Q3 2023 Gray Television Inc Earnings Call
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Welcome Good morning television.
Third quarter 2023 earnings call I will now turn the call over to todays Speaker Chairman and CEO. Mr. Paulo, you may now begin.
Thank you operator, and good morning, everyone.
Our Albert had mentioned I'm Hilton Howell, the chairman and CEO of Gray television and I want to thank each and every one of you for joining our third quarter 2023 earnings call with me today in Atlanta, all of our executive officers, Pat <unk>, our president and co CEO Sandy <unk>, our Chief operating officer, Kevin later.
Our chief legal and development Officer, and Jim Ryan, Our Chief Financial Officer, We will begin as usual with a disclaimer that Kevin will provide thank you Hilton and good morning, everyone. Gray uses its website as a key source of company information. The website address is www T. R. A wide dot TV.
We will file our quarterly report on Form 10-Q, with the U SEC Later today.
Included on the call may be discussion of non-GAAP financial measures and in particular broadcast cash flow operating cash flow free.
Free cash flow and certain leverage ratios.
These metrics are not meant to replace GAAP measurements, but are provided.
Supplements to assist the public in their analysis and valuation of our company.
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 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 any forward looking statements. As a result of various important factors that have been set forth in the company's most recent reports filed with the SEC, 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 and I now return the call to Hilton.
Thank you Kevin.
Great television began 20 twenty-three by predicting that we would continue to operate prudently and to grow our business positively with three quarters behind us and another strong guide for the fourth quarter. It is now abundantly clear that gray television is delivering.
For 2023 in the first half of this year, we posted year over year growth in core revenue and.
And in retransmission revenues, and then grows and political advertising revenues over 2019, the last year before a presidential campaign.
Third quarter of 2023 continued this trend with strong year over year growth in core revenue and retransmission revenue and a four year growth in political revenue.
Our guidance for the fourth quarter illustrates that we currently anticipate that these trends will continue throughout the rest of this year in fact, our guidance today increases the full year political advertising total to $80 million from the $16 million full year.
God that we offered in early August.
We announced a number of exciting developments in the third quarter that patent Sandy will address in a few minutes.
However, I am personally pleased to share 2023s singular most historic achievement for our company.
That occurred in September when great television turned over to NBC Universal all of the sounds sages offices 1000 space in warehouses parking and security facilities in the Assembly Studios project that we constructed.
The facilities are world class.
And impressively constructed and less than 16 months from.
From the announcement of our long term lease.
And management agreement with NBC Universal.
We anticipate the actors strike, which we hope will end soon.
And our venues, which will host their first film and television series and live television productions should begin shortly.
We do not know exactly what productions will be coming to Assembly studios, but we are certain.
Thousands of creative workers and soon we'll be working at Assembly studios will prove to wall, what a wise investment this project will be over the years and decades to come.
In 2020 for Assembly studios will no longer require significant capital investments boss Instead Assembly studios will be generating cash revenues from our leases about NBC you tend to other parties.
Sounds stages and related facilities that gray retains.
As we now look ahead to completing 2023 and beginning a new political cycle in 2024.
We could not be more excited about our company's future.
Our TV stations continue to perform at the top of their game, while our value is reaffirmed daily.
Audiences clients political campaigns sports teams sports fans, the broadcast networks and distributors.
Next year, we will see us continue to build on the consistent and stable and prudent management of Gray has demonstrated before during and now after the pandemic.
Now to introduce Pablum flattening, we will add more color to our operations Pat.
Thank you Hilton.
Great television stations continued actually pretty well in the third quarter of 2023.
We again grew year over year core revenue and expect that we expect that momentum to be curious through the end of the year and Sandy will explain next.
We're continuing to see strong growth in our digital platforms and digital sales in the third quarter, we set a new all time record of 225 million video plays across great digital properties, which was a 45% increase over the third quarter 'twenty two.
September we passed 630 million video plays on grade on digital platforms for the year, which was the previous record for a full calendar year to be set in 'twenty two.
While we do not break out digital sales in our financial results I am pleased to report that our stations are continuing to grow digital revenues on an annual double digit rate.
Meanwhile, Gray continues to expand its connected TV footprint.
We currently have a few dozen fast channels of our local television stations charity Cross Samsung TV plus.
Toby Zummo play digital watch free.
In the coming weeks additional channel launches that are in the works now could nearly double the total number of fast channels that our stations have on CTV platforms.
The broadcasting industry continues to make progress rolling out next Gen technology.
During the third quarter. The main broadcast stations in New York, Philadelphia, and Minneapolis began broadcasting their programming and the a T. S. C. Three point out standard other.
Other large markets, including Chicago will soon follow.
Well, great does that operate in those markets, we're continuing to rollout the new technology in our markets too, including most recently Reno, Nevada.
As of today greatest participated in Nextgen launches in 27 markets the industry's full commitment to nextgen, including by the network <unk> stations in the largest markets will allow the industry to deliver programming and services to over 75% of U S households, within the next few months, we believe that milestone is actually a chip.
Point, we should begin seeing absent innovative uses of Nextgen technology Rolling out next year.
We continue to pursue local broadcast packages for professional basketball hockey and baseball.
This fall we're broadcasting local game show the Phoenix SUNS throughout our Arizona footprint.
We're also broadcasting games from the Atlanta, Las Vegas, and Portland, Oregon, NBA Gili teams on our local stations in those markets.
When if and when the Diamond sports bankruptcy court permits additional teams to negotiate with local broadcasters will be ready in several markets to provide compelling opportunities for the teams to expand their reach and grow their fan bases by partnering with their strong local television stations in their home market and beyond.
Consciously optimistic degree we'll have some exciting announcements in this space prior to our next earning call.
The meantime, we've launched Peachtree sports network on our stations in Georgia.
We've also launched similar statewide sports channels across our stations statewide in Arizona, Connecticut and Nevada.
These channels offer live local and regional professional college and high school level sports from their respective states along with other sports themed programming owned by our production companies Raycom Sports empower Nation Studios we.
We believe these networks in a couple of others that we may launch in the near term also provide a foundation for greatest secure more professional sports packages as they become available over the next several months.
Yesterday Circle network, which is a 50 50 joint venture between Gray and Opry Entertainment Group announced it will shut down at the end of this year. The circle networks country lifestyle content was very good and it was well supported by the country music industry.
Each week circle provided more original programming the nearly all other cable and multi cast entertainment networks and also achieved significant broadcast and M. B P. D clearance throughout the country. Unfortunately for a variety of reasons struck with that have a clear path to meet the financial expectations that our partner and we require for the venture.
Courting Lee we took an $8 3 million pre tax charge in miscellaneous miscellaneous expense line of the income statement in the third quarter of 2023 for the pending shutdown a circle.
In a related development.
New multi cast company launched yesterday that will fill essentially olive Grays channels currently carry the circle network.
The new company free television networks or F. T. N is founded and led by Jonathan Capes.
Jonathan is a pioneer multicast networks, who partner the Ray Com to launch bounce that work in other G notes before Scripps acquired keeps networks.
With MTN Johnson is partnering with Warner Brothers Discovery, Lionsgate and Gray television to launch this business. The first two networks will go live on New year's day, and we are particularly excited to reunite with John's decade to the digital business.
Those with a quick follow up on our Telemundo initiative recall that we acquired Telemundo Atlanta in spring of 2022 and soon thereafter announce that we've launched the first ever local Telemundo affiliation is on graze TV stations in 22 markets today, we have Telemundo affiliation and a total of 42 TV markets with an estimated <unk> <unk>.
Spanning population of nearly $4 5 million people.
These stations, especially in Atlanta worked closely with our existing local news and sales operations to expand the audience for our news and sales opportunities in terms of sales our Telemundo group of stations are performing well the group led by Atlanta, Telemundo station collectively posted double digit increases in AD revenues in the first three quarters of this year.
<unk> compared to the first three quarters of last year.
We have high hopes for a local telemundo affiliates and they're off to a strong start with very talented leadership.
I'll now turn the call to Sandy. Thank you Pat Cross great. We see the current advertising environment as particularly stable our core revenues continue to grow and our political revenues continue to impress.
Terms of our core business the automobile advertising category continued improving in the third quarter with an 18% year over year increase overall and a 26% increase in the national automobile AD category.
<unk> also continues to do very well the biggest decrease came from sports gambling, which was expected as that category cycles through heavy market share spending that launch and then steps down to maintenance level spending.
New business is from our local customers, who previously did not advertise on our platform continues to exceed our expectations.
In the first quarter, new local direct grew 9% on a year over year basis in the second quarter, new local direct grew in excess of 15% and in the just completed third quarter, new local direct grew 16% over the third quarter of last year as we said on prior calls we believe.
That new local direct business is our best leading indicator of the economic health of our markets and we are thrilled to see local businesses clearly exhibiting real signs of strength.
Political advertising has been very strong the first three quarters of 2023 as mentioned previously our guidance for full year political revenue is now $80 million, which is up 33% from the $60 million full year Guy from our August earnings call. This strong result reflected significant spending.
And the governors races, this year in Louisiana, Kentucky, and Mississippi, which we believe will exceed presidential primary spending this year as was also the case in 2019.
We also had a good deal of spending on Virginia State House races.
Wisconsin Supreme Court races, and a number of ballot initiatives.
Our strong political revenue flows from our leading news operations and Gray one five national Murrow Awards in September the impressive achievements were attained by our news professionals in St. Louis Missouri.
In Texas, Augusta, Georgia, Baton Rouge, Louisiana in Roanoke, Virginia.
Great stakeholders should be particularly impressed with the incredible work that our Hawaiian news now team demonstrated in the aftermath of the horrible wildfire this summer and especially the tragedy of the fire that destroyed the town are behind us and Maui that personally impacted many members of our Hawaii team into three weeks after the behind us.
Fear Hawaiian is now at 450 unique linear hours, a dedicated news coverage and seven fundraiser.
The team also produced an amazing 33 hours of Maui focus specials or broadcast TV CTV and podcasts.
Your line is now demonstrates again, the critically important and valuable service that local broadcasters provide to local communities throughout the country.
In terms of programming, we launched a new daily news show called investigate TV plus on September 11th.
The program Leverages, one of our largest collections of investigative journalists in the nation to provide even more investigations that not only uncover problems that reveal and often lead to solutions. The initial ratings from the first few weeks are impressive in many markets exceeding the ratings are syndicated talk shows and court shows that previously air.
And those time period, which confirms that local audiences are looking for something different and something impactful from their local stations.
We made a big investment this year to fill out local news live which is R. 20, 470 T. T News network that originally aired curated news content from across our 113 markets. This year, we have added exceptional talent and began programming Premier news hours out of our Washington D. C Bureau, this fall server.
All of our stations replace syndicated programming with the <unk> on their broadcast schedule and the response from the audience has been justice is encouraging as our initial success with investigate TV plus.
Lesson from both of these initiatives is that gray can leverage its leading local news and investigative team and to Standalone properties that better serve broadcast and OTT audiences, while further reducing our dependence on third party content providers and now I'll turn the call to Kevin.
Thank you Sandy.
In the third quarter, our retransmission revenue grew 3% on a year over year basis as a result of contract repricing to the first half of 2023.
Our total subscriber trends continued to be consistent with the broadcast industry as a whole, which makes sense given the grace portfolio is now more or less evenly split between large markets and medium sized markets.
Our network compensation expense in the third quarter was essentially the same as both the first and second quarters of 2023 and is projected to remain flat in the fourth quarter's bite. This summer's new network affiliation with CBS for the former Meredith markets, what's the Fox annual escalator hitting as well as the renewal and re pricings of all of our CW affiliation agreements and the legacy.
Gray markets.
We will be renewing the bulk of our traditional mvpds retrans contracts next year, covering about 38% of our mvpds subscribers in the first quarter and 23% of those subscribers in the second half of 'twenty 'twenty four.
Last month, we provided our views on the network and retransmission landscape and investor deck.
And attempted to dispel what we frankly believe was unfounded negativity in some quarters.
And that that can in a number of investor conferences and meetings. Since early September we explained why we believe the broadcast retransmission rates remain significantly undervalued and have new momentum for growth going forward will.
Our main theme support this conviction.
First broadcast programming, especially local news and professional sports remained tentpole programming viewer impressions are clearly increasing on streaming platforms, but those impressions are mostly coming from cable channels, leaving total broadcast ratings generally stable over the last few years.
Broadcast programming is not only very popular broadcast stations also have among the most intense and loyal viewers of any programming channel available anywhere.
Second broadcast affiliates are aligned with the broadcast networks and protecting the network affiliate distribution model and our collective stations abilities to grow Retrans revenue.
The networks in short neither affiliation to survive succeed and flourish in order to profit from the unparalleled reach provided for the networks advertising business and the profit from the affiliates own retransmission revenues.
Third the charter Disney deal structure confirmed the most.
That most premium content, such as ABC and ESPN will continue to be key drivers of value for distributors.
That deal also provides new ways to help lessen pay TV subscriber churn through DTC offerings, and apparently additional flexibility and distributors.
<unk> two tier cable channels.
Both of which should make the most of it should make the basic cable bundle more attractive to more households.
Finally secondary cable channels secondary cable networks and regional sports networks are experiencing the undeniable Klein and ratings fees and industry support.
As they collect fewer fees and lose distribution premium content can be better compensated by simply reallocating distributors programming budgets away from the declining channels.
The increasingly important premium content, and especially to broadcasters, who are still paid a fraction of the value that we deliver to the pay TV bundle.
With industry wide trends have been highlighted by our peers recently and we believe these trends will be validated by all broadcasters as we continued to successfully negotiate traditional mvpds retrans agreements in the coming year and crunch.
In terms of Gray in particular I encourage all of you to review the last two pages of our recent investor deck that is posted on our website and was distributed via a press release last month.
There and we demonstrated through Comscore ratings data be incredible popularity of Gray's local newscast during our recent ratings week in September 2023.
The data illustrates it gray's local newscast deliver more household viewership in the market and the total of all network Prime viewership on NBC, CBS ABC and Fox combined.
Reis local news cast it over more viewership than a total all NFL games on a b C for Monday night football CBS Fox and NBC combined.
Raised local newscast at over more viewership than the total all three major cable news networks combined and.
And finally, Gray's local newscast by a factor of nearly six times deliver more household viewership and a total of all 15 top cable news cable sports networks and their markets.
In conclusion, our local community as well as our network relationships remained mutually strong.
Meanwhile, retransmission revenue is continuing to grow and its prospects for future growth remain as bright as ever.
It's my remarks, I now turn the call to Jim Ryan.
Thanks, Kevin.
Pat Sandy and Kevin will cover the key highlights for the quarter and year to date and as such my remarks will be very short.
First of all for Q3 23 again, we're very pleased with our Q3 results, especially with our core revenue up 1% in the third quarter.
For our fourth quarter guidance.
We again very pleased that we're seeing continuing strong performance demonstrated.
In our core advertising and we expect that to be up low single digits.
We've heard some chatter that some people thought the expense guide for Q4 was a little heavy so let me address that and the broadcast line, there's about $15 million to $20 million.
Discretionary.
Compensation expense.
We don't actually accrue for that until we're confident that it's going to be paid out and so that expense falls into the fourth quarter of the year. So you can think of it more as a timing difference actually if you look at our full year guidance for broadcast expense going all the way back.
To our February call. When we first gave out 2023 full year guidance. We said broadcast expenses would be about approximately $2 3 billion.
As of today based on our year to date results and our Q4 guide it would say that our broadcast expenses are tracking to end up somewhere around 2.275 billion.
So all in we've been very consistent.
Same with the Q4.
Corporate expense guidance, there's about $7 million to $10 million of professional fees that were falling into the fourth quarter.
Again, if you look at our full year guidance going back to February we said, our corporate expenses for the full year would track to be about $120 million and that's consistent with where we're tracking again today.
Moving on to the rest of the full year.
Our expected results our total revenue will be approximately 2.75 billion.
Sorry.
Let me clarify that I misspoke total revenue of approximately 3.275 billion again is expected to be approximately 3.2 75 billion.
Core revenue of about 1.51 billion retransmission revenue of approximately 1.53 billion and again both of those line items are up in the low single digit area and we're very pleased with those results.
Well look yes, political revenue, we've moved up to $80 million for the year from our previous guide of $60 million.
Our total broadcast revenue again is still approximately 3.2 billion, which is consistent with what we've said every quarter since February.
Broadcast expenses will be approximately 2.2 75 billion with a network compensation of about 938 million noncash stock comp of $5 million and 401k noncash expense of about $10 million.
And I've already mentioned that corporate expenses for the year somewhere between 115 and $120 million consistent with our original guidance at the beginning of the year and in that number there's about $14 million of noncash stock comp.
Our operating cash flow as defined in our senior credit agreement we are.
Expecting approximately $800 million and that's consistent with what we said over the last couple of quarters.
Full year uses of cash can't yet full year interest cash interest expense of about 435 million I'll remind everybody again that we have a 5% so for our interest rate caps at most of our floating rate debt and currently about 95% of our.
Is that including that which is on the rate caps.
Is at fixed rates.
Cash taxes of about $50 million this year.
That does not include a pending refund of $21 million that we have had pending from the IRS for a while now and where we're hopeful that we will be coming in sooner than later routine capex of $110 million of course, our preferred dividends are $52 million and we have.
The $15 million of required amortization on our term loan D.
So our free cash as we define it we still expect approximately $150 million before any acquisitions investments and our common dividends.
We're very well positioned three quarters through 'twenty three we think we have a very good fourth quarter shaping up and we're looking forward to a strong political in 2024 I'll turn the call back to Hilton. Thank you Jim operator at this time, we'd like to open up the call for any questions that anyone may have.
Okay. If he would like to ask a question. Please press star one on your telephone keypad.
Again to ask a question press star one on your telephone keypad and I'll discuss a few moments for indicators.
Yeah.
It looks like our first question is going to come from Aaron Watts at Deutsche.
Inc. Your line is open.
Everyone. Thanks for having me on I just had two questions I guess first one most of the local broadcasters have painted a picture of relative.
Relatively stable core that core advertising revenues, perhaps even some green shoots of turning a corner to improvement rolling into 'twenty four that's a bit of a contrast from commentary some of the more large market national focus media companies have I've talked to do you see the bifurcation between national and local continuing any warning signs.
Local confidence as wavering and anything you're seeing or hearing that makes you feel better on the core AD outlook rolling into 'twenty four.
Yeah, Thanks, Aaron it's Pat.
Local was strong and it's been strong.
The <unk>.
National AD market has struggled pretty much the entire year, but we see no weakness locally in that setting sandy cover that and you know.
With the automotive category coming back.
With a vengeance.
That's that's been huge.
Not just in local but also national spot, which is different to national advertising. So we are.
We think we'll have a good fourth quarter in and and you don't feel like we're very good shape going forward.
Alright, Thanks, Pat that's helpful. And then just secondly, maybe this is pointed to jam sort of commentary in the release that you don't anticipate any material capital projects at Assembly and 24 that said can you remind us what additional cash capital will be required for assembly near term and with regards to the evaluation of opportunities.
Based on market value of the real estate could any of those opportunities happen over the near or medium term horizon to help you accelerate your deleveraging process.
So.
For the fourth quarter actually on a net cash basis, we expect to.
Receive cash we do have a cash outlay, but we are expecting cash in from the quasi governmental agency that's paying for the public infrastructure as we've said before those funds, earning a trust account at U S Bank. It's just the case of.
<unk>.
Very very slow but.
Paperwork to get the cash in so on a net basis, we actually expect to receive money in the fourth quarter and not have to outlay anything.
Which is the the good news I'll, let Hilton take the second half of your question.
Well on this call I'm not going to commit to anything publicly that we intend on doing but Aaron let me emphasize something we start getting revenue from what we have built at Assembly studios in three weeks.
And it will turn out to be if it is not already the single largest and most important asset that this company owns.
The way I look at it it's as if we had simply purchased a mid market television station that will deliver about four times the free cash flow that that station would have otherwise provided but yet it does it through film and TV productions. So.
I know that you and our company are viewed based on our cash flow not necessarily on the inherent value of the assets that we own but this particular asset has a huge inherent value and will begin within a short period of time before I.
Blank generating revenue at a larger percentage capacity than any individual television station that we own in our portfolio and that's actually saying a lot.
And Erinn I will tell you I'm exceptionally proud of that.
One of these days everyone on this call I would love to host you as an Investor Day at Assembly Studios we.
We do not anticipate large capital expenditures I'm sure. During the course of 2024, there may be some that arise.
The demand for the real estate that is not yet developed that gray television owns.
That frame is stunning and so.
So we will see.
That comes from that.
And so on this call I don't want to commit the company or two.
Evidenced to others, what we are willing or not willing to do.
But we have an asset that few companies.
Half and we're very proud of it.
I appreciate the thoughts thank you.
You bet, Eric Eric just as a quick follow up to kind of put a little bit better number on the net impact in Q4.
You'll see in the Q when it gets filed a little later today that our outflow in Q4.
We expected in the range of 20 to 25 million.
But we're still expecting approximately 85 to 90 million inflows primarily from the quasi governmental entity.
Further the public infrastructure again again.
That inflow from that entity you know a lot of the public infrastructure is done.
But the.
The paperwork involved in the red tape involved to get it out of yeti multiple.
Simple entities to check off the appropriate boxes is.
I would just say from my standpoint, it's frustratingly slow, but the good news is the monies in the bank and we just got to keep processing the paperwork.
Okay. Thanks, Jim.
Thank you Aaron.
Our next question is going to come from Steven Cahall with Wells Fargo. Your line is open.
Thank you so Kevin I think Retrans revenue is going to be up around 2%. This year based on the Q4 guide it slowed down quite a bit from the last couple of years I know, there's a lot of timing in there with fewer renewals. It's a lot more complex. These days between the mix of streaming and traditional and you just have higher rates overall.
But as we look out into 2024 between some of the constructive view on what's happening with Disney Charter plus I think just more subscribers up for renewal is it reasonable to expect that retrans revenue should accelerate next year versus this year.
And then Pat just want to go a little deeper into the core AD outlook that you talked about things sound pretty positive.
I was a little surprised that the guidance isn't a little higher I think that there's probably a fair amount of crowd out benefit in Q4 on the core side.
And the guidance isn't a lot higher than Q3. So can you just maybe help me understand is that just a bit of conservatism in there could be some upside there or anything else in the core got it. Thank you.
It's David on the first point, yes, we would anticipate retrans would be higher next year.
Just simply.
<unk>.
Volume of contracts that are being renegotiated.
We expect those those will go forward as all of our Retrans agreements really almost without exception for 20 some years have gone.
They won't be fine there won't be easy, but they'll get done quietly in the background with no noise of disruption and.
Continuing to move the needle closer towards full value of our stations.
So yes, we do expect Retrans, we hire next year and with that I'll, let Pat address core.
I think the simplest way to answer is yes. There was some crowd out last year, there wasn't a ton of crowd out.
And.
Could there be a little bit of upside in Q4 potentially.
So historically, we've been conservative.
The graphic anything I'd, just say I think that you know.
The market is pretty strong and I think you'll see that reflected in our results.
And maybe if I could ask a quick follow up I know that for competitive reasons, giving revenue or EBITDA related to your new anchor tenant in assembly is not.
Not possible, but as we think about the contribution in 2024 could it be a material contributor to either EBITDA or free cash flow next year. Thanks.
David is Hilton commented D D.
The Assembly studios, obviously is a it is primarily a long term lease annuity to the company.
With obviously with the five sound stages, we're keeping theres some shorter term.
The leases as well.
Hilton commented that.
Because theres minimal operating expense for the facility.
I actually we only have less than 10 people our own employees in assembly everybody else's either a N. B C. You are a contractor for NBC U.
It will be a an extremely high margin business for us and.
And as Hilton said it would.
Be akin to a you know a nice performing television station.
But in the context of a company that's doing in a you know three point.
Reish.
A $1 billion of revenue.
Material becomes a fairly large number in my mind so is it.
<unk> nicely added is at a high margin, yes. It is in the long term annuity yes.
And again materiality and a $3 3 billion dollar revenue company is is a little bit different.
Thank you.
Thank you Steven.
Our next question is going to come from Paula Farrell with neighboring partners.
Your line is open.
Thank you. Thank you for taking my question.
I was looking through the disclosures in the press release and I couldn't tell if the Capex on assembly was cumulative or additives.
But it looks like the total gross investment there is something close to 500 million is that correct.
And if so.
Doesn't that imply that any kind of reasonable return on that actually generate something that is meaningful to the company's net income or free cash flow.
So the the acute and the cumulative amount through the end of this year netting the Ah.
Repayment of public infrastructure from the governmental entity.
And also assuming a very small few acres being sold to.
To a residential developer in order to be able to check the box for residential development on the overall acreage.
We probably will have a net investment of probably in the $450 million to $475 million range.
So I guess I'm just curious what you would consider a reasonable return on that investment.
Well, we think it's going to be a very solid return and we can't speak to you Paul on percentages at this time, because we have NDA is on that and assuming the strike ends sometime soon we think it's going to be a very.
Solid and very profitable investment and you guys will get to see it as each quarter.
Comes out through the course of 'twenty 'twenty four and thereafter.
But would you agree that at.
As we sit here today.
There's a net investment of.
On your number is $4 50 to $4 75, which essentially youre getting zero credit for.
Given that everyone values your company on free cash flow or eight quarter average two year EBITDA.
Paul does.
You have assembly Atlanta is worth more than the entire market cap the brake TV. So I've made very very clear that we are grossly undervalued and yes, you're accurate we get no credit for what we have been able to create at Assembly studios, but I think that.
We'll all matriculate out as our quarters go forward.
So I.
Unlike our socks are roaring bar.
And as a reminder, if you would like to ask a question. Please press star one.
Next question is going to come from Dan Cornelis from benchmark. Your line is open.
Great. Thanks.
Morning.
Maybe just to follow up on Steve's question Pat on core.
You know you've got Phoenix coming on board I know Scripps gave some numbers around the impact of local sports deals you, obviously message there could be something else to come that I assume is not in your numbers. If you land. Another one of those deals and it sounds like national getting better with local stable to kind of.
So I'm just sort of trying to triangulate the impact of.
Some of the stuff that you've signed plus kind of what youre seeing in underlying and I know you guys have outperformed the industry and gotten no credit for it for the last I don't know three or four quarters now.
So it's.
A year or even more difficult comps.
Alright, I'm trying we're trying to keep it maybe a little more.
But yes, I know, what you're saying so.
The incremental is there anything else that you can kind of provide around that or you know I don't want to kind of ask a question again, but I guess, you hopefully see where I'm coming from.
Sure. So so look I think as it relates to sports deals.
We have one.
Basically started in October.
Yeah.
I think one thing to consider.
When you talk about the sports deals that they will all likely be different. So the types of deals you do may include a lot of advertising inventory for a station or stations. Other deals may have very limited advertising inventory for a station or stations. So.
That's a desktop sort of a big variable there, but the reality is.
We are a in terms of core revenue I think scripts is somewhere between 40 and 50% of our core revenue. So moving the meter for US is a different thing to moving the meter for Scripps Encore and.
And look at the end of the day I think there's great opportunities in sports, we're gonna be aggressive in pursuing those opportunities and we think it's at some point you know when we acquire.
You know a number of franchises hopefully.
There will be some significant impact to us, but right now there isn't.
Yes, that's fair.
Fair statement.
Kevin since you brought it up this comes up from time to time.
You brought up ratings you brought up local news I'm, just kind of curious either on an absolute or relative basis, how local news in your markets performed.
But as you go through that paragraph and then Kevin.
We're very happy with the ratings as I said, we look at trend lines on an aggregate basis of viewership of streaming cable channels and broadcast it's clear broadcasters is pretty stable streaming is growing in cable is declining.
And as you saw in our deck for us.
<unk> of our ratings as its local news and local programming and as Danny mentioned, we've been now leveraging our our content with a new daily.
Show called investigate TV and.
It's a product that we are now broadcasting and some markets are called local news.
Five so we're actually saying here.
<unk>.
This really good content and leverage it and put it on in place of syndicated shows and getting better ratings. So we think the audience is there and and.
And there are certainly finding us so.
We're definitely comfortable with where our local news ratings are they they've been holding in and we don't see why we don't see that changing.
Got it.
Helpful.
And since you're may be in a sharing mood and before Kevin kicked under the table how do you feel about political next year.
Oh, well I think it's going to be.
Huge I think it's political is going to be absolutely huge it is.
Is yet too early for us to handicap, who the respected nominees of their parties will be but regardless of that we still are spending less.
Political advertising during a presidential year than Halloween costumes or Easter eggs.
So I think that the future.
Political spending is huge.
Regardless of the fact that Theres many avenues to reach people. The single Best Avenue use local news centered TV stations. So I think 2024 is going to be fantastic.
Alright.
That's it for me Thanks, guys I appreciate it.
Our next question is going to come from Nick <unk> from Stephens, Inc.
Your line is open.
Hey, guys a high level question just on this charter Disney Jill just love to hear your perspective on how quickly. These mvpds and other network streaming services will look to bundled together and then specifically for Gray are you more optimistic on the potential for reduced Mvpds churn as you go forward.
Or is it maybe the content curation that occurred specific to that deal that makes more room for spend to be allocated to gray for the value provide which of those two are you more excited about in the near term.
Okay. Good questions.
With me a moment to think about that.
Yeah.
They're doing we transfer.
And cable programming agreements before he came to Greg for a couple of decades now I'd say it's.
In my experience.
T B distributors had been eager.
To rationalize some spending for a long time and.
That would mean more flexibility in what channels are carrying not simply carry every channel that had content creator dreams up.
Ill point every channel that's dreamed up on a basic cable tier and pay for it.
And.
There has been some rationalization over the last few years of cable channels that have.
Uh huh.
Then dropped.
And then wound down et cetera, but it seems that the charter Disney deal was a.
A larger move on that are rationalizing the number of cable channels than we've seen in any single deal. So that's probably more I guess I'd say, if I had to choose probably a bit more impactful.
The ecosystem in.
In terms of timing it would just be my.
Estimate that no distributor and content company is going to rush to do a deal terribly early.
So as deals come up for renewal over the next.
A couple of years.
Different probably would there be some new structures.
Will develop but that's not going to happen on its own it's going to happen as individual contracts between big distributors and big content companies come up over the next few years.
Got it that's very helpful. And then just one follow up here.
Assuming you're able to gain incremental access to sports content and it sounds like you guys might have a.
Few things growing here I'm wondering if your existing distribution deals are flexible such that as you add more content. You can immediately then command improved distribution fees or whether you have to wait until the next renewal to be rewarded for the improved content that you might be bringing to consumers.
Sure so at eight.
Fairly high level.
Our contracts say that if we add.
AD content of a certain type it would trigger a fee. So historically, if we were to add a a big four affiliate.
What do we buy the station and a new market or we add.
A an affiliate in a market that didn't have a local affiliate rate they used to be at to markets without a full range of form or network affiliates as we add one of those.
It would trigger additional carriage obligation and additional payment obligation.
The sports.
Professional sports is similar to that and that as a general rule, if we add sports to a to a station we've negotiated with providers that if we deliver certain kinds of sports in certain kinds of games and certain channels that it would trigger an additional.
Or a higher distribution fee.
Generally.
That's typically the language for the last.
Several contracts there are some that don't have that language, but those contracts are coming up for exploration in the next 12 months.
Given all broadcasters are seeking local professional sports I would expect that all broadcast and all distributors are having the same kinds of conversations about what triggers to include in their contracts I shouldn't booklet sports come to come to the local broadcast station.
Great very helpful guys. Thank you very much and good luck going forward. Thank.
Thank you. Thank you.
Our next question is going to come from Alan <unk> from loop capital.
Line is open.
Thanks for taking the question I've got two here.
What what are the financing options for assembly going on Hilton's analogy to a local television station I don't think you'd have an unleveraged television stations in your portfolio.
And then I'll follow up with a question for Patrick Kevin on CTV.
Alright, well, let me answer that gray paid.
For Assembly studios the old fashion way, we paid cash there is utterly no debt on that real estate development its own outright by the company.
The initial investment.
I'm from funds, we didn't anticipate receiving during good dual Georgia Senate run off a couple of years ago, and then we have paid based upon Jim's prudent guidance.
What we needed to do to build it out of our free cash flow every month and those cash expenditures have essentially come to a close and as I mentioned earlier.
We start getting free cash flow from that investment in about three weeks certainly by the time, we next gather on our call.
And those cash flow numbers, while we cannot provide them to you directly will go up substantially when the strike comes to an end.
I have utterly no inside information were not part of either party, but what I read in the press is that the strike.
Yes.
More optimistic that it will conclude then it will continue through the end of the year and then when that happens we're going to have thousands of men and women out there, making movies, making their job and creating value for the shareholders of our company.
I mean Hilton I understand your bullishness on the studio, but wouldn't it make sense to add them and nonrecourse financing, especially based on the cash flows that are about to start buying again.
Yeah, Alan as we said and it's big enough.
Calls ago now that the studio phase is completed.
We said very clearly.
Like I said, a couple of calls ago that we will be.
Taking a pause.
And thinking very hard about what the possibilities are over the next 357 years to continue to unlock value there.
And I remind.
And everybody that there are still up approximately 50 acres or so there is undeveloped.
Okay Hilton corrected me he said it's closer to 80, so that's my bad.
So that's that is.
Financing options for assembly.
You know, we that's part of that evaluation, that's part of that thought process.
And I would remind everybody that assembly studios is in an unrestricted subsidiary.
So it is currently outside of all of our credit agreements. So it gives us a lot of flexibility on a go forward basis to consider a wide range of possibilities.
And Allen this is Hilton let me follow up on your comment, yes, I am a ball and I suggest everyone on this.
Paul that all of you should be a bull on what we are doing as well.
It is a unique asset for our company and for our state and the film and television production business is the fastest growing part of one of the fastest growing states in this country.
And I think you should all be very bullish on what we're doing.
Okay, and then to follow up on the CTV side.
I know a lot of the nose, but their stations and their local news on fast stations and it makes sense with the growth of CTV, but Patrick Kevin what impact does that have on your retrans. When you start putting some of your local news on these bad patients or CTV stations.
There hasnt been any.
Perfect.
As we sit here today.
The CTV.
Our connected TV business for us is still small.
We would expect some growth we mentioned today that would be number two rollouts candidly 18 months ago, we thought we'd have most of our stations rolled out due to technical challenges on the part of our partners, we haven't gotten as many rolled out as we'd like.
But we think over the next year or two there will be.
Meaningful revenue coming from that area.
Okay. Thank you.
Okay.
Our next question is going to come from Craig Huber with Huber Research. Your line is open.
Thank you your Retrans subs I believe you guys said three months ago.
They were down low single digits year over year net just can you give us an update on that number. Please this time.
Hi, Craig what we are saying is that our our sub wassa generally consistent with what we're seeing in the industry and <unk>.
<unk> peers, we're not doing it quarter by quarter calculation any longer.
Too many long philosophical discussions over days over how we define the word subscriber versus others. So just take it at a high level, we're not materially better or materially worse in terms of.
Sub numbers and our peers.
Half of our.
Footprint is in large markets have a 45% our footprint is in mid sized markets are about 5% is in small market. So we are a there was a while there where our sub numbers were much better than our peers. Because we were predominantly mid size and small markets and given our current footprint. We're very much now like everybody else.
A large market midsize market companies, what almost evenly between the two so we're finding our sub trends are.
Consistent generally with everybody else's, so there's not really anything to call out that were better or worse than.
With the peer group is seeing.
Okay. My second question. Please.
Core advertising trends have certainly held up better than your peers out there.
Just like to hear your thoughts on why you think your core advertisers have been doing so much better than your peers in this more in this market in particular.
Yeah.
Yes, it's well it's a it's the strength of our stations.
If you've been on calls before you've probably heard me talk about our training program and our vertical program those things, which are unique in the industry or have an impact on our local ad sales.
Every quarter, we also have this.
And I will focus on new business development.
So I think those three things combined with the strength of our people and our stations are the reason why we tend to lead the industry.
Core advertising, absolutely, we're really fortunate to have strong general managers and strong sales managers that have made new local direct a focus and continuing to improve quality and we see the results of that in core.
I appreciate that what percent of your big four TV stations or.
Ah ranked number one or number two in ratings right now.
90%.
Isn't that the Big reason why you guys are shining versus peers.
Right right.
Absolutely yes.
And an added at 90% how many.
We're ranked number one in ratings.
Oh, I guess its in our herbs exactly hang on one second.
Bear with me.
Sure.
Our.
Gray sections.
We have 113 markets Oh, sorry.
We have 80 markets with the number one ranked station in 102 markets with our first or second ranked television station.
We're pretty proud of that number I mean, the stations have obviously continued to focus on quality local content and we see that our audiences respond very positively to that.
Great. That's all I had thank you.
Yeah.
And our next question is going to come from Jim Goss with Barrington Research. Your line is open.
Thanks, Craig.
Extent, you're talking about the large medium and small market are you seeing any appreciable difference and.
AD trends.
Among them by market size or or might it be more geographic.
Sensory is differentiation.
Jim not really.
There really isn't any.
Any.
Groups, whether it's small medium or large it outside and outperforms the others. So.
Geographically same situation, we really can't point to.
A single area, whether it's the Midwest or the south east or whatever.
Sure.
Certain stations are performing better than others.
Geographic reasons so.
So theres really no and let me follow up with what Hudson were seeing no sign by region or bond market.
Any kind of recession, we just arent seeing it and when we began 2023, everyone that was on our calls at the time thought Oh, well, we're going to have a recession rates going up or going to.
The state things in there, but we're not seeing that anywhere the changes that we have in terms of our core revenue.
Things like automobile alright automobile industry week, they didn't advertise walk because they didn't have enough cars to sell for the demand and now all of a sudden they've got to do that it's returning but theres no signs of a recession that we yet fee anywhere in the country.
Okay very good to know.
Couple of other questions about the sports focused saying he made a point of saying how important it was to take advantage of the opportunities.
I'm curious about a couple of things one.
The situation, we have in Phoenix with the SUNS in the Mercury.
Are there other markets that you think you can do similar things and are these sort of.
Non exclusive add ons to other program rights that are <unk>.
Existing in those markets and then separately with regard to the ACC programming is that totally within the context of the CW and to the extent that the CW has changed its stripes quite a bit with nextera recently in terms of the orientation or are there additional stations.
And some of the markets, where you might be more inclined to consider shelly eating.
With.
The CW, whereas you may have noted earlier.
I'm going to let Pat go for this bid.
I do want to say a couple of things Sean first of all everyone. On this call may or may not have actually looked at our footprint. This is something that we actually need to make sure that you guys understand one of the great things about what we have built over the last pick a number of decades.
Is that we cover small markets midsized markets in large markets and so we're one of the very very very few broadcasters that can deliver a broadcast speed for a sports team for every single viewer that wants to watch those teams one of the thing.
Things that we preach.
Is that you know what you need to be on free achieving gray can deliver that we did a brilliant job and are doing I should say a brilliant job with SUNS because we're in Yuma Tucson, Phoenix Flagstaff everywhere in the state of Arizona, and we got letters and this is something that the investing world.
Needs to understand our GM and our station got letters from individuals who live on the American reservations, the Native American reservation sang.
Q so much because all of a sudden for the first time, we can watch our basketball team.
On our reservation in our homes and that is the power of broadcast television that is also I want to say one of the unique abilities that Gray has if you look at our home state of Georgia. We're in every single television market.
That's true for South Carolina, Alabama, that's true for almost all of the Mississippi and Louisiana, All of Kentucky, All Tennessee, Wisconsin, Arizona, Nevada, you go through the list and we cover the smaller cities to the largest metroplex.
And that gives us an ability not only to put it on the air but because we have such a high concentration of <unk>.
Deeply embedded television stations, we can promote these sports teams better than any of our competitors that is our sales pitch and it's what we've been building for almost 30 years.
Just to just to follow on Hilton I think the way to look at it is we're not just focused on.
Phoenix team or the Atlanta team or the Cleveland team or the Nashville team we have markets.
I'll use an example here in the state of Wisconsin were not in Milwaukee, but we're in every other market in Wisconsin. So we are a great partner for whomever ends up with.
I'll make this up the box or the Brewers.
In that in that situation is true for a number of different teams. So we again, we have one team right now we're not going to get way ahead of ourselves here, but the reality is our geography is really favorable.
Two.
Many many sports franchises.
And Jim you asked a question about CW and the ACC.
The ACC rights that were formerly with Diamond are now at the CW. So the ACC football and basketball rights I think that's what you'd asked I just wanted to confirm that that is correct yes.
And we're very we're very happy with that and I will tell you personally I love watching the CW in Asia.
<unk>.
Foot ball I'll watch the Georgia Tech game here recently and in Atlanta on our CW here, we're proud to be affiliated with the CW network. As we are with all of our networks, but I do want to just take a moment and salute.
Perry Sook and everyone at Nexstar for what they've done for the CW Theyre doing a great job and we.
We're proud to be in business with them on a local basis I Should've mentioned that we actually do the production for CW football in for CW basketball Raycom sports one of our production companies.
Okay, but the other part of the question was whether you there are additional CW affiliation that might be under potential consideration would you say.
I think that's I think that's a question for Perry Sook on the CW lab for Gray television.
But just so you'll know I'll take any CW affiliation that don't want to give us. So yeah. We're open but that's a question for the people that are on that network.
Okay. Thank you.
And our last question is going to come from Michael Pinsky with Noble capital. Your line is open thank.
Thank you for taking the question.
Congratulations on working with Jonathan case by the way the Guy who has been a pioneer in the network business and I think that that's a real plus I was curious on Flushing out your strategy for the for those networks and also.
How many networks do you think you might need to gain scale. There and then also do you plan to grow affiliates beyond maybe the gray affiliations and station that you might have maybe just to kind of flush out your strategy there.
Yes, it's really it's Jonathan strategy, but from our perspective.
Being able to partner with the very best in the business is a huge advantage.
Back in 2011, and this is back in a ray comp days.
<unk> partnered with Jonathan to launch bounce and grid and escape and laugh.
And those networks grew tremendously and he ended up selling them to scripts much to Ray Tom's dismay at the time.
And so you know.
One network as an African American focused network, one is a sort of western slash action adventure, having access to the library is from Lionsgate and WB D.
Is it another enormous asset for that business. So look I think in terms of in terms of other station groups I could.
I don't want to speak for Jonathan but I'm sure. He is talking to a lot of folks.
Uh huh.
Who run traditional TV station groups beyond great.
But I don't in terms of his.
Sort of a strategic approach to that area, that's really his deal more in mind.
Gotcha. Thanks for that I appreciate it that's all I have.
Well I want to thank you for your excitement about what he is doing and and our participation in that I agree with you I think he's a he's a star and we'll see what the future brings.
Operator is that the last of our questions.
Yes, so ill turn it back over for any closing remarks. Thank.
Thank you very much I'd like normally I, just sign off but let me just sort of in this mornings call with a few things.
Great television assets are core a retrans our ratings are all best in class and as all of you know.
Kevin is a human being who speak softly, but carries a big stick and so I am.
Im going to reprise his big step as we close this.
Our data.
Illustrates that Gray's local news cast delivers more household viewership in.
In each of our markets than the total.
All network problem viewership on NBC CBS and Fox.
Combined.
Gray's local newscast deliver more viewership than the total.
All NFL games on Abc's Monday night football CBS Fox and NBC.
Combined.
Raised local news cast deliver more viewership than the total of all three major cable news networks.
Combined.
Finally.
Graze in local news cast by a factor of over six times deliver more household viewership than the total of all 15 pop cable sports networks and their markets.
Reasonably we outperform is because our stations outperformed this is a unique company.
And I think we should be valued as unique company.
So thank you for being here and joining us for this conference and I look forward to reviewing our year end results next year.
Thank you operator.
Ladies and gentlemen. This concludes your call you may now disconnect.