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Nexstar Broadcasting Group (NASDAQ:NXST)

Q3 2013 Earnings Call

November 05, 2013 10:00 am ET

Executives

Perry A. Sook - Founder, Executive Chairman, Chief Executive Officer, President, Chief Executive Officer of Nexstar Broadcasting Inc, President of Nexstar Broadcasting Inc and Director of Nexstar Broadcasting Inc

Thomas E. Carter - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

John Janedis - UBS Investment Bank, Research Division

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

Michael Senno - Crédit Suisse AG, Research Division

Davis Hebert - Wells Fargo Securities, LLC, Research Division

Tracy B. Young - Evercore Partners Inc., Research Division

Edward J. Atorino - The Benchmark Company, LLC, Research Division

Barry L. Lucas - Gabelli & Company, Inc.

Douglas M. Arthur - Evercore Partners Inc., Research Division

John Kornreich

Operator

Good day, and welcome to the Nexstar Broadcasting Group's 2013 Third Quarter Conference Call. Today's conference is being recorded.

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 Section 21 of the Securities Act of 1933 and Section 21A of the Securities 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 change 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.

Perry A. Sook

Thank you, Lexi, and good morning, everyone. I'd like to thank you all for joining us this morning as we review our excellent third quarter operating results, as well as cover off our recently announced transactions. As always, Tom Carter, our CFO, is on the call with me this morning.

As I said, operationally, Nexstar had an outstanding third quarter, led again by strong growth across all of our financial metrics. Nexstar's record third quarter net revenue drove our highest-ever third quarter broadcast cash flow, adjusted EBITDA and free cash flow. In addition to our operating successes, Nexstar continues to actively and opportunistically identify acquisition targets that adhere to our strict criteria for accretion and creating strong new local platforms. Nexstar and Mission have been active and successful and further building our station platform for continued growth and the return of political advertising revenue in 2014.

In September, we and Mission entered into agreement to acquire a total of 5 additional television stations in 3 new markets for a total consideration of $103.25 million, and transactions that are expected to be immediately accretive to Nexstar's free cash flow in the first full year of operations following closing early in 2014. The 19 stations CCA transaction announced in April, combined with the 5 stations Citadel and Stainless transactions, again, we announced in September, those, together materially, will enhance our scale in allowing us to further leverage our infrastructure, our operating disciplines and our local market presence.

As such, the net result of our transactions announced in 2013 is that post-acquisition, Nexstar will generate meaningfully incremental free cash flow. We will delever quickly over the first full year of operating the new stations, and our leverage will be at an attractive level in the mid-3x level by the end of 2014. Pro forma for completion of all announced transactions, we believe that Nexstar will generate free cash flow of approximately $330 million over the 2014, 2015 2-year cycle. This translates to average pro forma free cash flow of approximately $5.50 a share in the 2014-2015 period.

Looking back at the quarter, all of our nonpolitical revenue sources posted significant year-over-year increases, leading to record Q3 net revenue BCF adjusted EBITDA and free cash flow. The successful integration of our recently acquired stations, combined with the execution of strategies that leverage localism -- leverage content and advertiser relationships, drove a 39.8% rise in third quarter net revenue despite the $9.1 million year-over-year decline in political advertising and the comparisons with the prior period that benefited from approximately $6 million in advertising revenue from the Summer Olympics.

Excluding political advertising revenue and reflecting our integration of the station acquisitions completed in late 2012 and early 2013, our third quarter station revenue grew 52.9%, inclusive of core television ad revenue growth of 44%, a 69% rise in retransmission revenues and 124% increase in digital media revenue.

Overall, core revenue growth highlighted solid spending in the auto, fast food, cable, retail and legal categories. Our core revenue growth number also continues to reflect healthy levels of new business, and new television ad revenue for Q3 of 2013 was $6.2 million, which was a 13.7% increase over the prior year.

Total third quarter retransmission fee and digital media revenue, taken together, rose 82% to $35.6 million and accounted for 28.3% of our 2013 third quarter net revenue. By comparison, total third quarter retransmission fee and e-Media revenue comprised 21.7% of net revenue in the year-ago period and 19% of net revenue in the third quarter of 2011. Third quarter 2013 BCF and adjusted EBITDA grew 17.3% and 18%, respectively, inclusive of onetime expenses of approximately $1 million related to our strategic activities. Free cash flow was up fourfold from the third quarter of 2011, the previous nonpolitical period, and by nearly 9% when compared to last year when, again, we had over $10 million of political spending as well as over $6 million of advertising related to the 2012 Summer Olympics.

The operating efficiencies we are driving from our expanded scale, the integration of recently completed acquisitions and our duopoly focuses highlighted our third quarter BCF and adjusted EBITDA margins, which was solid in a nonpolitical and non-Olympic period at 38.2% and 32.9%, respectively. Those compared to BCF and adjusted EBITDA margins of 34.9% and 28.1%, respectively, in the 2011 third quarter.

Looking forward now, the transactions we've announced thus far in 2013, CCA, Citadel and Stainless, further expand our revenue and operating base and geographic diversity. And upon completion, we will own or provide services to 96 stations, reaching approximately 14.6% of all U.S. television households, leaving Nexstar with considerable runway to continue our M&A activities. Consistent with our M&A criteria that emphasizes the development of duopolies, we will own or provide services to multiple stations in 33 of the 51 markets in which we operate. As we've noticed, previously, typically, BCF margins are from 500 to 700 basis points higher in a duopoly market than a non-duopoly market. So our ability thus far in 2013 to increase by 8 new duopoly markets reflects our strategic focus on driving BCF growth down the income statement into EBITDA and ultimately to free cash flow.

Tom will review our capital structure shortly, but our strength in the balance sheet provides us with additional flexibility, allowing us to continue to acquire other stations in accretive transactions, also to continue to delever and for the return of capital to shareholders, with our fourth $0.12 quarterly dividend to be paid later this quarter. We are nearing the 1-year anniversary of the declaration of our first dividend, and we expect the board will review our dividend payout relative to our significantly expanded free cash flow run rate, additional M&A opportunities and other capital requirements.

For Nexstar, free cash flow is our primary performance metric. And as we move toward the completion late this year or early next of the CCA, Stainless and Citadel acquisitions and the 2014 political spending cycle, our prospects for generating very significant free cash flow per share over the current and next 2-year cycle is highly visible and reflects our continued success on this front.

Tom will now provide further details on our financials and will review the expected financing of our recently announced transactions and our revised capital structure. Tom?

Thomas E. Carter

Thanks, Perry, and good morning, everyone. 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 recently announced transactions. For Q3 '13, total net revenue was up approximately 40% to $125.8 million. Local revenue was up 42% to $63.6 million and national revenue was up 48.4% to $28.6 million. Core revenue was $92.3 million, up 44%. On a same-station basis, our core revenue was down approximately 1.5% as a result of the runoff of approximately $5 million of Olympic core revenue from Q3 '12. Absent the Q3 '12 Olympic revenue, same-station core revenue was up approximately 6% and our non-NBC core billings were up 5%, consistent with the overall non-Olympic revenue trajectory.

Retrans revenue -- I'm sorry, political revenue was up -- was down to $1 million of a $9 million reduction from the year before political period. Retransmission revenue was at $25.6 million, up 69%. Digital media revenues were $10.1 million, up from $4.5 million. Of that $6 million or $5.5 million increase, approximately $4 million was attributable to some buyout payments of contracts which have run off and have been canceled.

Adjusted free cash flow was $21.6 million. Adjusted EBITDA was $41.4 million. And broadcast cash flow was $48.1 million. Nexstar's third quarter corporate expenses were $6.7 million compared to $5.8 million a year ago and were consistent with Q2 levels. As indicated in our earlier conference calls, we projected that corporate overhead would remain above normalized levels during 2013 as we continue to incur transaction-related expenses related to our recent acquisition and capital markets activities. As a result, we expect our normalized quarterly corporate expense run rate of roughly $5.5 million to increase by approximately $0.5 million to $1 million a quarter. Consistent with that expectation in Q3, we incurred about $900,000 in onetime expenses related to recent station group activities, including legal, accounting and professional services and an additional $500,000 associated with our options activity during the quarter. Also as previously noted, in anticipation of the CCA station acquisition, we expect Q4 corporate expense to increase, as staffing and infrastructure is added to manage and operate the additional stations. Accounting for all pending transactions, normalized Q4 corporate overhead will be approximately $6 million to $6.5 million. And on a same-station basis, fixed cost, excluding affiliation expenses, were up approximately 2% during the quarter.

Turning to the balance sheet. I'll review a few items -- a few key items as of September 30. Total leverage at September 30, '13, was 4.87x versus the permitted leverage covenant of 7.25 and first lien at 9/30 was 2.11 versus a covenant of 3.5. The only changes to the capital structure during the quarter were $28 million increase in the revolver borrowings, as the initial payment for the Citadel, Stainless acquisition and a $10 million reduction in the 8 7/8 second lien debt, as we repurchased notes in the open market.

Subsequent to quarter end, on October 1, 2013, Nexstar Broadcasting Group's wholly-owned subsidiary, Nexstar Broadcasting, Inc. completed a $275 million aggregate principal amount offering of our 8 -- of our 6 7/8% notes due 2020. These notes have the same terms as and are treated as a single class with Nexstar's existing $250 million of 6 7/8% notes, which were originally issued on November 9, 2012. The notes were priced at 100.250%, plus accrued interest from May 15, 2013.

Nexstar and Mission used the net proceeds from that offering, together with the proceeds from $150 million increase in the existing senior secured facilities and cash on hand, to commence a tender offer for any and all of the outstanding 8 7/8% senior secured notes, which are due in 2017, and to partially fund the acquisition of the 5 Citadel and Stainless acquisitions, which were announced in September. We also use some of the funds to pay related fees, expenses and for general corporate purposes.

In mid-October, we announced the expiration and final results of the cash tender offer and consent solicitation to purchase the outstanding -- approximately $315 million of aggregate principal outstanding under the 8 7/8% notes. On October 1, the issuers made a cash payment for approximately $293 million of the aggregate principal amount of the notes that were tendered before the expiration of the tender offer. As a result, approximately $22 million of the aggregate principal amount of the notes remain outstanding, and we have issued an irrevocable notice to redeem all of those notes on November 16 in accordance with the provisions of the indenture post that -- that redemption will be funded from cash on hand currently on the balance sheet.

As such, the blended rate on the refinancing of the 8 7/8% note is approximately 5.75% composed of $275 million of the 6 7/8% notes and $150 million of borrowing under the credit facility at approximately 3.75%. The committed cost of financing for the CCA transaction is below 4%, which will reduce Nexstar's overall weighted cost of borrowings to approximately 5% from the current levels of approximately 5.75%.

Outstanding debt as of September 30 consisted of approximately $397 million outstanding under the term loans and $55 million of borrowings under the revolver. The second lien debt was outstanding at approximately $310 million as of 9/30, subsequently reduced to the $23 million amount. And the 6 7/8% notes or $250 million, and as I mentioned previously, that has been increased to $525 million.

Total interest expense in the third quarter was $16.9 million compared to $12.4 million for the same period in 2012. Cash interest expense for 2000 -- the actual cash interest expense was $16 million compared to $11.7 million for the same period the previous year.

Nexstar's CapEx of $4.3 million in Q3 '12 compares to approximately $3.8 million the previous year and reflects additional station acquisitions, including construction and equipment cost for the new broadcasting and news facility in Memphis and other Fresno hub activities and our acceleration of local HD originations. Our year-to-date CapEx is approximately $16.9 million and we see fiscal year '13 CapEx coming in at approximately $20 million. Additional CapEx during Q4 will be focused on our newly acquired station, as well as a relocation of the corporate offices within Dallas.

Looking further out, considering the 2013 announced transactions and the addition of approximately 24 stations by early next year, we're budgeting CapEx for 2014, approximately $20 million to $22 million.

We believe our results again demonstrate we are successfully managing our M&A initiatives and disciplined acquisition criteria, the top line and fixed and variable costs and the balance sheet for cash and remain focused on further actions to enhance value. Also as noted a moment ago, we're paying our fourth dividend later this month -- or early in December, I should say. And our intention is to review the dividend payout ratio and policy annually, which suggests the board will review it either later this year or early in 2014. At the present rate of $0.48 per share, we're allocating approximately $14 million to annual dividend payments, easily obtainable under our free cash flow parameters, as currently mentioned.

Looking forward, the integration and realization of synergies from the stations acquired in late 2012 and early 2013 reinforce our view on the synergies and the cash flows to be garnered from these transactions announced earlier this year.

That concludes the financial review for the call. I'll turn it back over to Perry for some closing remarks before Q&A.

Perry A. Sook

Thanks very much, Tom. First and foremost, our goal is to deliver growing levels of free cash flow for our shareholders. We build a long-term track record of success on this front, and we remain confident and committed to identifying and acting on new opportunities that will create further value for our shareholders. In this regard, we believe that we have the debt capacity combined with a target debt capacity to do approximately $400 million of additional acquisitions should those opportunities meet our criteria, without the issuance of additional equity and while maintaining what we believe to be prudent leverage levels. There's a fair amount of this type of activity in our pipeline at this time, and we will harvest any and all of it, provided we see a path to free cash flow accretion in year 1 for any acquisitions.

Another subject that investors are beginning to focus and call us on is 2014 political expectations, as political has been a revenue source that's grown at a double-digit clip every even-numbered year, which we can see continuing next year as well. 2014 is expected to be robust for Nexstar based on our geography and the statewide races therein, as well as the entire House of Representatives turning over and 1/3 of the Senate being replaced in 2014.

Finally, we believe we are still in the early innings of closing the disparity with our distribution partners between what we're being paid as part of cable packages offered to consumers versus what our programming is worth based on viewership, given that in the average market, broadcast stations account for about 35% or more of the aggregate viewing, but are collectively compensated at about 7% at what the cable networks get paid in aggregate. In this regard, we have a number of retransmission consent negotiations currently underway.

In closing, let me assure you that our corporate operations and integration teams are energized by the planned addition of the new 24 stations that we will close on in the coming months. And we believe that our acquisition and operating plans, combined with prudent management of capital structure, is a great formula for sustained long-term growth and appreciation of shareholder value.

So with that, I'd like to thank you all for joining us on the call this morning. Now let's open the call for Q&A to address your specific areas of interest. Lexi?

Question-and-Answer Session

Operator

[Operator Instructions] And we'll take our first question from John Janedis with UBS.

John Janedis - UBS Investment Bank, Research Division

Perry, more of a big picture M&A question. Your [ph] activity broadly has obviously slowed a little bit over the past couple of months. Have you seen multiple tickup or bid-ask spreads widen? And has the potential regulation out there had an impact on the pace of deals?

Perry A. Sook

In answer to your first question, I would say in a word, no. And as I said earlier, we have a number of M&A opportunities that are kind of in our pipeline in various stages of development. And I would say thematically, we won't transact unless we can attract -- transact at accretive multiples and free cash flow accretion. And we think that is in the art of the possible. So I don't think we've seen multiples go up at all. As far as potential regulatory rumination coming out of Washington, I don't think that has had a chilling effect on deals per se. I just think when you look -- and these deals all take a certain amount of time to development, and we have some in development that we've been -- in development sense, first quarter of this year that may come to fruition later in this quarter. But I just think that in the natural rhythm of things, you acquire, you digest, you continue to prospect. And -- but I don't think there's anything, any correlation between proposed discussions in Washington and the deal market per se. It certainly hasn't affected our activity. We're as busy as we've ever been.

John Janedis - UBS Investment Bank, Research Division

Okay, great. Maybe a separate on advertising. We talked a couple of quarters back about the potential for ObamaCare money. Have the issues with the exchanges had an impact either way on ad dollars? And then separately, assuming they will be allowed to advertise, do you see e-cigarettes as a potentially big category for next year?

Perry A. Sook

First on the AHCA money. Cumulatively, we have on the books a little over $1 million of money specifically to promote AHCA, primarily from the state exchanges, the state-run exchanges, and that number has been growing. The problems with the website may have slowed down any money that might have come for the federal-run exchange states in which we operate. But that money is as advertised thus far, and we do see it growing as we get closer to implementation dates in 2014. E-cigarettes, we've not spent a lot of time thinking about that. If it is a category, I see it having a younger demographic and perhaps a late-night audience. I'm not sure that you're going to see a lot of those kinds of advertisements in prime time per se. But I haven't thought about it as being a big category yet. We believe that anything that you can legally buy and sell in this country, you ought to be able to advertise but within the parameters of good taste. And there are probably day parts and programs that would be more conducive to that kind of advertising than others.

Operator

And we'll take our next question from Marci Ryvicker with Wells Fargo.

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

I have a couple. The first, Tom or Perry, how does your core same-station advertising look in Q4 compared to the up 5% to 6% that you talked about for the third quarter?

Perry A. Sook

Marcy, October is in the books, and it was the best month of the year in terms of core revenue growth versus the prior year. Not surprisingly, October was the biggest political month last year, so the placement in that inventory coming back. But I would tell you that it was core revenue in October. On a same-station basis, it was up double digits for us.

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

And are there any expectations for the rest of the quarter once you cycle through the political?

Perry A. Sook

I think we will continue to see growth. I don't know that there will be double-digit growth in November and December. But I think when the quarter is said and done, you'll see single-digit growth along the lines of what we reported on our non-NBC stations in the third quarter.

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

Okay. And then any update on when CCA might close? Was this delayed because of the government shutdown?

Thomas E. Carter

I think it was hampered by the government shutdown. It's hard to say exactly what is -- what they're thinking, but I would say from our perspective, it would be late this year or early next year. So just from a modeling perspective, I think we've got it coming in now January 1.

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

Okay. And then my last question is your e-Media revenue was really strong this quarter. Can you just talk about what's driving this and maybe what we could expect going forward?

Thomas E. Carter

Sure. Well, as I mentioned in my comments, there was about $4 million of early termination payments included in that e-Media number. That is from long-term deals with other television stations where they basically prepaid in order to get out of the servicing agreement that we have so that they could take it in-house. So that drove a fair amount of that. Those agreements will affect in a negative way revenue in future quarters to the tune of approximately $400,000 to $500,000 a quarter going forward. But again, if you look at e-Media revenue on a same station basis, it was up about 3%. And if you look at e-Media revenue x Olympics from last year, it's up low double-digits.

Perry A. Sook

Marci, just on a going-forward basis, our digital media revenue for the fourth quarter for both October and for November and December is pacing mid-teens ahead of the prior year. And then obviously, if that's what's -- we do on a same station basis, add in the acquisitions and add in the contribution from Inergize, you'll see growth, on a GAAP basis substantially above that in Q4.

Operator

And we'll take our next question from Michael Senno with Crédit Suisse.

Michael Senno - Crédit Suisse AG, Research Division

I just had a question in terms of your guidance for 5 50 and free cash the next 2 years. Obviously, the retrans market has shifted a bit after the CBS negotiation. You have some upcoming agreements. And I was just curious what some of the puts and takes and swing factors that are built into your guidance in terms of where retrans could land and where ad revenue could land.

Perry A. Sook

The retrans, we have 27 agreements that are up this year. And I think for our internal modeling, we have assumed that we would renew those at current market rates, which would be substantial increases from these agreements that were negotiated 3 and then a couple of cases 4 or 5 years ago. I don't -- we haven't really updated that projection internally based on breaking news because I think each negotiation will stand on its own. And so I think there was an up to what we are forecasting internally in our model and in our budget for 2014. As far as core ad revenue, again, we feel that we will continue on at a low single-digit clip in 2014. I mean, that's our underlying assumption. I will note that oftentimes in heavy political years, because of the supply-demand factor, you can see another point of growth just from average unit rate yield because the rising tide lifts all boats. We've not forecasted that in but that certainly has happened in the past. So we still see core revenue growth at approximately 3% and then mid-teens growth in our digital media revenues and, obviously, political will grow at a double-digit clip over 2012 on a same-station basis and in the aggregate.

Michael Senno - Crédit Suisse AG, Research Division

And just one other questions in terms of Washington, you guys discussed it earlier. You have a new FCC Chairman in. There's been a lot more attention on the sector. I was just curious if you think that with the new Chair coming in, you expect any change in viewpoint as it pertains to JSAs?

Perry A. Sook

I think it's probably too early to tell. But I wouldn't anticipate any -- there's been an open rule-making proceedings since 2004 on TV JSAs, and I think it's pretty much still business as usual. We submit all of those agreements at the time of acquisition. So when they -- when the acquisitions are approved by the FCC, those agreements and our intent to enter into them are embedded in those assumptions. So I really think that -- what I would expect -- we're still waiting the results of the 2010 quadrennial ownership review of all rules related to broadcast ownership and about to embark on the 2014 quadrennial review. I think everything, including the UHF discount, the national ownership cap, JSAs, I mean, these should all be included in a very fulsome review of television ownership rules. There's not just one; there are many rules that we feel are anachronistic and out of date, and we'll file those comments at the appropriate time. But I do think that it will take a while for the Chairman and his staff and the new commissioner and his staff to be seated and get settled. And so I don't anticipate much happening of a substantive nature until 2014.

Operator

We'll take our next question from Davis Hebert with Wells Fargo Securities.

Davis Hebert - Wells Fargo Securities, LLC, Research Division

Just a few questions. First, on the FOX agreement. Are you in discussions with extending that? And I believe it expires at the end of this year.

Perry A. Sook

Yes, we are. We have an agreement in principle to extend that agreement through 2016 and have hopes to extend it further. We've agreed on the terms, it's -- we haven't announced anything publicly until the agreement is signed by both parties. But we have an agreement in principle, a deal that both parties are willing to enter into to extend all of our FOX agreements out through -- at the end of 2016 at this time.

Davis Hebert - Wells Fargo Securities, LLC, Research Division

Okay, that's good to hear. And then on the M&A front, given the pipeline you have in front of you, do you foresee a scenario where you could potentially use equity to finance these transactions? Or...

Perry A. Sook

As we said, I think that realistically, with looking at what's in the pipeline that we could do at approximately $400 million, maybe a little bit more, depending on the size of the target. Keeping our leverage below 5.5x on a max leverage basis and assuming they were free cash flow accretive, we would do acquisitions at that level of magnitude. Beyond that, the potential would exist to issue equity, but I would say that the way we would keep score is the deal pro forma for the issuance of additional equity would still have to be accretive on a free cash flow per share basis. So it raises a high bar. I wouldn't rule it out, but I don't see it in the foreseeable future that we would issue equity. It would be a big deal and it would obviously have to be attractive pro forma for the issuance of that equity to our existing shareholders.

Davis Hebert - Wells Fargo Securities, LLC, Research Division

Okay, good to know. And then just a housekeeping question. On the reach, you point out in your press release, I think you have 14.6%, is that -- does that include or exclude the UHF discount?

Perry A. Sook

There is no UHF discount embedded in that number. So that is the full monty, if you will.

Davis Hebert - Wells Fargo Securities, LLC, Research Division

Okay, good, good stuff. And then last question for me. Aside from Time Warner Cable and CBS, that obviously took a lot of the headlines around retrans, but there are some other blackouts going on around the country. We had Time Warner Cable and Journal, DISH and Media General, I think is still ongoing. Is there any readthrough for the small markets? Do you think the MVPDs are pushing back under these certain terms because they think they have more weight in these negotiations? Or how should we think about that for -- as it affects Nexstar?

Perry A. Sook

We have 27 active discussions ongoing right now, and there is no pushback beyond the usual pushback of the rates you're asking for are too high. We believe that content always wins in these discussions. So the leverage ultimately rests with the content holder. And in our markets, we produce 1,300 hours a week of local content and another approximate 100 hours a week of local lifestyle programming content. so I think that that is the lever. And the tenor and the tone of the negotiations is no different than it is at this time every year. So I don't see any readthrough there of any change in position. Again, I believe that the local content holders and the national content holders ultimately have the upper hand on the distribution partners.

Operator

And we'll take our next question from Tracy Young with Evercore.

Tracy B. Young - Evercore Partners Inc., Research Division

So one housekeeping question. If you could just tell us how to back out the onetime items that you mentioned earlier in your conversation. And the other question for you, Perry, is are the local broadcasters talking about Aereo? And how should we be thinking about that?

Perry A. Sook

Tracy, I'll answer the first quarter and Tom can answer the other -- your last question first. Local broadcasters only talk about Aereo at investor conferences and on earnings calls, so we spend very little time talking about it internally. I don't want to say much more than that because we are a party to a lawsuit against Aereo that was filed in Salt Lake City with our ABC and CW stations 2 weeks ago. So I really can't comment much more on it other than that.

Thomas E. Carter

And on the expense side, there were approximately $900,000 in transaction-related expenses in corporate overhead in Q3. There was approximately -- I'm sorry, that's $800,000 in corporate overhead, $100,000 in station operating expense associated with severance from ongoing station consolidation. And then moving forward, from a revenue perspective on e-Media, it's approximately $400,000 to $450,000 a quarter in reduced revenue.

Operator

And we'll take our next question from Edward Atorino with Benchmark.

Edward J. Atorino - The Benchmark Company, LLC, Research Division

It was all answered. I was going to ask about the outlook for TV, so you've covered that one.

Operator

And we'll take our next question from Barry Lucas with Gabelli & Company.

Barry L. Lucas - Gabelli & Company, Inc.

A couple of questions, Perry. Could you flesh out the categories a little bit more and talk about what auto and some of the other larger categories were in terms of percentage change on a same-station basis, as well as those categories that might have been down?

Perry A. Sook

Sure. I think from a top 10 category report, we saw fast food and cable and other media and department stores, retail and attorneys were all up. Insurance and health care, schools and furniture were down, but down slightly, maybe 1 or 2 points. Again, if you just -- auto, we were up slightly over the prior year. If you look at the amount -- if you exclude the auto revenue that was in Olympics last year, and then compare the category against them because auto was a very heavy Olympic advertiser for us last year, we were up mid-single-digit amount in automotive, and that's been thematically like what most of the year has looked like for us.

Barry L. Lucas - Gabelli & Company, Inc.

Okay. And any regional or meaningful regional variances areas of the country that are hot and others that might not be quite so hot?

Perry A. Sook

Well, as it relates to the auto category, our -- we're seeing a little bit of weakness in the Southwest just relating to Gulf States Toyota, budgets not returning, but that is very geo-specific. Toyota and the rest of the country is generally pretty healthy. Our -- most of the other Japanese nameplates are up substantially. Ford continues to be a bellwether for us, and that is up for the quarter as it relates to automotive. But beyond that, I mean, the only differences I would suggest, as Tom reported earlier, if you look at core ad growth x NBC affiliates, it was up mid-single digits. And if you look at core ad growth, including the NBC affiliates, it was down about 1 point. So that is approximately $5.5 million of Olympic revenue in the prior year on air and about $0.5 million that went to our digital media sites.

Barry L. Lucas - Gabelli & Company, Inc.

Great. Last item, and come back to the commission and the new Chairman. Thoughts, realistic thoughts, not that they're not unrealistic, Perry, but realistic thoughts about timetable for a spectrum auction and maybe you could just recap your point of view on whether or not Nexstar would be a likely participant.

Perry A. Sook

Sure. The commission is endeavoring to get this auction off in 2014. I believe that it will either happen in 2014 or perhaps 2015. It is such a multi-variable equation, and I don't envy their task in trying to get it all organized and get it off the ground. I think that our primary channels are likely not -- we're not -- likely to not anti-spectrum into the auction with our primary channels across the board. We do have a number of class As and low powers that take up frequency that quite frankly we could put that signal on. In a number of cases, we do, put it on a D2 of one of our primary channels and achieve the same, if not better, coverage result. So there is some real estate there we will consider. I mean, I obviously, we will look at it actively, but I don't imagine that we will be a major participant at least this time around.

Operator

And we'll take our next question from Doug Arthur with Evercore.

Douglas M. Arthur - Evercore Partners Inc., Research Division

My question was on spectrum. So I think we're pretty covered there.

Operator

And we'll take a follow-up question from Davis Hebert with Wells Fargo Securities.

Davis Hebert - Wells Fargo Securities, LLC, Research Division

Tom, I apologize if you already covered this because there are a lot of moving parts in the balance sheet. But the revolver balance at 9/30 is $55 million. How do you plan to manage that balance going forward? Because I think I recall from the bond deal, maybe you had some incremental borrowing coming from the upcoming acquisition as well?

Thomas E. Carter

I appreciate that. A lot of this is timing, Davis. Just to kind of set things straight, the bonds closed on October 1, so the very next day. If you look at the pro forma balance sheet as of -- if you pro forma 9/30 for the bond deal and for the acquisitions, you end up with $547 million of term loans, nothing outstanding under the revolver, $525 million of bonds and about $60 million of cash. You then have kind of $280 million of remaining commitments through Citadel, Stainless and CCA. We have $184 million undrawn term loan A. And we have now $105 million revolver and $60 million of cash. So in essence, we've got, what is that? We have $280 million of commitments and we've got $340 million of sources. It's fully financed.

Davis Hebert - Wells Fargo Securities, LLC, Research Division

Okay. So when it's all said and done, we'll see that revolver revert back to 0 essentially, undrawn.

Thomas E. Carter

It's 0 right now.

Davis Hebert - Wells Fargo Securities, LLC, Research Division

Oh, 0 right now. Got it, okay.

Thomas E. Carter

It's all the activities subsequent to September 30.

Operator

We'll take our next question from John Kornreich with J.K. Media.

John Kornreich

A couple of questions. Can you remind us please the dates for renewals for ABC, NBC, CBS?

Perry A. Sook

Sure, John. As I mentioned, FOX runs through 2016 as do the CW and MyNetwork. NBC runs through the end of 2014, and that's -- will be next up on our list. And then ABC is through the end of 2017. And CBS is through the end of 2018.

John Kornreich

Okay. According to the P&L statement on the first page, retrans fee revenue gross is running a little over $100 million, call it $100 million. Right now, what is your estimated or what is your gross margin on that $100 million? And if I look out through renewals, which is another 5 years or so, 5 years through CBS, what do you think it will get down to?

Perry A. Sook

I think that we have said that -- and I'll just look back at 2012. Tom can answer the current gross margin question. But I think we said in 2012, retrans was approximately a 90-margin business for us. And if we kind of fast-forward through the next 5 years, which would take us out 2017 or somewhere thereabouts that our retrans revenue would cost certainty and expected growth on top line would be somewhere in the low 60-margin business, potentially 65, about 60 to 65 margin for us at that point because the payments to the networks do escalate over time, but -- so will the revenue. But we do expect that the contribution, dollar contribution 5 years hence will be at least 50%, if not more than what we had in 2012 in terms of that net to our bottom line. We expect that those dollars will grow by 50% even as the margin on those dollars shrinks.

Thomas E. Carter

And keep in mind, John, that about 12% of our retrans revenue comes from non-big 4 affiliates, which are not subject to attribute back to the network.

John Kornreich

But if you had a 90% margin in '12, I mean, I don't see why it would have changed in '13. Nothing came up. It would have been 90% in '13 or so, right?

Thomas E. Carter

Sure. They came up. And obviously, we acquired stations that had already begun paying. So I would tell you right now, our margin right now is probably in the mid to high 70s.

John Kornreich

Okay, okay. I don't know if this was addressed or not, but I don't understand this, net revenue up 40%, BCF up 17%, that -- which means that expenses were up 58% versus a 40% net revenue gain.

Thomas E. Carter

Well, first of all, it's the loss of political between '12 and '13. And you're right, we're paying more in network affiliation fees.

John Kornreich

Okay. But in the other hand, I mean, your retransmission fees, as reported, is up 70%. That would have been a margin enhancer. It's just there's quite a difference.

Thomas E. Carter

Are [ph] margin enhancer, when you consider that some of the stations we're buying had already begun paying retransmission.

Perry A. Sook

And the other thing, John, is there are acquisitions in here as well. So these are not same station.

John Kornreich

I know, but it's as reported. With acquisitions, you reported 40% revenue. And with acquisitions, you reported a near 60% increase in expenses. It's still apples-for-apples even though that, in both cases, acquisitions are included.

Perry A. Sook

Well, it's apple-for-apples, and you're right, we have more affiliate expense and we have less political revenue.

John Kornreich

Last thing. I understand, and the political revenue is very profitable, and it was down 90%. But when you said that core revenue was up 5%, 6% without the Olympics, I just want to make sure I understand this. You're talking about core ad revenue, not core -- you're not talking about total revenue.

Thomas E. Carter

That is it's local and national revenue is our definition of what we call core.

John Kornreich

And that was up 5%, 6% without Olympics?

Thomas E. Carter

That is correct.

Operator

And we'll take a follow-up question from Marci Ryvicker with Wells Fargo.

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

Just really quickly, the raise in your free cash flow guide for 2014 and '15, where are the incremental synergies coming from?

Thomas E. Carter

Well, it's really just 2 things, it's the -- and I'm assuming you're going the 300 to 330?

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

Yes.

Thomas E. Carter

It's the Stainless and Citadel acquisition and the refinancing.

Operator

And it appears there are no further questions at this time. Mr. Sook, I'd like to turn the conference back to you for any additional or closing remarks.

Perry A. Sook

Thank you. Very quickly, just thank you all for joining us here today. We look forward to reporting our fourth quarter results in Q1 of 2014. Happy holidays. And obviously, as always, if you have further questions, please give Tom or I a call. Thanks again. Bye now.

Operator

This concludes today's conference. We thank you for your participation.

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