Aug 7, 2013
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
Aaron Watts - Deutsche Bank AG, Research Division Marci Ryvicker - Wells Fargo Securities, 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 Dennis Howard Leibowitz - Act II Capital, LLC Barry L. Lucas - Gabelli & Company, Inc.
Michael Senno - Crédit Suisse AG, Research Division Howard Rosencrans
Operator
Good day, and welcome to the Nexstar Broadcasting Group's 2013 Second Quarter Conference Call. As a reminder, today's call 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 and Exchange Act of 1934. The company's future financial conditions and results of operations, as well as forward-looking statements, are subject to change.
The forward-looking statements and comments made during the conference call are made only as of the date of today's conference call. Management will also be discussing non-GAAP information during this call.
In compliance with Regulation G, reconciliations of this non-GAAP information to GAAP measurements are included in today’s news announcement. The company does not undertake any obligation to update forward-looking statements reflective of changes in circumstance.
Now 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, and good morning, everyone. I'd like to thank you all for joining us this morning to review Nexstar's record second quarter results and recent M&A activity, all of which is driving growth and will lead to continued record levels of free cash flow, not only for the balance of 2013, but also throughout the upcoming 2014 and '15 period.
Tom Carter, our Chief Financial Officer, is also on the call with me this morning as always. Reflecting our focus on managing operations for current cash flow and future growth, all of our nonpolitical revenue sources posted significant year-over-year increases, leading to record Q2 net revenue, adjusted EBITDA and free cash flow.
The successful integration of recently acquired stations, combined with ongoing strategies that leverage our targeted localism and targeted local advertiser relationships, drove a 42% rise in second quarter net revenue despite the $4.2 million of year-over-year decline in political advertising revenue. Excluding political advertising revenue, our second quarter station revenue grew 48.4%, representing core television ad revenue growth of 43% and a 63% rise in retransmission revenues, plus a 73% increase in our e-Media revenue.
Overall, core revenue growth included a 2% rise in the same station auto spending and same station increases in 3 of our top 4 ad categories. Of note, as indicated on our last call, core revenue growth in Q2 was aided by a healthy amount of new business during the period.
New-to-television ad revenue for Q2 in our station group was $6 million, marking a 22% improvement on a quarterly sequential basis and an 11% increase over the prior year. While we do still project GDP-like growth characteristics for core ad revenue in the future, we've structured Nexstar's platform to leverage our high-growth revenue sources including political and issue advertising, as well as retrans and digital media.
In this regard, Nexstar's ongoing revenue diversification is reflected in the growth total in second quarter retransmission fee and digital media revenue, e-Media revenue, which rose 65.3% to $32.6 million, which accounted for 26% of the period's net revenue, compared to 22% in the year-ago period and 17% in the 2011 second quarter. Second quarter 2013 BCF and adjusted EBITDA grew 25.6% and 24.3%, respectively, inclusive of onetime expenses of $1.25 million related to our strategic activities that marked a nice improvement in the growth rates over Q1.
Second quarter 2013 free cash flow was up over 100% from the second quarter of 2011, the previous nonpolitical period, and by nearly 6% compared to last year and by over 100% compared to Q1 of 2013. Nexstar's growth and operating momentum is accelerating as we move through 2013 and the benefits of our acquisitions, their integration and the operating leverage we achieved on higher revenue is reflected in the quarterly sequential increase in broadcast cash flow and adjusted EBITDA margins, which rose in Q2 to 39.5% and 34%, respectively, from 35.5% and 29.5% in Q1 of this year.
We expect this trend to continue for the remainder of 2013 and certainly throughout 2014 as we benefit from the political cycle and the addition of the CCA stations. Throughout 2013 and 2012 as well, Nexstar actively and opportunistically identified station acquisitions that adhere to our criteria for accretion upon closing and creating strong new local platforms.
Early in the quarter, we announced the acquisition of the CCA stations and White Knight Broadcasting stations and their expected economic benefits to the company and Nexstar will derive significant value from this acquisition without materially altering our leverage profile. We have what is regarded as the industry's most effective focus group of managers and employees and a highly disciplined finance team and throughout our history, we've successfully completed and integrated over 30 separate transactions to build our current operating platform.
Strategically, the CCA transaction further expands our revenue and operating base through the addition of 19 television stations and 7 associated digital sub-channels in 10 markets. When this transaction is completed later this year, these stations will add 7 duopolies to our operating base and the transaction will expand our scale and geographic diversity to 91 stations in 48 markets, of which 33 will be duopoly markets.
As we've noted in the past, typical BCF margins are from 500 to 700 basis points higher in a duopoly market than in nonduopoly market, so creating duopolies remains the focus for the company as we drive that BCF growth down the income statement into EBITDA and ultimately into free cash flow. Financially, this accretive $270 million transaction highlights again the long-term value being created from our platform building, our revenue diversification and our capital structure strategies.
On a pro forma basis, the transaction is anticipated to add $1 per share in additional free cash flow based on our expected 2014 share count. As such, Nexstar's total pro forma free cash flow is expected to rise to over $300 million over the upcoming 2014-2015 cycle, which amounts to an average pro forma free cash flow of roughly $5 per share per year in the 2014, 2015 periods.
While our primary focus is on extending our long-term record of free cash flow growth, our expanded scale and the very significant free cash flow being generated from our existing platform enables us to compete -- complete, rather, transactions like CCA without materially altering our leverage profile. Today's release notes that we ended the second quarter with a net leverage ratio of about 4.7x or about 1/2 of turn above the December 31, 2012 levels as during the first half of 2013, we completed and financed the remaining 10 of the 18 station acquisitions we announced in 2012.
Reflecting the accretive structure of the recently completed and announced transactions and lower cost of capital, pro forma for the completion of the current station transactions remaining, our net leverage is expected to decrease to the mid-3x range by the end of 2014. Tom will review our capital structure shortly, but our strength in balance sheet provides us with additional flexibility, allowing us to continue to acquire other stations and accretive transactions to continue to de-lever and for dividends with our third $0.12 quarterly dividend to be paid later this month.
For Nexstar, free cash flow is our primary performance metric and as we move towards the completion of the CCA deal and the advent of the 2014 political spending season, we believe our prospects for generating very significant free cash flow per share over the current and next 2-year cycle should be a principal point of interest to our current and prospective investors. With that, I will now turn the call over to Tom Carter to provide further detail on our financials, after which, I'll come back to close our call.
Tom?
Thomas E. Carter
Thanks, Perry, and good morning, everyone. I'll start with a review of Nexstar's Q2 income statement and balance sheet data, after which, I'll provide an update on our capital structure and the recently announced transactions.
Net revenue for Q2 of '13 was $126.2 million, which, as Perry mentioned, was up 42% over the same period of Q2 '12. Core revenue was $95.3 million, which represented a 43.4% increase.
Local revenue, which was a large component of core, was up almost 41% to $66.7 million and national revenue was at $20.6 million, up 52%. Political revenue, as we experienced an off-cycle political year, was $1.8 million compared to $6 million in the previous year.
Retransmission fees continued their nice growth at $24.9 million for the quarter and e-Media continued its double-digit growth rate at $7.7 million for the quarter. From a profitability perspective, broadcast cash flow was up over 25% to $49.8 million.
Adjusted EBITDA at $42.9 million was up also approximately 25%, and as Perry mentioned, that included about $1.25 million of transaction-related expenses during the quarter. And free cash flow was at $20.5 million for the quarter.
Nexstar's second quarter corporate expenses were $6.8 million compared with $5.1 million a year ago. As noted on our last call, 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 approximately $5.5 million to increase by approximately $0.5 million to $1 million per quarter for the balance of 2013. Consistent with that expectation, in Q2, we incurred approximately $900,000 in onetime expenses related to recent station group acquisition activity, including legal accounting professional services and associated costs.
Also during the quarter, if you remember, it was the third and final equity offering relating to the monetization of the ABRY position in Nexstar. As previously disclosed, when we complete the CCA station acquisition later this year, we expect Q4 corporate expenses to increase by an additional $375,000 per quarter as staffing and infrastructure was added to manage and operate the additional stations.
Station direct operating expenses consisting primarily of news, engineering and programming and selling, general and administrative expenses, all of which is net of trade expense, were $65.1 million for the 3 months ending June 30 compared to $42 million for the same period in 2012. Of the $23.1 million increase, approximately $300,000 was associated with onetime expenses attributable to the new station group activity.
The remainder largely reflects the expenses for the new 18 stations added in Q4 of '12 and Q1 of '13 and higher variable costs related to the significant increase in core revenues. On a legacy Nexstar basis, fixed cost, excluding our affiliation expense increases, were flat to 2012.
Turning to the balance sheet. I'll review the key items at June 30, 2012.
Total net leverage was 4.69x versus the permitted leverage covenant of 7.25x. First lien average at -- was 1.87x versus 3.5x covenant.
And please keep in mind, that included a $27 million borrowing for the deposit on the CCA stations. The only change to the capital structure during Q2 was the credit facility amendment and the addition of a Term Loan A.
On June 28, Nexstar and Mission entered into amendment to each of our credit facilities. The amendments provided commitments for the incremental term loans available to Nexstar and to Mission of a total of $234 million.
Concurrent with the amendment, Nexstar received initial proceeds of $50 million of that $234 million under the facility, which was partially used to repay the $27 million outstanding under the revolving loans and had $23 million additional used for corporate purposes, which at year end was held at cash on the balance sheet. The balance of the revolver was subsequently paid down to 0 during July.
The interest rate on this tranche of capital is very favorable to Nexstar at a cost of LIBOR plus 2.25%, with no LIBOR floor. Pro forma for the CCA transaction in the expected the new financing, we expect to see Nexstar's weighted average cost of borrowing decline to approximately 5.75% from the current levels of approximately 6.6%.
The expected cost of debt capital is more favorable than previously factored in to our free cash flow calculations and does not take into account future improvements from potentially addressing our high-cost 8 7/8% second lien notes. Nexstar's outstanding debt at June 30 consisted of $397.4 million of outstanding loans under the term loans, both Term Loan A and Term Loan B, and $27 million under the revolver.
The second lien debt was approximately $319.9 million accounting for the accretion of the unamortized discount and the senior unsecured bonds stood at $250 million. We had approximately $45.6 million of cash on the balance sheet at quarter end.
Total interest expense in the second quarter was $16.9 million compared to $12.6 million for the same period in 2012. Cash interest expense for the quarter was $16.1 million compared to $11.8 million.
Both of these increases and leverage obviously relate to the additional acquisition debt that was funded at the back half of 2012 and in the first quarter of 2013. Nexstar's Q2 CapEx was $5.7 million compared to $3.1 million in the year-ago period.
The increase reflects the station's additional -- of additional stations including construction and equipment cost for our new broadcasting and news operations, including our Memphis station facility and our Fresno hub and our initiatives to accelerate local HD origination. Our CapEx in 2013 will be approximately $18 million to $20 million, and year-to-date, we have incurred approximately $12.5 million of that budget.
As such, second half 2013 remaining budget of approximately $5.5 million suggests a material drop on a quarterly basis relative to what we have incurred in Q1 and Q2 and we continue to be on pace to meet or exceed that goal of limiting capital expenditures to $18 million or less. Looking out further, considering the CCA transactions will add approximately 7 duopolies, we will budget CapEx for 2014 and will result in a similar CapEx spend of approximately $18 million to $20 million in that year.
We believe our results will again demonstrate we were successfully managing the top line, fixed and variable costs and the balance sheet for cash and remain focused on further actions that can enhance value. In this regard, given our positive outlook for free cash flow, we believe it was prudent for Nexstar to participate in ABRY's final share divestiture in May through the purchase of approximately 365,000 shares of Nexstar's stock for $8.4 million or approximately $23 a share.
Also, since I know you'll be -- we'll be asked, as noted a moment ago, we are paying our third dividend later this month and our intention is to review the dividend payout policy annually, which would suggest the board will review it late this year or very early in 2014. Looking forward, the integration and realization of the synergies from the 18 acquired stations on which we've closed was largely completed in Q2 of 2013, so we remain highly confident in our expectations for a record 2013 results.
That concludes the financial review for the call. I'll now turn it back over to Perry for some closing remarks prior to Q&A.
Perry A. Sook
Great. Thank you very much, Tom.
The second quarter was another period of exceptional growth, which spotlighted the value of the Nexstar's long-term platform expansion initiatives and ability to integrate and operate new stations, as well as extract the expected synergies from those acquisitions. Importantly, our ongoing operating successes and accretive station transactions have positioned Nexstar with the financial flexibility to return capital to shareholders while maintaining a favorable leverage profile.
The annual capital allocated to dividend payments at this time is approximately $14.2 million annually related -- and relative to the total free cash flow of the Nexstar will generate in the coming quarters, we feel that provides us with ample liquidity to continue to reduce leverage, evaluate additional accretive station acquisitions, plus pursue other initiatives to enhance your long-term shareholder value. First and foremost, our goal is to deliver growing levels of free cash flow to our shareholders.
We build an excellent record that backs up our long-term success on this front and we remain committed to identifying and acting on new properties to create further value for shareholders. In this regard, we believe we have the debt capacity combined with the debt capacity of potential targets to do approximately another $500 million plus of acquisitions should those opportunities meet our criteria without the issuance of any equity and while maintaining prudent leverage levels.
With continued operating momentum, the expansion of our platform through accretive acquisitions and reduced weighted average cost of debt, Nexstar will generate record revenue and free cash flow here in 2013 even without the benefit of the record levels of political revenue that we generated in 2012. The company's expanded scale and diversification, strengthened balance sheet, combined with the addition of the CCA acquisitions, will lead to a very meaningful rise in free cash flow over the upcoming 2014-2015 2-year period.
On behalf of Nexstar's committed team of employees, thank you very much for your continued support, and we look forward to reporting on further progress on our Q3 call later this fall. With that, now let's open the call to Q&A so that we can address your specific areas of interest.
Operator?
Operator
[Operator Instructions] And we'll take our first question from Aaron Watts with Deutsche Bank.
Aaron Watts - Deutsche Bank AG, Research Division
A couple of questions for me. Tom, I apologize if I missed this, but can you give us a sense for what same station revenues, may be even x political, looked like in the second quarter?
Thomas E. Carter
Same station core revenues were down approximately 1.5% in Q2.
Perry A. Sook
Net revenues were up.
Thomas E. Carter
Yes. Net revenues, when you -- and if you look at revenues, x political, on a total basis, they were up slightly.
Aaron Watts - Deutsche Bank AG, Research Division
Got it. Okay.
Core just being the local national business then?
Thomas E. Carter
Correct.
Aaron Watts - Deutsche Bank AG, Research Division
Okay, got it. And as you think about what you're seeing in July -- what you saw in July, what you're seeing for August, September, just maybe directionally on that basis, that kind of same-station basis, how do things feel for the third quarter relative to how things felt in the second?
Perry A. Sook
I would say things are marginally better. We have approximately $7 million of Olympic revenue from the prior year.
That's the ad piece and the digital piece is another $750,000 that we will be up against, but we feel that we will have the ability on our core revenues to earn that back. And obviously, we will have the displacement of somewhere in the neighborhood of $12 million of political revenue that we'll have that inventory come back to us.
And we feel pretty good about our prospects here in the third quarter and our July results are, as we said, better than the same station results we reported in Q2. So -- and that's before we factor in the American health care act ad spending, which as you know is on budget at this point for us.
We have over $600,000 on the books now for Q3 and Q4. We expect and project a 7-figure amount, which as I said, is unbudgeted by the way in the last few quarters of 2013 that will be added to our results.
What we're seeing right now is the education money, primarily in the states in which we operate that will operate state exchanges starting in 2014. That's the dollar we're seeing now.
The money we think we'll see coming later in the year will be the states that will either partnership with the federal or the federal exchanges, and that's before we get to the political component and there's been a lot of discussion about that, those that want to repeal some or all of the AHCA. And so again, all in, we think that's a 7-figure amount in the back half of the year that we did not budget for at the beginning of the year.
Aaron Watts - Deutsche Bank AG, Research Division
Got it. And my last question just to kind of follow up on that.
I guess, first, with the health care spending that you might see here, do you view that as being incremental or have you gotten any sense from your advertisers that your core advertisers, traditional advertisers that they may be a little nervous about rising health care costs for themselves and may pull back a little bit on their ad budgets. And I guess, secondly, how should we think about that health care spending state-to-state?
Do you think it's going to be fairly smooth or is it going to be lumpy?
Perry A. Sook
To answer your last question first, we anticipate that spending, as I said, right now, the money that we're seeing is coming from the states that are -- anticipate running a state exchange, and for us, that's California, Maryland, Vermont and New York. The next group of money we expect to see and we have money on the air in Arkansas right now was for the states that are planning to run an exchange in partnership with the federal government.
That's Arkansas, Illinois, and Michigan and West Virginia, which affects our Hagerstown station. So I think the money early this year -- or, as I said, early in the third and fourth quarter will come from those exchanges and then the 27 states that default to federal exchanges, which for us are Alabama, Florida, Indiana, Louisiana Missouri, Montana, Pennsylvania, Texas, Utah and Wisconsin, that money will probably manifest itself closer to the end of the year.
And again, this is to educate people as to where they can go and how they can participate in health care. As it relates to -- and again, we're up against a substantial amount of political revenue in the back half of the year and we don't expect this to take the place of all of it, but it will help to create demand on the inventory that is available because of the vacated amount of political revenue.
As to the local businesses, the ones that are the most concerned about health care or offering health care are the very smallest of businesses that, quite frankly, with half a dozen employees or so. And are they going to pay the fine?
Are they going to have to offer coverage? Can they afford to do that?
And quite frankly, those folks don't have the revenues or, therefore, the ad budget to spend a lot of money on TV. So that's not a topic of conversation that has come up with advertiser conversations that we have had in the most recent month or 2.
Operator
And next we'll go to Marci Ryvicker with Wells Fargo.
Marci Ryvicker - Wells Fargo Securities, LLC, Research Division
I just want to clarify something. You said the core spot was down 1.5%, x political, is that correct?
Thomas E. Carter
That is correct.
Marci Ryvicker - Wells Fargo Securities, LLC, Research Division
Can you remind us what you did in the first quarter?
Thomas E. Carter
First quarter was up slightly.
Marci Ryvicker - Wells Fargo Securities, LLC, Research Division
What was the difference quarter-to-quarter?
Thomas E. Carter
In terms of categories or...
Marci Ryvicker - Wells Fargo Securities, LLC, Research Division
Yes, just what led to the deceleration in the second quarter?
Perry A. Sook
Quite frankly, it had to do with the movement or the placement of some ad revenue related to certain retrans contracts, particularly satellite companies that got shifted around versus how it was spent last year. But the contractual amount still remains where we have those agreements.
So you have to spend $100 over the course of the year, but you can really spend it in any quarter. And so that really accounted for the seasonality of variance between Q1 and Q2.
Marci Ryvicker - Wells Fargo Securities, LLC, Research Division
Okay. And then can you kind of help us think about expenses going forward?
It seems like even excluding some onetime items, they come in a little higher the past few quarters and we're just getting asked about how investors can gain comfort with your 2014 and '15 forecast of $5 in free cash flow per share if EBITDA continues to come in below expectations? I know, Tom, you mentioned interest expense may come in lower, but it didn't sound like that was already factored into that $5 number.
So any color on cost would be great.
Thomas E. Carter
Sure. Well I think, first of all, we view that the decrease -- the deceleration in same station revenue was a second quarter item.
Obviously, if that were not present in the second quarter, we would've had a couple million dollars more of revenue and that would have affected EBITDA. As Perry mentioned, July is looking more normalized and we see third and fourth quarter benefiting from some of these other categories as well.
But you're exactly right on the kind of the below the BCF line, we do have lower-than-expected interest rates. We were very pleased in the response in the debt market to the CCA financing.
When we had originally forecasted our free cash flow number on CCA, we had assumed approximately a 4% cost of additional debt capital, and that's now at 2.5%. On $240 million of debt, you can obviously do that math, and that's before we address any potential additional interest savings from addressing our 8 7/8% second lien notes, which are callable in 2014.
So there's some financial levers here that we think will add to free cash flow in addition to the fact we think that a more normalized operating environment from a revenue perspective will make the expenses -- the operating expenses seem more in line.
Perry A. Sook
Marci, I would just add that we don't budget for acquisitions per se. Therefore, we don't budget for acquisition-related expenses.
Any time we're over budget due to that means we made an accretive acquisition. I look at that as over the long term being a good thing.
But I also just want to remind you something Tom said earlier, some of the overage was related -- was related to the ABRY secondary offerings, the last of which was in Q2. So those onetime expenses are fully in our rear view mirror now.
Marci Ryvicker - Wells Fargo Securities, LLC, Research Division
Okay. And then I've one last question on M&A.
Perry, you mentioned your ability to do about $500 million. Is there any sense of timing as to what you're currently looking at?
And maybe, would your timing change depending on what the FCC is doing with their definition of the ownership cap and specifically, the UHF discount?
Perry A. Sook
The UHF discount would not affect us at this point or our plans on a going-forward since we reached 14% roughly of the U.S., and that's without the benefit of any UHF discounts. So we have plenty of room to run.
And as you know, Marci, things move pretty slowly in Washington and trial balloons are floated in the press that may or may not become Notices of Proposed Rulemakings that have comments and reply comments. So I'm not really certain that, that's anything that we will have to deal within the hearing now.
And as it relates to specific acquisitions, I can't reveal any specifics, but I can tell you that we are in contract negotiations on 2 separate acquisition projects that meet our criterion right now.
Operator
The next question we'll take is from David Hebert with -- also with Wells Fargo.
Davis Hebert - Wells Fargo Securities, LLC, Research Division
Back to the $500 million, I wonder if you could provide a little math behind that. It sounded like leverage was the primary governor of that capacity.
And if so, what's the inflection point at which -- at which point you'd look at equity for the financing?
Thomas E. Carter
Well the point at which we'd look at equity is when obviously we get to a leverage level that's not sustainable or comfortable in the long term especially when looking at the dividend. But keep in mind that we also, in any sort of acquisition, would get to leverage the free cash flow and the synergies associated with an acquisition because that's the way our credit agreement allows us to do if we can demonstrate those synergies.
So it's not just the $500 million -- or $500 million is not just the leverage capacity on the balance sheet today. It's the leverage capacity combined with the broadcast cash flow that we would be acquiring.
Davis Hebert - Wells Fargo Securities, LLC, Research Division
Okay. And with your -- with ABRY out of the picture, does that increase or decrease your appetite to use equity in an M&A transaction going forward?
Thomas E. Carter
I don't think it changes our -- it's really no change from our perspective. We have been a public company for 2 months short of 10 years, and we will continue to operate as such.
Davis Hebert - Wells Fargo Securities, LLC, Research Division
Okay, great. One of the -- it seems some of the stories around your Memphis overhaul, I wonder if you could kind of do a quick before and after, and is this something you could potentially replicate in other markets, other duopoly markets or is this -- was that sort of a unique opportunity?
Perry A. Sook
Well each market is unique. In Memphis, we were in a very old building that had very limited space for the things that we think are important, which is local content production and local revenues.
And we were by and large forced to move out of the building because the State of Tennessee is doing a highway construction project to a bridge that's adjacent to our building. And so the combination of blowing up the old bridge and pile driving for the new bridge will not create great stability in the studio for doing local news and having cameras.
So -- and the facility was so limiting that there were just some things we couldn't do. It wasn't in HD and Memphis is a significant market to us.
So on the way in, part of our plan was to build out a new facility that was full HD, state-of-the-art with plenty of room for local content and plenty of room to expand the sales force, and that's what we did. We have built out in Little Rock this year to accommodate the additional stations there and the growing business and traffic hub.
We have a substantial construction project going on in Fresno right now to combine the CBS and NBC affiliates under one roof with separate studios, separate studio controls, and again, plenty of room for emphasizing local content and local sales.
Davis Hebert - Wells Fargo Securities, LLC, Research Division
Okay, that's helpful. And on the topic of cable consolidation, just wanted to get a feel of how well positioned do you feel and given all the headlines around Time Warner Cable and CBS.
And I guess, a lesser headline is that Time Warner Cable is also pushing back on Journal Communications, which are -- they're in smaller markets. Just wondering how well positioned you feel to the extent we see M&A activity in that space?
Perry A. Sook
Well I don't really like to weigh in on other people's negotiations as we have plenty of our own to undertake here, but I think what relates to CBS and Time Warner, whether CBS gets its ask or not, I think that I anticipate they will set a new high watermark for station compensation and let me -- I'll just say that I would be happy to draft behind CBS just about any time. I think that given our unique footprint where we operate duopolies or virtual duopolies that are primarily combinations of 2 of the big 4 affiliates in the local marketplace that we bring substantial value to the package that cable operators and satellite operators and telephone companies are selling to -- reselling to their customers.
We deal with the biggest, we deal with the smallest and since 2005, we've not had to pull our signals off the air to get a contract done. I respect those that do and who knows what we might have to do in the future to emphasize the point that we need to be negotiated with fairly.
But it's no different, if we have 2 stations in the marketplace, I think, than Turner Communications coming in and negotiating for a dozen networks at the same time. So both the leverage we have is that our programming and our stations are generally the most watched stations on the local systems.
The MVPD is about 35% of the aggregate viewing of -- in a cable home goes to the local television stations in aggregate. So we think there will be a continued structuring or restructuring of the distribution payment -- the distribution payment distribution, if you will, that people will be compensated more on the popularity of their channel than historically, on the vertical integration of their company.
Operator
Next we'll go to Ed Atorino with Benchmark.
Edward J. Atorino - The Benchmark Company, LLC, Research Division
I was going to ask you to go over the details on corporate. I'll catch up with that later.
You don't need to do that.
Operator
Next we'll go to Tracy Young with Evercore.
Tracy B. Young - Evercore Partners Inc., Research Division
Two questions. First, 3Q, can you give us the same guidance in terms of core growth?
You mentioned the down 1.5%, can you give us the core growth pacing that you're having right now for 3Q? And also, how much was auto up in second quarter?
Perry A. Sook
Auto is, I think, we said in -- I said in my remarks was up about 2% on a same-station basis in Q2. We anticipate an acceleration of that in the third quarter and right now, as we sit, I would say that we would guide to positive results for the third quarter, more positive than second quarter on same-station basis.
And again, the x-factor for us is going to be the AHCA money and how much of it comes in, in third quarter beyond what is already booked and how much of it goes into fourth quarter because that's new territory for us. But again, I think our commentary is that third quarter same-station results and core revenue, we anticipate being more optimistic and in more positive territory than it was in the second quarter.
Operator
Okay. And moving on, we'll go to Dennis Leibowitz with Act II Partners.
Dennis Howard Leibowitz - Act II Capital, LLC
I just have a couple of questions. Just again to clarify with the comments about the core was, the down 1.5% simply national and local.
You were talking about timing differences, which I thought had to do with retrans. So I'm a little unclear about just broadcast advertising.
Thomas E. Carter
It was -- the timing differences had to do with advertising placed by several MVPDs and whether it happened in the first -- in the second quarter or the third quarter, but that would -- it's not part of retransmission fees, it's advertising from MVPDs.
Dennis Howard Leibowitz - Act II Capital, LLC
I see. Okay.
Secondly, your comments about financing the CCA deal at 2.5% instead of 4%, is that incorporated in the $5 per share of free cash flow forecast?
Thomas E. Carter
No.
Dennis Howard Leibowitz - Act II Capital, LLC
Okay. So neither that or anything you might do with the bonds would be additional to that?
Thomas E. Carter
Both of those would be outside of that $5 a share, yes.
Dennis Howard Leibowitz - Act II Capital, LLC
Right. Finally, there was a comment in Sinclair's release that they've terminated a deal with your Inergize division.
I was wondering if that was at all significant.
Perry A. Sook
It resulted in a low buyout number. It's not reflected in the Q2 results.
That actually was transacted or will be transacted in Q3.
Dennis Howard Leibowitz - Act II Capital, LLC
Okay. Is it at all significant?
Perry A. Sook
I'm not sure we should go to that level of detail.
Operator
Okay. And we'll now try to go back to Barry Lucas with Gabelli & Company.
Barry L. Lucas - Gabelli & Company, Inc.
Perry, a couple of items. You did indicate that there's 2 possible deals in the pipeline.
Could you describe whether or not they're bigger or smaller than a breadbox? And maybe more to the point, the M&A pipeline, now that Allbritton is taken off the table and local TV off the table, how would you generally characterize the availability of stations going forward?
Perry A. Sook
I did a presentation for our board a week ago at our board meeting, and it basically had 4 boxes. One was the remaining cash M&A, which we feel is, to our company, robust.
There were -- then the downstream transactions of maybe shuffling stations with another operator to create duopolies in a market and perhaps exit a market and create value that way. Then there's a small group of companies that I would say are on the bubble, under the "should I stay or should I go."
And that's before we get to the remaining large companies looking around the table of each other, which we think there'll maybe be a dozen and deciding if mergers create value or are in the best interest. But the acquisitions that we have pending at this point would get into the 9-figure amount, relatively low 9-figure amount, and I don't want to be much more specific than that, but we do feel there is a robust pipeline of not only principal-to-principal contact development that are nonbrokered, nonauction deals that I participate in, as well as things that are right around the corner that will most likely be announced as a process beginning after Labor Day.
Barry L. Lucas - Gabelli & Company, Inc.
Okay, great. Second item, you had a question earlier about a hard cap on reach and eliminating the UHF discount.
But as you said, that doesn't really have a material impact on Nexstar. Any sense of a possible change in terms of either duopoly rules and/or a little more scrutiny at the synthetic duopolies that you've been so successful in creating?
Perry A. Sook
Well with the synthetic duopoly, each one is scrutinized when the license transfer is put in front of the FCC and they approved them for us as recently as in the second quarter. So we do not feel that there is a change coming.
As you know, there's been an open proceeding at the FCC regarding TV, JSAs since 2004, and the FCC has continued to approve transactions like ours and others on a transaction-by-transaction basis, as I said, as recently as 3 months ago for us. And as it relates to anything other than that, I think that if there is an elimination of the UHF discount and people are over the cap, I think they'll be grandfathered.
That has been the FCC's past practice. When they changed the policy, they've grandfathered, certainly for a period of time, those that have been in existence.
But again, that's not even on our top 10 list of things to think about because that's so far down the fairway that we can't see the flag.
Barry L. Lucas - Gabelli & Company, Inc.
Okay. Last item is political area, and you've spoken extensively about the Affordable Care Act.
But as you look out to 2014 and think about a nonpresidential year, probably lighter than a presidential year, above 2010, when you think about the amount of issues that are around, whether it's Affordable Care or first or second amendment rights and/or the immigration controversy, how do you handicap or think about 2014 political in total?
Perry A. Sook
Well obviously, the entire House of Representatives will turn over, 1/3 of the Senate and on a percentage basis, more for us because of some retirements in our footprint ahead of expectations. And then the statewide races -- given the statewide raises in Pennsylvania and in Arkansas that we anticipate, we again believe that there will be no interruption in the 20% compound annual growth rate for political in our footprint here.
All politics are local and just the way things are lining up for 2014, it should be -- continue to be a record year for us. There are challenges to incumbents in states that are brewing, where people are raising money ahead of next year.
Now we view that as a good sign and so we anticipate political continuing to be robust and continuing to grow in 2014 over 2012.
Thomas E. Carter
And Barry, if you think about where some of the large presidential money was spent in 2012 in Florida, in Virginia, in Ohio, we didn't participate in any of that. So when that goes away in 2014, obviously, that doesn't affect us to a degree it does other broadcasters in those states.
Operator
[Operator Instructions] Next, we'll go to Michael Senno with Crédit Suisse.
Michael Senno - Crédit Suisse AG, Research Division
Just taking another crack at the comments on operating expenses. First, just curious where you were in the process of recognizing some of the synergies in the newly acquired stations in 2Q or if the actual run rate margin will be a little bit higher?
And then second, just as a framework, looking back versus 2011, it seems like margins in 1Q and 2Q, couple of basis points higher, should we -- looking at that comparison, again, the 2011 quarters, should we expect the margin expansion versus '11 to get better in the back half of the year as you integrate these duopolies where you get the margin expansion?
Thomas E. Carter
Right. Well just with regards to your last question first, I think the margin expansion is really related to continued growth in retrans and a higher contribution margin that, that continues to have in 2013 relative to '12 and relative to '11.
So the short answer is, yes, that trend will continue. It will abate over a long period of time as we continue to pay a larger percentage of that to the affiliates.
But relative to historical levels, that will continue to be a positive contributor. With regard to the integration expenses, yes, there were some integrations in expenses.
As Perry mentioned, we continue to build out our Fresno hub. The Memphis facility was put online in early June.
That's been ongoing for almost 6 months, and while most of that is a capital expense, there are operating expenses. You get to capitalize all the building, but when you move the furniture, that's an expense.
Just stuff like that, that really gets into the kind of the sausage making that continues in the second quarter, but it's not overly meaningful, but there are several hundred thousand dollars probably of expenses there that are transition-related, but not necessarily strategic-related.
Perry A. Sook
And we have realized in our acquired stations the vast majority of the synergies that we advertise at the time of acquisitions and those were realized in Q2 and our severance for headcount reduction or whatever it was, those are behind us now.
Michael Senno - Crédit Suisse AG, Research Division
Is 2Q then clean or is it really 3Q is the first number that's clean with all those synergies?
Thomas E. Carter
Q3 will be the first one. And it also helps that we didn't actually buy anything in the second quarter for a change.
Operator
Next we'll go to Howard Rosencrans with Value Advisory.
Howard Rosencrans
One of the questions I believe you responded to regarding political was, if I understood your expectation, is that '14 given your sort of exposures battleground, statewide, et cetera, your absence of exposures in that regard, you are optimistic that are here growing to -- your political in '14 could outdo '12?
Perry A. Sook
Absolutely, yes.
Operator
Next we'll go to Ed Atorino with Benchmark.
Edward J. Atorino - The Benchmark Company, LLC, Research Division
Your retrans, I was wondering $100 million and your weight in the quarter, is there an escalation versus this quarter this year? And then just sort of give us a ballpark what 2014 might look like?
Thomas E. Carter
Well I think for Q3 will look a lot like Q2 from that perspective depending on the closing of CCA, obviously, then we will see a step-up in absolute retrans in Q4. And then as I think we've been pretty transparent, there are a number of large contracts that come up, one at the end of this year and another in the beginning of 2014 that will positively affect average rates going forward, and therefore, retrans, absolute retrans dollars in 2014.
We expect, on a same-station basis, 2014 retrans to be up 20-plus percent over 2013 levels and then obviously, you have to factor in additional station acquisitions and what that means from unit-billing perspective as opposed to a rate perspective. But we think 2014, the trajectory of retrans revenue will be significantly positive.
Perry A. Sook
And I'll just add that since we have 27 agreements that expire between now and the end of the year, we've only signed one of those at this point. So we're being IPO relatively conservative on the guidance on a same-station basis for 2014 because obviously, those negotiations haven't concluded yet.
Edward J. Atorino - The Benchmark Company, LLC, Research Division
And also, you got a big ramp-up in e-Media. Is that similar growth legs behind it?
Perry A. Sook
Yes, that's a combination of Inergize, which is the company that we bought along with the Newport stations, the new stations, and develop their neighbor quite frankly behind in e-Media on a per capita basis to where our stations are here and then growth organically across the entire platform.
Thomas E. Carter
Our e-Media opportunities are significant, as Perry just mentioned, that most of the stations that we're acquiring really don't have a significant e-Media presence or an effort. If -- and by the way, all of the e-Media upside is not included in any of our synergy number because obviously, we have to earn that and that takes time.
But there are several million dollars of additional revenue opportunities available to us if we can get the acquired stations' e-Media revenue as a percentage of their total revenue to the average of what Nexstar legacy stations have done. There is potential, significant potential upside at a very high contribution margin to those businesses.
That's not really factored into our synergies, but we think we will realize over the coming quarters.
Operator
That's all the time we have for questions today. I'd like to turn it back to our host, Mr.
Perry Sook, for any additional or closing remarks.
Perry A. Sook
Great, thank you. Well again, I just want to thank everyone for their interest in Nexstar and for the shareholders for their support, and we look forward to reporting on our further progress on our Q3 call later this fall.
Thanks again. Have a good day.
Operator
And that does conclude today's conference. We thank everyone again for their participation.