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Operator: Good day, and welcome to Nexstar Media Group Fourth Quarter and Full-Year 2022 Conference Call. Today’s call is being recorded. And now I would like to turn the conference over to Joe Jaffoni, Investor Relations. Please go ahead, sir.

Joseph Jaffoni: Thanks, Priscilla, and good morning, everyone. I’ll first read the safe harbor language, and then we’ll get right into the call. All statements and comments made by management during today’s 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 this 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 subsequent public filings with the SEC.

Nexstar undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. With that, it’s now my pleasure to turn the conference over to your host, Nexstar Chairman and CEO, Perry Sook. Perry, please go ahead.

Perry Sook: Thank you, Joe, and good morning, everyone. We appreciate you joining us today to discuss Nexstar’s outstanding fourth quarter and full-year financial results. As always, with me on the call this morning 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. That will be followed by Tom’s operations review and Lee Ann’s financial review, and then we’ll open the call for questions from you. It’s clear from our results that 2022 was a monumental year for Nexstar and a referendum on the power of the broadcast model and its ability to deliver audiences at scale and strong levels of free cash flow. Full-year net revenue, adjusted EBITDA and attributable free cash flow reached new all-time highs.

We exceeded the $5 billion annual revenue milestone for the first time in the company’s history, and we delivered record adjusted EBITDA, attributable free cash flow of $2.2 billion and $1.5 billion, respectively. Overall, our full-year top and bottom line performance was led by strong year-over-year growth in political advertising, distribution revenue as well as digital revenue. Double-digit attributable free cash flow growth enabled us to return approximately 68% of our 2022 attributable free cash flow or a record of $1.02 billion to our shareholders in the form of share repurchases as well as dividends. In addition to posting another blockbuster year of financial results, Nexstar achieved a number of strategic and operational accomplishments that are positioning our company for future growth while enabling us to continue delivering the financial performance, cash flows and shareholder returns that investors have come to expect from Nexstar.

On the strategic side, we acquired a 75% interest in the CW network for no purchase consideration, adding a national broadcast platform to our portfolio, another asset in addition to NewsNation and ATSC 3.0 that will be capable of contributing long-term outsized growth to the company. Operationally, in the fourth quarter, we renewed and extended our network affiliation agreement with ABC on terms favorable to the company, and we successfully renewed and extended distribution agreements with our largest MVPD partners on terms that will enable Nexstar to enjoy continued annual growth in distribution revenue for the foreseeable future. Our ability to execute on these renewals just reinforces what we already know that broadcast matters. 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. We provide reach that no other medium can, especially for sports content. We’re accessing the fan base, both nationally and at local markets is important for advertisers and brands. As the largest local broadcaster, Nexstar is important to both our network partners and our MVPD partners, which provides us with a very strong negotiating position. In turn, our portfolio of local and national media assets now provides nationwide reach on par with other broadcast networks, combined with local activation at a greater scale than any other broadcast network owner creating a differentiated and highly attractive value proposition for advertisers, brands, content owners in an increasingly fragmented marketplace.

We continue to expand our capabilities and leverage our linear, digital, mobile and streaming assets in new ways to deliver new levels of monetization, growth and shareholder returns. Our ability to generate record results and excellent shareholder returns underscores the benefits of our unique scale, the strength of our operating model and our ability to consistently generate substantial free cash flow. Nexstar was one of only four stocks that was up in all of media and entertainment in 2022, which we believe is a testament to our ability to create shareholder value through free cash flow generation, return of capital to our shareholders and our ability to continue to grow our revenue streams. And we’ve seen a lot of our competitors in the media industry with broadcast assets take notice suddenly remembering the Lion’s share of their revenue and profit come from that tried and true effective and profitable broadcast media.

Before handing the call over to Tom, I want to briefly touch on a few updates on our organic growth prospects. Starting with core advertising with our portfolio of strong national and unparalleled local broadcast, we believe that Nexstar has the ability to improve our core advertising by uniting our go-to-market strategies under the One United Nexstar platform using data-driven strategies to achieve our clients’ objectives. To that end, we have recently appointed experienced sales and advertising executive, Michael Strober to the newly created position of EVP and Chief Revenue Officer responsible for leading the execution of a new advertising sales and go-to-market strategy for the company, which is designed to accelerate the monetization of our platform with a focus on the national advertising opportunity which is roughly double the size of the local advertising market that Nexstar has predominantly served historically.

Second, we continue to make significant progress building out NewsNation, America’s fastest-growing cable news network. This past year, we expanded weekday news programming to 17 hours per day, made key journalists and editorial additions and are completing production facility expansions in both New York City and in Washington, D.C. While still early, our strategy of providing unbiased news for all America is already delivering results as NewsNation was the only cable news network to see double-digit growth in total viewers in 2022. Our programming continues to be recognized by Watch Dog Group for its independence, and we believe this is the type of content that journalists want to report and audiences want to watch. Our ability to attract top-tier talent and make good progress on ratings, with January 2023, marking NewsNation’s highest-rated month to date, all only reinforces that view.

Third, we are already making progress with the CW, not only to bring the network to profitability but to create value for the entire Nexstar enterprise as a result of the acquisition. At the Nexstar level, we see the CW as instrumental to our ability to unlock the national advertising opportunity I discussed just a moment ago. And in our recent distribution and renewal negotiations, our ownership of the CW positively impact the outcomes of those discussions by an amount that already effectively paid for the investment that we’ll make in the network. At the CW level, on the programming front, while we are locked into most programming for the ’22, ’23 broadcast season, we’ve already taken action to improve and diversify our content to better align with audiences through our exclusive multiyear broadcast rights agreement with LIV Golf.

Beginning with the LIV Golf season, which kicked off last Friday, the CW will air 14 global events and stream the events live on our CW app. We also have begun to execute on our cost savings plan by reducing redundant functions at the network, and we’ve hired new top-tier executives with backgrounds at Fox, NBC Universal, HBO, POP TV and Google to lead our programming and distribution strategies. These are results driven professionals who share our excitement and our vision for the network and we continue to expect to achieve profitability by 2025. Finally, Nexstar continues to lead the industry in total deployment of ATSC 3.0 or NextGen TV with markets reaching approximately 35% of the U.S. households, and we have a goal of reaching 50% of the U.S. populations with ATSC 3.0 signals via our stations by the end of this year.

Discussions with potential technology and business partners for this service are ongoing, and we continue to believe the revenue opportunity for applications using our spectrum could rival our retransmission revenues by the end of this decade. In summary, we remain confident in our strategy, the quality of our assets and the strength of our financial position. Consistent with our capital allocation priorities and focus on enhancing shareholder value, in January, the Board of Directors increased Nexstar’s quarterly cash dividend by 50% to $1.35 per share per quarter, substantially exceeding our historical compound annual dividend growth rate of 25%. Our strong free cash flow enables us not only to increase the percentage of capital return to shareholders in the form of dividends but also allows us to continue to opportunistically repurchase shares as well as reduce debt and pursue other strategic opportunities to further enhance shareholder value.

Looking ahead, 2023 will benefit from the renegotiation of our distribution contracts, representing more than half of our subscribers during 2022 and 2024 will benefit from the Presidential election year, political advertising cycle as well as additional distribution contract renewals at the end of this year. For the ’23, ’24 cycle, we expect to generate pro forma average annual attributable free cash flow of approximately $1.25 billion, inclusive of our approximate $90 million attributable to the investment losses associated and tax benefits related to our turnaround of the CW. With all of that said, let me now turn the call over to Tom Carter for the operational review. Tom?

Tom Carter: Thanks, Perry, and good morning, everyone. We generated another quarter of strong operating performance with all-time high fourth quarter net revenue of $1.49 billion. Net revenue for the quarter increased 19.3% from the prior-year quarter due primarily to our strong political results as well as inclusion of the results from the CW, partially offset by a decline in core advertising primarily a result of national advertising market softness. Excluding the results of the CW, net revenue was up 14.3%. Core television advertising decreased 3.3% year-over-year. Excluding the impact of the CW, core advertising was down approximately 8.7%, primarily driven by double-digit rates of decline in national spot advertising, which accounts for approximately 30% of our core television ad revenues and political inventory displacement.

Nexstar’s local TV advertising revenue, which represents approximately 70% of our total core TV ad revenues, excluding the CW continues to meaningfully outperform national declining just 2% year-over-year despite significant inventory allocations towards political during the quarter. This continues to be in line with the historical trends with local advertisers maintain more consistent levels of ad spending throughout economic cycles. So far in Q1 of ’23, we’re seeing similar results to what we saw in the fourth quarter with this revenue category. Excluding the impact of the CW, our top-performing categories in the quarter were automotive, home repair and manufacturing, entertainment, paid programming and air conditioning and heating. We’re extremely pleased to see auto, our largest advertising category in terms of dollars spent, maintain its growth trajectory for the second consecutive quarter, increasing 23.5% over Q4 of ’21.

In addition, Nexstar’s local sales initiatives continue to deliver healthy levels of new business with our sales teams generating new local advertising incentive program revenue of $37 million, flat to the prior-year despite significant political displacement. The category is primarily responsible for the core advertising revenue decline were gaming, sports betting, insurance, direct response, medical health care and radio, TV, cable, newspapers. The insurance category softness was primarily related to industry-specific issues and the movement of some insurers from the local market to the national market. Direct response continues to be impacted by weaker national advertising marketing trends and medical health care was impacted by reduced Affordable Care Act marketing funds versus the prior-year.

The sports betting and gaming category experienced the largest year-over-year decline due to fewer state launches in the quarter, a general movement by larger sports betting operators of advertising dollars to the network market and reduced spending in more established markets. In addition, fourth quarter advertising was impacted as sports betting and gaming companies redirected total television advertising dollars to voter propositions to legalize online gambling in California. Category bright spots included Ohio where sports betting was legalized beginning of ’23, and Missouri driven by spending in Kansas City for sports betting in Kansas, which was legalized in September of ’22. Despite the trends, we continue to expect to see spending in this category, albeit at a more modest clip.

The ramp-up of sports betting advertising came at a time when automotive was declining and now we see a reversal in the performance of these two categories. Turning to political advertising. Nexstar generated fourth quarter political revenue of $265.9 million propelling our full-year of political advertising to $505.6 million, just 1% shy of the 2020 Presidential election year results and up an impressive 32% pro forma over 2018, the last midterm comp. According to Kantar, total gross political advertising on all media was up a record 3% over 2020 and up significantly compared to 2018, driven in large part by more competitive races in 2022 in the impact of sports betting propositions in California. Local television broadcasting generated $2.4 billion in gross political ad dollars, a record amount for midterm election, capturing more than 50% of the total spend in 2022, representing a 38% growth over 2018.

TV continues to be the gold standard for political advertisers with local TV and local cable TV together representing 70% of gross political ad spending. This is particularly impressive since TV can offer a fixed amount of inventory and the pricing, which is regulated on a Canada-specific funds has a limit versus other media like digital. Moreover, it should be noted that the digital political spending is primarily used for fundraising versus messaging as local television is the preferred medium for the choice of branding. Nexstar captured 13.8% of total political television dollars in line with prior-years. Pack and political advertising accounted for 50% of our political revenue. This is an important fact is there is no regulatory limit on pricing for these advertisers and these dollars can quickly shift from race to race as political season progresses and benefits a scale player like Nexstar since we have stations in a substantial majority of the competitive markets.

In addition, because of the breadth of our portfolio, during the ’22 midterm election cycle, Nexstar produced and distributed nearly 50 political debates, including those high-profile Pennsylvania and Georgia state races and the Texas gubernatorial race which we also distributed nationally via NewsNation. We attribute our success during the record midterm cycle to the benefits of Nexstar scale and meticulous analysis and planning on a state-by-state and race-by-race basis, which has enabled us to nicely exceed the midpoint of our initial full-year net political revenue guidance range between pro forma 2018 and 2020 levels. We’re looking forward to a solid 2024 election cycle. Moving to distribution revenue. Fourth quarter distribution of approximately $616 million was flat to the prior-year.

Positively impacting this revenue category in the quarter was the inclusion of the CW affiliate fees as well as growth in the virtual MVPD revenue and MVPD rate resets and annual rate escalators. Offsetting these factors were the impact of ours and our partner stations going dark on certain MVPDs during the quarter in connection with the contract renegotiations and the settlement of certain disputes impacting revenue in connection with these new contracts as well as continued MVPD subscriber attrition. Overall, in the quarter, we saw an increase in the rate of decline in our subscribers to the mid-single-digit range, which was impacted by higher rate of MVPD declines offset by continued growth at virtual MVPD and DTC subscribers. Excluding the CW and the impact of going dark and other negotiation settlements, our distribution revenue would have been up low single-digits.

Looking ahead, excluding the impact of the CW affiliate fees, given our recent contract resets, we expect distribution revenues to be up high-single to low double-digits for 2023, depending on the outcome of our partners’ ongoing negotiations with multiple — with a couple of MVPDs on which they are currently dark and inclusive of our projections for subscriber attrition. While we have higher expectations for growth in this line item for the year, until our partners’ ongoing negotiations are resolved, our growth rate will remain near the mid-single-digit area. CW affiliation fees will have a slight positive impact on our year-over-year reported growth rates until we lap the acquisition date. As Perry mentioned, we’re extremely pleased with the outcome of our recent affiliation agreement negotiations and that will have a nice impact on our overall net retransmission revenue.

On a net basis, we expect reverse comp to increase but at a mid-single-digit rate, slightly improving our distribution or retrans margin. Before reviewing our other revenue segments, I’d like to provide some color on how we think investors should think about our distribution revenue outlook and evolving relationships with the virtual MVPDs. As a reminder, Nexstar generates distribution revenues from our linear MVPDs like Comcast and Charter, virtual MVPDs like YouTube TV and Hulu and other direct-to-consumer platforms like Paramount Plus and Peacock. But to put it in perspective, excluding revenue we generated from the carriage of NewsNation, which Nexstar negotiate separately, less than 10% of our gross distribution revenue is derived from virtual MVPDs. Approximately 40% of our subscribers are up for renewal by 2023 year-end, which will benefit 2024, including several virtual MVPDs. We firmly believe that we should control our own destiny with regard to the virtual MVPDs instead of allowing the network to negotiate on our behalf.

Currently, the individual network affiliate boards lead the discussions with the networks on behalf of their respective affiliates, which include station groups like Nexstar to opt in or out of virtual MVPD agreements. Given the lack of regulation in the digital world, it’s important that we remain united as an industry. Presently, the CBS affiliate Board has recommended that CBS affiliates not opt into the agreement with fuboTV, a small virtual MVPD, and we have followed their recommendation. The proposed terms were below market, and as a result, CBS affiliated stations, including Nexstar, remain off-the-air on that platform. As you know, there are a lot of moving pieces in these discussions with the networks, especially at CVS, where there is a linear agreement, VMVP agreement and a Paramount Plus agreement, all of which are up later this year.

The actions we have taken with fuboTV may or may not be representative of what we do elsewhere as other virtual contracts come up for the renewal in 2023. Contrary to the networks narrative, the virtual MVPDs want local news and local content because it’s sought out by the viewers. In line with our historical approach, we will not be accepting any deals that discount the value of our content, our stations deliver to these platforms. Our position on the matter is not new. We have always fought hard in negotiations with a number of factors that come into play and levers we can pull. Now moving back to the rest of our revenue line items in the quarter. Q4 digital revenues increased 10.1% year-over-year to approximately $112 million. Revenue growth was driven by the inclusion of the CW and year-over-year increases in Nexstar’s local digital advertising and agency services businesses, offset in part by softness in national advertising and e-commerce.

Excluding the CW, digital revenue declined 6.5%. On a consolidated basis, fourth quarter adjusted EBITDA increased 19.8% over the prior-year to $598.2 million, representing a 40.2% margin and fourth quarter attributable free cash flow increased 27.8% to $422.1 million. Excluding the CW, fourth quarter adjusted net income increased 32% to $662 million, and free cash flow increased from 38.7% to $458.1 million. Nexstar generated an adjusted 46.5% EBITDA margin and converted approximately 69% of adjusted EBITDA to free cash flow. And while we’re executing well on our business, ESG also remains a priority for Nexstar, and we continue to take actions to evolve our practices and disclosures to improve our already strong profile. This year, we prepared an ESG report, which will be available on our website, outlining key principles, policies and action.

The report also contains disclosures for Nexstar as suggested for companies in the media and entertainment industry by our Sustainability Accounting Standard Board, or SASB. As you’ll be able to read in our report throughout 2022, we executed on several ESG initiatives, including eliminating our Class B and Class C shares, which cleared the way for our inclusion in the S&P 400 Index. We announced plans to allow shareholders to vote to declassify our Board of Directors, and we maintain an active and accessible Investor Relations function, resulting in several acknowledgments in institutional investors annual survey. In addition, we continue to provide fact-based unbiased news for which our sponsors have been awarded for the excellent — for which our reporters have been awarded for their excellence and our NewsNation cable network has been recognized by independent watchdog groups as — for its content being reliable, balanced and trustworthy.

Nationwide and locally, Nexstar is involved in over 1,600 community initiatives each year donating thousands of hours and helping to raise millions of dollars for worthy causes. And finally, we continue to be committed to treating employees fairly and ethically and fostering a positive work environment as well as providing dedicated diversity, equity and inclusion programs, hiring practices and mentorships. We’re about to begin our annual shareholder outreach initiative where we discuss our initiatives and hear feedback from our top shareholders. And as in the past, we will provide the results of that process in our annual proxy statement. In summary, our record 2022 financial results reflected continued performance across our key near-term growth areas, including distribution, political advertising, new local direct advertising and digital with even more to drive growth ahead of us.

With that, it’s my pleasure to turn the call over to Lee Ann for the remainder of the financial review and update process. Lee Ann?

Lee Ann Gliha: Thank you, Tom, and good morning, everyone. Our 2022 fourth quarter and full-year financial results showcase the underlying strength of our scale and business model and our ability to continue delivering record results and significant capital returns to shareholders. Before I dive into my usual financial discussion, I wanted to take a minute to step back and discuss a few changes in our financial presentation that we’ve been foreshadowing. Since we own 75% and control the CW, the CW is consolidated to our financial results. Although it is a small part of our overall financial results, we’ve announced by analysts and investors to break out the impact of the CW. We also believe it is important to do so since we view the near-term losses of the CW as a proxy for purchase price, as we intend to bring the asset to profitability by 2025.

In addition, for purposes of our credit agreement and indentures, we have designated the CW as an unrestricted subsidiary, and it is not included for purposes of calculating our covenants. To that end, on the cover of our earnings release and in the tables at the back of the release, you will be able to find selected financial metrics for Nexstar on a consolidated basis for Nexstar, excluding the CW and also for the CW on a standalone basis. With respect to our free cash flow guidance, we’ve opted to use an attributable free cash flow figure that includes the cash flow of Nexstar and its interest in the Food Network and our attributable 75% interest in the losses of the CW and the related tax benefits of those losses. Seasonally attributable metric is a good proxy for the cash flow available to be reinvested to be used to repay debt or return to shareholders.

As always, you should use these metrics in connection with our reconciling schedules and financial statements that have been prepared in accordance with GAAP and are filed with the SEC. You should also note that we have streamlined the number of EBITDA and free cash flow metrics we are showing on our earnings release cover page. As such, we are opting to exclude transaction and onetime expenses from these figures. As always, the detail is provided in our reconciling schedules in the back. Because of the lack of information until now, the research analysts that cover us have had a variety of ways of showing our numbers. Some include the CW and some exclude it, creating some noise in our consensus estimates. We hope to get everybody on the same page as much as we can after this call.

Now back to our regularly scheduled programming. As always, Tom and Perry gave you most of the details on the revenue side. So I’ll provide a little color on the CW financial results and then jump to expenses followed by some discussion on our guidance. We closed the acquisition of the CW on September 30, 2022. In the fourth quarter, the CW generated $66 million of revenue and $64 million of adjusted EBITDA losses in line with our expectations for the quarter. In addition, the CW was responsible for $30 million of onetime expenses comprised of restructuring charges and retention bonuses. The CW generates revenue primarily from national television and digital advertising, distribution fees from affiliates and virtual MVPDs and as well as some short-term continuing revenue from licensing content to an SVOD player.

Since the CW programming schedule is locked in for the 2022, 2023 broadcast season, it won’t be until the fourth quarter that you will be able to see the Nexstar play book start to unfold. We continue to anticipate a low nine-figure investment and to achieve profitability by 2025. Moving back to Nexstar expenses. Together, fourth quarter direct operating and SG&A expenses increased $72.5 million, primarily due to the inclusion of the CW, including the onetime restructuring expenses of approximately $30 million I just mentioned. Excluding the CW, fourth quarter direct operating and SG&A expenses increased only $5.9 million as a result of higher variable costs related to higher revenues, increased programming and other costs related in part 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.

Increased expenses were offset by a reversal of an accrual due to a settlement in connection with our distribution agreement renewals. As a percentage of net revenues, our total expenses declined given our focus on controlling expense growth and significant political revenue growth. Q4 2022 total corporate expense was approximately $49.2 million, including noncash compensation expense of $18.2 million compared to $43.6 million, including noncash compensation expense of $12.4 million in 2021. Noncash compensation expense grew primarily due to the CEO’s new contract. Excluding onetime expenses included in this item, corporate expenses were effectively flat. Fourth quarter CapEx was $57.1 million or $56 million, excluding CapEx related to the CW.

CapEx was higher in the fourth quarter than prior quarters in 2022 as CapEx that was delayed in the first three quarters of the year due to supply chain disruptions was finally fulfilled in the fourth quarter. CapEx for the full-year, excluding CW, was $155 million, slightly higher than our expectation of $150 million due primarily to anticipated reimbursement and rebates that have not yet been booked. Fourth quarter total interest expense increased to $103.4 million from $70.2 million in the prior quarter due to the impact of increasing LIBOR and SOFR rates applicable to our floating rate debt. Cash interest expense was $100 million for the quarter and $323.6 million for the year, slightly lower than our $326 million expectation at the last call due to the impact of the — of actual versus projected yield curve and debt repayment.

Fourth quarter operating cash taxes were $53.1 million, which includes $65.3 million attributable to Nexstar, excluding CW and a $12.2 million benefit from the attributable tax deductible losses from our investment in the CW. Overall, for the year, cash operating taxes were $334.1 million for Nexstar, excluding CW, implying a 25.5% pretax income rate and $321.9 million, including the tax benefit from the CW attributable tax deductible losses. We recorded $14.8 million in distributions from equity investments related to our 31% ownership in the TV Food network in the fourth quarter, which represents a 13.5% decrease over 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, we project corporate overhead exclusive of stock comp and transaction cost to be approximately $36 million in the first quarter, and we expect overhead around $144 million for the year. Noncash comp is expected to be approximately $50 million for the first quarter and in the $67 million area for the full-year, but we’ll — but will vary based on stock price and actual grants. For cash taxes, we use a 26.5% tax rate when calculating our estimated tax benefit before onetime and other adjustments. We are currently projecting cash CapEx of $35 million in the first quarter and $137 million for the full-year. As a reminder, we typically spend less in CapEx in odd number nonpolitical years than political years. We expect Nexstar’s cash interest expense to approximate $110 million for the first quarter and $450 million for the year, reflecting current forward curve and expectations for debt repayment.

The forward curve currently shows interest rates speaking in July and falling thereafter. Turning to the balance sheet. Nexstar’s outstanding debt as of December 31, 2021, was $6.95 billion, down from $7.41 billion at year-end last year. Because we have designated to CW with an unrestricted subsidiary, the losses associated with the CW are not accounted for in our calculation of leverage for purposes of our credit agreement. As such, our net — first lien — lien coverage rate — sorry, our net first-lien covenant ratio for Nexstar, excluding the CW at December 31, 2022 was 1.77x, which is well below our first-lien and only covenant of 4.25x. Our total net leverage for Nexstar, excluding CW at quarter-end, was 2.93x, down from 3.7x as of December 31, 2021 and 3.18% in Q3.

As is typical in nonpolitical years, we expect leverage, which we calculate on a last 12-month basis versus a two-year average to slightly tick up in 2023. But our quantum of debt, we don’t expect to tick up. But the leverage we expect to fall again in 2024, which will be a political year. In 2023, we plan to allocate a portion of our free cash flow to reduce indebtedness, primarily from mandatory amortization payments. For the full-year, we generated $1.5 billion of attributable free cash flow and generated approximately $188 million of net proceeds related to asset sales in 2022. We returned $1.02 billion or 68% of our attributable free cash flow to shareholders in 2022, paying $142 million in dividends and repurchasing $880 million of stock or 5.1 million shares 12% of our shares outstanding as of December 31, 2021.

The remainder of our attributable free cash flow went to repay debt. Other uses of cash included transaction expenses and other working capital items. As we move forward, we will continue to strategically deploy our cash in a manner that is consistent with our commitment to creating the highest shareholder value. For all the factors are enumerated by Perry and Tom, we are excited about the prospects for 2023 and remain confident in our ability to enhance shareholder value and deliver on our new pro forma annual — average annual attributable free cash flow guidance for 2023, 2024 cycle of approximately $1.25 billion, including $90 million of attributable losses and associated tax benefit in connection with our ownership interest in CW. Comparing this to our original 2022, 2024 guidance of $1.4 billion, for the 2023, 2024 average, we have about $110 million more interest expense given the movement in interest rates and a $90 million attributable loss for the investment in the CW.

Excluding these impacts, our 2023, 2024 free cash flow would have been $1.45 billion for comparison purposes. A few additional notes on our 2023, 2024 free cash flow guidance before we open up for questions. From an operating perspective, these figures take into consideration our current best estimates for our core business based on current and expected trends as of today. We have assumed no material M&A or other one-time or usual transaction these figures. So free cash flow is deployed in the form of reinvestment, debt repayment, dividends, and share repurchases. We’ve also taken into consideration the forward curve in which we are in, which will impact our expected interest expense given our significant floating rate debt load. Nexstar’s consistently strong free cash flow generation remains one of our most powerful differentiators not only from our peers, but from larger diversified media companies as well.

We’ve returned $1.02 billion or 68% of our attributable free cash flow to shareholders in 2022 and recently increased our 2023 dividend by 50% to $5.40 per share per year, representing a 2.8% yield. Our capital allocation report priorities remain focused on value-enhancing organic initiatives in our business, accretive M&A, modest deleveraging and shareholder returns through a mix of dividends and share repurchases. That concludes the financial review for the call. Operator, please open the line for questions.

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Operator: Ladies and gentlemen we will now begin the question-and-answer session. . And our first question comes from Craig Huber with Huber Research Partners.

Craig Huber: Great. Thank you. Just some nitpick questions, if I could start off with on the CW. I think you said SG&A was up $5.9 million, excluding the CW. What was your direct operating expenses, excluding that the CW? And how are you seeing that tracking this new year? It’s my first question.

Lee Ann Gliha: I’m sorry, how our direct operating expenses tracking in…

Craig Huber: Well, I mean is there anything out of the ordinary we should know about your direct operating expenses this year, putting aside the CW and beyond the ordinary?

Lee Ann Gliha: Nothing out of the ordinary, no.

Craig Huber: Okay. And then what was your retrans revenue if you just exclude the CW? What was that percent change including the hit, unfortunately, for the blackouts?

Lee Ann Gliha: You want to know what the distribution revenue was excluding the CW?

Craig Huber: Yes. In the fourth quarter, yes. I just able to get — yes, please.

Tom Carter: Well, I think we gave that. It was up low single-digit percentage on an adjusted basis.

Lee Ann Gliha: He just wants to know what the amount of the CWs at high-teen, high-teen number of — amount of revenue related to the CW.

Craig Huber: Okay. Great. And then a big picture question. I mean given all the controversy and uncertainty out there about the U.S. economy and given how large your footprint is on the TV station side, Perry or Tom or et cetera. What is your thought on where the U.S. economy is at right now? Are you feeling any increasingly worse about it now than you were, say, three months ago?

Perry Sook: No, Craig, it’s really interesting. Obviously, we spent a lot of time in front of local business owners and local advertisers. And they see the customer at the checkout counter or at the cash register, and they know that local consumers are spending and have factored in 7% mortgages and $3 and $4 gasoline into their daily lives. And are making choices and maybe moving some of that spending and you’re seeing higher net worth customers showing up at Walmart to buy some by their basic items. But the consumer is still spending and local spending for us is hanging in there just fine in the first quarter. The weakness we see is in national where national advertisers that obviously aren’t as close to the end user and customer have paused or reduced spending due to a potential weakness in consumers going forward.

So it’s really a dichotomy where Main Street is scoping and surviving just fine, and it’s more the national advertisers that have pulled back on their spending in anticipation of a weakness in consumer spending, which at this point has not manifested itself in our numbers or at the local level.

Craig Huber: Sorry. My last quick question, core advertising for the first quarter. How much — are you expecting that to be down, but roughly mid single-digits? I know you said core was — for local was holding up pretty well, maybe down about 2%, it sounds like. But about the overall though — for 1Q?

Perry Sook: For spending versus a prior year?

Craig Huber: Prior year, excluding the CW, please?

Perry Sook: It’s a single-digit amount. We expect local advertising will achieve our budgeted numbers, which would show a slight increase in Q1. National will be down a low double-digit amount. And given the weighting of those numbers, we see, again, kind of a low single-digit decline year-over-year is what we’re forecasting currently.

Craig Huber: Great. Thank you guys.

Operator: Our next question comes from Steven Cahall with Wells Fargo.

Steven Cahall: Thank you. So maybe as expected, Tom, hoping we could just unpack some of the things you went through on retrans a little bit. So if I understood it correctly, is this that you expect retrans ex the CW to be up about mid single-digit. And then if you get some of the current blackout renewals done, then accelerates into that new guidance. And I think that the prior guidance was mid-teens. So I was wondering if you could just help us kind of bridge the gap there. Is that cord cutting? Or any difference in rates that you’re achieving or anything else we need to think about?

TomCarter: Well, again, I’ve said for the full-year, we expect high single to low double-digit growth. And I think the only differentiating factor in that is how long the blackouts continue. In the first quarter and the first half of the year, I think it will be more pronounced. So we believe the first half will be more like mid single-digits, and then it will grow into the full-year expectations in the back half of the year. And with regard to overall growth, again, if you look at our expectations, assuming no further blackouts in a quick resolution at low double-digits the bridge between low double-digits and mid-teens would be increased attrition.

Steven Cahall: Got you. Okay. And then on the reverse side, is there any change there to kind of the outlook that you gave a few months back I know that was also, I think, mid-teens at that point. It sounds like your reverse is going to be up about mid single-digit, and you just kind of went through what’s going on, on the growth side. So is the change to the implied net just the difference in gross or anything else on the reverse comp side?

Tom Carter: Well, no, I think I mentioned it in my comments that the growth in network affiliation is much more modest than our growth in retrans revenue. So you’ll see our net retrans margin increase. I didn’t give a specific, but it will be higher than the revenue growth.

Steven Cahall: Great. And then, Perry, you mentioned that the recent distribution renewals effectively have paid for the CW deal. So maybe you could just put a little more context. Are your MVPDs kind of happy to pay you a higher affiliate fee for the CW now that you’re pairing it with broadcast stations or any other kind of context you could put around that statement and whether or not that’s been an incremental surprise or that was always part of the thinking when you bought the CW?

Perry Sook: Right. I think it was all part of the thinking. We think the CW was undervalued for any number of reasons, mostly related to predecessor owners and parent company priorities and agendas. And then also when we’re negotiating with the largest big four station group and you negotiate this all as a package, there is leverage inherent in that model. And so we are very pleased with our ability to continue to earn more for the CW. And obviously, with things like LIV Golf and other programming expansions, we’re hoping to create more value so that we can ultimately extract more value as we go.

Steven Cahall: Great. And then lastly, just on sports content. Last quarter, you announced the Clippers deal. We’ve seen a number of RSN groups now kind of get into a period of change. And one of your peers has also recently launched a service that’s going to pick up regional or local sports rights. How do you see that kind of opportunity between both local stations and the CW. Do we know enough yet to know if it’s a buyer’s market? Is it still a little too early? I appreciate that. Thank you.

Perry Sook: Well, I can tell you that the number of inbound inquiries as well as discussions that are going on with team owners the activity is frenetic around here. The — there are lots of discussions. I think our Clippers deal with Steve Ballmer and the Clippers putting a group of games on broadcast exclusively to expose that to the part of the market that is not inside the pay TV universe kind of broke the seal. And I think that other team owners have taken notice of that. There are a lot of conversations going on. I would expect you’ll see us do more deals as time goes on. But I think to a certain extent, people want to see how the RSN plays out and what that means to them and then, therefore, how that influences their behavior going forward. But we have a receptive audience, certainly among NBA owners and NHL owners that see the value of broadcast TV and exposing and distributing their product to a much larger audience than is available in the pay TV universe.

Steven Cahall: Thank you.

Operator: Our next question comes from Dan Kurnos with the Benchmark Company.

Daniel Kurnos: Great. Thanks. Good morning. Perry, maybe just to follow-up on that a little bit. How should we think about your willingness to trade off in kind of prime time sort of programming, like how are we thinking about either from a CPM or a viewership perspective, if you wanted to put stuff on CW sort of that trade-off between sort of traditional programming and sports. And if there’s any way to kind of I don’t know, directionally size the impact of LIV Golf, just so we have a sense of what these kind of deals could be — would be helpful?

Perry Sook: Well, I think our — I guess I stated earlier, our goal is to create more value in the CW. Certainly, sports is one avenue that has never been pursued there before. I can tell you that our first — we’re very pleased with our first weekend of LIV Golf across the first three days from Mayakoba, Mexico. LIV Golf was viewed by over 1.4 million total viewers across both the CW linear network as well as our digital platform, the CW app, compared to the average linear golf game on television year-to-date LIV Golf’s two day average linear viewership was 24% higher than the average. And important for us, the linear broadcast ratings increased 21% from Saturday to Sunday — so all of which is to say those numbers exceeded our expectations.

And most importantly, the affiliates as well as our own stations were thrilled. I know that our affiliates and CW affiliates in the top 10 markets generated about 3x the amount of money that the network generated for this first outing. And so it’s selling very well and I think we’ll continue to grow as we get more into the season and more involved. So I think that sports, I think adding another hour on Sunday night to the prime time schedule, are all things you can expect in the future. And again, we want to make the CW — I mean, it has a distribution on par with the big four. So our job now is to continue to increase the profile, relevance and interest in the programming, offer more varied programming and sports is obviously a big piece of that, that can put us more on par with the other network choices that are out there.

Daniel Kurnos: That’s helpful. And just another one, just on political, I know it’s obviously early for ’24, but I mean you have a really broad platform, and we’ve seen some creative ways that others have kind of attacked it, whether the CTV partnerships or what have you. And you guys obviously own some political specific properties now. So I don’t know how do we yardstick kind of ’24 relative to whatever pro forma 2020 was if you have that number? And what kind of incremental opportunities or channels do you see heading into next year?

Perry Sook: Well, I would say, first of all, that embedded in the guidance that we issued this morning is a record political number for 2024, and it is up not inconsequentially from what you saw in both 2022 and in 2020. So it will be a record year. The reach of our local platform, which is where the political game is played overlaps very well with the open Senate races, the states that are expected to be in play for the presidential contest. And so we are very bullish on political 2024. I would say, things that will exist by 2024 that don’t exist today. There will be a show called The Hill on NewsNation at 5 o’clock Monday through Friday that will launch in April. That would be — that is a perfect conduit for newsmakers, politicians and others to reach a national audience.

We anticipate being active in the debate business as we were in 2020. And in 2022, we did 50 debates across our company, three of which we put on the national cable network to offer to all of America outside of the states in which they were being contested. I think you’ll see us more active on the debate stage. Certainly, when you look at the power of The Hill, which is a national brand in concert with NewsNation, which is a national brand; and the strength of our local stations, which is the backbone of everything we do, I think you’ll see all of that come together in a unified sales effort to highlight the opportunity available to us in 2024 and beyond.

Daniel Kurnos: Great. Thanks. I appreciate it.

Operator: Our next question comes from Nick Zangler with Stephens.

Nicholas Zangler: Yes, hey guys. Thanks for giving me on. How would you gauge the risk, I guess, that the impasse with CBS over fuboTV carries over to the other vMVPDs like YouTube TV, Hulu TV, Sling TV? Are those negotiations coming up at all? And are we talking about the affiliates effectively drawing a line in the sand here, which could see and could create spillover and impact these relationships with other vMVPDs as well?

Perry Sook: Well, I’ll go back to what Tom said in his prepared remarks is that total virtual MVPD revenue is approximately 10% of our distribution revenue. So if it were all at risk, that’s the number that you’re talking about. Right now, I think you can say that the fubo dispute is a dispute over money as well as governance issues. And so I think you’ll see affiliates continue to press the point that we should negotiate our own agreements and that no one else should be negotiating on behalf of our content. And that and money are the two issues here. And I think for the long-term health of the local ecosystem, we talk to people at Roku at fubo at other virtual MVPDs, and we asked them, what are they watching? And they say, the locals.

And so not unlike traditional cable, where we are the most watched channels in the bundle, why would that be different in a virtual universe? And so we know we have value. And I think individually and collectively, we will recognize that value and are not willing it to sell at a discount or to sell on an à la carte basis. So you have an inferior offering in the marketplace. If you don’t have the global stations, I think that should tell you everything you need to know about the leverage in the discussions. And so if that means we have to go dark for a little while to make the point. I think — our company as well as others in the industry have made the value judgment to do that.

Nicholas Zangler: Understood. No, we heard it directly from fuboTV yesterday that they want that local content back, but understood there. And then just a second question here. It’s great to hear auto continue to come back, obviously, a huge vertical for you guys. Curious if you could size that up a bit. I’m wondering how auto is performing when you look back relative to those pre-COVID levels. Are we bearing full normalization here? Or are there still significant room to run on auto getting back to maybe a more normalized rate in that 2019 pre-COVID era?

Perry Sook: Yes, we are not back to 2019 levels yet. We are seeing some sustained healthy increases off of that lower base. I think we have another couple of years of these kinds of increases before we begin to approach 2019 levels, both from a national SAAR as well as unit spending. But it is certainly a tailwind in core advertising revenue that auto is up and up double-digits, and we see that continuing throughout the year.

Nicholas Zangler: So basically, auto under — the way you’re describing it. Auto is likely a multi-year tailwind as we continue to push to normalization, which would require SAAR levels back in that $17-ish million — or million unit range bag in pre-COVID era?

Perry Sook: Yes. We see it as a multiple year tailwind for our company, certainly.

Nicholas Zangler: Got it. Thanks so much guys.

Operator: Our next question comes from Jim Goss with Barrington Research.

Jim Goss: Thank you. Your comments about rate of drawing attention to the CW. Could you talk a little bit about how else you are going to try to navigate that process of changing the content and publicizing the changes in the content to attract the desired audience since that transition could pause its own challenges.

Perry Sook: Sure. Well, I don’t think because other networks might be listening. We want to necessarily put our playbook out there, but I think you’ll see as we move towards the upfront level and the programming schedule that will be displayed and deployed for the fall. I think you’ll see some higher profile programming there, certainly in the unscripted than you have seen historically. Dennis Miller and Brad Schwartz and their teams are hard at work putting that together. They’re fielding tons of pitches. We’ve signed some things. We haven’t announced yet that I think will be of interest. And so I think it’s an iterative process. It’s a gradual process, but I think you’ll see just generally less of a reliance on scripted, although we’re not going to totally abandon the genre.

But more reliance on unscripted, but a higher quality of unscripted, a higher profile, something that’s maybe a little bit more noisy that will get some attention and get some eyeballs. And we’ll continue to look for additional sports opportunities that may or may not be on weekend afternoons may bleed into prime time upon occasion. I mean, we wouldn’t rule any of it out. And we know that from everyone we talk to, people understand the power of broadcast and what broadcast has that no one else has, which is superior reach. And so we’re interested and quite frankly, very pleased with the reception we’ve had in the marketplace that there may be another voice out there, another national opportunity for distribution over the air and through the broadcast model.

And people are enthusiastic about engaging in those conversations.

Jim Goss: Okay. Thanks Perry. And the one other one with NewsNation. It seems like you’re pretty much through with the reshaping process there. I wondered what the next steps are. And I assume you — the initial bogey was to basically do better than we were with off-network sitcoms. Now you probably want to raise your sights in terms of the margins and the profitability you can generate with that station or the network. I wonder if you could talk about that a little bit, too?

Perry Sook: Sure. Next steps for us, obviously, Elizabeth Vargas joins the network in April. And by the end of April, we will have a program schedule that will be news 24/5. So we’ll be a 24-hour news network Monday through Friday by the end of April, and that will include the daytime expansion, the addition of the Hill, the addition of Elizabeth Vargas reports show at 6 o’clock Eastern Monday through Friday. And at that point, obviously, we’re getting higher cost per thousands in news programming than we did in off-network programming. We’ve been able to substantially grow our distribution revenue because of news content and being one of five networks rather than one of a 100 general entertainment networks. If you follow the decline in general network — general entertainment network ratings, we couldn’t have made the pivot at a better time.

And so yes, our profitability has been enhanced, and we’re investing our syndicated programming expense back into journalism. That’s what’s driving the buildout. And then obviously, once April comes and we’re 24/5. We now set our sights on 24/7 and how we feel the 18 hours on Saturday and Sunday that are currently entertainment programming, we have to fill that with news. And so that will be the big lift, and we’ll have that piece done by the end of 2024 and then we’ll be a 24/7 cable news network. As I said in my remarks, January was the highest cumulative audience for the network since its inception. So we continue to grow the numbers are off of a low base, but we’re the only cable news network that is growing, and we continue to grow. We grew double-digits in the fourth quarter.

And again, I tell people, I don’t care what the ratings are three months from now. I care what they are three years from now, just do better, continue to grow every day and don’t get caught up in a minute-to-minute and all of the minutia, but just put out good product and we’ll continue to grow it. Our promotional campaign will kick off in earnest in the month of April and between our stations and our paid media. It’s approximately $100 million investment through the balance of the year that will attempt to raise our profile, raise our awareness level and continue to expose what I feel is the top-tier level of talent that we have on the network. I’m very proud of the folks we have on the air and the job that they do, and we look to add to that as we continue to fill out these other hours and other dayparts.

Jim Goss: All right. Thanks for all the color. I appreciate it.

Operator: Our next question comes from Barton Crockett with Rosenblatt Securities.

Barton Crockett: Hi, thanks for taking the question. There are two topics I just wanted to ask a little bit about the — first on this national feed. I just want to understand kind of one logistical thing. Are they able to see the local football game from the NFL on CBS? Or is it just like a national game on that national feed? Is there any leverage around the ability to see local games that if somehow rights constructed by the agreement with you or not? Or is it really just a news as you only kind of look all?

Perry Sook: When you refer to Bay, who are you talking about? You are talking about the local station or the network because…

Barton Crockett: Yes, yes. I’m talking about like if I was a fubo subscriber in Portland where you have the coin station, can I see the Seahawks on Sunday on CBS or not? If that’s a local game? Or am I giving some national game like the ?

Perry Sook: On the CBS — the CBS white feed, if you will, yes, you probably can see that game on that feed. I think if this dispute goes to the end of football season, I guess we’ll all find out, but I think they do have the right to include that in their feet at this point in time.

Barton Crockett: Okay. So your leverage is really just your local content, your local news. All right. And then…

Perry Sook: Yes, don’t value. Because that’s a lot. But yes, that is what people want us for is the local content.

Barton Crockett: Okay. And then switching to ATSC. It was interesting Sinclair was talking a little bit about their feeling about the importance of getting the FCC to move so that you can shut down the legacy stations, the ATSC 1.0 to get really enough kind of capacity to generate meaningful revenues off of this. What’s your feeling about that? I mean can you generate revenues that are meaningful without that? Or is that kind of a necessity to free up that bandwidth capacity?

Perry Sook: The current simulcast requirement does constrain our capacity as to what we can do. And I’ve recently been at the FCC meeting with the Commissioners as well as the Chairwoman. And I think that you’re going to see the FCC engage with the NAV and develop probably some sort of a task force in a public private kind of an arrangement to explore the further development of ATSC 3.0. I think that is absolutely necessary to advancement here. I think, again, if we had a sunset for 1.0, even if it was several years, hence, that would cause the set manufacturers to begin to build to that standard, lessen the backward compatibility problem with those that don’t have sets of compatible sets on the dongles or receivers and all of that has to be dealt with and the consumer issues have to come first and foremost.

And we need that, too. We’re not in the business of disenfranchising customers, viewers and advertisers. So — but I think if the public and private sector can sit down and talk about this holistically and kick around ideas, and I think that’s coming. So I think if that happens, I think you’ll — it will be a positive day for the industry and a positive day for the growth and development of NextGen TV. And we’re working independently with Sinclair and with other companies to develop business applications that can be used today, given the capacity constraints and enhanced GPS and distributed power and some other use cases that are not very bandwidth-intensive. And I think you’ll see, again, in 2023, some test cases and use cases that will be developed that again is — we’ll be seeing this forward progress in the development of ancillary revenues from NextGen TV spectrum.

So we’re very bullish on it. Obviously, the simulcast requirement needs to sunset at some point and there needs to be a sunset of 1.0 and an endorsement of 3.0 as the new transmission standard. And I think when those things begin to line up, I think you’ll see development accelerate. But we’re very bullish on the prospects and think these things are in the queue and on the way.

Barton Crockett: Okay. I mean do you think you start revenues from that in 2024, Sinclair was saying that. Are you guys saying that at this point?

Perry Sook: Well, I mean, we have revenues from our spectrum right now it’s primarily in the form of multicast revenue and leasing spectrum to people for their multicast distribution. So it’s not an inconsequential number. But — so there is revenue flowing from ancillary uses of our spectrum today. But in terms of the things, I’m talking about there could be a very modest amount. It would be more in the form of a test of the technology and people testing certain use cases. But I don’t expect that anyone would sign on to a big contract until they had the chance to administer their tests.

Barton Crockett: Okay. Thank you. That’s helpful.

Operator: Ladies and gentlemen, since there are no further questions, I would like to turn the call back to Perry Sook for the closing remarks. Please go ahead.

Perry Sook: Thank you. We continue to believe the investment case for Nexstar is very simple. Nexstar’s stock has been one of the best short and long-term performing stocks in media, one of the highest percentage returns of free cash flow to shareholders in media along with solid long-term growth prospects and a low valuation. We have a strong balance sheet with low leverage and excellent short-term visibility with multiple long-term material growth initiatives. ’23 and ’24 will benefit from new distribution agreements and as we’ve discussed, 2024 as the Presidential election and big political year. We also have multiple organic growth drivers, including NewsNation, the CW and ATSC 3.0 that are being positioned to generate material growth for Nexstar in the future.

As such, Nexstar shares represent a solid investment opportunity for existing and potential shareholders as we are the largest broadcast company with top-tier operational performance in the sector, but we trade at a very modest ’23, ’24 free cash flow yield. So thank you, everyone, for joining us today. We look forward to speaking to you again soon when we report our first quarter 2023 results.

Operator: This concludes our conference call for today. Thank you very much for your participation, and have a good day.