Nexstar Media Group Inc (NXST) 2012 Q4 法說會逐字稿

Good day, and welcome to Nexstar Broadcasting Group's 2012 fourth-quarter conference call. Today's call is being recorded.

All statements and comments made by management during this conference, other than statements of historical fact, may be deemed forward-looking statements within the meaning of Section 21 of the Securities Act of 1933, and Section 21A of the Securities and Exchange Act of 1934. The Company's future financial conditions and results of operations, as well as forward-looking statements, are subject to change. The forward-looking statements and comments made during the conference call are made only as of the date of today's conference call. Management will also be discussing non-GAAP information during this call. In compliance with Regulation G, reconciliations of this non-GAAP information to GAAP measurements are included in today's news announcement. The Company does not undertake any obligation to update forward-looking statements reflective of changes in circumstances.

At this time, I would like to turn the conference over to your host, Nexstar President and CEO, Perry Sook. Please go ahead.

Thank you, and good morning, everyone. I'd like to thank you all for joining us this morning to discuss Nexstar's record fourth quarter and 2012 full-year results. And our recently completed transactions that will drive continued growth for the Company in 2013 and beyond. As is custom, Tom Carter, our CFO, is here with me on the call this morning.

The 34.8% rise in fourth-quarter net revenue concluded what was already a record year financially for Nexstar. And with the operating leverage in our model, a revenue increase resulted in strong fourth-quarter BCF, adjusted EBITDA and free cash flow increases. For the quarter, free cash flow was $28.7 million, bringing our annual free cash flow to $80.5 million. Illustrating our long-term record of growth, driven by operation disciplines and select strategic accretive station acquisitions, the Company's historic two-year free cash flow for the '11-'12 cycle exceeded our goal of $100 million as we reached $114.7 million for the two-year period. We've recently completed a series of transactions, in addition, that are leading to continued significant free cash flow growth in '13 and beyond.

Throughout 2012 and into 2013, Nexstar actively and opportunistically identified station acquisitions that adhere to our criteria for accretion and creating new strong local platforms. Since mid-2012, Nexstar has announced and completed the acquisition of 18 television stations in accretive transactions, that also create six new duopoly markets for the Company. These transactions expand our geographic diversity and scale, allowing us to further leverage our overhead and infrastructure, as well as our operating disciplines and our local market focus. The net result of these acquisitions is that Nexstar will generate over a 50% increase in free cash flow compared to the run rate of Nexstar's legacy station portfolio, prior to the announcement of the first Newport transaction.

As we've discussed before, our focus is on sustained free cash flow growth. And in this regard, since our 2003 IPO, Nexstar has generated a 66% compound annual growth rate of free cash flow, for the two-year cycles starting with '03-'04, through the two-year cycle that included '11-'12. Pro forma for all of the recent station deals are two-year '13-'14 free cash flow will well exceed $200 million. If we average that down to over $100 million a year, and consider a share base of 30.7 million fully diluted shares, we are generating well over $3 per share in average pro forma free cash flow this year and next.

Today's release notes we ended the fourth quarter with a net leverage ratio of 4.2 times, which was down significantly from 6.1 times at December 31, 2011. The year-end 2012 leverage ratio reflects the completion and financing of 10 of the 18 announced station acquisitions, or $225.5 million of the approximate $329 million earmarked for these transactions. Reflecting the accretive structure of these transactions, and the fact that we have again lowered our blended cost of capital, pro forma for the completion of the remaining station transactions, our net leverage is expected to rise only slightly to the high 4 times range by the end of 2013. Tom will review our revised capital structure shortly, but our strength in balance sheet provides us with a lower cost of capital and additional flexibility, allowing us to more efficiently acquire other stations in accretive transactions. And we're generating ample incremental free cash flow, not only for deleveraging but for continued station investments, as well as for dividends with our first $0.12 quarterly dividend paid just last week.

Quickly recapping our acquisition activity, late in the fourth quarter we completed the acquisition of 10 of 12 stations from Newport Television. And in early 2013, Mission Broadcasting finalized its acquisition of the two remaining stations that were included in the initial transaction, for a total consideration of $285.5 million for all the transactions. Having operated the first 10 stations now for a little over three months, we are pleased with the integration with our operating structure. And we are, indeed, realizing the anticipated synergies, and then some, that we forecasted at the time the acquisition was announced.

We followed the Newport announcement with the announced sale of KBTV, our Fox and Bounce TV affiliate in Beaumont/Port Arthur, Texas for $14 million, which also closed on December 1, 2012. This again was an accretive deal, as the multiple to us on the station was in the mid to high teens. The initial Newport transaction, as well as the recently completed acquisition of the CBS affiliate serving the Fresno, California market, and the NBC CW and Telemundo affiliated stations serving the Bakersfield, California market in another accretive transaction, was for $35.4 million. And that further diversified our operating base, as well as creating new duopoly markets.

Together with our announcement last month to acquire the Fresno NBC affiliate for $26.5 million, Nexstar is adding new duopoly markets in both Fresno and Bakersfield. And in addition, last week Nexstar and Mission Broadcasting completed the acquisition of the assets of the Fox affiliate and ABC affiliate serving the Burlington, Vermont/Plattsburgh, New York market for $16.9 million. Collectively these transactions extend Nexstar's duopoly presence to 26 of the 41 markets in which we operate. And expand it to 72 with the number of television stations that Nexstar either owns, operates or provides sales and other services. Overall, our recent work on all of the newly-acquired stations reinforces our confidence in the anticipated synergies that we are forecasting. And we look forward to the economic benefit of these stations now and throughout the remainder of 2013.

Let me quickly walk you through the Q4 operating results. And then Tom will review the financials and cap structure, and then we will turn to your Q&A. Our record financial results were driven by record political advertising, growing retransmission consent revenues, higher core television ad revenue, and our 24th consecutive quarter of eMedia revenue increases. The results also reflect one month of the operations of the first 10 Newport television station acquisitions. Fourth-quarter BCF, EBITDA and free cash flow increases of 61.2%, 62.6% and 87.2%, respectively, highlight significant margin growth related to the leverage in our operating model, as well as the value of our initiatives to diversify revenues, maximize the political advertising opportunity, manage our costs, and actively expand our operations through strategic and accretive stations acquisitions.

On the margin line, Q4 BCF margins rose to 48.5% from 40.5% in last year's fourth quarter, while the adjusted EBITDA margin was 41.4%, up from 34.3% last year. These margin metrics clearly indicate that our organization benefits greatly from the scale. And the full-year 2012 margins also highlight that with a 45.2% BCF margin, and 38.7% adjusted EBITDA margin, that our model and leverage are working as planned. The coverage core, local and national advertising fourth-quarter revenue was a growth of 8.8%. And that benefited from a 12% rise in automotive advertising, complemented by a 55.9% rise in retransmission fee revenue, as well as a 24.9% increase in digital or eMedia revenue, which benefited from one month of operations from Inergize Digital.

During the fourth quarter we successfully managed inventory to maximize our share of election spending in our market, without materially impacting our core television business. You can see the effectiveness of our inventory management efforts in the monthly auto pacings, which were flat year-over-year in October, November was up 9%, and December was up 15% over the fourth quarter of 2011. Notably, even excluding the benefit of $27.3 million of political advertising in the quarter, gross revenue in Q4 grew over 10% as we continued to successfully leverage the value of our traditional television broadcasting operating model, and our locally-focused content and advertiser relationships into a diversified platform with multiple high-margin revenue streams.

Nexstar's annual retransmission revenue growth of 63% largely reflects our 2011 contract renewals, as well as 2012 escalators. And we expect the long-term growth trend from this revenue source to continue as additional contract renewals are negotiated started later this year. Our continued focus on expense management and achieving further operating efficiencies resulted in record 2012 fourth-quarter operating income of $35.4 million, an increase of over 100% from 2011, while free cash flow rose 87% to $28.7 million, bringing total 2012 free cash flow to $80.5 million. That's a 136% increase over the full-year 2011 levels. By comparison, this represents a 35% rise over the $60.1 million in free cash flow generated in all of 2010, which was the last political election period.

For Nexstar, free cash flow is our primary performance metric. And we believe our very visible prospects to extend and accelerate our positive trends should be a principal point of interest to the capital markets. In addition, as we manage the Company for free cash flow, Tom and his team remain active in furthering reengineering our balance sheet. Over the last 10 quarters we have repaid $120 million of debt from our free cash flow.

So I'm proud to acknowledge the efforts of everyone at Nexstar, as we are performing well in all areas of operations, including free cash flow generation, leverage reduction, and on the M&A front. And our recent initiatives to return capital to shareholders in the form of a cash dividend as the first payment was made, as I said, last Friday. In addition to these advances, since our last call our shares have become more attractive for institutions, as during the fourth and first quarters selling stockholders, which were funds affiliated with Abry Partners, completed the sale of 12.65 million shares of the Company's Class A common stock. As a result, Abry Partners' ownership in Nexstar has been reduced to approximately 4 million shares from approximately 16.5 million shares, while the public float of our Class A common stock has increased to approximately 24 million shares, up from approximately 11.5 million shares before the offerings.

Tom will now provide details from our financials. And, after which, I'll come back and close the call, then we'll open for Q&A. Tom?

Thanks, Perry. Good morning, everybody. I'll start with a review of Nexstar's Q4 income statement and balance sheet data, after which I'll provide an update on our capital structure and recently announced transactions.

In Q4 of '12, we had net revenue of $116.2 million, which represents a 34.8% increase over the same period in 2011. On a same-station basis, our net revenue increased 22.4%. Core revenue, which is comprised of local and national television spot sales, stood at $72.3 million for the quarter, compared to $67.3 million for their fourth quarter of '11, which represents an 8.8% increase. On a same-station basis, core revenue declined 1.9% due to the crowd-out affecting in October and the first week of November of political advertising.

Local revenue increased 6.8% to $52.6 million, and national, another component of core, increased 14.3% to $20.6 million for the quarter, versus $18 million in the previous year's fourth quarter. Political revenue, as I mentioned before, was a stellar $27.3 million for the quarter, compared to $2 million in 2011. Retransmission fees for Q4 of '12 stood at $16.1 million, up almost 56% from the prior year's fourth quarter. eMedia revenues stood at $5.3 million, a $1 million increase, or almost 25% over the $4.3 million of Q4 of '11. Broadcast cash flow increased 61.2% to $56.3 million. And on a same-station basis, broadcast cash flow increased 47% in 2012 on the fourth quarter. Adjusted EBITDA was up 62.6% to $48.1 million. And, as Perry mentioned, free cash flow for the fourth quarter was $28.7 million, up 87% over the fourth quarter of 2011.

Nexstar's fourth-quarter corporate expenses were $8.2 million, compared with $5.4 million a year ago. As we mentioned in conjunction with an 8-K that we filed in February, nearly all of the increase reflects expenses associated with personnel costs, the Newport transactions, and expenses related to the various capital market activities completed during the period. In total, we estimate there were approximately $2.6 million in non-recurring expenses in the fourth quarter associated with these items contained in corporate expense. Station-direct operating expenses, consisting primarily of news, engineering and programming, and SG&A administrative expenses, net of the trade expense, were $51.2 million for the three months ended 12/31/12. Compared to $43.1 million for the same period in '11, an $8.1 million increase, or 18.8%. The increase largely reflects expenses for the 10 Newport stations added in Q4 of 2012, and higher variable costs related to the significant rise in national and local and political revenues. Also included is approximately $400,000 in severance costs associated with the Newport acquisition. On a same-station basis, total station operating expense was up only 2.9% quarter over the previous year's quarter.

One accounting note on the income statement. Nexstar's 2012 fourth-quarter and full-year net income, net income or loss from continuing operations, and earnings per share benefited from a non-cash release of $51.4 million of the valuation allowance relating to our deferred net operating loss tax assets. The release of the NOL reserve relates to the valuation allowance against deferred taxes for net operating loss carryforwards, other intangible assets, deferred revenue, and other deferred tax assets for continuing operations. We used a portion of the $51 million benefit during the year to offset pretax income, thus resulting in a $132 million benefit for the entire year. The general placing of the NOLs on the balance sheet, and the benefit derived in 2012, reflects the pretax profitability during the year, as well as our prospects for future years pretax profit.

Following significant reductions in total net debt over the last few years, and reflecting the strong cash flows being generated in 2012, and the strong increase we see in coming years, we continue to take actions to reduce leverage and reformulate the debt capital structure of the Company. During Q4, we completed an offering of $250 million of 6.875% senior notes due 2020, the proceeds of which were used to fund our cash tender offer and consent solicitation for the remaining $4 million of the 7% senior sub notes, as well as approximately $113 million of the 7% senior PIK notes. The balance of the funds were used to repay a portion of our first lien term loan, which was reloaded under the new $450 million senior secured credit facilities which were comprised of $350 million of a term loan and a $100 million revolving credit facility. Both of those facilities closed concurrent with the acquisition of the 10 Newport stations in December of '12.

The net effect of our refinancing activities was to reduce our weighted average cost of debt from approximately 7.4% to 6.6%. There was $290 million outstanding under the term loans as of 12/31/12. And subsequent to year end, Mission funded the remaining $60 million under the term loan for its acquisition of two stations in Little Rock from Newport.

Turning to the balance sheet, I'll review a new key items as of December 31. As Perry mentioned, our total net leverage for 12/31/12 was 4.16 times versus the permitted total leverage covenant of 7.25. And our first lien leverage was 1.16 versus a covenant of 3.5. As I mentioned, at 12/31/12 first lien debt outstanding, which was strictly the term loan, as no borrowings were outstanding under the revolver on a GAAP basis, accounted to $278.3 million. The second lien debt, the 8.875% notes, was $319.4 million. And the 6.875% was $250 million. This resulted in total debt at year end of $856.7 million. And also we had $67.2 million of cash on our balance sheet as we had pre-funded some of the acquisitions that subsequently closed in Q1. Total interest expense for the fourth quarter of 2012 was $13.6 million, compared to $12.9 million for the same period in '11. Cash interest expense was $12.9 million compared to $12.1 million, as our average debt levels throughout the quarter were slightly higher due to the pre-funding of the announced acquisitions that I mentioned briefly earlier.

Nexstar's Q4 CapEx at $6 million brought our full-year 2012 CapEx to right at $17 million, which was in line with our forecast, and reflects our initiatives to accelerate local HD originations. Our CapEx for 2012 will be approximately $18 million to $20 million. We believe our results again demonstrate we are successfully managing the top line, fixed and variable costs, and the balance sheet for cash. And beyond the dividend initiation, remain focused on further actions that we can enhance value. For the near term, we expect to continue to deploy free cash flow for the reduction of debt, and to reinvest in the business. As Perry indicated, the integration and realization of the synergies from the recently acquired stations is on track. So we remain highly confident that we are expanding our platform, which will allow us to continue to show good leverage ratios, and pay cash dividends, while allowing us to explore other value-enhancing initiatives for shareholders.

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

Thanks, Tom. Great job. Nexstar's consistency in driving record results are the direct result of our disciplined approach to the operation of our core television broadcasting operations, our revenue diversification initiatives, as well as the success we are achieving in identifying, efficiently financing and integrating, selective accretive station acquisitions. Our recently completed transactions bring further diversification and scale to our operations, and very significant incremental free cash flow, which has positioned us well to further address debt and leverage.

With respect to our shares, our current dividend yield is approximately 3%. And the annual capital allocated to dividend payment at this time is approximately $14.2 million, which is a modest payout relative to the total free cash flow that Nexstar now generates. As such, we will have ample liquidity to continue to reduce leverage, evaluate additional accretive station acquisitions, and pursue other initiatives to enhance long-term shareholder value. In addition to the top line and free cash flow growth reported this morning, we've repositioned and derisked the Company through significant leverage reduction. In addition, our trading float has risen by over 100% to approximately 24 million shares, of course, with no dilution to our current shareholders, and the average daily volume in our shares reflects this significantly improved liquidity. With significant and growing free cash flow generation, the strength in balance sheet, and solid visibility on 2013 growth drivers, both Tom and I are confident that our free cash flow growth story will remain among the most impressive in the industry.

I'd like to thank you all for joining us this morning. And now let's open the call to Q&A to address your specific areas of interest. Operator?

(Operator Instructions)

Marci Ryvicker, Wells Fargo.

We are well through the first quarter. So I want to know if you could characterize the pace of business. As I understand it for the industry, the year may have started out slow, but we are seeing some acceleration. And also comment on any bad categories that have changed in Q1 versus Q4 in terms of strength or weakness.

Sure Marci, thank you. If I look at our revenue results for the fourth quarter in our top 10 product categories, which were on a net basis up for the fourth quarter, with five categories up, and flat either 5 or down. And now fast-forward to Q1, I see that out of our top 10 categories, at this point with business on the books have five up and five flat or down. So thematically I think the core business looks a lot like fourth quarter. I will say that, if I look at the progression of months in the quarter, February ended up better the January in terms of growth over prior year. March is pacing to be better by a not insignificant margin than January or February. So we are seeing an acceleration throughout the first quarter of the year.

Interestingly, when I look at the product categories for Q1, it's a fairly tight bandwidth. No category is up more than 4%. And no category is down more than 5%. And so everything is clustered in a plus or minus 2 point bandwidth. Thematically I think the quarter is evolving as we had anticipated that it would. And we are seeing acceleration the further we get away from fiscal cliff discussions that happened in December. Unemployment seems to be continuing to inch down slightly in our marketplaces. Fuel costs continue to inch down slightly in our marketplaces. And we think that drives a lot of consumer psychology and behavior. So I think on balance we are positive to cautiously optimistic, not only for Q1 but for the balance of the year in core revenue.

Is your core spot business flat in the first quarter or is it slightly up?

Slightly up.

And then any comments on expenses for the year in terms of a same-station core growth that we can think about?

Sure. As I mentioned in Q4, our fixed growth, which was ex, basically, the commissions around the political in Q4, was up 2.9%. And that includes as fully loaded network affiliation fees compared to Q4 of '11. Obviously we're going to see continuation of the lack of political in '13 versus '12, tamped down overall expense growth. But I think the way we think about it is our fixed expenses, absent sales costs and commissions, are going to be in the 1% to 2% range. Then that will be increased slightly due to additional network fees paid during the year. But overall I think we're in the low to mid single-digit growth in terms of expenses for 2013 over 2012 on a same-station basis. Is that responsive?

Yes. And then the last question is more of a strategic question. Sinclair, looks like they're now buying small market stations. Do you view them as competition in terms of the potential targets that you would be looking at? What is your view on what they are doing?

I think if you go all the way back to the beginning of this current M&A cycle, the acquisitions that have been made have encompassed both large media market and small market acquisitions as parts of groups. And I think that if you go back and look at everything that has happened over the last two years, I'm not sure that anything has really changed. Going back to the initial acquisition of Freedom. That encompassed stations in Beaumont, Texas where we both operated. I don't know that the competition is any different than it has been. We are selective. As I said earlier in the week at a conference, there's about 1,400 commercial television stations on the air the United States. And we have a legitimate interest in probably 90 of those, either duopoly opportunities in existing markets or groups that we think would fit our profile. Not everything fits our profile. And so I think we're going to continue to be selective and disciplined in what we acquire. And that means we will win some and we won't win some. But I'm not sure that the competitive environment has changed from what it's been over the last two years.

Great, thank you.

Avi Steiner with JPMorgan.

First off, and you went through a lot of information so if you said this already I apologize for making you repeat it. But, Tom, could you just refresh us on post December 31 the flows on the balance sheet, and what you still have to pay for. Thank you.

Sure. Again, on January 3, Mission borrowed $60 million, the majority of which went right out the door to pay for their Little Rock purchase from Newport. So that still left us with a mid $60 millions number of cash on the balance sheet. Subsequent to that, we've made the Newport 2 acquisition, as we call it, and the Smith acquisition, which comprised approximately $52.5 million of purchase price. So that reduced our cash balances down to about $15 million.

And then, as well, in that same timeframe, in the month of February, we entered into an agreement to acquire Granite's NBC affiliate in Sacramento, KSEE. And that was a $26 million purchase price. We entered into an LMA with them at the time of the signing. And paid $20 million for the non-FCC licensed assets. So that basically put us into a slight borrowing position under the revolver, where it stands today, which is around $10 million. So the only remaining commitment that we have outstanding is a balance of a $6.5 million purchase price for the second half of the payment on Granite Fresno. And we have $10 million outstanding under the revolver right now.

Very helpful, thank you. And then you talked about reverse comp earlier in expenses. I don't know if you mentioned retrans, but can you help us with what's coming up for renewal this year? And if you don't or can't be specific, can you maybe talk about it as a percentage of subs and how to think about that? Thank you.

Sure. We have approximately 27 agreements that expire this year. They all expire at the end of the year. I would categorize 2 of the 27 being significant. And as those roll over, they will certainly affect 2014 in terms of retrans revenue growth, because you know our 2012 growth was driven primarily from pricing two of our top five MVPD agreements. And we will reprice one of our largest MVPD agreements at the end of year, as well as several others that are significant but outside of the top five. And then in early to mid 2014, and again at the end of 2014, that's the mother year where we have 158 agreements that are up for renewal, including the remaining two of the top five, which will continue to drive revenue growth in '15 and beyond. So I think we pretty well guided on a same-station basis for roughly a 10%, or maybe slightly greater, increase in retransmission fee revenue in 2013. Obviously that will be colored by the addition of the acquisitions. And then we will return to more dramatic growth in '14 and '15 because of the repricing cycle of the agreements that will be up for discussion in those years.

On the reverse of that, we are paying, at this point, reverse compensation program fees, reverse retrans, whatever you would like to call it, on approximately 85% of our network affiliates at this point in time. And so that is embedded in the expense projections that Tom gave you for first quarter of '13 and for the year. And so, at this point, that is, for lack of a better term, a fully baked number. There is less than six stations at this point who have not renewed to 2.0 affiliate economics. So that's fully baked in, certainly, to our operating model, and certainly into the guidance that Tom gave you for expenses earlier in the call.

Very helpful. And last question for me, Tom, maybe directed at you. We're about a year away from your second liens being callable, your 8s. And I'm just curious how you think about that. I think Perry gave you a shout out for all the hard work you did on the balance sheet, but it would seem there is further opportunities. I'm curious how you think about that. Thanks a lot, guys.

Sure. That's definitely on the to do list. I can't say it's on the near-term to do list because the near-term to do list is pretty full as it stands right now. Clearly that's an opportunity. If you look at where our bonds are trading, where the bank debt is trading, we can significantly average down that almost 9% coupon. I think the balance there is the fact those bonds trade at 1.10 or 1.11 right now, so there's a big premium associated with that. I think the other thing that we think about here is, obviously, the strategic initiatives drive the tactical initiatives. And I view the refinancing of the 8.875% as more tactical than strategic. So as the strategic alternatives and strategic acquisitions present themselves over the course of the next couple of quarters, I think that will go a long way towards determining the timing on any refinancing of the second lien bonds.

I'll just add, it's certainly not lost on us that the positive arbitrage would yield approximately $0.30 a share of additional free cash flow. So it is something that is on the radar screen, and it's just a question of at what point we decide to move forward.

Appreciate the time, gentlemen. Thank you.

Tracy Young with Evercore.

You gave a lot of good color. Just two questions. Could you give us your same-station core revenue growth in December? And also, are there any one-time charges for this quarter that we should be aware of? Thank you.

There will be a modicum of one-time charges in this quarter. I would say, as they stand right now, it's probably under $1 million associated with some of the acquisitions. I haven't totaled that amount up yet. And I don't have same-station for the month of December at my fingertips, but I will get it for you, Tracy.

Great. Thank you very much.

Aaron Watts with Deutsche Bank.

Tom, maybe for you. I know $146 million was the EBITDA for 2012. Because you've paid out cash for all the acquisitions you've walked through, is there a fully baked EBITDA number, or pro forma EBITDA number that we should be thinking about as a base for 2012 to work off of for 2013?

Aaron, we have not given that number.

Okay. And then, secondly, FCC has been noodling over JSAs. And I was just curious if you could give us your thoughts, Perry maybe, on how you think that plays out and whether that could have an impact on Nexstar. Thanks.

The JSA proceeding has been an open proceeding since 2004. Since 2004 we have initiated in excess of 12 additional JSAs, which the FCC has approved. The way everything is currently constituted, this is wrapped up in an ownership proceeding, upon which I think the FCC has decided to stop down and do further study as it relates to minority ownership. So we're not anticipating anything other than the status quo as it's been since 2004.

Okay. Great. I used up the rest of mine a couple days ago. Thanks, guys.

This is Tom Carter. Just one other thing. Tracy Young, you asked the question about December. December core pacings were up 3% '12 over '11. And that's on a same-station basis.

Edward Atorino with Benchmark.

Mine was answered. Thanks very much.

Michael Fina, Credit Suisse.

Just a quick question in terms of the M&A strategy. Given you do have the free cash flow generating, and you've gotten the leverage down, is there a target leverage that you intend to manage to as we think about the potential future acquisitions? And also, just wanted to see what stage you feel like you're in the progress of recognizing the synergies from the acquisitions that you've completed?

Sure, I'll take the first part of the question. I think, as Perry mentioned, we're at a little below 4.2 times right now. We see that just organically, because the lack of political in 2013, creeping up into the high 4s. So on an average basis that's about 4.5. However, if you fast forward to '14, with the retransmission agreement renegotiations that Perry mentioned and the return of political, we see leverage in the low 3s in 2014. So it peaks out at about a 4.5 average of '12-'13. But if you look at an average of '13-'14, it's probably going to be in the high 3s. So I think we would be willing, and we've said we are looking for, with synergies, on a leveraged neutral to slightly leveraging basis. So, could it go up slightly above the 4.5 average? Yes. But I think it would only do that for that period of time until we realized some of the political and retrans growth in '14 and brought it down to sub 4. So there is a lot of moving parts as it relates to that. But in terms of material leveraging above where we are on an organic basis, we don't think we see the need to, or have any reason to at this point.

As it relates to the synergies, I think we had been public in the first Newport acquisition of identifying approximately $19 million of synergies. I'm happy to report that after our team has gone in and spent the time and done the additional work, and followed every line item down to the decimal point, that our actual realized synergies for the first Newport series of acquisitions will be closer to $21 million on an annualized basis. The vast majority of those have already been realized. There are some synergies related to the Inergize acquisition because we are running our operations in parallel for the first six months of this year, that won't be realized until the end of second quarter.

As it relates to the second wave of acquisitions, which is Burlington, Fresno and Bakersfield, synergies around those acquisitions will be realized by the end of April. And then with the Granite acquisition, the second acquisition for Nexstar in Fresno, those will be realized subsequent to the FCC closing. Which, again, we would anticipate being in second quarter. So we're well on our way to realizing more synergies than we had advertised. And the synergies in the second wave of acquisitions will all be encompassed in the second quarter. And sooner than later in the second quarter, I should add.

Great. Thanks. And I just have one further question to touch back on the expense side. Looking at the visibility that you have into most of the affiliation agreements, and where reverse comp is going. And also how you intend to manage your station OpEx. Looking ahead past '13 into '14 and '15 as retrans keeps growing, and presumably reverse comp does, do you expect that you could still expand margins? Or will the reverse comp likely have some dampening effect, even if you manage your cost base?

I would say that in the macro, and we have -- our model runs five years out, at this point in time and we have fully baked both the revenue and the expense equation as it relates to retrans. The bottom line is that if we do our job well we will be able to preserve and slightly grow the margins that we have because we would expect top line revenues, which is the bigger number, to grow at a rate faster than the individual expense line. So we feel it will be a net positive. As it relates to retrans payments to the networks, that margin will comprise over time. But again I'll remind you that for the 15% to 18% of our retrans revenue that comes from CW My Network or independently affiliated stations, there is no sharing of that with the network. So we anticipate the margin on retrans for the Company for that reason always being above 50%.

Got you. Thank you.

(Operator Instructions)

Tracy Young with Evercore.

Yes, actually it's a question, Perry, from Doug Arthur. One big picture question and one more micro question. On the big picture, in light of this action by Cablevision with Viacom, and the continued bubbling up of a la carte mentioned, if that plays out over a long period of time in some form or fashion, do you think that actually helps your negotiating posture in retrans? Or is it just basically neutral if that plays out? And then, secondly, on auto, auto has been strong. The comps start to get a little tougher here. Certainly by the second quarter. Any thoughts on what you are hearing on the longer-term trends there? Thanks.

I'll start with auto quickly, Doug, and tell you that, anecdotally, what we hear from not only the factory reps but the dealers is that, yes, the comps do get tougher in the back half of the year. Particularly for some nameplates that were up against supply chain disruptions. But in conversations as recently as last week with those nameplates, everyone is continually surprised at the SAR being above -- the new car sales rate -- above what they had projected for at least the early going here in 2013. So I think that we're -- I had lunch a year ago with the outgoing president of the National Automobile Dealers Association, and he said that in his opinion the sustainable long-term new car sales rate was probably somewhere in the 16.5 million. And that's due to population growth, more drivers, whatever, echo boomers and all of that. And that we're nowhere near that now. Were talking about a mid-15 million, up from a 14 million last year. So we think there's 10%, and then probably 10% again, before we start to hit that maximum. I don't think we will ever return to 17 million, 18 million SAR channel stuffing to keep factories busy, because that capacity is now out of the system. But we do think that there is probably another 24 months of run rate in automotive before it would level out to more GDP-like growth. I can't predict the future but that seems to be the indications and anecdotes that we have at this point.

And as it relates to a la carte, and I pay close attention to what folks that run major MVPDs have said. And I think thematically they are saying -- I'm paying more for the most popular, most watched channels. And that puts pressure on those channels that are least popular or not watched. And I think it's very consistent with a reallocation of distribution of revenue to channels based on their value in the package rather than based on vertical integration. So I think you'll see continued pressure on those at the bottom of the food chain, if you will, from those at the top of the food chain, which would include the broadcast channels. I don't want to get into a huge philosophical or political discussion, but a la carte would not scare us at all. We would be happy to take our chances, if it ever came to that. I don't know that it ever will. But I remember back to 2005 when people were calling my office and saying -- Mr. Sook, I see you holding up that $0.01 a day. I'll give you $3 a month if you'll just give me my station back. And that was almost 10 years ago. We feel that our value proposition is solid in the MVPD package. And our job is to make sure that we continue to earn a better piece of that revenue, more in line with our viewership share and popularity in the package that the consumer buys.

Great. Thanks.

At this time there are no more questions in queue. I'll turn it over to our presenters for any closing remarks.

Thank you all for joining us here today. We look forward to reconvening in the first week of May to talk about our Q1 results and to update you further on our most recent acquisitions. Thanks again.

That concludes today's conference call. We appreciate your participation.