Earnings Call: Q3 2022

Nov 8, 2022

Election Day, everyone. I'll read the safe harbor language and then we'll get right into the call. All statements and comments made by management during this conference call, other than statements of historical fact, may be deemed forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995. Nexstar cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those reflected by the forward-looking statements made during the call. For additional details on these risks and uncertainties, please see Nexstar's Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission, and Nexstar's subsequent public filings with the SEC. Nexstar undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. It's now my pleasure to turn the conference over to your host, Nexstar Chairman and CEO, Perry Sook. Perry, please go ahead. Thank you, Joe, and good morning everyone. We appreciate you joining us this morning on this Election Day to discuss Nexstar's record third quarter financial results. With me on the call today are Tom Carter, our President and Chief Operating Officer, and Lee Ann Gliha, our CFO. I'll start with a summary of recent highlights and developments, followed by Tom's operational review as well as Lee Ann Gliha's financial review. Then we'll get to your questions. Nexstar delivered another period of outstanding financial results and shareholder returns, including all-time high third quarter net revenue, adjusted EBITDA and free cash flow. Our record top and bottom line performance was led by strong year-over-year growth in political advertising, distribution and digital revenue. Our ability to deliver record results and excellent shareholder returns quarter over quarter and year after year underscore the benefits of scale and the strength and the resiliency of our operating model, and our ability to consistently generate substantial levels of free cash flow. In the first nine months and in the third quarter of 2022, we returned $730 million and $250 million, respectively, to shareholders through share repurchases and dividends. The nine-month shareholder return represents a 48% increase over last year and approximately 68% of our free cash flow. As today is Election Day, we have pretty clear visibility into our 2022 political revenues, excluding the impact of any potential runoff elections. I'm pleased to announce that we booked total net political revenue for the fourth quarter of $260 million, which equates to $500 million net for the year as of today. That represents 103% of our election year 2020 dollars as of Election Day. 2022 has not only been a record midterm election year for our political advertising, but it is nearing an overall record for our political advertising, including presidential election years. Once again, local television remains the medium of choice for candidates to reach local voters at scale. Candidates are not alone in choosing broadcast, as I'll talk about in a minute. Sports organizations like the NFL and team owners like Steve Ballmer, content creators and local advertisers all see the power and the broad reach of the local television broadcast audience, something Nexstar is uniquely positioned to offer at scale across the country. As part of our earnings call today, I'll cover three areas that have been top of mind for investors. First, I'll discuss the impact of the economic environment and how Nexstar's business is positioned well to offset these challenges. Second, I'll provide an update on our distribution renewals and why we continue to be confident of our ability to grow this revenue stream. Third, I'll briefly touch on the longer-term growth drivers of our business, including our recent acquisition of The CW and why Nexstar remains one of the best positioned media companies to succeed in today's marketplace. Our business has several distinct competitive advantages that will enable us to continue delivering the financial performance, cash flows, and shareholder returns investors have come to expect from Nexstar. We have a highly diversified revenue model. For several years now, over 50% of our total net revenue has been derived from distribution revenues. This contractual and recurring revenue source has historically been resistant to periods of economic downturn. With less than 1/3 of our third quarter revenue coming from core television advertising, we are less dependent on advertising revenue than we ever have been before. Our audiences are valuable. Today, broadcast television remains the only place for content creators, sports organizations, team owners, and most importantly, advertisers to access local audiences at scale. We have developed these audiences over decades by consistently providing top-rated local news, sports, and entertainment content. A great example of the power of broadcast is NFL Thursday Night Football, where we can see what audiences prefer, Amazon Prime or local broadcast. We pulled the data from Nielsen for the first 7 games, and it shows that when NFL viewers have a choice of watching the game on Amazon Prime or watching it on their local broadcast station, on average, 73% of the NFL viewers are choosing to watch Thursday's game on their local broadcast station. This comes as no surprise to us. Local audiences prefer to watch via a station they have a relationship with shoulder and ancillary programming that resonates and via a technology that has no delay and provides seamless delivery. The attractiveness of our platform is further demonstrated by our new agreement with former Microsoft CEO and LA Clippers owner, Steve Ballmer, who is bringing the LA Clippers back to broadcast television to help reach audiences that the Clippers are currently not able to reach. Our number one LA station, KTLA, along with a number of our other California-based stations, will air 15 NBA games of the Clippers exclusively over-the-air this season. We have built an unparalleled competitive moat around our economically resilient local advertising business. Over the last two and a half decades, we've developed a team of more than 1,500 local sellers and our stations have cultivated over 40,000 SMB and advertiser relationships in the 116 local markets we serve, reaching over 68% of America. On the local level, there is no one in the TV industry with greater sales resources and consumer reach than Nexstar. This isn't something the larger AVOD or streaming companies can easily replicate, as it requires both local scale and meaningful investment. While some pure play streaming companies are now embarking on an effort to replicate our business model, ours is proven and consistently and currently delivering today. The results only a platform of our scale and our efficiency can deliver. As I previously mentioned, we are a significant beneficiary of record-setting political television ad spend, which is not dependent on the economy. Look at the last two election cycles, political advertising revenue has accounted for approximately 10% of our total net revenue on average. Our focused approach to optimizing political advertising opportunity and our scaled presence in our markets representing over 80% of contested races gives Nexstar a distinct competitive advantage in capturing leading shares of our spending. Third quarter political revenue increased 49% on a quarterly sequential basis and was up approximately 28% over pro forma Q3 of 2018. As I mentioned earlier, we are on track to deliver record midterm election year revenue in Q4. We have an efficient operating model and we pay close attention to operating expenses on our balance sheet, with only 3.2x net leverage is in great shape. Taken together, these factors continue to set Nexstar apart from others in the media industry and other industries, and will enable us to offset any near-term challenges while extending our strong long-term record of growth and shareholder value creation. Turning now to our distribution agreement renewals. We recently reached a comprehensive multi-year distribution agreement with Verizon Fios to carry Nexstar local television stations in 10 markets and Nexstar's fast-growing national cable news network, NewsNation, in all Verizon markets. We remain in active negotiations with the remainder of our distribution partners, with now slightly less than half of our total subscribers up for renewal before year-end. While we did experience a slight uptick in the sub attrition rate in the third quarter, we continue to be confident in our ability to grow our distribution revenues even in the face of MVPD subscriber attrition, given the continued disparity between the percentage fees the broadcasters get paid versus the continuation of our stations to total viewership, and the fact that we also get paid when a consumer moves to a virtual MVPD service. Moreover, a recent Leichtman research report found that 66% of TV households and 73% of adults aged 45 or older, representing more than half of the adult population, have a paid TV service, providing us with an excellent base of entrenched consumers. Before I hand the call over to Tom, I want to briefly touch on 3 organic growth prospects that we believe can lead to material value creation for Nexstar shareholders over the long term, including NewsNation, The CW Network, and ATSC 3.0. Starting with NewsNation, we continue to make progress building out the nation's only unbiased national news network. NewsNation now offers 17 hours of news programming per day and remains the fastest growing cable news network in the most watched genre of cable television by appealing to the majority of the population looking for an unbiased source for news. According to a recent Gallup poll, over 40% of Gen X and over 50% of millennials and Gen Z view themselves as independent politically, and Nexstar is building a profitable and differentiated national news network to serve those audiences. We will be a 24/5 news network in Q2 of next year, and we anticipate being a 24/7 cable news network by the end of 2024. We continue to enjoy valuable content synergies between NewsNation, our local stations, and The Hill. In the months running up to the election, several of our local TV stations hosted the only televised debates for key U.S. Senate races in Ohio, Georgia, and Pennsylvania, and governor's races in Texas and Illinois. We leveraged this exclusive to Nexstar content on NewsNation to drive increased ratings and awareness for the network. Nexstar Digital also launched The Hill TV, building on The Hill's success as an essential agenda-setting read for lawmakers, policymakers, and influential digital consumers from Capitol Hill to Main Street. Moving on to The CW. On September 30, Nexstar closed its previously announced acquisition of a 75% ownership interest in The CW Network. This transaction is expected to create value for Nexstar shareholders by solidifying the company's revenue opportunities as the largest CW affiliate group, diversifying our content outside of news, and establishing Nexstar as a participant in the advertising video-on-demand services via The CW App. Operationally, we're off to an excellent start. We appointed Dennis Miller to President of The CW Network, and as many of you know, prior to his appointment, Dennis served on the Nexstar board for 8 years, and he's a seasoned television executive with a long-term record of success in our industry. He knows Nexstar and how we run our businesses, and we are confident in his ability and focus to improve The CW ratings, revenue, and profitability. The CW is also continuing to make personnel appointments that will support our vision and goal for reimagining the CW with a focus on entertaining and profitable programming both on air and through the CW app. We also continue to make progress on the rollout of ATSC 3.0, and we are accelerating our discussions with potential technology and business partners for this service. We continue to believe the revenue opportunity for the applications of services using our spectrum could rival our retransmission revenues by the end of this decade. In summary, Nexstar's consistently strong results and free cash flow generation remain one of our most powerful differentiators from our peers as well as other diversified media companies. We feel very good about our year-to-date results and what we see for the balance of the year. Our resilient local advertising business, our ability to continue to grow distribution revenues, and a stellar political advertising year has enabled us to achieve our 2022 objectives despite market headwinds, the absence of Olympics in the quarter versus last year, and an increasing interest rate environment. Said more plainly, we are pacing to over-deliver on our 2022 free cash flow estimates that are embedded in our 2022, 2023 guidance. We expect fourth quarter to benefit, continuation of strong political advertising trends, which we discussed earlier. While 2023 will see distribution revenue upside from renewals of agreements representing more than half of our subscribers. Looking forward, we expect 2024 to benefit from another record year for political advertising due to the presidential election, combined with the benefit of another wave of 2023 distribution agreement renewals for approximately 40% of our subscribers. With that, let me turn the call over to Tom Carter for our operational review. Tom? Thanks, Perry, and good morning, everyone. We generated another quarter of strong operating performance with all-time high record third quarter net revenue of $1.27 billion, reflecting strong year-over-year increases in total advertising revenue, distribution, and digital revenues. Total television advertising revenue growth of 18.8% was driven by record third quarter political advertising revenue, which more than offset declines in core advertising we, like other media companies, saw. Our 7.6% year-over-year core television advertising revenue decline was primarily driven by double-digit rates of decline in national spot advertising, which represents approximately 30% of our core TV ad revenues. The absence of Olympic and political inventory displacement also affected the quarter. Mitigating the impact of national advertising market was our local television advertising revenue, which represents approximately 70% of our core television ad revenues. Local television advertising declined just 2% year-over-year, despite significant inventory allocations towards political during the quarter. This is in line with the historical trend, with local advertisers maintaining more consistent levels of advertising spending throughout economic cycles. In total, about half of our categories increased versus the prior year quarter, including our top performing categories of drugstores/medication, auto, home repair and manufacturing, attorneys, and entertainment. We're extremely pleased to see automotive, our largest advertising category in terms of dollars spent, return to growth in the quarter, increasing at a mid-single digit percentage over Q3 of 2021. In addition, Nexstar's local sales initiatives continue to deliver healthy levels of new business, and our sales teams generated new local television advertising incentive program revenues of $36.1 million for the quarter, which was up 4% over the prior year. The key categories responsible for poor advertising revenue decline were sports betting and gambling, which I'll talk more about in a minute, government services due to the marketing funds related to COVID-19 running out, insurance, direct response, and medical healthcare. The sports betting and gaming category declined by a mid-single digit millions of dollars year-over-year due to fewer state launches in the quarter, a general movement by larger sports betting operators of their advertising dollars to the national market, and reduced spending in more established markets. Most impactful to the quarter, however, was the redirection by sports betting and gaming companies of television advertising dollars to voter propositions to legalize online sports game gambling in California. If we include the political advertising dollars Nexstar received related to those propositions, our sports betting and gambling category would have been up. We remain cautiously optimistic about this category as states continue to legalize online sports betting. Ohio, which is a large state for us, comes online in January 2023. Kansas came online in September of this year, and Massachusetts is expected in 2023 as well. Third quarter political advertising of $129.3 million was approximately 28% ahead of pro forma 2018 Q3 levels. Nexstar benefited from strong spending around key races and primary elections for Senate seats in Nevada, Ohio, and Pennsylvania, and governor races in Illinois, Texas, Oregon, Rhode Island, Pennsylvania, New Mexico, Ohio, and Nevada. As a percentage of total political advertising, PAC issue spending accounted for 59% of revenue, and candidate spending represented 41% of revenue. Record third quarter distribution revenue rose 3.7% from the prior year quarter to approximately $642 million, reflecting distribution agreement renewals in 2021 on improved terms and annual rate escalators more than offsetting subscriber attrition. While we did experience a marginally faster rate of subscriber attrition during the quarter, year-over-year sub growth and our retransmission fees in virtual MVPDs and other direct consumer services continued to offset MVPD declines. We also continue to have good visibility into our net distribution economics with only our ABC affiliate up at the end of this year. With approximately half of our subscribers renewing in the fourth quarter, we continue to expect a higher growth rate from this revenue source in 2023. Taking a step back for a minute, I wanted to provide some color on how our investors should think about our distribution revenues more generally. Nexstar generates distribution revenues from linear MVPDs like Comcast and Charter, virtual MVPDs like YouTube TV and Hulu, and other direct-to-consumer platforms like Paramount+ and Peacock. For our linear MVPD relationships, Nexstar negotiates these contracts directly with the MVPDs for carriage. This is where our scale really comes into play and matters. We are by far the largest local broadcaster and typically the number one or number two affiliate of the broadcast networks, and our stations generate a significant portion of the viewership for the MVPD services. We negotiate these contracts with the MVPDs typically once every three years. At that time of the contract renewal, we have historically seen significant step up in rates owing to the relatively higher percentage of viewership our content delivers compared to the relatively low share of fees paid to us by the MVPDs versus other content owners. We also typically have annual escalators in these contracts. You will see usually year-over-year increases in distribution revenues, especially in years like 2023, when we have renegotiated distribution contracts with more than half of our subscribers by the end of this year. Separately, we negotiate agreements with networks to pay them affiliate fees that return a portion of the linear distribution revenues to them. With respect to the virtual MVPDs, the broadcast networks, including the CW, which we now control, negotiate carriage, so Nexstar is paid a distribution fee that is net of the implied affiliation fee. On an apples-to-apples basis for our big four affiliates, the net subscriber rates we receive from the virtual MVPDs are about the same as the net revenue per sub rates after affiliation fees we generate from our linear MVPD relationships. Given our renewal cycle, we have a little more than half of our subscribers renewing in 2022, which will drive distribution revenue growth even with subscriber attrition in 2023. This growth will continue into 2024 as we'll be renewing approximately 40% of our subscribers at the end of 2023. We feel good about our growth on this line item and for the next two years and beyond. Now moving back to the rest of our revenue line items, Q3 digital revenue increased 5.7% year-over-year to approximately $86 million. This increase was driven by strong year-over-year growth in our local digital advertising revenue and agency services business, and a full quarter contribution from The Hill. Our top line growth and continued expense management drove record third quarter adjusted EBITDA of $489 million and free cash flow of $294 million. Nexstar generated 39% adjusted EBITDA margins, and we have converted approximately 60% of adjusted EBITDA to free cash flow. While we're executing well on our business, we continue to take a leadership role in supporting communities where we operate. On the journalism front, Nexstar Media Inc. stations earned a Sigma Delta Chi Award from the Society of Professional Journalists and four national Edward R. Murrow Awards from the Radio Television Digital News Association, including recognition for excellence in innovation, breaking news coverage, digital, and podcast. Every day, our newsroom produce fact-based and unbiased content, and Nexstar's high standards of journalistic integrity enable us to develop and maintain trusted relationships with our audiences and our communities. In summary, our results reflect continued strong performance across key near-term growth areas, including distribution, political advertising, new local direct advertising, and digital, with even more opportunities to drive growth ahead of us. While we cannot control how the economic situation evolves in the coming months, we have a well-established playbook with very clear actions we can take to preserve our cash flows and drive continued progress against our long-term growth strategy. Looking ahead, we remain focused on what we can control, maximizing our growth opportunities, maintaining our capital structure, serving our customers and communities, and delivering results for our shareholders. With that, it's my pleasure to turn the call over to Lee Ann Gliha for the remainder of the financial review and update. Lee Ann Gliha? Thank you, Tom, and good morning, everyone. We have continued to build on our progress in Q3, executing on our strategy, delivering record results, and returning significant capital to shareholders. Tom and Perry gave you most of the details on the revenue side, so I will jump to the expenses followed by some points of guidance on Nexstar's business and the CW Network. Together, third quarter direct operating and SG&A expenses increased by $28 million or 4%, primarily as a result of higher variable costs related to higher revenues, increased programming and other costs related to the move of NewsNation from syndicated programming to news programming, which is offset in our adjusted EBITDA calculation from reduced programming payments related to syndicated content, as well as a full quarter of expenses from The Hill. As a percentage of net revenues, our total expenses declined given our focus on controlling expense growth and significant political revenue growth. Our corporate expense was approximately $52.5 million, including non-cash compensation of approximately $17.2 million, which grew due in part to new grants associated with the CEO's new contract and approximately $2.4 million of one-time expenses associated primarily with the acquisition of The CW and various corporate development activities. Third quarter CapEx was approximately $36.7 million. Again, CapEx was lower than expected, primarily due to delays in receiving equipment due to supply chain disruption. Third quarter total interest expense increased to approximately $89 million, lower than expected as interest rates did not increase as much as the forward curve predicted at the time of our last earnings call. Cash interest expense was approximately $86 million and compared to $67 million last year, due primarily to increasing interest rates, offset in part by debt repayments and lower spreads on a portion of our debt from our refinancing in Q2. Third quarter operating cash taxes were $90.5 million. We recorded $11 million in distributions from equity investments related to our 31% ownership in TV Food Network in the third quarter, which represents a 29% decrease over the prior year quarter. These interim distributions are primarily for tax payments and are due to lower operating income this year versus last year. Looking ahead, excluding the impact of The CW, we project corporate overhead exclusive of stock comp and transaction costs to be approximately $32 million in the fourth quarter, and we expect corporate overhead around $130 million for the year. Non-cash comp is expected to be approximately $18 million for the fourth quarter and in the $62 million area for the full year, but will vary based on stock price and actual grants. For cash taxes, we used a 26.5% tax rate when calculating our estimated tax before one-time and other adjustments. We now expect that cash taxes will be around $336 million for the year before any tax benefit from the losses at The CW attributable to Nexstar, given current expectations for the business. We are currently projecting cash CapEx of more than $51 million for the fourth quarter to get to our target of $150 million for the year. As equipment has been delayed due to supply chain issues, CapEx spend has been pushed into the fourth quarter. As a reminder, we typically spend more CapEx in even numbered political years than non-political years. We expect Nexstar's cash interest expense to approximate $103 million for the fourth quarter and $326 million for the full year, reflecting a continued increasing interest rate environment net of our recent refinancing and expectations for debt repayment. Turning to the balance sheet, Nexstar's outstanding debt as of September 30, 2020, was $7.18 billion. Total net debt amounted to approximately $7 billion at quarter end, down from $7.2 billion as of December 31, 2021. Net debt for first lien covenant purposes is $4.2 billion. Our first lien covenant ratio at September 30, 2022, was 1.92 times, which is well below our first lien and only covenant of 4.25 times. Our total net leverage at quarter end was 3.18 times, down from 3.7 times at December 31, 2021, and 3.32 times in Q2. Also expected to positively impact our fourth quarter is the anticipated sale of one of our remaining real estate properties in Chicago for net cash proceeds of approximately $155 million. Transaction is expected to close later this month. We expect leverage to further decline by the end of 2022 due to a combination of allocating a portion of our free cash flow to reduce indebtedness, primarily from mandatory amortization payments and increasing EBITDA, given our outlook for the year. As a reminder, The CW will be designated as an unrestricted subsidiary under our debt agreement and therefore will have no impact on our leverage ratios. The financial results of The CW will be consolidated with Nexstar's results in accordance with GAAP. We also intend to provide investors with supplemental financial presentations, including non-GAAP measures for net revenue, adjusted EBITDA, and free cash flow that reflect, one, Nexstar's operations excluding The CW, and two, The CW operations on a standalone basis. Going forward with respect to our guidance, we expect to continue to report free cash flow guidance for the business excluding the investment in The CW, which I said will be separately re-reported until we bring it back in. In particular, keeping in mind, related to our Q4 and overall financial outlook, as we stated on our August investor call, based on our plans, we believe we can bring The CW to profitability by 2025, and we expect to invest a low nine-figure amount over this three-year period as we implement our plan. Given the network's existing programming commitments for the 2022/2023 broadcast season, the majority of these losses will be weighted towards the fourth quarter of 2022 and in each quarter of 2023. Since there was no upfront consideration for us to acquire the network, we view this amount as a proxy for purchase price or an investment made over time rather than as an ongoing drag on cash flow. We anticipate The CW will generate revenue just under $70 million in the fourth quarter with a comparable negative amount of adjusted EBITDA. In addition, as you have seen in the media, we are executing on our synergies and getting the right people in place there. There will be an incremental low eight-figure amount of restructuring charges related to The CW in the quarter. Nexstar has an attributable interest of 75% in these figures and will be able to offset a portion of the losses against taxes payable at Nexstar. As we move into a more uncertain economic environment, we will reap the benefit of our disciplined financial management. We continue to focus on the DNA of Nexstar, that is free cash flow generation, and we are confident in our ability to navigate proficiently through no matter what market conditions appear. At this time, we may remain well positioned to deliver strong growth in 2022 and continue to generate returns for our shareholders in the future. That concludes the financial review for the call. Operator, please open the line for questions. Of course. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star one on your telephone keypad. Just keep in mind if you are using a speakerphone, please make sure your mute function is released so your signal can reach our equipment. Once again, star one for questions. We will pause for just a moment to allow everyone an opportunity to signal. We will begin with Dan Kurnos with The Benchmark Company. Great. Thanks. Good morning. 3 if I can, then I'll keep them quick. We'll start with the easy one. You guys are the only broadcaster to report above guide on political. We had heard from everyone else that there were geographic share shifts. Obviously, you guys have done a great job and gotten a lot of very positive press around the exclusivity of the debate. I don't know if you're getting incremental dollars from that, but just any incremental thoughts you have around, you know, why you guys outperformed on political. Well, I think, Dan, if you remember back to 2016, we had a similar situation where we were the only company that achieved its political guidance for the year. I think it's because we take a very disciplined approach to our forecast model, and certainly as it relates to political. The broadcast leadership team and our FP&A folks do a very deep dive into each race, each ballot initiative, how much money has been raised, who the candidates are, what happened the last time this race was contested. There's a lot of work that goes into it. We just don't apply a factor to the past and come up with an estimate. I'm not saying that that's what other folks do, but there is a lot of work. I have a book that is three inches thick in my office that is our political buildup for 2022, and we'll have a similar one for 2024. I think it's just, it's doing the work, doing the research and obviously staying close to your business. All right. Fair enough, Perry. Tom, thanks for the education lesson on retrans. Just to be clear, you know, as we look out, it sounds like no change to your net retrans forecast. I'm wondering if there's anything underlying. You know, you guys obviously have scale on the MVPD side. I'm wondering if you get some incremental benefits on the reverse side too that might help, you know, keep the blended average of linear and net closer than maybe the peer group. Well, as I think you've heard us say many times, scale does matter in terms of negotiations on any one of a number of fronts. I'm not gonna comment specifically with regard to any specific network or MVPD. With regard to 2023, no change in our expectations at this time. We're evaluating 2023 going forward. Obviously, we have a number of subscriber agreements with MVPDs that are up between now and year-end. Also, as we mentioned before, we are seeing a slight uptick in attrition. All of that goes into the calculus with regard to 2023. We're not changing our 2023 guidance at this point. As you know, we always give reiterated guidance and updated guidance in the first quarter of the year, and we'll be doing that on a more informed basis as we move through the negotiation cycle here, and we have more data with regard to subscriber attrition trends. Got it. That was kind of my last question. The only other thing Go ahead, Tom. The only other thing I would say, as Leanne mentioned, we are on track to over-deliver on 2022 free cash flow. In terms of the 2022, 2023 guidance, we're in a really good spot. That's really what I was just gonna get to at the end. I mean, if we exclude the blackout, and I think Mission is still dark, but small. If we exclude the blackouts in The CW, do you have any view on blended 2022, 2023? Are you talking retrans or free cash flow? Free cash. Well, you know, the biggest impact is gonna be interest rates, I think, right? You know, we will exceed our 2022 free cash flow projections that go into the guide. That's despite, you know, 300 basis point increase in interest. You know, we're still gathering information 'cause it is a free cash flow guide. We feel very good operationally, but you know, we've yet to get a handle on interest rates and particularly interest rate increases for next year that could take a bite out of our free cash flow. That is the primary element I think that would determine any deviation from our pre-established guide. Got it. Perfect. Thanks very much. Appreciate the color, guys. Our next question will come from Craig Huber with Huber Research Partners. Thank you. First question, retrans subs. If you could just quantify for us, what is the percent change year-over-year for your retrans subs? Obviously, it got a little bit worse here, but what do you usually talk about on a trailing twelve-month basis? Well, as I mentioned, you know, the way that we calculate it includes MVPDs, virtual MVPDs, the diginet and the streamers. That has increased approximately 1% since the June quarter end. In the year-over-year, what is it versus a year ago? That's year- When you roll it all up. Yes. Okay. Talk a little bit more about political advertising. Political advertising for yourself and your peers generally is coming lower than people expecting in the third quarter, but what the fourth quarter is looking like here. What exactly is going on there from your perspective? I mean, people have talked about shifting to other markets overall fundraising lower than expected. When did you maybe perhaps start to see political coming in lighter than maybe you were originally thinking? Well, I can't speak to our peers. I can speak to the numbers that we gave you, and we have 103% of what we had on the books at election day of 2020. I will tell you that particularly the PAC money, as in a presidential year, the presidential money will move around based on races falling in or out of a competitive nature. You know, as we sit right now, we've got more money on the books for 2022 than we did at this time for 2020. Now, we had a 2-month runoff election in Georgia, actually two of them in 2020. And depending on who you talk to, there will either be or not be a runoff election in Georgia after tonight. You know, again, you know, we gave you our political number. It's slightly over $500 million for the year, absent any runoff activity. Again, we follow this closely, and we know that when races become non-competitive, that money, PAC money and other money will be shifted to other markets. We've been the beneficiary of that in some, and it's caused us to come up short of our expectations in a particular state. Overall, again, we are at and slightly ahead of our political guidance embedded in our guide. My other question, guys. Your comment earlier about the LA Clippers in Los Angeles, 15 NBA games this season you're gonna show there on your, I guess, your KTLA TV station there. Assuming that goes well, and I assume it will be, are you hoping to be able to do that elsewhere? What does that sort of mean for the regional sports network? Is that where those games came from? It is where the games came from, and these will be 15 games that'll be exclusive over-the-air. It was done in consultation with and ultimately consent with the RSN. The RSN will have the rest of these games. These are not simulcast. These are exclusive over-the-air. I think Steve Ballmer is a well-respected owner in the NBA, and we have subsequently had conversations with two other owners in the NBA about creating this similar type of, I guess you would call kind of a welcome mat package, right? That could introduce to the over-the-air audience that does not receive an RSN, a package of games that might have an interest in, you know, perhaps an RSN package or perhaps in a ticket package. I do think you'll see more of this as time goes on, and we have been engaged in some early discussions with other teams in markets where we have, you know, CW, my network or independent stations that could have the bandwidth to accommodate, you know, a slate of games. My final question, guys. There's this talk in the trade press about NBC potentially pulling their ten P.M. entertainment programming and stuff and turning over that hour to the local affiliates and stuff. If that does happen, what do you think that means for your financials, overall? Would it be neutral, good, bad? How do you view that whole development potentially? Oh, it'd be good. We'll make more money with an hour of news at 10 than we do with an hour of network programming where, A, we have all the inventory, and B, I would expect if, you know, NBC goes from 89 hours a week of programmed network program time to 81 or 82 hours a week of network program time, that we'd pay them less. But all around, listen, we have a number of Fox and CW and My Network stations that program news in that last hour of prime, and they are extremely profitable. Very good. Thank you. Now we will move to a question from Jim Goss with Barrington Research. Okay. Thanks. Couple of things. First, on The CW, I was wondering if you could characterize the timeframe of the programming shift away from the Paramount and WBD content, and how big a share they might have when you get to your end game. This is Lee Ann Gliha. You know, the programming for The CW is in place for the 2022-2023 broadcast season, so that extends through the end of August or September timeframe of next year. You'll see that programming that's consistent with what the programming has been historically on the air through that timeframe. Over the course of next year, we're really working to develop our slate, which will then come online in the 2023-2024 broadcast season. We will have some carryover commitment for the CBS and WBD programming in that year, but it's minimal at that point. Yeah. Okay. Warner’s and Paramount are not precluded from selling us programming. It’s just going to have to be at a financial deal that we like. There may be a couple of shows that distinguish themselves this year that we want to roll over into next year. I can tell you that Dennis Miller hired a very gifted programming executive, Brad Schwartz. Brad Schwartz, on a much smaller budget than we’d given him at The CW, was able to find and develop a show called Schitt’s Creek, which, you know, we told him, “Your job is easy. Just go find a couple more of those, and we’ll be in fine shape at The CW.” But he has a very creative mind, very creative deal-making, and has a sharp eye for talent. I like the direction that we're headed and I think you'll like the shows that we think will appeal to a broader audience, more of a mix of scripted and unscripted than we have today. I'm very excited at the progress in the early days. All right. Thanks. The one other thing I was gonna ask about, NewsNation, as we get to the end of the political season, is this a competitive benefit to you, moving into sort of a post-election cycle, or do you think political will still have an important role on NewsNation as you go through the years? Well, obviously in times of a big news cycle, all cable news networks benefit. You know, we certainly saw that and are seeing that. You know, we're you know, gaining share of audience and gaining share of revenues as we build out here. Our job is to introduce you know, likable, watchable, new and in many cases, well-known talent to the network as we expand our program schedule. I will tell you that the ability to take what the broadcast division developed in these debates in Ohio and Pennsylvania and Texas and Illinois and Georgia, and being able to stream those on our NewsNation app, as well as broadcast 3 of them nationwide on the linear cable channel, gave us huge credibility in the political arena. We did 50 debates as a company, and that's across the country. No other broadcaster can even come close to that. I think that in Washington, people see we are committed to the political process. Airing these debates unvarnished, we're not gonna tell you what to think. We're gonna put them out there and let you determine what you want to think. I think they have been and will be impactful in this election cycle. My hope is that will continue to elevate our stature as a place to go for as an honest broker of information that will show both sides, be fair to both sides, and let people determine what they think with an unvarnished you know opinion on it. I think that was a very smart way for you to insert yourself into the discussion. That's all I had. Thank you very much. Now we'll hear from Aaron Watts with Deutsche Bank. Hey, everyone. Thanks for having me on. Couple questions. First, nice to see auto in positive territory again. As best you can tell with the political crowd out, has that momentum continued in the fourth quarter? Is it coming from the dealer level, the OEMs, et cetera? Any color there would be helpful. Well, it's pretty much broad-based. We're seeing it across all three tiers, with you know, both manufacturers and individual dealer spending being ahead of the prior year. It's you know, it's all supply chain based. As they have more vehicles to sell, there is still pent-up demand. And so, you know, automotive being up 5, that's a great fact pattern, I think. Ultimately, I think as it gains momentum, as more units are delivered to dealers, this could be a tailwind for us in 2023 in terms of our core advertising. Okay, good. Leanne, just two quick ones for you. You know, I believe your cap stack is around 60% floating versus fixed now, correct me if I'm wrong. Do you have any great hedges in place? Finally, as you think about The CW, once you're able to achieve break even there, self-sustaining, would the plan B to fold it into the restricted group with the TV station portfolio, or is it more likely to remain separate for the duration? Yeah. On the first point, yeah, we're about a little more than 60% floating. We don't have any hedges in place. The low interest rate history has really impacted positively the business being more floating than fixed. We don't have that in place going from this point forward. The other thing on the CW being an unrestricted subsidiary, I think we'll look to probably bring that back in at some point in the future once we get it to profitability. Okay, great. Thanks very much. We'll now take a question from Steven Cahall with Wells Fargo. Thanks. I just wanted to go back to guidance. I was a little unclear there. In my memory, you typically give a numerical free cash flow guidance most quarters, I think pretty much every quarter except COVID. Just to be clear, at the moment, are you reiterating the free cash flow guidance that you've given before, excluding The CW? And same question on retrans, because you've given a quantitative, I think, mid-teens retrans guidance for 2023. Should we assume that is reiterated as well? Thank you. I think with respect to our free cash flow guidance, I think what you heard Perry say is that we're on track to overachieve the free cash flow that we had in the 2022 to 2023 guidance for the 2022 period. That's what we are stating here today. With regard to retrans, there's no change to our guidance for 2023 at this time. We'll be reevaluating that between now and year-end as we get more information on these contract renewals and more information, more in-depth information on subscriber trends. Gotcha. Tom, just with local down 2% in the quarter, including the crowd out, is your sense right now that you think core next year, kinda any sense between, you know, flat up/down, based on how that's trending? Let me take a stab at that. I think what we're seeing. Sure. It's pretty much across the board in broadcast and cable networks and national spot, national digital, as well as direct response. National advertisers are demonstrating some caution and some pullback in anticipation of consumer weakness. However, local, where the business owners look the customer in the eye at the checkout counter, has been much more resilient because locally, we are not seeing a consumer weakness. The consumer is still spending. I think that what you'll see, obviously fourth quarter with a record level of political advertising, but you know, in the first eight weeks of the quarter or six weeks of the quarter, there will be some crowd out there. And again, we're right in the middle of putting together our budgets and doing our deep dive on categories and all of that kind of stuff. Operationally, you know, we don't see a huge change in 2023 from what we've been delivering in 2022. You know, the biggest question I think is interest rates and, you know, we'll share more information when we are confident that we have good information to share. Thanks, Perry. Maybe a last one just on what you talked about with ATSC 3.0 being as big as it could be by the end of the decade. Do you at this point have any beta trials or test cases in terms of like business-to-business data casting? Would love an update on any work going on there. Thanks. I think you can expect to see an announcement sometime from us between now and the end of the first quarter on that. Thank you. Moving on to a question from Barton Crockett with Rosenblatt Securities. Barton, your line is open. You might be muted. Okay, sorry. Can you hear me now? Yes. Okay. Sorry about that. I wanted to ask a couple of questions about the kind of near-term numbers to make sure I understand what you're seeing and what you're saying. In terms of subscriber churn, you said 1 percentage point, I assume additional kind of deceleration. I think you were talking about a 2% kind of decline in subs. I think that's gone to about 3%. I wanna confirm that I'm hearing those numbers in the ballpark of correct. That's one. Secondarily on ad pacing, you know, you talked about the trend through the September quarter. I was wondering if you could talk about what you're seeing in core here in the I mean, here in the December quarter, what you're seeing in core, you know, particularly after the political, maybe November, December, what you're seeing in terms of pacings. I'll take the first one, and then I'll let Perry handle the second. What we said on the second quarter call in August was we had a low single digit attrition rate for all subscribers or all areas that were being paid for. Again, MVPDs, virtual MVPDs, NewsNation, diginet, and the streamers. That's the amount that has increased by approximately 100 basis points. So it would be, you know, more along the lines of low to mid single digits as opposed to low single digits. Is that helpful? That's helpful. Thanks for that hair splitting. It's important right now. I appreciate that. Yeah. I would just say, we have to start with the fact that we announced this morning we have doubled the political revenue on the books in fourth quarter that we did in third quarter. Obviously there will be displacement in core that will cause core revenue comparisons to the prior year to be lower than the third quarter. You should expect that in a fourth quarter with that level of political advertising. Thematically, I don't think we see much difference in you know, the categories that Tom reported on that are up and down. It's pretty much the same story in fourth quarter. It'll be a slightly greater order of magnitude given that we had twice the political revenue on the books than we did in with what we reported this morning for third quarter. In terms of, you know, after political, so, you know, from here forward, do you have any sense of the pacings? Are they still on track, still the same? We don't usually give pacing on a month-by-month basis, but yeah. Is December pacing better than October? Absolutely, in core. Okay. All right, great. Thank you. Next up, we have Nick Zangler with Stephens. Yeah. Hey, guys. Congrats on the quarter here. You matched the political ad spend or ad revenue from the prior election. Just coming off the Scripps call, they had suggested that total political ad spend is coming in around $8 billion for the year. I don't know the source, but just curious if you agree or disagree with that statement, because obviously if true, it would suggest that you guys were able to post a flat result relative to FY 2020 versus a material decline for the overall market. Then just relatedly, obviously, given your results and commentary, or the results and commentary from others, it would suggest that there were some pretty weak ad spend results in some states. Again, given your result, it would imply that, you know, maybe some states experienced pretty strong growth above and beyond what they did in 2020. Just wondering if you saw that as well? Well, yeah, I mean, we don't look at the macro other than our macro. In states, you know, I cannot opine on Arizona politics because we don't have a station there. I will tell you that the number one billing state for us right now is in Nevada. A single station will bill more political revenue there than any other in our company. That's because of obviously a very contested Senate race there. You know, states that were good for us, I think you heard Tom say Ohio, Pennsylvania, Nevada, California. California had all kinds of things going on, you know, the sports betting referendum as well as candidate races up and down the dial. We had more political in Texas than I think we anticipated, given a governor's race and some of the House races that are purple at this point and turning, you know, blue to red, particularly in South Texas, where we have a number of stations. This happens, right? PAC money will move around to support candidates when races become competitive. When they fall out of being a competitive race or outside of the margin of error, that money will go somewhere else. You'll see the same thing in 2024 once the presidential candidates are chosen for each party, that they, you know, that money will follow the, you know, the competitive states. You know, if a state falls out of being competitive, that money will move, you know, will dry up immediately. It's, you know, the fact that we reach, you know, literally 68% of the country with our broadcast signals and have over 80% of all competitive races. I think that's one of the reasons. The fact that we, you know, really do a deep dive into forecasting and updating our forecast. I think that's why you see our political performance, you know, where it is. It's interesting, you know, we have more money on the books today, as I said earlier, for 2022 than we had on the books this day, election day in 2020. We had a very important runoff in Georgia that was gonna determine control of the Senate, two races there, as well as two runoffs going on there, and they went on for two months. If there is a runoff in Georgia, it will be for one month. Our stations are in Savannah, Augusta and Columbus. We're not in Atlanta. It will have incremental impact if there is another race coming on or a runoff race. Again, to be literally within $20 million of our 2020 total for an off-year or mid-year election cycle is something we would call heroic, I think, in terms of the performance. My compliments to our broadcast management team as well as our station and sales managers for maximizing this opportunity. Yeah, no, I totally agree. Do you think that broadcast in totality was a beneficiary of any potential shifts out from outside channels? Like, do you think search and social media ad spend was diverted and maybe into broadcast? Can you see that or feel that? No, it's the story that gets told every year and, you know, and broadcast every year continues to take the lion's share of all political dollars spent. You know, we'll do probably. It'll be less than $20 million in political revenue across all our digital platforms. And that's primarily fundraising. It's not. I think that the internet has been seen as a fairly effective fundraising mechanism, but not necessarily a great get out the vote mechanism. You know, the politicians time and again prove that local TV works. If you know, and that's as close to a direct response. If you spend the money and get elected, it's kind of an affirmation that the system works. Got it. Last one for me. That conversion that you talked about from MVPDs to vMVPDs obviously results in a negative impact to retrans fees or retrans revenue even though the profitability is unchanged. I get that. Just, I'm wondering if you—how should we think about the embedded impact of this transition within retrans fees as we push forward and, you know, you continue to have fallout from the linear MVPDs into the vMVPDs? Is there like a negative 1% or negative 2% embedded headwind in your retrans growth because of that impact? Again, I understand the profitability is unchanged, but just on the top line there, just so I understand that. Thanks. I haven't done that level of detail, or I'm not in a position to comment with regard to the specific math on retrans revenue. You are correct, it will affect retrans revenue, but will not affect our contribution from the distribution ecosystem from that perspective. Yeah, just to put a finer point on it, I mean, it's less than 10% of our retrans revenue is coming from that source, so it's a small number. Got it. All right. Very helpful. Thanks, guys. Ladies and gentlemen, this will conclude your question and answer session. I'll turn the call back over to Perry for closing remarks. Thank you very much. Thank you all for joining us today. Underpinning our performance this quarter and every quarter is our strong financial framework and the cash generative nature of our business, which has enabled Nexstar to consistently deliver prodigious levels of free cash flow. Looking ahead, we will continue to execute against our long-term strategies, taking the necessary actions and making the required investments to shape the future of Nexstar while delivering long-term growth and outsized returns to our shareholders. Thanks again for joining us today. We look forward to speaking to you again next February when we report on our fourth quarter results. Have a great afternoon. Ladies and gentlemen, this does conclude your conference for today. Thank you for your participation. You may now disconnect.