Nexstar Media Group Inc
NASDAQ:NXST
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Nexstar Media Group Inc
Earnings Call Analysis
Q4-2023 Analysis
Nexstar Media Group Inc
Nexstar demonstrates a robust outlook with the anticipation of a strong political advertising revenue stream in 2024, considering its broad reach covering 91% of gubernatorial and Senate races. An estimated $10 billion is expected to be poured into political advertising, half of which will likely go to television, and Nexstar has traditionally captured a low-teens percentage of this market on a net basis after agency commissions. They have also launched a multiyear brokerage agreement in Phoenix, a critical market for the coming election cycle.
With a clear set of objectives, Nexstar is set to capitalize on the successful renegotiation of its distribution contracts in 2023, along with the significant presidential election year political advertising. Efforts to minimize the losses associated with the CW network and an improving economic environment are key focal points for bolstering growth over the long term.
In a challenging advertising market, Nexstar's core television advertising saw a slight year-over-year decline of 5.9% to roughly $449 million, while digital revenue increased by 5.4% to approximately $106 million. Nexstar's adjustments and strategies at the CW network are set to evolve it into a profitable asset, with an aim to break even within the next few years. Q4 revenue for the CW dipped to $55 million from the previous year's $66 million, with a noteworthy improvement in adjusted EBITDA, reflecting a decrease in losses by nearly $90 million year-over-year.
Nexstar remains committed to rewarding its shareholders, as evidenced by the return of $137 million through dividends and stock repurchases in the fourth quarter. They continue to focus on deploying cash in ways that yield the highest returns, a practice that aligns with their track record of distributing a significant portion of free cash flow to shareholders.
The company is comfortable with its current leverage, expected to be less than 3x total leverage this year. They attribute their stability to strong free cash flow and a business model that differs from their more highly leveraged peers. This, along with the conservative approach to debt, bolsters Nexstar's confidence in its financial health and its capability to mitigate risks effectively.
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Good day, and welcome to Nexstar Media Group's Fourth Quarter and Full Year 2023 Conference Call. Today's call is being recorded. I will now turn the conference over to Joe Jaffoni, Investor Relations. Thank you. Please go ahead, sir.
Thank you, John, and good morning, everyone. Let me just read the safe harbor language, and then we'll get right into the call.
All statements and comments made by management during today's conference call, other than statements of historical fact, may be deemed forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995. Nexstar cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those reflected by the forward-looking statements made during this call. For additional details on these risks and uncertainties, please see Nexstar's annual report on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission and Nexstar's subsequent public filings with the SEC. Nexstar undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
With that, it's now my pleasure to turn the conference over to your host, Nexstar Chairman and CEO, Perry Sook. Perry, please go ahead.
Thank you, Joseph, and good morning, everyone. We appreciate you joining us today to discuss Nexstar's fourth quarter and full year 2023 results. With me on the call this morning are Mike Biard, our President and Chief Operating Officer; and Lee Ann Gliha, our EVP and CFO. I'll start with a summary of recent highlights and developments, followed by Mike's operational review and Lee Ann's financial review, then we'll take your questions.
Nexstar's fourth quarter financial results outperformed consensus expectations in key financial metrics, including adjusted EBITDA and attributable free cash flow. Validating the enduring strength, reach and appeal of broadcast during the fourth quarter, we successfully completed all of our remaining distribution negotiations for Nexstar owned stations as we had expected. I'm also pleased to report that our partner stations were back up on DISH beginning in January.
Nexstar's record fourth quarter and full year distribution revenue confirm once again that our distribution partners and their customers continue to value the highly rated broadcast and fast-growing cable news network programming that we provide. The completion of these agreements give us solid visibility for our distribution revenues in 2024 and beyond. As we move into 2024, an election year, we look forward to once again demonstrating the value of broadcast television to both candidates and campaigns looking to communicate to the electorate through their political advertising on our television stations. More on that in just a moment.
Our 2023 results extend Nexstar's long record of consistently generating substantial free cash flow, a trend that we expect to continue. On average, for the 2022-2023 cycle, Nexstar generated $1.8 billion of adjusted annual EBITDA and $1.2 billion of attributable free cash flow. Over that time frame, we returned an average of $910 million each year to shareholders in the form of dividends and share repurchases, representing approximately 77% of our attributable annual free cash flow and 16% of our annual market capitalization to boot. Our strong financial track record supports our commitment to our shareholder returns and the enhancement of our shareholder value. To that end, in January, we announced an increase in our annual dividend of 25%, our 13th consecutive annual increase.
While there is and has been perpetual noise in our space, we remain highly confident in our business model, our growth opportunities and our competitive positioning. And we've demonstrated time and again over the years that whatever is occurring in our industry or ecosystem, we are capable of managing Nexstar for free cash flow and the benefit of our shareholders. Broadcast television delivers broadcast -- the broadest reach and the greatest share of viewership within a market, given our compelling offering of the most popular local and national sports, news and entertainment programming.
There's no better example of the power of broadcast television than this year's Super Bowl, which was the most watched television programming since the 1969 moon landing, which I also watched by the way. The enduring strength of the broadcast platform is further demonstrated by the extraordinary local viewership generated in Kansas City and San Francisco which received a record-breaking 80-plus share of TV viewing and a more than 75% share of TV viewing across the top 34 metered markets. And for all the hype surrounding the Peacock playoff game and it's 23 million viewers on broadcast, a less competitive wild card game that was moved to a Monday because of bad weather generated 31 million viewers and the Chiefs Bills playoff team generated 50 million viewers, more than twice the Peacock game. That's the power of broadcast television.
[indiscernible] will share our exports on sports streaming, our thoughts on sports streaming in a moment. And while it's true the industry is constantly evolving, the volatility in Nexstar's share price is not really reflective of what's actually going on in our business. And this has been the case for several years. We keep executing on our playbook, making return-focused growth investments and decisions and delivering excellent results and returns for shareholders, and we plan to continue to do so.
Before some comments on 2024, I'll briefly review a few key highlights from the quarter and the year. News Nation remains the fastest-growing cable news network in prime and has now surpassed MSNBC in cable distribution. The power and strength of our collective media assets enabled us to secure the final GOP presidential primary debate last year before the Iowa [ coccuses ] for News Nation, which we simulcast on the CW. That was an impressive feat for a 3-year old news network, especially considering that the prior debates were on FOX and NBC. The event delivered more than 4 million combined viewers with News Nation garnering the largest audience in its history. News Nation continued to add programming and news talent throughout the year and we're well on our way to become a 24/7 cable news network this year.
The Hill remains the #1 website for political news and views with 32 million unique monthly visitors, more than 50% bigger than each of our 2 largest competitors, [ Axios ] and [ Politico ]. Year-over-year, the Hill expanded its lead in competition -- over its competition by 7 million uniques. During 2023, we also launched The Hill branded political issues news program on News Nation at 6:00 each night. We expand and expect that our political momentum there will continue in 2024 during the presidential election cycle.
Turning to the CW. We made significant headway in 2023 on our path to profitability. First, we further streamlined the network operations improving cash flow by almost $90 million versus 2022, which was under prior ownership or 3/4 of the year. We also implemented a compelling programming lineup, including a diversified mix of entertainment unscripted programming, sports and events. In fact, in the last few months, the CW has had a number of 1 million plus viewer nights were representing the highest levels reached in the recent history for the network and clearly demonstrating that we deliver compelling programming viewers will watch.
For example, in November, the ACC Florida state in the ACC, the Florida state versus North Alabama football telecast delivered the network's highest-rated Saturday night ever and the highest rating in more than 5 years across all days with more than 1.3 million average viewers peaking at 1.9 million viewers. In early December, as I mentioned, our RNC debate simulcast with News Nation delivered more than 2.6 million viewers on the CW, peaking at over $3 million and beating NBC and FOX in 1 of their 2 prime time hours, generating the highest ratings on the CW since 2018. Later that month, the Arizona be averaged 1.1 million viewers, and we beat CBS in the time period.
In mid-January, the Critic's Choice Award delivered more than 1 million total viewers, up 14% over 2023, making it the most watched show on the CW since 2020. And 1.5 weeks ago, the CW Sunday night Prime Beef Fox head-to-head repeated again this past week. You noticed returning theme of growth as we start to beat our much larger network competitors with more frequency driving the value of the network for advertisers and affiliates alike. We're excited for the future, particularly as we look at the launch of WWE Next on October 1 of this year and bringing the NASCAR [ XFINITY ] Series to FOX in -- I'm sorry, to the CW in 2025.
On the distribution front, we launched the CW network affiliations on Nexstar owned and operated stations in 5 markets, including Three of the nation's top 15, and we expanded and extended the CW network affiliation agreements with several of our broadcast partners. In terms of advertising, we continue to focus on leveraging our collective media assets to increase monetization. In 2023, we completed our first upfront as a consolidated entity for all Nexstar National properties, including News Nation, the CW, Antenna TV and the Hill as well as our digital offerings we added 47 new advertisers across all platforms.
Last quarter, we discussed our intention to bring our national sales in-house and we've successfully transitioned all 117 local television markets to our internal national sales organization. We're executing well on this initiative so far in 2024, and we look forward to sharing our successes in future calls. We also continue to lead the industry in the deployment of ATSC 3.0 or NextGen TV, achieving our goal of reaching over 50% of the U.S. television households that now receive a NextGen TV signal from a Nexstar owned or partner station.
Looking ahead to 2024, Nexstar is in a strong position to benefit from the anticipated record level of political spending in the presidential election cycle. First, with the broadest reach and the greatest share of local viewership, broadcast television continues to be the medium of choice for campaigns and packs to efficiently reach and influence voters. Second, the voter demo is now the broadcast demo with 64% of the people who voted in 2022, aged 50-plus according to Pew Research.
We expect, thirdly, to see contested congressional races more of them actually than ever before in both the House and the Senate with both chambers up for grabs and several retirements creating new open seats to be contested. Finally, Nexstar Scale leads us well positioned regardless of where the money flows. We have stations covering 91% of this year's gubernatorial and senate races and 82% of the House races. This election cycle is projected to generate in excess of $10 billion in political advertising reported on a gross revenue basis based on ad impact and [ DVICCMAC ] estimates, with about $5 billion of that total expected to be spent on television.
Historically, Nexstar has captured a low-teens percentage of local television broadcast spending, which we will book on a net basis after agency commissions. We have a well-established playbook for maximizing political revenue that our teams advance and refined with every election cycle as America's largest local television broadcasting company, we have the scale and resources to produce and distribute the most comprehensive political news and live debate coverage in our market and across the nation.
Further enhancing our political opportunity in early January, we entered into a multiyear time brokerage agreement KAZ TV in Phoenix the nation's 11th largest EMA in 1 of the more critical important markets in the 24 election cycle. Content synergies between our local and national assets, including News Nation, the Hill and the CW will also be positive contributors to these efforts. Together, the distinct competitive advantage reforce our confidence that Nexstar will deliver a strong political advertising revenue in 2024.
In terms of guidance, we are initiating 2024 adjusted EBITDA guidance of $2.085 billion to $2.195 billion. Lee Ann will discuss the details shortly, but we've changed the form of our guidance to be more aligned with other companies in our industry and other companies of our scale. We have a track record of meeting or exceeding our guidance and believe the new EBITDA guidance will be more useful to shareholders who tend to value us on this metric. Even though the form has changed, as always, we will continue to provide you with our unvarnished take on the prospects for our business model, which we expect to continue to generate a significant amount of free cash flow for the foreseeable future.
I trust that you share my enthusiasm and looking forward to 2024 and Nexstar Media Group's bright future. Our continued growth and our success are predicated on the unique strength and durability of our high profitable operating model. with the experience of our leadership team and our more than 13,000 talented and diverse employees across the country. We expect to build momentum through 2024, given the successful renegotiation of our distribution contracts in 2023, significant presidential election year political advertising continuing to reduce the losses related to the CW network and an improving economic environment. Nexstar has a clear set of objectives for creating the greatest long-term value for our shareholders and we will continue to deploy cash in a manner that will deliver the highest returns.
So with that said, let me turn the call over to Mike Biard. Mike?
Thank you, Perry, and good morning, everyone. Before reviewing our operating results in more detail, I'll briefly address the sports-focused streaming product announced by FOX, ESPN and Warner Bros. Discovery. As we and many industry analysts believe there was a significant misinterpretation in market overreaction, which appears to have abated somewhat as more information and understanding of the product has become available.
First, with respect to the composition of the proposed product, we have confirmation that it will function in the same manner as other vMVPDs that distribute our FOX and ABC affiliated stations. To be clear, Nexstar will have the option of opting in to secure carriage and compensation for our ABC and FOX affiliated stations. As such, this would be an additive incremental revenue stream for Nexstar.
The fact that the networks O&O and affiliate stations are a core piece of the product is no surprise, and it reaffirms the critical importance of the broadcast platform to sports rights and distribution. Moreover, we believe the 3 JV partners understand the value of the linear ecosystem as pay TV revenues remain vital to each of them. They've demonstrated this in their respective approaches to D2C and largely avoiding the strategies of some of their peers that have undermined the value of their own core linear networks.
We note that [ Lachlan Murdoch ] clearly stated that the sole purpose of the sports product is to target [ cord nevers ], those already outside of the pay TV ecosystem in order to expand the audience for their sports programming and not shrink linear cash flows. The rumored pricing for the service supports this assertion as it would not undervalue the linear services that carry and pay for the marquee sports that are the core of the offering, like some other D2C products in the marketplace do. And since the product is focused on core nevers, we would welcome the opportunity to make Nexstar's local programming available to a new audience.
All that said, to date, we have more questions than answers about the proposed product, including assurance that will actually launch. We know launching a new streaming startup will be challenging, including potential regulatory hurdles lawsuits and other complicating factors surrounding the JV. So we'll have to see how this all plays out. But there is no question that the bundled linear video particularly broadcast continues to be the most effective distribution platform for sports content and the most attractive value proposition to customers for access to the most compelling sports, news and entertainment, all in one place. As an aside, we believe these marketplace developments, combined with our recent ratings successes further validate our strategy for CW Sports and the investments we've made to acquire sports rights which we can see are beginning to take root already.
Now turning to the operating review. We delivered fourth quarter net revenue of $1.3 billion compared to $1.5 billion in the prior year quarter. The net revenue comparison primarily reflects the year-over-year variance in cyclical political advertising, offset in part by growth in distribution revenue. Excluding political advertising, net revenue increased 4.3% year-over-year. Core television advertising, which includes both our station group and our national networks, but excludes any digital advertising revenue declined 5.9% year-over-year to approximately $449 million. Excluding the CW, for consistent comparison purposes, core advertising declined 5.6%, marking a sequential improvement from the 2023 third quarter which was down 6.8%.
We continue to be impacted by a challenging national advertising market and our relatively high concentration of large market stations continue to perform more like the national advertising market. To that point, excluding our networks and top 10 markets and including digital ad revenue, as many of our peers do, our station core television advertising revenue for the quarter was slightly up.
On a consolidated basis, in Q1 2024, we are seeing a slightly greater rate of decline of our overall core television advertising over what we saw in the fourth quarter, again, primarily as a result of weak national advertising and due to the Super Bowl airing on CBS versus box, which is not as favorable for us. Including the CW, consistency of comparison purposes, our top-performing categories in the quarter for home repair, manufacturing, packaged goods and air conditioning heating. Automotive, our largest advertising category in terms of dollars spent was essentially flat, given a challenging year-over-year comparison. The category is most responsible for the core advertising revenue decline for gaming, sports betting, insurance and radio TV cable newspaper.
Turning to political. Q4 political advertising of $30 million was ahead of Q4 2021 political of $19 million and just behind Q4 2019 political of $36 million. With the primary election cycle, slightly less active versus 2019, as Perry mentioned, we remain optimistic, nonetheless, about our growth prospects for political advertising revenue in the 2024 election cycle which we expect to exceed each of 2022 and 2020. Given our extensive footprint, covering over 80% of contested elections, we are extraordinarily well positioned to take share and dollars locally and nationally.
Moving on to distribution. Nexstar delivered fourth quarter distribution revenue of approximately $704 million, up 14.3% versus the prior year. Distribution revenue growth was driven by the renewal of our distribution agreements in 2022 and 2023 on approved terms and annual rate escalators as well as growth in virtual MVPD revenue offset in part by continued traditional MVPD subscriber attrition and a removal of partner stations from certain MVPDs. Subscribers grew in the quarter in the low single-digit range excluding the impact of the ongoing removal of partner stations from certain MVPDs, reflecting the benefit of the increased carriage of our CW, MyNetwork and independent stations on YouTube TV and other MVPDs and the addition of new CW affiliations at Nexstar stations and recent station acquisitions.
Looking forward, we have no significant distribution renewals and only one major affiliation agreement up during the year that will impact 2024. With our partner stations back on DISH and an easier comparison later in the year as we lap the DirecTV service disruption in the third quarter. We expect continued growth of our distribution revenues, tempered by subscriber attrition in line with the overall pay TV marketplace. Specifically, we expect the full year growth rate for our distribution revenue to be in the high single-digit range and the full year growth rate for our net distribution revenue to be in the low teens.
Fourth quarter digital revenue increased 5.4% year-over-year to approximately $106 million. Digital revenue was impacted primarily by weakness in national digital advertising, partially offset by year-over-year increases in Nexstar's local digital advertising revenue and Agency Services business. As Perry mentioned, the strides we are making at the CW are noteworthy and underscore our optimism for the value that can be created from this asset.
Q4 revenue of $55 million declined from last year's $66 million given weakness in the overall advertising market and the impact of the rider strike. However, adjusted EBITDA improved by $14 million compared to the prior year to an adjusted EBITDA loss of $50 million. As Perry mentioned, in 2023, we reduced the CW losses by nearly $90 million over the year and remain on track to continue to bend the cost and revenue curves favorably in 2024 toward breakeven in the next couple of years.
The CW remains one of the most exciting long-term growth opportunities at the company, and we expect our programming and sales strategies to drive viewership and increase the overall value proposition to our affiliates, distributors and advertisers. For example, the simulcast of the News Nation presidential debate on the CW was a success for both brands, and we expect to leverage additional organic synergies across our station and network portfolio going forward.
As we mentioned on the last call, our CW affiliated stations are the most profitable of our network relationships, both in terms of margin and gross dollars. We are laser focused on fortifying that performance for the long term by acquiring more CW affiliations for Nexstar stations and focusing our programming investments in content that matters to the broadcast viewer, including live sports.
With that, it's my pleasure to turn the call over to Lee Ann for the remainder of the financial review and update. Lee Ann?
Thank you, Mike, and good morning, everyone. Mike gave you most of the details on the revenue side and on the CW. So I'll provide a review of the expenses, adjusted EBITDA, attributable free cash flow along with a review of our capital allocation activities in our 2024 guidance. Together, fourth quarter direct operating and SG&A expenses, excluding depreciation and amortization and corporate expenses increased by $4 million. There were a couple of onetime items in Q4 2022, which impacted the comparison. Excluding those items, direct operating and SG&A expenses before corporate increased by $16 million, primarily due to increases in affiliation fees and other programming expenses, the expansion of new programming and expenses related to our in-house national sales force launch, offset by reduced commissions from the reduction of political revenue in a nonelection year.
Also included in our calculation of adjusted EBITDA but not included in direct operating and SG&A expenses above are the payments for broadcast rights of our stations and networks, excluding the CW, which declined by $10 million in Q4 due primarily to reduced reliance on syndicated content. In addition, there was $20 million of savings or a 22% reduction in amortization of broadcast rights as the CW as were able to reduce programming costs at the start of the 2023-2024 broadcast season as part of our cost reduction strategy.
In Q4 2023 total corporate expense was approximately $45 million, including noncash compensation expense of $16 million compared to $49 million, including noncash compensation expense of $18 million in the fourth quarter of 2022. Q4 2023 depreciation and amortization was $210 million versus $231 million in the prior year quarter, due primarily to the reduction in programming expenses at the CW I mentioned a moment ago. Please note that the CW programming costs, which are included in our definitions of adjusted EBITDA and attributable free cash flow, are accounted for in this line item as amortization of broadcast rights. For more information on this amount, please refer to the schedules in our earnings release.
We've received $12 million in Q4 distributions from equity investments related primarily to our 31% ownership in TV Food Network which represents a 20% decrease from prior year quarter. Our Q4 distribution for TV Food Network is a tax-related distribution. The reduced amount reflects lower income at the TV Food Network related primarily to lower advertising revenue. So putting it all together, on a consolidated basis, fourth quarter adjusted EBITDA was $411 million, representing a 31.5% margin. Excluding the CW losses, fourth quarter adjusted EBITDA was $461 million, representing approximately a 36.6% margin.
Fourth quarter CapEx was $36 million, a reduction of $10 million from our expectations primarily due to timing of payments, which moved to 2024. Fourth quarter CapEx of $36 million compared to $57 million of CapEx in the fourth quarter last year. For the year, CapEx was $149 million versus $156 million last year, excluding a small amount of CapEx associated with [indiscernible]. Fourth quarter net interest expense increased $115 million from $103 million in the prior year quarter due to the impact of higher silver rates applicable to our floating rate debt. Cash interest expense was $113 million for the quarter, slightly lower than our expectations given lower silver rate. Fourth quarter operating cash taxes were $26 million. And putting this all together, consolidated fourth quarter attributable free cash flow was $265 million.
Together with the free cash flow generated in the quarter in cash on hand, we returned $137 million to shareholders comprised of $46 million in dividends and the repurchase of $91 million of stock at an average purchase price of $145.13. This is a smaller amount of repurchases versus the prior quarter as we used the cash available to accelerate repurchases in the prior quarter, given the dislocation in the stock price. For the full year, we repurchased $605 million of stock at an average price of $160.4 taking advantage of the low prices we saw during the last 2 quarters of the year and reducing shares outstanding for the year by 8.7%. This compares to 9.7% reduction in shares outstanding that we were able to accomplish last year.
Including dividends, for the full year, we returned $796 million or 94% of attributable free cash flow in 2023 and compared to 68% of attributable free cash flow in 2022. As Perry mentioned, for the 2022-2023 cycle, we returned $910 million of capital to shareholders on average per year. representing a dollar average of 77% of our attributable free cash flow and an actual 16% cash return on our average market capitalization over the period.
In 2023, we also repaid $125 million of debt and acquired 2 stations for $38 million. Nexstar's outstanding debt as of December 31, 2023 was $6.8 billion, down slightly for the quarter as we made quarterly amortization payments of $32 million. Our cash balance at quarter end was $135 million, including $52 million of cash related to the CW. Because we have designated the CW with an unrestricted subsidiary, the losses associated with the CW are not accounted for in our calculation of leverage for purposes of our credit agreement. As such, our net first lien covenant ratio for Nexstar, excluding CW, as of December 31, 2023, was 2.25x, which is well below our first lien and only covenant of 4.25x. Our total net leverage for Nexstar, excluding the CW, was 3.76x at quarter end. As typically announced the last few years, we expect leverage, which we calculate on an LTM basis versus the 2-year average, but not our quantum of debt to tick up in 2023, but to fall again in 2024 as EBITDA will grow with the return of political advertising.
Our plan this year, which is a political year, is to repay a portion of our debt -- a portion of that incrementals were mandatory payments while we continue to use cash for dividend and repurchases. In January 2024, we announced our 13th consecutive increase in our dividend, increasing the 2024 quarterly dividend rate by 25%, which based on our stock price as of yesterday, is now more than a 4% dividend yield achieving our goal of a greater than a 3% yield. Even at this yield, the dividend represents less than a 20% claim on our free cash flow this year. As we move forward, we will continually we'll continue to strategically deploy our cash in a manner that is consistent with our commitment to creating the highest shareholder value.
Now turning to guidance. This year, we are initiating 2024 adjusted EBITDA guidance in a range of $2.085 billion to $2.195 billion. We note that 2024 Street estimates averaged $2.18 billion on average for 2024. Mike and Perry already provided some of the key assumptions that are embedded in our guidance, which include: one, that we expect Nexstar's share of total television political advertising to be in line with historical levels or a low teens percentage. And please note that the industry closed these figures on a growth basis, but we book revenue on a net basis after agency commission. Two, our expectation for growth in net distribution revenue growth to be in the high single digits and low teens areas, respectively; and three, we continue to expect to get the CW to break even in the next couple of years.
The guidance also considers our current expectations for the year for the amount of political fundraising spend allocated to television advertising in our markets, the rate of attrition of pay television subscribers the health of the local and national advertising market, the ability to renegotiate affiliation agreements on favorable terms and the level of distributions related to our 31.3% ownership stake in TV Food Network, among other things. We do not intend to update this guidance on a quarterly basis going forward.
We changed the form of our guidance this year for a number of reasons. First, no other company in our industry provides a 2-year outlook for their financial performance. In fact, most limit their outlook to the next quarter or fiscal year with many providing no guidance at all. Second, when we establish the 2-year average free cash flow guidance literally a decade ago in February 2014, we were trying to better educate the market on the strength of our free cash flow generation by smoothing out the impact of the 2-year political cycle. We were also doing a lot of debt and the anticipation of M&A over that time frame.
That was difficult to pro forma, and this guidance was helpful to investors in understanding the financial impact on current and future periods and how quickly we'd be able to deleverage. Today, the market understands the political cycle, and we have not done a material M&A transaction since Tribune, which closed in September 2019. We have a healthy balance sheet, relatively low leverage and 3 full years of clean historical data for investors to look at.
Third, while most large and mid-cap media companies do not provide guidance at all, we felt it was important to continue to offer some level of guidance. We've done extensive research on best practices within and outside our sector and believe that annual adjusted EBITDA guidance is the metric most investors use for us, better aligns us with other companies of our scale and track record and is more reliable measure of our operating performance and strength in the current interest rate environment.
This change in form of guidance is by no way a change in what we believe to be the future prospects of Nexstar. We understand that some naysayers may take the opportunity to "read into this guidance change that we somehow don't believe in the future of Nexstar." Don't let them do it. We continue to have confidence in our business model growth opportunities and expectations for significant free cash flow generation for the foreseeable future as evidenced by our capital allocation strategy, which prioritizes delivering strong and joint shareholders time. We pride ourselves on our transparency, and we'll continue to provide our fair and honest assessment of our businesses and growth prospects.
And for those of you projecting free cash flow, which we hope is all of you, we will continue to provide color on how we model our free cash flow. So with respect to free cash flow, we're currently projecting CapEx of $135 million to $145 million for the full year. We project Nexstar's cash interest expense using the spread on our floating rate debt instruments and the current SOFR forward curve and the coupons on our fixed rate debt, along with expectations for debt repayments, which includes our mandatory amortization of approximately $125 million, plus a modest amount of additional optional repayment giving excess cash flow in a political year. For cash taxes, we use a 26.5% tax rate when calculating our estimated tax after onetime and other adjustments. As a reminder, the first quarter only includes a very small amount of state income tax payments. And for those of you wondering, we did receive $40 million from the BMI sale in February.
Finally, a few comments on our ESG initiatives. While we are executing well on our business ESG also remains the priority for Nexstar, and we continue to take action to evolve our practices and disclosures to improve our profile. This year, our Board of Directors adopted a new policy separating the role of Chairperson and CEO Perry's departure from the company and the Board. And in preparation for Nexstar's 2024 proxy and Annual Meeting, we'll be launching our annual shareholder outreach initiative shortly, where we discuss our initiatives and hear feedback from our top shareholders. And as in the past, we will provide the results of this process in our annual proxy statement.
And with that, I'll open the call for questions. Operator, can you go to our first question?
[Operator Instructions] And the first question comes from the line of Benjamin Soff with Deutsche Bank.
Appreciate all the color. I was wondering on the distribution side, if you could parse out the organic growth rate after stripping out DirecTV and the addition back of the partner stations? And then I was just wondering if you could drill a little bit more into how you're thinking about capital allocation and how you plan to utilize the excess cash from this political cycle?
Yes. So on the first question about the pro forma, we did provide some decent amount of color on our third quarter call that will allow you to kind of back into that. But I'll just tell you the high single-digit growth rate drop down to mid-single digits when you pro forma out that impact on a year-over-year basis. With respect to our capital allocation, our strategy is going to continue to be opportunistic with respect to share repurchases to the extent that we can we have the cash to accomplish that, and there's no other better uses of that cash.
Obviously, we saw we increased our dividend by 25% this year. We do have mandatory amortization of about $125 million in terms of debt repayment, we'll probably repay a little bit more debt this year and just because it's a political year, and we have a little bit more excess cash flow. And then we'll use the remainder of that cash if we don't have M&A to do to buy back stock. We continue [indiscernible].
And the next question comes from the line of Jason Bazinet with Citibank.
I just had a question on the CW. You guys are making good progress narrowing the losses. And I think you've said the goal is to get to breakeven by the fourth quarter of '25. Is there anything you'd call out that's meaningful that we should be aware of in terms of quarters where we might see the losses widen even though your long-term objectives are still on track? And I'm thinking specifically of some of these sports rights sort of -- those costs sort of come into the P&L?
Yes. I think we're still on track. And as Michael said, in the next couple of years and whether that's exactly Q4 of '25 or with the writer strike that kind of moves into the first part of 2026, I think, is irrelevant. We are adding value, creating value there with the growth in audience, the beating our competitors head-to-head upon occasion. I mean, those are all things that we hope to do. And again, adding sports on the weekends meaningfully impact our CW stations that reach about 40% of the country because that's a daypart that they weren't competing for sports cost per points or with live programming. So it's all good. We don't really factor that into our analysis, how we're doing at the local stations, but there's been meaningful upside there in terms of local sales of the national sports product that we put on the CW.
As it relates to the peaks and valleys, I mean, obviously, Nexstar or the NASCAR will come in, in 2025, which will increase our payments for programming, but you'll also see 25 a continued offset of our decrease in commitments to entertainment programming. So we think that you'll see program expense relative -- in total, be relatively static. And I don't know, Mike, if you have anything else you'd like to add to that?
No, I think that's right. I think we'll manage the cost on the existing business as we take on incremental cost with new rights that emerge.
And the next question comes from the line of Dan Kurnos with Benchmark.
Two from me. First, Perry, obviously, a lot of noise as you mentioned in your prepared remarks in the space. But on the retran side, sort of a rehash of the fears around getting towards peak. I appreciate the form, it seems like you -- the guide for this year is kind of better than what others have been saying. And I know that there's some incremental carriage from CW embedded in there, but if you could give your sort of updated thoughts on how gross and net proceed from here and parsing that out maybe big 4 and the impact of virtual, just overall, how you think about that line, and it would be helpful to start within the follow-up on National after.
I think Mike was pretty clear in his commentary as in terms of kind of both the growth and net retrans guide here. there are puts and takes. We'll lap ourselves on DirecTV. The partner states are back on DISH. We budget for attrition pretty aggressively. And so that's embedded in our guide. And so I think to parse it much more than that. It might be interesting, but I'm not sure really meaningful because we're one company and all of these factors work together to get to the number that's embedded in what we talked about. If you have specific questions, we can, I guess, decide whether we want to answer them or not. But I think that what both Mike and I had said already are pretty descriptive as to how we think about it. But is there anything in particular that's on your mind?
I guess, Perry, is really just more on sort of the broader outlook here if we're -- given the issues that have been raised around getting towards peak and the ability to raise rates faster than sub attrition and your guide doesn't imply that in the near term, but just broader or longer-term thoughts would be helpful for me.
Yes, I just want to run one company here, and I know what our results are like, and we were very pleased with where we ended up with our negotiations and our rate increases continue to outpace the pace of cord cutting to deliver the net and gross increases that we have talked about on the call. And so all I can tell you is we're able to achieve that. Whether others can or not is, quite frankly, not my concern. We hope everybody does well and the ecosystem continues to prosper. We think that the whole Disney charter discussion that validated the value of local broadcast stations because they were never at issue.
And as you know, most franchise agreements for traditional MVPDs require the local stations to be carried and if we elect retrans require that they be paid to remain carried. And then everybody else that once a competitive program offering is going to have to provide the same services. So we actually think that validated the -- our place in the ecosystem, which is at the top of the food chain and then also the discussion about the new sports JV, if that truly does bring more people into the pay TV universe in some way, shape or form, and we have the ability to opt in and be paid to be a part of that offering, that's good, too. On the margin, that's incremental subscriber growth, and we're all for it.
And the next question comes from the line of Steven Cahall with Wells Fargo.
So maybe just first, the distribution revenue outlook and net outlook was very, very helpful. I'm trying to do the math quickly here, but I think it implies that reverse is only going to be up about mid-single digit, and I think you have an unfavorable comp there from the blackout plus the FOX renewal and another big 4 this year. So it looks like maybe you're starting to see some deceleration in the rate of kind of organic growth and reverse compensation expense when your peers have talked about that as well. So I would love if there's any commentary on maybe longer-term reverse easing?
And then, Mike, thank you for the information on the sports JV. A lot of us have been left to speculate on that. So that's very helpful. As you just continue to see probably in the future more rotation to both the vMVPDs and streaming services like Paramount and Peacock. How do you think about when you can kind of go back to the framework and reestablish your rates on a lot of those services since there's probably going to be more subs on those, say, 5 years from now and there are today? It's been an issue that's kind of been percolating in this industry in a long time. I don't think we've seen anything changes yet. So just wondering if there's any initiatives on that.
I think both of your questions get to the nature of our relationships with our with our network partners. And I think those relationships are unique. None of them are identical inside each of those relationships there, they are multifaceted with lots of moving pieces, both economic and noneconomic. You mentioned the relationship in 2 cases with the D2C products that they have and our participation inside those. I think that gets to the fact that across our relationships, each of them, we're not managing to a single feature. I know there's been some discussion about certain aspects of certain network affiliation agreements. We're not going to talk about any particular one because that's not the way we approach those relationships. We approach them holistically and manage across the entire relationship to a net cost that you can see reflected in the guidance that we provided.
And the next question comes from the line of Alan Gould with Loop Capital Markets.
I've got 2. First, Lee Ann, I noticed you said you're paying down some debt. Do you have ambitions to become an investment grade rated, which you haven't in the past, but your balance sheet is certainly getting you in that direction? And secondly, on the sports front, has Nexstar signed any of the local teams away from the RSNs, I was wondering what the economics of that would be?
Just the one deal that I think we've given a lot of visibility to our station in Los Angeles and our Southern California stations have put together a package of LA Clippers games, basketball with Steve [ Bauer's ] organization. And that we're in our second year of that, and I -- we just renewed the deal for another year or 2. And I can tell you that it is profitable to us. It's depending on the year, a total package of approximately 15 games plus or minus and depending on how many preseason games we decide we want to put into that package. But the arrangement is profitable for our flagship station for those games, KTLA as well as the affiliate stations thoughout Southern and Central California.
And I'll just say on the investment-grade question, we're not actively working to try to get the company upgraded to investment grade. I think that has a lot to do with stating specific intentions about our balance sheet, which we are kind of not there yet. But -- and I also don't think from a cost of capital perspective, it's that differentiated in terms of where we are now versus where we would be. But what we are looking to kind of streamline kind of our political and nonpolitical years a little bit with respect to the share repurchases. So that's been a necessitate maybe just a modest amount of debt repayment incrementally this year in a political year when we back to the cash flow.
And the next question comes from the line of Aaron Watts with Deutsche Bank.
Covered a lot of ground. I just had 1 follow-up on the network relationship side. I believe you currently have a mix of 6 and variable compensation agreements with your partners given the pressures on subscriber growth. Do you see a realistic path to moving all of your reverse comp arrangements to a more variable structure? Is that something that's been discussed at all to date?
Well, I think that you have to understand that our agreements are more new launched even than that. Even where we have what you might consider to be fixed arrangements, maybe there are collars around the bandwidth of both growth and contraction and there are all kinds of elements that go into baking the cake with each of our network we're on. As Michael said, I mean they are multifaceted, they are very complex, take a long time to negotiate. And money isn't always the only thing we talk about.
So I don't want to speculate on our business relationship with any one network or any number of networks. And Michael, if you want to add any more to that, but there's a lot of pieces to that. I think that what we are -- what we have said consistently is we pay you for programming and exclusivity of that program. And to the extent the program is becoming less exclusive, it is less valuable to us, and we potentially will pay you less over time. And what form that takes, I think, would be to be determined. But there are dynamic discussions happening in real time. And I would just say that everyone at the table is aware of what's going on in the industry and that the sands are shifting under our feet. And there is a sensitivity to that all around the table.
Michael, I don't know if you have anything you want to add?
I would just add, having been on both sides of the table for those discussions, I think I have probably unique appreciation for the fact that they are each very different, complex. And as I said before, I think focusing on a single aspect of those relationships, I think, misses the point. Certainly, this is the point from our perspective, which is we're going to manage the entire relationship to the [indiscernible]. And I know there's been focus on the fixed cost aspect that some have talked about. At the right price, I would take fixed cost. It's all about how that cost works through our business, and that's what we're focused on.
Okay. That's really helpful. And then just lastly, Lee Ann, I heard your comments to another question around investment grade, whether you had that way or not. But maybe I can ask that a different way. Just given the increased scrutiny around leverage in the space, what is your leverage comfort zone, maybe it's where you're at today? And where would you like to see that level trend over the next couple of years?
We're very comfortable with where our leverage is today. And we obviously have an odd and an even year impact here, but I don't think we have any need to really kind of do any major deleveraging given the relative level of risk. I think this is a question that we get asked a lot. I mean, we're going to be -- we'll be less than 3x levered in total this year. I mean that -- so like I think this is actually one of the different factors we think that we have with the company. I mean I think a lot of -- we get a lot of questions about our leverage, but that's because, unfortunately, some of our peers in our group are much more levered than we are.
And I think this is where we sort of just keep pointing to our free cash flow and say, look, this is a differentiated business. And we feel very good about where we are from a business model perspective and from a leverage perspective. And I don't think that the questions that we get, we think are kind of more a bounce back of maybe some questions that are happening with some of our peers that don't have the balance sheet that we have.
Fair point. Appreciate the time.
And the next question comes from the line of Craig Huber with Huber Research Partners.
A few questions. I'll go one at a time here. Can you just talk a little further about your TV station core advertising trends, what you're seeing in the first quarter versus what you saw in the fourth quarter? In particular, what categories are doing significantly better or worse? Just how things are trending in, please?
Craig, it's Lee Ann. Our advertising in the first quarter is norm slightly worse from a year-over-year percentage decline basis in the first quarter as it was in the fourth quarter. There's no specific category that is necessarily driving that. It's more of the same sort of level of broad-based decline that we've seen across our categories in the last few quarters. I would say we continue to be impacted on the national side and on -- in our larger markets, which are more challenged than some of our smaller markets. But there isn't anything in particular that we can point to, to say, aha, was sports betting, that's been declining for some time now. So I wouldn't think there's anything in particular that's I can call out.
My second question...
Aside from the Super Bowl impact, which Mike spoke about in the first quarter.
Okay. My second question, please. Curious, if you're budgeting for the distribution that you're expecting to get this year through equity method investment, are you expecting a significant change one way or the other versus what you got last year?
[indiscernible] with network distribution?
Yes, exactly. That -- all that stuff rolled up, yes. That's roughly different this year, you're thinking?
That's a national television network, right? We see what's going on in our business. So we thought what happened last year. So we expect that to be down this year versus last year. we've been talking about what those rate of decline has been all year. And I think just to refresh, the first quarter payment, which we've not received yet, is the bulk of the the rest of the distribution from last year's earnings. So it sort of lagged a little bit because the remaining payments we get for the rest of the year are tax payments related to the current year's the current year's income.
And the next question comes from the line of Jim Goss with Barrington Research.
All right. You've positioned News Nation particularly well, it appears, and I think I said recently that the electorate is something like 27% Democrat, 27% Republican and 42% independent. And I'm wondering if you might talk about exploiting that potential going into this fiscal year. I know you've done debates and that's been particularly good in raising visibility. And also in terms of programming costs, I think a lot of the competitors in the news category in to repeat, a lot of programming rather than have all originals. I wonder how you look at that. And finally, in terms of -- I was wondering if you've been able to identify certain demographics you've been attracting with News Nation and advertiser groups that might be attractive to that demographic?
Jim, I will endeavor to cover that. If I miss something, let me know. As it relates to the repeat factor, we do repeat our prime time talk an opinion shows overnight, they actually do pretty well on the West Coast were watching those in prime time. in real time. And so the cume of that audience is something that's useful for sales. The only other thing we repeat is on Sunday nights and Saturday nights when we're in live news and early prime on the East Coast, we repeat that broadcast basically for the West Coast immediately thereafter.
But the rest of the programming is all original. And as we expand, we see really no difference no different pattern as to what we plan to do there. And we will be 24/7 with news programming here, literally ahead of schedule in 2024 and earlier in the year than we had originally anticipated. As it relates to the demo, the audience for cable news, the audience for television in general SKUs generally older, linear television, and we're no exception to that. The primary pocket of audience that we're focused on is the 35 to 64 demographics, slightly older than 25, 54. We're trying to bring advertisers along to that. We also think the 2-plus audience is of value to some advertisers, and we report that number as well.
As it relates to the skewing of the audience to the electric. We have said since the founding of this that we thought the biggest swim lane in America where those people that were not on the lunatic left or the lunatic right, which is about 60% of America that we can agree on more than we disagree on. And our job is just building awareness. When we started the network with a pretty substantial prelaunch publicity campaign, we launched with a 10% or 11% awareness of News Nation that awareness is now up to a number in the mid-30s, but that still means that roughly 60% of the country, we still need to introduce ourselves to the viewer.
Distribution is not the issue. It is because we now are -- we are fully distributed and have a larger distribution base than MSNBC. Again, for a network that is less than 4 years old in its current form. So it's all about building awareness for our product and getting people to change their habits and come to us. And we see these green shoots, nights where we are competitive with and, in fact, beat our more established competitors. We just need more of those. And it's a process. I'm very pleased with the progress we've made. We're ahead of schedule on where I thought we would be and pivoting this network to news from general entertainment. Thank God that we did because that is what people are interested in watching and not so much to the general entertainment networks that, as you know, in basic cable are in free form.
So from our perspective, it was an opportunistic pivot made at absolutely the right time. And like I said, we're ahead of schedule in terms of all the growth metrics that I look at, but it is a -- this is a long-term build and long-term value creation play that we are financing organically with the program expense underwriting the journalism expense as we continue to complete this pivot.
All right. Great comments. I think I'll leave there.
And the next question comes from the line of Barton Crockett with Rosenblatt Securities.
I was curious about the competitive dynamics in the ad market. So you flagged some pressures, particularly in national and the bigger cities. We're all aware that there's a lot of new inventory that's coming in on some of the streaming services taking ads, Netflix and Amazon Prime taking ads and some of the [ PaaS ] services still growing. Is that a competitive? Is that a meaningful factor in the ad market? Do you think that's part of what's weighing on the market at this point? So if you could comment on that, I'd be interested.
And then the second question is just there's a lot of discussion about some of the big entertainment conglomerates perhaps restructuring. There was a flurry of activity before about Disney and ABC. Now there's a floor you have talk around Paramount maybe potentially FOX, potentially Comcast. In general, if there was a broadcast network for sale, what's your level of interest? What's the potential for you guys to be able to make something like that work if it were to become available?
I'll speak to the last question first and then let Mike speak more to advertising. But I would just say, we buy things and we build things. If you look at the company, the stations drive our network that we own today and distribution uses all of that to gain distribution as well as distribution revenue for the entire portfolio. It's kind of like one building block on another. In theory, we could own a big 4 broadcast network in addition to the and you would like to the CW. I think we would say never say never, but it would have to be like everything else we've ever bought an actionable transaction at a value that would make sense for us.
So I think I would just leave it go at that, but we would not have an allergic reaction to having that discussion. But again, it would have to be the same kind of opportunistic acquisition that we have made in the 27-year history of the company. And the new entrants into the ad market are -- have tiny audiences at this point. And so they're not really a factor. I would just say that we're in some phase of a recession here. And whether we have a soft landing, a hard landing, a hockey stick recovery or whatever, and advertising is generally a leading economic indicator, and that is weighing more heavily on the market than any of these new entrants from my perspective. Michael, do you want to add some color?
Yes. I would add on the advertising point that I think our portfolio both in terms of where we focus our advertising and the lion's share of our advertising is local, not national. And I think our sales force, which covers the country generally gives us a distinct competitive advantage versus the platforms that you mentioned. Also with respect to our growing portfolio of sports, both with respect to the local TV stations and our national networks, live programming gives us another advantage relative to where we think those other platforms will focus their advertising efforts.
There are no further questions at this time. I would like to turn the floor back over to Mr. Sook for any closing comments.
Thank you very much, operator. Just to close out, our business fundamentals, our financial track record and our free cash flow generation continue to remain strong. and we're confident that our capital allocation strategy will continue to drive industry-leading returns for our shareholders in 2024 and beyond. Thanks very much for joining us, everyone. We look forward to speaking with you again in 3 months' time when we report our first quarter 2024 results. Have a good day.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.