Q3 2019 Earnings Call
Thank you. Please go ahead.
Thank you share all good morning, everyone. Thank you for joining us this morning for our third quarter or 2019 earnings call as usual I'm joined by President and <unk>, Our chief legal and development Officer, Kevin Latex and our Chief Financial Officer, Jim Ryan will begin this morning, with a disclaimer that Kevin will provide.
Not in the end of our comments, we will open up the lawn for questions Kevin.
Thank you Hilton good morning, everyone.
Matters disgust on this call me include forward looking statements regarding among other things future operating results.
But the statements are subject to a number of risks in uncertainties actual results in the future could differ from those subscribing to Florida looking statement as a result at various important factors such factors have been set forth in the company's most recent reports about with the S.E.C. and included in today's earnings release.
Company undertake no obligation update these forward looking statements.
Great uses its website is a key source of company information that website addresses W.W.W. Gray dot T.V.. We also will pose an updated invested act to the website within the next few weeks.
Included on the cost will be a discussion of non get financial measures and in particular broadcast cash flow broadcast cash flow less corporate expenses operating cash flow free cash flow adjusted EBITDA in certain leverage ratios.
Metrics or not meant to replace gap measurements, but are provided supplements to assist the public and their analysis evaluation of our company.
In our earnings release as well as on her website or reconciliations of the non-GAAP financial measures to the GAAP measures reported in our financial statements and now we're trying to call the Hilton.
Thank you Kevin.
We were extremely pleased to report the results for the third quarter of 2019. This is a quarter of exceeding expectations. Both in the high end in the low end of our guidance are as reported total revenue for the third quarter was Bob hundred and 17 million, which was at the high end of our previously issue guidance at.
This level, our total revenue increase lot approximately 85% from the third quarter of 2019.
Are broadcasting corporate operating expenses were each below the low side of our guidance are adjusted dos significantly exceeded the high side of our guidance for the past several quarters in a row, we've set new records.
Has cash flow.
The third quarter of 2019 also set another all time record for a third quarter at $192 million, increasing 57 million.
42% from the third quarter of 2018.
This figure also set a new best broadcast cash flow for any quarter in our company's history.
Our political advertising was a distinct high point of the quarter.
Political revenue again greatly exceeded our expectations, especially for an off cycle year. In particular are political revenue was 22 million for the third quarter of 2019 political revenue throughout the year and our expectations for the fourth quarter, certainly point to a record political rather than a year in 22.
<unk>.
Our net income available to common stock holders for the third quarter was $46 million and our net income per diluted common share was 46 cents.
Excluding transaction relating expenses and noncash stock compensation are net income available to common stock holders would have been for 50 cents per diluted common share. This figure represents a strong increase over the second quarter of 2019, which was itself a strong increase so the first quarter of the.
<unk>.
We ended the quarter with the total leverage ratio as defined in our senior credit facility at 4.59 times on a trailing a quarter basis, netting our total cash balance of 326 million and excluding transaction related expenses.
Stepping back from these numbers.
We continue to see local advertising improve across our company and look forward to finishing up the year with the best quarter of the year for local advertising.
We continue to see double digit growth and we transmission revenue.
Although the gross and they met basis over last year over the past few months. The headlines have certainly had a lot to saying.
About both broadcast Retrans and cable channel V. disputes. Nevertheless, we remain very optimistic about our ability to continue to close the massive Gulf between the value, we deliver and the value we received from distributors.
Finally, political revenue has exceeded our expectations every quarter for the past several quarters in a row and this time was no different.
For a number of reasons, we now I believe that 2020.
Shaping up to be another year in which we will set new political advertising records.
I balance sheet has hardly ever been better than it is today.
He announced the re come transaction in June 2018, we committed to paying down our debt.
And predicted rapid d., leveraging resulting from robust free cash flow.
Recorders after closing not transformative transaction, we were able to demonstrate how we have a gun done exactly what we told you we would do.
In particular as noted Arnett leverage is now in the middle fours and continuing to decline rapidly.
Will remain on target to close out next year with a net leverage ratio somewhere in the threes.
Last Friday, we made a voluntary pre payment of $100 million. The 2019 term loan outstanding under our senior credit facility using cash on hand today, we have roughly $200 million cash in the bank.
As always we remain quietly busy exploring numerous and various opportunities to continued running the company through small and large transactions that would make gray and even stronger player and the broadcast industry.
We're now in the latter innings on the consolidation phase in our industry and that makes good money opportunity is hard to find and the future a bit harder to sing.
Still we had been guided and will remain guided by our focus and finding the path that will lead to the highest shareholder value in the long term.
No well I cannot completely rule out the possibility of an excellent opportunity for further N.A. over the next year.
I can confirm that absent an excellent transformative opportunity d. leveraging remains the first priority of gray for at least the next 12 months.
Finally, we had been frustrated with the underlying value of the company in the public markets. Despite the results we get posted in our plans for the future.
We are rightly proud of the company, we have built the people who work with us our margins and efficiency the quality of our assets and the opportunities that lie ahead for all of us.
We believe that recent market prices have not fully reflected the actual value gray television stock and that the market continues to undervalue the company.
Currently the company and some an insider's purchase gray stock during the limited periods of time during the quarter in which we legally could trade.
Yesterday, our board of directors adopted I knew when hundred and 50 million dollar stock repurchase authorization through December 31 2022.
This new plans supersedes all prior plans, including one from 2016 that was scheduled to expire at the end of this year.
It is our intention to return to the market to acquire gray common stock Opportunistically and always and balanced with our commitment to do leveraging the balance sheet.
That's a difficult balancing act, but one that we are confident we can handle.
We're extremely happy with how the company has performed and that people have gray and Ray Com have come together to the first three quarters of this year, we truly are one company pulling together.
Pat Kevin Inge well now add some additional color today's earnings release.
Thank you held and good morning, everyone.
In September Hilton accepted broad Casking cables broadcaster the year war to the T.D.B. forward Conference in New York in accepting This award Hill announced the Grey would join N.B.C.U.C.B.S.A.B.C. Hurst in Grand media and moving from household ratings to costs per impression model for selling advertising.
Impressions provide more granular data for advertisers and just accepted metric used by the digital media platforms with two broadcast television <unk> companies compete.
Last week, we were happy to see next door announce it it to would move to impression base selling.
Selling ads based on a presence will allow us to monetize <unk> better meet the needs of advertisers and therefore should help us and our industry improve local television share video AD sales across the competitive landscape of broadcast M.V.P.D.'s and digital platforms.
In addition, just moved to impression base selling Gray is also rolling out a targeted sales strategy across the group against a couple of key categories Auto and health. We've seen some success here believe this effort will have a positive impact on core advertising sales.
I've been working working on adding capabilities around the sale at O.G.G. advertising as you know, it's the fastest growing sector in advertising, we're going to broaden our focus.
In this area.
Recently, our joint venture with Opera Entertainment Group, a subsidiary of rhyming hospitality properties.
Announced a name for the J.B.'s, New 24, seven premiere linear multicast and S.V.O.D. service dedicated to the country music lifestyle experience, we chose circle.
In a knowledge of the woods circles Grand old Opry stage as you probably know circle will feature original programming centered around artists music hobbies outdoor and offstage Adventures food family and friends. We were on target to launch a linear chat on January 2020 across multicast channels and all of gray stations as well as numerous stations.
By third parties, we expect to launch the networking over 50% of U.S.T.V. homes.
Venture is hard work finalizing new and library programming sponsorships, an AD sales as well as technology marketing and staffing.
A new program ventures full court press with Greta Van Susteren.
Since the New show debuted in September of attracted high quality guess, such as secretary of state Palm payout.
Democratic Presidential candidates, Amy club shower until she gathered Senator Lindsey Graham and other members of the house and Senate Judiciary committees in.
In fact, this week's gassed his presidential candidate and Mayor South Bend, Indiana, Pete Buddha Judge.
[noise], we're also staying true to our mission of highlighting issues impacting local communities tapping indoor station resources with stories like an investigation into the high and inconsistent price in health care.
To an Alaskan town literally washing away due to coastal erosion.
We've now cleared full court press them more than 75% of the country. We're also very pleased with the shows solid ratings performance full court press routinely post higher rating the longer Runnings established network Sunday News shows in Birmingham For example, full court press consistently poster for higher rating just two weeks ago hidden 6.8.
Which means that our brand new show was the highest or second highest rated Sunday political talk show on the air in Birmingham each week.
I know turn the call to Kevin.
<unk>.
To the 113% year over year increase in retransmission revenue on an <expletive> report a basis.
15% increase any combine historical basis.
We should be very pleased with double digit growth.
The numbers could have been a bit stronger.
Virtually all of graze retran contracts reset our rates on January 1st rather than at different points during the year.
As a result are retrans revenue in any money is simply a function of the rate on January one times and number of subs for them on.
If we reprice a major agreements during the year, our retrans revenues would naturally increase of those different points during the year.
Back these small spikes could mask some fluctuations.
Because we have no such repricings during the year you can see so.
Fiber fluctuations in building adjustments pretty clearly in our results.
And the third quarter <unk> revenue declined by about 2% from expectations due to <unk>, primarily at two very large NVP d.'s.
Not coincidentally these two operators over the summer drop or probably threatened to drop nongreek local television stations cable channels in regional sports networks from their offerings across our markets.
From local viewers.
<unk> okay.
Computers, dropping in D.P.D., because they no longer can get a local station or a cable channel or an R.S.N. all the stations in that market Luther subscribers those sub reduction slightly reduced our Q3 retrans revenue and caused us is slightly reduced our retrans estimates for Q4 .
We have no doubt that a good number and probably most of the subs who left one of these two operators in Q3 signed up with a new provider soon thereafter or soon thereafter is summarized it and the new providers could get them hooked up.
Three stop defections from N.D.V.D.'s do not immediately show up and Q3 Retrans revenue.
Rather they will show up in sub reports and payments and arriving queue for an early next year.
We do expect to regain most of the law subs in revenue in the near term.
Over the last we cannot accrue for subs moving to new operators until we actually get fiberboard, telling us where these folks went.
Context, we now have sub reports from virtually all operators are the first half of the year.
<unk> overall, subcount was largely stable and the first half.
Are subcount for the first half excluding needs to very large and D.V.D.'s grew a little bit.
In short we currently anticipate that retransmission revenue for county, or 2019 will be approximately $795 million.
We currently anticipate retransmission expense will be approximately $421 million in our net retrans revenue will be approximately $375 million.
Looking further ahead and helped inside we believe that our current in net Retrans revenue will continue to grow strongly as we keep chipping away at the massive Gulf between the value delivered and evaluate received.
As a reminder, we renew about 22% of R.M.B.P.D. sobs at the end of this year and about 56% for M.D.P.D. side to the end of 2020.
Turning to our two or three political revenue. It was obviously much stronger political revenue environment than we had expected.
We pointed out numerous positive developments in trends over the last several quarters and it's momentum just keeps building and blowing pass are already robust expectations.
After excellent results in the first two corners of the year, we got into an increase.
Revenue for the third quarter of about 40% over 2017, the last Psycho year on a combined historical basis.
We ripped through even at high expectation. It finished third quarter of 150 per cent over 2017, and a combined historical basis.
Oh that from a number of factors re governor races, all turned more competitive in it than anticipated we had strong special state and local races more early.
Early presidential primary money in the first contest states were issue ads.
In short we continue to see political buyers rely on the power of local television stations to convince to sway and to get out to vote.
We cannot be excited.
But be excited about the prospects for political revenue over the next 363 days.
<unk> for the current quarter, we're comfortable got into what we believe is a very conservative range of 20 $526 million and political revenue, which would represent in roughly 80 per cent increase over 2017, and a combined historical basis.
In short, we see historical I was a fundraising engagement strong candidates unlikely competitive races across our footprint.
And now that this week selection is behind US, we expect to see presidential AD spending began in earnest.
In fact, we now believe it or political revenue for count here 2020 will set a new record by exceeding the three the $235 million that we achieved in 2018 on a combined historical basis. Thank you for your time and natural Nicole over to Jim Ryan.
Thank you Kevin Good morning, everyone I am going to pre apologize if my voice is a little bit off or if I'm coffee and I managed to pick up a cold in the last couple of days.
Our earnings release in it is obviously got a great deal of detail and the 10-Q . will be filed a little bit later today.
<unk> with the way, we've always reported we report kind of gap basis, which we call as reported in our disclosures. In addition, we presented results in guidance in the earnings release on a combined historical basis, which gives the fact to the acquisitions in disposition is it the transaction occurred on January one 2017.
I'm going to keep my comments on the results of operations for Q3, and our guidance for Q. or two a combined historical basis.
Please note that Q3 combined historical does include the two stations acquired from United Communications earlier this year.
And also please now that are queue for combine historical guidance does include not only the United States students, but also our acquisition of K.D.L.P. in Sioux Falls, which occurred in late September and the Charlottesville station transactions, which occurred on October 1st.
Overall, we're pleased with the results for the third quarter.
In General I third quarter revenue was in line with a higher side of our guidance in core revenue, especially local T.V. revenue did show modest sequential improvement over the first half of 2019.
Factoring in the much heavier political revenue in Charlotte, Mississippi, Louisiana in Kentucky, We believe our core local was flat to 2018 Q3.
<unk> three we did see strong growth euro per year in several categories with financial advertising up 8% legal up 9% as well as continuing strength in our home improvement category, which was up 9%.
Compared to 2018.
There are a quarter broadcast operating expenses were better than expected within the overall quarter over quarter increase of 12 million, but dad 12 million included an increase in retransmission expense of 16 million, which was then partially offset by decreases another operating expenses the production companies and.
Corporate expense lines came in with an expectations.
And the third quarter of 2019, we had a total of 2 million of transaction related expenses of which 1 million hit the broadcast expense line and the remaining million Wizard corporate expense.
Your today, we have an aggregate of approximately 70 72 million of one time only costs transaction related costs comprised of 28 million a third party contract termination fees.
4 million of professional fees, and approximately 20 million of incentive compensation and or severance.
These costs about 38 million was included in our broadcast expense line in 34 million is included in our corporate expense line.
The fourth quarter. We currently anticipate at least 2 million of additional transaction related expenses split approximately evenly between the broadcast in corporate expense lines.
As discussed on our last call, we reaffirm again, our belief that the re calm merger will result in approximately 85 million of annualized first year synergies, which is 5 million more than originally estimated at another synergies fall into two basic categories operational synergies of about 42.
A million dollars in contractual arrangements of about $43 million, we're always looking at opportunities streamline our operations and then make the more efficient as such there maybe a few more synergy related projects will be able to accomplish before the end of this year.
Turning to the balance sheet is held in that already mentioned that our total leverage ratio at the end of September was 4.59 times.
Based on a trailing a quarter cash flow of 791 million with an aggregate principle amount of outstanding data 3.96 billion, we had cash on hand at the end of the quarter of 326 million and again, it's Hilton's said, we used 100 million of that cash last Friday to voluntarily.
Pre pay $100 million of our outstanding term loan see we continue to anticipate lightbridge decreasing lower end of the fours by the end of this year in comfortably into the three's by the end up 2020.
Hmm.
[noise] turning to our fourth quarter guidelines on a combined historical basis. We currently anticipate that local broadcast revenue will demonstrate improvement over the first nine months.
National broadcast revenue, well still challenged especially with lower auto advertising is still expected to show continuing improvement over the first nine months.
And it's a cabinet already mentioned our political revenue guidance. We think is very conservative and we are cautiously optimistic that the political number will pick up as we move through the rest of the fourth quarter.
Core broadcast expenses are expected to decrease between 22 in 25 million compared to queue for 18.
<unk> Daddy secluded anticipated 15 million of increased retransmission expense transaction related expenses and naqqash that compensation.
Ah well Ross, who excluded from that overall decrease.
In addition, corporate expenses currently anticipated to decrease two to 4 million from 2018, reflecting ER, excluding transaction related expenses and noncash stock compensation.
These decreases demonstrating part the the realization of our Ray calm synergies.
Considering the full year 19 based on our Q3 results today in our queue for guidance. We currently anticipate that full year 2019 revenue will approximate 2.1 billion. Our total operating expenses for the year before depreciation and amortization gain in Los Angeles.
A little over the assets, including the 74 million of transaction related expenses will approximate about 1.5 billion.
Full year noncash stock compensation is is that anticipated to approximate 14 million are operating cash flow for 2019 is currently anticipated to approximate 700 million.
We currently anticipate our capital expenditures, excluding repacked related capital expenditures, we'll approximate 80 million and cash taxes are currently expected to approximate $25 million.
Finally, as we set our cue to call that we believed are free cash flow wouldn't be comfortably over $300 million for this year and we're pleased to say at this point that we anticipate that are free cash flow will range between 315 in $325 million for 2000 in 19.
At this point I'll turn the call back to Hilton.
Thank you Joe.
Operator, we're now open for questions.
<unk>.
Keypad.
Kyle.
Please go ahead.
[noise] Kyle Evans your line is open thanks, sorry.
I can hear the excitement of People's voices over there around political.
That's traditionally kind of been Blitz after labor day, but it looks like we're starting early spending a little bit more could you tell us which you kind of think the spending curve will look like as we approach the big spend the six weeks before the race that I've got some follow ups.
So historically.
It's cycle after cycle.
50% or more of the total political spend is always shown up in the fourth quarter.
2020 could be a little bit different for us because of our exposure to.
The early primary states.
And so there might be a little bit more.
We think in first quarter that normally would be there, but we still think a the bulk of this band is gonna be in that traditional post labor day September October timeframe.
But I'd like we do believe that our first quarter, we'll probably see a positive benefit from from the early primaries.
All right.
My recollection is that when we were trying to put brackets around 18, we were thinking about some difficult comps that were in the 16 numbers from Alaska are there any big pieces, we need to be thinking about as we grow 20 off of your pro for your CHP 18 number that you guys.
Alaska was a $25 million in 2014 not 2016, okay.
Yeah.
Oh, there's a lot of good news out there.
So.
There's nothing that stands out like the Alaska 25 million hours is a huge percentage chunk of what we had a CHP basis in 2000 <unk>, Yeah, we were referring back to in 2016.
There's nothing that really stands out like that.
This time gotcha.
You are now in some larger ray calm markets could you comment on any notable market size change difference that you see in terms of core and maybe even retrans sub counts.
But to make sure I understand the question Kyle it's Pat the platinum so.
Hi, <unk> are you asking about core performance in larger markets relative to smaller markets.
So so look I mean, <unk> as with last quarter, we didnt see a.
Huge differential between our performance in larger markets versus the smaller markets.
And you know sub counts I should ask you guys I mean really didn't see any yeah I didn't see any real difference you know in Charlotte relative to two or shoulder Cleveland relative to smaller markets.
Great and are you.
Yes. This is hard for you to answer, but I think it's only feasible to asking on a relative basis.
How exposed to satellite or you versus your peers.
More or less roughly.
Yeah, I call I I have no idea to know how exposed our peers are so I don't know how to compare that.
I mean, there there are two of our.
Two of our three largest operators are satellite providers I suspect that everyone else can stay the same thing.
But I I don't I would have to ask everybody else that's true.
Okay, Great one last one the obligatory auto question.
I have to ask it kind of how's the pacing in for Q1 Whats Your 2020 I look like.
[noise] fourth quarter it's.
Again on a relative basis looking a little bit better right now now again that's pacing.
But I would say, yeah, a little a little bit better.
The first part of the year, which is encouraging.
Next year.
You know, we're still in our budgeting process. So.
It's.
We're still kind of framing our expectations for next year, but I, but we have been encouraged by the sequential auto seems to be getting a little bit better each quarter. This year. So that we're glad to be our expectation going into next year at least the first part of next year.
That continues to get a little bit better now.
Massive amounts of political show up later in the year as you've seen many many times where that's.
I will be a different story, but that's a high class problem they have.
Yes. Thank you.
Thank you Carl.
Your next question comes from Aaron Watts, Absolutely Keybanc. Please go ahead. Your line is open.
Everyone. Thanks for having me on a couple of questions for me I.
Maybe I'm parsing things too closely here, but it looks like a little bit of a slowdown in kind of the core advertising environment from Threeq to Fourq. You is that just the impact of a little more political or is there. Some other levers that are kind of pulling the strings there.
Well there definitely was in a in a.
It's a sort of a tight part of our geography bomb core displacement due due to political so in Charlotte with the N C. Nine raise in Louisiana, Mississippi in to some degree in Kentucky with the gubernatorial races. There was some core displacement. So if you're you know if your [noise].
If you take that into account you're relatively flat there for the quarter.
On a local <unk> and I think part of it may be just in the the guidance ranges in rounding large numbers I mean, my my personal expectation is the Q4 cord, especially the local is again at the end of the day gonna be slightly better than what we've seen a the for the first six nine months.
For the year, so maybe a little bit more optimistic.
Ah you know that it's it's getting again getting a little bit better in again if our.
If our political ends up in Q4 doing what it did in Q3 and greatly exceeding expectations.
Then, we're probably going to see some displacement a little bit which will impact the core but if that happens again, it's a it's.
It's a problem I'm happy to deal with.
And [laughter], putting political aside what would you say the biggest overhang is as you speak with their sales people who have feet on the ground in the markets that concerns there hearing from from your advertisers.
I mean, if you go to cat category basis autos auto is challenging.
Oh the.
The upside you know Legals legal has been very very healthy for a long time and we've got some upside on the finance side, which includes insurance.
You know, but but generally activity as well, it's not it's not great it's not awful either.
Okay, and then just I had a bigger picture question for you guys.
Curious if you would anticipate the launch of a couple of these heavily promoted new streaming services.
This month and then obviously a couple more coming next year to have any real impact on on your business, whether it's from kind of or audience rating standpoint or from on the sub base and cord cutting just curious your thoughts on that.
Oh.
I think we counted as we saw a note that said there are 27 over the top providers that have launched or are launching a it seems like a pretty crowded field. So I guess our takeaway is.
Whether it's whether there is 27 or 26 or 15. These over the top providers are in 2020 the.
And except pushing people should push people to us.
Got it cable or satellite bundle.
It's a heck of lot easier and it seems more cost efficient then signing up a bunch of these providers the splintering off a day ecosystem.
Obviously optimistic that is going to actually help us.
Pain subs in the ecosystem.
Okay got it thanks very much.
Thank you Aaron.
Your next question comes from that Steven Cahall Wells Fargo. Please go ahead. Your line is open.
Thank you so Kevin maybe first just on Retrans so to be clear do you expect Q4 to be though low watermark for gross retrans between what you're seeing on the subscriber accruals and the repricing that you're doing at the end of the year and then I think net retrans decelerated a little more in the quarter is that just due to the fall.
Steel and I was wondering if you have any commentary on maybe well net retrans might look like next year. You know is it up mid to high single digit low doubles I don't know if I can pin you down, but I figured I'd try.
[laughter] Oh, so a Q1 started with a lot of billing adjustments coming in from the prior year.
A lot of catch up payments, we ought at some providers. We explained that on the call for Q1 results and we will look we're cautiously optimistic the Q4 is going to turn up better than what Weve predicted as I said, we think these folks who left the two big operators over the summer are going to start showing up we're going to payments, but we don't we can't and Krwforty until we know.
What is there a come Q1, we will have repriced roughly.
Yes of our.
Sub base and all contracts. They don't reprice will have an escalator and the low very low double digit range. So what we do nothing or grow should grow by a low double digits and again.
50, this hubs will be reprised under new schedule. So yeah, I'd say looking at this year next this year next year Q4 is absolutely.
I should be Oh, well water markets you referenced it.
Two things happen.
Second half of this year Fox Repriced on July one we are all markets and then you go back in 2014, when we sign or last CBS deal with a five year deal that went through August 31 of 2019.
That we did a contract with CBS that added a couple of years to all of those CBS market affiliation agreements about two years ago, the new prices kicked in on.
September Onest 2019, so our CBS has stepped up to a you know a market rate on September onest instead of the rates that we negotiated back in 2014 than we were paying in August of this year.
So we have the CBS impact coming in in the middle or to.
Through the third quarter, and we'll certainly see that impact through the rest of fourth quarter. So that that's why you will see the net retrans is ticking up a bit in Q3, and then especially in Q4 is we have a full quarter of CBS and full quarter Fox.
Look at rates.
And looking at next year.
Our numbers show us growing that in gross but we're not prepared to give any guidance. We have again, some significant negotiations coming up in this year and don't.
I think it's appropriate to be giving guidance that may be used against us and that's negotiations.
And then maybe a quick follow up for either for Hilton or or for Jim When we think about the new share repurchase authorization how much of this about just seeing the value in your shares in the market versus incremental positivity on the free cash flow that you're generating and I guess, if I think forward with more than probably 400 mill.
In in average two year like blended free cash flow do we think about like maybe a third of this is something that you would want to put to repurchases versus debt reduction or any way to kind of frame debt reduction versus share repurchases would be helpful. Thanks.
I think Hilton was very clear that the first priority absent the.
Some sort of compelling M&A would be to debt reduction in de levering.
But you are right that there is you know, it's it's nicely over 300 million of free cash this year in an 18.
We did over it was around 500 ish I don't have the numbering from either was very healthy. So your 400 ish is you might even be conservative as you move through 20.
So I think.
We do clearly think the stock has been undervalued and as Hilton said, we intend to be opportunistic from time to time.
And but we also have the capability and that free cash to be able to do a little bit of both at the same time of reducing our debt and being maybe a little more strategic.
From a stock buyback standpoint, so I think you'll see us being trying to be balanced.
And a little bit will depend I think on especially over the next 12 months.
Where are the broader market is value in us if we're getting what we think as a reasonably good value that might be one answer and if we think we're being.
Significantly undervalued, we may tipped the scale in favour of the other direction a little bit.
Thank you going I think Thats I do I think that's fair I think we're going to try to balances out.
But we're going to have see how everything sort of matures out, but we're seeing the benefits of the.
But the synergies from the Wavecom transaction.
And our free cash flow is coming in really in a superb fashion. So we think we've got ample free cash flow to meet our targets to de lever while at the same time.
Giving some returned to our shareholders through stock repurchases.
Great. Thanks, a lot.
Yes.
From Marci Ryvicker Wolfe Research. Please go ahead. Your line is open thanks, Kevin do you get the sling sub numbers on a delay from when you got to guess DBS sub numbers argued both of those numbers come the same time for the same on time.
Actually asking you because guess reported this morning, and slaying had a pretty big game.
Yes, we were encouraged to see that.
To the dish number for Q3 was a lot better then.
What we had expected.
So that bodes well for.
The reports were going to be getting over the next couple weeks and months, we do not get sling numbers MRC, because sling is carrying ono stations and not carrying affiliate so they won't give it there's there's no there's no carriage of local TV stations.
And therefore, no reasons and as reports of payments.
Got it and then I'm not complaining about the share repurchase at all but at some point grey wise a dividend pair. So curious if there's been discussions about returning staying a regular dividend if that would depend on your leverage ratio and why retail over dividend.
Why not both.
Marci.
I will tell you honestly, our board discuss that subject matter yesterday, our board of directors meeting.
The question is when not if we will be returning to paying.
Dividend and relatively soon its something that the board ways very seriously and something we are likely to give you some news on.
At some point in the future.
Great the follow up Marci and that very quickly if you recall a couple of years ago prior to the re comp transaction.
Several quarters in a row Hilton said exactly the same thing as we began to bring leverage down. So this was kinda like the 17 18 cycle and we were thinking ahead to the end towards the end of 18, and he said something in that kind of the same thing then it and so I think we're now having done ray calm that that shot clock got reset two years Ford and it.
Really kind of looking through the 19 twenties cycle and as we go farther and farther into 20 I think.
You know those discussions will pick up.
A more and more importance.
Thank you.
Your next question comes from Jim Goss of Barrington Research. Please go ahead. Your line is open.
Thanks, and this might tie into what you have just been talking about seems to me that if you get leverage your successfully getting leverage down to the three is by the end or 2020, that's really low relative to anything extra remember for lots of years.
At some point do you do you do you have to reprioritize or your whole notion of what it was sequencing of capital allocation because it.
I don't think they'd want to get much beyond three.
Jim I think that point is very fair that if when we get leverage down to a very very comfortable zone. It get it does allow the company then to reconsider and Reprioritize, It's a free cash flow right in the immediate short term, we're going to be a little more balanced.
But if we end up in 2020, where we absolutely expect to be that I think our I think it would be very appropriate to repeat reconsidering those allocation priorities.
Okay.
And this might be a Kevin but I'm wondering in terms of the sub reduction should have experience is there any greater moved to antenna usage.
So choose to try to find OTI to services.
That would retain your exposure for advertising, but you lose some retrans dollars from that.
Jim I think thats been going on for a number of years.
Hi, good going back to one broadcasters put up digital signals and we put out a.
Very high quality high definition signal that is much better than what you can get on a lot of cable and satellite systems.
Folks have been discovering antenna. So we certainly seeing the OTI to print OTI a penetration over the air penetration increasing every year every market. The estimates are kind of how are the place no one really knows.
Probably a lot of folks who.
Have both the pay TV subscription and OTI a.
TV somewhere around the house.
You're right it as people move to OTI, a that that helps us with our multicast business, which is available to those folks and not generally available on cable and it continues to reinforce the message to advertisers that we are the only provider that can reach 100% of the homes the market our regions better then.
Advertising on the cable satellite folks who also sell against us because they can we reach a portion of the market. So it helps us with.
Sales I will caution that we we don't have real confidence at the rating agencies are.
Measuring in India. So those OTI household yet and that's that's a challenge that.
For the industry and challenge the rating folk so.
We.
We do need to capture those and we think it we were if we had actually measured the OTI a homes, we would see a ratings we lot higher than that and what the ratings agencies are showing us now.
Okay and my last question is Ah I think everyone a seem to embrace the notion that political is going to be great and 2020. I'm wondering is there anything that you think could go wrong that could derail everyone's optimistic or assumptions.
President is getting in piece right now.
House in the centered around play Virginia to split the state legislature no I mean, the presence not going to get on impeached that I don't see momentum that would make the house or the Senate less competitive.
If anything I think the bias is in favor of becoming more competitive impeachments only just starting we don't have public trials, yet public hearings, we don't have.
We don't have a trial in the Senate. This is going to become more of an issue more devices and you know at any moment Supreme Court Justice could retire.
And that that will bring out even more.
Even more interest in.
In the 2020 election, so I think all the buys in favour of being better not weaker so.
Yes to go back to trombone Trump trumps raised more than $150 million, that's about $150 million more than you raised at this point in the 2016 election.
And they are you know every expectations that they will be playing aggressively on broadcast television. This time around and the Democrats are not going to make the mistake of skipping states like Wisconsin, Ohio, Michigan and in fact vending we see that the number of.
Toss out and competitive presidential States. This time is wider than it was 20.
16, there's just more frankly more states in play.
So that's good for us even.
Even if you if you take what we announced this morning in terms of our political that's an all time historical record and this is an off off year. So we have absolutely no indications that theres anything other than robust optimism for next year's presidential election year.
I know that I'm, probably the biggest optimistic on this call.
But I expect really large numbers.
Let me just give you two data points Jim on.
Richmond, which we didnt even call out on this call earlier.
ER NBC station Richmond had 14 separate candidates on the air for State House.
That's.
Never seen that we typically don't see lot of spending from stay house candidates, we had 14 on the air and our and our MBC enrichment.
And just another antidote election day.
You know is to see this week, but not Louisiana there. The Governor's race was couple of weeks ago Theres, a runoff that takes place a week from Saturday so.
We're still seeing spending in Louisiana in fact on.
On Tuesday, we had we got caught remember in Louisiana, we have very strong stations and and New Orleans Baton Rouge report Monroe now, it's Andrew So we cover almost the entire state there.
We got another 300000 hours with the waters and just one day and that was on election day, when everything else quieting down in the money was still coming in so.
Biases in favour of it being better not weaker.
Okay, well as concerned as you sounded a few years ago you sound a 180 degrees. The huffs at this time around life. This is you know it goes I would say 16 was afraid this year that I think any of us have been through in terms of political spend.
Mean Hillary doesn't stand in the Blue States you saw about you know she had them Trump was able to do rallies and debt free coverage. It was a unique position that I don't I don't really think will oversee again and so I think 2020 is gonna be.
Like it's going to blow through the ceiling.
All right, we're holding is that.
Thank you.
Well I'll take that but alright, okay.
Thanks much.
Your next question comes from Dan Kurnos of Benchmark. Please go ahead. Your line is open.
Great. Thanks, Good morning, and their goes your political guide for next year I'm, just a couple of questions. Its Olympic into your Jim I don't know, if you announced a the Oh, what synergy capture you would have through Q3, but I mean, you guys are crushing it on the expense side. So you know I mean, you see.
I have mentioned that you could exceed that number even in year. One so I'm just trying to get a sense of where you're at and how much of a delta we could see heading into Q4.
I.
I I think it's going to be hard to see.
See much more in the Q4, I again that that core number which you can see from the guidance table. When you back out the transaction related the route back out the reverse comp.
Is down significantly year over year. So I think that's a that's your real indicator of years synergies synergy realization, we've got a few more automation projects a.
One at a couple of stations that.
Habit potential is still being completed this year, which will allow us to reduce staff a little bit in those places, but it's it's getting it's kind of at that point you're into the weeds in its its.
It's a well that's helpful in and increases our efficiency, yeah, it's not really going to move those numbers, especially when year over year were down twentyish million dollars already.
Got it that's helpful and then I guess Hilton probably the only question you haven't been asked is on the M&A front do you think there needs to be larger consolidation at this point in the later innings and your willingness to be on the other side of the table as a recipient bid.
Sure.
I'm glad you ask.
The answer to your first question is yes.
The answer to your second question is gray is not interested in putting itself out for sale.
But it is interested in candidly I'd say very interested.
In any one of the number of permutations that would grow the footprint of our company larger than it is today and the best long term interest of our shareholders.
I suggest that you look out.
What we did just three months ago with Ray column.
We handled.
Lots of social issues, we handle Watson political issues, we handle lots of operational issues in a very seamless.
Tactile and professional and personal and professional way.
You Didnt see us coming in with those.
Synergy numbers and raping and pillaging our TV stations, because there's too many on that or to Dan good but gray is interested in any number of permutations, there's a million ways to.
To get a deal done and we are interested or we interested in picking up the bone and calling the bank from putting us up for sale not a chance.
But we'll see what the future brings and gray can move on adoption and.
Administrated its capacity to do so our board is certainly in favor of different potential.
Ideas, whether or not any of those come to pass we don't know.
We're also stubborn took a 16 months to get Sioux Falls done, but we are we stuck with it for 16 months damn near killed Kevin latex once everything done by the end of the day all right.
But we stuck with it and so.
I hope I've answered that question on both sides Dan.
Yeah, No that's super helpful and I think we all know pie is not on Kevin's Christmas card list at this point.
Oh no. He peaky eventually got back on my Christmas Cardless, it's okay.
It's a good man [noise].
Thanks for the color Hilton.
Thank you.
Your next question comes from Michael Kupinski normal capital markets. Please go ahead. Your line is open.
Thank you and first of all I want to applaud the company for moving towards a cost per impression model I think it's a logical move it makes sense, but have a couple of questions I'm just trying to get my head around that historically TV pricing has always been the umbrella.
Other mediums in the local market and in moving to a cost per impression sales model can you talk a little bit about the challenges are living to this model how have advertisers accepted it how does your pricing stacked up against the other mediums that offer cost per impression can you just give us some sense of what the variants.
In pricing might be.
So with early in the game right.
Yeah, I would I I think the.
I think the real upside is that you know when you when you sell local television you have.
You are on near 24 hours, a day and you know all of those quarter hours actually draw audience and in the World. We live in today, it's difficult to sell a 0.6 rating at 145 in the morning, even though there is engaged audience there and so you know the good news for local TV is.
We have a big audience relative to relative to most other media and you know.
Being able to take our very large linear audience.
And ultimately combine it with whats, becoming an enormous digital audience.
It is a great benefit US you know again, when you're you've got a bunch of different measurement systems that you deal with today across different platforms.
Ultimately the goal will be to bring it all together and once you can aggregate all those have been pressures in the same place it's a significant advantage.
Gotcha and does the move to increase the potential revenue opportunity I mean, I just kind of looking at it from the that the potential positioning the company to get a larger pizza programmatic or automatic buys and then I'm just wondering in terms of moving towards the cost per impression model do you now compete with other broadcasters in terms of.
Their rates I'm, just trying to understand how the industry's moving in that direction.
I know, you'll still be competing with other broadcasters, but it but again I think it's not just gray I think all but most of the other broadcasters the news business have.
Other platforms, where they gather audience and ultimately you know it's good for the entire industry should be able to utilize all that audience in a in a single sale and by the way, it's really better for my opinion better for the buying community to one of our challenges is getting our large linear audience.
You know <unk>, allowing are making it more accessible to buyers and that's something that you probably read about the chip initiative and other efforts in that area. So it's all sort of.
Yeah again early stage, but it's all moving into right direction.
Great. Thanks for the color appreciate it.
Sure.
Your next question comes John Kornreich of J K Media. Please go ahead. Your line is open yeah, Jim Real quick can you repeat what you said about.
The full year 2.1 billion estimated revenue what did you say about expenses.
I said.
Oh estimated expenses, including the 74 million of transaction related and that would also include non cash stock comp is about 1.5 billion.
So adjusted is for that is more like 1.4, but is that after corporate overhead or is that a bcf.
Kinda now that's a that would include the corporate overhead number and I also said that the full year operating cash flow is we've defined it for years a is tracking to be about 700 million. This year right weve MCE to definitely airline yet around it.
Yes, that's it obviously Oh C S not a bcf that's correct. That's no. It's an l. eight CF, which would put the two year blended yet.
You know a call it a 800 ish Zip code.
Right the Bcf.
Oh, Yeah founded on a two year blended average two yes it okay.
Maybe around eight 800 in the and the 19th straight up both CF just for the 12 months of 19 is looking to be around 700.
Right.
And on free cash flow I think you gave a range of 315 to 325.
Yeah is that just fiscal 19.
Yes.
Is that net of 75 million transaction expenses.
It excludes the transaction expenses.
The exclusion okay.
Mhm that's it thank you.
Okay. Thank him.
Your next question comes from Kyle Evans Stephens. Please go ahead your line is open.
One quick follow on I believe Pat you mentioned broadening.
The company it was.
For a little bit more detailed there you have three competitors that have named.
AD exchanges I was just kind of wondering where you might go with this.
<unk>.
Yes, so I can't be terribly specific today, Kyle, but I would tell you that we're moving directionally as quickly as we can.
Okay. Thank you.
There are no further questions at this time I will turn the call back over to the presenters for closing remarks.
Well, thank you Sheryl and I just want to take one quick moment to thank all of you again for attending this morning, we're very excited about what we have achieved so far this year.
The synergy numbers are clear, but more importantly, the operational success of bringing these two great companies together I think has been sterling.
We truly are one company and we are working.
As one and I'm enormously proud of the team of professionals in our stations in our shared services and our corporate headquarters across the country and what they have achieved and what they're building and it really is an exciting and invigorating Tom for our company. Thank you for being here and we will talk to you at the end of.
A year.
This concludes today's conference call. Thank you for your participation you may now disconnect.