Q2 2021 Gray Television Inc Earnings Call

[music].

Good day, and thank you for standing by and welcome to the quarter..2 2021 earnings call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask the question during the session you'll need to press star 1 on your telephone please be advised.

And that today's conference is being recorded if you require and you further assistance. Please press star zero and I would now like to hand, the conference over to your speaker today Hilton Howell Chairman and CEO. Please go ahead.

Thank you operator, and good morning, everyone.

As the operator and to get out and wholesome how old the chairman and CEO of Gray television. Thank you all for your time this morning and for joining our second quarter 2000, and 2021earnings call with me and person here of the graves corporate offices are our president and co CEO, Pat and the flattening of Chief legal and development Officer, Kevin Latex, our chief financial.

Officer, Jim Ryan and joining us remotely as our Chief operating Officer, Bob Smith will begin this morning with the disclaimer that Kevin will provide Kevin and thank you Hilton and good morning, everyone. Certain matters discussed on this call may include forward looking statements regarding among other things future operating results of pending acquisitions and related.

The divestiture and the impact of the novel Coronavirus and its disease of COVID-19 on our future operating results. Those statements are subject to a number of risks and uncertainties actual results and the future could differ from those expressed or implied and any forward looking statements as a result of various important factors and I.

Having set forth and the company's most recent reports filed with the SEC, including our most recent annual report on form 10-K, and our most recent earnings release the company undertakes no obligation to update these forward looking statements.

Gray uses its website as a key source of company information. The website address is www G. R. A y T D.

Included on the call, maybe a discussion of non-GAAP financial measures and in particular broadcast cash flow broadcast cash flow of less corporate expenses operating cash flow free cash flow adjusted EBITDA and certain leverage ratios. These.

These metrics are not meant to replace GAAP measurements, but are provided as supplements to assist the public and the analysis and valuation of our company.

Included in our earnings release as well as on our website a reconciliation of the non-GAAP financial measures to the GAAP measures reported and our financial statements and now I will turn the call at the Hilton. Thank you Kevin well as you all know on Monday, we completed our acquisition of Quincy media and our divestiture of the Quincy stations and the overlap.

Markets to borrow and Alan's Allan media broadcasting.

And therefore want to open this call by formally welcoming all of the new employees and associates, who joined US from Quincy media on Monday welcome to Gray.

We are honored to be the new stewards of the bond Quincy television stations across 8 new markets that Ralph Oakley his family and his team carefully built over many decades at the same time, we were thrilled to play a part and the near doubling of Allen media as television portfolio.

And I and the Gray board extended all of gratitude and appreciation to all of those who made these transactions a reality.

Including our colleagues at gray as well as the professional and Quincy media and Al and media and all of the bankers lawyers and accounting firms involved and this transaction today.

Today, we announced our financial results for the second quarter and I am extremely proud of and I'm a.

Our results prior to the Quincy acquisition. Once again proved that we see continually improving AD trends and revenues, resulting from the improving economic climate, our own prudent cost management and a variety of strategic initiatives that we will address this morning.

To summarize we reported total second quarter revenue of 547 million and increase of $96 million.

Or 21% from the second quarter of 2020 net income attributable to common stockholders was $26 million or 27 cents per diluted share and.

And the second quarter of 2021, our combined local and national broadcast revenue, excluding political advertising revenue, which we call total core revenue nearly matched our total core revenue from 2019, which is obviously prior to the pandemic.

Specifically total core revenue increased by $81 million of 41% compared to the second quarter of 2000 and twinning.

Total core revenue nearly matched our total core revenue from 2019 again prior to the pandemic.

We reported $785 million of cash on hand at the end of the quarter with the total leverage ratio as defined and our senior credit facility of 392 times on a trailing 8 quarter basis after netting our cash on hand, and giving effect all transaction related expenses.

Our broadcast cash flow of $183 million was $16 million or 49% higher than the second quarter of 2020, our adjusted EBITDA for the second quarter of 2021 was 170 million, increasing $62 million or 57% compared to the second quarter of 2020.

We were able to produce these very positive results through the hard work of our many thousands of employees now literally from coast to coast and our television stations and production companies. We also successfully managed the business and the second quarter and really throughout this year, while also devote and countless hours to news.

<unk> sales initiatives technology improvements and of course.

<unk> deal of M&A work, including the major deals involving Quincy and our media media as well as our pending acquisition of Meredith Corporation.

Among all of these chat.

Challenges and opportunities Gray television is also closely monitoring the evolution of the pandemic among our workforce our customers and our communities.

We maintain our strong optimism and a quickly recovering economy that with some exceptions, we will continue to drive increased consumer spending and increased advertising and nearly all of our markets.

We believe that our core revenues and retransmission revenues will end the year and a very strong position just as we enter another year with undoubtedly strong political revenues.

We also remain confident that we will close the merit of the transaction and the fourth quarter of this year.

For these reasons and as exemplified by our return to paying quarterly cash dividends of <unk> Board and senior management agree that our business is stable our prospects are bright and we remain on track to grow television into 1 of the finest television and media companies in this country.

We'll next hear of few remarks from my colleagues with additional color to our second quarter earnings release thereafter, and will open the line for questions.

Pat.

Thank you Hilton.

On a previous call I said that we were optimistic that our combined local and national broadcast revenue, excluding political advertising revenue, which we call total core revenue.

Would return to 2019 levels later this year the <unk>.

Strength in nearly all advertising categories. We finished the second quarter 'twenty 1 with the.

And a point or so of the second quarter of 2019 in terms of total core revenue as Hilton mentioned, the outlier relative to 19 remains of the auto category, which was down and continues to face chip shortages and supply constraints of depressing auto advertising.

In fact, if the auto category and the second quarter of 'twenty, 1 was simply flat with 19.

Of our total core revenue.

Would have been 6.5% higher and the quarter versus the second quarter of 2019.

Similarly, total core revenue would have been 4.3% higher and the first half of this year compared to the first half of 19, if the auto category is flat with 19 the.

The fact that other categories.

Especially legal and home improvement financial health and gambling effectively backfill of the big holes left by the challenge auto advertisers illustrates the underlying strength of our local television stations and the revenue diversification of the has taken place over the last few years.

And if the automobile supply chain stabilizes relatively soon we would expect to see that category of rebound and the fourth quarter of this year and into 2022.

Our training team and the health and auto teams continue to provide tremendous benefits to the gray sales effort.

Our investment in these areas is helping build the best most effective sales organization and the industry the.

The health and auto teams have a particularly strong focus on digital and they've helped to grow digital revenue dramatically over the last few years.

Our partnership with premium is paying dividends as money continues to pour the digital video and the sellers are now fully trained and picking up new clients and revenue every day.

And our digital programming team of National hub continues to do great work and growing our digital audience.

Our sports and entertainment groups of rebounding nicely and Raycom Sports has recently launched Orange and sports and OTT platform that is unique take on their expansive archive and look at the up and comers and the sports World.

And we expect record results and Artyem as well as swirl of this year and addition, Tupelo honey is of tremendous new business pipeline and amazing partnership with World Chase Tag, which will pay dividends going forward.

Really proud of the work of our National investigative unit and the impact of their journalistic efforts and our recent series collision Division.

Lisa Erik John Decker, and our investigative team highlighted held federal crash standards only require crash test dummies designed around the male body from the early 19 seventies, despite women being at higher risk for injury and depth behind the wheel and fab.

And that John Decker raised the question on this previously unknown issue at a recent White House press briefing, thereby raising the issue of among the executive policy folks as well as the National Press Corp. Thereafter members of Congress and begin to address this important safety and equity issue and we are pleased to see that there is now language and the 1.2 trillion bypass.

And Senate infrastructure, Bill that would authorize crash test dummies modeled on females as well as children.

We're also very proud of our great health divide initiative, focusing on health disparities, and the Appalachia and Mississippi Delta of regions of the country.

32 of our stations and our investigative team were involved and producing a 1 hour of investigative documentary this area across all gray stations and this month.

Our shining a light on these areas that have far worse health outcomes and other parts of the country has already resulted in positive action.

1 story by WSI ex our Cincinnati station showed how Robertson County, Kentucky did not have a single doctor and the county.

Following their story of primary care practice out of Cincinnati, and 4 of Robertson County that of <unk>.

Wants to open of primary care clinic there.

Finally, we want to salute our director of investigations leaves Zurich for another amazing honor of that he can add to the shelf. Lee recently was nominated for a national Emmy for a series of reports on the collapse of the hotel that was under construction and New Orleans Congrats.

Congratulations to all of our news professionals as well as our very busy investigative teams and with that I turn the call to Kevin.

Hi, good morning again.

Turning first to M&A I'm pleased to report and our Merit of transaction remains on track to close and the fourth quarter. We received no objections to the transaction of the SEC and the transaction does not require any FCC waivers of special accommodations.

We anticipate closing the sale of our foot television station a few weeks prior to the merit of closing.

And the second quarter, we completed the last of our major retransmission consent negotiations for the 3 year cycle.

Across more than 400 separate mvpds, we achieved favorable renewal prices and other terms with virtually no disruptions and the service from our viewers and their customers.

Looking forward, our MVP the renewal cycle of resumes with the next set of contract explorations at year end 2022.

And in other words, we will have essentially no retransmission renewals for the next 18 months.

Our retransmission revenues and the second quarter were $242 million.

This amount is roughly $2 million or so less and our guidance for the quarter, which is the same amount by which our first quarter retransmission revenue exceeded our first quarter guidance.

These fluctuations of the result of basic timing issues with subscriber reports and payments primarily from 2 of our very large retrans customers.

For the third quarter, we currently anticipate Retrans revenue of approximately $255 million, reflecting the impact of our recently renewed retransmission agreements over the last few months.

For the full calendar year, we expect total gross retransmission revenue of approximately $1 billion, excluding the Quincy and Meredith stations.

We continue to see wide variations and subscriber levels, among our various cable satellite and OTT distributors.

We have now received nearly all of subscriber reports from the Mvpds and from most of OTT providers for the first quarter of 2021 due to the natural lag and payments and reported from distributors.

Expected delays with the reports.

At this point of it appears and our total and market Big 4 subscriber count across all platforms for the first quarter of 2021 was approximately 1% lower than the count for the first quarter of 2020.

We are encouraged that we continue to see a much lower rate of sub erosion and many of the pay TV providers and pay TV channels.

We believe is a testament to the value of the live local content and our stations provide.

Finally, I wanted to briefly address an issue that has been largely misunderstood and Miss reported over the last month.

Our transaction last year, and Alaska, and the FCC's proposed forfeiture.

To be clear last month's SEC.

The decision was a proposed forfeiture of non final finding.

Great now has the opportunity to respond to the FCC's proposed fine and we intend to do so.

Later this week, we will submit a response of the FCC's decision and I invite everyone to read that response. Once it is filed until then however of gray cannot and will not comment further on the still pending proceedings and.

And with that I turn the call to Jim Ryan.

Thank you, Kevin and good morning, everyone. The.

And <unk> filed a little later today and obviously the earnings release contains a great deal of information that you have either read already are certainly can read.

Today.

Dovetailing and Hilton's Q2 remarks again, we're very pleased the total core revenue came in very close to 2019 levels.

We recently acquired approximately $18.80 million of land in Metro Atlanta.

This investment is treated as a capital expenditure for GAAP purposes. However, internally, we view that acquisition as an investment and accordingly have excluded that $80 million from our free cash flow calculations for Q2 and year to date Q2 now.

And now some brief comments and our Q3 guidance and as you will see and our release.

We've separated our baseline and Q3 guidance and then provided additional incremental revenue expenses and.

Broadcast cash flow for the Quincy stations.

So with our baseline guidance and legacy Gray combined local and national of combined local and national revenue or what we call. The total core revenue is anticipated to exceed the third quarter of 2019 in the low single digit percentage increase range. This demonstrates the continuing sequential improvement.

Movement of total core revenue and makes us up to mistake of continuing improvements later this year as.

As Pat said, while auto is still lagging and it is continuing and we improve and it's the only about 19% of our year to date core revenue.

Following up on Pat's comments about the diversification of our core revenue our services group, which comprises financial legal and medical and the first 6 months of this year represents about 28% of our total core revenue and the services group has been performing well.

Well on a relative basis all year.

We currently are anticipating approximately $14 million to $15 million of net revenue in the third quarter relating to the Olympic broadcasts.

Yes.

Turning specifically to the incremental impact of the Quincy acquisition for the third quarter, and which would mean.

August and September we expect Quincy to add an additional $22 million to $24 million of net revenue.

Approximately $14 million to $15 million of incremental expense.

Resolving and approximately $8 million to $9 million of incremental broadcast cash flow.

For you for your help and adjusting your full year models for the fourth quarter of 2021, we expect Quincy will provide incremental broadcast revenues of $32 million to $35 million.

Broadcast operating expenses of $22 million to $24 million, resulting and.

Cash flow of $10 million to $11 million and that would be before synergies.

Our corporate expenses.

Are not materially impacted by the Quincy acquisition.

Let me now recap certain metrics associated with the complete a quincy transaction and the pending Meredith transaction that we currently expect to close in the fourth quarter of 2021.

The total combined purchase price before divestitures of these 2 transactions is 375 billion.

The total purchase multiple and a $19.20 blended.

Cash flow average is 7.9 times.

Total gross divestiture proceeds pretax or $450 million.

Our $19.20.

His combined historical basis operating cash flow.

And is 123 billion and that would include $78 million of expected synergies and I would remind everybody and the rate comp transaction that was closed in early 2019, which was a slightly larger transaction, we achieved $85 million of synergies within the first year.

We currently anticipate our 12.31 21 leverage ratio net of cash as defined in our senior credit facility pro forma for both the Quincy and Meredith the transaction's closing to be approximately 5.4 times with an estimated total debt.

Outstanding at 12, 31, 21, and a pro forma basis of $6.96 billion.

Some comments on free cash flow and free cash flow per share.

As of today, we have approximately $95.8 million shares outstanding.

In 2020 as published in our current Investor presentation, we generated full year free cash of $559 million or approximately $5.8.4 per share.

As we look to 2021, which is a non political year and as we said on our Q1 call. We currently anticipate total.

Free total year free cash flow.

With the free cash hates it and say, we will be and a range of $300 million to $325 million that excludes any incremental free cash generated by Quincy or Meredith and also excludes the $31 million of dividends, we expect to pay this year.

Our average 19 'twenty cash flow.

And is expected to the 458.

With $4.8 million or $4.7 8 per share. So let me repeat that because I did kind of mess up that sentence.

Our average 19 'twenty.

Free cash flow was $458 million or $4.7 and 8 per share.

We anticipate our average 2021 free cash flow, excluding Quincy and excluding Meredith and excluding the $31 million of common and common dividends would be and a range of $4.3 to $4.42 million.

Which equates to 449 per share to $4.61 per share.

While we are not providing of formal guide for 2021 operating cash flow nor a formal guide for our 'twenty.

'twenty 1 'twenty 2 operating cash flow nor of formal guide for 'twenty, 2 political because that would be mature. We are very confident that our 2021.2020 2 blended free cash flow per share would be approximately 45% to 50% of.

The accretive.

When we include the impact of the twin city and Meredith transactions.

We are very well positioned going into 'twenty, 2 with the merits of transaction expected to close late 2021.

A brief comment on political and just to remind everyone on a combined historical basis for Quincy and Meredith net political and 2018 was $397 million and net political in 2020 with $692 million, It's anyone's guess.

Guess, what R 22, net political revenue will be but it is safe to say it will be large and then it will help us delever relatively quickly from an expected 5.4 times leverage ratio at close to something in the low fives.

And by the end of 'twenty 2.

And I'll turn the call back to Hilton.

So operator at this point, we'd like to open up for questions that.

And when they have.

Thank you Sir.

A reminder to ask the question you will need the press star 1 on your telephone.

That's the power.

Please Dan Belo compile the Q&A roster.

Your first question is from John <unk> from Wolfe Research. Your line is open.

Thanks, Good morning, guys I had a couple of mortgages and 1 is.

Good morning can you talk about.

The trajectory of <unk> and non Retrans expenses.

Are there expenses that come back into the best and Thats, what we should be thinking about and then separately Hilton on the land acquisition and I'm curious and there's been a lot in the press and the last few weeks about demand for sound stages. So can you give some more color on what's what.

And what that's going to look like what's the cost to build out and there is there potential from meaningful cash flow generation. There and then finally, Jim you mentioned the cash the cash flow frequency was pre synergy.

And do you expect to have the after acquired clauses or cost savings et cetera had prior to year end or is that more of a 'twenty 2 of them.

The after acquired clauses for Retrans will take effect immediately the <unk>.

Rest of the synergies is I dislike and Ray Com I think you should think about it more as a.

The month to month phase and it'll be it won't be perfectly linear, but it's not all going to happen day, 1 nor will it all happen on day 364, either.

And then John let me ask or answer your questions on the assembly.

Purchase.

And candidly we use the funds from the the Georgia Senate run off so it's sort of a little larger loans that we have it's a wonderful piece of property and with the studios that are coming up we expect upon completion of the debt they will generate.

Quite large free cash flow and a very short period of time and so we believe.

With the <unk>.

12 to 13 months, you will see significant free cash flow from those studios.

As you know the business and.

Production.

As is massive and it's the fastest growing such section of the Georgia the economy right now and.

And we're very bullish on what we see ahead.

And if it comes back to the other question.

And then.

The expenses away from Retrans for the I'll call It legacy Gray.

That was going to be kind of flattish or are those going to tick higher and just kind of thinking about the third quarter guidance and maybe beyond.

So in.

In the third quarter.

And then go to the guidance there is.

The 10 to 13 million total of deal related costs flowing through third quarter at least.

And there might be some more of that trickles and a little bit later.

But at least that much we know of.

So that's popping it a little bit but those were both both for broadcast and corporate were shouted out and the guidance section of the release.

We also gave to almost all of the employees and the company.

Modest mid year increases in base compensation I'll remind everybody that when we started this year, we held everybody's compensation flat.

1020 levels.

And as things have been improving we felt it was only right to come back around and.

And do something mid year, which is very unusual for us to do something mid year for our employees. Since we asked we had held them flat for the first 6 months of the year and Thats, increasing and payroll expenses by its in the single millions of dollars range each quarter for Q3, Q4, and obviously your <unk>.

The reverse comp is 1 of the biggest drivers of of the expense increases Q3 Q4.

And that will take up a little bit for both of those quarters from the levels of Q1 Q2, just because of the repricing that we've done.

The kind of mid year and.

And again are a lot of our a.

The good deal of our Retrans is based on a percentage basis for reverse comp so there'll be a modest increase there for Q3 Q4 and I'd.

I think the guidance if I recall, we singled that out for Q3, what that number is expected to be.

Thanks, a lot.

Your next question is from the line of Ken Dan credits from the benchmark. Your line is open.

Great. Thanks, good morning.

Maybe Kevin a quick 1 for you and I'm expecting a somewhat relatively quick answer here any update on the <unk>.

Ex negotiation.

Currently.

Right the short answer no.

And that's what I figured okay.

And maybe just.

The better question just around.

Retrans.

And obviously you called out some timing issues and we don't have anything till the end of the year maybe.

I think I've asked this before but just how youre thinking about and the marketplace. Both the runway.

Rose versus net and then as you approach the market with the deal there is obviously a wide variance of.

The outcomes, where you ask for more upfront versus higher escalators.

I'm sure everybody wants as much as they can get upfront and just how you're kind of thinking about how that the.

Conversations might evolve over the balance of this year and into next year.

I have no idea how of the negotiations will evolve and the balance of this share and next year, because we have no negotiations of the balance of this year or next year.

And our contracts are virtually all of 3 year terms.

And they.

The cycle ended on June 30, when we renewed.

And our last 2 contracts and the cycles. So theres nothing up so I don't I won't have any.

And any feel for where the market is.

Over the next 18 months.

And just not in the market in terms of what we've just completed.

Doug.

Pushed through 400 contracts over the course of about 18 months or so.

And we are very happy with the way the they came out.

And the sense that they were done and I think.

Without what we used to see some years ago and sort of more.

And the posturing, both publicly and privately I think they were constructive conversations.

We always take a look at the whole 3 year relationship not just what the next.

The first year rate is going to be we want to find some of that's going to work for both parties.

And I think we were able actually we clearly were able to do that and.

Virtually every 1 of the negotiation and so we're sort of half of the way they came out.

Going forward I don't see any reason to change our view that we remain tactically undervalued in terms of Retrans and over time, we will close the gap between the value, we deliver and the value we receive.

So there is nothing that has changed our view on that and we continue to deliver and certainly last year.

Tremendous ratings people.

And watch local television and the Hawaii for tuning into local television.

And we obviously didn't keep all of those folks we certainly demonstrated our value and we demonstrate the value. Unfortunately every day with whether it's and investigated piece or it's.

And whether emergencies or crisis and the community so somewhere there.

A critical moment happening now across our footprint and people are turning to local television and not turning the newspapers.

Our other media and.

We feel very good about being and.

In many cases 1 of the last.

Reliable sources of local news.

Super helpful and maybe just 1 last quick 1 just on political understanding you guys don't want to talk about 'twenty twos and maybe we can just get a sense of.

And how youre thinking about maybe even some of that creeping into Q4 of you guys mentioned and I think last call.

Obviously the environment is incredibly.

And our <unk>.

Pick your take your pick your descriptor of there, but just how do we think about maybe going into this year spending youre seeing kind of valid issues just help us kind of frame the narrowed and think about political going into next year.

And I always start by saying I think.

Very substantial.

Somewhat similar to what Jim said.

Even this year, we're seeing political advertising for races for elections that don't happen until next year.

And that's a phenomena and we started to see roughly a little bit in 17, and certainly in 2019, and it's the calendars keeps getting extended out for political advertising.

As you know, although I live in D. C. So I read the D C stuff a lot more perhaps and you guys do and it seems every couple of days. There's another had a line of another record breaking.

Non res and call Bye bye and 1 of the congressional committees 1 of the Senate committees 1 of the parties the suite.

<unk> and new Super Pacs and Super Super Pacs.

The money being raised now is certainly dwarfing anything thats been seen and prior off of your political elections from.

Alone is a $100 million of unspent cash raise and the last several months.

But the Democrats are still highly motivated and there has not been this drop off of the Trump is gone and so therefore, the Democrats are kind of donate money that's actually not been the case at all.

And on the other side of the Republicans are both large and small dollar donations are breaking records for both individual candidates and campaign committee. So.

We definitely don't see of Kumbaya moment coming in this country where per.

Political elections are going to go back to being smaller quieter of fares as we.

And maybe somewhat remember from the seventies.

It seems that we are on a continual upward trajectory, we cant put a dollar figure on it because of the folks who are closer to it and we are can't put any reasonable estimate from a political and other than to say pick your adjective very substantial next year.

And kind of follow up just briefly on what Kevin said.

Everything that we have seen is that the.

The people alumina, but who knows if they know it or not think of 2022 will.

At meet or exceed the spending from 2020 and of presidential election year, which is.

Is an amazing some and.

And 1 of the great rationales for the Meredith acquisition is that the way it is positioned.

The company win.

And they are part of our operations and they will be for all of 2022.

We are in a very significant position and almost every political battleground and out of the 10, most competitive and consequently, most expensive Senate races.

And the country.

The gray has almost the entirety of non out of the 10 states that are that are up for grabs and so I think that we will upon the closing of the Meredith acquisition receive and extremely strong and very significant political AD spend in 2020.

2 and so we look at it with a great deal of confidence and optimism, but and inability to tell you exactly what it's going to be but we know it's going to be big.

Got it that's Super helpful. And then I think Meredith and only 15% of presidential historically, so that going for you too. Thanks guys.

Thank you.

Your next question is from Kyle Evans from Stephens. Your line is open.

Alright, thanks, and good morning.

Kevin Congrats on getting through the Retrans negotiations.

And now that you've got 400 of them behind you or the.

The <unk>.

And the cable satellite and still at <unk>.

On a net basis.

You guys keep asking that question and I'm going to kind of keep giving the same answer which is.

We are happy to get paid by the subscriber a OTT customer is not necessarily the same value to us as it can.

<unk> customer.

And certainly going into that and we.

And then we get paid.

We get paid a lot by some OTT and less by other OTT, we got paid off of some mvpds and a lot less by other mvpds.

And it all shakes out.

Have a strong view of whether at which some of it is coming from Comcast versus mom and pop cable versus.

The <unk> television and I want them and the bundle and.

And when I've got folks who are cutting the cord I want people back and the bundle and sometimes that means we need to be.

Take a different view on the value of that customer coming back into the bundle or staying and the bundle even if it's not the traditional cable or satellite so.

We are indifferent to where the customer comes from so long as they are paying a fee.

And it gets back to us.

Got it.

And I guess pro forma for the deals you guys are maxed out on the U S television households.

And partner with Tech non premium and could you update us.

Excellent.

Let me. This is holds and let me just stop you there we have roughly a 3%.

Openings. So we're not completely capped out and we're certainly not above the national cap and so.

And while we can't do something maybe the size of the myriad of acquisition right. Now we have a lot of the possibilities to come I just wanted to make sure you understood that.

And so you still have 3 points to work with.

More or less yes, we will be about 36% and the cap is at 39%.

Okay.

Thank you for that clarification.

The ex large scale deals and then.

And I'm going to say anything else like particularly here in the process of from here. So can you just update us on the digital solution set where that sits today speak to some areas, where you expect to grow and then whether or not we should look for more partnerships and M&A is it just kind of a high level view of digital.

Thanks.

Yes, so Kyle it's Pat.

So we highlighted our partnership with premium and.

And I mentioned there is.

A whole lot of money chasing digital video right now so I think thats 1 area that we're focusing on.

At the stations if the.

Question is are we going to go out and try to find.

Sort of digital pure plays or other investments of that area.

We're not focused on that right now as of <unk>.

Opportunities arise, we will take a look at them Theres, some pretty healthy valuations and certainly the digital video world right now but.

But not again not something that we're squarely focused on what we are focused on.

Is executing at a very high level at all of the stations and I'm happy to tell you that we're really doing that right now and so there is a significant amount of upside we feel.

With our current footprint.

Good luck.

Jim and Kevin and Hilton told you over the years, we look at pretty much everything and it comes in and we'll continue to do that.

Thank you.

Your next question is from Aaron Watts from Deutsche Bank. Your line is open.

Hey, guys. Thanks for having me on 2 questions from me 1 on the auto side. It sounds like Theres. Some optimism you think you can see that category, maybe turn the corner and the fourth quarter I'm curious if you kind of look and your crystal ball given the growth you've seen and some other categories categories.

Like services or sports betting do you think auto ever gets back to being the clear and outrun the category leader again or do you think youll see a little bit more even dispersion across your ad categories.

Yeah, It's Pat again.

The latter I think youre looking at a much more sort of even split I mean, as you guys know auto used to be a huge category and.

I think debt.

The diversification of the huge benefit to the industry and to gray and.

Don't see.

Auto ever being back.

Back to.

Really probably not back to the 20%, even although we'll see but <unk>.

Certainly not 25 or 30.

And Pat I think I'm hearing that you believe that perhaps due to growth and other categories is it fair to say that not being driven by.

Some of the former auto spend going to other mediums, whether its digital or otherwise.

Auto is moving at the other mediums, but.

We can catch some of those digital dollars with our television stations.

It's both.

But to be clear, it's not like when they go to digital and Theyre going outside of our house, where we can so we still have products.

And that address their needs on the digital side.

Okay perfect.

And then my second question, Yes, I see the healthy guidance you've provided.

And on advertising and.

And maybe that answers this question right.

And Theres some increased concerns around the delta there and are you seeing any reaction from your advertising partners to those headlines or is it sort of a wait and see approach at this point and the spending continues.

Yes, I would say not as of this point the Delta variant is of concern.

But as we sit here today, we haven't seen any.

And any type of slowdown.

And because it really any of the markets because of the delta of area, but we obviously are watching closely as are our clients and.

And.

And so it's a concern but.

Hopefully what happens and this country's what happened in Britain and Nick.

And we move through of quickly and onward and upward.

Okay, great. Thank you for taking my question.

Sure. Your next your next question is from Jim Goss from Barrington Research. Your line is open.

Hi.

Earlier, I think you were referring to this doraville, Georgia.

Per our studio production facility you were acquiring.

Or the property anyway and.

And Im wondering it sounded like you were referring more.

To being a poster of landlord to other producers, but I wondered if you have any intent to.

Create more of your own programming.

Given your ownership of of such facility.

And what the nature of the program possibilities might be and whether you might even have some opportunity with the right time per.

<unk>.

Or perhaps rights issue is getting the way of that.

Well, it's not a it's not a direct avenue as you know we own majority control of school films, which is a remarkable.

<unk>.

Film producer based here in Atlanta, they will be using those facilities as well as the facilities that they already have here in Atlanta and.

And we anticipate using it for them and perhaps other of the production companies within the company, but that decision has not been made at this time.

And then to the extent that we were able to reach an agreement with other folks that may be interested and we.

And we're very open to that but we have not don't have anything and hand that we can talk about at this moment.

Okay and I was.

I'm wondering 2 of it sounded like you had been doing more or having more of environment with the Ellen media I'm wondering if you have some continuing the relationship with them or alone either of programming line or digital AD sales or anything else the chin.

The think of as the partner.

No we don't have any continuing total relationship with them the Ben.

A very solid broadcast operator operating at a distance from us.

And that has acquired the stations and both divestitures that we had to do.

As a result of the Quincy and the merit of acquisitions, but Theres no partnership or anything else involved.

Okay, and lastly, I might just ask Kevin.

And you mentioned the attention for the news of being in Washington.

Are there any Washington priorities right now that you would.

Point out that that might be run under the surface.

I mean in terms of.

Regulation.

I mean, the regulation or anything of that might affect of the operations and the industry.

I think as I mentioned I think.

The product I think the FCC's main priorities are going to be net neutrality.

Broadband build out.

And those don't really impact us at all.

Sort of shortly will be a closer look at broadcast ownership rules and on sugar and Thats growing.

The dose of the big issue the outside of that.

And Congress is pretty focused on a much much bigger issues.

And media and broadcasting the conversations around the Big Tech could.

It could be helpful. Depending on how they play out but again the direct impact on us.

Jim You mentioned, Washington, and I just.

And my prior comments on political.

I think air and May have raised.

And 2019, we had 3 governors races, Kentucky, Louisiana, and Mississippi, and the first half of 2019, we had $9 million of political revenue.

In 2021 way of 1 Governor's race, Virginia.

We have a hot you may have seen a house run off.

Cleveland took.

Took place 2 days ago.

And then there are some as I mentioned early early spending for next year. The first half of this year's political revenue was $15 million. So with 1 tenant with 1 governor's race instead of 3.

Very big and Mississippi, Louisiana, and Kentucky, and 19, just like in Virginia, and we're very big and Virginia. So once 1 governance rates versus 3.

And yet our political revenue and the first half of this year was nearly double what it was in 2019.

Definitely the thing.

We're on the right track to to expect.

Very strong.

And next year, but we've got the.

Both the house and Senate are very close and so.

Fund raisers.

On both sides.

And tell their potential donors.

The control of the house of the control of the Senate could be at stake with this particular race. So it bodes very well from political next year, but just want to put in the context of our 2019 first half versus the 2021first half.

<unk> with frankly, 1 third of the number of governors races, I think that's quite an omen.

Okay. Thanks, and thanks very much I appreciate it.

Okay.

Your next question is from Steven Cahall from Wells Fargo. Your line is open.

Hi, Thanks for taking the questions maybe first on the net retrans side. Thanks for that color on your gross.

Timing could you update us on the timing of your upcoming affiliate agreements and is there any as acquired benefit on the reverse compensation side as you move through those acquisitions and the in the months ahead.

And then historically I think you've had a great chart and your investor deck about political spending per household and your footprint and it was pretty much just as good after after Ray Com I was wondering if you run those numbers yet on a combined historical basis and have an idea of historically.

Whether the addition of these station groups changes that picture much. Thank you.

Yeah, Hi, Sue and so.

Our cadence for the network contracts is our CBS deal, we did about 4 years ago.

Correctly is up at the end of this year, our ABC and NBC are up at the end of 2022 of our Fox is up at the end of 2023.

In terms of the per household and I am not rerun the numbers.

And you look back and at our deck when we have done the dollars per household.

And 2018, we were at $8.72.

Meredith was right behind its $8.68.

And that was in the 2018 of election.

Were very significant Senate races, and Missouri, Arizona, and Nevada, where they have as you know very big exposure.

Quincy was frankly right on top of those numbers and 2020.

Gray was again.

The top of the of the.

Public companies Meredith was again number 2 and.

Quincy was again kind of on top of where we were at so I'm not rerun the numbers, but I have every confidence that a combined gray Meredith Quincy will continue to be as we go back and restate 18, 19, 2021, and as we go into 'twenty 2 I have no doubt that our political footprint and our number 1 stations will keep us.

Highest political revenue per television household.

And again those numbers have been and our deck for some 9 sometime there is really outside of Gray Meredith got close to us and 18 outside of debt.

Folks are pretty far behind us. So I don't see any reason that would change our news remains on top and our political footprint is actually even better now.

Meredith and Quincy the 2 closest competitors to R. R.

Number 1 ranking.

Thank you.

Your next question is from the line of John Kornreich from JK Media. Your line is open and good morning, Jim.

Oh and cash taxes can you give us the rough rough estimate what they might be this year.

And just some rough guidance for next year like could they double next year.

The up 50% that's first question.

Hey, John.

The $38 million year to date, so far and cash taxes and I'd.

Remind everybody that debt.

And we'll look large in relation to 2020, but last year the.

The IRS suspended normally quarter quarterly payments due to the pandemic and people could catch up those payments late 2020. So some of the 6 month comparisons are going to be skewed because of timing differences, but for the full year.

We'd be expecting cash taxes of about $50 million.

Next year, obviously, that's going to go back up again.

Okay double.

Significantly because of just the natural political hit our <unk>.

The influence of political is a better way to say it.

Which again, we don't know how big is big but we.

We expect big.

So.

Yeah. It wouldn't surprise me if it did.

Okay.

Second question on your guidance of free cash flow for 2020.1 that did include <unk>.

And all of the $73 million of cost synergies is that correct.

No our guidance and free cash for 2021 was before Meredith and Quincy and before and the expected $31 million of.

The common dividends.

And what we did and then you gave you gave pro forma guidance by saying $4.30 to $4.40, and then 50 per cent.

Well.

The $4.30 to $4.40 would be legacy Gray, Okay, 19, 2021what we said was 'twenty 1 'twenty 2 when we add in the Meredith impact the Quincy impact and the synergy impact flow finished <unk>.

Synergy, we would expect 'twenty, 1 'twenty, 2 and a fully pro forma basis with everything closed at full synergies, we think it would be 45% to 50% accretive.

2.

Free cash flow per share.

And that assumes I guess no more share repurchase.

Correct, that's based on the current shares outstanding of.

$95.8 million.

The last question Kevin.

When you said that.

And your subs were down roughly 1% debt was 3.

Really the first quarter naturally the second quarter correct.

Right that's right John.

We do lots of estimates because the.

Lots of reports come in too.

2.3 sometimes 5 and 6 months after the end of the.

The month, and so Q1 and Q1, because we have nearly all of the reports.

From the Mvpds at this point for Q1 and we have.

Some of the reports for Q1 on OTT.

Right.

Actually 1 last 1 for you.

Kevin.

The simple arithmetic of your net margin.

The only 1 that gives this where's that your net margin on retrans with 45% and the second quarter and about that for the first half.

Starting to near a bottom on that 40% level.

Are we still going lower.

Certainly our hope that we are at the bottom.

I don't.

It's hard for me to gauge where you still have a big negotiation to do with Cvs.

Cvs or just sort of ourselves.

Okay. Thanks for all your help really pretty sure thing okay. Thanks, Thanks John.

And there are no questions over the phone and then I'll turn the call over to our chairman and CEO of Hilton Howell.

Well. Thank you all sort of very much for joining us this more and we're very excited about our results this quarter and even more optimistic now that we've closed on Quincy and soon to close on Meredith.

And that we're going to reporting remarkable results as we go forward. So thank you again bye bye.

This concludes today's conference call. Thank you for participating you may now disconnect.

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