Nexstar Media Group Inc (NXST) 2016 Q3 法說會逐字稿

Good day, and welcome to the Nexstar Broadcasting Group's 2016 third-quarter conference call.

Today's call is being recorded.

All statements and comments made by management during this conference call, other than statements of historical fact, may be deemed forward-looking statements. These forward-looking statements are based on our current expectations and projections about future events. Forward-looking statements include information preceded by, followed by, or that include the words guidance, believes, expects, anticipates, could, or similar expressions. For these statements, Nexstar claims the protection of the Safe Harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

The forward-looking statements contained in the communications concerning, among other things, the ultimate outcome and benefits of any possible transaction between Nexstar and Media General, and timing therefore, and future financial performance, including changes in net revenue, cash flow, and operating expenses, involve risks and uncertainties and are subject to change based on various important factors, including the timing to consummate the proposed transactions; the risk that a condition to closing of the proposed transactions may not be satisfied and the transactions may not close.

The risk that a regulatory approval that may be required for the proposed transaction is delayed, is not obtained, or is obtained subject to conditions that are not anticipated, the impact of change in national and regional economies, the ability to service and refinance our outstanding debt, successful integration of Media General, including achievement of synergies and cost reductions, pricing fluctuations in local and national advertising, future regulatory actions and conditions in the television stations, operating areas, competition from others in broadcasting television, volatility in programming costs, the effects of governmental regulation of broadcasting, industry consolidation, technological developments, and major world news events.

Unless required by law, Nexstar undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. In light of these risks, uncertainties, and assumptions, the forward-looking events discussed on today's call may not occur. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this release. For more details on factors that could affect these expectations, please see Media General's and Nexstar's filings with the Securities and Exchange Commission. The forward-looking statements and comments made during the conference call are made only as of today's date.

Management will also be discussing non-GAAP information during this call. In compliance with Regulation G, reconciliation of this non-GAAP information to GAAP measurements are included in today's news announcement [or]undertake any obligation to update forward-looking statements reflective of changes in circumstance.

I would now like to turn the call over to Mr. Perry Sook. Please go ahead, sir.

Thank you very much and good morning, everyone. I'd like to thank you for joining both Tom Carter and me on the call this morning to discuss our record Q3 operating results. It's also Election Day in America, one of the hallmarks of our democracy and a day of anticipation, excitement, or dread, depending on your political point of view. I have a deep and abiding faith in our democracy and the people of our country. And, regardless of the results tonight, I am confident that our republic will survive. So now let's get to the numbers.

Our record financial performance reflects ongoing benefits from our results-focused operating disciplines, including tight management of our ad inventory, initiatives to leverage our local footholds, and diversify through retransmission consent and digital media revenues, and our precise execution of value-building acquisitions and integrations. We are optimistic as we look toward the conclusion of 2016 based on the fact that, year to date as of this morning, we have well exceeded our guidance for $100 million in full-year political revenue, while simultaneously reporting low single-digit core revenue growth and continued double-digit growth from retransmission and digital media revenue streams in Q3.

Nexstar's record third-quarter financial results were highlighted by core revenue growth, our ability to maximize the Olympic and political revenue opportunities, growing retransmission consent revenues, impressive digital media growth, and the ongoing benefits of our management and operating disciplines. These factors drove record third-quarter net revenue, broadcast cash flow, and adjusted EBITDA and free cash flow, and we brought about 21% of every net revenue dollar to the free cash flow line.

Reflecting the benefits of scale and the strong operating leverage in our business models, Nexstar's 23.6% rise in third-quarter net revenue resulted in 30.4% growth in broadcast cash flow, a 34.2% increase in adjusted EBITDA, and a 26.6% rise in free cash flow. The Company has generated over $5 in free cash flow per share through September 30, and we remain confident in our guidance for Nexstar to generate record adjusted free cash flow growth in 2016. And on a stand-alone basis, the Company is well on pace to meet or exceed our guidance for annual average 2016/2017 adjusted free cash flow of $250 million, or an average pro-forma free cash flow of $8.15 per share per year.

In addition, throughout the third quarter, we made important progress toward the upcoming completion of our Media General transaction, which will result in what we now believe to be an excess of 40% growth in our annual average pro-forma free cash flow for 2016/2017, relative to what we're generating as a stand-alone Company. The guidance as you know pro forma for the synergies imbedded in our recent financing activity will approximate $12 a share based on about 47 million shares outstanding once the transaction is complete.

In a few minutes, Tom will review the Media General financings we completed during the quarter, which did result in that lower cost of borrowing for all the financing needed to complete the transaction. I'll just add that our raised free cash flow expectations assume at this point no changes to our estimates for the $76 million in synergies in year one, which we believe we can build on once we begin operating the combined entity later this year. And also, we assume no net proceeds from the incentive auction in that guidance number.

Getting back to Q3, Nexstar's third-quarter core, local, and national television ad revenue rose 4.4%. We generated increased or flat television ad revenue in four of our top six categories, including auto, attorneys, medical, healthcare, and retail. The value of our programs to manage inventory during the tight political period and the breadth of our core strength in Q3 is evidenced by the fact of the next 15 ad categories after our top 10, all but 3 showed increased ad spending over the prior year. Our core revenue continues to reflect healthy levels of new business development with Q3 new-to-television ad revenue of $8 million for the Company, marking a 15.7% increase over the prior-year third quarter.

During the quarter, our NBC-affiliated stations did a phenomenal job of monetizing the Summer Olympics as our spot digital and customer content sales programs led to our highest-ever Olympic revenues, with all 21 of our NBC stations exceeding our budgetary goals. Nexstar's custom local coverage, provided from Rio, included multiple daily stories and over 470 live shots for our NBC markets. And we also generated additional sponsorship revenue on our non-NBC stations through exclusive news content and long-form special which we produced to air prior to the start of the Olympics.

Beyond the strength in core advertising, Nexstar's television ad revenue, inclusive of political advertising, grew 22.1% as our spot inventory management and pricing strategies enabled us to deliver nearly a 10-fold increase in year-over-year political revenue. Reflecting our expanded platform and presence in states with high levels of down-ballot political spending activity, we saw healthy spending in contested Senate battleground states of Nevada, Missouri, Indiana, and Pennsylvania, as well as continued strong spending in the gubernatorial battlegrounds of Missouri, Indiana, and West Virginia.

In addition, there were federal, state, and/or local primary elections across nine Nexstar states during Q3, with those spending levels as anticipated. By category, we booked about 40% of our Q3 political revenue from candidate spending while PAC party and issue spending made up the balance. So, even with lower-than-expected levels of presidential candidate spending, our 2016 third-quarter political revenue rose by a robust 40.3% over a comparable 2014 third quarter, and our 2016 fourth-quarter results will be well over $50 million of political revenue contributions, marking an end to a very different, but very lucrative, as we projected, year for Nexstar on this front.

Nexstar's gross revenue growth in the third quarter, excluding political, was healthy, at approximately 13.5%, and reflects the 22.8% rise in retransmission fee revenue and 42.2% increase in digital media revenue. Our ongoing renegotiations of retransmission consent agreements, combined with the growth of our leading locally focused digital businesses, resulted in total third-quarter retransmission and digital revenue combined of $126.9 million, representing an increase of 26.7% year over year and 136% increase over the third quarter 2014.

The Company's ongoing revenue diversification progress is evident when you consider these higher-margin revenue streams accounted for 46% of our 2016 third-quarter net revenue, up from 45% in the comparable period last year, even as we had the benefit of over $25 million of political revenue in the third quarter of this year. As you look at the same comparison against the last political cycle, our combined retrans and digital revenues represented 34% of 2014 third-quarter net revenues.

At $98.3 million in the quarter, retransmission fee revenue reached the highest-ever quarterly level in the Company's history. With the renewal of retransmission consent agreements representing approximately 45% of our subscriber base to happen this year, we have excellent visibility on the revenue growth from this source into 2017 and 2018, given that the bulk of these agreements are two to three years in duration.

Our profitable digital businesses, including our locally focused digital content management system, our agency services, our mobile and programmatic businesses, present strong opportunities for continued growth, both organically and as we complete the Media General acquisition. Together, we will be a profitable digital company without peer in our space as we target mid-size markets where the number of local content producers and competing digital options are not as great as they are in the major markets.

Moving on now to update on the Media General and other pending transactions, last year we completed the accretive acquisition of 20 television stations. Other than Media General, we just have the four-station acquisition in West Virginia pending, and that acquisition will close next month per the terms of our contract with West Virginia. On the Media General transaction, we remain on track for our timeline to close later this year. As I alluded to earlier, during the third quarter, we completed all of the primary financing to complete the transaction at rates below what we forecast earlier in 2016 when the credit markets were less favorable.

Other than FCC approval and certain other customary closing matters, Nexstar and Media General have completed all of the steps and satisfied all of the merger-agreement conditions necessary to finalize the planned transaction, including securing DOJ and HSR approval, entering into agreements to divest stations to reach the ownership and other regulatory approval covenants, and then also securing approvals from each company's respective shareholder base, as well as putting in place, as I said, all of the necessary financing.

During the third quarter, Nexstar filed a supplement to its waiver request with the FCC requesting prompt approval of its acquisition of Media General, so that closing upon the acquisition, Nexstar can continue its initiatives across the combined entity of providing superior unique local content and services to viewers and business in each of the communities it serves. We await the completion of the FCC's internal processing before the final consent can be issued.

Understandably, we have very high expectations for the value that the Media General acquisition will bring to Nexstar shareholders. Since 2011, Nexstar has completed 17 accretive strategic transactions, including 60 full-power TV stations as well as four digital businesses, all of which have increased our scale and diversified our portfolio. Our proven ability to significantly expand our free cash flow through acquisition, integration, and disciplined operating practices is reflected by Nexstar's financial growth over this period as net revenue grew from $306.5 million in 2011 to $896.4 million in 2015, while free cash flow rose from $34.2 million to $208.2 million in that same time frame.

The Media General transaction is a perfect match with all of our M&A criteria, and it positions Nexstar to build on its role as one of the nation's leading local media companies, while bring substantial free cash flow accretion and only modest increases to our leverage. Our localism combined with scale will enable us to effectively compete across the entire and ever-changing media landscape.

In September, we completed visits to every Media General station and digital property, a practice which has proven over our 20 years in business and many, many acquisitions to ensure that we are able to integrate quickly, and meet and exceed the expectations that we provided at the time the deals were announced. Based on these meetings, I am confident that the new Nexstar Media Group will have an outstanding operating team in place as well as the disciplines necessary to realize the tremendous value this transaction presents to our shareholders and the local communities and the advertisers that we serve.

Financially, the transaction is expected to more than double our revenue and adjusted EBITDA and will be immediately accretive upon closing. The new Nexstar Media Group is anticipated to generate over $540 million of annual average free cash flow, with annual free cash flow per share expected to approximate $12 per share per year over the 2016-2017 period on a pro-forma basis. We intend to allocate this free cash flow initially to leverage reduction and we expect our covenant leverage of approximately 4.5 times at year-end 2016 to decline rapidly. And that assumes no net proceeds from the spectrum auction.

Overall, the strong free cash flow profile for the new Nexstar Media Group provides us with the flexibility to rapidly delever post-closing and, ultimately, for ongoing return of capital to shareholders, with our 16th consecutive quarterly cash dividend and our fourth $0.24 quarterly dividend to be paid later this month. Looking ahead, with distribution agreements representing approximately 85% of Nexstar's MVPD subscribers renewed at year-end 2015 or year-end 2016, in combination, we do project visible ongoing revenue growth from this source in 2017 and beyond.

Similarly, Nexstar's digital media revenue growth for the 2016 fourth quarter remains strong and we're excited by the complementary nature of the new combined Nexstar and Media General digital media operations, which we intend to aggressively manage to profitability. With significant and growing free cash flow and the upcoming closing of the Media General acquisition, Nexstar has excellent visibility to delivering or exceeding on our free cash flow targets in the current cycle and a clear path for the continued near- and long-term enhancement of shareholder value. With that, I'll turn the call over to Tom Carter for the financial review and update. Tom?

Thanks, Perry, and good morning, everybody. I'll start with a review of Nexstar's Q3 income statement and balance sheet data, after which I'll provide an update on our capital structure and some points of guidance. Net revenue for Q3 of 2016 was $275.7 million, which was up almost 24% over the same period in the prior year. Core revenue on a GAAP basis was up 4.4%, to $131.4 million, driven by a local revenue increase of 7.8% to almost $95 million.

As Perry mentioned, political revenue for the Q3 2016 time frame was $25.5 million, up substantially over the same period in the prior year. Retransmission fees were $98.3 million, which was up almost 23% over the same period. And digital media revenues were up 42% for the third quarter of 2016, to approximately $28.6 million. From a profitability perspective, record broadcast cash flow of almost $110 million, up 30% over the same period the prior year. Adjusted EBITDA was up 34%, to $98.2 million, and free cash flow was $58.5 million, which was up almost 27%.

On a same-station basis, net revenue was up 14%. Local spot revenue was flat for the quarter and core spot revenue was down less than 1%, despite the allocation of ad inventory to higher political ad spending while same-station retrans rose approximately 15% and same-station digital media revenues were up 20%. The corollary to that is same-station fixed expenses net of programming expense were flat for the quarter.

Third-quarter station direct operating expenses net of trade expense and SG&A expenses rose 28.2% and 14.5%, respectively. The increases reflect higher variable costs related to the increased advertising revenues, our expanded local programming on our existing stations, and the operation of the recently acquired stations and digital assets.

Nexstar's third-quarter corporate expenses were $11.7 million, inclusive of $2.9 million of noncash comp. The $600,000 year-over-year increase reflects increased staffing and infrastructure to manage and operate the additional stations and in anticipation of the Media General merger. For Q4 2016, we project corporate overhead will approximate $12 million to $14 million, inclusive of stock comp, while cash corporate overhead will be between $9 million and $11 million, which will include our estimate of transaction-related expenses incurring in the quarter.

Turning to the balance sheet, I'll review the key items as of 9/30/16. Total net leverage at 9/30/16 was 3.74 times versus the total permitted leverage covenant of 6.75 times, while first-lien leverage was 1.68 times versus the 4 times covenant. The leverage ratios exclude the $900 million of 5 5/8% notes issued during the quarter and about $24.5 million of payments for the first full quarter that the notes were outstanding.

During the third quarter, we priced our $2.75 billion term loan B facility at 25 basis points original issue discount of its face value and it will bear interest at LIBOR plus 3% with no LIBOR floor. This has a seven-year maturity. The term loan, when combined with the $900 million of 5 5/8% senior notes issued earlier in the quarter by Nexstar Escrow Corporation will comprise all of the primary fund to financing needed to complete the Media General transaction.

Nexstar's outstanding debt at September 30, 2016, consisted of approximately $671 million of first-lien term loans and revolver. The decrease from June 30 levels related to our application of operating free cash flow to the leverage reductions. There are three notes -- series of notes outstanding: the 6 7/8% notes, which are approximately $525.5 million; the 6 1/8% notes, which are approximately $275 million face amount; and the 5 5/8% notes, which as I mentioned earlier were $900 million face amount note.

Total net debt for the quarter amounted to $1.434 million, compared to approximately the same amount at December 31 of 2015. And that, again, excludes the $900 million of senior notes which are escrowed at the current time. Q3 total interest expense amounted to $29.6 million, compared to $20.4 million in the prior year's third quarter. Cash expense was approximately $28.5 million versus $19.4 million. And again, if you remember, the third-quarter 2016 interest included $9 million, or approximately 64 days' interest, on the $900 million of debt, which for covenant purposes is excluded but obviously for GAAP purposes we've included as an expense.

Nexstar's Q3 CapEx of $10.4 million and year-to-date CapEx of $25.1 million are related to local news and station infrastructure investments. And we continue to forecast approximately $30 million for the CapEx for Nexstar standalone in 2016, inclusive of approximately $4 million of capital expenditures associated in advance of the Media General merger and the previously announced digital multicast agreement which we entered into beginning in the third quarter of this year.

Free cash flow for the quarter was $58.5 million and year to date was $159.4 million, inclusive of $27.4 million of operating income taxes. Keep in mind that $58.5 million includes transaction expenses for the quarter and the $9 million of interest related to the $900 million bond escrow, which are nonrecurring, obviously.

With the completion during Q3 of our senior notes offering and the secured loan financing, the capital structure for Nexstar Media Group, our new name following the completion of the Media General transaction, will be comprised of the following: $175 million five-year revolver; a $370 million of five-year term loan A notes; $2.75 billion of seven-year term loan B notes; the three notes offerings that I mentioned earlier -- the $900 million 5 5/8% notes, the $525 million 6 7/8% notes, and the $275 million 6 1/8% notes.

Our rationale for this capital structure is that the secured loan markets has historically been less volatile than the high-yield market and brings lower interest rates than the high-yield bond financing. Our capital structure weighs the proper balance of fixed and floating, an attractive weighted-average cost of capital of less than 5%, and prepayment and refinancing flexibility. In addition, we'll have a well-staggered maturity portfolio with no significant maturities until 2020, at which point we expect it will have made significant headway toward substantial debt reduction.

Given that the cost of the Media General transaction financing was below our original estimates, interest expense for the combined entity will be approximately $60 million lower annually than assumptions used in the establishment of the Company's initial pro-forma guidance for 2016/2017. If you remember, that was done in the January time frame of this year. On a tax adjusted basis, the lower interest expense will result in approximately $40 million of additional pro-forma annual free cash flow, which increases our previously projected annual average free cash flow and now equates to approximately $540 million for the 2016-2017 cycle.

As Perry indicated, the Company's increased cash flow expectations assume no changes in our clearly defined year one synergies of $76 million, which we believe we can build on once we have operated the combined entity, and also assumes no net proceeds from the incentive auction. Notably, our year-end covenant leverage and expectations assumes none of these additional windfalls from the incentive auction and no increases in anticipated leverage or -- I'm sorry, synergies or cost savings.

As it relates to management's focus on free cash flow generation, our record third quarter and positive outlooks for Nexstar's standalone and Nexstar Media Group will follow the approach we successfully deployed in terms of building the top line, maintaining close control of fixed and variable costs, and optimizing the balance sheet and capital structure. This plan will continue to support our goals of generating significant free cash flow growth while allowing us to reduce leverage, pursue additional selective accretive acquisitions, pay dividends, repurchase shares, and take other actions that can enhance shareholder value.

In summary, Nexstar continues to execute superbly on our operating M&A, financing, and integration fronts. Our disciplines in these areas have driven significant growth, as well as consistency and visibility in our results. We're close to completing the Media General transaction and our existing operations continue to perform very strongly, meeting and exceeding our expectations. As such, we remain highly confident in the Nexstar Media General 2016-2017 average free cash flow share projection of $12 and the value to be created for shareholders. That concludes my financial review for the call. I'll now turn it back over to Perry for some closing remarks before Q&A.

Thank you very much, Tom. In addition to the Election Day excitement and anticipation, and today's confirmation that we will indeed exceed our political guidance target of $100 million for 2016, we are additionally excited because today we stand at the precipice of completing our transformative acquisition of Media General, which will make us the second largest local television broadcasting company in the United States.

Pro forma for our announced divestitures, the new Nexstar Media Group will own or operate 171 television stations in 100 markets, serving 38.9% of all US television households. To put it another way, better than one in three households in America will be able to get their news and information from a Nexstar television station. We're very proud of the fact that everyone in the organization, from our Board to our employees, takes the obligation to serve our local communities very seriously, and we take our responsibility to deliver growth and value to our shareholders every bit as seriously.

Our record third quarter and year-to-date results again highlight the value of the operating, acquisition, integration, cost management, and strategies around our capital structure that we've successfully deployed since our founding in 1996. We are competitive as any other medium in today's multi-platform world because we provide superior local content that is unique and relevant to each of our local communities we serve across the US, while operating local businesses, advertisers and brands unparalleled to 24/7 marketing opportunities across all our screens and all our devices. Our increased scale will allow us to create new news bureaus in more state capitals than any other broadcaster. And Nexstar Media Group in total will produce over 3,400 hours a week of local news while employing almost 10,000 individuals.

As it relates to Election Day, we will increase the support and staffing of our Washington DC news bureau and provide more coverage of local developments in our nation's capital. Our teams consistently leverage our localism to bring news, entertainment, information, services, and value to the consumers and advertisers through our television, digital, and mobile media platforms, and the dedication of our people is respected -- reflected in our strong standings in our local communities where we operate as well as the financial results and guidance we've issued to you here today.

I firmly believe and I've communicated to many that I met when visiting the Media General stations that if we continue to focus our time on the basics of what we do, namely serving our local viewers and advertisers, we will not be unnecessarily distracted by all the noise. Our commitment to localism, industry-leading innovation, and our focus on distribution, digital, and political revenue growth, combined with meticulous M&A integration and enterprise-wide cost management have positioned Nexstar for near- and long-term growth, including our fifth straight year of record financial results here in 2016 and our tremendous prospects for continued growth in 2017 and beyond.

With all of that said, I would like to thank you all for your continued interest and support of the Company and for joining us this morning for this call. So now let's open the call for Q&A to address your specific areas of interest. Operator?

(Operator Instructions)

James Dix, Wedbush Securities.

Good morning, guys. I've got three questions. First, any estimate of the displacement of core advertising by political in 3Q and 4Q, especially given the patterns of spending may have been different than a typical presidential year?

Secondly, just any color on auto spending growth? In 3Q sounds like it was up. Anything more on that, and then what's your outlook for the fourth quarter?

And then finally, how should we be thinking about your M&A strategy? I think Tom mentioned a little bit selective M&A. But after the Media General transaction closes considering you want to deleverage, but also that there is some potential to optimize your portfolio maybe in some markets which could give you some pretty decent head room under the cap? Thanks.

I want to make sure I have that. Displacement auto for Q3 and Q4.

And M&A. That should handle all the questions for the call.

I should learn to ask them like that.

James, I can tell you our top five billing states were Nevada, Wisconsin, Pennsylvania, Missouri and Indiana. So obviously if that's where approximately 50% of the political billing fell. There is displacement in those markets, particularly around news and live events, whether news or sports programming.

For the rest of the Company and in some markets we had precious little political, then it's hard to make a Company-wide displacement thesis, because supply and demand varies by market and the amount of political pressure basically will, I think, vary by marketplace.

But I think if you were looking for a rule of thumb given particularly on PAC and party unit rates that we get very substantial unit rates there, more than our 52-week advertisers pay, that for every dollar of political that you bring in, you probably displace maybe $0.25 or $0.30 of core advertising because you have a limited amount of inventory. We can't add a seat to the airplane once we have taken off.

As far as auto goes, fourth quarter at this point looks about like third quarter, where we'll be flat for the category, both on tier 2 and tier 3 local dealers, and as well as dealer association money. That looks to be cumulatively flat, which is about where we ended up in the third quarter, so no real change there. On M&A, we will continue to be opportunistic as we have been for over 20 years. I can't comment on whether or not spectrum may clear markets that would give us capacity under the cap in the spectrum auction.

That will play out as it plays out. But that is one area for potential growth in television. And you're right, there could be the opportunity to, in markets where we can own two stations, look to double up or maybe swap with another operator to give both of us that opportunity. And then we'll continue to selectively look to build our digital portfolio.

The external digital Company, or the digital subsidiary will start life with approximately $200 million in revenue and our goal is to double that within five years. Some of that will come through organic growth and some of it will come through acquisitions.

But suffice it to say with sub-4% leverage now and approximately 4.5% leverage at the end of the year, for the next 18 months or so, we're going to be very focused on delevering the balance sheet, and then continuing our dividend program. And if there are no acquisition opportunities we would return even more capital to shareholders.

So I think those are the priorities. And I don't know, Tom, if you want to comment any more on that, but that's what you and I have talked about.

No, absolutely. You should, we told people to expect continuation, both of the dividend, not dissimilar to the growth that we've seen historically.

We do have a existing share repurchase authorization that is unfulfilled at this point. But as Perry mentioned, job one for us is to deleverage because we think that provides us significant opportunities and flexibility going forward, whether it is M&A or it is further return of capital to shareholders.

Great. That covers it. Thanks very much.

John Janedis, Jefferies. Please go ahead, sir.

All my questions are answered. No, that's a joke.

Can you guys talk a little bit more about your footprint away from political? Meaning it seems like demand has held in better than your peers. So do you think you markets have decoupled from the broader industry and is there evidence that local dollars are shifting to digital given some of the commentary from I guess the internet pure plays around your local ambitions?

I don't think our markets have decoupled. I think that is -- it has been, John, the laser focus of the senior management team and then the management teams in our individual markets to maximize every opportunity, whether it be political or core.

As you know, we announce on every call the amount of new business we've developed within the quarter, new to television. Our general managers get paid on that. That is a metric by which their bonus is calculated. So I think that if anything, I would try and call out and separate out the management team of the Company as being able to produce better than peer group results and we take this very seriously.

This is the only business we're in and the only thing we do, and so it gets 24/7 attention from everybody that's around this table, both heard from and not heard from. But also the regional managers and our directors of local content development and the general managers and their teams, they know what the mandate is and we have a call to discuss that on a regular basis and make sure that everybody is rowing in the same direction.

With respect to digital, I think, again our focus is on mining the largest share of wallet locally. I just gave our general managers an exercise on our last monthly call. I said I want you to walk into your next sales meeting and ask all of your account executives to keep track of the calls that they make for the next week. And then at the end of the call, in addition to all the other business you do, ask them one question, is that client buying Facebook ads in the local marketplace, yes or no.

Interestingly enough and I think it was eye-opening to some of our managers, approximately half of our local clients that we called on that week are doing business with Facebook. So don't think that these national entities are not in the local marketplaces and our job is to play both offense and defense to be out there with product and services that rival those of the national brands, but supported by the local brand and the local sales force and local fulfillment where if you have a problem you can pick up the phone and walk down the street and talk to somebody and you're not dealing with a call center.

I think you'll see continued double digit growth in our digital portfolio, both the digital subsidiary of which Nexstar Broadcasting will be the largest customer, but also the local site revenue that our television stations use all of their assets to power.

That's helpful, Perry. Maybe a quick follow-up, or separate question, I should say. At this point, do you think the auction slips into next year and if so, do you still think you can get the FCC approval this year?

Yes and yes. I think the auction, given the bid ask and where we are, we'll probably slip into next year. But I also believe that we will be granted our waiver and our application will be granted that will allow us to close the transaction in Q4.

Great. Thank you.

(Operator Instructions)

Aaron Watts, Deutsche Bank.

Tom, I think I heard you say that core spot overall was down less than 1% on a same station basis in the third quarter. Curious what you're seeing anecdotally in the fourth quarter? And we heard from Gray earlier that they were seeing some hesitation by advertisers in the local market getting past this election and not wanting to get off the sidelines. Curious if you're seeing any of that?

Obviously in the month of October with the -- you could do the math on the amount of political that we're going to -- have said we would generate in October and the first eight days of November. There was certainly displacement there and it was much more widespread than the third quarter because the political dollars were spread much more.

But our pacing for November and December are much improved over what our October results will be for core. So systematically I think we're looking at a slight decline in the quarter, which you would expect with in excess of $50 million in political advertising. But I don't think there's any particular headline there for us at this point.

Okay. So nothing that stands out versus prior years as you round out an election?

I would say no.

Okay. Then just my second question, again, maybe for Tom, I think you've talked about a pro forma closing of the acquisition leverage of 5.5 times and I was curious, just with some volatility in political spending and the current environment we're in, if that number still holds or if you have any change to that guidance?

Well the only thing I would point out, is 5.5 times is average 2016-2017 EBITDA, so on a trailing 12 months for the way we calculated, it will actually be less than that. And our free cash flow and the amount of debt required at closing allows us to continue to believe that it will be by the end of the year, around 4.5 times, it will be slightly higher than that at closing off 9-30-16 numbers. But the 9-30-16 numbers shouldn't be materially different, and so on a trailing 12-basis, we continue to reiterate something in the mid to high 4s at closing.

Okay. Thank you.

Dan Kurnos, Benchmark.

Just to touch a little bit more on the deal, Perry, high level I doubt there's been any change to strategy. But given probably some of the frustration with the FCC's inability to get this deal done, just has it impaired your ability to be more aggressive and investing in your own properties as you wait for the deal?

And then you mentioned before an in a prior call that you might give a separate update on a synergy guide. But in prepared remarks it sounds like you may wait until the deal closes. Which of the two do you think it is more likely to be? Thanks.

Well we are full speed ahead on investments in our local products. We've expanded local news in a dozen markets this year. We're building a brand new television station for our employees in Sioux City because they need that to be able to compete and to work safely. We will hit our CapEx guidance for the year in investing, and so it is still full speed ahead.

Our management team has done a remarkable job I think of managing the Company and keeping all of our plates spinning. While at the same time leaning in to the diligence necessary to know everything that we can or as much as we can about the Media General stations and digital properties prior to close. So that we hit the ground running to the high degree that we are able.

As far as a synergy target, I think that once the closing is announced, once the FCC has given us a grant and then we will set a closing date sometime in that time prior to closing, we will update the synergy guidance for you. But we want to do it only once. We'll do that for you prior to the closing. But once the closing date has been set and the deal has been approved by the FCC.

Great. Thanks. Just two quick housekeeping questions. Can you just remind us, Tom, what was your CapEx guide for the year? Because I think Q3 came in a little bit higher than expected.

It was $26 million. Last quarter we increased it to $30 million.

Yes.

And that was the Digi-Net contract that we entered into and Media General CapEx that were -- largely from a systems perspective to go ahead and start to marry the two systems.

Got it and is that what also caused the upside in digital in the quarter or was there also another acquisition tucked in there that I missed somewhere?

There was no acquisition.

No acquisition. Digital on a same station basis or comparable basis was up 20%, I think on a GAAP basis it was up 42%. So 20% was recovery and a couple of properties, Yashi in particular that had kind of a -- if you remember the programmatic space was difficult at this time last year.

It sounds like there's been some headway made there, not that it's moving the needle, but we've seen a lot of improvement in the programmatic space especially from a rate basis; I assume you guys are seeing the benefit of that?

We are.

That's one piece of the story. We have our machine learning Company that it primarily in the app world that is showing substantial growth this year and our local site revenue. In addition to the tactive services that we sell in our local markets, as well as the ad opportunities. And again, buffeted by Olympic-related digital revenue in the third quarter all contributed to a substantial increase in our local site revenue, as well.

Great. Thanks, guys. Appreciate it.

(Operator Instructions)

Marci Ryvicker, Wells Fargo.

Thanks, just want to clarify the expectation for auto to be flat, is that same station or is that not same station?

In the fourth quarter? That would be on a same station basis.

Yes. Okay. They be one of the questions that I've been getting is should Media General's numbers come in below when they report tomorrow morning, how could or would that impact the pro forma numbers that you've already given us for the combined Company?

Well, I think if you remember, Marci, when we filed our proxy, our projections for Media General's performance in 2016 was below the numbers that Media General had in their proxy. So I think there is to a degree some buffer built in there. Obviously, at closing, we'll calibrate everything. We can control our performance. We can control the synergies, we can't yet control their performance.

So we will all add that all up and that's what I was say at the time of closing we will reiterate our synergy number, which will then give you the free cash flow forecast based on lumping all of those factors together. We do have head room in our first nine months numbers versus whatever their first nine months reported number will be.

And there's additional head room in the fourth quarter because I think that's probably where we were at variance on our perspectives probably to the highest degree. So there is head room in our numbers versus theirs and obviously we'll wait and see what the numbers actually are.

Got it. Thank you.

Jim Goss, Barrington Research.

Thank you. I was wondering as you look at swap possibilities or things of that nature, are there advantages you find from geographic clustering, or do the markets have to be really adjacent for that to matter in terms of operating benefits?

No, Jim, there's obviously advantages to geographic clustering. We operate in every market or will when the transaction clothes in the state of New York with the exception of New York City. We're in every market in Pennsylvania with the exception of Philadelphia and Pittsburgh. Texas we have a substantial presence.

Louisiana, and on and on, so those are the market -- Alabama is another one where we can then use the those assets, basically, to launch state capital news bureaus and things of that to give us. Again, the focus on giving us local content that our competitors in a given market don't have the ability to access because they don't have the size and the scale. So they don't have to be adjacent markets, but I do think geographic clusters, particularly within state boundaries, make a lot of sense.

Okay. And in terms of the visits to the Media General properties, I'm wondering if the visits help create some calm or at least enable some better focusing on operations and take away some of the uncertainties? And what is your normal visiting cycle from the top beyond regional management?

Sure. I would like to think that our visiting the stations, because in addition to the meetings that we had with station management, which lasted anywhere from 3 hours to 9 hours, depending on the market and level of complexity, the last thing that Tim Busch and I did before we left the building was to walk around the building and introduce ourselves and say hello to anybody that was present and shake their hand. So I would like to think that puts a name with a face and maybe takes down the fear of the unknown.

We have since deployed our benefit program and our benefit teams and the Media General employees are in the process of signing up for benefits with Nexstar that would be effective as of January the 1st. That's an unknown that's become known. I do think that and we had very favorable feedback to, thanks for taking the time to come visit us, and so I would like to believe it had the intended effect.

Plus it give us the opportunity to know as much as we can on the way in the door that we're not trying to put this together post-closing. And I think it also gave senior management of each of those facilities a view into -- by our question and by our prioritization, what's important in the Nexstar way and I think it gives them a chance to calibrate to that as well. I would tell you that our -- we have regional vice-presidents that have geographic responsibility across the Company.

Right now we have three in addition to our two co-COOs. We will be adding another three, so that they'll be able to manage stations that literally within driving or short flying distances of the market. We will be adding an additional Director of Content Development, which will help to mind those synergies that we talked about of all the news-producing facilities within a particular state or geographic area.

We're adding to IT to finance accounting -- and along the way, but the folks that typically visit are our regional vice-presidents, our Directors of local content development, IT, HR, and engineering, depending on needs. And so I would say each station does get a lot of touches over the course of a quarter and obviously I'll continue to try to visit as many as I can.

All right. Thanks very much. Appreciate it.

Kyle Evans, Stephens Inc. Please go ahead.

Thanks. Could you dive down into the 20% same station digital growth that you saw in the quarter and maybe talk about how you look at that going forward? And I have got two follow-ups.

Dive down in what way?

I want to understand the working parts of that 20% same station digital, what drove that growth.

Well, I would say that in our NBC markets, Olympics were a factor. We have 21 NBC markets that's about one-third of our station portfolio is made up of NBC stations, so that helped. I think that we reorganized in our markets or organized in our markets over the last year and a half to put a what we call tactive seller into each one of our markets, in addition to a digital sales manager.

And what tactive is for us is all of our gross margin products, our reseller, retargeting, and SEO and SEM, and all those kinds of things we can't commission those the same way because of the gross margin nature. So we have a seller that is expert in how to sell those in the local marketplaces. We've already made our tactive internal budgets for the year, as of our management call yesterday.

So I would say that is a big factor. And just typically, our ad revenue growth has been running about 15%. So that all of those taken together I think are factors for our continued growth.

Thanks. And you guys will get sick of me asking but could I get a retrans sub count update? And then finally Tom, you've talked about double digit net retrans growth looking out in the future. Any change to that long-term view? Thank you.

No change to either number.

Great. Thank you.

Barry Lucas, Gabelli & Company.

Thanks very much. Could you just give us a pro forma 2012 political number if you have that so we can get a decent benchmark?

I don't know that I have a perfect pro forma number because of the way some of our acquired companies kept score, but maybe I can answer it this way. If I look at our political billing in 2016 versus 2012, presidential revenue was down 40% over what Obama and Romney spent in 2012 versus 2016. However our senate spending was up over 70% 2016 versus 2012. And spending on governor's races was up over 30% 2016 versus 2012.

So that may not give you the absolute number but it can give you some directionality into our spending. I think a real rough number would be approximately a 25% plus increase over 2012 spending. But that's just a rough estimate.

Thanks for that, Perry. If you look at the fairly numerous markets you have in the oil patch in Texas and Louisiana, A, what are you seeing? And then, B, some of the service companies are starting to, I think, see some sort of bottoming, maybe with a pickup in land drilling initially. So any color on those markets would be helpful.

Sure. I would say for our West Texas markets, that they -- you're exactly right. People have determined that the Permian crude is probably the most desirous area for operations right now. So in the Midland's and the Abilene's and the Lubbock's of the world, things are going just fine.

We do have one market in North Dakota that is very tied to the shale gas and shale oil and things have yet to pick back up yet there. Literally the town, though, of Williston and Bismarck, and the towns of North Dakota that we operate in are actually looking at this as a blessing, because it is giving them a chance for the infrastructure to catch up with what's already there in terms of schools and roads and public services and things like that.

But I would say the North Dakota oil industry has challenged us a little bit. But as oil approaches and hangs in around $50 a barrel, a lot of wells that were drilled that are not producing, they'll turn back on and the oil field services, obviously, will need to be there to service those working rigs once they are producing. So I hope that answers your question.

The Marcellus shale in Pennsylvania and New York, you can't get a hotel room in Elmira, New York, because they're all driving across the border to Pennsylvania to work the shale of northeast Pennsylvania and north central Pennsylvania. So I would say all in all, it is with the exception of North Dakota fairly healthy.

And as far as Louisiana goes, we have special situations there. Obviously the floods of Baton Rouge that were a negative in Baton Rouge and Lafayette in the third quarter, now the insurance companies and contractors have all started to move in and actually they will be atypically positive in the fourth quarter, but not for the reasons that you would want. It's mostly repair and insurance and those kinds of things that usually always trail two or three months after a disaster.

Thanks. Last area, Perry, would be the spectrum auction and do you think that the Commission needs that hiatus between what is stage 3 and stage 4 to approve the waiver or how would you gain that?

What I hear from the FCC is that they are working hard on processing our waiver and processing our application. I believe that they are working hard on that. I don't think that they will need to wait for a pause in the action to grant their application by given the fact that the CVR is in place. Both Nexstar and Media General put on a list the number of stations they would consider participating in the auction and set a reserve price for each one. And it is really binary, Barry, above that price, you must sell; below that price you can't sell.

Whether it's one Company making that decision or two war rooms making that decision, you're going to end up at the same outcome. So there is no reason to pause the auction or wait for a pause in the auction to grant the application. I believe that point has carried the day because the FCC has told our representatives they are continuing to process the application. So we're very optimistic that they're working hard on it and we hope to have a grant that will allow us to close in the fourth quarter and we still believe that will be the case.

Thanks for that, Perry. Appreciate it.

You bet.

Davis Hebert, Wells Fargo Securities.

Hey guys thanks for sneaking me in here. Tom, one of the benefits of your new capital structure is the amount of pre payable debt you have. And as we look at our model and the amount of free cash flow you generate, should we just assume that a lot of that gets swept into the term loan going forward?

I would say that's probably the most conservative assumption in terms of reducing outstanding debt. We don't have to ask permission. We don't have to pay additional fees, et cetera, so while that's not the only one, that's probably the most likely one.

Okay. That's fair. And in thinking about the 6-7/8% which are currently callable, how should we think about that bond going forward as part of your capital structure?

I think we've got some -- a lot of wood to chop between here and there. There's an opportunity here, depending on what happens with some of the existing Media General notes. We may in fact be over funded from a cash perspective. But I think that's something that we'll address once the dust settles a little bit on the acquisition.

That you've probably heard and read a little bit about we've got something immediately in front of us that we've got to -- we've got it on the line, we've got to get it in the boat, and skin it and filet it. And then we can move on to the next tab, which includes the 6-7/8%.

Okay. That's great. Then last question I think historically you said we should anticipate dividend increases of similar cadence in past years. Just curious if that is -- that still remains the same?

I think I said that earlier in the call, yes, I would anticipate that.

Okay, sorry I missed that. Thank you.

There are no further questions at this time.

I'd like to thank you once again for joining us today. Thank you for your continued interest and support in the Company. This is likely the last earnings call of Nexstar Broadcasting Group, because the next time we greet you, it will be as the new Nexstar Media Group. And we're tremendously excited about that event and also hosting that call and outlaying our plans for the combined Company on a go-forward basis. We will look forward to that and look forward to talking to you again soon. Thank you very much.

That concludes today's conference. Thank you for your participation. You may now disconnect.