Q4 2019 Earnings Call
[music].
We are any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today Hilton Howell. Thank you. Please go ahead Sir.
Thank you operator, I'm going to form the we have several people still in Q. So we decided to stop says we need to go through some preliminary things before we get into the mid about discussion. This morning, but I'd like to welcome you to all my fourth quarter 2019 earnings call.
Welcome to all the chairman and CEO Gray television.
During the week put all markets.
Continue to meltdown were exceptionally pleased that you have chosen to join US This morning and spend their time with us as usual I'm joined today by President go see about the flattening, our chief legal and development Officer cabin light Doug.
Our Chief Financial Officer, Jim Ryan will begin this morning, with a disclaimer that Kevin will provide.
Thank you Hilton and good morning, everyone certain matters discussed in this call may include forward looking statements regarding among other things future operating results.
Those statements are subject to a number of risks uncertainties actual results in the future could differ from those describing a forward looking statements as a result, the various important factors set forth in the company's most recent reports filed with the FCC and included in today's earnings release.
The company undertakes no obligation to update these forward looking statements.
Great uses its website as a key sorts of company information the website addresses W.W.W.G.R.A. why dot TV.
Well I suppose an updated investor deck to the website within about two weeks.
Included on the call will be a discussion of non-GAAP financial measures and in particular broadcast cash flow broadcast cash flow with.
Corporate expenses operating cash flow free cash flow adjusted EBITDA in certain leverage ratios. These metrics are not meant to replace GAAP measurements, but I provided supplements to assist the public in their analysis and valuation of our company.
Could it in our earnings releases walls or web site, a reconciliation to the non-GAAP financial measures to GAAP measures reported in our financial statement and now we're trying to call the Hilton.
Thank you Kevin.
Exceptionally pleased to report the results of the fourth quarter 2019, and our full year results as those of you follow Gray already know we completed our acquisition away column on January the second 2019, as well as several small acquisitions subsequent to year.
These transactions have positively affected our results.
Our as reported total revenue for the fourth quarter was 579 million and a net income was 94 million.
Broadcast cash flow was 229 million and our adjusted EBITDA was 216 million. This was simply a fantastic quarter, and which we set new best ever record quarterly revenue and broadcast cash flow and our adjusted EBITDA significantly exceeded our.
Collective expectations for the full year 2019, our revenue top $2.1 billion, which was a $1 billion or 96% increase over 2018.
Our net income for 2019 was 179 million our broadcast cash flow was 729, Megan and our adjusted EBITDA. In 2019 was 714 million outperformance. This year has set new records.
No revenue and broadcast cash flow.
Our 2019 free cash flow was 273 million, which was 4% higher than in 2018, and 60% higher than 2017, the last half year of the to your political advertising cycle.
On a combined historical basis that adjusts for our acquisitions and dispositions our free cash flow for full year 2019 was 358, Megan which was 19% higher but our free cash flow and 2017, which also significantly.
Ceded our previously issued guidance range.
Turning to political we again posted political advertising revenue, but well exceeded what it initially had seemed to be very high expectations. The fourth quarter produced 38 million a political advertising revenue.
The full year 2019, our political advertising revenue was $68 million.
For comparison on a combined historical basis, which again adjust for our M&A activity.
Political advertising revenue was 171% higher in the fourth quarter or 2019, then the fourth quarter 2017, and 2000 like teams for your political revenue was 119% greater than 2017 spool your political advertising rather.
We are bullish about political revenue less revenue prospects.
2020, and all off to a fun start this year.
Our net income available to common stockholders, excluding transaction related expenses.
Non cash compensation was $91 million were 91 cents per share the fourth quarter, <unk> and 198 million a $1.98 cents per share for full year 2019.
2019 was not only in a year, but new milestones and records for Gray television. It was also another year of Gray's local television stations and their weight journalists, making a wheel difference in their individual communities.
Last year, our stations collectively one nearly 1000 prestigious awards, including 280 180 Awards 200 stay broadcast Association Awards 59, Edward R., Murrow Awards, and 73 Emmy Awards.
We could not be more proud to be great work of our colleagues from Hawaii, and Alaska to maintain and Florida and all I want to places in between.
In terms of the business, we finished the fourth quarter with the best showing for local and national core advertising in several quarters, both local and national core revenue stabilized in the fourth quarter and when you factor in the political displacement that crowded out our core advertisers and an awful lot of.
Markets the quarterly results revealed a core advertising demand is growing again.
Likewise, the first quarter 2020 is showing the same stable core revenue despite heavy political demand and the greater than usual displacement. This year. So by a b C. CBS NBC stations, resulting from Fox broadcasting the Super Bowl to share.
In short, we're very pleased with how the fourth quarter and the you're finished and we are very much looking forward to the new year.
Pat Kevin and Jim will now add some additional color todays earnings release, and thereafter, I will make some concluding remarks, and then open the line to any of your questions.
Hi, Thanks, Hilton and good morning, everyone yesterday Grand checking a jointly announced a strategic partnership of which gray will acquire a minority ownership interest in premium on it or local stations will gain access to premiums O.G. inventory is local resellers of it service.
As many of you know premiums TEGNA is industry, leading O.G. advertising platform in fact premiums one of the most prominent and probably the most local advertiser friendly AD platform in the marketplace today.
Through pre me on her stations will be able to sell inventory to the local advertisers on a broader wave streaming networks platforms and devices.
Other than our own station websites and apps.
Using Permian into place their clients messages alongside premium long form live and on demand video channels, our stations will be able to grow their AD revenue and better compete in the very competitively digital video space.
To be clear put me on does not change our digital strategy as we still control all the inventory in our own web sites and apps in that regard we've completed the integration to really fine digital teams a grade Ray Com brought in house to work previously done by outside digital vendors and now have a much stronger business under great digital media.
These efforts are producing clear results just in terms of traffic in December of 19, we crossed 100 million unique users across our digital platforms for the first time.
For the full year on a same station basis, we saw 20% increase in sessions, a 31% increase in video plays into 32% increase in unique visitors then following a record breaking December we saw traffic grow even more in January primarily because of severe weather events.
219 million visitors.
Clearly our own digital products are resonating with local viewers.
Just as importantly, we're doing a better and better job each quarter monetizing this traffic, particularly video.
In short a row digital products plus the premium reseller arrangement ensure the grace contracts in sales operations are exactly where consumers and advertisers are moving today.
In terms of our two national programming initiatives, we started the year strong and we continue to surpass our own internal milestones earlier than expected.
First the new linear multicast service called Circle launched on January 1st has made quite a splash among its target audiences.
Recall that surplus a 50 50 joint venture with Opry Entertainment group, which is a subsidiary of Ryman hospitality properties.
We and Wyman are investing intelligently admit intelligently to make circle the success right out of the gate.
The network launch was 17 original shows that we have more development for comparison the average basic cable network runs about China originals per year.
You may recall that we were aiming to launch circle in a bit more than 50% of U.S. television households. Today, just two months in circle is distributed by television stations, reaching roughly 66% of total U.S. TV households, thanks to circles distribution partnerships with CBS TEGNA Meredith Gray and other broadcasters.
Our second National program initiative is full court press would rather been saw strength.
Which launched in September with a number of high profile guests.
Election is top notch in Grad is doing a great job of melding, Washington, policymakers with the resources of local television stations to create a different kind of Sunday political show.
We're very pleased to report at full Court press has now cleared in over 82% of the country, including each of the top 25 markets.
Circle and full court press are off to great starts.
Do not however in vision launching any additional national programming networks or programs in the near term instead, we're focusing our efforts on making sure that these initiatives meat and surpassed the goals we set for them.
This brings me to our video production companies. This group comprises Raycom sports Archie M. studios in to blow Raycom collectively the revenues and expenses were flat between 18 to 19 and they produced about 12 million an annual positive cash flow.
In the first quarter 20, we're anticipating a decrease of approximately 16 million of revenue offset by a drop of 15 million in expenses.
Revenues at the production companies will be down primarily because raycom sports no longer distributes cells advertising in certain collegiate football basketball games.
Revenue losses, offset by a decline in rights fees and associated production expenses as well as additional production revenue.
After the first quarter production companies margins should improve so we expect to see them produce a higher margin in 2020 than the last couple of years I'll now turn the call over to Kevin. Thank you Pat.
I'll begin as usual with retransmission for the full year 2019, you saw in today's release that we posted $799 million gross retransmission revenues on our combined historical basis.
Figure was slightly ahead of our guide of about 795 million for the full year.
Looking ahead, we currently anticipate grossed retransmission revenue from 213 million to 215 million for the first quarter 2020.
Retransmission revenues will be higher in the second third and fourth quarters due to rate increases that are phasing into place during the first several weeks of this year.
We are negotiating two major retransmission agreements at this time.
Upon their successful conclusion conclusion, we will be able to provide guidance for full year retransmission revenue and retransmission expense.
Do you want to emphasize though that our gross retransmission revenue will be higher in each of the last three quarters of 2020, when compared to the first quarter of this year.
At the beginning of this year, we had retransmission consent agreements expiring that comprise about 20% of our current paid MPPD sub base.
The vast majority of our retrans contracts will be up for renewal and repricing over the next 10 to 11 month covering about 56% of our current paid MPPD sub base.
In mid 2021, we will renew and reprice contracts covering the remaining 24% of R&D PD sub base.
These percentages are updated from the figures we provided earlier because they incorporate the movement of in the PD subs among providers as well as sub losses and the terms of recent agreements reached with MPPD.
I also want to add that our total sub base from 20 in 2019 was essentially flat from the beginning from the end of 2018.
Turning to political revenue, we announced in our last call that we anticipated 2020 will be strong enough to break the all time high for political advertising revenue that we set in 2018, when we book $235 million any combined historical basis.
Today, we are raising our full year political advertising revenue guide to a range at 250 million to $275 million.
We feel very comfortable with this new full year guide.
The fourth quarter 29 team has only the latest in the string of quarters in which we encountered a much stronger political AD environment than we had expected going into the period.
Last call, we pointed out numerous positive developments and trends that we thought would support our that aggressive guide for the fourth quarter.
And then soon after our call ended Mike Bloomberg enter the part that presidential race in Tom's tire, notably increased spending in South Carolina, we have a very large presence.
They had a noticeable impact on our results Mr. Bloomberg ambitious dire in fact were our top two political advertisers in the fourth quarter, but.
But they did not accounted for all of the over delivery on our fourth quarter political guy.
The contrary if we exclude this spending from both Mr. Bloomberg and Mr. Stier, our political advertising revenue in the fourth quarter still exceeded our guidance the high end of our guidance by more than 20%.
This tells US that there are two campaigns are adding incremental money to a market that is already very robust.
In 2019, we received about $13.5 million political advertising revenue from presidential campaign, which is about 46% of the total.
A large figure for an off you're in the political cycle remember the gray has a strong presence in the for early presidential campaign state of Iowa in New Hampshire, Nevada in South Carolina.
We also performed quite well last year in terms the share of political buys that came into our market.
62 of our 93 markets are audited by an outside accounting firm.
The ice revealed that the legacy Ray come stations, which on the whole operate in larger market done legacy Gray stations.
Increase their share of political.
In the markets by more than one percentage point in 2019 over 2018.
I can see gray stations increase their political shares by two points in 2019 over 2018.
Given that our stations in both of these groups are comprised of lots of top rated local stations facing very strong competition.
It is always an achievement to maintain shares the fact that we increased shares on both sides of the company is remarkable achievement that we believe is due in part to the Nuscale Gray television.
Our earnings release was 2019th political numbers in context, we are looking back at 2017, the most recent non presidential election year.
We've also gone back and look at political advertising revenue 2015, the most recent year prior to a presidential election.
For this exercise we created a same station dataset, consisting only of the stations owned by great prior to re calm United Katie LTE and W.B.R.
W.B. IR acquisitions that all occurred in 2019.
The same station comparisons are striking.
Fourth quarter 2019, political advertising revenue was 48% higher than fourth quarter of 2015.
Full year 2019, political advertising revenue was 37% higher than full year 2015 advertising revenue.
In short the just completed pre presidential year was significantly better than 2015, and 2017, and then all bodes well for 2020.
Moreover, the political landscape looks very different now than it did in 2016.
This time around both parties team fully engaged fully committed to the presidential campaign this year.
Control of the Senate is very much in plays the Democrats needed, but just three or four seats to take control.
The Senate is a critical firewall by both parties if they lose the white house, which means we should see significant issue in Super Pacs spending in the most competitive Senate races.
And Gray has the most top rated local news stations of any broadcaster in the most competitive Senate races, Colorado, Arizona Main Alabama, North Carolina, Kentucky in Georgia.
In addition, some believe that Republicans have a real shot at flipping the house and thereby ending the Democrats control of investigative impeachment powers against a real active president Trump.
Right or wrong that perception could fuel even more political engagement in advertising.
In total the Republicans need to flip 18, how seats to take back control.
In terms of Grays footprint, we have 16 markets with an open house rates. This year, we have 12 markets with the democratically healthy in a district that went for Trump in 2016.
For the current year, we estimate a range of 35 million.
For the current quarter, we estimate a range of 35 million to 40 million and political advertising revenue by comparison on a combined historical basis. We had just 9 million a political advertising revenue in the first quarter 2018.
And 26 million a political advertising.
Revenue in the first quarter of 2016.
In closing it should now be clear that we're very excited about the prospects with political advertising revenue over the rest of this year.
Now turn the call over to Jim Ryan.
Thank you Kevin good morning, everyone.
As usual the earnings release in the Ken 10-K that will be filed today, providing great deal of information as always we report results on a GAAP basis, which we call as reported in our earnings release, and then we present additional information on a combined historical basis, which gives effect to the acquisitions and dispositions.
Is it all of those had occurred on January one in 17.
As we've already mentioned, we're very pleased with the overall results of the fourth quarter and full year 19 core local was flat 18 in the quarter, but if you factor the political displacement, we think it would've been up low single digits.
Or national was up 2%, we showed a marked improvement over previous quarters of 2019.
As I already mentioned political was at 38 million ways.
Our ahead of what we anticipated.
Our operating cash flow for full year 2019, with 718 million in free cash flow was 358 million and both were nicely ahead of our previous guides of 700 million in 325 million respectively.
And as expected our leverage ratio continued to decline to 4.35 times on a trailing eight quarter basis, netting all cash on hand at December 31, 2019.
Turning to Q1 2020 core local and national continued to demonstrate improvement after considering that continuing political displacement in select markets and also the year over year impact of 2020 Super Bowl on Fox versus the 202019 Super Bowl.
On our much larger slate of CBS affiliate.
Box Super Bowl and 2020 was about 2.7 million for us versus 4.7 million on our CBS stations in 2019.
But the Sparc Super Bowl and 2020 was up 9.5% over the last Fox Super Bowl in 2017, which generated 2.5 million for us.
As Kevin I already mentioned, our Q1 gross Retrans guidance of 213 to 15 is not indicative of the full year 2020.
And the political guide of 35 to 40 million reflects the increased exposure to the early primary states. It has dramatically above prior year amounts.
Looking ahead at the full year 2020, we are currently forecasting 2.375 billion to 2.4 to 5 billion of revenue total revenue.
Political advertising revenue again, the range is 250 million to 275 million.
We still expect the vast majority of that will fall in the fourth quarter of 2020.
Total operating expenses before depreciation amortization gain loss on disposals.
We currently anticipate to be at a range of 1.53 billion to 1.545 billion.
That range would include 20 million of non cash stock comp in that 20 million it would be split evenly between television and corporate.
Based on the high side of our operating guidance, our operating cash flow for 2020 will be approximating $900 million.
Our primary uses of the 2020 operating cash flow are currently estimated to approximate 194 million of cash interest.
Preferred dividends of 52 million.
Our capital expenditures, excluding Reimbursable repack expenditures of 80 million and our cash taxes, we have increased our estimate to 80 million for 2020, that's a $40 million increase from our previous estimates of early to middle 2009.
Teen and it's based on updated tax forecast as we concluded the year.
Our free cash based on those cash uses that on 900 million approximate CF number will approximate $500 million.
Our leverage ratio net of all cash at the end of 2020 is currently anticipated to range between 3.7 in 3.8 times on a trailing eight quarter basis, netting all cash and assuming no material M&A transactions in 2020 at this point I'll turn the call back the Hilton.
Thank you thank you Jim.
We're now up a bit more than one year end owning and operating the much larger gray television.
The integration of our companies in our people could not have gone better.
And the integration is essentially complete.
As we predicted and when we announced away come transaction in June of 2018, we have smoothly integrated two great companies made the combined operation more efficient generated robust cash flow launched new programming and revenue initiatives and have rapidly de levering the balance sheet.
Today. This team remains on the look out for more and large and small M&A opportunities that would grow our company in a prudent fashion and met gray and even stronger player in the broadcast industry.
However, we think that the M&A market is and will likely remain fairly quite for the rest of the year as political advertising revenue opportunities keep potential sellers on the sidelines.
We are exceptionally proud of the company. We have built we have among the best margins efficiency.
Folio quality and and people most importantly people at any media company today.
While the market had begun to ways its valuation of the company prior to all of this macroeconomic news and bias concerns over the past week or so the market still has not shown a full appreciation for the bright future that we see ahead.
That's simply we believe that recent market prices do not fully reflect the value of gray stock because the market continues to undervalue our company.
The broadcast business for all of our many challenges.
And deep pocketed unregulated competitors remained an exceptional and great business.
As you know we have recently reported some insider stock purchases and 150 million stock repurchase authorization. The purchase of 1 million shares on the open market.
And 200 million a debt paydown.
These moves should all could confirm our collected belief in the future of our company and 2020 and beyond and faster. This year I have personally invested in excess of a million dollars and the common stock of this company.
Absent an opportunity for further significant M&A over the next year de leveraging remains the first priority for great for at least the rest of this year.
At the same time, our board believes that in the near future. We may be able to continue our de leveraging activities. While at the same Tom again, returning more capital to shareholders by re instituting a quarterly dividend.
Our board has not reached a decision to return to reach resumed the dividend just yet. It has however decided to take up this issue formulate what our total leverage ratio as defined in our senior credit facility falls below four times on a trailing eight quarter basis after netting our total cash on hand.
At this were to occur in the second half of this year as we anticipate it will the board will then consider weather conditions will permit us to return to paying quarterly dividends.
So operator at this time, we would ask that you open the lines for questions.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound or hash key please standby will be compiler Q and a roster.
And our first question comes from the line of Dan Kurnos from the Benchmark Company. Your line is open.
Great. Thank you good morning, nice print guys just.
Kevin Thanks for all the color around Retrans I think a timing was certainly an issue.
I know you have at least one big one in Q2 is it all are the two major ones you're negotiating now are they are they both Q2 or can you give us some more color on that.
And then just around.
Generalized sub assumptions I know you guys are probably not going to talk too much. Since you have you got to have the discussions on rate first but just your generalized sub assumptions for the year and if you're willing to go back now ahead of these negotiations and talk about sort of the modest net improvement in net that I think you guys called out last year.
Thanks.
Hi, Dan.
I said, we have two major agreements that are under negotiation. We expect you will see the impact of those starting in the second quarter. This year. That's why Q1's, retrans grocery trends will be lower than two gross retrans, you'll see in Q2, three and four.
Our sub trend for the year was down grew low single digits.
If you exclude the.
The two providers, who had a number of drops high profile drops this summer.
Our sub base was actually completely flat and that includes MPPD I know DTC.
Internally, we model decline because as you know from our guide and working with us for many years we.
Our always conservative.
What we have set on on Retrans and grows as we expect to see both increasing this year not given and I cannot give a more specific guidance, we have the bigger deals resolved.
We also reminded folks that we.
Generally renewed all of our Retrans contracts in 2014 with with the networks and those imposed.
Those were great rates when we.
Looking back in retrospect.
But each of those deals expired.
Certain point in 2019 and had to be repriced and we repriced.
All of RMB Oliver Mbcs.
New modern days.
Sort of market rate on January Onest of last year Fox Reprice on July Onest of last year's CBS Reprice in September 1st of last year or so maybe sees that were randomly scattered throughout the year point B R. Our net retrans.
Took a step up last year, because we were we knew this we've been.
Telling folks about this for a couple years at 2019 would be a step up here in the 2020 the impact of those step ups will be felt by all for.
Networks, the entire year, so net retrans.
Be more challenge this year.
So the much higher than.
Phase that reverse comp will be higher this year certainly than it was in 2019 because of the full year impacted the higher rates.
That said, we've been saying for some time, we expect net retrans will grow and gross Retrans will grow this year over prior year.
Got it that's Super helpful. And then just Hilton appreciate all the color on the capital return, especially around the dividend.
Just not to put words in your mouth or or or paraphrase. The wrong way I just want to understand if this is more of just a timing issue because obviously the stock market right now being uncertain presenting you with a rather hefty free cash flow yield and so just the decision to maybe get more aggressive on the buyback early on is that maybe being tempered by your.
Expectations around political and how the year shapes up because it's so early or I mean are those conversations really just ongoing in fluid.
They are really ongoing in fluid we look at things.
Every quarter, our board discussed it.
Yesterday.
We have been quite aggressive in fourth quarter with our stock repurchase and button in access of the million shares and then have reduced debt.
We'd like to see that come down even more aggressively and we thank in the first and second quarter. It will and then I think we'll be able to do even more in terms of shareholder return absent any sort of.
Really significant M&A activity.
Got it thanks, guys appreciate it.
Thanks, Dan.
Our next question comes from the line of Kyle Evans from Stephens. Your line is open.
Few questions could you maybe take a minute and talk about some of them.
Drivers behind.
National and maybe special attention on national given.
On a trailing three or four year basis.
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Yes.
In fourth quarter, we definitely saw some began some sequential improvement in auto.
Still trailing but it was better than the first three quarters of the year.
Local services has been very strong continued to be strong both in fourth quarter in first quarter. So that you legal medical your financial category.
It is really kind of driving it there and I think in Nashville.
In auto is a little bit better looking a little bit better in Q1.
Certainly it had been.
The key.
What's.
Pacing.
Thank you.
Yes.
If you factor for the political displacement in the.
Lower revenue on Fox, the Super Bowl versus CBS.
Up.
Somewhere around low single digit.
I think the January.
Was a little bit soft out of the out of the gate.
February look I'm, sorry January was pretty pretty a pretty good month I misspoke.
Where it was soft as that is a lot of the Super Bowl flip flop based on footprint and then March is looking pretty good right now, but it's still a.
It's still a little early.
Hey, Kyle the it's Pat just to underscore what Jim said about the.
Services piece of our business.
You just.
Combined legal with.
With the health side those two.
Aggregate are roughly the same number will be close to the same numbers auto in first quarter and 20.
So that should give you an idea of the growth in those areas.
And.
Okay.
On.
Okay.
Good morning.
For 2000.
I think we.
For all of 2020, excluding fourth quarter, we probably expect to see it.
Very low single digit flattish to up a little.
Q4, we'd expect it to be down because of the crowd out we expect all core to be down in Q4 because of the crowd out just how much crowd out would be almost anybody's guess right now.
For the quarter.
It's still a little soft out of the gate, but better than it had been.
Most of last year. So it's down just it's taking right now down just a little which again is.
Better than the that mid singles or worst paces than it had last year.
Great. Thanks, guys.
Thank you Kyle.
Our next question comes from the line of Steven Cahall from Wells Fargo. Your line is open.
Thanks.
Maybe Jim first we could unpack the 500 million dollar free cash flow guide.
And I just kind of think about on a combined historical basis, you've got political revenue up around 200 million in 2020, I think the 2019 free cash flow bases around 360 million I know political revenue is in a 100% margin, but maybe just help us think about what else might be going on on the cash flows.
Hi.
Such that that free cash flow number doesn't look more like 360, plus 200 or or a high percentage of 200.
They're going to follow up thanks.
Well as I said earlier, we are expecting an operating cash flow number of about 900.
It's Kevin commented earlier, we're getting full year impact of all the network agreements, we renewed and extended last year. This year and we've said that repeatedly for over a year now that that was going to be.
Pretty big impact in 2020.
The.
194 of cash interest 52 of preferred dividend is pretty straightforward.
The 80 million of Capex, excluding Reimbursable repacked is pretty consistent with what we've been saying all of last year that would be for this year I think the really the biggest changes the approximate 80 million a cash taxes, we're now expecting versus.
He asked me that question about this time last year mid summer last year My expectation would have been it was probably more like 40, so that that the change of the cash tax estimate is probably the biggest delta from what you're expecting in what we're now pointing to.
And there's really not.
Cash taxes.
Okay.
Yeah.
Just to add to that we still have a sizable and how well as of 12 31.
And we're still taking the benefit of that through 20, and my expectation would be 21, it's probably gone by the time, we start 22.
That was certainly a valuable asset that we would that we picked up in the Raycom acquisition and we are making we made good use of added 19, and we'll be continuing to make good use of that and 20 and 21.
Okay, that's very clear and then Kevin I think Q4 Retrans was a few percent below where you were at the beginning in 2019 and you said subs were roughly flat is the delta in there like some of the just flow through the blackouts or anything else you can help us with just to think about fat that cater to 20.
Okay.
Yes.
Steven in Q1.
We had.
Number of billing adjustments from 2018.
Were the result of it sort of a number of things that came in.
We had some estimated payments that turned out to be too low we had in.
Some results of audit to then bpd that resulted in makeup payments. We also had changed some of the collection.
Processes for portion of the MPPD piece that Raycom had so we had received.
I think we addressed as in the second or third quarter call. The first quarter benefited from a number of onetime only positive adjustments every every first quarter. We go through more adjustments and the rest of the year as.
Some of the distributors.
On at their numbers and its into sort of an adjustment true up.
Sometimes that is negative and sometimes as positive last year. It was several million dollars and positive.
So that was a one time only Q1 event and we.
We said.
Generally steady state last year, but for some.
Sub subs moving around rising somebody leaves a very very large repeating goes into smaller and bpd pages higher rate that's beneficial.
They moved from a smaller BBD to a bigger VPT that could keep this but reduce the revenue. So those fluctuations have always occurred that.
In the PD marketplaces competitive.
Those guys are big advertisement on television.
So, it's a competitive market and subs do move around.
That's why we're never going to sort of a perfect for the quarter to quarter, but Q1 was definitely higher because of positive adjustments that were made that quarter.
Great very clear and then just last one maybe for help meet the the whole space has been devalued over the last few weeks.
Maybe talk to us a little bit about what you might see in the private market and is there still.
An active private market do you think in broadcast with different valuation metrics for companies like yours. Thank you.
Yeah, and I'm sure Kevin will follow up with me.
First in terms of this I kind of look at the broadcast stocks as they should be a safe Haven.
People get warranty and they're going be watching television right guys. So.
This is a good flows sad to move your money.
We have no exposure to China, or South Korea or Iran.
Italy for that matter I know this morning's announcement of something in Sacramento.
As sort of Discombobulated the markets.
But at the end today guys I mean, we have.
15000 people just this sort of in the last 12 months that have passed away from the flu and we have yet to have one fatality in United States.
On on any of this new.
You know virus that's out there.
You know, we're always looking at any kind of M&A opportunity there still is absolutely a private market out there.
We don't have anything to tell you about right now either large or small.
But we're always looking for it for good opportunities and quality operations, Kevin do you want to follow up with Oh, you say remember, there's not a lot of data points to say whats the multiple in the private market. Because there is just frankly people are sitting on the sidelines as Hilton said in his remarks.
And so theres not much that.
People are talking about selling.
You are going on data point that can vary from a a operator of some TV station with no local news maybe local news produce in one location 3000 miles away.
To a robust local news heritage station like the kind that we would typically buy.
So it's a little hard to kind of figured out to say what multiples might be in the private market today theres.
Fleet dearth of data point.
So I just want to make that clear it's not that we.
Not that we're on.
Unable to answer the questions. We don't want to answer the questions that Theres just no data points to answer the question right now.
Great. Thanks, I'll go on to watch TV.
Okay. Thank you [laughter].
Our next question comes from the line of John corner, each from Jay Key Media. Your line is open.
Quick questions.
That 900 million a number that's does that bcf or always CF.
Operating cash flow John So it's got it right.
And on Retrans, you said that 56% will be done by the end of year.
I said.
56% over the next 10 to 11 months.
Okay. Okay. So there's a good case to be made I guess that.
Oh CF in.
21 should be higher than 19.
Because.
The gross retrans would be much higher than 19.
And I assume the programming costs.
It'll be somewhat stable because it is it hit you in 19 and 20.
Well John no, we're not going to have 250.
<unk> million, a little say 20, now versus 19, Oh, sorry, 19, yes, yes, yes, it would certainly be our expectation that 21 would be better than that 19, okay.
As we said we had said we expected 19 would be better than.
17 on a combined historical basis.
Thank you and a one other question on Retrans, you made very clear.
Yeah grocery trends should be higher second third fourth quarters two questions in regards to that.
By the end of the year could you be approaching 250.
I I don't know until I know what the rates on these last two deals I don't know how to do that the ones that are off are very very large anti PD.
Okay.
And so are you willing to say right now is it will be higher than 215.
Yes, definitely be hard into 15, each quarter going forward. So we it's very clear that the gross will be trending up near term.
The net margin.
Which was 42.5% in the first quarter.
Versus you know 45, 46% last year as the.
Contracts worked in is 42.5%.
Going to be going lower in the next few quarters.
This April it should be if the gross goes up remember half of our contracts are fixed fees to networks and half our percentages.
Two networks.
So.
At a high level I would expect that of gross goes up.
Our margin should improve a bit should improve.
I was thinking down.
I I believe we will keep a little bit more okay. The additional dollars that we bring in because some of that Retrans base.
CBS Fox basis fixed so we bring in.
An extra penny on a CBS or Fox, we keep it.
So some of obviously some of the Retrans contracts are going to bump from CBS Fox revenue others at bump up ABC NBC, what was the trigger as a percentage basis, so thats not going to be necessarily help I got it.
Clarification.
In this call on Retrans.
Was extremely helpful. As you know investors get Super spoke on any little change in Retrains.
Thanks for your help.
Hi, Thank you so much on.
And again, if you'd like to ask a question that star one on your telephone keypad. Our next question comes from the line of Jim Goss from Barrington Research. Your line is open.
Thanks, Kevin as long as your.
Continuing to get into Retrans I saw this couple of more things are.
With the latest deal time frames and Retrans getting shorter and can you compare it with the length of the contracts you're doing with the networks, whether they're about same length or longer or shorter I know they don't happen at same time.
Yes.
One of the networks on Windows three year deals with few exceptions.
The other network for US has generally been on five year terms.
Sometimes a little bit longer if we're trying to catch up some stations that we acquired or a little bit shorter get everybody in the same mandate. So generally the big three contracts are on five year terms, our retrans contracts.
Our.
Three years, and we have been very generous.
With extensions.
We extend our negotiations.
A lot.
We don't believe in arbitrary deadline.
Yes.
Our typically when we extended retrans contracts.
The agreement is at the new rates will quite retroactively.
Whether we get a deal done on January January Onest.
One minute into the year, we get the deal done on March 15 in the long run it doesn't matter to us.
The dollars incense standpoint from a relationship standpoint, we think it's helpful to be respectful of the fact that NBP. These may have other negotiations that are.
More sensitive more time consuming and frankly, sometimes negotiators actually have to deal with.
Personal issues and wanted to education or deal with their kids. So we try to be very very accommodating yesterday, we are going to get the contract on we need them they need us.
We'd like to keep very positive relationship and I'm happy to say time.
I've been here many years now.
Only had one dispute the lasted four days and we renewed with that operator, I think three times sense without any problems whatsoever. So.
I stated roughly three years, but keep my sometimes it takes a bit longer to negotiate it I don't think the period to get those done is taken I don't think it takes any longer than it used to.
The issues, we deal with our frankly more complicated than they used to be.
And just three years ago.
The non financial issues of distribution and rights.
Our credit it it's just a lot harder.
To think through all that and worded come to agreement on terms, but we're getting there and I don't think it's that's really extending the time period for negotiation.
Hello.
Yes, I would expect nothing less than respectful negotiations out of Gray television.
The.
Maybe one one other thing and political I was wondering.
It is getting pretty interesting and there is a lot of extra money from Bloomberg and stier.
Have you are there any a assumptions you have made as to how long everybody's in this fight.
Whether to whether.
It runs through the.
The conventions or whether it stop short or is there any assumption that goes into what you've been talking about.
In that regard so far.
From our standpoint, it it kind of.
If the nominee essentially known after Super Tuesday.
Theoretically means that we see general advertising spending on both sides starting pretty early because the candidates are framed.
The other and in the candidates not known by the Super Tuesday, and it takes another month or two already been goes to convention then you've got a lot more primary spending.
Maybe the other side spends more money attacking variety of opponents.
Our view is it six one way or half dozen another.
Not much way we.
Hey, good morning is better than the other great standpoint.
Great standpoint, we're uniquely positioned to benefit kind of either I think whatever happens in presidential and remember two presidential as important as it is.
No it's less than half of our political revenue in this year I don't think will be any different than we have really really.
Hi profile Senate races, and frankly budget house seats as well.
That are going.
To be the majority of our political revenue this year.
Let me just if I could just add to that I think and Kevin's comment there were couple of things that.
I think are really quite remarkable if you if you take our fourth quarter numbers that we released some political and you exclude the Democratic billionaires.
We're still up over 20% excluding them from our highest level guidance across the board in Q4.
And then with regard to what we have.
Obviously, we are in a remarkable position that we have such strong stations and in states, where big Senate races are coming up.
And then we've got in our markets 16, how seats that are open, which you're going to be massively competitive and once again just to reiterate reiterate that of the out of the 12 markets out of the 18, the Republicans have to retake.
Where they've got a Democrat currently in that seat the Trump carried in 2016.
We've got 12 of the 18, so I think it's going to be big across the board and for the duration.
Alright, thanks very much.
Thank you again question. Our next question comes from the line of Davis Hebert from Wells Fargo. Your line is something.
Thanks for fitting me in at the end here just two questions. One is you know with some comments from discovery about the Olympic games potentially being canceled I don't think that's the base case right now but.
How can you give us a quick one on one on Olympics inventory for typical NBC affiliate and then second question is.
Encouraging to hear the leverage.
Commentary below four times by the end of the or are you comfortable there and what's your sort of long term leverage target. Thanks.
We actually heard that the Olympics are going to continue.
I think the Japan and the Olympic Committee actually have confirmed that recently this week and so it's it's going forward, we had the battle the Zika problem in Brazil, the last time around and that was a a bunch of hullabaloo that didn't never really materialize.
As far as the leverage goes yeah, we think it'll be by the ended the year three seven to three eight range on an l. eight basis.
You know certainly in the threes like that we are if we're not the lowest levered in appears base, where we are among the very lowest levered I mean, I don't know exactly how everybody else in come out, but it's getting down to very comfortable levels for us.
As we you know if there wasn't any large M&A it probably still comes down a little bit more of.
At some point a little farther down the road with leverage coming down we may be up may be nice dress. The may be may be opportunistic on the preferred stock so.
We'll have we'll look at that but certainly anything south before is the is getting we're very comfortable range.
Okay. Thank you and their preferred is redeemable at par is that correct.
Yes.
In whole or in part at our sole discretion at par.
All right I don't have and wants to answer your you know they give you had a question about inventory Olympic.
I think that so the inventory inventory load.
We see this summer I mean, it will be maybe meaningful will be meaningful revenue for yeah.
Yes, and political advertising in there, but if Olympics goes away, we're still going to see political advertising.
What if advertisers will find a way to our local news and our syndicated content.
Good Yeah, no way to quantify what happen, yes, it would be difficult to quantify.
Do you usually get a little left a lot banks, but theres going to be a ton of money out there either way and so.
And we're quite a ways off so we'll see what happens.
Okay, great. Thanks, much for the color.
Thank you dose.
We have no further questions in queue I'll turn back to the presenters for closing remarks.
Well listen I, just want to thank everyone for checking your valuable time today during another term tumultuous day in our markets like I said, we're glad safe Haven, so come back to the ball cap stocks. Thank you and rollout will talk to you next quarter.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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