Sinclair Inc (SBGI) 2016 Q3 法說會逐字稿

Greetings and welcome to Sinclair Broadcast Group third-quarter 2016 earnings conference call.

(Operator Instructions)

I would now like to turn the conference over to your host, David Amy, Executive Vice President and Chief Operating Officer. Thank you, Mr. Amy, you may begin.

Good morning everyone and thank you operator.

Participating on the call with me today are David Smith, President and CEO, Steve Marks and Steve Pruett, our 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 got 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 the 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.

Included on the call over the 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 evaluation 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 investors reports and filings.

Thank you, Lucy.

By now you should have seen our announcement that effective January 1, 2017 David Smith will assume the role of Executive Chairman and will continue to focus on our most important assets of news, public policy, and the globalization of ATSC 3.0. Chris Ripley will become President and CEO and Lucy Rutishauser will become Senior Vice President Chief Financial Officer and Treasurer.

We have the utmost confidence in Chris and Lucy as leaders in our Company, ensuring we are well-positioned for the future as they lead Sinclair to our next gen era. These next five to ten years will be exciting and transformative times for our Company and the industry. It is important that we are structured and aligned for the upcoming changes. Please join me in congratulating Chris and Lucy.

Before we go through the results, let me review some of the more meaningful activities that have taken place since our last earnings call. We expanded local news in six markets, and have won the prestigious Edward R. Murrow award on top of 336 news awards so far this year, the most in our Company's history.

Our commitment to being the best in local news is further evidenced by our leadership in the use of unmanned aerial vehicles or drones for news gathering. Sinclair has six stations using drones for news coverage and we are planning to grow our UAS to 40 markets with 80 trained in FAA certified pilots by the end of 2017.

On the sports front, Ring of Honor Wrestling entered into a two year agreement to air a weekly show on Sport TV, the leading sports channel in Portugal. American Sports Network agreed to once again produce and air the NOVA Home Loans Arizona Bowl, which will reach more than 100 markets.

Circa, our newly launched mobile video-driven news portal designed for the millennial audience, launched in July and has reached more news consumers and is generating significantly more video streams than what we initially projected as part of the Circa launch.

Full Measure, our national investigative news show, now entering its second broadcast year, has seen ratings increased since its launch last year.

We have also been actively involved in important outreach (inaudible) partnership for Drug-Free Kids awareness campaign, which we plan to support through PSA's, digital content, social media, and continued broadcast news coverage in 2017.

Chris will now take you through the third-quarter results.

Thank you, David.

Before getting into the details, I want to highlight that we are very pleased with our third-quarter performance. Despite political crowding out our normal advertisers, and the NBC stations garnering a higher share of advertising due to the Olympics, we still grew our core advertising in the quarter on a pro forma basis.

Turning to the details, media revenues for third quarter were $635 million, an increase of 28% or $137 million higher than third quarter 2015. On a pro forma basis, third quarter 2016 media revenues were 20% higher than pro forma third-quarter 2015, primarily due to increases in political advertising, and retransmission fees.

Political revenues in the quarter were $45 million. This has been a unique election year with both a lack of spending by the Trump campaign and certain expected contested races not materializing. Because political buys normally occur one in three days in advance of airing, it is difficult to accurately predict what political revenues will be, especially given the volatility of the current election year.

Media operating expenses in the third quarter, defined as media production and media SG&A expenses before barter where $370 million, up 26% from third quarter last year and up 16% on a pro forma basis. The increase on a pro forma basis was primarily due to higher reverse retrans fees, startup costs related to revenue generating initiatives, and system upgrades, as well as higher compensation. Our media expenses were $6 million favorable to our third order guidance.

Corporate overhead in the quarter was $19 million, up 20% compared to same period last year, primarily due to higher compensation, group insurance, and acquisition and consulting costs. For the year corporate overhead is expected to be $71 million, including $9 million in soft base compensation.

Research and development costs were only $1 million as ONE Media's work on the development of the ATSC 3.0 transmission standard has mostly been completed and they now await approval to begin the transition and implementation phase. For the year, ONE Media's expenses are expected to be $4 million.

During the third quarter we recorded a $3 million gain on sale of assets primarily related to the sale of certain non-media investment properties that netted approximately $4 million in cash proceeds.

EBITDA was $233 million in the quarter, an increase of 36% or $62 million higher than the same period last year and $1 million higher than guidance. The EBITDA margin on total revenues was 34% for the quarter.

Net interest expense for the quarter was $53 million, up $5 million versus third quarter last year on acquisition financings. Our weighted average cost of debt for the Company is approximately 5%.

Diluted earnings per share on 94 million weighted average common shares was $0.54 in the quarter, which includes a $24 million loss on extinguishment of debt on the redemption of the 6 3/8%% senior unsecured notes that reduced diluted earnings-per-share by $0.16. Excluding the debt extinguishing costs diluted EPS would have been $0.69 per share in the range of our consistence estimates.

We generated $131 million for each cash flow and converted 56% of our EBITDA into free cash during the trailing 12 months ended September 30, 2016. Our 2016 2017 free cash flow yield is approximately 22%, and our annual dividend yield is almost 3% based on our current share price.

Now I will turn it over to Lucy to go through the balance sheet and cash flow highlights.

Thank you, Chris.

Capital expenditures in the third quarter were $19 million, lower than the guidance of $30 million primarily due to timing. We are estimating full-year 2016 CapEx to be $94 million, likely better than guidance, and for 2017 are early expectation is for CapEx to be approximately $90 million.

Cash programming payments during the quarter were $27 million and we are still on track to meet our full-year estimates of $112 million. For 2017, we are preliminarily estimating similar levels of cash programming payments. Cash taxes paid in the third quarter were $37 million and for the full year are expected to be $98 million.

For 2017, modeling purposes, assume we pay 125% to 130% of the tax provision in cash, due to the 2016 extension payment that is paid in 2017. In August we closed on a 10 1/2 year private offering of $400 million 5.125% senior unsecured notes to 2027.

The net proceeds were used to redeem the 6 3/8%% senior unsecured note due to 2021, at a redemption price of $377 million, which includes outstanding principal of accrued and unpaid interest and a make-whole premium. The remaining proceeds will be used for general corporate purposes.

Interesting to note, by doing the make-whole tenure in August rather than wait for yesterday's call date, we saved over $10 million over the life of the bond.

At September 30, total debt was $4.206 billion, including $126 million of non-guaranteed NBIE debt. Cash on hand was $105 million. We had $483 million available on our revolver for total liquidity of $588 million.

Total net leverage through the holding Company at quarter end was 4.7 times, that excludes the BID of non-guarantor debt and is net of cash. The first lien indebtedness ratio was two times on a covenant of four times.

Our two-year average net leverage at the end of this year is expected to decline to approximately 4.4 times, and be in the high three times by the end of 2017 on a two-year average basis assuming our current portfolio and before potential proceeds from the spectrum auction and sales of non-media investment.

During the quarter we repaid $19 million of scheduled debt amortization and distributed another $17 million in dividends. For the year, we expect to distribute almost $140 million of free cash flow for scheduled debt repayment and quarterly dividends.

Since our August 3 earnings release, we also repurchased 3.8 million shares of common stock for $107 million, and have $130 million remaining on our buyback authorization, which includes the $150 million authorization approved by the board during the third quarter. Year to date we have repurchased 6 1/2% of the float, or almost 4.5 million shares. Our share repurchases combined with our 2016 quarterly dividends and scheduled debt amortization would represent approximately 50% of our total 2016 projected free cash flow.

David Amy will now take you through our operating performance.

Thanks again, Lucy.

As Chris pointed out we are very pleased with our third-quarter core advertising performance given the impact of political on our normal advertisers spending, and the Olympics impact on our non-NBC stations.

For the third quarter political revenues were $45 million versus $8 million in third quarter of 2015. A surprise here was political ad spending for 2016 is something (inaudible)anticipated due to the unique nature of this year's presidential election, and certain contested races in our markets not materializing.

In particular, Trump has not raised the same level of funding as past candidates. We believe this lack of financial support is a one-time anomaly, and one need not look any further for that confirmation than the first half of this year.

On our political revenues, we're 12% higher than 2012 pro forma levels. In addition, our NBC stations generally made out very well in the third quarter as a result of having the Olympics and because some of the political money flowed into the Olympic programming. Despite the political crowd out and Olympic effect on our non-NBC stations, our core advertising revenue, which excludes political, were up slightly in the third quarter.

In addition, we continue to see our digital business as some of the industries best-performing with our digital revenues growing 23% in the third quarter on a pro forma basis.

As we turn to the outlook for the balance of 2016, for the quarter we are expecting media revenues to be approximate $733 million to $749 million; that's up 34% to 37% as compared to fourth quarter of 2015. This includes political revenue of $120 million to $130 million.

Pro forma core advertising revenues in the fourth quarter, excluding political, are expected to be down mid-single digits versus the same period last year due to normal crowd out of our regular advertisers by political. In addition, we are seeing the schools category come under pressure with the for-profit technical schools struggling or closing their doors because of increased governmental regulations and scrutiny.

Auto on the other hand is expected to be positive in the fourth quarter, which is a very good result given some of the concerns expressed over production cutbacks in the political crowd out. Overall, year-over-year we believe fourth-quarter 2016 core performance is in line with fourth-quarter of 2012 performance after adjusting for declines in the school category in 2016 along with the resurgence in auto advertising in 2012, as it emerged from the great recession-driven lows.

For the full-year we are estimating media revenues to be approximately $2.505 billion to $2.521 billion, up 25% as compared to 2015, with pro forma core advertising for the year expected to be flat to 2015. Included in our expectations is political revenues of $206 million to $216 million. While political is down compared to pro forma 2012, this is due primarily to the lack of support and fundraising by the Trump campaign, a phenomenon that we have never seen before in a presidential political election and do not expect to see again.

On the expense side, we are forecasting media expenses in the fourth quarter to be approximately $384 million versus $313 million in the fourth quarter of 2015 with about half of the increase coming from new acquisitions, initiatives, and system upgrades.

For the year, media expenses are forecasted to be $1.457 billion. On a pro forma basis 2016 media expenses are forecasted at $1.475 billion versus 2015 pro forma media expenses of $1.261 billion. That is a 17% increase. Of that, four points of the 17% increase is from acquisition and initiatives and system upgrades and the remainder is from higher reverse retrans and normal operating expenses, which are growing primarily due to higher sales commission expenses on the higher revenues and salary compensation. For this year, normal operating expenses are still expected to contribute 4% of the increase, consistent with our previous guidance.

For the year corporate overhead is estimated to be $71 million, up $6 million excluding stock-based compensation. Increases are primarily due to higher compensation, group insurance, and legal and consulting fees related to acquisitions and the spectrum auction.

EBITDA in the fourth quarter is expected to be approximately $319 million to $334 million, up 56% to 63% versus as-reported fourth-quarter 2015 EBITDA of $205 million, and up 47% to 54% versus pro forma fourth quarter 2015 EBITDA of $218 million. For the year, EBITDA is expected to be approximately $921 million to $935 million versus as-reported 2015 EBITDA of $722 million. On a pro forma basis, 2016 EBITDA is expected to be $925 million to $940 million versus pro forma 2015 EBITDA of $759 million.

Free cash flow in the fourth quarter is expected to be approximately $215 million to $230 million, and for the year $536 million to $551 million. We are adjusting our combined free cash flow guidance for 2016 and 2017, down by $25 million on the lower political for a new range of $950 million to $1.25 billion. However as a result of the shares we have repurchased, our average free cash flow per share per year increases from $5.36 to $5.43. Based on our fourth-quarter guidance, we expect to end the year with record-breaking financial performance and our key metrics of revenues, EBITDA, and free cash flow.

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

Thank you.

(Operator Instructions)

Kyle Evans, Stephens.

Hello. Good morning and thank you for taking my questions.

Good morning.

Chris, I want to make sure I heard you correctly on the front end. Core was up on a same station basis. Could you talk a little about the flat auto in 3Q and the up outlook in 4Q? I then have one follow-up.

Sure. You did hear correct. We were up on a same station basis, on a core basis, in Q3. Auto in Q3 was more or less flat, it's looking to be positive in Q4 and we are pleased with those results. As I mentioned in Q3, we under-indexed on the NBC side. NBC probably comprises about 15% of our total ad revenue which makes it our smallest big four affiliate. When Olympics come, it tends to suck share away from other stations in the marketplace and despite that and despite us under-indexing for NBC, we are pleased with the core performance in Q3. (multiple speakers)

I want to follow-up on that if I could. I think it is important to plug this out. We do not have a lot exposure as Chris mentioned on NBC stations. Our biggest market is San Antonio (inaudible) 32. In San Antonio, and Las Vegas to illustrate how powerful the Olympics is, those two markets, the two NBC stations group 6 revenue share points in third quarter. If they were doing it as a 20 share last year they are doing 26 share this year. That illustrates how powerful the Olympics is. You take into consideration that we do not have a lot of exposure with NBC stations and we still finished positive on the core. Really strong performance.

Agreed. One quick follow-up and I will get back into the queue, an update on your retrans sub count, please? Thanks.

I will take that one. At this point there really are not any material changes in the sub count.

Thank you.

Aaron Watts, Deutsche Bank.

Hello everyone. Chris, Lucy, I want to start by congratulating you on the new roles, very well deserved.

Thank you.

Maybe one question to start with on core growth prospects. I am curious, your sense from what you are hearing in the local markets about how advertisers are feeling. I know you talked about what you're seeing in the fourth quarter but maybe your outlook at least initially on what you are seeing for early 2017 and what the confidence level is from your small and medium-size advertisers.

As we step back and look at what happened in Q4, I think it is important to queue in on David's comments. As we look back in history, versus Q4 2012, the core there was down about 2% and the difference between what the performance we are seeing here in Q4 of 2016 and Q4 of 2012 can be explained by really two key items.

One is the school segment that's declined due to players like ITT Tech going out of business. The second is, if you remember back in 2012, auto was having a huge resurgence off of the great recession driven lows and it grew at an abnormally high rate through 2012 and when one of your biggest category does that obviously has a big impact.

The combination of those two factors really makes, in the context of Q4 of 2016 versus Q4 of 2012, it really makes us believe that this is normal performance relative to the two years and when we project forward into 2017, we do not think the market is changed. There is no signpost for us to say the local marketplace has changed. In fact we are hopeful the resolution of uncertainties driven by the election around what future trade policies will be or corporate tax policies that could create a relief rally if you will, in the local marketplace if uncertainty is lifted.

Okay. That is helpful. There has been a lot written about some of the NFL ratings weakness, is there any read through today or in the near-term future for you guys on that?

On the NFL numbers, we studied those very carefully and the bulk of the decreases were in, what I'll call the expanded series, the Thursday night game and also on the Monday night game. The home and home region NFL ratings are very stable and very solid, they are not down at all.

We do not expect that to have a big impact in terms of -- the CBS games are relatively recent events so we have been dealing -- we've now had NBC Sunday Night for quite some time. The game of the week expansion, if you will, has been where the weakness is and you can think of that as over-saturation of games or but the core fan base is around what we will call home games or home regional games and that is still very strong.

Okay. Thank you very much.

Dan Kurnos, The Benchmark Company.

Great. Thank you good morning and I will echo my congratulations to Chris and Lucy.

Let me start off here and I know we have been all circling around the issues but maybe if we could get a little more color on the auto, maybe a breakdown by tier, just how that is pacing? Then in your prepared remarks David you mentioned that you were seeing some increase in political in this last week could you give us a sense of how much that is embedded in your forward guidance?

Then on Q4, look, your guide is pretty strong considering where political is coming in and we have heard that advertisers have been worried about the market and booking late, as you mentioned also I think, Chris. Maybe if you can talk about whether you are seeing the pacings firming up, if there are other categories that are performing particularly well, and just remind us of the timing of the tennis step up. That would be helpful. Thank you.

You asked about the political pace and what we have included, in our projection for the fourth quarter. We are doing our best to be as accurate as possible but actually before we jumped on the call, we were kidding about how maybe we should have an update during the call because the political -- the momentum in the political has been really picking up here. Steve and Steve may have some other color they want to add to that.

The political in the last two weeks is what we had anticipated, it is to the same type of levels we enjoyed in previous years. It has been robust in the last two weeks and we expect that to continue right up to election day. It has been obviously, as everyone mentioned on the call and you've all experienced, it has been an interesting election year to say the least, and the last two weeks of this year, of this campaign, has actually mirrored what we are used to in previous elections.

As to auto, the dealer groups, both auto domestic and auto dealer groups in general, were both up very solid numbers and as always, the many moves around within the tier 2 and tier 1 and tier 3 categories.

The question on Q4, if you are seeing pacings firming, if there are any other categories that are helping you with strong guide and remind us of the timing of the step up from your renegotiations.

We have a handful of categories as we always do that are up, and we've got a handful that are down. We are most thrilled, as we just articulated, with the automotive and we're talking a full year of guidance on the plus side on the most important category in the advertising community. You start off with that and that is an enormous positive. We also have some really other good stories as well, but it is the typical stuff. We have probably about 8 or 10 categories up in fourth quarter, that normally places a little bit behind as you would expect from the crowd out, we typically average about 15 categories up, Not surprising, a very typical crowd out quarter for a core business. Nothing unusual.

As it relates to your tennis question, tennis has been going great from a distribution standpoint. We have started to already get the benefit of some of the incremental distribution which came in this summer. Most of the benefit will start to be felt next year as a significant amount of subs come on at the end of the year and then mid-next year.

In terms of our previous guidance on tennis being on a run rate of $60 million midpoint of 2017, we are still very comfortable with that number. There may be a slight mix change in terms of how we are thinking about. I'd say we are a little bit ahead on the distribution side, maybe a little bit behind on the ad side but it takes a little longer for distribution to translate to ratings than to translate into ad sales, but so far so good on tennis and we like where we are headed there.

Great. Thank you for all the color. I appreciate it.

Sure.

Alexia Quadrani JPMorgan.

Thank you. I am sorry to pile on on the political questions here. When you look at the political spend, and like you said it is an interesting election, the patterns of political spend have been different this year, what gives you confidence that it is definitely unique given the candidates that are running and the issues unique to this election and not something that may be more structural that we could see plague a broadcast political spend in the out years? And then a follow-up

Alexia, I think the important thing to look at is how we performed in the first half of the year. Through the primaries. There, we were running 12% ahead of first half of 2012 on a pro forma basis. That is really what you should expect to see. The fact that Trump was late to the game in fundraising was the first issue, the war chest just was not there for him and that is part of why you are seeing declines here in the back half of the year.

Yes. It is incredible to see that the RNC has not supported their candidate in the amount of money that would be reflective in terms of total spending is pretty significant.

On top of that the record amount of PAC money that was raised primarily for competitors to Trump in the primaries did not get shifted to support Trump as some thought might have been done. There is definitely some unique characteristics that we do not believe are likely to repeat. Not the least of which you have a candidate who never thought he would get this far so really did not prepare from a fundraising perspective. Also came in with a huge amount of built-in fame and following that would be very hard for future candidates to repeat in terms of that sort of built-in advantage.

Piling on this, no one understands the power of television more than Trump does. It has been incredible the amount of time that the networks have given him so if you are Donald Trump and it is more effective than a 30 second spot. The networks have been putting them on for 30 minutes, let alone 30 seconds, and it's because, like Chris points out, the guy is a rating magnet. The cable networks want him on the air and they put him on for extended periods of time. If you are getting free time, why would you spend money and that is really what it boiled down to at the end of the day.

I think it is also fair he has recently stepped up his fundraising game as it became obvious he needed to do so, and he has been spending it. He did not have the same war chest, as Lucy pointed out, that you normally would expect at that point in time.

Just to follow-up on your comments on the NFL, I think you mentioned the core games, the more local games are doing fine, it's the national stuff where you see weakness in the ratings. I guess in your opinion is it purely due to over-saturation on a national level or is there some concern that that weakness may eventually spill into what you're saying more at a core level?

I think there are lots of different opinions, and that is what they are opinions at this point. It is my personal opinion, it is not so much saturation but a product of poor match ups being chosen as the highlighted games. Also you had less star power, you had Brady out the first four games, you have Manning retired.

There is no story.

You had the player issue around the anthem, and when you add all of that up, the games were less appealing. Less people tuned out and -- the home ratings held up and it was the people watching the rest of the games that was mainly the deterioration and in fact it was also the wealthier households held up better than the lower wealth households which I thought was also interesting. I think it was really sort of a story and product issue that hit this year and it will not necessarily be something signs of future --

And you did have a major debate on a Sunday night and as we mentioned, Trump is a ratings magnet and this election has gotten everyone's attention and that debate definitely ate into the NFL numbers on Sunday night, there's no question about that.

Thank you very much.

Thank you.

Marci Ryvicker, Wells Fargo.

Thank you. The first question I have, how big of a category is schools? What percent is it? I know auto is about 25%, what about schools?

Give me a minute, Marci. I can get that for you.

Okay.

Do you want to go on to your next question?

Sticking with auto, do you feel, Steve, there is true demand in the category or is it just the timing of when advertisers are actually placing business because they did not want to go through the elections?

I am sorry. In terms of Q3 --

Just even in Q4 being stronger, I would assume that auto advertisers did not want to advertise during the election so maybe they place business later and it is not --

Exactly. All of that auto is timing. I was just with a number of auto dealers and their view of the world is pretty much business as usual. They are not particularly concerned about anything except competing for market share and they see advertising as a critical aspect of that. In particular they see TV advertising as an important part of that and not changing.

But to your point, Marci, people buying around the quarter regardless of how strong political was or will be, those plans get made well in advance and people do buy around the quarter. That's a -- (multiple speakers) -- every time.

Marci, just to go back to your schools question, historically it is run at about 4% category in the mix.

Okay. Lucy, you mentioned you will be below four times on a tier average in terms of leverage by the end of 2017, do you intend to stay there? Should we assume leverage is going to continue to drift down as EBITDA grows?

Yes.

Our target leverage is high three and low fours and as Lucy mentioned we will be at the high threes end of 2017 on an average basis --

And that does not include proceeds from the auction correct?

It does not include proceeds from the auction. We are certainly comfortable -- the model can withstand much higher levels of leverage, without a doubt and certainly for the right strategic move we would do that. We think it is prudent to have leverage trend down and we are also hearing from investors that would be a more appealing profile for the Company.

Got it. Thank you very much.

Marci, I want to add, I think the takeaway here is, as Chris mentioned, we have leverage that is trending down, we have our free cash flow per share that is increasing and that is before we start looking at everything that's on the horizon whether it is the auction proceeds or whether it is 3.0 opportunities.

We like it. Thank you.

James Dix, Wedbush Securities.

Thank you. I have two. First, if you can stand it, another question on auto. Any changes in the type of advertising you are seeing, the mix of promotional versus more traditional branding spending, and has there been any different cadence in terms of new models that came out this year that has affected the cadence of spending this year?

And secondly is there any revenue from any aspect of the transition to ATSC 3.0 included in your 2017 outlook at this point including (inaudible) and if not you have any sense of when you might start to see revenue impact from the transition? Thanks.

There is always shifting around of incentives and shifting around the way dealers allocate money. There is nothing any different in this year, there is always new models. There is no sentiment and again as I said I was just visiting one of the large group of dealers, all sizes from smaller five roof-top dealers to larger hundred roof-top dealers and they all have the same. This is business as usual to them, incentives get shifted around, factory wants to stress thanks one way or another and there is no overriding theme to any of that at this point. There are national incentives and there are regional incentives and there are dealer initiated incentives.

There is an interesting trend with way more focus on the service lane and F&I as a profit center in all dealers which are areas that are coming into television advertising in a big way that have not been as big. Some of those are factory backed, such as Ford and there are various pushes into Quick Lane and then all dealers are pushing into these really key profit centers within their dealership that have not been as front and center. That is all very good for us.

On your question around the ATSC 3.0, the final standard will not be put with a bow around it, totally complete until the end of this year and after which patent pools and negotiations will start in terms of the economics around the IP are. Our stake in that process is driven by patents which the first of which are starting to get granted. I would expect most of that patent activity to be weighted to the back half of 2017 and into 2018. Knowing how long these things take to figure out I would not expect -- there certainly nothing in our number for 2017 and I do not it expect to have a material impact in 2018.

However I will say the progress of ATSC 3.0 has been encouraging. The Koreans are going to start rolling out in February of 2017 with product with ATSC 3.0 technology in it. Technically even though the price for that is not been figured out and our stake and has not been figured out, there is essentially accrued income, if you will, starting to happen in 2017 that will be owed to IP holders including us at some point in the future when the economics are figured out.

James, if you can take a little bit and stand a little bit more answer on the auto. When it comes to the technology just the other day we put out a press release about 3.0 and the information we expect to be able to gather using 3.0 and some of the work we are doing today in getting prepared for that future information, the opportunities that will provide us and we began working on that today and especially in regards to auto.

We mentioned that in our press release about the unique skill sets we are developing and we will not provide you specific detail on a public call about exactly what we are doing and how we're doing it because it is proprietary. We are building advantages within our Company that take advantage of the technologies that are being developed and the future of those technologies and how they can apply, not only to auto, but a number of other of our advertising categories.

We see this as a building block and we see a significant future in terms of what we can do and how we can build on that advertising base with our 3.0 advancement. We are very excited about the future of what is coming up.

Great. Thank you for that color.

Leo Kulp, RBC Capital Markets.

Good morning and congrats to everyone on the promotions.

I have a few questions. First, can you give an update on how your auto revenue mix varies between the different tiers?

Second, can you update us on your thoughts around returning capital to shareholders? Your usage of capital? Particularly in light of the strong buy back levels in 3Q, is that something that was more market related or was that a shift in strategy?

Finally can you update us on any plans for news Channel 8?

On the distribution, it is fairly evenly distributed and it is very subjective, actually, based on how individual manufacturers and dealer groups or dealer associations buy in terms of actually execute the buy. Whether it is regionally or nationally or buy it market by market. It is safe to say the distribution is fairly equitable across tier 2 and tier 3 with true tier 1 dollars being a little smaller on the whole because money is really -- the money that is being spent on television and local television is viewed as dealer directed money. It is a process by which dealers make the decisions.

On your question related to uses of capital, it is not a sign of a change in strategy. We are fairly consistent in saying we balance our uses of free cash between accretive acquisitions and investments and share repurchases. We have been less active over the course of this year than we historically have and we have gotten incredibly strong free cash flow generation on the other side of that. I think of a reflection of that and balance of what we have spent and what we have in the queue versus what was coming in the door. But certainly we also look to be opportunistic in terms of where the market is so we are buying right, if you will, and we saw a great buying opportunity when we went to the market.

If you look at where the stock is currently trading and you think about free cash flow yield, it is up around 20%, low 20%s, that is an excellent use of our cash flow. At those returns.

As it relates to news Channel 8, the DC 24/7 news channel, it's a great operation since we took it over. We have it fully distributed within the DC DMA and it is very profitable and it is an extension of what we do at a WJLA which is having tremendous success in the local news product. Furthermore it is becoming a center for national news activities, like Full Measure and other products that we intend to launch across our footprint. We are using it as a base for that national expansion.

Got it. Thank you very much.

Thank you.

Dan Kurnos, Benchmark Company.

Thank you.

This is maybe more to pique my own curiosity, but how much money are you putting behind Circa? I know you have some traction there and it is obviously early days but how should we think about how aggressive you will get? We have seen other footprints and blueprints on how to pursue that course? I am curious about where you are at and how you feel going into 2017.

Circa is definitely not a typical startup that you see on a standalone basis, it certainly benefits from leveraging everything we do at Sinclair being the largest producer of news in the country. This year it will be about $10 million of losses that we'll cover and we expect it still to be in a loss position next year with a path to break even in 2018. We're not looking to dramatically increase the spend in Circa. We think it can be effective at a reasonably low level of expense relative to a digital media startup that does everything it does on a standalone basis. I would not expect us to see a big step up and investment there.

As we mentioned earlier, it is far exceeding our expectations in regards to its connection with the public, and tongue-in-cheek, if we were to use a Vice multiple think it would be about $2 billion or $3 billion by now. (laughter)

Is that not great how it works, David, (laughter) you have $10 billion business, it is just like BuzzFeed, you are all set.

(laughter). You got it, Dan.

Thank you guys.

Thank you.

That is all the time we have for questions. I would like to turn the call back over to Management for closing comments.

Thanks Operator, and thank you everyone. While this has been an unusual political year and one we don't expect to occur again in many parts of our core business that are performing well, especially our digital assets, local news and of course the automotive category, as well as expecting to benefit from the upcoming spectrum auction in our next gen broadcast platform opportunity. Thanks for participating on our earnings call this morning. If anyone has additional questions, please feel free to contact us.

Congratulations Lucy and Chris.

Thank you.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time. Have a wonderful day.