Nexstar Media Group Inc
NASDAQ:NXST
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Nexstar Media Group Inc
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Good day, and welcome to the Nexstar Media Group Second Quarter 2020 Results Call. Today's call is being recorded.
I would now like to turn the conference over to Joe Jaffoni, Investor Relations. Please go ahead, sir.
Thank you, Anna, and welcome, everyone. I just want to read the safe harbor language, after which we'll get to the actual presentation. All statements and comments made by management during this conference call other than statements of historical fact may be deemed forward-looking statements for the purposes of the Private Securities Litigation Reform Act of 1995. Nexstar cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those reflected by the forward-looking statements made during the call.
For additional details on these risks and uncertainties, please see Nexstar's annual report on Form 10-K for the year ended December 31, 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 call over to your host, Nexstar Chairman, President, 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 second quarter results today. As we get started, I want to acknowledge the Nexstar Nation team members for their frontline essential work and tireless efforts to provide viewers and users with continuous access to local news and other services despite the challenges presented by the pandemic and recent civil unrest. With our planning and preparation, strong balance sheet and commitment to our markets and employees, I'm proud to say that Nexstar has kept our employee roster intact.
And our record quarterly results again reflect our team's commitment to flexibility throughout this time. As always, our Chief Financial Officer, Tom Carter, is on the call with me this morning. Nexstar's industry-leading scale and diversification, our solid execution, such as our new business strategies and our rapid adoption of cost containment programs at the onset of the pandemic, resulted in record second quarter results with all of our cash flow metrics well above consensus expectations. The 41% rise in second quarter net revenue reflects growth in total television advertising revenue as we drove year-over-year increases in same station new-to-television business and strong shares of political spending in our markets as well as a 71% year-over-year increase in distribution fee revenues.
As such, despite the economic pressures related to the pandemic, Nexstar's top-line growth and operating and expense management disciplines resulted in a 38.7% increase in net income and record second quarter broadcast cash flow, adjusted EBITDA and free cash flow with those net metrics growing 28%, 49% and 127%, respectively, on a year-over-year basis. As the world continues to address the health and economic challenges brought on by the pandemic, the strength of our business model and enterprise wide focus on managing operations for free cash flow enabled us to bring about 21% of every net revenue dollar to the free cash flow line.
In the year-to-date period, Nexstar has generated approximately $631 million of free cash flow before onetime transaction expenses. By way of comparison, we generated a total of $521 million of free cash flow in all of 2019. So our growth momentum remains strong even before the upcoming benefit of political spending in the back half of the year. Reflecting repurchases made in Q1, we have reduced our share count to approximately 45.5 million shares outstanding. So 2020 year-to-date free cash flow per share amounts to about $13.86 per share. And we remain confident in our unique positioning in this environment to again generate significant free cash flow in the current quarter and again in Q4 of this year.
Speaking of the full year 2020, it's important to remember that approximately 60% of our annual revenue is expected to be derived from contractual distribution fee and political advertising revenue, which is not expected to be materially impacted by the pandemic. Specifically, Nexstar has solid visibility in terms of our contractual distribution economics through December of 2022 as we completed new multiyear retransmission consent agreements representing approximately 70% of our subscribers at year-end 2019 as well as new long-term network affiliation contracts with CBS, Fox, and NBC.
At the same time, Nexstar has a strong balance sheet, including approximately $665 million in cash as of June 30, with an access to another $140 million under our revolving credit facility. We continually successfully navigate through the evolving challenges presented by the pandemic based on our core value of serving communities where we operate, by delivering leading local news and other critical information and content to viewers, whether on air or online. In this regard, Nexstar stations have produced 41 separate town hall meetings addressing state and regional responses to the virus. Additionally, Nexstar has generated over 30 different programs related to recent civil unrest and race relations in our communities.
With local news and information, while it's never been more essential for Americans, the pandemic has changed consumers' media consumption habits in ways that showcase the inherent strength of local broadcast television, our content and Nexstar's leading local brands. As the most powerful and trusted voice in the country, more people are turning into their stations' local newscasts than ever before. According to Nielsen data, even as states and localities began to reopen in the second quarter, local broadcast television evening news viewership among adults aged 18 to 34 remained impressively high, with year-over-year increases in average cumulative weekly impressions in April, May and June of 151%, 83% and 89%, respectively.
Similarly, on the digital front, Nexstar's websites and mobile apps grew year-over-year page views by 250% to 1.1 billion in April, with total monthly users up 133% to 96 million. We continue to generate strong digital audiences throughout the quarter with weekday and weekend page view traffic across our local websites up 50% and 60%, respectively, during the month of June compared to the prior year. Additionally, in terms of unique users, Nexstar's digital properties ranked number one in the country in local news, number 12 in all of news and information and we're the number 33 site over all domestically in June as measured by comScore.
As the nation's largest producer of local news programming, Nexstar's proprietary content provides essential news and information to users and viewers that is unique and relevant to each of the local communities we serve across the United States. Now more than ever, viewers rely on television news to stay informed about everything from the latest pandemic developments, the reopening of the economy to the upcoming election. With Nexstar's market-leading stations and sites, deep local and national reach and local broadcast record of being the most influential and effective medium for both brands and politicians, we expect to see advertisers continuing to allocate increased spending to our broadcast and digital platforms as the threat resolves.
Turning back to some second quarter highlights. Total television advertising revenue increased 18.1% to $319.8 million, including political revenue of $21.6 million and core advertising revenue of $298.2 million. While local and national advertisers adapted their media plans during the second quarter, we saw sequential month-over-month improvement in our same-station core advertising revenue performance from April to May, from May to June, and this trend continuing in July.
Notwithstanding marketplace challenges, Nexstar's local sales initiatives continue to generate healthy levels of new business with second quarter new to television ad revenue rising on both a quarterly sequential and year-over-year basis. In total, our sales teams generated $20.7 million of second quarter new to television revenue, marking 11.3% rise over the first quarter, and a 4.5% rise over the comparable 2019 period. As I mentioned at the outset of our call, our new business strategies, ongoing sales training, education and deployment of performance focused initiatives combined with our sharing of best practices have proven very effective in our ability to capture ad spend share in both broadcast and digital locally.
We recorded healthy levels of Q2 spending by political action committees and from candidates with 2020 second quarter political revenue of $21.6 million, exceeding our expectations from early in the quarter despite the cancellation of some primaries. Both presidential campaigns recently generated record levels of fundraising, which bodes well for our upcoming political revenue trajectory. As such, our full year 2020 expectation for net political revenue in the low $400 million range remains unchanged.
Recent distribution agreement renewals and the inclusion of WGN America resulted in a 21% I'm sorry, a 71% rise in second quarter distribution revenue to $536.5 million, representing nearly 59% of total net revenue. Second quarter 2020 total digital revenue declined by approximately $9.6 million or 17%, reflecting our focus on higher-margin profitable operations while digital profitability was up substantially over the comparable prior year period as our website and mobile app engagement also rose significantly. Total combined second quarter digital and distribution fee revenue of $583.2 million rose approximately 57.1% over the prior year period and comprised 64% of quarterly revenues, up from 57% in the year ago period.
The year-over-year increase in second quarter distribution revenue reflects the new agreements reached in the second half of 2019 and our realization of Tribune Media revenue synergies related to the after acquired clauses in our retransmission consent contracts and as noted, the inclusion of WGN America. Our expectations for net retrans growth remain unchanged for the balance of the year in the mid-teens percentage range, reflecting new long-term network affiliation agreements with CBS, Fox, and NBC completed in the second half of 2019 and as a result, over 80% of our big four affiliations are contracted through December 31, 2021, and over 70% of our big four affiliations are contracted through December 31, 2022.
With our successful 2019 renewal of retransmission consent agreements representing approximately 70% of our subscriber base, with approximately 17% of the base to be renewed this year, our significant net retrans revenue growth in 2020 will complement the strong political growth and spending that we're seeing. Taken together, the affiliation renewals, which also include OTT agreements, our new retrans contracts and sub levels that remain in line with our forecast. We have pretty clear visibility for our net retrans revenue growth expectations in 2020 and beyond.
As we discussed on the last call, at the onset of the pandemic, we took immediate action to adapt our business to address the economic impact on the U.S. commercial advertising market. We have implemented a range of cost-cutting initiatives, which resulted in operating and corporate expense savings in excess of $40 million from budgeted second quarter levels. Looking ahead to third quarter, while the pandemic continues to impact commercial advertising, we're seeing the same pattern of month-over-month improvement in our pacing data and expect to benefit from significantly increased levels of political ad spending.
And in fact, our July political billing exceeded that of all of Q2. Overall, we're encouraged by continuing signs of recovery across our station footprint and by key economic indicators, including employment data and consumer spending. And at present, we're cautiously optimistic about the return of live sports, as live news and sports programming continues to generate the strongest levels of viewership across our all demographics. Additionally, preparations for the September one launch of WGN America's primetime national newscast News Nation, which will reach approximately 75 million households across the country are proceeding on schedule and on budget.
We're in rehearsals now and my first impressions of the product are very positive. News Nation will air daily from 8:00 p.m. to 11:00 p.m. ET and will draw on the local, regional, and national expertise of Nexstar's 5,400 journalists and 110 local newsrooms across the country. And during the quarter, we announced the anchor teams and correspondence for our live 3-hour primetime national newscast. We're already attracting strong interest from leading national advertisers at much higher than normal cost per points for WGN America. Broadcast would deliver news reporting that is fact based, impactful, and unbiased, and we're confident that there are more Americans than ever before that were seeking just that.
In addition to the live nightly newscast, News Nation's team of reporters and producers will deliver news 24 hours a day online through News Nation's soon to be launched app, News Nation Now, which will create another opportunity for monetization and revenue diversification. As always, we remain committed to generating free cash flow, actively managing our capital structure, our cost of capital, and our liquidity position to provide the financial flexibility to support our business and enhance shareholder returns as we emerge from the pandemic.
During the first half of 2020, we allocated approximately $594 million in cash from operations and investments toward debt reduction, opportunistic share repurchases, and cash dividends. Additionally, as I mentioned before, Nexstar continues to maintain a strong balance sheet, including $665 million in cash on hand at June 30, with access to additional $140 million under our revolving credit facility. On the return of capital front, in late June, we declared our third quarterly cash dividend at the new $0.56 per share level, which was 24% ahead of last year's payout.
With our 191% year-to-date free cash flow growth, our contractual distribution fee revenues, our food network distributions, our historically low LIBOR rates, which have reduced our interest expense and what is projected to be the biggest presidential election cycle in the company's history, we remain confident in our positioning to be free cash flow positive in every quarter of 2020, and we continue to expect Nexstar's net leverage to decline to approximately four times by year-end.
In summary, while the pandemic has presented challenges for most every industry, Nexstar's leading local platforms are well positioned to continue building the top-line, maintaining close control of fixed and variable costs and optimizing the balance sheet. Over time, our disciplines in these areas have strengthened the resiliency of our business and our business model and created an unrivaled local marketing platform while supporting increasing growing, and growing returns for our shareholders.
With that said, let me turn the call over to Tom Carter for our financial review and update. Tom?
Thanks, Perry, and good morning, everybody. As outlined in this morning's press release, the actual results for the three and six months ended June 30, 2020, reflect the company's legacy Nexstar operations, and results from Tribune Media stations, which were acquired on September 19, 2019. Second quarter 2020 revenue from WGN America also acquired in the Tribune transaction is included in core television advertising revenue and distribution fee revenue.
Contribution from Nexstar's 31.3% ownership stake in the television 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. The comparable three and six month period ended June 30, 2019, reflects legacy Nexstar operations during that period. All actual results also reflect the impact of onetime transaction expenses incurred in the quarters, both in the quarters and the six month period ending June 30, 2020, and June 30, 2019.
With that, I'll start with a review of Nexstar's Q2 income statement and balance sheet data, after which, I'll provide an update on our capital structure and some points of guidance. On a combined company basis and pro forma for the divested station, second quarter same-station net total revenue was down 6% due to a decline in same-station core advertising revenue of approximately 35%, reflecting a sharp decline in April due to the pandemic and subsequent month-over-month improvement from April to May, from May to June.
Same-station distribution fee revenue was up 28%, and continuing digital revenues were down 18.2% reflecting local agency services revenue growth of approximately 8%, while station website revenue was down approximately 30% due to softer local customer buying trends related to the pandemic. To offset the anticipated impact of COVID-19 on commercial advertising revenue, late in the first quarter, Nexstar implemented a range of cost-cutting initiatives which resulted in operating and corporate expense savings in excess of $40 million from budgeted levels in the second quarter of 2020.
Second quarter station direct operating expenses net of trade expense were approximately $414 million, up from $292 million in the prior year, primarily reflecting the full quarter of incremental expenses associated with the Tribune operations and the budgeted growth in network affiliation expense as a partial offset to our rising distribution revenue. Second quarter station SG&A was approximately $158 million, inclusive of the Tribune operations.
Same-station pro forma fixed expenses, excluding programming expenses, were down 18% over the year-over-year period due to synergies related from the Tribune acquisition and the previously mentioned expense reduction activities in response to the pandemic. Corporate expenses were $35 million, inclusive of $13 million of stock-based comp and approximately $5.4 million of onetime transaction expenses. When excluding noncash comp and onetime transaction expenses, recurring corporate expenses were approximately $17 million, which came in better than the guidance we had provided in the first quarter call of approximately $21.5 million.
By the end of April, the vast majority of the initial operating synergies of the Tribune transaction have been realized. Second quarter operating cash taxes were approximately $6 million substantially lower than our guidance of $45 million to $50 million due to a timing difference. That $40 million to $45 million variance will now be paid in Q3. Ongoing capex and transaction capex totaled $40 million. Spectrum repack capex totaled $13 million and received approximately $26 million of reimbursements from the FCC during the quarter. As a reminder, we anticipate being fully reimbursed for all spectrum-related capex over the course of the year.
Second quarter total interest expense amounted to $82 million, up from $51 million in the same period in 2019, while cash interest expense was $78 million compared to $49 million last year, with increases due to, obviously, the increased debt associated with the Tribune funding, partially offset by lower interest rates. Second quarter broadcast cash flow of $291 million as well as adjusted EBITDA of $298 million and free cash flow of $200 million, all pre-transaction expenses, exceeded consensus expectations and primarily reflect the realization of synergies and growth-related to the Tribune transaction, distribution agreement renewals executed in the second half of the year and the deferred tax cash taxes, as I mentioned before.
Adjusted EBITDA and free cash flow reflect approximately $27 million in distributions from equity investments related to our 31% ownership in the TV Food network. As a reminder, we received cash distributions from TV Food on a quarterly basis with the largest payment recorded during the first quarter of each year. For the third quarter of 2020, we anticipate recording approximately $12 million in TV Food Network distributions.
We expect cost savings in Q3 to approximately $25 million relative to the originally budgeted levels as variable cost and discretionary expenditures are prudently brought back online with the expected strengthening of the economy and the broadcasting advertising environment. For the third quarter, we project recurring cash corporate overhead, exclusive of stock comp and transaction cost to be approximately $23 million and we will easily meet our run rate cash corporate overhead guidance of approximately $120 million for the entire year.
Noncash comp is projected to be approximately $13 million for the quarter and $48 million for the full year. Transaction expenses will approximately $3 million for the quarter and will decline for the remainder part of the year. Third quarter operating cash taxes are now estimated to be approximately $150 million, and operating cash taxes for the entire year will now come in at approximately $250 million in total. Nonoperating cash taxes associated with the gains on the asset sales and legal settlements in Q3 will be approximately $83 million.
Third quarter capex should come in at approximately $40 million, and we're still expecting approximately $160 million for the entire year. We're proceeding on budget with our investment related to the launch of WGN America's primetime national newscast News Nation on September one and prioritized capital expenditures to maintain maximum flexibility in the current environment, meaning the timing of certain capex can be built late until later quarters, if required.
Finally, we expect Nexstar's cash interest expense to approximately $78 million for the third quarter and $325 million to $350 million for the full year, reflecting interest expense savings related to the decline in LIBOR rates. Turning to the balance sheet. Nexstar's outstanding debt at June 30 was approximately $8 billion and consisted of $5.4 billion of term loans and two series of senior subordinated notes, one at approximately $900 million and the other at $1.8 billion with maturities of 2024 and 2027, respectively. Total net debt approximated $7.4 billion at June 30 compared to $7.6 billion at March 31, and $8.3 billion at 12/31/2019.
Net debt for first lien covenant purposes is $5.2 billion with net debt net cash limited to a $200 million amount. Our first lien covenant ratio at June 30 was approximately 3.11 times compared to 3.52 times at year-end, which is well below our first lien covenant of 4.25 times. As a reminder, our first lien covenant limits cash net income approximately $200 million. Our total net leverage at quarter end was 4.47 times compared to 5.18 times at year-end. And as a reminder, Nexstar's only covenant is our first lien debt covenant, which is the aforementioned 4.25 times.
At the onset of the pandemic, Nexstar took immediate actions to adopt our business to the current environment and to preserve liquidity in order to best position the company for long-term success as we return to normalized operations. In this regard, we continue to prioritize cash retention and added approximately $231 million to our first quarter cash position for a total cash balance of $665 million at June 30, with an additional $140 million available under our revolving credit facility.
At the same time, during the second quarter, we returned approximately $25 million to shareholders through the quarterly cash dividend and made $13 million in payments on our debt. During the first half of 2020, we have actively managed our capital structure, cost of capital and liquidity position to support our business in this challenging environment, while enhancing shareholder returns. Year-to-date, we have allocated approximately $594 million toward shareholder value-creating initiatives, including $473 million in debt reduction, $51 million in dividend payments and $73 million in share repurchase.
In the near time, while preliminary data suggests ongoing sequential improvement in economic trends, and the commercial advertising environment, we continue to focus on cash preservation in order to optimize our financial flexibility as we move through the third quarter. Looking ahead, with continued double-digit year-over-year growth in distribution revenue and what are expected to be robust spending levels related to the upcoming presidential election, which we do not expect to be materially impacted by the coronavirus, we have excellent visibility on over 50% of our annual revenue in 2020.
As such, we expect to be free cash flow positive in the third and fourth quarters. In addition, to continuing our dividend payments, we remain committed to allocating the vast majority of our free cash flow toward leverage reduction and confident in reaching our target level for the reduced level of total net leverage to four times by year-end 2020. Nexstar has already made significant progress in our leverage reduction plan, and we enjoy a strong cash position with additional capacity under our revolver.
In addition, the reduction in interest rate expense related to the favorable LIBOR rates, operating expense savings and our capital allocation prioritization will also serve us well in the second half of 2020. As a result, we're confident in our liquidity position and ability to service our debt through these challenging times and do not anticipate liquidity or covenant issues as we move through the year. In summary, despite the unprecedented challenge of the pandemic, our scale, leadership, flexibility, synergy realization, and operation plans are generating results.
Our capital structure is in great shape from a cost of capital, maturity, and ability to quickly address leverage. In addition, our service to our local communities and local and national advertisers has never been stronger. Our disciplines in these areas have driven significant growth as well as consistency and visibility to our results, and we remain confident in our ability to enhance shareholder value in the near-term and on the other side of the pandemic. That concludes the financial review for the call.
I'll now turn it over back to Perry for some closing remarks before Q&A.
Thanks very much, Tom. In summary, I hope that our comments today reinforce the fact that we remain confident in the strength and the resilience of Nexstar's scaled and diversified business model. Nexstar's leading local platform is well positioned to withstand this environment due to several factors, including our differentiated broadcast and digital sales programs, the continued growth of our distribution revenue stream and what are projected to be record levels of political spending here in 2020.
In terms of capital allocation, we believe that our free cash flow, combined with the active management of both our cost structure and our balance sheet will provide us with financial flexibility to continue supporting our shareholder value creation initiatives. As a result, Nexstar is well positioned to fully participate in the recovery, and we remain highly confident in our core strategies in terms of serving the communities where we have operations and building the top-line, maintaining close control of fixed and variable costs and optimizing the balance sheet.
This focus, combined with our time proven operating strategies is enabling Nexstar to overcome the near-term challenges and extend our long-term record of growth and shareholder value creation. We look forward very much to catching up with you with another positive report just after Election Day. And on behalf of the entire Nexstar Nation, our Board and our management team, thank you for your continued interest, support, and for joining us today.
So now let's open the call to Q&A to address your specific areas of interest. Operator?
[Operator Instructions] And we'll take our first question from John Janedis with Wolfe Research.
Perry, I have two for you. One is, you talked about local news and viewership. What are you seeing in terms of advertising demand and growth in news relative to the dayparts given the ratings you spoke to? And then, I guess, the sub levels in line with expectations. Is the read-through that there's been no noticeable impact from the pandemic? Or is that too soon to call given the lag?
Well, as it relates to local news, through the first six months of this year, 51% of our total advertising revenue came from local news, and that's up over the prior year's cumulative totals, which indicates, obviously, advertisers are putting their money into that product and increasing with increasing frequency. Obviously, the demand is where the audience is, and that's where the audience is for us right now. And so we do see continued read through. And we're hopeful that the audience gains, at least some of them will be sticky when and I hate to use this term when the new normal settles in as to whatever it is.
But so far, through this normal people in all age groups are tuning to our local news broadcast in increasing numbers. I will say that I mean, obviously, MVPDs have reported sub counts in attrition for the quarter. Those are factored into our projections and analysis and our retrans revenue is, again, we forecast attrition into our budgeting process, and we are at budget on retrans revenue and our projections through the end of this year. So we have seen no significant decline beyond what we had forecasted. So we think its business as usual from a distribution revenue standpoint.
Thank you very much.
Our next question will come from Steven Cahall with Wells Fargo.
Thanks. I'm wondering if you could talk a little bit about your reverse compensation agreements as sub declines are accelerating. I was wondering if that's changing the tone of those at all. And also does it make you think about moving from like a per sub basis sorry, to a per sub basis from a fixed programming fee where you can. And relatedly, we have more broadcast content going direct-to-consumer like CBS All Access and Peacock. So how do you think about monetizing those households that may not be subscribing through the traditional process?
Sure. I would say the current relationships with the networks are a mix of fixed fee and percentages of distribution revenue. So there are some that that are fungible and others that that are not. And those conversations are continuing what's in the best interest of both parties to get a deal done. So there is some hedge there at this point, and we're not ready to call the ball as to what the most preferable term is.
They are based on our negotiating ability. As it relates to CBS All Access, we participate in that. We're paid to be a part of that service, and our local stream is a part of that offering. Peacock, we are not affiliate, local news affiliate streams are not yet a part of that broadcast offering, and we're not sure if at any point, they will be. But we do have this thing called over-the-air, which we reach a much larger universe potentially than the wired and pay cable universe already, where 16% of our viewers already use that as their reception device without the aid of a pay wall, and that's available to those who want to quote stream us that way, if you will.
And the good news about that is there are far few competitors for eyeballs in an over-the-air world than there are in a 500-plus cable or satellite universe. So again, we are in flux. We have a lot of our agreements nailed down through 2021 and '22. We do have some that will be up end of this year and early next year, and that's where those conversations will center around what's the best type of agreement for both companies to enter into.
Great. And then just one on political. four years ago, we kind of got a head take at the last minute from the Trump campaign in terms of not spending what was expected. I don't think any of us expect that to happen this time. But when do you feel comfortable that there's not going to be any negative surprises on the political spending side?
I'm pretty comfortable in that right now. I mean, look at the amount of money that both camps have raised that the attendant packs and special interest groups have raised supporting those candidates as well as down ballot candidates. There are no guarantees in this business, but as close as a guarantee as I'll make is, there'll be no negative surprise on political advertising.
It's a pretty good guarantee. Thank you.
We'll now take our next question from Zack Silver with B. Riley.
Okay, great. Thanks for taking the question. The first one is just if you can quantify the sequential improvement for core in July versus total 2Q 2020 or even the pro forma year-over-year change so far in July? And then more broadly, and I think it's a little bit related to Steven's question. The narrative out there has been at the macro environment and growth in streaming has is going to accelerate the shift of ad dollars from linear TV to connected TV and streaming. Can you talk about how well positioned you are to address that if that narrative does turn out to play out?
Tom, I'll let you address how linear you want to get on guidance. Obviously, we saw substantial sequential improvement in core ad trends in July versus not only June but the entire quarter. Tom, I don't know if you want to add any more details to that, but I'll let you speak to that.
Sure. Well, I think what I'll say about July is, obviously, July was substantially better than the second quarter as a whole, and July was better than the last month of the second quarter. So sequentially, things have gotten better, and that trend continues into early Q3.
Got it.
As it relates to additional streaming services, they're at some point, they've become kind of a sameness to them and it's all about the content. If you have the content that people want, they will find a way to consume you, whether that's over-the-air or whether that's through a pay service or through a streaming service that we're paid to be on. And without our services, you have an inferior offering to the viewing public. It is obviously demonstrated that local news is a product that people want and are willing to pay for. And so I think we'll just stand by that.
It's a lot less noisy at the operating level than it is perhaps at the investor level about these streaming services. Is it a fragmenting universe, but are they just taking from a wire from a traditional pay-TV universe into a virtual pay-TV universe? And if so, and we're on both sides of that transaction. It's not nearly the noise that it appears to be in the investment community. So we're somewhat sanguine about it. We have a product that people want. We're the largest producer of it in the country. It's called local news. And we believe that product will stand the test of the time as it has for the last 40 years test of time.
Yes. I think that makes sense. And one more, if I could. Does the I guess, for Tom, does the target leverage ratio for this year contemplate any buybacks in the second half? And can you remind us where we are in resuming repurchase program?
It does. I won't say how much of it is allocated to stock repurchases. The way we think we have an authorization left from the Board. We're currently not buying stock, but I would anticipate that to get revisited here in the not-too-distant future. The way we think about it is really starting on Labor Day, and quite honestly, that's probably not doing service to the fact that, as Perry mentioned, July political revenue was very strong, and we think August will be as well.
We're rapidly transitioning out of this being a story during the pandemic just about core advertising revenue and what's happening there. The other leg two legs to the stool from our perspective, distribution revenue has been strong, continues to be strong, as Perry mentioned, we're on budget for the year. We're on budget for the second we were we were actually above budget for the second quarter. We're on budget for the third quarter with regard to retransmission revenues. And then the third leg of the stool is political, and that's really going that candle is going to get lit here right around Labor Day and run really hard for the two months of September, October, and the first week of November.
So the free cash flow of the company will continue to go along nicely and then get turbocharged by free cash flow from political beginning around Labor Day. As I've said to other people, I fully expect our capital allocation attitude to change from playing defense to playing offense sometime right around Labor Day.
We're not there yet, but I can see there from here and when that happens, then I would imagine we wouldn't sit here with an unnatural $600 million of cash on our balance sheet. We deploy that by actually repaying debt and looking at stock repurchases, but that's a multi variable equation. Tell me what the stock is around that time, and I'll tell you what our appetite is. Is that responsive, Zack?
Yes, that's helpful.
I just want to add to Tom's comment about political. Most folks woke up this morning reading about the Biden's buy that he's placing, starting on September one in 15 states. We operate substantial operations in 12 of those 15 states. So just to point out that political will reach a crescendo around Labor Day that will continue on through the first week of November.
And again, with July results being above all of second quarter for political that's a pretty good measure, I think, of what's yet to come. And so we remain confident in our political guidance. And as that story continues to prove, then I think you'll see Tom exercise more optionality around our cash forward that currently exists on the balance sheet.
Got it. Thanks, Perry.
We'll now take our next question from Aaron Watts with Deutsche Bank.
Hi guys, thanks for having me on. Couple of questions on the ad environment. I guess, first, there's been some fits and starts in terms of COVID cases in pockets of the country. What behavior [Technical Difficulty] in your markets that have been affected by that? And I guess on a related note, in terms of categories, just given the importance of the auto category, anything you can give us in terms of how that rebound is shaping up and what you're expecting from auto in the next couple of months?
Yes. Auto has rebounded. We're seeing better pacing and better results in Q3 than we did in Q2 when dealers were shut down. We're seeing certain of the OEMs move money around from market to market based on where they have cars, and that's primarily affected some of the foreign nameplates. But on the whole, I think the our expectations for auto are that it will be left down sequentially going forward as will most of core advertising. As it related to COVID, I didn't know if you meant how it affected the company or what we're seeing in our markets.
But I can give you a little color on both. We have had 145 confirmed cases in the company since the beginning of the pandemic, remarkably out of a workforce of about 13,000 that that of people that are out in the community. We've only had one hospitalization, and that person has fully recovered. About 60% of our employees are working from the facility to which they are assigned. We have another 20% that are reporting to work, but not necessarily in the facility. Reporters meeting their crews in the field to go to their first assignment and things of that sort. And we have another 20% that are working remotely.
And I use the example with our Board that everybody in Topeka is reporting to work. However, nobody is populating our New York offices because of the public transportation requirements, and they don't feel safe, and there's certainly no mandate to do that. And so that's kind of a proxy for the country. We keep tabs by every market as to various stages of reopening. I would say that all of our markets have some degree of reopening some more than others. There have been some pauses in California and Texas and others on further reopening.
Areas that have been rolled back, bars and restaurants are not necessarily big advertising categories with us to begin with. Hospitality continues to be a category where we see no spend to speak of. There is some intrastate tourism ads that are going on, like if you're in Texas come to Arkansas and vice versa and Oklahoma, we're seeing some of that. But hospitality for us is sub-2% category that is not materially driving our top-line. So Aaron, I don't know if that's the kind of flavor you were looking for, but I'm happy to answer any more specific follow-up.
No. That's helpful. One last one for me, and I appreciate the time again. You spoke to the important local news and the ad revenues that come in attached to that to the overall revenue pie. If we're thinking about the potential that maybe NFL football is delayed or college football doesn't happen in the fall, how do we think about the flow-through of that potential and what it could mean to your revenue pie?
Sure. I'm glad you asked that. It's interesting at the local station level, which is where we live. All sports comprises about 10% of our advertising revenue. And of that, the NFL comprises about 60% of that 10%. So let's just in real round numbers, say that ad revenue support is half of our revenue and NFL is 6% of 10% of that. So we're talking about three points of revenue.
So from an advertising perspective, because of the limited avails that the local stations get in all of local sports or all of televised sports that's not local. It's not that big of a contributor, but obviously, it has an outsized effect on viewership, on promotional ability. And I would say on the national psyche and on people's morale. Obviously, distributors are very interested in live sports because they know live sports and live news drive viewership. But from a pure financial advertising point of view, it's not all that material to our top or bottom-line.
Okay, perfect. That's exactly what I'm looking for stay well guys.
Thank you.
Our next question will be from Bryan Kraft with Deutsche Bank.
Hi. I had two questions. First, wondering if you could give us some color on what you're seeing in terms of subscriber declines in your markets. Curious how they compare to the overall industry. And any color on advertising and distributor reception to News Nation? And any expectations for when you might see some incremental revenue lift from News Nation?
Tom, I'll let you read that to the subscriber, and then I'll talk about GN. How's that?
Sure. I would say our experience with subscribers is not materially different than that of the vMVPDs. Obviously, we are still getting an uplift from the virtual MVPD, so that they the traditional MVPD subscriber loss is somewhat recouped, but certainly not all recouped by the virtual MVPDs. And as Perry had mentioned, obviously, we factor in, in our budgeting process and in our guidance process an attrition rate for subscribers and a unit rate for our revenue and as we mentioned, that was basically in line for the second quarter and early returns for the third quarter are consistent with that expectation.
So not getting into specific subscriber decline numbers,etc. I would say that we see and feel the same thing that the distributors do. It's just that our economics are a little bit different because we've got rate that helps us offset that but it's consistent with our expectations.
As it relates to WGN America, we have had and Dana Zimmer and her team have been out presenting WGN America to every MVPD with which we already do business and also those that do not carry WGN WGN America, and that's primarily in legacy Nexstar markets, and we have an opportunity with renewals between now and the end of the year. For an incremental approximately 200,000 to 250,000 subs that could add WGN America.
These are smaller systems, again, where Nexstar has a relationship, but there was no Tribune relationship that would have included WGN America, so there is upside there. And I would say that the reception from distributors has been positive, particularly from those who have existing contracts and realize there's going additional value-add for no additional cost during the term of the current agreement. We are distributed on AT&T now.
As the only virtual MVPD service that is offering WGN America. We are efforting to get distribution at the launch or shortly thereafter on other OTT services, and that will be a value add, where WGN America is not currently distributed. But the reception from both the advertising community and the distribution community has been positive because we're investing in a product that will add value to their businesses as well.
Great, thanks.
Thanks.
Thanks, Tom.
We'll take our next question from Dan Kurnos with Benchmark.
Thanks, good morning. Slim pickings left here after the strong prints and all the questions. But I guess I'll ask you one follow-up to the prior, Perry. I don't know if you're willing to sort of good color on sub carriage incremental opportunity. Is there any way for us to think about sort of timing and how you're thinking about the News Nation impact itself relative to either advertising or, I guess, ancillary with that your comment on carriage. We know it's going to be self-funding. Obviously, you have plans to kind of expand it.
So just any help kind of framing your thoughts on sort of the magnitude of that opportunity? And then separately, obviously, there's been a lot of noise lately in the digital world, Facebook, Twitter, ad boy cots, all of that fun stuff. You guys are the largest. You guys have a pretty big network effect and a pretty strong digital portfolio yourselves. Is there any accrued benefit to you guys? Or do you think that stays mostly in the digital bucket?
I'll speak first to WGN America. The we have I'm very impressed with the job that Dave Rodham and his sales team have done in assembling advertisers for the Premier week of WGN America's News Nation. Blue-chip names and at cost per points that are in excess of I'm sorry, I should say, cost per thousands that are in excess of 50% greater than what standard programming was generating alone. So that's a very positive initial indication. We're trying to rework some of the existing buys into the News Nation primetime offering.
And so what we could really use is an upfront or a fourth quarter scatter market to break. But all of that said, we do anticipate an incremental, let's call it, low 8-figure revenue contribution to WGN's ad revenue in the four months of the end of this year. And again, given the size and scope of the operation, that wouldn't be deemed to be material. But we do, even in these conditions, expect a low 8-figure uplift in gross revenue there. And distribution that will mostly come at the end of the year, so will impact 2021 more than this year.
There have been some incremental deals done already that will launch WGN America between now and the end of the year. But I would say the vast majority of that impact would be felt in 2021. And again, you're talking a potential uplift of 0.25 million to one million subscribers on a Nielsen reported, I think, 75 million subscriber base. So even that is incremental. But it's all incremental, and that's what we're going to do is drive incremental growth out of the assets that we own.
And then the thoughts on either Facebook, Twitter as it relates to core political, if that stays in the digital bucket or if you could pick some of that up?
Yes. Listen, I think the most direct transfer could be in political. If people of certain platforms are refusing those ads, that money has to go somewhere. And without conventions to fund and without rallies to fund, the one-way to reach people is to provide cash television. I think we're seeing an evidence of that right now. So I think that would be probably the direct transfer.
With all the boycotts and all of that, I don't think you've seen a substantial decline in digital revenue performance on those platforms. So at this point, the damage is more reputational than financial, and then we'll see how deep the government wants to get involved in taking a look and potentially regulating these companies more symmetrically with the way we're regulated. But at this point, I think the financial transfer outside of political, to the best of our knowledge, is minimal.
Got it. Super helpful. Thanks for the color. In the next quarter.
Thanks.
Our next question will come from Craig Huber with Huber Research Partners.
Yes, good morning. Thank you. Few questions. Last quarter, on your conference call, I believe you guys said your retrans subs were down 4%, 4.5% year-over-year. As you guys may know, Sinclair on the call right before you said their second quarter subs were down about 7%, including the benefit on the virtual side. Should I assume that you guys were down roughly about 7% for the second quarter for yourselves? Is that reasonable? Slightly worse in the first quarter?
No. No.
So I assume it's a little bit better than that then? Or can you just help me understand your...
I would say it's more consistent with the second quarter.
The second quarter I'm sorry, you mean more consistent with the first quarter, it was down 4%, 4.5%?
Oh, I'm sorry, with what we announced, the first quarter, you're right, first quarter. But no, I wouldn't say it's down 4%. Craig, I'm not going to give the exact number. I've already said that. It's not down 7% but it's closer to the previous quarter's results.
Okay. I appreciate that. Can you just help us your TV advertising pacing's for the month of August, would you say that those are tracking better, the rate of decline there for your core advertising that that is tracking better than what you what July turned out to be?
I think it's a little we have very few days in August here. I'm thinking it's a little too early to be making any comments with regard to that.
Okay. Can you help us then maybe just I'm going to understand then what you're sort of budgeting or thinking that the rate of decline for core advertising could be down in the third quarter. Can you maybe help us like...
Craig, I think that's why we're not giving guidance, right? It's going to be down.
Tell us what July would how much July was down, if you would?
I think I told you, it was down less again, I'm not going to give specific numbers, but July was down less than June. And June was, obviously, if it's just math. If the entire quarter was down 35% and every month within the second quarter got better, then clearly, June was down less than 35%. And July was down less than June. That's kind of the extent of the forward-looking guidance that we're going to give as it relates to specific advertising revenue.
Okay. Maybe I may ask another question then. In this on this virus situation that's going out there, in the states where the virus cases have gotten dramatically worse here in the last several weeks, have you guys seen a material change in the core TV advertising in those markets? Has there been any significant change that you can talk about?
No. And again, cases in Texas have gone to I mean, you have to we don't operate just in one area that you're in, that you might be hearing that news from, right? So you've got to look across 114 markets and look at those states and cases might be reported to be up 30%, which could be 100 cases in a state. I mean, you've got to put all of these numbers into context, but I would say, no. The evidence is in our results in July and our pacing in August and our pacing in September, all substantially better than where we exited second quarter and then we performed in second quarter.
So the proof is in the numbers, as Tom says, it's just math, but we have not seen any and I think I just said this. Hospitality continues to be down. Auto is improving. We don't get a lot of money from restaurants unless it's QSR, and they're making mints through their drive through. So things are we are seeing steadily steady improvements. And even we're pausing and opening is better than not being open at all, and that's kind of our worst-case scenario in some of our markets.
And in others, we don't have that. This morning, we're dealing with the aftermath of storms up the East Coast from the Carolinas into Virginia and up into Pennsylvania, New York and flooding and those kinds of things, and those are going to be more temporary disruptors to businesses until they can reopen than the pandemic. And so it's situational and we deal in 38 states across the country, and you've got to add it all together, but there's nothing other than business as usual is the way we deal with things, and I think the results speak for themselves.
And my last question, guys, on the cost front, you guys talked about pro forma costs in the second quarter, down 18%. Can you give us a little bit more to how should we think about your cost trends for the third quarter? I know you gave a figure there versus your budget for the third quarter here at December 1. But the second quarter but just what sort of costs if you could help us a little bit think about that that may not be to cost savings in the third quarter you benefit from in the second?
I really don't understand the question other than the fact that, obviously, we had guided to $40 million in cost takeout's in the second quarter, which we believe which we overperformed on. That same number for the third quarter is $25 million as we obviously, some of those are variable costs as advertising starts to return, those costs go up. Some of them are discretionary that we will add back in. We will travel more in the third quarter than we did in the second quarter.
We basically couldn't have traveled any less in the second quarter than we did. So some of the discretionary costs will get added back in, but that will be more than offset by higher advertising revenues in the second quarter. But specifically, as it relates to if you're looking year-over-year, the majority of the synergies taken out of the Tribune transaction have occurred. So that won't change materially sequentially Q2, Q3 over Q2. And you'll have some added expense coming back in, but that's the extent of some of the pushes and the pulls on expenses.
We'll now take our next question from John Kornreich with J.K. Media.
I hope you can hear me. Having Internet problems, like a lot of people in the neighborhood. two quickies. Tom, I think the 24 bonds were callable two days ago, and I heard nothing. Does that mean they're not likely to be cold?
Well, again, John, I think that's consistent with our message that in the next 30 to 45 days, I think we will have a better feel on actual political revenue coming in Labor Day and obviously, same with another month of core, and we'll be able to start making more aggressive decisions with regard to capital allocation in the obviously, in the last 120 days and probably the next 30 days, we're still going to continue to take a pretty conservative view on that, but hopefully, be able to flip the switch and become a little bit more aggressive in the near term.
Secondly, did I hear correctly that you're on track for a mid-teens net retrans growth this year? And you mentioned that the gross retrans is up high 20s pro forma. Did I guess correctly gross high 20s, net mid-teens?
So far this year, our retrans revenue growth has exceeded 20% that is correct. We have budgeted for mid-teens yes. Well, 28% in the second quarter. I forget what exactly the first quarter is. We budgeted for mid-teens growth in net retrans for the entire year. But so far, we have exceeded that.
Great. So net retrans margins are down more than a little bit for this year. Is that correct?
No. I would say that they're actually up a little bit because we're we've included a fair amount of Tribune subscribers that are non-big four affiliates, where our net retrans margin is substantially in excess of 50%.
Thank you very much.
And we'll now take our next question from Jim Goss with Barrington Research.
Thanks. During the early days of the pandemic, there seem to be a surge in or a pretty good increase, at least in usage and even sampling of broadcast and other video in categories that didn't take or didn't tend to it. so the goal will be requested. [Operator Instructions] Not sure what happened there. But I was wondering if any of that has proven sustainable or otherwise might be in terms. [Operator Instructions] I'm sorry, am I heard?
Go ahead, Jim. I think somebody is trying to either record or exit the call.
Okay. Sorry. But anyway, I was wondering if any of the increased usage and sampling has proven sustainable or has it mostly dissipated? Did any of that play a role in your retrans negotiations during that period?
We had precious few retrans negotiations done in the first half of the year. We had one top 10 that we're pleased with the results on. I would say in my comments earlier, I did report that our viewership, and I highlighted the 18 to 34 demographic. Obviously, it was up in April, 151%, 83% in May, and 89% in June over the prior year. Our digital page views, which were in excess of 2.3 billion for the quarter were 1.1 billion in April. That was up 133%. And then in the month of June, despite comparison, our local websites were up 60% compared to the prior year.
So there is some COVID fatigue, I think, but I also think there is increased interest in local news and we consider ourselves to be the last bastion of local news with the diminution of newspaper and radio, local coverage and content. So we do think that that there is stickiness to this. The long tail will determine how much. But people continue to turn to our newscast in record numbers.
And it's amazing clay and in Los Angeles and WGN in Chicago, independent stations, by and large, but producing copious amounts of local news are ranking number one in all dayparts, beating all of the network O&Os in virtually every newscast. And that just speaks to the power of localism that you're not dependent on network lead in or lead out to generate your audience, you're doing it on your own. And we're particularly gratified by that kind of execution producing those kinds of results.
Okay. And one last thing. The I was wondering about the promotion efforts to create visibility for News Nation as that is coming to the far. And also, it seems like CNN tended to fill a similar role to that, which you're targeting where it tended to be unbiased, maybe it's a little less so these days.
And it during in that era, it would tend to be the place to go when something an event occurred, but some of the other news more partnered newscast where politically would sort of gather the their base in more normal times. I'm wondering if there's a way for you to position yourself to sort of gather at least that role and maybe you have something more sustainable. And if this proves successful, do you think you broaden it beyond the 3-hour original time frame?
Well, thanks, Jim. There's a lot in there to unpack. I'll try and do my best with it here. Obviously, that is how CNN started. I don't think anyone listening to this call. I think CNN is in that same place today from an unbiased political lean. We as I've said before, we have a staff of red orations and two full-time staff that do nothing but check scripts in reporting for unconscious bias and bias in our writing, and we've had very spirited discussions about that even in the rehearsals.
We do think we will be that place to go for news that doesn't make a 22-minute news hole in a network evening news broadcast or much news on the opinion based top networks. For example, last night in our rehearsals, we did a story on the first women police chief in Colorado Springs. And that's not a story you'd see every place else. But again, we've got our we've got the country divided up into six zones, and we have zone producers, and their job is to know exactly what's going on in those zones in all of those newsrooms and what might be of interest to a national audience.
In addition to the 150 people we've hired in Chicago, correspondents that are also based in Miami, New York, Dallas, Los Angeles, and D.C. that report exclusively for the network as well as all the behind the scenes production folks that that we think we can give a more representative view of America than perhaps what's seen inside the New York, D.C., Beltway. So we think there's a purpose for that, and there's a reason for that. And the acceptance of that concept now has been very enthusiastic. It's now just on us to deliver.
As it relates to promotion, we have secured something that none of the other networks, news networks, I think, are able to compete with, and that is to harness the power of 196 television stations across the Nexstar Nation to promote this newscast on a day date specific basis beginning later this month. And if you look at the annualized promotion value that the stations will be contributing on a dedicated basis, it's something approaching $100 million. We are layering on top of that on an annualized basis, approximately $20 million of outside promotion expense, which primarily goes for advertising on other cable networks because we're just a channel change away at that point on national and syndicated radio.
We're also investing heavily in social media, not only because of the app, but to try and drive a younger demographic to an alternative newscast. And so we think our promotion spending, all taken together, a nine figure amount of both cash and in kind contributions for the company are another asset that will hopefully drive success for this effort. And again, it is a counterprogramming opportunity in primetime, and we're going to do our best to succeed there.
Obviously, if we are successful, we would look at other dayparts, but we're taking very much of a crawl, walk, run approach to this. We want to get it right, and we will grow as fast as our success would allow us to grow. So I think I'd leave it at that, but we're very excited about the prospect of introducing an alternative in primetime to entertainment, sports and opinion programming and that the product will reach a we'll strike a core and resonate with the audience and audience growth and advertiser growth will continue. So tune in, it launches on September 1.
Okay, thank you.
And that does conclude our question-and-answer session for today. I'd like to turn the conference back over to Mr. Sook for any additional or closing remarks.
Well, thank you, operator. Again, we're very pleased with our progress, and we're pleased that our strong financial position, and we're excited about the launch of WGN America and the advent of the political spending season that will all be upon us before our next call.
So we look forward to reporting back to you shortly after Election Day with the early results on all of those efforts. And thank you very much for your time this morning. Thanks for joining us.
Once again, that does conclude today's conference. We thank you all for you participation. You may now disconnect.