Sinclair Inc (SBGI) 2014 Q3 法說會逐字稿

Greetings and welcome to the Sinclair Broadcast Group third quarter 2014 earnings conference. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation.

(Operator Instructions).

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. David Amy, Executive Vice President and Chief Operating Officer at Sinclair Broadcast. You may begin.

Thank you, operator. And good morning everyone.

Participating on the call with me today are David Smith, President and CEO, Steve Marks and Steve Pruett, Co-chief Operating Officers of Sinclair's Television Group, Chris Ripley, Chief Financial Officer, and Lucy Rutishauser, Senior Vice President, Corporate Finance and Treasurer. Before we begin, Lucy will make our forward-looking statement disclaimer.

Thanks, Dave, and good morning everyone.

Certain matters discussed on this call may include forward-looking statements regarding, among other things, future operating results. Such statements are subject to a number of risks and uncertainties.

Actual results in the future could differ from those described in the forward-looking statements as a result of various important factors. Such factors have been set forth in the Company's most recent reports, as filed with the SEC, and included in our third quarter earnings release. The Company undertakes no obligation to update these forward-looking statements.

The Company uses its website as a key source of Company information which can be accessed at www.SBGI.net. In accordance with Reg FD, this call is being made available to the public. A webcast replay will be available on our website later today and will remain available until our next quarterly earnings release. Redistribution of this call is prohibited without the express written consent of the Company.

Included on the call will be a discussion of non-GAAP financial measures, specifically television broadcast cash flow, EBITDA, free cash flow, and leverage. These metrics are not meant to replace GAAP measurements, but are provided as supplemental detail to assist the public in their analysis and valuation of our Company.

A reconciliation of the non-GAAP financial measures to the GAAP measures in our financial statements is provided on our website under investor information, reports and filings.

Thank you, Lucy.

Before we go through the results, let me review some of the activities that have taken place since our last earnings call. On the network affiliate front, we renewed our FOX affiliation agreements in four markets that expired this summer with a new expiry of December 2015. Our JSA partner in Champaign, Springfield also renewed their affiliation agreement. The majority of our remaining FOX affiliations do not expire until the end of 2017.

We also renewed 13 ABC affiliation agreements that were expiring in 2014 and 2015 with new five-year agreements expiring in 2019 and 2020. The renewal terms were in line with our expectations. Our next group of ABC affiliation agreements do not expire until the end of 2017.

On the acquisition front, in September we closed on the previously announced acquisition of WGXA, the FOX ABC combo in Macon, Georgia, and closed on the previously announced sale of WHTN, the Albridge and ABC in Harrisburg, PA to Media General. We continue to have the CBS and CW stations in Harrisburg.

We also announced that we entered into an agreement to sell our television stations WTTA, the My Net in Tampa, and KXRM the FOX station, and KXTU the CW station in Colorado Springs, Colorado to Media General. At the same time, we announced that we would purchase the broadcast assets of WJAR, the NBC in Providence, Rhode Island, owned by Media General, WLUK, the FOX and WCWF, of the CW in Green Bay, Wisconsin, owned by Lynn Media. And WTTS, the FOX in Savannah, Georgia owned by WTGS Television LLC, and operated by Lynn through a shared service arrangement. The transaction is expected to close during the fourth quarter of 2014.

In November, we closed on the previously announced purchase of the non-licensed assets of KSMV, the NBC in Las Vegas as well as the purchase of the non-licensed assets of eight stations in three markets from New Age. Those markets are Wilkes Barre, Gainesville, and Tallahassee.

Our content initiatives continue to be successful, especially as they pertain to the American Sports Network and to Ring of Honor. On the ASN front, we continue to expand the brand and have now entered into syndication right agreements with 6 RSNs and 47 TV stations to broadcast ASN's collegiate games in non-Sinclair markets.

We also signed the Western Athletic Conference, the Horizon League and the Ohio Valley Conference, bringing to eight the number of NCAA Division I conferences airing games with us. ASN now reaches over 90 million households, bigger than all regional sports networks and reaching slightly fewer homes to only ESPN and Fox Sports One. And we are pleased to report that we are achieving competitive ratings on our games. ASN also secured multi-year rights to the International Motor Sports Association Porsche GT3 Cup Challenge USA races, and this morning, we reached agreement with the Atlantic 10 conference.

Ring of Honor, our wrestling franchise, also entered into its first syndication agreements with five different broadcasters expanding into five markets and adding over 3 million TV households. In addition, Fox Sports television, a regional sports network is airing ROH in 12 markets, reaching over 4 million cable homes, including Cleveland, San Diego, and New Orleans. ROH also entered into a licensing agreement for a line of collectible ROH figures and accessories, extending the brand recognition.

We also launched an original programming division that will focus on the creation and development of low cost original entertainment and long form content. With the additional stations closing, we are now producing approximately 2,000 hours per week of original local news content, making us one of the largest, if not the largest, producer of local news in the country.

Also, we announced the multi-cast carriage of Grit TV in 47 of our markets. Grit is a male-centric over the air broadcast television network.

Finally, we continue to meet our milestones on developing the next generation of broadcast transmission technology, which our subsidiary, ONE Media, will be demonstrating this month.

Now Chris will take you through the third quarter results.

Thank you, Dave.

Net broadcast revenues for the third quarter were $448 million, an increase of 48% or $145 million higher than third quarter 2013. Television operating expenses in the third quarter, defined as station production and station SG&A expenses before barter, were $248 million, up 50% or $83 million, up from third quarter last year.

Corporate overhead for the quarter was $17 million, up $1 million versus the same period last year, due primarily to one-time acquisition expenses. Television broadcast cash flow in the quarter was $184 million, up $64 million or 54% higher than last year's third quarter BCS. The broadcast cash flow margin on net broadcast revenues for the quarter was 41%.

EBITDA was $172 million in the quarter, up $65 million or 61% higher than the same period last year, and higher than our guidance. The EBITDA margin on total revenues was 35% for the quarter.

Net interest expense for the quarter was $48 million, up $8 million versus the third quarter last year. The increase was due primarily to acquisition financing.

Our weighted average cost of debt for the Company is approximately 5%. Our most expensive debt, the 8 3/8% senior unsecured notes was called in October. Lucy will take you through the details of this transaction in our balance sheet highlights.

Diluted earnings per share on 98 million weighted average common shares outstanding was $0.49 for the quarter. We generated $71 million of free cash flow in the quarter and converted 55% of our EBITDA into free cash flow over the trailing 12 months. Our after tax free cash flow yield is approximately 13%, and our dividend yield is 2%.

Now Lucy will take you through the balance sheet and cash flow highlights.

Thank you, Chris.

On September 30, total debt was $3.788 billion. Included in that amount was $109 million of non-guaranteed and VIE debt that we are required to consolidate on our books. We ended the quarter with $99 million of cash on hand.

As Chris mentioned, in October we redeemed in full the $237.5 million of the 8 3/8% senior unsecured notes due 2018. The notes were called at 104.1875% of their par value. The redemption was funded through previously raised bank debt and cash on hand. The redemption will add approximately $0.09 of incremental annualized free cash flow per share.

Capital expenditures in the third quarter were $32 million. Our full year guidance is for approximately $76 million, which includes Allbritton and Macon. Cash programming payments in the third quarter were $22 million and our full year guidance remains relatively unchanged at approximately $93 million.

Cash taxes paid in the quarter were $26 million, and for the year, are expected to be $105 million due to timing on the sales of WHTM in Harrisburg and WTAT in Charleston, South Carolina.

Total net leverage through the holding Company at quarter end was 4.9 times. This excludes the VIE and non-guaranteed debt and is net of cash.

The first lien indebtedness ratio was 1.8 times on a covenant of 4 times, and we expect pro forma year-end 2014 total net leverage including pending acquisitions to be approximately 4.7 times.

Since our last call, we repurchased $50 million or 1.9 million shares of our equity at an average price of $25.85 per share, and have $135 million of remaining authorization. For 2014, the Company has repurchased a total of $133 million or 4.9 million shares. When combined with the $61 million in dividends expected to be paid this year, we are on track to return a total of almost $200 million to our shareholders this year, representing over 50% of our estimated as reported free cash flow.

David Amy will now take you through our operating performance.

Thanks, Lucy.

For the third quarter net broadcast revenues, excluding political, were up 38% versus the third quarter of 2013. Political revenues were $34 million as compared to $3 million in the third quarter of 2013.

Pro forma core advertising was down low single digit percents in the quarter on a soft national advertising and political displacement of normal advertisers. During the quarter our fastest growing categories were political, medical, telecommunication, furniture, and drugs/cosmetics. Direct response, automotive, restaurants, and fast food were soft.

Turning to our as reported outlook, which does not include the Las Vegas, New Age or swap transactions. For fourth quarter of 2014 we are expecting net broadcast revenues to be approximately $534 million to $536 million, up 40% as compared to fourth quarter of 2013. This assumes $78 million of political, versus $7 million in the same period last year.

Categories expected to do well in the fourth quarter are political, auto, fast food, and furniture. Services, schools, telecommunications, and medical are expected to be soft.

For full year 2014, we are expecting net broadcast revenues to be approximately $1.760 billion to $1.763 billion, up 45% as compared to full year 2013. Included in that estimate is full-year political of $130 million. On a pro forma basis, including the pending transactions, we expect 2014 net broadcast revenues to be approximately $1.989 billion to $1.992 billion.

On the expense side, we are forecasting TV production and SG&A expenses in the fourth quarter to be approximately $268 million. For the year, TV expenses are forecasted at $942 million. Full year 2014 pro forma TV expenses are estimated at $1.066 billion.

We expect EBITDA in the fourth quarter to be approximately $236 million to $238 million, an increase of 52% to 53%. For the full year 2014, we expect EBITDA to be approximately $699 million to $702 million, an increase of 49% from 2013, and on a pro forma basis, we expect 2014 EBITDA to be $796 million to $798 million, as compared to $705 million pro forma 2013.

Based on our guidance, free cash flow in the quarter is expected to be approximately $126 million to $128 million, and $362 million to $365 million for the full year 2014. On a pro forma basis, we expect 2014 free cash flow to be approximately $408 million to $410 million or $4.25 per share, as compared to 2013 pro forma free cash flow of $367 million.

So with that, I would like to open it up for questions.

At this time, we will be conducting a question-and-answer session.

(Operator Instructions)

Our first question is from John Huh with Wells Fargo. Please proceed with your question.

Hey, guys, just stepping in for Marci real quick. I have a bunch of questions. So, I know the content creation stuff has been around, but you guys announced a bunch of new stuff. How do we think about those longer term from a modeling perspective when we think about revenue and expenses?

Can you repeat your question again?

Yes. I just wanted to get some color on how we might think about modeling ASN, Grits, and your Ring of Honor syndication deals, generally.

Generally speaking, on the ASN side, it's just being launched and we wanted to make a point there that we've already reached a depth of 90 million homes in terms of our total reach and coverage in the number of television stations and other regional sports networks that have signed up with us so far. So we're off to a real good start. But you have to consider that it's a launch. We're looking to, as we mentioned, the number of conferences that we signed. So the way you can look at that is we'll have significant number of games going into, not only the balance of this year in terms of football, but next year in regards to basketball, and football, et cetera.

So expect to model that from a standpoint of the first full year being a loss and what we've been talking about is somewhere in the $10 million neighborhood internally here. So somewhere around there is probably a safe place to be for the first year. We're seeing like we mentioned some better than expected viewing numbers and that may turn out to really help mitigate that initial loss.

But on the Ring of Honor side, that continues to grow. It kind of is what it is in that regard. It's so small, I don't know that you really would look at that and try to model Ring of Honor specifically as far as beyond what you have, and beyond what the guidance that we're giving you. Those numbers are already included in there. And then as far as the multi-cast stations, those are a -- that's growing area and right now we are not including and have not included the upside potential of those multi-casts in any of the forecasts that we're giving you.

So that will be, I don't want to overcharacterize it as a lot of money, but it's a nice amount of cash that we'll be generating off of those multi-cast stations. Going forward, there's not a whole lot of expense we have to incur. It's primarily an add-on to our existing stations. So most of that book money that revenue that's generated will come right to the bottom line. So you can look for probably next year somewhere in the $4 million to $7 million range, somewhere like that.

Got it. And then moving to ratings, FOX ratings have been pretty bad so far. You guys are a lot more diversified than you have been in the past, but how have ratings kind of impacted you and how should we think about that going forward?

Well, I think it's obvious that FOX has had some difficulties and as you follow the networks, typically the networks go in cycles. FOX unfortunately is in a cycle right now that's negative. But they did launch a couple of shows, Gotham is a legitimate hit, at this particular point. It solidifies Monday night and they're off to actually a pretty good start. Our billing in terms of the FOX network stuff and our resume of FOX stations is actually picking up in the fourth quarter compared to previous quarters. So there's some light at the end of the tunnel.

I think the rest of the networks are putting some decent shows up on the board. Flash on the CW, for argument's sake, is a legitimate hit. We have a lot of CW affiliates. They're doing a legitimate rating. That's got everybody's attention. So we're off to the races on that one, and we're watching it very closely. But in terms of FOX specifically, the fourth quarter, interestingly enough, is one of the best quarters that we've had since first.

Okay. And then if I could just get one more in here. How do you think about auto going into next year? We've been hearing there's some concerns that it's been a relatively weak category, and we're trying to figure out if this is more of a secular issue or if there's dollars moving to digital or if it's more of a macro issue? Thank you.

Well, I think first of all, the shifting of digital billing is not a negative to our industry. We offer a host of digital solutions to the advertisers we call on and they're buying them. We can offer three screen solutions, and we do, and it's the fastest growing part of our billing and will continue to be. This is not a positive -- this is not a negative. It's a positive for our industry.

In terms of auto itself, I think the category has been really, really good. We had a little bit of a blip in third quarter, but that is due to, quite frankly, in our two biggest markets having less Ohio State football games which is significant billing for us. And in San Antonio, our biggest billing market, next to Washington, DC, there was a crowding out factor in the largest local car dealer sat on the sidelines in third quarter. Just between those two markets alone, there was $1 million-plus shortfall, in terms of our expectation.

We'll get that back in fourth quarter and we're already pacing positive fourth quarter and we'll have more Ohio State games in fourth quarter. So we're expecting a reversal, and continued plus increases in that category.

I think that's really incorrect characterization to call auto weak. It's slowing down, perhaps is a way to describe it versus the growth that we've enjoyed over the last couple of years, but certainly using the term weak to describe auto is mis-characterization of what's happening. If you remember, whatever, four years ago, five years ago, time flies by, auto did become weak. It was a declining advertising category for us and it was something that everybody took notice of.

And the environment that we're in today is nowhere near what we saw years ago when auto could have been characterized as weak. And in fact, if you're seeing some of the trades that relate to auto, one of the concerns that is out there with the growth in the number of units approaching 17 million new auto units is that, where are the parts and suppliers? Are they going to be a able to keep up with what's going on out there? So right now the question is kind of turning the attention to not just the strength of new autos, but how do the maintenance companies, auto parts suppliers, keep up with what's going on out there.

I think it's probably a good problem for the economy to have, not a bad problem. Again, I think that characterization is just incorrect.

Got it. Thank you.

Our next question is from Marci Ryvicker with Wells Fargo. Please proceed with your question. (technical difficulty)

Our next question comes from the line of Davis Hebert with Wells Fargo. Please proceed with your question.

Good morning, everyone. Thanks for taking the questions. On the same conversation as ratings, just following up on John's comment on FOX, CW has actually had really had a strong start to the fall season. Just curious what that means for you in terms of ad spending or maybe potential retrans down the road.

As I mentioned, we're excited about it. We have a lot of CW stations on our resume and Flash is a legitimate hit that will rival the other major networks, and we're out there selling it and getting rates that are similar to what you would see on Prime Time avails for the four major networks. So we're extremely excited about that.

We have a lot of exposure with CW which is important that they perform well in Prime and this is very exciting stuff for us, actually. They're off to as good a start as I can remember in quite some time.

I hedged a little bit on the conversation about American Sports Network as far as the revenue potential. That's one area that we can highlight as well, is that with American Sports Network showing up on our My's and our CW's that creates additional value to our MVPDs. That will help in terms of creating value in regards to the retrans rates that we'll be earning on those stations.

Additionally, I mentioned that we're up to almost 2,000 hours per week of News content creation. And there's an importance to that in that the stations, not just -- primarily our top four: CBS, ABC, NBC, and FOX, are the primary beneficiaries of that. But we continue to invest in our News operations and continue to improve on our News quality. And we're seeing the results of that in regards to higher ratings and that will result in higher revenues.

I think Steve Pruett might mention something about the Barrington Group that we acquired, just how that's going to really be a great benefit to that entire group.

Thank you, Dave. Since my platform is all new to Sinclair -- for the most part, stations. One of the things I've seen not only on Barrington, but on Fisher and other, Titan and so on, groups that we acquired, is that in every case we've expanded News holding capacity. Either through adding hours of News, or in almost every case we've increased our market position and our ratings.

So what I mean by holding capacity is the amount of rating points we own in news. And in many cases, there's still further expansion to be gained in that category. So our News investments are paying off early on, with Feb - May books, and we anticipate good November books. Our audits are showing that. So the Barrington in particular had good News positions, but had been under funded and we've now added personnel. We've done many digital upgrades to HD -- or HD and digital upgrades.

In addition, in almost, with the exception of Fisher, in almost every case we have brought, and COX, of course, but in all the other acquisitions we brought much more advanced digital, four screen -- three and four screen solutions and we continue to grow our digital program, which is now based out of Seattle. So we have a lot of positives on that front.

And our larger markets too. We see real success, Salt Lake City, we're the number one News operation there. Seattle, growth in our Seattle market.

Absolutely. Portland.

Portland, yes. One good story after another.

And we anticipate Las Vegas being a good story.

Yes, yes. Now with Washington, with WJLA, the Albritton folks, they've left us with some great properties. But in Washington, the focus was on political. It was simply not on WJLA News.

We put our money where our mouth is and just anecdotally we brought in all new cameras for those guys, since we acquired just a few weeks ago. Field cameras is what I'm talking about. So it's a lot going on there and we see significant upside in the D.C. market as well.

Okay. That's all really helpful commentary. And the CBS all access announcement, can you just remind us what your, I guess, local distribution rights are and whether you would have an interest in partnering with CBS on that product?

Oh, yes, sure. Kind of the over-the-top type of story is what you're talking about there. And CBS is coming out with an over-the-top product, they're looking for about $6 a month for their service, from an initial start it's just in their own O&O markets. From there, they'll be looking to expand that to include their affiliate group.

And with that, we would anticipate to the extent that we can participate, that would be with, like we just talked about, it would include our local news, et cetera. That this partnership that has always existed between network and local affiliate would be further enhanced by continued improvement and greater distribution. We just see it as a positive from our standpoint, any time that we can find other sources and methods of distributing our content, we see that's that as a positive. So details as far as what the terms are and how that will work out with CBS are still to be determined.

Okay. And another question on over-the-top. Dish is also looking to launch a product by the end of the year. Is that something you would look to partner with on that on the local front?

Any OTT project out there that, and there's several that have been announced, when you just think about it from an industry perspective and a Sinclair perspective, if they want our local, live stream, or any of our local content they'll have to partner with us. And so we're not at liberty to say whom we've had discussions with, but there have been multiple discussions on that front. I think the easiest way to understand it as I said, if they want our content or our live stream, they will have to compensate for us and partner with us.

We're active on every affiliate board, and we feel it's the intention to partner with us. Based on that information.

Thanks. Good to hear. Last question from me and then I'll let some other people get in here. Lucy, you mentioned 4.7 times net leverage. Just want to confirm, is that based on LCM or forecasted 2014 EBITDA?

The 4.7 is pro forma, so including the pending transactions, and that would be year-end 2014.

Okay. And not sure if you track this but do you have any sort of estimate for what two year average leverage would look like.

2013 and 2014 average is about 5 times.

Okay. Helpful. Thank you very much.

Our next question is from David Bank with RBC Capital Markets. Please proceed with your question.

Hi, good morning. This is Leo Kulp for Dave.

Could you just give us a little color about your ATSC 3.0 rollout in Baltimore? What exactly that's going to do, what the spectrum requirements are there, and what's sort of the longer term revenue opportunity? And also, how long will it take for you to roll it out more broadly across your station base?

Well that's about a three hour discussion. So, let me try to condense it down for you in a minute. The ATSC 3.0 platform has yet to be finalized in terms of one style platform versus another. That's a process that's under way currently in the ATSC standards committee. ONE Media, which we're a principal in, is a player in that space as well as a number of other players from foreign companies.

We demonstrated yesterday, kind of, a milestone in that we've now fully demonstrated in our offices in Austin, Texas, a working platform that as we suggested to the industry will essentially do everything we said it would do. We are now gearing up to, over the next probably 30 to 45 days, bringing in any number of people from within the industry, and from outside the industry that have the technical capability to understand and to see what we're doing to kind of confirm what we believe to be the case. And then sometime before year-end we expect to be doing a full-blown demonstration in Austin, Texas, a live demonstration. Over the air, to really allow people the opportunity to see what the [arc] of the possible is with the right technology.

The long-term consequences, assuming that the ONE Media platform is adopted by the industry, the long-term benefit and consequences to the overall broadcast industry are too vast and enormous to kind of get into the economics of that. But I can only tell you just in a macro sense that I think the industry makes the right decision, it will be a watershed event for the broadcast industry and the future of the broadcast industry. I think that's really kind of [it], unless you've got a couple more hours.

(Laughter) Thank you very much.

Our next question comes from the line of James Dix with Wedbush Securities. Please proceed with your question.

Yes, good morning. I had three things. First, you mentioned, sounds like auto is improving as you move into the first quarter in terms of its growth versus the third. I guess just more broadly, how are local trends changing as you go into the fourth quarter versus the third? And also national which has been kind of tough all year, are you seeing any change in trend as you move into the fourth quarter there? And then I had just two others.

As I mentioned, national, interestingly enough, we have the highest percentage of stations showing an increase in national since first quarter. That's taking place as we speak. So that's encouraging. You have to keep in mind that in first quarter of 2015 we don't have the Olympics to go up against. That's going to bode very, very well, especially for CBS and ABC stations. So we're optimistic that we're on the right track nationally and it's moving in the right direction.

And as I mentioned in terms of auto, we are showing presently a positive pace for fourth quarter, and we expect that to continue as well, going into 2015.

And is local pacing up as well in the fourth quarter?

Local right now, interestingly enough, for November is our best core pacing month of the quarter. I think you would probably expect that.

There's a tremendous amount of crowding that goes on when we give you the number of dollars that we're billing politically, you could imagine the displacement that takes place. And what you also have to understand is that there's a high percentage of advertisers that book their advertising on a quarterly basis, not necessarily on a monthly basis. And that affects the core billings. So we're optimistic that core billing is also moving in the right direction.

Okay. And then I guess secondly, in terms of the dynamics of the local ad market, there's been lots of discussion about potential secular shifts out of local broadcast TV. Where do you think you're potentially still poised to get share gains, particularly in the local market? Because it seems like the dynamics for local broadcast advertising might be slightly different than for network. Particularly in terms of the dynamic of what's going on in print. I am just curious as to what you're seeing in terms of potential pools of dollars which you're pulling in from others?

I see local as still having a lot of growth potential. When you look at the local ad pie, television is 15% of that, so 85% is divided up still by direct mail, print, radio, outdoor, and about 10% of that digital -- local digital. With the digital products that we have now and are improving constantly, and in 2015 we anticipate several new products to hit the market, I think we'll be able to go more directly at direct mail, which right now is 28% of the local ad pie. That is a huge number. That's double what television is.

So I think it's the other categories that need to be worried about us, because if we can systematically learn to take a point out of that other 85%, I'm speaking of one whole point, that's a nice local growth for us. And the way we do that is by providing digital and TV marketing solutions to both agencies and to local direct advertisers. Local direct advertising is about 16% of our business. I believe we can grow that systematically over the next five years by combining digital and TV.

We also have Sinclair digital agency which is a white label agency product that allows small local agencies to operate like a sophisticated digital agency. So we're able to provide entire solutions to the local advertiser, and as Steve Marks often reminds us, these local advertisers want digital products. And so by creating a digital agency, by creating four screen solutions, by launching new CMS in 2015, having a more interactive set of products that we can combine across a platform, I think we're weaving an incredibly strong local presence.

The other thing we're doing locally is in markets where we have relationships with second stations that are CW and My, is we're launching News on those stations and then adding the ASN sports which is not only college sports, but motor sports. And our phone is ringing, quite frankly, with people who have live sports content that they want to offer to us. So on the local front -- also let me say that high school football, we are building a national high school football and basketball brand. And we're just reaching the scale where that is really beginning to be interesting to national advertisers such as Geico and major names -- Frito-Lay, Mountain Dew, PepsiCo, that are getting very excited and, in particular, auto dealers get very excited about local live sports.

The My experience being mostly small markets, I've always found that local, live, high school and small college is a very saleable product to local advertisers, because they want to support the community and the region. So I'm generally very optimistic about local and our ability to grow local, based on the combination of digital, TV, and marketing products. And I think getting in front of franchisees, we've learned that we can get in front of franchisees and sell regionally, and shift dollars around and I think our market power is growing.

Great. Thanks very much. And then just -- sorry, just an echo. Last question, what types of upside do you see in terms of improved local measurement of your stations? Do you think there's money that's quantifiable that's being left on the table there? And what's the prospect for improvement there? Thanks.

Let me just address that in one perspective. One of the applications that's will exist inside of a new television transmission platform will give us the ability to not only talk to every device that exists in the marketplace, but it will also provide us the capability to essentially monitor precisely, when, where, and under what circumstances, and whom are watching television.

There will be no more guesswork from the standpoint of looking at what the current rating operations are, which is if you look at the industry standard today, Nielsen, in any market USA where they put out 500 or 1,000 diaries or meters into a home and they tell you that's representative of market that's got 2.5 million people in. I'd prefer to believe that 0.5 million people with phones, or pads, or whatever the devices are that are watching television more reliable. So I think going forward over the longer term, we are going to see technology advantage us. And it is going to just point out that there is a whole lot more people watching television than the current offerings will suggest.

Great. Thanks very much.

Our next question comes from the line of Tracy Young with Evercore. Please proceed with your question.

Hello. Thanks for all the color on the digital business. I don't know if you'd be willing to give any census what percentages of digital as a percentage of your total revenues, but that might be interesting.

Also, could you just tell us how telecom did in the quarter? And I've got two more questions. Thanks.

Telecom was way up for us in third quarter. Terrific quarter for us, double-digit-plus growth. Very strong. And in terms of the digital stuff, what I'd like everybody to understand is that digital is not the boogie man to this industry. It's a friend to the industry.

This is what we do. We offer advertising solutions over multiple screens. Digital advertising is tailor made for us. We have a solution and we include TV with it which nobody else could do. So when we are reading all of these things about budgets being diverted and the woe is me, it's just not the case. The fastest growing part of our business is digital advertising and that's going to continue for quite some time. That's where the business is going. And we're prepared for it.

Couldn't agree more. And I think it's very important to note that digital leverages television. It's not important what percent it is, even though we look at it as its own revenue stream. The unknown factor is just how much having the digital platform we have, leverages results for people by providing different marketing solutions and the growth area is also in streaming and in nonlinear content, which we're entering.

So it's very important to remember that all advertising is generated by a local business. Whatever you call it, local, national, regional, all advertising is generated by a local business. And we're there. We get NTR business from -- I don't really want to say the accounts, because others may not be getting them. But from big boxes, often having local solutions that we present to the regional manager. So, all advertising is ultimately local however it is placed and having the combination of digital and TV has proven, as Steve says, to be an incredible leveraging point.

Okay. Thank you. Turning to political, I wanted to see if you could give some color on sort of what happened in terms of the growth during the quarter? In Q3 I would have expected a little more of an incremental boost from Albritton. Unfortunately I erased my numbers a little bit on that yesterday.

Also, I'm getting questions on the comments in the press release from David Amy regarding the way that dollars came in were not as anticipated, particularly possibly a little bit slower than would have been expected. Can you give some color on maybe the markets that didn't necessarily perform well, et cetera?

When you break it down, first of all, we're very pleased with our political billing. When you look at it, if there was a soft spot for us, it was in Columbus, Ohio and in Texas, two of our biggest billing markets where we have a lot of density in terms of our television stations. The governor race in Ohio turned out to be just short of a landslide. So that race was determined who the victor was going to be quite a while ago and, therefore, the spending just stopped. And that's a very critical market for us, the State of Ohio, some very strong television stations that's we have in our resume there. So we were below expectation in Ohio and likewise in Texas, where we also have a lot of representation in terms of our stations, and strong stations.

And there are two -- also interestingly enough, they're big unit rate markets. So the budgets that typically go into those marketplaces are extensive and the races just didn't materialize. On the other hand, we obviously had races that fared much better than we expected. Most of that came out of Iowa, and our stations in Iowa and the market sizes in Iowa are not the same market sizes as Ohio and Texas. So it sort of balanced it off and at the end of the day we were pretty pleased with where we wound up given those circumstances.

Tracy, I would just add to what Steve's saying. The hardest part for us to forecast is the issue money. And what ended up materializing in our markets is that we had substantially fewer issues that made it to the ballot this year than what we had in 2010. We had about 97 ballot issues versus about 124 in 2010 in our markets.

Okay. Great. Thank you. And my last question, you announced that you had repurchased 1.9 million shares. The last two quarters of the year are going to represent over $100 million in free cash flow. I think it would be helpful to get a sense of some of the priorities that you have in terms of return on capital or investments that you're making. Thank you.

Sure. So when you take a look at this year, we have between dividends and share repurchases, we've distributed out over 50% of our free cash flow for year. Also, when you take a look at the acquisitions we've done that have actually leveraged us up through the year, we spent more than our total free cash flow. So from that perspective, we're not looking to deploy additional free cash flow for shareholder returns through the end of the year, unless it was an opportunistic situation, which is what arose in October in terms of market weakness, which is why we entered the market. Going forward, we'll keep a healthy balance between dividends, share repurchases, core acquisitions, and adjacencies.

Okay. Thank you.

Our next question comes from the line of Lance Vitanza with CRT Capital Group. Please proceed with your question.

Hi. Thanks for taking the question here. So same station core ad revenues were down low single digits. I know you talked about political crowding out. I guess I'd like to try to better understand the impact there. If you could give us some color it would be helpful.

I know Gray reported this morning, they reported core down 3% on a reported basis but if 15% to 25% of their political dollars crowded out core spending, well then the underlying core trend was actually up 1% to 3% year-over-year. Can you quantify how much crowding out you saw? Or if not can you tell us what your core growth would have been if we were to assume, say, 15% to 25% of your political represented crowding out?

I think probably off the top of my head I would say very similar to what you just heard from Gray. We missed core by just a pinch. And the crowding out on the billing that we enjoy is very significant in political and there's a factor there. So I do believe we would have been on the positive side on the core business without the crowding out factor. I do believe that.

Okay. And then on the new FOX affiliation deals, I notice that unlike the ABC deals, the tenor there is so short. Should I presume that's because they wanted to keep it short? And, you know, what's the logic there? What does that suggest for the outlook going forward?

We had several other FOX affiliations that were coming due at the end of 2015, so that's that was just a short renewal to line up with our other expirations for bigger deal for FOX.

Do you think, should we expect then more of a four to five year deal when you renew those deals eventually?

It all depends. Every network is different right now. We just did a five year deal with ABC and depending on the network, they had to have different preferences as to how long or short they want to go. Right now, FOX has been preferring short. So we're flexible, though. There's pluses and minus to a short and long from our perspective. It's not like one is better for us versus the other.

With the noise around FOX's Seattle outlet and Tribune and so forth, there's obviously been a lot of conversation about potential changes in the stance between the networks and the affiliates. Have you seen any of that in your dealings with ABC, with FOX, with any of these guys?

We haven't seen that. From our perspective, it's been business as usual. Every so often you do see tensions rise between the affiliates and the networks, but from our perspective, they are one-offs. And there's value [instruction] on either side to the extent that switches happen. So we don't expect it to be a long-term trend and it's business as usual from our perspective.

I was just going to throw a little more color in there, Chris. In the case of ABC we were basically they had expired, we were just week to week and there was never any concern on our part that we were losing our affiliations or anything like that. We just continued to be ABC affiliates and work through the agreement and finalized it. So, no, that risk that you're trying to get your hands around, Lance, is not anything that you should be concerned with here.

Last one from me, then, related to that, then. The outlook for retrans growth versus reverse comp growth, I know recently you've suggested that you still expect to grow grocery trends more than your increases in reverse comp. Is that still the case? And is there a point in time where that dynamic changes markedly?

We fully expect net retrans to continue to grow for the foreseeable future, and as far out as we can see, we don't see that trend changing.

Thanks very much.

Our next question is from the line of Howard Rosencrans with Value Advisory. Please proceed with your question.

Hello. Thank you. I'm not sure if you provided pacings for the fourth quarter, but specifically I would be interested in what you're seeing on the books for November and December following the election?

November right now from a core standpoint is the best pacing month that we have. I don't think that's too unusual. December quite frankly every year the advertisers look to adjust their schedules. You have to deal with cancellations, and so on and so forth.

What I mentioned earlier is there's a significant portion of our business that's placed on a quarterly level, especially national business which represents 30% of our billing. So, those people that sat out on the sidelines, that place quarterly, typically they sit out on the sidelines for the entire quarter and that affects the core business. It's not unusual. It happens all the time in the industry. And there's no difference this year than past years.

To characterize in full, your view on the fourth quarter pacings and where we stand?

My view on it as I mentioned before is if there wasn't a crowding out figure I believe we're in the positive category.

Very good. Thank you very much.

Thank you.

It appears there are no further questions at this time. I would like to turn the floor back over to Management for closing remarks.

Okay. Thank you, operator. Thank you everyone for participating on our earnings call this morning. And if anyone has additional questions, please feel free to contact us.

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.