Lucy A. Rutishauser - Sinclair Broadcast Group, Inc. Jill Hecklinger - Sinclair Broadcast Group, Inc. Christopher S. Ripley - Sinclair Broadcast Group, Inc. Steven M. Marks - Sinclair Broadcast Group, Inc. Stephen J. Pruett - Sinclair Broadcast Group, Inc..

Aaron L. Watts - Deutsche Bank Securities, Inc. Alexia S. Quadrani - JPMorgan Securities LLC Marci L. Ryvicker - Wells Fargo Securities LLC Daniel L. Kurnos - The Benchmark Company, LLC Kyle Evans - Stephens, Inc. Barry L. Lucas - Gabelli & Company James Davis Hebert - Wells Fargo Securities LLC.

Greetings and welcome to the Sinclair Broadcast Group's First Quarter 2017 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.

It is now my pleasure to introduce your host, Lucy Rutishauser, Senior Vice President and Chief Financial Officer. Thank you, Ms. Rutishauser. You may begin..

Thank you, operator. Participating on the call with me today are David Smith, Executive Chairman; David Amy, Vice Chairman; Chris Ripley, President and CEO; Steve Marks, Chief Operating Officer of our Television Group and Steve Pruett, Chief TV Development Officer. Before we begin, Jill Hecklinger 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 and the results 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 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 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 measures but are provided as supplemental detail to assist the public in their analysis and valuation of our company.

The 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 (2:22)..

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

In April, we announced that we and Cunningham Broadcasting will acquire the stock of Bonten Media Group Holdings and the membership interest of Esteem Broadcasting for an aggregate purchase price of $240 million. Bonten owns 14 television stations in eight markets and provides services to four stations pursuant to a joint sales agreement.

In addition to expanding our reach and regional presence, we believe our economies of scale will help us bring improvements to these smaller market stations, including improvements in news and other quality local programming and multicast opportunities.

In March, we announced that we acquired the assets of Tennis Media Company, the owner of Tennis magazine and Tennis.com, making us the destination for all things tennis and tennis lifestyle. The price was $8 million plus an additional $6 million earn-out potential.

The transaction creates a unified media platform that combines Tennis Channel and its premium OTT product with Tennis.com, the most visited tennis online platform in the world, and Tennis magazine, the sport's most circulated print publication. We also sold Alarm Funding in the quarter for $200 million.

Alarm was purchased in November 2007 with invested capital of approximately $10.5 million. After repayment of debt and other costs, we realized an annual IRR of approximately 25% on our investment. In addition to being an accretive investment, the sale of Alarm Funding allows us to deploy proceeds into core business opportunities such as Bonten.

In April, we announced the merger of American Sports Network with 120 Sports. The rebranded operations combined ASN's distribution and live collegiate games with 120's live studio programs, Silver Chalice's Campus Insiders, and professional sports highlights.

The multiplatform sports network features linear broadcast and a comprehensive digital and premium OTT offering that puts ASN on a faster path of probability and increased and upgraded content. Rounding out our content highlights, we are very excited to report that our TV stations recently were a recipient of 33 Edward R.

Murrow Awards, including awards for overall excellence for WJLA in Washington, D.C., and WGME in Portland, Maine. Congratulations to all of our news personnel. On the distribution front, we're making progress with virtual MVPDs, having signed on to the ABC affiliate deal with YouTube and DIRECTV NOW.

In addition, we continue to engage directly with the virtual MVPDs, and you should expect to hear more from us on this front later this year. As part of our content initiatives, we're launching KidsClick, a national multiplatform programming block geared for children.

KidsClick is expected to launch in July and will air daily, and feature robust and age-appropriate content on all screens, including broadcast television, online, mobile and over-the-top. In the first quarter, we launched two new emerging networks, CHARGE! and TBD on the success of COMET, which we launched 18 months ago.

We're pleased with COMET's performance reaching approximately 80% of the U.S. households, and having strong ratings in both primetime and weekends often rivaling well distributed cable networks. COMET's recent launch as a standalone app on Roku and Apple TV are resulting in solid viewing times and impression loads despite minimal promotion.

Turning to ATSC 3.0, we continue to be very busy on this front, most recently announcing an agreement with Saankhya Labs.

Saankhya Labs is a leader in the development of cognitive software-defined radio chips, and will be working to accelerate the design of ATSC 3.0 chipsets that will enable various types of consumer devices to receive the next generation broadcast standard.

We also announced a memorandum of understanding with Nexstar Media Group to form a consortium that will promote innovation and develop and explore products and services associated with the ATSC 3.0 nationwide network, as well as monetization opportunities such as virtual MVPD platforms, multicast channels, automotive applications, single frequency networks, and wireless data applications.

Furthermore, we're in the process of launching our ATSC 3.0 beta test in Baltimore, Washington markets towards developing enhanced content, targeted advertising, and mobile distribution.

On the regulatory front, the FCC vote to reinstate the UHF discount was a reasonable first step in bringing antiquated broadcast rules in line with the realities of today's diverse media landscape.

Further modernization of the broadcast regulations will benefit consumers through economies of scale that allow broadcasters to invest more in local news and quality local programming. Now Lucy will take you through the first quarter results..

Thank you, Chris. Before getting into the financial details, I am pleased to report that for first quarter, we met guidance for media revenue and EBITDA, and beat free cash flow guidance. Turning to the details, media revenues for the first quarter were $602 million, an increase of 13% or $71 million higher than first quarter 2016.

On a pro forma basis, first quarter 2017 media revenues were 9% higher than pro forma first quarter 2016, primarily due to increases in digital revenues and retransmission fee. Political revenues in the first quarter were $2 million versus $24 million in the prior year.

Media operating expenses in the first quarter defined as media production and media SG&A expenses before barter were $383 million, up 16% from first quarter last year and up 10% on a pro forma basis.

The increase on a pro forma basis was primarily due to higher reverse retrans fees on network renewals, startup costs related to our revenue generating initiatives and system upgrades. Our media expenses were $4 million favorable to our first quarter guidance on favorable staffing, open position and compensation expenses.

Corporate overhead in the quarter was $21 million, down 4% compared to the same period last year and down 12% when excluding stock-based compensation and this was primarily on lower health insurance cost. For 2017, corporate overhead is estimated to be $72 million, a decrease of $2 million.

Research and development costs were only $1 million in the quarter, but for 2017, we're estimating $14 million in ONE Media expenses relating to the transition and implementation of ATSC 3.0. We recorded a pre-tax gain of $53 million during the quarter on the sale of Alarm Funding.

EBITDA was $184 million in the quarter, an increase of 13% or $21 million higher than the same period last year and at the high end of our guidance. Net interest expense for the quarter was $57 million, up $7 million versus first quarter last year on acquisition financings. Our weighted average cost to debt for the company is now approximately 4.9%.

For 2017, we are estimating net interest expense to be $208 million. Diluted earnings per share on 94 million weighted average common shares was $0.61 in the quarter or $0.32 when excluding the gains on the sale of Alarm and higher than consensus.

We generated $113 million of free cash flow in the quarter, plus an additional $55 million in net cash proceeds from the sale of Alarm Funding. We continue to convert over 50% of our EBITDA into free cash. Our 2017-2018 free cash flow yield is approximately 13% and our annual dividend yield is approximately 2% based on our current share price.

We are reconfirming our 2017-2018 free cash flow guidance of $950 million to $1.025 billion. Now, turning to the balance sheet and cash flow highlights. Capital expenditures in the first quarter were $21 million. For 2017, we are reconfirming our $90 million CapEx guidance which excludes expenditures related to the repack or ATSC 3.0 deployment.

Cash programming payments during the quarter were $29 million and, for 2017, we are reconfirming our cash programming payments which are expected to be flat to 2016. Net cash taxes paid in the first quarter were less than $1 million due to timing with taxes being paid in April.

For 2017, excluding tax implications from the spectrum auction proceeds, cash taxes are estimated to be approximately 120% of the provision. This includes $13 million in taxes related to the gain on Alarm Funding. At March 31, total debt was $4.084 billion, including $30 million of non-guaranteed and VIE debt. Cash on hand at March 31 was $816 million.

We had $484 million available on our revolver for total liquidity of $1.300 billion. Total net leverage to the holding company at quarter-end was 3.8 times on a trailing eight-quarter basis, excluding the VIE and non-guarantor of debt and net of cash.

The first lien indebtedness ratio which is now based on a trailing eight-quarter covenant was 1.4 times on a covenant of 4.25 times. We estimate our two-year average holding company net leverage to be in the low to mid 3 times by the end of 2017, assuming our current portfolio and before Bonten, which is essentially leverage neutral.

During the quarter, we repaid $14 million of scheduled debt amortization and distributed another $16 million in dividends. In March, we completed a public equity offering of 12 million shares for $42 per share, which resulted in net proceeds of approximately $488 million to be used for future potential acquisitions and general corporate purposes.

We believe our equity raise (13:55) puts us in an enviable position to act quickly and reduces financing risk on potential acquisitions. And Steve Marks will now take you through our operating performance..

Thank you, Lucy, and good morning, everybody. For the first quarter, political revenues were $2 million versus $24 million in the first quarter of 2016, typical for a non-election year. Looking ahead, pundits are already talking about 2018 being a hotly-contested midterm election year and the potential for high-profile ballot issues.

We believe we will be in a strong position to gain political share given our investments in local news and our recent Murrow Awards. Core advertising revenues, which exclude political, were down less than 1% in the first quarter and within the low end of our guidance.

Excluding the for-profit technical schools that went out of business last year, our core revenues would have been flat first. Auto, which represented 26% of our advertising, grew over 3% in the first quarter.

We grew share in the first quarter, including and excluding political revenues, in part due to our unique audience network sales initiative and our emerging network platforms. What is even more impressive is that we grew share despite having a slightly more challenged resume of stations than our peers, given our exposure to FOX, CWs and MyNets.

These networks represent collectively over 40% of our advertising. In addition, we continue to see our digital business as one of the best performing in the industry, with our digital revenues growing 24% in the first quarter on a pro forma basis. Turning to our outlook, which does not include Bonten, the spectrum auction or repack.

For second quarter, we are expecting media revenues to be approximately $627 million to $633 million, up 4% to 5% as compared to second quarter 2016. This includes political revenues of $2 million versus $17 million last year.

Pro forma core advertising revenues in the second quarter excluding political are expected to be roughly flat to down slightly versus the same period last year. However, excluding the impact of the for-profit technical schools, second quarter core revenues would be flat to slightly up.

As in first quarter, we believe we are guiding for some of the best performances in the industry. For second quarter, we are expecting auto once again to grow low single-digit percents versus the prior year. As well, we are seeing strength in services, media, religion, and movies.

The softness in some categories, particularly food and retail, are expected to rebound once the public has more clarity on health care reform and potential new tax codes.

On the expense side, we are forecasting media expenses in the second quarter to be approximately $402 million versus $372 million in the second quarter of 2016, with about half of the increase coming from acquisitions, initiatives, and system upgrades.

On a pro forma basis, second quarter expenses are estimated to increase 8% on reverse retrans acquisition initiatives and system upgrades. Normal operating expenses, however, are expected to be roughly flat.

For the media expenses – for the year, media expenses are forecasted to be $1.586 billion and $1.575 billion on a pro forma basis, versus 2016 pro forma media expenses of $1.450 billion, an 8% increase. Of that, approximately half of the increase is from acquisitions, initiatives, and system upgrades.

And the remainder is from higher reverse retrains, offset by a decrease in normal operating expenses. For the year, normal operating expenses are expected to be down low single-digits, primarily due to lower sales commissions in a non-political year, and being disciplined in managing our operating expense growth.

EBITDA in the second quarter is expected to be approximately $185 million to $190 million, down 7% to 10% versus as-reported second quarter 2016 EBITDA of $205 million, and down 6% to 9% versus pro forma second quarter 2016 EBITDA of $205 million, primarily due to the absence of political revenues.

Free cash flow in the second quarter is expected to be approximately $34 million to $40 million.

For 2017 and 2018, we are reconfirming our combined free cash flow of $950 million to $1.025 billion, or a $5.01 per share, which excludes the $313 million of gross auction proceeds and the $55 million of Alarm's after tax proceeds combined, which add $3.73 of cash per share. With that, we'd like to open it up to questions..

Thank you. Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. Our first question comes from the line of Aaron Watts with Deutsche Bank. Please proceed with your questions..

Hey, everyone. Thanks for having me on. I want to start out just with a question on the core ad environment. I know following elections, typically, there may be some hangover period for advertisers to jump back in full force.

I know you said that first quarter was kind of flattish, excluding the for-profits, maybe a little bit of improvement heading into the second quarter.

Do you think that the environment's actually a little better than that, the underlying tone at least, in that, as advertisers get more comfortable the direction we're heading, that you could see some improvement throughout the year in core?.

Absolutely. First of all, I'd like to stress our performance in both first quarter and second quarter, it's exceptional. When you take a look again at our resume of stations and how we're performing, I don't think you're going to get calls quite like ours today. We're really on top of our game.

In terms of the core specifically, there are two categories that are holding us back. And it's retail and food.

And when you take a look at those two categories, you can make the argument that, once people are comfortable and assured of health care expenses that come out of their wallets, as well as the tax situation and recoding the tax brackets, we think those two categories rebound.

And as you go into the back half of the year of when those two categories rebound, in addition to the crowding out factor, as well as auto specifically being very healthy for Sinclair, it bodes well for core advertising through the back half of the year. So we're very optimistic.

Our performance is strong the first six months and we've got a reason to believe that help is on the way on the core side for the back half of the year..

Okay. Great. And then, just one other question for me. I know you talked about capital expenditures being around $90 million for the full year. Lucy, I don't know if you could give your latest thoughts on what the costs might be for the repack and also kind of ATSC 3.0 expectations on the cost side for this year..

Yeah, so the repack will be timed with the ATSC 3.0. So a lot of the ATSC 3.0 costs will be covered in the repack. And so, when we look at stations that really don't need to be repacked, we think that it's probably going to be less than $50 million of expenditure that goes out over several years..

Okay..

Yeah. So we feel really good about the capital outlay that we'll have to make..

Okay. So $50 million, but not all this year..

Yeah. Less than $50 million..

But nothing on that this year..

Yeah. That will be 2018, 2019. It's a 39-month repack schedule there..

Okay. Great. Thanks, guys..

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

Hi. Thank you. Just following up, if I can, on the color you gave on the core advertising front. I guess what gives you confidence that retail may rebound in the back half and that there isn't any sort of structural issues, just given the challenges that segment is facing. I know it's not a huge category for you, but love to hear your thoughts on that..

Yeah.

I think – and you read about this, there's obviously a little bit distress on the department store side, but what's holding us back on the retail side is furniture for the most part and that speaks to, again, if people are confident in terms of their expenses and they need furniture, they know what their expense line is, they'll go out and buy a piece of furniture.

So when you look at the subset of retail, we have reason to believe that this thing is correctable in the back half of the year and we're backing on them..

And it sounds like you really have some impressive growth from auto. I think you mentioned that you gained some share. I wasn't sure if that commentary was specific to auto or just in general in terms of your good performance that you're seeing.

I guess given that the SAARs where they are and a little bit of flattening out, is it a share gain in auto or do you think the sector the industry continues to spend?.

Well, in first quarter, we had the benefit of the Super Bowl and having a lot of FOX stations and automotive tends to gravitate towards that event. So we expected auto to be positive in first quarter. We're quite thankful and happy about our second quarter performance on auto as well, because it's sustaining.

So we're off to a really good start on the automotive category, especially in the dealer group money and, typically, when you're healthy in automotive, the rest is correctable. If you've got a problem with automotive, you got a problem. We don't have a problem with automotive.

So again, I think the rest of these categories will take a turn for the positive in the back half of the year and we expect auto to be in the plus side for the remainder of the year..

Yeah. And, Alexia, I'll just add to your market share question. So our market share growth is coming not just from what we're doing on the auto side with our stations, but also, as Steve pointed out, some of the unique strategies that we've been initiating, our audience network sales, our emerging in the networks.

And so, these are all things to differentiate us and it's allowed us to take revenue share..

Thank you very much..

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

Thanks. I have a couple. First, I'm going to start with reconfirming your free cash flow guide of $950 million to $1.025 billion. I think that's a big positive surprise given the Q2 guide which was below expectations. So Lucy, we have everything but I think two pieces.

The first piece is revenue, which I don't think you're going to give us, but I think the second piece is cash taxes. So do you have a full year cash tax number? I didn't see it in the release..

Yeah. So what we said is when you do your model, whatever your tax provision is, assume the cash taxes will be about 120% of that number and that's really just because of timing for the extension of filings from 2016 into 2017. And let me get back to Q2, because I think this is important to note. Our Q2 performance is actually very good.

As Steve said, we're going to put out what we believe will be some of the best numbers on the revenue side. On the expense side, it's really just timing I think where our internal models are versus the Street's models. And you got to remember second quarter is one of our bigger quarters, operating quarters.

It's also one of the biggest quarters for tennis with some of the grand slam. So it's just a little bit more expense loaded in second quarter. And so, overall, our expense guidance for the year actually came down..

Okay. Thank you for that.

And then, in terms of just the school category, how much is that as a percent of revenue, and when do you cycle through this? Is it a whole year?.

No. We'll cycle through that in August and depending on the quarter, it can be 100 basis points to 150 basis points..

Of growth there..

Okay.

Is your core guidance of flat to slightly positive inclusive of replacing that inventory with current spot rates?.

Is it?.

No..

No. No..

Okay. And then, the last question to me going for Steve, you gave us pro forma numbers.

Pro forma for what?.

The pro forma numbers are taking stations that we've acquired as though we owned and operated them for that full period or in the case if we sold something, it would be taking that station out for the entire period..

Just same station basis..

Okay. That's it. Thank you so much..

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

Yeah. Thanks. Good morning. Just switch gears a little bit.

Could you just talk about some of the things that are driving the strength in digital understanding that it's still a smaller portion, but plus 24% pro forma is ahead of the peer group?.

So we've got a lot of innovation going on in our digital department. It did a total rebuild of the content management system and video management system which powers all of our sites. That team continues to add new features, social tie-ins, more video.

So the product, it just continually gets better and monetizes better over time, so that's driving growth. Also, the news rooms are turning into content production centers and they're getting better every day at the work flow, at integrating the various platforms into their day-to-day and so that's helping.

So the content is getting better, the user experience is getting better, the features are getting better, the monetization is getting better. And then, on the agency side, which is Compulse, our local agency, that's also growing fast, as we have built out a better suite of products for a full integrated sale to our advertisers.

And the product suite they offer, which they don't necessarily build themselves, but they pick the best in breed vendors and white label and offer a one-stop shop experience, that has been a very successful pitch to our advertisers and it's real spadework going through the thousand or so sellers that we have and getting them to transfer from just straight spot sellers to integrated marketing sellers, but that's work we've undergone over the last couple of years and continued to focus on it and it's paying off in terms of the digital ad agency services..

Got it. That's very helpful. And then, since shockingly no one has asked an M&A question yet, just shifting over to thinking about a high level, Bonten, obviously, was a little bit smaller on the DMA size (31:49) as you commented on that.

Just kind of get your thought process on sort of up versus down market, and then, subsequently, if I could ask, kind of a follow-on combination question of how you're balancing, obviously, scaling up versus the ultimate opportunity for end market expansion, and how ATSC is kind of maybe playing, or not, into the way you're viewing the M&A landscape?.

Right. So we're very pleased with Bonten. They're very well run, nice group of stations. It's accretive, both on an EBITDA multiple basis and a free cash flow per share basis, when you take our normalized capital structure into account.

And we think longer term, we're going to be able to add benefits to those stations because of our scale, not only from retrains, but on the content side and the operating efficiency side, which aren't even built into the pro forma numbers that we announced to the Street. So that will just be a nice accretive add-on.

We think that there are going to be many more opportunities to come. As I've mentioned before to all of you, I think, over the last few months, we're coming off a period of extreme restrictions when it comes to M&A. The FCC was very restrictive. The auction prevented people from even talking. All that is starting to loosen up here.

The auction is over, the UHF discount's back, the prospects for further deregulation are very high later on this year, and we're already hearing about people reevaluating where they are, and whether they should be hitting the market as it opens up here. So we think it's a buyer's market, and that's why we loaded up the balance sheet.

And we're really just focused, at the end of the day, on doing accretive transactions, and there's – larger markets probably get a slight premium versus smaller markets, but we don't differentiate. We're just focused mainly on being accretive.

And in the end (33:59) market opportunity, I think it's going to be substantial as well, once the local ownership rules get deregulated. And those tend to produce a large amount of cost savings at the station level, instead of just corporate savings from a market-expanding transaction.

So those, I think, will start in earnest once the local ownership rules get relaxed later this year. And those could be very accretive. And I would see that happening either through acquisitions or swaps amongst various players to rationalize the portfolio and take advantage of those types of cost savings that we achieved in market..

Got it. Great. Thanks, Chris. Appreciate all the color..

Our next question comes from the line of Kyle Evans from Stephens. Please proceed with your question..

Hi. Thanks. Good to see some progress being made on the OTT front.

Could you comment on the ABC deal specifically? Would you characterize those rates that you agreed upon to be at or above kind of your larger MVPD gross or net retrans relationships?.

So what we'll say on that is that the net economics of those deals, including the ABC deal, is in line with what we get on a net basis from our other MVPDs..

And do you expect to see more of those coming down the pipeline from NBC, CBS shortly?.

We do. We do. As I mentioned in my prepared remarks, we are in discussions with all the major virtual MVPDs and networks, because it's a dual negotiation. And we're expecting more to come later this year..

If you look at your core, ex-digital, so just the TV time sales piece, could you talk about what you're seeing in terms of the trends in national versus local?.

That's a good question. What's interesting about our audience network is that's a national sale. And, as you go forward, the way we see our inventory, we need to create demand for that inventory that's not normally there, on the normal way of doing business. The audience network goes after cable network dollars.

And every order that we get is 100% exclusive to us. And it's showing up in our audits (36:47) and it's making a difference. So we have a different view on who to sell our inventory to. Yesterday, we came out with an announcement about getting back into the kids business. That's a billion-dollar-plus spot business that we don't get $0.10 from (37:02).

So again, it's an illustration of going back into the marketplace and fishing in ponds that we haven't fished in. So that's $1 billion that is pretty much split between two cable networks, Nickelodeon and the Cartoon Network. Disney is a subscription network. 18 years ago, we were the kings of reaching kids every day.

There's no reason in the world why we can't be successful in that space. So again, it demonstrates that we have a vision and we want to fish where other people are not fishing. These are 100% orders. When we get dollar one on the kids business, that's 100% to our bottom line. Nobody else is getting that.

We're not competing with anybody else in terms of local broadcasters. Those are dollars right to the bottom line, and they're 100% shares..

And if we look at the legacy national, is that in line with your local core on a year-over-year basis, weaker (38:08)?.

So Kyle, we don't differentiate between local and national, because that market's a fluid market and it really – national just means that it went through a New York agency, but it's really all the same dollars, from our perspective.

That's why we point out our network initiatives, which really are different dollars and they end up getting counted in national. So national are, consequently, doing quite well for us. So it's – but as I said, we don't disclose national versus local like other broadcasters. We don't believe that dollars are actually different..

Okay. Lastly, MVPD sub count update, and then, I'll get back in the queue..

Yeah. So we talked last quarter that we were seeing some very slight declines. We continue to see that. And the intel that we've done there is it's really coming from one major MVPD, and our understanding in talking with them is they're trying to clean up some of their ageing on subscribers that really are no longer valid subscribers.

And so, we still feel good about the underlying sub count outside of that one MVPD..

Great. Thank you..

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

Thank you, and good morning. I just have a couple of (39:42). First of all, when might you expect to see the big check from the U.S.

government on the auction proceeds?.

So we don't know exactly, but we're anticipating that's in the back half of the year. Timing of that has not been specified yet..

Right. Okay. Thanks, Chris.

And for Steve, maybe you could provide the size, I know you said that food, beverage, and retail are relatively small categories, but as a percentage of the whole, what do you think they amount to?.

They're not actually relatively small, Barry. They're midsized categories for us. They're significant categories. So we shouldn't take them lightly. They add to our revenues substantially. They're a decent category for us..

Yeah. Just, Barry, if you combine fast food and our food categories and some of the other ones like furniture and retail, you could easily be at about 20% of the mix across that – the true (40:58) retail categories..

Oh, great. Thanks for that, Lucy. And maybe one sort of higher level on auto and auto advertising, so David just got sort of a foot in both of those worlds.

As you look at declining SAAR rate and something less than 17 million going forward, at least for a while, and dealer inventory that's piling up on various lots, how do you think about that pendulum shift between marketing spend and OEM promotional spend that can take away from ad dollars?.

Well, this is Steve Pruett. We obviously watch this carefully. And the issues at this point haven't really impacted the stability of their spend. If the market gets real frothy, we would expect they would spend more to get share. There is some price pressure on pre-owned, but it also again has stimulated marketing of pre-owned vehicles.

So at this point in time, we're still at record SAARs levels, and we are addressing it as a stable market where we're trying to get more share..

Great. Thanks for that color..

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

Hi, everyone. Good morning and thanks for taking the question. Lucy, you gave us the kind of guidepost on the leverage, but given some of the speculation in the press, just curious what you view your M&A capacity to be on the balance sheet from the debt perspective? Thank you..

Yeah, so we view that as being about $3 billion to $4 billion of acquisition capacity..

And that would put the leverage at what level on a quarter basis (43:04)?.

Yeah. That would still be pretty much in the (43:07) where we ended 2016..

Okay. Got it. Thank you..

Yeah..

There are no further questions in the queue. I'd like to hand the call back over to management for closing comments..

Okay. So before everybody disconnects, we just want to thank you for participating on the call.

Let me just say we are very excited about the progress that we're making towards the adoption of ATSC 3.0, the opportunities from deregulation and the success in our digital, multicast, network sales and programming initiatives that continue to drive our free cash flow and value for us.

So thank you for participating on our earnings call this morning, and if anyone has any questions, please feel free to contact us..

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..