Gray Television Inc. Q1 2023 Earnings Call
[music].
And here are welcomed.
Welcome to the Gray television Q1 from <unk> 23 earnings call I will now turn the call over to our chairman and CEO Hilde and Hello, you may begin.
Thank you Mr. Lee Good morning, everyone as our operator mentioned I am Hilton Howell, the chairman and CEO of Gray television I want to thank all of you for joining our first quarter 2023 earnings call with me today R. R.
Executive officers, our president and co CEO , Pat <unk>, our chief legal and development Officer, Kevin Latex and our Chief Financial Officer, Jim Ryan.
As you all know I'm sure since our last earning call our Chief operating Officer, Bob Smith has retired after a long and singularly distinguished career.
We wish him all the best in his next adventures and thank him for some of the extraordinary and bold initiatives that he began and that our company still benefits wrong with that we will begin with the disclaimer that Kevin will provide the Kevin. Thank you Hilton and good morning, everyone. Gray uses its website as a key source of company <unk>.
Formation. The website address is www G. R. A Y got TV, we will file our quarterly report on Form 10-Q with the SEC Later today.
On the call may be discussion of non-GAAP financial measures and in particular broadcast cash flow operating cash flow free cash flow and certain laboratory ratios east metrics are not meant to replace GAAP measurements, but are provided as supplements to assist the public in their analysis and valuation of our company.
Included in our earnings release as well as on our website are reconciliations of the non-GAAP financial measures to the GAAP measures reported in our financial statements.
Certain matters discussed in 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 statements. As a result of various important factors factors that have been set forth 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 I now return the call to Hilton.
Kevin Great television reported an exceptionally strong start to 2023, despite strongly raising interest rates fears of recession and the off year of the political cycle. Our total revenue of 801 million surpassed our guidance and our core advertising revenue was even.
With last year's first quarter after adjusting for the impact of the Super Bowl last year in the Winter Olympics broadcasts. Our retransmission revenue was 12% ahead of the last quarter of 'twenty 'twenty. Two also beating our guidance as noted in the earnings release <unk> first quarter results benefited from continued.
Strong advertiser demand from our local market, leading local television stations and our digital products, even as many are still telling this country that a recession is just a few months away businesses, particularly local businesses are still working hard with a strong demand to bond customers.
To move their products and to sell their services and increasingly local businesses are rediscovering that in this age of audience fragmentation.
Broadcast television and its digital channels that supported provide one of the most effective ways to achieve their goals regardless of the state of the economy and regardless of the news cycles. We therefore continue to be very bullish on the value proposition that our industry and in particular our <unk>.
Company offered to those who want to grow their own businesses.
Besides our strong earnings. This morning, we are happy to report by the time that we can be in our next earnings call. The Assembly studios in conjunction with third rail studios will be opening and operating and Gray will have welcomed NBC Universal Studios.
Under our long term lease and are happy to have that sustained company joined the vibrant Georgia film and television industry.
As you will hear more from from Pat We were extremely pleased that people are rediscovering the central value of broadcast television from local sports teams to local businesses, who we're seeing coming to broadcast for the first time ever.
I also want to reiterate and outstanding fact with regard to our political advertising for the first time ever in the year before a presidential election, we are receiving significant Kent presidential AD buys from all major candidates and parties.
This is a great sign for this year and for next year.
I also want to congratulate all of our stations. They are operating at the top of their respective games, but I would particularly like to call out some stations that we acquired and have had stewardship over for the last 18 months, particularly some of the merit of television stations.
We have seen a dramatic improvement across the board, but with particular improvement in very important markets to our company in Atlanta, Phoenix, Nashville, and Greenville Fair.
Further the top performing stations in the portfolio that we purchased have increased their success, particularly in Las Vegas, St. Louis and Hartford, So while we predicted cost synergies from the acquisition. We are now seeing revenue synergy not just from Meredith, but.
So from our Quincy acquisitions.
While 'twenty three 2023 may be remembered for many challenges.
They will never met the last continue producing local content that our audiences want and delivering the value that drive solid advertising and retransmission revenues.
I believe however that 'twenty two 'twenty three could be the year in which the value a tremendous reach and the efficiency of local broadcast televisions gets rediscovered by new and existing advertisers buy sports leagues and teams.
And perhaps even by Wall Street investors.
It should go without saying that we are tremendously unhappy with Gray's stock price and market valuation.
Both personally and professionally.
This company is undervalued for its current operations.
And its future promise.
And yet with all of that and all that we have to report today, we remain very bullish on the industry.
Especially on Gray's ability to prove the naysayers wrong and return this company's valuation to its appropriate place.
I would now like to introduce patent flattening to provide more color on our operations Pat.
Thanks, Phil.
Great television stations and production companies are executing well seemingly better than other parts of the advertising ecosystem.
Our local advertising continues to demonstrate positive results national advertising, while softer is a small portion of our business and it tends to recover when the economy returns to growth.
Overall, the auto category continued its recovery in Q1, it just patiently continue improving throughout the year.
Strong categories include services and home improvement.
Our local direct AD business, which has been a big priority of ours for the past few years continues to yield new leads and new contracts.
In the first quarter, our new local direct business brought in over 2000, new accounts and 9% more revenue than first quarter of 2022.
This momentum has continued into the second quarter and the April of 'twenty three our stations brought in nearly $11 million of new business, which is our best monthly number we have ever had.
April 23, new business revenue was $17, 5% higher than April 'twenty two.
What this tells US is that year after year, new advertisers are learning, how our linear and digital platforms can help them drive their own business success in a brand safe and cost efficient manner.
And some of our large markets third party audits of local television stations reveal that our stations are growing their core spot TV revenue at the same time the AD dollars and some of the markets are declining.
It's held mentioned we're seeing this is all quite clearly in our former Meredith markets, including Atlanta and Phoenix.
Between our core revenue performance overall, our new business success and it is individual market successes like these we know that gray has the right people, providing the right solutions at the right price for local advertisers, who need to grow and maintain their own businesses.
First quarter also included a pleasant surprise of political AD revenue coming at coming in at double the amount of our current television station portfolio posted in the first quarter of 2019, which was the last pre presidential year in the cycle.
This is obviously a good sign already in the second quarter. We received our first presidential political advisers Hilton referenced I'm pleased to report that we not one but three presidential campaigns already advertising on Gray's stations and the early primary states.
With the presidential election is still 17 months away the size and scope of these ad buys.
Summing this early is encouraging.
Meanwhile, our digital businesses are also excelling in the first quarter, we set new records for engagement with digital audiences. Importantly, we continued to experience double digit growth in digital revenue. We continue to launch literally dozens of our fast channels on Samsung TV plus <unk>.
Amazon's news by fire TV and the news category on a Roku channel live TV.
From long standing advertisers like the auto industry returning to the medium.
Early season political campaigns to new business development, there is real momentum behind the local broadcast business.
We also see enthusiasm for medium coming from the from the sports World Hilton mentioned, that's that's really accelerated in the last few weeks.
Since last fall, we've had many calls with professional sports teams seeking to explore our stations could expand their reach and promotional footprint in their home markets and beyond last Friday, we announced a new broadcast rights deal with the Phoenix SUNS had Phoenix Mercury is conditioned on the Sun's existing RSM deal expiring.
Assuming the deal proceeds are Arizona stations will make all of the zones at Mercury games available to roughly three times more people and the teams have been reaching with the current R. S N model.
We know our business faces real challenges, but that's nothing new for US we've shifted our poorest repeatedly over the past few decades, yeah right now we're moving forward in new and creative ways with our audiences with a growing advertiser base with new partnerships with local professional sports teams. We also expect that our industries and our companies work on the next Gen T.
<unk> technology will open even more doors to growth for us in the medium term in short its a very good time for gray in the broadcast business.
Kevin I, Thank you Pat.
Today, we can announce at Gray has successfully completed another retransmission renewal cycle.
We have agreements or agreements in principle with three very large mvpds just since the beginning of this year.
Same with Grays three decade history of Retrans negotiations. These important new deals were reached without any consumer disruptions where public rhetoric.
Equally important due to the strength of our local content and operations. We have also managed to secure retransmission rates for our content that met or exceeded our budgets.
Our next round of Retrans negotiations will occur at the end of this year when we will renew with most of our M. B P D partners.
And related news since the first of this year <unk> entered into the a B C. Aten agreement for Hulu TV and the C. B S Aten agreements for Hulu, TV Youtube Youtube TV and <unk>.
As a reminder, the big four networks negotiate these agreements with virtual mvpds and presenting agreements for us to accept or reject that we were not permitted to negotiate carriage of big four affiliates with the virtual mvpds directly.
We do however have breaking news to report in the virtual Mvpds space.
Just this week Gray reached an agreement with Youtube TV that secures carriage of six upgrades independent non affiliated television stations that provide local news and local sports focused content in our largest markets, including Peachtree TV in Atlanta, and Arizona family T V. Three in Phoenix.
This is grace first ever retransmission agreement with a virtual mvpds for the linear distribution of local television stations are limited limited in scope. This deal proves that local broadcasters are in fact fully capable of negotiating retransmission agreements with a large sophisticated virtual distributor as such we are hopeful the deals.
I like this one with Youtube TV opens a door for similar deals with Hulu and food O T V to bring these independent stations to our customers and their customers and eventually helps lead to the return of our right to negotiate the carriage of our big four affiliate stations with all of the Mvpds.
The first quarter retransmission results, we posted today are better than expected in particular, our retrans revenue as compared to the last quarter of 2022 grew 12% on a gross basis and 25% on a net basis. These results benefited from higher rates and our distribution contracts with some positive true ups and adjustments in the quarter.
<unk> now were related to last year's distribution.
We continue to forecast low single digit growth in gross and net retrans for the year.
As a result, we will renew about and as a reminder, we will renew about 58% of our Mvpds sub base in the first quarter of next year.
Or in the first throughout next year, primarily in the first quarter of next year.
At that time, we expect some improvement in reverse comp rates that with higher retrans rates will produce higher net retrans dollars in 2024 as well. This concludes my remarks, I'll now turn the call back to Jim Ryan.
Thanks, Kevin and good morning, everyone.
I'm going to keep my Mark our remarks, very brief given Hilton Pat and Kevin as he has covered the highlights.
Relating to Q2 'twenty three guidance our core revenue is expected to be up over Q2 last year. We believe the revenue guidance that demonstrates the company's continuing a very good start in 2023.
Covering the full year I'll make a few comments on our expectations for the full year and obviously when he was talking in billions of dollars.
Numbers will change as the year progresses up or down our expectations have not changed significantly since our last Q4 call.
Total revenue of approximately $3 3 million core revenue of approximately 1.55 billion, which would be up low single digits Retrans mission revenue of approximately 1.54 billion again up low single digits.
Political revenue of 50 million, which is an improvement from the $40 million to $50 million range, we provided on our last call.
And that would be including to date approximately $1 million of 'twenty 'twenty four presidential spend and that obviously that presidential spend is changing.
And in increasing if not day by day week by week. So that's a bright spot going through the rest of this year.
We expect total broadcast revenue of about $3.2 billion.
Our total operating expenses before depreciation amortization gain loss on disposal of assets of about $2 5 billion with broadcast expenses of approximately $2 3 billion.
Network reverse comp of about $940 million.
Noncash stock comp of about 5 million and noncash 401k expense of about $10 million, our corporate expenses are tracking to be approximately $120 million, including $17 million of noncash stock comp.
For full year 'twenty, three our operating cash flow as defined in our senior credit agreement. We currently anticipate a range of about 800 to 825 million.
Continuing on for significant cash uses in 'twenty three cash interest, we expect $420 million to $430 million, we do have a 5% sulfur interest rate cap on $2 6 billion of our floating rate debt. So we are insulated from further increases in sulfur.
Cash taxes of about 35 to 45 million, which is a reduction from our previous estimates.
And a positive for us.
Routine capital expenditures of about $105 million to $115 million or the preferred dividend is 52 million and our required amortization on our term loan b as in dog is $15 million. We currently estimate our free cash will be in a range of about 160 million to 170 million.
Yeah.
We are very well positioned starting 2023, and we look forward to access high school year and continuing into a strong 2024 with a return of another presidential election cycle.
Now I'll turn the call back to Hilton.
Thank you Jim at this point operator, we'd like to open up our call forearm.
Questions from anyone in our audience.
Okay. If you would like to ask a question. Please press star one on your telephone keypad again to ask a question. Please press star one on your telephone keypad.
And I'll just give it a few moments for the cute about.
Yeah.
Yeah.
Okay. It looks like our first question is going to come from Dan <unk> from benchmark Dan Your line is open.
Great. Thanks, Good morning, maybe.
Maybe I guess Pat since you brought this up I think you guys are the only one so far that it services strong into Q O Q and clearly you guys have generated substantial revenue synergies already I think from Meredith and thank you. So I'm just trying to kind of parse out the underlying there.
How much of that is sort of underperformance that you've now brought up to market level versus how much is sort of intrinsic in market just outperformance.
Yeah. So.
Services for us a bed healthy right along Dan.
So look I think we you know we have.
Team sales teams focused on some of these categories I think that helps us. So that's one of the reasons why.
We could be doing a little better than the other guys.
But you know for the last.
Maybe just take legal for instance that that category for US has been on a steady upward arc for years literally years and home improvement continues to be very strong.
So yeah I I E.
I I like where we are there.
Dan services in Q1, 'twenty three is about 29% of core.
Q1, 'twenty two services was 28% of Corp.
Okay.
It's just a better result in your <unk> pacings are better than everybody else so far so.
You could call out.
And Kevin just on the dynamics in Q1, you called out a true up I don't know if you can size that true up.
We've heard that virtually have been kind of outpacing and we've heard some upside should kind of start of net subs I guess in Q1 from virtual but given all of the regions.
And virtual negotiation dynamic can you just kind of help us think through both the true up and then kind of the I know we had the full year guide, but just kind of your paper and thoughts on subs and impact from <unk>.
This kind of virtual mix shift.
Hi, Dan.
We have.
True ups and adjustments in throughout the year every year.
They tend to be primarily.
Primarily hit us in Q1.
Yes.
<unk> is a very positive there is one year remember the trips turned out to be a little negative.
True ups are.
Part of the story, primarily in Q1 every year and since we set the guidance.
We have seen.
On the prior call we saw some.
Better than expected true ups across the board, primarily coming from the what we call OTT providers.
Don't breakdown virtual versus direct to consumer.
Where are our sub trends I think are at this point is pretty consistent with everybody. We're seeing large declines in the traditional as we're seeing continued really strong growth on.
On the new distributors.
We are modeling continued large declines in traditional mvpds and continued growth in the OTT.
Distributors.
So.
I don't see anything in the near term that would change that either one of those trends are trajectories. So the overall mix is obviously.
Everybody else, it's becoming.
Shifting more towards the.
Virtually in the direct to consumer folks.
So we're again, we're happy that people are still getting our signals we're getting great.
We're getting great distribution.
The economics would certainly be better if we were doing the negotiations ourselves instead of getting us an average rate for everybody in the country. We have again, we have better stations we.
It does come in higher rates and.
We should get paid for their content and the value that we're delivering.
So that's I think along with the way I hope Anthony answering our questions.
Yeah, No that's helpful.
One last one just for Hilton I know you guys are trying to be very thoughtful about this.
Anyone can obviously jump in on this but sort of Atlanta Assemblymen Assembly Atlanta unlock.
I know, it's kind of a tricky proposition and you're getting excited for the launch here, but just how close are you kind of having.
Something to share with us or how it Nancy you guys in the process of kind of <unk>.
Given us either more disclosure and or Colorado.
The economics.
Sure Dan.
We have a an NDA on the the lease terms with NBC you that we will not be disclosing.
But we will obviously be releasing our revenue numbers quarter to quarter and the assembly spending as you know largely.
Wound up.
I'm really Dan.
So I am so proud and candidly, we would love to host everyone. On this phone call at the assembly because when you see it youre going to understand what a remarkable economic engine is going to be.
And so Paul we won't be disclosing our lease agreement with NBC universal you'll be seeing revenue beginning.
Certainly in the third quarter, but more importantly in the fourth quarter and then consistently from there on out and so you can back into anything you want to at that point, but we think it could end up being one of our single most.
Important assets in the entire portfolio.
Got it thank you for the color sure. Thank you Dan.
Our next question is going to come from Courtney Baughman from Barclays Hi, Courtney Your line is open.
Thanks, guys. Congrats on the quarter, just a really quick one from me I know a lot of the economics are still trying are you guys are still trying to figure a lot of the Phoenix SUNS deal out and you're probably limited in what you can mention but.
How do we think about you've nailed it.
Yeah.
Do we think about.
You know kind of the longer term strategy of the company is just like inherently a move back towards a more cyclical model how do we how do we think about that is it's kind of a hedge on the retrans side, how do we think about the balance.
Hi, This is Kevin Courtney.
Let me I guess first just clarify that.
As broadcasters generally are are adding professional sports games.
We're adding we're adding them to a non big four stations, so that we're adding them to independent television stations.
So some of those have have other content that gets displaced some of our stations that were sort of spinning up the spectrum are spinning up from scratch.
So there's no impact on the big four operations of of of any broadcaster of them or as a general matters, we're talking about the sports.
Again, not not us but across the whole industry, we're talking about adding a bringing sports two independent television stations and so I think the whole industry is pretty excited about what opportunities may lie.
My head over the next several years.
But the core business remains big four affiliate television stations and for Gray It remains a local news focus.
A majority of our revenue come from local news, that's not going to be impacted so if we add for example, we had a telemundo at a bunch of stations out last year, we added sports to Jason's in a region of the country, it's not going to be something that's going to make that whole business suddenly cyclical back is not probably going to be much of a.
And at least for the next several years, you're probably not going to see much change in the numbers.
Just given that sort of ebb and flow of our business because.
We do think that our business is going to fundamentally change from one that is.
Built around and drive as revenue out of local news from from Retrans again, I don't see I don't know this would have any impact on retrans, where we have.
Outside of what I mentioned today, we now have our first deal ever with Youtube and that is driven by the sports that.
We do have on some of these stations are ready.
Colored sports and it's big it's a big driver and other sports are added in different markets obviously.
Thank you Kim.
Our next question is going to come from Aaron Watts with Deutsche Bank Your.
Your line is open.
Hi, guys. Thanks for having me on I've got a couple questions one follow up on the advertising side.
And of course seems to be holding steady.
Okay.
Or.
<unk> answer what Youre hearing from your reps.
Are you seeing.
Who.
Our confidence in the full year.
Okay.
Aaron I hate to tell you you kind of broke up there. So we missed that could any change you could repeat.
Sure.
On the average on the advertising side encouraged to hear that core seems to be holding steady from <unk> into <unk> can you talk a little bit more about the monthly cadence you're seeing or what you're currently hearing from your reps on the street are you seeing sentiment improve are worse in month to month and how that plays into your <unk>.
Confidence in full year guidance you've provided.
Yeah, I mean, yeah, Jimmy do you want to take that or.
I'd say.
Core in April is up.
Healthily healthy single digits.
Four ish plus percent.
Obviously.
May is looking strong as well I think the the.
June is a little too early to call, but June is always a.
A tricky month, depending on.
Yeah, you know the entire industry cycles from second quarter rates, which are which are higher than third quarter rates.
And at some point in June that that third quarter right Sidney always starts kicking in so that's that's a probably by June is.
Maybe not quite as strong as April and May, but still looking healthy and looking back in positive territory.
Okay. That's helpful and then Jim I think maybe aiming at you again here, but a question around the margin profile of the business. Both in the first quarter. You just reported your <unk> Guide can you talk about some of the factors, resulting in margins being a bit below where we've seen them historically.
And two things one I think you.
You need a spot at the 35 million of one time charges that hit the production expense line in Q1 for basically things that were out of our control.
Secondly, and we've talked about this both.
Last fall and in the Q4 call our especially in broadcast our operating expenses are running higher this year than they have been.
And many have been longer than I can remember.
But quite frankly it.
As we talked on the Q4 call inflation has caught up to us we've wrung out all the cost synergies that were available from the acquisitions a couple of years ago.
And as we've talked about it in the last two calls we have we have is an operational issue. We are having a hard time recruiting and retaining staffing at the levels. We deem adequate at our stations, we are making progress on that and part of that progress.
Was it just the wages and benefits.
But we are still running.
Significantly understaffed from where our Optima model would be and we're continuing to address that I don't think the cost increases that you're seeing this year are necessarily going to continue through over the next several years I think this is kind of the <unk>.
Reset year for US and then we are we can break it you know we can hold it to a lower increase in future years.
Okay got it and Jim I know this is nuanced, but are those one time expenses that you've highlighted are those in your defined operating cash flow as per your credit agreement, yes. Unfortunately, yes.
Got it Okay and then one last one for me and I. Appreciate all the time I, if I can where my credit hat for a moment just wanted to confirm that assembly as an unrestricted subsidiary or as it relates to your debt and I ask that in the context of thinking about your deleveraging efforts.
As the assembly platform begins to generate profits and or if you have monetization events around the project in the future that raised cash proceeds.
Should we be thinking about those cash flows going towards paying down debt and deleveraging at the restricted group.
Our first you are correct assembly as an unrestricted subsidiary.
Presently.
Obviously, I mean I'm not going to.
I'm going to be careful about talking about possible future cash flows in the world monetization speak.
But it would be reasonable I think to assume just like the rest of the company that I mean, we run a centralized treasury system. So you know cash comes in and from all sources in the company and we have been very clear over the last several.
Calls that our number one priority is for capital allocation is to pay down our debt as quickly as possible.
Our next question is going to come from.
Hi, Erinn.
Vishal James with B M D and your line is open.
Yes, hi, Thanks for taking my questions. A couple from me good to see the bolstered liquidity via the securitization facility.
Just to clarify on the prior question the reduction in broadcast cash flow of $35 million was one time.
From the high end of guidance Theres. Another you know another $15 million or so.
And just wanted to clarify that piece what was that related to.
I'm not sure what.
The 15, you're speaking to I'm not exactly sure.
What that is is that a total expense Oh no sorry, the broadcast cash flow. Prior guidance I think was 850 to 875 versus today, I think you're saying well obviously, yeah. Obviously 35 is a direct hit in Q1, which we didn't see coming.
I think the rest of it is just a little bit of fine tuning on a full year estimates.
Certainly not very significant at all on us and.
$15 million and 800 plus million is not a very big Delta.
Totally I just wanted to make sure I understood.
I understood the puts and takes and then separately.
You're obviously focused on deleveraging.
You'll see your unsecured bonds trading in the low sixty's clearly with the market cap, where it is it sounds like I mean, it seems like it would make sense for you to buy you know.
Discounted debt as a way to potentially accelerate deleveraging just wanted to see just wanted to hear your thoughts on on on that prospect, especially.
Especially given the depressed market cap on the equity.
So I'll I'll preface my comment by say never say never.
But.
At least as of today.
I appreciate that the bond tranches are trading at significant discounts, but we view that as just a.
In fact of where short term interest rates are we look at the longer term maturities of the bond issues in the absolute coupons were currently paying and I compare that to the term loan a.
D that is cap now at 8% with the with this with our rate cap and the term loan E as an aggregate pricing at seven 5% all in.
And in shorter term maturities I E would tend to lean towards paying down the more expensive coupons.
Have shorter maturities.
Got it very helpful. And then finally in terms of in terms of deleveraging potential are there any other.
Avenues sort of either noncore asset sales et cetera that that you would consider to potentially accelerate the deleveraging because it looks like by my numbers at least you know into 2020 or.
Even if you generate the full level of cash flow that you expect in prior expected in prior years, and maybe more you'd still be levered in the fives. So is there any further plans or any further thoughts in terms of accelerating deleveraging would be helpful. Thank you. There are no assets core or noncore that we plan to dispose of.
And quite frankly any anything that's noncore is so tiny that it would not move the needle one iota.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Our next question is going to come from nickname Glu with Stephens, Inc. Nick Your line is open.
Hey, this is Doug.
Dean on for Nick.
We've been seeing in the industry peer shutter some local news programs across various markets.
And I think there's even some overlap with gray stations are you seeing any indication of pressure on viewership within the local segment.
The answer quickly is no we're doing the exact reverse of that we have in almost every market.
Increasing our local news coverage and in some cases quite significantly and in that and that ranges across the board with regardless of market sizes.
We are actually moving more aggressively to create our own local news content and are supplanting in many cases, the syndicated product that others may have so there is no potential of gray eliminating news coverage anywhere I think this is a <unk>.
<unk>.
Our acquisition strategy over many many many years, we have always focused upon news generating and news gathering centered TV stations number one number two stations and <unk>.
Important markets and so.
Here in Atlanta for instance, because I I'll watch it every morning.
But we've gone in 18 months from the smallest news producing stations two by far having the largest number of news hours of anyone in the market because at the end of the day viewers want the news when they want the news and so we need to be there to provide it so you'll see no pullback on news from us.
Got it. Thank you and then getting more aggressive on more local news content is any of that.
Mentioned being understaffed and some market is better.
Little neck.
For expanding that local news coverage, it's not a it's not a bottleneck and I'll, let Pat follow up on all of those.
You know, it's I think it's just an indication that that many different companies and industries have across the country post COVID-19 everybody is trying to find good people and there's just not enough good folks out there to fill them.
Tight labor market too.
So yeah. It has not caused us to pull back in any way, we've been able to produce as Hilton mentioned the number of news hours will produce against a company is going up every year, we'll use technology as best we can to make to make sure that we do it efficiently and effectively but yeah. We we've been.
April two.
We've been able to get through it.
With.
Little bit short staffed and we've made some fairly significant progress in hiring over the last six eight months. So that's sort of headed in the right direction.
Okay I appreciate it thanks.
Thank you Jim.
Our next question is going to come from Jim Goss with Barrington, Jimmy Your line is open.
Okay. Thanks.
Kevin I was wondering if you might comment on reverse comp requests from the networks at this stage with any programming cost rationalizations that have been undergoing has there been any less aggressive than they've typically been in the past.
Hi.
At a high level Jim.
I think.
Fair to say that our peers and I have been.
Right.
Uh huh.
Promising that we expected the rate of growth of reverse comp will be coming down.
A couple of reasons.
And I think several folks who said that over the last few calls.
And that's.
That is our expectation has not changed I don't want to talk about.
Specific.
Negotiations at this time, because we do arent, we arent specific negotiation, so just talking apparently high level.
Yeah.
Several folks are saying across the industry right now.
Okay.
I wonder too.
Some thoughts have been express.
Seem reasonable that that may be retrans is leveling off to some extent in your guidance for next quarter seems to suggest that a little bit that.
With.
The erosion in subs offsetting increasing in prices given aside from any reverse comp request that maybe you've hit.
Somewhat of a Max which isn't bad to have a stable base to.
To provide.
From an in addition to AD sales, but do you think.
Started to hit somewhat of a limit with the retrans.
Net retrans in total.
Unless you were talking to.
I wasn't sure you questions about grocery about net.
Uh huh.
I guess if.
If youre getting higher pricing, but you're losing some of the subs that if they offset one another.
And then you do have the reverse comp issue I'm wondering if if the.
The well the probably both the gross and the net.
Reverse.
Retrans are.
Sort of going about as far as they might go or do you think there is more upside over the past years everybody has argued for.
Onward, and upward, but I'm wondering if that's starting to slow to a point that maybe we shouldnt be thinking in those terms.
Okay.
Because I just reiterate we still expect gross it not to be up low single digits. This year.
Next year, we have as large a rate reset and we have new network agreements. So we will have a different reverse comp level next year. So.
Uh huh.
Reiterate we expect that we will still see growth in both gross and net.
Okay.
And then I wondered about are any of you with a premium update and any impact from the.
Taking a deal uncertainties that might be introduced from.
From that relationship.
I'm really really no impact Jim.
Our stations are doing.
Doing a great job of selling premium on the product is excellence in high demand in the market.
And year over year growth there are substantial.
Okay.
Finally.
As you've emphasized news as your T.
T a driver.
With your broadened platform across the nation.
Is it big enough to provide any national effort either.
For a separate business or at least within your own.
News programs to get sort of.
Local national feel we're really looking to remain very focused on local markets sort of across the board.
One of the things that we have done is had the opportunity with our particular footprint to do things on a statewide basis across all markets.
Most relevant one immediately as what we've done with Telemundo.
Because we've taken Telemundo statewide so far in Georgia, and Alabama, and Tennessee, and Susan O and her team are working to take it to an eventual total of 42 markets. So, but we look at that on a on a local and statewide basis not on a.
Our national scale.
Alright, thanks very much.
Sure.
Our next question is going to come from John Kornreich JK.
JK media John Your line is open.
Jim.
Kevin.
You reiterated a couple of times had net retrans should be up low single digits. This year, yet the first quarter was down three 5%.
Your guidance for the second quarter.
Is that net retrans will be down 4%.
Yes.
I take it you're expecting about at 10% year over year net retrans increase starting in the third quarter.
We're not giving that level of granularity on guidance at this point.
Okay, but you are reiterating up for the whole year net Retrans 23.
Yes.
And an acceleration of that next year as you do more of agreements.
Correct, yes, okay.
Kevin.
We haven't lot of subs to reprice next year.
And we will also be entering and we will also have.
Reverse comp agreements.
That had been negotiated and locked in that.
<unk>.
Slightly different rate structures next year, which will be as we commented at the rate of reverse comp growth.
For the ones we blocked in.
It is significantly less than what we've seen over the last five years or so.
Will affect 'twenty four 'twenty three correct okay.
Secondly, just quickly on the guidance of 160 to 170 free cash flow again that include.
That excludes capex and reimbursement.
One the assembly projects.
That would be correct and it also excludes the roughly $30 million of common dividend.
Right.
And in India, and in the Q, which will be filed a little later today there is.
A good disclosure on what we see for assembly.
As far as.
Finishing off from the cost side to complete phase one as well as reimbursement. So if you look at the liquidity section of M. D N a you'll get some good detail there.
Uh huh.
When do you guys expect to hit your sort of hit your stride on revenue coming in from the Assembly is that early 'twenty four or it would be full year 2024.
Oh, yes.
All year 'twenty 'twenty four.
It should it will come online in June and then it will take a period of months to ramp it up but we will see it in 2023, but full year 2024, it will be fully operational and we will have the benefits of its revenue in additional in addition to it being a what.
He is going to be a remarkable presidential year and.
And that's going to bring the combination of all of those things are just like after we closed from Ray Com, we're going to bring our debt down rapidly in a two year period of time and we're very excited for that.
Good morning.
We buy your stock you buy your bonds.
I would both have I mean, and I will tell you I'm gonna be Bob I'm going to be buying stock. So.
Our current prices ridiculous.
The Assembly project by itself is worth more than our market cap.
One last thing Kevin.
Can you reiterate are put together again.
Flow of Retrans agreements starting in with this first quarter of this year and then go through 'twenty four again.
Yeah Bear with me a sooner than our DAC and I Wanna be sugar weighted from that from the Jackson Dome Misspeak.
Let's see 2023.
22% of the traditional and the PD.
Scrubbers renewing in Q1, 18% in Q2.
2024% to 38% in Q1, and then 23% in the second half.
I'm really sorry, I should say 24, again, sorry, 2024% to 38% in Q1 and.
And then 23% in the second half.
Thanks, a lot I appreciate it sure thanks, Sir.
Our next question is going to come from Monica Lu from Onyx Monica Your line is open.
Hi, Thanks for taking my question can you provide a little more color on the 17 million special charge taken during the quarter Chi who.
Basically accounts for the credit license related to Dennis for bankruptcy, what is the nature of that expense in R&D assumptions behind that number.
Also relatedly there have been some headlines around that and it's work.
By the lofty she tried to stop the Phoenix SUNS agreement weighed that gray.
In addition to the 17 is there any potential liabilities that we should think about thank you.
There's 17 million.
Related to an accounts receivable with diamond that we fully reserve due to the bankruptcy.
And we're not commenting on litigation.
With any party.
Okay. Thanks.
Thank you Jim.
Yeah.
Our next question is going to come from Steven Cahall with Wells Fargo. Stephen Your line is open.
Thanks.
So maybe just first kind of Jim and Hilton tying a few things. He said together you know holding you've talked about how much you think the stock is undervalued and Jim you've given us some helpful. Movers on free cash flow one year peers today said that they do expect to be probably at a higher level of leverage by the end of the year, we kind of think that leverages the key to getting.
The equity value higher so I'm just wondering if you could comment as to where you see leverage trending before you get to 2024 does it have some upward pressure or with the AD market performing as well. It is do you think you can bring it down between now and the end of the year.
So we're currently.
About 5.3, and the last fourth quarter, we were about 5.4.
I think where you know.
Somewhere between five and a quarter in five and a half I. The variability I think will really depend on how.
How much pull forward of the 24 presidential cycle, we see in 'twenty, three and quite frankly.
None of us at least at this end of the phone call have any idea what that number is yet although we've been delighted in.
In may already.
Got it and then just on sports N V M B P DS.
You talked about the Youtube TV deal with the independence and you've got the deal now for some regional sports given that you can negotiate directly with the Mvpds with your independence does that gives you a bias to put more sports on those independents or do those sports teams or leagues have a preference for big four how do you think about.
Balancing where you might look for some of those rights going forward.
Yeah just.
Can I just go back to very specific what Pat said on the call and I'm, not saying that we have a.
An agreement.
Sure.
So just to be sure we parse the words on a carefully we have been talking to a number of teams over the last several months.
Well as I believe every broadcast.
Broadcast group has been doing.
I think there'll be lots of broadcasters announcing lots of sports deals over the next several years.
And I would fully expect that.
Ports will be professional sports will be on non big four stations because the network's program.
So many hours a.
A week that are overlapping with the times of the game. So this professional sports and frankly, we had this issue with college sports and we are on our DTC channels already.
They don't Erin.
Generally don't era of big four affiliates.
I would say we are interested in bringing sports back to broadcast is not a new thing we have been pretty aggressive over.
Over the last several years in trying to find out more college sports lineup more non.
The marquee teams.
But we're we've always been looking to add sports.
And that's not going to change the Youtube deal is certainly big news for us.
We're obviously happy we haven't we have we believe we had a sort of a compelling justification justify why these sixth station should be carried in it is it is sports and some of it's also a lot of local news.
You know Phoenix in particular that station.
Has a tremendous amount of local news already and as a leader in terms of ratings in that market until it just makes sense that station will be available on every platform.
Again it comes back to what we what we have we think we've always done which is good.
Great television stations that.
Alright.
Have content that local audiences want to see and sometimes that sports and sometimes its news and sometimes it's other local content, sometimes as entertainment sometime this game shows Abbott are constant striving is to find the right mix of content drive the Laguardia answers and I'm happy to see Youtube has recognized that and we hope to see more deals like that in the future.
I hope that answer the question, it's not try me again.
No.
With comprehensive and then maybe just lastly.
I think historically two out of the four networks of structured reverse comp as a programming fee to have done. It is a variable per sub fee we've heard that.
The national networks.
We used one or maybe two of those may be moving towards programming fee. So three or four out of four might look to do fixed versus variable I was just wondering if you could comment as to the structure of how you expect reverse comp going forward do you think it'll be the same variable fixed, but you've always seen or moving more towards that XT. Thank you.
Yes, Stephen were were talking with half the big four right now so I'm not really I don't think it's really appropriate for us to talk about.
Terms and structures of deals so.
We need to respect the confidentiality of our negotiations.
Got it thank you thank.
Thank you.
Our next question is going to come from Alan Gould with loop capital your.
Your line is open.
Thanks for taking the question.
And one for you and then I've got a couple for Kevin in terms of the Atlantis.
Understand that you can't discuss the revenue can you give us some sense of course has the project timing.
Little over budget relative to the initial expectations.
And when will we be able to see real estate sales or do we have to wait until the plant is operating before we get some interest in real estate sales.
Well I mean, largely the real estate sales will come on the other side of the property for where the current studios are placed.
We own this property outright theres no debt on it we at the end of the year because there is a community improvement district that overlays. The property, we were able to place tax deferred bonds.
Closed December 28, which is where gray is.
Receiving its reimbursements from we have we raised north of $100 million at the end of the year, but as the public improvements roads sewers et cetera.
Finished them.
Then.
Greg it's pay back for it.
So actually I think the project is coming on.
On budget and ahead of time and I'm really excited.
Excited about that and I'm very proud of R. R.
Our real estate development partner that gets some companies because it's stunning we poured our first slab last March.
And in June .
Damn thing opens.
And it's an extraordinary facility we've had.
Six different Ceos of the film Division of respective places that have told us.
The finest film and television production facility not just in Georgia.
Perhaps even in the world.
And we have a long line of people that have lined up to come here too.
To produce their movies and so I think it's going to be an outstanding investment for our company our shareholders, who are sitting in our state as well and so we will start saying as I've said earlier revenue from it in 2023 to 2020 for.
It'll be falling.
The land sales.
When when there are 4000, plus people going to work every day in that complex.
This fall.
There is the excitement of that traffic and the movie is being produced television shows happening there.
That's we believe the best time to start talking about.
And sales not now and it's still dirt.
Certainly you could do that but we're trying to maximize value here. So.
We expect that.
We've included some numbers here for a while but those land sales of conversations we expect taking place when theres, a theres more excitement visible.
As you're standing there and watching the activity around you.
Absolutely.
Makes sense, Kevin two quickie on can you just update us on the sub trend year over year, and secondly, historically, how much differences there in the primaries. When you have an incumbent versus not.
And the duration.
First of all to play out yet on sub trends at this point, we've largely mirroring our.
Mirroring the industry and our peers there's nothing.
We look at our R or sub trends again in the Mvpds are down double digits the OTT.
OTT, which is direct to consumer in the virtual <unk> are growing nicely.
Sure.
Sub trends are.
Really I think kind of matching everybody else at this point so.
I'm not.
No we're not we're modeling again.
The more dire case and the mvpds than we've seen in the past and that's again, we're trying to be realistic and conservative.
On the political side.
We have as we said we've had we have an order from one of the leading candidates who happens to not be in a primary at this point and that is.
Generally I mean generally it is unprecedented for us.
We had a if you go back look at the last.
Few presidential primaries, you'll see there's a whole bunch of money coming in the fourth quarter before I present, the first primary there in Iowa.
And that is has been.
Pretty much limited to the people who are competing in the primary not being nothing the incumbent so we have we have money from someone who is not in our primary that's that's new and it's 17 months before the election.
It wasn't that long ago, we would comment how crazy was we were seeing ads 12 months before an election now we're seeing ads from.
Someone who has the name recognition already 17 months before election day.
If we only have one primary.
We think it's going to still be.
Yes.
Significant spending in primaries as we saw in the last couple of cycles. We only had we typically have one one primary not too.
I'm not smart enough to know there's going to be a democratic primary.
Any strength.
So what we're assuming at this point there'll be a primary to send the Republican side.
That won't be.
Some unknown volume this year, but it's going to certainly be meaningful.
Okay. Thanks, a lot.
Thank you Kim.
Our next question is going to come from Craig Huber with Huber Research. Your line is open.
Great. Thank you you guys mentioned that April for core advertising was up four plus percent that's quite good, particularly given the environment that were inherent stuff you talked earlier about synergies youre getting on the revenue side from Quincy into the Meredith television stations and stuff can you maybe parse that out that 4% plus number is at roughly half of it.
From the revenue synergies and also maybe if you could touch on the national piece, obviously that sounds like it's down maybe quantify that a little bit for us.
Yes, I could.
Jim If you want to look some numbers I mean, I can't tell you exactly what percent of the 4% is due to Quincy and Meredith I can tell you that as Hilton alluded to those stations are performing at a very high level.
And notably all I can.
I'll talk about Phoenix for a second when we acquired these two stations.
In December of 'twenty, one their rankings in the ratings were number three and number four today, they're number one and number two for that reason they are taking a much higher share of the advertising market in Phoenix, Arizona, and that's a that is a.
A phenomena, that's playing out really across that group. So while I can't give you an exact number I'm sure. There is a fairly material contribution from the Meredith stations to that increase.
Okay, and then the national piece, if you can help us with that I mean, it sounds like it's down.
In first quarter National was down but as we commented earlier the nationals are very small relatively small component of overall core.
Looking ahead to the second quarter, I think national has the potential to improve a little bit.
It probably is still down a little bit although it might be closer to flattish than is down as much as it was it was in first quarter.
Okay and then on the.
Retrans sub side of things here.
Three months ago on your last conference call. You said you guys were down about one 5% I believe retrans subs year over year now you're talking about it being in line with the market. Some of your peers are talking on a net basis, the virtual and the legacy Mvpds down mid single digits year over year. It sounds like now youre sort of in that ZIP code now.
We roll it all up.
Yes, we've been giving a sub number.
Our total subs, which is everyone who pays us a monthly fee to receive a linear signal period.
And we've been getting frankly, just a lot of questions about why we're giving a number that's different than others. So we're just not going to do that any longer what matters is the gross.
The gross revenue and net revenue.
Overall, I'd say, our we were reading when other people are saying about their sub trends and obviously the mvpds are reporting their sub trends. We're seeing numbers that are generally consistent with what everyone else is doing.
Seeing estimates on the DTC and the note and the virtual <unk> and <unk>.
Public media in both reported numbers and estimates they are generally consistent with what we're seeing now so.
I'm not sure there's there's been much value when I was giving that.
Year over year calculation, it seems too unfortunate created a little too much confusion so.
We can confirm that what we're seeing is pretty consistent with what everybody else is seeing.
And what's been publicly reported.
Okay, and then on the leverage side smoke no cure.
August Conference call last year, you guys said publicly the goal at the end of 2024 for debt leverage was in the low fours conservatively.
Curious at this stage do you feel that it's still doable.
That was before interest rates went up 450 basis points in a year.
So we have a new outlet.
We will through 'twenty four we will.
Our leverage will come down.
Inc.
Yeah.
Whether it's in the.
Whether it's in the low fives are somewhere in the fours is getting an entirely depend on what the final dollars of the 'twenty 'twenty four election cycle come out to be.
Obviously, we're optimistic about the presidential as we've said we are also very least very strongly positioned in.
<unk>.
The majority of Senate seats are up next year as well. So we think there'll be a strong a strong spend on the Senate side as well.
Has this cycle of much higher interest rates and all the streets.
Poor economic backdrop here has that changed your thoughts long terminal, where you wanted to sort of sit out as a company where your debt load will be out debt ratio will be at long term in other words, if you brought that down given what we've gone through right now.
So we would still we are still committed to bringing down our debt level and our overall leverage as quickly as possible. We have said consistently.
For years, as we Levered up to do an acquisition and then lever down following the acquisition whether it was.
Ray Cotton, Quincy, Meredith and I'm, probably not sugars was in there somewhere too you know we've large acquisitions. We've ended up in the roughly mid fives area for a little bit of time, and then it would come down into the fours Yeah, just before we did Quinn.
See we were in the very high threes.
We would.
Our intention to work the same cycle again over the next few years and bring down leverage again.
And let me add something else to that I mean, you've got to realize this company has articulated for.
I mean decades now our intention to grow our portfolio. We are now a national broadcaster not implying that we're going to be broadcasting nationally, we're going doing it locally but weren't 113 markets. We're the second largest broadcast company in the country. We have achieved that we were sitting just barely below the articulated cap.
Without the UHF discount and so.
The two largest things that we will be doing since we have already gotten the scale that we need is reducing our leverage and then returning capital to our shareholders through both stock buybacks and dividend increases as you know the board sees fit and as they feel.
Fuel comfortable.
Our board ratified our dividend yesterday at our board meeting.
That's what we're going to be doing and so we have done everything that we have told you guys. We were going to do and now we have built what I think is one of the most remarkable broadcast TV companies in the country and so now we just.
Go about and operate our business pay down our debt and I don't see huge acquisitions like we did with Meredith and Quincy in the same year now coming Theres, just not enough room on the cap for us to do it unless the laws change so I really expect to see our stock price improved dramatically over the.
Over the course of this year and next as we Delever and we continue to prove the quality of the assets that are underlying this company.
My last quick question I appreciate your time here auto.
What was that year over year percent change in the quarter and maybe what's your outlook. There. Please thank you.
Somewhere in the mid teens.
Yeah hang on I'm trying to grab it.
In auto in Q1 was very healthy.
It was.
Around 18% 18, 18, 5% of core in Q1 dollars 23 compared to 15% last year. So as we commented before auto is.
Starting to get healthy last year and its continuing to get healthy this year.
Okay, great. Thank you.
Our last question is going to come from Michael Kaplinsky with Noble capital. Your line is open.
Thank you a lot of good questions.
My question is many in the industry are embracing nextgen and indicating the prospects for some revenue contributions by building out our core infrastructure and are looking for opportunities in agriculture utilities and so forth.
Some have indicated that data casting could be a six and a half 215 billion dollar industry, where does gray stand in terms of building out its core to offer data casting and King are you as sanguine about the opportunities in data casting as others in the industry and if so do you think you will see.
Revenues in 2024 pronged data casting.
So to answer your last question first I don't think 24, I think 25 is a possibility.
We continue to build out our.
3.0.
Infrastructure.
And I can't remember the exact numbers now, but I think we're somewhere in terms of our population coverage over 50%, maybe maybe 60%.
So look we see we see great promise in three point out what's been a challenge for us.
It's been a challenge too.
Today, I'll down exactly when that money starts coming in but we are active active.
As in.
And in sort of the data casting world where it is.
It's there's a lot of opportunities, whether they're single market or networks and as it relates to the networks were having discussions with our peers about setting up the appropriate infrastructure.
So I think.
I think it's starting to come into a little better focus and I would guess, we'd start seeing money in 'twenty five.
Okay, great. Thank you that's all I have.
Clear I don't think it'll be a material number 25.
Okay, great. Thank you.
Okay. There are no more questions in queue. So I'll turn it back to you for any closing remarks. Thank you operator, I'd like to say just a few things before we close up and wrap it up this morning, but I just want you all to know that we're very proud of our results. This morning, we candidly don't see current signs of recession.
Looming on the on the Horizon, we have the best TV station portfolio and the business, we're the largest local news.
Producer in the TV industry, we have presidential money for 2024 coming in the first half of 2023 Assembly. It comes online next month.
Sports and local businesses are returning to the broadcast model and having said all that I'm. Most emphasize we are tremendously comfortable with our liquidity. We had no near term maturities, we have already converted our variable rate debt from LIBOR to sofa.
And we have interest rate caps in place.
Our balance sheet as well as our core TV station business remained strong enough to weather any macroeconomic pressures that we may face before we began to reap the benefits of significant amounts of political revenue not just later this year, but fully in 2024.
So the future is bright thank you for your time, we look forward to talking to you. If you all need to have individual conversations and thank you for your time this morning.
This concludes our call you may now disconnect.