Q4 2021 Gray Television Inc Earnings Call
Is it around I added some stuff I took some things out ladies and gentlemen, thank you for standing by and welcome to the Gray Television's fourth quarter 2021 earnings call.
At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker.
Hilton Howell. Thank you. Please go ahead Sir.
Thank you Rebecca good morning, everyone as our operator mentioned I'm Hilton Howell, the chairman and CEO of Gray television. Thank you for joining our fourth quarter 2021 earnings call with me today are greatest executive officers, our president and co CEO Pat in the flattening, our chief legal and development Officer, Kevin later.
Our Chief Financial Officer, Jim Ryan and our Chief operating Officer, Bob Smith.
We will begin this morning with a disclaimer that Kevin will provide.
Thank you Hilton and good morning, everyone.
Gray uses its website as a key source of company information. The website address is www G. R. A y dot TV.
We will file our annual report on Form 10-K with the SEC later today.
We also will file a form 8-K today furnishing our financial results on a combined historical basis for the years 2018 through 2020 , one as well as a new investor presentation, which will include our 2021 results and other information.
Included on the call may be discussion of non-GAAP financial measures and in particular broadcast cash flow broadcast cash flow less corporate expenses.
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 in their analysis and valuation of our company.
Included in our earnings release as well as on our website are reconciliations of the non-GAAP financial measures to the GAAP measures reported in our financial statements.
Certain matters discussed in the call may include forward looking statements regarding among other things future operating results. Those statements are subject to a number of risks and uncertainties actual results in the future could differ from those expressed or implied in any forward looking statements. As a result of various important factors have been set forth in the company's most recent reports filed with the SEC.
Including our annual report on Form 10-K , and our most recent earnings release.
The company undertakes no obligation to update these forward looking statements.
And now I will turn the call to Hilton.
Thank you Kevin we are here today as usual to share with you our comments and our views about what has truly been a remarkable year in 2021 and the results of our fourth quarter in our company's future.
Obviously.
Ukraine situation is so new and so fluid that we simply do not know what impacts Russia's actions may have on our businesses.
Or more importantly on the businesses that use our advertising and production services.
And what consequences, the new sanctions that have been announced will have.
By way of introduction to those of you who are new to US Gray television today is a booming multimedia company that includes the second largest portfolio of local television stations in the nation and has grown from 30 markets to 113 markets and the law.
Last eight years Cigna.
Significantly our.
Our portfolio includes 80 stations ranked number one in their markets with virtually all the rest coming in as a close number two.
Our earnings release. This morning also confirms that like our station portfolio and our execution remains best in class.
Overall, we today reported excellent fourth quarter results with adjusted EBITDA coming in at $224 million. This was the result of strong numbers for a nonpolitical four quarter, including broadcast revenues of 692 million total revenue was 721.
Megan broadcast cash flow of $258 million and free cash flow of 59 million.
Transaction related expenses due to the acquisitions of Quincy and the Meredith local media group combined with an expected cyclical reduction in political AD revenue reduced our net income attributable to common stockholders 216 million or a still strong <unk>.
<unk> per fully diluted share in the fourth quarter of 2021.
Excluding transaction related expenses and noncash stock compensation.
Net income attributable to common stockholders would have been approximately $60 million or <unk> 63 per share for the fourth quarter.
As you all know our earnings release presents financial results. According to GAAP as well as on a combined historical basis with the latter figures, giving effect to both acquisitions and dispositions on this combined historical basis, our fourth quarter 2000.
'twenty, one revenue was $857 million.
Our full year 2021 revenue was $3.2 billion.
Looking ahead, we are thrilled with the company that gray has.
It has become as we begin a new year firing on all cylinders.
You're about to hear more color on the integration of our recently acquired TV stations are very healthy core AD business and our growing retransmission revenues and the great promise in both political revenue and with Nextgen TV.
In terms of guidance, which Jim will address more fully we're expecting a very good first quarter on our current forecast.
Specifically.
On a combined historical basis, we anticipate a 4% to 7% increase in total revenue over the first quarter of 2021, and a 6% to 9% increase in total revenue for the first quarter of 2020, a presidential campaign year.
Our guidance today also includes a big change to our full year 2022, political AD revenue guidance specifically.
We are today, increasing our 2022 political revenue guide by approximately 10% from the $525 million announced on our November 2021 earnings call to 575 million today.
This new target of 507 million represents a whopping, 55% increase over the 372 million of political revenue that we achieved on a combined historical basis in the last midterm election year of 2018, we therefore have much.
Good news and lots of color to share on the quarter behind us in the quarters ahead. So we will begin first with our president and co CEO Pat <unk>.
Thank you Hilton.
I'd like to begin by acknowledging that the 2022 broadcasters Foundation of America, Golden microphone or Golden Mike Award.
We'll be presented over one Hilton how what a fund raiser next month to benefit the Foundation's mission.
Broadcasters that need.
The event will likely mark the first large in person gathering of radio and television industry executives and celebrities and more than two years. We are very much appreciate the great work that the foundation's long carried out on behalf of our colleagues in the industry.
Just six months after our acquisition of Quincy media.
We've completed nearly all the integration of the Quincy stations into the fabric of Gray admittedly the integration was a relative breeze, because it couldn't because quincy rented stations with the same local first bottoms up philosophy the greatest spouses.
We're already seeing revenue and profitability improvements across these stations.
All while adding investment in resources to enable them to expand their reporting and their sales efforts.
We're now quite active integrating the mayor of the stations it systems and personnel and to Greg.
We conducted news research nearly every meredith market over the summer identifying key strategies and tactics and determining opportunities for growth and improvement.
Let me close Meredith, we immediately began implementing our plans across the markets.
In Atlanta for example, C B S forty-six in Peachtree TV.
Both of which we acquired for Meredith have a new very experienced general manager and new managers and news marketing and promotion.
Adding more local newscasts and higher value programming and expanding the talent across the stations' news.
Sales digital marketing and other areas of operation.
One week after the closing we announced the legendary Atlanta news anchor and journalists Monica Comping Pearson has joined C. B S. Forty-six in Peachtree TV to host two new shows which begins this month two weeks ago, we announced that we've agreed to acquire the Atlanta markets Telemundo affiliated station.
Last week, we began rebranding C. B S forty-six itself and this week, we announced the creation of a new station manager position for Peachtree TV that we filled with an excellent internal candidates.
We have made all this progress just here in Atlanta, and yet we've owned the two former mayor of the stations for less than 90 days.
Similar stories and the other former Meredith markets.
Now taking a step back we believe that our size and scale open new doors for us certainly from a news and political coverage standpoint, our presence in nearly every market in nearly every competitive state provides exciting new opportunities to cover elections, who deliver audiences to campaigns. These.
These statewide regional clusters to provide similar new opportunities as we know more easily and efficiently cupboard news wide stage sports and events.
Pardon me statewide news sports and events, we'd be unexplored AD sales opportunities to leverage our extensive footprint a very highly rated TV stations, while our coverage of U S. TV homes is a bit limited, we punch far above our weight and audience delivery and we believe that overtime. There are new revenue streams, we can tap on the programming front.
Our scale makes us an attractive partner and provides a solid foundation for distribution of our own programming should we decided to do that.
On the digital side of our business. We are closing in on 100 million unique visitors per month on our platforms.
Just competitive with such National brands as the New York Times, Fox News and Yahoo News.
We compare favorably to virtually all our local broadcast and competitors in this metric.
We will continue to sell this audience from the ground up we could see more national opportunities as our digital footprint expands.
Finally, with the acquisition of Meritage television stations, Great now has a much larger footprint operating on the Nextgen TV standard.
At the end of 2021 gray had stations broadcasting in the Nextgen TV standard in 10 markets, including Atlanta, Phoenix, Portland, Oregon and Charlotte.
Number will increase significantly throughout 2022, and we currently anticipate ending the year with about 35 markets broadcasting of the new standard.
This group of markets represents a bit more than 25 million TV households, or about 21% of the total U S TV households, which equates to roughly 60% of the great footprint. Meanwhile, efforts across a number of other industries continued to progress on building out the infrastructure and business models that we believe will make Nextgen T V.
The next big revenue driver for the industry.
Next up Bob Smith will address our station operations and sales.
Thank you Pat.
Television station operations are probably the best overall condition that I can remember on a combined historical basis, which again includes the results of all television television stations now owned by Great. Our fourth quarter 2021 core revenue of $422 million was 11% higher than the fourth quarter of 2020, which depressed by both.
Covid impacts and substantial political displacement interestingly, our fourth quarter 2021 coal revenue was precisely equal to our fourth quarter 2019 core revenue overall.
Overall, the advertising business with solid force with the notable exception of the auto category in the fourth quarter with the exception of the auto category every other category posted strong gains over the prior year period as expected our entertainment AD category, which included gaming and gambling companies more than doubled over the year and is now our fifth largest category.
For perspective in the fourth quarter of 2020 that candidly was 12, among the 14 categories. We use in light of the growth and size of gaming and gambling advertising wary of separating those businesses from other entertainment customers in a formal new gaming AD category beginning of 2022.
For revenue, we says overcame some significant decline in the auto category between the fourth quarter of 2020, and the fourth quarter of 2021.
A couple of years ago.
It's about 25% of total non political AD revenue for full year 2021 water category comprised about 17% of total nonpolitical AD revenue as those revenues declined and we successfully diversified our ad base.
We'll focus on health and recently travel and tourism legal and home improvement have also grown at a healthy pace. While auto is still our top category is no longer a runaway number one and is arguing diversification has shown that as a good thing when auto returns and it will all the better.
A really big news on the station side, just political advertising as Hilton analysis, a bit ago, we are increasing our full year political back to 2022 from five.
$525 $575 million.
Our decision to raise the guidance by 10%. This quickly after our initially aggressive buyers highlights the increasingly competitive political campaigns, we're seeing all across our footprint fundraising record seem to fall every week can enter part already partners are generating immense interest engagement and activity a number of places.
Is it activity includes battleground states that have been on everybody's radar for some time, such as Arizona, Nevada, Missouri, Wisconsin, Georgia Winter Incidentally raised actually the largest media company in the state, but also includes a number of states and races under surprising us with levels or timing of the advertising expense.
For example in Alabama, the state primaries for both gobbler newest stomach, which are not until May 24 saw meaningful AD spending start in December of last year as well.
Reminder, Alabama is one of the many states in which gray owns leading TV stations in every market serving the state, including a top rated television stations in Huntsville, Birmingham Montgomery and Dalton.
Similar story is playing out in Nebraska, where we owned the top ranked local station in nearly every market that covers the states near campaigns began spending in December for that Nebraska primaries, which isn't until may 10th.
Wise in Illinois, we begin to see significant political advertising of January for the primary that takes place on June 28, as well as spending directed at this november's general election.
These notable experiences similar developments over the past three months justify our increase in full year political AD revenue of 575 billion that figure represents about 88% of the total political AD revenue of $652 million in the presidential in Georgia Senate one off years of 2020 on a combined historical.
Oracle basis equally impressive and worth repeating some hilton's opening remarks is that the new target represents a 55% increase over the $372 million of combined historical political revenues in 2018, the last midterm political year I will now turn the call over to Kevin.
Thank you Bob.
We also have good news to report today on retransmission revenues.
As you saw in our release this morning, we posted a strong fourth quarter growth in Retrans revenue.
On a GAAP basis, Retrans revenues increased 35% from the year earlier period.
On a combined historical basis Retrans revenues increased 12% from the air from the year earlier period for both the fourth quarter of 2020, and the full year of 2020.
Importantly, we also have continued to grow our net retransmission on a combined historical basis, our net retrans revenues of $480 million and 218 grew to $587 million and 221, which is an approximately 22% increase over four years.
As you know, we disclose the amount of revert reverse compensation payments that we paid of networks in our earnings release to provide full transparency on our retransmission metrics.
And the combined historical basis financial data that we provided today.
You will see that the growth in network fees over the past five years has slowed this is because gray Meredith in Quincy previously experienced large step ups and network fees, a few years ago as a networks prepared for their own contract renewals with the NFL.
We expect this slowdown in network fee growth to continue as we progress through our new CBS affiliation term and our next affiliation terms with the other networks.
Our big for pay TV subscriber counts appear to have remained fairly stable over the year.
We compare the total of these counts in the subscriber reports for the television stations owned by Gray in the third quarter of 2022 to the reports for the same group of stations in the third quarter of 2021.
Over that period. These stations experienced a decline of less than 1% of total big for pay TV subscribers.
While we do not have a full set of subscriber report for our recently acquired stations. We have no reason to believe that the subscriber levels for this mix of large market and small market Meredith and Quincy stations would be significantly different than what our legacy stations experienced over the same time period.
Looking ahead, we will next renewable and reprice linear M. B P. D retransmission agreements at the end of this year and we will renew our Fox affiliation agreements later this year.
Given the timing of these renewals and assuming that our sub counts remain stable.
We anticipate that gross retransmission revenues will be in the neighborhood of $1.5 billion in 2022.
And then net retransmission revenues in 2022 will increase at a mid single digit percentage over 2021 's net retransmission figure of $587 million.
Again, all on a combined historical basis.
We began 2023 with new Retrans agreements covering about one fifth of our big four subscribers, which should all art, which should allow this year's good momentum for net retrans growth to continue rolling forward.
This concludes my remarks, and I'll now turn the call to Jim Ryan.
Thank you Kevin good morning, everyone.
As mentioned earlier, we will be filing our 10-K later today the release and the 10-K provide a great deal of detailed financial the financial information and as also mentioned earlier, we will also be updating our investor deck with our December 'twenty, one financial information and presenting both adds.
<unk> reported a combined historical basis select operating data by quarter and year to date for 2018 through 2021, I believe by providing this information we are being the most transparent company in the sector.
Beginning in Q1, 2022, Gray will no longer segregate local advertising revenue from national advertising revenues in our income statements.
Versus national distinction may be relevant for other broadcast companies, who sell national revenue through a sales rep and sell local and regional ads to their own sales force.
Since late 2015, however, Grays one employee sell virtually all advertising that appears on our television stations and digital platforms, regardless of the physical location of the agency or add client.
The local versus national distinction at least for Gray has outlived its usefulness and today, we will retire that distinction and will be simple simply report core advertising revenue going forward. Beginning Q1 2022 as you will see in our earnings release 10-K and our.
Combined historical information being published later today, we have maintained the local national distinction and all historical resolves.
So you've got a good complete set of data.
Hilton Pat Bob Kevin.
Have I'll cover the key highlights of the quarter and the full year as such I'll keep the rest of my remarks very short.
I'll begin with some brief comments on our Q1 guidance, we developed and finalized the guidance based on our internal forecast and tastings at Casey's as of Tuesday.
We are not adjusting this guidance in light of the recent events in Ukraine, Although we remind you that we are unable to predict what impact if any that war in Europe may have on our business in the first quarter or beyond.
Total core revenue is anticipated to increase approximately 3% over combined historical Q1 2021 results.
This demonstrates the continuing sequential improvement of total core revenue and makes us optimistic of continuing improvement as we move through 2022.
The services group, which combines financial legal and medical now represents about 29% of our year to date full year 2021 core revenue.
In fact current Q1 pacings for the services group is showing percentage increases in the mid to upper teens and the dollar volume increase is more than offsetting weakness in auto advertising.
I'll remind everyone, though that pacing data is simply one point in time and may not reflect the final results.
We encourage currently anticipate the gaming revenue in Q1 will exceed $10 million and anticipate continuing growth the rest of 2022.
The superbowl is anticipated to contribute approximately $7 million in Q1 to our revenue and the Winter Olympics are expected to contribute approximately $10 million to our Q1 2022 advertising revenue.
Let me recap certain.
Key metrics on a combined historical basis for full year 2021 or.
Our combined historical basis net revenue is 3.15 billion or two year blended average 'twenty 'twenty. One net revenue is 3.25 billion.
Our 2021 combined historical operating cash flow is $1.029 billion.
Our last eight quarter average combined historical operating cash flow as of 12 31 21 is one point to one 6 billion.
2021, free cash was $443 million and our blended 2021 average free cash with 626 million our leverage ratio at the end of.
2021 was 5.47 times.
A few comments on cash uses in free cash for 2022.
We currently expect approximately the following material uses of cash in 2022.
Cash interest expense of $295 million cash.
Cash taxes of $190 million.
Routine capital expenditures of $125 million and our preferred dividends are $52 million and we have $15 million required amortization on our new term loan D that we placed as part of the Meredith acquisition.
At this time, we currently anticipate that our free cash before common dividends acquisitions investments and our assembly construction costs will exceed $800 million in 2022.
To state the obvious it political revenue exceeds our current full year forecast of $575 million. This full year free cash estimate will increase.
We are very well positioned starting 2022 and look forward to a very successful year I will now turn the call back to Hilton.
Thank you Jim before ending in opening up the line for questions I would like to take a moment to address our capital allocation strategy one year ago. Today I had the honor of announcing on this call that our board of directors had voted unanimously to resume Grays regular quarterly cash dividend for our equity shares.
<unk>, while we did not realize at that time that gray would be acquiring mirror. This local media group just nine months later.
Our board was done and remains today fully committed to our quarterly dividend as well as returning capital to our equity shareholders through reducing our leverage and pursuing opportunistic stock buybacks.
In that regard.
Please keep in mind that with the anticipated very strong annual free cash flow north of $600 million and certainly much higher than an every two year political cycle Gray will naturally delever quickly with 600 million representing a one half turn on our net.
Leverage ratio, we are in a position to bring our leverage down into the threes in a fairly short period of time.
Worse as our strong free cash flow drives our leverage lower this deleveraging automatically.
And directly transfers to economic value for our equity share owners.
In closing I remain as optimistic and excited as ever at Grace prospects for its employees and its stakeholders. Our business is strong our prospects are bright.
<unk> has the people and tools, we need to ensure that the nation's second largest broadcast group Inc.
Is and remains one of the finest media companies in the world.
Operator at this time, we will open the line for questions.
As a reminder, if he would like to ask a question. Please press star one on your telephone keypad.
And your first question comes from the line of Dan <unk> with benchmark company.
Great. Thanks. Good morning, just quick housekeeping for Jim what is what are the synergy expectations assumed in the Q1 guide.
Our synergies combined for Quincy and Meredith.
We're.
Let's see.
70, low 70 millions.
We're still on target for that.
Our guidance.
Includes that.
We're actively.
Working on those things.
All of a fair amount of our synergies.
In both transactions.
Our.
To what extent had been achieved already obviously, the retrans synergy was automatic and will phase in month by month over the first 12 months.
Some of the corporate overhead combined corporate overhead savings had been already achieved as well and we.
We've already achieved the.
Savings in the National Rep firm.
By canceling boats national Rep agreements.
And obviously that that synergy will will flow in month by month as well over the course of the first 12 months since acquisition.
Got it that's really helpful. Jim Thanks, and then Kevin couple.
Couple on Retrans and reverse or me. Thank you for the additional color and the full year guide, which is fairly impressive I would argue given what you just did a 30 or footprint.
C. B S are paramount al.
I guess the question is you know you gave some commentary that you expect to see a slowing continued slowing on the network side do you anticipate that I mean, historically, you've been about 50 50 fixed.
Versus floating to subs.
Dissipate that more and more networks should look towards fixed and how do you see the growth side, obviously, you guys still have.
A long way to go and given your increased negotiating leverage and scale, there's probably still some benefits there.
Do you think the growth side kind of pacing and given your remarks, and where you're at in the marketplace right now.
I'll take them in reverse order nothing has changed our view that we are grossly under compensated.
In terms of the value we deliver to any distributor.
Given the.
The ratings eyeballs, we deliver and then we pull in to subscription.
Packages.
On the first question.
We're not aware of.
And the other four networks planning a.
A change in there the method by which they are calculated.
Reverse comp for many many years now across all of their affiliate group. So if you know something that is changing I'd love to hear about it but we've not heard anybody say that any of the networks are changing their approach.
And just to be clear, Kevin I mean, given those dynamics.
So that would argue that net retrans margins are at least stable if not maybe better than that going forward now.
We do think that net retrans will continue to grow over the next several years.
No.
We have not talked about margins since we went from keeping 100% of $20 million to something less than 100% and $20 million and we're going to book 1.5 billion. This year.
And put it well actually we had 587 million of net retrans to us what matters is how much we put in the bank as you know from prior conversations or we just we don't focus on the on the margins.
Overall in terms of trends I think you're right grosses growing reverse should be growth there should be no.
Not as great as the gross increases which would if you're concerned about margin should result in a higher margin yes.
But that's just not something we're focused on at all.
Understate the cabinet, but just help us understand the dynamics. Thank you for the clarity and thanks, Jim and thanks, everyone. Appreciate it yeah.
Yeah, Thanks, Dan Sudan.
Your next question comes from the line of Aaron Watts with Deutsche Bank.
Hey, everyone. Thanks for having me on.
Couple of questions for me.
On the sports betting side.
Here that it's been a great category for you as well as others and it's moved into some of your one of your top category.
With some of the comments from the gaming companies around pulling back on media spend going forward. How do you think that translate on a local level for for you and your stations in terms of the amount being spent going forward.
It's Bob Smith, I can take that.
I think on the local level work.
We're continuing to see a pretty big ad budgets.
Some of the current states we're in.
Really big AD budgets on our stations in the new states, they're going into and we expect that to continue for some time certainly throughout this year and obviously with our dominance of one of our markets and most of these states that we're getting a bigger share of the pie.
Those areas and so we expect this to continue it would be very healthy for quite a bit.
In the future.
Okay, Great and then for Kevin.
More of a sanity check here I know theres a lot of moving parts anytime you negotiate with your affiliate partners in networks.
But just to make sure on the NFL with the new contract. That's now in place for the next 10 years give or take.
Or are you, saying in your comments that that.
Those big increases that networks are going to pay for that contract have already largely been baked into your reverse compensation to them or should we still expect as part of your negotiations there'll be a step up in payments to your partners because of that.
I think you can assume that the net network reverse comp fees will go up every year until the world stopped spinning.
And I think that the gross retrans fees will continue as well to go up every single year.
What my point was we.
Our company Quincy and Meredith included had big step ups, a couple years ago from what we have in paying the networks that was we believe in preparation for the NFL deal. We expect they'll continue to go up but those year over year increases should be should not be as great as we had historically.
Okay. Okay got it thank you and last one for me.
Jim I think the aim at you on this one.
Follow up on the capital allocation and leverage reduction goals I appreciate that the business is set to grow this year and will throw off a material amount of cash as you think about bringing down leverage following the Meredith acquisition, while gross debt pay down and be a significant part of that alongside EBITDA growth and I ask that with the potential.
Churn of an economic slowdown over the medium term horizon, so having that lower gross debt balance obviously yeah.
Could help from a leverage standpoint, thank you.
I think it's going to be a combination of both just says you saw us do post rate com.
Organic growth in the operating cash flow number but also.
Some outright that readout is some degree of outright day reduction.
As we go through the year, I would say that more likely than not that that absolute debt reduction.
Probably back weighted to the year to dovetail it with the political I'll remind everybody that.
Roughly based on historical trends about half of the entire political number shows up in the fourth quarter. So if that trend holds for 2022 as well that means we will be.
Very cash rich and November .
November so I would think that would be a good time to be reducing absolute debt balances.
Okay I appreciate the time as always.
Thank you Erin.
Our next question comes from the line of Jim Goss with Barrington Research.
Yes.
Given that you're close to the cap do you think any existing M&A trust might more likely involve.
Trading up when possible and existing markets recognizing that number one to positioning narrow such opportunities or would you think there might be a couple of other markets you might want to enter.
Okay.
Well, Jim and the short answer is that there's really nothing on the spend on the markets the last.
A year or two we.
We want to look at a couple of things.
Some of those deals never happen and then the other deals it just.
And again, they had to meet our acquisition criteria to go into a new market knee, we're number one or strong number two stations.
We're not out actively looking or trying to convince people to sell at this point. We've got are our main focus on integrating merit Meredith.
Otherwise.
Looking at other things.
Day to day operations and trying to convince folks to sell.
If something comes along we'll take a look at it.
Don't really anticipate any opportunities to trade up in a market. If you will we're pretty happy with the stations we have had.
With the people we have so we don't know, we'll see that as likely.
Overall with 3%, there's not really a lot we can do but there's also not really a desire to do very much are as Hilton said on the call are.
Our capital allocation strategy is to pay our debt down which will transfer value to equity shareholders that we've got a great portfolio. It's the second largest in the country.
As the highest portfolio quality. So we feel we've got enough scale to accomplish what we need.
Something great comes along we'll look at it but we're just not out actively looking at any.
Any kind of M&A stuff right now.
Okay. Thanks.
And.
With.
The taking the announcement I presume that wouldnt change the premium relationship for expectations for that.
Service at all but what it.
Yeah, I don't think it's going to change anything Jim.
Okay.
And the last thing I was wondering is now with Nextgen TV as soon a phase III that Oh are there any ideas of then coming up with so far as to how you might.
Try to create revenue opportunities out of this potential.
Yeah sure I mean, I would tell you there's still a little longer term, but there have been theres been pretty healthy dialogue with the automotive.
Automotive manufacturers for years now conversations with C. D ends.
Using that spectrum to deliver bits.
Locally.
And then as you've heard before no doubt I mean, it's a.
Wonderful technology to use for targeted AD sales so.
So I would tell you that those those conversations but that had been going on for some time are progressing.
The build out is accelerating the set manufacturers are building more and more models with a chip in it and so there's a there's a lot of momentum there.
Okay that's interesting.
Lastly, Kevin given the turbulence in the World did you have any inside information as to when the world by spinning.
[laughter].
Jim I won't be in my lifetime.
Okay.
Thanks for that sure our company.
Your next question comes from the line of Michal Krupinski with noble capital markets.
Thank you for taking the questions I wanted to touch on a couple of quotes.
Issues here. One is obviously you had such a strong rebound with advertising without the help of auto and I was wondering if you can on a combined basis tell me where auto advertising is as a percent of 2019 levels and then if you can just kind of give us your thoughts about.
The outlook and how you feel about that category is throughout the balance of this year, maybe even two.
'twenty 'twenty three if you have views about.
You know new vehicles, and so forth that are going to be launched.
Yeah, I could I could start with that Mike So.
19.
Yeah, I don't have comparisons to 19 immediately in front of me, Mike What I can tell you is.
In 2021, it was Nevada was about 17% of core revenue.
And by comparison 'twenty was about 21%.
Okay.
And then.
And then going forward look we it's been a moving target right. We thought we'd come back by the end of 'twenty, One and then it's.
We take.
And I do believe that.
Mid year towards the end of year, it is going to get better, but it may not may not fully and I'm not sure how you define fully but.
Fully come back until 'twenty, three with that said and you pointed out we've been able to fill that gap with a number of other categories.
And candidly the reason we've been successful in doing that is because we've got initiatives focused on those categories and we've had it we've had those initiatives around for a few years now and there it is.
Paying off for us so.
But auto will come back to it when auto comes back.
We're going to have a very very solid business. So I can't give you the timing exactly I wish I could but I think it's going to progressively get better beginning in Q3 that would be my best guess.
Gotcha, and Jim you mentioned maintenance Capex of $125 million does that include the cost upgrade to next Gen TV and if it does.
Was just wondering in terms of do you view that then youre upgrades of Nextgen TV more as a maintenance primarily because it's you're just going to replacement of equipment and so forth or is there a type of return do you expect R&D investment to upgrade to nexgen.
The 125 would include what we think we need to.
Add the additional nextgen in the in 2022, so it just kind of ongoing business operations, how we kind of look at it.
It's.
Not necessarily a day one year one return hurdle. These obviously nexgen is.
You know it really taking us out the next probably couple of decades at least so.
I think is as cabin and Pat has already said, we expect some really nice revenue opportunities there.
Probably not in 'twenty, two but as we move through the next few years I definitely think that there is some on some new and untapped revenue both for us and the entire sector.
Gotcha, Alright, that's all I have thank you guys.
Thank you Jim.
And once again, if you would like to ask a question. Please press star one on your telephone keypad.
Your next question comes from Stephen Cahill with Wells Fargo.
Thanks, Pat maybe just curious how we should think about modeling core in the back half of the year, if auto does recover it sounds like it it probably could so we will have auto sports season, and then there's the midterm elections.
We model, though the crowding out some of the core AD inventory. So just curious how you want us to think about that based on what youre seeing today.
Yeah. So you mentioned political displacement is going to be a big factor it will be.
And so.
Got it.
I wish I could throw numbers out there I really don't feel capable of doing that and maybe Bob maybe Bob can chime in here, but.
We would expect some recover.
Recovery.
In spending.
Probably late Q3 into Q4, the challenge will be.
In September and October political is going to be enormous and then you know I think you'd see more of an impact beginning in November I think that's one.
Post election, obviously.
So Bobby any thoughts on that.
Good with that but I think what Pat said earlier.
Second half of the year, we should see an uptick in auto I think you know.
GM has been spending with us in 'twenty one.
And they're continuing.
Any decent money in Q1 of this year Ford as you know continues to be off a bit but.
But we expect it's Toyota remained pretty consistent all year.
High end it.
Is a smaller piece of business for us, but they're actually increasing their spending so hopefully with the new models.
In the back half of the year.
You will see that decrease spending but of course, we'll have to deal with displacement. Some of the key states that I mentioned earlier on the call.
Great and then Jim.
Jim and Hilton, maybe just a couple of questions on cash and cash you should so Jim it sounded like the 800 million.
That's above kind of where we were before so is that above the 50% accretion guidance that you gave last year and if so is that just mostly driven by the political race or is there more in there and then help me I just wanted to make sure I understood. Those comments you made at the end of the prepared section I kind of took those to mean that you are pretty confident and deleverage.
Naturally and that gives you a little bit of cash that you can use for other things and you bought back a little bit of shares in Q4, which was a surprise. So am I thinking about that right or should we be thinking about a 100% of free cash flow going to debt at this point. Thank you.
Thank you, Steve and I'll, let Jim start and then I'll then I'll pop in.
Again, Steve and just to be clear that 800 would be before common dividends.
In acquisitions investments et cetera, like I said earlier, but to put it in perspective that 800 million would be comparing to our as reported 2020 free cash of $559 million.
Alright, and anything on usages.
Well, yes.
The way Gray has typically done it in the past as we have attempted to be conservative in our projections. So we kind of expect to beat them naturally.
And then with regard to capital allocations, we also liked to be.
Who are we kind of do a little bit of all of the above.
We were we are essentially right, where we were when we closed on re com and.
In 2019 in terms of our leverage ratios and within a two year period of time, our leverage ratio has dropped to 3%.
The 2021 year is even timing was more propitious, because we began a two year cycle with a political year and so it's going to be a lot of free cash flow a lot earlier than the deleveraging process that we had post the closing of Ray column and so I think.
By the time that we get to Q4.
That will have an opportunity for our board to consider all of the above which would be gross debt reduction plus.
Stock repurchases and perhaps an increase in the dividend and then Stephen since you ask it and these guys had covered the sort of precise numbers on automobile. We I mean, the answer is we really can't tell but from where I said, it's hugely bullish for the broadcast business.
And for our company in particular, because back in the day when automobile Sneezed broadcasters got a cold alright.
That hasn't happened and.
Automobile as we have mentioned will absolutely come back and when it does since we have backfill backfill that you know that absence and increased our core advertising.
I expect our.
An even larger increase because we don't think the new categories are going to dissipate. So I'm very bullish on core.
That's great.
Steven.
It does yeah okay.
Yeah.
Yeah.
And once again, if you would like to ask a question. Please press star one on your telephone keypad.
Alright, well operator.
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Let me just make a few closing comments since it doesn't look like we have any other questions I just really want to thank all of you for your time and your attention.
And.
Youre digging through our numbers, we're very excited about what we were able to accomplish throughout the whole course of 'twenty 'twenty. One we're very proud of fourth quarter, just core operating metrics and we're terribly excited about the opportunities that we have.
As a much larger company in 2022, and so we really look forward to speaking to you at the end of our first quarter of that year. Thank you and we'll talk soon.
Thank you for participating this concludes today's conference call you may now disconnect.