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 a question. During the session you will need to press star 1 on your telephone please be advised.
Today's conference is being recorded if you require on your further assistance. Please press star zero and I would 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 get on hold on 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 2021 earnings call with me and person here and a great corporate offices on our president and co CEO, Pat and the flattening, our chief legal and development Officer, Kevin Latex, our chief financial.
Or Jim Ryan and joining us remotely as our Chief operating Officer, Bob Smith will begin this morning, with a 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 and pending acquisitions and related.
Divestiture and the impact and 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 haven't set forth and the company's most recent report.
<unk> 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 T. R. A y dot television.
<unk> on the call maybe a discussion of non-GAAP financial measures and in particular broadcast cash flow broadcast cash flow less corporate expenses on.
Operating cash flow free cash flow adjusted EBITDA and certain leverage ratios.
These metrics are not meant to replace GAAP measurements, but are provided as supplements to assist the public and their analysis and valuation of our company.
Included in our earnings release as well as on our website, a reconciliation and the non-GAAP financial measures to the GAAP measures reported and our financial statements and now I will turn the call at the Hilton.
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 Allen media broadcasting and.
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 and we were thrilled to play a part and the near doubling of Allen media as television portfolio.
And the Gray board extend our gratitude and appreciation to all those who made these transactions a reality.
Including our colleagues at gray as well as the professional and Quincy media and Allen 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 on and I'm extremely proud of them are.
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 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 or 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 a total leverage ratio as defined and our senior credit facility is $3.9 2 times on a trailing 8 quarter basis after netting our cash on hand, and giving effect to 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 and we also successfully managed the business and the second quarter and really throughout this year, while also devote and countless hours to new.
And <unk> initiatives technology improvements and of course a gray.
8 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 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 Meredith transaction and the fourth quarter of this year.
And for these reasons and as exemplified by our return to paying quarterly cash dividends and <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 a few remarks from my colleagues with additional color to our second quarter earnings release thereafter, I will open the line for questions.
Pat.
Thank you Hilton.
On our 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 strength and nearly all advertising categories. We finished the second quarter 'twenty, 1 within a point or so in the second quarter of 2019 in terms of total core revenue as Hilton mentioned.
The outlier relative to 19 remains the auto category, which was down and continues to face chip shortages and supply constraints that are depressing auto advertising.
In fact, if the auto category and the second quarter and 21 was simply flat with 19.
Total core revenue.
And I 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 day.
Fact that other categories and.
Especially legal home improvement financial health and gambling effectively backfill the big holes left by the challenge auto advertisers illustrates the underlying strength of our local television stations and the revenue diversification and has taken place over the last few years and.
And if the automobile supply chain stabilizes relatively soon we would expect to see that category and rebound and the fourth quarter of this year and into 2022.
Our training team and our 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 health and auto teams have a particularly strong focus on digital and they've helped the growth digital revenue dramatically over the last few years.
Our partnership with premium is paying dividends as money continues to pour into digital video and our sellers are now fully trained and picking up new clients and revenue every day.
And our digital programming team and National hub continues to do great work and growing our digital audience.
Our sports and entertainment groups are 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. This year and addition, Tupelo Honey is a 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 Rick John Decker and on investigative team highlighted on 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 a question on this previously unknown issue at a recent white House press briefing, thereby raising the issue among the executive policy folks as well as the National Press Corps thereafter members of Congress and begin to address this important safety and equity issue and we are pleased to see that Theres now language and the 1.2 trillion bypass.
And Senate and 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 regions of the country.
32 of our stations and our investigative team we're involved in producing and 1 hour investigative documentary this area across all gray stations and this month.
And 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 XR 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 forward Robertson County that it wants to open a primary care clinic there.
Finally, we want to salute our director of investigations leaves Zurich for another amazing on her that he can add to a shelf. Lee recently was nominated for a national Emmy for a series of reports on the collapse of a hotel that was under construction and New Orleans and.
Congratulations to all of our news professionals as well as our very busy investigative teams and with that I'll turn the call to Kevin.
Hi, good morning again.
Turning first to M&A I'm pleased to report and our Meredith transaction remains on track to close and the fourth quarter. We received no objections to the transaction and the SEC and and transaction does not require any FCC waivers and special accommodations.
We anticipate closing the sale of our foot and television station a few weeks prior to the Meredith closing.
And the second quarter, we completed the last of our major retransmission consent negotiations for this 3 year cycle.
Across more than 400 separate mvpds, we achieved favorable renewal prices and other terms with virtually no disruptions and the service for our viewers and their customers.
Looking forward, our Mvpds renewal cycle resumes with the next set of contract explorations at year end 2022.
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.
And these fluctuations on 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 subscriber reports from the Mvpds and from most OTT providers for the first quarter of 2021 due to the natural lag and payments and reported some distributors come on.
Expected delays with those reports.
At this point it appears and our total and market Big 4 subscriber count across all pay 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 television channels, which 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.
And our transaction last year, and Alaska and the FCC's proposed forfeiture.
To be clear last month's SEC.
Decision was a proposed forfeiture non final finding.
Great now has the opportunity to respond to the FCC's proposed fine and we intend to do so weighted.
Later this week, we will submit our response to the SEC's decision and I invite everyone to read that response. Once it is filed until then however, gray cannot and will not comment further on this still pending proceeding.
And with that I'll turn the call to Jim Ryan.
Kevin and good morning, everyone on the.
<unk> filed a little later today and obviously the earnings release contains a great deal of information.
You have either read already are certainly can read.
Today.
Dovetailing on Hilton's Q2 remarks again, we're very pleased that 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 on our Q3 guidance and as you will see and our release.
And we've separated our baseline and Q3 guidance and then provide additional incremental revenue expenses and.
Broadcast cash flow for the Quincy stations.
So with our baseline guidance on legacy Gray combined local and National lab, combined local and national revenue or what we call 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.
<unk> of total core revenue and makes us up to mistake of continuing improvements later this year.
As Pat said, while auto is still lagging and it is continuing to improve and and it's 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 it 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 completed Quincy transaction and the pending <unk> 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 on a $19.20 blended.
Cash flow average is 7.9.
<unk>.
Total gross divestiture proceeds pretax or $450 million.
Our 1920.
His combined historical basis operating cash flow.
Is $1 billion to $3 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 transactions closing to be approximately 5.4 times with an estimated total debt.
Outstanding at 12, $31.21 on a pro forma basis up $696 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.
We have a free cash eights and say, we'll be in 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 is expected to be 458.
With 458 million or 478 per share. So let me repeat that because I did kind of mess up that sentence.
Our average 1920.
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.
<unk> equates to 449 per share to $4.61 per share.
While we are not providing a formal guide for 2021 operating cash flow nor a formal guide for 'twenty.
'twenty, 1 'twenty 2 operating cash flow, nor a formal guide for 'twenty, 2 political because that would be <unk>.
<unk>, we are very confident that our 2021.2020 2 blended free cash flow per share would be approximately 45% to 50% accretive. When we include the impact of the Queen City and Meredith transactions were.
Are very well positioned going into 'twenty, 2 with the Meredith transaction expected to close late 2021.
And.
A brief comment on political just to remind everyone on a combined historical basis for Quincy and Meredith.
Net political in 2018 with $397 million and net political in 2020 with $692 million.
Anyone's 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.
By the end of 'twenty 2.
I'll now 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.
As a reminder to ask a question and he will need to press star 1 on your telephone.
Best accounts, please Dan Barlow 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 and 1 is good morning.
You talked about.
And 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 I'm curious and there's been a lot and depressed and the last few weeks about demand for sound stages. So can you give some more color on what's.
What that's going to look like what's the cost to build out and there is there potential for meaningful cash flow generation. There and then finally, Jim you mentioned that the cash flow frequency was pre synergy.
And do you expect to have the after acquired clauses or cost savings, etc had prior to year end or is that more of a 'twenty 2 event.
The after acquired clauses for Retrans will take effect immediately.
Rest of the synergies is I dislike and Ray Com I think you should think about it more as a.
On a 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 per.
<unk>.
Candidly, we use the funds from the Senate run off so it's sort of a little long enough that we have.
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.
Within <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 economy, right now and.
And we're very bullish on what we see ahead.
And if it comes back to the other question on.
On.
Expenses away from Retrans for the I'll call it legacy Gray.
That was going to be called a flattish or are those going to tick higher and just kind of thinking about the third quarter guidance and maybe beyond.
So in.
And third quarter.
Again go to the guidance there is.
10 to 13 million total of deal related costs flowing through third quarter at least.
And there might be some more that trickles and a little bit later.
But at least that much we know of.
And 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 have we had held them flat for the first 6 months of the year and that's increasing and payroll expenses by its in the single millions of dollars range each quarter for Q3, Q4, and obviously your.
Your reverse comp is 1 of the biggest drivers of expense increases Q3 Q4.
And that will tick up a little bit for both of those quarters from the levels of Q1 Q2, just because of the repricing that we've done.
Kind of mid year and.
And again are a lot of.
A 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've.
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 Dan <unk> from the benchmark. Your line is open.
Great Thanks, and good morning.
And maybe Kevin a quick 1 for you and I'm expecting a somewhat relatively quick answer here any update on the <unk>.
CBS negotiation.
Currently.
Yeah, right, so short answer no.
That's what I figured okay.
To try and maybe just.
A better question just around <unk>.
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.
Gross versus net and then as you approach the market with the deal on.
Obviously, a wide variance of.
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.
Those conversations might evolve over the balance of this year on and into next year.
I have no idea, how the negotiations will evolve and the balance of this year and next year, because we have no negotiations the balance of this year or next year, our contracts are virtually all 3 year terms.
And they.
The cycle ended on June 30, when we renewed.
And 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, where does not and that 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 that 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 aggressive 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 something that's going to work for both parties.
And I think we were able and actually we clearly were able to do that and.
Virtually every 1 of the negotiation and so we're sort of happy the way they came out.
Going forward I don't see any reason to change our view that we remain low tactically undervalued in terms of Retrans and overtime, 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 Hawaii for tuning into local television and why.
We obviously didn't keep all those folks with her and demonstrated our value and we demonstrate our value. Unfortunately every day with whether it's an investigative piece or it's.
And whether emergencies or a crisis and the community so somewhere and there is.
A critical moment happening now across our footprint and people are turning to local television and on turning the newspapers.
Our other media and.
We feel very good about being and.
In many cases and what are 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 2002. So maybe we can just get a sense of.
And how youre thinking about maybe even some of that creeping into Q4, and you guys mentioned and I think last call.
And obviously the environment is.
And critically.
And our <unk>.
Pick your take your pick your descriptor, there, but just how do we think about maybe going into this year spending youre seeing kind of valid issues and help us kind of frame in there and I think about political going into next year.
And I would 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.
That's a phenomenon 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 I don't know 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 headline of another record breaking.
And raising call bye bye and wanted to congressional committees 1 of the Senate committees 1 of the parties.
<unk> and new Super Pacs and Super Super Pacs.
The money being raised now is certainly dwarfing anything thats been seen and prior off your political elections.
<unk> alone is $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 Trump's cost. Therefore, the Democrats are going to donate money that's actually not been the case at all.
And on the other side 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 a kumbaya moment coming in this country.
Political elections are going to go back to being smaller quieter 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 the folks who are closer to it and we are can't put any reasonable estimates on what political and other than to say pick your adjective very substantial next year.
And can I follow up just briefly on what Kevin said.
Everything that we have seen is that the.
The people and the no, but who knows if they know it or not I think that 2022 will.
Meet or exceed the spending from 2020 and a 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.
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 2022, 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% 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 all.
Alright, thanks, and good morning.
Kevin Congrats on getting through the Retrans negotiations.
Now that you've got 400 over and behind you.
And the OTT.
And the cable satellite.
Still at parity 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.
We're happy to get paid by a subscriber a OTT customer is not necessarily the same value to us as a cable customer.
And so on and go into that and depth, we and it's important that we get paid.
We get paid a lot by some OTT and last by other OTT, we could pay off some mvpds and and a lot less bad they're mvpds when and all.
Shakes out.
Don't have a strong view, whether at which some of it is coming from Comcast vs mom and pop cable versus Hulu television I want them and the bundle.
And I have got folks who are cutting the quarter 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.
It gets back to us.
Got it.
And I guess pro forma for the deals you guys are maxed out on U S television households.
Parker with tag on.
And premium on could you update us.
Actually.
Let me this is hold on 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 <unk> acquisition right now.
We have a lot of other possibilities to come I just wanted to make sure you understood that but thank you.
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.
But ex large scale deals.
And I'm going to see anything else like particularly here in the process 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 weather.
We should look for more partnerships and is that M&A is it just kind of a high level view of digital.
Okay.
Yes, Kyle it's Pat.
So we highlighted our partnership with premium on it.
And I mentioned there are some.
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 and that area.
Not focused on that right now as opportunities arise and we'll take a look at them. There are some pretty healthy valuations and certainly the digital video world right now.
But not again not something that we're squarely focused on what we are focused on is executing at a very high level on all of the stations and I'm happy to tell you that we're really doing that right now and so there's a significant amount of upside we feel.
With our current footprint.
Good luck.
Jim and Kevin and helpful and told you over the years, we look at pretty much everything that comes in and we will 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 just 2 questions from me 1 on the auto side. It sounds like Theres. Some optimism you think you could 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 is a huge benefit to the industry and to gray and.
Don't see.
Auto ever being back.
Back to.
Really probably not back to 20%, even although we'll see but <unk>.
Certainly not 25 or 30.
And Pat and I think I'm hearing that you believe debt that's due to growth and other category and 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 into other mediums.
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 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 answered this question, but.
And Theres some increased concerns around the Delta variants 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 very it is a concern.
But as we sit here today, we haven't seen any.
And any type of.
Slowdown because it really any of our markets because of the Delta variant, but we obviously are watching it closely as are our clients and.
Sure.
And so it is a concern but.
Hopefully what happens and this country's what happened in Britain and Nick.
And we move through it 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.
Price studio production facility you are acquiring.
Or the property anyway and.
And I'm wondering it sounded like you were referring more.
To being a host or a landlord to other producers, but I wondered if you had any attempt to create.
Create more of your own programming.
Given your ownership 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.
<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 switches.
A remarkable.
Film producer based here in Atlanta.
We'll be using those facilities as well as the facilities that they already have here in Atlanta and.
And we anticipate using it for them, 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 on that.
And we're very open to that but we have not don't have anything on hand that we can talk about at this moment.
Okay, and I was wondering it seems like you've been doing more or having more inbounds on with Ellen media I'm wondering if you have some continuing our relationship with them or alone either a programming line or digital AD sales or anything else that you can.
And Mike.
Think of as a partner.
No. We don't have any continuing total relationship with them they've been a.
Very solid broadcast operator operating at a distance for us.
And that has acquired the stations and both divestitures that we had to do.
As a result of the Quincy and the Meredith acquisitions, but theres no partnership or anything else involved.
Okay, and lastly, I might just ask Kevin.
Since you mentioned your attention for the news and being on 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.
On the regulation or anything that might affect the <unk>.
Operations and the industry.
I think as I mentioned I think.
On a prior call I think the FCC's main priorities are going to be net neutrality.
Broadband build out.
<unk>.
And those don't really impact us at all.
Surely will be a closer look at broadcast ownership rules and on sugar and Thats going.
But those would be the big issue is outside of that.
And Congress is pretty focused on on a much much bigger issues on.
And media and broadcasting the conversations around Big Tech could.
Could be helpful. Depending on how they play out but again it.
A 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 and political revenue.
In 2021, we have 1 governor's rates, Virginia.
And we have a hot you may have seen a house run off.
Cleveland took place 2 days ago.
And then there's 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.
We're very big and Mississippi, Louisiana, and Kentucky and <unk>.
19, just like in Virginia, and we're very big and Virginia.
And 1 Governor's race vs 3.
And yet our political revenue and the first half of this year was nearly double what it was in 2019, so and <unk>.
Definitely think.
We're on the right track to to expect.
Very strong.
Next year, what we've got.
Both the house and Senate are very close and so.
And razors.
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 for political next year, but just want to put into context, our 2019 first half versus a 2021first half.
<unk> with frankly, 1 third of the number of governors races, as a I think that's quite an element.
Okay. Thanks, and thanks very much I appreciate it.
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 growth.
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 in the months ahead.
And then historically I think <unk> had a great chart and your investor deck about political spending per household and your footprint and it's 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 historically.
Whether the addition of these station groups changes that picture much. Thank you.
Yes, hi, <unk> and so.
Our cadence for the network contracts is.
Our CBS deal, we did about 4 years ago.
And I remember correctly is up at the end of this year.
Our ABC and NBC are up at the end of 2022, our Fox is up at the end of 2023.
In terms of the per household not rerun the numbers.
If you look back on it our tax when we have done the dollars per household.
And 2018, we were at $8.72.
Meredith was right behind us $8.68.
And that was in 2018 election.
And very significant Senate races, and Missouri, Arizona, and Nevada, where they have as you know very big exposure.
<unk>.
Quincy was frankly right on top of those numbers and 2020.
Gray was again.
On top of the.
Public companies Meredith was again number 2 and.
Quincy was again kind of on top of where we were at so I've not rerun the numbers, but I have every confidence that a combined gray Meredith Quincy will.
And we'll 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.
Political revenue per television household.
And again those numbers have been and our deck for some non 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 <unk>.
Our political footprint is actually even better now.
Meredith and Quincy the 2 closest competitors to R. R.
<unk> ranking.
Thank you.
Your next question is from the line of John Kornreich from JK Media. Your line is open and good morning, Jim.
On cash taxes can you give us a rough a rough estimate.
They might be this year and.
And just some rough guidance for next year like could they double next year will be up 50%. That's first question.
Hey, John.
$38 million year to date, so far and cash taxes, and I would remind everybody that.
Well look large in relation to 2020, but last year the.
<unk> 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 and theyre 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.
Yes.
Second question on your guidance for free cash flow for 2021 that did include all of the 73 million low 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.
On a common dividends.
And what we did you book that you gave you gave pro forma guidance by saying $4.30 to $4.40, and then at 50%.
Well.
The $4.30 to $4.40 would be legacy Gray. Okay, 19, 2021, what we said was 'twenty 1 'twenty 2 when we add in the Meredith impact the Quincy impact and the synergy impact flow finished okay.
Synergy, we would expect 'twenty, 1 'twenty 2 and <unk>.
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 our current shares outstanding of.
$95.8 million.
Last question Kevin.
When you said that.
<unk> 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.
Lots of reports come in.
And 3 sometimes 5 and 6 months after the end of the.
The month, and so I gave 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.
And Kevin.
Yes.
And the simple arithmetic of your net margin.
The only 1 that gives this where's that your net margin on Retrans was <unk> 45 per cent 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.
And.
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 or just sort of our subs.
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 and Jonathan Howell.
Well. Thank you all so very much for joining us. This morning, 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.
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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