Nexstar Media Group, Inc. (NXST) Earnings Call Transcript & Summary

Thank you, everybody. Welcome to the Nexstar fireside chat at the Goldman Sachs Communacopia and Technology Conference. I have the privilege of introducing Perry Sook, Chairman and CEO at the Nexstar Media Group. And alongside him is Lee Ann Gliha, who's the CFO of Nexstar. Perry founded Nexstar in 1996 and has over 40 years of professional experience in the television broadcasting industry. This is actually the first time Goldman has hosted the company at the conference since 2018, and a lot has happened since then. So we're looking forward to hearing about that. In 2018, the company generated $2.8 billion of revenue versus $5.4 billion in 2024, almost doubling that revenue cadence, including through the acquisition of Tribune Media in 2019 and through organic growth. Now with the help of expected regulatory relief, Nexstar is on track to significantly increase its scale again with the announced and proposed acquisition of TEGNA, another television broadcaster which if the deal closes, would increase the scale of the company to over $8 billion with EBITDA of approximately $2.6 billion before synergies on a last 8 quarters annualized basis through 2Q '25. This scale would make Nexstar even more relevant within the broader media and technology ecosystem and one of the most important broadcasters in the industry. My name is Mike Ng, and I cover media, cable and telecom here at Goldman Sachs. We have about 35 minutes for today's presentation, inclusive of Q&A. First, thank you so much, Perry, and thank you so much, Lee Ann, for being here today. We really appreciate it.

Well, thank you for having us.

Yes. As we sit here at the conference, we are more aware than ever before about the impact of big technology, big tech on the impact of the media landscape. We've seen all the big tech companies launch some sort of consumer video service, get involved with sports rights that have historically only aired in traditional TV. Could you talk a little bit about some of the big changes that are happening in the industry, including some of the regulatory changes that may be important for the sector and for Nexstar?

Sure. Well, I think that at this moment in time, we are at a break glass moment for local television, local journalism. And those are our Chairman, Brendan Carr's words, not mine, although I totally agree with his point of view in that our existential threat is big tech as it continues to move into, as you said, sports rights, local advertising, aggregating local content and this becomes a much more pervasive part of every screen that we have, but yet the local television stations, our -- and television station operators are limited to reaching 39% of the U.S. population. So everybody said, well, how do they come up with that number? How does that make any sense? The point is it doesn't, right? And I think that the Trump administration and Brendan Carr, the FCC and similar leadership at the DOJ has realized and acknowledged that these rules make no sense in today's environment. And furthermore, that there is a demonstrated public interest in maintaining a free and independent press, which in the -- at the local market level is primarily now fallen to local television journalism. And so I don't think anyone wants their local news delivered by a chatbot of unknown origin and unknown fact-based aggregation of content. So we think our thesis is that you need big companies, strong companies to be able to attempt to compete on a level playing field with big tech, at least in the domestic U.S. And so that's the industrial logic behind Nexstar getting larger and becoming larger and acquiring TEGNA to try and increase that opportunity to preserve local content and expand local content given the benefits of scale.

Yes. And when you announced the deal, I was surprised at the company's willingness to kind of force the issue of FCC ownership caps right now. I mean I agree with you that it's a completely antiquated rule like it doesn't really make sense just given all the competition in the broader media landscape. Maybe you can just talk about what gave you all the confidence that we would achieve this regulatory relief to get the proposed acquisition of TEGNA through the finish line.

Yes. I'll take that. So we would not have announced a transaction if we didn't feel confident that we could get it through the regulatory authorities. We have spent a tremendous amount of time in preparation for this over the years and Perry, in particular, as his role as the Chair of the NAB and really laying the groundwork with these regulatory authorities on that deregulation is needed. What we have seen with the Trump administration is really a willingness to pursue deregulation, to pursue pro deal -- a pro deal environment. And so we feel like the door is open, and we're just kind of pushing on that open door to get this through. There are a couple of different things that we need to have happen, one of which is we need to have the national ownership cap lifted. And what you have seen so far is Chairman Carr refreshed the record on the prior NPRM that was put out with respect to the ownership cap. Those comments were due on August 22. So there's opportunity now for him to take action with respect to eliminating that ownership cap. And then we had a -- the other thing that we need in order to get the deal through is we need to be able to acquire 2 -- or own 2 of the top 4 rated television stations in a given market that's called the local television ownership role. We had the eighth circuit actually recently ruled that, that rule that the FCC has was not really a valid rule and they vacated it. The FCC then did make a comment in support of that ruling. And so the plan from this point forward is to look through a series of waivers that we could get for those markets where we would have those overlaps or those 2 of the top 4 rated television stations because it is well within the FCC's right to provide waivers with respect to that rule. So we feel like there's a good plan and a good path forward with respect to getting this transaction done by those strategies. And we really feel like the administration has been very supportive of the deregulatory environment that we're in today, and we're really just looking to meet that regulatory moment where it is. I mean would it have been great to have a change in the rule and then do the deal, yes, but we also have seen that this is going in a certain direction, and we really would like to execute on that before people get distracted with midterm elections and the like. And so that was part of the calculus around this transaction.

Great. Why don't we stay on the topic of TEGNA and the transaction for a little bit. Obviously, a substantial strategic move, it will expand Nexstar's reach to 80% of U.S. TV households, I believe. Could you elaborate on some of the specific market dynamics, competitive pressures that made TEGNA an attractive target for you all.

Well, first and foremost, I think the companies are a lot like similar balance sheet profile, similar legacy of providing local news to communities and as a service and high-quality and accurate information. If you look at the 2 companies together, pro forma, we will produce 450,000 hours a year of local news that is vastly more than any other company in the United States produces in terms of local information. And we plan to increase that number over time with these combinations, which will allow us to add news to stations that didn't have the resources to be able to put on that kind of a product in major cities like Dallas and Houston and others. So there is a public benefit to this combination, allowing a bigger company, a stronger company to be able to fund local news development where a smaller company may not have had the wherewithal to do so. We put out a synergy number that we have a high degree of confidence in bringing 2 companies together, $300 million. That's based on a fairly exhaustive desk review that we have done within the limitations of what can be done with 2 public companies prior to the announcement of an acquisition. And Lee Ann and her team have done a tremendous job there. So we feel very confident in this just as we've gone through this process many times before, Tribune Media General, total of 40 different deals since I launched the company in 1996. So we feel we have a very well-worn playbook, we can execute on the synergies, achieve them. We have an integration plan that I think is very well thought out and put together. And so we plan to execute on that playbook here as we go forward. And this was the biggest transaction, bringing the highest dollar quantum of synergies. And as we've said all along, we can reward our shareholders with a 20% accretion, basically just buying back our own stock. And so any acquisition to risk capital and management time has to be substantially more accretive than that, and this was one. And it's also we didn't reach these conclusions on our own, the TEGNA Board considered all of their options to be a buyer or a seller and voted unanimously to endorse this transaction. So I think you've got 2 companies of a similar mind, an actionable transaction in a time frame that we think makes a lot of sense to, again, lead the industry toward the next era of consolidation.

Yes. And just following up on the $300 million of expected annual synergies, most of which I think happens within the first year post closing. What are some of the key components of the synergies? What's the playbook? Is this retrans rate convergence, is this more programming costs, and I'll put reverse comp in there as well or more operational synergies or maybe it's all of the above?

Yes, it really is all of the above. I think if you kind of look at our investor presentations and our past deals, the synergy playbook is really the same. It's really composed of sort of 3 or 4 different categories. The first category being net retran synergies, that's just really the effect of our contracts. It is a -- any in-market synergies that we might have from -- in this transaction, one of the benefits of the transaction is that TEGNA has 51 markets. We overlap with them in 35 of those 51 markets. So there's an opportunity for synergies within those markets. There's efficiencies just in general on how we operate our business versus how they may operate their business. And then there's corporate overhead and I would call like hub-type synergies. We don't need to have 2 CFOs. We've got a back office for billing. Do we need to double that? Probably not. Those are the types of things that can also kind of come out of that synergy number. I think over time, we'll probably find more opportunities for synergies on other things that we haven't even thought about. These are the ones that are really underwritable, very calculable. I think over time, we'll look to consolidate locations, that will potentially free up some real estate value and further reduce operating cost because we won't be paying property taxes and utilities and lawn mowing fees and things like that. But that will be a little bit longer dated in terms of the cost save plan.

Great. Perry, I was wondering if I could go back to something that you said at the onset, which was really about broadcasting's role in the broader media ecosystem, which has obviously seen a tremendous amount of transformation certainly over the last decade, even more if you look back further than that, which streaming competition and the like, so where does broadcast fit in when you think about consumers and advertisers and content owners with the kind of overhang of big tech and how they're kind of playing in the ecosystem?

Well, I would say, first and foremost, look at the newspaper industry, if you want to see what happens if you wait too long to deregulate. And so that's, again, this concept of a break glass moment that Chairman Carr and the Trump administration, I think, endorses here. And I think that if you look at what we do, and I've said this multiple times, this is the least sexy, most sticky part of the entire media ecosystem, right? We produce local content. That's our service. We help local businesses sell things. That's our commercial reason to exist. And we do all of this in local markets around the country where our journalists and our salespeople live with the viewers and the advertisers that we do business with and have learned to be very good fiduciaries of their advertising dollars. You don't get a call center if you have a problem, you get to see somebody about that. So we think of the local journalism we're providing is our essential service, it has also spawned our ability to develop NewsNation out of whole cloth that was a rerun cable network prior. And so there's a distinct public interest to what we do and a public service to what we do. And that there's really no other place that provides an equal level of participation in the local marketplaces from a local journalism perspective. Nexstar alone today has 5,500 journalists across the country. That's more than any other news organization to the best of our knowledge, on the planet that in terms of journalists in the United States. We have an 1,800-person sales force calling on many tens of thousands of SMBs across the country. And we're in results-based advertising. The guy standing next to the cash register or a woman knows whether the advertising worked long before the agency reports back on the reach and frequency and all of that. So do they have more cash in the till on Saturday night when they close up than they did when they opened Monday morning, then that's performance advertising, and that's the business we're in. So that last mile connectivity is something that we have uniquely, I think, that's special in the local marketplaces in that our branded content, our branded station relationships are with the consumer and the business owner at the cash register, right? And we have that ability to be that connective tissue and that is the most sticky part of the media ecosystem. We don't have red carpet premieres, but we'll go to the opening of a supermarket, a car dealership, a grocery store, a furniture store. And -- but that's -- it's a very retail relationship, but it's also a very durable relationship. And that's the reason why we've chosen to invest primarily and almost exclusively into the local end of the entire media ecosystem.

Great. Perry, you've talked in the past about the role of a local broadcaster, Nexstar in addressing things like media bias, AI misinformation. On the flip side, you are a leading local broadcaster. So how do you balance what could be perceived as some as roles that may not have perfect concentric circles in terms of objectives, right, in terms of driving engagement in ad dollars and then being objective with news reporting.

Well, I think that we are, first and foremost, a journalistic organization and at the local level, again, there is no opinion, there is no over bias and independent agencies have looked at this and rated our newscast, both at the local and at the national level with NewsNation as high in enterprise reporting and accurate in terms of absent bias left or right. NewsNation, for example, employs a rhetorician that was previously employed by the Vatican, okay? You can imagine how every word, punctuation mark is poured over by any statement made by the Vatican and her full-time job is to review content before it goes on the air, some after goes on the air for hints of bias and unconscious bias by the words that are used. And so we take this responsibility very seriously. We happen to believe that the largest swim lane in America is the centrist swim lane, which is the center of opinion, center of the country and where people agree on more things than they disagree on. And I think that's most people in this country. And so that's the area where we think we're best at, again, given our local roots and what we will continue to try and provide is we call balls and strikes, we don't have any agenda other than that, and that's the essential service we provide. And so I think, ultimately, over time, that could be what sets us apart.

Right. The FCC has made some public statements around deregulation, being an advocate for broadcaster consolidation. I was just wondering if you could talk a little bit about how you see the competitive landscape in broadcasting evolving? What does this all look like an end state?

Sure. I don't know how far end state would go out. But 5 years from now, from an investment standpoint, I think there'll probably be 2 station groups that investors will care about or should care about there may be others, but in terms of those that are interesting and meaningful. I think you may have 2. Lee Ann and I think that the networks will tend to hold on to their owned and operated stations, primarily as a source of cash if they don't see any higher value than that to fund other aspirations that they have. And so I look at our company pro forma for the acquisition, will have, depending on the measuring stick, but we'll likely have cash flow or EBITDA that is equal to or greater than Paramount and equal to or in the same neighborhood of Fox. And so that's a different neighborhood and different kind of discussion than some of the peer groups that have much smaller market cap to begin with in local television broadcasting. And I think many of those will be absorbed over time by larger players. And I think they're primarily family-owned, and I think the families will look at their future and generational wealth in what they want to do, and I think they'll probably come to the conclusion that they should monetize their investments. I don't pretend to speak for any of them, but I'm just -- you asked what the end state looks like, and this is one man's opinion. And again, I think you'll have stronger companies that can provide more resources and maintain credible local journalism, which I think this country depends on. And so I think that's the public interest in this continuing to happen because otherwise, with the counterparties we deal with, it's not a fair fight, right? Because market cap or just resources. It's a mismatch. And so I think this helps to level the playing field, which can benefit consumers and local communities, which is the whole reason we're doing this in the first place.

How does Nexstar strategically position all of its local news assets to compete against some of the national news networks, I mean, what you described in terms of on-the-ground reporting and all of the assets you have in each of your markets, like seems really intriguing to me. And obviously, what you guys are doing with NewsNation is a part of that, but maybe you can expand on that a little bit.

Well, I think the strength of what we do is that no one goes home at night to say, "I want to watch a Nexstar television station." They go home to watch KRON here in San Francisco, KTLA in Los Angeles, News 8 in Tampa. And so no one at Nexstar says, this is what you're going to do in this industry, and I've never told anybody and no one in the organization other than at the local management level is telling anyone what to cover on any given day. There's no agenda there. It is to get it right and cover the most amount of news that you can to provide the biggest service through our communities. So the flavor of what we cover and in Burlington, Vermont, is different than it is in San Diego, different in Portland, Maine than it is in Tampa, Florida. So we allow those decisions to be made at the local level as to what the taste opportunities concerns are in the local marketplace, and our coverage should respect that. So there is no one size fits all. And I think that diversity of opinion and geography and community is a strength of our company. So I think that's probably the best way to answer that.

Great. Yes. Maybe we can talk a little bit about the CW. That broadcast network has made, I think, a really remarkable pivot towards sports and sports-related programming, which I think you have said makes up over 40% of viewing hours. You guys have done extensions for the Pac-12. You have ACC content. How do you see CW's role within the broader sports media landscape? How do you think about your sports portfolio strategy overall?

Well, I think if you look at what we have done to date and where we have added the most value, it has been taking sports that were primarily distributed on cable or with captive to that distribution universe and put them on over-the-air broadcast stations through the CW network that have ubiquitous reach and reach those outside of the pay TV universe. And so we're still playing moneyball as we continue to grow this network, if you will. And so we have the Xfinity Series on the CW, which is the Saturday race, not the cup race on Sunday. Now the anecdote there is the Xfinity race is on the CW and its affiliate group of owned and owned operated stations every Saturday and people know where to find that where quite honestly, the cup has gone from Fox to Amazon to NBC and Fox. And if you look at the year-to-date numbers, the Xfinity audience in total is up about 15% while the cup race total audience is down about 15% as well. So there is value in making it easy for the viewers to find what they're looking for. And so with auto racing, with ACC and all of that, we would love to continue to expand our portfolio with a request from our sales department last week, our network sales department, could we please add more women's basketball in the first quarter because we have unmet advertiser demand. And so we're efforting with both the Pac-12 and the ACC to see if we can add additional games there. So we're very opportunistic in terms of the rights. We are not in a position to outbid any established entity at this point in time. I will point out that Fox was in business as a network for 8 years before they made a bid for the NFL. So they had to grow into their sports portfolio as well. But from our perspective, we're happy to talk to anybody that would be looking for superior distribution even -- we have folks on our air today that were offered more money by streamers, but they wanted to build the brand, wanted to be over the air and realize how special that is and how scarce those opportunities are.

Great. NewsNation, I feel like I could probably count on 1 or 2 hands a number of basic cable networks that are seeing growth in subscribers and viewership and NewsNation is one of them. Could you talk a little bit about the NewsNation brand, the audience, programming initiatives that you're pursuing to grow that and the outlook on affiliate fees and advertising within that network?

Yes. I mean I think the NewsNation was created out of the old WGN America, which was part of Tribune, which we acquired in 2019. And at the time, we saw the opportunity to kind of move it from just a network that was entertainment base to one that was news based. And if you look at just sort of the top 10 rated networks, perennially, it's the top 4 broadcast networks, but then it's also cable news networks. And we saw that opportunity to really fill a hole that was in the cable news environment with being able to be really kind of the middle of the road, but entertaining type news programming. And so that's really been kind of the focus over time and really has what been helpful in terms of growing that audience base.

Just celebrated our fifth anniversary on September 1, and we started with 3 hours a night in prime time and now we're 24/7 cable network, fully distributed Monday through Sunday and started with literally no audience, right? It was a startup from scratch programming service. And we now are -- our awareness is into the 40% range in terms of consumers and among news viewers, it's in the mid-50s. And so from a standing start, and again, programming to people that want facts, and if it's opinion, clearly labeled this opinion to hear both sides of the story, most of those people had left the cable news ecosystem because they said there's nothing here for me. It's either way right or way left, people yelling at each other. And I don't -- that's not what I want to ingest. And so we've been building this audience from scratch have been very gratifying. Our audience numbers were up 67% year-over-year last month. And we were the fastest-growing cable network period, not just news but of all cable networks. And you're right, there were only a couple of handfuls that actually could demonstrate growth, but over the last 12 months. So often pleased, never satisfied, but the growth has been there, and we will continue to grow.

Great. I wanted to ask a little bit about your spectrum holdings and plans for that. As a TV broadcaster, you guys obviously have a tremendous spectrum portfolio, some of which arguably is a little bit less utilized than it was. But what are the opportunities for you to utilize some of that spectrum in the spirit of public service? And what are your plans there?

This is one of the things that we're really excited about in terms of the future for the company longer term. And we do have -- we cover 70% of the U.S. and it's about 2.6 billion megahertz pops. That's our spectrum on a stand-alone basis. What we've done is we've taken our spectrum and put it into a joint venture called EdgeBeam Wireless along with Gray and Sinclair and Scripps. And so we've got now sort of almost the whole industry sort of talking with one voice. And the plan here is that we have been able to really change the technology that we use to broadcast from what was the standard was called ATSC 1.0 to the new standard, which is ATSC 3.0. And what that does is it enables us to transmit our broadcast signal using less bandwidth. So we can then utilize the remaining portion of the bandwidth for high-speed data transmission that we can lease to third parties and to really provide a very cost-effective way to deliver data. And really, the reason -- part of the reason that it is so cost effective is that if you think about some of those other spectrum that's out there, and all of the cost that has to go into developing building towers to building out that whole infrastructure. We already have that. We already have towers across the entire country based on what we've got from our television broadcast business. So we don't have to go and replicate that. So we can be the low-cost provider with respect to that high-speed data transmission. So what's happened so far is we've been able to really convert over television stations that cover over 50% of the population for us to that ATSC 3.0 signal. And we are actively working with this EdgeBeam Wireless joint venture to develop the business cases and to work with potential new customers for that spectrum. And then as we sort of see the consumers migrate to television sets that can receive ATSC 3.0 or to acquire converters that can do that, then we'll be able to move off of that 1.0 signal and move to 3.0 and really kind of monetize that over time. So very excited about it.

Great. I was wondering if I could ask a little bit about just the state of the current advertising environment for you all, national, local, certain specific verticals, like where are you seeing pockets of strength and -- versus weakness?

Yes. Look, at the beginning of the part of this year, we had some curveballs thrown at us and everyone was very concerned about what the potential impact of tariffs would be. And the long and short of it is, it wasn't as terrible as everyone thought it was going to be. It was nothing that sort of no one fell off a cliff or anything. I think the benefit that we have from our advertising base is, if you look at our overall advertising, about 60% of our advertising comes from services-based businesses versus goods-based businesses. So our largest services-based categories, attorneys, we also do really well with like home repair and manufacturing, which are things that are not as impacted by potential tariffs. And so that -- those have been -- those categories have been doing well. On the flip side, we've had some negative impact from auto as we've seen that segment has been impacted by tariffs. It is our largest category. And so that's provided a little bit of a headwind for us in terms of the advertising growth. But so far, in the second quarter, we had our advertising for nonpolitical advertising was down only about 2.5%, which we felt was a positive given this economic environment.

Perry, just to close things out, I was wondering if you could just tie it all together for us and talk about where you see the key priorities and strategic areas that you're focused on over the next 12 to 24 months?

Well, obviously, we are working very feverishly to go through the regulatory process, obtain regulatory approval for our transaction. And we'll be laser-focused on achieving those synergies and integrating the 2 entities into one company. So that is first -- that is job one. I think when we feel that's well under hand, we will begin to maybe consider what other M&A opportunities are out there being mindful of leverage and cost of capital and actionable transactions at reasonable prices and all of those things, but that's the same as it ever was. And from an investor perspective, I think what begins to lay out in media is you'll have your streaming favorite. You'll have your network's favorites, and you'll have one choice if you want to play the local media part of the ecosystem or cover the entire media ecosystem, and that one choice will be Nexstar. And I think it will be well capitalized, hope it will be well run and will be the alternative for you and that investors will benefit from an efficient deployment of capital across the 3 different elements of what we all consider media.

Great. Well, Perry, Lee Ann, it's been such a privilege to have you on stage with us here. Thank you so much for your time today.

Thank you.

Thank you.