Sinclair Inc (SBGI) 2017 Q4 法說會逐字稿

Greetings, and welcome to Sinclair Broadcast Group Fourth Quarter 2017 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, Lucy Rutishauser. Thank you. You may begin.

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

Before we begin, [Billy Joe 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 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 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 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 Investors/Non-GAAP Measures.

Chris Ripley will now take you through our operating highlights.

Before we go through the results, let me review some highlights. Many of you are probably aware that the FCC voted in favor of 2 very important items related to the long-term competitiveness about the broadcast industry. In November, it approved the use of ATSC 3.0, the Next Generation Broadcast Standard. This technology is critical to deploying nationwide and target television and other data services that are both mobile and IT. The FCC also approved local television ownership deregulation as it relates to how many stations can be commonly owned in any individual market. Such actions were long overdue and a step in the right direction to level the media playing field.

And in a landmark action, Congress and the President approved sweeping tax reform, reducing the corporate federal tax income rate from 35% to 21%. We expect the decline to have an immediate positive impact on our free cash flow generation and later in the year, favorable effect on ad spending by small and medium-sized businesses in our local markets. We're proud to state that we shared a portion of our upcoming tax savings with our employees by paying $1,000 bonuses to almost 9,000 employees.

Turning to our network partners. We have been very active on this front. Since our last earnings call, we've entered into multiyear agreements with NBC and ABC, in both cases extending the affiliation agreements and getting consent for the Tribune affiliation transfers. We continued to have productive conversations with FOX and expect an announcement shortly. Meanwhile, the CW Network will be expanding its prime time schedule to a sixth night come this fall, a move which we expect will have a positive audience and revenue impact for us.

On the distribution side, we renewed our retransmission agreement with Verizon and did a groundbreaking form of retransmission agreement with the National Cable Television Cooperative for their members to opt in. Given that we deal with about 600 MVPDs, and NCTC has over 850 independent members, doing a single deal allowed for administrative efficiencies that were important to both sides. Last year, we entered into carriage agreements with multiple virtual MVPDs for our affiliates as well as Tennis and Comet and expect more agreements this year.

On the content front, we renewed our agreement with Nielsen until the end of 2019 and appreciate their negotiating with us for a mutually beneficial package with expanded services. Likewise, in another first, we finalized our commercial deal with Sorensen Media for addressable advertising. As discussed last year, we implemented Sorensen's Spark Analytics tool for second-by-second audience measurement. This year, we entered into an agreement that allows us to both sell targeted ads via smart TVs. Because of their addressable nature, such spots typically tell -- sell for 2, 3x linear CPMs.

Turning to ATSC 3.0. We're thrilled to welcome John Hane as President of Spectrum Co, the spectrum consortium founded by us, Nexstar and Univision. We believe Spectrum Co will be the catalyst to drive adoption of NextGen TV and create an interconnected nationwide data delivery platform.

Speaking of deployment, the consortium, American Tower and other broadcasters are busy with the initial deployment of NextGen models in a single-frequency network in Dallas, launching us as a leader and taking advantage of these new ATSC 3.0 capabilities. We are also continuing to take the long view on our NextGen-enabled opportunities by recently signing an MOU with a Korean company, SK Telecom, to develop systems that converge our NextGen broadcast capabilities with Telecom's latest technologies.

As part of our community outreach, we recently opened the 2018 application process for our Broadcast Diversity Scholarship for students studying in the broadcast-related field. Finally, I want to thank our employees for their continuous commitment to helping us achieve our vision of connecting people with content everywhere.

Now Lucy will take you through the fourth quarter results.

Thank you, Chris. First off, I am pleased to report that we exceeded our fourth quarter guidance in all key financial metrics.

Turning to the financial details. Media revenues for the fourth quarter were $685 million, a decrease of 5.7% versus fourth quarter 2016, driven by the absence of political revenues in a nonelection year and offset in part by acquisition-related revenue.

On a pro forma basis, fourth quarter 2017 media revenues were $685 million, 9% lower than pro forma fourth quarter '16, primarily due to the absence of political and offset in part by revenue growth in retrans and core advertising. And as I mentioned, we exceeded our prior guidance.

Political revenues in the fourth quarter were $16 million versus $113 million in the fourth quarter of last year, which was a presidential election year. Media operating expenses in the fourth quarter, defined as media production and media SG&A expenses, were $416 million, up 9% from fourth quarter last year and up 7% on a pro forma basis, in both cases primarily the result of higher reverse retrans fees and start-up costs related to our revenue-generating initiatives. This was offset in part by a decline in normal operating expenses. In addition, our reported media expenses were $3 million favorable to our prior quarter guidance.

Corporate overhead in the quarter was $42 million and includes $19 million in transaction, legal, the tax reform bonus payment and other onetime costs.

Corporate overhead was higher than our prior guidance due to higher group insurance and higher compensation costs. Research and development costs were $5 million in the quarter. EBITDA in the fourth quarter adjusted, so excluding the $23 million of onetime items, was $233 million and approximately $12 million above our EBITDA guide.

We had $225 million gain relating to vacating the spectrum in Harrisburg and Baltimore, and we'll have another $83 million gain in the first quarter of 2018 relating to Milwaukee spectrum sale. Net interest expense for the fourth quarter was $51 million, and our weighted average cost of debt for the company is approximately 5%.

The fourth quarter income tax provision includes a nonrecurring benefit of $272 million primarily related to the remeasurement of our deferred tax assets and liabilities as a result of the reduction of the corporate federal income tax rate from 35% to 21%. Diluted earnings per share on 103 million weighted average common shares was $4.32 in the quarter or $0.33 per share, excluding the tax reform remeasurement benefit and the gain on spectrum sales. We generated $136 million of free cash flow in the quarter after onetime transaction and other expenses, again exceeding our prior guidance by approximately $16 million. Our adjusted EBITDA-to-free cash flow conversion ratio remains an impressive 58%.

For 2017/2018 pro forma free cash flow, pre-Tribune, we are tightening the range, lowering the high end but raising the low-end estimate with a midpoint that is slightly better than prior guidance. Our new '17/'18 combined pro forma free cash flow, pre-Tribune, is estimated at $1 billion to $1,030,000,000 or $9.80 to $10.10 per share. We are also introducing 2018/2019 combined free cash flow estimates, pre-Tribune, of $1,060,000,000 to $1,150,000,000 or $10.29 to $11.16 of free cash flows per share. That is a roughly 5% to 10% per-share increase over the '17/'18 combined number.

We are also reconfirming the estimated $650 million plus of '17/'18 Tribune EBITDA before divestitures and before the TV Food network distribution and reconfirming the $266 million of year 1 synergies. We're also reconfirming our post-Tribune pro forma free cash flow guidance for '17/'18 of $1.7 billion to $1.77 billion, assuming 122 million shares and assuming no divestitures.

Before going through the balance sheet and cash flow highlights, there are a couple of accounting rule changes that I want to walk you through that will impact your 2018 models. First, pursuant to the revenue recognition rules, barter revenue and barter expense will no longer be reflected in our financials. As a result, trade revenue, which was $23 million in 2017 and estimated at $16 million in 2018, will be reflected in media revenues and is already included in the guidance.

As it pertains to the repack, the cash outlay for the equipment will run through capital expenditures on the cash flow statement. And when we receive the reimbursement from the government, which we expect to be on about a 90- to 180-day lag, the reimbursement will be reflected as a gain on the income statement. For calculation of EBITDA and free cash flow purposes, we will exclude both the repack CapEx outlay and the reimbursement gain.

Turning to the balance sheet and cash flow highlights. Capital expenditures in the fourth quarter were $26 million, including $2 million for the repack. For 2018, we expect total CapEx to be $179 million to $189 million, which includes multiple building projects, 3.0 upgrades and $69 million for the repack. Excluding the repack, CapEx is expected to be $110 million to $120 million. Cash programming payments during the fourth quarter were $27 million. For 2018, we are estimating cash programming payments to be $111 million, flat to 2017.

Net cash taxes paid in the fourth quarter were $21 million. And for 2018, we are estimating cash taxes to be approximately $46 million and the effective tax rate to be 10%. This reflects the lower statutory federal income tax rate. At December 31, total debt was $4,049,000,000, including $27 million of non-guaranteed and VIE debt.

Cash on hand at December 31 was $681 million, plus $311 million of spectrum auction proceeds in qualifying intermediary accounts. In January, $85 million of this restricted cash was released to us. In addition, we had $484 million available on our revolver, bringing total liquidity to almost $1.5 billion. Total net leverage through the holding company at quarter end was 3.4x on a trailing 8-quarter basis, excluding the VIE and non-guaranteed debt and net of cash. This is below the low end of our targeted net leverage.

The first-lien indebtedness ratio on a trailing 8 quarters was 1.3x on a covenant of 4 1/4x. By the end of 2018, and before Tribune, we estimate our 2-year average holding company net leverage to be an impressive and historically low 3.1 to 3.2x. Pro forma for the Tribune acquisition and before divestitures, we expect total net leverage to close, the at closing, in the high 4x and delever quickly to the low 4x within the first 12 months.

During the quarter, we repaid $16 million of scheduled debt amortization and distributed $18 million in dividends. In December, we raised $3,725,000,000 of committed term B loans in anticipation of closing the Tribune acquisition. We now anticipate the transaction will close in the second quarter of 2018, subject to customary closing conditions, including approval by the FCC and an antitrust clearance at the Department of Justice. In connection with the committed financing, we began paying ticking fees in mid-January, which total approximately $7 million of interest expense in the first quarter, with another $10 million in the guidance, assuming second quarter closing.

Now Steve Marks will now take you through our operating performance.

Thank you, Lucy, and good morning, everybody. In the fourth quarter, we beat our media revenue expectations and grew core advertising revenues over 4% on a pro forma basis for the year. Core advertising grew slightly. Political revenues in the fourth quarter were $16 million versus $113 million in fourth quarter of 2016, a result which is to be expected in a nonelection year. We're very optimistic for the 2018 political season and expect our political revenues to be $140 million to $150 million for the year, adjusting for a highly contested governor's race, which took place in Arkansas in 2014, that will not repeat this year. Our guidance is for political to increase low- to mid-single digits over 2014's pro forma political spend.

Excluding political revenues, we grew share in 2017, a testament to the many initiatives that we are implementing to drive revenues. Our digital business continues to outperform, growing at 64% in the fourth quarter as compared to 47% for the entire year.

Turning to our 2018 outlook, which does not include Tribune. For first quarter, we're expecting media revenues to be approximately $638 million to $644 million, up mid-single digits as compared to first quarter 2017. This assumes $8 million of political revenues versus $2 million last year. On a pro forma basis, first quarter would be approximately 2% higher than Q1 of 2017 on higher retrans and political revenues.

Pro forma core advertising revenues in first quarter, excluding political, are expected to be down mid-single-digit percents versus the same period last year. This is primarily due to the Super Bowl and Olympics, both of which aired on NBC affiliates, which is our smallest affiliate group. In addition, it's typical for advertisers not to spend as much during the Olympics on non-NBC stations. Knowing that the audience is watching the Olympics and that the other networks pause their prime time original schedules, we expect to see positive growth in core in second quarter.

On the expense side, we are forecasting media expenses in the first quarter to be approximately $437 million versus $383 million in the first quarter of 2017, with the majority of the increase coming from reverse retrans acquisitions and revenue-generating initiatives. For the year, media expenses are forecasted to be $1,813,000,000 to $1,817,000,000 versus 2017 pro forma media expenses of $1,621,000,000, a 13% increase. The increase is due primarily to higher reverse retrans on a large number of network agreements that renewed at the end of 2017, higher compensation expense, revenue-generating initiatives and higher sales commissions on the incremental political ad revenue.

EBITDA in the first quarter, adjusted for $5 million in transaction costs, is expected to be approximately $151 million to $156 million versus as-reported first quarter 2017 EBITDA of $184 million and versus pro forma first quarter 2017 EBITDA of $196 million.

Free cash flow in the first quarter, adjusted for transactions and other onetime costs, is expected to be approximately $72 million to $77 million. As Lucy stated, our 2017/2018 pro forma combined free cash flow is estimated at $1 billion to $1,030,000,000.

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

(Operator Instructions) Our first question is from Aaron Watts with Deutsche Bank.

Not to be predictable, but wanted to ask a question about auto, how that looked in fourth quarter, how it looks in first quarter and maybe even a little in second quarter, recognizing it might be a little noisy with the factors you mentioned, like Olympics.

Yes, I want to get into that. It's good question, Aaron. First of all, in fourth quarter, we were flat, which I believe is a good performance in fourth quarter. And we were positive for the year in 2017. In first quarter, what everybody should realize is our exposure, or lack thereof, of NBC affiliates. NBC affiliates only represent 12% of our revenues. So we're up against, not only the Olympics, but last year FOX had the Super Bowl. And our exposure on the FOX affiliates is enormous. So going into the first quarter, we knew that we were up against it. With that said, auto in first quarter will be down. But as we speak today, with quite a bit money already booked in second quarter, there is an aggressive positive pace so far for the automotive category on our station list. So we had a very good 2017. We were flat in fourth quarter, and we see light at the end of the tunnel in the second quarter. We believe this bounces back, and was negative primarily to our lack of exposure on NBC affiliates.

Okay. That's helpful. And I recognize it's a little early, but I think something new this year. It's the World Cup coming into the picture on broadcast. Is that something, given your FOX exposure, that can actually sort of reverse some of this effect from not having the Super Bowl?

Well, unfortunately, I think, the U.S. is not going to be participating, and that is my understanding. And that will hurt the ratings in my belief. But whenever you have a special event like that, we should be able to make the cash register ring a little bit more than normal.

Okay, fair enough. And then just one last one for me. I think I heard you say at the beginning of the call that you're making progress on your affiliation agreements with FOX. Anything you can say in terms of Tribune's affiliations with FOX and whether those could come in conjunction with your renewal?

Aaron, it is in active negotiation, so we -- our policy not to comment on specifics around an active negotiation. But you can assume that everything's on the table.

Our next question is from John Janedis with Jefferies.

I've got a couple as well. First, just look, I think as you know, there seems to be lingering concern about the relationship between the affiliates and the networks. So with the ABC and NBC deals over the past few weeks, can you talk about the visibility or confidence you have around your net retrans over the next couple of years? And with the success of virtual MVPDs, are you seeing any change in trend in terms of subs that's worth noting?

Great question, John. We really did a significant amount of work in this area over the last several months with ABC and NBC deals that you noted. Those dealt with affiliates that were coming up at the end of the year but also renewed affiliates that were coming up several years out. And it pushed out a significant amount of our subs. I think currently, we're sitting at about 65% of our subs are in agreement past 2020. So we feel really good about our visibility and our network relationships, which are now more long term than they've ever been. And so undoubtedly, this year is a bit of a tougher year for us in terms of how many network affiliations are rolling over versus how many MVPD deals we have, and you -- as you're seeing a bit of that flow through in the first quarter here in terms of timing. But we have more visibility now than, I think, we've ever had into the future.

Okay. And maybe separately, there is, I guess, what I call a somewhat unique deal for digital rights for a local soccer team last month in Salt Lake City. And with the headlines around national sports rights, I was hoping you could speak to the potential to buy local rights for what I'd call maybe second-tier sports. Is that something that you view as either an opportunity or a threat given viewing trends? And how would those rights be monetized given what would initially seem to be a limited audience?

That's a good question. We do have franchises, as you mentioned, in terms of soccer. And we also have been doing high school sports for many, many years. And it's a very lucrative programming event for us. So when you talk about secondary sports, and as it pertains to technology going forward, we believe local content going forward is of great concern. And we've already been doing local content in terms of high school sports, both basketball and football. And I also want to make mention, this is great programming for MyNets, which we have a lot of. And if you research our performance when we air these events, local high school events, many times, our ratings on the MyNet beat the 4 major networks in prime time. We run these events in prime time. It's a programming event, meaning high school sports, that we've been doing literally for almost 10 years. We're building a very nice platform, and it speaks well for the future in terms of local second-tier sports. I would focus more on the high school than I would on the soccer. We've already been in that business for quite some time, and we're doing very, very well with it.

Our next question is from Dan Kurnos with Benchmark Company.

Just I think everybody is really focused on the expense guide and really both for Q1 and for the full year. And obviously, Chris, you talked about sort of the yeoman's work you've done on reverse. I think that's probably a big chunk of the equation but also maybe even some of the stuff that you've been talking about, Steve, on some of the initiatives, the revenue-producing initiatives. It looks like Q1 is front-end weighted, so if you could just give us a sense if that's sort of -- you're dumping a bunch of stuff into Q1 over the balance of the year, just kind of pace of play of expenses as we go throughout the year and understanding the dynamics with the higher-margin political in the back half. But just how you're thinking about investing into those initiatives over this year, and how much reverse is contributing versus the initiatives outside of the breakout. And then also on 3.0, in conjunction with that, you talked about launching or developing an SFN in Dallas. We know there's a Samsung facility not too far by. I assume that's probably part of the allure there. Can you just give us a sense of investment into exploring longer-term commercialization of 3.0, what you hope to glean from that test? And if you're going to partner with Samsung in order to see if they're interested in making an investment in developing those commercialization capabilities?

Yes. So Dan, on the expense side, you're correct that the really the vast majority of the expense uplift is coming from reverse, which is really -- Chris already addressed this with we had 28% of our subscribers on the network side that came up at the end of '17. And so you're seeing that flow through for the whole year. There are some expenses related to the initiatives. You'll see, for instance, the R&D line for the year is higher than it was last year now that we have 3.0 approved and we could start to move forward. So really, when you look outside of the reverse or the initiative, our normal OpEx, which was down in '17, is growing just very low single digits.

And on the Dallas side, it really is a test of multiple different aspects of 3.0. It's a business test in terms of getting the transition done and coming to an agreement with multiple broadcasters. That's also a heavy element of Phoenix, by the way, is very, very much focused on the business side of getting this transition done, which, quite frankly, is probably the most complicated part of the transition. And then Dallas builds on, not just the business side, but also the technical side. It will include a fully functioning, single-frequency network with 3 additional towers added to Dallas to give the whole metro coverage, high-quality coverage, for the entire population. So it'll be a technical test from that perspective and will also include all the features that we've been talking about -- around 3.0 in terms of target advertising, testing subscription-based channels, programs, more total channels that go through the pipe and mobility and, of course, it innately is IP end to end. So all of those are going to be tested in Dallas. Dallas was picked for a lot of different reasons, including it's a large metro, easy to get to. Samsung being there was a factor. There is a desire to -- for many developers, Samsung being one of those, to have a sandbox sooner rather than later, a high-quality sandbox, which is what Dallas will be. So that they can start testing different products around ATSC 3.0. And really, the sky's the limit from our perspective in terms of what can be done. We're very excited about the core benefits to the TV product in terms of addressable ads and subscription-based offerings and just more offerings. But beyond that, we think there are incredible opportunities around connected cars, skinny bundles and mobile video viewing. So we're just at the beginning of unpacking some of those opportunities, but Dallas will be a great playground or sandbox for that to be proved out.

Yes. And Dan, I want to just come back on the expense side as well as on the as reported. There'll also be Bonten, which we did not have in Q -- in the, really, in the first 3 quarters of 2017 that are in our as-reported numbers for this year.

Our next question is from Alexia Quadrani from JPMorgan.

Just 2 questions, if I may. The first is, how are you thinking about the move of Thursday Night Football to FOX impacting your stations? And maybe a bit more color about CW adding another night on prime time and how that impact may look. And then just the second question is on the political. Thank you for all the color you gave on the political spend in the outlook. But could you remind us, if you don't mind, what the political was the last midterm election, last midterm cycle? And how much of that you think was incremental?

Yes. So Alexia, I'll do the political piece first. So pro forma for Bonten in 2014, political was [$154 million]. Now Steve mentioned we had that big Arkansas governor's race, and that will not return this year. So again, when you back that out, adjusting for that in '14 and our guidance is to be up low single-digit growth rate on political. And as far as the incremental, you asked the age-old question. Nobody's ever really been able to define what is truly incremental just because the political paces in over many months and over different broadcast seasons. And so that's why we give you all in and all out.

On the football question with FOX, we're thrilled about that, especially that it wound up on FOX. First of all, most of our exposures is on FOX affiliates. And given the fact that FOX has been struggling in scripted prime time shows, putting in football should be a huge plus for the FOX network and, again, for Sinclair in particular because of our exposure. And likewise with the CW, we have a lot of CWs. We're about to have a lot more, and we're thrilled that they're expanding their program. Programming is outstanding on the CW Network, and we're excited that they're expanding to another day.

And I'll just add to that, that on the football side, getting it away from CBS and NBC is also a positive, not only from an exposure perspective for us. But also, it reduces payments that we made to one of those networks related to Thursday night. So it's a win-win from our perspective in terms of what FOX is doing. And I'm very excited about what I'm seeing at FOX in general in terms of their aggressiveness with the network post the Disney deal. And then on CW, that extra night of programming is going to be scheduled for Sunday night. And really, when you take a look at what we bill in that time period, it's pretty low. And so it's pretty much nothing but upside. It'll depend how the shows will do, but it's going to be original content in line with the rest of their schedule. But it's hard to see any scenario where that does not provide additional upside.

And I would add on the football that our sellers out on the street are already aggressively marketing the Thursday Night, and we've already sold several sponsorship packaging, including Thursday and Sunday Night Football.

Our next question is from Barton Crockett with B. Riley FBR.

I wanted to probe a little bit more on the net retrans commentary. So I think on your November earnings call, I think you guys were talking about an expectation that net retrans would be up single digits in 2017 and up teens in 2019. Having done the renewals, do you still believe that? Or has all that changed?

Yes. So right now, the guide that we feel confident in is net retrans in 2018 to be up low single digits and for 2019 to be up low teen percent. So now that we've gotten through those, still within the guidance that we gave.

Okay. And is there much scope for -- I know you're believing that you're close on the FOX deal and will have an announcement soon, so you must have some visibility into that. Does that commentary encompass what you think is likely to come from FOX?

Absolutely.

Okay, all right. Now the other thing is, you guys retained your free cash flow outlook, but we've just had a huge tax cut that came after you had initiated this guidance. So I was just trying -- if you could explain the puts and takes on how we get a big tax cut, but we don't get really a bump on the free cash flow guide.

Yes. So Barton, on that, the important thing really to focus on is the fact that we raised the low end of the guidance. So we took that from $975 million to $1 billion. The midpoint between the 2 guidances is slightly better. Now the one thing that's happened since we were -- we had our guidance out last year is we finalized all of our budgets in December. So we have visibility now, a lot better visibility into 2018, which is why we were able to tighten that range for you. We also indicated that we would be probably more at the low end of that prior guidance. Couple other things to note is free cash flow reflects $20 million of higher Capex in the new guidance than what we previously anticipated. It also reflects the softer first quarter that Steve talked about from having really, I would call, more of a phenomenon. We went back and there is not a forever where NBC had both the Super Bowl and the Olympics in the same quarter, Just -- it has never happened. And so we have our guidance reflects that as well as a conservative view for the rest of the year.

(Operator Instructions) Our next question is from Leo Kulp with RBC Capital Markets.

I just have 2 quick ones. First, in the past, you said that your retrans payout ratio is under 50%. Is that still the case for the foreseeable future? And then second...

I'll answer that very quickly. So you're -- in terms of your first question, that is still the case and will be the case for the foreseeable future.

Great. And then second question is, can you run through the remaining steps and their timing required for the Tribune deal to close?

So as you probably saw, we announced last week our divestiture trust. That is really to get the clock ticking at the FCC. The DOJ has not concluded its process, but we feel it's close, close enough that we could move forward with this divestiture trust plan. And be in a situation where we can close as soon as divestiture trust is approved and not have to wait to figure out where the buyers will be for the various stations. So we still don't have technical approval from either the DOJ or the FCC, but we feel we're getting close.

And then you'll have a 30-day waiting period, is that correct, for the FCC approval?

Yes. So the clock has started on that. And when we submitted for the divestiture trust, that got the FCC time line going. And it will be 30 days minimum for commenting.

Our next question is from Marci Ryvicker with Wells Fargo.

I just want to stick on that topic for a second. There's been a lot of noise in the press that the conversations in D.C. have been difficult for you. Can you clarify the tone of the conversations with regards to the regulatory agencies?

Listen, I would say they are business as usual. Certainly, if anyone thought that the DOJ would play favorites with Sinclair, I can tell you that is unequivocally not true. They scrutinize this transaction very closely more than any transaction we've done in our history. And -- but not anything normal, anything more than normal in terms of how they view the markets. They've done their work. They've been very diligent, and we're just awaiting the final answer of their process.

Got it. And then to clarify the Q1 down mid-singles, does that include or exclude the Super Bowl and the Olympics? And I don't know if you gave numbers for those for the first quarter.

For those, that includes -- that's all in as reported. And the Super Bowl incremental was about $2.9 million and the Olympics was about $3.7 million.

Okay. And then the last question is on the Tennis Channel, which we haven't really got an update on for a while. Can you talk about how that is trending? And I think you put out a $60 million EBITDA number at some point. Can you just talk about that a little bit?

So the Tennis Channel has been doing well in terms of distribution targets and revenue, according to our original plan, which was a 2-year-old plan now when we bought it. It has underperformed a bit on the ad side. We encountered a problem with Nielsen when we went to NTI ratings. The sample size is so small that they're underscoring the audience by multiples, especially around special events, when you compare it to comScore. So we're working through that. We think that'll improve over time. That's more of a timing thing. And on the rest of the strategy prongs, things are going great. We launched a new OTT app just last month that's been very well received. The multiplatform strategy with Tennis.com and Tennis Magazine is moving forward with great effect. And the international expansion strategy is also in the works. So we're very bullish about multiple years of growth for Tennis. It's exactly what we wanted it to be, which was an additional growth driver to the core business. And in terms of hitting that $60 million run rate, that will be hit next year and then exceeded the year after that.

Great. And then I'll have one more for David. David, is there anything that you can point to with ATSC 3.0 and the Olympics that kind of highlights the benefits? Or anything we should be looking at or reading about post the Olympics?

Yes. Let me answer that, Marci. The Olympics in Korea were a great success. They highlighted one of the features of ATSC 3.0, which was the focus of the Koreans, which was 4K HDR, very high-quality over-the-air signal. The operators there have not -- do not have permission to do mobile, but they understand that is a core feature of this technology and are pushing to have that be a reality. In fact, even during the Olympics, it was tested in a small area. The mobility aspect was tested for ATSC 3.0 successfully. And this -- I anticipate a big push in Korea for the broadcasters to be allowed to do mobility in the future. So from a technical perspective, it was a great success. And -- but still early days on the business side for Korea. And really, the first iteration for them has just been focused on better resolution, better pictures, which we don't think is the ultimate best use of that technology, and I think they'll agree.

Our last question will be from Kyle Evans with Stephens.

Steve, you detailed digital growth of 64% in the quarter and 47% for the year. What were the drivers of that growth? And how should we look at that going into '18 and beyond?

I'll handle it. This is Rob. It's a combination of several years of intensive trading on selling and integrated 360 approach across platform. And the results are due to the diversified portfolio of assets that we offer existing and new clients that will complete the cycle from stimulus to cash register ringing.

Those will be hard to put in my model. Maybe I can double back on that later. What did the MVPD sub count look like in the period? And are you starting to collect revenue on the other side of the migration to OTT and virtual MVPD?

So the counts were stable with some slight declines. And we really have not seen the impact yet from the virtual MVPDs. Most of our deals were done in the fall. We don't start counting subs until they start paying, and so there's definitely a lag there in terms of those showing up in our accounts. So we're going to start to see that benefit here in 2018 as we've done a significant amount of deals with the virtual MVPDs. We do expect more even through this year. But they really have not, for '17, had any material impact yet.

Great. And lastly, I just want to report from Arkansas. We didn't see an auto dealership ad for about 6 weeks in 2014. So massive crowd out.

Ladies and gentlemen, we have reached the end of our question-and-answer session. I would like to turn the call back over to Lucy for closing remarks.

Thank you, operator. Before you disconnect, let me just say that we view 2018 as a pivotal year for us, with the upcoming acquisition of Tribune, deployment of ATSC 3.0, tax reform, local ownership deregulation and a strong political year, all of which we expect to drive our long-term competitiveness and value. Thank you for participating on our earnings call this morning. And if anyone has additional questions, please feel free to contact us.

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