Sinclair Inc (SBGI) 2017 Q3 法說會逐字稿

Greetings, and welcome to the Sinclair Broadcast Group Third Quarter 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Lucy Rutishauser, Senior Vice President and Chief Financial Officer. Thank you. You may begin.

Thank you, operator. Participating on the call with me today are David Smith, Executive Chairman; David Amy? Vice Chairman; Chris Ripley, President and CEO; Steve Marks, Executive Vice President and Chief Operating Officer for our Television Group; Rob Weisbord, Vice President, COO of our Digital Group; and Steve Pruett, Executive Vice President and Chief TV Development Officer.

Before we begin, [Billie Jo McIntire] will make our forward-looking statement disclaimer.

Certain matters discussed on this call may include forward-looking statements regarding, among other things, future operating results. Such statements are subject 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 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 Regulation 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 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 details 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 Investors, Non-GAAP Measures.

Chris Ripley will now take you through our operating highlights.

Before we go through the results, let me review some of the more meaningful activities that have taken place since our last earnings call.

Many of you probably read that the FCC is expecting to vote in favor of local ownership deregulation in ATSC 3.0 deployment at its November meeting. This is a landmark development for our industry as a whole, and we applaud the FCC for recognizing the competitive iniquities levied upon TV broadcasters for several decades while emerging technologies, media distributors and content providers have been allowed to consolidate and freely deploy technical platforms. Reforming the ownership rules and allowing for technological innovation are both necessary for the future of over-the-air broadcasting. We're glad to have an FCC that recognizes that need.

On September 1, we welcomed the addition of the Bonten Media Group's stations to our company when we closed the previously announced acquisition. Bonten adds 8 new markets to our footprint, bringing the number of stations that we own or to which we provide services to 192.

On October 19, the Tribune Media shareholders overwhelmingly voted in favor of our proposed acquisition. We anticipate the transaction will close in early 2018, subject to customary closing conditions, including the approval by the Federal Communications Commission and the antitrust clearance at the Department of Justice. We expect to fund the purchase through the combination of cash on hand and by accessing the capital markets, which is -- backs up by a fully committed debt financing.

In September, we entered into a multiyear agreement with CBS on the renewal of 4 affiliations. And in August, we entered into a multiyear renewal on 5 FOX network affiliations that had expired. The FOX deal includes the ability to participate in virtual MVPD deals, and both deals highlight the mutually beneficial network affiliate model that bonds us stronger than ever. We continue to work with the networks and virtual MVPDs for compensated broad distribution, which has led to an agreement with YouTube TV for all of our Big 4 affiliates to be carried as YouTube TV launches in those markets.

As part of this agreement, YouTube TV will deliver Tennis Channel to all its subscribers and since the announcement, has expanded its offering to include our CW stations, MyTV stations and Comet TV.

More recently, we entered into a similar agreement with Sony Vue, under which they will include all of our local TV broadcast stations as well as Tennis and Comet on their platform. It's important to point out that having local broadcast stations, local news and unique and compelling content (inaudible) virtual MVPDs as they launch their platforms.

Meanwhile, our professional wrestling promotion, Ring of Honor, continues to expand distribution, adding almost 2 million Canadian households.

Turning to ATSC 3.0, we continue to work with Saankhya Labs for the design of a next-generation chip for ATSC 3.0 fixed and mobile reception and to bring finished chips to the marketplace. This work and investment follows an earlier announced project incubation stage that helped define a new software-defined radio chip architecture to support the first truly mobile, next-generation global standard chipset.

Our stations continue to produce important high-quality news and receive recognition that reflects our commitment to and investment in local news. Recently, our station in Columbus, Ohio, received 11 Regional Emmy Awards, adding to the already impressive 100-plus groupwide total for 2017. Several of our Texas stations have received 21 nominations for the Lone Star EMMY Awards Gala. We would like to congratulate everyone in our news organization on their relentless pursuit of the truth and alerting and empowering our viewers.

Localism is an important part of what we do and there's no better example of that than the ways we give back to our local communities. This past quarter, we awarded 7 promising college students studying in broadcast-related fields with our Broadcast Diversity Scholarship.

Through our television station's outreach in their community, we raised approximately $1.5 million through the Sinclair Cares 'Standing Strong for Texas' fundraiser. The monies were donated to the Salvation Army to help the victims of Hurricane Harvey in Texas.

Last but not least, I want to thank our employees who have diligently worked to ensure a smooth transition of Bonten and the upcoming Tribune acquisition.

Now Lucy will take you through the third quarter results.

Thank you, Chris. During the -- turning to the financial details. Media revenues for the third quarter were $624 million, a decrease of 1.7% or $11 million lower than third quarter, primarily driven by the absence of political revenues in a nonelection year, $10 million in Olympic revenues received in 2016 as well as a $3 million impact from the hurricanes in Texas and Florida and other onetime adjustments.

This was offset, in part, by higher retransmission and digital revenues. On a pro forma basis, third quarter 2017 media revenues were $638 million, 3% lower than pro forma third quarter 2016, primarily due to the same reasons as just discussed.

Political revenues in the third quarter were $7 million versus $45 million in the third quarter of last year, which was a presidential election year.

Media operating expenses in the third quarter, defined as media production and media SG&A expenses before barter, were $402 million, up 9% from third quarter last year and were $410 million on a pro forma basis. In both cases, primarily the result of higher reverse retrans fees on network renewals, start-up costs related to our revenue-generating initiatives and system upgrades. This was offset in part by lower normal operating expenses. Our reported media expenses, excluding Bonten, were slightly favorable to our prior guidance.

Corporate overhead in the quarter was $17 million, excluding $9 million of onetime legal and acquisition costs related to the Bonten and Tribune acquisitions as well as spectrum auction costs. This is slightly favorable to our prior guidance.

For 2017, excluding $21 million of costs related to acquisitions and the spectrum auction, corporate overhead is estimated to be $73 million, flat to prior year and also slightly better than prior guidance.

Research and development costs were $3 million in the quarter. For 2017, we are estimating $13 million in ONE Media expenses relating to the transition and implementation of ATSC 3.0. This is no change to prior guidance.

Adjusting for the $12 million impact of the items I discussed earlier, third quarter EBITDA was $188 million in the quarter, which reflects the absence of political and Olympic revenues versus last year. Excluding Bonten, EBITDA was $2 million above our adjusted EBITDA guide of $183 million.

Net interest expense for the quarter was $50 million, down $3 million versus third quarter last year on scheduled debt amortization, including the repayment of debt on Alarm Funding which was sold in the first quarter. Our weighted average cost of debt for the company is approximately 5%. For 2017, we are estimating net interest expense to be $207 million. Diluted earnings per share on 103 million weighted average common shares was $0.30 in the quarter or $0.37 per share when adjusted.

We generated $100 million of free cash flow in the quarter after onetime transaction and spectrum expenses. Our EBITDA to free cash flow conversion ratio remains an impressive 55%. We are reconfirming our 2017-2018 free cash flow guidance, pre-Tribune, of $975 million to $1,050,000,000 or $4.75 to $5.15 per share on 102 million shares. And we are reconfirming our post-Tribune free cash flow guidance of $1.7 billion to $1.77 billion or $6.90 to $7.20 on 122 million shares.

Turning to the balance sheet and cash flow highlights. Routine CapEx in the third quarter were $21 million. For 2017, we expect routine CapEx to be $83 million versus the prior guidance of $85 million to $90 million. This excludes $12 million of expenditures related to the repack, which we will get reimbursed for from the spectrum auction government proceeds.

Cash programming payments during the quarter were $27 million. For 2017, we are reconfirming our cash programming payments of $112 million, which would be flat to 2016.

Net cash taxes paid in the third quarter were $16 million. For the year, we are forecasting to pay $115 million in net taxes on continuing operations. At September 30, total debt was [$4,056,000,000], including $29 million of nonguaranteed and VIE debt.

Cash on hand at September 30 was $602 million plus $311 million of spectrum auction proceeds in qualifying intermediary accounts. In addition, we had $484 million available on our revolver, bringing total liquidity to over $1.3 billion.

Total net leverage through the holding company at quarter end was 3.5x on a trailing 8-quarter basis, excluding the VIE and nonguaranteed debt and net of cash. The first lien indebtedness ratio on the trailing 8 quarters was 1.3x on a covenant of 4.25x. We estimate our 2-year average holding company net leverage to be approximately 3.4x by the end of 2017, which is below the low end of our target leverage. This is one of the strongest balance sheets and credit profiles in our publicly traded history.

Pro forma for the Tribune acquisition and assuming an early 2018 closing date, total net leverage would be in the high 4x at the time of closing. As previously stated, we expect to quickly delever to the low 4x by the end of 2018. So within 1 year, we expect to return to the upper range of our target leverage, a reflection of our cash flow generation potential.

During the quarter, we repaid $15 million of scheduled debt amortization and distributed $18 million in dividends. We also repurchased 1 million shares of our common stock at an average price of $30 per share.

Now Steve Marks will take you through our operating performance.

Thank you, Lucy, and good morning, everybody. In the third quarter, our revenues were reduced by just over [$1 billion] as a result of the hurricanes in Texas and Florida that impacted several of our markets. Excluding unanticipated weather events, out-of-business technical schools, Olympics in August of last year and excluding Bonten, core advertising revenues were up over 2% on a pro forma basis, within the low end of our guidance.

For the third quarter, political revenues were $7 million versus $45 million in the third quarter of 2016, a comparison typical of a nonelection year.

As we discussed last quarter, we are gearing up for the 2018 political season. With over 2,300 hours of local news per week, our recent portfolio of news awards and our leading digital platforms, we will expect that to translate into positive share gains for us.

Excluding political revenues, we grew significant share in third quarter, outdistancing our peers by a comfortable margin. When you consider our portfolio of affiliations across all networks, including the weaker ones, it reflects that our strategies are working. The market share results exclude digital performance, which, as you know, we have among the best, if not the best, digital performance in the entire industry. Speaking of which, excluding new digital investments, we grew our digital business by 30% in the third quarter.

Turning to our outlook, which does not include Tribune or the spectrum repack. For fourth quarter, we are expecting media revenues to be approximately $682 million to $684 million, down about 6% as compared to fourth quarter 2016 due to the absence of political revenues in a nonelection year.

Fourth quarter guidance includes a political revenue expectation of $10 million versus $113 million last year. Pro forma core advertising revenues in the fourth quarter, excluding political, are expected to be up mid-single-digit percentage points versus the same period last year.

For the year, media revenues are expected to be approximately $2,541,000,000 to $2,543,000,000, up 1.6% to 1.7% versus 2016. As reported, media revenues of $2.5 billion. 2017 pro forma media revenues are expected to be $2,598,000,000, down only 1% versus 2016 pro forma media revenues of $2,616,000,000. Not bad given this year was a nonpolitical, non-Olympian year.

Adjusted pro forma core advertising revenue for the year is expected to be flat to up single digits, excluding and adjusted for hurricanes and so on. On the expense side, we are forecasting media expenses in the fourth quarter to be approximately $420 million versus $382 million in the fourth quarter of 2016, with the majority of the increase coming from reverse retrans acquisitions and revenue-generating initiatives. On a pro forma basis, fourth quarter expenses are estimated to increase 8% on the same drivers. This is offset, in part, by a decrease in normal operating expenses.

For the year, media expenses are forecasted to be $1,600,000,000 and $1,625,000,000 on a pro forma basis versus 2016 pro forma media expenses of $1,503,000,000, an 8% increase. Again, the increases are due primarily to higher reverse retrans acquisition initiatives and system upgrade expenses, offset by a decrease in normal operating expenses.

For the year, normal operating expenses are expected to be down low single digits. EBITDA in the fourth quarter adjusted for $6 million in acquisition costs is expected to be approximately $220 million to $222 million versus as reported fourth quarter 216 (sic) [2016] EBITDA of $312 million and versus pro forma fourth quarter 2016 EBITDA of $324 million, primarily due to the absence of political.

For the full year, EBITDA adjusted for acquisition and spectrum costs, the hurricane and other onetime adjustments, is expected to be $789 million to $791 million versus 2016 EBITDA of $913 million. Pro forma adjusted EBITDA for 2017 is expected to be $816 million to $818 million versus 2016 pro forma EBITDA of $956 million.

Free cash flow in the fourth quarter adjusted for acquisition costs is expected to be approximately $119 million to $121 million and $398 million to $399 million for the year. Adjusted pro forma free cash flow for the year is expected to be about approximately $426 million.

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

(Operator Instructions) Our first question comes from the line of Marci Ryvicker with Wells Fargo.

Just wanted to -- the Q4 guide. A lot of times, you'll give us a number and then there are all these onetime things that cause you to [make adjustments] happening to your stock price. So can you talk about, in the fourth quarter, the mid-single digits? What onetimers will you have to offset that mid-single digits? Will you have a hurricane impact continuing into the fourth quarter? And I think you're through the schools, correct?

Yes, I'll take that one. So Marci, there's about $6 million of acquisition cost in Q4. And that's -- so that's really going to run through corporate overhead. There will not be -- we're done with schools. We lapped that here in the third quarter. So really, all you're looking at are onetime acquisition cost, which is the only thing we're adjusting for in fourth quarter. Nothing on the revenue side. Hurricane was all third quarter.

Okay. And then I just want to clarify, on a -- when you talk about pro forma, because you gave us a lot of numbers for 2016, that includes Bonten as of 1/1/16, correct?

That's correct.

Okay. And then I just want to make sure, on -- you gave a core number for '17 of flat to up low single singles. That is inclusive or exclusive of schools and hurricanes?

So that is -- that excludes the hurricane impact. It excludes the Olympics. It excludes the technical schools for the first part of the year and it includes Bonten as though they were in for '16 and '17. So that's, again, pro forma for everything that we have.

Okay. And then I want to ask one nonfinancial question, just anything that you can comment on what we're reading in the press about Sinclair's conversations or negotiations with Bill O'Reilly?

So Marci, as you can imagine, we get approached all the time by a lot of people. And he did approach us, which I suspect, where some of these stories are coming from, but we do not have any interest in hiring him.

Okay. I may have one follow-up, when you talk about excluding Olympics, is that 100% of Olympics or the [displaced] Olympics?

So the $10 million was already an incremental number.

Our next question comes from the line of Alexia Quadrani with JPMorgan.

Just 2 quick questions, if I may. First, any impacts from the greater pay TV subscriber losses to your retrans outlook? Or do you see this largely offset by the gains that you address in terms of the virtual MVPD distribution? And then secondly, if you could comment, I guess, on the DOJ, specifically. Do you have a view on when the DOJ will examine the definition of local advertising market? Do you think they'll move to include local cable? Or do you think they'll actually widen it even further?

Okay. So on subscribers, we have seen some slight declines this year. But we really have not had the benefit of the virtual MVPDs. Most of our deals were just either very recently signed. And of course, our markets tend to roll on these MVPDs a little bit later after launch since we're in the medium-sized markets predominantly. So we're expecting the benefit of those virtual MVPDs start kicking in here in the quarters to come as they gain subscribers, which they are. And so -- but the -- it's really not -- has not been material to our overall -- our retrans since we're still making up for a huge gap in terms of what we get paid versus the audience that we deliver. And on the DOJ, we -- it's an ongoing process. We have -- we've obviously presented a very strong case that, at the very least, cable should be included in the market definition. I think it's sort of undefendable to not at least look at that. And so only time will tell as they go through their process, what their view of the market will be. But we feel incredibly confident that our -- that we're in the right in terms of our view of the marketplace.

I think the other thing to give some appreciation to is that the Federal Communications Commission, for at least the first time that I can recollect, has come out and essentially said the local broadcasters now compete against essentially everybody. So the Federal Communications Commission now subscribes to that view, which is obvious in terms of the reality of it. Sooner or later, the Justice Department, it seems to us, is going to have to get aligned with the reality of the marketplace. Currently, they -- in our view, they are not aligned with realities of the marketplace. And I think it's incumbent upon them and the folks over there to kind of really pay attention to what's going on in the real world.

Our next question comes from the line of Barton Crockett of FBR.

I guess, one question that I was interested in your view on was the proposal around the next-gen TV that's going to be, I think, part of the November 16 hearing at the FCC. Does that proposal outline a transition that's consistent with what you had hoped for? And as part of that, I think you now have the ability to include next-gen TV in retrans negotiations in an ability to have maybe your simulcast 1.0 be standard def and your 3.0 be high def. And I was wondering if you would think that those provisions are significant potentially in the migration path?

So we're very pleased with the order that's come out, the draft order, which will be voted on. It really is -- it gives the industry a lot of flexibility in deploying, which was our main objective. And in terms of whether negotiating retrans, that was really just a smokescreen put up by the MVPDs and any competitive smokescreen that the FCC did not fall for. So we don't see this migration affecting retrans whatsoever. And it's just important to give broadcasters flexibility in terms of resolutions, as you mentioned. To effect this transition, as what we're going to do, is we're going to stack up signals, more signals on a 1.0 signal and free up signals to convert to 3.0 so that both TVs, new and old TVs, can be supported simultaneously.

So the thing to remember here, and appreciate this transition versus the previous transition from analog to digital, is that the Federal Communications Commission set aside individual channels for us to transition to. They are not doing that here because there isn't enough real estate left. So the broadcasters have literally gotten together and on a market-by-market basis will work to do the transition details to accomplish the end result that we are looking for.

Yes. So the punchline on this order is that the FCC recognized this and gave the broadcasters the flexibility to have a market-driven answer, which is a win for us, from our perspective.

Okay, that's helpful. And then one other question, if I could, on the recent affiliation renewals that you've done. Those have any notable -- do they reflect any notable change, in effectively what you're paying in reverse comp as a percentage of retransmission income? Is there any meaningful change that's come through?

So what we do on that question is point to our guidance in terms of net retrans growth, which Lucy can reiterate here. And so that's built into our guidance, our expectations of the increases and reverse retrans. And reverse retrans has been increasing but on a dollar basis, gross retrans has been increasing faster. That's why our net retrans has been (inaudible), and those most recent deals are consistent with that trend. So we've been able to absorb the appearance of reverse retrans, which really only got started 5 years ago. Gross retrans started about 12 years ago, and we've been able to do that while still growing our net retrans every single year.

That's right. And we really have not changed our guidance that we've had out there. So -- and this is really a reflection of when the contract terms come up on the network side versus the MVPD side. But next year, we're looking to grow single-digit percents and then in '19, to grow in the teen percents.

Our next question comes from the line of Aaron Watts with Deutsche Bank.

Just a couple for me. One, quickly on core advertising, you talked about your expectations for growth of mid-single digits in the fourth quarter, which I believe is probably the best we've heard from you this year. Any further thoughts on what's driving the improvement? And do you think it's sustainable rolling into the new year despite some policy uncertainties in Washington?

Yes. I think it's been a low-single-digit business recently. And if you take a look at fourth quarter coming off of political, I think we're pretty much exactly where we had hoped to be. Auto remains very stable. When you take a look at our performance in the third quarter, you have an Olympic factor there as well as the hurricanes, and we were just a pinch off where we had hoped to be. Fourth quarter, we're facing positive auto. We'll finish the year positive auto. I think that bodes very well for core advertising. Some of the categories that are consistently doing well both third and fourth quarter are services, entertainment, fast food, media, drugs, religion, and we're seeing some very healthy increases in some of these categories. On the downside, with a little bit softness in retail, you're reading about that, it's mostly department store driven. We did a little bit better in the furniture business in the fourth quarter than we did in the third. The school business, as we mentioned, we've lapped. So I think going into fourth quarter, we're in really good shape. You got 2 major events to lead off the year. It's an Olympic year. You also have, in the course of the year, the World Cup. This usually bodes well for auto advertising that wants to be in the -- in those special events. So we're optimistic that the core business will continue to be okay for 2018.

Okay, that's helpful. And then just a couple on Tribune. Since your last earnings call, I'm sure you've had further time to dig in on the assets there and strategize on the potential to combine platform. As you stand today, can you speak about maybe where -- what you're most excited about and where you see the most potential on a combined basis, perhaps touching on not only the distribution platform but also your content capabilities?

Sure. So we're as excited about Tribune as we ever have been. The more we learn, the more we like. Our synergy target, it's been reaffirmed several times so I won't get into that. We think that's sort of the slam dunk near-term target that we'll hit. And in the longer term, as we look at this platform and what it can do together, we're very excited about prospect of network selling, which was built into our medium-term synergies. We're getting more and more excited, the more we dig into that. On the digital side, we think there's huge upside. Just to give you an example, Tribune doesn't even have a digital agency business. It doesn't exist. And consequently a stark comparison would be our Mobile market, does more in digital than Tribune does in New York, L.A. or Chicago. So that sort of upside in our best-in-class digital capabilities, we think, are a potent mix. And of course, WGNA is going great, well ahead of what we had thought when we announced. They went ahead on their own and restructured, moved away from the high-cost originals already into lower-cost originals. So far, ratings are up, ad revenue is up. And it won't have a huge impact on 2017, but it's going to set up nicely for 2018. And that was just really great news from our perspective. We didn't have to do the heavy lifting. They went ahead and did that for us. And then we're getting -- we're also very excited about the near-nationwide news coverage footprint that we will have with Tribune, and we're starting to look at new models that will facilitate things like personalized news channels. And once you have that big of a news presence, it opens up a lot of avenues for new models to be explored. So as we dig in and there's just more and more upside and -- actually, I'll also mention, on the station side, which is an area we really weren't able to do a lot of work on prior to announcement and still are somewhat restricted until we get DOJ approval. But from what we've seen there, we think there's significant upside at the station level as well.

Okay. And Chris, to the extent the regulators want some pruning of the portfolio or at least tweaking of it, do you think you might be able to satisfy them with swaps that can maybe enhance the portfolio versus just outright sales of those stations that they may call out?

Absolutely. Swaps are on the agenda. We have our process ongoing. We have received our first round bids already. Many of those did include swap alternatives, some of which included in-market swap alternatives, which can be very accretive, as we discussed, in terms of cost savings within the market. So that absolutely could be part of the solution here. Though, as we've said many times, we don't really think there's really a defendable reason that we'd have to sell any of these stations when you really look at it from an economic perspective.

Our next question comes from the line of Dan Kurnos with The Benchmark Company.

Steve, I just want to drill down a little bit into some of your comments around auto. Obviously, you have the hurricane impact. It's pacing up in Q4. Can you just talk a little bit about what you're seeing from local dealer inventory levels? Are you seeing any uptick in incentives post hurricane? Did it clear out inventory? You mentioned the World Cup. The U.S. isn't in it, unfortunately, next year. So I don't know if that -- how you're viewing that. And then, obviously, we've had record ratings in the World Series. And is that acting as a tailwind?

I think when you take a look at the automotive category for the last 2 quarters, our performance has been driven by dealer group money, and we're up significantly on the dealer group category. In terms of foreign and domestic auto, we are a hair away from being flat. So right now, we're being driven by dealer group money. I think you could probably expect that to continue at least into the first quarter. In terms of the opportunities for next year, the Olympics always do attract that category. And even though the United States, unfortunately, will not be participating in the World Cup, it will not stop auto advertisers from participating in that category. And we should realize additional revenues in that category because of that. So again, overall, we're clearly dependent on this category. We've had a, what I would believe, a very consistent 2017 with it. We are going to finish on the plus side in 2017 in this category, and that bodes well for 2018.

Overall, supply is steady at about 65 days.

Got it. And then, just in general -- actually, I [have some] more housekeeping questions on the Q4 guide because maybe this is part of it. There are 2 pieces, one on Tennis. Obviously, there's some seasonality there. So if you could just give us a sense of kind of a new distribution win that you've announced and kind of the timing of that with the vMVPDs versus the seasonality. How should we think about Tennis in Q4? And then on political, the Q4 political guide was a little bit lower than we were anticipating since you had some exposure to some of those special races. So can you give us an initial thought on how 2018 is shaping up? You've obviously got the national FOX station, so that should be a tailwind. And can you give us a pro forma political with Bonten for 2014 so we have a clean comp there?

So on the Tennis side, the new deals with virtual MVPDs have not had any impact yet, again, just as I [commented] to the [4] business, I expect those to start contributing over -- in the quarters to come. And we don't have any deals up on the Tennis side until next year where we can step up distribution again. And then in terms of seasonality on Tennis, yes, Q4 is one of its weaker quarters.

On the political side, we met our expectations in the fourth quarter politically. And as it pertains to '18, I think we're sitting in a really robust situation. We have senatorial races and gubernatorial races in our sweet spot. Our sweet spot is Florida, Ohio, Pennsylvania, Nevada. We'll enjoy those races, both senatorial and gubernatorial in 2018. So those races in those markets are tailor-made for us. And we're looking very much forward to a robust political season in 2018.

And the comp, do you have that pro forma comp with Bonten?

In 2014, with Bonten, it was $154 million.

(Operator Instructions) Our next question comes from the line of Kyle Evans with Stephens.

You guys posted strong digital growth of 55% in the quarter. I think in the commentary, you mentioned that your base business there was 30%, which would have been in line with the prior period. Could you give us kind of what it is that's kicking in and inflecting that number?

Yes. First, everything dovetails off our CMS that we built proprietarily in-house with our product team. That allows for speed in upload of our content as well as the ad load. And we've just distributed new apps in third quarter, and we've seen significant increase of new users. So the technology is keeping pace with what the users are looking for, which enhances our revenue opportunities.

What also is driving that is a continuous top grade of our digital agency products and momentum there in terms of selling on an integrated marketing basis.

Great. You mentioned normal operating expenses on the broadcast side down. Where are you getting those expense controls and reduction specifically?

So some of that will come from just the -- not having the political revenues. The variable rate commissions will be down. Others are really just us. So as you know, we've always been a expense-focused company and try to run lean for our shareholders. So it's really just spread out through a lot of other departments.

Our next question comes from the line of Leo Kulp with RBC.

Just 2 questions on the deregulatory -- on the regulatory side. Some of your peers have talked about the interim market dereg as being a big opportunity. Given that you already have so many duopolies, how are you thinking about Sinclair's ability to create incremental duopolies?

So we do have many duopolies. Just actually cleaning some of those up is a nice opportunity for us and not having them in [adjacent] structures. But also I'd note that our overall average shares in the low 20s on a TV broadcast market definition only, which as I mentioned, is very antiquated way to look at it. So -- but it gives you an idea of the potential to add additional stations into the mix. And we think the opportunity will be significant once we get the new rules from the FCC solidified and then, of course, a more flexible market definition from the DOJ.

Got it. And then the FCC eliminated the Main Studio Rule, does that present an opportunity for cost savings as you look out to next year?

So we're just going through that right now. I think there will be some optimization that can happen, but I don't expect that to be significant.

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

I know you have committed financing for the Tribune deal. But just with the moving parts of potential station sales, spectrum proceeds, do you anticipate any change to your total financing need? And then secondly, any sense of timing and mix of the permanent financing for Tribune and whether that could be secured or unsecured?

So we don't anticipate raising a different amount. We're going to have to actually do the raising before we know what the results of the -- of any divestitures may be. So to the extent that divestitures do happen, we will use those to pay down debt. But for now, we're moving forward on a fully loaded basis.

Well, if I could make one other comment to that. So as -- if you recall, in June, the Tribune bondholders consented for us to assume their notes. So there is $1.1 billion of their notes that we'll be assuming that we won't not have to raise.

And then secondly, Nielsen earlier this week had their earnings, and they were talking about some improvements they've made or they plan to make on the local measurement side, and I think there's been reports, you guys might look at comScore and -- as a potential other option. And I know you've talked about ATSC being a big boost for measurement from your perspective. So I'm just curious how you're thinking about local measurement, whether Nielsen is making strides there or not.

Nielsen's trying to improve what is a very antiquated product. In our opinion, not nearly fast enough. And the reality is there's so many other sources of measurement that either exist or are coming. I'll just give you an example of a company that we're the lead strategic investor in called Sorenson Media. It's lighting up its platform, which will access about 1/3 of all the households in the country and be able to measure second-by-second what every one of those households is watching. So when you think about that, in the context of what Nielsen does or you think about ATSC 3.0, sending back data on what people are watching, it just -- it makes Nielsen's product look very old-fashioned. And so at the end of the day, we're sort of moving on in terms of where technology's headed.

I think the thing to appreciate about 3.0 is just appreciate what the holy grail is for the advertiser, which is "I want to know what person and where -- is watching." And there's no other service out there that can provide this capability. 3.0 will provide this capability on a device by device basis, geolocated, once it's up and running. So that's the holy grail for the industry.

Our next question comes from the line of Barry Lucas with Gabelli & Company.

Chris, if I could come back to the regulatory issues and just wonder how the rules, as they've been proposed now for the November meeting, affect, alter or change your thoughts or -- with regard to divestitures?

Well, we went down this road assuming status quo on FCC rules. So it really doesn't affect our divestiture plan. That is going to be driven by the DOJ's result. And at the end of the day, the FCC rules are helpful and certainly, we're very pleased. But that's more of a long term -- a longer-term impact in terms of what we can do subsequent to Tribune.

Okay. And have there been any new additions to the consortium for 3.0?

We have not announced -- well, there's been some smaller additions, some affiliates which is always nice to roll up. We do have some bigger broadcasters which we'll be looking to join, and so you'll see more announcements coming on that shortly. We've made a lot of progress on the spectrum consortium in terms of getting the organizational docs set, figuring out resources and leadership. So a good progress made on that front, dovetailing with the FCC rule. So more to come on that.

Okay, we'll look forward to that. And last one on 3.0, with the release this morning and the announcement of more design work on chipsets for devices. At what point do you think you might be able to share what the intellectual property that you control for 3.0 is worth?

That process has just gotten underway, MPEG LA organized some of the first meetings around the patent pool related to 3.0. Our patents are literally still getting issued. It feels like sort of every other week, we have one that comes through the door. And so it's -- we're newbies to this process. We didn't do the 3.0 work to gain a -- that revenue stream. That's just sort of a happy outcoming of pushing the standard that we thought would benefit the assets that we hold and the industry at large. But there will be something that comes out of that and we have hired experts to help us through this process. I still say it's hard to predict how long it takes these negotiations to play out with the various patent pool participants. It's not something in the near term I'd expect to have visibility on, but it's -- in other words, I don't think we'll know any time in the next 6 to 12 months. But after that, we might actually gain some visibility.

Thank you. We have reached the end of the question-and-answer session. Ms. Rutishauser, I now would like to turn the floor back over to you for closing comments.

Thank you, operator. Before you disconnect, let me just say that we are very excited for the upcoming prospects for ATSC 3.0, deregulation, tax reform and a strong 2018 political season, all of which are expected to drive higher valuation for our shareholders and improve our company's relevancy in the marketplace.

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

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