Nexstar Media Group Inc
NASDAQ:NXST
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
141.79
188.5
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Nexstar Media Group Inc
You don't have any saved screeners yet
Good day and welcome to Nexstar Media Group 2019 Third Quarter Earnings Call. Today's cal is being recorded.
I would now like to turn the conference over to Joe Jaffoni Investor Relations. Please go ahead sir.
Thanks Emma and good morning everyone. I just need to read the safe harbor disclosure after which we will get to the meat of the call.
All statements and comments made by management during this conference call other than statements of historical fact may be deemed forward-looking statements. Nexstar has based these forward-looking statements on its current expectations and projections about future events. Forward-looking statements include information preceded by followed by or that include the words guidance believes expects anticipates could or similar expressions. For these statements Nexstar claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
The forward-looking statements contained in today's call concerning among other things the benefits of the Tribune Media acquisition Nexstar's future financial performance including changes in net revenue cash flow and operating expenses involve risks and uncertainties and are subject to change based on various important factors including the impact of changes in national and regional economies; Nexstar's ability to service and refinance outstanding debt; Nexstar's ability to successfully integrate Tribune Media including its ability to realize acquisition synergies and cost reductions; pricing fluctuations in local and national advertising; future regulatory actions and conditions in Nexstar's television stations' operating areas; competition from others in the broadcast television markets served by Nexstar; volatility in programming costs; the effects of governmental regulations on broadcasting industry consolidation technological developments and major world news events. Nexstar undertakes no obligation to update or revise any forward-looking statements whether as a result of new information future events or otherwise. In light of these risks uncertainties and assumptions Nexstar's actual results and financial condition may differ materially from that reflected by forward-looking statements made during today's call.
You should not place undue reliance on these forward-looking statements which speak only as of the date of -- date made and listeners are cautioned that changes in general economic business regulatory or other conditions or in the financial results of operation of Nexstar may have occurred since such date. For more details on factors that could affect these expectations please see Nexstar's annual report for the year ended December 31 2018 Tribune Media's annual report for the year ended December 31 2018 and each of Nexstar and Tribune Media's subsequent public filings with the Securities and Exchange Commission.
I thank you for your patience with that. And now it's my pleasure to turn the call over to your host Nexstar Chairman President and CEO, Perry Sook. Perry please go ahead.
Thank you Joe and good morning everyone. Thank you all for joining us today to review Nexstar's 2019 third quarter results and our operating and strategic initiatives as we embark on a new and significant free cash flow growth cycle which will fuel our substantial leverage reduction and support our goals of driving shareholder returns. Our Chief Financial Officer Tom Carter is with me on the call this morning as always.
Obviously at the top of our list was the completion in mid-September of a highly accretive Tribune Media acquisition the associated divestitures and our increased guide for the synergies that we are generating as we combine the operations. With 197 full power owned and serviced television stations and a 115 markets with consistent and meaningful contributions from our 31% -- 31.7% TV Food Network ownership stake and significant positive cash flow from our national cable network WGN America Nexstar is now entering its next growth cycle.
As the nation's largest pure-play local broadcast television and digital media company we now have truly national reach and coverage with the Nexstar owned or operated stations reaching approximately 69 million U.S. television households or 63% of the country. In addition to our expanded reach we are also a local content creation leader as we now produce more local news programming than any other entity.
In fact we have over 5400 journalists across the United States which is more than any broadcast or cable network and through their efforts we produce over 254000 hours of local news annually. All of which is to say that our platform and original content creation is unrivaled as is our ability to address and engage consumers both locally and now nationally.
Our strategy is to expand our reach and scale over the past 23 years are married to a commitment to enhance value for shareholders and with approximately 60% free cash flow accretion to be arrived from our Tribune acquisition. We view this as best of the 36 transactions we've done in our history. Our focus is building scale to improve our competitive position and service to our ad clients predicated on a simultaneous ability to meaningfully drive free cash flow growth and we are delivering on this promise to our shareholders.
Throughout this time we've actively managed our station portfolio with the goal of serving the local communities where we operate complying with regulations diversifying our operations managing risk and improving financial results. In connection with the Tribune acquisition we divested 21 stations at levels above initial expectations while completing the transaction financing on more favorable terms than we originally anticipated.
We previously noted that even with the Tribune transaction-related divestitures we are very near the national ownership cap as defined by the FCC but that we saw opportunities to continue to refine our portfolio free up some ownership cap space and in some instance position us in new strategic markets or markets where we believe there is greater upside and growth.
In this regard yesterday we announced a set of station transactions with FOX which will position Nexstar in the fast growing Charlotte market which is highly complementary to our existing broadcast and digital operations in North Carolina South Carolina Tennessee and Virginia while contributing to our ability to rapidly delever as a result of the approximate $300 million in proceeds we will receive above what we are paying for Charlotte.
Overall the proceeds from the 21 station sales completed in September enabled Nexstar to produce leverage at the time we closed Tribune to levels below our initial expectations. The FOX transaction furthers that leverage reduction effort and I'm happy to report that our pro forma net leverage ratio at September 30 2019 of 4.4x demonstrates that we are well on our path to reduce total leverage below 4x at December 31 2020.
With respect to our expectations for net retrans growth in the mid-teens percentage range in 2020 during the third quarter and more recently we entered into new long-term network affiliation agreements with both CBS and FOX marking our successful completion of the majority of the outstanding network affiliation agreement renewals for 2019. At the same time we continue to successfully finalize new retransmission distribution contract renewals.
And to date we've completed new agreements addressing approximately 1/3 of the 70% of our subscriber base which will be renewed this year. We believe we have solid visibility of our net retrans revenue growth expectations both next year and beyond. Our success in rapidly integrating and realizing value from acquisitions has been proven time and again in transactions large and small.
Our successful integrations are a result of the preparations we make leading up to the closing including station visits establishing business plans for each newly acquired entity and creating a comprehensive overall integration plan so that we are fast out of the gate to meet our operating and synergy expectations on or ahead of schedule reflecting the work done between announcing Tribune last December and our September closing we raised our initial anticipated first year transaction operating synergies target to approximately $185 million from approximately $160 million originally.
And in the seven weeks since closing we are ahead of schedule with all of the Tribune Media integration and synergy realization initiatives. Since closing Tribune we've expanded our staffing in our Washington D.C. Bureau and relocated into larger D.C. space to accommodate our commitment to provide the best local stories from Washington to our markets. We are working quickly to expand local news bureaus and produce more local news and other relevant programming in several of our acquired markets.
We've also appointed new station operating leaders to oversee key markets including Dallas Fresno Des Moines Tampa and Spartanburg and we've elevated members of the legacy Nexstar operating sales and finance teams to new roles to acknowledge their ongoing contributions to the Company's growth. In addition we named proven broadcasting industry executives from Tribune to drive growth at WGN America through content acquisition from our distribution revenue streams and to oversee corporate communications.
With our expanded and diversified operating base expectations for a significant 2020 political spending and the benefit of recent soon to be completed distribution agreement renewals we remain confident in generating record levels of free cash flow next year while reducing our leverage. Taken together these developments are reflected in our pro forma annual average free cash flow guidance for the 2019 2020 cycle of approximately $1.02 billion annually which represents nearly 60% accretion relative to the legacy Nexstar operations.
Given the Tribune acquisition was a cash transaction and our outstanding share count remains at approximately $46.1 million we remain focused on the disciplined management of our share base and capital structure as additional means of enhancing shareholder value. With respect to third quarter Nexstar's net revenue excluding political and including the Tribune stub contribution and net of divestitures that number increased 4.8% compared to the prior year period marking a quarterly sequential improvement over the 2.7% growth rate ex political in the second quarter.
We saw another period of improving spot television advertising trends at both the legacy Nexstar stations net of divestitures and the Tribune stations for the 12 days that we had them in the quarter. Third quarter local television ad revenue grew 10% while national ad revenue increased 14.3% resulting in total TV spot ad revenue for the quarter rising 11.2% and these results offset onetime ad revenue losses related to our AT&T distribution negotiations.
On a year-over-year basis political revenue declined by just under $60 million on an actual basis. For the 2019 full year we continue to expect low single-digit growth in same-station nonpolitical television advertising revenue versus the comparable 2018 period. Overall third quarter broadcast cash flow adjusted EBITDA and free cash flow before onetime transaction expenses and onetime revenue losses and expenses related to the AT&T distribution negotiations were in line with our internal expectations. In Q3 of '19 four of the legacy top nine ad categories were up and five of the nine ad categories grew at the former Tribune stations.
Overall Nexstar legacy local sales initiatives continued to generate healthy levels of core new business revenue with Q3 new to television ad revenue of $16.2 million a 15% rise over the prior year and this trend like spot advertising trend has improved as the year has progressed. Looking forward we see upside in the new to television ad revenue metric as the former Tribune stations begin to fully adopt the Nexstar sales disciplines and as we transition their sales teams to the Nexstar incentive plans which delivers strong alignment between our local teams and our corporate goals.
We've also recently begun transitioning our advertising sales to a cost-per-impression model to provide more qualitative data to advertisers regarding audience consumption of our content across all of the Nexstar broadcasting digital mobile and streaming video platforms. With respect to political Nexstar legacy and the acquired Tribune stations both exceeded the internal budgets as we saw the advent of some presidential candidate spending we benefited from gubernatorial spending in several states and the continued healthy level of pack issue and proposition spending continue.
Combined third quarter retransmission fee and digital media revenue reported on an actual basis of $352.9 million was essentially flat with the prior year and accounted for 53.2% of total net revenue compared to 51.2% of net revenue in the 2018 third quarter. That largely reflects lower levels of political advertising in the current period and the onetime effect of the AT&T distribution negotiations. Of the $185 million of targeted synergies related to the Tribune acquisition approximately $85 million are earmarked from net retrans revenues and combined with our negotiations for 70% of our sub base this year.
Significant net retrans revenue growth in 2020 will complement the strong political growth that we will see next year. With the closing of the Tribune transaction we also believe that we have incremental upside related to securing retransmission fees for WGN America with traditional and virtual MVPDs. AT&T now recently added WGNA marking the first time that WGNA will be available on the live streaming service and we now hope to complete similar agreements with other virtual MVPDs in the future. Total third quarter digital revenue declined by approximately $11.2 million or 16% as we remain focused on generating profitable revenue and as we continue to cycle through certain local marketplace changes that occurred earlier in the year.
Nexstar's legacy and third quarter local digital advertising revenue and our digital agency services business both generated year-over-year percentage growth in the mid-teens over 2018. As we combine the Nexstar and Tribune digital operations and assets there are several initiatives under way to build on our successes to deemphasize operations that don't meet our criteria for EBITDA contribution and to realize the potential of the massive usage of our combined websites and portals to better leverage our premium local content across our digital operations.
Our platform expansion significantly strengthened Nexstar's ability to deliver superior engagement across all devices including large-scale reach to online users as the combined active users of the Nexstar and Tribune websites combined would be the nation's top site for news and information as ranked by Comscore with over 106 million monthly unique users and in a brand-safe environment for advertisers. In the meantime we've reallocated approximately 20% of our journalist resources to mine and harvest the digital opportunity presented by our reach and the usage of our websites. We have high expectations and great confidence in the value of the Tribune transaction that it brings to the Nexstar shareholders.
Over the past 23 years we have completed successfully integrated and generated growing value for shareholders from 36 transactions which have increased our scale diversified our portfolio and enabled us to remain highly competitive in today's media and technology ecosystem. From our shareholder standpoint the Tribune transaction will be our biggest and best transaction in terms of driving significant free cash flow accretion.
Given the significant free cash flow from operations we will be immediately reducing leverage and we intend to increase our return of capital to shareholders while investing in our business and our team to improve service to both viewers and advertisers. This focus combined with our time proven operating and integration strategies will enable us to extend our strong long-term record of shareholder value creation.
So with all that said, let me now turn the call over to Tom Carter for our financial review and update. Tom?
Thanks Perry and good morning everyone. As outlined in our press release this morning Nexstar completed its acquisition of Tribune and also closed on the divestitures of 21 stations on September 19. The actual results for the three months ended September 30 2019 reflect the Company's legacy Nexstar broadcasting and digital operation less 12 days of results from the eight Nexstar's television station divestitures and it includes 12 days of results from the Tribune Media stations net of their divestitures.
Third quarter 2019 revenue from WGN America acquired in the Tribune transaction is included in national ad revenue and retransmission fee revenue. The 12-day contribution in the 2019 third quarter from Nexstar's 31.3% ownership stake in the TV Food Networkand other investments acquired in the Tribune transaction is also included in the full income statement in our press release under income or loss on equity investments net. The comparable 3-month period ending September 30 2018 reflects Nexstar's legacy broadcasting and digital operations as is required by GAAP.
In connection with Tribune's acquisition and the station divestitures we disclosed that we would record several onetime transaction expenses which for the quarter came in at approximately $33 million. With that as kind of a preface I'll start with a review of Nexstar's Q3 income statement and balance sheet data after which I'll provide an update on our capital structure and some points of guidance.
Also during this part of the presentation I'll give you a feel for some of the revenue items on a percentage change on a pro forma combined same-station basis which is basically all of the results for the new pro forma assets in the portfolio that we have compared to those same assets and their performance in Q3 of '18. Net revenue was down 4.2% to $634 million.
TV spot advertising revenue was $290.2 million which is up 11.2% over the $261 million reported basis. Total spot revenue for us is defined as local plus national and on a same-station basis that was flat for Q3. Local revenue was reported up 10% on a same-station combined basis that was up 1% national revenue was reported up 14.3% to $82 million and on a same-station basis that was down 2%.
So if local was up 1% and national was down 2% that combined to flat for total ad revenue -- total core ad revenue. Political ad revenue obviously was down meaningfully during the quarter compared to 2018 losing approximately $60 million down to an $11 million number from a high of $70 million in Q3 of '18. Total ad revenue which includes local national and political was down 9% again driven by the political decline as is cyclically experienced.
Total net revenue ex political was up 5% because again we've had growth in other areas and reported from the Tribune acquisition. Net retrans fees were up 3.7% which again reflects the AT&T negotiations and the approximately 60-day blackout there. Digital revenues were down $11 million to $58 million.
Total broadcast cash flow was -- and these numbers are before onetime expenses $202 million versus $280 million in 2018. Again the 2018 number was the result of a lot of political revenue. Adjusted EBITDA before onetime expenses was $178 million free cash flow before onetime expenses was approximately $100 million.
Total digital and distribution revenue included approximately a 4% rise in retransmission fee revenue to $295 million which was partially offset by a decline in digital revenue to $58 million. As previously disclosed in September Nexstar Tribune closing press release retransmission revenue growth during the quarter was impacted by the AT&T distribution negotiations.
On August 29 Nexstar entered into a new multiyear distribution agreement with AT&T at favorable terms which is reflected in our upsized one year total synergy projections of $185 million. As well as our pro forma average free cash flow guidance for the '19/'20 cycle of approximately $1.020 billion. As a reminder for modeling purposes onetime revenue losses and expenses incurred in 2019 third quarter relating to the distribution negotiations with AT&T resulted in an approximately $20 million average annual impact to Nexstar's pro forma free cash flow in the '18/'19 and '19/'20 cycles and this is reflected in all of the aforementioned guidance. Looking deeper at our digital revenue.
Third quarter core digital advertising revenue meaning our stations hyper local websites and mobile apps increased 13% year-over-year while our local digital agency and services business achieved a 15% growth year-over-year. As we stated over the past several quarters we anticipated top line growth in digital would be impacted in the near term as we cycle through certain marketplace changes that continue to impact the select demand side platform customer buying as well as deemphasizing nonprofitable and marginally profitable lines of business in Q4 of '18 and early 2019.
As a result we have evaluated the portfolio and recorded a onetime noncash impairment charge of approximately $63 million relating to our digital assets which were impacted and reported in net operating income -- net income and EPS but did not affect broadcast cash flow free cash flow or adjusted EBITDA. After months of planning leading into the Tribune closing we are well aware and positioned to take advantage of immediate action to align our digital businesses with Tribune's assets in order to best leverage the value of the Company's continued scale going forward and expect the financial benefits of our digital strategy become more visible in the future as we continue to successfully execute on our integration plans over the coming quarters.
As Perry alluded to when discussing the mass usage of our combined websites our focus in digital will be on the Nexstar Tribune combined fast-growing local -- hyper local websites and mobile apps and the digital agency operations and less so on the demand side platforms that we've experienced in the past. Third quarter station direct operating expenses net of trade expense increased approximately 13% to $318 million primarily reflecting incremental partial quarter increases relating to the operation of the Tribune station and budgeted increase in network operating network affiliation expense. Same station fixed expenses excluding programming expenses were down approximately 1% for the quarter.
Third quarter SG&A rose 6% to $120 million again relating to the partial quarter inclusion of Tribune. Corporate expense was $63 million inclusive of $10 million of stock-based compensation and $34 million in onetime transaction expenses. When excluding noncash comp and onetime expenses recurring corporate expenses otherwise would have been down low single-digit percentage wise compared to the prior year. Third quarter operating cash taxes were $16 million while station and digital related -- while station and digital CapEx related operations totaled $17 million.
Spectrum repack CapEx totaled approximately $20 million for the quarter which was offset by a like amount of reimbursements for the quarter. Third quarter total interest expense totaled $93 million up from $56 million in 2018 while cash interest expense was $55 million compared to $54 million with increases due to the incurrence of debt funded by Tribune. The difference between the $55 million and the $93 million really relates to fees and expenses associated with the refinancing as well as about $8 million of escrowed bond interest which was from the period of July 3 through September 18 where we weren't employing those funds for the business and more so we were just collateralizing the bonds until the Tribune transaction closed.
Third quarter broadcast cash flow of $203 million as well as adjusted EBITDA of $178 million and free cash flow of $100 million pre-transaction expenses were in line with our expectations based on the revised guidance provided in September relating to the AT&T retrans negotiation. As a result Nexstar is reiterating its pro forma annual free cash flow guidance for the '19/'20 cycle of approximately $1.020 billion.
Looking ahead to Q4 of 2019 for the combined company we project recurring cash overhead of approximately $30 million exclusive of stock comp and Tribune-related transaction expenses. Noncash comp for the quarter is projected to be approximately $10 million bringing the total to the year for $38 million. Cash transaction expenses primarily professional fees and severance that can't be capitalized are expected to be approximately $20 million for the fourth quarter and $54 million for 2019. Fourth quarter operating cash taxes are estimated to be approximately $48 million and $115 million for the year.
Actual cash taxes will be higher because we will owe a cash tax on the profit reported from the station divestitures that happened on September 19 but the portion of cash taxes associated with operating profits is $48 million. Fourth quarter CapEx should come in at approximately $36 million for the quarter. And in addition there will be approximately $26 million in transaction-related CapEx that's anticipated for us to invest in the Tribune stations and enhance their news and station infrastructure and to bring them into the Nexstar operating environment.
Total CapEx for the year 2019 will be approximately $135 million and looking forward to 2020 total CapEx will be approximately $140 million both the $135 million and the $140 million includes the transition CapEx for both years. Finally we expect Nexstar's fourth quarter cash interest expense to approximate $100 million for the quarter. Turning to the balance sheet. I'll review the key items as of September 30 2019 and provide an updated pro forma for the completion of the transaction. Total net leverage for September 30 2019 was 4.35%.
First lien covenant was 2.9% -- I'm sorry 2.96x versus a covenant of 4.25x. Total net debt outstanding as of 9/30 was $8.2 billion. Total gross debt was $8.5 billion with $300 million of cash on the balance sheet. Net debt again was $8.2 billion compared to $3.7 billion at the end of 2019 obviously -- I'm sorry June 30 2019 obviously reflecting the closing of the transaction where we added a new $675 million term loan A approximately a $3.1 billion term loan B and the new $1.1 billion of notes.
The existing revolver $900 million of senior notes $400 million two issues of four -- $400 million and $275 million all rolled over as well as the existing term loan A and Term loan B. We remain committed to allocating a significant portion of our free cash flow toward leverage reduction. And during the quarter of -- third quarter of 2019 reduced total funded debt by approximately $60 million while also allocating $21 million to dividend payments.
With growing distribution revenue and anticipated high levels of political spending in 2020 Nexstar intends to reduce total leverage to reduce its total leverage ratio to below 4x by 12/31 of 2020. Our capital structure weighs the proper balance of fixed and floating debt an attractive weighted average cost of capital and prepayment and refinancing flexibility.
In addition we will have a well-staggered maturity profile with no significant maturities until 2022 at which point we will expect that we will have made a significant headway toward substantial debt reduction. Going into the closing we have reduced our leverage levels to below initial expectations and Nexstar has consistently demonstrated prudent use of leverage and its ability to source capital at attractive rates to support our strategy for growth and the enhancement of shareholder value.
Given the significant free cash flow from operations the combined entity will be poised for growth leverage and reduction and increased capital returns to our shareholders. This focus combined with our time-proven operating and integration strategies and the disciplined management of our capital structure and focus on immediate and substantial leverage reduction will enable us to extend our strong long-term record of shareholder value creation.
In summary and as Perry stated on the call Nexstar entered into significant free cash flow -- is entering a significant free cash flow cycle which will drive meaningful in our rapidly deleveraging as well as shareholder value creation opportunities. The integration of our synergy realization and operating plans are generating results. Our capital structure is in great shape from both the cost of capital and ability to quickly address leverage and service to our local communities and local and national advertisers has never been stronger.
Our disciplines in these areas have significant growth -- have provided significant growth as well as consistency and visibility to our results. As such we remain confident in our ability to deliver on the value of the Tribune transaction which resulted in an approximately 60% growth in Nexstar's stand-alone free cash flow -- I'm sorry 50% in stand-alone free cash flow and 60% in combined free cash flow growth 60% to approximately $1.020 billion.
We look forward to initiating our 2020 2021 free cash flow guidance when we report the fourth quarter of 2019 in February of 2020 and provide an update on that time on our synergy realization progress. That concludes the financial review for the call.
I'll turn it back over to Perry for some closing remarks before Q&A.
Thanks very much Tom for navigating us through all of that. With stable spot trends and the full year benefit in 2020 of new affiliation and retrans renewals combined with our ability to capture large shares of political advertising in our markets we have excellent visibility toward achieving our free cash flow deleveraging and return of capital targets while remaining opportunistic with respect to transactions that can further optimize our operating platform relative to the national ownership limits.
For Nexstar and our shareholders free cash flow is our priority and performance metric. I hope my comments this morning highlight why we believe we have visible prospects to generating pro forma average annual free cash flow of $1.02 billion in the 2019 2020 cycle. We look forward to reporting our continued growth and accomplishments in three months' time and on behalf of the more than 13000 employees of the new Nexstar nation and our management team thank you for your continued interest support and joining us today.
Now let's open the call to Q&A to address your specific areas of interest. Operator?
[Operator Instructions] Our first question comes from Dan Kurnos with Benchmark Company.
Perry, can you just maybe just dig a little bit deeper into sort of the rationale on the -- effectively the station swap with FOX. Obviously you get to delever but it also kind of changes the footprint. I mean does that -- it sounds like you want to use the capital to delever faster but we've always sort of thought about maybe you guys even doing something with KRON or getting a little bit more aggressive buying back WPIX. So just maybe some quick thoughts there and just the synergy benefits maybe that you get out of the smaller stations? And then also a little bit interested on the Comscore switch given some of the challenges they've had but just sort of love to hear sort of how you think that impacts selling abilities going forward and why your decision to do that now?
Sure. First on the transaction announced with FOX yesterday. I mean we characterize this as a win-win. The acquisition for us is highly accretive it has high-growth potential so we took our measure of that relating to the other operating assets. It cements our relationship with FOX where we are by far their largest affiliate group frees up approximately 0.7% you got to remember the UHF discount for cap space for other follow-on transactions that were contemplated we were literally at the cap within a less than 1/10 of a decimal point and the transaction also knocks 0.1% or 1/10 of a point off of our leverage. So the 4x that I told you at 9/30 on a pro forma basis would be 4.3x. So given all of that we think that it was a win-win from a transaction. And so we were happy to enter into it. As it relates to Comscore we have been a subscriber of Comscore all along. Our entire portfolio has access to Comscore.
The change announced was a change from selling rating points basically selling thousands or impressions which would allow us to level set across the entire platform. It made no sense to us that if -- I was trying to reach Tom Carter as a television advertiser I would keep track in terms of rating points. But for every other device that we use to try and reach him digital mobile streaming we keep tracking impression. So this kind of helps level set and makes the business easier to sell. We happen to have developed a tool with Comscore which we think will put us down the road further faster in making this transition but we are still a subscriber to Nielsen in some of our LPM markets and we are a subscriber to Comscore across the portfolio. So no change in strategy there other than the change to impressions.
And Dan just one follow-up comment. It was structured as two separate APAs. Because if you remember and again these are Tribune assets and Tribune will be buying -- the former Tribune subsidiaries will be buying Charlotte. Tribune had a tax deferral associated with the spectrum sale that they did back in 2018. And so -- I'm sorry 2017. So there's an opportunity here from a tax perspective to defer some cash taxes and that's why it was structured as two separate transactions.
[Operator Instructions] Now our next question will come from Marci Ryvicker with Wolfe Research.
I have a couple but the -- the first one Perry you said net retrans growth of mid-teens for 2020. And I'm just curious what's in there? Is that a same station? Is that including Tribune versus stand-alone Nexstar does that include WGNA. So how does that compare to when you talked about mid-teens last time. And then you see a visibility for 2020 and beyond. So would that apply to 2021 as well?
Marci I'll take that. The mid-teens growth is on a same station comparable basis. So basically for the portfolio that we have right now and it does take into account the AT&T deal as well as the most recent renewals on the affiliate side. So we have a high degree of confidence in that. The mid-teens number is for 2020. Not surprisingly that number is going to be the highest of any -- of the next two or three years because of the level of subscriber renewals that we have done here before in 2019 and we will do by year-end. So the double-digit net retrans growth is still applicable over the next two to three years it's just that it will be front-end loaded with slightly higher than the average in 2020 because of the level of renewals and slightly less than the average after that because our renewals will be more measured after this year. Does that make sense?
Yes makes a lot of sense. And then I know you said up -- look forward the up low single-digit same station for '19 versus '18. Any color on Q4 specifically?
Sure. Not surprisingly October from a core ad sales perspective was by far our best month of the year up just shy of double digits on local national combined. Now you might expect that given that there was shy of $200 million of political revenue occupying those same seats on the airplane last year. But for the quarter we anticipate low single-digit growth in core. Obviously political becomes less a factor once you get past this first week of November.
But yes we are seeing -- and it's interesting Tim Busch President of the Broadcast Division did a third quarter comparison of Nexstar and Tribune stand-alone revenue results and they're virtually on top of one another. There's not a lot of variance. So we think it's a pretty good proxy for what we see in our footprint and for the industry but we do anticipate reporting single-digit growth in core revenue in the fourth quarter.
Got it. And then last question is there any chance you're going to give us pro formas by quarter through Q3 of '19 so that we know how to model going forward?
Well you noticed we gave you pro formas for the June 30 quarter on Monday. That satisfies the requirement by the SEC. I think we historically have not given detailed pro formas on historical basis but we will take that under consideration.
Thank you. Our next question comes from Zack Silver with B. Riley FBR.
I just wanted to ask a question about the subscriber count. Just trying to reconcile you say in the press release that sub counts stayed relatively consistent but in the second quarter and the third quarter we are seeing a meaningful deterioration in pay TV subs and a little bit weaker on vMVPD subscribers as well. So just trying to see if you can help reconcile that?
Well I can't help reconcile the entire industry unfortunately. The comment with regard to current sub counts obviously excludes AT&T because we don't have any sub -- the last sub count we have for AT&T was basically June 30. But all other MVPDs and OTTs that are reporting to us and by the way we will get a new sub count for AT&T here by the end of this month. All sub counts were again flat between June and July and that is basically a flat number for the trailing 12 months at that basis.
Again the only thing that I can think of is our growth in the OTT has been phenomenal. If you look back a year our OTT subscribers are up 525% which is kind of just fun with numbers but basically all of the OTT growth has offset the traditional MVPD subscriber declines largely because if you look back to Q2 and Q3 of '18 we were just launching OTT in many markets at that point.
So I'm not sure our -- and believe me our budget is not for flat subscriber accounts either in 2019 or in 2020. It's just that the OTT has been more robust because we are seeing -- we are seeing adoption when these services are rolled out in some of the smaller markets. So that's the only thing I can really comment on why our performance would be different is because we are playing catch up in the OTT markets.
And obviously that can't last forever and we acknowledge that because basically at this point our traditional MVPDs are basically at budget in terms of subscriber attrition but our adoption on the OTT is far exceeding our expectations which on a combined basis leads to flat.
Okay. That makes sense. And then just a quick one on the net retrans synergy guidance. Does that $85 million include WGNA any additional vMVPD distribution from them or some of the recent deals you've done?
It includes all of that.
Got it. Okay. And then one more just on one of the regulatory items just on STELA coming up and there's been some rumbling around that. Just curious to hear Perry or Tom either one of your thoughts on how you think that's going to play out and how you think that will impact you guys.
Well as you know the bill expires at the end of this year. There's a lot going on in Washington on the priority list before they ever get to STELA. So I think that the industry is of a mind that this is a relic of a bygone era and it should just be about to sunset. There are some provisions that some people in Washington would find useful and meaningful which would be a standing good faith provision and things like that. Somewhere between no bill and a dramatically slim down bill I think is an area that could get consensus. Again we think the bill itself is relic of a bygone era and our bias would be to see sunset at the end of the year.
Great, thank you both.
Thank you. Our next question comes from David Joyce with Evercore ISI.
Can you just help us think about the phasing in of the synergies on the revenue and the cost side over the next few quarters? And then separately where are you in the industry on the TIP initiative and trying to tap into the programmatic and other addressable advertising?
Sure. I'll take the the synergy. Corporate is ahead of schedule. And obviously from a sequencing perspective that's pretty straightforward. We are in the process of transitioning their operating centers to our operating centers. So I would say there's still more to come on corporate. But that was some large dollar -- large ticket items there not surprisingly early on.
Retrans is in process that will be completely done by the first quarter of 2020. The station operating expenses will begin -- really haven't begun in earnest yet and won't begin because we are basically staying on many of the same systems through year-end for audit and SaaS compliance purposes and we will start transitioning off of legacy Tribune station or station operating systems in Q1.
So those really -- you've seen a little bit of synergies on the station side but most of those will come in 2020. The retrans will be largely done by the end of the year and it will be reflected in the 2020 numbers. And I would say right now corporate is probably 50% done with the other 50% coming before year-end and really fully realized in early 2020. Is that helpful?
Yes that is good.
All right. And TIP?
The TIP initiative money is beginning to flow through that platform. There's still a bit of a push-pull with the vendors who are happy to build compliant systems but also want to be paid a toll to use their toll road. So there's a bit of a push-pull still going on there. But agencies are beginning to mandate that the reconciliation piece of this being every -- they're demanding that people write and transact to those standards.
And that's really what will drive adoption. So we continue to push forward. There's a good consortium of industry participants that are pushing for this on the sell side. And obviously our job now is to make sure that the buy side is making this a prerequisite. And so it's still early days but we are -- we continue to be encouraged by the adoption and awareness levels continuing to increase.
Thank you very much.
Our next question comes from Craig Huber with Huber Research Partners. I'm sorry next question comes from Davis Hebert with Wells Fargo.
Hi, everyone. Thanks for taking the questions. First of all welcome to Charlotte. And just a couple of questions for me. And looking at your debt repayment plan and deleveraging plan would you anticipate paying down the credit facility with proceeds from the box transaction as well as ongoing free cash flow. Is that the plan?
I would say short answer is yes. I can't say that trace the funds from FOX to an exact repayment or not. Obviously there may be other transactions that we will be doing now that we have a little bit of cap space. But yes the majority of free cash flow from operations and cash generated from other activities will be used for debt reduction. But at the same time as we've said before we can walk and chew gum at the same time we can do further M&A we can buy back stock opportunistically etc.
So all of those are options as well, we don't -- we anticipate the FOX transaction will close. Best case probably March worst case probably April or May. Tell me what the stock price is then tell me how much debt we've already paid down and I can give you a better feel for things. But yes I mean it's the -- we are running the same play regardless of its free cash flow from operations or cash generated from other activities.
Okay that's helpful. And then second question for me. Given the wrench kind of thrown into things on ownership limits by the third circuit court do you anticipate being a low probability outcome you could repurchase WPIx. Does that change your M&A strategy at all?
Well the third circuit really had nothing to do with the national ownership cap that still stands. And as long as the cap stands at 39% with the UHF discount we -- it's tough to clear enough cap space under the current rules for us to be able to repurchase WPIx. As you know that's a VHF station and New York accounts were approximately 6.4% of all U.S. television households. So the 0.7% that we cleared by the transaction with FOX certainly doesn't get us home at that point.
So we continue to lobby for and I was with the Chairman of the FCC yesterday on two separate occasions here in New York at events that he and I both attended and we continued to lobby for elimination of the cap or at minimum codifying the regulations of 39% with UHF discount that would equal 78% of the U.S. being the theoretical national cap today just codifying that taking uncertainty out of it which would allow us room at that point to acquire WPIx. But we have an option period that runs for about one and half years post the acquisition. So hopefully there'll be an opportunity for us to do that.
Our next question comes from Craig Huber with Huber Research Partners.
I've got a few questions if you can hear me.
Yes.
I think Tom you said earlier on that 33% or so of your subs are up for renewal this year. Is that correct? And also more importantly is -- what's the 2020/'21 number pro forma basis for all the stations you have?
Craig the number -- the percentage of subscribers that are up this year is 70% of total subscribers. The 33 of the 70 -- 33% of the 70% have already been done.
Okay got you. And then what...
And then the -- not surprisingly if 70% is done this year then I want to say it's 20% next year 25% next year? Obviously you can't have successive years of 50% plus subscriber renewals.
Okay. And then on the ad revenue side I think you said you guys were flat the core advertising number in the quarter pro forma. What was auto category and what about the retail? Can you comment about those two maybe what your outlook is there please?
Auto was down a low single digit like a minus 2. And what was the other category you're asking about?
Retail.
Retail please?
Retail if I look across the portfolio that was down kind of high single digit. Attorneys if you want some more color attorneys for the Company were up almost double digits home repair was up double digits cable advertising was up a high single digit. Insurance was up almost 25%. And so those were the categories that were leading Nexstar higher in the third quarter.
What's your sense Perry about auto once we get through these comparisons here for the political a year ago I think it's for December as you kind of look out here.
Well third quarter again -- fourth quarter as you know like I said October last year there was a little less than $200 million in political advertising on the books. So that's going to color every core advertising category. But as I said we were up double -- almost double digits in core advertising in October that will come down for November and December because there was less of a political displacement.
But our sense is that kind of automotive is settling in where it is and it's maybe not 20 -- 26% 27% of our business but it's 23% 24% of our business. We think that's going to be a fairly steady state. The category that is phenomenal in this growth because it continues to be unabated is the legal category.
I was on a panel with some other TV companies CEOs and one remarked that in two of his markets legal was the number1 category in terms of -- that had surpassed auto. We are not there yet and there's a long way to go for us to get there but that is now our number two category supplanting fast food and furniture and some of the other perennial strong categories that are strong. It's just that the growth curve on legal advertising continues unabated.
And then Perry I always like to ask you what's your current thoughts on the U.S. economy here given that you guys are in about 115 markets in the U.S. Are you feeling better worse or about the same say versus three months ago?
Yes. I mean as long as money continues to become cheaper in this company and we continue to print more of it but that doesn't seem to trigger inflation. I mean we feel very confident about the economy. If we look forward 18 months I think it's almost impossible to imagine that we would have any kind of a recession in a political year an election year and while this continues to be kind of a goldilocks recovery it's also now the longest recovery we've had post recession.
Again we are going to be very focused on leverage reduction because who knows what's around the corner in '21 '22 or beyond. But we don't see anything in the future coming that would cause our outlook to become pessimistic. We think it's a 2% or plus or minus GDP world.
I will say that in the upper Midwest and some of our smaller markets that are dependent on ag business that the tariffs have shown an effect and we've seen a little bit of a slowdown in farm equipment tractor implement purchases and advertising as well as truck sales are maybe a little slower in a couple of states. But I think that is very specific. And again those markets are not our largest contributors. But I think on balance we see no clouds on the horizon absent extraneous shocks to the economy or the country.
Final question to Tom. The $1.02 billion free cash flow guidance number. What's the EBITDA number in your mind that corresponds to that?
We haven't given -- we don't give specific EBITDA guidance. But you can kind of work your way back if you think about the specific CapEx guidance that we've given pretty specific interest guidance that we've given you could back into an estimate of cash taxes as well and that would give you EBITDA. Again we don't -- we kind of give you some building blocks and you can get into a neighborhood.
Let me ask you a different question. And this $100 million of interest expense Tom I think you said you're expecting for the fourth quarter. How much of that is cash interest expense please?
That's really -- that really is all -- it is -- that is cash. I should have been more specific. That is cash. And actually if you go back and look when we did the bond deal in July I want to -- I know that we also did an 8-K on trailing 12 and L8QA EBITDA at that time. When we did the closing deck on the September 9 -- or September 20 call for Tribune we updated that for 6/0 trailing 12 and trailing L8QA. And from time to time if we do bond deals etc etc we will have to update that as well for the bond market. So there are some data points out there for people to find. And I'm happy to point you to those specific documents later if that's helpful.
Our next question comes from Steven Cahall with Wells Fargo.
Maybe I missed this at the beginning but I was wondering if you could give us either the 2016 or the 2018 political revenue on a same station basis? And maybe just how you're thinking about how it grows off of that base within the free cash flow guide?
I don't have that information with me on this call right now we could help the later. But I will say our expectations for 2020 as it relates to political are obviously higher than both of those. 2018 even though it was a nonpresidential year the combined Nexstar Tribune political revenue was up compared to 2016. I want to say our 2020 numbers are a double-digit increase over 2016 and a mid- single-digit increase over 2018 on a same station basis. Yes I don't have the -- I can give you the trajectory I just can't give you the dollars at this point.
Okay. And then maybe on the leverage target that you've set out for next year. I mean should we think about that as a bit of like a watermark level whereby after that you're maybe more comfortable in light of the industry trends or the cyclicality to start deploying cash beyond deleveraging? Or do you think that you'll need to run a more conservative balance sheet for any reason after that point than you historically have?
The only reason to run a more conservative balance sheet at that point is if interest rates increase because obviously we all use leverage debt-to-EBITDA as a crutch but the real cost of leverage is the interest expense. If we have higher interest rates and higher interest expense we are going to have lower leverage just to kind of get to the same spot from a free cash flow perspective. So we think that sub 4 to the mid-3s is a sustainable leverage level.
As we've said before we don't have any aspirations to be an investment-grade company because to be an investment-grade company we'd require something probably in the mid-2s. And that would require a $1.8 billion reduction in debt. We'd rather let the shareholders participate in that amount rather than pay down debt. We see there are diminishing returns on paying down debt in the current interest rate environment significantly below 4x. Does that help?
It does. And then just the last one for me your retrans outlook for '19 '20 '21 and what you've just gone through even with a little dustup with AT&T it seems like things are still moving along pretty well. I wonder if you could just comment at all like if you think that the whole industry is going to be able to equally smoothly absorb a big NFL step up if you get that at some of the broadcast networks in the next cycle. Already starting to see those questions come up like with CBS and FOX. So how do you just think about where the level of tension is in terms of either both gross retrans or reverse compensation and the ability of the whole system to absorb maybe a lot more cost rolling through?
Well obviously the NFL agreements would affect the fall of 2023 and beyond. And so even if deals are struck before then payments won't be due before then. You'd have to tell me is someone on the outside looking in and we are going to have a decidedly different cash payment opinion there or if someone steps up and picks up more than one package I mean there's a lot of variables. the -- there was an NFL owner sitting across the table from me at lunch yesterday and says the television revenue is 60% of their total revenue now.
So obviously it's an important revenue stream to them. They're not going to want to jeopardize and I will make the statement that I think that all packages will be on linear television in some way shape or form. There may be a streaming package -- increasing streaming packages with each of the packages but I do believe that whether it's a game of musical chairs or things remain status quo that the basic packages will be on linear television. As to where we are in the process I can't speak for other companies.
All I know is that the broadcast industry as a whole this year will generate approximately 15% depending on whose numbers you believe that's our number 15% of the revenue from the bundle while supplying between 30% to 35% of the aggregate viewing in an MVPD home. So there's still a long way to go before we are earning our fair share and anywhere near parity. So we continue to believe and obviously you get what you negotiate both on the revenue side and the expense side. But we feel confident in our outlook and -- but really can't speak for others.
Our next question comes from Kyle Evans with Stephens.
Two quick ones. Could you give a little bit more clarity on the 16% decline in digital. You referenced cycling marketplace changes. What are we cycling specifically and when? And then is the impairment all on liquid?
The impairment is not all on liquid but a good portion of it is. And really what we are seeing the decline as I mentioned we are seeing growth at the local level. It's the marketplace level where we are seeing pressure from the largest players in the market to continue to change access to some of their inventory.
And our ability to access that inventory to sell and to resell to our advertisers I think that's the subject of some congressional hearings right now with regard to some of the practices that they employ as it relates to that. But you should think about it more kind of on the wholesale side than on the retail side. Our local websites and the local businesses that we are selling to on those websites continues to be healthy. It's kind of more the wholesale business.
Yes Kyle I mean there are a few pieces. There are smaller pieces of our business that are not contributing positive EBITDA and we are engaged in discussions to dispose those businesses. GDPR was more of an impact domestically because people do business internationally in agencies. And so that and the California privacy laws some of those things are having influence, but as Tom said the change in algorithms at two of the largest players in digital advertising negatively affected third-party resellers of that.
Now while you've seen a 16% decline in top line revenue it hadn't had anywhere near that on the bottom line because these -- some of these third-party reseller agreements come at basically 10% margin. So it may seem like a top line decline but it hasn't affected the bottom line. But I will tell you that the positive sign local digital revenue for us continues to grow double digits. Our agency services business is a double-digit growth.
Our data business while a small business has growth that is literally off the charts. And so we will cycle through all of this. Fourth quarter should be the last year before we meet ourselves coming back and have lapped ourselves. So I think the outlook for 2020 would be optimistic because of the growing piece of the businesses and the fact that the declines in some of our lines of business we will have a full year of that and be up against our own numbers.
Our next question comes from Jim Goss with Barrington Research.
Thank you. With the national reach and breadth you have now plus the large market exposure are there any specific programming ad sales or other initiatives you have targeted toward taking advantage of this changed positioning?
Well Jim I think you bring up an interesting point. We have a basic cable network that WGN America that reaches approximately 70 million households. Our broadcast footprint across the country reaches approximately 69 million households. We have a 106 million unique monthly digital users combined across our platform. Seems to me that if we can find a way to bundle that there would be people that would like to buy that for the sheer reach of those different linear and digital platforms, so there's a lot of conversation about that from an ad sales perspective.
We are not necessarily interested in producing national content across our TV stations but we think we can take the unique content that we own our local news our local programming as well as what we produce for digital and bundle those things together and sell them which is again part of our move to an impressions based selling model that we can bundle all of that up and go to market.
So I think you could see us with our reach attempt to tap the national advertising market or maybe I should say the network advertising market over time. We have to develop the plumbing to be able to do that easily and make it easy for the buying community but that is certainly an area of focus of the Company and discussions that we are having literally on a real-time basis.
I would imagine it also positions you better to direct national spot ads since you have a larger number of markets along those lines.
Direct meaning without the aid of a rep firm?
Well or at least you would have more in your bundle that -- yes perhaps it would be with or without a rep firm?
Well again if we put together a local news network reaching 60 -- 63% of the country. Nobody else can do that right. And so there are some uniquenesses to our platform 106 million unique monthly users. Now we've got to be able to aggregate that track them have first-party data on them.
And so I look at the assets we have and it's like what is the highest and best opportunity to monetize and see a return on investment in those assets. So we are -- there are -- there's not another company like this out there that has this much reach at the local level at the the last mile retail level. We think that is unique and we are working hard internally to develop opportunities to capitalize on that uniqueness.
Okay. And last thing. Following the Charlotte addition will further portfolio refinement perhaps even without any change in the regulation right now would it be more in terms of market size geography affiliate mix or something else that would be your chief goal?
Jim I think we will continue to be opportunistic. There may or may not be opportunities to buy or sell but we are going to be very opportunistic in doing what has the opportunity for the highest growth potential what's in the best interest of our shareholders in terms of growing the equity and we could be on either side of the transaction I would think. Opportunistically we will evaluate every element of our portfolio.
I was going to say -- and Jim obviously we have a preference for big four affiliates and we have a preference for duopolies. So that obviously is always just from a math perspective what has worked out best for us. So we are always trying to take advantage of those opportunities when they come up. And I would say that will continue to be the case.
We also have a preference for stations that produce a high quantum of local news like a KTLA like a WGN like a KRON and San Francisco and the nice thing about that is if you follow the LA Fire coverage KTLA dominated every station in the marketplace literally for the last two weeks because without a network requirement we literally could go wall to wall.
So they've been the number one station in terms of coverage, literally in local news for the last two weeks dominating the network O&Os and other stations producing news in the marketplace. So stations that are like that that are local news stations for us and that's their hallmark are valuable pieces of our portfolio and we tend to have those in the major markets. And so those are valuable components to our portfolio as well. Great. Thank you.
Our next question comes from Kyle Davis with Hound.
I have a few questions. Given all the moving pieces around retrans given the AT&T outage and the Tribune deal I was wondering if you could give us a sense of the Q4 pro forma run rate for that revenue category. And then my another question was you talked about same station core being flat. And I was wondering if that was inclusive of the impact of AT&T or flat before that impact? And then the last question is with the stock trading where it is would you consider shifting in the near term more toward stock buybacks as opposed to leverage reduction given how close you are pro forma for the FOX transaction to being below 4x leverage.
Well I think that will pretty much cover the waterfront in terms of the types of questions. We don't give specific retrans guidance. Fourth quarter retrans will be higher on a pro forma basis and you have to be careful here because it's obviously Nexstar plus Tribune minus divestitures. It'll be higher than both the second and the third quarter. So that will give you some feel for all of that because obviously third quarter was affected by AT&T. The advertising was as reported. So that includes the negative impact albeit somewhat slight from advertising because of the AT&T dispute in the third quarter of 2019. So that is already included in that number.
So if you excluded that local and national would have actually been up for the quarter. And then lastly with regard to capital allocation we are an opportunistic buyer of stock. I will say that the Company has basically been in a blackout for the last year from a stock repurchase perspective. We do have obviously substantial free cash flow. We have restricted payments capacity buying back stock is definitely a potential here but it's all kind of situation specific. And I anticipate from a regulatory perspective being out of out of the blackout in the not-too-distant future and then we will just have to take measure of all of that at that time.
And the $40 million cash flow onetime impact from AT&T was that all in this quarter? Or is there some to go in subsequent quarters?
No that was the -- it was all in that quarter directly in that quarter and it's $20 million annually or obviously $40 million when you bring it forward into one period.
Which will make for an interesting comp in the third quarter of 2020 by the way.
And we have no further questions in the queue at this time.
All right, well I'd like to thank everyone for joining us today and working through the third quarter. We look forward to reporting to you in the New Year for our first full quarter as the new Nexstar.
So, we will get back together in March and we look forward to reporting on our results at that time.
Thanks very much everyone. Have a good day.
Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.