Nexstar Media Group Inc (NXST) 2015 Q3 法說會逐字稿

Good day and welcome to the Nexstar Broadcasting Group's 2015 third-quarter conference call. Today's conference 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 get measurements are included in today's news announcement. The Company does not undertake any obligation to update both can statements reflective of changes in circumstances.

At this time, right turn the conference over to your host, Nexstar President and CEO, Perry Sook to go please go ahead sir.

Thank you, Operator and good morning, everyone. Thank you all for joining us today. We are excited have you join us to discuss Nexstar's record third-quarter revenue results, our organic growth and success stories in quickly integrating and realizing upside from our completed accretive transactions, and our recently announced initiatives in terms of both additional M&A and returning capital to shareholders, all of which underscore our focus on enhancing shareholder value. As always, Tom Carter, our Chief Financial Officer, will be with me on the call here this morning.

On high level, third-quarter net revenue, BCF, adjusted EBITDA and free cash flow growth again illustrate the value of our expanded scale, organic core advertising increases, distribution and digital media revenue growth, and our enterprise-wide cost disciplines. Over the last year Nexstar has completed value-building and accretive transactions, which added 27 stations as well as digital media advertising and programmatic technology providers to our growth platform. Nexstar's execution in terms of swiftly extracting forecasted synergies and efficiency disclosed at the time that these acquisitions were announced is a point of pride and differentiation.

As we communicated previously, Nexstar has a considerable runway for further expansion through additional accretive station and digital media acquisitions, and we remain active on the strategic priority here in Q3. In mid September we announced another accretive transaction whereby we will acquire four CBS television stations in North Dakota. Pro forma for its completion and reflecting the continued strength of our operating results and our recent share repurchases, Nexstar 2015/2016 free cash flow projections now increased to approximately $467 million, or an average pro forma free cash flow of approximately $7.62 per share per year.

Later in the month of September Nexstar announced a proposal to acquire Media General in an accretive transaction that would deliver superior immediate and long-term value to Media General shareholders relative to their alternatives, while representing another extraordinary growth opportunity for our shareholders, as well. Pro forma for the synergies, the proposed combination would generate free cash flow of $900 million over the next two-year cycle, or approximately $10.50 per share, which would be allocated for continued investment in the business and for deleveraging and other initiatives that enhance long-term shareholder returns.

Since 2011, including pending transactions, Nexstar has acquired 62 television stations and 4 digital businesses, all in accretive transactions, and in each case Nexstar's ability to effectively integrate and extract synergies from the acquired stations and assets has met or exceeded our goals and expectations. From 2006 through 2014 we have grown Nexstar's free cash flow at a compound annual growth rate of approximately 25% per annum. So, it is evident to us that our long-term acquisition strategies and operating discipline, combined with the prudent management of our capital structure, is a proven formula for sustained long-term growth and shareholder value appreciation.

We believe that Wall Street acknowledges our ability to generate consistent shareholder return. And since the announcement we've had conversations with many large Media General shareholders, all of which have been highly supportive of our proposal and the compelling strategic and economic benefits that this combination would represent.

Accordingly, we are highly confident than a Nexstar Media General combination would deliver significant value to shareholders of both companies and provide a clear path forward in creating a stronger company well-positioned to achieve sustainable long-term growth, reflecting the positive market reaction to Nexstar's proposal, which is currently valued at $15.34 per share of Media General stock as of last night's closing. That's a considerable premium of 37.6% to Media General's share price on the day prior to our announcement.

As we've announced in mid-October the parties are in the process of exchanging information. And we have engaged in mutual due diligence with Media General which has allowed us to confirm our views on both synergies and price. Following our due diligence I'm even more excited and convinced about the merits of this combination. We cannot comment further about this matter at this time, so when we get to Q&A we would like to ask that you please keep your questions limited to our quarterly results and our outlook.

Let me move back to a review of the quarter now. In Q3, all of our non-political revenue sources posted year-over-year increases. With our focus on managing operations for both current cash flow and future growth, we did report another period of record BCF-adjusted EBITDA and free cash flow.

The successful integration of our recently acquired stations, combined with ongoing strategies to leverage our targeted localism, content and advertiser relationships, built a 43% rise in net revenue, and that more than offset the $15.6 million year-over-year decline in political advertising. Excluding political ad revenue, third-quarter gross revenue grew 55%, aided by core television ad revenue growth, a significant rise in retransmission content revenues, and continued digital revenue increases.

Overall, revenue growth included a 1.8% rise in same-station core ad spending, with increases in six of our top eight categories, with the other two mainly auto and cable that were basically flat year over year. In addition, our initiatives to bring new advertisers to TV continues to build on our long-term success on this front, as new-to-television ad revenue for Q3 was $7 million, which was 8% of our total Q3 local revenue.

With our market and regional successes based on organization-wide commitment to localism, during the quarter our local NBC and FOX stations relaunched local news in Baton Rouge. And we opened a brand-new broadcasting and the news facility in Roanoke to support the operations and localism of our FOX and CW stations serving that market. And last month we were proud that five Nexstar stations produced and originated a live gubernatorial debate for the voters of Louisiana, and did so in cooperation with other local broadcasters in the state.

Nexstar's record third-quarter television ad revenue was complemented by a nearly 97% rise in retransmission fee revenue and a nearly 56% increase in digital media revenue, as both revenue sources benefited from both organic growth as well as our recent accretive acquisitions. Digital media revenue growth was driven by both organic growth in our markets and contribution from Lakana, our newly formed digital media services company, and the first full quarter of operations from Yashi, our leading online programmatic video platform with location-focused technology. That Company we acquired in an accretive transaction earlier this year.

We expect our long-term distribution revenue growth trend to continue as we make further progress in narrowing the severity between the value we receive for our content and its viewership on the various distribution platforms in our markets. In addition to the late 2014 contract renewals representing about 40% of our NBC subscribers, another approximately 45% of our subscribers are being renewed and repriced in 2015.

The benefit of our growing retransmission fee and digital media revenue streams is the diversification that's increasingly evident in our income statement. In total, third-quarter retransmission fee and digital media revenue rose 86.6%, and accounted for 44.5% of net revenue. By comparison, total third-quarter retransmission fee and digital media revenue in 2013 for previous non-political periods comprised of 28.3% of net revenue.

Notably, third-quarter 2015 free cash flow grew 19% over the record third-quarter 2014 level, and by approximately 114% over the third quarter of 2013, again the previous non-political period. We believe that clearly highlights the value being derived from our platform building and revenue diversification strategies. In 2015 to date we have generated over $139 million of free cash flow or over $4.55 in free cash flow per share.

With the full benefit in 2016 of significant retrans renewals for the year, and the coming completion of the North Dakota transaction, as well as our ability to capture large shares of political advertising in our markets, we believe that we have excellent visibility on delivering or exceeding our free cash flow targets. And this is, of course, before any consideration is given of our intention to complete the Media General acquisition.

Our focus on building shareholder value through platform and free cash flow building initiatives is being complemented by a keen focus on managing costs, as well as the capital structure, while at the same time returning capital to shareholders. At the same time, our growing free cash flow affords us the financial flexibility to continue pursuing additional accretive acquisitions, while simultaneously reducing our leverage and returning capital to shareholders through share repurchases and our quarterly cash dividend with our fourth $0.19 quarterly dividend payment to be made later this month.

Since the August 2015 announcement that we intended to repurchase up to $100 million of Nexstar shares, the Company has indeed repurchased approximately 1 million shares at an average price of $48.15 per share. We believe that repurchasing shares at these recent levels underscores our confidence in the Company's long-term prospects based on visible organic and M&A related growth opportunities, and the fact that we remain on plan for our goals for growth and expectations that we will generate approximate $467 million of pro forma free cash flow, which is $7.62 per share over the 2015-2016 cycle.

With all of that said, let the call over to Tom Carter to provide further detail on our financial statements. 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 will provide an update on our capital structure.

Q3 2015 net revenue rose 42.6% to approximately $225 million for the quarter over the prior previous year's quarter. Core revenue, local and national, was $126 million, which was up 37.8%. That was comprised of a 33.7% increase in local and a 48.2% increase in national revenue.

Political revenue, as is typical in an odd numbered year, were down substantially from the prior year's third quarter, and stood at $2.6 million. Retransmission fees were $80 million for the quarter, which was up 96.5% over the reported third quarter of 2014. And digital media revenues were up 56% to $20.1 million. Broadcast cash flow was a record $84.3 million, adjusted EBITDA, likewise, was $73.2 million, a record. And free cash flow was $46.2 million.

Third-quarter station direct operating expenses, which are net of trade expense, and the SG&A expenses at the station level rose 69% and 29%, respectively. The increases reflect higher variable costs related to an increase in local and national revenues and the operation of acquired stations and digital assets as we operated or provided services to approximately 107 stations in Q3 2015 compared with 80 stations in the year-ago period. Approximately $550,000 in transaction and alignment expenses were incurred at the station level in third quarter.

Same-station fixed expenses, ex of network affiliation costs and one-time costs, were up 3.5% for the quarter, and reflect the additional news products Perry mentioned previously. Nexstar's third-quarter corporate expenses were $11.1 million, right in line with the forecast of $11 million which we talked about last quarter. And of this amount, $8.3 million was cash corporate overhead and included $1 million in transaction-related expenses. This compares to corporate expense of $8.7 million a year ago, which included $1.9 million in non-cash stock comp expense. For 2015 fourth quarter we project corporate overhead will be approximately $12.8 million inclusive of stock comp expense, while cash corporate overhead will be in the range of $10.5 million as we will incur incrementally greater transaction-related expenses in the next several months.

Turning to the balance sheet I'll review the key items as of 9/30/15. Total net leverage as of September 30, 2015 was 4.26 versus the total permitted leverage covenant of 6.75. The first lien leverage was 1.96 versus the covenant of 4 times.

The outstanding debt as of September 30 consisted of first lien debt of $693.5 million, which was largely comprised of $686.5 million on term loans and $7 million outstanding under the revolver. The [6-7/8%] senior debt totaled approximately $520 million for the quarter (company corrected after the call), and the 6-1/8% bond was $272 million for the quarter. The outstanding debt balances were effective in the quarter and retrospectively by the adoption of the FASB update ASU 1215-03 which changed the accounting presentation of deferred financing costs from noncurrent assets to deduction of the carrying value.

Since our August 2015 announcement that we intend to purchase up to 100 million shares of the Company stock, the Company has used cash on hand to repurchase approximately 1 million shares, or about 3% of the Company's outstanding shares, at an average total purchase price of $48.15 per share. Due to our outstanding offer on Media General we do not intend to make additional repurchases over the near to mid term. However, our Q3 of repurchase activity is just another example of our initiatives to enhance long-term shareholder returns.

Net debt at September 30 amounted to total net debt of $1.461 billion, which compared to $1.473 billion as of June 30. Our September 30 levels also include approximately $28 million for the quarter of share repurchases made out of cash on hand, which otherwise would have gone to net against debt.

Back to the Q3, total interest expense was $20.4 million compared to $15.5 million in the year-ago quarter, with the increase related to borrowings to fund the operating expansion over the last year. Similarly, cash interest expense rose to $19.5 million from $14.8 million related to our growth over that period of time. Looking at the current capital structure, Nexstar's weighted average cost of borrowings currently stands at approximately 5%.

Nexstar's Q3 CapEx is $7.8 million compared to the year-ago quarter of $4.8 million. Year to date CapEx is $19.1 million, and we remain on track for a full-year 2015 CapEx of approximately $25 million, inclusive of the required investment in the new affiliations in Waco and Lafayette.

As it relates to management focus on free cash flow, our formula remains unchanged in terms of building the top line, maintaining close control of fixed and variable costs and optimizing the balance sheet. This plan has supported our goals of generating significant free cash flow, while allowing us to pursue additional accretive acquisitions, continue to pay dividends, and opportunistically repurchase shares, in addition to reducing leverage and taking any other actions that can enhance shareholder value.

Echoing Perry's comments, we remain confident with our expectations for 2015-2016 free cash flow totaling $467 million, or an average pro forma free cash flow of $7.62 per share. With our operation's balance sheet, capital structure and cost of capital in great shape, we are on plan as we head into 2016.

In Q3, while the political comps with the year-ago quarter are more pronounced, we brought nearly 21% of every revenue dollar to the free cash flow line. So, we remain very excited about 2016 with our rapidly growing retrans, digital media revenue streams, and the return of political and presidential election advertising, which will collectively drive enormous operating leverage through our financial statements and into our free cash flow line.

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

Thanks very much, Tom. Quickly, the daily contributions of my 4,200-plus colleagues here in the Nexstar nation continue to advance our organization-wide commitment to serving the local markets where we operate, with great local news, events and other local programming, while making appropriate process and operating adjustments to ensure that we remain the most efficient and competitive diversified media company in our industry.

Our teams consistently leverage localism to bring new entertainment, information, services and value to consumers and advertisers through Nexstar's television, digital and mobile media platforms. And the dedication is reflected in our strong standing in our local communities and the strong results that we reported today.

With expanded broadcast and digital media operations, significant and growing free cash flow, a stable capital position and solid visibility on our 2016 growth, we are confident of our approach to enhancing long-term shareholder value. Our focus on the capital structure and cost of capital have positioned Nexstar with the financial flexibility to complete additional highly accretive M&A transactions, fund growth, pay dividends and repurchase shares opportunistically, all while remaining a favorable leverage profile.

As significant shareholders ourselves, we believe that we are excellent stewards of the shareholders' capital, and our long-term free cash flow growth and share price appreciation we believe reflect that fact. Tom, the finance and legal teams and I, as well as the rest of the management team, are working aggressively to move forward with what we believe would be the largest and most transformational transaction in the Company's history. Past history and recent results, both ours and those of other involved parties, indicate that we should prevail in our efforts to acquire Media General. And we are appreciative of all the Media General shareholders and our shareholders who have all expressed their support for what is undoubtedly the preferred home for the Media General assets.

With that said, I would like to thank you all for joining us today and open the call to Q&A to address your specific areas of interest. Operator?

(Operator Instructions)

James Dix, Wedbush Securities.

Good morning, gentlemen. Three things, I think, on my list. First in terms of core advertising, it sounds like the business in third quarter was similar in core growth, and if you could just confirm that and give any color you saw on changes in the tone of business throughout the quarter. And then how does 4Q look to be pacing at this stage in terms of core ad growth?

Then, secondly, just any update on your thoughts in terms of our participating in the FTC incentive auction, any next milestones that investors should expect on the pathway in this process. And the final one would just be any update in your outlook for political advertising for this two-year cycle, just given how the fundraising or the presidential primary spending that you have seen so far. Or is it really too early to tell? Thanks a lot.

Thanks, James. I would say that the color on Q3 was pretty much as you had advertised, that Q3 from a core advertising perspective relatively in line and marginally better than Q2 in terms of core revenue. As I think we mentioned, we had six of our top eight categories up and the other two were basically flat. Retail was down slightly, and insurance was down slightly, to round out the top 10. But all in, our top 10 categories Q3 finished ahead of prior-year final. And as I said, the automotive category was basically flat. We saw double-digit increases from General Motors and some of foreign nameplates, and that category continues to remain stable as we move into Q4.

What I would say, in Q4 obviously October is in the books, and we saw similar increases in core revenue in the month of October, and it looks like that pacing continues. Our pace has improved as we have moved through the quarter, marginally.

And I will tell you that as it relates to political we are pleasantly surprised that for Q4 our political revenue is ahead of our budget and ahead of our expectations. When we budgeted we did not anticipate the runoff election in Louisiana. That is a fact. And that is added to our results, as well as activity in our stations in Iowa and statewide races in Pennsylvania. So, Q4 political ahead of budget and ahead of expectations, and I don't think it is too much of a leap to roll that forward into 2016. As it relates to the auction I will let Tom speak to that question.

Sure. Obviously with the initial prices coming out a couple of weeks ago that started to move the conversation from the abstract to the concrete. We are spending an increasingly greater amount of time on the spectrum auction, looking at various options, looking at the economics of that. I don't think it has necessarily meaningfully changed our view on that other than the fact we are having to spend more time on it because it is becoming more and more real.

I think, obviously, the next big date for us is the opt-in date in mid December. And I think we are looking at all of the various rules and regulations around that, specifically as it relates to communication with other broadcasters and communications externally as to what our plans are. So, we're going to reserve comment on that until we get closer, but clearly we are spending an increasing amount of time.

And I don't think it has necessarily changed our view overall with regard to the spectrum auction. It may have changed our view with regard to certain markets. And we will be formulating that and putting a finer point on that over the course of the next month or so.

Then, as Perry mentioned, obviously political has started to ramp up in Q4. Having said that, we are in the middle of our budget process for 2016, and during that process and after that process we will be updating guidance for 2016. But, as I think Perry mentioned, there's nothing in the existing environment or the results we've seen to date that would cause us to be anything except more than optimistic about that.

Okay, great. Thanks very much.

From Deutsche Bank, Aaron Watts.

Hey, guys, thanks. On follow-up on the ad environment -- can you just call out auto? I think you said it was flat, Perry, in the quarter. Are you seeing any improvement in that category?

Yes, as we roll into fourth quarter as I look at automotive spending as of last Friday compared to the prior year, by category, we've got, again, double-digit increases from some nameplates. And the dealer spending continues to improve. We actually picked up pace over the last month in the automotive. And this was really before the effect of the Ford promotional announcement hit the public trades.

We had some advance bookings in Wisconsin and Illinois and a few states but the effect of that announcement, employee pricing, rollout promotion, that has not really been factored into these numbers. We think the automotive category will continue to improve between now and year end, not only from increased spending from Ford to promote their new offer but from their competitors to maintain their share market, as well.

Okay. Helpful. Then just one other one for me, a little bit bigger picture. CBS came out yesterday and announced they were going to launch a web-only Star Trek series. And I was just curious if that in and of itself, that investment or that initiative is concerning? Or, as you think longer term about the direction the networks might head with some of their over-the-top efforts or web-only efforts, if that is something that is potentially worrisome from where you sit.

I think it is really a push, Aaron, from my perspective because the vehicle that will distribute that will be CBS All Access. And if that increases the take rate, the CBS All Access, in our marketplace then we participate financially with CBS because it is our local video that is streamed on a market-by-market basis. So, I'm not sure that it is a game changer but I think it could be incrementally positive to us because it would promote the distribution of CBS All Access.

Got it. Okay. Thanks again.

John Janedis, Jefferies.

Thank you. Good morning. Perry, the narrative around regulation has been in the headlines over the past couple of quarters, as you know. And whether it is good faith or other topics, is there anything that concerns you that affects your negotiating position with your business partners?

No. Nothing that concerns us at this point. If the budget bill continues down the track that it is on, there is a very good chance that there will be a rollback of JSA regulation to grandfather JSAs in existence prior to the March 1, 2014 gate. That's in both the House and Senate bill, and one of the less controversial provisions so I think that could actually yield some regulatory clarity. If it remains in the appropriations bill, it may continue on their current path. We never like to say never or ever when it relates to Washington, but I think that is a net positive development.

And I think that, due to a number of letters from very influential legislators, both Republicans and Democrats, the Chairman Wheeler, the discussion of good faith and syndex and non-dup and those kinds of things are -- the role has slowed a bit, particularly as it relates to syndex and non-dup exclusivity. So, I view that, gain, as net positive. The true regulatory reform will initiate from Congress and not from a regulatory agency, so we continue to stay close to our congressmen, both in Washington and when they're home in the districts.

Okay, that's helpful, thanks. And maybe one quick one on the auto category. Just given some of the strength you talk about, is any of the drag coming from Volkswagen?

Volkswagen for us does not make the top 10 spenders in terms of automotive so it has not been huge mover positive or negative. It is not a top 10 nameplate in terms of spending for us. Once you get outside of the top 10 in the Company we are talking less than $0.5 million of ad spend on a consolidated basis for any particular quarter.

Okay, great. And one last one, Tom, on the media segment, is that performing in line with expectations? And what is the competitive environment looking like?

With regard to expectations it is slightly below where we had thought it would be, but the growth rate continues to be substantial. And with regard to the competitive environment I will let Perry answer that, being closer to the sales side.

I would say that our local site revenue, which is about half of our digital media revenue -- and that's ad supported -- continues to perform in line with expectations. We've had tremendous success with Lakana adding new customers, and that continues to perform ahead of expectations.

I would say not a headline but programmatic digital video distribution, there was a flood of inventory that came into the marketplace almost in a high frequency trading kind of environment, if you will. There was some concern about fulfillment and non-human traffic and things like that. That market has seen a slowdown. The results are still ahead of last year, but we have pretty lofty internal expectations.

But all in, I think when you look at the line, and you're reporting in a 55% growth and on an organic basis that's mid teens, that is basically plus or minus our expectations. But I think we have a clear path with these businesses. We also acquired a company called [Kixer], which was a small acquisitions so it didn't get a lot of top-line financial press. But this is a Company that has been built to basically help to monetize mobile video ad displays. And we think there's tremendous potential there. That Company was acquired in the third quarter, that will help Lakana continue to monetize its relationship with its publishing partners beyond on a fee-for-service basis.

Consistent with our theme of trying to build a tech stack that allows us to approach local businesses and publishers and talk about the largest possible share of wallet, beyond just traditional ad spend, the acquisition is consistent with our focus there. I will say again our digital businesses are profitable and growing at rates that are substantially superior to core ad revenue, which is, as we say, basically as advertised.

Thank you so much.

Wells Fargo, Marci Ryvicker.

Thanks. A couple questions. The first, we are hearing from some of the networks, CBS in particular, that conversations with Apple TV may have resumed. So, just curious if those conversations with the networks have started for you or with Apple in general? That's the first question.

The second is just clarification on the Media General process. Is it possible that you can have conversations with them now or are we just waiting for their response to your offer? We are just trying to figure out what the actual next step is.

Then the third question is bigger picture. Let's assume that you hit the 39% cap sooner rather than later. We are getting asked what your longer-term free cash flow strategy might be. Would you pursue something like Sinclair, where you start diversifying into maybe cable networks? Or would you think about returning a lot of incremental free cash flow to shareholders? Thank you.

Okay. Let me start with the first here, as it relates to CBS and Apple TV. I think those conversations -- I don't want to speak for CBS but I think they are continuing. And I think as far as CBS is concerned, or any of these new entrants, CBS All Access will be the delivery mechanism, which, again, if they are adopted in our markets we receive a piece of the downstream revenue.

Again, I think if you look at CBS All Access and Sony and Apple and all of these things, in my view, they are on the margin and probably slightly additive. I don't see any of them moving the needle. And I think if you look at the results of the NVPDs at this point, the cord-cutting hand wringing was probably overblown at this point. So, we again believe that in the skinniest of bundles the local television stations are going to be must-have content.

As far as the Media General process, we continue to exchange information. We continue to have conversations. That's really about all I can say other than to say that for Media General to enter into negotiations with us beyond exchange of information, which they are allowed to do, they would need to declare our offer superior, the Montage Superior Offer, which was contained in our letter, or they would have to deem our offer to be reasonably likely to be superior before we could enter into anything that you might think of as a negotiation. As we continue to exchange information, we continue to advance the ball, but that's about as much is I can say about the process at this point.

As it relates to, if we were successful with Media General and closing North Dakota, and any other acquisition, that would take us fairly close to the 39% cap. But for FTC purposes we would be something less than 30% of US TV households. The UHF discount still is in existence, still applies. But even if the UHF discount were to go away at some point in the future -- which, again, I remind people it has not -- I'm not sure that we would have a ton of interest in national cable networks.

Our position is that local broadcast television is the best place in the media landscape, for all of the reasons we have described. And we also believe that national cable networks is probably, at this point in time, the worst place in the media landscape to be. We wont' take time to go into all those reasons. But I think our bias would be more towards building our digital businesses and returning capital to shareholders than to look at any national distribution platform because we're just not made that way. We are focused locally, whether it's digital or television, focused at local distribution rather than national aggregation. I think I got them all.

Yes, you did.

Michael Kupinski, Noble Financial.

Thank you and congratulations on the quarter. Most of my questions have been answered. But I wanted to get a little bit more clarity on the pacing in advertising, in particular the variance in the quarter between local and national, if you can be so kind to give me some idea of what the trends have been there. Obviously many broadcasters indicated that August had started off a little slow but then strengthened. I was just wondering if you can give me some color on that, in particular national? And then how the variances are heading into the fourth quarter.

Sure. I think as you look at third quarter, local was up a little less than 1%. National was up in the mid single digits. But I think you also have to remember that in the third quarter last year we had in excess of $18 million of political that would affect price-sensitive national advertising more than local advertising. So, I think if displacement occurs it occurs more at the national level than local level, so a lower base. Happiness is a low base to comp against. So, I think there was some of that point. And, again, all in, as Tom said, it was 1.8% increase in core revenue, again in line with our GDP-like forecast.

And the trends in terms of the fourth quarter, how did the variances between local and national book?

They are not statistically significant at this point. Again, we are just into the first month of the quarter. There's not enough variance that you could call it a variance at this point.

Okay. Perfect. Thank you.

From Evercore, Tracy Young.

Hello. I just wanted to confirm, Tom, you mentioned that fixed expenses were up 3.5% for the quarter, is that right?

That is correct.

Okay. And then in terms of re-trans you had a nice bump in the quarter. What should we think or could you remind us what we should expect in terms of subscribers that are coming up through the remainder of this year and next year, and what we should think it terms of a net retrans margin? Thanks.

Sure. As I think we've said before, 40% of our subscribers reprice this year and another 45% next year. Having said that, approximately half of those 2015 repricings have already occurred. They occurred at mid year. That's part of the growth engine driver for the third-quarter results.

And as it relates to net retrans, it continues to exceed 50%. I don't want to get much more detailed than that. But obviously we continue to be pleased with it. And the growth in retrans revenue continues to be robust, more than enough to offset any expenses that we are incurring on the affiliate site.

Okay, thank you.

Davis Hebert, Wells Fargo Securities.

Good morning, everyone, thanks for taking the questions. Just a clarification on retrans, Tom, the $80 million was saw in Q3, is it fair to say we should see a similar run rate in the fourth quarter?

Yes, there should not be any meaningful variations.

Okay. Fair enough. I'm not sure if it's something you track but your leverage number you gave is on the LTM basis, I believe, so I'm not sure if you have a two-year average number.

Have not calculated it yet but we usually do that in conjunction when we start to deliver our statements to the rating agencies. They seem to be interested in that even though it is not that applicable to us.

Okay. Fair enough. Then regarding the commentary on digital being a little bit below expectations, just curious how you are thinking about the digital M&A pipeline. I know it is something you've commented on in the past as being an interest from an inorganic standpoint.

I would say it is a bifurcation. The local business for us continues to be very robust. And I think that's where we continue to have the greatest degree of interest. Our local station and community portal websites continue to perform very well. Lakana, which is more of these services business, the recurring revenue, white labeling of the product, continues to be robust. We continue to add new clients there, other websites.

Where we've seen any softness, as Perry had mentioned, was in the national market, ones where there has been some fulfillment and some traffic issues there in terms of, are real people seeing these ads, et cetera. I think we saw a pullback there in the third quarter, but we've seen a recovery early on in October and the trends look better for the rest of year. So, long-winded answer, I would say our interest continues to be strong, but more robust around the local markets than the national markets. And I think that's consistent with our overall operating philosophy.

I would just add to that, that as it relates to Yashi, we've taken steps to prove and improve the quality of the inventory that we offer to monetize. We are in the process of setting up our own private exchange, which is where a lot of the business is going, to eliminate high degree of the non-quality inventory. And we continue to press on with that. I think it is gotten good receptions into the marketplace.

As I said, that business is up ahead of last year but we hit some pretty high growth expectations. And this was for LiveRail, for Yashi, for any of the programmatic companies. There was a flood of inventory. It was determined a lot of the inventory was not quality so there was an immediate pullback until things could get sorted out. We hosted a Yashi video summit for interested agencies and advertisers and had over 30 people in New York to talk about our steps to address this, in October. And the market response has been positive. So, that is definitely a space we want to be in and it is a company we look to continue to build.

As a relates to M&A, again, our focus is on, is this additive to our current tech stack and go-to-market capabilities and opportunities, does it give us an ability to add and ask for a larger share of wallet. And then, thirdly, digital acquisitions compete for capital just the same as station acquisitions do, so is it accretive? Those are three screens we have to clear to make any acquisition, including digital ones. You can imagine that we kiss a lot of frogs before we find a princess or prince. And that process continues on here unabated.

We did announce, as I said, the acquisition of Kixer, which was a low seven-digit acquisition for us in the third quarter, which we believe meets all of those criteria and will be additive to our to market offerings locally and with our publishers on a going forward basis. The activity remains strong and involved. It is just for every 20 you look at you may find one that you think has a chance to clear all three screens.

Okay, that's really helpful color. Thank you. And then last question, I know it is early to talk about financing strategies for Media General since still you haven't entered exclusive negotiations, but, Tom, I wonder if you could talk about, given the transformational deal this is, your commitment to your credit ratings?

Sure. I think we're very committed to our credit ratings. Having said that, the financing is the tactics that are driven by the strategy. As you pointed out, we are still trying to engender engagement from Media General at this point. To get much more granular than that without a transaction to respond to, I cannot solve for something that I do not know what the transaction looks like yet, just from an overall financing requirement perspective.

So, yes, we think about it, we have some initial thoughts. It is just all of those are subject to whatever transaction may or may not occur. And it is a little bit of the cart before the horse at this point but clearly we are mindful of our credit ratings. We have worked long and hard to improve our credit ratings and that will definitely be part of the decision matrix.

Okay, thanks so much.

(Operator Instructions)

Barry Lucas, Gabelli & Company.

Thank you and good morning. I want to come back to the auto category, Perry. This may seem like beating a dead horse, but with a SAAR rate above 17 million units, the auto category feels a little bit anemic for traditional media companies. And it certainly feels like more dollars are moving to social media or to TrueCar and AutoTrader and cars.com. Just specifically, could you give us a feel of where auto as a percentage of core advertising is today, and what that might have been a year ago, where the weaknesses were, as you've talked about General Motors being strong? And how do you resuscitate the category? Or can you, at this juncture?

Automotive continues to represent about 24% of our ad-supported revenue and that is up ever so slightly versus ad-supported revenue a year ago. This is on television, as I'm speaking. Obviously in the third quarter there was a pullback in spending from Toyota, for obvious reasons. I had the chance to sit next to the Vice President of Finance for Toyota North America at an event the other day. He said now their factories are running at full capacity here in the United States.

And our conversation was, what I'm hearing from dealers, is business is very good right now, they don't feel the need to advertise more than they are advertising and, in fact, maybe putting some of the incremental cash into their pockets or to pay off some of those expensive showroom remodels that they were mandated to do over the last several years. I'm not sure the category needs to be revived. We went from 17 million SAAR down to 9 million SAAR, and then clawed our way back. The years of double-digit growth in automotive, absent a share war or a price war, I think, at this point behind us.

This gentleman from Toyota was very confident in steady-state 17 million-plus SAAR as far as the eye could see. And I think that we remain very confident in the category. Single-digit growth, again, is not growth that investors necessarily find exciting, which is why we have things like distribution and digital revenues to continue to grow. But I think it is a big urban myth that there's just tons of money moving to digital. Cars.com has been around for a long time. They have 30,000 dealers in the United States, or something along those lines. That didn't happen overnight.

Every dealer I know, whether it is a friend of mine that has a dealership or a string of dealerships here or customers we deal with, say -- 40% of the people come on the lot holding a piece of paper they printed from some website, so I know I need to be on the web, I'm not exactly sure how or where. So, they'll spend a little money on cars.com.

But I don't think that you see huge shifts to digital in our marketplace, in our universe. I think there has always been some spent on digital but I think that, again, there's probably more money going to the bottom line at this point in time, taking advantage of what have been some pretty strong increases in local vehicle sales and national SAARs. I'm not concerned about the long-term health of the category. I just don't think we are going to see double-digit growth any time soon again.

Great, thank you. Maybe I can put it just one other way, Perry. What are you seeing in the auto category within your own digital environment, whether it is the local websites or portals or what have you?

Our automotive as a percent of digital is a single digit number. And we are out there pitching four-legged sales calls and multi-platform packages. So if there's a huge move to digital in automotive we are not seeing it onto our platform. Now, maybe we could be doing a better job with automotive opportunities digitally.

Automotive continues to remain in mid-single-digit contributor of our digital revenue, local site revenue. We are obviously trying to manufacture growth there because we would like to create multi-screen opportunities for our local dealers. That number has not jumped, by the way. It's remained relatively static despite our best efforts to try and grow that category as a percent of our digital revenue. If there's a huge move happening it is not happening intra-company with us.

Great, thanks for the color.

Jim Goss, Barrington Research.

Thanks. I have a question, one more related to either M&A or organic growth. But to the extent that, say, you are successful with the Media General acquisition, and your reach then approaches a fairly sizable share of the country, does that create a greater interest on your part in getting involved in original programming to the extent that even though as a network affiliate you have a lot of the programming provided? But is that one more opportunity that you have a greater chance of having an impact, either individually or in partnership with another broadcaster perhaps, in getting involved in the entertainment side of the business?

Sure, Jim. I would say that, again as I said earlier as it related to digital or national cable networks, our focus is local. So, if we have the opportunity to add additional program it will be locally focused. We produce 79,000 hours a year of local news as it stands right now. The idea of creating a national program that looks a little bit local and partnering with other broadcasters to distribute that, that's not really our strength or anything we are particularly interested in.

Our identity is our local news brand and our local marketplaces. We would look to expand that. But I have very little interest in national syndicated programming that we help deficit fund. That is just not anything that really moves the needle for us. And as you pointed out, with the vast majority of our stations being NBC, CBS or ABC, there's very little room on the schedule or need for that kind of programming. So, I think we will leave syndication to the syndication companies and we will focus our efforts on expanding our footprint locally.

Okay, fair enough. And one last thing -- in terms of the UHF discount, you said it still exists. But yet Tribune was the one group that crossed the magic 39% mark, and it seemed like they needed a waiver. So, I am a little confused on whether there has been any movement or anything along the UHF discount issue that is either a current or prospective threat.

I'm not aware of Tribune needing a waiver. That transaction took place several years ago so I would have to defer to the legal and FCC experts on that. But the UHF discount is still on the books and exists despite discussions or ideas floated that perhaps it should be eliminated.

And then there are also discussion that maybe there should be a VHF discount, or maybe we should raise the cap in conjunction with all of this. I think the message that you see on these a la carte pieces of regulation, particularly from Congress -- and, again, this is on both sides of the aisle -- is you need to step back FCC, take a complete look at all regulations rather than picking one from column A and one from column B that you either like or you don't like. I think that is the trend and that is the tenor, certainly, in Congress as the way they would like to see things go. Having said that, I see precious little getting done in the next 12 months, as we are today one year from the 2016 general election. So, I'm not sure much policy will be made in the next 12 months.

All right, thanks very much.

At this time, there are no further questions in our queue and I would like to pass things over to Perry Sook for any closing and additional remarks.

Again, thank you all for joining us here today. As I mentioned, we are indeed one year from the 2016 general election, and our excitement regarding the political process, but most importantly the political revenue, continues to grow with each passing day. We look forward to coming back to you in first quarter to talk about our Q4 results and update our outlook on 2016. Thanks again, everyone, have a great day.

Ladies and gentlemen, that does conclude today's presentation and we appreciate everyone's participation.