Nexstar Media Group, Inc. ($NXST)

Okay. All right. Great. I'm happy to be kicking off the conference with Nexstar Media, we have Lee Ann Gliha, Executive Vice President and CFO. Lee Ann, thanks for being here.

Thanks for having us. .

Okay. So Nexstar is about to turn 30, having turned from a single station to the largest local broadcaster. Maybe can you help set the stage for investors and how you see the company positioned today and what excites you for the next 30 years. .

Yes. No, great. I appreciate it. Thanks for having us here. I was just looking at an e-mail I got from a former colleague who forward me something from an investor relations firm called Quarter who looks at the top stocks that have been performing over the last 15 years and Nexstar is the #5 performing stock over the last 15 years, ranking just one spot below NVIDIA. So I think that's -- it's pretty -- it's a good testament to what Perry and the team have been able to build over the years. And that really has been built on the back of the broadcast business model. And at the end of the day, we really believe that broadcast and that media is fundamental to how people view television is really fundamental to live sports, live content and local news viewership. And we really have been able to demeanor that business has been really sustainable and will be sustainable into the future. And the vision that we see for the company going forward is that no matter where you're going to view your television content, whether you want to view it over cable or satellite or over IP, you're going to be viewing that via a Nexstar television station that's going to be provided to you on those different services. And so we really believe that the of the sustainable piece of it. think that we have a very strong local footprint, and that really has been helpful in driving the local news side of our business and the local sales side of our business when you think about the overall investor landscape and all the different types of media companies that you are able to invest in just broadly speaking, we believe that we are the choice for investors when it comes down to the local segment. And we see that really continuing to proliferate going forward. We're getting into a variety of different new ways to service our local advertisers through providing a variety of different digital type advertising services, expanding our business model out. We're looking to advance our ability to monetize our inventory via programmatic channels and so we view those as kind of core growth engines to our core base business. But then if you think about Nexstar as a broader company, we've got a number of different growth engines just within the business. So first of all, we've got a couple of networks. We have a broadcast network called the CW network that we acquired in 2022, and we've been able to take that business from losing literally hundreds of millions of dollars to what we anticipate will be a profitable fourth quarter this year. And we've been able to really transform that business into a very strong programming slate, including, I think, nearly 50% our programming hours are now sports and sports related. And then we've got -- we expect that business to continue to grow. We've got News Nation, which is our cable news network, which is really meant to be an unbiased news network when you've got other networks out there on the left and on the right, you can come to News Nation and really get the fact-based journalism that you're looking for. And that business has done really phenomenally well over the last since we launched it over the last 4 years. And in the first quarter was actually ranked as the 35th watched network of all networks. That's up from in the high 80s to low 90s at last year. So we're really seeing some good strong growth with respect to viewership of that news network. And then the other area that we think will be good for growth for us going forward would be the monetization of our spectrum. So we've got spectrum that is covering pro forma for the TEGNA acquisition the 80% country. We are participating in a joint venture called Edge Beam Wireless that together has nationwide coverage of the entire country. And so we're Edge beam is now working on monetization alternatives to lease out that spectrum for high-speed data transmission services. It's really the same sort of high-speed data transmission service that you're going to see that any wireless company can provide. The only difference here is that we are -- can provide those services at a very low cost because we already have an infrastructure that is fully built out because our towers are everywhere. So we really feel like we've got -- if you sort of boil it down, we've got a very solid core business that will continue to perform. We've got a number of growth engines in terms of digital advertising and hyper servicing our local customers, growing our networks of CW, News Nation and then monetizing our spectrum. So we view that there's a long trajectory here for the next 30 years, hopefully, we'll continue to be on that quarter list going forward.

Got it. That was a great overview, and we'll cover some of that. Maybe we'll start with TEGNA. So closed on March 19. Can you just briefly review events since then and where matters stand on the various related legal proceedings?

Yes. So we closed the deal on March 19, we had approval of both the FCC and the DOJ, we had provided over 7 million pages of documents for the DOJ and the FCC to review. We then subsequently were challenged in court by DIRECTV and their owner TPG, who have their own commercial business that they're trying to pursue. We're also challenged by a number of states attorneys general. And what we ended up having was a preliminary injunction put in place on our transaction, which means that we need to effectively hold separate the assets of TEGNA and so while we own the company and we have the ability to access the cash and pay down debt and continue to benefit in that regard. We do have to have those operations operated separately from the Nexstar stations. So that means that TEGNA operates under its own retrans agreements. TEGNA operates its own operating strategies, we're not able to execute on any of the synergies that we had really planned save for a few opportunities like elimination of public company costs and those types of things. So we are in that process. It's highly unusual process. You don't typically see something like this happen. And so I just caution everyone, we're going to try to be as transparent as we can and telling you what's happening as it's happening, but it's really we're in the hands of the courts at this point in terms of either the appeal at the Ninth Circuit or the ongoing trial in the Eastern District.

Got it. And then as it relates to the industry, it would be great to hear your view of where you think the FCC is with regards to any action on the 39% ownership cap?

Yes. I think that the -- I can't -- we can't put ourselves in the minds of a Chairman car, but I can point you to everything that he said to this point, which has been very positive statements about the need for deregulation and the fact that the rules that are in place today, limiting our access to only 39% of the country are very antiquated. So I would suspect that, that's a rule making that's still coming, but we -- I don't have any particular insight into what -- when that might happen. .

Got it. All right. Let's shift to the advertising market. So at earnings, you had noted some incremental softness into Q2, more categories declining and growing. Maybe can you unpack what you're hearing from your marketing partners and how you expect items like higher gas prices are playing at all? .

Yes. I think we have -- every quarter, I look at -- we have about 42 different categories of advertisers, about 60% of the volume of those advertising is -- comes from services-based companies. About 40% comes from goods-based companies. I tend to track how many of those categories are up or down on an any given quarter just as a sort of a signal on like is this -- is whatever happening in the quarter isolated to a couple of categories or is it more broad-based? And what we have seen in the going into the second quarter is that we've got about 2/3 of the categories declining versus about half in the prior quarter. . So I think we're looking at a little bit of a weaker environment. I think the -- when you look at -- when you see that many categories declining to me, it's just much more of an overall arching economic sentiment, and you tend to see that, right? Advertising is very cyclical. As you're starting to see grass prices increase or you're seeing concerns about the economy, that's the 1 variable cost that companies can pull back on and so we're seeing a little bit of that going into the second quarter.

And on that 60-40 services to goods mix, I know you talked about that as a natural hedge during the tariff uncertainty last year. Any sense for how that mix lines up in a period of economic uncertainty.

I think that in a period of economic uncertainty, it all gets taken into consideration sort of similarly. You don't -- I don't the goods versus the services component really is much more apparent when you have sort of a supply chain issue, and that's where we have a little bit more of a hedge. But I think in general, you do see a little bit of more cyclicality that happens just in general. But having said all that, we do have about 70% of our advertising comes from the local segment, and that segment tends to be much more resilient in times of economic uncertainty because you really are talking about companies that rely on advertising to get people to come into their stores to buy their goods. . And if they do start to pull back on that advertising, they see it in their own bottom line. And so we see that sort of line being a little bit more stable than overall advertising as a whole.

Just beyond the category mix, as the booking pattern itself changed, right, are advertisers committing later? And what does that mean for inventory management?

We're really not seeing that at all, very similar to what it has been in the past.

Got it. So we understand that Nexstar is on track for digital revenue to surpass national television advertising this year. Maybe can you walk through the key drivers of digital and how you think about the growth runway?

Yes. So when you think about our digital advertising, we have several components of digital advertising, I would say, probably a little more than half of the revenue is coming from our O&O advertising so that would be our own properties, our websites, our own CTV apps, things like that. And then the other half is coming from third-party -- sale of third-party inventory. And so really, that is when we go and we have our local sales force and they go out and they talk to an advertiser, the advertiser wants to buy the local television station because they know the benefit of that, but they say, "Hey, you know what, maybe I want a little bit more entertainment content in my buy or I would like to address a specific audience. Well, we can provide that as a total solution to those advertisers. And that really has been in the form of -- for the most part, CTV, third-party CTV inventory. And those -- that business has been growing very, very strongly. And that's the piece that's kind of really kind of taking off. The other piece of our inventory from an O&O perspective aside from our local websites is our national websites like the Hill and News Nation and CW, which also have -- are generating good advertising revenue, but not the same sort of strong level of growth that we're seeing on the local side.

Can we just talk through the CTV opportunity a bit more? I mean what's the content strategy on those apps? And how does that develop as you compete for national platforms also looking for those local dollars?

Yes. No, for sure. I mean, we basically have launched apps, CTV apps across all of our television stations over the -- all of our news producing television stations over the last year. And the purpose of that was really to just create more CTV inventory for ourselves. That was our own O&O TV inventory versus just selling third-party CTV inventory. And the other piece of it is really trying to attract different audiences. If you can be online, you can create some content that is a little bit of a different look and feel and what you're seeing on television, maybe a little different time periods in terms of how long you're watching a video clip. Those things tend to provide a little differentiation to advertisers and to the audience and help expand our overall base. And so really, that's been the plan and the point of it, and it's been doing very well. .

Okay, great. Maybe switching gears to political. So at the start of the year, we thought there was some caution among broadcast groups regarding the 2026 outlook. However, the sentiment seems to be more upbeat in April and May. Maybe you can walk us through kind of what indicators you've seen so far and how your assessment of the midterm cycle has evolved?

Yes. Q1, we had a very good Q1 as did TEGNA from a political perspective, and that was driven in large part by some outsized spending in Texas. It's really hard to extrapolate what happens in any given quarter in a political cycle to the rest of the year because most of that spending does get done in the 8 weeks kind of around the election. So I would just caution everybody from getting overly enthusiastic extrapolating what's happening in Q1 to the rest of the year. . I would say, we do spend time looking at the -- what some of the research firms are saying about the sector and ad impact is 1 that we spend a lot of time with. And they projected that for broadcast, the 2026 year will be slightly down from the 2024 year but ahead of the 2022 year, which is the comparable cycle.

Got it. There is a potential Supreme Court ruling that could change how political advertising gets priced at the station level. Can you just walk us through how you see that playing out and whether that's something that raises concern?

Yes. This is really just -- there's a requirement that candidates have to receive the lowest unit rate that we are -- that we offer to advertisers. And that would be just expanding out that lowest unit rate to be applicable to more advertisers in the political segment. And really, this comes down to a supply-demand question. As you -- as I just mentioned, you really are getting most of your dollars in that sort of 8 weeks around the election. And so as you get closer and closer into the election time, there's more and more demand and less and less supply for that inventory. And so it's just a matter of properly managing what our lowest unit rate is and managing that process, which we think we can do. .

Got it. Maybe going back to CTV, that's been the kind of fastest-growing channel for political spend. how is Nexstar positioned to capture some of those political dollars flowing towards connected television?

Yes. So CTV is something that has been growing pretty quickly, and that's actually the point that we -- part of the reason why we created all of these apps in our local markets is to try to capture more of those dollars. And so -- that's really the extent of how we will be able to benefit from that in this election cycle, and that's fairly limited at this point. .

Got it. Why don't we shift to distribution? So you recently expressed more optimism on subscriber attrition than in your original 2026 plan. Maybe can you unpack what's giving you that confidence? And are you starting to see skinny bundle launches or MVPD repackaging efforts show up in your sub counts?

Yes. I mean, it's been -- it's looked great. We put together these summaries where we look at just the overall universe, and you guys can do the same because the information is available to you. But the -- in the first quarter of last year versus the first quarter of this year, the year-over-year growth rate is better by more than 1 point, so -- or decline rather. And that's really driven in large part by I would say, not a variety of different strategies that the MVPDs have and most notably, the charter strategy, which is not the skinny bottle. I call it the more as more strategy, right? They have taken all of the CTV content that's out there, the over-the-top Paramount Plus and Peacock and all of those and rebundled it into a massive package that creates a lot of value for their consumers and they have really just -- I looked at I graphed out the rate of attrition. And for a long time, it was like a ski slope, a green ski slope going down, but now it's like a vertical cliff kind of coming back up in terms of the rate of attrition. So they've done really well and that strategy has worked to make video very important to them again. On the other hand, you do have companies like YouTube that are creating what I call the less is more strategy, which is a skinny bundle, and that seems to be working well as well. So both of those things together, I think, are going to be beneficial to the payTV ecosystem and to Nexstar.

Great. On the net retran side, so you've guided to mid-single-digit growth this year. I think Perry has framed reverse compensation is on a downward trajectory to use this word. Maybe you the dynamics around content exclusivity that kind of underlie your confidence here? And what have the conversations with network partners been like on this point?

Yes. I mean over time, what you have seen is these as I just mentioned, these sort of direct-to-consumer platforms that have been created by the networks that have made our content -- or made the content that they provide to us less exclusive because they're providing that content available to the consumers over those platforms as well. And so previously, when we were getting that content exclusive, that was -- there's 1 price point for that, and there's another price point when that content becomes less exclusive. And so -- you can just see it in the numbers and you can see it in our guidance for the year in terms of what our -- what the success that we've been able to have by using that rationale with the networks.

So staying on content exclusivity. So the potential for the NFL to open its rights window early has received a lot of attention. Certainly possible we see nothing happen or no change. But in the scenario of networks paying more in return for, say, guaranteed rights through 2033, how do you think about the flow-through impact to your stations?

Yes, if you look back in time at prior cycles when the NFL increase their rates, we didn't really see a similar commensurate increase in our rates -- sort of just what I was talking about a minute ago, you can kind of think about what's the package of inventory -- package of programming that is being provided to us by the networks. There's sports programming, which is doing well from a ratings perspective and energy programming, which is doing not as well from a ratings perspective. And so over time, how do we end up paying for this content? Do we pay maybe more for sports and less for entertainment in that bundle. So we think that we're not entirely worried about that incremental cost on the sports rights coming back to us dollar for dollar because there's other things that, that network is providing to us that is -- that are maybe less valuable. The other thing we think could be interesting is as some of these networks are maybe paying more for premium sports content, are they going to have to rationalize some of their other sports content that the CW could potentially benefit from by providing an outlet for that content on our air.

Yes. We'll come back to the sport for a second. Maybe just staying on this point though. So we've seen recently some retrans disputes for local sports content has become a sticking point. And I think you and Perry have previously expressed some skepticism on the RSN model for broadcast, but you do have some rights contracts now as a result of M&A . So as the regional sports model kind of further unravels, how are you thinking about plays kind of stations to add some of this game content?

Yes. I mean I think we're still pretty limited in terms of the amount of local sports content that we have. And just given the way of the nature of how retrans gets negotiated, we really have to look at each of these local sports contracts on a case-by-case basis and make sure that they pencil out from a profitability perspective. I don't think our point of view has really changed on that. We are seeing a seeing the dislocation of that RSN model. And I think that there'll be some opportunity for us to pick up some sports rights, but I don't know that will be super meaningful. .

Got it. All right. Moving to the -- so the ESPN and Roku partnerships seem like a new chapter for the network. Maybe can you walk through the strategic logic of putting CW Sports inside ESPN's platform and entertainment on the Roku Channel? And then I don't know, to the extent you can elaborate how the partnerships are structured financially?

Yes. Yes. So we've been working very hard to transition the CW into a sports destination. And so far, it's been, we think, very successful we're going to have, I think, by -- for the '26, '27 broadcast year, 800 hours a year of sports content, which is unbelievable in terms of where we started. We had started out a network that sports had never been on the network before. And on the weekends, I think with north of 13 or 14 hours on average on the weekend. So very, very important part of our programming strategy. But having said that, we're still really -- we're early on. And we thought that in terms of looking at places to put our content that could attract the most possible audience, what better place to go than the #1 sports name, which is ESPN. And they were really looking to create a product that could be a destination for multiple different types of sports rights owners. And so this is a proof of that concept for them, and we think will be really beneficial to just adding to the potential audience for CW Sports.

Okay. And the Roku...

Yes. And Roku similar thing, right? We have 2 types of content within CW. We have sports content, and we entertain a content. And again, Roku is the #1 destination. And so to create a separate CW channel inside the Roku Channel will just provide an incremental opportunity to just have more access to more audience, which is what we're trying to drive at this point. It's -- it's all about driving audience, driving advertising dollars on a go-forward basis.

Okay. And to put it in perspective on sports, you started with Life golf, I think -- to your point on the NFL, you'll see -- you see opportunities sort of level up Sports grade ...

We've been leveling up as we go. We have the NASCAR O'Reilly Auto Parts series, which is doing really well for us. We've got ACC. We've got Mountain West. We've got the Professional Builders Association and the PBR. And so it's -- we're continuing to provide kind of a variety of sports programming that is not the sort of top-tier sports programming, but very watchable and with dedicated audiences. And so we just feel like we've created a great bundle here and are going to continue to grow it as we can. .

Okay. As it relates to CW, I think you've mentioned a possible near-term headwind from Nielsen's transition to a different measurement methodology. Can you help us understand what that means commercially? .

Yes. Look, at the end of the day, the CW is still relatively small from a -- for Nexstar as a percentage of our overall advertising revenue. So it's not like super meaningful in terms of our consolidated figures. But when you drill down into the CW, we have been seeing some headwinds with respect to the transition to the big data methodologies. And so we are working through that and trying to make sure that we are getting it -- putting ourselves in the best position to sell that advertising going forward. .

Okay. You talked earlier the profitability arriving in Q4 beyond breakeven, how do you think about the longer-term margin structure of the CW and what kind of contributor can become? .

Yes. Look, the CW, when we acquired it, was really meant for 2 different purposes. First purpose was really a defensive play to make sure that we continue to have CW programming because Nexstar is the largest affiliate of the CW, and we've only grown that position over time. And so the benefit that we're seeing from the CW is really a couple fold. One is the fact that we've been able to take the network from losing money to being profitable by the end of this year. But we've also been able to expand the number of affiliates, CW affiliates that we have on Nexstar stations, which we've been able to monetize very, very effectively. And so on a go-forward basis, from here, we do expect the network to continue to be profitable. That's assuming that we don't make a reinvestment in some other content right that -- would be an investment play going forward. .

Got it. You covered this a little earlier, but News Nation, I think, was the fastest-growing network in prime time in March, up significantly across demos. Maybe just talk about what's driving that inflection? Where the network sits today in terms of financial contribution?

I think this has just been a story of just kind of steady growth. If you kind of look back over time of News Nation's growth in terms of the audience, it's just been kind of steadily growing quarter after quarter after quarter. And I think we're sometimes you catch some news that people tune into and that really then makes them knowledgeable of the station and the channel and the work that we're doing and then causes them to kind of continue to retune in. And so we're expecting that to continue to perform. Very excited about the increase in the rating ranking it's going to take some time to kind of monetize it over time, right, because you've got the -- every year, you have the upfront that's based on what you had done historically and what you expect to do. And so we just had that. And . We'll have amounts that we can monetize in the scatter market, but then next year and the next upfront, hopefully, we'll be in a much better position. But the network from day 1 has been profitable. If you look at it, you compare it to any 1 of our television stations, it's 1 of the better performing stations in terms of profitability. And so we anticipate that, that profitability will only continue to grow as we grow the audience.

And as far as developing that model, I assume the midterms probably play -- that cycle plays a role?

Not so much, I would say, and we always say this, but it actually is true. All politics is local. And so at the end of the day, the dollars do you tend to spend -- get more spent on the local side of the equation. .

Okay. I meant more on the developing the...

I see Yes, well, no, it's interesting. I think we do obviously do our fair share of political coverage. We have an asset that is the #1 website that people go to for inside the beltway information, which is the hill. And we've got programming content that's on News Nation that is reflective of that. But I would say a lot of times, News Nation is kind of counterprogramming all the political content that is out there, and we're focused on things that Americans care about other than just politics.

Got it. I want to ask on EPM, which is located here in Boston -- so the venture has paying customers. I think at some point, you had described the revenue opportunity, maybe somewhere down the line potentially a distribution. Maybe just walk us through what the commercial pipeline looks like right now? And kind of what are the milestones that investors should be focused on?

Yes. So as I mentioned, we have this joint venture with a number of our partners. And that really has been, I think, a huge positive event for development of ATSC 3.0. If you think about it, people say, "Oh, you've been talking about it for a long time. Well, I think we've had to have been talking about it for a long time because it wasn't until we kind of got to creating this joint venture that we could have that scale, that nationwide scale that can be monetized then to potential counter parties that can utilize that spectrum on a nationwide basis. We've got a great CEO, Conor Clemson, who runs Edgebeam Wireless. And so we're all now speaking with 1 voice to the entire potential user base for this spectrum. And there's -- people talk about what are the use cases. The use cases are endless. The use cases are exactly the same thing that you're using wireless data for it's -- but we think that there's a variety of different things that are kind of near term. One thing that we're spending time on is digital signage. That's an area where we can get low-cost access to the infrastructure. Perry has talked about having a backup GPS system. If you think about how does our spectrum work? Well, we are actually meant to be for television sets. And so we go through walls, we can have very good receptivity. We don't have to -- we're a terrestrial-based service. So you don't have cloud cover issues when you're looking at trying to figure out where the spectrum is. And so it ends up being incredibly much more accurate signal in terms of trying to figure out from a GPS perspective. And so we're looking at that, and we're looking at any number of other alternatives there.

Okay. Maybe 1 on the costs in the operations side. So you started deploying AI across newsroom sales teams. Where are you seeing the most tangible productivity gains so far? And where do you think AI moves the needle in your business?

Yes. So like people say AI, but I also think of it as automation in some regards. I think in a lot of cases, we are the anti-AI company in the sense that we actually have reporters that go out and talk to your mayor or go in look at the oil spill and tell you whether it's still there or has been cleaned up. And so I think from a societal perspective, it's important for our company to continue to thrive and to provide those type of local new services. But that doesn't mean we can't benefit from automation and from generative AI to help our processes improve. And so that can be anywhere from helping our sales force to helping automate if we wrote a script is it -- can it can go on to a news article, -- are there automation that we can do with just our newsroom floors and help improve the ability to be a little bit more efficient in terms of how we bring the news to the consumer. But I would say that from a productivity perspective, it's been on the margin so far. And we're still experimenting and trying to develop the best possible generative AI solutions to help processes.

Got it. I think we got time for 1 more. Maybe just to wrap up, Lee Ann, is there anything you'd want to highlight that you think is underappreciated about the Nexstar story?

Well, I think that what tends to be underappreciated is our -- what we believe is to be the longevity of our business model. If you look at our stock price and you do a discounted cash flow analysis and you just look at what that perpetuity growth implies, if you look at our stock price, it actually implies a negative perpetuity growth rate in the high single digits. And we don't believe that, that is -- we think that we have a really good business model that will sustain into the future. And if you were to just move that perpetuity growth rate up to low percentage decline or to 0. There's a lot of opportunity with respect to the stock price longer term. And we think that broadcast television is here to stay, right? It's the -- we think it's a virtuous cycle in terms of being able to provide local news and live events to the entire country. And the fact that we have an over-the-air solution that is free to the consumer, really, we think, is beneficial not only for our business model, but for society, and we think it will continue to perpetuate and help us generate cash flows and revenue streams for the long term.

Okay. Great. Thanks so much for being here.

Yes. Thank you. Thank you. .