Q2 2020 Gray Television Inc Earnings Call
[music].
Ladies and gentlemen, thank you for spending by and welcome to the second quarter 2020 earnings call.
This time, all participants are in listen only mode.
After the speaker presentation, there will be a question and answer session to ask a question during that time, you wouldn't be to press star deepening number one on your telephone keypad.
Please be advised that today's conference is being recorded if you require any further assistance. Please press star then zero.
Now I'd like to hit the conference over to your Speaker Mr. Hilton Howell. Thank you. Please go ahead.
Thank you much I got good morning, everyone. So as I walk you mentioned on hold until the German she gray television.
Thank you for joining our second quarter 2020 earnings call today as expected. This time of year. We're all books, we present said, Brian QNX if things go below a couple of UBS. Please forgive us.
Hum along with me or doesn't come Ceos have a flattening our chief legal and development, although still a covenant exact our chief financial Officer, Jim Ryan.
Our chief operating Officer Bobs.
This before but I'll give it to help with us today.
Oh, perhaps polar too, but we're sitting in the field to all of our stations. We will begin this morning with the disclaimer that Kevin will provide.
Good morning, Hilton Thank you everyone.
Thanks, and good morning, everyone a 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 and uncertainties.
Actual results in the future could differ from those describing the forward looking statements as result of various important factors.
That's patches haven't had caused me to companies. Most recent reports filed with the FCC, including todays earnings release.
Company undertakes no obligation to update these forward looking statements.
Great uses its website as a key sources company information that website addresses www. She are a wide dot TV.
Included on the call will be a discussion non-GAAP financial measures and in particular broadcast cash flow.
Well I guess Castro less corporate expenses operating cash flow pre cash flow adjusted EBIDTA and certain to leverage ratios.
These metrics are not meant to replace GAAP measurements, but I provided at supplements to assist the public <unk> analysis and evaluation of our company.
Included in our earnings releases wells on our website, a reconciliations of non-GAAP financial measures to the GAAP measures reported in our financial statements.
I would tend to call the Hilton.
Thank you Kevin and thank all of you again for joining us this morning.
The first before we begin I once you take a moment to wish Gordon Smith, our president and CEO. The National Association of broadcasters, he's with recovery from a stroke apparently suffered last night our thoughts.
Prayers are with him and his family.
Yeah I understand this prognosis is excellent and we look forward chooses referring to the in a b and wish him God speed is eminent recovery and many more years, leading maybe organization.
Second.
I want to salute the truly amazing then.
Women.
Great television.
For their extraordinary efforts during these extraordinary times.
Learning to work from home often in isolation.
Learning to publish an ever changing.
Life, destroying virus.
Learning to balance the child care with unrelenting demands on a deadlines are viewers counted on.
Learning to fight through their own fears.
During the protests and subsequent riots.
For me to take a rubber bullets in the chest.
Learning how to report clearly.
Well fog tear gas.
Link the stomach the little porting.
The ransacking, they're both cities towns and communities.
And trying to make sense involved.
As the depth and the truck.
And tragedy.
Our current situation sanction.
The absolute first thing that gray television that.
It was a shoe or our associates.
That's a jobs.
Their salaries.
The benefits were absolutely we secure.
Not worry about their personal financial security.
Their job.
The focus.
On their responsibilities.
Their journalism our communities in our clients.
And it has paid off.
As the second quarter Dawn and with the advent of covert 19 in early March.
And then the formal worldwide pandemic, which was declared and the government mandated lockdowns one announced.
Business fell off a cliff.
It was deep.
And then unknown.
But as the quarter of matured.
Each month.
Got better than the last.
And the in our total revenue declined approximately 11% compared to last years second quarter.
Our total combined local and national broadcast revenue, excluding political revenue, which will be call. Our total core revenue.
Decreased approximately 30% compared to the second quarter of 2019.
In every cloud, there's a silver lining.
Our business slowed less than we feared and it would cupboards faster than we hoped.
In fact, the year over year and total core revenue.
Improves sequentially throughout the second quarter [noise].
April.
Plummeted.
By 38%.
But may improved.
But was still a decrease of 34%.
In June declined by only 17%.
But most importantly.
In many of our markets.
Our individual stations met or in some cases beat their pre coded budgets in June.
Of course, our total revenue decline, even less on a year over year basis in the second quarter done these amounts.
In particular, our second quarter results were as follows.
Total revenue was 451 million.
Net loss attributable to common shareholders was 2 million or.
Well just two cents per share.
Broadcast cash flow remained healthy at $128 million.
Adjusted EBITDA was positive 108 million.
It is important to keep in mind that bruises historic Health challenge.
It is temporary.
The unknown duration.
That this great country will not allow itself to a main mired in various stages of stay at home safe food at home.
And similar spectrums on businesses schools entertainment or sports.
And have more immediate concern.
Our political fiercer with 20 twinning has never been more dramatic.
With no more while it is.
No more alive conventions.
No more bust tours.
No more whistle stop train visits.
Television will remain and indeed increase as the dominant form the political reach and attacks.
We anticipate that our political advertising revenue when 2020 will be between 250 million.
275 million.
And maybe more.
Importantly, gray remains on track to be robustly free cash flow positive during each quarter. This year.
We remain optimistic about our business.
We therefore took advantage of what we really was a significant mismatch between the value Gray television and the price at which the company's common stock traded.
The past several months.
I would purchase saying a half million shares of common stock in the first quarter.
In a further 3.3 million shares of common stock in the second quarter.
In total.
We still slightly over $49 million in first half of 2020.
Purchasing a bit more than 3% of our total outstanding shares at an average price of $12 and a one cents per share including commissions.
Currently.
We have approximately 89.740 million 600, and common shares and 7 million 48006 class a common shares outstanding.
And we have approximately 80 million under our stock repurchase authorization adopted by our board of directors in November 2019.
I'm, particularly pleased to farm that grazed prudent management has enabled us to continue to grow very strong cash position and rock solid balance sheet in these difficult times.
Over the first half the year, we increased our cash on hand by $167 million.
Beginning at 212 million at year, and twinning 19 to 879 million at the end of the second quarter.
Despite spending almost 15 opinion on stock repurchases.
This represents a 78.8% increase in cash on hand in the bank following the work worst quarter imaginable.
Our total leverage ratio as defined in our senior credit facility was 4.4 times on a trailing eight quarter basis, netting all of our cash in the bank.
We have not draw on any funding from our 200 million dollar revolving credit facility.
And we have no intention to do so.
We also have not received any stimulus or kubly funds from any government program and also had no intention to do so.
Hi, Kevin engine now add additional color to todays earnings release thereafter, I will open for questions.
Thank you got and good morning, everyone.
It's been roughly 150 days since an outbreak of the quota virus foresee and be able to cancel the remainder of achieves its games are being played.
For the Gray television adopted a remote work policy and related Cobot night you'd policies for all employees.
Since then we have all changed her work and personal lives in many ways to protect ourselves and others.
The Corona by did the crew in the virus crisis surely lasted longer than we anticipated 150 days, it's Alan frankly, it'll continue to impact us for quite some time. Meanwhile, the country in each of those certain punching not only our stripes and also a shortcoming jobs society.
We're encouraged that the largely positive constructive responses to all these store challenges that stand before us today.
The past 150 days, if not that easy.
Your nevertheless optimistic that these experiences will make us all stronger as a country as a company as a society. It is individuals.
You simply could not be more proud or more humbled and how are extraordinary group colleagues just double down on copper local news and events, serving our advertising customers Super serving local communities and Reconfiguring systems facilities routines to permit all of that other great work to occur in a new remote.
Socially distance is often uncomfortable environment.
Unfortunately, some of our journalist had been attached for their work company events for the past 150 days and not just virtually on social media, which is unacceptable.
But also talked burbling physically by both police who are called on to protect the community and by riders intent on home and community.
Shooting the messenger, let's take it on a new Erie meeting this year, we call. It everyone to respect all members of the media. They worked tirelessly to cover the news for the Medicaid wall.
Turning to the business environment, we're encouraged by the return of advertisers and our continued success in light of the business such as move past April.
Forecast at this time should business still off year over year, but not at the levels, we saw the second quarter.
We could number buyer splitter helps occurred randomly around the country, you're simply not able to predict whether or how closely teacher advertising revenue will meet our expectations, though we continue to be encouraged by the creativity and ingenuity of our sales teams.
One very strong performer of course is political revenue until noted not altered our for your political guide to $50 million to $275 million.
On the presidential front Biden spending remains on par with the pace. The Clinton campaign had in 2016.
Trump campaign whoever has laid in their base biased to the election.
Importantly, the Trump campaign spending is currently on track to be up 57% versus is it was all spending in 2016.
So far issue in park spending for the presidential races up only slightly cheaper so for 2016 levels.
There is of course still relatively early in the cycle could presidential advertising.
We're seeing very strong demand in the Senate races, Gray has five states in the past sub category.
Four states in the next most competitive category of lean Democratic or lead Republic.
Michigan race was coming in below expectations. Currently we are seeing higher than expected spending the Senate races in South Carolina Laskin, Kansas. In addition party impact spending from the major groups from both periods supporting Ciena candidates is up 27% from 2018 levels.
Rounding out the races Gray has eight house races, the phone the toss up category, which relates to shape it could be shaping up to be more competitive [noise].
That originally anticipate.
The only poor races for governor across our footprint to share with only one north Carolina expected to generate significant revenue for us.
We've seen a record number of pre booking is the cycles campaigns try to commit to their spending while we're early on and lock in lower AD rates to date, we've seen an 8% increase in pre booked dollars were non presidential races versus the same time an 18.
Finally, we learn yesterday that the chunk to opinion had roughly 300 billion of cash on hand at the end of July which is essentially the same number at the bottom campaign.
We are confident the both campaigns will raise more money over next three months and we'll spend every dollar that they ran as with most of the spending used to buy effective ads on television.
This data point also bodes well for a record year.
I'll now turn the call back to cap.
Great. Thank you Pat.
Turning now to retransmission, we completed agreements with three of our largest MPPD well as a small number of additional operators in the first half of this year.
As noted in our prior called is public health crisis did not impact the outcome of this negotiations which were conducted as usual quietly respectfully going in good faith by all parties.
We've been pleased with the nature and specific terms of our recent retrans renewals as we continue to push for full value for their content created by distributors are renewing retrans contracts.
Was our non renewing you're trying to contract on could annual escalators that ensure continued growth in retransmission revenue every year.
This year, however, we haven't counter unexpectedly large declines in sub counts.
First quarter, 2020 had 2% fewer MPPD subs in the fourth quarter 29 team.
It appears at the second quarter 2020 had 3% fewer paid MPPD subs in the first quarter of this year.
Oh, he t. providers on the other has continued to upsides in our market with perhaps as much as 18% more Pado T. T cells in the second quarter than we had in the fourth quarter last year.
In total our paid subs declined by nearly 3%.
Between the fourth quarter last year in the second quarter of this year.
For context. This first half declined roughly equal if it's up behind because we experienced in all of 2019.
Given the rate escalators in their retrans contracts, a stable sub environment would have yielded.
So double digit growth in Retrans revenues over the life over last year's number.
The increase sub losses, combined with migrations and subs among and Bpd, you know t. distributors, who all have different rates muted our grocery transmission growth, particularly our second quarter retransmission revenue increased 9% over the second quarter 2019.
First half retransmission revenue increased 7%, where the first half at 29 team.
Looking ahead of sub counts remained stable for the rest of year retransmission revenue into second half a 2020.
Would be somewhat higher than the first half a 2020 due to a significant renewal that repricing April curse of this year.
And sub losses continue and accelerated rate, depending on how subs migrate among the various distributors retransmission revenue for the latter half of your could be somewhat less than the retransmission revenue booked in the first half a year.
We're also seeing our release today their network affiliation payments, which we typically refer to as reverse comp are significantly higher than 2018.
I want to remind you that we've been forecasting this significant increase in reverse comp for sometime now.
2014, Gray proactively renewed all of our big for network affiliation agreements for roughly five years.
Those agreements block in rates it in hindsight appear pretty favorable to us.
Those agreements expired at various times in 29 team.
Throughout last year as those agreements were replaced with new market rates reverse comp payments increased.
In 2020, we experience a higher rates, but all four network for the entire year.
Rates of course alone increased again it started 2021, but we also have a large number of MPPD retrans agreements repricing at the same time.
Our next set of India could even newell's occur in January 2021.
In the fourth quarter, we will begin retrans renewal negotiations covering most of our roughly 500 MPPD partners, representing approximately 43% of our total subs.
We look forward to the next round or Retrans renewals, where we can again demonstrate the value of our Lady Gaga television stations and cable and satellite platforms.
Thank you for your time and out from the call over to Jim I.
Thank you Kevin good morning, everyone.
The earnings release, and the 10-Q that will be filed later today provide a great deal of information.
As a reminder, starting with the first quarters release and 10-Q, we no longer need to present results on a combined historical basis. This is because the acquisitions and dispositions that occurred late in 2019, where individually and collectively immaterial. We are therefore generally presenting results only.
On an as reported basis.
Given the dramatic events that began in March we are relative we are pleased with our overall results for Q2, our total core revenue was a little higher than that comments, we made on our previous earnings call out that reflecting the sequential improvement in each month, so the quarter as Hilton as already mentioned.
Our leverage ratio net of the 379 million in cash was 4.4 times and we currently anticipate it will decline lower into the force by the end of this year.
During Q2 2020, we increased our cash on hand by 83 million and its mentioned earlier, we have 379 million of cash on hand, plus an undrawn revolver up 200 million. So we're in a very strong liquidity position.
Moreover, at this time, we expect that we will continue to generate significant amounts of free cash during each quarter each remaining quarter of this year.
Given our strong liquidity position free cash generation and relatively low rap leverage and no debt maturities until 2024, we believe we're in a very good position to thrive in emerge. Just says we are today is one of the strongest local broadcast country companies in the country.
Given all the uncertainty around Kobe 19 with withdrawn our previous full year guidance in our not issue in formal guidance for Q3 2020. However, we remain bullish on 2020 political AD revenue is still expect full year political AD revenue to range between 250 million and to 75 million.
I know all of you want to know more about Q3.
Currently the anticipated increases in political and retransmission revenue should allow our total revenue to grow at a high single digit too low double digit range as with our peers. We are experiencing declines in total core revenue in Q3, and our visibility is understandably limited.
As of today again cashion the situation still is fluid in <unk> in our visibility is limited we believe that total core revenue for Q3 will decline at least in a range of 10% to 15%, but as we saw in Q2 total core revenue appears to be sequentially improving each month of.
Q3 was still in decline it is a dramatic improvement over Q2.
To reiterate the these figures are based on current forecast in our system in our current pacings, we do not regard internal forecast and pay seen as guidance. We realize that everybody is eager for any kind of predictions and whether and how Q3 will unfold. So were just guazzini.
Our current internal forecasts as a potential they had to point not his formal guidance.
We still remain cautiously optimistic about the direction of total core revenue naturally we will do all we can to mitigate these the clock declines as we work through the quarter and work closely with our advertising clients.
We currently anticipate our Q3 2020 broadcast expenses will increase over 2019 Q3 in a mid single digit range, reflecting exclusively an approximate 20 million increase in reverse compensation to the networks. Our total corporate expenses in Q3 or anticipate.
They do approximate Q3 2019 levels and the expenses of our production companies in Q3 will aggregate in the upper single millions of dollars, reflecting in part the seasonality of those businesses.
Now to update some key liquidity items again.
Cash interest on a full year basis is currently expected to be 175 million. Our original estimate for the year was 194 million and that the decrease reflects the decrease in my board.
Capital expenditures and a full year basis will range between 65 million in 75 million our original.
Estimate for the year was 80 million cash taxes. Currently are estimated between 55 million and 60 million in our original estimate on the full year was 80 million [noise].
[noise] at this point I'll turn the call back to Hilton.
Thank you Jim [noise].
Gray television stations production companies and employees like everyone else has witnessed historic challenges over the last few months.
We are proud that we not only kept our heads above water, we managed to maintain full employment for our employees highbrow and safe working environment.
Our stations reestablish the importance and value of local broadcast stations covering important news and information along with exceptional community support.
That community support has been demonstrated by the highest ratings are already highly rated stations have seen in decades.
As a company, we posted positive free cash flow and grew our sizable cash reserves.
The results reported today also confirmed the value of owning the highest quality local institution like ours as well as the wisdom operating in a very lean management structure.
The naval we returned to what we fondly remembered as the malady seems further away now than what we anticipated on our call previous to this.
Nevertheless, we remain convinced the gray television will continue to succeed in face of these historic challenges and will even more prepared to serve our audiences and our customers when normality filing.
Returns.
Operator at this time, we ask that you open the line for questions.
At this time, if you would like to ask a question. Please press Star then the number one on her telephone keypad again that is star one to withdraw your question press the pound tea.
We will pause for just a moment to come how the acuity roster.
[laughter].
My first question is on the line of Dan Kurnos with the benchmark company.
Great. Thanks, Good morning, and appreciate all the color Kevin you know I'm I'm sure you're already eagerly anticipating crystal ball question on subs. So I guess you might as well start there just in terms of visibility in kind of any thoughts in the back half of the year and how it kind of relates to your net return.
And outlook and then maybe Tim whoever wants to take it on core. Your your Q3 guidance is actually relatively really strong I think a especially comparison to the peer group and obviously, what we've been hearing from.
Okay and others. So just can you give us a sense of you know maybe why the out performance, where you're seeing pockets of strength and you know does that do you anticipate that sequential improvement continuing until we're back to kind of pretty cold with levels. You know early 2021. Thanks.
Hi, Dan.
First on sub losses, obviously down.
3% first half of the year is not what now we were expecting and its acceleration, but it's also nowhere near what we were seeing the public companies announce over the last.
Two quarters [noise].
Looking forward if the economy is recovering.
It seems that you today's headlines that the hot spots, where the country seemed to be stabilizing.
With that kind of.
Move a little bit more toward normal who get another round of seamless tracks and you why piece itself confidence returns et cetera et cetera.
It seems to us that does have declined should certainly mitigate movies on the first half a year. So.
Is that there's number of folks didn't pay their cable bill.
Yeah, given who is going to jobs or otherwise.
King circumstances.
And when the Grace period and on that they may end up paying Sun Pat has spoken showing up a subs again, especially going at it causes return in this money as provided so I think we remain optimistic and we're not going to see that have declined to second half together beside the first half of the air but really it's anybody's guess that we were surprised at how much did decline.
The first half for us so we can be surprised with where we remain optimistic it seems and sit here today that.
The economy, the virus et cetera, things seem to be pointing in a bit more hopeful direction than we saw it isn't just two or three weeks ago.
Jim It.
As far as the forecast I'll, let Pat and Bob probably give a little bit more color on that.
I think it first and foremost goes to the strikes that strikes the deep penetration we have in our markets.
Hi, This is a key factor.
The other thing is obviously, especially when we get to September in political that's a little bit of a wildcard it could skew the core downward a little bit more beach simply because you mean political is super strong and obviously core is gonna get squeezed a little bit but everybody is.
Followed us for years realize we always outperforming political so that's a high class problem. The habit if that indeed happens so I'll, let Pat and where a pop give you a little more color on and what we're C.
Sure So I'll jump in real quick its path.
You know, particularly in times like these.
It's not only viewers that tends to lead on their choice of one to one stations, but advertisers do the same store or as Jim mentioned are really short portfolio stations is a significant benefit right now.
I'd also add better training team has done great work closely because the past five to seven years is having a huge impact.
On our [noise].
Sure already strong salesforce, but particularly of last 18 months ago, Great work and it also in general say that moves here look from our actual digital business development groups. So Bob if you want to add any detailed.
Jump that sure pet.
Certainly.
Some of our digital efforts are contributing to that along with some verticals were doing is described as mentioned, but in addition to that I can't emphasize enough how our portfolio station make a huge impact in the market. You know, there's often clients budgets are down but when you have dominant stations, they're going to find money for the doctor station or the number three four and five.
They get nothing but we're going to get bought and were smaller there for those clients you know year to year out and they trust us. So that's certainly a factor as well.
And the fact is we.
Pat mentioned the training program, but let me I can't oversell that enough that group has been phenomenal and the resources they provided and since March they jump right in with a lot of deferred things in it created a lot different 70 events and that certainly helping in Atlanta, I would say, we have a competitive group and no.
Successfully piece to oversee our <unk>.
Markets are somewhat evenly divided but for example, this morning I got it email from one of the [noise].
Groups or run rate the regions and his region. They had 20 people salespeople that is that it's sold at least 20 Grand in new direct business all the way up to.
50, 60 grants somebody had sold which is pretty phenomenal. So the point is that we're trying to you know.
Look under every rock for every dollar that we can find and we're doing a pretty good job of it doesn't make up for all of it but.
We are really aggressive on the sales front across the company.
Got it that's really helpful color everyone I appreciate it just Kevin before I jump off just quickly did you get the full benefit of the two major renewals I know were extended past their expiration dates into Q or might there be some kind of accounting nuance in Q3.
Oh Im going to tell me reported in May we had two of the three big contracts resolved as to rate I think one was signed in one was checking schedules. So we we posted Q1 numbers, but the rate that would be applicable in Q1.
When we had.
The the last deal is finished after April 1st.
And we knew what those rates would be so.
So the actual that I'm not sure check that derive from sort of the new April or not I'm actually probably has but we have accrued core the rates once the Rachel or agreed to by the parties, even if the rest the contract is not nailed.
Nail down would do reflect the new rates in our.
Cool so what do you see the coupon in Q2 would be.
Revenue based on the rates that are in effect.
That's great.
Perfect. Thanks, very much appreciate it sure <unk>.
Your next question is from the line of John Janedis with Wolfe Research.
Thanks, guys.
To from a one can you remind us how much of your AD revenue comes from Prime time, I think it's pretty small on the decline, but I'm just curious there and to what extent.
You may incrementally lean into investments in programming or digital and then Kevin can you talk again for the comments related to the networks.
Have you spoken in the past about expectations that refreshes margins well take low over time, it but is there any incremental message based on what you're seeing in the market.
And with the Prime quickly I just go ahead mark.
<unk>.
Our normal answer to that question historically has been that roughly 50% of our revenue comes from local news, maybe 20% comes from Prime 20% comes from syndicated programming and the other 10% in yeah is everything else, including sports all sports.
We haven't run this specific numbers for prime for Q2, but I would suspect, it's probably down a little bit or on a relative percentage basis in our news is probably up oh offsetting that but but in general Prime as you know historically run 20%.
Sensitive somewhere.
All that high teens anyway.
Yeah.
I'm not sure if I understand the question.
What do we pick up in the market on our our network upgrade to their now are never contracts are hawken over the next couple of years Hum along new those cash we knew those early as well, there's going to 2018 and 29 until weve taken those.
Endpoints out a few years so to the rates don't change can the middle of the term I.
So I'm not sure what the questions about what would that make up in the market today.
Yeah that maybe the question as they're based on any comments around just what you're seeing and I guess, the 20 million of incremental reverse.
Yeah, I know you've talked about a margins moving lower just are you messaging that margins are well be little bit lower than you expect going forward or as or is that not the case.
[noise] <unk> margins.
Half of our returns reversed so half of our network reverse comp rates are fixed as you know about two networks and two other networks do not have fixed fees. So as subs go down.
The.
To the networks are somewhat sharing in the pain into notebooks and not sharing in the pain.
So if we have it is sub declines are are larger than expected our reverse comp is a little more painful onwards.
The sharing percentage switches a little more in favor the networks as its ups go down.
That's just that's just a function. The fact that those those are fixed fees in two of those two network.
Formula.
I would say is the flip side of that is it subs go back up.
Or stabilize that.
We benefit but more importantly, if we negotiate higher than normal rates a poor programming.
We keep all that upside right, so with the double edged sword. It if it's a fixed fee with the network.
We had sort of the paint a sub losses, but we enjoy all the fruits of superior negotiation. So have you ever really strong a station or set of stations with particular network as a fixed fee and you can drive higher rate to be pretty we caught that extra money, we don't share it with an hour. So there's pluses and minuses with with both network approaches.
Bottom line to your question is.
The increase in sub losses, those tri be.
The reverse sharing perfect percentage a bit more favorable to the network.
Thank you.
Your next question based on the line of Kyle Evans with Stephens.
Hi, Thanks Hilton Thanks for touching on the human element of your business, it's easy for US number crunchers to forget that I appreciate it.
Also thanks for the detail on political.
How much of the guide of of the Kinda to 63 mid point.
Roughly speaking is expected to be presidential.
It is down market, and then kind of which races should we keep rise peeled on for movement on that midpoint.
<unk>.
A couple I'm gonna have to check I, we've we've addressed the presidential percentage in the past like I want to say, it's about 25% to 30%, but I need to go back I'll have that answer.
Later today.
On the actual campaign or the say in addition to presidential.
And we had number this year we benefit from.
Having really strong station and all for the early now many states I wouldn't camps in Nevada, South Carolina.
Outside of presidential.
We have.
The the political map seems to be changing every couple of weeks, but we see the Biden campaign is spending money in states, where you're not expecting to spend then this interim campaign.
At the states do not expect them to spend money. So that feel has gotten wider than we would've done we were expecting earlier this year.
As Pat mentioned, there's only one gubernatorial race.
I don't see any indications that any of the other.
Given Kobe says, they're going to get more competitive obviously that can change over the next couple of weeks.
But that was never sort of a bright spot for us in this but this calendar.
Senate races.
Anyway since I've gotten far more competitive it seems as Pat mentioned, we have three states on the radar that we were not really expecting to be very poor very hot this year and the ones that we did expect to be particularly strong. It just means such as the two in Georgia.
North Carolina.
Those are person certainly yeah, Arizona, absolutely, Arizona Windows are absolutely Empire. So the Senate defendant feel has certainly expanded I keep an eye on on that field expanding more Kansas as you may have seen this morning.
Reps and Marshall when the public primary and the Dems a one off this morning with that add to the challenge or there remarkably a Kansas state.
It's not center Democrat.
The U.S. at 19 thirties.
Actually it's a one of the Statesboro Democratic Challenger has raised more money on the Republican.
Campaign Cascade. So that's certainly on the radar screen, which would not expect it earlier this year. So I feel honest another state where the Democrats calendar as ways more money than the comment I'm in a very well known in common so dependent.
Senate is a ciena is implied.
I also mentioned in today.
Interest to pack group standing in the Senate is way up over prior years.
How system the house races.
It's usually a handful of house races that our competitive and that's the changes based on primaries, and sometimes candidate saying do.
It seems to be kind of.
More more typical more races are seem to be competitive than in the past, but I'm not as big of a driver is the Senate races.
Great that's helpful.
Thank you said that some of your stations hit their pre kobin budgets into Q and I guess first off did I hear that right because I am just scratching my head and then if that's true what conditions were underlying those particularly strong resulting in was there any material difference in sub counts or core that was driven by more.
Good size in the core.
He said he said you highlight.
You too okay sorry.
That's helpful. Then then the second part of the question was their underlying.
It was was there a material difference in Subcount loss numbers that you saw where the core declined numbers that you saw.
Kind of across your different market sizes, you guys have.
Some of the smallest markets that we follow and then with the addition of Radcom Madison larger just curious what perspective I guess you.
Let's talk about.
So.
In terms of sub lost across.
Large more controls in smaller markets.
Right.
You know I I can't candidly I don't know to answer that.
Huh.
Perhaps jim or kind of in my better input there in terms of.
In terms of advertising again, it's not a advertising revenue, it's really not up.
Thanks in large market, there's a small markets really more about the quality portfolio.
Well and the difference between I mean, it it was only ensuring that that happened okay. <unk> Guy out it was just engine.
And but it's an anecdotal things that I thought was quite positive because people should the city you know a lot of stuffs would pick up and it but it's all over the board Oh, there's some markets that are down in June our consolidated numbers are down from where they work, but we do have a lot that have done quite well and it's all over the board because it depends on market.
So we're we're not shut down at that time period. It depends on you know various things and it was some areas we're going to do a pretty great say here in Georgia, Jane and then you know the virus sort of back off in July and so it may have slowed down some of those things. So it's.
It's really anecdotal and.
And by market and must date.
Great one last one.
Your your holders I'm sure love to see the repurchase activity how should we how should we think about how you balance your intentions, there with M&A as the balance sheet kind of trends down towards four times by them close to four times by the into this year and just kind of like a broader M&A outlook.
For the back half of this year and for next thanks.
Well I will make a few comments, let Kevin German powder, Bob anybody just when you just talked about that you know a.
Gray remains intent upon continuing to grow.
When you've got when your own numbers or moving up and down that make some things more difficult.
But M&A remains a problem function of this company.
We reach.
Net basis, you know right under 25% of the popular the viewing TV households, and so we have room to grow a we're very interested at the right price and that the lifetime.
That being said I think it's very clear that cash is king and a strong balance sheet is a record.
And and so we're going to keep that through the first and foremost.
I'm very proud of the company and its ability to generate the cash to a more than a civil relate to double our cash position and still be able deployed 50 million to buy back about 3% of the company.
You know we were trading it at a you know when world sort of fell off the cliff.
Absolutely ridiculous levels and a lot of businesses can say that and so it was you know it sounded like that should that happen again, we're gonna be doing that again.
Because we want to support our stock price.
Never under any circumstances, we want to maintain a sufficient cash position you know to weather the storm however, long it lasts.
Great. Thank you take out just a follow up on your sub count a large versus middle versus small markets. Our dad out eight our data it didnt really show any significant differences, there's nothing really that's jumping out at us. So it's it's kind of.
In a fairly tight range pretty uniform.
Thanks, Jim.
Your next question based on the line of hearing Watts with Deutsche Bank.
Hi, guys. Thanks for having me on covered a lot of ground and Mcewen I hear I really just have one last as I think about the.
Improvement sequentially, you're seeing in core how has auto participated in that recovery or has it lagged a bit and represent some upside still it if it auto was able to click backend just I guess curious about the trends you're seeing in the auto category So far.
I'm going to handle that.
Go ahead.
Got it could you repeat that please.
Yeah sure sure just [noise].
Yeah, we're saying you're seeing sequential improvement into core advertising from Twoq into Threeq, you and I like the question was just on the auto category, how how much is that participating in that recovery. So far has that been a laggard in and the category that well pick. It up later it has been a it has been a bit of a laggard actually and that's what's somewhat.
While it's been a laggard, we're optimistic when they finally get product underground, but you know that obviously the change supply got held up and so almost any new car dealer your talk to the first thing ill tell you know teller sales reps or sales managers that they can't get any product, but they seek that's going to loosen up here later in August and through September and.
And then I think you're gonna see not only at the national starting of advertising.
We'll see a certainly we have some claims on your obviously, but I think you'll see a significant uptick in that part of our business and really.
Some are cardiologists are doing remarkably well was limited inventory. They got a uses driving it in a lot of cases I can tell you that are the ones that have hot products with a little bit they can get like Ford F. 150. For example, if they come up as they get one and a lot they sell it at list, they're really not negotiating right now because.
The lack of inventory.
But once that inventory spigot opens up and again all indications are based on the feedback we're getting from the dealers is that's going to happen here beginning this month and through September and that's going to make huge impact certainly on our business.
But certainly it's going to make those guys a lot healthier as well.
Okay got it that's helpful and one follow up maybe for Jim you touched on how local news and syndication really drive.
The majority or your revenues.
I hope this doesn't happen, but to the extent, we get a delay in football college or pro or or no football. This small how do we think about the impact or directly on your revenues are understanding about indirectly, it's not an ideal outcome for from an audience perspective.
All of sports is a single digit percentage of our total revenue.
Okay.
All right. So we Gotta love I see it but it it you know if God forbid it doesn't happen then it's delayed for there it's not really get moved the needle.
Okay.
Thank you for the time guys.
Your next question based on the line of Jim Goss with Barrington Research.
Thank you.
Oh, great traditionally focuses on having number one or at least number two stations in all its markets to help drive political among other things.
And moving from.
And as the Raycom acquisition.
As greater matches. It was good introduce a few more number two is into the mix and I'm wondering if C.
The current dislocations overcome the inability to move to remove the ranking up to number one.
Versus the typical inertia are there any more opportunities to.
Improve your positioning now than they might have been in a more normal time.
You know handle that.
Yeah sure sorry are you don't <unk> interesting question, if I understand you correctly, you're asking given all the they're good sort of.
The challenge is.
Relative to cause a day to meeting in civil unrest and and Ah well I wasn't thinking is that create an opportunity to move up potential number two to one number one.
You know I. It generally the default is for viewers to go to that number one but I would tell you that we've seen.
Some excellent growth in some of our larger markets in the last 18 months so our stations.
In New Orleans, and Cincinnati, you have made significant moves over the last 18 months and in the World is now a solid number one in Cincinnati is they've gone from really a number three to one number yet number to slash number one.
And so I can't tell you that's a function of what's happening last six months, but I will tell you that we have seen some movement and some of the large markets and that's encouraging very encouraging to see.
Well, let me let me just add just as a way with rising a little bit because Ah I rubles station.
And we see wave has moved up dramatically in that market Richmond is.
Exceeding our expectations for them. So we really see tremendous upside on all fronts and I will tell you we couldn't be happier could not be happier with the the overall direction of what we're saying with.
All portfolios.
Has it has shown up at all in.
Anyway, and then second quarter. It took a look it doesn't go out of critical but are you seeing any movement in terms of.
Pricing that night reflect those moves.
Sure. So so you know as stations or grow their audience. They were able to charge more for their spots now you know it to some degree.
It's a supply and demand business, but the reality is if you were doing a three rating in the six o'clock news last year, you're doing a five this year, we're going to get a higher rate.
Okay and to the extent you've had to I'm sure do more remotes that night did little more awkward, but and clumsy that could create some cost savings are you finding any.
Any margin benefits from that sort of thing maybe this is a general question.
I think our expenses overall, we've always had a tradition of managed and tightly. So I don't think the remote work is going to significant <unk> give us a significant cost savings be some natural stuff you know travel budgets.
Sure.
Just not being used or barely being used entertainment or you know not be really being used so say something <unk>. Some of that we have seen savings in our health plan.
Although that I think it and probably a timing differences people, especially in Q2, just stayed home and Didnt access.
You know services it unless it was needed are absolutely necessary I think some of that will come back around eventually I don't know exactly when.
Well continue to manager our costs prudently as I mentioned in Q3, the broadcast overall cost increases really attributable solely to the increase in reverse comp so.
We're doing a good job there.
Some of the smaller cost, we say by remote worker being offset in some cases by more over time, we're spending not huge amount of dollars but.
We we literally have bought in access.
What was it 170 767000 individual pieces of whether it was sanitizer mass shields.
Mania protective equipment or you know, there's some cost they are not huge so it's a little bit of a trade off there, but I don't think anything dramatic.
Do any dramatic cost savings directly because of the.
The remote working situation.
Okay.
Thank you prefer that I want one last thing it seems like Theres, a continuous flow of new entrance into the.
Group stream services, now Peacock Patriot, Max and additional business plus CBS, all access and all that.
Amazon Prime Netflix Hulu.
Has these sort of things occur.
It does that just a continuing destabilisation factor in terms of your.
Sub counts or do you think there might be a trend to have like the basic cable package. If the networks that might to satisfy your needs. In addition to whatever specific or sort of other groups or programming.
They come along.
Jeff This is Kevin can that's that's a good question.
The answer kind of depends on on the offerings studies products, but.
If you were to buy a handful of the streaming services and try to cobble together.
Our own bundled package of channels you can get from cable certainly be spending more than you pay the cable company. It's the same bundle.
Well I should pay of course for broadband access to be able to use distant past peak.
But to be et cetera. So.
Some extent it could help HM.
Show the value of the cable bundle.
Which will be good for those of us to get paid part of the cable bundle.
Yeah, the OTI to providers are providing a lots and lots of content not available on broadcast that that could lessen the appeal of it but yeah. We're in several months concerned about whether consumers going up or a the cable bundle today. It seems there should be more concerned about whether people can afford to be subscribing to four and five and six.
No t. bundles to get the original content. So I think it kind of need to shake out, but it's probably a little more on the the first scenario, where the splintering fragmentation of programming costs. All these different bundles that have you subscribe corp. separately, we'll probably drive people buy hopefully.
So I go by the Paytv bundle, which was which is a better economic.
Yes.
Or are you able to strip out the share of.
Those taking a bundle who might get broadcast stations with the antenna versus part of one of the bundles or one of the cables.
Is that how how's that after the I don't know those I don't I don't.
Our OTI numbers are people, who are not Oh, gee subs as or people, who are paying we're getting a little corp. from a distributors that are suppose being carried.
And that OTI to bundle and that's what we're getting paid so I don't know how was the quantifying that people are taking for example, Disney plus and getting our second Olivia.
They won't be a record about.
Alright. Thanks.
HM Okay.
Your final question, if I'm a line of Steven Cahall with Wells Fargo.
[noise]. Thanks, maybe first just a follow up on reverse comp Kevin. Thanks for that helpful color. There if some declines do kind of maintain trend in the back half of the year would you think about moving all four of your reverse comp deals on to more of a subscriber base or do you like that mix that you talked about.
Sub base stat and fixed fee agreements.
It's an academic question, we don't have the ability to tell the network the change the whether they're charging affiliates.
Or to say you need a chart does a different formula going you're targeting other folks I think I think all broadcasters that scale over the last several years have attempted to plead for a different formula and their network affiliation.
Stations and everyone. It's not the same answer which is CBS has its one offer all broadcasters period boxes. It's one off all broadcasters period, and we see it because it's one youre period.
Unaware of anybody having.
Different formula networks have.
I mean that was sort of charging broadcasters.
As comp around 2008 2010, they each came up whether on system and they have essentially I'll start with at Fox change its formula one point integral cycle.
But it's it's so XP so.
I don't see but it's really work.
Imagining what will be a better system for us under current Subcount.
It's just it's not it's not possible for there to go back to network and say chart, it's definitely.
Yep, Okay, and then maybe a couple of for Jim Jim you focused on the stock buyback with common stock is there any interest in looking at the preferred given the the coupon that's on that and then on the expense side. It looks like your broadcast expense excluding.
Reverse comp is gonna be down a little bit year on year is that a trend that we should expect to continue to improve like if you made a fixed cost reduction or as we start to see I'm, particularly particularly AD sales come back should we start to see some of the non reverse comp broadcast expenses start to 10 move back up on a dollar basis.
I is things ramp back up there would be little bit more I mean, obviously the commissions.
Come up slightly although our commissions Weve is it's Hilton said right at the very beginning we've been.
Supporting our people some so they can focus and I'm getting every dollar they can.
The year over year decline, probably is not perpetual I mean, we've we we did a lot of work on our cost structure in 19 is part of the.
Integration of both companies and we were very successful with that we're seeing still some better [laughter] here.
Next year, we've always been tough on our expenses, but to deliver a a non reverse comp year over year decline again might be a little challenging but on the on the flip side of that is I wouldn't expect it to increase very much either.
And I think it was a second part question, but I know you don't yet it's not always on the preferred if you a if there was any potential or appetite to a terrible reduce the amount of the preferred at any point.
I think some place down a little farther down the road will be thoughtful about that I think right now.
I'm, probably not or at least not likely but you never say never.
I mean right now the preferred is not counted in the leverage calculation. So if we start taking it out.
We would be bringing up our leverage and of course, our stated goal for the last two years has been to decrease our leverage so.
Well, we'll continue to monitor our situation and be thoughtful about that I hear you won the rate at some point it.
No it probably will make sense.
If you like do you still got it with some or all of it.
Thank you.
There are no further questions I will turn the call back over to the host for any closing remarks.
Well I just want to thank all of you for a joining us today Q twos gonna be the Oh, we all knew this the worst quarter of the year for us. So I can already tell you I'm looking forward to Q3 in Q4 for the rest of 2020 or for a lot of positive news.
And so I look forward to talking with all of our teams look forward to talk with you guys.
Next time around thank you for your attention.
This concludes today's conference call. Thank you for your participation you may now disconnect.
Yes.
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