaming and services and all of that continue to drive that, you know.
In the first quarter, 6 of our top 10 categories showed increases to the prior year and 19 of our top 25. You know, we don't see things thematically that much different in second quarter given that we have 1 month of the quarter in the books. You know, we see continued growth in core along the lines of what we saw in first quarter.
Basically, all the macro issues out there so far, don't feel like you're feeling the pinch on that. I mean, your numbers speak for itself, your commentary does. Just the inflation, the higher interest rates, obviously the Ukraine issue, supply chain issues obviously hurting certain categories and stuff, but you're powering right through that. Your advertising is quite strong. It's the message you're saying here. It's
Well, that was all there. That was all there in first quarter, and we posted the results, we did. It's all there in second quarter. You know, we're living with, you know, the current rate of inflation, the price of gasoline, 5% mortgages, and the results are what they were in the first quarter. Nothing really has changed, you know, as we have moved into second quarter. You know, and you know, when you track, you know, 50 categories, you know, some are gonna be up, some are gonna be down on a comparative basis. Again, if I look at our pacing throughout the quarter, it, you know, it looks a lot like first quarter in terms of where we think we'll end up.
Great. My last question, if I could, for the digital side of things, I mean, if you could talk a little bit further about the organic revenue growth there and maybe separate between the local side versus national and how the performance went in the quarter, maybe where your outlook is in the second quarter, please, for that. Thanks.
Sure. Well, as I think we mentioned, local was very strong from a local digital perspective, seeing double-digit increases both in our digital agency services, which is our selling, you know, broad websites as well as our owned and operated websites. National was less robust in the first quarter because of some of those issues. The Hill, in particular with the Ukraine conflict, saw a decrease in advertising for a period of time at the beginning of that. Subsequent to that, over, you know, in the last half of April and early May, the advertising revenue has returned there because people advertising just didn't want to be associated with that news. I would say thematically that local is performing as or better than expected, and national is probably slightly behind our expectations, but still positive.
Great. Thank you.
Once again, that is star 1 if you would like to ask a question. We'll now take a question from Jim Goss with Barrington Research.
Thank you. One question I have involves the ATSC 3.0. In terms of the monetization devices you plan to use, for example, you brought up the notion of improving and correcting GPS signals. How would you get paid for that? Delivering information in sort of a consultancy or some other way? On a related basis, I think you've framed out in the past that all of the things you can do with this new technology could have a potential opportunity over time on a scale of retrans, if I'm not mistaken. Could you tell me if that was a correct recollection?
Yes, Jim. We think that over time, you know, that means probably end of this decade, total revenue from and monetization of and ancillary uses of our spectrum, we believe, could rival current distribution revenue, you know, which for this company is something, you know, north of $2.5 billion this year. We think it's a substantial value creator, and we think it's the greatest opportunity to create value in our business today as we know it, which is why we talk so much about it, why we're focused so much on it. There, you know, I looked at two demonstrations at NAB. One was as you mentioned on correcting GPS signals.
When you think of, you know, just look out your office window and anything that you need to know where it is or it needs to know where it is, I mean that addressable market is potentially huge. The other demonstration I saw centered around distributed power. You know, that has all sorts of applications. It could just be, you know, B2B and utilities, you know, talking with itself and but it also could be utilities talking with consumers and offering incentives, you know, during peak periods of the day to raise your thermostat and get $25 off your bill. There's just, you know, it gets real wonky real fast. You know, the opportunities we think are myriad.
We see ourselves as having the toll road that, you know, other folks can drive on to execute their vision as to what they can do with this spectrum. The BitPath consortium that we invest in and are a part of put together kind of a developer's toolkit, which we view as being basically open source, which has got all of the dongles and the bird's nests and all the things, you know, that are a part of the necessary toolkit to be able to enable uses of the spectrum. We see it as being an open source and, you know, let the market decide the highest and best use of the spectrum. We see ourselves as operating the turnpike.
Okay. Well, that's a great analogy, the toll road idea. But in terms of the way you would collect those tolls, have you gotten as far as thinking of how that sort of thing could work? Are there any examples you've come up with to this stage?
Sure. I mean, you know, we could lease, you know, a sliver of our spectrum in every market that would reach, you know, 68% of the country to, you know, Netflix if they felt that they needed, you know, higher speed delivery or were being throttled by conventional providers. That's, you know, point-to-point wireless mobile on-the-go, you know, and it would just be straight out lease payments. I don't know, although I wouldn't rule it out, but we might invest in some of these businesses with use cases.
I think again, you know, we make money today leasing out our spectrum on an ancillary basis for diginets, either ones we own that we monetize vis-à-vis advertising, or we just lease, you know, slivers of our spectrum to others for, you know, diginets distribution. I think the future is potentially analogous to that. Again, you know, spectrum is generally valued on a per pop basis, and retrans is valued on a per sub basis. The comparisons are not wholly dissimilar. Again, we think that, you know, when you look at the connected car and digital signage and telemedicine, you know, interactive television, I mean, there's just, you know, any number of potential use cases.
What we want to do is let the market decide the highest and best use of the spectrum, provide the tools for developers that wanna develop for this market, and then, you know, like I said, we'll determine the business relationship, I think, as these use cases come about. You know, you don't need. You know, you just need the ATSC 3.0 signal on the air to be able to monetize it. Now, you're somewhat restricted during a transition period because of the lighthouse situation of not having extra spectrum to be able to create on one and then shut off the other, and then here we go. Right now we're kind of lighthousing each other's, you know, 1.0, 3.0 signals to be able to develop this, the transition.
Ultimately, that's why I say by the end of the decade here, we are hopeful that there, you know, there are all kinds of opportunities, whether it's, you know, education and distance learning and just, you know. I again think of us as the wireless interconnector of the Internet of Things. You know, when you think about that, you know, it's how many different things can you think about? I think there are a lot. We are bullish on ATSC deployment, and we'll lead the industry with stations reaching 50% of the population with a 3.0 signal available by the end of this year.
We will continue to hopefully be at the forefront of development of the business case, the use case, and the monetization efforts as well.
Okay, great. Thanks for that embellishment. One other question, I'm just sort of curious. You've carved out a neutral situation with NewsNation, and I'm wondering if you would be in a somewhat unique position, if not or at least rare position, to maybe hold panels where you'd have points of view from different points of view on the spectrum, political spectrum, that might attract parties from both sides of the competitive landscape you have.
Jim, do you mean from a revenue or from a content perspective?
No, from a content perspective that might interest viewers. I think one of the issues with carbon neutral is, you know, it can be palatable to anyone, but a lot of the viewers tend to go to whatever base they tend to focus on, whether they're liberal or conservatives. You would be positioned in the middle and may be able to get people from either side. I wonder if that might be a way to create content that could create advertising opportunity that might attract viewers from the other competitors.
Sure. Well, you know, we are doing that today, and if you watch our prime time programming, you know, we will have people on from opposing points of view to you know, discuss and make their points with our hosts and moderators offering, you know, to be kind of referees and where appropriate, injecting their own opinion, but clearly labeled as such. I would tell you, though, I mean, the opportunity with NewsNation is not only that, but it is to cover the stories that other networks aren't, you know, covering.
You know, we were the first on the scene and the first to interview the car wash operator in the, you know, the recent drama with the, you know, the former corrections worker as well as the convict she was on the run with. That would not have been possible without our contacts in Huntsville, Alabama, where the jailbreak occurred in Florence and then in Evansville, Indiana, where we obviously have station presence. We were interviewing people live on the air when other cable networks were doing phone interviews with anybody they could get a hold of. That's where our local source knowledge, you know, really plays in.
A couple of weeks ago was Truck Week on NewsNation, where we profiled the American trucker, talked about the trucking industry, its importance to the country, talked about women entering the workforce of being, you know, big rig drivers. You're not going to see those stories on other cable news networks. You know, we're covering a large part of the country and stories in a large part of the country that perhaps others don't pay attention to. You know, we think that's where we can really show our stuff as well as being unbiased and political.
You know, we will have a show on the air before the end of the year called The Hill because we own the, you know, the digital asset, The Hill, and that will be necessarily kind of a Washington, D.C. panel type show. I don't think you'll see the entire lineup made up of those. We think, you know, a smart mix. We had our highest demographic ratings 5-11 P.M. last week since we started. It's every week we see, you know, green shoots in one program or another. The ratings are small, but they're growing. I said, "Don't focus on the ratings, focus on the growth." You know, this is a long marathon.
It's not a wind sprint, but I'm proud of what we put on the air every day. I've never been embarrassed by a second of what's gone out over the air. We think it's a great environment for viewers, smart viewers to come and be informed and not pandered to. We also think it's a smart environment for advertisers because the content itself is professionally produced and definitely not toxic.
Okay, great. Thanks so much.
As a final reminder, that is star 1 if you would like to ask a question. We'll pause for just a moment. Again, that is star 1 if you would like to ask a question.
We're hearing no more questions, operator. Thank you very much to everyone for joining us this morning. I'm sorry?
We actually do have you do have some callers in queue. We'll take a question from Kate, follow-up question from Craig Huber with Huber Research Partners.
Okay.
Great. Thank you. Just wanted to Perry, your comments about usage of spectrum down the road here. Obviously, you're saying you think you'll be at 50% reach of the U.S. population by the end of this year. Your TV stations in total, as you've said, reach, what? 68% or so. When would you expect to start inking maybe your first contract on this new use of this renting out the spectrum? How far out do you think that is, possibly?
Well, we make about $80 million a year on ancillary uses of our spectrum right now, so we're already monetizing, and it flows through the distribution line, or in the case of diginet advertising, flows through the advertising line. So it's not as if it's laying fallow today, and that's with a mix of 1.0 and 3.0 spectrum available. As I said, I think you'll see, you know, and I think I mentioned on our last call, if you look at the overlay of Scripps and their spectrum and Nexstar and our spectrum, we have an unduplicated reach of 92% of the United States population. I think you can build a business on that.
You know, so we are in the early stages of having conversations about things we could do together that wouldn't require a consortium or a committee or anything else. You know, you've got to have two parties to agree, you know, but I do think that you'll see, you know, once we get to 50% on our own and could reach maybe 90% of the population with a partner or two, I think then you'll begin to see use cases, and I think that's gonna be, you know, within the next two years.
Great. Thank you.
We'll take our next question from John Kornreich with J.K. Media.
Did I miss the Food Network distribution amount for the first quarter? I have a couple of follow-ups on that.
The Food Network distribution amount, it's in the earnings release, and you can see it's $193 million.
That was up.
It was up $15 million.
That was up $15 million?
Yes.
Okay. Does that represent roughly 90% or so of what you're gonna eventually receive for the year?
The distributions are lagging, right? That relates to the earnings for the Food Network from the prior year.
It does. You know, it represents, you know, the distributions that is an LLC is a partnership.
If you look historically, the first quarter has been less than 90% of the total.
Right. Less than?
I don't know exactly what the number is, but my guess is it's probably closer to 75 or 80 of the total.
Okay. Finally, the distributions that are made by Food Network, do they represent virtually 100% of all their free cash flow, or do they retain something?
It's based on their pre-tax earnings, and we get 31.3% of that.
Of the pre-tax earnings. Okay. Thank you. That's it.
It appears there are no further telephone questions. I'd like to turn the conference back over to our presenters for any additional or closing remarks.
Thank you, operator. Thank you all for joining us today. In periods of market uncertainty, one thing has remained true. Thoughtful investors who have taken advantage of market volatility to buy Nexstar shares have never been disappointed given our consistent financial outperformance, our industry-leading free cash flow generation, and our low leverage. Thanks everyone for joining us today. We look forward to speaking with you again when we report our second quarter results. Have a great day.
Once again, that does conclude today's conference. We thank you all for your participation. You may now disconnect.