Nexstar Media Group, Inc. (NXST) Q4 2010 Earnings Report, Transcript and Summary

Good day, and welcome to Nexstar Broadcasting Group's 2010 Fourth Quarter Conference Call. [Operator Instructions] All statements and comments made by management during this conference, other than statements of historical fact, may be deemed forward-looking statements within the meaning of Sec 21 of the Securities Act of 1993 and Sec 21 of the Securities and Exchange Act of 1934. The company's future financial conditions and results of operations, as well as forward-looking statements, are subject to change. The forward-looking statements and comments made during the conference call are made only as of the date of today's conference call. Management will also be discussing non-GAAP information during this call. In compliance with Regulation G, reconciliations of this non-GAAP information to GAAP measurements are included in today's news announcement. The company does not undertake any obligation to update forward-looking statements reflective of changes and circumstances. At this time, I'd like to turn the conference over to your host, Nexstar President and CEO, Perry Sook. Please go ahead, sir.

Thank you, Mimi, and good morning, everyone. Thank you all for joining us today to review Nexstar's fourth quarter and full year 2010 operating results. CFO Tom Carter is also with me on the call this morning. And after our prepared remarks, we will be glad to open the call for your questions. As we entered 2010, we telegraphed everyone that we were positioned to return to growth, and I think it's evident with the record results reported each quarter throughout this year and again this morning, that Nexstar has exceeded that promise. Nexstar's industry-leading growth this past year is directly attributable to our significant revenue diversification initiatives and our focus on free cash flow. And our fourth quarter earnings represent the highest quarterly level of revenue and cash flows in the company's history. The efficacy of our revenue diversification strategies and our expense management disciplines has been borne out in a comparison of 2010 fourth quarter net revenue to that of the same period of 2008, which was a Presidential election year. Comparing these periods, we grew net revenue by approximately 21% while our cash flow growth measured by BCF, EBITDA and free cash flow grew by multiples over that same time. We refer to our quadruple play of revenue drivers and our success in driving profitable revenue growth, reflects our strength of our core local content. It also reflects our initiatives to develop distribution and digital extensions for our core content, including the creation of new online, text and mobile content and applications. And the benefit derived from leveraging our management team to provide services to other broadcasters. Strengthened core television advertising trends, which began for Nexstar in the 2009 fourth quarter is continuing here in Q1 of 2011. And we are well-positioned to further grow all of our non-political revenue sources throughout this current year. Before we dig deeper into Q4, I want to follow up on my statement of a moment ago on managing for free cash flow, with a quick review of our phenomenal growth on this metric since our 2003 IPO, taking into consideration the two-year political cycles. For the two-year 2003-2004 period, we generated a total of $30.9 million in free cash flow. In the '05, '06 two-year period, that figure rose to $41.8 million. In 2007, '08, our free cash flow totaled $54.3 million. And with the results reported this morning, our combined 2009-2010 free cash flow grew to $79.6 million. That, by the way, is also an average of $1.40 per share. That's a 46.6% growth over the last two-year cycle. And looking at it on a compound annual growth basis for these two-year periods, going back to our IPO, our free cash flow compound annual growth rate is 37%. This, of course, was accomplished despite the 100-year drought year of 2009 and I'd like to add that we've managed our growth over this period without diluting our equity base, which stands at about 28.4 million shares, which is more or less exactly the same as when we completed our IPO. Now getting back to our fourth quarter. Nexstar strategy is for building new-to-television local direct billings and the overall advertising recovery drove a fifth consecutive quarter of core television advertising revenue growth. Our gross local and national television ad revenue growth was 2.8%. That follows a 7.2% growth in last year's fourth quarter and was achieved even as we allocated significant inventory to political ad spend. In total, gross television ad revenue, inclusive of political advertising, was up 31.8% to $85.9 million. That represents 515% growth in political ad spend to approximately $22.6 million as our Nexstar stations continue to garner leading shares of political ad spend in our market space on the strength of our local news content. The resurgence in automotive advertising continued in Q4 with category revenue rising 16% year-over-year, reaching the highest quarterly dollar total in 2010 in Q4, even again, as we manage our inventory to book our record political revenue. In aggregate, Nexstar's fourth quarter retransmission fee, mobile and e-MEDIA and management fee revenue rose 47.7% to $15.4 million, and those high-margin revenue streams accounted for almost 16% of both 2010 fourth quarter and full year net revenue. Nexstar's television ad revenue strength, combined with continued double-digit growth in every element of our revenue quadruple play, resulted in a 31.2% increase in total fourth quarter net revenue to a number of $97 million, reflecting the company's operating disciplines, we are generating significant incremental cash flow from our consistent revenue growth, as fourth quarter BCF increased 63.4% to $47.1 million and adjusted EBITDA rose 70.4% to $42.2 million. With diversified sources of growing revenue and continued focus on expense management, we have strong operating leverage in our business model. And the combination of the strong increase in operating income and the reduction of capital expenditures led Nexstar's 2010 fourth quarter free cash flow to increase 126.5% to $29.7 million, bringing free cash flow for the year to $59.7 million. Now let me review more of our quarterly and recent highlights. Q4 retransmission consent fee revenues were $7.6 million, that represents a year-over-year increase of 19.9%. Q4 e-MEDIA revenue finished at $3.9 million, which was a quarterly record for the company surpassing last year's fourth quarter by 16.1% and marking the 17th consecutive quarter of growth for Nexstar's community web portal and mobile media strategies in terms of revenue. In the fourth quarter, we recorded $3.9 million of fee revenue from our management services agreement with Four Points Media Group. This is based on the $500,000 quarterly base management fee and incentive compensation of $3.4 million in Q4. With incentive comp also earned in Q3, this revenue bucket grew in total for the year to $5.7 million, and this is a business we started less than two years ago. Nexstar generated $5.1 million in new local direct advertising in Q4 of '10, that represents 11% of our local billing, and we improved this metric by 18% relative to what we did in Q4 of '09. Our special project focus and our high priority focus on strong managerial oversight to individual business development efforts were all contributing factors in achieving these results for Q4 and the year. The over sixfold increase in fourth quarter political revenue to $22.6 million was the highest political billing quarter in Nexstar's history and it reflects a pretty even distribution among gubernatorial, party, issue, state, local, senate and congressional spending and we saw a significant activity on our stations in Pennsylvania, New York and Illinois and we have the largest number of different political advertisers that we've ever had in this category in Q4. Nexstar's total 2010 political revenue reached $39.3 million. That's also an annual record and represents a growth of 19.2% over 2008. Looking now at other category data. Nexstar was up double-digits in three of our top-10 advertising categories in Q4. Four were flat and three were down. For some details, automotive, as I mentioned, up 16%; insurance, up 13%; attorneys, up 16%; restaurants, department stores and retail stores, as well as medical healthcare and service were flat; furniture was down slightly; and then radio and cable and furniture were down, as was paid programming. Overall, the top-10 categories generated a slight increase in billing over the prior year, led by, as I mentioned, the 16% year-over-year increase in automotive spend. The auto ad gains were across the board from both local dealers and corporate, as well as dealer group spending. This is our sixth consecutive quarter in improvements in this category. Just as in the first nine months of 2010, in Q4 automotive represented 20.5% of our core ad spend. The category strength remains broad-based with increases from both domestic and foreign brands, local dealers as well as the dealer groups. For the full year, our top four manufacturers are Toyota, Ford, Chrysler Jeep and GM increased spending on our stations by an aggregate 24%. I'll now turn the call over to Tom Carter, who will provide further details on our financials, as well as our debt reduction initiatives. After which I'll come back with some brief comments for outlook and then we'll open the call for your questions. Tom?

Thanks, Perry, and good morning, everybody. I'll start with a review of Nexstar's key Q4 income statement and balance sheet data. And then spend a minute updating you on our debt reduction progress and capital structure issues. Again, net revenues increased 31.2% to $97.1 million for the quarter. Core revenue was up 2.9% to $63.3 million for Q4 2010, driven by a 7.1% increase in local revenue, partially offset by a 7.7% decrease in national revenue. Both of those core revenue figures were impacted, obviously, by a 515% increase in political revenue to $22.6 million for the quarter. And as Perry mentioned, that was the driving factor behind our record $39.3 million in political revenue for the year. Retrans and e-MEDIA revenues were both up approximately 20%, continuing their growth trajectory. All of this resulted in broadcast cash flow increasing 63.4% to $47.1 million, adjusted EBITDA increasing 70% to $42.2 million. And an important metric for us, free cash flow, up $29.7 million for the quarter, an increase over the same quarter of 2009 of 126-plus percent. Nexstar's fourth quarter 2010 corporate expenses totaled $4.9 million, inclusive of $332,000 for non-cash options expense. This compares to $4 million of corporate expense in the year-ago period, which included $382,000 of non-cash option expense. As with prior quarters, this increase relates exclusively to the bonus accrual in 2010 which was not present in 2009. Our control of fixed and variable costs continues to bring leverage to our financial model as the free cash flow and profitability metrics demonstrate. Station direct operating expenses, consisting primarily of news, engineering and programming, selling, G&A expenses, net of the trade expenses, were $42 million for the three months ending December 30, 2010, compared to $36.7 million for the same period in 2009, an increase of $5.2 million or 14.2%. Over 50% of the total dollar increase during this period was attributable to higher variable costs related to the significant rise in advertising revenues. In addition, property taxes and one-time charges accounted for another $1.8 million during the quarter. Absent these variable costs, real estate and one-time charges, station direct operating expenses were up 3.3% over the previous year. As Perry mentioned at the outset of the call, we remain actively engaged in deleveraging the balance sheet. During the fourth quarter, Nexstar further reduced total debt as we repurchased or called for redemption approximately $16.9 million of our 11 3/8% senior discount notes which are due 2013. This remains the most expensive piece of our capital structure. Additionally, we repaid approximately $1.7 million of the 7% senior sub-notes and another $300,000 of the 7% senior sub-PIK notes during the quarter. Our fourth quarter deleveraging activity follows other debt reduction initiatives throughout the year, including the elimination of all of the 13.5% senior sub-PIK notes due 2014, which was accomplished in April. In total, Nexstar reduced total debt adjusted for outstanding redemptions in 2010 by approximately $40 million from year-end 2009 levels. So with improvements in our capital structure throughout the year, I'd like to review key balance sheet items at 12/31/10. Total leverage at December 31 was 5.65x, down from 6.6x at 9/30/2010 and versus the total permitted leverage covenant of 8x. First lien leverage at 12/31/10 was 0.9x, down from 1x at 9/30/2010, again versus a covenant of 2.5x. Reflecting the repurchases, redemptions and tender offer and financings in 2010, Nexstar's total debt at 12/31 consisted of the following: Approximately $99.5 million outstanding under the term loan, the second lien notes, 8 7/8 coupon on the balance sheet at $317.4 million, the junior debt of the 7% cash pay was $44.8 million, the 7% PIK was $135.5 million, and again note that, that went cash pay on January 15 of 2011. And remaining outstanding debt on the 11 3/8% at 12/31 was $45.9 million. We had $23.7 million of cash on the balance sheet at 12/31. That high level of cash is partially associated with the fact, again, we had a $12.7 million redemption notice, which was issued on December 15 for the 11 3/8%, which was fulfilled on January 15 of 2011. Net of this redemption, our net debt was $630.4 million at year end, which represents about a 5.5x leverage multiple. Deleveraging continued throughout Q1 of '11 with additional $2.2 million in reductions, including $1.8 million on the 7% PIK, $300,000 on the 11 3/8% and $100,000 on the 7% cash pays. Total interest expense in the fourth quarter of 2010 was $14.1 million, of which $10.9 million was in cash. This compares to $11.8 million in total interest expense in the same period of 2009 with $7.3 million of that being in cash in Q4 '09. With the elimination during the year of the 13% PIK notes and the significant reduction in the amount of the 11 3/8% notes as well as other indebtedness, we'll start the year with a cash interest expense run rate of approximately $12.5 million per quarter. And for the most part, the total interest in cash interest will mirror one another going forward, given the conversion of the 7% PIK-to-cash pay on January 15. With expectations for a solid cash flow year during 2011 and our continued focus on debt reduction, we expect the total interest and cash interest expense to continue to decline throughout the year. Our nearest maturity is 2013, which is on the remaining $33 million of the 11 3/8% notes and we have them in our sights and we continue to focus on them and will so over the course of the next several months in terms of debt reduction. Nexstar's Q4 CapEx of $1.9 million compares to $4.7 million in the same period in 2009. Total CapEx for 2010 was $13.8 million and we project total CapEx for 2011 to be in the $13 million to $14 million range. Overall, we were successful in managing the top line, our fixed and variable costs and the balance sheet for cash and remain focused on further actions that can enhance value. And we plan to continue to deploy another solid year of free cash flow in 2011 to debt reduction. That concludes the financial review for the call and I'll turn it back over to Perry for some closing remarks before the Q&A.

Thank you, Tom. Just a few closing words related to 2011 and our expectations. Obviously, we continue to demonstrate that the growing diversification of our business model has yielded strong year-over-year revenue, margin and cash flow growth as each of our non-core revenue channels are growing in the solid double-digit range. Our EMEA revenue stream will continue to grow at a good clip in 2011 based on its expanding base of new revenue applications and the further penetration and monetization of our mobile marketing initiatives. Nearly all of our apps now have been ported over to the mobile side and our monthly mobile page views are reaching new record levels each month. As for our core revenue, we are seeing positive local and national ad pacings continuing here in the first quarter of 2011, against last year's comps which did include the Olympics. We said we think mid-single-digit core revenue growth in 2011 is very realistic and attainable. And with our gross core non-political revenue in 2010 amounting to about $236 million, that type of growth will help to backfill a nice portion of the $39 million of political revenue we did last year, the bulk of which will not recur in 2011. That's not to say though that political will go to zero as we are headed into a contested presidential election year in 2012. We have a special election just called for an open-representative seat in Rochester, New York, and that election will be held on May 24. And the 60-day political period will actually begin on April Fools' Day and political revenue for issue advertising as well as candidate elections in Kentucky and Louisiana will also roll in throughout the year. On the expense side, we're watching our costs closely. As Tom mentioned, our interest expense will come down as a result of our continued deleveraging. In addition, and on programming expense with Oprah's move to her cable network, our syndication costs will start to trend down and Oprah's programming represented about 25% of our total programming costs on an annualized basis. We will reinvest a portion of that expense into additional local programming to program the vast majority of those time periods with local news and lifestyle-type programs and other local programs of interest. The rest of that savings will go straight to the bottom line. All told, we believe that Nexstar is well-positioned to generate record odd-year financial results in 2011 and I want to highlight this: We are on track to deliver flat net revenue in Q1 of 2011, which would replace both the Olympic and the political revenue from Q1 of 2010. Looking at these current two-year cycle of 2011 and 2012, we believe that through the end of next year, we have the potential to generate a nine-figure amount of free cash flow. As I said earlier, our combined 2009, '10 free cash flow grew to $79.6 million. So when we talk about low-nine figures for '11, '12, we're expecting a continuation of the free cash flow growth trend that we have had in the same periods prior, as reported earlier. Nexstar generated $60 million or more than $2 a share in free cash flow over the 12 months of 2010. We have an ad environment that is the healthiest it has been in the last several years. Brand managers have recognized that TV is number one for building awareness for brand and we're a must buy for any serious marketing program. Couple that with our local business development efforts, our non-core revenue streams, which are now both robust in size and growing aggressively. We also plan to further reduce our leverage. All of this will endure to the benefit of our shareholders. So thank you again for joining us this morning and now, Mimi, let's open the call for Q&A to address specific areas of interest.

[Operator Instructions] Our first question comes from Bishop Sheen of Wells Fargo.

Tom, I think you answered it. You focused on, what is it, 3.2 would be the balance of the whole term notes?

Yes.

So you're focused on that and somebody makes a cheap offer you'll be on it?

Well, obviously, we've been focused on the K. We still haven't filed that. That'll happen early next week. We've got some other housekeeping items but, yes. Clearly, we've got some free cash flow. We've got some availability and from our perspective, we think we have some borrowing capacity.

You can take those out at par, actually, right?

Correct. Starting April 1, we can start, we can take them out at par.

So that takes care of that one. That would simplify your structure.

I'm all for simplification.

Yes, indeed. Why was National business down in Q4 and do we care going for -- what does it mean as we look forward to 2011?

Generally, national revenue is, because it's sold purely on a commodities basis, it's generally lower rated than local revenues. So when we start pre-empting to accommodate almost $23 million of political revenue, National was the first to go. So I would say that was displacement. In both the first and the second quarter, National revenue will finish in the first quarter and is pacing to substantially be up in the second quarter of 2011. So I think at the end of the day, you probably don't care. I think it was displacement, Bishop.

And then on auto, I think you said in the Q, it was back to 24.5% of core revenue?

No, 20.5% is what it was in the fourth quarter and what it will average for the full year as a percent of our core local and national ad spend.

Where did you think it's headed? Do you think it's going to go back? I mean, we used to have this spoke here of auto was 25% of the revenue base. Is that realistic to expect or want that anymore?

No, I think that was based on kind of a SAR [ph] that was sort of north of $16 million, $17 million. I think most experts seemed to indicate that the SAR will grow from $11.5 million or high $11 million to somewhere in the $12.5 million to $13 million range. So I think that 10% growth is achievable. And as we reported, we're continuing to see double-digit growth in the first quarter of 2011. So that would lead us to kind of a 22-ish percent range. Most folks seemed to think that $13 million to $15 million, and I realize that's kind of a white-band range, but's it's a sustainable SAR, assuming available credit and things of that sort. So I think $25 million was a high watermark. Could we get back there, again? Perhaps. I would like to continue to diversify our revenue base so that we're not dependent on one category for 25% of our revenue. But I think, kind of we figured it would probably settle out somewhere in the low-20s on a steady state going forward basis.

And last for me and there's no wrong answer. It's the leverage question. You have been over-levered; you have been moderately leveraged. You've been around for more than a decade in the public market. Where would you like to see your leverage range be as we look forward into this recovery and ahead?

Well, I think that if you look at the basically 5.5x total leverage and I haven't done the historic work on this, but if it's not the lowest leverage in the company's history, it is near the lowest leverage in the company's history. And again, I think we feel, on a steady-state basis, if we're levered somewhere in the fours in an even year and the fives in an odd year, that's probably appropriate for a company of our size. As Tom says, a company of our size will never be investment-grade. But I think that, obviously, we have shown a discipline and an aggressiveness in not only reducing outstanding indebtedness, but also opportunistically buying in debt below par. And as those opportunities present themselves, that's number one on Mr. Carter's hit list to continue to do.

Necessity is the mother of invention. You've seen the good times and the bad times.

Our next call comes from Jim Boyle of Gilford.

Perry, before the recent harsh recession, Nexstar had typically achieved adjusted EBITDA margins in the off-political, off-Olympic years of about 28% to 32% in '05, '07. Now that the economy is fully ramping, plus Nexstar has added the material amount of retrans and e-MEDIA revenue, can Nexstar in 2011 hit the high end of that prior range? Or can you potentially beat it?

I think that we can achieve and over -- the bias would be that we would achieve or over-achieve that metric.

What was that again?

We will do as well as or better than the high watermark of that metric.

Along those lines, you kind of talked about a variety of components. If we looked at the overall revenue, you had a much better-than-expected revenue growth in 2010, by our estimates, by about 400 basis points, certainly aided by political and Olympics but also by your core advertising as you pointed out. But that does suggests you now have a tougher encore this year with higher comps from last year. Does that mean 2011 overall revenue could look like 2005 when revenue was down 8%? Or is it going to be more like 2007, which was kind of flat to slightly up?

Well, we don't obviously have visibility for the entire year on every one of our revenue streams. But I think one of the more important things that I said in my prepared remarks is that we're on track to deliver flat net revenue in Q1 of '11 to Q1 of '10, which would mean that on an all-in basis, we replaced all of the Olympic revenue, which was approximately a $4.5 million and all of the political revenue, which was approximately $3 million. We did have some political revenue in the first quarter, but it was de minimis. I can tell you that we feel very confident about our retrans and e-MEDIA growth continuing up double digits. We have projected a core revenue growth in the mid-single-digits. The wildcard is political. That could be 10% of last year or perhaps 20% of last year going into a Presidential election year. We don't know. I do know, as I mentioned, that Governor Cuomo in New York announced yesterday that Chris Lee's vacated seat will add a special election in May and that affects Rochester, New York for us. We did not account on that or budget for that. So the wildcard would be political. But if the year unfolds according to our plan, I think you would see a mid-single-digit net revenue decline on an all-in basis versus 2010.

Mid-single-digit all in. And in Q1, Perry, used to be and correct me if I'm wrong, that FOX affiliates at Nexstar comprised a larger share of your revenue versus the other network affiliates. Therefore, how did the Super Bowl do in 2011 versus past years?

Super Bowl was incrementally ahead this year. We have a few more FOX affiliates than we do CBS affiliates. However, if you look at the median market size of our FOX affiliates, it's a little bit smaller than our CBS affiliate base in terms of households reached. So we were incrementally ahead on Super Bowl. Where I think we did a great job is we generated a couple of $100,000 of e-MEDIA revenue for the Super Bowl this year that in Q1 that we did not do last year just by virtue of the fact that we deployed some e-MEDIA products across our entire platform that stations could sell and participate in, virtual tour of Cowboys Stadium and you-pick-them contests and those kinds of things. So I think we've began to spread those kind of events even beyond the stations on which they are telecast. And I was very pleased that the incremental growth in e-MEDIA revenue related to the Super Bowl which was 100% incremental versus 2010 on our CBS stations.

So it sounds like if it was just up incrementally, it's not like that was the major reason why you replaced the political and Olympics from prior year in the other fronts?

That is correct.

And finally this quarter, how is auto doing?

Automotive continues to pace ahead of Q1 '10 comps and I think we're projecting something on the order of a double-digit increase for Q1. And I think that's a pretty good proxy for the rest of the year based on what we see.

Our next question comes from Aaron Watts of Deutsche Bank.

A couple of following up on prior questions. I guess, first, on the National side. You said it's going the right direction here earlier in the year. How should we think about that relative to local though? Is it your expectation that this year, local maybe outpaces National, or National outpaces local, just curious what kind of trends do you think we see there?

Kind of varies month-by-month. In January, National outpaced local in terms of growth. February, March it looks like it goes the other way. The first quarter both are going to be up kind of mid-single digits as advertise. In the second quarter, early results with a very small sample size, you must realize, both are pacing double digits ahead of last year, but they're not statistically different at this point. So I think in our business case for this year in our actual plan, we have both pacing basically on top of each other with perhaps National pacing marginally ahead because it's got a smaller denominator, it's a smaller dollar base. But I think we both feel they're going to be up mid-single-digits probably within a point of each other either way.

As you compare sort of the National auto advertising relative to maybe some of your individual dealerships, have those individual dealers, sort of the Tier 3, has that come back a lot less than the groups, the dealer groups or even the OEMs on a more national scale? Can you maybe tell us about that?

Dealer ad spend for us represents about 40% of the total and then dealer association ad spend represents the bulk of the remainder. Both showed strength in Q4 and throughout 2010. So I think on a going-forward basis, there is not -- the local dealer advertising outpaced the total category performance slightly for the full year of 2010. Our Q4 results, our local dealers were up about a little over 30% and we reported 16% growth in the category. Again, it represents 1/3 to 40% of the total and the dealer associations represents the bigger amount. I think that from our perspective, the local dealer ad spend continues to be robust.

One follow-up on the football, heaven forbid I actually have to plan something for Sunday afternoons later this year and there's no football on. Can you give us a sense for how much impact that could have on you if the football season is, let's say, canceled in whole?

First of all, from where we sit here in Dallas, we think that's a very low probability item that, that would happen. I can tell you that there are a handful of markets that are adjacent to NFL franchises, whether it's Rochester, New York adjacent to the Buffalo Bills or Scranton, Pennsylvania, Wilkes-Barre, that's adjacent to both the Giants' and the Eagles' territory where football is a bigger deal than it is -- if you're in Rockford, Illinois with an ABC affiliate and a FOX Affiliate, and it Bears' territory. Football is not all that meaningful to you in terms of your Sunday afternoon. So again, we've not put a number on it because we think it's a low probability event that it would happen. But that's something that we can look into if we have more clarity on the labor situation. But as I think you know, in a typical NFL football game, we get nine 30-second commercials to sell. So if you're in adjacent market to an NFL team, you can sell those at a premium. If not, not so much. So it's not as big a deal to the affiliates as it is to the networks unless you're in a home market.

And last one for me, just more bigger picture. Thinking about your affiliate agreements, I think you've got some NBCs coming up at the end of this or kind of mixed handful next year and maybe more CBS in 2013. But as retrans has become a more important revenue stream for you and your peers, obviously there's going to be focus on those renegotiations. Heard from several of the network heads this week. They clearly have a belief that their reverse retrans from their affiliates is going to be growing over the next several years. Can you give us your updated thoughts on where retrans is going to be for you relative to where it is today? Is there enough room for you to continue to grow what you keep versus what you have to give up?

I think the short answer is yes. I think that we see continued opportunities for robust growth in retransmission. When you look at the viewership that we bring to the MVPD household in aggregate as an industry versus the percent of the distribution revenue that we garner, there's clearly an imbalance. So I think that we have the ability to grow. We think that our retrans revenue over the next half a dozen years will probably be twice what it is today as contracts come up for renewal and as we have the chance to have those discussions. We have paid the networks at various times for various things and varying amounts going back to the 90s. So the fact that the networks would like for us to pay more is not really new or newsworthy. But I do think that they are correct that they will see more payments from us, as affiliates, over time. We've kind of baked that into our -- that will run through the programming line for our company and we baked in our assumptions there, as well as our assumptions for decreased payments to -- for syndication. So I think if you bowl this all off and you run them all to five year's out, it's a couple of points on the margin potentially, but there's no real market established for any of this business, Aaron, as you know, yet. We're in the top of the first inning and not a lot of business has been transacted. So we will treat it like every other negotiation and I assume the networks will as well, which would be: A, out of the public view and B, we will negotiate to a point that both parties can agree. And we'd fully expect that would be the outcome as we have opportunity to enter into those discussions.

Our next question comes from Marci Ryvicker of Wells Fargo.

I'm going to hit on top if you've already talked about auto. There is an investor thought out there that the amount of auto advertising being spent suggests that SAR is trending at $17 million. So I guess the end of the day, auto advertising is at unsustainable pace. Can you comment on that?

Yes, Marci. I mean, I think when auto SAR was $17 million, auto was 26% of our business and the fact that it's 20% of our business and as the TV B[ph] tracks and other industry analysts outside of the broadcast industry have tracked, the dollar spent per new car sales have remained basically the same. So 20% growth or 10% growth on $20 million -- 20% of your business is two points of growth that's kind of what we are forecasting. So that would indicate something in the $13 million range in terms of SAR. So we don't believe it's unsustainable. And again, our dealer group ads, our individual dealer ad spend has been on a percentage basis the most robust for us. And that is retail selling, that is door-to-door selling at the local dealership level and to me that's where the rubber meets the road.

Also we've heard a couple of operators say they're a little bit nervous about gas prices and how that could impact auto advertising. Have you heard anything from the people advertising on your stations about this?

No. Not yet but you know we had prices at this level in 2008 and there was the shift in production from trucks to hybrids. And then we heard from dealers in Texas that they couldn't get enough trucks. That the farmers and ranchers needed new trucks. And they weren't -- I know that the plant here in Arlington, Texas that produces the Yukons and Suburbans is running at capacity, so I think there's a lead time to those kinds of things. But it has not entered the conversation other than, "It cost me $40 cost," or "I drive a hybrid and cost me $70 to fill up the tank of my vehicle." And obviously, there's one pot of money so I would think that may put stress on other areas of peoples' budgets, maybe eating out or going to a movie. But again, I think consumers have found a way to do what they need to do with the money that they have. I think if it continues long term and continues to grow long term, that obviously would put pressure on consumer spending in areas other than paying for necessities. And we'll see how that plays out, but I think gas prices like television station ad revenue are kind of cyclical businesses.

And then one last question just following up on the reverse comp topic. What leverage do you have in your negotiations with the networks, first of all? And also FOX has threatened to go elsewhere for distribution. What are their other options?

Well, I think our option is that we provide eyeballs to the network that they sell on a national basis and they don't have an affiliate in the network and don't have an affiliate in the local marketplace then they don't get credit for the eyeballs that we would bring to the table. So a network without affiliates is not a network or perhaps it's a cable network. But I think we know what the top line ad revenue looks for a cable network versus a broadcast network. It is unfortunate that certain elements of discussions have gotten over-- spilled over into the public domain, because these discussions go on all the time. We talk to the networks about various and sundry things and affiliate negotiations. This is a just normal course of doing business. But I would say, if one party becomes irrational or illogical, that may be newsworthy, but since I started the company in almost 15 years ago, it's not been my experience that, that has happened. Either the stations provide eyeballs to the network, the networks provide programming to the stations. My experience over 15 years is that ultimately people find a way to work that out.

Our next question comes from Edward Atorino from Benchmark.

You had a pretty big jump up in management fees in the quarter. Was that some seasonal issue or is that a new level of management fees?

Our agreement with Four Points calls for obviously, we get a percentage of BCF above a threshold. I think we, in our Q3 financials, reported the first element of incentive management fee income and if I remember correctly it's around $800,000 or so during that quarter. Obviously, that means we hit the threshold in Q3 and all of the BCF for Q4 was subject to the incentive fee and with political in those stations, obviously, it was substantial in Q4. We expect to receive incentive management fees on a pretty consistent basis going forward. It's just that those incentive fees tend to be back-end year loaded, from an accounting perspective. We only accrue them once we've actually exceeded the incentive fee threshold, if that's responsive to your question?

It is. I'm trying to forecast it. Should we just take the quarter number and run it out or make some guess on next year's fourth quarter?

Well, you kind of have to estimate what those stations BCF's would be for a non-political year. And then again, the $500,000 quarterly management fee is fixed, and then the incentive fee will start to show up either in Q3 or Q4 or both.

And you said double-digit retrans for this year over last year?

Affirmative.

On the cost picture, Oprah falls out so that's mostly fourth quarter or you get all third quarter help there?

A little bit of third but mostly fourth.

And without Oprah, will you be down in the second half?

From a programming perspective, yes.

And program is what, 25% cost?

No. Programming is probably mid-single-digit percentage of total station operating cost.

Our next question comes from Barry Lucas of Gabelli & Company. Barry Lucas - Gabelli & Company, Inc.: Not to beat the Oprah question to death, but if I look at the program payments and think about 20%, 25% number that you threw out, how much of that do you think you retain, if you will, by replacing her with less expensive program?

Our internal mandate, Barry, was that a minimum of 50% of that savings goes to the bottom line and a maximum can be -- of 50% can be reinvested in local programming and additional news programming. I can tell you that in virtually all instances, we spent substantially less than 50% of that license fee on reinvestment in the news product.

And just to point at it, it will be coming out of the programming line and some of it will be going back into the news line, so it's a little bit difficult to track apples-to-apples but overall, Perry's comments are spot on. Barry Lucas - Gabelli & Company, Inc.: CapEx staying level in an odd-year, what's left? Any big projects and does it tail off a bit more later on?

We're spending a seven digit amount on our e-MEDIA platform, investing in a new video player, as well as some other technological upgrades. That's kind of a steady state. We want to invest it to drive that growing revenue stream. We're converting two of our markets to full HD news capability this year to kind of learn that side of the business and that's a couple of million dollars total. The rest is basic M&R and reserve for things that break. But I think that, that kind of 13-ish million-dollar number seems to be a good steady-state number going forward. And we are also building out our Little Rock hub for both mass control and traffic and accounting and that will be more one time in nature this year. So we tend to think that 13-ish is probably a good sustainable number going forward and probably a bit conservatively highly. Barry Lucas - Gabelli & Company, Inc.: Two more if I may. One, on Washington and that would actually have two pieces. Broadband initiatives, spectrum, any movement there in 2011? And on the flip side, the cable operators complaining about retrans, anything that you think is likely to come out of the FCC in terms of mandated settlements who are stuck that would not necessarily be good for broadcasters?

I think the short answer to both questions is, no. I think that in this budget climate, there would be a faction of Congress wholly uninterested in sharing any auction proceeds with broadcasters. Mostly what we hear and when we have a pretty good line in to some of the ranking members on the commerce committee, is that they are pushing for a full spectrum inventory of all spectrum, that being held currently by the wireless and cable companies, that being held by broadcasters across the board before. And developing a cogent and comprehensive spectrum management plan rather than just saying, "Let's take some of these from the broadcasters and rebate them some of the money." So again, the short answer is, I do not expect any movement or anything to happen there that would be deleterious. As it relates to the comments filed at the SEC regarding retrans, I think the FCC Chairman has said, it's beyond their delegated authority to mandate arbitration or to do anything. The really only thing that FCC can do is fine either the broadcaster or the MVPD operator for not negotiating in good faith, but that really is their only standing. Anything else would exceed their delegated authority. So I don't expect anything to happen in that proceeding either. Barry Lucas - Gabelli & Company, Inc.: Okay, last area. Broadly speaking, M&A, I think the Freedom bids are due today. Cumulous finally put a real bid on the table for Citadel. Credit availability seems to be loosening up. You've got a private equity partner invested in Nexstar that kind of long in the tooth at this point. Other private equity groups are around. What do you see happening if anything on the M&A front and particularly in the small to mid-sized broadcasters?

Sure. Well I think all of what you said is true. And I think that the environment is more conducive and the fundamentals of the business would be more conducive to more M&A. And we have consistently said that on the balance sheet, we would only consider acquisitions that are at worst leverage neutral and at best a deleveraging acquisition or event and something that would be free cash flow per share accretive to our existing shareholder base. But I think it would be -- suffice it to say that the strategic conversations have increased, heated up certainly over where they were over in the last 18 months or so. And I think that you will see that continue. I continue to believe that the several dozen mid-market broadcasters in this space should consolidate into half a dozen or less. I think that size matters and strength matters when dealing with networks or MVPD operators, and it's an inefficient business to have all this district corporate overhead and overlapping stations running around. That's not inconsistent with anything I've said for the past five years. But I do think that the intersection of where we are today and the art of the possible is we're coming closer to that intersection. And as I said, the consolidation does need to happen in my view and the strategic conversations of all types that you mentioned, the dialogue has increased.

We have a follow-up question from Jonathan Levine from Jefferies.

I just was wondering what retrans agreements do you have or do you have any coming up this year? And when you talk about kind of the double-digit growth, is this just step-ups? How exactly are you driving that growth?

I think it's a combination of not only escalators on an annual basis in our current agreements. Every year we do have new agreements up for negotiation. Again, we believe those are private negotiations and we don't put up press releases when we execute a renewal of an agreement because that's kind of normal course of business. But we have 213 separate agreements with 213 separate MVPDs. So there's always agreements coming up every year. Some years are heavier than most. This year happens to be one of those. And again, the vast majorities of those agreements expire at the end of the year, which means the dialogue will begin in the third and fourth quarter of this year

And we have a follow-up question from Edward Atorino of Benchmark.

The growth in local in 4Q, was that mostly auto or is it broad-based?

It was pretty broad-based, Ed. I mean, auto was up as we said, 16%, so that was a point or two of the growth. But we were up about 7%. It was new business development, which for us was new business was 11% of our core revenues, core ad revenue in the fourth quarter and those are new-to-television advertisers that we have incented our station managers and sales people to go out and get. And so that drove a fair amount of our growth as well and that's continuing business. But a short answer, it was a broad-based driving the increase.

Did I miss, you said mid-single-digit decline you're thinking for total revenue this year?

If the business plays out according to our internal plan and forecast, we would have a mid-single decline in net revenue, driven by mid-single growth in core ad spend. Obviously, a substantial decline in political, 80% to 90% decline, and then double-digit growth in retrans and e-MEDIA. And you mentioned the management fee revenue and while Four Points is a private company, and I don't want to discuss their business here, they were not very impacted by political with stations in Texas and Utah and then CW affiliates in Rhode Island and Florida. So their political numerator over there net revenue denominator was a small amount and most likely will backfill and create an ability for us to deliver on the order of the same BCF, which could lead you to a similar incentive fee payment at the end of next year -- at the end of this year in 2011.

I'm showing no further questions in the queue. I'll hand the call back to Mr. Sook.

All right. Well, thank you all for joining us. We look forward to reporting our first quarter results in about 45 to 60 days time, and we'll gather back with you again. Thanks for joining us this morning.

Thank you. Ladies and gentlemen, this concludes the conference for today. You may all disconnect and have a wonderful day.