Sinclair Inc (SBGI) 2019 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to your Sinclair Broadcast Group First Quarter 2019 Earnings Conference Call. (Operator Instructions)

At this time, it is my pleasure to turn the floor over to your host, Lucy Rutishauser, Senior Vice President and Chief Financial Officer. Ma'am, the floor is yours.

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

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 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 are included in our first 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 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.

Thank you, Billie. Good morning, everyone, and thank you for joining our first quarter earnings call. We have some great results to report on the heels of the even more exciting news we announced last Friday. Last week, we announced the largest transaction in our company's history. We entered into a definitive agreement to purchase 21 regional sports networks from Disney for $9.6 billion, which is an implied $10.6 billion enterprise value. We are acquiring these assets at a very attractive and accretive 6.5x multiple or 5.5x, including the net present value of the step-up in the tax basis. This is the largest collection of RSNs in the marketplace today and is highly complementary to our existing broadcast and sports --

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The RSNs significantly expand our focus in local sports and diversify our content sources and revenue mix. We see many growth opportunities through digital platforms, political advertising, cross promotion collaboration, remote production, legalized sports betting and programming enhancements, to name a few.

While the RSNs represent a significant expansion of local sports, Sinclair's existing sports-focused businesses have also done very well. Our commitment to producing and providing local sports to our communities ranked our high school sports production alongside national and regional sports networks as a national finalist in the Cynopsis Sports Media Awards. We were the only locally produced program to have been nominated for this prestigious honor.

On top of this, Tennis Channel and Ring of Honor each have had impressive firsts to report. Tennis Channel's first full-length feature film, Strokes of Genius, has been nominated for 2 Sports Emmy Awards, with the winners to be announced later this month. And Ring of Honor, our wrestling promotion, just had a historic sellout at Madison Square Garden on April 6.

We are very pleased with the progress we're making with Marquee Sports Network and are on track for a great launch for spring training in February of 2020. The Cubs have been tremendous partners to work with, we've been interviewing and hiring key positions and studio construction will kick off in earnest this month.

As the year progresses, there will be lots more to cover on what the Cubs fans can expect from Marquee and we're very excited to bring them wall to wall Cubs coverage and programming.

This year, we were once again positioned to recognize -- to be recognized for the quality news stories and deep investigative reporting by our newsrooms. To date, we have already been awarded prestigious accolades for our news operations with 192 news awards and counting. Our commitment to serve our communities by sharing relevant information to alert, protect and empower our audiences has been recognized by our peers who have awarded Sinclair stations this year with 30 regional Edward R. Murrow Journalism Awards. Our station in Baltimore, FOX45, including the Project Baltimore, has been honored with 6 national awards, including an investigative reporters and editors award for investigative journalism. Another of our stations, KSNV in Las Vegas, won the ACLU of Nevada's esteemed 2019 Freedom of the Press Award for its investigative reporting.

These recognitions are a reflection of our entire news organization and the values practiced by all of our stations. We are one of the most awarded news content centers in the industry and are extremely proud of our impactful journalism. We congratulate all of our winners.

We are also pleased to welcome award-winning journalist Lara Logan as a special correspondent for Sinclair. Lara will report on the crisis from the southern border. She is a resilient force who represents the best of our industry and we're beyond thrilled to have her join our growing news team. We are also excited that we launched a new commentary segment, Cross Point with Ameshia Cross, who offers an opposing viewpoint to our current segment, Bottom Line with Boris. We believe our viewers will welcome and appreciate a wider range of perspectives on matters of importance to our country and their communities.

As we think about the number of candidates already announcing their candidacy for President and the latest industry research, we believe the 2020 presidential cycle will result in yet another record-breaking political year for us. As our stations continue to support their communities in times of crisis, we partnered with the Salvation Army to support relief efforts for the unprecedented Midwest flooding. Our Nebraska and Iowa stations promoted fundraising efforts to be used by the Salvation Army in the affected communities from these devastating storms.

On the ATSC 3.0 front, great strides are being made with broad support from leaders within the NAV and the STC. On the operations front, we and Spectrum Co are on plan to initiate the deployment of ATSC 3.0 in 20 to 30 of our markets in 2019 and the industry is working to deploy the top 40 markets by the end of 2020. And I'm happy to say that the single-frequency network rollout in Dallas is now fully operational, with a main signal and 3 additional SFN sites broadcasting in 3.0.

Before I turn the call over to Lucy, I'd like to give a special thanks to Dave Amy, our Vice Chairman, who will retire later this month after 35 years today with the company. Dave was instrumental in growing Sinclair from 2 stations to the leading broadcaster that we are today. Dave, good luck with your retirement and thank you for all that you've done for the company.

Now I'll hand it over to Lucy.

Thank you, Chris, and I'd also like to reiterate Chris' sentiment. Dave, thank you for your leadership through the years. You and I worked together for over 20 years in about 80 earnings calls. I appreciate the mentorship you've given me and would like to honor you by giving you the floor to introduce Sinclair's quarterly financial results one more time before your retirement.

Thank you, Lucy, and thank you, Chris. For this, my last earnings call with the company and the Street, I am pleased to continue with the positive news and report that we exceeded our first quarter guidance in all key financial metrics.

Excellent, Dave. Media revenues for the first quarter were $673 million, an increase of 5% or $30 million higher than first quarter 2018 and at the high end of our guidance. Included in our first quarter media revenues is $352 million of distribution revenue, a 12% increase over the prior-year period. We are still on track for net retrans to grow by low-teen percents this year.

Political revenues in the first quarter were $2 million versus $7 million in the first quarter of last year, an election year, and in line with our guidance. Media operating expenses in the first quarter, defined as media production and media SG&A expenses were $479 million, up from first quarter last year, primarily the result of higher reverse retrans fees and costs related to our growth initiatives.

Our reported media expenses were $3 million favorable to our previous guidance. For the full year, media expenses are expected to be approximately $1.987 billion to $1.990 billion. Now as compared to our prior guidance, the 1% increase is primarily due to bringing forward expenses that were reflected in our 2020 forecast and to a lesser extent, some IT system enhancements.

Corporate overhead in the quarter was $28 million and includes $2 million in legal, regulatory and other nonrecurring costs and $8 million of stock based compensation. Excluding those costs, corporate overhead came in at guidance. For the year, corporate overhead is expected to be $72 million, excluding $11 million in nonrecurring cost and $17 million in stock based compensation.

Nonmedia EBITDA was approximately $10 million in the quarter, which is $9 million better than our prior guidance on higher sales at our antenna company and lower ONE Media expenses. EBITDA in the first quarter, adjusted for the $2 million of legal, regulatory and other nonrecurring costs was $166 million, that's $20 million higher than the low end of our prior guidance range on the higher nonmedia EBITDA, higher revenues and lower media expenses. Pro forma for our cost-cutting program, EBITDA would have been another $6 million higher than the as-reported number.

Net interest expense for the quarter was $50 million. Equity method investments for the quarter were a loss of $14 million. Diluted earnings per share on 93 million weighted average common shares was $0.23 in the quarter. We repurchased 3.5 million shares in the first quarter at an average price of approximately $30.

Excluding the $2 million of one-time expenses, we generated $101 million of free cash flow in the quarter or approximately $105 million on a pro forma basis and exceeding the high end of prior guidance by $25 million.

During the quarter, we repurchased $105 million in shares, paid down $11 million of debt and distributed $18 million in dividends. Free cash flow in the second quarter is expected to be approximately $63 million to $70 million. Now please note that if compared to Street estimates, the difference is due to timing of first quarter CapEx now estimated in the second quarter, as well as the 2018 tax extension payment, which the Street modeled to be paid over Q2 to Q4, but was paid in April.

For 2018, 2019, we are reconfirming our free cash flow guidance range of $1.150 billion to $1.220 billion, or $6.25 to $6.63 of free cash flow per share on 92 million shares. We are also reconfirming our 2019, 2020 free cash flow guidance of $1.2 billion to $1.3 billion, or $6.45 to $6.99 of free cash flow per share on 93 million shares. These estimates are pre the RSN acquisition.

And as we discussed on our investor call on Monday, the consolidated free cash flow including the RSNs, is expected to be about $12 per share for pro forma 2018, 2019, and about $13 for pro forma 2019, 2020.

Turning to the balance sheet and cash flow highlights. Capital expenditures in the first quarter were $29 million, including $13 million for the repack. For the full year 2019, we are maintaining our nonpack CapEx guide of $110 million to $120 million. In addition, we are reducing the 2019 full year expected repack CapEx slightly from $140 million to a revised $136 million.

Cash programming payments during the first quarter were $24 million and for the year, we expect programming payments to be $95 million, in line with our prior guidance. Net cash tax benefit in the first quarter was $1 million. And for 2019, we are estimating cash taxes paid to be approximately $34 million with $31 million of that occurring in the second quarter. For second quarter and full year free cash flow purposes, be sure to add back the $4 million of taxes related to the 2018 Spectrum sales.

The effective tax rate in 2019 is expected to be approximately 10%, this reflects the lower statutory federal income tax rate as well as tax credits related to sustainability initiatives.

At March 31, total debt was $3.883 billion, including $20 million of non-guaranteed and VIE debt. Cash at March 31 was approximately $975 million. In addition, we had $484 million available on our revolver, bringing total liquidity to roughly $1.5 billion. In April, we paid in full, the remaining $92 million of term A loans with cash on hand.

Total net leverage through the holding company at quarter end was 3.4x on a trailing 8 quarter basis, excluding the VIE and nonguaranteed debt and net of cash. The first lien indebtedness ratio on a trailing 8 quarters was 1.2x on a covenant of 4.25x. And as mentioned, we repurchased 3.5 million shares in the first quarter and another 500,000 shares in the second. We have approximately $733 million remaining on our share authorization.

Steve Marks will now take you through our operating performance.

Thank you, Lucy, and good morning, everybody. We continue to see strengthening in our core advertising. With first quarter down slightly as we guided in February. Second quarter, expected to be flat to up. And Q3 and Q4, expected to be positive as well. For the year, we expect core revenues to be up. I'll repeat that, for the year, we expect core revenues to be up. We are preparing for a strong start to the upcoming political cycle, which will drive broadcast media spending as early as the end of this year. I've said it before, 2020 is shaping up to be an unprecedented year for political advertising.

Our digital business continues to perform very well, with revenues growing 10% in the first quarter as compared to the same period last year. Our CompulseOTT product that we launched last summer is one of our fastest-growing digital offerings.

Now turning to our outlook. For second quarter, we are expecting media revenues to be approximately $716 million to $725 million, up 3% to 4% as compared to second quarter 2018. This assumes $4 million to $5 million of political revenues versus $28 million last year and includes between $365 million and $368 million in distribution fees versus $319 million last year.

Core advertising revenues in the second quarter, excluding political, are expected to be flat to up low single digit percents versus the same period last year. On the expense side, we are forecasting media expenses in the second quarter to be approximately $506 million to $508 million versus $452 million in the second quarter of 2018 with the majority of the increase coming from reverse retrans and growth initiatives.

For the year, media expense guidance is estimated between $1.987 billion and $1.990 billion versus 2018 media expenses of $1.821 billion. The year-over-year increase is due primarily to higher reverse retrans annual compensation increases and growth initiatives.

Adjusted EBITDA, adjusted for legal, regulatory and our other nonrecurring costs in the second quarter was expected to be approximately $176 million to $182 million versus second quarter 2018 EBITDA of $203 million. The decrease is driven primarily by reduced political revenues, growth initiative investments and tennis rights partially offset by an increase in net retrans and tennis expenses.

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

(Operator Instructions) And we have our first question from Marci Ryvicker with Wolfe Research.

I have a couple. I'm going to start with distribution revenues, which seem like they're accelerating into Q2. Can you, Lucy, talk about what's driving that? Is that tennis or retrans renewals or anything else?

Yes. So we do have some renewals this year that are reflected in there. But the other thing I would say, also Marci, is part of it is timing. As you recall, as we came out of, I think most broadcasters came out of, last year with some of the decline on some of the traditional MVPD. We had talked about, give us a chance to where the reporting and the payments to make its way through from the virtual side to us. And so we are seeing this lag on what we lose with the traditional churn that's getting picked up by the virtual churn -- or the virtual add.

Okay. So you're seeing sub -- are you seeing overall sub increases, flat?

Yes. I would say the subs are flattish on a consolidated traditional and virtual combined.

Okay. And then for 2019 expenses, I know you have growth initiatives and reverse comp in there. But is there anything related to the RSNs in the 2019 expense guide right now?

Yes. There are some legal costs for EBITDA and free cash flow purposes, we factored out. But otherwise, we haven't built anything into the RSNs. There is a little bit of a, as we've talked about historically, a little bit of a small CapEx and working capital related to the launch of Marquee.

Okay. And then I would assume that share purchase activity would be suspended at this point in time, just due to the RSN acquisition?

That's correct. We've got big transaction coming up, which we expect to close in the third quarter. So our focus is going to be getting that funded and then, post that, focus on deleveraging the company.

Okay. And last, just a comment, Dave Amy. Congrats on your retirement. It was great knowing you and talking to you over the years.

Thank you Marci. Likewise, you've been terrific in terms of covering the industry and I appreciate it.

Our next question comes from Alexia Quadrani with JPMorgan.

Just a couple of questions. The first one, just if you could elaborate a bit, give us a bit more color on your positive outlook on core, some key categories, specifically the strength you're seeing in the service sector, what's behind that, how sustainable it is? And then I just had a follow-up question, maybe on the recent DOJ forum on the local ad markets, I think was last week. I was curious, if you think the broadcasters made any headway in getting the DOJ to sort of reconsider the definition in the market.

Yes, we're very excited about the core as we talked about in the opening comments. We do have quite a few more categories that are up in second quarter, that were down in first. Retail in particular, was down in first quarter and now is showing a nice pace for second quarter. We'll have a very good second quarter. Services continues to be just through the roof for us, that's our second biggest billing category, next to automotive, and retail is the third, and we believe in second quarter, our top 3 categories will all fall into the plus column, including automotive, which is straddling between flat and slightly up. Clearly, we're going to be up in retail. Clearly, we're going to be up in services again. And what's driving services is the lawyer category, insurance category, banking category. They continue to be very strong through the first 6 months of this year, which gives us cause to think that, and as I mentioned earlier, we believe we're going to continue to roll with this right through the remainder of the year. And we do believe our core will be up when you count it all up by the year-end and we're off to a really good start with it, so. Again, we've got more categories in the plus column in the second quarter than we did in the first. We expected that, but it is coming through, and we're really are optimistic about the back half of the year as well.

And on the DOJ forum. First off, just my hat's off to the DOJ for, and specifically Makan Delrahim, for being forward-looking and organizing the forum to look at this issue. I thought they did an excellent job of getting the right industry participants to speak at the forum. And I was there on a panel, I thought the second day in particular was exceptional. Dave Lougee did a panel with participants from Comcast and Facebook. It was excellent. It was -- he did an excellent job, all the panelists did an excellent job, at really hitting at the heart of the matter, which is the market definition, as treating TV broadcast separate from cable and separate from online video. And it was just an excellent forum overall, and I think made a very, very strong case for unifying those video ad markets into one. And so again, hats off to the DOJ and Makan Delrahim for doing that, and we'll just have to see what impact it may have -- that may have.

And next we'll move to Dan Kurnos with Benchmark Company.

If I could just go back to the distribution upside. Obviously, there's been a lot of noise in the marketplace around subs and I think, Lucy, you're one of the few that did call out kind of a -- the linear decline. Can you just, guys, just give us an update if you think there is any change to kind of your net retrans outlook? And could you just remind us how much you do have coming up for renewal in terms of sub footprint in the back half of this year?

Okay. So just a couple of points. One is on a consolidated basis, we're seeing subs flattish, that's point #1, that's important. Second point is we have reconfirmed our '19 growth for net retrans of low-teen percent. Also reconfirming our '20 growth of also low-teen percent for next year as well. So everything is looking very good and we have just a couple -- we're in the midst of charter, which is very productive, probably close to being done there. And then we have AT&T this summer, and that's pretty much it for this year. We're done with all the networks. There is -- we're all done coming into January this year.

Perfect. Super helpful. And then, just -- it kind of got lost in the wash as a smaller piece and obviously, you guys have made a slightly larger transaction, but just on Compulse, I know you guys talked about it briefly in the prepared remarks. Certainly, there's been some noise from the competitor in the space. I don't know if there's opportunity for share gains, kind of what kind of growth trajectory you're seeing or if there's incremental investment on that this year and kind of how you think that can expand over the balance of the year? How that's contributing to results?

So what I would state is, in first quarter, we were up against a major investment that was a one-time only investment due to a special circumstance and we expect the earnings to return to normalized growth that we've had as a trajectory over the last several years. Marketing services is a major priority of the company and selling across all our screens. The definition of television is anything that has audio and video, and we're really encouraged by the OTT space.

Yes. Specifically, I don't know if you're referring to the other competitor being Tegna, but we think they've got a very interesting product in Premion. We have something that is fairly similar called CompulseOTT, and it is the fastest-growing new product launch in our history, and very complementary to our core spot sales activities and we expect that to continue to power future growth into the future.

Chris, can I sneak one more in -- just on the tennis DTC? If there's any expense built in and just kind of how you're thinking about timing of all that since you mentioned it on the RSN call?

Sure. So tennis is scheduled to launch -- it already has a significant direct-to-consumer and TV Everywhere presence in the U.S., which we continue to build on. I think we were hoping to have a charter added on the TV Everywhere side later this year. And then next year, we'll be launching internationally with a direct-to-consumer offering in international territory starting in Europe. And there are -- there is some expense this year for that initiative with no revenues. So it's not a huge amount, but it does impact 2019.

Our next question comes from Zach Silver with B. Riley FBR.

I just wanted to first, I guess, ask what gives you confidence that you can grow core ad in the back half? And then along with that, maybe elaborate on how the specialist versus generalist initiatives are going in the categories you've implemented them on? And what categories you can potentially implement them on for the remainder of the year?

Yes, on the core side, it's just a normal course of business of what we see. And on the first quarter call, everything we said came to fruition. What we're seeing in second quarter, we expected and is coming through and it's just the way we do our business. After the first 4 months, then seeing where we're at after essentially 6 months down, we have a lot of confidence in our ability to bring the core on the plus side, just because of what we're seeing over the first 6 months. Everything that was suggested has come to fruition, and that's the way to read the market right now.

I'll just add to that, that in the back half of the year, we do have the advantage of not having the political crowd-out that you had last year, which tends to be a natural tailwind for the quarter.

And I'll speak to the specialist versus the generalist. We're in our early stages but it appears to be seeding very well in the categories that we focused on. We are seeing positive results year-over-year and we expect to expand into other verticals and specialties by hiring core experts from those industries.

Got it. Really helpful. And then just one on STIRR, I think that this is an all ad-based product now. I'm wondering on how you're thinking about the subscription revenue opportunity? And maybe if there's any way that this fits in, either the brand or the technology with the RSN acquisition?

Sure. So STIRR is very much in startup mode right now, doing great in terms of awareness and downloads. We're very pleased with their progress so far, well ahead of expectations. So it's really trying to build a user base, first and foremost right now, and we think free is the best way to do that. The technology does provide the ability to add pay walls and premium content for upselling to subscription-based programming, and that's something that won't likely be turned on in the near-term since we're trying to build a user base, but it's absolutely on the product plan. And in terms of how this fits within our broader sports footprint, we see specifically, from the RSNs programming, nongame programming being used on STIRR since it is a multichannel offering and also on an authenticated basis, we very well might populate games as well, but that's to be determined.

And one other thing, just what I'd like to add is, that when, in the different trades, STIRR has been mentioned as one of the top 10 AVOD OTT apps in the likes of Pluto and Xumo. So just recently launched, shows the time, energy and effort put together by our products and programming team to come out of the gate with a strong asset.

And our next question comes from Kyle Evans with Stephens.

David, Lucy, I wanted to start with maybe a question on your flattish sub-commentary. I just want to make certain that, that's just for the core TV stations and it's not -- that you're not including new tennis houses or any of the smaller stations there?

That's correct.

Great. Steve, I'd like to ask you to dig down a little bit into auto. Is that -- the strength that you're seeing there in 2Q and for the balance of the year, is that the local dealership level, higher tiers? And maybe some comments on which mix are driving that?

Actually, there are 3 business categories where we derive revenue from on auto are up the second quarter, domestic dealership is up, domestic manufacturer is up and the foreign dealer, which is the largest of those 2 others that I just mentioned, just slightly down, not even 1% down, it's less than 1%. So the 3 biggest categories we have are propelling our efforts right now, and that gives us reason to believe that we're turning the corner on this category, delivering what we said we were going to deliver.

Anything specific that you're seeing at the local dealership level that you could comment on?

I think that we've had a large emphasis on dealing directly with the rooftops where many of -- focus having local agencies, we are focused on dealing at the dealer level, so that's where we're seeing our success, directly at solving the needs of the rooftops individually.

Great. Last one, I know STIRR is in startup mode and it's still small. Could you talk a little bit about the content expansion strategy there? And then I know it's available on the web and across all the major streaming platforms, are you seeing any particular, one of those drive hours in these early days?

Sure. So there is a plan to add well over 100 channels to STIRR and we have a lot of those deals are in the queue, making their way down the pipeline. One of the technological chokepoints is ingestion of content, which we're working hard to solve so we can get more channels up and running. So right now, we're focused on adding quality and also quantity. And we're making progress there, I think we're already up to around 40 channels. And then in terms of usage, it is available on all the streaming boxes. It is a TV product. You can get it on your mobile phone, but the vast majority of the usage, is on televisions, mainly through streaming boxes, with Roku being the biggest contributor, in terms of usage.

An interesting stat is that it's live television and television programming to date, not VOD that's driving the viewership.

Yes. That's of other thing that we really like about the strategy is, is that it's not just a pure on-demand service. It has streaming, traditional lean back experience, linear, as well as VOD, which a lot of platforms just have VOD, and we think that's a shortcoming.

And our next question comes from Aaron Watts with Deutsche Bank.

Let me start by saying congratulations to Dave on your retirement and all you've achieved at Sinclair. On a personal level, I will say that I've enjoyed working with you over these many years. So, Congratulations.

Thanks, Aaron. And I've always enjoyed the September Deutsche Bank Bonn Conference. I'll miss that quite a bit.

Yes. We will miss you out there. One quick follow-up question on auto. Embedded in your belief that core can grow for the full year, do you see auto as a category for the full year being up?

Yes. Low-single digits, we see it being up. And we spent the last couple of years really focusing in on the auto category. And again, it's starting to see that we're seeing the fruits of our investments.

Okay. Got it. And I guess, secondly, maybe for Lucy. You've been operating recently at -- from what I can remember, low leverage levels in recent memory. With the RSM transaction, we're going to see that leverage pop back up. Any preliminary thoughts looking ahead on where deleveraging falls as a priority for you? And kind of a target maybe to think about over the kind of 12 to 18 months after the transaction closes?

Yes. So the -- in our Monday call, we talked about the step-up in the leverages and the goal will absolutely be to delever all the credits tax in the company. So over the 12 to 18 months, I would say, we're looking to get that FGG side to the high-3s, low-4s. The RSN side into the mid-4x. But longer term, as a diversified media company, our goal will be to ultimately get to an investment grade company through the [parent level].

And next we'll take a question from David Joyce with Evercore.

A couple of questions. First, on the distribution side. How should we think about step-ups, escalators, retiering, any other exchanges of value there? And then secondly, on the ATSC 3.0 rollouts, given that, that's progressing well, do you have any learnings or any thoughts about when revenue might start being generated there?

So on distribution, our contracts generally have escalators every year of anywhere from 5% to 10%. And then when we renew, we tend to have bigger step-ups there upon renewal. And most of our reverse contracts are fixed fees that again also have escalators. And one of the reasons we can't -- the specific terms of our contracts are subject to confidentiality agreements, so we can't disclose specifics. So that's why we like to focus the Street on our net retrans guidance, which gives you the, essentially, what's left over for the bottom line, which in 2019, is the -- in the double digits as well as for 2020 as Lucy mentioned earlier.

On ATSC 3.0, we're learning quite a bit. The focus right now is on testing out the single-frequency network in terms of the actual RF capabilities, the reception capabilities in Dallas, specifically, by adding these 3, our SFN sites, we dramatically enhance the quality of reception through the entirety of the DNA to the level of quality that you'd expect from a wireless carrier, saturating the signal throughout the entire DMA. And so most of the testing right now is on actually the physical characteristics of that RF signal and reception. And out of the work that we're just kicking off at SK Telecom, with our joint venture, is being finalized and launched. As we speak, there'll be more coming out of that venture in terms of the product, the consumer facing iterations of 3.0, which will undoubtedly be an app-based experience that will include much more programming choice and bought assets and targeted advertising, premium subscriber based content, synchronization, low latency for sporting events, integrated interactive features like stats and social media commentary. And so that is all being worked on by, not just by us but others in the industry and one, I think our dog -- our horse in the race there is our joint venture with SK.

And our next question comes from Davis Hebert with Wells Fargo.

Good morning everyone, and congratulations to Dave. I hope you enjoy retired life. Just one -- a couple of quick questions for Lucy. The $700 million of new debt at Sinclair Television Group, do you anticipate that being secured or unsecured?

That would be incremental Term Loan B.

Incremental Term Loan B, okay. And then in terms of your comment on the investment-grade intention or aspiration. Is there any sort of leverage target you are trying to imply there for the parent level?

Not quite at this time. Just directionally, we want you to know where it is that we're -- how we think about the company longer term and what we're focused on.

Okay, that's helpful. And then, in the non-GAAP reconciliation for the RSN detail, I think there was a $42 million adjustment to the Sinclair television EBITDA. Is that the management fee that isn't going to be paid from the RSN cut?

Yes. That's right.

And then last one, more of a big picture. I think you're about a year into the -- maybe a little bit more, into your new Nielsen relationship. And I'm just curious, how you think that's gone so far? How do you think, if you think they're more effective in capturing viewership on local broadcast TV? And then a follow-on to that is, how you think they're positioned for viewership measurement on the RSN side of things?

So what the Nielsen is, it's still a widely used currency. Increasingly, com score is become more and more accepted. And as things move into the targeted world, the need for a panel based currency is less and less. And we -- they are a service that, for the right price, we're happy to keep, but it is not something that is essential to our business. And that's probably the same answer for the RSN as well.

And that does conclude our Q&A session for today. I'll turn the call back over to Lucy for any closing remarks.

Thank you, operator. So this has been an exciting week for us with the announcement of the RSNs, which has been transforming the acquisition for us as well as a very good first quarter results and outlook for 2019. If you have any questions, feel free to give us a call. Thank you.

Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time, and have a great day.