Sinclair Inc (SBGI) 2014 Q4 法說會逐字稿

Greetings and welcome to the Sinclair Broadcast Group fourth-quarter 2014 earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, David Amy, Executive Vice President and Chief Operating Officer. Thank you. Please go ahead.

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.

Thank you, Dave. 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 fourth-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.

Thanks, Lucy. Before we go through the results, let me go through some of the activities that have taken place since our last earnings call. On November 1 we closed on the previously announced purchase of the non-licensed assets of KSNV, the NBC affiliate in Las Vegas as well as the purchase of the non-licensed assets of eight stations in three markets from New Age media. On December 19 we closed on the previously announced acquisitions of four stations in three markets and the divestiture of three stations in two markets with Media General.

We recently successfully completed negotiations for new retransmission consent agreements with over 490 multi-channel video programming distributors, including U-verse, FiOS, Armstrong Utilities, Atlantic Broadband, CableOne, CenturyLink, Wave Broadband and Wide Open West. The new retransmission consent agreements provided uninterrupted carriage of our stations to over 6.3 million unique subscribers representing over 99.9% of subscribers covered by the expired agreements. With regards to our content initiatives, American Sports Network added the Atlantic 10 Conference and now produces games for 11 NCAA Division I conferences and reaches 93 million homes, included syndicated households.

Development of the next generation of broadcast technology recently reached a milestone with ONE Media announcing outstanding results in their first system test of its next-generation broadcast platform in transmitting six mobile and data services for both set-top and tablet devices. Over the year testing of the ONE Media system commenced at the newly commissioned Austin, Texas transmission facility at the end of 2014. In conjunction with this and lab facilities, ONE Media is working with industry recognized vendors and service providers to develop a diversity of products and services for a robust support ecosystem.

Our pro forma net broadcast revenues for 2014 were almost $2 billion. Pro forma EBITDA was $805 million and pro forma free cash flow was $440 million.

For 2015 and 2016 we are expecting total free cash flow of $805 million to $885 million, or between $8.45 to $9.25 per share, which equates to a current free cash flow yield of 38% for the two-year period.

Now Chris will take you through the fourth quarter results.

Thank you, David. Net broadcast revenues for the fourth quarter were $557 million, an increase of 46%, or $174 million higher than fourth-quarter 2013 and higher than our guidance excluding the fourth-quarter transactions. For the full year net broadcast revenues were $1.783 billion, an increase of 46%, or $565 million higher than full-year 2013. As Dave mentioned, on a pro forma basis net broadcast revenues for 2014 were $1.998 billion, up 10% from 2013 pro forma net broadcast revenue of $1.822 billion.

Television operating expenses for the fourth quarter, defined as station production and station SG&A expenses before barter, were $274 million, up 38%, or $76 million from fourth quarter last year. On a full-year basis, TV operating expenses were $948 million, up 49%, or $313 million from 2013.

Corporate overhead in the quarter was $19 million, up $5 million versus the same period last year, due primarily to acquisition cost and ONE Media developing costs. For the year corporate overhead was $69 million.

Television broadcast cash flow for the quarter was $264 million, up $98 million, or 59% higher than last year's fourth quarter BCF. The broadcast cash flow margin on net broadcast revenues for the quarter was 48%. For the year, broadcast cash flow was $762 million, an increase of 50%, or $254 million.

EBITDA was $250 million for the quarter, up $95 million, or 61% higher than the same period last year and higher than our guidance, excluding the fourth-quarter transactions. For the year EBITDA was $713 million. On a pro forma basis EBITDA for the year was $805 million, a 14% increase over 2013 pro forma EBITDA of $705 million. The EBITDA margin on total revenues was 41% for the quarter.

Net interest expense for the quarter was $47 million, up $7 million versus fourth quarter last year. And for the year net interest expense was $175 million. The increase was due primarily to acquisition financings. Our weighted average cost-to-debt for the Company is 4.8%.

During the quarter we recognize a $38 million net gain on acquisition dispositions, which primarily includes the gain on the sale of WTTA in Tampa, Florida, as well as we had a $15 million loss on extinguishment of our 8.375% notes which we called in October. Diluted earnings per share on 97 million weighted average common shares was $0.98 in the quarter. For the year diluted EPS was $2.17. Excluding the loss and extinguishment of debt and the net gain on asset dispositions, diluted earnings per share would have been $0.84 for the quarter and $2.03 for the year.

We generated $140 million of free cash flow for the quarter and converted 53% of our EBITDA into free cash during 2014. For the full year 2014 we generated $377 million of free cash flow, or $3.85 per share, and distributed $194 million to shareholders and over 50% payout ratio. Our free cash flow yield is approximately 14% and our dividend yield is 2%.

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

Thank you, Chris. At December 31 total debt was $3.929 billion, included in that amount was $121 million of non-guaranteed and BIE debt that we are required to consolidate on our books. We ended the quarter with $18 million of cash on hand and $144 million available on our revolver for total liquidity of $162 million.

Capital expenditures in the fourth quarter were $23 million, totaling $81 million for the year. For 2015 we are estimating CapEx of $89 million which includes upgrades in fixed assets for the acquired stations, building and studio projects, American Sports Network live trucks and build-out of its network operating center and high-definition news upgrades.

Cash programming payments in the fourth quarter were $24 million and our full-year programming payments totaled $94 million. For 2015 we are estimating film payments of $108 million.

Cash taxes paid in the fourth quarter were $44 million and for the year work $100 million. Total net leverage through the holding company at quarter end was 4.7 times, and this excludes the BIE and non-guarantor debt and is net of cash.

The first lien indebtedness ratio was 2.25 times on a covenant of 4 times. Our 2013/2014 two-year average net leverage was 4.99 times. And our 2014/2015 two-year average net leverage is expected to be approximately 4.6 times, assuming our current portfolio.

In the fourth quarter we repurchased $25 million, or 1 million shares of our equity at an average price of $25.68. For 2014 we repurchased a total of $133 million, or 4.9 million shares at an average price of $27.32. When combined with the $61 million in dividends paid, we returned almost $200 million to our shareholders, representing over a 50% payout of our as-reported free cash flow.

In the first quarter of 2015 we repurchased another 300,000 shares, or $8 million worth at an average price of $25.60. Our remaining buyback authorization is $127 million. David Amy will take you through our operating performance.

Thanks, Lucy. For the fourth quarter net broadcast revenues were up 46% versus the third quarter of 2013. Political revenues were $80 million as compared to $7 million in the fourth quarter of 2013.

Pro forma core advertising was up slightly, including digital revenues and adjusting for displaced political revenues. We believe that about 75% to 80% of our political revenue was incremental in the fourth quarter and about 60% for the year.

Now if we turn to our outlook for 2015. For the first quarter of 2015 we are expecting net broadcast revenues to be approximately $457 million to $461, up 22% to 23% as compared to first quarter 2014. This assumes $2 million of political revenues versus $6 million in the same period last year, the absence of $3.7 million in Olympic revenues and an incremental shift to $5.3 million in less Super Bowl revenues as a result of it being aired on NBC this year versus Fox last year. First quarter net broadcast revenues on a pro forma basis are expected to be up about 3% versus $446 million in 2014, while adjusting pro forma core advertising revenues are estimated to be up slightly in the quarter from the same period last year.

Categories doing well in the first quarter are auto, furniture, media and breakfast. Services, [goals], entertainment and telecommunications are soft.

On the expense side we are forecasting TV production and SG&A expenses in the first quarter to be approximately $284 million versus $209 million of as-reported expenses in the first quarter of 2014 and for the year. 2015 TV expenses are forecasted at $1.158 billion versus 2014 pro forma TV expenses of $1.059 billion.

The increase is primarily due to news expansions in seven markets, the launch of our digital content management system, full-year American Sports Network production cost versus a partial year last year, higher reverse retransmission expense on the higher retransmission revenues and a $7 million cost in order to ensure compliance with enhanced FCC closed-captioning requirements. The digital and content initiatives are expected to generate long-term returns for us as we meet fewer demands, increased distribution and add units and add premium content. Our net retrans is expected to grow.

EBITDA in the first quarter is expected to be approximately $137 million to $140 million, an increase of 1% to 4% versus as-reported first quarter 2014 EBITDA of $135 million. Based on our guidance free cash flow in the quarter is expected to be approximately $50 million to $54 million.

The first quarter is typically the lowest free cash flow flowing quarter of the year based on seasonality of revenues as well as our CapEx is front-loaded for the year. We are estimating that free cash flow for 2015 and 2016 will total approximately $805 million to $885 million, for an average of $4.20 to $4.65 per share per year. This reflects charges of about $40 million per year for the additional news and sports content initiatives, the digital CMS costs and the closed-captioning requirement. However, we also have not built in the expected revenue returns on these investments.

With that, I would like to open it up to questions.

(Operator Instructions)

James Dix, Wedbush Securities

Good morning. Two things. First in terms of the advertising business. It sounds like auto is doing okay. Do you have a read as to how it might be looking for the year, based on model releases, and any other color you've gotten on the sales side?

Just also what ad categories really contributed in 2014, the greatest volume of ad growth? Do you see any changes in those trends for 2015?

And then, my second one is on the next-generation broadcast platform. How do you see that fitting specifically into a world of increasing on-demand video delivery, if at all? Thanks.

I think on the automotive question, we are off to a good start in first quarter. 2014 was a good year for automotive as well. There was a crowding out factor in the fourth quarter because of the heavy demand for political. Once we got out of the political season the automotive category started to show growth again.

Here we are back again in first quarter, and once again that category is showing growth again. And every single report that you read on this category is extremely positive for 2015 and going forward. Really good news because, obviously, it is our biggest category and it continues to do very well.

When you address what was successful for us in 2014 and what we look forward to in 2015, first and foremost as I just mentioned, you have to have the automotive category on the plus side. We're already off to a good start on that. We enjoy the plus side of that in 2014.

One of our other biggest categories, telecommunications. That tends to get hot and cold. Some quarters it is very robust and then some quarters it retreats. It really depends on what they are offering at any given time.

Those, quite frankly, are our two biggest categories. As we look forward to some change in the economy here, one thing that we noted in first quarter earnings is that the furniture category is up. I typically believe that that is an indication that the economy is moving in the right direction and people are investing in their own homes. I think it bodes well for us going into 2015. There are a lot of positive signs going forward.

I think you will also see more stimulus in auto from bigger vehicles as the gas prices have gone down, and there's some new vehicles being released that were designed actually for lighter-weight, Ford's aluminum body pickup and so on. That's just going to be a double bonus to people with low gas prices.

As you think about the next-generation broadcast platform, it's a really multifaceted kind of future business platform. I think, as a minimum, the way you have to give thought to it today is, is to recognize that the broadcast industry is at this point in time moving in the right direction to be able to establish itself as the preeminent deliverer of content, not just to the device in the home but to every mobile device, every portable device, automobiles, things of that nature in the future.

And as technology evolves, one of the things that will become available to the consumer everywhere, literally, is essentially infinite storage capacity. So, much in the same way when you think about the evolution of VCRs in the home and how that kind of became -- kind of has evolved into the notion that you can record something and play it back at your leisure. That same concept exists today, except it's done on storage devices outside the home. And the way we think about that in the future world is simply suggest that devices, as I said, will have infinite storage capacity.

People will store whatever they want and take their content with them everywhere they go. The capabilities to do that is essentially here. It's just about what generation of equipment does that technology get put into. We think It's very near.

We see nothing but technical upside and an effective leveling of the playing field from a competitive perspective, from the standpoint of selling spots and delivering information to all the other technologies that are out there. We're very high on what the long-term opportunity is for the broadcast industry as it relates to the platform that is coming.

Great. Thank you.

Alexia Quadrani, JPMorgan

Thank you. First off a bit of a follow-up on that last question, but maybe more on the financial side. I guess longer-term, what are the opportunity for Sinclair in terms of recapturing some of the advertising dollars going to these newer digital platforms? Or even some new applications? Something like the CBS All-Access type of partnership? How can we, just in sort of bigger picture, view that opportunity for you guys?

I think there's any number of ways to deal with that. You can deal with it in two ways. In the context of traditionally the way it has being done now and our whole digital platform capability that's being built out is going to put us in that business.

To me the more larger, more interesting opportunity is the ability to start to deliver content and commercials to portable devices. You have to get over the notion that we're kind of an in-house delivery platform. That notion's going to end. We're going to be essentially the same as everybody else.

When that happens, and I think it is going to happen, when that happens the playing field in terms of advertising selling becomes leveled. So when you go to New York and you sit down with an advertiser and you say, well I can now do everything everybody else does, my product is -- the reality of my product is, it's dramatically better than everyone else's.

If you doubt that, just look at what the average audience delivery is of a local television station against any competitor in the marketplace, absent another television station. Look at it against any Internet platform, any cable platform, any satellite platform, any medium whatsoever in terms of audience gathering, and we beat them all badly.

We think we become the go-to place to go if you want reach. If you want to buy frequency and you want to buy 10 million spots on the Internet, fine. But you will be able to be very efficient and buy us as a delivery platform.

As far as the over-the-top type of question that you are asking, I think you will see a lot of parallels between retrans and over-the-top in regards to our ability to provide authentication in regards to our content that is being delivered to the consumer and the amount of money that they'll pay for the over-the-top service. You will see us capturing a portion of that very similar to a retrans type of revenue.

So it sounds like you are interested in having those conversations when the -- if it makes sense financially for you guys?

Absolutely. You look at any kind of means of distribution of our property, of our signals and our content and how to monetize that. We're always interested in those conversations, of course.

And then just last question. On the retrans you guys are continuing to move ahead both in terms of the distribution discussions, I mean discussions with distributors, and obviously with your affiliate -- network affiliate partners. Do you still think in the end of the day a 50/50 split is probably where you guys or the industry will end out?

I think our general view is 50/50 is a fair number. If we get there, I think it'll take some time to get there. The fact of the matter is we are okay with that, just philosophically.

Thank you very much.

Aaron Watts, Deutsche Bank

Hey, everyone. Couple questions from me. One follow on the core ad environment.

We had a good jobs report, oil prices are down. Sounds like you are seeing some good traction in key categories. Why do you think, or what are you hearing in the market, on why core ad trends aren't a bit more robust now? And I guess, is it your expectation that a lot of these indicators can translate to better growth as the year unfolds?

I think there's obviously more competition. One thing that nobody should lose sight of is that we are following where the dollars are going. People keep on talking about non-linear advertising and is it taking away dollars. We are following those dollars.

Our biggest growth right now is in the digital end. That is only going to continue. Our business is changing and we are following where those changes are occurring.

You've got to follow where the money's going. We have the capability to do that. And we are doing that.

I think the thing you have to accept is, is that the broadcast industry in general got late to that show. That's all. Online advertising has being going on for a long time. And as an industry, we've just kind of started to get into that space. You have to look at us as kind of late to the party.

In the end, we're really what the ultimate delivery medium is in terms of eyeballs on the Internet and on local television. I think you just have to give us time to play catch-up, if you will, and start to learn how to do those businesses because it's a new business for us. As Steve said, and everybody will tell you, it's a huge growth business for us.

As we mentioned, you should be very excited about what we are doing and what direction we are going in as you hear about the investments that we are making in our content management system and the ensuing upside benefits that we'll be seeing with that. We produce now over, and somewhere close to 2200 hours per week across our platform of local news content. When you take that into consideration, how that can fit into all of the social media that is out there, whether it's Instagram or Facebook or Twitter or what have you and how we can reach our viewer in those social medias through the investments that we're making, you're going to see, we believe, a significant growth in our digital line.

One of the ways it's also been hard to kind of bifurcate it out the things that we do inside a business this size, but if we were just to take out our web business, just the websites that we have in all the cities where we have television businesses, and compare those to websites that have valuations of anywhere from $0.5 billion to $2 billion today. You'd look at that and say, well, that little local broadcast business, when it's aggregated all up, and you look at what it has in contrast to those businesses. You'd say, well, how many billions is our little platform worth?

We're not getting that evaluation because we are not looked -- in reality, we are not looked at that way yet. But the fact of the matter is, we are fundamentally no different than what a Buzzfeed is or a Gawker or a VICE or anything else.

The difference is we produce the news every day live real-time and on the Internet, and we're not recognized for being in that business. I think you have to give us some credit for doing what we do now, which is we're largest news producers in the country. And you should assume, at some point in time, that we will kind of enter that space, possibly as a separate discrete standalone enterprise, just to get the proper valuation on it.

Again, if you look at a company like VICE, and I am not here to tell you they are or aren't, but if they've got a evaluation, a private evaluation, in excess of $2 billion and they don't do anything, all they do is throw stories up on the Internet. We do that every day and have people actually pay attention to them.

I think there is a disconnect when it comes to evaluating local television stations like ours and everyone else's, relative to what the rest of the Internet does in terms of serving the public interest. It's our job to make sure that gets known and understood. And I say, we've just kind of started down that path. You're going to be hearing more about that era, that kind of whole industry from us.

I appreciate those thoughts. One other question from me. Just curious, you talked about the free cash generation of the business. And as you kind of moved through 2015, can you talk about how you thinking about acquisition opportunities, both -- either on the digital side and on the station side, as well as original programming possibly as a use of that cash? And I guess, in light of the stations, how you sit versus the FCC cap and think about that? Thanks.

Sure. Our policy on free cash flow uses really has not changed going into this year. We still think about it in four broad buckets. One being dividends, second being share repurchases, and then station acquisitions and acquisitions or investments in adjacencies, which include content and cable and digital. So those are the four buckets that we are focused on and we allocate between those buckets as opportunities arise.

In terms of acquisitions, specifically station acquisitions, my expectation for this year is that those will be at a much slower pace than what you saw last year. Some of that is obviously driven by what you mentioned before in terms of where we are relative to the FCC cap. That is what I expect for this year. But I would expect some activity there, and it will be significant relative to our free cash flow but not nearly as significant as it was in years past.

I think the other thing, just to understand, is you may or be aware of this, is that the Congress is currently undertaking the initial round of a complete rewrite of the Communications Act. It's an important event because -- and it's important opportunity because, frankly, when you go sit down with a member of Congress and you help them understand the imbalance in the marketplace -- I will give you just one little fact just so you have an appreciation for how imbalanced it is. When you look at the world we compete in today as a broadcaster and recognizing that the phone companies are essentially going into the broadcast business with spectrum space that used to be used for broadcasting, they're going to be a direct long-term one to one competitor because of their technologic capability.

The interesting thing is, is that they have the right to reach 100% of the country. They have the right to use their platform and any technology that serves their interest without regard to the consumer. And they have the right to use the exact same spectrum space that we use, except they have no restraints whatsoever in terms of the content they can push through their pipe. So when you sit down with a member of Congress and you say, can you help me understand why we're so regulated and they're not? The answer is, we didn't know.

Hence the Communications Act rewrite is going to raise these fairly obvious issues of the marketplace is constrained against us as an industry. That is just a legacy issue of regulations that are 60 years old.

I think there's -- everybody has an open mind to the notion that the broadcast industry in general should be deregulated in order to compete on a level playing field. We don't think that's a big ask. I think we're fairly optimistic about the notion that the government is likely to say, why do you have any constraints at all? We agree with that notion.

We just want a level playing field. That's all we're asking for. That's all the broadcast industry is asking for. Let us do what everybody else does. And we will be fine.

To jump in and finish here, answering your specific question around original programming. I wouldn't expect that to be a significant use of free cash flow this year.

Okay. Appreciate all the thoughts, guys.

Thank you.

Marci Ryvicker, Wells Fargo

Thanks. I just want to walk through the expense guidance for 2015 and 2016. It sounds like from your comments on the call you have $40 million of incremental expense for 2015 and 2016.

I look at the press release, there's another $18 million of one-time for next generation. In total, it sounds like there's $58 million of incremental expense in 2015 that we did not have in our numbers. Is there anything else on top of that?

Yes. See, Marci, the way to look at this is there is about $40 million of incremental expense in 2015, another $40 million of incremental expense in 2016. And what that covers -- so you're talking about $80 million over the two-year period.

What's in there is the FCC requirement on the closed-captioning in both of those years. That is something you would not have had in your model. The investments in ONE Media is included already in that $80 million. The incremental cost for ASN on the full year versus part year, as well as our build-out of the content management system on the digital side.

Really, when you think about those expenses, ASN and the content management system, and ONE Media, those are all investments that are going to generate returns for us in the future. It's really just the FCC closed-captioning requirements that is just a pure out-of-pocket cost.

Are any of those initiatives recognizing revenue now, I guess, ASN specifically?

No, to the other than ASN. ASN is on the air on a number of our markets. To that degree, we are beginning to pick up some revenues for ASN.

But from a standpoint of the projections that we are providing you and the expectations that you are looking at, they are really not included. The major returns that we would be expecting to see over the next couple of years are not included in our predictions.

And then David, you talked about all the retrans contracts that you've done. Were those at year end or were those throughout 2014?

They were throughout 2014, but primarily coming in at the end of the year here.

Can you give us kind of what you're looking at for 2015, at least from a percent of (multiple speakers)

Yes, Lucy has that. She can give it to you.

Marci, we still have almost 80% of our retrans contracts coming up for renewal between now and the middle of 2016. So if you recall, on our November earnings call, we talked about that we really had just almost 100%. We've done roughly 20% of them here at year end and we still have almost another 80% to do over the next 15 months.

Great. My last question. Did you see a divergence, or are you seeing a divergence, in performance with regards to your FOX stations versus the rest of your portfolio?

Obviously we had trouble with FOX in 2014. We talked about that consistently.

In first quarter, as we mentioned, we are going up against the Super Bowl. So our FOX affiliates are negative for first quarter, but we obviously expected that. I think the great thing about FOX right now, and we are very, very encouraged about this because it has been a drag for us, is that they legitimately got a hit show in Empire. That show has only been on the air for less than two months. And it's a legitimate hit.

And in estimate marketplaces, you should appreciate that it actually beats American Idol by upwards of 30% to 40%. To garner those type of ratings in a two-month period is something that I'm not sure we've seen in quite some time.

That single entity has brought the buzz back to that network. And what could have been a treacherous cycle now looks like the network is turning itself around. You couple that with Gotham and Sleepy Hollow, and they actually have a lineup now that is far more competitive than literally, two months ago.

We have now four FOX shows in the top 25, if you take out Super Bowl. We did not have that most of last year.

I think the other thing I would add on this topic that you need to appreciate is that with the acquisition of Albritton, which was all ABC affiliates, ABC is now our largest affiliate group in terms of contribution for both revenue and BCF. Whereas it used to be FOX, but now Fox is still very large, but ABC is now the biggest for us.

Just to put an point on Empire. If you take out the Super Bowl-related programming, Empire was the number two show the end of January, of everything.

That's amazing.

Yes, it is amazing.

Thank you all very much.

Tracy Young, Evercore

Just a few follow-ups. Can you say how many markets ASN is on now? In terms of that $40 million of incremental expenses, as we go through our quarterly model should we be thinking about that is flying through on an even basis, or is it more upfront in the beginning of the year?

Related to the spectrum, are there any other groups that are involved with this ONE Media? And can you also give us an update on your lawsuit against the FCC regarding the spectrum? Thank you.

I'll do the expense timing first. It'll be a little bit more heavily weighted in the front end of the year, only because we only launched ASN in the third quarter last year.

I think as it relates to the spectrum issue, I think the thing to appreciate is, is that the broadcast industry essentially en masse, and what I mean by that is, the leaders in the industry have coalesced around a very simple notion; which is the ATSC Standards Committee which will ultimately determine the shape and color and size of the next broadcast platform, that organization was historically run by the consumer electronics folks on a global basis. The broadcast industry was, if you will, a rounding error in that discussion, the technical discussion.

I think now for the first time in my memory, the broadcast industry is now essentially telling the consumer electronics folks and the ATSC Standards Committee, this is what we want, period, end of discussion. We will no longer be a potential victim of your technology that doesn't serve our interest.

In other words, when you think about the technology that we have today that we use over the air, which is essentially totally ineffective in terms of reaching portable devices, mobile devices, and in most cases in-house reception, was a product largely of foreign manufacturers. And as I said, I'm encouraged now because I think the broadcast industry has finally recognized that it has the ability to get together and essentially demand what's in the best interest of our industry, period, end of discussion.

This is to your ASN question. We now have 11 NCAA Division I's signed up. We are reaching 93 million homes, which we believe puts us in third behind ESPN and FOX Sports in terms of the size and reach that we have. We have syndicated households as well. So we have partners that we're including in our ASN initiative.

We think that's pretty impressive, given that we just started broadcasting live sports, these live sporting events in the fall. Underneath all of American Sports Network, we also include our high school football lineup which is very local. And as we've mentioned in the past, has been very successful in terms of reaching our local audiences. That is, I think, the best way for you to think about ASN.

Thank you.

Lance Vitanza, CRT Capital

A couple of follow-ups on spectrum and the Communication Act rewrite. The first on the spectrum. What's your reaction to the FCC's recent upward revision to its estimate of what your spectrum might bring at auction?

From my perspective, it's you guys are sitting on spectrum that's worth a multiple of your equity market cap. While I appreciate the work that you are doing to unlock that value, wouldn't the simpler path just be to play in the auction and get a big check?

I think there may be a little bit of confusion as to what the numbers that were just put out from Greenhill mean. The recent numbers were opening bid numbers that were put out by the FCC. And it is a descending clock, double-sided auction.

The opening bids were designed to be high because they will tic down as broadcasters drop out. But they do not represent an estimate of what the FCC thinks your stations is worth. The estimates of what the FCC thinks your stations are worth were released earlier last year, and they haven't changed. The opening bids are just a representation of where they want to start the auction.

When you do the math on the median prices for what the FCC thinks our stations are worth, you come to a pretax valuation of about $4.4 billion, which is significantly less than our total enterprise [valuation] is today. That doesn't mean that we are not open to the auction and maximizing our shareholder value by participating where it makes it sense.

But it kind of gives you a big picture view on where the opportunities may lie. We're keeping our eye on it. And we're evaluating all of our opportunities as it relates to the auction and what we can do with the spectrum on our own, with our new broadcast standard.

Just so I'm clear. So $4.4 billion, again, that's a multiple of your market cap then. If you can retain your ability to broadcast on different frequencies that the FCC will put you in and retain all of your MVPD contracts; I mean, I'm just struggling with why that's not a no-brainer?

$4.4 billion would be going off the air. So you wouldn't be able to retain anything. That would be literally handing in your business. And our total enterprise value is over $6 billion today. So it's $6 billion versus $4.4 billion pretax.

So you don't believe when the FCC says that they'll put you into a different band and you can continue operating? Why does that not work?

We'd have to accept less money. If you want to go down to a high-V or low-V, their estimates right now on going from a U to a high-V would be a 33% discount and going from a U to a low-V would be a 66% discount. Again, that's only an estimate. It'll be market determined at the time of the auction. So there's no way to know until the auction happens.

Right.

What the ultimate price is. So all these numbers are just estimates. And that doesn't mean we don't take them seriously. We take them very seriously. And we're analyzing every possible situation and scenario. And what we would like to do is, where it makes sense to monetize our spectrum, where we don't believe we can do better with it on our own, then we'll do that.

And we want to also retain our affiliate business and grow that as well. And we're -- it's a multi-variable equation that we're solving here. And it's something we're working very hard on internally to make sure that we maximize shareholder value at the end of the day, through this auction and through what we can do with the spectrum with our new standard.

Fair enough. Just on the Communications Act. What's the timing there? Do you have any sense for what -- how likely this is to come together by the end of this Congress?

I think there's been some discussion. The House is already in a rewrite, currently it is asking for comments and things of that nature from broadcasters like ourselves. I think it's possible to see something this year, certainly in the form of a draft.

I know the Senate is conjuring the same thing right now, in terms of what it needs to look like, and all the various constituents that need to play in that pool. My sense is it's underway. Nobody really know -- I mean, you can't predict what Congress is likely to do, given the world we live in. My sense is, it's off the table and it's taking shape.

We're doing everything we can, as well as our other broadcasters, to go in there and simply tell a very simple story about the imbalance in the marketplace created by old legislation and old rules that needs to be corrected. And frankly, there isn't any pushback on it because intellectually it is completely right. The broadcast position is completely, absolutely correct.

Thanks very much.

Davis Hedwig, Wells Fargo

Thanks for taking the questions. I will try to and be brief because you guys have already been very detailed already. On the retrans negotiations, Lucy, you said 80% between now and the middle of 2016. I'm just curious, is there a plan to go to market with other channels, maybe News Channel 8 or some of the other content you're rolling out as part of that retrans negotiation?

Yes, I'm going to let Chris answer that one.

Our content -- our cable network strategy over the last 1.5 years has gotten fairly broad in scope and ambition, and that does include -- that has already been worked into our discussions with distributors and will be worked in, in those future discussions that are happening over the next 12 months. And so when you think about what Sinclair is doing on cable, we've already done a significant amount of work and we'll continue to do a significant amount of work on the distribution side.

And we have several kernels for the content side of the equation, which includes News Channel 8, ASN, and several others that we haven't been publicly talking about which include: organic initiatives, inorganic initiatives, and partnerships. We're working on the content side feverishly here, including cable network opportunities, but also other screens that those content kernels could live on through digital strategies. And so, it's too early to say which of those strategies are going to be the most profitable combination. But I think it is fair to say that Sinclair within the not-too-distant future will have at least one cable network with a significant US footprint.

Okay, very helpful. Thank you. As you're negotiating these retrans deals, they have to be in accordance with the FCC rules around joint retrans negotiations. Just curious how technically you're handling that.

So in terms of the joint prohibition, is that what you're referring to?

Yes, that's correct.

That, it doesn't go into effect until the JSA order is finalized, which will be the end of 2016. That hasn't really impacted our ability to jointly negotiate as of today.

Okay, got it. Last one on CapEx. I saw your guidance for $89 million. I just wonder if you kind of break that out? What's your normalized maintenance CapEx levels versus some of the investment front-end loaded stuff you're doing this year?

Yes. So really all in all, with all the acquisitions now that we have, you're probably looking at maintenance CapEx maybe about $40 million, $50 million a year. Really the difference between that and our guidance is all the investments that I talked about: ASN; and some of the new acquisitions which we didn't have last year, where we're investing in some of their upgrades; some HD newscast rollouts; some building consolidation projects; and studio projects.

But for modeling purposes, we will never just be at a maintenance CapEx number. So you would want to bump your -- that $40 million to $50 million up by some amount. But I don't think when we get into 2016, I don't think you're going to be looking at $90 million type levels based on our current portfolio.

Got it. Very helpful. Thank you.

Edward Atorino, Benchmark.

On your game plan about getting into programming, is it build or buy, or one of the other preferable way to go? And would you really become a production company as well as a TV company on a long-term basis?

We are evaluating all alternatives. When you take at a look at what we've been doing as it relates to some of our content initiatives around ASN and Sinclair original programming, those are build strategies. But we're also evaluating certain buy strategies as well.

So I don't think it's right to pigeon-hole us in one strategy or the other. I think at the end we'll wind up pursuing both to some extent. But we're going to do in a very judicious and cost-efficient manner. We're not typical Hollywood players who do high-cost budget content.

That's what I was sort of, aiming to ask. In terms of what's on the air now? What kind of numbers are you selling in terms of minutes and what kind of pricing are you getting?

Well, the networks, ASN specifically is just evolving. We launched it in September.

Yes.

It's more of a local product right now, and interestingly enough when we have regional games of interest, like for argument's sake, we're in a conference where Marshall University, we've been airing both football and basketball games. Our stations in Charleston, West Virginia just do a bang-up number. And we have pockets like that throughout the country.

So as we evolve with this, it's a very interesting concept because although we're aiming for a network goal at the end of this, there's a lot of localism to it. It's terrific to promote. And the games are of local interest in our marketplaces.

Lots of parts of this country, high school sports, college sports is really a big business.

Yes, it is.

We're also seeing more major advertisers in our high school sports. This year we had Geico in a lot of markets. Subway in many other larger -- Century 21 sponsor high school football. And it's becoming more and more and more popular. So in the past we didn't see as many large national brands in high school football, but we're seeing that to be actually requested now, a requested type of a buy.

Not to belabor this, but in terms of your programming appetite, this will be sort of soap opera stuff, movies, big budget programs? Just want to see what on your mind.

First of all, we're focused on is actually, I would characterize it more as reality-based. (Multiple speakers) sports is a form of reality. In our original programming focus has a significant area, or focus within reality. And mainly that is driven by cost effectiveness.

We did announce a show. Steve, you want to talk about the show we announced with Bellum? Go ahead.

Well, it's a reality-based show that we're doing. And we leverage distribution for partnership. It's basically a crime reality show.

Okay, thanks. I don't want to belabor the point. Thanks very much. I get it.

David Bank, RBC.

This is Leo calling for David Bank. Just two quick questions. One is, I know it's early, but looking out until 2016, how should we think about net retrans growth, given the affiliate renewals you're going to be going through that year? Is it plausible that you'll still be able to grow net retrans in 2016? Again, I know it's early.

We have been fairly consistent in telling the Street that we expect our net retrans to grow for the foreseeable future. And actually, as we looked for the next several years out, we expect net retrans to grow in the teen percentages.

Okay, great. Thank you. Your expense guidance was a little bit higher than we anticipated. But the free cash guidance was pretty strong. Any thoughts on how we should think about how you are able to drive such strong free cash growth, given the higher expense growth?

Well, that is for the conservative-type of numbers that we are looking at actually. We're looking at it from a standpoint of the basic business and what -- where we are. Harvesting some of the low-hanging fruit that we've talked about during the call here today.

Whether it's the news operations over at DC where we're seeing some great opportunities there to add to our bottom line, whether it's the expansion and addition of seven new additional news properties across our platform, or just the fundamentals of what we see in terms of digital growth.

But what we aren't including are a lot of returns that we expect to see with those investments or those expenses that we were talking about there, the content management system, the development of a separate cable net, and the impact that the sports network will have going forward in terms of our top line. Those we are holding back on at the moment. We think we're providing a pretty conservative view in terms of that projection of free cash flow.

Got it. Thank you for the color.

Barry Lucas, Gabelli and Company.

David, you've been at the cutting edge of the spectrum issue for some time. And I was hoping you could provide a little bit of color on the milestones to get from where we are today to this next-generation platform being in operation. How long does it take to get the standards changed? What are the regulatory hurdles need to be overcome, if any? What does it cost? And a while ago you commissioned a white paper talking about the opportunity in dated distribution. What does that opportunity look like now? Is there any further update you can provide there?

Yes. Let me just kind of walk you through the timing a bit, Barry. I think there is an evolving belief that the ATSC process that is currently underway and has been underway for some time, could end at the end of this year, with it tossing out a candidate standard. Which effectively means the broadcast industry will have what it wants, and we're done.

The political process in Washington DC will start well before that process ends. And frankly, I don't see the political process as any great obstacle. Frankly my sense of the government is, is they don't really care what standard we use anymore than they care what standard the phone company uses or the satellite guys use or anybody else uses. Just isn't something they give a lot of thought to.

Having said that, historically the way the broadcast industry has been regulated, I think we will have to sit down with them and say, this is what we would like to do and we will go through that process. It'll be kind of an orderly process.

But my sense is, is the kind of the noise that we've heard out of the FCC in the recent past, has suggested that they don't have any particular issue with a change in standard. It just we're going to have to go through the process. We're happy to go do that. Our view is, we would like to get it done tomorrow. Because the faster we get it done, the faster we can get start getting the technology and devices and we can start building our business.

I don't know that there's any gigantic obstacle in the way, other than just overcoming our own inertia of, let's just go get it done, folks. And I think we're getting very close to that.

In terms of the longer-term business opportunity, we have been very out-front of that over the years and have argued that the business models that we can roll off the back of the platform are very material. And I will tell you, just candidly, if they weren't material why would you think the phone company would want our spectrum space?

It shouldn't be any more complicated than that to the layperson out there, Barry, that the phone company wants our real estate so they can go develop it and make money with it. Our view of that is, why can't we just do that? Because there's an awful lot of money out there to be made. It doesn't need to be any more complicated than that, or thought about in any different terms than that.

Thanks, David. If you had to hazard a guess as to when you could be up and running with -- beyond a trial or a test, but more of a broad-based business, are we talking about 2017, 2018?

I think it could be inside three years.

Great. Thanks very much.

Howard Rosencrans, Value Advisory

Thank you very much. Along the lines of what you've said previously, David, where you've highlighted, it's your money and it sure is, and has off for you for being so committed to the investment. It's certainly much more substantial as you highlight often vis-a-vis the other management of companies.

You've slowed down -- just a few points here. You've slow down your buybacks. You've certainly -- you returned 50%-ish some odd as you highlight in terms of the -- well, first there's EBITDA conversion and then there's the free cash flow generation and the return to shareholders.

Wouldn't it be prudent at this time, possibly, to start to lever up and to be more aggressive? I mean, I assume you're as frustrated as all of us that the values you perceive are not being reflected. And in the same lines, I would think along the lines that Lance Vitanza highlighted, that you would want to do something in terms of the auction to try to highlight some of the values.

And last along the same highlight and get some of the value here, there's the non-linear that you've highlighted value of your local stations, et cetera, talking about $500 million to $2 billion being ascribed to some of the non-linear players. What are we going to do to start moving the needle on getting the value to be reflected in the stock, even with Amy highlighting the 40%, and I think it's a great data point, the two-year free cash flow yield on the stock? Stock is still down. I'm not looking at it on a day-to-day basis, I'm just saying we're not moving the needle. I know it's -- you foremost, it's very important. Thank you.

I think I would just start by saying that we've bought back more shares this past year than I think we've ever bought back. I think it's not really fair to say we've slowed anything down from a share repurchase.

You did in the fourth quarter.

We don't think about it in that granular of a sense. The other thing I think you need to appreciate, too, is that we are approaching, or at or near 5 times leverage overall. What needs to be balanced in terms of share repurchases is just an overall risk profile for the Company and staying within a certain rating stand for the rating agencies, is another consideration.

In your comments, would it makes sense to lever up and take advantage? Certainly that's something we think about a lot. And I think what you've seen, despite all the acquisition activity that we had last year, we did buy back a significant amount of stock. I think a lot of companies would have not done that and just said, you know what? We're taking on a lot of debt to do these acquisitions, why buy back stock? But yes, we still did.

And I think that speaks to our view as to the value of the Company that isn't being recognized. And we share your frustration in terms of the stock market's view of our value and why it isn't higher. Certainly that's something that we're working on every day.

We've highlighted some of those things on the call in terms of what we're doing on our digital -- on the digital front. As David mentioned earlier, we may have to create a separate entity for those activities. I'm not sure that how it's looking at Sinclair, that a digital strategy we will ever get the type of credit that you see in other entities that are standalone and have VC investments on that rate that are much, much higher values than we could ever achieve on -- than as an integrated entity.

That's something that's on the drawing board. It can be a way for us to realize more value in terms of certain activities.

Thank you. David Smith, do you have any specific thoughts in that regard, in highlighting the values?

No. Look, I think our interests are aligned here. As Chris said, we're as frustrated with the Street as everybody else. When I sit back and I look at Internet companies out there that are bleeding money all over the ground that are worth more than we are, that aggravates the hell out of me. But there's only so much we can do about that.

It's really up to the industry in general to continue just to educate as to what our real value proposition is to the consumer and the shareholder, and hope that that translates. As I said, I'm as frustrated as you are. It aggravates the hell out of me to see these things go on out there in the marketplace. We shake our heads at it and say, how that could be?

Yes, if you can take a look at the private value of our business versus the public value, the disparity in the ratio is just extreme. You just scratch your head.

How does that math work in terms of the sentiment that is out there on Wall Street. And is it not being considered what the overall enterprise is really worth versus what the public market is trading at? Apparently not.

I look forward to seeing what you do in 2015 and 2016 to better highlight the values. Thank you so much for your time and your [thoughts].

Thank you. This concludes today's question-and-answer session. I would like to turn the floor back to David Amy for closing remarks.

Thank you, operator. And thank you everyone for your time today. We'll talk to you next quarter.

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