Nexstar Media Group Inc (NXST) 2017 Q1 法說會逐字稿

Good day, everyone, and welcome to today's Nexstar Media Group 2017 First Quarter Earnings Conference Call. Just as a reminder, today's call is being recorded. At this time, I'd like to turn the call over to your host for today, Mr. Joseph Jaffoni, Nexstar Investor Relations. Mr. Jaffoni, please go ahead.

Thanks, Sarah. Good morning, everyone, and thank you for joining Nexstar Media Group's 2017 First Quarter Conference Call. We'll get to management's presentations and comments momentarily as well as your questions and answers, but first, I'll review the safe harbor disclosures.

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 this communication concerning, among other things, 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 impact of changes in national and regional economies; the ability to service and refinance our outstanding debt; successful integration of acquired television stations and digital businesses, including achievement of synergies and cost reductions; price fluctuations in local and national advertising; future regulatory actions and conditions in the television stations' operating areas; competition from others in the broadcast television market; volatility in programming costs; the effect of governmental regulations on broadcasting; industry consolidation; technological developments; and major world news events. 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 and uncertainties and assumptions, the forward-looking events discussed in this communication might not occur. You should not place undue reliance on these forward-looking statements, which speak only as of the date of today's conference call. For more details on factors that could affect these expectations, please see Nexstar's filings with the Securities and Exchange Commission.

At this time, it's my pleasure to turn the conference over to your host, Nexstar Chairman, President, CEO and Founder, Perry Sook. Perry, please go ahead.

Thank you, Joe, and good morning, everyone. I'd like to thank you all for joining us today to review Nexstar's record 2017 first quarter operating results. Today, we will review the quarter's progress and our outlook as well as other ongoing initiatives to drive free cash flow growth and shareholder returns in 2017 and beyond, including our strong progress towards realizing the year one Media General synergies and materially reducing our leverage. As always, our Chief Financial Officer, Tom Carter, is on the call with me this morning.

2017 is off to an excellent start for Nexstar as we significantly exceeded the analyst consensus estimates with record first quarter net revenue, BCF, adjusted EBITDA and free cash flow, which came in at $102.2 million. Nexstar's record first quarter results highlight our expanded scale, our ongoing diversification and our commitment to localism, innovation and growth as we capitalize on the many opportunities to serve our local market viewers and businesses.

Our record first quarter net revenue led to record cash flows before the onetime transaction expenses as we previewed on our first -- our fourth quarter call, and Tom will give you more detail on those in a moment. A partial quarter's contribution from the Media General transaction and the continued strength of Nexstar's legacy operations led to triple-digit growth in all of our nonpolitical revenue sources.

And combined with our expense discipline and focus on managing our operations for cash flow resulted in BCF, adjusted EBITDA and free cash flow before transaction expenses of 91.9%, 97.6% and 80.5% growth, respectively. Excluding transaction fees, our free cash flow was over $2.15 per share in the quarter based on 47 million shares outstanding.

As I noted, in addition to the strong operating results, the Media General integration and our synergy plans are proceeding ahead of schedule and to date we have harvested in excess of 85% of the $81 million of year one synergies we previously identified. In addition, one of the economic premises of the Media General transaction was that significant free cash flow accretion would allow us to very quickly delever.

We remain confident that Nexstar's net leverage will decline to the high 4x range at the end of 2017 and drop to the mid-3x range by the end of 2018. So with just the operating, synergy and balance sheet data points I've covered thus far, I think it's evident that we are on our way to our sixth consecutive year of record financial results and meeting or exceeding our targets for average annual free cash flow in the 2017-'18 cycle of approximately $565 million or about $12 per share per year.

I'll do a quick review of the quarterly highlights, after which Tom will go through the finances, including an update on our cap structure, our 2017 expectations and other items of interest for those of you on the call.

Our $202.4 million of local revenue and $77.7 million of national revenue were healthy in the current environment and should give pause to those who let other's results impact their expectations for Nexstar. Our strong local sales teams and focus on managing core ad inventory resulted in a modest increase in pro forma combined company same-station local advertising revenue, despite the absence of political in the soft first quarter and GDP trends that are slower than anticipated as the U.S. economy grew at its weakest pace in the last 3 years during the period.

Reflecting organic and acquisition-related growth, our first quarter core ad revenue rose 116.8%, with auto representing 26% of core television ad billings. And while there were some puts and takes in our top ad categories on a top -- on a combined basis, our top 5 categories finished the quarter exactly even with the year-ago period.

And while we had far fewer Super Bowl stations in 2017 than in 2016 due to the rotation of the game to Fox from CBS, our teams did a great job in monetizing Super Bowl LI revenue, which led to record revenue for Nexstar again, and that also demonstrates our ability to work across multiple screens to drive incremental revenue.

Returning to the 1Q results. Our core revenue growth continues to reflect healthy levels of new business development, with new-to-television ad revenue for Q1 of $12.1 million, a 6% increase over the prior year. Reflecting our historical success in growing political ad spending during odd year cycles, we reported first quarter political ad revenue of approximately $2 million, which I believe is also ahead of expectations and that marked a 4.5 fold rise over the comparable 2015 first quarter.

Our solid first quarter core television ad revenue was complemented by a 138% rise in retransmission fee revenue and a 107% increase in digital media revenue, both of which benefited from organic growth as well as the addition of the former Media General operations.

Our ongoing strong growth in these revenue streams highlights Nexstar's success in leveraging the value of our television broadcasting operating model and our content creation capabilities into a diversified platform, with multiple high-margin revenue streams.

Combined, our first quarter retransmission and digital media revenue grew 132% to $278.6 million and that reflects the ongoing benefits of our revenue diversification strategies. Our total first quarter retransmission fee and digital media revenue represented, for the first time, 51.6% of total first quarter net revenue. That also marked the highest ever level of non-ad revenue to our overall mix.

Retransmission revenue growth of 138% in the first quarter reflects contract renewals with our distribution partners, contractual escalators in our existing agreements and the applications of our rates to recently added Media General stations. At $231.9 million in the quarter, retransmission fee revenue also reached the highest ever quarterly level in the company's history.

Nexstar's first quarter digital media revenue of $46.7 million was up 107% over Q1 '16, and that reflects organic growth in the legacy Nexstar digital operations and our initial progress in ensuring all of the Media General digital operations are contributing profitable revenue. Our digital businesses present continued opportunities for strong growth both organically and as we integrate the Media General assets.

Digital growth is a strategic priority for the company. And to build on the momentum of our expanding portfolio of innovative local digital marketing products, at the end of Q1, we named Greg Raifman as President of Nexstar Digital. Greg brings outstanding leadership and entrepreneurial skills to Nexstar and a record of success in efficiently scaling ad tech businesses and service business companies to positions of market leadership while accelerating their revenue growth.

Nexstar Digital will be a major growth engine for Nexstar Media Group going forward and we're in the final stages of merging all of our digital products under the Nexstar Digital brand with a unified market strategy and message. Our intention, as stated previously, is to double the revenue of Nexstar Digital over the next 5 years by making smart investments in people and companies that are accretive and that complement our core competencies.

Our station's locally originated news, weather, sports and community-focused content consistently achieves the greatest share of viewership and engagement in our markets, and we remain focused on extending our legacy of our local news leadership. We are making disciplined, return-focused investments across our broadcast and digital platforms, reflecting Nexstar's organizational-wide commitment to excellence as we continue to expand our local news programming and enhance our station and digital infrastructure, production resources and technologies for the benefit of the people and the communities we serve.

Thus far in 2017, we've made capital investments to expand and enhance our local news and programming in Las Vegas, Portland and several Pennsylvania markets. We've also doubled the size of our Washington, D.C. news bureau and added CBS News veteran Bill Mondora, who is leveraging our expanded team of journalists and production resources to deliver local content to all communities across the Nexstar markets.

In addition to the personnel expansion at our Washington news bureau, we've also added sales resources to the former Media General market, and we're transitioning all stations onto the same operating systems and shared platforms and services, including digital, sales management, traffic and graphic (inaudible), among others.

As shareholders, free cash flow growth is our priority. And as we continue to generate excellent core distribution, digital and odd-year political revenue growth, our free cash flow visibility is both solid and diversified. We look forward to realizing the significant strategic and economic benefits from our expanded platform.

And we remain confident that our ongoing initiatives to drive distribution, digital, core and political revenue growth across our platform, combined with prudent management of our capital structure, is indeed a proven formula for sustained long-term financial growth and the 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 Q1 income statement and balance sheet data, after which I'll provide an update on our capital structure and some points of guidance.

First of all, as outlined in our press release this morning, Nexstar completed its acquisition of Media General and also closed on the divestiture of 13 stations on January 17. Our actual results for the 3-month period ending 3/31/17 reflect the company's legacy Nexstar broadcasting and digital operations less the 73 days of results from the 6 Nexstar stations divested and 73 days of results from Media General's operations net of their divestitures during that period. The comparable 3-month period ending March 31, 2016, reflects just the legacy Nexstar broadcasting and digital operations. So that's a comparison in the numbers that you've got.

In conjunction with the Media General acquisition and station divestitures, we disclosed on our February 28 earnings call that we expected to record several onetime transaction expenses in the first quarter amounting to approximately $46 million, which came in actually at $47.7 million and is reflected in the results that you have.

Now turning to the Q1 income statement. Net income was $540 million compared to $256 million in the previous quarter of 2016. Core local and national was up over 100% to $280 million, with local coming in at $202 million and national at $78 million. Political revenues due to the off-cycle election year was $2 million compared to $12 million in the previous year. And retransmission fees were $232 million for the 3 months ended 12 -- 3/31/17.

Broadcast cash flow was $188 million. EBITDA prior to -- adjusted EBITDA prior to the onetime expenses was $171.5 million, with GAAP-adjusted EBITDA of $124 million. Free cash flow before the onetime expenses was $102 million, with free cash flow post onetime expenses being 100 -- I'm sorry, $54.5 million.

On a combined basis, the company will be reporting same-station revenues and results on a pro forma basis for the combined businesses. You should think about that as Nexstar plus MEG less the divestitures similar to the way that we have reported our Q1 '17 results.

On that combined basis, same-station net revenue was up 4.5%, with local advertising revenue up -- something less than 1%. And national advertising revenue was down something approximating 7%. Same-station retrans rose 32% and digital media revenues were up low single digits when taking into account the digital lines of business that were being discontinued and shut down during the quarter.

Same-station digital revenues from our local station websites were up 12%. Reflecting the efficiencies related to scale as a percentage of revenue, same-station fixed expenses, net of programming expense, declined 10% during the quarter, resulting in an 8% rise in same-station broadcast cash flow. Obviously, that's the power of the synergies that we've started to enact and largely are realizing now from the Media General transaction.

First quarter station direct operating expenses, net of trade expense, and SG&A expenses rose 145% and 110%, respectively, primarily reflecting the operations of the acquired stations and digital assets.

Nexstar's first quarter operating expenses were $64.4 million, inclusive of $4.8 million of noncash comp and that also includes the $47.7 million of onetime expenses during the quarter. For 2017 second quarter, we project recurring cash corporate overhead of approximately $13 million to $15 million exclusive of stock comp and MEG transaction cost.

Noncash compensation is forecasted to be approximately $4.5 million for the quarter and $24 million for the year, reflecting the issuance of the new equity incentive awards issued in Q1 of '17. Cash transaction-related expenses, primarily severance and success-oriented fees that cannot be capitalized, are expected to be $5 million during the quarter, and we continue to expect them to approximate $54 million for the year.

Turning to the balance sheet, I'll review the key items as of 3/31/17 and then provide an update pro forma for the completion of the transaction and recent voluntary prepayments.

Total net leverage at 3/31/17 was calculated at 4.7x. As noted, subsequent to the closing of the Media General transaction, Nexstar made voluntary prepayments on its Term Loan A and Term Loan B amounting to in excess of $150 million and called the entire $525 million issue of 6 7/8% unsecured notes. The additional paydowns have continued both on the Term Loan A and Term Loan B through the conference call, and once we file our 10-Q, you'll see the results of those.

At 3/31/17, Nexstar's debt consisted of $2.93 billion of term loans and revolver balance on the first lien debt, 3 issues of senior notes, 6 1/8% notes at $275 million, the 5 7/8% notes at $400 million, and the 6 5/8% notes at approximately $900 million face value. Cash at the quarter-end was approximately $73 million, which provided net debt at 3/31 of $4.4 million -- billion rather. This $4.4 billion amount at 3/31/17 compared to $4.7 billion at January '17 when we closed the MEG transaction.

Q1 total interest expense amounted to $79.2 million compared to $20 million in the previous quarter, and cash interest expense during the quarter was $57 million compared to $20 million in the previous year's quarter.

Nexstar CapEx for the quarter largely related to local news and station infrastructure investment was $13.5 million. CapEx for the full year '17 is still expected to be a net of approximately $55 million, inclusive of the sale of the Media General Richmond building during the year and excluding any spectrum-related activities. CapEx in Q2 is expected to be approximately $16 million to $20 million for the company.

Our Q1 free cash flow before transaction expenses was $102.2 million inclusive of $3.6 million in operating cash taxes, while reported free cash flow inclusive of the $47.7 million of transaction expenses was approximately $55 million.

Our capital structure represents the proper balance of fixed and floating debt, an attractive weighted average cost of capital of less than 5% and both prepayment and refinancing flexibility. In addition, we have a well-staggered maturity profile, with no significant maturities until 2022, at which point, we'll expect to have made significant headway towards substantial debt reduction.

Finally, with respect to the contingent value right held by former Media General shareholders and the incentive option outcome, one CVR was issued for each Media General outstanding common share, stock options and other stock-based awards. The CVR entitles the holder to receive a pro rata share of the net proceeds from the disposition of Media General spectrum in the FCC spectrum auction recently concluded.

The CVRs are not transferable except in limited circumstances. And later this month, Nexstar will be notifying the CVR rights agent, American Stock Transfer, of our estimate of distributable company proceeds and estimated holdback. Both of those are defined terms in the CVR agreement as required under the CVR agreement.

While timing is not exact on these payments, we anticipate the first payments to be made under the -- to the CVR holders this summer and continuing thereafter until all of the spectrum proceeds have been received and distributed. Please refer to the continued value rights agreement for additional details.

As it relates to management's focus on free cash flow generation, our positive outlook for Nexstar Media Group will follow the approach we've successfully deployed in terms of building the top line, maintaining close control of fixed and variable expenses 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 deleverage, pursue additional selective accretive acquisitions, pay dividends, repurchase share and take other actions that can enhance shareholder value.

In summary, Nexstar is executing well on all functions, including operations, integration, synergy realization, capital structure and service to our local communities. As such, we're highly confident in our guidance for annual free cash flow in the '17-'18 cycle of approximately $565 million per year, or approximately $12 per share, and the value to be created from shareholders.

That concludes the financial review for the call. I'll now turn it back over to Perry for some closing remarks before Q&A.

Thanks very much, Tom. As a reminder, today, Nexstar Media Group owns or operates 170 television stations in 100 markets and reflecting the reinstatement of the UHF discount. On that basis, we serve 26% of all U.S. TV households, which leaves us with significant room for expansion.

As one of the nation's leading local media companies with a portfolio of premiere stations and digital assets, a strong balance sheet, an attractive weighted average cost of capital and substantial annual free cash flow growth, we continue to have the financial flexibility, management expertise and enter wide operating disciplines to drive organic growth and to consider future accretive M&A.

We look forward to reporting on our continued growth and accomplishments in the next 3 months. And on behalf of the more than 9,200 employees of the Nexstar nation, we thank you for your continued interest and support and for joining us today. So now, let's open up the call to Q&A to address your specific areas of interest. Sarah?

(Operator Instructions) We'll go first to Dan Kurnos of Benchmark Company.

Perry, if you can just talk about a little bit more on the forward outlook. Obviously, the lot's been made. You made some pretty pointed comments about others impacting your outlook, and it sounds like results are pacing pretty well heading into Q2.

I know you don't give pacing, but if you can just give us some high level color on what you're seeing around core. Obviously, national is a little bit soft, but that would be good start. And then just obviously, if you're seeing any impact on your overall sub count.

Sure. The -- Tom reported our -- on a same-station basis, our local ad revenue was up a little less than 1% in Q1, and our national revenue was down a little less than 7% in Q1. I can tell you as I sit here in the middle of the quarter that local is pacing to finish better than that in Q2, and national will be less down than our Q1 results in Q2. So we're pretty confident in our outlook and in things improving here as the year goes on and our pace in May and June are substantially ahead of where we finished April.

As it relates to sub counts, there has been very little movement. Obviously, we supported the growth in gross revenues and on a same-station basis, that that was up approximately 30 -- in excess of 35%. That -- all of that would be baked in sub counts moving on. We've seen very little diminution.

As a byproduct of some of our agreements, the cable operators are not paying on out-of-market subs. So we don't give things away for free. So there are no out-of-market sub coverage or payments, which led to a little loss in revenue on a same-station basis. But again, that's baked into the 38% growth that we talked to you about.

Got it. Great. And then if I could just ask one on the M&A environment. Obviously, with the deal of Sinclair-Tribune yesterday, I think, Tom, in your prepared remarks, you mentioned selected accretive acquisitions. I'm just wondering, Perry, if this kind of changes your thought process at all on how you're thinking about possibly another transformative acquisition relative to waiting for maybe further deregulatory and then going more to end market.

Sure. I would say, a, we will consider all of that. The very first hurdle any acquisition has to clear here is, what would be the accretion of a stock buyback at similar leverage points. And so that's a fairly high bar to get over. And obviously, if we find accretive acquisitions that are ?- where we're appropriately paid for taking on the additional risk with additional accretion and return to the shareholders, that's the kind of deal that we have done, and that's the kind of deal that we would do.

So I don't think our outlook has changed. We, as we've said in the past, appraise everything, and we have very bright line walkaway prices for everything. So we're not going to do a bad deal for the sake of doing a big deal. We will continue to only do accretive deals.

We'll go next to Marci Ryvicker of Wells Fargo.

I have a couple of questions. But the first I'm just going to ask you directly, because after the announcement yesterday, we were all asked, do you have any intention of looking at Tribune and trying to top Sinclair's bid?

I don't have any attorneys in the room to advise me how to answer that. But I think we made an appraisal of Tribune at some point, and I think you can safely assume, since we didn't -- we weren't announced as the winning bidder yesterday, it's because the price crossed our walkaway threshold. So I think I'll just let that be the answer for now.

And then back to the fundamentals. You mentioned, Perry, that you came in well ahead of analyst estimates, but you still just reconfirmed your free cash flow guide. So are you just being conservative? Or is there anything else that we should be aware of maybe in the second quarter or any other time?

I think our job is to make sure we over-deliver the promises that we make to you as evidenced by first quarter. And so, we certainly reiterate that guide and thought that was important in the face of all the noise that has been reported over the last 1.5 to 2 weeks. But I think that history would show that we do our best to make sure that if there's a surprise in our numbers, it's a pleasant surprise.

Great. And then can you just talk about whether or not you have signed deals or streaming deals with ABC and/or NBC?

We have not signed anything, yes, but we are very, very close with a couple of networks and deals, both with the network and with the opt-in of the individuals, as I tell each of the networks, listen, whatever we're discussing with you, figure it's times 4 other networks that we're having these same kind of discussions with, and it's a bit of a bandwidth issue. We did just close a $4.6 billion acquisition, but the discussions have been constructive, and I think you could expect announcements shortly.

Deutsche Bank's Aaron Watts has our next question.

Just 2 questions on the advertising front. And I apologize if I missed this. Can you talk specifically about the auto category, how that looked in the first quarter, how it's trending relative to that in the second?

Sure. Auto was down ever so slightly in the first quarter and is trending slightly better than that in the second quarter. I think that in and around a flat area is probably a good way to think about it, and it won't deviate more than a point or 2 beyond that. What we did say, Aaron, it's about 26% of our television ad revenues.

And again, I just want to point out in the prepared remarks, for the first quarter ever, TV ad revenue for Nexstar Media was less than 50% of total net revenue. And with the growth trajectories to each of our revenue streams, I think you can see that gap continue to widen over the time. So we are accomplishing our goal of becoming a diversified media company, and as of this call, we are slightly less than 50% dependent on total ad revenue for total net revenue.

Okay. That's helpful. And then kind of the second part of that, and maybe your answer just kind of preempts this question. But, Perry, you've been around a long time, certainly long enough to see the ups and downs and ups of the economy and the ad cycle as it impacts television broadcasting. But the start of the year had certainly had some mixed commentary around the strength of the ad environment, certainly national a little weaker than local.

But as you kind of take in all your data points from the local and national marketplaces that you have your hands into, as you look out on this year, do you feel like the slowdown for some to start the year is just a short-term impact? Or do you view this as more of a longer-term trend?

Well, a couple of ways I would answer that. One is that I think the comps get easier as the year goes on, because political displaced more core revenue in Q3 and Q4. If I just look at categories, all I can comment on is our results. But we said the top 5 categories for us in TV ad revenue were exactly flat to the prior year on a same-station basis. If I look at the next 5, 3 of the 5 were either flat or up. And then if I go to my next 15 categories, 9 of 15 are flat or up.

And so I tend to think that revenue growth will accelerate in the back half of the year. Some of it is the math of the comp. But also remember that we made a point on the call of detailing that we have added additional sales resources into the former Media General markets, and that's, obviously, having some effect on our results.

(Operator Instructions) We'll move next to Kyle Evans of Stephens.

For the purposes of the free cash flow guidance, could you remind us what our cash tax and CapEx assumptions should be for '17 and '18?

I don't think that they've changed. I think cash taxes are somewhere in the -- for '17, I want to say, it's in the mid-20s from a percent perspective and for '18 would be somewhere in the mid-30s from an effective cash tax rate. And CapEx is the $55 million for '17 and $65 million for '18, and the biggest difference is the effect of the MEG building sale in Richmond, which is expected to close in the summer, and netting that really against our capital budget. So I don't think those have changed.

Great. And you -- I think, in a conference recently, you talked about roughly 20% broadcast OpEx growth for '17. You were a little bit less than that in 1Q. Is that -- do you expect that to ramp up as the year goes on?

I'm not sure I recall that.

Including program expense.

Including programming expense, maybe, I don't know, but I'm not sure I ever speak in those terms. So you'd have to remind me of exactly what the context of that was. But I think from a fixed perspective, we expect our results to be on a same station down. So I'm not sure exactly the genesis of that. I'm happy to talk about it further, but I'm not sure.

I'll double back with you after the call on that one.

Yes, that'll be great.

And then it sounds like good progress on the OTT front with ABC, NBC. Any view on the other half of the Big 4 and when we expect to see some decent deals from them?

Well, I wouldn't -- I didn't specifically name the networks that we're making progress with. One of them is one of the ones you've named and the other one is maybe one that you didn't name. And so maybe that gives you your answer.

We're working with all of them, all 5 of the major networks. And they're in various stages of gestation, if you will. It kind of depends on when the agreements came in as to when we started working on them. And so some networks are ahead of others.

But again, I think we will be making some announcements here in the not too distant future. I don't think that from a financial perspective, it's going to change our standard of living, certainly, in the short to medium term, but we are in interested in partnering with our networks and exploring some of these new opportunities.

We'll go next to John Janedis of Jefferies.

Two questions. First, just going back to the synergies from MEG, now that you've owned the stations for a few months, is your team starting to talk more about potential revenue synergies on top of the initial cost outlook?

And then separately, as you know, most of your peers have reported results and your core numbers seem to be at the top of the peer group. And I was wondering how much of that is not being in some of the larger markets where there's more fragmentation. And how does the relative market growth impact your thoughts around or about future M&A given your current footprint?

Well, first of all, thank you on the first quarter results. We tend to agree. We're in markets like Phoenix and Tampa and Portland and other markets like that. And if you have good management, you -- and we do in every one of those markets, and our results from Tampa and Phoenix and San Francisco and Portland are very satisfactory at this point in time. And in 3 of those 4 markets, we've installed new general managers in the not too recent past. So I will tell you that that, I think, is a bit of a key.

I don't know what you can draw from market to market. The national business is somewhat challenged. There are no new product categories and the business is expensive to do business with just from a process perspective. And as chair of TVB, I'm trying to work with groups and vendors to try and solve that problem, because I think every advertiser would tell you that it's a superior value proposition. It's just less profitable for the agency to do business with us the way we do business today.

So I'm working on it in conjunction with everything else. But I will tell you that I'm very proud of the fact that we have announced and hired 22 new general managers, which filled all the vacant positions and then some people got promoted up and that created other opening. But we have spent the early innings of this consolidation ballgame focusing on management and people, and that's the key to our results and will continue to be the key to our results.

And just as it relates to how we model from a forecasting perspective, clearly, the national business, as Perry just mentioned, is challenged. And in the larger markets, a larger percentage of the business is national. So we take that into account whenever we look at any sort of opportunity and market size.

It's not so much that results are different. It's just that the revenue mix is different in some of the larger markets, and we take that into account. But as Perry mentioned, that's part of the job of the GMs is to diversify away from national business and get as much local business as we can, because we think that's stickier and gives us an opportunity to do more marketing and less quoting from a price perspective.

Anything further?

On the revenue synergy?

Revenues synergies, well, what we have done is now if you look at our footprints, we're in every market in the state of New York with the exception of New York City. We're in every market in Pennsylvania except for Pittsburgh and Philadelphia. We're in most every market in Tennessee without -- with the exception of Chattanooga and maybe one other.

So we are now working with those stations, and we have 7 regional vice presidents that each have a geographic slug of the country and part of their job is to look at opportunities that we can present to advertisers in those regions, in those states that nobody else can compete with.

For example, can you go to the state lottery or to an advertiser that has fast food locations and say, "Let's design this program around high school sports or weather sponsorships or whatever?" And we'll send you one invoice, and you can cut us one check to try and cut through some of the things, particularly where you have like-mind affiliations. We've got a lot of ABC affiliates in Tennessee.

And so are there things that we can do around college football or professional sports or our news or sponsoring our sports desk or something along those lines that we can sell platform wide? I can tell you that it works better regionally than it does nationally even with our expanded scale. And our RVP, that's their charge.

We also have 4 directors of local content development that basically work with the news product. How can we develop superior content offerings to our local marketplace that the competition just can't compete with, because we've got more resources in the state or we've got resources in Washington or whatever? So it is a theme of the company is, how can we use this scale to generate more.

And I would say also, we pride ourselves at Nexstar with regard to our ability to generate new-to-television business. I think if you go back and look at some of our results over the past several years, you'll see that a fair amount of the local business that gets generated and the increase in the revenue comes from local -- new-to-local business, and we're rolling that focus out to the new -- to the legacy Media General stations as well, and I think that that will serve us well in the not too distant future.

(Operator Instructions) From Barrington Research, we'll hear from Jim Goss.

One question I have is what you were just talking about with the -- some of the locally generated or even nationally generated content. To the extent that you've doubled the size of your D.C. news bureau, will that totally be an advantage to the Nexstar stations? Or is there any thought of going beyond the Nexstar platform in the markets where -- in which you're not currently competing to have an additional monetization avenue?

I think initially, we want to make sure we're giving best-in-class service to our 100 television markets, which is one of the reasons for driving the expansion to make sure we can provide that level of service.

That content is -- rather than the shot with the state capital over your shoulder that every national news network and every cable news network has, and we have the ability to do, we're in the same building, it's what does this legislation mean to the people of Peoria; or Binghamton, New York; or Fresno, California; and running over to the capital to get commentary from those legislators, tell me what this means at home.

We think the more we can localize what's happening in Washington, the more people will be involved at the local level. And again, it takes a company with resources to field a dozen-person news bureau on the nation's capital. It's not cheap, but when you amortize it across 100 markets, it makes it possible.

Okay. That's a great insight. On political, looking into 2018, do you have an adjusted comp for 2014, the last midterm that we can use as a stepping-off point? And are there any particular things that happened a couple years ago in the markets you are serving that would be likely nonrepeatable?

We don't have a comp, and we don't have a number, but we have our first meeting on [2018] political before the end of the month, if that gives you any insight, because we're going to start working on building that model. You've got a third of the Senate, all of the House in the midterms.

And at this point, I think it's anybody's guess that Democrats have more seats to defend than the Republicans, and we have statewide races and governors' races that -- in some big states that will be impactful. We haven't started to put a number on it, but we are going to start this month to develop our thoughts around that, and Tim Busch and our team will lead that effort to have a very informed view on 2018 political.

And our process has served us well historically. So we're confident in what we can provide.

You were closest to Le Pen last time, I think, in a very tough challenging environment. The last question I'd ask is, I know Upfront doesn't directly impact your businesses, but it might tangentially, and you are an educated observer of such things. I'm wondering if you have any thoughts on how that is likely to break broadly and maybe a degree of variability by network since you have exposure among all of them?

Are you just -- you want my predictions on the Upfront? Is that basically what you're looking for, Jim?

Yes, that's basically it. Yes.

Well, the -- as you know, the dance has already started. I always tell people this is the toughest time of year because everybody negotiates initially through the press. And so TV is going away, CPMs are going to be up double digits and it's just the whole dance. And unfortunately, we get the phone calls when somebody says something that people want to know more about.

It has no effect on us. I would predict that CPMs will be up probably in the mid-single digits, and I think it will be spread fairly evenly across the board. Their network is playing hotter hands than others in scripted programming, but you've got to remember the Olympics, which air in the first quarter next year. And so there's a lot of puts and takes, but I think that the -- with the prospect of a tax cut, I think people are going to be somewhat optimistic.

We'll move next to Barry Lucas of Gabelli & Company.

Could you just remind us here what the pace of renewals for your retrans would look like '17, '18, '19, maybe proportion of subs that come up?

The proportion in '17 and '18 is relatively low. I want to say it's around 20% in those 2 years, and then a big step-up in '19.

Okay. I don't even know if we can call this early innings, it's sort of pregame, but you did sign an MoU with Sinclair regarding development exploitation of ATSC 3.0. So I was hoping you could just expand the point out a little bit, Perry? And what you think you -- the 2 of you can do together? What it means and when does it become a business?

We're having phone calls, Sinclair and I, with other interested parties almost on an every-third-day basis. And our view is that we just wanted to hang a shingle out and say, "Okay, if you want to talk to somebody that has the ability to aggregate spectrum in what -- up until yesterday, it was about 56% of the country, it's now about 80 -- mid-80% of the country with Sinclair's expanded footprint, but here's the place to talk and have discussions."

We do plan to hire somebody to run this consortia, and it will be run literally like a limited liability company or limited partnership. Others will have the opportunity to buy in if they so choose or just affiliate if they so choose. But we think that with the repack comes a great opportunity to do a lot of the spade work. We've got to repack 90 stations out of 170, and we can get a lot of the work done to advance the 3.0 at the time during the repack, and the FCC will reimburse you for your 1.0 cost.

So if a tower climb is required, that's paid for, why not go ahead and put the 3.0 in when somebody is paying for part of the upgrade there, meaning the government. So we are enthusiastic about it. Others have been enthusiastic and some are groups that you may not think of that are substantial, but may be in a different -- slightly different business than Sinclair and Nexstar are in today and traditional network affiliates. But I think more announcements will come.

And I think monetization -- we've got 39 months for the repack, and that's when you can do a bulk of the work. I still think we're probably looking 5 years down the road for true monetization opportunities, but we're excited about it. And judging by the inbound calls of people who want to learn more, I think it can be a real business, and we're treating it as such.

We've got partnership agreements and things that are being drawn up that would really formalize this and give others the opportunity to opt in on either a "founding member meet the capital call" type business or just affiliate and share in a lower percentage of the downstream revenues. But a number of ways to participate.

And again, I think with the 2 companies together, you've got roughly 85% of the country with at least 6 megahertz per market and in many markets, multiples of that. And we think that this is an opportunity that if we build the infrastructure that the ideas will come. We won't have to force our ideas, but we're excited about autonomous cars.

We're excited about the public service aspects of this in terms of we can construct something that would wake up devices to say severe weather is coming. And from a public safety perspective, you could reach across the state as a governor to reach people through this kind of a network.

So there are multiple uses and multiple profit-making opportunities that we will investigate, but the market will really tell us what those are. We're just trying to put the for-lease sign in the yard and see who might show up at the end of the day.

And it appears that is all the time we have for questions today. I would now like to turn the call back over to Mr. Sook for closing remarks.

As always, thank you for your time this morning, and thank you for your interest in Nexstar. And we look forward to reporting on our Q2 results in about 90 days' time. Have a great day, everyone.

And again, that does conclude today's conference. We thank you all for joining.