David B. Amy - Sinclair Broadcast Group, Inc. Lucy A. Rutishauser - Sinclair Broadcast Group, Inc. Christopher Ripley - Sinclair Broadcast Group, Inc..

Kyle Evans - Stephens, Inc. Aaron L. Watts - Deutsche Bank Securities, Inc. Dan L. Kurnos - The Benchmark Co. LLC Alexia S. Quadrani - JPMorgan Securities LLC Marci L. Ryvicker - Wells Fargo Securities LLC James G. Dix - Wedbush Securities, Inc. Leo Kulp - RBC Capital Markets LLC.

Greetings and welcome to Sinclair Broadcast Group Third Quarter 2016 Earnings Conference Call. At this time, all participants' are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.

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

Good morning, everyone, and thank you, operator. Participating on the call with me today are David Smith, President and CEO; Steve Marks and Steve Pruett, our Co-Chief Operating Officers of Sinclair's Television Group; Chris Ripley, Chief Financial Officer; and Lucy Rutishauser, Senior Vice President, Corporate Finance and Treasurer.

Before we begin, Lucy will make our forward-looking statement disclaimer..

Thank you, Dave. Good morning, everyone. Certain matters discussed on this call may include forward-looking statements regarding, among other things, future operating results. Such statements are subject to a number of risks and uncertainties.

Actual results in the future could differ from those described in the forward-looking statements as a result of various important factors. Such factors have been set forth in the company's most recent reports, as filed with the SEC, and included in our third quarter earnings release.

The company undertakes no obligation to update these forward-looking statements. The company uses its website as a key source of company information, which can be accessed at www.sbgi.net. In accordance with Reg FD, this call is being made available to the public.

A webcast replay will be available on our website later today and will remain available until our next quarterly earnings release. Included on the call will be a discussion of non-GAAP financial measures, specifically television broadcast cash flow, EBITDA, free cash flow and leverage.

These metrics are not meant to replace GAAP measurements, but are provided as supplemental detail to assist the public in their analysis and valuation of our company. A reconciliation of the non-GAAP financial measures to the GAAP measures in our financial statements is provided on our website under Investor Reports and Filings..

Thank you, Lucy. By now you should have seen our announcement that effective January 1, 2017, David Smith will assume the role of Executive Chairman and will continue to focus on our most important assets of news, public policy and the globalization of ATSC 3.0.

Chris Ripley will become President and CEO and Lucy Rutishauser will become Senior Vice President, Chief Financial Officer and Treasurer. We have the utmost confidence in Chris and Lucy as leaders in our company, ensuring we are well positioned for the future as they lead Sinclair through our next-gen era.

These next 5 to 10 years will be exciting and transformative times for our company and the industry and it is important that we are structured and aligned for the upcoming changes. So please join me in congratulating Chris and Lucy.

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

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

On the sports front, Ring of Honor Wrestling entered into a 2-year agreement to air a weekly show on Sport Tv, the leading sports channel in Portugal. American Sports Network agreed to once again produce and air the NOVA Home Loans Arizona Bowl which will reach more than 100 markets.

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

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

We have also been actively involved in important outreach efforts such as the Partnership for Drug-Free Kids awareness campaign which we plan to support through PSAs, digital content, social media and continued broadcast news coverage in 2017. Chris will now take you through the third quarter results..

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

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

Political revenues in the quarter were $45 million. This has been a unique election year with both the lack of spending by the Trump campaign and certain expected contested races not materializing.

And because political buys normally occur one to three days in advance of airing, it's difficult to accurately predict what political revenues will be, especially given the volatility of this current election year.

Media operating expenses in the third quarter, defined as media production and media SG&A expenses before barter were $370 million, up 26% from third quarter last year and up 16% on a pro forma basis.

The increase on a pro forma basis was primarily due to higher reverse re-trans fees, startup costs related to our revenue generating initiatives and system upgrades as well as higher compensation. Our media expenses were $6 million favorable to our third quarter guidance.

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

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

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

EBITDA was $233 million in the quarter, an increase of 36% of $62 million higher than the same period last year and $1 million higher than our guidance. The EBITDA margin on total revenues was 34% for the quarter. Net interest expense for the quarter was $53 million, up $5 million versus third quarter last year on acquisition financings.

Our weighted average cost-to-debt for the company is approximately 5%. Diluted earnings per share on 94 million weighted average common shares was $0.54 in the quarter, which includes a $24 million loss on extinguishment of debt on the redemption of the 6.375 senior unsecured notes that reduced diluted earnings per share by $0.16.

Excluding the debt extinguishment costs, diluted EPS would have been $0.69 per share in the range of our consensus estimates. We generated $131 million of free cash flow in the quarter and converted 56% of our EBITDA into free cash during the trailing 12 months ended September 30, 2016.

Our 2016-2017 free cash flow yield is approximately 22% and our annual dividend yield is almost 3% based on our current share price. Now I'll turn it over to Lucy to go through the balance sheet and cash flow highlights..

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

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

For 2017 modeling purposes, assume we pay 125% to 130% of the tax provision in cash due to the 2016 extension payment that is paid in 2017. In August, we closed on a 10.5-year private offering of $400 million, 5.125% senior unsecured notes due 2027.

The net proceeds were used to redeem the 6.375% senior unsecured notes due 2021 at a redemption price of $377 million, which includes outstanding principal accrued and unpaid interest and a make-whole premium.

The remaining proceeds will be used for general corporate processes and interesting to note, by doing the make-whole tender in August rather than wait for yesterday's call date, we saved over $10 million over the life of the bond. At September 30, total debt was $4.206 billion including $126 million of non-guaranteed and VIE debt.

Cash on hand was $105 million. We had $483 million available on our revolver for total liquidity of $588 million. Total net leverage through the holding company at quarter end was 4.7 times and that excludes the VIE and non-guarantor debt and is net of cash. The first lien indebtedness ratio was 2 times on a covenant of 4 times.

Our two-year average net leverage at the end of this year is expected to decline to approximately 4.4 times and be in the high 3 times by the end of 2017 on a two-year average basis, assuming our current portfolio and before potential proceeds from the spectrum auction and sales of non-media investments.

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

Since our August 3 earnings release, we also repurchased 3.8 million shares of common stock for $107 million and have $130 million remaining on our buyback authorization, which includes the $150 million authorization approved by the board during the third quarter. Year-to-date we have repurchased 6.5% of the float or almost 4.5 million shares.

Our share repurchases, combined with our 2016 quarterly dividends and scheduled debt amortization, would represent approximately 50% of our total 2016 projected free cash flow. David Amy will now take you through our operating performance..

Thanks again, Lucy. As Chris pointed out, we are very pleased with our third quarter core advertising performance given the impact of political on our normal advertiser spending and the Olympics impact on our non-NBC stations. For the third quarter, political revenues were $45 million versus $8 million in third quarter of 2015.

No surprise here is that political ad spending for 2016 has not been at the levels anticipated due to the unique nature of this year's presidential election and certain contested bases in our markets not materializing. In particular, Trump has not raised the same level of funding as past candidates.

We believe this lack of financial support is a one-time anomaly and one need not look any further for that confirmation than the first half of this year, when our political revenues were 12% higher than 2012's pro forma levels.

In addition, our NBC stations generally made out very well in the third quarter as a result of having the Olympics and because some of the political money flowed into the Olympic programming.

Despite the political crowd-out and the Olympic effect on our non-NBC stations, our core advertising revenues, which excludes political, were up slightly in the third quarter. In addition, we continue to see our digital business as some of the industry's best performing with our digital revenues growing 23% in the third quarter on a pro forma basis.

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

Pro forma core advertising revenues in the fourth quarter, excluding political, are expected be down mid-single digits versus the same period last year due to normal crowd-out of our regular advertisers by political.

In addition, we are seeing the schools category come under pressure with the for-profit technical schools struggling or closing their doors because of increased governmental regulations and scrutiny.

Auto, on the other hand, is expected to be positive in the fourth quarter which is a very good result given some of the concerns expressed over production cutbacks and the political crowd-out effect.

Overall, year-over-year we believe the fourth quarter of 2016 core performance is in line with the fourth quarter of 2012 performance after adjusting for declines in the school category in 2016 along with the resurgence in auto advertising in 2012 as it emerged from the Great Recession-driven lows.

For the full year, we are estimating media revenues to be approximately $2.505 billion to $2.521 billion up 25% as compared to 2015 with pro forma core advertising for the year expected to be flat to 2015. Included in our expectation is political revenues of $206 million to $216 million.

While political is down compared to pro forma 2012, this is due primarily to the lack of super PAC support and fundraising by the Trump campaign, and phenomenon that we have never seen before in a presidential political election and don't expect to see again.

On the expense side, we are forecasting media expenses in the fourth quarter to be approximately $384 million versus $313 million in the fourth quarter of 2016 with about half of the increase coming from new acquisitions, initiatives and system upgrades. For the year, media expenses are forecasted to be $1.457 billion.

On a pro forma basis, 2016 media expenses are forecasted at $1.475 billion versus 2015 pro forma media expenses of $1.261 billion, that's a 17% increase.

Of that, 4 points of the 17% increase is from acquisitions, initiatives and system upgrades and the remainder is from higher reverse re-trans and normal operating expenses which are growing primarily due to higher sales commission expenses on higher revenues and salary compensation.

For this year, normal operating expenses are still expected to contribute 4% of the increase consistent with our previous guidance. For the year, corporate overhead is estimated to be $71 million, up $6 million and excluding stock-based compensation.

Increases are primarily due primarily due to higher compensation, group insurance and legal and consulting fees related to acquisitions and the spectrum auction.

EBITDA in the fourth quarter is expected to be approximately $319 million to $334 million, up 56% to 63% versus as reported fourth quarter 2015 EBITDA of $205 million and up 47% to 54% versus pro forma fourth quarter 2015 EBITDA of $218 million.

For the year, EBITDA is expected to be approximately $921 million to $935 million versus as reported 2015 EBITDA of $722 million. On a pro forma basis, 2016 EBITDA is expected to be $925 million to $940 million versus pro forma 2015 EBITDA of $759 million.

Free cash flow in the fourth quarter is expected to be approximately $215 million to $230 million and for the year $536 million to $551 million. We are adjusting our combined free cash flow guidance for 2016 and 2017 down by $25 million on the lower political for a new range of $950 million to $1.025 billion.

However, as a result of the shares we have repurchased, our average free cash flow per share per year increases from $5.36 to $5.43. Based on our fourth quarter guidance, we expect to end the year with record-breaking financial performance in our key metrics of revenues, EBITDA and free cash flow. With that, I would like to open it up to questions..

Thank you. Our first question comes from the line of Kyle Evans from Stephens. Please proceed with your question..

Hi. Good morning. Thanks for taking my question..

Morning, Chris..

Morning..

Morning..

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

Sure. So, you did hear correct that we were up on a same station basis, on a core basis in Q3. Auto in Q3 was more or less flat and looking to be positive in Q4 and so we're pleased with those results. As I mentioned in Q3, we under index on the NBC side.

NBC probably comprises of about 15% of our total ad revenue which makes it our smallest Big Four affiliate. And so when Olympics comes it tends to suck share away from the other stations in the marketplace and despite that and despite us under indexing for NBC, we're pleased with the core performance in Q3..

What were some of the....

I just want to follow up on that if I could. I think it's important to point this out. We don't have a lot of exposure as Chris mentioned on NBC stations. The biggest market is the San Antonio market at 32.

And San Antonio and Las Vegas, just to illustrate how powerful the Olympics is, those two markets, those two NBC stations grew six revenue share points in third quarter. So if they were doing a 20 share last year, they're doing a 26 share this year. That illustrates how powerful the Olympics is.

You take into consideration that we don't have a lot of exposure with NBC stations and we still finish positive on the core, really strong performance..

Agreed. One quick follow-up and then I'll get back in the queue. An update on your re-trans sub-count please? Thanks..

Yes. I'll take that one. So at this point, there really aren't any material changes in the sub-count..

Thank you..

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

Hey, everyone. Chris, Lucy, just want to start by congratulating you on the new roles. Very well deserved..

Thank you..

Thank you..

And maybe one question to start with on core growth prospects, curious your sense from what you're hearing in the local markets about how advertisers are feeling.

I know you talked about what you're seeing in the fourth quarter, but maybe your outlook, at least initially on what you're seeing for early 2017 and what the confidence level is in your, kind of, from your small and medium-sized advertisers..

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

One is schools. The schools segment, that's declined due to players like ITT Tech going out of business.

And the second is that if you remember back in 2012, auto was having a huge resurgence off of the Great Recession-driven lows and it grew at abnormally high rate through 2012 and when your biggest category does that, that obviously has a big impact.

So the combination of those two factors really makes, in the context of Q4 2016 versus Q4 2012, really makes us believe that this is normal performance relative to the two years. And so when we project forward into 2017, we don't think that the market has really changed.

There's really no sign post for us to say that the local market places have changed. In fact, we are hopeful that with the resolution of uncertainties driven by the election around what future trade policies will be or corporate tax policies that, that could create a relief rally, if you will, in the local marketplace as uncertainty is lifted..

Okay. That's helpful. And there's been a lot written about some of the NFL ratings weakness.

Is there any read through today or in the near-term future for you guys on that?.

So on the NFL numbers, we study those very carefully and the bulk of the decrease says we are in the, what I'll call, the expanded series, the Thursday night games and then also on the Monday night games. The home, in-home region NFL ratings are very stable and very solid, they are not down at all.

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

Okay. Thank you very much..

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

Great. Thanks. Good morning, and I will echo my congratulations to Chris and Lucy. Let me start off here.

I know we've, kind of, been all circling around the same issues, but maybe if we could get a little bit more color on auto, maybe a breakdown by tier, just how that's pacing? And then you know in your prepared marks, David, you mentioned that you were seeing some increase in political in this last week.

Can you just give us a sense of how much of that is embedded in your forward guidance? And then just on Q4, I mean look, your guide is pretty strong considering where political is coming in.

You know we've heard that advertisers have been worried about the market and booking late as you mentioned also I think Chris, so maybe if you can just talk about whether you're just seeing pacings firming up. If there are other categories that are performing particularly well, and just remind us of the timing of the Tennis step up.

That would be helpful. Thank you..

I would just – if you'd asked me about the political pace and what we've got included in our projection for the fourth quarter.

We're doing our best here to be as accurate as possible, but actually before we jumped on to the call, we were kind of kidding about how maybe we should have an update during the call because the momentum in political has been really picking up here. Steve and Steve may have some other color they want to add to that..

Go ahead, Steve..

Yeah. No. The political in the last two weeks is what we had anticipated. It's to the same type of levels that we enjoyed in previous years so it's been robust in the last two weeks and we expect that to continue right up to Election Day.

It's been obviously, as everybody mentioned on the call and you've all experienced, it's been an interesting election year to say the least and the last two weeks of this year – of this campaign has actually mirrored what we are used to in previous elections..

And then as to auto, the dealer groups, both auto domestic and auto dealer groups in general, were both up very solid numbers and as always, the money moves around a little bit within the Tier 2, Tier 1, Tier 3 category..

And the question on Q4, just if you're seeing pacings firming, if there're any other categories that are helping you with a strong guide and just to remind us of the timing of the 10 categories step up from your renegotiations?.

We have a handful of categories as we always do that are up and we've got a handful that are down. We're most thrilled as we've just articulated with the automotive and we're talking a full year guidance on the plus side on the most important category in the advertising community. So you start off with that and that's an enormous positive.

We also have some really other good stories as well, but it's the typical stuff. We have probably about eight or 10 categories up in fourth quarter. That normally paces a little bit behind as you would expect from the crowd-out. We typically average about 15 categories up so not surprising, a very typical crowd-out quarter for core business.

Nothing unusual..

And as it relates to your Tennis question. Tennis has been going great from a distribution standpoint.

We have started to already get the benefit of some of the incremental distribution which came in this summer, but most of the benefit will start to be felt next year as a significant amount of subs come on at the end of the year and then sort of mid-next year.

So in terms of our previous guidance on Tennis being at a run rate of $60 million, sort of midpoint of 2017, we're still very comfortable with that number. There might be a slight mix change in terms of how we're thinking about it.

I'd say we're a little bit ahead on the distribution side, maybe a little bit behind on the ad side as it just takes a little bit longer for distribution to translate to ratings then to translate into ad sales. But so far so good on Tennis and we like where we're headed there..

All right. Great. Thanks for all the color. Appreciate it..

Yeah..

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

Thank you. Sorry to continue to pile on on the political questions here, but when you look at the political spend, and like you said it's been a very interesting election and the patterns of political spend have been different this year.

I guess what gives you confidence that it's definitely you know, unique given the candidates that are running and the issues unique to this election and not something that might be more structural that we could see, sort of, plague broadcast political spend sort of in the out years? Then I have a follow-up..

So, Alexia, you know I think the important thing to look at is how we performed in the first half of the year through the primaries and there we were running 12% ahead first half 2012 on a pro forma basis. So that is really what you should expect to see.

The fact that Trump was late to the game and fundraising was the first issue, so the war chest just wasn't there for him and that's part of why you're seeing declines here in the back half of the year..

Yeah, it's so incredible to see that the RNC has not supported their candidate and the amount of money that will be reflective in terms of total spending is pretty significant..

And then on top of that, the record amount of PAC money that was raised primarily for competitors to Trump and the primaries did not get shifted to support Trump as some thought might have been done. So there's definitely some unique characteristics that we don't believe are likely to repeat.

Not the least of which, you've got a candidate who never thought he would get this far, so really didn't prepare from a fundraising perspective. And also, came in with a huge amount of built in fame and following that would be very hard for future candidates to repeat in terms of that, sort of, built in advantage..

Well, I think piling on this. Nobody understands the power of television more than Trump does. It's been incredible the amount of time that the networks have given him.

So if you're Donald Trump and it's more effective than a 30 second spot, the networks have been putting him on for 30 minutes, let alone 30 seconds and it's because of what Chris points out. The guy is a ratings magnet. So the cable networks want him on the air and they put him on for extended periods of time.

So if you're getting free time why would you spend money and that's really what it boils down to at the end of the day..

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

And then just to follow-up with your comments on the NFL. I think you mentioned that the core games, the more local games are doing fine. It's the national stuff where you're seeing the weakness in the ratings.

In your opinion, is it purely due to the over saturation on the national level or is there some concern that, that weakness might eventually spill into what you're seeing more at a core level?.

I think there's lots of different opinions and that's exactly what they are, just opinions at this point. My personal opinion is it's not so much saturation but just a product of core match-ups being chosen as the highlighted games. Also, you had less star power. You had Brady out the first four games. You had Manning retire..

There's no story..

Yeah, there was – and then you had this player issue around the Anthem and when you add all that up, the games were just less appealing and so less people tuned out and if you see the home ratings held up.

It was the people watching, the rest of the games that was mainly the deterioration in fact, and it was also the wealthier households held up better than the lower wealth households, which I thought was also interesting.

And so I just think it was really just, sort of, a story and a product issue that hit this year and it won't necessarily be something – signs of future..

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

Thank you very much..

Thank you..

Our next question comes from the line of Marci Ryvicker with Wells Fargo. Please proceed with your question..

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

What about schools?.

Give me a minute, Marci. I can get back to you..

Okay..

You want to go on to your next question..

Yeah.

Then just sticking with auto, do you feel, Steve, like there's true demand in the category or is it is just the timing of when advertisers are actually placing business because they didn't want to go through the elections?.

I'm sorry, in terms of Q3?.

Just even Q4 being stronger. I mean I would assume that auto advertisers didn't want to advertise during the election, so maybe they just place business later and it's not true demand..

Yeah. Exactly. All of that is, all of auto is timing. I just was with a number of auto dealers and their view of the world is, it's pretty much business as usual. They're not particularly concerned about anything except competing for market share and they see advertising as a critical aspect of that.

And in particular, they see TV advertising as an important part of that and not changing..

And to your point, Marci, about people building around the quarter regardless of how strong our political was or will be, those plans get made well in advance and people do buy around the quarter, that's a....

There's definitely a plan....

That happens every time..

Okay..

And, Marci, just to go back to your schools question, so historically it's run at about a 4% category of the mix..

Okay. And then, Lucy, you mentioned that you're going to be below four times on the Tier average in terms of leverage by the end of 2017.

Do you intend to stay there? I mean should we just assume that leverage is going to continue to drift down as EBITDA grows?.

Yes..

(38:49).

Yes. Our target leverage is high 3s, low 4s and as Lucy mentioned, we'll be at the high 3s end of 2017 on an average basis and....

And that does not include proceeds from the auction, correct?.

Correct..

Does not include proceeds from the auction. We're certainly comfortable at much higher – the model can withstand much higher levels of leverage. That's without a doubt and certainly for the right strategic move, we would do that.

But we think it's prudent to have leverage trend down and we're also hearing from investors that, that would be a more appealing profile for the company..

Got it. Thank you very much..

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

We like it. Thank you..

Our next question comes from the line of James Dix with Wedbush Securities. Please proceed with your question..

Thank you. I have two. I guess first, if you can stand it, another question on auto. Any change in the type of advertising you're seeing? The mix of promotional versus more traditional branding spending.

And has there been any different cadence in terms of new models that came out this year that has affected the cadence of spending this year? And then secondly, is there any revenue from any aspect of the transition to ATSC 3.0 included in your 2017 outlook at this point including any (40:47) And if not, do you have any sense for when you might start to see some revenue impact from the transition? Thanks..

So there is always shifting around incentives and shifting around the way dealers allocate money. There's nothing any different in this year. There's always new models. There's no sentiment. And again, as I said, I was just visiting with large group of dealers.

All sizes; from smaller 5 rooftop dealers to larger 100 rooftop dealers and they all have the same – this is business as usual to them. Incentives get shifted around. Factory wants to stress things one way or another and there's no overwriting theme to any of that at this point.

There are national incentives and then there are regional incentives and then there are dealer initiated incentives. There is an interesting trend with way more focus on the service lane and F&I as a profit center in all dealers which are areas that are coming into television advertising in a big way that have not been as big.

And some of those are factory backed, such as Ford, and their various pushes into quick lane. And all dealers are pushing into these really key profit centers within their dealership which haven't been as front and center, so that's all been very good for us..

And on your question around ATSC 3.0, the final standard will not be, sort of, with a bow around it totally complete until the end of this year, after which patent pools and negotiations will start in terms of what the economics around that IP are.

Our stake in that process is driven by patents which, the first of which is starting to get granted, but I'd expect most of that patent activity to be weighted to the back half of 2017 and into 2018 and just knowing how long these things take to figure out and, I wouldn't expect, there's certainly nothing in our numbers for 2017 and I don't expect that to have a material impact into 2018.

However, I will say that the progress within ATSC 3.0 has been very encouraging. The Koreans are going to start rolling out in February of 2017 with products with ATSC 3.0 technology in it.

So technically, even though the price for that has not been figured out and our stake in that has not been figured out, there is essentially accrued income if you will, starting to happen in 2017 that will be owed to IP holders including us at some point in the future when the economics are figured out..

James, if you can take a little bit, if you can stand a little bit more answer on the auto here, when it comes to the technologies, just the other day we put out a press release about ATSC 3.0 and the information that we expect to able to gather using ATSC 3.0 and some of the work that we're doing today in getting prepared for that future information and the opportunities that that will provide us, but we've begun working on that today and especially in regards to auto.

And we mentioned that in our press release about some of our unique skill sets that we're developing. And we're not going to provide you specific detail on a public call about exactly what we're doing and how we're doing it, because it is proprietary.

But we are building advantages within our company to take advantage of the technologies that are being developed and the future of those technologies and just how they can apply not only to auto but to a number other of our advertising categories.

So we see this as a building block and we see a significant future in terms of what we can do and how we build on that a advertising base with our ATSC 3.0 advancement. So we're here very excited about the future of what's coming up here..

Great. Thanks for that color..

Our next question comes from the line of Leo Kulp with RBC Capital Markets. Please proceed with your question..

Hi. Good morning and congrats everyone on the promotions. I just had a few questions.

First, can you give an update on how your auto revenue mix varies between the different tiers? And then second, can you update us on your thoughts around returning capital to shareholders? Your usage of capital particularly in light of the strong buyback levels in 3Q, is that something that was more market related or is that, kind of, a shift in strategy? And then finally, can you update us on any plans for NewsChannel 8?.

So on the distribution, it's fairly evenly distributed and it is very subjective, actually, based on how individual manufacturers and dealer groups or dealer associations buy, in terms of actually execute the buy, whether it's regionally or nationally or buy it market by market.

But it's safe to say that the distribution is fairly equitable across Tier 2 and Tier 3 with true Tier 1 dollars being a little bit smaller on the whole because money is really – the money that's being spent on local television is viewed as dealer-directed money. It's a process by which dealers make the decisions..

And on your questions related to uses of capital; it's not a sign of a change in strategy. We've been fairly consistent in saying that we balance our uses of free cash between accretive acquisitions and investments and share repurchases. And we have been less active over the course of this year than we historically have.

And we've gotten incredibly strong free cash flow generation on the outside of that. So I think it's sort of, a reflection of that imbalance of what we've spent and what we had in the Q versus what was coming in the door. But certainly we also look to be opportunistic in terms of where the market is so that we're buying right, if you will.

And we saw a great buying opportunity when we went to the market..

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

And as it relates to NewsChannel 8, the D.C. 24/7 news channel, it's a great operation. Since we took it over we've got it fully distributed within the D.C. DMA. It's very profitable. It's sort of an extension of what we do at WJLA, which is also having tremendous success in its local news product.

And furthermore, it's becoming a center for our national news activities like Full Measure and other products that we intend to launch across our footprint and so we're using it as a base for that national expansion..

Got it. Thanks very much..

Thank you..

Our next question is a follow-up question from the line of Dan Kurnos from The Benchmark Company. Please proceed with your question..

Yeah. Thanks.

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

So Circa is not a typical startup that you'd see on a standalone basis. It certainly benefits from leveraging everything that we do at Sinclair being the largest producer of news in this country.

This year it will be about $10 million of losses that we'll cover and we'd expect it still to be in a loss position next year with a path to breakeven in 2018. We're not looking to dramatically increase the spend in Circa.

We think that it can be effective at a reasonably low level of expense relative to a digital media startup that does everything it does on a standalone basis and so I wouldn't expect us to see a big step up in investment there..

Yeah, as we mentioned earlier it's far exceeding our expectations in regards to the connection with the public. And kind of tongue-in-cheek here, if we were to use a vice multiple, I think it's probably worth about $2 billion or $3 billion by now..

Isn't that great how that works, David, just put a big multiple on it and you have a $10 billion business. It's just like BuzzFeed. You're all set..

You get it, Dan..

Thanks, guys..

Thank you..

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

Thanks, operator, and thank you everyone. Well, this has been an unusual political year and one we don't expect to occur again.

We have many parts of our core business that are performing well, our digital assets, local news and of course the automotive category, as well as expecting to benefit from the upcoming spectrum auction and our next gen broadcast platform opportunities.

Thanks for participating on our earnings call this morning, and if anyone has additional questions, please feel free to contact us. And congratulations, Lucy and Chris..

Thank you..

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