Nexstar Media Group, Inc. (NXST) Q1 2021 Earnings Call Transcript

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Nexstar Media Group, Inc. (NXST 0.61%)
Q1 2021 Earnings Call
May 4, 2021, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day and welcome to the Nexstar Media Group First Quarter 2021 Results Call. [Operator Instructions]

I would now like to turn the call over to Joe Jaffoni, Investor Relations. Sir, please go ahead.

Joseph Jaffoni -- Joseph Jaffoni

Thank you, Katie, and good morning everyone. I just need to 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 the call.

For additional details on these risks and uncertainties, please see Nexstar's annual report on Form 10-K for the year ended December 31, 2020, and Nexstar's subsequent public filings with the Securities and Exchange Commission. Nexstar undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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

Perry A. Sook -- Chairman and Chief Executive Officer

Thank you, Joseph, and good morning, everyone. Thank you very much for joining us to review Nexstar's record first quarter results with our net revenue, profitability and cash flows handsomely exceeding consensus expectations. The first quarter clearly highlights the resiliency and adaptability of our business and the proven ability of our long-term strategies to drive top-line growth through increased content monetization and diversification, while at the same time leveraging our scale, reducing debt and allocating our growing free cash flow to return of capital initiatives which are driving shareholder returns. We're extremely proud of the record first quarter results and the more than 12,000 members of the Nexstar Nation across the country who while serving their local communities that managed through, and in most instances overcome the challenges presented by the pandemic, putting Nexstar on a path for continued growth in the current quarter and beyond.

Before getting into the quarterly highlights, I'd like to quickly review our progress against our capital allocation priorities and long-standing commitment to enhancing shareholder value. In the first quarter, we allocated $80 million toward debt reduction and returned approximately $151 million to shareholders through dividends and share repurchases. That's reducing our share count to approximately 43 million shares. Nexstar returned approximately $383 million to shareholders in the form of share repurchases and dividends in 2020. So with $151 million in the bank in Q1, we are well on pace to exceed that level this year. Tom Carter, Nexstar's President and Chief Operating Officer and CFO is also with us on the call this morning, will review the quarter, our outlook, our plans for continued capital returns and our confidence in achieving our pro forma annual average free cash flow guidance for the '21, '22 cycle of $1.27 billion or about $30 per share.

Nexstar started 2021 exceptionally strong with record first quarter net revenue including double-digit growth in distribution and digital revenue alongside our team's success in driving a recovery in core advertising. Nexstar's first quarter net revenue grew 2% year-over-year to $1.1 billion as the ongoing execution of our strategy is to leverage our strong local content and diversify our revenue sources, nicely offset the approximate $50 million in year-over-year decline in political advertising. Top-line growth the $178 million cash distribution from our 31% ownership stake in the TV Food Network and our expense managed bill -- our expense management vigilance combined to drive record first quarter adjusted EBITDA and free cash flow, before one-time transaction expenses, to $572.6 million and $484.7 million, respectively.

Nexstar brought over 35% of our Q1 net revenue to the operating EBITDA line before the Food network distribution and one-time transaction expenses. You can expect Nexstar to further leverage its scale and operational excellence to generate significant free cash flow, reduced debt and drive further total shareholder returns throughout 2021 and beyond. First quarter 2021 total television advertising revenue, excluding political, decreased just 1.4% versus the prior year that outpaced our expectations and it reflects the growing demand for our premium local and national content and marketing solutions. Nexstar's new business strategies, ongoing sales training, performance-focused incentive structures all continue to prove highly effective as we capture broadcast and digital ad spend and healthy levels of profitable new business.

Our sales teams generated $27.8 million in first quarter new-to-television revenue, marking a 149% increase over the same quarter prior year. We are extremely proud of our sales team successes in delivering solid first quarter core advertising results when we consider that the first quarter of 2020 -- I'm sorry, the first quarter 2021 would be our most challenging core revenue comparison for the year, given our core strength last year prior to the onset over the pandemic. Looking ahead, we're encouraged by the overall acceleration in economic activity and the improved trajectory of ad spending across our footprint as market conditions continue to improve.

In the first quarter, total revenue for Nexstar's top 10 ad categories paced 9% ahead of the prior year, with gains in six of our top 10. In addition, five of our top 10 auto advertisers increased their spending year-over-year. The resumption in auto category spending has been complemented by the resurgence in insurance, lottery, sports betting, home service and repair, medical healthcare, packaged goods, grocery stores, and auto aftermarket spending. Nexstar's core ad strength is being achieved despite the auto inventory headwinds as a result of the chip and supply chain issues. We're also accomplishing this growth before all small and mid-size businesses have fully return to the ad market, a trend which we think bodes well for our business and one that could possibly accelerate as we move throughout the year. With Nexstar's core advertising accelerating year-over-year beginning in the second quarter, our local sales teams are working hard to drive further revenue share gains as we move deeper into the recovery.

First quarter 2021 distribution fee revenue rose 13% year-over-year to approximately $621 million, reflecting our 2020 renewal of distribution agreements across approximately 18% of our subscriber base. The synergies related to Mission Broadcasting's acquisition of WPIX-TV in New York as well as our annual contractual escalators. Subscriber trends across our platform are stable and consistent with our expectations and support the ongoing distribution fee growth and net retrans margin trends that we continue to project.

Nexstar has solid visibility into the distribution economics and ongoing growth of this revenue stream, as over 85% of our Big Four affiliations are contracted through December 31 of 2022. Our retrans growth coupled with the Q1 cash distribution from our ownership stake in the Food Network has significantly offset the historic seasonality that media companies typically face in Q1. One other note here on the significance of our ongoing revenue diversification initiatives, in the first quarter, total television advertising revenue accounted for about 37% of net revenue, while distribution fee revenue was 56%, the balance then came from digital and other sources. Looking forward, we expect continued growth from all of our non-political revenue sources for the balance of 2021 with similarly high levels of overall revenue diversification.

Moving on to digital first quarter 2021 revenue increased 18% over the prior year to approximately $66.4 million with substantial profitability improvement, partially reflecting our actions over the last year to discontinue or de-emphasize certain less profitable digital operations Part 2 as well as the strategic operational realignment we put in place last fall. Top-line growth was driven by the success of Nexstar's integrated content and audience development strategies, as well as a full-quarter contribution from our December 2020 accretive acquisition of Best Reviews. Our integration of Best Reviews is progressing ahead of our plan and results are similarly favorable. Nexstar's digital network continues to generate strong consumer engagement with our content, as well as significant digital usage across our 400-plus digital touchpoints. Last year Nexstar's digital properties delivered record growth in audience engagement, ranking number one in local news for every month of the year, and reaching all time highs across key performance indicators, including average monthly users of about 91 million, total page views of 7.8 billion, total multi-platform minutes of 10.4 billion and total digital video views of 1.6 billion, all according to Comscore. With the momentum of our content and audience development strategy, we expect growth in digital revenue going forward and combined with the expected mid-seven figure expense savings this year, resulting from our strategic operational realignment of our broadcasting and digital operations conducted last year, we expect increased cash flow contributions from digital throughout 2021. This June, Nexstar will celebrate the 25th anniversary of our company's founding. During this period, the company has grown from a single station to become the nation's largest television broadcast operator, as well as the top producer of local news in the country. This growth has come, thanks to our disciplined approach to growth through accretive acquisitions, a focus on enhancing operating results of our acquired stations and organizationwide commitment to localism. And at the same time, the material diversification of our revenue mix has resulted in strong and consistent free cash flow generation, affording us the financial flexibility to reduce leverage, increase shareholder returns and to pursue additional accretive growth opportunities, while also investing in our business and our people. As always, we remain focused on activity managing -- on actively managing our capital structure and we expect Nexstar's net leverage, absent additional strategic activity, to continue to be in the sub four times range throughout 2021. With that, let me turn the call over to Tom Carter, for the financial review and financial update. Tom?

Tom Carter -- President, Chief Operating Officer & Chief Financial Officer

Thanks, Perry, and good morning, everybody. I'll now review Nexstar's Q1 income statement and balance sheet data, after which I'll provide an update on our capital structure and some points of guidance. Q1 of '21 was a very good quarter for Nexstar. Net revenue increased 2% over the same period of the prior year and approximately the same amount on a combined pro forma same-station basis. Net revenue ex-political was up 7% to $1.1 billion, and up 6% on a pro forma same-station basis. Core advertising revenue, local and national, was down 1.4% to $411 million, but on the television station side was up 2% on a same-station basis.

Political revenues as expected were down approximately $50 million, due to the lack of political advertising in '21 compared to the first quarter of '20. Distribution fee revenues were up 13% to 60 -- $621 million, and up 13% on our same-station basis as well. Digital revenues were $66.4 million, which was up 18%, and that was up approximately 3% on a comparable basis with the difference is really coming from the acquisition of Best Reviews. Also, I might add that the digital business profitability continues to improve considerably during the year and we see that as a growth vehicle going forward from a profitability perspective.

Adjusted EBITDA was $571 million, which was up 2.4% over the same period the prior year, and importantly, free cash flow was $484 million, which was up 14% over the same period the prior year. Reported first quarter direct operating expenses, net of trade expense, and SG&A expenses were affected by previous quarter's acquisitions and the realignment of Nexstar's digital business. As a result, some expenses shifted from direct operating expenses into SG&A, making comparisons less meaningful on a direct basis. Overall, these combined to expense categories increased $41 million, a 6.8% increase, which was attributable to the station and digital acquisitions during the period.

First quarter pro forma fixed expenses, excluding programming expenses, were down 3.8% over the same period in 2020. Total corporate expense, including non-cash compensation expense, was in line with the company's guidance for the first quarter. Corporate expense declined 18.7% to $43.5 million, inclusive of $11.6 million of stock-based compensation expense in the quarter, total corporate expense including non-cash compensation was in line as I mentioned before with overall guidance, and during the quarter, we were at $1.2 million in one-time transaction costs.

First quarter operating cash taxes were only $5.5 million as the first quarter estimated payment is typically made early in Q2. Ongoing capex totaled $27.5 million was in line with our first quarter guidance. Spectrum repack capex totaled approximately $4.4 million and we received approximately $5.4 million in reimbursements from the FCC during the quarter. As a reminder, we're anticipating being fully reimbursed for all capex related to spectrum repack as those activities wind down later this year.

First quarter total interest expense amounted to approximately $72 million, down from over $100 million in 2020. Cash interest expense was $68.4 million compared to almost $97 million last year with the decrease due to lower interest rates and lower first lien borrowing levels. First quarter adjusted EBITDA of $573 million and free cash flow of $485 million, all before transaction expenses, meaningfully exceeded consensus expectations and reflect the ongoing recovery in core advertising, strong double-digit distribution and digital revenue growth, and $178 million in distribution from equity investments, primarily related to our 31% ownership in the TV Food Network.

Looking ahead, we project returning -- recurring cash corporate overhead, exclusive of stock comp and transaction costs, to be approximately $30 million for the second quarter and $115 million to $120 million for the year. Non-cash comp is expected to be approximately $12 million for the quarter and $50 million for the full year, where transaction expenses approximately $1 million to $2 million for the second quarter. Operating cash taxes are expected to increase to $110 million in the second quarter, as we make the estimated payment for Q1, and still expect it to be approximately $280 million for the full year. Capex should come in at approximately $35 million in the second quarter and $135 million for the full year, so no change there.

We expect Nexstar's cash interest expense to approximately $69 million for the second quarter and $285 million for the full year, reflecting interest expense savings related to lower outstanding borrowings, the decline of LIBOR, and our recent refinancing activity. For the second quarter of 2021, we anticipate recording approximately $22 million in TV Food Network distributions and continue to think [Phonetic] that for the entire year will amount to approximately $220 million to $225 million.

Turning to the balance sheet, reflecting our most recent capital markets transactions and $75 million of voluntary payments in Q1 and $5 million of scheduled payments, Nexstar's outstanding debt at 12/31/21 was approximately $7.6 billion. On a total net debt amounted to approximately $7.25 billion at March 31, '21, compared to $7.5 billion at year-end '20. Net debt for first lien covenant purposes is $4.6 billion, with that amount limited netting of cash to $200 million.

Our net first lien covenant ratio at 3/31/21 was approximately 2.14, compared to 2.28 at year-end, and well below the first lien covenant of 4 in a quarter. Our total leverage at quarter end was 3.4 times, compared to 3.6 times at year end 2020. As a reminder, Nexstar's only financial covenant as our first lien debt leverage, which is the aforementioned 4.25 times. As always, we remain focused on actively managing our capital structure and expect Nexstar's net leverage absent additional strategic activity to be as Perry mentioned below 4 times at year-end '21.

In January, the Board of Directors increased Nexstar's quarterly dividend by 25% to $0.70 per share, per quarter, and authorized the repurchase of up to $1 billion of our Class A common stock. The Board's repurchase authorization reflects the attractiveness of Nexstar's free cash flow yield and a potential acceleration of share repurchases as our leverage moderates and large-scale acquisitions become more scarce, given the current regulatory environment.

The 20-plus percent increase in Nexstar's dividend for the eighth consecutive year and the implementation of a significant share repurchase will allow us to continue delivering industry-leading risk-adjusted returns to our shareholders. At the same time, the current dividend payout remains a modest low double-digit percentage of our free cash flow. Consistent with our capital allocation priorities and commitment to enhancing shareholder returns, during the first quarter, we returned $151 million to shareholders through the purchase of approximately 800,000 shares of stock at an average price slightly below $150 per share for a total cost of $121 million, and through our upsized quarterly cash dividend payment increased to $30 million. In addition, Nexstar continue to delever on our leverage plan reduction-I'm sorry, deliver on our leverage plan reduction, reducing our first lien debt balance by approximately $80 million. Altogether, during the first quarter, we allocated approximately $231 million in cash from operations toward dividend payments, share repurchases and leverage reduction. In preparation for Nexstar's 2021 proxy and Annual Meeting, we conducted extensive outreach to our shareholders during the first quarter to update them on the company's recent ESG initiatives and [Phonetic] feedback on these matters. We also expanded the disclosures in our 2020 10-K on our ESG initiatives and launched a corporate and responsibility section on our website, which we will be adding to in the near future. The input and recommendations from our shareholders who are elected to engage with the company were presented to the Board of Directors for consideration and a summary of those efforts will be disclosed in our 2020 proxy. Throughout the company's history, the alignment of our commitment to our local communities and our commitment to our shareholders continues to be a key driver of our long-term success. As a result, we remain focused on involving -- evolving our ESG policies and disclosures in a thoughtful manner that supports our employees, communities, as well as our goals for growth and enhancement of shareholder value. You can find the copy of a proxy on the SEC website. It was filed middle of last week and we expect the proxy to be mailed sometime later this week. In March, we had a ratings review with S&P, which resulted in a one notch upgrade on our corporate issuer rating to BB, a two-notch upgrade to BBB- on Nexstar's secured debt rating, and a one-notch upgrade on our unsecured bond rating to B+. S&P's commentaries centered around the rapid deleveraging exist -- exhibited post Tribune acquisition and the improved economic recovery. We have similarly requested a ratings review from Moody's and we are awaiting a response on their review. Looking ahead with operating momentum continuing in the second quarter across our businesses, we expect to generate year-over-year growth across all of non-political revenue sources throughout 2021. Nexstar has already made significant progress on our leverage reduction goals and we enjoy our strong cash-generating position which provides us financial flexibility to deliver growing capital returns for shareholders while reducing debt and investing in our business. In summary, our scale, leadership, flexibility, synergy realization and operating plans are generating results while our capital structure is in great shape from a cost of capital and maturity perspective. Finally, our service to our communities and our local and national advertisers has never been stronger. The solid foundation of our assets and operations, combined with the resiliency of our business model give consistency and visibility to our results. As such, we remain confident in our ability to enhance shareholder value, deliver pro forma average -- and deliver pro forma average annual free cash flow of approximately $1.27 billion over the '21, '22 cycle. That concludes the financial review for the call, and now I'll turn it back over to Perry for some closing remarks before Q&A.

Perry A. Sook -- Chairman and Chief Executive Officer

Thank you, Tom. We continue to execute extremely well on our strategic priorities, including serving our local communities and driving increased content monetization, while reducing debt and allocating free cash flow to growing capital returns for shareholders. Looking ahead, we have excellent visibility to delivering on or exceeding our free cash flow targets in this current cycle and a clear path for the continued near and long-term enhancement of shareholder value as we follow the successful strategies that we've established in terms of building the top-line, maintaining close control of fixed and variable costs and optimizing the balance sheet. Our disciplines in these areas have added consistency and visibility to our results or creating and enhancing value for shareholders.

Our guidance for pro forma annual average free cash flow for the '21, '22 cycle is again $1.27 billion, and that underscores the strength and resiliency of our operations and ability to continue delivering free cash flow per share that is among the highest in the market. Our strong free cash flow generation is allowing Nexstar to meaningfully increase its return of capital initiatives as reflected by our recent authorization to repurchase up to an additional 1 billion of shares and our eight-year track record of dividend increases of 20% per year or more. We look forward to reporting on our continued growth and accomplishments throughout the year, and on behalf of the entire Nexstar Nation, our Board and our management team thank you for your continued interest, support and thank you for joining us this morning.

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

Questions and Answers:

Operator

Thank you, sir. [Operator Instructions] Thank you. Our first question comes from John Janedis with Wolfe Research.

John Janedis -- Wolfe Research -- Analyst

Thanks. Good morning, guys. You've got a good footprint. So can you talk more about the contributions from the gambling category, cannot be top five longer term? And then it from a market perspective if the larger markets lagged the rest of the portfolio due to COVID and if so, how do you see those rebounding as we move into the back half of the year?

Perry A. Sook -- Chairman and Chief Executive Officer

Thanks, John. What you are gaming is in conjunction with lottery and all other gambling spend is already a top-five category. In fact, it was the number three category behind auto and attorneys in the first quarter and we have every reason to believe that it will be a nine-digit revenue contributor in 2021. As it relates to markets, there is really no hard and fast rule. I would say that New York and its reopening and recovery is lagging behind, some of our other markets New York City, particularly, Chicago is maybe a little further ahead, but still not as open or robust as some of our other markets. While Los Angeles, even though, in a virtual lockdown until just very recently, our station there is just absolutely killing it.

So I don't know that you can apply any one size fits all to geography or market size, but generally, the larger markets have lagged behind the middle and the rest of the country in terms of reopening. But we did see fairly broad-based support, we are -- of our 116 markets, a 104 exceeded their first quarter revenue and EBITDA budget, which means only 12 of 116 did not achieve that Benchmark. So it's pretty robust and we're very heartened with the reopening and the city employees and all that's going on in New York City because we think that will flow through directly to our revenues at WPIX as the year moves on.

John Janedis -- Wolfe Research -- Analyst

Got it. And Perry, let me ask you, there's been a couple of cases where some of the digital players is a paid newspaper publishers for news content, do you see there is an opportunity at some point for the broadcast space?

Perry A. Sook -- Chairman and Chief Executive Officer

I think we produce a lot of content on our own and we're -- in those partnership discussions, there's never been in my view and equitable split of the economics. So at this point, I think, since we are the largest producer of local content across the country, over 300,000 hours a year of local news, I think we have enough content to fund our own platform.

John Janedis -- Wolfe Research -- Analyst

Okay, thanks. Maybe one quick one for Tom. Tom, can you give us an update on the buyback for the year and if is ultimately not much on the M&A front, does it grow out of the deal?

Tom Carter -- President, Chief Operating Officer & Chief Financial Officer

Sure. Well, obviously, we bought back $121 million in the first quarter and that was basically in one month because we were in a blackout period in the first part of the year. I would say that, that for a month -- for a quarter that's probably a good representation for quarter by quarter. I wouldn't say we're going to buy back $121 million every month, but I would say if you extrapolate the $120 million for an entire year that would be approximately $500 million, I would say that's probably a good number, maybe slightly more than that later in the year, but that also has some variance based on if there is some potential M&A, although, M&A I don't expect to be meaningful could be a low nine-figure amount in total for the year, but that would potentially eat into the share repurchase program a little bit. But I would say, we are on trajectory to be at or slightly in excess of $500 million for the year.

John Janedis -- Wolfe Research -- Analyst

Thanks so much, guys.

Operator

Thank you. Our next question comes from Dan Kurnos with Benchmark Company.

Daniel Kurnos -- The Benchmark Company -- Analyst

Great, thanks. Good morning. Another nice print. Perry may be just first for you. You already tried to talk about this, you guys have a really great visibility to that, obviously, they're going to be pretty prominent public commentary just around retrans Part 4 and obviously there is some tougher comps from the MVPD in the back half of the year. So just kind of maybe, if you want to give your own perspective on the retrans cycle and how much there --- how much life there is still left on that? And then Tom, that fixed costs again down 4% year-over-year. You've done a great job, kind of keeping that down. I think it's hard for some of us to get sort of a handle on how much of the COVID savings are continuing, just maybe sort of how we should think about the expense growth over the balance of the year would be super helpful? Thanks, guys.

Perry A. Sook -- Chairman and Chief Executive Officer

I think on retrans and we may have said this on the last call, I think in my own mind I revised the thinking of where the goal line is. I think we've actually moved the goalpost further down the field and that the upside is perhaps more than I thought it might be on a Big Four basis or on a total revenue basis for our company. So we're -- despite protest stations to the contrary, retrans is not over, and in fact, we're very pleased with the -- we do a trailing 12-month sub-trends here, and if I go back to the first quarter of last year, our actual attrition was somewhere in the mid-to-high 6% range on an annualized basis and in the first quarter of this year it's in the low 5% range on an annualized basis.

So we think as we have said, sub declines would ultimately level off and we're obviously able to -- with our portfolio, achieve our unit rate increases and continue to drive double-digit growth in both top and bottom-line contribution. So from that standpoint that there has been no change in our perspective, other than I think we maybe have more runway than I originally thought three or five years ago.

Daniel Kurnos -- The Benchmark Company -- Analyst

And, Tom, on the cost side?

Tom Carter -- President, Chief Operating Officer & Chief Financial Officer

On the cost side -- I apologize. Yes. No, I think, look, costs are going to be more difficult. It's more -- we're running up against some comps, especially in Q2 and Q3, which were the majority of our cost takeouts last year. So cost takeouts on a comparable basis for Q2 and Q3 of this year will be more difficult. I still think that we will clearly be down on a fixed basis. Our variable cost will be up slightly because we expect meaningful growth over advertising revenues in Q2 and Q3 of last year but our fixed cost will continue to decline during the year.

Daniel Kurnos -- The Benchmark Company -- Analyst

Perfect. Thanks so much, guys. Appreciate it.

Operator

Thank you. Our next question comes from Jim Goss with Barrington Research.

James C. Goss -- Barrington Research Associates, Inc. -- Analyst

Thanks. A first question relates to a comment you made in the text, that you had noticed a difference in the pace of recovery in part of advertising by geography. I wonder if you might expand on that and talk about any implications we should read into that?

Perry A. Sook -- Chairman and Chief Executive Officer

Yeah, as I said earlier, that's primarily pointed at New York, which New York City, which has kind of lagged behind most of the markets in our universe. Unlike upstate New York, that is very robust in terms of comps to the prior year, but it's primarily New York City that has lagged behind, and with the announced reopening, we think that business activity will begin to accelerate. Beyond that, as I said, it's pretty widespread recovery, perhaps a little less in New York, Chicago, LA, but again as I said earlier, our LA station, in that marketplace is killing at both digitally and in linear television and we think the Secret Sauce is there as they produce about 90 hours a week of local content, which is way more than anybody else in the market and people are very interested in what's going on these days. So that's about the extent of the differences in the commentary.

James C. Goss -- Barrington Research Associates, Inc. -- Analyst

Okay, that's great. KTAL has always been a great station. Are you -- in terms of TV Food Network, are you still totally passive investor or their programming opportunities and your platform in using some of the content they produce maybe as a special show or something of that nature?

Perry A. Sook -- Chairman and Chief Executive Officer

That -- Jim, I sit on the Board, that is a possibility. I would say right now Food Network is focused on maximizing their content with the new Discovery Plus, which we will participate in from the Food Network's perspective. We get a cut of any advertising revenue on the Food Network channel, as well as the cooking channel, and we get a cut of a proportion of the subscriber fees on Discovery Plus. Keep in mind that there are really our two drivers on Discovery Plus, it's HGTV and the Food Network, and we obviously own 31% of one of those two. So it will be additive to our financial results this year. It's just that obviously they're in a rollout position. There is a large percentage of a subscriber base that's through Verizon and that's currently a no charge subscriber acquisition or no charge subscriber fee there for a period of time. So it will take some time to flesh out exactly what it looks like but it will be additive from our perspective this year.

James C. Goss -- Barrington Research Associates, Inc. -- Analyst

Okay, that's great. Great insight. And lastly, I might ask if you have any expectations as to the FCC with the new group from Washington in terms of ownership caps or to stations in a large market or anything else that you think might be important to you?

Perry A. Sook -- Chairman and Chief Executive Officer

Well, certainly, we don't expect much activity in the short term. The Supreme Court basically overruled the Third Circuit Court and now the decision to be remanded to them to then remand to the FCC to reinstate the old rules. That's all process and that's going to take a little while. Obviously, as you know it does nothing to affect the national cap or our ability to add markets on a linear basis, but it does allow some opportunities for us to buy in second stations in the market where we couldn't with the eight-voice test currently in place. That will be a marginal benefit to us and then all top four combinations are still subject to approval on a case-by-case basis.

So, we don't really know what that bright line looks like, or if there is a bright line, so I would say it will take a little while to sort all of that out, but obviously, we have a playbook and now what we think opportunities are in every one of the markets that we only operate a single station in, and -- but I don't expect that will play out in a meaningful way, and so perhaps later this year and perhaps or later on in 2022 in the cycle. So I wouldn't anticipate anything happening in a material nature in the very short term.

James C. Goss -- Barrington Research Associates, Inc. -- Analyst

Okay. Thanks very much. Appreciate it.

Operator

Thank you. Our next question comes from Steven Cahall with Wells Fargo.

Steven Cahall -- Wells Fargo & Company -- Analyst

Thanks. So maybe just a big picture question, Perry and Tom. I think there is now about 40 million homes that don't take any form of the bundle and maybe never will and that pool might be growing. You've got a lot of cash that you're generating. You started to make some digital investments, talked about digital growing, and profitability this year. How do you just think about targeting those 47 million households that aren't going to be participating in the traditional bundle and how you get your content in front of them, and using your balance sheet to maybe grow those assets over time? Then I have a quick follow-up.

Perry A. Sook -- Chairman and Chief Executive Officer

Sure. Well, that's always been -- as -- if you follow this since we went public in 2003, we've always said that approximately 15% of our television households do not consume us via the aid of a pay service. So, that number has grown slightly but not a lot. So maybe we're down to the low 80s in terms of the pay-TV universe which is traditional and virtual MVPDs. That's not a material change, and that certainly as I said earlier, the attrition has been far less than anything we have ever modeled and so we feel confident in our ability to continue to grow.

We do reach them every day over the year and that's -- that was OTT before it was coop. So, they also receive and consume our digital -- our diginets. Antenna TV has shown tremendous, dramatic growth over the last year, and because when you rescan your TV, you now have a new channel that you can watch if you're only consuming over the air. So we plan to launch a second digital network which you've seen the press on called Rewind TV, which will be focused more on 70s, 80s, and as opposed to 60s and 70s, which is Antenna TV nostalgia. So there is an opportunity for us to mine that in the near-term and then obviously our spectrum opportunities which are further down the road will target all households, and obviously, the ones that are most capable to receive a 3.0 signal without any intermediary or the over-the-air homes.

And we think that's important over time, because if you think about sports betting and all the things the prop bets that could happen. There is a latency factor of up to 30 seconds in the streaming products that are out there. So if you want to make a prop bet on whether the prop is going to drop, chances are there, the prop in the play is already over before you can get a bet down in a streaming service which we think will make either the traditional cable broadband delivery or over the air more attractive for those that are attracted to sports betting. So we continue to serve that audience daily and again they have fewer channels. Therefore our advertising is more valuable in those homes because there's less competition, but again we see incremental change and not revolutionary change.

Steven Cahall -- Wells Fargo & Company -- Analyst

Thanks. And then maybe just on the balance sheet, the comment of staying below four times maybe implies that there'll be some upward pressure on leverages that you move through the year. Just wondering if that reflects anything contemplated in terms of uses of cash or at that's just a reflection of some more COVID impacted quarters hitting the trailing eight quarter EBITDA calculation?

Tom Carter -- President, Chief Operating Officer & Chief Financial Officer

I would say it's even more linear than that, it's losing $400 million in political revenue in Q3 and Q4 of this year that pushes leverage up, which is a natural occurrence obviously in an odd-numbered year. I don't think it's anything with regard to capital allocation. It's just -- we did a yeoman's job of backfilling $50 million of lost political revenue in Q1. Those numbers get rather large in Q3 and Q4 and we don't anticipate being able to make up for that lost revenue until 2022.

Steven Cahall -- Wells Fargo & Company -- Analyst

Great, thank you for that.

Operator

Thank you. Our next question comes from Craig Huber with Huber Research Partners.

Craig Huber -- Huber Research Partners -- Analyst

Yes, hi. Thank you. I guess my first question is, can you just talk a little bit about the TV advertising pacing, your core pacing for the second quarter. I mean last year, as you know, I think it was down about 30% given the pen-sorry, 35% a year ago given the pandemic, I mean how much that do you think that you could be will make up this year? How close you think we will get back to comparable apples to apples 2019 levels ad revenue in the upcoming this current quarter?

Perry A. Sook -- Chairman and Chief Executive Officer

Well, I can give you April results here and if you look at all ad-supported revenue for the month of April, it was up 62% over the prior year. Broadcast portion of that, including political, was up 73% over the prior year. So if I extrapolate that to 2019, we makeup -- we get into the low-single digits down versus 2019 on a second quarter based on our internal projections versus second quarter of '19. But obviously, we will make up a lot of what we lost, if not all or more in Q2 from an ad support basis.

Craig Huber -- Huber Research Partners -- Analyst

And my next question, please. I believe in the past, you've said you expect net retrans for the year to be up low double digits. Is that still the case and just on a preliminary basis, do you think it will still be up next year?

Perry A. Sook -- Chairman and Chief Executive Officer

Yes and yes.

Craig Huber -- Huber Research Partners -- Analyst

Very helpful. I like that. Okay and then next, you touched on this a little bit to your SG&A line up 10% year-over-year but then you talked us some reallocation of costs in that line. I don't want to get into an accounting discussion here and waste your time on that, but what should we expect for SG&A line going forward as it was in fact last two quarters it's been roughly around $200 million each quarter SG&A, is that reasonable to expect going forward, how should we think about that?

Tom Carter -- President, Chief Operating Officer & Chief Financial Officer

I've really not in a position to talk about specific expense numbers for Q2 or beyond. I will say that I think the reallocation has happened in Q1 so that type of effect going forward. If you look at it versus the prior year's quarter, there will be changes, but if you think about the new allocation of total operating expenses, ex-corporate between sales and SG&A and direct, I think that will be -- Q1 will be representative of those proportions going forward.

Craig Huber -- Huber Research Partners -- Analyst

What was the biggest change you had to make in your reallocation...

Tom Carter -- President, Chief Operating Officer & Chief Financial Officer

Well, it's not really a change, it's just an allocation of cost of goods sold for digital products. When we were selling third-party websites, is it a direct operating expense or is it the sales expense.

Craig Huber -- Huber Research Partners -- Analyst

And then my other question if I could ask just goes through the percent of your retrans subs, again that renewed last year, what percent are up for renewal this year, I believe they're all at year-end and what percentage for next year, please?

Tom Carter -- President, Chief Operating Officer & Chief Financial Officer

It's -- it was 18% last year. It is a high single-digit this year and it's -- the number of moves around a little bit the last I saw between 60% and 70% next year.

Craig Huber -- Huber Research Partners -- Analyst

Okay, great. That is all I had. Thank you.

Operator

Thank you. Our next question comes from Aaron Watts with Deutsche Bank.

Aaron Watts -- Deutsche Bank -- Analyst

Hi, guys. Thanks for getting me on. I appreciate the time. One follow-up on the core ads, specifically auto, it sounds like the category is performing better now. Just to be clear, am I correct to say that auto is still down year-over-year in the first quarter and then looking forward can auto return to year-over-year growth in the next couple of quarters given the supply chain headwinds that you mentioned earlier, Perry?

Perry A. Sook -- Chairman and Chief Executive Officer

Auto was down in the first quarter a low single-digit versus the prior year. The -- it depends on the chip shortage. I think at some point there will be a tremendous pull-forward of demand when people are looking for cars they can't find cars, whether that bubble exists in the third quarter or fourth quarter I don't know, but I would anticipate it's there. I don't think it will be in the second quarter. Although, our auto is performing relatively on par with the first quarter performance from a comp to the prior year.

Aaron Watts -- Deutsche Bank -- Analyst

Okay, got it. And then second, we had seen some headlines a while back, now around some networks intent to prioritize growth of their nations streaming platforms perhaps over that of the linear broadcast, have you had any further discussions with your partners around that? Just curious, your latest thoughts there.

Perry A. Sook -- Chairman and Chief Executive Officer

We have discussions all the time. Again, they have their corporate priorities and we have ours and so I don't think anybody is going to change anybody's mind. I think we'll see down the road how streaming plays out and what the churn rates are on these products. I think there'll be probably two or three winners and everyone else will be in a less good place and so we'll see where we are over the long term. We're not too excited about -- we don't get too excited about these things because having been in the business 42 years it seems the more things change, the more they ultimately kind of gravitate back to our traditional model. And so I think that would tend to favor what we do over the long term but obviously, we all have to work our way through these shiny new things.

Aaron Watts -- Deutsche Bank -- Analyst

Okay, got it. That's helpful. One last one for me. We had a notable announcement yesterday in the space from Gray in Meredith, the latest several consolidation transactions over the past couple of years and certainly Nexstar has taken part. Does all the -- all this consolidation change the competitive dynamic at all on a market-to-market basis for you. And then I guess more holistically do you view a more scaled local TV space overall as a positive relative to the evolving video landscape and some of the pressures facing the traditional distribution channel?

Perry A. Sook -- Chairman and Chief Executive Officer

Well, I think that we are a big believer in scale, not only nationally, but for example, we in every market in the State of New York now. What unique content and advertising opportunities that we create that no one can compete with. You can say the same thing about the state of Tennessee, and Illinois, and Missouri and California. And so we see real value in that and we think we're just beginning to unlock some of that value now that we have all of our stations and digital properties under one roof. So I think it's good for the business. I think healthy companies are good for the business and there is no question in negotiating video distribution. It is a business of scale, scale matters, and in some cases is the only thing that matters. So it's important to be important as we like to say.

Our commentary and a listen I congratulate Gray on their announced acquisition of the Meredith Stations and we did some internal work here. And obviously, if all goes according to plan, the new constituted broadcast company will be approximately half the size of our company. Which again I like to say that we're unique, no one has been able to create a company like ours and no one will be able to create a company like ours in terms of linear television because there just aren't that enough available transformative transactions out there. So again, we're happy with our scale and again are beginning to mine the economic benefits of that on a regional level, on a statewide level and ultimately on a national level, more to come.

Aaron Watts -- Deutsche Bank -- Analyst

Thanks, Perry.

Operator

Thank you. Our next question comes from Kyle Evans with Stephens.

Kyle Evans -- Stephens Inc. -- Analyst

Part 6 Hi, thanks. But Tom, thanks for separating out Best Reviews and digital. Could you update us on the rough percent split between national and local in the digital segment and then maybe give us some high-level thoughts on M&A in that segment?

Tom Carter -- President, Chief Operating Officer & Chief Financial Officer

Kyle, I don't even -- I'm not sure I have at my access a local versus national split for digital. We don't think about it a lot that way. It is by far significantly more locally than it is nationally. I don't have that exact percentage.

Kyle Evans -- Stephens Inc. -- Analyst

Okay. Fair enough. And then maybe just some early thoughts on the 2022 political cycle. Thanks.

Perry A. Sook -- Chairman and Chief Executive Officer

2022 election cycle?

Kyle Evans -- Stephens Inc. -- Analyst

Yeah.

Perry A. Sook -- Chairman and Chief Executive Officer

Okay. Well, listen, we got our first orders over the weekend for the recall election in California. So don't discount 2021 in terms of being a political year that is maybe ahead of our expectations, but we obviously think that both the House and the Senate will be in play in 2022 who controls those. I think if you look at some of the early elections here, the incumbent party usually loses seats in the mid-terms and we think this will be no exception, and losing enough seats means losing control, and the balance in both houses is precarious.

So we expect a lot of spend in those races. We also have several visible gubernatorial races in 2022. So we think it will be a very healthy year. There is a number embedded in our guidance, it is somewhat less than 2020, but maybe not as far down as you would think. But we anticipate the political cycle to continue to grow and be robust in the off-cycle of years as well as the presidential election years.

Kyle Evans -- Stephens Inc. -- Analyst

Thank you.

Operator

Thank you. Our next question comes from Alan Gould with Loop Capital.

Alan Gould -- Loop Capital Markets, LLC -- Analyst

Thanks for taking the question. Numbers are excellent. I was wondering if you can talk strategically about or big picture. What's happening in terms of ratings, particularly ratings of the local news, and are you able to capture -- how much of the audience is moving from your local TV stations to your digital properties?

Perry A. Sook -- Chairman and Chief Executive Officer

I would say the -- if compared to last year when we saw a tremendous spike and 20-year highs in terms of local news viewership across virtually, all dayparts, there has been some decline from that those high watermarks. Although we are still collectively, and again, this is the sum total of 116 markets viewership, we are still collectively ahead of pre-pandemic viewership levels for our local news products and it's literally across the Board. So we're glad that there is some stickiness to that and we think as we kind of transition into the next political cycle and all of that that will continue to be stickiness there.

And as far as a rotation or migration from local television to our local websites or our apps, we are beginning to mine data on our digital users and so we can tell where they come from and where they go but we can't tell if they were watching linear TV before that. So I don't know that I have perfect data on the migration. Our goal is to serve our viewers and our marketing partners across all platforms, all screens, using a common currency and to be relatively indifferent as to how they access our content and we access our opportunities to help them sell things. So that's kind of the model we're building and where the puck is going but I don't think there's any way really that we can efficiently track or accurately track rotation from digital to broadcast or vice versa.

Alan Gould -- Loop Capital Markets, LLC -- Analyst

Thanks, Perry. If I could just follow up, what is the common currency you're looking at using?

Perry A. Sook -- Chairman and Chief Executive Officer

Very simply, it's impressions, and so broadcast television is really the only medium that sells ratings currently. And if we also sold on impressions or better known as thousands, across digital, linear, digitnet, cable networks, broadcast and created a common currency, I think it would be a boom to our business. There are initiatives out there. The TVB and the tip initiative are working toward this. Other companies in our business are working with us toward a conversion of all of our audience metrics to a common currency of impressions.

It sounds so simple. It's almost counterintuitive that it hasn't happened at this point, but there is increasing momentum as I think everybody sees what we see. Why would you sell the smallest number on the page, which is the rating, when you have thousands that again, every other medium sells impressions or thousands and we're still selling ratings on television. So we just got to make our business easier to do business with and I think the money will follow because obviously everyone understands the superior value proposition.

Alan Gould -- Loop Capital Markets, LLC -- Analyst

Thank you. Helpful.

Tom Carter -- President, Chief Operating Officer & Chief Financial Officer

Before we take another question, I did go back and look at some information on Kyle Evans' question. It's about 65% local, about 15% national and about 20% consumer which is basically Best Reviews.

Operator

Thank you, sir. Our next question comes from John Kornreich with J. K. Media.

John Kornreich -- J. K. Media -- Analyst

Yeah, hi. I have a few very quick questions. Tom, I noticed that cash outlays for TV programming rights its trending down. Is there anything of -- is that trend going to continue and why is that happening?

Tom Carter -- President, Chief Operating Officer & Chief Financial Officer

That's really all around WGN America now News Nation using less.

John Kornreich -- J. K. Media -- Analyst

Yes.

Tom Carter -- President, Chief Operating Officer & Chief Financial Officer

Syndicated programming as our -- some of our larger stations locally are using less syndicated programming because we're doing more local news.

John Kornreich -- J. K. Media -- Analyst

So, this will continue?

Tom Carter -- President, Chief Operating Officer & Chief Financial Officer

Yes.

John Kornreich -- J. K. Media -- Analyst

Okay. Capex for the year, I may have missed that?

Perry A. Sook -- Chairman and Chief Executive Officer

$135 million, John.

John Kornreich -- J. K. Media -- Analyst

Right, OK. What is the difference between the 43 million shares and the 45 million fully diluted shares? What does that do too?

Tom Carter -- President, Chief Operating Officer & Chief Financial Officer

That's really outstanding options and RSUs.

John Kornreich -- J. K. Media -- Analyst

Okay. Could you confirm for me that stock-based compensation is not part of the free cash flow calculation?

Tom Carter -- President, Chief Operating Officer & Chief Financial Officer

Stock -- it is a non-cash item.

John Kornreich -- J. K. Media -- Analyst

Right.

Tom Carter -- President, Chief Operating Officer & Chief Financial Officer

So it is part of free cash flow.

John Kornreich -- J. K. Media -- Analyst

So it's not part of free cash flow or whether it's back to free cash flow?

Tom Carter -- President, Chief Operating Officer & Chief Financial Officer

It is added back. If you look at the press release that we put out, there is a reconciliation of free cash flow on Page 8, and in that, we add back non-cash the stock-based compensation expense.

John Kornreich -- J. K. Media -- Analyst

Okay, OK. That will be maybe what 30 or 40 for the year?

Tom Carter -- President, Chief Operating Officer & Chief Financial Officer

It will be about 48 to 50.

John Kornreich -- J. K. Media -- Analyst

Okay. And...

Tom Carter -- President, Chief Operating Officer & Chief Financial Officer

That is the unintended consequence of a higher stock price.

John Kornreich -- J. K. Media -- Analyst

Right. Not today. Anyway, lastly, just a quick incidental. Any thought being given to split the stock?

Perry A. Sook -- Chairman and Chief Executive Officer

We've looked at that, John, and I've got studies on my desk that show there could be a benefit and study saying there is no benefit to -- no long-term benefit to that. So no plans to do it currently and we've got other priorities that would be ahead of that in any event, but I'm not convinced that there is a long-term benefit to doing it, although, we certainly asked the question on a number of occasions.

John Kornreich -- J. K. Media -- Analyst

Okay, thank you.

Operator

Thank you. This concludes today's Q&A. I would now like to turn the call back over to Perry Sook, for closing remarks.

Perry A. Sook -- Chairman and Chief Executive Officer

Thanks very much, everyone for joining us. We look forward to gathering together in three months' time to update you on all of our initiatives and our operating performance for Q2. Have a great afternoon.

Operator

[Operator Closing Remarks]

Duration: 57 minutes

Call participants:

Joseph Jaffoni -- Joseph Jaffoni

Perry A. Sook -- Chairman and Chief Executive Officer

Tom Carter -- President, Chief Operating Officer & Chief Financial Officer

John Janedis -- Wolfe Research -- Analyst

Daniel Kurnos -- The Benchmark Company -- Analyst

James C. Goss -- Barrington Research Associates, Inc. -- Analyst

Steven Cahall -- Wells Fargo & Company -- Analyst

Craig Huber -- Huber Research Partners -- Analyst

Aaron Watts -- Deutsche Bank -- Analyst

Kyle Evans -- Stephens Inc. -- Analyst

Alan Gould -- Loop Capital Markets, LLC -- Analyst

John Kornreich -- J. K. Media -- Analyst

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