Nexstar Media Group Inc (NXST) 2020 Q4 法說會逐字稿

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is 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, 2019, and Nexstar's subsequent filings with the Securities and Exchange Commission. Nexstar undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

With that, it's now my pleasure to turn the conference over to your host, Nexstar Founder, Chairman and CEO, Perry Sook. Perry, please go ahead.

Thank you, Joseph, and good morning, everyone. Thank you all for joining us to review Nexstar's record fourth quarter results, including net revenue, profitability and cash flow that all again surpassed consensus expectations. As always, Tom Carter, Nexstar President, Chief Operating Officer and CFO, is on the call with me this morning.

It's been an active and productive time at Nexstar, and I'm proud to report that in Q4 and over the course of 2020, we achieved or exceeded the most important of our operating, financial and return of capital goals despite the challenges presented by the pandemic. I'll touch more on each of those items in just a moment.

Today, Nexstar Nation is comprised of more than 12,000 talented team members across America, united by a common commitment to localism, integrity, innovation and growth. We credit our results to the resiliency and adaptability of our outstanding teams as, throughout the year, they dynamically managed our operations for continued free cash flow per share growth. I'm extraordinarily proud of Nexstar's dedicated employees as they rose up to address the unprecedented headwinds created by the pandemic and worked tirelessly to deliver on the value of the 2019 Tribune Media acquisition, while providing essential services to our local communities during a difficult time for our country.

We believe what we've accomplished since closing the Tribune transaction in late 2019 and throughout 2020, sets us up very well for 2021 and beyond to leverage our scale, our focus on operational excellence, and the growth of our digital properties all generate significant free cash flow, reduce debt and drive further total shareholder return. This is reflected in the guidance we initiated this morning for pro forma average annual free cash flow for the '21, '22 cycle of $1.27 billion.

Simply put, Nexstar had an outstanding 2020 despite the headwinds. Our strong fourth quarter and full year operating results mark another year of record financial performance with all of our key metrics from net revenue to free cash flow growing at double-digit rates or more and coming in at the highest levels in the company's history for both the 3- and 12-month periods of 2020. The 25% rise in fourth quarter net revenue and 107% increase in operating income over the prior year highlight the ongoing value of our strategies focused on leveraging our local content and community involvement to generate record ad revenue and share in our markets as well as develop high teens distribution revenue growth.

Our ability to capture historic levels of election spending in our markets, which also substantially exceeded our 2020 guidance, combined with the strong operating leverage in our business model drove record fourth quarter adjusted EBITDA and free cash flow.

For the full year, our enterprise-wide focus on managing operations for current and future cash flow enabled us to generate adjusted free cash flow of approximately $1.3 billion or about $30 per share, representing approximately 100% growth over the 2018 levels when we last had the benefit of the political cycle. Our consistent and rapid growth is evidenced by comparison to the 2016 presidential election year when Nexstar generated approximately $8 in free cash flow per share. So over 4 years, we've grown that important metric by approximately 275%.

In 2020, we brought about 28% of every net revenue dollar to the free cash flow line, allowing us to invest in our platforms and make complementary accretive acquisitions while also paying down approximately $1 billion in debt and returning approximately $383 million to shareholders in the term -- in the form of share repurchases and dividends as we reduced our year-end outstanding share count to 43.3 million shares. So we essentially tripled our return of capital in 2020 over 2019, while reducing the share count by 2.4 million shares.

With the combination of our recent 25% dividend increase, authorization to repurchase up to an additional $1 billion in shares, our strong free cash flow guide for '21, '22 and our already reduced share count, it's clear that we have the ability, commitment and flexibility to further grow our free cash flow per share during the current 2-year cycle.

In the almost 25 years since we founded Nexstar, we have built the nation's leading local media company by focusing on the communities where we operate and the prudent use of leverage to support our strategies for growth and enhancement of shareholder value. Throughout our history, we have upheld our promise to our communities by expanding our local news programming and content to inform and entertain our viewers, while providing premium local advertising opportunities at scale for advertisers as well as political campaigns. At the same time, we consistently create new value for our shareholders through growing returns of capital, capital structure improvements and a continued focus on leverage reduction.

Looking now at the quarter. Fourth quarter net revenue increased 25.1%. And reflecting strong flow-through in our model, Nexstar generated record fourth quarter adjusted EBITDA, free cash flow before onetime expenses, with these metrics growing 64.5% and 122.1%, respectively. Throughout the quarter, we also made significant progress with our leverage reduction and return to capital initiatives as we lowered net debt by $326.3 million and allocated $108.8 million to quarterly cash dividends and share repurchases as we bought back 835,745 shares during the quarter. Reflecting our full year debt reduction of $1 billion, we ended 2020 with net total leverage at 3.6x, marking another metric, which exceeded the Street's expectations.

Turning back to Q4, while robust demand from campaigns and issue advertisers this election season resulted in a reduction in inventory available for local and national advertisers in October and early November, we continue to generate sequential month-over-month core advertising revenue improvements in November and December, which were the strongest months of the year since the pandemic began.

Nexstar's industry leading scale, diversified revenue sources and consistent execution resulted in a 37.3% rise in fourth quarter total television advertising revenue as we benefited from the recovery in advertising spending across key categories, which was offset by the allocation of inventory to political.

Fourth quarter television advertising revenue of $771.8 million includes political revenue of $298.3 million, which resulted in full year political revenue of 506-point -- I'm sorry, $507.6 million, which substantially exceeded our Street guidance. At the same time, core advertising revenue of $473.5 million marked a significant increase over third quarter levels $381.9 million, Q2 levels of $298.2 million and Q1 levels of $417.4 million.

Notwithstanding the allocation of significant ad inventory to political and the effects of the pandemic, our Nexstar local sales initiatives continue to generate solid levels of new business with fourth quarter new to television ad revenue rising on both a quarterly sequential and year-over-year basis. In total, our sales teams generated $27.8 million of fourth quarter new to television revenue, which was a 9.9% rise over the third quarter and a 35% increase over a comparable 2019 period.

Looking at Q1 and 2021, we continue to see strong core pacing data. We are highly encouraged by the advertising rebound across our station footprint, most notably in auto, our largest category, where in Q4, we grew auto ad revenue by 43% over where the third quarter finished.

The resumption in auto category spending is complemented by a resurgence in ad spending in insurance, gaming, sports betting, home service, home repair, drugstores, packaged goods, grocery stores and retirement and nursing homes. Our new business strategies, our ongoing sales training and our performance-based incentive structure have all proven very effective in our ability to capture ad spend in both broadcast and digital.

Distribution fee revenue rose 18.4% year-over-year to approximately $528 million, reflecting our renewal of distribution agreements in 2019, partially offset by the onetime impact of outages during distribution negotiations with a certain satellite provider in the 2020 fourth quarter. Subscriber trends across our platform continue to remain consistent with our expectations and the ongoing distribution revenue growth and net retrans margins that we currently project in our guidance. With our successful renewal of 2020 year-end distribution agreements representing approximately 18% of our subscriber base and 70% of our distribution base renewed in 2019, we have continued revenue growth from this source that is highly visible in 2021 and 2022.

Nexstar has solid visibility into our contractual distribution economics, as I said, through 2022, as in addition to the 2019 and 2020 multiyear retransmission consent agreement renewals, representing, again, 88% of our subscribers, cumulatively, we also have the bulk of our network affiliation contracts with CBS, FOX and NBC, under new long-term agreements, which were completed in the second half of 2019. As a result, 85% of our big 4 affiliations are contracted through December 31, 2022.

This, combined with the fact that in Q1, we will receive our cash distribution from our 31% ownership in the TV Food Network, will help to ease the historical seasonality that media companies face, with Q1 typically being the smallest quarter of the year. However, I will remind you that our Q1 comp to 2020 will be the toughest of 2021, and that we started last year very strong and benefited from political ad revenue before the advertiser pullback that began at the beginning of March.

Fourth quarter 2020 total digital revenue declined 12.5% as with the broadcasting and digital subsidiaries now operating together under the Nexstar Inc. umbrella, we are further deemphasizing lines of business in digital that produced high volumes without substantial margins. Reflecting this focus, digital profitability was up substantially over the comparable prior year period.

Following the acquisition of Tribune Media, over the past year, Nexstar has transitioned its digital operations and focus to content first and audience development. As a result, Nexstar's digital properties delivered record growth in audience engagement in 2020, ranking #1 in local news for every month of the year and reaching all-time highs across key performance metrics, including average monthly users of over 91 million, total page views for the year in excess of 7.8 billion, total multi-platform minutes of over 10.4 billion and total digital video views exceeding 1.6 million. And those statistics are all according to ComScore.

During the fourth quarter, we completed the strategic and operational alignment of our broadcasting and digital subsidiaries. And as a result, we expect a mid-7-figure expense savings in 2021 as the result of the synergies, efficiencies and streamlined reporting structures. We are now in the process of leveraging our integrated content strategy across Nexstar's 400 digital touch points to drive increased monetization during 2021. We are laser-focused on accelerating the profitability from our digital properties as we maximize the value of the content, national reach and significant consumer digital usage across our multiple platforms.

In the fourth quarter, we completed the first transaction under our new content first strategy with the accretive acquisition of BestReviews, a leading consumer product recommendations company. BestReviews diversifies our digital content portfolio while presenting the company with new and significant revenue channels by leveraging our media content, national reach and significant consumer digital usage across multiple platforms.

As I mentioned at the outset of the call, we responded to the pandemic with great speed and intensity to adapt our business and to preserve the health and well-being of our teams while ensuring that we continue to prudently and diligently manage our cost structure and liquidity position. We implemented a range of cost-cutting initiatives, which resulted in operating and corporate expense savings approximating $75 million from our budget levels for last year. The strong foundation of our assets, operations and financial structure enabled us to extract significant cost savings while preserving the incomes and jobs of our valued employees so we could continue delivering uninterrupted service to our local communities during this critical time.

In summary, despite the challenges presented by the pandemic, 2020 was a year of historic financial performance and growth for Nexstar. Nexstar continues to perform exceptionally well despite the challenges presented by the pandemic, thanks to our differentiated broadcast and digital content and sales programs, our continued robust distribution revenue growth, significant income from equity investments and record levels of political ad spending. Our capital allocation activity highlights the fact that our free cash flow and active management of both the cost structure and the balance sheet provide us with financial flexibility to continue supporting our shareholder value creation initiatives. As a result, Nexstar remains highly confident in our long-term strategies of serving our communities, building our top line, maintaining close control of our fixed and variable costs and optimizing our balance sheet.

With all of that said, let me now turn the call over to Tom for the financial review and update. Tom?

Thanks, Perry, and good morning, everyone. As outlined in this morning's press release, the actual results for the 3 months ending 12/31/20, and the comparable 3-month period ending 12/31/2019, reflect the company's legacy Nexstar broadcasting and digital operations and a full quarter of results from the Tribune Media Stations, which we acquired on September 19, 2019.

Fourth quarter 2020 revenue for WG in America, also acquired in the Tribune transaction, is included in core television advertising revenue and distribution fee revenue. A full quarter of contribution from Nexstar's 31.3% ownership stake in TV Food Network and other investments acquired in the Tribune transaction is included in the full income statement under income or loss on equity investments net and in the cash flow statement under distributions from equity investments. All actual results reflect the impact of $14.3 million and $29 million of onetime transaction expenses incurred in the respective quarters of 2020 and 2019.

I'll now review Nexstar's Q4 income statement and balance sheet data. After which, I'll provide an update on our capital structure and some points of guidance. Fourth quarter net revenue increased 25% to $1.38 billion. Total TV advertising revenue increased 37.3% to $772 million, reflecting more than sevenfold increase in political advertising to a record $298 million, which more than offset a 9.9% decline in core advertising to 7 point -- I'm sorry, to $474 million.

Distribution fee revenue increased 18.4% to $528 million, with growth partially offset by the onetime impact of outages relating to carriage negotiations with an MVPD. Digital revenues declined 12.5% to $65 million due to our deemphasis of lines of business that produce higher volumes without substantial margins. As a result, digital profitability was up substantially over the prior period.

As Perry mentioned before, I think it's important to note from a core advertising perspective, October was affected, obviously, by the political advertising and was down a mid-teens amount. However, November and December, on a combined basis, was basically flat to prior year, as Perry mentioned, giving us a good exit velocity on 2020, entering into 2021. And we feel really good about the strides that have been made to recapture that core advertising business.

To offset the anticipated impact of COVID in 2019 -- I'm sorry, COVID-19 on commercial advertising revenue, late in the first quarter, Nexstar implemented a range of cost-cutting initiatives. The result -- this resulted in operating and corporate expense savings approximately $75 million for the year compared to the originally budgeted levels. Fourth quarter direct operating expenses, net of trade expense, were approximately $432 million, essentially flat compared to the prior year, while fourth quarter station SG&A was approximately $219 million, reflecting growth in expenses associated with the broadcast ad sales related to record political revenue.

Same-station pro forma fixed expenses, excluding program expenses, were down 7.4% over the prior year due to the previously-mentioned expense reduction activities in response to the pandemic and the implementation of synergies associated with the Tribune transaction. Further evidencing our active expense control, corporate expenses declined 14.6% to $54 million, inclusive of $14.3 million in stock-based compensation expense for the quarter. During the quarter, there were $14.3 million of onetime transactions costs, of which $7.4 million were actually cash expenses.

Fourth quarter operating cash taxes were approximately $125 million and approximately $270 million for the year, reflecting the higher than reforecasted net income in Q4. Ongoing CapEx totaled $49 million for the quarter and $157 million for the year. Spectrum repack CapEx totaled approximately $5.4 million and received approximately $5.9 million of reimbursements from the FCC during the quarter. As a reminder, we anticipate being fully reimbursed for all CapEx related to spectrum repack as those activities wind down later here in 2021.

Fourth quarter total interest expense amounted to $74.5 million, down from $107 million in 2019. Cash interest expense was approximately $71 million compared to $102 million last year, with a decrease due to lower interest rates and lower first lien borrowing levels.

Fourth quarter adjusted EBITDA of $671 million and free cash flow of $450 million, all before transaction expenses exceeded consensus expectations and reflect record levels of political revenue. Sequential month-over-month improvements in core advertising spending, particularly in November and December, continued strong double-digit distribution revenue growth and $16.7 million in distributions from the TV Food Network, which were higher than originally expected.

With strong operating leverage in our business model, Nexstar reported adjusted EBITDA margin of approximately 47.7% in the fourth quarter. For the full year, Nexstar generated $4.5 billion in net revenue, adjusted EBITDA of approximately $2 billion and free cash flow of approximately $1.3 billion, all before onetime transaction expenses.

Our significant year-over-year growth and margin expansion highlights our team's tremendous success in navigating the challenges presented by the pandemic to deliver on the value of the Tribune Media acquisition.

While we continue to operate in a dynamic environment, full year 2020 free cash flow was in line with our pre-pandemic expectations, and 2021 is off to a solid start. As a result, we are reiterating guidance and expect to generate pro forma average annual free cash flow of approximately $1.27 billion over the 2021, 2022 cycle, which supports our view that Nexstar's path to growth, expanded returns of capital and enhanced shareholder returns remain on plan.

Looking ahead, we project recurring cash corporate overhead, exclusive of stock comp and transaction of costs to be approximately $30 million for Q1, and we're expecting corporate overhead for the year to be between $115 million and $120 million. Noncash comp is expected to be approximately $12 million for the quarter and $52 million for the full year. Transaction expenses in Q1 will be approximately $5 million.

Operating cash taxes are expected to be approximately $12 million in the first quarter and approximately $280 million for the entire year. CapEx should come in at approximately $28 million in the first quarter and $135 million for the full year.

We expect Nexstar's cash interest expense to approximately $70 million for Q1 and $285 million for the full year, reflecting interest expense savings related to the decline in LIBOR rates and our recent refinancing activity.

As a reminder, we received cash distributions from TV Food Network on a quarterly basis with the largest payment recorded during the first quarter of each year. For the first quarter of 2021, we anticipate recording approximately $160 million in TV Food Network distributions and approximately $210 million to $215 million for the full year.

Turning to the balance sheet, reflecting the recent capital markets transactions, $326 million of debt reduction in Q4, the Best Reviews acquisition and the WPIX TV purchased by Mission Broadcasting. Nexstar's outstanding debt at 12/31/20 was approximately $7.67 billion and consisted of $4.9 billion of first lien debt in term loans and revolver balances and 2 tranches of senior notes, senior unsecured notes, at 5.625% and 4.75%.

Total debt amounted to approximately $7.5 billion at 12/31/20 compared to $8.3 billion at 12/31/19. Net debt for first lien covenant purposes is approximately $4.7 billion, with net cash limited to $200 million.

Our net first lien covenant ratio at 12/31/20 was approximately 2.28x compared to 3.52x at year-end 2019, which is well below our first lien covenant of 4.25%. I'll remind you that -- I'm sorry, 4.25x. I'll remind you that first lien covenant of 4.25x is our only meaningful financial covenant on our debt stack.

Our total net leverage at quarter end was 3.6x compared to 5.18x at 12/31/19 and in line with our previously stated goal of reaching the high 3s by year-end 2020.

At the onset of pandemic, Nexstar took immediate actions to adapt our business to operate in the current environment and to preserve liquidity in order to best position the company for a long-term success as we return to normalized operations. With the improving business environment and broad vaccination distribution now getting underway, during the fourth quarter, we are strategically deploying our cash in a manner that's consistent with our commitment to enhance shareholder returns.

In the 3-month period ended 12/31/20, we returned approximately $109 million to shareholders through the repurchase of 835,000 shares for approximately $84 million and through our quarterly cash dividend payment of $24.5 million.

During the quarter, we also made $326 million in debt repayments. In addition, mission broadcasting completed the acquisition of WPIX TV, and Nexstar completed the accretive acquisition of BestReviews, a leading consumer product reviews company. Through 2020, we have actively managed our capital structure, cost of capital, liquidity position to support our business and enhance shareholder returns.

For the full year, we allocated approximately $1.1 billion towards shareholder value-creating initiatives, including approximately $800 million in debt reduction from operations, $100 million in dividend payments and approximately $282 million in shareholder repurchases.

With our share count now down to 43.3 million shares on a basic level, we believe that these actions represent approximately $25 per share of value creation. We believe this is conservative given our strengthened financial position and consistent execution.

In January, the Board of Directors increased Nexstar's quarterly dividend by 25% to $0.70 per share per quarter and authorized the repurchase of up to $1 billion of our Class A common stock. The Board's repurchase authorization reflect the attractiveness of Nexstar's free cash flow yield and a potential acceleration of share repurchases as our leverage moderates and large-scale acquisitions become more scarce given the current regulatory environment. The 20-plus percent increase in Nexstar's dividend for the eighth consecutive year and the implementation of a significant share repurchase authorization will allow us to continue delevering -- I'm sorry, delivering industry-leading risk-adjusted returns to our shareholders. The dividend payout remains a modest, low double-digit percentage of our free cash flow.

Looking ahead at 2021 and speaking to the core revenue performance, net Q1 will be the quarter most like the comparable quarter of 2020, given the strength early last year and the offset on political revenue. Q2 and Q3 will be up over last year, while Q4 will again see the cyclical impact of political -- of the political cycle. Nexstar has already made significant progress on our leverage reduction goals, and we enjoy a strong cash-generating position with additional capacity under our new revolvers.

In summary, despite an unprecedented challenge of the pandemic, our scale, leadership, flexibility, synergy realization and operations plans are generating results, while our capital structure is in great shape from a cost of capital and maturity perspective.

Finally, our service to our local communities and local and national advertisers has never been stronger. We continue to drive significant growth and have consistent and healthy visibility into our results. And we remain confident in our ability to enhance shareholder value and deliver pro forma annual free cash flow of approximately $1.27 billion over the next 2-year cycle.

That concludes the financial review for the call, and I'll turn it back over to Perry for some closing remarks before Q&A.

Thank you, Tom. In our more than 25 years of business and our 17 years as a public company, Nexstar's management team, board and employees of whether the dot-com bust, 9/11 and 28 -- 2008 financial crisis and the recession that followed and now, the pandemic and, even last week, the snowpocalypse here in Texas, each time, we've worked to support and sustain our employees, local businesses and the communities in which we operate. This has always been a good approach to business and is more important today than ever before. In each case, Nexstar came out on the other side stronger and better equipped to deliver outsized returns to our shareholders. And our long-term record of value creation supports this, and this is also the case today.

Our 2020 full year free cash flow of approximately $1.3 billion or about $30 per share and our guidance for pro forma average annual free cash flow for the '21, '22 cycle of $1.27 billion, underscore the strength and resiliency of our operations and our ability to continue to deliver free cash flow per share that is among the highest in the market. Our strong free cash flow generation is allowing Nexstar to meaningfully increase its return of capital initiatives as reflected by our recent authorization to repurchase up to an additional $1 billion of shares and our 8-year track record of dividend increases of 20% annually or more.

At the same time, we are paying down debt, investing in our business operations and people and completing select accretive opportunistic transactions. We look forward reporting on our continued growth and accomplishments throughout 2021. And on behalf of the entire Nexstar Nation, our Board and our management team, thank you for your continued interest and support, and thank you for joining us this morning.

Now let's open the call to Q&A to address your specific areas of interest. Operator?

(Operator Instructions) We'll take our first question from John Janedis with Wolfe Research.

Tom, you spoke to this in your remarks, but can you talk more about uses of cash? I think the free cash flow outlook is probably around $30 a share. And absent some large-scale M&A, what are the priorities as it relates to either reducing leverage or buying back stock? You've been doing a lot of both, but is there a preference?

And then separately, can you talk more about expense trajectory? As the core revenue comes back this year, should we expect to see some of those costs restored? I'd assume that being down mid-singles is in the run rate.

Sure. As I mentioned in the call, in 2020, it was a significant year in terms of making a down payment on deleveraging. We took it from roughly $5.2 billion to $3.6 billion. Obviously, some of that was because of digital, but we paid down $800 million from operations from our free cash flow, from our $1.3 billion in free cash flow. We paid down another $200 million from the asset sale to FOX in Q1. And then we -- as I mentioned before, I had almost $400 million of return of capital. I could see those numbers almost swapping places in terms of amount of debt repayment versus return of capital.

Given the substantial amount of deleveraging that took place last year, we don't feel the need or don't see the need currently to pay down $800 million more of debt this year yet. Then if that amount came down to something approximately $400 million, which is kind of what we return to capital last year, that would give us, on a nonpresidential year, probably somewhere between $400 million and $700 million to return to shareholders. Part of that is coming in the form of a 25% higher dividend. So that's $125 million a year. But the rest of it will come from either acquisitions, which are somewhat muted right now on the broadcasting side. We still have a lot of irons in the fire from a digital perspective, but the rest of it will come from stock repurchases. So long-winded way of saying you can almost flip the 2 with regard to how we allocated our free cash flow in 2020 comparing to 2021.

With regard to expenses, you'll see some of them return, probably primarily in Q2 and, to a lesser extent, in Q3. Q4, our expenses -- we started adding back expenses in Q4, and you can still see that, that was down substantially over the prior year. And keep in mind, that 7.4% also includes the synergies that we were taking out in Q4 of 2019 and 2020, relative to Tribune.

So I would say, on a comparable basis, for the entire year, I would imagine our controllable fixed expenses would be down low single digits, maybe not 7.4% over the entire year as we start to add things back, particularly in Q2, which was the quarter where we really tightened down the screws as -- to the greatest degree, because of the uncertainty in the pandemic at that time. Is that responsive to your series of questions?

We'll take our next question from Dan Kurnos with The Benchmark Company.

And I can see why you guys wanted to go first. The free cash flow, I guess, Perry and Tom, this is really kind of high-level here. The free cash flow guide, and Tom, just based on your remarks a second ago, feels like it's maybe $100 million ahead of us. We were already $100 million ahead of the Street. Your 2022 implied guide then is still double digits over 2020. So I guess, I know retrans and net retrans are underpinning that. You've talked about that in your prepared remarks, Perry. You can't find a CTV company saying that the world is ending for linear, and that clearly is not the case.

So maybe if you could just give us some color on the confidence you have in advertiser conversations going forward. We've been believers, but just help us understand what gives you the confidence on core on sub trends? And then obviously, you have a big bogey in political, but you'd have to sort of write in a number that's ballpark-ish, maybe 10% down or something from 2020 levels to really get you to where you want to be in 2022.

Sure. I would say, first of all, you've got a pretty good back of the envelope going. I would say the 1 thing that may be lost in all of this is the acquisition and integration of the Tribune Media assets. The -- on the broadcast side, Tim Busch and his team are -- have worked those stations into a situation where new businesses -- business development is now a part of the culture. Add picks into that, which we had for 2 days in 2020 that we'll have for the full year of '21 and beyond. And I think the execution there is something that is maybe not to be dismissed. As we're growing our shares in these marketplaces in some of the major markets, where we're just running the Nexstar playbook across a larger portfolio.

Also on the digital side, I mean, lost in all of this is that our digital business, if it were a separate business, operated at a 30% margin in 2020. Karen Brophy and her team, she has assembled a great team, and we're operating now and converting revenue to EBITDA at a much higher level than ever before. And that's before the acquisition of BestReviews, which contributed marginally in 2020, we'll have for the full year of '21 and '22 and beyond.

So obviously, we like where we sit with our renewals on affiliation agreements. We have over 85% of those locked through the end of 2022, and nothing remaining now. The early 2021 expirations have already been dealt with out through 2024. And so the -- Dana Zimmer and her distribution team has done a tremendous job of not only gaining carriage and monetization for WGN but for all of the assets under the now larger platform.

So I do think execution is a part of this. Having said that, one thing I've told our teams is, listen, if you see substantial double-digit pace in the second quarter, if you're up 20% in pacing, if you were down 40% last year, we've got a long way to go to retrace our steps. And I will say that if you look at our guidance, we are still retracing our steps in 2022. We don't anticipate being back above 2019 levels there. So I think the guidance is very well constructed. If anything, you know this company to want to be in a position to over-deliver on our promise, but we feel very confident in the numbers we put out this morning.

Just a couple of comments, and I'll turn it over to Tim Busch. He can comment some on the political environment for 2022 in our early kind of analysis on that. Don't dismiss WPIX admission. Perry worked long and hard to get an option to buy back WPIX because of its size and scale. There are substantial synergies coming to the combined entities with missions ownership of WPIX. And as Perry mentioned, BestReviews, and WPIX, both closed, I want to say on the 28th and 29th of December of last year. So none of those results were in 2020, but all of those results will be in '21 and 22, and those are healthy contributors. So Tim, do you have any comments, just generally on the landscape for political?

The landscape for 22 political is you could probably assess, we have approximately 370 house seats of the 435 across the footprint of the company. The Senate races, we're going to have approximately 90% of those as there are 34 seats up. I think we've got about 31. And on the (inaudible) side, we've got about 85% of the 36 seats, which is a strong footprint. Everything for it tends to be yet another robust race, probably starting a little earlier in '21, all the way up through '22.

Correct.

And having said that, we are not forecasting in 2022, a return to 2020 political revenues because we think that was in, in and of itself, a somewhat extraordinary event in ad spend. So I think you're -- the back of the envelope that you spouted early on in your question is pretty much on point as it relates to political.

We'll take our next question from Kyle Evans with Stephens.

Thanks for the color on the month-to-month core. Could you talk a little bit about what you're seeing in pacing in -- for this quarter?

Sure. I mean on core ad revenue and digital ad revenue in January and February, we're already ahead of our budgets, as the same for networks. Now having said that, in core and networks, we did budget to be down in the first quarter versus an excellent first quarter of 2020. But in terms of beating our internal numbers, which we obviously use to make your forecast, we are ahead of plan for January and February as of this morning and anticipate that trend continuing throughout the quarter.

Is flattish a word that we can use?

To the prior year? No, that's a little out because, again, you remember, we made our first quarter numbers in 2020 even though March fell off a cliff. So this is the toughest comp of the quarter. I will say that we're showing mid single-digit growth over our budget. But I would also tell you that, that is a decline to the prior year, but that's the expectation that we set. And obviously, we're delivering ahead of our internal expectations as of now.

Great. Maybe just a recap on sub counts for 2020 and specifically what you're seeing on the virtual side as well.

Sure. I would say that we ended 2020, quite honestly, slightly better than we had originally projected. I would say that the moderation in sub decline continued. If you look at our sub decline in the first half of 2020 compared to the second half, the second half was approximately 50% of the sub decline in the first half of the year. And we continue to see growth, albeit, growth from a total subscriber perspective that's comparable in the VMVPD universe, even though that relates to substantially lower percentage growth because, obviously, we're operating off of higher numbers. But growth continues in the VMVPD. And I will tell you that the entire year came in at a mid-single-digit for total subscriber attrition, and that includes the virtual add back to the traditional decline.

Got it. And then lastly, maybe just a recap of how News Nation, how that performed and maybe your strategic outlook there. And are we going to call that WGN or News Nation going forward?

Well, as of next Monday, WGN America will be renamed News Nation, and that is concurrent with our expansion of programming, adding additional hours to our prime time slate. So that will be our first expansion will be next Monday. There will be a second expansion later on in the year. And again, if you look at 2020 performance, WGNA/News Nation performed well ahead of budgeted expectations and has performed ahead of expectations in January and February as well.

Having said that, the baby will be 6 months old on Monday. And obviously, for us, increasing awareness is job 1. We feel we've got solid content, and I can't wait for the nation to see our new shows at 6:00, 7:00 and 10:00, that they view on Monday, wrapping around the News Nation broadcast. They're very well produced, going to be very well done. And -- but raising awareness is our #1 opportunity here for continued growth on the ad side.

On the distribution side, again, in fourth quarter, and some of this triggered in first quarter, but Dana Zimmer and her distribution team was able to gain 8.5 million subscribers, OTT subscribers for WGN America that -- where we had no distribution before and approximately 200,000 linear subscribers through the year-end renewal of distribution agreements where WGN was not carried. So it's important to be important in distribution, and you can use your scale as a company to accomplish our objectives, which we have certainly done. So very pleased with the progress. Obviously, we want the numbers to continue to grow. That will grow as awareness grows, and we are dedicating substantial internal resources as well as external spend to make that happen throughout 2021. We think it will be a good year of growth for WGN America, again, recourse News Nation as of next Monday, March 1.

We'll take our next question from Jim Goss with Barrington Research.

Perry, one further clarification on News Nation. To the extent that the political season has passed or at least taken a new shape, has that made any difference in terms of your sensitivity to the viewership patterns. Or when you're in early growth pace, you really can't see the short trends in the midst of the longer trends?

Well, our focus, as you know, is on being down the middle, unbiased, presenting both sides of an issue, balanced coverage, and I think we've accomplished that. There is something called the Media Bias Chart, which is put out monthly by an organization called Ad Fontus Media. And in January of 2021, we were exactly on the middle of the unbiased line. And it has every news organization from left to right. And so third-party observers think that we are holding true to our mission of being down the middle.

I will tell you from a revenue perspective, WGN and Arca had political revenue in 2020 for the first time ever, approximately $1 million. And I think that was due to having intellectual property that people and political advertisers and campaigns wanted their methods associated with. So We see that as an opportunity going forward.

But at this point, our #1 job is growing the awareness. Approximately 85% of America does not connect the dots between WGN and News Nation. And so our job is to make that easier. We think the rebranding will be a big part of that, and that we will see not only obvious growth but continued advertiser growth, a reminder that advertisers are paying a substantial premium for placement in our editorial and news content to what they did in our syndicated content. So the more of that we have, the higher our ad revenue base can go. And again, our distribution base is pretty well locked in. And we'll be growing from a yield perspective as well.

And just I want to add one thing as it relates to News Nation. It continues to be the story that as our syndicated programming rolls off, we're funding the expansion of the news product by repurposing those dollars that were previously expensed and paid on programming product into the news programming. So it's really a self-funding venture from our perspective and one financially that continues to make a lot of sense.

Okay. That's great. One other thing in terms of political. Local broadcast -- television broadcast tended to own political historically, but digital has become an increasingly large component. And I know you're in both sides. But I wonder if you could talk about the shift in political to incorporate more digital and the impact that might have. I mean, you've had excellent results, but has there been any shift in that balance in favor of digital, what you have seen?

No. I would tell you that from a political perspective, we had virtually no political revenue across our digital platforms. All of our ad spend was on the cable network as well as our broadcast stations. So despite that, which is written, I think increasing percents of budgets are being spent on digital as a fundraising mechanism. But as a get-out-the-boat mechanism, it's still television that captures the lion's share.

Okay. And then finally, you mentioned some success with new to TV revenues that you achieved in the fourth quarter. Can you give some examples of what sort of categories have begun to emerge through your efforts?

Sure. And I'll let Tim Busch comment a bit more on this, but this is a metric that you hear me talk about on every earnings call that we have, how much new to television business that we generated in the prior quarter. It's a part of our culture. Managers and account executives are highly incented to develop new business, and that's the lifeblood of our company and what will drive our growth. So Tim do you want to talk a little bit about categories?

I would tell you, it's a long tail, right? It's local advertisers going deeper into our markets as well as developing new sales programs and promotions that will gather larger spends in the marketplace. But in terms of new business, it is purely developmental. It's going through the yellow page. It's going through the -- the folks that are advertising locally on Facebook and trying to convert those. But Tim, do you want to add some color to that?

Yes, sir. So the -- we spent a lot of time on targeted trainings of our account executives. And to the categorical side, we will spend about 2 to 3 categories a month in training on how to develop and how to further that influence on the local market level. Medical has been a big growth category for us as well as furniture and retail, where we have seen a drop-off on digital use in retail locally. Bricks-and-mortar has been a big focus on the category side as well as Tier 3 auto. And of course, integrating both digital and broadcast as well.

But as Perry had noted, we also have projects that are geared, unified across the company, about a dozen projects a year that will be specific to exclusive and unique projects that we run inside of each market across the entire platform. That developed additional new dollars due to television dollars.

For example, we're in black history month, and we have a substantial company-wide project around generating stories that are unique and individual and exclusive to us. Hispanic Heritage is another area where we will lean into. Remarkable Women is our franchise for women's history month. And again, these are used as tools to attract new advertisers as well as increasing the spend from other advertisers in addition to just selling 30-second or 15-second commercials in our news and prime time and other programming. And so giving people a reason to interact and transact with the television station and on a purpose-driven basis to promote some of these franchises has helped our developments.

And so again, not lost in this should be that this is a culture that we have introduced to the Tribune-acquired stations, and they have been -- nothing breeds success like success. And then the pandemic was a perfect opportunity. If regular advertising spending is down or advertising agencies are closed, we have to go after the bricks-and-mortar operations that are open. And the team really did, I think, a superlative job of generating new to television business in a difficult environment. It was also a way to make sure that they were able to generate commission income. So those things that get compensated tend to get measured and tend to get done. And so our whole compensation system at the local market level is -- pays a premium commission and incentives for new business development. And that's, again, a part of the Nexstar playbook.

We'll take our next question from Aaron Watts with Deutsche Bank.

Perry, Tom covered a lot of ground today. Just 1 question for me. There's been plenty written about the pressure on network prime time viewing. As we embark on a new year, hoping you can give us the latest on what you're seeing in terms of themes and trends for audience ratings on your local programming and how confident you are in maintaining stability there. And in your ad base, even if that erosion in prime continues.

Sure. Well, again, first of all, I would caution anyone using the fall season, to date, as any kind of a marker because of delayed programming and new episodes being slow to come online and back into establishing regular viewing pattern. So we anticipate that will level off at a certain point when production is more consistent at the national level. But I would tell you, locally, obviously, we saw tremendous increases in our linear and digital platforms early on in the pandemic, March, April, May, June, and then a bit of a leveling off. But we are still above, I want to say by a 15% to 20% margin kind of average across the board. Above the pre-pandemic levels for local news. And it varies kind of by market and day part, but we're seeing more interest in local news. More interest in news during the day, if people are home. And our late news has been growing as well as kind of a recap of the day's events.

So -- and again, it's tough to give an arithmetic average across 197 TV stations, but I would say roughly, high-teens to 20% increases over the pre-pandemic viewing levels. Whether we've leveled off at this level or whether it will be another leg down later on? I don't know. Our job is to try and hang on to as much of those increased viewers. I will tell you during the pandemic -- I'm sorry, during the Snowpocalypse last week. While all of our stations were running on generators and diesel, I mean, they were providing the lifeline, and people did not go to Apple TV to find out when the water crisis was going to be dealt with in Dallas-Fort Worth. I mean then with the local broadcast television, who was, in some cases, providing continuous coverage interrupting prime time, and it just proves that local journalistic organizations that provide solid reporting and coverage on broadcast is really the only place to go because of the diminution of newspapers, the diminution of radio.

People do not go to streaming services to find out when the water is going to be safe to drink and things like that. There were substantial bump across our Texas markets, at least those that have been measured in an overnight basis, viewership to the local news during the last week of atypical weather events here in Texas. And as that storm moved across the mid south and on up into the Northeast, the viewing patterns increase there as well at our owned and operated stations. And I'm sure others. But I think that our goal is to try and maintain as much of that increased viewership that we can where it ultimately settles out. I don't think anyone really can have a perfect handle on that.

We'll take our next question from Craig Huber with Huber Research Partners.

Maybe I'll start with this. I mean you've touched on this earlier. For the first quarter of the TV ad pacing number, if I heard you right, I think you said you were tracking mid-single digits better than your budget. Was that a comment for just January and February or for the whole quarter? And also, just be curious if you could just touch on the month of March. And I have some follow-ups.

It is common for the whole quarter. I'm telling you, we are already mid-single digits ahead of our budget numbers for January and February. Obviously, in March, we are, knock wood, anticipating having March Madness back on our CBS affiliates. And that was a substantial hit to our revenue in the month of March last year. So yes, we see this continuing on in our revenue. And obviously, we had a substantial amount of political. I think it was over $60 million in political revenue in the first quarter, which was almost unprecedented. And we'll do 10% of that this year. So we have that inventory back. There won't be any displacement to speak of. So again, we budgeted down versus the prior year because it was the pandemic unaffected quarter in 2020, but we are performing handsomely.

And I would tell you that on the national side of our core revenue, it's double digits ahead of our budget. So I think signs of life out there. And as the vaccine gets more fully disseminated, businesses are opening and restaurants open to a higher capacity, I think all of our markets are kind of seeing kind of that renaissance.

And the other thing is sports betting, which was nary a category, single-digit millions in 2019 and the first quarter of 2020 has now become a double-digit millions category for us. So that's relatively a new category but certainly a substantial growing category for us, which we think will -- we will see throughout 2021 continued growth in that category as well.

Appreciate that. Can you also just comment a little bit further about what you're seeing in the auto category this quarter and also retail, please?

Yes, growth. I mean, I'm not going to go down at the category level and give specific guidance, but we are seeing sequential growth over the prior quarter. And as we did in fourth quarter, we are seeing growth over the fourth quarter. It's not at the 40% category, but we are still seeing growth across auto and retail as well. And again, a lot -- some of that retail development is through our new business development efforts, but we are seeing growth and positive comps to the prior quarter. And I think come second quarter, you will begin to see positive comps to the prior year across the board.

Also I want to ask guys on net retrans for the year, maybe I missed this, but are you -- you've said in the past, you're expecting net retrans up this year. Are you willing to quantify that at this point? Maybe just touch on that, please.

It's exactly as we have said previously, which is up low double digits.

Okay. Very good. And is there any...

No change. Basically, no change.

No change. Okay. And is that, in your minds, with a similar decline in subs what you experienced in the back half of last year? What's embedded in that number, please?

It is embedded with a market-oriented subscriber attrition amount. I'm not going to get into the inputs into our budget process.

We'll take our next question from Steven Cahall with Wells Fargo.

Maybe first on digital. So you've done some restructuring here, combining Tribune and legacy Nexstar. And now you've got the BestReviews, and you talked about shedding some of that lower margin revenue. Could you just talk about maybe what this means for the next year or 2? Is there a big EBITDA lift that you expect to come from digital? I mean, you also talked about the new commissions for new businesses and how that may fold in there. So just trying to kind of understand what the growth path in that digital business looks like and whether that's a meaningful driver of some of your free cash flow growth.

And then maybe, Tom, just 1 on retrans. I know you're renewing fewer subs this year than you did last year, but I think a lot of your retrans agreements are now longer in term. Does that mean that the pricing is spread a little more evenly over them so that results in a little more steady growth in retrans? And then I got 1 quick follow-up after that. I think that was 5 questions.

Let me hit digital. I mean you will see -- we will see -- the first quarter will lap ourselves in terms of the businesses that have -- we've either shut down or deemphasized because they had revenue and no margin. But as I look at digital now, I think you'll see significant growth for digital on a percentage basis on both top and bottom line over what we produced in 2020, which, again, as a reminder, swung from marginal profit to a 30% margin, which was double-digit millions profit in 2020. You'll see significant growth there on a percentage basis, but as it relates to the overall enterprise, double-digit millions and significant percentage growth on that is not going to drive the needle of the consolidated enterprise, but our job is to take what we have and what we've acquired and make it better. And in digital, we're doing that. I feel very confident in our digital projections for the year across all the lines of business, and it's a growing contributor to our profit pie. But again, it's -- to date, the smallest part of our -- smallest slice of that pie, but it will be growing.

I'm sorry. Mind-numbing, and I didn't write down all the questions. What's next on the agenda?

Yes. The retrans question was kind of basically that you've got fewer subs renewing this year, but is your kind of pricing spread a little more evenly. So is the cadence of retrans revenue growth a bit more even now that you're doing longer term deals?

I would say we still are subject to the renewal cycle and the kind of the peaks and valleys as it relates to that. So it is somewhat more muted and just generally leveled out, but you still have large renewals. The next large renewal for us will come at the end of '22, which is the 3-year cycle after the 2019 renewal, where we'll have a substantial amount of renewals there. So it is a little bit more leveled out, which is also helped by some pretty healthy interim step-ups on an annual escalation basis. But I would say, we're still subject to some of the sign wave associated with renewal, highs and lows.

Yes. But let me just clarify. We're not doing longer-term deals on the revenue side. Those are all 2- and 3-year deals. We have been able to execute 3- and 4-year deals on the affiliation side in the past year. But all of that adds up, and we continue to reiterate double-digit top line and margin growth from distribution revenues. So from that perspective, nothing has changed.

Great. And then just a last follow-up. We've seen some news of auto shipments being delayed on supply chain issues. Do you see any risk there to auto advertising?

Well, they shut down the GM plant here in Arlington last week for a week. And that's for all of your Escalades and Suburbans and Yukons are made in the country. I think it's a short term blip. If there is a blip, that's -- they're rushing to bring more capacity online to produce the chips that will allow for that. If anything, it drives up demand. I see where supplies are lower, which means prices will be higher and the used car market continues to be very robust, which is where most of the dealers make most of their money. So I don't think it will be a risk factor to automotive over an extend period of time. I think it's a short term blip.

I was about to say, it doesn't remove the demand. It just may shift the demand slightly out. So the demand is not going to go away.

And our last question is in the queue is from Alan Gould with Loop Capital.

Perry, I've got a question about the NFL. Looking out a little bit longer term, they're asking for, plus or minus a doubling of the rights fees. Now I know you said 85% of your affiliate agreements are locked into the end of '22, and you don't get that many ad spots in the NFL games. But what impact would a big increase in NFL rights have on your relationship with the networks going forward?

Immediately, nothing. Because you only negotiate your affiliation agreements when you negotiate your affiliation agreements that are up for renewal. I think the thing that's lost in all of this is that -- and don't -- there's a lot of negotiation in the press that goes on. So I wouldn't be surprised if the price increase over time comes in at less than that. But at the same point, we're talking 10-year deals. So hopefully, this will remove the question for time in memoriam or at least the next 10 years of what happens to the NFL. They're going to have homes for up to 10 years. It's either an 8- or 10-year deal.

And yes, could prices double over 10 years? Well, everybody remembers the rule of 72. So I mean maybe that's manageable as compound annual increases to get to that number. So again, more to be written. I think the deals will be done before we report again to you in April, but -- or early May. But I do think that -- the good news is, is the question will be settled, at least for the near-term investment horizon about where the home is. But I anticipate over time, that it works. We'll say to all of the affiliate groups, we're paying more money. We want you to pay more money. The affiliate groups, depending on the network, defray maybe 10% of the cost of the overall rights deal. So could that go up over time? Yes, it might. But again, it will be a by-product of negotiations, and we'll see where we all end up. But I do expect that you'll hear announcements on the deals before you hear our first quarter earnings announcement as the year goes on.

At this time, there's no further questions in the queue. I would like to turn the conference back to Perry Sook for any additional or closing remarks.

Well, thank you very much for joining us. Obviously, we're very proud of the results that we were able to deliver for Q4 and 2020. We're proud of our return of capital to shareholders, and we're very confident in our guidance for the '21,'22 cycle. So we look forward to reporting back later in the year on our first quarter progress. Thank you very much for joining us, and have a great day.

Ladies and gentlemen, this concludes today's conference. We appreciate your participation. You may now disconnect.