NXST - Nexstar Media Group, Inc.

Operator: Good day, and welcome to Nexstar Media Group's Second Quarter 2026 Conference Call. Today's call is being recorded. I will now turn the conference over to Joe Jaffoni, Investor Relations. Please ahead.
Joseph Jaffoni: Thank you, Sachi, and good morning, everyone. I'll read the safe harbor language, and then we'll get right into the call. All statements and comments made by management during this 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, 2025, 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. It's now my pleasure to turn the conference over to your host, Nexstar Founder, Chairman and Chief Executive Officer, Perry Sook. Perry, please go ahead.
Perry Sook: Thank you, Joseph, and good morning, everyone. We appreciate you all joining us today. You'll be hearing from Mike Biard, our Chief Operating Officer; and Lee Ann Gliha, our Chief Financial Officer, after my opening remarks this morning. Nexstar delivered record second quarter results, including an all-time high quarterly revenue number of $2 billion, adjusted EBITDA of $633 million and year-over-year free cash flow of more than doubling to $238 million for the quarter. Our outstanding performance was driven by the TEGNA acquisition, advertising revenue growth and disciplined operating execution that has long been a hallmark of this company. Advertising revenue benefited from strong midterm election political advertising, incremental FIFA World Cup sports advertising and continued growth in legacy local streaming advertising. On the cost side, we continue to drive efficiencies and improve profitability by centralizing station marketing, automating content production and realigning our sales incentives. I'll briefly review a few of the operating highlights, after which I'll provide a brief update on our litigation matters. Starting with NewsNation, the network continues to distinguish itself through its commitment to objective, fact-based reporting and balanced perspectives, maintaining its position as the fastest-growing cable news network in primetime and total day with total viewers in June 2026 growing 44% over the comparable prior-year period. The CW also achieved impressive results, ranking as the ninth most watched ad-supported television network in total day, with CW Sports achieving its strongest quarter ever. In addition, the CW accelerated its growth strategy by entering into new distribution partnerships with both ESPN and Roku, expanding our reach to new streaming services. In July, we launched ATSC 3.0 in Cleveland, Ohio, completing the deployment of the next-generation broadcast standard now across the top 20 industry DMAs. This most important milestone was made possible by Nexstar's acquisition of WBNX-TV, which removed the structural constraints that have previously hindered deployment in that market. In addition to delivering superior picture quality and immersive audio, ATSC 3.0 leverages broadcast spectrum more efficiently to support high-speed data transmission and enhanced services, providing meaningful benefits for both viewers and local communities. In terms of local programming and community engagement, during the quarter, our owned and operated stations earned 34 regional Edward R. Murrow Awards for outstanding journalism and exceptional locally produced news programming. These awards represent and reflect the hard work of our teams and the crucial impact of quality local journalism on the communities that we serve nationwide. We also celebrated Nexstar's 30th anniversary on June 17 by giving back to our local communities through our annual Founders Day of Caring, which provides employees with paid time off to volunteer locally. This year, we expanded our commitment through the Nexstar Media Charitable Foundation's 30 Days of Giving initiative, which awarded grants to 60 employee nominated nonprofit organizations across our local television markets. On the capital allocation side, Nexstar returned $57 million or $1.86 per share to shareholders in the form of dividends, representing an annualized yield of just under 4%. In addition, during the quarter, we made significant progress towards our debt reduction goals by repaying $409 million in debt, which equates to a little bit more than $13 per share of equity value. Looking ahead, we are well positioned for strong free cash flow generation in the second half of 2026, and we remain committed to defending our acquisition of TEGNA against baseless attacks. To that end, we continue to focus on defending our position in the ongoing litigation and continuing our full compliance with the preliminary injunction issued last April. Now I'll spend a few minutes bringing you up to speed on where we are today. In May, TEGNA appointed an experienced broadcast executive, Patrick Paolini to CEO, where he is responsible for leading the company and overseeing all aspects of its business, including operations, local journalism, revenue growth and strategic initiatives. Since the Patrick has promoted or hired several executives to serve in various leadership roles spanning legal, finance, human resources, technology and programming affirming TEGNA's independent operations under Nexstar ownership. Nexstar remains resolute that a complete factual record will demonstrate that the DIRECTV and States Attorney's General lawsuit is without merit, and the company is committed to resolving the matter as expeditiously as the legal process will allow. With that, I'll briefly review the key milestones in the litigation to date, along with related regulatory developments. On May 20, 2026, Nexstar filed its opening brief with the U.S. Court of Appeals for the Ninth Circuit seeking an expedited appellate review to narrow the scope of the preliminary injunction and to dismiss the state's plaintiffs with oral arguments now anticipated in the fourth quarter of 2026. On July 9, 2026, the U.S. Court of Appeals for the D.C. Circuit rejected all challenges to the Media Bureau's order approving Nexstar's acquisition of TEGNA, concluding that the appellate have not met their burden to show a referable harm. Today, the FCC is scheduled to vote on a proposal to eliminate the national broadcast station ownership cap and replace it with a case-by-case review process for M&A in the future. Finally, on July 6, 2027, the bench trial for the U.S. District Court for the Eastern District of California is scheduled to begin. The court has allocated approximately 15 days for trial to consider the merits of the antitrust claims with equal time provided for each side. We recognize that several claims have been made about the TEGNA acquisition by the state's Attorney General and others. However, the facts tell a very different story. That's why we posted a new presentation on our website nexstar.tv to clarify the details for our investors and the public at large. While we encourage you to review this presentation on your own, I'll spend a few minutes just touching on the main points. First, this transaction underwent extensive review by both the FCC and the Department of Justice before receiving regulatory approval with the FCC concluding that the acquisition serves the public interest. Second, Nexstar remains a relatively small participant in the broader media landscape. Some pundits have confused the reach of our television stations with our market share. The signals of Nexstar's television stations and those of our partner stations now reach 80% of the U.S. population compared with 70% before the TEGNA acquisition. However, our stations account for less than 5% of the total viewing and we increasingly compete against significantly larger technology, media and distribution companies. In terms of ownership, Nexstar owns less than 15% of full power U.S. television stations. Third, the free universal access afforded by local broadcast television is not just a convenience, it is an essential public service and central to Nexstar's mission. Our stations have always been available to consumers for free over the air, and they remain so today. Prices paid for paid TV subscriptions are determined by the satellite, cable and streaming television providers and not by Nexstar. Fourth, our commitment to independent fact-based journalism, local journalism in particular, has not changed, and our local newsrooms continue to retain editorial independence as always. Underscoring this fact is the analysis from independent watchdog group Ad Fontes, which confirms time and again that Nexstar provides unbiased and reliable news. Finally, this acquisition strengthens and not weaken its local journalism. Nexstar has a long track record of expanding local news following acquisitions, increasing local news hours by 18% since the Tribune acquisition, and we have plans to do so with the TEGNA stations as well. Most recently, we announced the launch of new daily primetime local newscast in Dallas and in Phoenix. Greater scale enables us to invest more in local journalism, create differentiated programming and better serve the communities in which we operate. In summary, as these various processes play out, we remain committed to maintaining the same level of professionalism, integrity and respect that has defined Nexstar and earned us the trust of our viewers, our partners and our stakeholders for more than 3 decades. Taking the high road does not mean remaining silent in the face of commercial and politically motivated attacks. We will continue to respond appropriately and decisively with transparency and the facts in a manner that is consistent with the values that we have upheld since our founding. We have a depth of executive leadership and legal expertise to help address these matters while continuing to operate the business at a high level as our results prove today. Our focus remains on executing our strategy, serving our communities and meeting or exceeding our financial targets. With all of that said, let me now turn the call over to Mike Biard. Michael?
Michael Biard: Thank you, Perry, and good morning, everyone. Nexstar's consolidated financial results for the 3-month period ending June 30, 2026, include TEGNA operations for the full quarter, while the comparable 2025 period reflects only Nexstar's legacy business units. We've posted supplemental financial information on our website detailing the combined results of Nexstar and TEGNA for the comparable 3-month period ending June 30, 2025, which I will address during my remarks. The company delivered record second quarter net revenue of $1.99 billion, an increase of $764 million or 62.2% compared to the prior year, primarily due to $697 million of revenue from TEGNA and higher advertising and distribution revenue from our legacy business units. On a combined basis, net revenue increased 4.7% year-over-year, driven primarily by political advertising and distribution revenue, offset in part by lower nonpolitical advertising. Second quarter distribution revenue of $1.1 billion increased $383 million or 52.3% compared to the prior-year quarter and primarily reflects $362 million of revenue from TEGNA and $23 million higher revenue from our legacy business or 3.1% due to increased rates, growth in MVPD subscribers and the addition of CW affiliations on certain of our stations, offset in part by MVPD subscriber attrition. On a combined basis, distribution revenue increased 1.3% year-over-year as growth in legacy Nexstar distribution revenue was offset in part by a decline in TEGNA distribution revenue as growth in rates did not offset subscriber declines. Subsequent to quarter end, we completed a multiyear agreement with CBS in July to extend its affiliations in 36 markets. We replaced or will replace a CBS affiliation with a CW affiliation in 4 markets: Jackson, Mississippi; Bismarck, North Dakota; Rapid City, South Dakota and Birmingham, Alabama. And we promoted Fox from a subchannel to replace CBS on our primary channel in Albuquerque, New Mexico. We also plan to expand local news programming in Greenville-Spartanburg, South Carolina. For the last few years, CBS has been using a tactic to take or move a few affiliations in smaller markets or markets where they have O&O stations to improve their negotiating leverage and affiliation negotiations. As Paramount, the parent company of CBS, works to finalize its $100 billion-plus acquisition of Warner Bros. Discovery, it looks to have increased scale and resources to further pressure broadcast affiliates to pay more for less content in the future. This is yet another example that reinforces the strategic importance of the TEGNA acquisition by strengthening Nexstar's ability to negotiate fair and balanced terms with much larger network counterparties. Also in July, network -- DIRECTV declined our FCC mandated offer to extend our expiring distribution agreement through November 30, 2026 on status quo terms. That development raises important points relevant to our consumer pricing claims at issue in the litigation. We don't control the retail pricing of any of our distributors' products. The distributors alone make that decision based on a variety of factors unique to them, including what they pay for a long tail of cable networks with little unique or exclusive programming. Nexstar, however, remains under compensated relative to many other programming providers, particularly given the significant viewership delivered by broadcast stations compared with so many cable networks. The presentation Perry mentioned in his remarks provides additional data on this dynamic. Inclusive of all these factors, we have no changes to the original distribution guidance we provided for legacy Nexstar, which we reiterated last quarter as well. Turning to advertising revenue. Advertising revenue of $862 million increased $387 million or 81.5% over the comparable prior year, primarily reflecting $331 million in TEGNA advertising and a $75 million increase in political advertising revenue at legacy Nexstar, offset in part by lower nonpolitical advertising due in part to crowd out from political advertising, competitive pressures and economic softness. On a combined basis, nonpolitical advertising was down 5.8% for the same reasons I just mentioned, offset in part by incremental revenue from the impact of the FIFA World Cup during the quarter and strong local digital revenues at legacy Nexstar. Top-performing categories included attorneys, gaming and sports betting and general services. Bottom-performing categories included medical health care, drug stores and medication and auto. None of these was a particular outlier. Now turning briefly to Nielsen. Last quarter, we received several questions about our local advertising trends compared to what was -- compared to what some of the national network businesses were reporting. Nielsen made a change in the first quarter to as a ratings methodology that reflected an increase in the number of cable television households and a decrease in the number of streaming households. This change provided a number of national cable networks with a significant boost in ratings and an ability to better access the scatter market. That development, however, did not materially impact our business has the change did not affect local measurement, which accounts for the lion's share of our advertising revenue. On a potentially positive note, Nielsen is scheduled to implement a new methodology for measuring local impressions on August 31, 2026, which would put local measurement more on the same footing as national network measurement and could significantly increase our local advertising impressions. Of course, the ultimate impact will depend on the final implementation, particularly as Nielsen is making additional methodology adjustments across the TV ecosystem. Returning to our results. For the third quarter, including TEGNA on an as combined basis; nonpolitical advertising is expected to decline mid-single digits but slightly improving from second quarter, impacted by political crowd-out, reflecting a competitive advertising environment, offset in part by continued growth in local digital advertising. We delivered strong second quarter political advertising revenue, driven by favorable primary and early gubernatorial spending. Political advertising was $147 million, up 8% versus 2022 and 99% versus 2024 on a combined basis, driven by healthy spending in the key states of California, Georgia, Colorado, Texas and Maine. Recently published fundraising reports continue to show exceptionally strong cash on hand totals for both candidates and major Senate super packs, providing the financial capacity to increase spending in top-tier battleground states. Ohio is expected to be the primary driver of Q3 upside, fueled by competitive Senate and gubernatorial races, which were both rated toss-ups as of mid-July. As you may have seen on June 30, 2026, the Supreme Court eliminated federal limits on coordinated spending between national party committees and their candidates. As we previously discussed, we do not expect this change to have a material impact on our outlook for the year, although it could provide a modest benefit if additional party spending flows to effective platforms like linear television at the lowest unit rate. Turning to the CW. We continue to execute our strategic plan and remain on track to achieve profitability in the fourth quarter, with full year losses expected to improve by more than 30%. The network continues delivering value for both Nexstar -- for Nexstar, both offensively and defensively. Defensively, as I mentioned, we were able to leverage the CW affiliations to replace CBS in several markets. Offensively, our growing CW Sports portfolio is driving stronger ratings, advertiser engagement, and marketplace interest as reflected by the recent distribution partnerships with ESPN and Roku, each of which expands our reach to new streaming audiences on leading platforms. In addition, the power of the CW broadcast model keeps delivering more viewers. The NASCAR O'Reilly Auto Parts Series on the CW has delivered strong results, with 18 of the first 19 races in 2026 exceeding 1 million total viewers, driving viewership up 14% year-over-year through the second quarter. During the quarter, we expanded our sports lineup through a multiyear agreement with WWE for 20 NXT Premium Live Events and are working on a number of additional deals we expect to announce in due course. These investments are strengthening the CW's position with viewers and advertisers, driving increased demand and improved pricing, and we expect to report a positive upfront once the market fully settles. And with that, it's my pleasure to turn the call over to Lee Ann for the remainder of the financial review. Lee Ann?
Lee Gliha: Thank you, Mike, and good morning, everyone. Mike gave you most of the details on the revenue side and the CW. So I'll provide a review of expenses, adjusted EBITDA, adjusted free cash flow, along with a review of our capital allocation activities. Combined second quarter direct operating and SG&A expenses, excluding depreciation and amortization and corporate expenses, increased by $500 million, driven primarily by the acquisition of TEGNA, $11 million of onetime expenses related to the TEGNA transaction and offset in part by a slight reduction in recurring legacy Nexstar operating expenses. Excluding onetime expenses, second quarter recurring cash operating expenses on a combined basis were lower by $10 million, driven by expense initiatives at legacy Nexstar that Perry mentioned and lower digital cost of goods sold and programming expenses at TEGNA. Q2 2026 total corporate expense was $131 million, including noncash compensation expense of $40 million compared to $64 million, including noncash compensation expense of $21 million in the second quarter of 2025. The $67 million increase is primarily due to the acquisition of TEGNA including a year-over-year increase of $50 million of onetime costs, of which $32 million of the increase was from cash, primarily related to change in control severance and accelerated stock vesting and legal and other professional fees associated with the TEGNA transaction as well as increased legal fees at Nexstar. Q2 2026 amortization of broadcast rights included in our definition of adjusted EBITDA was $87 million, an increase of $8 million from $79 million in the second quarter of 2025, primarily due to the TEGNA acquisition. On a combined basis, amortization of broadcast rights was down approximately $2 million year-over-year. Q2 2026 income from equity method investments was $3 million, which primarily reflects our 31% ownership in TV Food Network. This compares to $11 million last year, with the reduction primarily due to TV Food Network declining advertising revenue. Putting it all together on a consolidated basis, second quarter adjusted EBITDA was $633 million, representing a 31.8% margin, an increase of $244 million from the 2025 second quarter of $389 million. TEGNA operations accounted for $187 million of this gain with the remainder due primarily to the political cycle. On a combined basis, Q2 2025 adjusted EBITDA, including TEGNA, would have been $545 million. Moving to the components of free cash flow and adjusted free cash flow. Second quarter CapEx was $45 million, an increase of $16 million from $29 million in the second quarter last year, primarily due to the TEGNA acquisition. On a combined basis, second quarter CapEx was -- in 2025 was $36 million. Second quarter net interest expense was $190 million, an increase of $93 million from second quarter of 2025 due primarily to the increased interest expense associated with the debt incurred to facilitate the TEGNA acquisition. On a recurring cash basis, this compares to $185 million in Q2 2026 versus $94 million in Q2 2025. Second quarter operating cash taxes were $151 million. Payments for capitalized software obligations, net of proceeds from disposal of assets and insurance recoveries were $8 million. Cash programming amortization costs were higher than cash payments by $2 million as certain programming payments were deferred, and we received an $11 million distribution from Food Network. Putting this all together, consolidated second quarter 2026 adjusted free cash flow was $238 million, more than double last year's $101 million. Looking ahead, we are projecting CapEx in the $50 million range in Q3. Third quarter cash taxes are estimated to be in the $65 million range. From an interest expense -- excuse me, from an interest perspective, our run rate quarterly interest expense based on our current balances outstanding as of June 30 is about $185 million. That amount will fluctuate with SOFR rates, which are expected to increase and reduces we pay debt. Affecting our cash in the quarter will be our first interest payment on our new $3.39 billion senior secured notes. In Q3 2026, payments for programming are expected to be in excess of amortization by $9 million. Now turning to capital allocation on our balance sheet. Together with the cash from operations generated in the quarter and cash on hand, we returned $57 million to shareholders in the form of dividends. Consistent with past commentary, we made no repurchases, instead using excess cash to repay $409 million of debt. Nexstar's outstanding debt as of June 30, 2026 was $11.7 billion, an increase from $6.3 billion at year-end, reflecting the impact of the TEGNA acquisition. During the quarter, we also closed on the refinancing of our 2027 senior notes with new $1.725 billion of 7.25% senior notes due in 2034. Our cash balance at quarter end was $218 million. Because we designated the CW as unrestricted subsidiary, the losses associated with the CW are not accounted for in our calculation of leverage for purposes of our credit agreement. In addition, our credit agreement allows us to include the adjusted EBITDA of TEGNA as if we acquired the business on the first day of the period presented and to add back onetime expenses related to the deal and any operational restructuring and to include the impact of any synergies we expect to realize within 18 months of the close of the transaction, which would be September 2027. In early July, we learned that the trial on the merits of the plaintiff claims is set for July 6, 2027. Given the limited time between the resolution of the trial in the September 2027 date, we removed the synergies from the leverage calculation. If conditions change, we can revisit this assessment and calculation. As such, our first lien covenant ratio as of June 30, 2026 with the last 8 quarters annualized was 3.21x, well below our first lien and only covenant of 4.75x. Our total net leverage for Nexstar was 4.22 at quarter end. Our Q3 2026 cash flow will be deployed first to fulfill our mandatory obligations including debt repayments, pension and defined benefit plan contributions, our dividend and then to optionally repay any additional debt with excess cash flow. Despite the delay in our ability to execute on the synergies we expected from our acquisition of TEGNA, we continue to benefit from the combined strong political year cash flow of the company. From the date of acquisition at the end of the year, we currently anticipate repaying over $1 billion of total debt, creating over $33 per share of equity value. With that, I'll open up the call for questions. Operator, can you go to our first question?
Operator: [Operator Instructions] The first question is from Dan Kurnos from StoneX.
Daniel Kurnos: I guess, first for Perry, I guess, I'll call it housekeeping. I think I asked you this last quarter, but assuming the FCC repeals the cap today and then it subsequently probably upheld in the D.C. Court of Appeals, do you think that has any bearing on your trial process? And then operationally, I guess, could you guys give us updated views on overall political we see everybody raising numbers? I know you guys have given us what you think your take will be of the total. But would be helpful to get color there. And Mike, just maybe some more granularity on the Nielsen change that's planned in August, that would be super helpful.
Perry Sook: I would say, first, as it relates to the elimination of the cap, which I believe that both has occurred while we were speaking this morning; so I think it will remove a certain level of uncertainty in future M&A. I do think there'll be probably a judicial review of the FCC's decision, but we believe -- we Nexstar believe that they are on very firm legal footing to make this declaration. And we support and applaud the Chairman for his leadership in this issue to allow broadcasting to compete on the same playing field in the domestic U.S. with every other purveyor of advertising and a purveyor of video that we compete with that has access to 100% of U.S. households. As it relates to our legal process, I think on balance, there could be marginal benefit because it makes the unknown known from a regulatory perspective. but I don't know that it will have a ton of effect as we go through our process. It's more about antitrust than the national ownership cap. As it relates to political, we -- as I always say internally here, I'm betting the over. We've raised our internal political targets a couple of times in the last quarter here and continue to believe that political will be very robust through the balance of the year, and our current pacings would validate that. But I don't think we're prepared to give new guidance on that point. But suffice it to say, political is performing ahead of our internal expectations and likely ahead of yours. Mike, I'll turn it over to you.
Michael Biard: Sure. Yes. Very simply, Dan, historically, Nielsen has credited cable network viewing after 1 minute of viewing within a quarter hour while local television historically required 5 minutes of minimum viewing. So the change that they're planning is to equalize those, bringing the 1-minute threshold to apply to local as well, which we think should portend good things for us.
Operator: The next question is from Benjamin Soff from Deutsche Bank.
Benjamin Soff: Appreciate the color you gave us on the timeline for the case. I wanted to get your thoughts on the potential for smaller market-by-market M&A and whether it could make sense to pursue that in the meantime just because the window to do so may not be open forever.
Perry Sook: I might challenge your hypothesis that the window would be open for -- not be open forever. The FCC last year actually removed the prohibition against owning 2 top 4 stations in a marketplace. And you've seen a number of one-off or smaller transactions with other operators take place in our space during the pendency of our transaction. So I don't know that there'll be necessarily a change in that. I do think that we will turn our attention at some point to portfolio optimization once we are fully able to operate and integrate all of the stations that we have bought so far. I do think there is merit in that, and I think there'll be some. And we get approached on a regular basis for swaps and things of that sort. I think we want to clear the deck of the legal situation that we're in and have certainty on that. And then I think we will -- that will be kind of tap two of some of the things we'll do in addition to looking at other M&A in the broadcast space and elsewhere.
Benjamin Soff: Got it. And then even though you haven't been able to integrate as planned, I wanted to ask what your early impressions have been of the TEGNA operations. What's impressed you? And what, if anything, has been surprising?
Perry Sook: Well, our impressions of the TEGNA operations were formed during diligence because we haven't been able to have any direct conversations with any of the local operators. The CEO of TEGNA reports to a Board and reports on the overall financial health of the company, which is where we are able to be involved. But beyond that and wherever things have required Board-level approval, it's been sought and delivered without change, but we've not had any ability to have any additional interaction or impressions from the TEGNA stations. But you heard Lee Ann perform -- report and Mike report on their operations. They're performing pretty much at the level of Nexstar. The one area where they are slightly behind in terms of showing growth year-over-year is in distribution revenue. And that's because they're operating under their contracts and not ours.
Operator: The next question is from Patrick Sholl from Barrington Research.
Patrick Sholl: Maybe a question on advertising trends. I realize it's hard to break out from the -- a little bit hard to break out from the political displacement. But could you maybe discuss like any differing trends between like the local news side versus some of the sports investments that you've made?
Lee Gliha: Maybe I'll take that. I think what you're talking about is really kind of the difference between our local business and kind of our national network business. And what we've seen is a little bit of a difference there because as you rightly point out on the national -- on the television side, on our national networks, we've been doing very well, both as the CW and NewsNation in terms of our incremental ratings. We've really done very well in terms of growing ratings because of our sports investments and just because of the traction we're getting on the new NewsNation side. So that's been strong. I think on the local side on the TV side, we've been subject to the competitive environment that's out there with respect to the CTV inventory and other digital advertising that has somewhat impacted the TV side of things, but that had an offsetting impact when you kind of look at our local digital business. Our local digital business continues to really just grow very strongly at double-digit rates because we are able to, as I've mentioned on prior calls, really kind of bundled together our local television business with CTV inventory, audience extension plans and other types of digital advertising. I think our team has done a phenomenal job of really kind of leveraging the local sales force that we have and kind of grabbing that and growing it. So there is a little bit of a difference just in terms of the way the overall revenue lines up. But I think on the total basis, it ends up getting to where we have reported.
Patrick Sholl: Okay. And then maybe just sticking with the local side. if you're able to complete the acquisition, I guess, within your markets, how do you kind of view just the competitive environment for local news?
Perry Sook: Competitive in terms of pricing? Competitive in terms of product or talent? What area of competition are you in...
Patrick Sholl: I guess like on product and talent, I guess, is probably more I was thinking.
Perry Sook: Well, I think that if you look at our track record in markets where we operate and have put 2 newsrooms under the same physical address, what I think you've seen is despite what people like to claim, a differentiation of product where we now have the ability to deliver local news in time periods that aren't necessarily competitive, it may be complementary and maybe stylistically different from one another. And certainly, where we've inherited stations and acquired stations that have a strong local news brand. We've done nothing to tamper with that because that is the station's calling card. In San Diego, the station that we owned and the station we recently acquired from an independent operator there had a decidedly different editorial points of view, which we have allowed to continue under our ownership, even though the stations are in the same physical location and people get hung up on that, but it's really the product that goes out over the air and goes home. And we don't have a very good business if we're selling the same product -- trying to sell the same product to everybody across different streams and channels. So this is a local service business, and it works best when the individual streams are allowed to individually serve the communities and constituencies where they have been able to find the most traction.
Operator: The next question is from Craig Huber from Huber Research Partners.
Craig Huber: Great. On the CW side of things, you guys have obviously been pretty aggressive in recent quarters, movement affiliations over to the CW. Can you talk about the obvious benefits to Nexstar doing that, but also the not so obvious benefits you're willing to share with us? Let me start there, please.
Michael Biard: I'll take that one, Craig. I think let me start with the fundamental distinction between intellectual property that you own versus intellectual property that you rent, right? With respect to the CW, we have continue to sort of mine benefits from the fact that we own the programming from top to bottom. In a world where intellectual property is kind of the coin of the realm and allows you to take that content to every platform and every device, the flexibility to be able to control our own destiny in terms of the rights that we acquire, what we pay for those rights, what we pay to the network for those rights and then furthermore, the distribution flexibility where we can monetize that across every platform, whether it's mobile or streaming or what have you. You're aware of the complexities we have trying to do that with respect to the big 4 affiliated networks. None of that noise, none of those restrictions, none of the impairments that we encounter with big 4 that we have with CW. So at a fundamental level, it's just sort of ability to control our entire destiny and then be able to distribute it where we need to. As it relates to other benefits, we've talked in the past that as we talk about the CW, that really doesn't capture the entire benefits that flow to our broadcast business. as a result of an affiliation on a CW where we have found that the benefits there from a distribution perspective have been quite healthy, both from an offensive and defensive perspective.
Craig Huber: Great. And then the uses of your free cash flow here is sort of the game plan here, maybe for like the next 18 months to just continue to focus paying down the debt related to the TEGNA transaction and then maybe flip the switch over to be starting aggressive again buying back stock? Or is it sort of dependent on your stock price, frankly, as you think out over the next 18 months, if you start going back into the market to buy stock. I just want to get a sense of how long you think you might be in debt paydown mode for.
Lee Gliha: Yes. Thanks, Craig. Our -- you're absolutely right. Our first priority right now is to deleverage the company and to pay down debt. And when we did the acquisition, we mentioned that we thought we would be back to the pre the pre-transaction leverage levels kind of by 2028. We're going to continue to work to pay down debt as quickly as we can. In terms of repurchases, we'll just have to kind of look at what the stock price is at the time when our balance sheet is in the right position to execute on that and see how we're valued. Hopefully, we'll see some improvement in the stock price and some improvement in our multiple.
Craig Huber: And then my last question, if I could, just a housekeeping question, Lee Ann. Your corporate expense, nitpick question, was higher than I was expecting. I just -- if you take out the transaction one time items that you called out in your press release there, but what are you sort of expecting for that line over the rest of the year, please, corporate?
Lee Gliha: Yes, we don't provide line item guidance for the year, but you can -- I would look at what we did last year and add TEGNA in. We've got all of that number -- those numbers presented on the website. And I would just assume that we have a slightly higher number as a result of increased legal fees.
Operator: The next question is from Aaron Watts from Deutsche Bank.
Aaron Watts: Thanks for having me on. Just two questions. from me, and I apologize if I missed this, but how is core advertising trending in the third quarter relative to the down 5.8 you cited for 2Q? And I appreciate some crowd out of starting to create in, but just trying to get a sense of the cadence and core strength sequentially.
Lee Gliha: Yes. So we don't report core separately. We just report nonpolitical advertising. And our -- and what we have said in the third quarter is our nonpolitical advertising is going to be down mid-single digits, but slightly better than what we saw in this quarter, which was down 5.8 on a as combined basis.
Aaron Watts: Okay. Perfect. And then Perry, I appreciate your comments around the TEGNA process. And clearly, you see the merits of the case as being on your side. How do you balance that and your confidence in a positive outcome in the courts with the time and the costs, both real-time and opportunity costs to ultimately get to that? And do you see an out-of-court solution that could help reach a palatable conclusion to this sooner than it's currently laid out for the court process?
Perry Sook: It's hard to comment on that because, obviously, we don't want to open our playbook to the world here. I think that we are extremely confident that when one looks at the facts of the case and applies the law that we will prevail. We've already closed the transaction, but are not able to fully integrate the stations, as has been said multiple times on this call. But we do get the financial benefit of them and we can use that cash flow to pay down debt, which is obviously what we're doing. . I think that -- and anything could be possible to -- we'll see how the -- our appeal on the hold separate order plays out. We'll see how our discussions and negotiations go along the way. Is it possible there could be an out-of-court settlement? I suppose so. But we feel supremely confident in our legal position. So I've got to balance that outcome with anything else. Obviously, when we talk about potential portfolio optimization and swapping stations and doing things of that sort and additional M&A, we kind of want to clear the decks here before we do other things because we don't want those to be similarly delayed. This new second layer of approval is something that I think all industry is going to have to grapple with in addition to telecommunications. Certainly utility, medical, others are being scrutinized under this well. And I think that has a profound impact just for M&A and business. And I think it's something that we'll have to be reckoned with as time goes on. And if that becomes the new normal, then I think we all have to think about how that affects our business and our ability to grow our business and balance that against the risk of deploying additional capital. So -- but I think that's not a Nexstar issue. That's not necessarily an issue just for media. But I think that whether you're a power company, a medical company, food company, an airline company; you're hearing these kinds of issues being raised out of quarters that have not raised them before. I also -- you've got states that are now investing in or talking about investing in growing their antitrust legal team at the state level. And I guess my fundamental question would be certainly some states, is that the best use of the taxpayers' dollars and resources, given that you have a federal overlay that is charged specifically with looking at antitrust and public interest and those kinds of things? Seems the duplication of efforts to me. But again, all of this will play out, I think, over time. And I would say anything is possible, but we don't have a particular lean at this point. I mean, obviously, if it -- if we can settle the litigation prior to going to trial next year, that has a benefit to us. But we're not necessarily under the same pressures that other people are in terms of drop-dead dates or ticking fees or whatever because we've already closed on the acquisition.
Operator: There are no further questions at this time. I would like to turn the floor back over to Perry Sook for closing comments.
Perry Sook: Thank you, operator. I appreciate everyone joining us today. I want to reiterate my confidence in Nexstar's long-term outlook and the enduring strength of the local business model. While we will address the matters before us with professionalism, transparency and resolve; our focus remains on executing our strategy, serving our communities, investing in high-quality journalism and in creating long-term value for our shareholders. including what we expect will be another record year of financial performance here in 2026. Thank you all for your continued support and confidence in Nexstar. And we look forward to updating you on our progress during our next earnings call in November. Have a great day. You can now disconnect.
Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.