Q3 2020 Gray Television Inc Earnings Call
Ladies and gentlemen, thank you for sales.
[music] <unk> earnings call.
After the speaker's presentation, there will be a question and answer session last.
Ask a question during the session you will need to press star one on your telephone.
Please be advised that todays conference is being recorded if you require any further assistance. Please press star Zero I would guide operates over to your speaker today Hilton Howell Chairman and CEO. Thank you. Please go ahead.
Thank you Mike Good morning, everyone I'm as Mike mentioned, our operator, I am Hilton Howell, the chairman and CEO bright television and I want to thank each and every one of you to.
Joining us this this morning for our third quarter once.
<unk> earnings call.
As usual on the line with me today are our president and co CEO, Pat flattening, our chief legal and development officer cabin lights that are.
She financial Officer, Jim Ryan and our Chief operating Officer, Bob Smith.
We will begin this morning with the disclaimer that Kevin will provide no cabin.
Hi, Thank you Milton and good morning, everyone.
Certain matters discussed in this call may include forward looking statements regarding among other things future operating results.
Those statements are subject to a number of risks and uncertainties.
Actual results in the future could differ from those described in the forward looking statements.
As a result of various important factors.
Such factors have been set forth in the company's most recent reports filed with the FTC been included in todays earnings release.
The company undertakes no obligation to update these forward looking statements right.
Gray uses its website as a key source of company information the website addresses www, Q, Hey, why dot TV.
Included on the call will be discussion of non-GAAP financial measures and in particular broadcast cash flow broadcast cash flow less corporate expenses operator.
Operating cash flow free cash flow adjusted EBITDA and certain leverage ratios.
Metrics are not meant to replace GAAP measurements, but are provided as supplements to assist the public in their analysis and valuation of our company included in our earnings release as well as on our website <unk> reconciliations of the non-GAAP financial measures to the GAAP measures recorded in our financial statements now return the call to help.
Thank you very much Kevin.
It may be hard for all of his for members how strong we began.
2020, and January and February this year, how much optimism we had at the start of this year now many months into this crazy pandemic Gray television is continuing to recover and recover strongly on them the store pull back and economic activity in this country.
In March April and May earlier this year.
In fact in many of our core areas.
Returning to normal historical levels of advertising. Despite the huge displacement of political that has occurred through the course of 2020.
Despite all the challenges at the beginning of the year. Our total revenues are again, increasing by double digits as local audiences, absolutely surge and our content continues toward improved compensation terms. All of this is due in large part.
To the extraordinary efforts of all of the quarters and sellers and producers and other professionals all around the country.
Consistent with this headline we saw in the second quarter of this year, how great business.
Flowed less than anticipated and it recovered faster than expected.
Today's release confirms that the third quarter saw the strong momentum continue quite.
Quite simply our results in the third quarter were much better than we would have had expected.
They would have done over the summer.
Total revenue for the third quarter was 604 million, an increase of 87 million or 17% from the third quarter to 2019 net.
Net income attributable to common stock holders was 109, Megan <unk> dollar and 14 cents per fully diluted share, which is more than doubled this amount from the third quarter of 29 chain.
Broadcast cash flow was 271 make.
An increase of 79 million or 41% from the third quarter of 2019.
Our adjusted EBITDA for the third quarter of 2020 was 261 million.
An increase of 80 million or 44% from the third quarter of 29 King.
Our core revenue continued sequential improvement.
From the troughs of April.
Selecting better business conditions at both the national and the local levels.
The Big story.
Worse is.
His political.
Which surpassed our most wildly optimistic models.
We began the year predicting political revenues were taught our all time record from 2018.
234 million.
On a same station basis.
In late February.
We predicted full year political revenue in the range of 250 to perhaps 275 million.
Last month, we publicly increase our estimate.
Political revenue to be between 275.
And $300 million.
Political somehow managed to pick up even more momentum soon thereafter.
Now.
As we all just hold the just the ongoing election process.
And the results of tuesday's election it.
It appears that our political revenue will significantly exceed $380 million.
And since we know that there is at least one run off election.
In one of our significant states and markets over the next two months.
Political revenue could well end the year significantly higher.
And they even touch 400 million.
I want to share some interesting statistics with each of you.
[laughter] to these years.
Peer in our investment back and I would like to share that data with you and then also bring you up to date on the data for 2020.
In the last presidential election year in 2016, our total revenue had dropped precipitously, because president Trump did not advertise and.
Hillary advertised but not in the right places.
And so our total revenue was 118 million but.
We still has the highest revenue any operator.
Her television household basis at $9.63 per TV household.
In the mid terms of 2018, our political revenue then a record.
Was $234 million.
And a once again industry, leading number but $8.80 per TV households.
For 20, twinning, using 380 million, which we know we will exceed.
Yields an all time record.
$15 for television household, which we believe will be industry leading.
I also want to remind you that gray television.
Unlike nearly all other affiliate groups.
Does not well, it's political orders through a third party rep for.
We instead directly sell to all national and political buyers.
We can operate in this matter because buyers typically cannot reach our markets without finding and by our strong local stations.
We started this direct model at the beginning of 2016.
And we have implemented it in every station we have purchased since then including including all of those stations acquired from way Com insurers.
This business model has stayed gray and therefore has say to you our shareholders over.
Over $25 million and Rep commissions.
Just on political revenue alone and 2020.
Our 2020 savings or even higher you add into sales commissions on our national non political revenue this year.
In addition to these real savings, we also had stronger relationships with our customers and more efficient order execution.
We believe that this allows us to pick up incremental borrowers from agencies when those become available.
In short.
Great ones, a lean show not just because we don't like bureaucracy.
We want to lean shop, because it works.
For that reason and many others. We remain we remain optimistic about our business over the long term.
Especially in light.
Of the portfolio the assets and most importantly, the people that comprise gray television.
Last quarter, we again took advantage of what we believe was a significant mismatch between the value of gray television and the price at which our Companys common stock has traded.
We purchasing a further 649000 shares.
Of our common stock before we were blacked out from trading.
During the first nine months of 2020.
We repurchased approximately 4.5 million shares of common stock in the open market at an average price of $13.23 per share including commissions.
Total cost of approximately.
$59 million.
We remain quite frustrated with GTN share price and the multiples of which GTN trades, giving our.
Impressive performance during this difficult year compared to many of our peers and the many other non broadcast media companies.
We are taking two steps to try to eliminate this mismatch.
First.
Our board of directors yesterday authorized a $150 million increase to the November 2019 stock repurchase authorization of which we had already repurchased approximately $80 million in shares of our common stock through.
Through the third quarter.
With this additional board action the company now may repurchase up to 220 million.
Outstanding common stock and a world class a common stock through December 31, 2023.
Second.
As part of our expanded stock repurchase program. In addition to typical discretionary stock repurchases and consistent with all FCC requirements.
We intend to enter into a trading plan in accordance with the FCC rule Tenbfive one.
Rules, which will allow grade to execute trades under that will roll or rueful, sorry during periods when it would ordinarily not be permitted to do so.
Notes in a tremendously successful new product offering.
We sold $800 million of senior notes due in 2013 with a coupon rate of pay.
Core 4.75% at par.
We are exceptionally excited with this outcome.
It means that we have replaced not only somewhat near term maturity notes with 10 year notes.
At what we believe was a record low rate in the TV broadcast center sector.
Or a 10 year notes.
On top of that.
Demand for these notes was so strong that we upsized the offering from 550 million to 800 million and.
And still had to turn away.
Shoots numbers of orders.
We now have no maturities prior to 2024, when our term loan b and matures and all remaining debt expires and 2026.
Once eutwenty seven.
And 2030.
We could not be more pleased with the outcome of this offering and we are grateful for the support and faith of our credit investors, who subscribed to the offering and to the teams at Wells Fargo and Jones day manage the offering.
Kevin and Jim will now add additional color to today's earnings release, there. After I will open the line to any of your questions.
Pat.
Thank you Hilton.
And good morning as you.
You've heard for years. This company is superbly positioned to benefit from political revenue, resulting from our high quality local news operations located in politically important markets.
This year has proven that thesis once again.
Our political revenues also confirm another critical factor.
When you need to promote your product service candidate or issue. There is no better and no more efficient medium to reach consumers in the trusted brand safe universally available strong local television stations.
Our job in gray and throughout our industry is continuing to demonstrate this fact to more non political advertisers at the national and local level.
One thing that political and non political advertisers alike recognize is that their audience is trust their local news anchors news teams more than any other media and the gray we are fortunate to have both very talented journalists and prestigious recognition of their efforts.
On August 24th the National Association of Broadcasters leadership Foundation selected several of our television stations winners and finalist for this year's coveted service to America Awards.
The service to America Wars recognize outstanding community service by local broadcasters and select local radio pardon me in select local radio and television stations and one group owner each year for their exemplary service to their communities.
Great Wjh GTV in Panama City, Florida received the surface to community award for small market television for its enterprise series remembering the forgotten. In addition, Gray's W. envy you in South Bend, Indiana received a service to community award for media market television for never again prevent.
Stop tragedies.
Both of the finalists for awards in the small market television and one of the three finalists for awards in the media market television category, where gray stations.
Moreover, Gray television itself, one any BLS broadcast ownership Group award for his service to the company in honor of the investigative series measure of hate the aired across our stations.
The series of reports by lead investigator believes Zurich expose significant flaws the npis reporting pay crimes. This.
This investigative reporting led directly to changes in the way the FBI and law enforcement measure and report hate crimes were also privileged to have local stations impressive work highlighted by the radio television Digital News Association.
Recently, the R T DNA enough and selected for Gray television local stations as National Edward R. Murrow Award winners for excellence in journalism in the small market television category, you're adulation to WD BJ in Roanoke WCS in Burlington, Vermont.
Hey, if be in Baton Rouge, and kw, TX in Waco, Texas National bureaus are a very big deal that we're humbled by the strong showing this year in fact in May of 2020, Archie DNA awarded a combined 49 regional Mros for excellence in journalism to 21 of Gray's local television stations.
The news investigative and community focus of our television stations fueled significant ratings increases in the spring when the pandemic began and it helped hold our ratings elevated levels as the years progressed.
We've also seen large increases an already impressive digital traffic, which continues to grow month. After month, we're about to surpass $10 billion yearly pages. This month and we are pacing to finish the year with 1 billion more page views than the record we set in 2019.
In terms of operations, we have aggressively rolled out live local OTSG systems to 50 markets. This year. These systems allow stations to go live online 24, seven with local news reports in fact it was this system that allowed K plc in Lake Charles Louisiana to continue their coverage during in the aftermath of hurricane loss.
Laura We also completed the rollout of premium on across the entire company in the last few months, our resale agreement with Permian.
Already has enabled us to book several million dollars of new OTI TV AD revenue. This year, we expect that number to grow significantly in 2021.
In 2020, we also took our digital agency services in house by replacing an outside group with the skilled in house team, we've reduced our cost by another $3 million, increasing our digital margins improving client outcomes on September 1st think back announced the launch should view it.
A new free AD supported national streaming service built in partnership with leading local television groups, including Greg.
Sales pack aims to be the net flicks of live local in free featuring a wide range of local regional and sped special interest programming food produced by leading television stations across the country, along with thousands of view at originals.
Viewers had a strong launch and we're excited to see its quick adoption by consumers as well as other local media companies want to add their local content to the App. In fact gray has such a big believers sink back and view it that we raise our investment in sync back in August to a sizable those still minority interest.
Im also happy to report that our production company has gone from essentially shut down the spring to very busy today Raycom sports is produced many college football games in September and Tupelo has picked up a previous number games as well as non sport line productions in recent months.
This summer gray invested in bringing a new sport to the us called World Chase Tag Debbie.
BCG combines the dynamic athleticism upon our core with the age old game of Tag first competition began only in 2016 year already has built a cult following around the world on September 20, Eightth. The NBC Sports group announced it had secured the exclusive use distribution rights for this rapidly growing sport in.
October our production company to blow began filming the first WPC T USA competitions of the season at the Roxy right here in Atlanta. The first matches of this year's season actually debut on November 12 on NBC Sports network at 11 PM Eastern and they'll run through December 23rd when the NBC sports.
Network plans to air AWBC, T. marathon appropriately titled World Chase tagged day in the USA.
I also need to mention swirl films, which is the leading independent TV in urban film production Company Swirl returned to live studio lot production as busy as it's ever been.
Great to share increased its investment in swirl films, and we know we now own at just over 50% of this very impressive company located in the heart of America's New video in film production capital of Atlanta, Georgia, Swirl has a large and growing book of business that will keep us busy well into next year and with a lack of all lack of available studio.
And sound stages, Atlanta, actually creating the biggest obstacle to execution.
This is a high class problem to have and in this crazy year, one we will accept without complaint.
Finally, the entire management team is to recognize the spirit and strength of our colleagues in markets that have separate historic weather events in the last few months.
August Cedar Rapids in Quad cities were hit with a quickly developing major storm called the duration of the prettiest widespread damage to homes businesses and crops well beyond that experienced in the 2008 I will flood.
At September and October many of our Louisiana, and Mississippi markets were hit with multiple hurricanes and tropical storms.
Many of our employees in affected markets experienced significant losses, especially in lake Charles and Biloxi Thankfully everyone of our employees in these markets was personally unharmed.
During these historic weather events, our television stations in the impacted markets covered the storm in their aftermath and wall to wall coverage. Many of our crews reported brantley from the field.
Some of our stations had to move their operations to other gray markets just to get their life saving reports on the air and on pay TV systems and online in.
And these terrible circumstances Gray's employees once again rallied to serve their local communities first Meanwhile, their colleagues in other markets stepped up to assist their fellow gray employees in this time of need with generators tarps food water supplies and cash donations. These experiences while never enjoyable are part of what makes local broadcast.
Stations, such valuable valued and trusted institutions in their local markets in short.
Raise reporters sellers producers engineers all of our employees are working hard to ensure that in 2020 grade continues to grow continues to serve and continues to invest all of which allows us today to continue to turn in solid numbers I will now turn the call over to Kevin.
Hi, Good morning, again, and thank you Pat.
As most of you know the US Supreme Court recently agreed to review the decision third circuit Federal Court of Appeals that overturned the Fccs very limited relaxation of the local broadcast ownership rules adopted in the summer of 2017.
Gray television filed an amicus brief urging the quarter to take the case earlier this year.
Our brief explain how the FCC antiquated ownership rules have actually harmed local communities access to local news sources, which is contrary to the public interest.
We are optimistic that the Supreme Court will confirm the FCC has the legal authority and the binding obligation to actually deregulated antiquated rules precisely as Congress directed the FCC to do way back in the 1996 Telecom Act.
In terms of timing the court will halt oral arguments in early 2021 issue a decision by the end of the term by the end of its term and June of next year.
A favorable ruling would restore the modest rule reactivation enacted in 2017 that represented the first small step to responding to the radical changes at the media market has undergone 1996.
We help protect the ruling will also facilitate further relaxation of local rules by a new FCC understands the importance of enabling local broadcasters to compete more fairly with the unregulated Big Tech Giants.
In terms of retransmission today's release reported that our retransmission revenues grew at a faster year over year rate in the prior quarters. This year, specifically in retransmission revenues increased 4% in the first quarter. This year on a year over year basis, and 9% in the second quarter of this year on a year over year basis and now in the just completed third quarter.
We booked an 11% year over year increase in third quarter retransmission revenue.
These revenue revenue increases are the result of both annual escalators in all of our MPPD OTI agreement as well as the repricing of a portion of our MPPD sub base in the first quarter of this year.
Our next set of MPPD renewals occur in January 2021.
We are now beginning renewal negotiations covering one hundreds of NBP to use that collectively represent approximately 43% of our total subs next.
Next summer Grable negotiated agreements with the remaining roughly 23% of our sub base.
We expect that this round of Retrans renewals will again demonstrate the value of our leading group of local television stations on cable and satellite platforms.
In terms of the sub levels, we reported on our previous call that we anticipate we anticipated noticeable sub declines in the first half of the year.
Our assessment was based largely on what all of US were seeing in the public in the PD quarterly reports.
Over the past two weeks, we have seen the public in PPD support better than expected sub level and for the most part stabilization there are sub counts in the third quarter from the losses at the height of depend dynamic in the second quarter.
We're very encouraged by these public reports.
We find that the stabilization of subscriber levels in the third quarter.
They recorded is generally consistent with what we're now seeing in the subscriber reports we have received so far this year in the third quarter.
If that trend holds for the rest of the third quarter. After several quarters of yet to arrive we will need to book some modest positive going adjustments in the fourth quarter, reflecting these stabilized sub level.
Finally, because this is an election year intervene very few if any leading local news stations offered for sale over the last 12 months or so.
The collection now largely behind US, we expect some opportunities to rise in the coming months.
We do not have a crystal ball cores and we therefore cannot predict for you, who what when where how much how big future M&A opportunities maybe.
And as we have done previously we plan to take a close look at any number one or strong number two ranked local television station offered for sale, regardless of market size, and we will evaluate each sites opportunity with a close eye on our balance sheet and market conditions.
This is not to suggest that we are not making any strategic investments or moves in recent months.
On the contrary, we probably never been as busy with evaluating and in many cases pursuing strategic opportunities as we have been in 2020.
So far however, each of our completed acquisition or investment has not been material to the company.
Although I can tell you it often seems to be smaller deals take more time and effort than the big deals to acquire.
So as Pat mentioned earlier grade. This year has made strategic investments in premium think back swirl films and royalties tag.
Each of these investments include the cash purchase and some equity interest as well as a new or expanded operational relationship between the target in gray stations or gray production companies.
We have explored several similar investments this.
This year, yes. These four businesses were the only one so far to offer attractive growth and diversification opportunities for gray.
We have also entered we have also entered into some immaterial television station transactions this year, including the following transactions over the last roughly.
16 weeks.
We added a CBS affiliation to one market, we added a fox affiliation in another market.
We purchased a full power Telemundo affiliate, Honolulu, where we already own you'd be seeing CBS affiliates.
We purchased a full power independent station in Odessa, where we own the CBS and CW affiliates.
We purchased the non license assets of the NBC affiliate in Columbus, Georgia and began a shared services agreement with the licensee.
We entered into an agreement to purchase and CW VTB My network and Telemundo affiliated stations in Lubbock, Texas, where we already own the NBC affiliate.
We also reached an agreement to purchase the non life basket aspect of that markets pockets and thereafter begin a shared services agreement with the Fox licensee.
We purchased the NBC and CBS stations, and the tiny market of Juneau, Alaska, which provided us with their 94 local market and our Twentyth state capital market.
And we're currently working on a few other immaterial deals are none of these transactions will move the needle for granted the whole they deliver meaningful scale to our stations in these markets.
And that will allow us to better serve those communities viewers and their local businesses.
Thank you for your time and I now turn the call to Jim Ryan.
Thank you Kevin good morning, everyone I.
I think our earnings release, and the 10-Q that will be filed a little later today, we'll provide a great deal of information for all of you. So I'm just going to quickly go over some of the highlights now remind everybody that as of the first quarter. This year all of our reporting has been on an as reported basis, because any acquisitions that we've done have been clearly immaterial to the financial.
Results.
We're pleased with the results for Q3.
Our total core was down approximately 14% what and that was within the range we had expected.
We saw sequential improvement during each month of the quarter July core was down 16 August core was down 12% September core was also down 12%, but we you have to begin to consider that the significant amount of political displacement. We began to see in September in September political revenue.
With $71 million just for the month compared to a core revenue total of $85 million. So obviously, we dealt with a lot of political displacement and our total.
Q3, political revenue of $128 million was dramatically higher than we had anticipated and from the last earnings call.
To put the Q3 results in perspective remember that in Q2, our total core was down 30% with April being down 38 made down 34 in June down 17. So clearly we are seeing improvement from the the.
Downloads of the economy in the second quarter we.
We increased our cash on hand by 88 million and we ended the quarter with $467 million of cash on the balance sheet, plus an undrawn revolver of 200 million.
Hilton already commented on our very successful $800 million note offering.
4.75% 10 year notes due 2030, we were exceptionally pleased with that.
And.
We used the proceeds for redemption of our 2024 notes costs of the transaction and the remaining roughly 250 million.
Cash is for general corporate purposes, which may include paying down debt or other corporate purposes.
Given our strong liquidity position free cash generation relatively low leverage and absolutely no debt maturities until 2024, we think we're in a very good strong physician too.
See.
See the rest of the pandemic through and gang come out in thrive as the world gets back to normal hopefully as we move through 2021.
Given all the uncertainty around COVID-19, we have withdrawn our full year previous guidance and are not issuing formal guidance for Q4 2020. It has been an incredible political advertising year and.
Killed has already indicated that our political range of 380 385. It is undoubtedly low at this point.
Especially with a special Senate runoff election in Georgia and so.
So we definitely are going to finish the year in up there with a very strong political number.
Also know that you want to know more about Q4. So again, just commenting on trends, we're seeing now and not using this as formal guidance.
Total core revenue for Q4, we expected to see it decline again in the 10% to 15% range, but as we saw in Q2 and Q3 total cost total core appears to be sequentially improving in each month is Q4.
October.
Core is decreasing in the low 20% range because of massive political displacement Nov is very encouraging we're seeing mid single digit declines in core at the present time December a core declines are showing high single to low double digit declines, but we build.
Leave there is an opportunity for momentum to pick up in December now that we are mostly past the election cycle and late late year buys begin to come in.
The month of October alone saw significant political displacement of core revenue, we had $175 million of political revenue just in the month of October compared to a core total core revenue number of $82 million, which would explain why core in October was down in the 20% range.
When we started this year, we expected approximately 235 million of political revenue in where I can see that by.
At least a $150 million.
850 million of additional political we picked up this year in passive and perhaps a little bit more means that our political upside nearly offsets our anticipated total decline in core revenue in 2020.
Again the figures I just gave you are in our current forecasts in current pacings. It is not to be interpreted as formal guidance, but we are trying to be as transparent as we possibly can with some relatively limited visibility.
Our Q4 broadcast expenses will increase over Q3 19 in the low to mid single digit percentage range and that reflects almost exclusively eight at approximate 20 million increase in reverse compensation.
Year over year.
Our core expenses, our corporate expenses in Q4 are anticipated to approximate our Q3 levels that we reported today and our production expenses.
Production companies expenses will aggregate in the mid teens to upper teens millions given the seasonality of that business and then also given is Pat commented that those businesses are coming back and getting increasingly is a year.
As we cycled through the worst of the lockdown sit in the second quarter.
A couple of.
Liquidity updates our original cash interest estimate was 194 million.
We are updating that now to 176 million a.
Weve checked we started the year with a capex.
Estimate of $80 million, we reduced it as we went through the second quarter.
Trying to be prudent now that the year is finishing much stronger than we anticipated we are bringing our capex estimate for the year back to $80 million and the cash taxes.
We now expect to be around 80 million this year again.
Reflecting much are our expectations of much improved revenue performance from where we were viewing things in the second quarter.
Currently we anticipate ending the year with between 675, and 725 million of cash on hand, and depending where final political numbers go back that range could obviously increase a little bit.
It's too soon to make predictions for 2021, let let alone issue any guidance still it's our expectation at this point that we will see core revenue continued to improve during 2021 as we lap that clients in 2020 brought on by the pandemic in the political displacement our production companies will return our return.
Which was full slate of producing sports events and finally between as Kevin said between January one in mid year 2001. We will also have the have repriced almost all of our retrans contracts, representing about 66% of our sub base. So we would expect gross and net retrans to show significant.
Growth in 2021, as we as we repriced, 66% of our subs and with that I'll turn the call back to Hilton.
Well thank you John.
[music].
2020 has thrown and credible unprecedented challenges that all of us personally.
Professionally.
Nevertheless, our performance this year, clearly validates grays decades long commitment to acquiring investing in and locally operating the strongest local television stations throughout the country now and not a four markets.
Because these types of television stations.
Declined less and recovered faster.
Most other types of media companies.
We are confident that gray television continues to have an exceptionally bright future ahead.
The broadcast business.
For all that you have heard.
Remains an ounce standing business.
Absent an opportunity for further significant M&A over the next year.
The leveraging remains the first floors in for Greg.
With capital returns in the form of stock buybacks.
Beginning immediately.
Next importing.
On our February earnings call before the pandemic.
I told you that our board believes that we can continue to de leverage the balance sheet and pursue buybacks while at the same time reinstituting a quarterly dividend.
Our board.
Has not yet reached the final decision to resume the dividend just yet.
But I believe that it will soon reach that decision.
As noted in the February call no level.
The board considers reinstituting the dividend, what our total leverage ratio.
As defined in our senior credit facility falls below four.
4.0 times on a trailing eight quarter basis after netting total cash level.
Well there are very strong political revenue. This year are fully compensates for that and then the impact on our core revenue remains to be seen.
Regardless when our net leverage falls below four times board will consider where the market conditions, then permit us to return to paying our quarterly dividends and at what level, we would initiate that dividend.
So operator at this time, we ask that you open up the line for questions.
As a reminder to ask a question you will need to press star one on your telephone to.
To withdraw your question press, the pound or hash key please stand by what we compiled acuity roster.
Your first question comes from Steven Cahall from Wells Fargo. Please go ahead.
Thanks, Sam that $15 per household and political is is pretty outstanding I was wondering if you could help us think about maybe the split between local versus presidential as well as the split between candidate versus Packer Super pack on that and you mentioned the runoff at Georgia I was wondering if you're also seeing any.
Expressions of interest from packs are Super Pacs.
As some of the vote stuff goes to court and whether we could see a continued sort of long tail. If the election process runs out a little longer and how that's factored into your updated political guidance.
And then maybe just on that Retrans I mean, you talked about the really good visibility you have on 2021 on the gross side as well as some of the expenses based on the Q4 guidance. So I know that the timing for net retrans sets up this year to be I think down a little bit. So I was just wondering if you have any expectations at this point for 2021. Thanks.
Let me, let me just begun with political and then I'll ask that.
Bob Smith kind of comment on it because he also has a lot of cologuard since to find interesting.
You know we mentioned 380, we know it's going to be north about we don't know exactly how high north it will eventually be we know that we have a run off between rubber warnock on the Democratic side in some mature Kelly loeffler.
On the Republican side.
That will begin.
Has begun and our will culminate on February the sales.
I believe.
That we will see significant spending there on both sides.
Obviously, depending upon the counts and what states that we still don't know exactly where the.
Senate should turn out.
It is the balance of the Senate is in place.
The amount of money.
Could be exponential.
Georgia, unless I am familiar with what has happened during the course of this conversation has not yet released its final numbers.
As I began this call. This morning are incumbent Senator.
David do had north of 50%.
And his opponent.
John all saw.
With them and.
47% area.
If for some reason.
Senator produced numbers should drop below 50% when final numbers are out.
Then broader we'll have to run offs, who it's two cents.
And we have the dominant station.
In every market and the highest market share in every market.
In Georgia, except Atlanta, and Macon, we are in Augusta.
We are in Savannah, we are Paula we're in Thomasville Tallahassee.
We're in Albany, Georgia, we're in Columbus, Georgia.
So grey as a company right.
We'll benefit from any one offs through the remainder of the year and into the first five years of 2021.
I don't want to steal his thunder.
Our investment in Maine has done.
Ah has turned out to be a prolific one.
We actually sold probably our largest value 32nd spot.
This past Sunday during a patriot scan and the six figures.
Which was a presidential ad money.
But the the Senate spending the spending at the house.
Obviously, the presidential spending and then after the passing of Senator Ruth Bader Ginsburg.
The issue money spending has been mix coordinating in every case and every health.
Bob do you want to follow up on the political with anything you have to say there.
Sure he'll be happy too.
The.
You asked a little bit about the breakdown.
As Howard with grade than approximately.
The presidential race accounted for about 23% of our overall revenue the house nationally about 16% in the Senate is Hilton just mentioned was extraordinary and that's roughly a little over 40% of our overall revenue.
And that's where some of the biggest.
Numbers were in terms of.
Rates.
Issue money, we're in those Senate races, and Theres still describe what happened that made you saw similar situations in Wisconsin, and Iowa as well.
In Alaska for that matter so.
Really record rates in certain programming areas record cost for points and.
Really just robust.
In a lot of markets and a lot of states.
Yes. Since you had two questions. Steven that was are there any further follow up some political let me turn it over to Kevin I didn't address that.
My question Real quick I know you did ask about Georgia and I wanted to say that we are seeing dollars already in Georgia for the January 5th run off.
That's great you have George on my mind, and would love to hear from Kevin I'm, a on the Retrans side. Thanks.
Thank you Steve.
Hi, it's Steven So obviously our growth is going to be.
Handlebar step up next year, it's hard for us.
We have no guidance on what that is because we.
Some of the conversations those renewals have yet to begin some have been obviously.
It's hard to predict where those are going to close.
On the reverse side, we know with CBS and Fox. These are going to go to because of course as our fixed fees, we do not know what.
The other two re trends.
Reverse comp will be because those are of course percentages. So the better we do and retrans, the better ABC and NBC will do so.
And so I don't know the top but I can't tell you what.
And I don't know what the gross revenue as I can possibly tell you within that revenue or the net retrans.
It would be or the reverse comp of there. We got to have we got to have an input to the form which is the growth rate trends. So were we.
I have a lot of work ahead of us mix.
Two months or so.
And well after the first of the year, we will have a bunch of that behind US we have a much better feel right now it's.
I would just be guessing we're trying to provide.
Some forecasts that have something anchored in reality, but if I were to guess it would it would it would be just buy the gas and I don't think thats very helpful.
That sounds good thanks, Kevin.
Thank you Stephen next question.
Your next question comes from Dan Kurnos from the benchmark. Please go ahead.
Dan Kurnos your line is open.
Hey, Thanks, Good morning, Ken.
Just maybe on core.
Your.
You guys are at the much better end of the range on kind of at least initial Q4 pacings even.
Taking into account the absolutely ludicrous amount of political you booked in October.
So I'm just wondering.
If you guys have any thoughts as to you know you mentioned a little bit in your prepared remarks, but why you guys are kind of outperforming the peer group.
You know even outside of the election.
Hi, Thank you.
Go ahead Helen.
Go ahead Jim.
No I think it speaks to what we said many times assets that is the quality of our portfolio and the strength of our local stations.
They are that they are the first go to buy in all of those markets and.
And I think thats, helping us.
During the recovery process from the pandemic.
We are we were very pleased with what we're seeing so far on a pacing basis for November being only down low single digits and December is not surprising being down a little bit down more right now with December often comes you know you get you get farther in in November and early December and then you get the full.
Hopefully a flurry of last minute buys into the year, which will will bring December up a little bit. So I get I think its back to the strength of the news strength of the overall station in the community and that's that's.
That's that's what gives us the edge.
I would I'd also add dance Pavel flattening of that we've implemented a.
We've invested implemented at a very strong training program.
First stations that we have been.
Running now for.
North of 18 months, I, I really think thats, having an impact.
We're we're arming our sellers with the best tools out there.
Including premium and I think that also contributes to the numbers.
Got it that's helpful and is there any just in the generic.
Category color you could give us a gen just around sort of what's what's improving.
Yeah, I'd say across the board.
Everything is improving.
On a relative scale, we saw each month of September you got to kind of throw an October you definitely have to throw up with the political.
But that's the story for September and October but.
July August November.
In the the categories all of them appear to be improving sequentially auto is is still down but.
Much less so than.
The depth of the second quarter.
And going in the right direction again, each month getting better we've.
We've seen strength in financial.
Medical has been strong lately coming back legal you bundle all of those three categories together under a broadband services and actually that's been holding up pretty well this year and again showing.
Improvement.
As Weve gone month after month, so we're encouraged there.
Again, it's in October you you got to just ignore but in November it looks like home improvement of the services.
Are all a supermarket markets, even are all showing positive trends right now and actually showing.
In the Green.
And again automotive the you know instead of being down I'd have to go back and look but in this I think in April or May was down there.
30, 40%.
You know if it's now November looking like it's.
Somewhere in the low double digits range Thats, I think thats dramatic improvement and as we've talked before is it supplies in inventories.
Continue to catch up.
We think thats going to continue to improve we are where there is inventory dealers seem to be selling the cars pretty well and in some places. These two are are same that they'd like to see a little more inventory catch up to them, but I think overall, it's a it's an encouraging trend.
Got it that's that's really helpful color and then maybe just one last one if I could sneak one in for Hilton I mean, you were incredibly comprehensive with your.
Overview on shareholder returns and how your kind of your use of capital I know historically, you said that things like you know we need to get bigger or I know that you said it absent a transformative M&A transaction you will be aggressive with returning cash to shareholders I'm just curious.
Yes, you know you have sort of almost unprecedented flexibility thankfully because of all of us political with the really strong balance sheet.
How much does that FCC pending FCC court case play into how much powder you need to potentially keep dry versus just things that you think could come on the market and even that notwithstanding.
I guess, you know to borrowing different phrase do you think you can still walk and chew gum at the same time here.
Then well first let me start with allows yes can we walk and chew gum at the same time you Doug demonstrate we can.
One of the reasons that you only here so far right now about what we are doing is we still remain in a period in the broadcast business of.
Almost unknown.
Lack of clarity, we don't yet know who will be appointing the FCC.
And there is a I think a fundamental difference between the two parties.
Approach to regulation.
And that has an impact on all M&A.
We had.
Had never had a situation where the third circuit it should have happened decades ago.
What were the third circuit has been challenged by the United States Supreme Court, and how that will have an effect upon.
Pardon.
Ownership, whether that is just purely within a local individual market.
Yes, it should extend something beyond where the cap is.
I don't know.
And so I was literally playing on election night.
That we would just have.
An answer one way or another and answer.
We don't yet and so it's win win uncertainty reigns it makes it difficult to.
So to to make it clear correct decision.
There are all kinds of issues, whether or not you would just discount remains in place.
We're not building on percent cap remains in place whether or not.
Sort of the prohibition, London multiple stations in certain markets based upon you know different sizes, you know all of that so.
So the one thing that we do know that as certain.
That in the midst of the pandemic.
Cash.
Okay.
And so what I think we have demonstrated to all of you and the Wall Street.
That we have a business that we have built up over in excess of 30 years from just a couple of stations.
Two two and half a billion dollar company.
But generates massive amounts of free cash flow.
We have spent a significant amount of money this year.
Under 100, but approaching 100 million on stock repurchases.
We have done and Kevin ticked off some of those.
Uh huh.
Uh huh.
In the upper or hundreds of millions.
On small deals and not on television station acquisitions that are all accretive across the board and yet we're going to be in a position to close the year out with as I said.
Sales to three quarters of a billion dollars in cash.
We are instituting.
As we mentioned.
The stock repurchase program in two fronts, one based upon some being five one.
And then from time to time, we are not and.
Blackout period.
Discretionary buybacks.
And our board approved all of that yesterday.
And so we're going to continue to look.
I will say and I will surely for myself personally.
I still believe it is in the best interest of our shareholders.
To continue to grow this company and there is.
Ample room for grades to do so.
And we are interested in accretive.
Acquisitions to continue to grow.
Our portfolio.
Even in the face of coal.
And and so that is still.
A preeminent role.
We will soon.
What has what is available and what is not.
But we do think we can do both.
But we're not going to let our stock price.
Sit down here at these prices. This is ridiculous I mean, not mean I played about millions of dollars of stock.
In the Twentys.
And personally.
And.
We think we're just grossly undervalued.
And I think that we have I think our numbers prove not just our words, but our numbers.
But we've got one of the finest portfolios.
None in TV stations no.
No that are being loved locally.
And our dominated more markets and the free cash flow flowing from them.
I think it was fantastic.
With deck, you'll see large amounts of money, which is a great place to be a great place to be.
I covered that at all.
Yes, Hi, Doug I'd say, so Hilton that was a very comprehensive.
Answer to that and I really appreciate your insight there thanks very much.
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Your next question comes from Kyle Evans from Stephens.
Hi, Thanks for taking my questions Congrats on political and like some of that cash balances ended the year.
Kevin I think you said that the CBS was unknown expense on the reverse side for Retrans I thought you guys had a renewal with CBS and 2021 am I wrong on that one.
CBS for news at the end of 2021.
And you know.
You guys give.
The cleanest look at gross reverse and net Retrans and.
Therefore, you should expect them not just questions like the one I'm about to ask what what do you think the right.
Steady state net margin is for that revenue segment.
And if you don't want to.
Answering asking a different way should start with a phase three.
I mean in all seriousness, our retrans is because our local stations get more viewership than any other channel and their market. So you know.
Not to be too club about it but.
We think retrans.
She predominantly be our.
Compensation for our local investments our local programming our local team.
But you we balance lots of issues when we negotiate network affiliation agreements as does everybody else.
And.
So we.
You heard us say for years, we're not focused on the margins for folks and how much how many dollars we can put in the Bakken.
We're going to continue to do that so I am not going to get locked into.
Headline that great things that recent market should be X or y.
Frankly, it depends and everything else is going into a negotiation how much time do we get the local commercials how much motion are we doing what else are we getting.
What else will be giving and so it's a lot of stock and the margin is just looking at one side of the one part of the elephant.
And there's a pretty big elephant Theres every.
However.
Affiliate and.
Network relationship is very deep at many levels.
And we have we weigh all of those things.
Both sides those negotiations again the rate is just one part of that.
Our conversation.
Would you say that the blended average relationship for the big four.
Is the same as it was a few years ago better or worse.
More contentious not worse.
We havent had a network negotiate renewal negotiation in a while so I can't really comment on where things maybe today versus where.
Where there will be lot to them a couple of years ago at our next negotiation as well with CBS and into next year. So I think you need to ask somebody else.
Jim I really appreciate the monthly granular detail on core I'm glad to hear autos approving <unk>. What's your early read on legalized gambling that's category.
Bob why don't you comment on that.
Yes, it's actually very promising and certainly emerge.
Becoming an emerging category.
Right now I think there's legalized gambling in 19 states and six more past it so you'll have the country will have legalized gambling.
And what started out as a couple of accounts.
Spending some money in some of our markets words legal.
As is now up to about four or five different.
Gambling firms.
That we.
We expect all be on air in first quarter, and so we're very optimistic seeing what the growth in that category throughout the year.
We think it's going to be just that much better beginning in first quarter and throughout all of 21.
It's probably.
Without a doubt.
One of the more exciting categories for US currently just because it's it's moving very quickly.
And the kind of dollars they spend are pretty significant in our markets.
Great. Thanks for taking my questions.
Your next question comes from Jim Goss from Barrington Research.
Hi, Thanks Hilton.
Hilton you just provided a.
Some indication about the still wanting to go to grow your franchise.
And given that you are pretty well covered in your existing.
Traditional agree.
Some territories, if you needed to move outside of your traditional markets whats creditors or characteristics would qualify as candidates for consideration.
To grow a little bigger well at least for the things would you be looking for.
Well I mean.
Jim you can look well that's available out there.
Great actually so its.
Not that I know that our reputation is to be in the.
The move to smaller markets and and dominant position in those respective markets.
But with the right column acquisition that we have are.
Lot of much larger markets.
And you know they're doing exceptionally well.
And so we will be looking who was individual station singles and doubles. So there's a bigger transactions total available and the world is getting smaller I mean, we're we're on the possibility of you.
No.
Optical nine Mboes fall down in terms of consolidation there's not.
There's not many players that are lost in terms of people, who are definitionally operators and decimal Sully acquirers grades one of the few that remains durable ready.
To do so.
So we will look for portfolios that complement ours and.
In terms of quality.
In terms of geography.
I don't know if you've noticed but we find that very.
Very much like to have.
No look them exposure to this dose that we do business.
So if you look at our portfolio and have it on a geographic basis.
Gray will earn in a typical so.
Not just our market we will on the move the whole state.
And you can run Commscope does go to start and some of them would every single market.
And some of them we have.
80% of the markets and then maybe missing too.
That gives us tremendous amount of news gathering to possible.
I can't tell you the number of states that grade hosted local bodes for the senatorial auditors.
And so you know all of those assets are going to be necessary.
You know we have grown dramatically.
In terms of new affiliates.
With Telemundo.
The Hispanic market, we will continue to look to grow that.
Particularly in areas, where there is a significant Spanish speaking population.
And so.
So you can look through the wall.
Come pretty pretty well, so the kind of things that we would be interested in.
And.
So will we just going to wait and see what opportunities present themselves.
Okay, that's very helpful actually.
One other thing then.
Do you have any yes, the three that no update in terms of how many stations you planned to have some impact on over the near term and what type of applications you might be thinking about.
Yes, it's Pat I can pitch in on that one so.
In general the rollout of HDFC throughput knows is starting in larger markets in a row.
So I would anticipate and I don't have hard numbers on this but I would say.
That we would have.
You know somewhere.
High single digit stations number of stations.
Rolled out over the next eight.
Two months.
We're actually doing an experiment, where we're outfitting a stake in assay would ABTSP 3.0, So we can do some of our own.
Experimentation and testing on 3.0, and then again I think in terms of the applications for 3.0 revenue producing applications revenue.
It will take some time for those to develop but I think it's it's largely going to be focused around targeted advertising.
Getting data in video and automobiles.
And perhaps a few a few other.
You know approach as a candidate we may not have thought about yet.
All right. Thank you very much.
As a reminder to ask a question press Star one. The next question comes from Alan Gould from capital.
Thank you for taking the question Kevin.
Kevin I know the elections not decided but if it is a democratic administration in a democratic FCC how would you.
Expect that to to change the rules for the broadcast industry.
Oh I see.
You're talking about ownership rules.
I guess owner ownership rules.
Yeah, so yeah. So.
I guess I don't see too much change and.
The.
FCC adopted a wonderful market rule.
In 19 scored even for television was licensed.
Since 1940, the FCC relax and allowed to TV stations to be old and 1999, and the Bill Clinton's term.
And in 2017 pile out some additional consolidation to two TV stations can be.
In mid size markets those are the only two FCC ownership.
Regulations that occurs and thinking forward and keeping space.
In terms of how do you tighten.
I mean, it's almost asking how do you saw before.
I don't I don't see that the I don't know what this is he going to tell US can't you can only own zero stations per market cap. So many one.
With the exception of large markets under rules again up at around 99, So I am.
I'm hard pressed to figure out how do you make it worse.
National ownership cap was again it was a rider Congress told the SNC. This at the cap of 39% hard to see the SNC lowering that cap on.
On this call them make a 39%.
And then we have the wildcard of what the Supreme Court is going to do.
Again, the Supreme Court is only looking at Matt at the local so that's newspaper TV Cross ownership, which does not impact us.
And whether you can own two TV stations in midsize markets. Those are the questions for the Supreme Court's imports not working at the national ownership cap or D, which at this time, but it's certainly likely that they'll have they can come up with the language and that that influences those those items, but I just I don't see a path to yes.
Yes, we see to lower the national cap or lower the number of patients on local market from one to zero.
In our markets or Mark to market I don't see any.
I, just don't see them, saying that you can't on two TV stations in the largest markets when you've got 12 different owners for example.
I'm, sorry, I think the one area that there might be some push around on his J b joint sales agreements.
Alas.
Cc under Democratic Administration.
Moved me joint sales agreements attributable to owners of purposes, which effectively makes an illegal gray.
Gray has no joint sales agreements. So it's that's not an issue for us.
Is their bottom line.
Is there a chance im sorry is there a chance that the 39% cap could actually be raised.
And Theres always a chance.
Hey.
There's always a chance right I mean, it perhaps at some point folks may realize the broadcasters compete against.
Companies that have no regulation.
Facebook typically takes as much money out of a local market as number one or number two TV station and Google typically takes more money out of a local market than ever TV station combined to say that those guys do whatever they want no regulation over trying to compete and being stuck with these horrific ownership regulations, maybe that will finally resonate with some folks.
It would seem what happens when we continue to apply these these outdated or still little markets local news as expenses and that's why you typically have only one company in a small market. They can afford to produce local news, there's just not enough revenue to go around so.
Is it possible that we see.
And FCC under a Democratic administration that recognizes that and and and relax cap I think it's possible I don't I am not optimistic it seems that the rhetoric in Washington as.
Regulate everybody not necessarily.
Yes.
Look regulations on us so we can better compete it seems that the reaction to it.
That recipe seems to be put more regulations on big Tech as opposed to take regulations upper broadcasters. So we can better compete with you guys have no regulation, but.
But again this is all surmising as to what May happen, we don't even know who the FCC.
Hi, Chair Manorcare woman will be.
Or who the fifth commission would be so it is.
We're almost asking is that going to rain on may 17th.
I don't really know how to predict that.
Okay. Thank you.
And your next question comes from accounts Pinsky from noble capital markets.
Thank you and thanks for taking the question as a follow up to that Kevin I know that there's some thought about regulation on the big Tech monopolies, and so forth and there's some big Tech companies have said that they plan to allocate money to work for content and I know that there is some discussions with other media companies about.
The value of that do you have you had any discussions with some of the big Tech companies about.
Providing content or for cash payments and what do you think that that is an opportunity at some 0.4 for gray.
Well I mean to be clear.
Our content is on every big TEP Big Tech platform right and we've been.
Facebook users Facebook stories, maybe three years ago. It was gray televisions or case study in how local media can get on a Facebook stories.
We have been quiet on fire absence, 2017, weve been on railcars in 2014.
And so.
It's not like we're not out there and.
In Tech and tech platforms and.
And now to run all the OTI two platforms.
Continent can.
We found and Twitter Facebook you name it.
In terms of compensation those conversations seem to be.
Let's say fairly limited.
Okay.
Right. That's that's all I had thank you.
Sure.
That was our last question at this time I will turn the call back over to the presenters.
Well, thank you everyone for joining us.
For the third quarter earnings.
Earnings release, we look forward to sold to bring up all the wonderful result.
Im 2021.
And so thank you and we will talk to you soon.
This concludes today's conference call. Thank you for participating you may now disconnect.
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