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Sinclair Broadcast Group (NASDAQ:SBGI)

Q1 2014 Earnings Call

May 07, 2014 9:30 am ET

Executives

David B. Amy - Chief Operating Officer and Executive Vice President

Lucy A. Rutishauser - Senior Vice President of Corporate Finance and Treasurer

Christopher S. Ripley - Chief Financial Officer

Steven M. Marks - Chief Operating Officer of Sinclair's Television Group and Vice President of Sinclair's Television Group

David D. Smith - Chairman, Chief Executive Officer and President

Analysts

Aaron Watts - Deutsche Bank AG, Research Division

James G. Dix - Wedbush Securities Inc., Research Division

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

Alexia S. Quadrani - JP Morgan Chase & Co, Research Division

Avi Steiner - JP Morgan Chase & Co, Research Division

Lance W. Vitanza - CRT Capital Group LLC, Research Division

Davis Hebert - Wells Fargo Securities, LLC, Research Division

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

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

Barry L. Lucas - G. Research, Inc.

David Bank - RBC Capital Markets, LLC, Research Division

Operator

Greetings, and welcome to the Sinclair Broadcast Group First Quarter 2014 Earnings Conference. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. David Amy, Executive Vice President and COO. Thank you. You may begin.

David B. Amy

Thank you, operator, and good morning, everybody. Participating on the call with me today are David Smith, President and CEO; Steve Marks and Steve Pruett, Co-Chief Operating Officers of Sinclair's Television Group; Chris Ripley, Chief Financial Officer; and Lucy Rutishauser, Senior Vice President, Corporate Finance, and Treasurer. Before we begin, Lucy will make our forward-looking statement disclaimer.

Lucy A. Rutishauser

Thank you, Dave, and good morning, everyone. Certain matters discussed on this call may include forward-looking statements regarding, among other things, future operating results. Such statements are subject to a number of risks and uncertainties. Actual results in the future could differ from those described in the forward-looking statements as a result of various important factors. Such factors have been set forth in the company's most recent reports on Forms 10-Q, 10-K and 8-K as filed with the SEC and included in our first quarter earnings release. The company undertakes no obligation to update these forward-looking statements.

The company uses its website as a key source of company information, which can be accessed at www.sbgi.net. In accordance with Reg FD, this call is being made available to the public. A webcast replay will be available on our website later today and will remain available until our next quarterly earnings release. Redistribution of this call is prohibited without the expressed written consent of the company.

Included on the call will be a discussion of non-GAAP financial measures, specifically television broadcast cash flow, EBITDA, free cash flow and leverage. These metrics are not meant to replace GAAP measurements but are provided as supplemental detail to assist the public in their analysis and valuation of our company. A reconciliation of the non-GAAP financial measures to the GAAP measures in our financial statement is provided on our website under Investor Information, Reports & Filings.

David B. Amy

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

On February 12, we announced our intent to repurchase up to $100 million of Class A common stock in the open market, and on March 20, we announced that the board approved an additional $150 million to the existing authorization. To date, we have repurchased $82.4 million of Class A common stock under those combined authorizations, and Lucy will take you through those details a little bit later.

Also in February, our stations in Salt Lake City, KUTV and KMYU, together with other broadcasters, won a preliminary injunction throughout the Tenth Circuit against Aereo infringing on our copyrighted material.

In March, we proposed a restructuring of our pending acquisition of the Allbritton television station in order to meet the objections of the FCC. As part of that restructuring, we proposed selling stations, WHP, our CBS in Harrisburg, PA; WMMP, our MyNetworkTV in Charleston, South Carolina; and WABM, the MyNetwork in Birmingham Alabama, which would also include Allbritton's station, WCFT in Birmingham. We would also discontinue providing services to WTAT, the -- our FOX affiliate in Charleston, South Carolina, and would transfer to the buyer of WHP in Harrisburg, the rights under an existing LMA to provide services to WLYH, the CW there. Moellis & Company has been engaged to sell those stations for us. We expect to close on Allbritton sometime in the third quarter of 2014.

Also in March, we entered into a definitive agreement to purchase the assets of WGXA in Macon, Georgia, the FOX affiliate, which also broadcasts ABC as multicast, for $33 million. That's about a 7x after-synergy transaction for us. And the station is expected to close in the third quarter of this year, subject to the approval of the FCC. Since the station reaches only 0.2% of the U.S. TV households, it puts us at 38.9% of the U.S. on a pro forma basis under the 39% national ownership cap.

And lastly, in April, we reached the multiyear retransmission agreement with Charter Communications.

Now we want to welcome Chris Ripley, our new CFO, to Sinclair's management team. Chris will take you through the first quarter results.

Christopher S. Ripley

Thank you, David. It's a pleasure to be joining you all on first -- on my first Sinclair earnings call. Net broadcast revenues for the first quarter were $373.9 million, an increase of 48% or $121 million over first quarter 2013 and higher than our guidance due to better-than-expected political and retransmission revenue. Included in the first quarter results were $8.2 million of Super Bowl revenues for our 31 FOX affiliates, as compared to $2.5 million last year when the Super Bowl aired on our 11 CBS affiliates. Furthermore, our NBC affiliates generated $3.7 million of Olympic revenues. And overall, political revenues were $6.1 million, primarily due to spending on advertisements related to the Affordable Care Act.

Television operating expenses in the first quarter, defined as station production and station SG&A expenses before barter, were $209 million, up 58% or $76.6 million for the first quarter -- from the first quarter of last year. The increase versus last year was due to the acquired stations, higher reverse retransmission fees and compensation expense, offset in part by lower media spending on the February sweeps as a result of the Olympics. Compared to guidance, TV expenses came in $8.1 million lower on a conservative budget.

Corporate overhead for the quarter was $15.8 million, up $4.6 million versus the same period last year. $900,000 of this increase relates to onetime acquisition costs. The remainder is due to increased salaries and benefits, expenses related to staffing increases for the 63 TV stations we acquired during 2013.

Television BCF in the quarter was $144.9 million, up $43.5 million or 43% from last year's first quarter BCF. The BCF margin on net broadcast revenues for the quarter was 38.8%.

EBITDA for the quarter was $134.9 million, up $39.3 million or 41% higher than the same period last year, and $11 million to $15 million higher than our guidance. The EBITDA margin on total revenues was 32.7% for the quarter.

Net interest expense for the quarter was $39.5 million, up $1.9 million versus the first quarter last year. The increase was due primarily to acquisition financings. Our weighted average cost of debt for the company is approximately 5.2%, with our highest cost coming from $237.5 million outstanding of 8 3/8 senior unsecured notes, which become callable later this year. Diluted earnings per share on 99.5 million of weighted average common shares outstanding was $0.27 for the quarter.

We generated $84 million of free cash flow in the quarter, of which $14.7 million was distributed to shareholders in the form of a dividend, and another $82.4 million was used to buy back our shares. Over the past year, we converted 59% of our EBITDA to free cash. We also produced an 11.4% after-tax free cash flow yield on our market cap and paid a 2.2% annualized dividend yield based on our first quarter closing price of $27.09.

Now with that, I'll hand it over to Lucy to take you through the balance sheet and cash flow highlights.

Lucy A. Rutishauser

Thank you, Chris. At March 31, total debt was $3,028,000,000. Included in that amount was $94.2 million of non-guaranteed and VIE debt that we are required to consolidate on our books. We ended the quarter with $317.8 million of cash, and we have available $157 million under the revolving credit commitment and the $200 million of undrawn term loan A. So even after repurchasing $82 million of our stock, we still have over $650 million of liquidity as of March 31.

Capital expenditures in the first quarter were $11.9 million, and for 2014, our guidance remains at approximately $69 million of CapEx. Cash programming payments in the first quarter were $24 million, and for 2014, our guidance remains unchanged at approximately $93 million.

Cash taxes paid in the first quarter over $3.9 million. As Dave and Chris mentioned, during the quarter, we repurchased 2.9 million shares at an average price of $28.31 or $82.4 million in total. We currently have approximately $185 million of total authorization capacity remaining for share repurchases.

Total net leverage through the holding company at quarter end was 4.48x. This excludes the VIE and non-guaranteed debt and is net of cash. The first lien indebtedness ratio was 1.73x on a covenant of 3.75x. The total indebtedness ratio through the television operating company was 4.64x on a covenant of 7, and interest coverage was 3.64x on a covenant of 1.15x.

Now David Amy will now take you through our operating performance.

David B. Amy

Thanks, Lucy. For the first quarter, net broadcast revenues, excluding political, were up 47.8% versus the first quarter of 2013. Political revenues were $6.1 million, as compared to $900,000 in the first quarter of '13. Core advertising was approximately flat during the quarter as a result of weather, which we previously discussed on our last earnings call. We're also seeing some weakness in FOX prime that impacted our first quarter revenues, along with weakness in national spot, both trends which we are expecting to carry to the second quarter. Local net broadcast revenues were up 49.6%, including political; and up 49%, excluding political. Local revenues represented 81% of our total broadcast revenues for the quarter. National net broadcast revenues were up 41%, including political; and up 33%, excluding political. Our fastest-growing categories were services, primarily driven by the insurance companies, medical, schools and furniture. Direct response, as well as weather-sensitive categories of retail, fast food, restaurants and auto were soft.

Turning to our outlook. For second quarter of -- we are expecting net broadcast revenues to be approximately $396.1 million to $399.6 million, up 42% to 43% as compared to second quarter of '13. This assumes $10.5 million of political versus $1.5 million in the same period last year. For the year, we are expecting approximately $123.8 million of political revenues, which is higher than our previous guidance and slightly better than 2010's $122 million comparable results. Categories expected to do well are medical, fast food, pharmaceuticals, media and auto. Direct response, retail, restaurants and grocery are expected to be soft. On the expense side, we are forecasting TV production and SG&A expenses in the second quarter to be approximately $221.2 million, including $2.5 million of trade expense. For the year, TV expenses are forecasted at $887.4 million, which is approximately $10 million lower than our previous guidance based on current expense trends. We expect EBITDA in the second quarter to be approximately $146.3 million to $149.5 million, an increase of 29.3% to 32.1%. Based on our guidance, free cash flow in the quarter is expected to be in the low- to mid-$60 million range.

And with that, I would like to open it up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Aaron Watts with Deutsche Bank.

Aaron Watts - Deutsche Bank AG, Research Division

Two questions from me. I guess I'll start out with, I think, in the past, you've given us some color on same-station performance on the local and national side. Are you able to provide any color there?

Lucy A. Rutishauser

Yes. So Aaron, the reason that we haven't done that this quarter is because we've had so many stations come in, in the back half of 2013 that the number really isn't representative of the company's performance. So we have -- almost 40% of the stations would be excluded from that definition.

Aaron Watts - Deutsche Bank AG, Research Division

Okay, all right, makes sense. And then, Dave, I think you mentioned that national spot was a little weaker in the quarter. Can you maybe just talk about what you're seeing that's causing that to be a little weaker than the local side?

Steven M. Marks

I'll take that. It's Steve Marks. National pace actually, right now, for second quarter, grew last weekend. We are in a negative pace right now, but we're narrowing that gap. And interestingly enough, our local pace is positive, and we'll finish second quarter in a low-single-digit positive pace. And one step further, Aaron, is that interestingly enough, on national, specifically, with 30% booked roughly for third quarter, we're actually seeing a positive pace nationally. We haven't seen that the entire year. So given the fact that national has closed the gap last week, we're also having a decent week this week. And when you take a look at third quarter, with 1/3 of the business roughly booked, we're starting to see a turn on the national. We're still negative, but it's starting to get a little bit better than what we've witnessed.

Aaron Watts - Deutsche Bank AG, Research Division

Okay, that's helpful. And maybe just as a side note on that, recognizing there was a lot of noise in the first quarter with Olympics and then the political games, but -- and the Super Bowl, any sense, just maybe anecdotally, about core time sales, how they felt first quarter, how they're feeling versus that in the second quarter? Just more of your sense of that.

Steven M. Marks

Yes, we get audited on our performance in all of our markets, and the audits suggest, as we had hoped, that our performance was exceptional. This is not a performance issue in any way, shape or form. Our performance continues to be exceptional. So -- and you'll see the same thing in second quarter. When the audits come out, we don't take a backseat to anybody. We're performing up to expectations.

Aaron Watts - Deutsche Bank AG, Research Division

Okay. Last 2 for me, just -- I think this is your first earnings call since the FCC kind of put its thoughts out there on sharing arrangements. Can you maybe just give us an update on your thoughts about their policy and how you can react to comply with it?

David B. Amy

Yes, sure. We -- we already had a sense of what was coming. So you've heard us talk about the Allbritton deal and our focus on that specifically in regards to getting that closed, and -- but we had a few JSAs in the original structure. And so rather than follow through with those, we're selling those stations. So I think that's the most immediate impact that you're seeing in regards to that. And then primarily, what we're seeing is 2 things. One is that -- the 2-year situation in terms of figuring out exactly what we can do with our JSA partners. And then on the SSA, they're just calling for more comment in regards to figuring out what is and what isn't available to us going forward. So that remains to be seen exactly how that's going to come out.

David D. Smith

I think the other thing you have to give some thought to, Aaron, is what, if anything, is the NAB going to do on a legal context. And if you've been following some of the traffic and the trades about the NAB sending their thoughts to the FCC as to kind of cease and desist on this because they're violating whatever laws they're violating. You've seen Commissioner Pai stand up and make some pretty bold statements about, "Will somebody please sue the FCC because their breaking the law?" You've seen the NAB General Counsel, Jane Mago, come out and quote sections of the law, where the FCC is in -- appears to be in direct violation. So it's hard to tell where all of those things are going to go, where they're going to end up, but it may be reasonable to assume that they're going to end up in some venue some place in front of judge, and the judge will make a determination as to whether they are true or not true or legal or illegal, in which case if they're found to be illegal, then what happens then? Does that mean that everything the FCC has just promulgated suddenly becomes unwound and we find ourselves back and, "Let's go back and reapply for everything we've been doing?" So there's a lot of confusion and instability that I think will sort itself out not necessarily in the time frame that we want to get stuff done, but maybe other broadcasters will be the beneficiary of a favorable ruling by the courts and/or by Congress. You've got to wait and see.

Aaron Watts - Deutsche Bank AG, Research Division

All right. It sounds like there's more to come.

David D. Smith

Yes.

Operator

Our next question comes from James Dix with Wedbush Securities.

James G. Dix - Wedbush Securities Inc., Research Division

Just 2 things. First, I noticed you did not provide -- you provided some updated outlook on some of your revenue components but not an updated outlook on kind of the whole enchilada, the net broadcast revenue, from what you did in your fourth quarter release. Just wondering any reasons or thoughts on this to the full year. And then secondly, thinking more broadly about Aereo and then any other potential cloud-computing services, however you want to classify Aereo, that might make it easier for consumers down the road to record and manipulate broadcast signals, do you think there's certain types of solutions which investors and broadcasters should be thinking about you guys pursuing down the road just to make sure that you're going to get the value that you're delivering with your programming?

David B. Amy

Yes, I'll take that first part, James. In terms of our guidance, what we gave -- what we provided to you and to the market, originally, in our fourth quarter call was just based on the fact that we had a number of stations that had just closed. The whole Barrington Group closed, virtually, the beginning of December, and we felt like it was important for us to try to clear up some of the confusion about all the acquisitions and just how they would shake out for this year on an as-reported basis. So that was our thinking behind that to provide you with a good sense of just the changes from where we were into who we are with that guidance. And as you've heard us talk today, we saw a really good first quarter, beating our numbers there, and we're reflecting some softness here in the second quarter. And for us to -- and we -- and behind that, we've never provided full year revenue guidance. And there is a reason for that, and that's the dynamics of the business being what they are. You've heard discussions here, just how national is changing and moving from one quarter to the next. So I guess, from a standpoint if you're going to try to kind of put a number on it, that it would be helpful -- we gave a range to you during the first -- during the fourth quarter call in the first quarter there. If anything, with the softness we're seeing in the second quarter, we might be leaning more towards the lower end of our range than the higher end. So we're not, at this point, willing to provide an update or a change to our numbers.

David D. Smith

I think the other half of the question related to competitive technologies and things that are kind of in the marketplace that have some people concerned and what's the broadcast industry's answer to that. I think the answer to that is fairly clear that the broadcast industry made it very clear at the NAB this year that it needs to move quickly in the direction of a new broadcast standard. I think that's kind of the general theme. The head of the NAB, Former Senator Gordon Smith, stood up very loudly and said, "We need a new broadcast standard." One of the biggest broadcasters in the country, the Chairman of Innovation [ph], stood up and made a very loud noise when he said, "We have to have a new broadcast standard. It's vital because we have to have the technical capability to talk to literally every device in the marketplace anytime, any place, anywhere for free." And I think the industry is clearly moving that direction, and I think when that happens, it will effectively neuter any competitor who wants to come into the marketplace and take our content and try and get paid for it by selling it to other people. That just is not going to happen in the long term.

Operator

Our next question comes from Marci Ryvicker with Wells Fargo.

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

I just had a couple of clarifications. First of all, on the national spot weakness, is any of this a trickle-down from weakness at the networks? We've heard a lot of other companies report some of the diversifieds [ph], and I think scatter [ph] has been soft. So just curious if there is a correlation there?

Steven M. Marks

Well, I think, the weakness for us, specifically, interestingly enough, is on FOX. We have a lot of exposure with FOX affiliates. It's no secret that American Idol has been trending down, and the difficulty that we have with that is that the buying community is really comparing today's numbers to, actually, 2012 because they usually [indiscernible] when they're buying. So the deficit on that particular show is enormous on the FOX affiliates. And interestingly enough, when you take a look at our national pace, which I referenced previously for third quarter, we won't have the issue of going up against prior American Idol performances in third quarter because they don't air in third quarter. So I think from that standpoint alone, we're going to get a little bit of a bump as it pertains to our FOX affiliates. And the other part of it, in first quarter, there was a factor with weather. And it was significant, and it obviously affected our automotive business. And what bears that out is we're -- we've got a nice second quarter automotive pace going on, which we didn't enjoy in the first quarter because of the weather. So typically, nationally, if automotive places itself in a positive category, which it presently is, we'll be able to figure it out eventually, and things will turn. So as I said, we are narrowing that gap. Pace is getting a little bit better, and I do believe that third quarter will clearly -- early indications are that it will be better than the second.

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

And you mentioned that you expect Q2 to end up low-single-digits. Was that just for local? Or is that for total spot?

Steven M. Marks

That was -- I was mentioning local, specifically, on that.

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

So if local is up and national is down, can we still see a positive spot number for Q2?

Steven M. Marks

I don't know if we get there, but I wouldn't say it's impossible, but it's a challenge.

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

Okay. And then on the regulatory side, you guys seem pretty confident you'll close Allbritton in Q3. So I'm assuming that you're having conversations with the FCC and the DOJ. And one of the questions is, do you know if you're going to need to identify buyers for the stations you plan to sell before they allow this to go through?

David B. Amy

Yes, I think, that's a fair way to look at it, Marci.

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

Okay. And you're having conversations with them, I assume?

David B. Amy

With buyers?

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

With the FCC and the DOJ.

David B. Amy

Oh, yes, I'm sorry. Yes.

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

Okay. And then my last question for you is the political number that you gave, does that include the stations that haven't closed in these deals or it does not include those stations?

Lucy A. Rutishauser

None of the guidance, Marci, includes Allbritton, Macon or New Age. They're out of all of our guidance for the year.

Operator

Our next question comes from Alexia Quadrani with JPMorgan.

Alexia S. Quadrani - JP Morgan Chase & Co, Research Division

Just to follow up on your political commentary, is there -- obviously, it looks like it's trending up a bit. Is there one issue or any particular issue that's sort of driving that better-than-expected spending? And -- or maybe is it isolated to any certain region? And then I have a follow-up.

Steven M. Marks

We're so big now as a company. I was just looking at the political landscape. We have 20 states right now in the second quarter that are spending money with us in some way, shape or form. So we're all over the place and to forecast one particular rates [ph] over the other -- I happen to live in Florida. I can tell you the [indiscernible] there is going to be enormous, and we have a terrific representation in the state of Florida, with Pensacola and West Palm Beach and Tampa. So that, in particular, will bode very well for us. But we're, obviously, everywhere. Politicals are going to be big. The first 6 months for us on political has met expectations and then some, and that's a very good sign that bodes well for the back half of the year.

Alexia S. Quadrani - JP Morgan Chase & Co, Research Division

And then just a second question on the expense side. The TV station expenses, it looks like they came in a bit better in the quarter, and you're guiding a little bit better for the full year. Is there anything -- any one component that's sort of driving those better results?

Lucy A. Rutishauser

No. So we -- so, Alexia, we really saw expense improvement across many of the stations in many of the departments. We -- as you know, following us for a while, we typically will forecast and budget for full employment. So we did have some open positions that were accounted for in there in the first quarter, but overall, the stations did a great job on managing their expenses.

Operator

Our next question comes from Avi Steiner with JPMorgan.

Avi Steiner - JP Morgan Chase & Co, Research Division

First off, on the balance sheet, just putting aside pending asset sales that may come out of what you're doing with Moellis, is it right to think of your funding need for Allbritton at about $625 million or am I missing something?

Lucy A. Rutishauser

Yes. So given the liquidity that we currently have, Avi, and depending whether or not we draw any of the revolver, you're probably looking at about $500 million to $600 million funding needs.

Avi Steiner - JP Morgan Chase & Co, Research Division

Okay, helpful. And then last one, just bigger picture, if we look past the approval and acquisition of Allbritton and then assuming no change in the ownership rules, what is your interest, I guess, in broadening your ownership to other assets, be it bolstering your digital offerings or other media assets?

David B. Amy

Yes, I think that's a good question in that we are certainly looking at the long-term balance sheet, the strength of our balance sheet, the amount of cash flows that we generate. And if we end up being capped at 39%, that will certainly inspire us to look in other areas. And digital is one -- is probably our #1 focus in that regard -- in regards to just looking at different opportunities there, but -- and just saying that, there's not just digital. There is -- we've talked to you in the past about the fact that we have a news channel that we're planning to build out with Allbritton that in and of itself could lead to significant growth beyond our existing television platform. And we have many other strategic ideas that we're contemplating and working on here, so -- that go beyond just adding additional stations. The fact that we have television space that we have is, in and of itself, a great opportunity and something that we are just now beginning understand and are in the very early stages of taking advantage of.

Operator

Our next question comes from Lance Vitanza with CRT Capital Group.

Lance W. Vitanza - CRT Capital Group LLC, Research Division

I'm pleased to see you put lobbying for more equitable ownership restrictions as a major focus. Could you elaborate on your plans in that regard? And specifically, do you see any opportunity to raise or potentially eliminate the 39% eyeball [ph] cap? I mean, that rule, in particular, makes no sense with so many national news outlets available in 100 million homes. I'm wondering if you can comment there.

David D. Smith

Yes. Look, I think you're right on with the notion of the 39% cap is kind of ridiculous given when you look at the competitive landscape today and you look at the 3 mechanisms by which people receive all their content today, it's either via phone companies, cable companies or broadcast companies. And the reality is the phone companies reach 100% of the country. Satellite guys reach 100% of the company. Cable guys do whatever they want to do, and broadcasters are constrained. So we think it's -- there is -- it's completely lopsided from the standpoint of ownership cap. And I think with regard to the efforts that the industry is going to put forth with regard to the rules, I think we have to look to Congress to do what it needs to do to reset the marketplace and give the broadcast industry its due in terms of the opportunity to compete. And I think you have to expect that the NAB, along with a number of broadcasters in the industry, are going to start right at the grassroots level in every one in their marketplaces, engage local politicians from mayors and delegates and state congressmen and, one thing or another, right up to the governors to essentially become engaged in the process of saying, "If a local broadcast is relevant to your community, then you better be prepared to become involved in making sure we're here." Otherwise, we may not cease to exist 10 years from now. So my instinct is, and having been on the road and done this for some -- for a while, is that there isn't a local politician out there who doesn't really make reliance on what local broadcast does every day and will stand behind us and support us across the entire country. So I think we have a very good chance of getting Congress to move in the direction that we need to, to give us -- to kind of, basically, set us free to let us go compete.

Operator

Our next question comes from Davis Hebert with Wells Fargo Securities.

Davis Hebert - Wells Fargo Securities, LLC, Research Division

I wanted to ask about some of the cable consolidation going on, the complex transactions between Comcast and Charter, and you just renegotiated a retrans deal with Charter. I wanted to know, is there any sort of near-term impact on how these -- and possibly, if you could provide any disclosure on how these system swaps may work out in terms of your per sub fees?

David B. Amy

I'd like to, but no.

David D. Smith

Yes, I don't think we can comment on that. I think they're going to do whatever they need to do to satisfy the regulatory constraints or -- whatever the market says they got to do, they got to do. But I don't think it's going to have any impact on anything we're doing. I think the impact's not going to be in broadcast industry. They impact is going to be on society, in general, and what the consequence of having a company like Comcast in control of as much as they're in control of. And frankly, our view of the world is that we're just kind of free-market guys, and our view is they should be able to kind of do whatever they wanted to do. But at the same time, our view is that if Comcast can do what they can do, why can't we do what we should be able to do? So again, it's the broadcast industry being hamstrung and constrained while everybody else kind of free runs. So that's our larger political view of what the broadcast industry needs to be doing, which is, "Let's just go help solve the political problem of us being viewed somehow through a different prism than as a Comcast or a phone company."

Davis Hebert - Wells Fargo Securities, LLC, Research Division

Got it. And then was the Charter deal negotiated in the -- with the backdrop of the ban on joint retrans negotiations for 2 of the top 4 stations? Does that -- did that have any impact at all?

David D. Smith

No.

Davis Hebert - Wells Fargo Securities, LLC, Research Division

Okay. And then Chris, on the capital structure, you have a bond that's callable -- a high coupon bond that's callable later this year. Just curious to know your thoughts, coming into the CFO seat, on how you might be thinking about your balance of secured versus unsecured debt and how you might address that refinancing?

Christopher S. Ripley

Certainly. From a cost of capital standpoint, we're targeting that bond to be refinanced, and we have decent headroom on a secured basis. I like our ratio right now, the secured to unsecured. So I'm going to be looking to keep that in balance going forward and not use up too much of our headroom there.

Operator

Our next question comes from Ed Atorino with Benchmark.

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

You mentioned -- I think you said political or health care is picking up. Is that related to, excuse the expression, Obamacare? And is there a lot more to come due to the -- let's say, the confusion about the whole area?

Steven M. Marks

I think that remains to be seen, actually. We still have money trickling in. I don't think it ever was as bountiful as we had anticipated about a year ago. But nonetheless, it was money, and it's still trickling in. So it's nice to see, but I wouldn't say it's a windfall by any stretch of the imagination. But it's consistent. So it's still coming in, and I would suspect, given the drama about it, that it will continue to come in.

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

Where does it show up? Is it the insurance company, health care, political?

Steven M. Marks

Yes, exactly. Insurance companies, for the most part, are playing a very big part of it.

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

And could you -- I sort of missed your update on auto. Auto has gotten better in the...

Steven M. Marks

Well, like I said, we had a very difficult time in the first quarter that was weather-related, and that proves it out by our positive pace in the second quarter. We're in mid-single-digits on that category in the second quarter, and I think that's pretty impressive.

Operator

Our next question comes from Tracy Young with Evercore.

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

I had 2 questions. Just what is the cash program payments for the quarter? And then just -- could you just tell us, for the next-gen broadcast platform, who actually approves that? And how does that happen if you have something ready to go in a year?

Lucy A. Rutishauser

Yes. So the cash programming payments in first quarter were $24 million.

David D. Smith

The mechanics, Tracy, of how the industry deals with standards changes is not complicated. The industry eventually decides at some point in time, this is the standard that we want. This is kind of the color and the shape and the whatever of what we want. And then we go to any one of the global standards bodies. In the United States, it's historically been the ATSC, which stands for Advanced Television Systems Committee, that kind of stamps the -- and codifies the standards, says, "Yes, this is a new standard." And it's a mechanical process and much a political process, but as I said, that's well underway. We have every reason to believe that it's going to happen. And the nuances of the standard are something that's being discussed in great detail in the industry now. And I think the important thing is that broadcasters are recognizing that it is essential that any new broadcast standard has the capability to reach any device anytime, any place, whether it's in a car, your phone, your pad or devices that have yet to be created or thought of that, believe me, are on people's drawing boards, getting ready to come to market in the next few years. So it's -- again, it's essential that the broadcast industry adopt a new platform so we can be competitive against all the other forces that are out there working against us today in terms of delivering advertisers and content to the consumer.

Operator

[Operator Instructions] Our next question comes from Barry Lucas with Gabelli & Company.

Barry L. Lucas - G. Research, Inc.

David, I was hoping you could extend that conversation a bit on any new standard and maybe ballpark, if you will, the timing that it would take to implement what the cost might be, who would bear it. And in the past, you've identified an opportunity for waiting to a day-in [ph] distribution, and maybe you could just touch base on how that would benefit from a new standard.

David D. Smith

Well, Barry, that's about a 3-hour conversation. The only thing that I can really chat about is that -- given the time constraints, is that I think it's very clear now that the industry has effectively agreed to the notion that we're going to do what's referred to as ATSC 3.0, which is recognized as the next-generation television standard. As one company, we're not necessarily of the belief that 3.0 is the precise standard, but philosophically, it's moving in the right direction. There is still some work to be done inside the industry to explain the nuances of what the ATSC's view of 3.0 is versus what other people's view of the industry should be or the technology should be. And I think we're sorting through that detail right now. And I think the outcome of that will be fairly simple, and that is that when you see what the proposed 3.0 is, which is essentially a product of the consumer electronics manufacturers who don't necessarily have great concern for what the broadcast industry's view of the world is, we will eventually show the industry. And the industry will come to, I think, understand the very simple notion that we have to be everywhere 24 hours a day, 365, on every device is a straightforward, technical and important business model. And anything short of that is not necessarily a good thing for the industry because it means we're being shut out of spaces that we currently cannot get into and would not be able to get into in terms of advertising and reaching our audience. So a lot of details to be done, and they're being done. But again, if you want to talk offline about it, Barry, I'm happy to. But again, it's a 3-hour conversation as to the evolution of it, the shape of it and the business models, and all the things that are behind it. It's just a way -- it would be way too long to go here.

Operator

Our last question today comes from David Bank with RBC Capital Markets.

David Bank - RBC Capital Markets, LLC, Research Division

David, I was wondering -- kind of a follow-up as, I think, a follow-up to a follow-up on -- from the previous question. Can you talk about, from your understanding, since the last call, what's the status of the incentive auction? Has your view of that process changed at all? And how -- is there movement to incorporate the new standard into this discussion and this process because it looks like you certainly have enough lead time to incorporate it? So what's the status there?

David D. Smith

Yes, I don't know that there is or isn't any connectivity between a new standard being adopted and the auction. I heard the Chairman of the FCC, Mr. Wheeler, at the NAB show, make some comments regarding a new standard, which is encouraging, but I don't know that one necessarily has to be connected to the other. And as it relates to the auction itself, we've always been of the view, "Let's get the auction over with and done with so we can get the repacking done and be finished." If that's what it's going to be, it's going to be. We're essentially indifferent because as a practical matter, we have nothing for sale. And in the markets where we are, there aren't any spectrum constraints. The FCC can do whatever it needs to do in Des Moines, Iowa, in Salt Lake City, and other cities. So we're not really concerned about the auctions. It's really more focused on the challenges that exist in New York and Philadelphia and Boston because of the contiguous nature of those cities and because of the -- just the overall population and number of licenses that exist there. That's where the challenges are for the auction. It's not really in any of our markets. So that's why our view is, let's get on with it, get it done, so we can get repacked and get on with life. So...

David Bank - RBC Capital Markets, LLC, Research Division

And has the time frame changed at all in your view? Or I mean, do you have a few of the time frame?

David D. Smith

Look, I think tomorrow is fine. I'm okay with that. Just go ahead, do your auction tomorrow. If you're ready, let's get it done. I don't know that they're ready because I just -- frankly, it's not something we spend a lot of time focusing on because we really don't have anything for sale because there are no issues in the markets where we are that involve us being involved in any kind of auction. So I -- we're kind of indifferent to the whole thing. Let's just get on with it and get it done so we can get the repacking started and get to where we need to get to. And again, our view is, whether I'm on channel 42 or 22 makes absolutely no difference to us. If it serves the government's purposes and puts money in the government's coffers, that's fine. We don't -- that's not our issue. We're fine with that.

Operator

I'll now turn the conference back over to management for closing remarks. Thank you.

David B. Amy

Thank you, operator, and thank you, all, for participating on our earnings call this morning. And if anyone has any additional questions, feel free to give us a call. Thank you. Goodbye.

Operator

All parties may disconnect. Have a great day.

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