Q2 2022 Gray Television Inc Earnings Call
Ladies and gentlemen, you are currently on hold for today's Great television Q2 earnings call.
Time, we are still limiting additional participants and should be underway and approximately one to two minutes. We do appreciate your patience and know so you. Please continue to standby.
[music].
Please standby good day and welcome to the Gray television Q2 earnings call. Today's conference is being recorded at this time.
Conference over to Mr. Hilton Howell Executive Chairman and CEO . Please go ahead Sir.
Good morning. Thank you Sarah Thank you all for joining us as.
Our operator mentioned I'm Hilton Howell, the chairman and CEO of Gray television and thank you for joining our second quarter 2022 earnings call with me today as a traditional our graves executive officers, our president and co CEO , Pat with flattening, our chief legal and development Officer, Kevin Latex, our Chief Financial Officer.
Sure, Jim Ryan and our Chief operating Officer, Bob Smith will begin this morning with a disclaimer that Kevin will provide Kevin. Thank you Hilton and good morning, everyone. Gray uses its website as a key source of company information.
The website address is www gray dot TV.
We will file our quarterly report on Form 10-Q with the SEC later today.
Included on the call, maybe a 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.
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 there.
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 in our financial statements.
Certain matters discussed in this call may include forward looking statements regarding among other things future operating results those.
Those statements are subject to a number of risks and uncertainties actual results in the future could differ from those expressed or implied.
And any forward looking statements as a result of various important factors that have been set forth in the company's most recent reports filed with the SEC.
Its E C, including our most recent annual report on Form 10-K, and our most recent earnings release.
Company undertakes no obligation to update these forward looking statements and now turn the call over to Hilton. Thank you Kevin.
We are truly excited to be with you today to discuss another quarter of record financial and operational results with the Quincy closing now fully one year behind us and the Meredith local media group closing approximately eight months behind US we are now delivering solid results flowing from our increasingly efficient.
Operations across a truly meaningful scale, including many of the nation's best local television stations.
<unk> sales and technical professionals and support staff by design and with the tide of luck, we made last year as two large all cash acquisitions, just as we entered the on year of the two year political advertising cycle that also happens to be significantly beating.
All of our expectations as we will discuss in in this morning's call.
Overall, our total revenues for the for the second quarter were 868 million, which exceeded the guidance provided in our prior earnings call.
Year over year basis in the second quarter of 2022.
Broadcast cash flow was $327 million, an increase of 79%.
Adjusted EBITDA was $309 million, an increase of 32% core advertising revenue increased by 31% retransmission consent revenue increased by 58%.
And political advertising revenue increased by 1400%. These excellent results combined with total lower operating expenses than previously anticipated contributed to a 231% increase in net income.
Critical to our common stockholders in the second quarter of 2022 of $86 million or 91 cents per fully diluted share.
We will add more color on the second quarter results and our forward outlook on this call.
But overall.
While we see some challenging environments for our clients and some slowing retrans growth, we have increased and interest expenses Gray television is set for an exceptional year on a combined historical basis, which gives us that do both acquisitions and dispositions.
Our core revenue was flat year over year with our second quarter political revenue hitting an all time record and we remain on track to finish the year at a record retransmission revenue level of one $5 billion.
<unk>, we continue to expect that Gray will end 2022 with a total leverage ratio net of all cash.
Right at 5% and likely below that trailing eight quarter operating cash flow as defined in our senior credit facilities.
Great solid results produced strong cash flow that enabled us to return a significant amount of capital to our shareholders. During the second quarter in total we returned $125 million in capital through a $54 million pay down of outstanding debt.
A $50 million stock buyback in the open market and 20 may $21 million of cash dividends paid to our preferred and common shareholders. We ended the quarter with $162 million of cash on hand, and then shaken conviction that our strong operating results.
And political advertising revenue will fund further significant debt pay down.
And our regular cash dividends during the remainder of this year and thereafter.
Beyond these solid financial numbers. The second quarter included a number of big announcements about our new long term agreement with NBC Universal.
The analysis on the first two Jim and I'm very excited about this multifaceted relationship with our partners now at MDC game.
Not just what it means for Atlanta, and the state of Georgia, but what it means for great television and all of our stockholders.
As most of you know assembly Atlanta.
Is a 135 acre mixed use real estate complex now owned entirely by Greg.
It is located at the former side of the General Motors Assembly plant in the city of durable along the I 285 perimeter of highway just a few miles up the road from our offices here in Atlanta.
The signature component of Assembly Atlanta, and its development is our 43 acre Assembly studios complex.
That section will feature sound stages production offices warehouse.
And no no buildings studio bungalows event space and multiple parking decks.
Along with the Gibson company as the developer and the construction manager and with our strategic advisers at J O L. <unk>.
Project went vertical in the second quarter when all the walls were erected for the first new sound stages that will be used by Grey's swirl films.
Traction will begin soon on the buildings that NBC you will utilize and we currently expect that <unk> will producing its first new shows at Assembly studios in the second half of 2023 that a year from right now.
In addition to reaching our long term lease with NBC and we also entered into additional agreements whereby NBC you will handle the day to day management of both Assembly studios and our existing studio businesses at third World Studios in other words NBC you will bring its extensive expertise in man.
<unk> studio, what's around the world to maximize the leasing of our facilities.
<unk> scheduling across many sound stages, as well as accounting security and other back office functions.
In this way our partners at NBC and will retain our focus on our own video production business and finally, having MCU as the employer anchor at Assembly Atlanta greatly improves the visibility and the value of the entire project, which in turn makes law.
<unk> developed all the more enticing for our future residents and for our businesses.
Quite simply our new partnership with NBC, you as a financial and operational crude for great television, we could not be more eager for the impressive construction work to finish and for the new day to day, two operations for Greg and NBC to commence at Assembly Studios on this very positive note I will now turn our call over to our president.
Cuccio Poplar plotnik. Thank.
Thank you Hilton.
Graze TV stations and production companies continue to perform well in the second quarter. Despite the current macroeconomic headwinds we are very pleased with our results in fact on a combined historical basis.
Core revenue held strong roughly flat from Q2, 'twenty, one even though political advertising revenue rose $82 million from second quarter of last year.
Normally we would expect core advertising revenue decline with political advertising rise substantially it takes advertising inventory normal utilized by local regional and national advertisers.
One reason our core revenue held up in the face of skyrocketing demand from political.
Is this scale degree has achieved in the TV industry.
As the second largest broadcast group nationally and often the largest media company in the state.
Braves, earning viewers and dollars that otherwise would have flowed to other platforms and other parties.
Combined with our leading positions in most markets. We believe that this scale will soften the impact of broader economic factors Andres advertising revenues, while also allowing greater bounce back more quickly when the economy generally returns to expansion.
Many of these same reasons, our digital viewership and revenues are doing very well too.
Total digital revenue increased double digits from last year's second quarter on a combined historical basis.
We expect the digital revenue will finish the year, even stronger as our digital products and approach become fully integrated into news and sales efforts of our newly acquired stations.
June for example, we posted our highest all time users highest all time sessions and highest all time screen views in the company's history.
Increasing digital traffic and better sales products with the right combination and that's exactly what we have right now.
Interestingly pure digital billing was essentially the same as national billing in Q2, 2022, and <unk> 49 of 113 markets digital revenue exceeded national building.
It's also worth noting the gray stations in Richmond, Omaha, Greenville, Spartanburg, and Shreveport launched Nextgen TV services in the second quarter.
I have launched Nextgen in 19 markets with many more midsize markets to follow before year end.
We were keeping a close eye on macro developments in client sentiment.
Nevertheless, given our success to date and the progress that I just reviewed we remain confident that we have the right assets and the right people to weather any economic slowdown that may or may not come our way.
Next Bob Smith will offer additional color on our station operations Bob. Thank you Beth we have spoken on past calls about our comps concentrated focus on sales and you're now seeing the results of that emphasis we continue to see great progress developing new local direct business in both legacy and new stations every month.
Our health care and our travel and tourism sales verticals are putting new found emphasis on industries that remains strong in this economy and you guys have.
Not traditionally.
Average local television to drive their businesses. Meanwhile, although auto remains challenged we continue to experience solid demand for home improvement and legal categories. We.
We continue to leverage the best sales techniques through our in house sales training program. This year at last we believe we are seeing some tangible results from the years long effort with our fellow broadcasters to smooth out some of the friction and the broadcast buying process through our work with matrix and other third parties.
Meanwhile, this year's political races include putting many primaries have been more competitive than anyone expected.
As expected various stations benefit more than any other platform from a competitive political environment. In addition degrees historic vantage of owning more top rated stations in many of the most competitive political battlegrounds. Great is also now also benefiting from the scale of our new station footprint.
Gail offers political campaigns are very efficient platform to reach voters across the entire state.
And in many cases. This is the first time that statewide campaigns have a one stop shop to reach the local audiences that they most call it.
Indeed, most competitive races. This year are for statewide races for governor or the U S Senate.
Most of those races occur in places, where the top local news stations, reaching nearly all the media markers are owned by Gray.
Including specialty Georgia.
Arizona.
Wisconsin and Missouri.
Also the first time in many places we are able to offer statewide scale to political advertisers, which helped decrease the transaction costs and helps increase this year is that receive from their advertising orders.
For the first quarter and again for the second quarter, we provided aggressive guidance ranges for political advertising revenue.
Just like the first quarter, our actual results blew past all of our expectations.
And particularly for the second quarter of 2022, we had guided political advertising revenue of $65 million to $70 million.
Third we reported $90 million of political revenue in the quarter.
A year ago, and even three months ago, we don't dismiss the notion that 2020 twos political revenue could rival $2 24 revenue on a combined historical basis.
Years ago, our current station footprint.
Benefited immensely from significant presidential general election, spending significant presidential primary spending significant Mike Bloomberg and Tom Cyrus spending.
In addition, we recorded $50 million.
And the Georgia Center run off spending as a result of agrees unmatched collection of television stations in this new swing state.
You would have to be one banner year for 'twenty two to overcome all of those meaningful source of political revenues are completely absent this cycle.
In recent weeks hauler political fundraising trends nationally combined with our own experiences in conversations with buyers and led us to conclude that 2022 really can climb that hill.
Consequently, we announced in our earnings release. This morning that we are raising our political revenue guidance for the full year 2022 from $575 million to the same $652 million that our current conversations received in 2020.
In conclusion core revenue and political revenue continued to be very solid across Gray's superior footprint of leading local news stations.
I'll now turn the call over to Kevin Thank you Bob.
As you saw in our release. This morning, we completed and signed new agreements with the Fox network that renewal the affiliations for all of our 27 Fox affiliated markets. Our next major network affiliation deadline come to the end of 2023, when our ABC and NBC agreements expire.
In terms of retransmission, we posted strong second quarter retransmission revenues of $382 million.
On a GAAP basis, Retrans revenues increased 58% from the year earlier period.
Slightly behind the 59% year over year gain we posted in the first quarter.
On a combined historical basis Retrans revenues increased almost 9% from the year earlier period, which is also just slightly behind the 10% year over year gain we posted in the first quarter.
Retransmission revenues net of.
Network compensation were $157 million in the second quarter, which marks a 60% increase over the prior year period on a GAAP basis, and a 9% increase on a combined historical basis.
As a reminder, gray does not have any material retransmission agreements repricing between the middle of last year and the start of 2023.
We are now modeling somewhat larger envy PD sub declines yet still solid OTT and virtual mvpds sub gains throughout the rest of this year and that's to reflect some macroeconomic contraction and likely slowdown in household formation.
In the end our new model continues to forecast gross retrans revenues of $1 5 billion for the full year of 2022.
At this level gross retrans revenues would be about 43% higher than last year on a GAAP basis and <unk>.
5% higher on a combined historical basis.
Further ahead, we anticipate the gross churn and net retransmission revenues will grow at mid single digit rates in the next couple of years.
Reaching $1 5 billion in Retrans revenue this year will be an impressive achievement.
Gray televisions total advertising and retransmission revenues only surpassed $1 billion for the first time in 2019.
Consequently, even if this macro environment slows over the next year Gray television will be able to face those challenges as a much stronger and more diversified company than it was just three or four years ago.
This concludes my remarks, I'll turn the call to Jim Ryan.
Thank you, Kevin and good morning, everyone.
Kevin mentioned earlier, the 10-Q will be filed a little bit later today.
Hilton Pat Bob and Kevin covered a lot of the highlights out of Q2, So I'll keep my comments relatively short.
To recap our guidance.
Core revenue, we're forecasting for Q3 of $3 45 to $3 55.
And given the volume of political advertising revenue were expecting for Q3, our core advertising revenue will definitely start experiencing increasing displacement due to the political revenue also as a reminder, Q.
Q3, 2021 at $14 million of Olympic net revenue that is obviously not returning this year.
Retransmission revenue for Q3 of $3 $65 million to $370 million.
Political advertising revenue of $1 $93 million to $195 million.
That's it.
Equivalent to the combined historical Q3 2020 of $190 million.
Production companies will have between 20 and $21 million of revenue and our total revenue.
Is forecast to be between $940 million and $959 million.
Broadcast expenses are forecast to be $545 to $550 million of which $225 million is.
Retransmission expense.
But actually company expenses of approximately $17 million and our corporate expenses.
Expenses of 30% to $35 million.
Again, we're very pleased with our Q2 results and as <unk>.
And many people have said already being flattish and core revenue with the amazing amount of political that came in in Q2 is not surprising at all our services group, which includes financial legal and medical is still running about 27%, 28% of our total core revenue excludes.
<unk> political and we're pleased to see that category holding in.
Auto was approximately 15% of core revenue and is beginning to appear to may be settling and finally too.
And level off.
Total operating expenses between broadcast production incorporate of $5 67 was.
Well below expectations, we were pleased to see that the biggest driver in expense growth still remains to be.
Reverse comp to the networks.
Turning now to debt and leverage our.
Scaling a two quarter or two year average operating cash flow at 630, 22 was one 2% eight 3 billion.
Total debt outstanding was $6 77, 8 billion our cash on hand was 162 million our leverage ratio as defined in our senior credit agreement was 516 times, which is down from the 547 times at year end 'twenty, one and our first lien leverage ratio.
Does it to three nine times.
Now turning to some comments around the full year of 2022.
We will share the following forecast data. We currently anticipate we caution that these comments as com.
Comments are as of today and actual facts circumstances and results may change materially in the future.
For revenue, we anticipate approximating $1 5 billion for the year.
We've always said, we anticipate political revenue of $6 5 million.
Now the ultimate mix of core and political is impossible to determine we obviously expect a <unk> <unk>.
Great political environment in the fourth quarter.
But obviously if political should skew a little higher than you can anticipate core will skew a little lower due to the political displacement.
As Kevin mentioned earlier, our retransmission revenue for the full year, we're anticipating approximating $1 5 billion and our total revenue we anticipate it will approximate $3 $8 billion.
Our total operating expense before depreciation amortization gain loss on disposal of assets would be is anticipated to approximate 235 billion.
And that would include $23 million of noncash stock compensation.
Our operating cash flow as defined in our senior credit agreement, we anticipate approximately approximating $1 5 billion, which would put our two year average operating cash flow at about 125 billion.
We anticipate our leverage ratio.
We'll continue to decline from 516, as we move through the rest of year to approximately five times and a possibility that we may be into the very high fours by the end of the year.
We expect our free cash before common dividends stock repurchases acquisitions investments and our assembly construction costs will approximate $800 million for the year.
Commenting now on free cash flow and cash usage for the full year of 2020 again, we expect $1 5 billion in operating cash flow.
We are currently estimating full year cash interest of $340 million, which is up from our previous guide of $300 million, reflecting the rapid increase in LIBOR rates.
Actually since May which is up 150 basis points or more and we have an expectation based on the forward yield curve of further increases in LIBOR between September and December of 2022.
Cash taxes were estimating for the full year of $195 million that is net of a $21 million tax refund. We currently expect to receive from the IRS by the end of the year.
As we've said in our last two calls we we believe our routine capital expenditures will be about $125 million for the year and our preferred dividends will be $52 million for the year.
Other uses of cash during full year 2022 are anticipated to be common total of common stock dividends of approximately $31 million.
As we've already said, we repurchased 50 million of common stock in Q2.
As we announced on June 1st our Assembly Atlantic construction costs.
Are anticipated to be between 130 and $140 million for the this year.
We anticipate.
Full year acquisitions, and <unk> investments of approximately $80 million and that would include the $30 million of acquiring the Telemundo those station here in Atlanta earlier this year and.
And we have a required term loan b.
Amortization of $15 million.
But most importantly.
In addition to the $50 million voluntary debt repayment, we made in Q2 with.
We currently anticipate making an additional $450 million of debt repayment.
The end of the year.
That would bring the total voluntary debt repayment to $500 million in 2022.
If you include the $50 million of stock repurchased in Q2, the $15 million of required amortization on term loan D and a voluntary debt repayment of $500 million.
The aggregate $565 million of value transfer to our common stockholders by year end.
Given 93 million shares currently outstanding is approximately $6 <unk> per share it enhance value.
We are very well positioned and look forward to a very successful year I turn the call back to Hilton.
Thank you very much are very we will now open up the call to any questions that anyone may have.
Thank you Christy.
If you would like to ask a question. Please take note by pressing star one on your telephone keypad.
We are using a speaker phone. Please make sure your mute function is turned off to allow your signal to reach adequate.
Again that is star one to ask a question.
Sorry, just a brief moment to allow everyone an opportunity to signal for a question.
And we'll take our first caller.
Dan current analyst and benchmark companies.
Great. Thanks.
Good morning, obviously solid guys yes.
What you guys said it was I think a little bit of a surprise to.
To us anyway to see QQ.
Or almost flattish given.
Hilton to steal some thunder here your folks buckets, there's political.
In the quarter.
No.
Can you just talk about a couple of things.
We never usually talk about crowd out in Q2.
So maybe if there was some timing or other reasons why you guys were the best performer I think in this space on that metric and then as we head into Q3.
If anything you can give us I know there was the Olympics.
And some other one timers in there, but just any color outside of auto, which I think Jim gave us just around how you made with July with 18 or underlying category strength is your full year core number is actually pretty decent again, notwithstanding massive political guide.
So a dance.
Sure.
Yes, yes, so it's Pat I'll start there is a lot of questions. There something that you need to help me with.
Number 34567.
But I would tell you as it relates to Q2 and just a general year.
Some of what Bob talked about was what's going on with the newly acquired stations. So I think when we required those stations, we mentioned that we thought there was <unk>.
Significant upside on the AD sales side with them and I think youre seeing some of that right now I talked a little bit about digital and I think it's going to I think it actually is going to accelerate the digital piece of it's going to accelerate through the end of the year. So I think that's a big part of it I think.
Bob.
I'll end here, but I think political crowd out look we've got yes.
Some pretty some of our biggest market is very active in political right now I think thats that runs that tends to run that number up a bit.
But I think and then.
<unk> also talked about the category.
Specialists, we have in that.
The <unk> team and the auto team.
Travel and tourism team all of that.
It has been in the works for a long time, but we're starting to see the benefit of it. So I think in general that's what.
What you are seeing a Bob I'll throw it over to you for behavior. Thanks, Pat I would add just a couple of things that I've mentioned before on past calls but I.
I believe we have the best training group and the entire broadcast industry exits a robust stream of many many people and we spent a lot of time with our ease.
Our training and our sales managers. In addition, we.
We track all local direct new business as we call it very carefully.
We're averaging about 2000, new local accounts per quarter, and we had our biggest month ever in may on local direct and our best quarter and second quarter, we've ever had on new local direct and the new stations have greatly contributed to that.
The other thing I would tell you is that in some markets as well we're heavy political does drive up the average unit rate for everyone, whether it's political or retail or core and so some of those factors also play into it.
But.
I think it comes back to with great stations and.
Great personnel, and they're very well trained and I would expect that to continue.
We did sedan.
It looks like he has removed himself from the queue.
Would you like me to pull them back.
No Thats right go ahead.
Thank you next we'll move on to Aaron Watts with Deutsche Bank.
Hi, everyone. Thanks for having me on.
I just have really one quick question pallet pointed at Jim I wanted to confirm that you paid down within that 54 million.
The amount in the second quarter and as you look ahead, you spoke to another $450 million of debt repayments. The rest of the year would that be mainly term loan debt or potentially some secondary bond market purchases as well.
As of right now today, it's probably more likely than not term loan repayment.
Term loan D has $15 million of required amortization with it the voluntary repayment in Q2 was targeted at the term loan C that has the <unk>.
Sure this maturity dates coming up for us in 'twenty four.
Most likely with the other $450 million will go to that again.
24 maturity as well, but.
But I wouldn't rule out.
Stability is the.
The bond market gets.
Yeah.
That creates an opportunity there I wouldn't necessarily rule it out.
We've got some very long dated paper that Ed in the current rate environment is starting to look like pretty attractive rates and so it's a little bit of balancing.
Long term attractive priced paper in a rising rate market versus <unk>.
Upcoming 24 maturity that we can easily deal with.
Yes makes sense.
If I missed this what percent of your cap stack now.
<unk> floating.
It's about 50 50.
Okay Alright.
And then just one last one Jim with regards to you expect it to be at or below five times leverage by year end, what what leverage trajectory does that put you on booking further out perhaps year end 'twenty three year 'twenty four taking into consideration some of the current.
Macro uncertainties.
I think.
24.
Sure.
Probably.
Yes.
This is two years out right and so that's at least four lifetimes.
Aye.
I think conservatively, we are probably in the lower fours very comfortably.
May it may be in the high threes, depending on macro and also the size of political in 'twenty four.
But the glide slope, we see between year end. This year in the next couple of years, we think is not overly dissimilar to the glide slope. We had after we did the big Raycom deal a couple of years ago.
And you get down into the low fours or high threes.
For us we would be extremely comfortable.
Okay. That's helpful context I appreciate it thank you.
Thank you. Thank you next we'll move on to Jim Goss Barrington Research.
Good morning.
I have a couple of questions.
First one of you I think made some reference to the.
The streaming shifts and the impact and distribution of your stations.
Tend to be wind up being.
Distributed in some form and I'm just wondering if you could talk about how that how this is done and how youre looking at it happening and the impact on.
Both the Retrans dollars and.
Any impact on the reverse comp obligations.
Hi, Jim This is Kevin.
Sure.
I'm not sure I totally understand.
I understand.
Streaming is two two piece of the streaming for us our news content.
Is.
Obviously been available online forever more on a episode or story basis.
Anything that streams our signal.
For 2007.
It comes with a fee so whether that's.
Paramount plus or Hulu, TV or Comcast or dish network those are all per fee.
We've said, we want our signal and our content to be as widely available as possible, we're not going to really give it away. So we monetize through advertising and through fees for the full signal.
Looking at our Retrans in particular as the subscribers are transitioning from.
We are cutting the cord at least in terms of our numbers.
Regarding the quarter, then still tiny.
Signing up for the OTT and virtual services. So our signals are still being distributed people are not leaving us.
They may be leaving cable channels that can't get replicated.
In the streaming environment, but they are still getting our signal they are leaving mvpds and signing up to acquire sub counts are largely.
Stable and have been for many years.
Economically.
Pure dollar standpoint, we would prefer people stay in the pay TV environment.
Operator by the cable and satellite companies as opposed to the streaming environment.
I think it's a better value proposition.
And certainly economically it's a bit better for us.
At the end of the day, we need our signal everywhere and there are other puts and takes with the.
With all these deals.
We are.
We would strongly prefer to have people under contracts that we negotiate the contracts and networks negotiate but.
The world is not ideal so we strike the best deal that we can.
So I don't know if that does that address your question yes.
I know it was cloud apparently the.
Not just the new source, but the actually full daily usage of of your signal in a given market.
I think you've been you were addressing it.
I appreciate it.
The other thing I wanted to ask about a little bit more share here.
Video.
I don't recall exactly why you decided that there would be a good idea unless you had on the property and in Georgia has been a great market for <unk>.
Movie production lately.
Got.
I was wondering if you are going to have any usage of the studio for any.
Local news shows of your own or even any cross platform programming to take advantage of your increased scale.
So you did try that lunch with credit of ancestry and discontinued it.
I didn't know if that was.
An individual thing or a broader decision.
And in the.
Assembly Studios project.
Is when we first talked about it gray wolf.
Own and operate.
Sound stages within that complex.
Primarily those will be utilized for our swirl films, which we are the majority owner of that company.
They don't produce content.
They produce some content.
On a third party contract basis.
Our third rail studios.
We already own. That's also on that same property is purely a sound stage for lease.
And.
We don't other than using those.
Those sound stages for some of what we already are doing we don't really anticipate.
Any any large scale content creation on the part of Gray.
NBC has a content NBC you as a content company.
They will lease the sound stages that we've talked about a long term basis and they will generate content from those for their own use but I don't see us getting into a <unk>.
A large scale.
Scale content.
Production.
Not in our wheelhouse.
No I didn't think it was in it.
It will remain fairly nominal in the context of your numbers I'm sure.
Or or maybe off balance sheet.
Alright.
<unk>.
Okay.
Alright, Thats all I have from for a moment.
Thank you all right any other questions operator.
Once again star one if you would like to ask a question today.
And next we'll move on to Steven Kay.
<unk> with Wells Fargo.
Thanks, maybe first Kevin I think the Q3 Retrans guide.
Pretty big step down and I know, you've talked about seeing a little bit of a pickup in cord cutting we've seen that across the ecosystem as well, but just the kind of pace of change seems a little bit abnormal. So I was wondering if theres anything going on there.
But you can help us west and then I've got a couple of follow ups.
Yes, I think.
I'm not sure it's a giant step down our guide is couple of million dollars lighter in the third quarter than what we posted in the second quarter on.
<unk>.
So.
I don't have the number in front of me, but what is it 1% or 2%, it's not I don't see that as significant.
Ill remind you we don't reprice contracts during the year. So our rate on year on January one and essentially the rate for the entire calendar year. So.
If somebody loses 10% of their subs and we're going to get 10% less revenue from them.
There is not.
On a constant.
Revolving we owe a repricing contracts too.
Keep giving a little bit of gas that we reprice pretty much always on January one.
So sub declines are obviously occurring in this beautiful switch from.
The contracts that we negotiate the contracts negotiated other networks are not as is <unk>.
<unk>.
So we'd rather have the people would rather have the money then not have the money.
Again in an ideal world, we negotiate every OTT contract in which case, we'd have higher rates.
That would.
Benefit our shareholders, but this is not an ideal world. So we have struck like everyone else. The best deals that have been available at the time and happy to have our signals available on Youtube and Hulu and the other ones.
Paramount and someday.
Mark.
I just don't see it as a big step down it's just we've seen this.
And I think over the last couple of years, where we.
I have a big first quarter, then it steps down a little bit each quarter as sub erosion hits our revenue.
I gotcha.
Steven is that.
No.
A modest little <unk>.
Correction on one $5 billion so and.
That's I'd.
I never thought I'd be talking about trends at $1 5 billion.
Yes.
<unk> taken.
And maybe Jim just to follow up if I kind of understand that.
You are maintaining the free cash flow guidance cash interest is up more than 10%, but political advertising is also kind of up nicely maybe versus your original base case, but when you kind of think about the complexion of free cash flow for the year is there anything else change or are those kind of the big moving pieces that are offset.
<unk>.
I think those are the two big moving pieces that are mostly offsetting and obviously with the big raise in political.
$777 million up to get to $6 52 for the full year.
That's just.
Sure displacements point, putting a little more pressure on core than we would've thought of.
Last call or the call before right I mean.
Net debt.
It's just it just is right I mean 652, we're going to have more core displacement than we would have at $5 75, but I think you're right.
Interest and politically too big.
Two big Toggles.
And we've tried to bake in.
Increasing interest rates for the rest of the year.
We can all decide whether the yield curve forward yield curve is accurate or not.
But we've tried to be conservative in that in the interest estimate for the rest of the year.
Great and then maybe just lastly on assembly, it's amazing what's happening there had a chance to see it from a number about a month ago.
No it's not in free cash flow, but the Capex does kind of run through the cash flow statement, it's going to impact leverage our buyback how do you kind of think about the cash profile of that whole project in terms of when it goes from consuming cash either being neutral or generating cash for the company.
Well, obviously it will start generating cash once we build a sound stages and deliver them to NBC you on that long term lease and thats.
That will be very positive for us and we know NBC you is just.
Extremely.
Delighted to be partnering with us on this and are very eager to take.
Get in and get going on their own productions.
Also remember this is 43 acres out of about 135 ish acres.
The is Hilton alluded to the.
When NBC Hugo's alive, and there are thousands of jobs up in that complex.
The entire rest of those acreage.
He is going to be becoming much more valuable and.
I think it is still safe to say, it's kind of a white canvas, that's yet to be painted on but I think theres a lot of opportunities for enhanced cash generation out of that.
Out of the remaining acreage, which is currently right now ground up concrete and dirt.
Great.
Thank you and next we'll move on to John .
Kornreich with JK media.
Kevin.
Previously you had been saying that.
You only see sub declines of 1%, so I guess youre seeing a lot more than that now.
No John so we.
We have for the last couple of years I always talked about R. R.
Our sub count as a total number of <unk>.
Big four subscribers for which we get paid and that number has been.
Hovering around plus or minus 1% for the last couple of years. So that's not actually changed at all what we're seeing is we had some last quarter the mvpds.
Traditional mvpds dropped.
They have more sub losses than we have traditionally seen on a year over year basis.
Our OTT subs had picked up actually.
Better growth than we had seen in it.
It netted out to about negative 1% on a year over year basis.
To go back and sharper.
Over the last several quarters, we've either been up 1% or down 1% on a total basis and so it's just that mix of PE.
Pay TV versus OTT.
<unk>.
Obviously, one sides gaining in one side, it's losing.
And the side that's gaining.
He's been quiet.
As profitable as the one you're losing.
Correct, that's correct okay.
Sure.
Another issue on Retrans.
I am doing my arithmetic right.
Net retrans margin in the first quarter was something like.
42%.
Second quarter 40, 40%.
In the third quarter according to your guidance 39%.
When do we reach that point and negotiations where you shade of Disney.
Yeah.
Okay.
Pulling your some of your best program away from Us.
We were paid.
Cross that point, John a couple of months.
Several weeks ago.
At that point has been made loud and clear to the ABC folks.
Our ABC deal sign up to the end of 'twenty three.
Our CBS deal I know last year in our just completed Fox deal.
We're consistent with what I predicted last fall and this on the earnings call, which was that our reverse comp fees going forward with.
We continue to go up like everything else, but they would slowdown.
Significantly over prior.
Ups that we've experienced.
Our first quarter is always a bit off in terms of retrans, because thats when most true ups come through.
Typically we positive sometimes it can be negative and so I.
First quarter, what we suggest that don't take first quarter multiply it times four because there's always the impact of true ups and audits in there.
Overall, our margins about 40%.
Kind of where we think it will probably stay.
Gross gross will grow reverse comp is going to grow then that's going to grow again, probably mid single digits over the next few years.
We are definitely having the conversations with the networks and I think all broadcast.
So a groups are having conversations with the networks about.
Some of the best programming moving off some program and frankly, we don't care about is also moving over to streaming and being replaced with somewhat better programming.
But Dave.
Dancing with the stars was definitely a source of very significant conversations with.
With ABC by the affiliate groups.
And when you talk about.
Five or 6%.
Gains in Retrans, you're talking about gross and net.
Yes.
That's that's kind of a 'twenty three 'twenty four.
Yes, mid single digits in around that neighborhood for both growth and for and for.
Windows gross pick up again based on your cycle of renewables.
We have a significant 2023 renewal.
Window most of that is the beginning of the year not all but most of us at the beginning of the year, it's a little more than half of ourselves 56% of our Mb.
Mvpds Saar basis.
Next year again, most most effectively January one.
I will say we are modeling we are tend to be conservative in our analysis and given that we were.
It.
Came in at a low side of guidance I'd say, we are definitely very Ed.
It'd be very conservative in our guidance going forward, but that will be the next big pricing step up.
So that will.
Step up will affect.
2023 since it's on January one.
That's correct okay.
Great.
And so you're right.
Jim.
$450 million of stock in the second quarter, how many shares did you read by great.
Repurchase based on that price.
Two points.
Give me a second to look it up.
Our next question is from the time.
Do I think.
Yes, it's in the back of the queue.
Two points three to five.
And if you want to go on.
Right.
What is the share count.
Average.
Second quarter, but right now.
90 <unk> nine.
93 million $93 1 million.
Right now okay right now yes, okay.
That's it thank you.
Hi.
As we said, we'll pull up less.
Pull up the.
Sure.
And I'm trying to pull up the buyback.
Opex spreadsheet.
Yes.
No I got it.
It was John it was $2 million and 646.
<unk> thousand shares.
Okay.
I would take the share count would be lower than 93, alright anyway.
It is what it is I appreciate it thanks.
Thank you next we'll move on Q Irwin goal.
With loop capital.
Yes. Thanks for taking my question, just wondering with the guidance of core down 6% for <unk> is there any way of breaking out how much of that is sort of purely core versus how much of that is the impact of political crap.
No not really.
The truth is if he does it.
It's going be a ton of.
Kind of political displacement in Q3.
And at this point is just really difficult, it's really only something.
<unk> been difficult to do.
In retrospect so.
All we really can tell you is that there'll be significant political displacement.
Okay, and Jim a quick Buck.
And as your leverage.
It comes down.
Charles below five times does that actually lower the rate you pay on any of your debt.
No.
Okay.
The floating rate the floating rate debt is that it.
Term loan C and term.
Term loan B and term loan C are LIBOR 250, and the term loan is LIBOR 300.
We'll switch to sulfur whatever we need to switch the sulfur but.
None of our as our pricing is not not year to leverage.
Yeah, It's Pat again.
This is helpful. I would say that in the absence of political we think we think core would be up.
Very modestly.
It can be up without political.
Yes, correct.
Right.
That's very interesting thanks Pat.
Thank you.
Next we will move on to Craig.
However, with Huber research partners.
Well. Thank you macro question for you guys I mean, there's been a lot of commentary in recent.
Media Company Conference calls in recent days other industries as well, where do you guys come down at in terms of the economic impact on what Youre seeing out there and hearing out there.
Advertising clients out there.
I would say we are.
<unk> seen some impact but at the same time, we're doing a lot of things too.
To counter that.
And in fact.
Some of these categories like auto.
We're actually seeing some of the auto guys come back that's filling in some of the gaps with general Motors in particular.
<unk> is strong, but we haven't had any drastic.
Yes.
Moves in any market for permanent economics.
I think we're holding up very well.
Okay. My second question I would add that.
In the absence of this sort of political on slide I think we would be.
Up slightly and core.
The vast majority of our stations core is strong are there are a few pockets of weakness that we're seeing a little bit more monitoring it.
It's a very healthy market right now.
My second question guys.
Auto and sports betting can you maybe just give us the percent change there in the core AD revenue on a pro forma basis for the second quarter and how that's trending in the third quarter.
Yes.
So auto was about.
Then of core excluding political in Q2.
Actually.
It was about the same in Q1 excluding component.
Yes.
Three a scene.
And I would caution on the pace look is when especially when we hit September with a lot of political auto is auto and political advertisers always level a strong local news cast. So auto will go to the sidelines in September to some extent, which would be very natural.
<unk>.
But we.
In the Big picture it feels like the.
Pace of deceleration.
The decline in auto in Q3 based on pacing is very much decelerated from what we've been seeing the last a year or more.
So.
As I said earlier it kind of feels like it's finally found the bottom.
Hopefully and E mail can start climbing back up again are climbing back out after.
After.
Multi quarter period of.
Of decline, because especially because of supply chain issues.
I mean heavy political can obscure what actually is going on there, particularly in September .
<unk>.
It looks like we've lapsed the comps aren't quite what they were and there is some new money coming back into the market.
The sports betting side please.
Yeah. This is Bob.
We're seeing the sports gambling, there's a lot of activity for September it's a little softer in the summer because football is the driver.
Plain and simple and so we have a lot of activity in September , including Ohio, which just went live we just got.
Request late last week for.
Cincinnati, Cleveland, and Toledo, and we think thats going to be very impactful to finish out the quarter.
And then also on that ATSG three point O rollout can you just update us on.
The percent of your households, senior market, so you've rolled it out to where you think you'll be at the end of this year, maybe by the end of next year.
Okay.
So percent of households will be bigger than percent of markets I think percent of.
Our percent of homes, while we're in I think roughly 20, low <unk> or high teens in terms of percent national coverage in our footprint for three now.
In terms of number of stations that significantly lower because we are.
Going to work our way through the the.
The mid sized markets into the smaller markets. So.
I'm going to I don't have that number sitting in front of me, but I'm going to guess, it's somewhere around the order of.
Market say somewhere on the order of 15% 16% of the stations.
Okay, great. Thank you.
Thank you and once again that a third one feels like Africa question and next we'll move on to Michael <unk>.
Pinsky with noble capital market.
Thank you and just a quick follow up on Craig's question.
Nextgen was always heralded as the opportunity of revenue opportunity for the broadcasters.
And as a opportunity to offset what might be maturing retransmission revenue growth and I was just wondering if we start if models.
Revenue models have started to gel now do you guys have a path to where you might see some significant revenue contributions from Nextgen I am just wondering or is that still pretty much farther out into the future.
Look I would say that there's a ton of models out there.
And there is a lot of very real conversations Canada, what's been going on for some time. So is it going to be there, yes, I cannot tell you exactly when.
I do think there will be a data business I think there'll be a business, particularly getting into the automobile in the automotive space.
And then there is other things you can do with that spectrum, but I think it's just going to take.
Take a few years to develop it and I know this.
And you laid out a ton differently. The way we would have answered that question six months ago, but that for us is the reality.
Okay. That's all I have thank you.
Again.
Thank you and there are no further question. So that will conclude our question and answer session I would now.
Now like to hand, your conference back over to the chairman for any additional and closing remarks.
I just wanted to take a moment to say thank you for all of those joining us for this second quarter results and we look forward to talking to you next quarter and at the end of the year. Thank you bye bye.
Thank you and that does conclude today's teleconference. We do appreciate your participation you may now disconnect.
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