Q2 2020 Gray Television Inc Earnings Call
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I'd now like they had the conference over to your Speaker Mr. Hilton Howell. Thank you. Please go ahead.
Thank you much.
Good morning, everyone.
There's a lot where I mentioned on Holton, how old the German shield Gray television.
Thanks for joining our second quarter 2020.
Earnings call today as expected this time of year, we're all virtually trucks and said Brian She went back at least double level a couple others. Please forgive us.
Hum along with me or co Ceos, how the flattening, our chief legal and development all the circuit exactly our Chief Financial Officer, Jim Ryan.
Chief operating officer Bob.
Just because before but I wanted to help with us today.
Perhaps import to what we're saying in the field to all our stations.
We will begin this morning with its climber the Kevin will provide.
[music].
Good morning, Hilton Thank you everyone.
Thank you Hello, and good morning, everyone certain matters discussed on 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 described the forward looking statements as result of various important factors.
That's patches habits of course Mi companies. Most recent reports filed with the FCC encoding 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 castle less corporate expenses operating cash flow pre cash flow adjusted EBITDA and certain elaborate ratios.
These metrics are not meant to replace GAAP measurements, but I provided at supplements to assist the public nearby 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. Thank all of you again for joining us this morning.
First before we began I want to take a moment to wish Gordon Smith, our president and CEO The National Association of broadcasters, he's with covering the stroke, apparently so last night, our thoughts and prayers are with no because family.
Yeah, I understand it's prognosis is excellent.
We look forward to does respond to the in a big and wish him God screen is eminent recovery and many more years, leading yesterday organization.
Second.
I want to salute the truly amazing.
And women.
Great television.
For their extraordinary efforts.
During these extraordinary times.
Wanting to work from home often in isolation.
Learning to publish an ever changing life destroyed in bars.
One thing to balance the child care with unrelenting demands on a deadline tied viewers Helen.
Learning to fight through their own fears.
During the process and subsequent lives.
For me to take a rubber bullets in the chest.
Learning how to a poor clearly.
Well fog tear gas.
Linda stomach the will porting.
The ransacking, they're both cities.
Homes and communities.
And trying to make sense involved.
As the Ducs in the truck.
And tragedy.
How about current situations like.
The absolute first thing that gray television that.
It was a sure our associates.
That's a jobs.
Their salaries.
The benefits were absolutely secure.
Not worry about the of course in a financial security.
Their job.
The focus.
On their responsibilities.
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.
Then the formal worldwide pandemic, which was declared and the government mandated lockdowns one announced.
Business fell off a cliff.
It was D.
And I know.
But as the quarter matured.
Each month got better than the last.
And then our total revenue declined approximately 11% compared to last years second quarter.
Our total combined local and national broadcast revenue, excluding political revenue, which we call our total core revenue.
Decreased approximately 30% compared to the second quarter of 29 thing.
In every cloud, there's a silver lining.
Our business slowed less than we feared and it would probably faster than we hoped.
In fact, the year over year and total core revenues.
Improve sequentially throughout the second quarter.
Okay do pool.
Plummeted.
By 38%.
But may improve.
But was still a decrease of 34%.
In June declined by only 17%.
But most important thing.
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 declined 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 to make and.
Well just two cents per share.
Broadcast cash flow remained healthy at $128 million.
I'll just add that dog is positive.
<unk> 8 million.
It is important to keep in mind that through this historic health challenge.
Is temporary.
The unknown duration.
That does great country will not allow itself to a nice mired in various stages of stay at home safe food at home and similar subscriptions on businesses schools entertainment or sports.
End of more immediate concern.
Our political C or through the 20 twinning has never been more dramatic.
With no more Rollins.
No more lives conventions.
No more bus tours.
No more whistle stop train business.
Television will remain and indeed increase as the dominant form.
Cool reach and impacts.
We anticipate that our political advertising revenue went 2020 will be between 250 million.
And 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 as what we believed was a significant mismatch between the value Gray television and the pricing, which the company's common stock traded.
For the past several months.
I would purchase saying I half million shares of common stock in the first quarter.
Further 3.3 million shares of common stock in the second quarter.
In total.
We still slightly over $49 million in first half the 2020.
What you're seeing a bit more than 3% of our total outstanding shares at an average price of $12, an eight one cents per share including commissions.
Currently.
We have approximately 89, Megan 740610 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 of 2019.
I'm, particularly pleased to bomb the greatest prudent management has enabled us to continue to grow very strong cash position.
Rock solid balance sheet in these difficult times.
Over the first half of the year, we increased our cash on hand by $167 million.
Beginning that 212 million that year, and twinning 19 to 379 million at the weekend in 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 back.
We have not draw on any funding from our 200 million dollar will ball bank credit facility and we have no intention do so.
We also have not received any stimulus or kubly funds from any government program and also had no intention to do so.
[laughter] Kevin engine now add additional color to todays earnings release thereafter, I will open for questions.
Thank you Todd and good morning, everyone.
It's been roughly 150 days since it outbreak of the quota virus foreseeable near the cancel the remainder bid season has games are being played.
The Gray television adopted a remote work policy and related Cobot note you policies for all employees.
Instead.
Oh changed your work and personal lines in many ways to protect ourselves and others.
Grown by did the cooling the virus crisis surely lasted longer than we anticipated 150, David frankly, you don't continue doing a package for quite some time.
Meanwhile, the country in each of US you can put to not only our strengths and also a shortcoming jobs society.
Encouraged that the largely positive constructive responses to all the store challenges that stand before us today.
The past I know two days it not that easy.
You're never the less optimistic that these experiences will make us all stronger.
As a country as a company as a society. These individuals.
You should be could not be more proud or more humbled and how are extraordinary colleagues just double down on copper local news and events surely garbage hasn't customers Super showed in local communities and Reconfiguring systems facilities routines to permit all of that I'll do a great work to occur in they do a boat socially just.
It's often uncomfortable environment.
Unfortunately, some of our journalist had been attached for their work carbon events for the past 150 days and not just virtually on social media, which is unacceptable.
But also talked burbling physically by both the police who were called on to protect the community.
By riders and touch on hold me to community.
Shooting the messenger, let's take it on a newly meeting this year.
Colin everyone to respect all members of the media they worked tirelessly to carbons news for the benefit wall.
Turning to the business environment, we're encouraged by the return of arbitrage as you know continued success in my opinion business such as the past April.
Focus at this time show business still off year over year, but not at the levels himself and second quarter.
We could number buyer split up she couldn't randomly around the country you are simply not able to predict whether or how closely teacher arbitrage revenue will meet our expectation is going to we continued to be encouraged by the creativity and ingenuity of our sales teams.
One very strong performer of course is political revenue.
No that did not altered or for your political god to $50 million to $275 million.
On the presidential fun Biden spending remains on par with the pace they couldn't get paid had in 2016.
From campaign whoever has laid in their base by sturdy election.
Importantly, the Trump campaign spending is currently on track to be up 57% purchases overall spending in 2016.
So far issue in park spending for the presidential race was up only slightly cheaper so for 2016 levels.
There is of course still relatively early in the cycle could potential advertising.
We're seeing very strong demand in the Senate races, Gray has five states in the toss up the category.
For stage of and that's the most competitive category of lean Democratic or lead Republic.
Michigan races coming in below expectations. Currently we are seeing higher than expected spending the Senate races in South Carolina loud skin, Kansas. In addition party can pack spending from the major groups from both periods supporting set of candidates is up 27% from 2018 levels.
Rounding out the races Gray has eight house races, the phone the toss up category, which rebates U shape, it could be shaping up to be more competitive [noise].
That originally anticipate.
The only four races for governor across our footprint. This year 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 <unk> early on.
Okay, and lower AD rates to date, you have seen an 8% increase in pre booked dollars were non presidential races versus the same time an 18.
Why don't you learn yesterday that the Trump campaigning 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 the Iranians with most of the spend we're used to bisected batch on television.
This data point also bodes well for a record year.
I'll now turn the call back to Kevin.
Great. Thank you Pat.
Turning now to retransmission, we completed agreements with three of our largest it'd be pts as well as a small number of additional operators in the first half of this year.
As noted in our fire 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 by recent Retrans renewals as we continue to push for full value for their content trade by distributors are renewing retrans contracts.
Welcome to non renewing your trends contract on could annual escalators that ensure continued growth in retransmission revenue every year.
This year. However, we haven't had an unexpectedly large declines and sub counts.
First quarter, 2020 had 2% fewer it'd be PT subs in the fourth quarter 29 team.
It appears the second quarter 2020 had 3% fewer paid MPPD subs in the first quarter of this year.
Oh, he t. providers on the other half continue to upsets in our market with perhaps as much as 18% more Peyto T. T subs in the second quarter than we had in 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 decline roughly equal as a separate line to experience and all 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 <unk>.
The increase sub losses, combined with migrations and subs among it'd be PD, you know two distributors, who all have different rates.
You did our grocery transmission growth, particularly our second quarter retransmission revenue increased 9%, probably the second quarter 2019.
First half retransmission revenue increased 7%, where the first half 2019.
Looking ahead at sub counts remained stable for the rest of year retransmission revenue in the second half a 2020.
I would be somewhat higher than the first half a 2020 due to a significant renewal that repricing April 1st of this year.
And sub losses continue had 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 day 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 hawken rates it in hindsight appear pretty favorable to us.
If those agreements expired at various times in 2019.
Well last years, those agreements were replaced with new market rates or reverse comp payments increased.
In 2020, we experience a higher rates, but all four network for the entire year.
Rick of course will increase again it started 2021, but we also have a large number of MPPD retrans agreements for your pricing at the same time.
Our next set of MPPD renewals 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 leading group of television stations and cable and satellite platforms.
Thank you for your time and out from the whole bucket Jeremiah.
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 were 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 the comments, we made on or previous earnings call.
Reflecting the sequential improvement in each one of the quarter. Its Hilton is already mentioned.
Our leverage ratio net of the 379 million in cash was 4.4 times and we currently anticipate that 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 of 200 million. So we're in a very strong liquidity position.
Moreover, at this time, we expected 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 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 cobot 19, with withdrawn or previous full year guidance and are not issue in formal guidance for Q3 2020. However, we remain bullish on 2020 political AD revenue and still expect full year political AD revenue to range between 250 million and to 75 million.
I know out what do 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.
Live today again cashion the situation still is fluid in her in her visibility is limited we believe the 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.
Q3, while 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 forecasting pacing is guidance, we realized that everybody is eager for any kind of predictions on whether and how Q3 will unfold. So were just guazzini.
Our current internal forecasts as a potential data 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 duplicate clients 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 are anticipated to approximate Q3, 2019 levels and 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 updates and he's liquidity items again.
Cash interest at a full year basis is currently expected to be 175 million. Our original estimate for the year was 194 million ended the decrease reflects the decrease in whiteboard.
Capital expenditures in a full year basis will range between 65 million in 75 million.
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 help.
Thank you Jim [noise].
Great 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, it's working environments.
Our stations reestablish the importance and value 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 eliminating the highest quality local institutions like ours as well as the wisdom operating very lean management structure.
Good day, when we return 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 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 were telephone keypad again that is star one to withdraw your question press the pound.
We will pause for just a moment to compiled acuity roster.
My first question is from the line of Dan Kurnos with the benchmark company.
Great. Thanks, Good morning, and appreciate all the color cabin, 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.
Retrans outlook, and then maybe Jim whoever wants to take it on core your your Q3 guidance is actually.
Relatively really strong I think especially in comparison to the peer group and obviously, what we've been hearing from.
Broke through another 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 not what 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 today's headlines that the hotspot sort of country seem to be stabilizing.
What kind of.
Move a little bit more towards normal get another round of stimulus tracks and you why pieces Sol confidence returns better et cetera.
It seems to us that sub decline should certainly mitigates movies on the first half a year now so.
I suspect there is a number of folks didn't pay to cable bill.
Given who is going to jobs or otherwise no change circumstances.
And when the Grace periods and on that they may end up paying Sun Pat has spoken showing up the subs again, especially Ghana jobs return stimulus money is provided so I think we remain optimistic and when I 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 as 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 even 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 its first and foremost goes to the strikes that strikes the deep penetration we have in our markets.
As 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 I mean, its political is super strong and obviously quarters gonna get squeezed a little bit but everybody is.
Followed us for years realize we always outperformed political so that's a high class problem to have it if that indeed happens so I'll, let Pat indoor UPOP give you a little more color on and what we're C.
Sure So I'll jump in real quick it's Pat.
Particularly in times like these.
Not only viewers the trend the lead on their trusted one of the one stations, but advertisers do the same show up.
Jim mentioned are really short portfolio stations.
The significant benefit right now.
I'd also add their training team has done great work closely because the past five to seven years.
It's having a huge impact.
On our.
<unk> already strong salesforce, but particularly of last 18 months ago, great work and that also in general say that moves you look for their actual digital business development groups. So Bob that you want to add any detail.
Jump that sure Pat.
Certainly.
Some of our digital efforts are contributing to that along with some verticals. We're doing this is Pat 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 body 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 your and your out and they trust us. So that's certainly a factor as well.
And the fact is we.
I had mentioned the training program, but let me I can't oversell that enough that group has been phenomenal and the resources. They provided since March they jump right in with a lot of different things and it created a lot different 70 events and that certainly help them and then lastly, I would say we have a competitive group and so.
Successfully piece the oversea ours.
Markets, a somewhat evenly divided but for example, this morning I got to email from one of the.
Or run rate the regions and his region. They had 20 people.
Salespeople that is that it's sold at least 20 grant do direct business all the way up too.
Yes, 50, 60 grams, somebody's 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 could find and we're doing a pretty good job, but no. 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 pass their expiration dates and to cure might there be some kind of accounting nuance in Q3.
Oh Im anytime we 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 in Q1 numbers with the rate that would be applicable in Q1.
When we had.
The the last deal is finished after April 1st.
And we knew it with those rates would be so.
So the actual I'm not sure check as arrive from sort of the new April or not I'm actually probably has but we have accrued core rates once a rachel our agreed to by the parties, even if the rest of the contract is not Neil Neil.
Nail down we do reflect the new rates in our.
Cool so what do you see for Q1 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 respond the line of John Janedis with Wolfe Research.
Thanks, guys.
Two for me one can you remind us how much of your AD revenue comes from Prime time, I think it's pretty small another decline, but 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 retreads margins well take low over time, it but is there any incremental message based on what you're seeing in the market.
Armed with the Prime quickly I didn't go ahead.
<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, it's probably up oh offsetting that but but in general Prime is you know historically run 20 person.
Since its somewhere.
All that high teens anyway.
Yes.
I'm not sure if I understand the question.
What do we pick up in the market on our our network rates are there are no our network contracts. So often over the next couple of years Oh alone renew those cash we knew those early as well as points in 2018 and 29, so we've taken those.
End points out a few years so the the rates don't change in the middle of the term I.
So I'm not sure what the questions about what will make maybe after the market today.
Yes, I mean, maybe the question that's there based on any comments around just what you're seeing and I guess, the 20 million of incremental reverse.
Yeah, I got you talked about in margins moving lower just your messaging that margins are looking a little bit lower than you expect going forward or or is that not the kids.
[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 and teaming up with so not sharing in the pain.
So if we have.
It is sub declines 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.
Yeah. That's just that's just a function. The fact that those those are fixed fees and two of those two network a formula.
But 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 it's a double edged sword. It if it's a fixed fee with that network.
We absorbed the paying a sub losses, but we enjoy all the fruits of superior negotiation. So have you ever really strong station or set of stations with particularly network as a fixed fee and you can drive higher rated BBB d., we caught that extra money, we don't share for the network. So there's pluses and minuses with with both network approaches.
The bottom line to your question is the increase in sub losses, so strive the.
There were sharing perfect percentage a bit more favorable to the network.
Thank you.
Your next question is from 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.
Thanks for the detail on political.
How much of the guide of the kinda to 63 midpoint.
Roughly speaking is expected to be presidential versus down market, and then kind of which races should we keep rise appealed on for movement off that midpoint.
I 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 how how did that answer.
Later today.
On the actual campaigns.
In addition to presidential.
And we had number this year we benefit from.
Having really strong stations and all for the early now many states I wouldn't Samson, Nevada, South Carolina.
Outside of presidential.
We have <unk> that the political map seems to be changing every every couple of weeks, but we see the biden campaign is spending money in states that did not expecting to spend then this interim campaign buying at some states do not expect them to spend money and so that feel has gotten wider than we would've done we were expecting earlier this year.
Pat mentioned, there's only one gubernatorial race.
And I don't see any indications that any of the other.
Hi, good until races are going to get more competitive obviously that can change over the next couple of weeks.
That that was never sort of a bright spot for us in this but this calendar.
Senate races.
Since have 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 such as mean such as the two in Georgia.
North Carolina.
Those are person certainly yeah, Arizona, absolutely, Arizona I mean, those are absolutely on fire. So the Senate. The Senate feel has suddenly expanding I keep an eye on on that Youre expanding more Kansas as you may have seen this morning.
Absent Marshall when Republican primary and the Dems a went out this morning with that adds in the challenge or there that remarkably Kansas state.
It's not center Democrat.
The U.S. Senate 19 thirties.
Actually is a one of the states for Democratic Challenger has raised more money and the Republican.
Campaign forgot state so that's something on the radar screen, which would not expect it earlier this year South Carolina's another state where the Democrats challengers raise more money than me common in a very well known incumbent so it's and.
Senate is a ciena is implied.
So mentioned in today.
Interest pack group spending in the Senate is way up over prior years.
Houses stuff the house races.
It's usually a handful of house races that our competitive and that's the changes based on 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.
Not as big of a driver is the Senate races.
Great. That's helpful. Hilton I think he 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've asked me scratching My head and then if that's true what conditions were underlying those particularly strong results and was there any material difference.
In sub counts core that was driven by market size in the core.
He said he said June pilot.
Not Q2, okay sorry.
That's helpful. Then then the second part of the question.
As their underlying.
It was was there material difference in Subcom 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 very calm added some larger just curious what perspective I guess you.
Well, it's a tough.
Huh.
So.
In terms of sub lost across.
Large markets relative small markets.
Right.
You know I I can't candidly I don't know to answer that.
Huh.
Perhaps Jim or Kevin, Mike I better input there in terms of.
In terms of advertising again, it's it's not a advertising revenue rigs, 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 was only inch assuming that that happened okay [noise].
While it was just in June and but it's an anecdotal things that I thought was quite positive because people should see no a lot of stuffs will pick up and it but it's all over the board Oh, there's some markets that are down in June our consulting 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 markets that we're we're not shut down at that time period.
Pens on various things and who knows some areas, we're going do a pretty great say here in Georgia Jane and.
The virus sort of back off in July.
So and may have slowed down some of those things. So it's it's really anecdotal and.
And by market and by state.
Great one last one.
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, but close to four times by the end of 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 gentlemen, powder, Bob anybody I just want to talk about that you know a gray remains intent upon us continuing to grow.
When you've got when your own numbers or moving up and down it makes some things more difficult.
But M&A remains a problem function to this company.
We reach.
Net basis, you know run 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 directories.
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 to deploy 15 million to buyback about 3% of the company.
You know we were trading at that a you know one world sort of fell off the cliff.
Absolutely ridiculous levels and a lot of businesses can say that and so it was you know something like that should 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 their sufficient cash position you know to weathered 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 are dead at 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 is on the line of hearing watched 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 in its auto is able to click backend just I guess curious about the trends you're seeing in the auto category So far.
And a handle that though.
Right.
Got it could you repeat that please.
Yeah sure sure just.
Yeah, we're saying you're seeing sequential improvement into core advertising from Twoq into Threeq, you and I asked the question was just on the auto category, how how much is that participating in that recovery. So far has that been a laggard and 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 where it's somewhat.
While it's been a laggard, we're optimistic when they finally get product underground. They you know that obviously the chain supply got held up and so almost any new car dealer to 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 going to see not only at the national sorry advertising.
We'll see 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 or car dealers are doing remarkably well 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 because they they get one and a lot. They sell it at list are 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 kind of a 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 of your revenues.
Well just doesn't happen, but to the extent, we get a delay in football college or pro or no football. This fall how do we think about the impact or directly on your revenues and understanding that indirectly. It is 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 got we'd love to see it but it it.
Good God forbid it doesn't happen then it's delayed further it's not really get moved the needle.
Okay.
Thank you for the time Guy.
Your next question is on the line of Jim Goss with Barrington Research.
Thank you.
Oh, great traditionally focuses and having number one or at least number two stations in all its markets to help drive political among other things.
And moving from.
And 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.
Yeah that'll that's about yeah sure. So you don't <unk> interesting question, if I understand you correctly, you you're asking given all the the good sort of.
The challenge is.
Relative to cope with 19 meeting and civil unrest and.
Well I wasn't thinking is that create an opportunity to move up potential number two to one number one.
You know a 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 have made significant moves over the last 18 months and Orleans is now a solid number one in Cincinnati is gone from really a number three to one number is number two slash number one.
And so I can't tell you that's a function of what's happened the last six months, but I will tell you that you know we have seen some movement and some of the large markets and it's encouraging very encouraging to see.
Well, let me let me just add just as a way of rising a little bit because Ah I rubles station.
And B C wave has moved up dramatically in that market Richmond is.
Exceeding our expectations and improving and 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.
As it has shown up at all and.
Anyway, and then second quarter typically doesn't go out of political but are you seeing any movement in terms of.
Pricing that night to reflect those moves.
Sure. So so you know as stations or grow their audience, they were able to charge more for their spots.
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.
And to the extent you've had to I'm sure do more remotes that night, they're a little more awkward, but and clumsy, but could create some cost savings are you finding any.
Any merger 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.
We're just not being used or barely being used entertainment or you don't that'd be really being used so say something so 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 or absolutely necessary I think someone that will come back around eventually I don't know exactly when.
We'll 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 an access.
What was it 170 760, something that was in individual pieces of what it was sanitizer mass shields.
They knew 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 as a.
Remote working situation.
Okay.
Thank you for that one last thing it seems like there's a continuous flow of new entrance into the.
Ah Group stream services now Peacock Hbr Max in addition to this Nicholas CBS, all access and all the Amazon Prime Netflix Hulu.
Has nice sort of things occur.
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 a basic cable package yet the networks that might satisfy your needs. In addition to whatever specific or for other groups of programming.
They come along.
Jeff This is Kevin and that's it that's a good question.
The answer kind of depends on on the offerings are these products, but.
If you were to buy a handful of the streaming services to try to cobbled together.
Our own bundle package of channels, you can get from cable certainly be spending more than you pay the cable companies at the same bundle.
Hi should pay of course for broadband access.
Be able to use Disney Pos peacock, but to be et cetera. So it some extend that could help HM.
Show the value of the cable bundle.
Would be good for those of us it get paid part of the cable bundle.
Yeah, the OTI to providers are providing.
Washington original content not available on broadcast that that could lessen the appeal of it but yeah. It's everyone's concerned about whether consumers can afford the cable bundle today. It seems finch more concerned about whether people can afford to be subscribing to four and five and six different on t. bundles.
Get original content, so I think it kind of needs to shake out, but it's probably ought to more of the.
The first scenario, where the splintering fragmentation of programming costs. All these different bundles that uses five corp. separately.
Would drive people buy hopefully.
Try to go by the Paytv bundle, which was which is a better economics.
A package.
Or are you able to strip out the share of.
Those taking a bundle who my gut broadcast stations with the antenna persist part of one of the bundles or one of the cable.
And is that how how's that after the I dunno those I don't I don't.
Our OTI numbers are people, who are not Oh Gee subs are people who are paying.
Are we getting over corp. from a distributor arsenals being carried.
And that OTI to bundle and that's where we're getting paid.
We would quantify that people are taking on for example, Disney plus and getting our signal that here.
They won't be a record about.
All right I think seven <unk>.
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 us a different formula then you're charging other folks I think I think all broadcasters with scale over the last several years have attempted to quit for a different formula and their network affiliation.
Shale basins and everyone. That's not the same answer which is CBS has its one offer all broadcasters period boxes. It's one off all broadcasters period NBC, that's it's formula period et cetera that I'm not aware of anybody having.
Different formula.
The networks have.
Everything that was sort of charging broadcasters.
First comp around 2008.
And then they each came up whether on system and they have essentially all stuck with at Fox change its formula one point and at the cycle.
But as you know, it's still a fixed fee so.
I don't see that it's really work.
Imagining what will be better system for us under current sub counts.
It's just it's not it's not possible from here to go back to network and say charters differently.
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 X food.
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 protect 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.
Uh huh.
As things ramp back up there would be a little bit more I mean, obviously the commissions will come up slightly although our commissions. We is it's Hilton said right at the very beginning we've been.
Supporting our people some so they can focus and and getting every dollar they can.
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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.
Very successful with that we've seen still come back.
Here.
Next year, we've always been tough on our expenses, but to deliver a nine reverse comp year over year decline again might be a little challenging but on the on the flip side of that is that wouldn't expected to increase very much either.
And I think it was a second question, but I.
Yes, I got always on the preferred if you right 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.
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.
Point it.
You probably will make sense.
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 going to be a with all new this the worst quarter of the year for us. So I cannot say I'm looking forward to Q3 in Q4 for the rest of 2020.
For a lot of positive news and so I look forward to talking 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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