Q3 2022 Gray Television Inc Earnings Call
Ladies and gentlemen, welcome to the.
Great television third quarter 2022 earnings call your host for today Chairman Hilton Howell you may now begin.
Thank you operator, and good morning, everyone. Thank you for being here this morning.
As mentioned I'm Hilton Howell, the chairman and CEO of Gray television and I want to thank all of you for joining our third quarter 2022 earnings call with me today are our gray executive officers, our president and co CEO , Pat <unk>, our chief legal and development Officer, Kevin Latex, our chief financial.
For Sir Jim Ryan and our Chief operating Officer, Bob Smith.
We will begin this morning with a disclaimer that Kevin will provide Kevin. Thank you Hilton good morning, everyone.
<unk> uses its website as a key source of company information the web.
Does that address is www G R. A y 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 EBITDA and certain leverage ratios.
Metrics are not meant to replace GAAP measurements, but are provided as supplements to assist the public in their analysis and valuation of our company.
In our earnings release as well as on our website a reconciliation to the non-GAAP financial measures to the GAAP measures reported in our financial statements.
Certain matters discussed on this call may include forward looking statements regarding among other things future operating results.
Those statements are subject to a number of risks and uncertainties actual results in the future could differ from those expressed or implied in any forward looking statement as.
As a result of various important factors.
That had been identified in the company's most recent reports filed with the SEC, including our most recent annual report on Form 10-K, and our most recent earnings release.
The company undertakes no obligation to update these forward looking statements now ill turn the call to Hilton.
Thank you Kevin.
Day, we reported once again record third quarter total revenues better core revenue results than anticipated and lower expenses and in our guidance. Our political advertising revenue was much stronger than the same time in the third quarter of this year and 2018 the lag.
<unk> mid term election year in fact, our results on political were up 200% on a GAAP basis and 30% on a combined historical basis to give you. Some idea of our total political in 2018 was 372 million.
Same station basis. This year, we're expecting over $500 million half a billion, that's $130 million improvement apples to apples with just a few days remaining before election day, we do anticipate that our full.
Full year 2022, total political advertising revenue will approximate $500 million. This is a tremendous amount of political revenue for any company, especially in a non presidential year.
We are thrilled that full year 2020, twos political advertising revenue appears set to exceed 2000, eighteen's already very strong political advertising revenue as I mentioned by very wide margin.
We are admittedly disappointed that our political Avenue revenues fell short of our aspirational expectations. Nevertheless, our third quarter financial results. Overall, we are extremely impressive on a year over year as reported basis in the third.
<unk> 2022 core advertising revenue increased by 23%.
Retransmission consent revenue increased by 38%.
Broadcast cash flow was 357 million an increase of 75%.
And adjusted adjusted EBIDTA was $336 million, an increase of 81%.
Our net income attributable to our common shareholders in the third quarter was $95 million or a $1 three per diluted share.
Consistent with our prior commitments to allocate our robust cash flow to reducing our leverage we made voluntary debt principal prepayments of $100 million during the third quarter.
November 1st we made a further $100 million voluntary debt principal prepayment, bringing the total voluntary pre <unk> for the year to $250 million.
Also I'm happy to report that our construction projects at our studios at Assembly Atlanta are running significantly ahead of schedule.
We remain on track for our Swirl films Division to begin its productions in its new studios in the first quarter of 2023. We also remain on track to complete the studios and other facilities.
NBC U in the summer of 2023.
In particular on June one of 2023.
At that time, we will have a new state of the art TV and movie production campus eight minutes north of our corporate headquarters here in Buckhead, Georgia.
Also at that time, we intend to largely pause graves funding of construction and development to examine the most profitable avenues by which gray and other third parties will be able to leverage the full value of the assembly Atlanta project for Gray shareholders.
You will hear on this call that our core revenue is holding strong in this economy, which will generate strong cash flow in the fourth quarter and in 2023 at this time I'd like to turn the call over to our President and co East go CEO , Pat with platinum who has further color on the quarter.
Thank you Hilton.
Graze TV stations and production companies continue to perform well in the third quarter. Despite the current macroeconomic headwinds political advertising displacement.
On a combined historical basis core revenue held strong in the third quarter exceeding our guidance by declining just 3% from the third quarter of last year for context, we earned $130 million more political revenue in the third quarter of this year than the year prior period, while losing only $13 million of core revenue.
In addition, our stations did not have any revenues from the Summer Olympics in the third quarter of this year Unlike last year.
In terms of categories. We saw the auto category turn positive in the third quarter relative to Q3 'twenty one for the first time in a number of years and grew as a percentage of our core revenue relative to the second quarter of 'twenty two.
Additionally, our services sector remained our strongest category, which is unchanged from last year's third quarter.
We attribute the muted political advertising displacement on our core revenues through a combination of factors first our core revenues benefited from double digit growth in digital advertising revenues, which are largely unaffected by political advertising displacement.
Second our recently acquired stations, particularly those from Meredith have larger sales forces selling more effectively than last year. As these sales teams have received some of the very best training available in the industry.
Through our in House sales training Division third our emphasis over the past three years on developing new local direct business is delivering solid results. In fact, we set new records in the third quarter in this area by generating over $29 million from approximately 2000 new accounts it's.
It's not an overstatement to say the great sales teams have never been better trained or skilled at competing successfully against our broadcast peers, and especially our strong competitors and big check.
So far in the fourth quarter, excluding the fog of political displacement.
We are still seeing reasonably strong demand for poor advertisers even in markets that are currently inundated with political ads.
We believe this demand may signal better fourth quarter core advertising result than much of the general economic news would suggest however, we continue to keep a close eye on macro developments in client sentiment.
With our success to date, we remain confident that we have the right assets and the right people to weather any economic conditions now I'll turn the call over to Bob Smith. Thank you Pat.
Political advertising revenues began this year with strong momentum and shattered our guidance in the first and second quarter of this year.
As we began the momentum was as strong as we've ever seen it and the political buyers were upbeat and busy as you would expect in the final weeks of a presidential year, rather than the summer have a mid term year.
But then shortly after our August earnings call, we began experienced large unexpected pullbacks in political advertising in a number of key races.
Several major statewide races, some campaigns completely stopped spending any money on advertising after winning their expensive primaries.
Trend that continued in most cases until October .
Also immediately after key primaries that occurred in the first half of August a couple of the major Super Pacs unexpectedly canceled fairly large orders for the general campaign.
As a result, we had several close Senate and gubernatorial races were one party's candidate supporting issue advertising, we're simply not even on the air in August and September .
Meanwhile, the 2002 political field widened in the third quarter with newly competitive state and federal races. In places that historically have not been very competitive such as New York, California, Oregon, and Oklahoma, Gary. Unfortunately does not have much of a presence in those states much of the political advertising dollars that moved to these newly competitive races seem to.
Be diverted from the traditionally hyper competitive states and markets were great does have a very strong presence such as Alaska, North Carolina, Florida and Michigan.
Despite the unexpected pullback in early August and the widening of the political map our political advertising revenues for the first nine months of this year were $260 million that amount nearly matched the $269 million of political revenues that we recorded on a combined historical basis in the first nine months of the presidential election year of 2020.
We now expect to finish 2022 with political advertising revenues between $495 million and $505 million, assuming no runoff reese's after election day.
Interestingly 2022, now appears to be the first election cycle and at least 20 years in which the fourth quarter of the year does not produce more than half of our political advertising revenue for the full year.
In July and early August we expected that the year would rival 2020 twos $652 million of political revenue on a combined historical basis.
Remember, however that our 2020 political revenue included roughly $192 million from the presidential primaries presidential general election, and the two Georgia Senate runoff races that began after election day.
In other words, we now expect that our 2022 political revenue estimate of roughly $500 million, we'll finish about 6% ahead of our two 2020 political revenue after excluding the presidential and the Georgia sent off runoff races.
In closing I want to quickly mention two big operational analysis for this week first on Tuesday matrix announced that its new automated Kras Cross platform media sales gateway called Admiral launched across all of Gray's markets. We are thrilled to be the first company to transition to this technology second on Wednesday, we announced that we will be launching a new <unk>.
<unk> Division that will provide news research and news consulting services for our TV stations, starting January one with our new scale now is the time to replace the fine outside vendors that have long served our stations with an in house team comprised with some of the best experts in the business.
Both of these moves great continues to evolve in a rapidly changing marketplace to ensure that our local news and sales professionals have the resources they need to best serve their local communities I now turn the call over together.
Thank you Bob.
In the third quarter, we recorded $368 million of retransmission revenues, which were slightly above.
Year ago results on a combined historical basis and at the midpoint of our guidance range.
As expected retransmission expense also called network comp was $226 million, which was higher than a year ago period due to escalators in our network affiliation agreements.
As a reminder, great has not had any material retransmission agreements repricing between the middle of last year and the start of 2023.
Consequently, our retrans revenues reflect the interplay of annual price escalators in our Retrans contracts.
And the decline in the number of paying subscribers.
In the second quarter of 2022, we experienced larger declines in traditional mvpds subs than we have previously encountered.
Most but not all of those losses were made up by increasing OTT sub numbers.
In the second quarter of 2020 to our pay TV subscriber total declined by a low single digit figure from the second quarter of 2021, which represents a bit of an uptick from our generally flat south levels.
We are hopeful that the third quarter and fourth quarter sub numbers will be better than the second quarter saw reports.
Due to the return of fall sports still.
Still to be conservative we are now using either more conservative estimates for subscriber levels at the pay TV <unk>.
Companies and our Retrans models at this time, we expect our gross Retrans revenues will approach $1 5 billion for the full year of 2022.
Around the end of this year, we will reprice, our major retrans contracts that cover about 22% of our Mvpds sub base.
We expect to renew those contracts on favorable terms with minimal disruption.
As we have in prior years.
With the uncertainty around pricing for a large portion of our retrans contracts combined with less visibility into sub trends.
We do not have sufficient visibility into retransmission revenue for 2023.
That said over a multi year basis, we continue to believe that we will be able to unlock the full value that our stations confer in all distribution systems, which in turn will result in increases in both gross and net retransmission revenues now.
I'll now turn the call to Jim Ryan.
Thank you, Kevin and good morning, everyone.
Hilton Pat Bob in cabinets covered the key highlights of the quarter. So my remarks are going to be relatively short.
And as Hilton mentioned.
And little earlier ago.
Already prepaid year to date $250 million of our term loans.
We also required amortization of $11 million on our term loan D. So of our total debt reduction through November 1st of this year is currently at $261 million.
Turning to full year 'twenty two.
Outlook.
And I would.
Say that obviously this is a forecast based on.
Our forecasts as of today and actual facts and circumstances could change things before we get to year end.
Our core revenue is approximating $1 5 billion as we've already said, we expect political revenue of approximately one half of $1 billion.
The Georgia Senate race goes to a run off we would expect additional political revenue for the runoff election date through December 6th.
Stay tuned next week to see if that happens or doesn't happen.
Retrans revenue as Kevin mentioned is approximating $1 5 billion. Our total revenue, we expect will approximate $3 6 billion.
Total operating expenses before depreciation amortization and gain or loss on disposal of assets will be approximately 235 billion and including included in that number is approximately 22 million of non cash stock comp.
Our operating cash flow as defined in our senior credit facility, we expect will approximate $1 3 billion for this year and the last eight quarter average operating cash flow.
We expect will approximate one $1 7 billion.
We anticipate the total principal amount of our outstanding debt at 12, 31, 'twenty two will be approximately $6 $5 billion to $5 billion, assuming at least an additional $50 million of debt reduction by by the end of this year.
The Georgia Senate race goes to a runoff, we obviously will have a little more cash to be better pay down a little more debt.
We expect free cash before common dividends stock repurchases acquisitions in <unk>.
<unk>.
And our assembly construction costs will approximate $650 million this year.
Our combined historical 2021 free cash flow was $443 million.
With $93 1 million shares outstanding the average 'twenty one 'twenty two combined historical free cash flow per share is $5.39.
That's equivalent to 40% of yesterday's closing price of GCN.
Again, we expect our operating cash flow.
Defined in our credit facility to be $1 3 billion.
Including amounts already used in 'twenty two we expect the following approximate material uses of cash for the full year of 'twenty two.
Currently we anticipate cash interest of $345 million.
Cash tax payments of $200 million.
We have a pending federal and state refunds aggregating $22 million, but we cannot assure anyone that that $22 million will be received before the end of the year.
Routine capital expenditures of approximately $125 million.
Preferred dividends at $52 million.
Required amortization on our term loan D of $15 million.
Other uses of cash for the full year 'twenty two are anticipate to be common stock dividends of approximately $31 million.
As we reported in Q2, we had common stock repurchases of $50 million.
We currently anticipate that our full year Assembly Atlanta construction costs will approximate $201 million.
Acquisitions and of our investments this year will approximate $85 million.
And again, most importantly at <unk>.
<unk> to the $250 million voluntary debt repayment, we have done and are.
11 15.
$15 million required M as amortization for this year.
We anticipate that we will be able to pay down at least 50.
$50 million more of debt before the end of the year to bring total debt repayments this year to $315 million.
The company is on track to have its best year ever of operating cash flow results on an as reported basis.
Importantly on a combined historical basis, its second best year ever of operating cash flow results only slightly lower than record set in a combined historical basis in 2020, I'll turn the call back to Hilton.
Thank you Jim to summarize what you've heard today, great television posted record third quarter total revenues met our retransmission guidance and exceeded our core advertising revenue. Despite tremendous political displacement, we managed our cost to achieve lower expenses than guidance in terms of our Po.
Critical advertising revenue, we are truly disappointed that several unexpected factors will will keep us from hitting our previous guidance. Nevertheless, we are very proud of our 30% or $130 million increase over apples to apples midterm to MIT.
Yes.
Still our political revenue is in line when a combined historical basis to hit a revenue level of 2020 that will be one that we will be proud of in the end of 2022 is poised to be our second best year ever for total revenue and second best year ever for <unk>.
Operating cash flow with only the presidential and run off year of 2020, beating this year's results. So operator at this time, we'd love to open the line for questions.
If you have a question at this time. Please press star one if you have a question at this time Please press star one.
Our first caller question in the queue is Craig Huber with Huber Research partners.
Please go ahead, yes.
Thank you, maybe if you're a little more color. If you could please can you how much of your retrans subs down year over year, excluding the OTT benefit.
So we receive reports on a.
On a delayed basis of one to two quarters and so we have been providing.
The best numbers, we have on these earnings calls I just on this call I will address second quarter second quarter.
Read it.
Our next question comes.
Sorry, Yeah, let me just finish that.
Second quarter, our pay TV.
Subscriber total decline by a low single digit figure from the second quarter of 2021, which represents an uptick uptake.
Flat sub level.
Because I think last time three months ago, you guys said it was down about 1% year over year and now you're saying it's down in the third quarter low single digits.
I heard you right what do you think it's going to be down for the <unk>.
Fourth quarter impact your Retrans revenue number.
Are we provided our retrans guidance as I said, we are we have modeled out the second quarter declines for the next several quarters.
We again, we won't know what the fourth quarters have numbers are until basically.
April of next year, so when we provide our guidance where were looking at the most recent quarters full reports that we have and so for the fourth quarter. We're modeling the second quarters mid single digit numbers that could be better as sports return in the fall. It could be you know obviously that could be worth we don't have visibility into real time.
<unk> have numbers or even a S R.
Our reports come about a quarter to two quarters after the close.
Of the month.
Okay. My last question. Please just a little bit more color on your political revenues why they were less than what you were thinking maybe three months ago are you thinking that the total political dollars available in the marketplace.
Are significantly lower than what you were thinking three months ago or is it just a shift as other states that you talked about.
We have I think oddities Hell and.
And box remarks.
The two things that happened.
In mid August we had a number of cancellations and campaigns that went dark that were expected to be spending.
By all accounts.
And then as they came back late in the quarter. We want there was a lull there that was not made up.
The total dollars coming in to.
The industry and to spending in advertising in general seems to be fairly strong, but the spending was diverted to places like California, and New York.
Oregon, Washington State, Oklahoma Places, where we don't have a strong presence places where we do have a really strong presence felt number then fell short Florida.
North Carolina for example, Michigan Alaska.
We just didn't see the spending there because those dollars seem to have kind of moved to places that historically are not particularly competitive in this cycle have become very competitive. So yes. The dollars were there.
Move to places, where we don't own television stations for example, in New York City, Los Angeles San Francisco.
Seattle, we have very little presence in Oregon.
Very little presence in Oklahoma.
And we have a big presence in Montana.
Florida Big presence in North Carolina.
A big presence in Alaska So.
The way the Cookie crumbled, if you will the spending was there but.
The map has become so much more competitive than folks were expecting three months ago.
You can look you in today's report titled Washington, Our races that were buying in was up.
Biden, one by five points or more.
<unk> seen tremendous spanning from the dams and the Republicans on house seats and places that were not expected to be competitive three six months three to six months ago. So the dollars are getting are funneling in.
As expected, but they are going to places that were not on the map six months ago.
And Craig Please remember we're up $130 million.
We were at the last mid time or mid term election.
That's a 30% increase.
Political hasnt decreased we just haven't hit a presidential election year, which as at least through the first two quarters. We were pacing at three quarters I apologize, we were pacing at a presidential election year basis.
So.
I'm immensely proud of.
These numbers immensely proud of this truly gargantuan political number it's a half a billion dollars.
So talking about our mis is.
A misnomer.
Understood. Thank you guys.
Okay.
Our next question comes from Steven <unk> with Wells Fargo. Please go ahead.
Thanks, Jim Thanks for the new free cash flow guidance first it came down about a $150 million versus prior I was wondering if you could just kind of help us allocate that and the obvious one would be political but curious if theres anything in retrans or cash interest that's in there.
And just to extend on this I know youre not guiding to 2023, but I think we're all going to be trying to do a lot of work to figure out what kind of cash you have next year.
So maybe you could talk a little bit for next year about wide Assembly capex is going to be what I'm really trying to figure out is it you'll be able to pay down some debt between assembly capex and our preferred and common.
And then I've got a.
Follow up for Kevin.
Steve Youre right I mean, most of that 150 down on free cash is the delta in the political.
Cash interest would be up a little bit from our last guide.
Rates continued to increase our current guide is locked in through.
Through November and we're estimating some numbers for December , but I think it's pretty solid.
Probably still go up a little bit in December but.
There's a little bit of timing difference on our assembly construction costs as Hilton mentioned earlier actually believe it or not construction is ahead of schedule.
So when it's ahead of schedule and the dollars are a little bit ahead of schedule too, but that's a timing difference between 22 and 23 so.
The simple answer is yes, it's the political it's the obvious answer.
Construction costs for assembly.
Next year.
Uh huh.
Hang with me a second I'm trying to.
We said.
We will say in the Q when we file it a little later today.
Uh huh.
Approximately $73 million for full year 'twenty three.
Which is.
Which anticipates about $59 million of.
Either.
59 million of.
Land sale and or certain incentive payments and public infrastructure that we would receive in 'twenty three and then an additional $20 million of additional incentive payments.
Probably late 'twenty, three or early I'd say late 'twenty three right now.
Based on the construction schedule.
I do anticipate that.
We should have the ability to.
Pay down some some that additionally in 'twenty three.
We were still working on our 23 numbers, so I really don't want to elaborate.
Full year 'twenty, three yet, but I do expect we will have capacity to pay down some degree of that as we move through 'twenty three.
Thank you and then Kevin just looking at some of the Retrans Guide plus your commentary. So I think if I understand it correctly. Your MVP renewals in 23 look a lot like 'twenty two sub declines are a little worse, so I'm guessing gross retrans.
Little bit lower do you expect to be positive on net retrans cash flow growth in 2023. Thank you.
Yeah, Stephen we had no renewals in 2022 at all and no renewals in the second half of 'twenty one.
There's not been a.
There's not been a repricing of Retrans.
For an 18 month period. So what we have this year is literally just.
Retrans rates minus this half declines for this year. So 23, we'll begin 23 by renewing some big operators.
And so that will push gross up obviously sub declines will push gross down.
Since we don't have a feel of whether the uptick that we saw in the sub declines was temporary or.
Permanent.
And it's hard to give guidance past I don't know where these big contracts are going to wine I think we will.
Get the repricing that we need on those contracts.
But at this point we're not.
I think it's premature to provide guidance.
Until we know kind of where those numbers are going to come in and also we wanted to see where the third quarter's numbers look like.
Again sports.
Drives who are back to <unk>.
Pay TV subs.
Yeah.
Prices of streaming platforms. It goes up and people will return to cable.
That's a benefit for us as well so it's just it's hard for us to be talking about 2023 based on subs that were recorded in.
Yes, basically the second quarter of 'twenty, one so where we are.
There is reason to be optimistic.
Not ready yet to provided 23 guidance, we need more data points.
Kevin would you mind, just updating us on the cadence of your.
Renewals for next year I don't remember if you've covered that in your remarks. Thank you.
We renewed all of CBS last.
Last year.
We renewed our Fox.
What was that last year as well as last year.
<unk>.
Meredith CBS stations are up.
Summer of 'twenty three.
The Meredith Fox stations are up in 'twenty five.
The ABC and NBC contracts expire at the end of 'twenty three.
So at this point there is there is no.
I think it was a cat or dog here or there that are off schedule, but for the most part we don't have a major renewal cycle with the network until CBS next summer, but Meredith markets, which are about a half dozen.
And then for ABC NBC.
Group is up at the end of 'twenty three.
Great. Thank you.
If you have a question at this time. Please press star one if you have a question at this time Please press star one.
Our next question comes from Dan.
Parallel with benchmark company. Please go ahead.
I didn't realize we were off to the ratios.
Two.
Couple of questions for you guys, Kevin if I could just stick with that theme for a second maybe understanding that you still need more time to see the data.
Two parts on Retrans just one.
Sub declines were to remain elevated.
At current levels.
For the foreseeable future is there any way to quantify the impact on your <unk>.
Three year, our medium term net retrans CAGR of mid single digits and separately on the reverse side, Yes. We know you had some renewals.
They're right.
Historically, we thought your portfolio was about 50 50 fixed versus variable. So maybe it's a little bit surprising that the reverse didn't step down with incremental sub declines. So maybe you can just talk to those two things and I have a follow up.
Yeah, we're just not I'm, not really going to talk about guidance.
Again, it's too many unknown data points.
On the reverse.
We don't have a simple formula of cable operator basis amount and therefore, we pay the.
Network contracts the OTT pieces.
Its becoming fairly.
A lot of noise remember, we get sort of net dollars in the most case not.
Not all of them, but most cases, our net dollars in there obviously is lower than our net on on the Mvpds.
So kind of a it's harder for us to be making estimates on.
Again, our net retrans, because we have to make a pretty big assumption on how much OTT is moving as well.
So I think.
The reason, we didn't see much of a step down on the reverse a bit also this interplay of how OTT is coming in.
We are generally about half and half mixed but.
There are.
August .
Some of those are.
Are not moving down.
I mean, it's not a sort of one to one relationship on a dollar retrans doesn't come in and growth.
<unk> 50 plus of.
No.
This is the matters much more cloudy now.
Okay got it and then.
Hilton I appreciate the commentary on political on Youtube.
Maybe the bigger concern just broadly and it's hard to know because we haven't seen a lot from anyone else. Maybe you guys have some insight on this with your premium partnership but.
Obviously, the fundraising seems to be there I think Kevin you estimated the dollars are still there and it's really more a market shift which we can all appreciate we've seen that before is there any way to get a sense of.
Guys believes that there is no mix shift, let's say like CTV or other media.
It seemed like social is doing particularly well, but maybe in like the back half of August September even into October maybe there were more digital dollars.
Easier to flex dollars into different races. So is there any way to kind of get a sense of sort of your view on broadcast share of political versus other media.
Hi, This is Bob.
The fact of matter.
That void of political spending in August after the primaries in the September was currently.
Lack of funds available in those states, where we have large footprints that we wasn't going other places. The fact of the matter is that there was just a pullback in some candidates.
Also under funded.
So it's really a metric of people sitting on the sidelines.
In key states and then as Kevin pointed out a little while ago. The fact that matters, we didnt get the kind of money we expected our revenue we expected in a handful of states and really North Carolina.
Florida.
At times in Arizona, and as Kevin mentioned, Alaska, Michigan those are just space.
The dollars aren't there.
I had to sit on the sidelines until October 1st week of October .
Answer the broader macro question, obviously there'll be a lot of reporting coming out in the next few weeks or what the total spend was in what categories.
With digital broadcast or wherever.
But our sense is that.
There hasn't been a seismic shift in the allocation of the spend broadcast is doing fine for the whole industry. It's just the luck of the draw of what footprint you had this year versus historical patterns. So far.
As far as we know broadcast got its fair share or more this cycle just like it has done every other cycle.
Got it.
Super helpful. Thanks, Thanks for the color guys I appreciate it.
Our next.
Comes from Jim Goss from Barrington Research.
Okay.
Okay.
So just a little more slicing and dicing of this.
To the extent that usually.
Half of the.
Political dollars tend to come in the fourth quarter in first six weeks of the fourth quarter.
Was there also bigger spending in the.
The earlier parts of the year in the primaries for example, including <unk>.
<unk> been some reports.
Some of the parties have gone across.
Cross aisle to try to influence.
Hum re spending to influence.
Potential opponents.
So I wonder if if there were.
Things that happened that created a better experience earlier than you might have expected.
That.
That's true then coming down from right now in terms of this is.
And those same aspirational.
Ambitions.
Yeah, Jim I think in perfect hindsight, we would agree that we probably ended up with on a relative basis from historical patterns.
More from the primaries more more prime more robust primaries than.
We probably anticipated.
So I think that that's part of it.
But then again it is.
Primaries in this cycle were more robust.
Then what history would have suggested.
That made.
Bode well for.
Late 'twenty three in early 'twenty four.
When we start looking at and talking about.
Primary cycle in the 2024.
Here.
That's quite a ways out yet but.
This cycle may be may become an indicator of what does that next cycle looks like we'll have to wait and see what the lineups look like.
A year from now.
And did the larger market <unk> entered.
Make any difference so I recognize that they would've been in the comps as well.
And then a corollary basis.
Talk about displacement.
Influenced by the size of political because theres, some offset in terms of not as much to displace perhaps you do a little better on cars than you might have otherwise that's exactly what happened we did do better in core than we anticipated and we feel very good about that.
We were.
Within the commentary we're up third quarter, we were down 3% and we were down four which is our guidance, which is good which is better than guidance.
But we were down like $13 million in core and $130 million per hundred $30 million of political so that trade off was much better than we expected.
Year.
As far as large market.
I mean they did.
And it really gets down to what market you're talking about.
<unk>.
Phoenix was a fairly large number.
Maybe not quite as large as we had hoped for but.
No.
The big number.
That's one of the markets, where core is holding up really well despite the onslaught of political.
Okay. That's good.
Maybe one one other non political question you've talked about the construction being close and the studio and I Wonder if you might talk about the rollout of a project.
And then remind us of the financial impacts it might have and whether you.
You use you are going to use that facility is somewhat for your own programming as well as.
Firing it out too content makers.
We will use it for some of our own individual production needs, but we will also be using it as a large cash generator, we expect it to bring in a lot of cash flow beginning mid year next year.
When it should be completed.
The studio itself will finish up June the first of 2023.
And we'll be making movies there.
Cross the board, whether it's an NBC you deal or other potential.
Tenants.
In the fall.
Jim just to add on.
As we've said many times in the past.
We are not planning to become a large scale content production company.
We do have production and we have had it for years.
We're adding onto our existing capacity with the vast majority of what we are constructing in the studio complex will be on a long term lease to NBC U and we're merely being the landlord not the content creator.
Correct.
Okay, absolutely, okay, well, thanks very much.
Thank you Ian.
Our next question comes from Nick Zingler with.
Stephen Hey, guys. Thanks, Hey, guys. Thanks for getting me on here.
You guys are guiding core revenues up 9% sequentially into the fourth quarter and we've heard some very pessimistic views I guess on the fourth quarter with a large CTV player is actually calling for no seasonal uptick you guys are obviously more optimistic just hoping if you could unpack that.
A bit where are you.
Might be seeing some strength, where he might be seeing some softness I think in prior years.
From <unk> to <unk> core for you guys has been up maybe 20%. So maybe the 9% here is handicapping some of the weak macro expectations ship, but yes.
Just maybe unpacking that fourth quarter expectation relative to some of these.
Weaker views that we've heard.
You are right.
For us and the entire industry. There is seasonality second and fourth quarters are always the strongest of the year first and third are weaker so.
An increase sequentially Q3 to Q4.
<unk> is naturals natural seasonal.
Influx.
I mean.
We are.
Other than the political displacement.
Where.
We're pretty happy with what we're seeing so far in our core.
Yes.
Whether we looked at October or November obviously core is down a little bit because of the.
Volume of political.
Displacement factor in Q4 is not dissimilar to the displacement we saw in Q3 and then.
Again between.
We feel pretty good about.
Where December probably will come out.
It's still a little early to tell because.
We don't have a tremendous amount of visibility yet people tend to wait until after election day to lock in the rest of the year.
But based on what we've been seeing so far.
And what core has been doing in place in markets that doesn't naturally have a lot of political.
We're cautiously.
Optimistic.
And we've always held up so far nine months this year pretty well so.
Absent some massive macro event.
We think it will end up reasonably well for the fourth quarter.
Got it no that's helpful.
And.
On the political side, you guys talked about geography, obviously, playing a role in some of the political I guess I'll call. It softness relative to maybe the last guide, but I'm curious if you could point to any markets, where you might actually expect political advertising dollars to match that of the 2020 election or.
Or maybe that's just not the case at all but I'm just curious if there are certain markets, where where that actually it might play out.
I don't think we are.
We've looked at that.
Internally, we've been looking at.
We look at midterm mid terms of all of our internal reports, our 2022 to 2018 and in 2020 to 2016, obviously 20.
24 will be looking at 2020.
You know I would say there are some markets that were still very strong.
Arizona was a disappointment for the total but it was still pretty strong we had a we have a senate and governor's race in a really.
Fences.
Primary for both of those as well.
That's certainly a bright spot in Nevada was particularly strong.
Scott, Wisconsin is very strong.
Illinois was actually expect some governors race, they're typically not a lot of presidential money in Illinois.
Certainly there are pockets of strength I mean again as Hilton said, we'd have a half a billion dollars of political revenue.
It's got to come from somewhere so there are pockets of strength, but actually meeting 2020.
As we noted our 2020 political includes.
100, 190, some odd million dollars of presidential money.
Bloomberg money that stier money.
And $58 million of Georgia Senate run off so.
It's kind of hard.
That was it was a big hill to climb.
Georgia Senate runoff alone was 50 $58 million.
We haven't even hit election day, yet so.
All in all.
There was a lot of strength around and certainly going into the third quarter. There was a lot of strength and we finished the third quarter.
We finished the first nine months again within our Harris breadth of where we were in 2020.
So.
Things were really strong and we just hit.
These wells in mid.
Mid August .
Things up and then again the math got competitive as you said.
Lots of other places.
Right No. That's helpful. And then you might've just referred to it a little bit but is there any way to think of the potential upside from a GA run off as you suggested.
Obviously, you've got a flagship presence there but.
Maybe if youre willing to offer it what your Crystal ball says.
I mean, it's impossible to say it and we certainly don't want to front run the results of tuesday's election.
Although the polling does.
Probably this week does suggest that there is.
<unk>.
Likelihood it will go to a runoff, but it's impossible to say.
What kind of dollars that might mean for us.
Among the variables is first of all you can't compare to 'twenty, because the run off cycle. This year.
Is 30 days less than 2020, it's one month instead of two months.
And there is no way to know yet whether if it does go to a runoff whether that particular race will decide the balance.
Senate or whether the balance of the Senate will be decided on Tuesday, so its just impossible to tell right now.
Yeah.
As you know.
Yes.
I couldnt predict it any better than I can predict whether I got the winning lottery ticket out Saturday.
Okay.
No.
That's fair.
Last one Super quick.
Local automotive advertising trends still under the interpretation that theyre around 15% of the core mix, but seeing any improvement there or are we still trending at that rate.
We did see some improvement in it.
In the third quarter as you mentioned.
We.
Looking forward, we think we think it will continue to improve.
It's about 18% for the quarter, so definitely an improvement.
Great Awesome guys. Thanks, so much I appreciate it.
Our next question comes from.
Aaron Watts.
Please go ahead.
Hey, everyone. Thanks for getting me in here, you've covered a lot of ground. So I said two questions Jim.
On your cap stack remind us your floating rate exposure as a percent of your total debt I don't believe you're hedged, but maybe confirm that just trying to solidify how cash interest expense looks and 23 versus $3 45, you expect in 'twenty two.
We haven't finished our 23 numbers yet so I'm not.
Prepare to comment on that.
I mean, everybody can look at the forward curves and at least two curves I was looking at the last couple of days. This week would suggest that rates will be peaking in spring of next year, and then begin to come down gradually.
As far as fixed floating through the preferred by the end of this year with further debt reduction will be roughly.
40% floating and 60% fixed.
We are we are not currently hedged.
Okay. That's helpful and then.
As a follow on to that with the revised political outlook for this year and resulting less than expected debt paydown in the second half how does that impact your leverage target outlook that you've previously talked about and does it perhaps keep debt paydown as a top priority to be a little bit longer than envisioned a few months back at least until you hit those target.
It would be fair to say that our primary.
Use of free cash flow as we have been.
As we've said consistently for a year now will be to continue to reduce debt.
As rapidly as we as we can.
And that's not a change and we will continue to be doing that in 'twenty, three and 'twenty four.
The <unk>.
I'm sorry.
Kind of a compound question. So what was the other part.
Leverage ratio our leverage ratio at the end of the year.
We're currently estimating that it will be approximately.
$545 four Zip code.
Not quite as low as we had hoped for about where we were at the start of the year.
But we will continue to work away on that as we move through 'twenty three 'twenty four as we continue to pay down debt as quickly as we possibly can.
Okay. Thank you I appreciate the time.
Okay.
If you have a question. Please press star one our next question comes from.
And gold with loop capital. Please go ahead.
Well if you want.
Thanks for taking the question I've got two quick ones. Jim first of all what is your floating rate benchmark what is sofa plus what percent.
We currently are LIBOR based.
Our term loan B and our term loan C are LIBOR 250.
Our term loan D that we put in a year ago with the Meredith transaction is LIBOR 300.
Okay.
Kevin.
Retrans.
Are you using the low single digit deterioration you saw in <unk> or are you assuming further deterioration, but its the mvpds seem to show worst numbers in <unk> versus <unk>.
We are using the second quarter.
Results.
And our model.
Our second quarter was an uptick from what we've seen for the last number of years.
And so that's what we are using for the rest of this year.
If I can follow on those so.
Three Q.
Retrans sequentially was down three.
Three 7% at the midpoint of your <unk> down five six.
So it doesn't appear that youre using.
Or worse number or.
We're assuming that there is a continued evolution or transition of customers from the linear.
Traditional I'm sorry, the traditional mvpds to the OTT where are we.
We are receiving a lower rate than we would be receiving if we were negotiating with the mvpds.
If somebody leaves the MB PD World and goes to a contract with the networks negotiated and we've said this now I think other broadcasters are focused on us networks are paying as below market rates.
For the signals that they're putting on these OTT.
Under contracts that we don't see and we are not told about.
We're just getting we're getting some money and it's obviously better to get money to not get money, but right now the delta is meaningful so we could have the same number of subscribers, but if they.
If a whole bunch of them move.
Comcast and charter and Directv and wind up on Hulu or growth still goes I mean, our net still goes down.
Sure.
We also are trying to be more conservative on our guide.
I'd say we are.
We're more than disappointed missing political so.
We are trying to be.
As conservative as we can in all of our guidance going forward.
Okay. Thanks, a lot Kevin.
Our next question comes from Craig Huber with Huber Research partners.
Thank you a couple of follow ups, if I could please.
Talk a little bit further if you would about auto advertising year over year, how that trend is for each of the first three quarters just to get a sense of that cadence.
Yes.
Auto advertising was down in the first two quarters of this year and as we mentioned today it turned positive in Q3.
And I think I mentioned, a few minutes ago, we would expect Q.
Q4 to be positive over Q4 'twenty one.
So again.
<unk>.
It's definitely too early to tell what's going to happen with 23, but it's been a long time since we've seen.
Category in the Green.
Is that if I could ask you can you quantify that is it like 5% to 6% or.
So to give you the cadence quarter by quarter first quarter as a percentage of core excluding political. So this is just pure core.
Our Q1 auto was 15%.
Q2 auto was 16%.
Q3 auto was 18%.
And then year over year is it up can you.
Maybe you can tell me, but a 567% in the third quarter.
Pro forma.
Sorry.
322 was 18.
Q3, 'twenty, one was 16 I am sorry I.
I apologize.
I can figure out the math.
I wanted to ask you you talked to this a little bit but.
Fourth quarter core advertising can you talk a little further real quick.
Is it to do it in a dollar basis.
Q3, 'twenty two is up about $3 3 million or about 6% over 21.
That's great. Thank you for that and then.
I wanted to talk a little bit further here you talk on.
Core advertising post the election.
Like for example.
December the pacings at this point the bookings you have now.
How is that looking versus a year ago or how's the remaining part of November post election for core advertising looking versus a year ago is it flat is it up a little bit down a little bit just call sensor. Please.
Yes, So November is.
Down a touch.
Normally yes.
As you would expect and then December as Jim mentioned earlier, it's a little hard to get a read right now because generally advertisers will wait until after the election to lay everything into the rest of the year. So December is down I think low single digits.
Ed.
But we're waiting we are still waiting for.
For that to break in earnest so.
So, yes, we'll see how it develops.
Right in that November number. Please I guess, you said down call. It low single digit for the whole months do you have a sense of what it is post the election for the remaining part of November .
I would break it down that granular.
Okay. Okay.
Okay cool thank you guys.
Yes.
Thank you have a question. Please press star one our next question comes from <unk>.
Michael Pinsky with noble capital markets.
Thank you Craig just asked my question, but just as a quick follow up so in terms of advertising bookings typically as you enter.
Next month, we look forward to the next month I believe you would have about 60% of your advertising booked for the next month is that right.
I'm just curious in terms of bookings for December would you anticipate that.
You are at relatively the same.
Where you would be in terms of your amount of bookings or.
I'm, just trying to get a sense of.
How how youre seeing some of that delay you can say in terms of the election, Michael as Pat just said is perfectly normal.
The Friday before election day.
It's hard to get a read on December simply.
Simply because traditionally people are waiting.
They wait until after election day to lock in the rest of their year. So theres nothing on ordinary about that in every political year cycle.
What we could what we will say right you can say right now as we look to December as of right now.
Without.
With obviously.
Muddied waters with the political until next week or the next couple of weeks, we don't see anything unusual so where we think core in December should be it should be a reasonably good December now.
Okay.
Yes.
Okay.
And then I guess going back to the auto question in terms of the auto category is it coming from dealerships are manufacturers I'm just trying to understand what were the context of the strength of the AG.
Yes.
Rob there is.
A mixed bag because it's both.
Some of our markets, where local dealers are back spending.
A fairly healthy amount, but also its manufacturer.
The major manufacturers.
We're up.
And third quarter most of them.
And the.
And same in fourth the pacing.
Again the.
The manufacturers looks pretty good that comes via our national side of the business.
And we anticipate.
Based on pacing it should be a pretty good automotive quarter.
Okay, great. Okay. Thanks, that's all I have thank you.
If you have a question at this time. Please press star one if you have a question at this time Please press star one.
There are no further questions at this time.
Thank you so very much for everyone's attendance today for your questions.
We're actually enormously proud of Q3's performance, we look forward to seeing you to talk about our Q4 and the whole year. Thank you.
It was not close.
Ladies and gentlemen, this concludes our call you may disconnect at this time.
Thank you.