Q2 2024 Gray Television Inc Earnings Call
Operator: That's more slowly than you would typically talk to us.
Speaker Change: Welcome ladies and gentlemen to the Gray Media Conference call.
Speaker Change: If you know you'd like to ask a question, you may do so at any time during the call by pressing star 1 on your telephone keypad. Once again, that's star 1 on your telephone keypad to join the question queue.
Operator: Welcome, ladies and gentlemen, to the Gray Media Conference call. If you know you'd like to ask a question, you may do so at any time during the call by pressing star one on your telephone keypad. Once again, that's star one on your telephone keypad to join the question queue. And without further ado, I will now turn the program over to our chairman and CEO, Hilton Howell, Jr.
Speaker Change: And without further ado, I will now turn the program over to our Chairman and CEO , Hilton Howell Jr.
Hilton Howell Jr.: Thank you, operator. Good morning, everyone.
Hilton Howell Jr.: As the operator mentioned, I'm Hilton Howell, the chairman and CEO of Gray Television. Thank you all for joining our second quarter 2024 earnings call. With me here in Atlanta are all of our executive officers, Pat LaPlatney, our president and co-CEO, Sandy Breland, our chief operating officer, Kevin Latek, our chief legal and development officer, and Jeff Chignak, who succeeded Jim Ryan as our chief financial officer on the 1st of July. As usual, we will begin with the disclaimer that Kevin will provide. Thank you, Hilton. Good morning, everyone.
Speaker Change: Thank you, operator. Good morning, everyone. As the operator mentioned, I'm Hilton Howell, the chairman and CEO of Gray Television. Thank you all for joining our second quarter 2024 earnings call.
With me here in Atlanta are all of our executive officers.
Speaker Change: Our presenters, Pat LaPlatney, our President and Co-CEO, Sandy Breland, our Chief Operating Officer.
Kevin Latek, our Chief Legal and Development Officer, and Jeff Geniak, who succeeded Jim Ryan as our Chief Financial Officer on the 1st of July .
Kevin: As usual, we will begin with a disclaimer that Kevin will provide. Kevin? Thank you, Hilton. Good morning, everyone. Gray Television, commonly known as Gray Media or Gray, uses its website as a key source of company information.
Kevin Latek: Gray Television, commonly known as Gray Media or Gray Television, uses its website as a key source of company information. The website address is www.graymedia.com. We will file our quarterly report on Form 10-Q with the SEC today. We issued an updated investor presentation this morning that can be found on our website under investor relations. Included on the call may be a discussion of non-GAAP financial measures, and in particular adjusted EBITDA, the leveraged ratio denominator, and certain leveraged ratios. These metrics are not meant to replace gap measurements, but are provided as supplements to assist the public in its analysis and evaluation of our company.
Kevin Latek: The website address is www.graymedia.com. We will file our quarterly report on Form 10-Q with the SEC today.
Speaker Change: We issued an updated investor presentation this morning that can be found on our website under investor relations.
Kevin Latek: The reconciliation of these financial measures to the gap measures reported in our financial statement is included in our earnings release, as well as posted on our website. Additionally, certain matters discussed on this call may include forward-looking statements regarding, among other things, future operating results. Those statements are subject to a number of risks and uncertainties. Actual results in the future could differ from those expressed or implied in any forward-looking 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 quarterly report on Form 10-Q and our most recent earnings release. The company undertakes no obligation to update these forward-looking statements. And I now turn the call to Hilton.
Speaker Change: Included on the call may be a discussion of non-GAAP financial measures, and in particular adjusted EBITDA, leveraged ratio denominator, and certain leveraged ratios.
Speaker Change: These metrics are not meant to replace gap measurements, but are provided as supplements to assist the public in its analysis and evaluation of our company. Included in our earnings release...
Speaker Change: as well as posted on our website are reconciliations of these financial measures to the GAAP measures reported in our financial statements.
Speaker Change: The certain matters discussed on this call may include forward-looking statements regarding, among other things, future operating results. Those statements are subject to a number of risks and uncertainties.
Speaker Change: Actual results in the future could differ from those expressed or implied in 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.
Hilton: including our most recent quarterly report on Form 10-Q and our most recent earnings release. The company undertakes no obligation to update these forward-looking statements. And I now turn the call to Hilton.
Hilton Howell Jr.: Thank you, Kevin. As usual, there was no slowing down this summer for Gray. We certainly packed a lot of very exciting innovation, collaboration, and straightforward quality journalism into the last couple of months. Our local news stations and our production companies are performing at the top of their games. Our financial results evidence the success as much as the fantastic award-winning work of several stations that have been recognized over just the past few months from investigative reporters and editors, the National Association of Broadcasters Leadership Foundation, the Mental Health America Association, and the Society of Professional Journalists.
Hilton: Thank you, Kevin. As usual, there was no slowing down this summer for Gray. We certainly packed a lot of very exciting innovation, collaboration, and straightforward quality journalism into the last couple of months.
Hilton: Our local news stations and our production companies are performing at the top of their game. Our financial results evidence this success as much as the fantastic, award-winning work of several stations that have been recognized over just the past few months.
Speaker Change: From the Investigative Reporters and Editors, the National Association of Broadcasters Leadership Foundation, the Mental Health America Association, and the Society of Professional Journalists.
Hilton Howell Jr.: We are honored to work with dedicated employees at every level of this company, and we congratulate all those involved in these award-winning projects who are making a real impact with investigative journalism, one story at a time. Gray is also continuing to expand its content and reach in many ways. From the announcement of our upcoming live broadcast of the Harlem Globetrotters game on August 18th, which will be produced by our subsidiary Raycom Sports, to the launch of new networks like Rock Entertainment Sports Network in Ohio and Palmetto Sports and Entertainment in South Carolina, we are constantly looking for ways to entertain and inform our viewers.
We are honored to work with dedicated employees at every level of this company, and we congratulate all those involved on these award-winning projects who are making a real impact with investigative journalism, one story at a time.
Speaker Change: Gray has also continued to expand our content and reach in many ways.
Speaker Change: From the announcement of our upcoming live broadcast of the Harlem Globetrotters game on August the 18th Which will be produced by our subsidiary Raycom Sports
Speaker Change: to the launching of new networks like Rock Entertainment Sports Network in Ohio and Palmetto Sports and Entertainment in South Carolina. We are constantly looking for ways to entertain and inform our viewers.
Hilton Howell Jr.: With this in mind, I'm personally pleased to review our second quarter's results for our company with you today. Our total revenue in the second quarter was $826 million, an increase of 2% from the second quarter of 2023. Net income was $22 million in the second quarter compared to $4 million in the second quarter of 2023. Adjusted EBITDA was $225 million, essentially unchanged from the second quarter last year.
Speaker Change: With this backdrop, I'm personally pleased to review our second quarter's results for our company with you today.
Speaker Change: Our total revenue in the second quarter was $826 million, an increase of 2% from the second quarter of 2023.
Speaker Change: Net income was $22 million in the second quarter, compared to $4 million in the second quarter of 2023. Adjusted EBITDA was $225 million, essentially unchanged from the second quarter last year.
Hilton Howell Jr.: Our core advertising revenue in the second quarter was $373 million, which was slightly below the low end of our guidance range. To be specific, our core advertising revenue was about 5.7 million less than 2023's result. But please remember that Q2 and 2023 were an exceptionally strong 4% ahead of 2022's result. So all in all, we feel quite good with where we are. Political advertising revenue in the second quarter was $47 million on a combined historical basis, which includes the results of our acquired stations and excludes the results of our divested stations. Our second quarter political ad revenues blew by the second quarter of 2020, the last presidential election year, by a whopping 62 percent.
Speaker Change: Our core advertising revenue in the second quarter was $373 million, which was slightly below the low end of our guidance range.
Speaker Change: To be specific, our core advertising revenue was about $5.7 million less than 2023's result. But please remember that Q2 and 2023 was an exceptionally strong 4% ahead of 2022's results.
Speaker Change: So, all in all, we feel quite good with where we are.
Speaker Change: Political advertising revenue in the second quarter was $47 million on a combined historical basis, which includes the results of our acquired stations and excludes the results of our divested stations.
Speaker Change: Our second quarter political ad revenues blew by the second quarter of 2020, the last presidential election year, by a whopping 62 percent.
Hilton Howell Jr.: As you may have seen in this morning's earnings release, we are lowering our full revenue guide by $75 million for core ad revenue and $25 million for retransmission revenue. These adjustments reflect our current expectations for a continuing healthy local economy, continuing growing digital ad business, continuing strong political revenues, and a significant amount of political displacement. At the same time, we are continuing to carefully review all of our opportunities to increase revenue, and reduce expenses, even more intensely than this already efficient company always does. Meanwhile, we have really good news to share with Assembly Atlanta. Last week. D.I.A.C.I.
Speaker Change: As you may have seen in this morning's earnings release, we are lowering our full revenue guide by $75 million for core ad revenue and $25 million for retransmission revenue.
Speaker Change: These adjustments reflect our current expectations for a continuing healthy local economy, continuing growing digital ad business, continuing strong political revenues, and a significant amount of political displacement.
Speaker Change: At the same time, we are continuing to carefully review all of our opportunities to increase revenue, reduce expenses, even more intensely than this already efficient company always does.
Speaker Change: meanwhile we have really good news to share on assembly atlanta last week
Hilton Howell Jr.: and Teamsters Unions ratified new collective bargaining agreements that cover the important trade and craft workers in the film and television production industries. With the risk of another Hollywood strike averted, we are now busy again lining up film and television productions for our sound stages and related facilities here in Atlanta. In fact, we have already signed our first long-term studio lease for multiple stages within the portion of Assembly Studios that is not leased by NBC Universal.
Speaker Change: The IOTSE and Teamsters unions ratified new collective bargaining agreements that cover the important trade and craft workers in the film and television production industry.
Speaker Change: With the risk of another Hollywood strike averted, we are now busy again lining up film and television productions for our sound stages and related facilities here in Atlanta.
Speaker Change: In fact, we already signed our first long-term studio lease for multiple stages within the portion of Assembly Studios that are not leased by NBCUniversal.
Hilton Howell Jr.: Last week, Gray entered into a lease with one of the major studio companies for the full suite of facilities needed to support a new high-quality episodic television drama for one of the big four broadcast networks. Our own stations that are affiliates of that network will actually start airing this new network show early next year. We are sincerely thrilled to welcome this production to the Atlanta metro area and to our world-class studio production complex at Assembly Atlanta, and we expect it to be a mutually beneficial long-term relationship.
Speaker Change: Last week, Gray entered into a lease with one of the major studio companies for the full suite of facilities needed to support a new, high-quality, episodic television drama for one of the big four broadcast networks.
Speaker Change: Our own stations that are affiliates of that network will actually start airing this new network show early next year.
Speaker Change: We are sincerely thrilled to welcome this production to the Atlanta metro area and to our world-class studio production complex at Assembly Atlanta, and we expect it to be a mutually beneficial long-term relationship.
Pat LaPlatney: While we are proud of our recent and anticipated operational achievements, the most significant activity for Gray during the second quarter was undoubtedly the successful refinancing of our 2026 debt maturities. In particular, we extended almost $2 billion of debt maturities to 2029 while also increasing our revolving credit facility to $680 million. As a result of these efforts, we no longer have material near-term maturity through smart execution of the business, including increased efforts to raise revenues and thoughtful decisions around reducing costs and capital expenditures.
Speaker Change: While we are proud of our recent and anticipated operational achievements, the most significant activity for Gray during the second quarter was undoubtedly the successful
Speaker Change: Refinancing of our 2026 debt maturities. In particular, we extended almost $2 billion of debt maturities to 2029, while also increasing our revolving credit facility to $680 million.
Speaker Change: as a result of these efforts we no longer have a material near-term mater
Speaker Change: through smart execution of the business, including increased efforts to raise revenues and thoughtful decisions around reducing costs.
Pat LaPlatney: We expect to generate significant pre-cash flow later this year and through 2026 that can and will be used to repurchase and pay off debt. As Jeff Janiak will soon explain in his remarks, we began open market repurchases of our 2027 notes immediately after the closing of our refinancing, and that effort continues into this quarter. Reducing debt and leverage remains our top capital allocation priority forward. We have said this now for a few quarters, and we will continue to reiterate this guiding principle until our debt and leverage comes back down to our usual, more comfortable level.
Speaker Change: and Capital Expenditures.
Speaker Change: We expect to generate significant pre-cash flow later this year and through 2026 that can and will be used to repurchase and pay off debt.
Speaker Change: As Jeff Geniak will soon explain in his remarks, we began open market repurchases of our 2027 notes immediately after the closing of our refinancing, and that effort continues into this quarter.
Jeff Geniak: Reducing debt and leverage remains our top capital allocation priority.
Speaker Change: We have said this now for a few quarters, and we will continue to reiterate this guiding principle until our debt and leverage comes back down to our usual more comfortable levels.
Pat LaPlatney: In pledging our support for reducing leverage, you will continue to see Gray doing what it said it would do on this critical topic, as well as in every other regard. Pat and the rest of the team will now provide some more color around our recent experiences and upcoming opportunities.
Jeff Geniak: More importantly...
Pat LaPlatney: In pledging our support for reducing leverage, you will continue to see Gray doing what it said it would do on this critical topic as well as every other regard. Pat and the rest of the team will now provide some more color around our recent experiences and upcoming opportunities.
Pat LaPlatney: Our core advertising revenues started this second quarter strong but tailed off a little in June. In the end, 2024 second quarter ad revenues are about a point and a half less than 2023. For context, Core in the second quarter of this year did not include about five million in revenues attributable to the NCAA Final Four games that we broadcast in 23, but did not have in 24. And, as Hilton mentioned, we were working against a pretty tough comp at plus four from Q2 of 23.
Pat LaPlatney: Thanks, Hilton.
Pat LaPlatney: Our core advertising revenues started this second quarter strong, but tailed off a little in June .
Speaker Change: In the end, 2024 second quarter ad revenues are about a point and a half less than 2023.
Pat LaPlatney: For context, Core in the second quarter of this year did not include about $5 million in revenues attributable to the NCAA Final Four games that we broadcast in 23, but did not have in 24. And, as Hilton mentioned, we were working against a pretty tough comp at plus-4 from Q2 of 23.
Pat LaPlatney: Looking ahead to the third quarter of 24, we expect Coral to be flat to up low single-digit percentages compared to the third quarter of 23, driven primarily by the Olympics, which are proving to be an extraordinary event for both viewers and advertisers. We currently anticipate that our 56 NBC affiliates that cover about 11% of U.S. homes will generate approximately $19 million of Olympic advertising revenue in the third quarter. And for those of you wondering, some of that is political.
Speaker Change: Looking ahead to third quarter of 24, we expect Coral to be flat, to up low single digit percentages compared to the third quarter of 23, driven primarily by the Olympics, which are proving to be an extraordinary event for both viewers and advertisers.
Speaker Change: We currently anticipate that our 56 NBC affiliates that cover about 11% of U.S. homes will generate approximately $19 million of Olympic advertising revenue in the third quarter.
Pat LaPlatney: Obviously, CORE will be impacted by displacement from strong political demand as we move through the third quarter of 2024, especially in September. However, displacement is likely to be more impactful this year than we originally expected, with political ad revenue arriving later in the year in a more compact window, forcing us to displace more commercial ads to make room for political ads. Consequently, as we consider possible ranges of core and political avenues in the fourth quarter,
Speaker Change: And for those of you wondering, some of that is political.
Speaker Change: Obviously, CORE will be impacted by displacement from strong political demand as we move through the third quarter of 2024, especially in September .
Speaker Change: Displacement is likely to be more impactful this year than we originally expected, with political ad revenue arriving later in the year in a more compact window, forcing us to displace more commercial ads to make room for political ads.
Pat LaPlatney: We determined that it would be prudent to reduce our internal forecast for Q4 and Q4. As a result of that decision, we today reduced our four-year guide for CORE from $1.6 billion to $1.525 billion. It's important to remember that we reduced our full-year 2024 guide for broadcast operating expenses by $50 million on our last earnings call. Today, we are lowering our guidance for broadcast op-ecs, corporate, and admin expenses for the full year by an additional $20 million and our capital expense range by another approximately $20 million.
Speaker Change: Consequently, as we consider possible ranges of core and political ad revenues in the fourth quarter,
Jeff Geniak: We determined that it would be prudent to reduce our internal forecast for Q4 and Q4.
Jeff Geniak: As a result of that decision, we today reduced our four-year guide for CORE from $1.6 billion to $1.525 billion.
Pat LaPlatney: It's important to remember that we reduced our full year 2024 guide for broadcast operating expenses by $50 million on our last earnings call.
Pat LaPlatney: Today, we are lowering our guidance for broadcast OPEX.
Speaker Change: and corporate and admin expenses for the full year by an additional $20 million and our capital expense range by another approximately $20 million.
Pat LaPlatney: While Gray has made good progress managing costs and expenses this year, we are redoubling our efforts to find thoughtful ways to reduce operating and capital expenses. We are continuing to lean on our strong in-house sales training programs and relentless efforts to develop new local direct business, which is essentially our local sales force finding a customer that's new to Gray. In the second quarter, we continued to break records again, pardon me, by again posting a double-digit percentage revenue increase for new local direct business in the second quarter of 2023.
Pat LaPlatney: While Gray has made good progress managing costs and expenses this year, we are redoubling our efforts to find thoughtful ways to reduce operating and capital expenses.
Pat LaPlatney: We are continuing to lean on our strong in-house sales training programs and relentless effort in developing new local direct business, which is essentially our local sales force finding a customer that's new to Gray.
Pat LaPlatney: In the second quarter, we continued to break records again, pardon me, by again posting a double-digit percentage revenue increase for new local direct business over the second quarter of 23.
Pat LaPlatney: These strong results continued into July 24, which delivered 20% more new local direct business than July 23, some of which is likely attributable to the Olympics on our NBC station. Your digital businesses are also continuing to grow their audience and revenue. In the second quarter, we once again set new records for engagement, as well as double-digit growth in the number of digital advertisers and in total digital revenue, which we include in core ad revenue.
Pat LaPlatney: These strong results continued into July of 24, which delivered 20% more new local direct business than July of 23, some of which is likely attributable to the Olympics on our NBC stations.
Pat LaPlatney: Our digital businesses are also continuing to grow audience and revenues.
Pat LaPlatney: In the second quarter, we once again set new records for engagement.
Pat LaPlatney: as well as double-digit growth in the number of digital advertisers.
Pat LaPlatney: Our connected TV and fast channel offerings continue to roll out, finding viewers and attracting advertisers in this important and growing part of the ecosystem. In terms of political advertising revenue, through June 30, the first half of the year, our political ad revenues were $74 million compared to the $79 million that we recorded in the first half of 2020 on a combined historical basis. First half 2020 political revenues benefited from $31 million more in presidential primary outspending than we achieved in the first half of 2024, otherwise known as the Bloomberg Stires. We certainly cannot predict where political revenue will end up this year, given the unprecedented nature of this year's presidential election.
Pat LaPlatney: and in total digital revenue, which we include in core ad revenue. Our connected TV and fast channel offerings continue to roll out, finding viewers and attracting advertisers in this important and growing part of the ecosystem.
Speaker Change: in terms of political advertising revenue through june thirty in the first half of the year our political ad revenues were seventy-four million compared to the seventynine million that we recorded in the first half of two thousand and twentyeight when to combined historical basis
Pat LaPlatney: First half 2020, political revenues benefited from $31 million more in presidential primary outspending than we achieved in the first half of 2024, otherwise known as the Bloomberg-Steyer effect.
Pat LaPlatney: We certainly cannot predict where political revenue will end up this year given the unprecedented nature of this year's presidential race.
Pat LaPlatney: We are particularly encouraged by this.
Pat LaPlatney: We are particularly encouraged to see the presidential race, since the end of the second quarter, become very competitive and energize races up and down the ballot, fueling substantially more fundraising.
Pat LaPlatney: For these reasons, we continue to anticipate very strong political ad revenues for the full year.
Pat LaPlatney: Thank you, Pat. We not only had success on the sales side, but once again, we served our audiences with high-quality local journalism. Throughout the second quarter, we continued breaking important news stories, as well as gathering awards, recognitions, and, most importantly, audiences, as we have documented on numerous recent calls and press releases. We are very proud to be investing in local news, weather, and sports, as well as investigative, political, and franchise stories that our local communities want.
Speaker Change: i now turn the call over the city
City: Thank you, Pat.
City: We not only had success on the sales side, once again we served our audiences with high quality local journalism.
Citi: Throughout the second quarter, we continued breaking important news stories, as well as gathering awards, recognitions, and most importantly, audiences, as we have been documenting on numerous recent calls and press releases.
Citi: We are very proud to be investing in local news, weather, and sports, as well as investigative, political, and franchise stories that our local communities want. It is these efforts that allow our great sales teams to provide the advertising solutions that are clearly resonating with businesses in our markets.
Pat LaPlatney: It is these efforts that allow our great sales teams to provide the advertising solutions that are clearly responding with businesses in our market. In some of our large markets, we participate in third-party audits with all other local television stations to track the shares our stations obtain from the television-only portion of local ad markets. The audits from the second quarter indicate that total ad hours in some markets did decrease slightly over the past year.
Citi: In some of our large markets, we participate in third-party audits with all other local television stations to track the shares our stations obtain from the television-only portion of local ad markets.
Pat LaPlatney: these audits from the second quarter indicates that total ad dollars in some markets just decrease slightly over the past year
Pat LaPlatney: At the same time, however, the second quarter audits revealed that Gray's stations grew their shares of Total Advertising, as well as their shares of core revenue fueled by strong digital sales and political ad revenue. We are not surprised by these results because we have seen again and again that maintaining a strong focus on local newscasts and community involvement retains viewers regardless of economic conditions. Our strong local stations proved themselves over the past year as they demonstrated the power of television to a large number of local professional sports teams and fans alike.
Pat LaPlatney: At the same time, however, the second quarter audits revealed that Gray's stations grew their shares of total advertising, as well as their shares of core revenue fueled by strong digital sales and political ad revenue.
Speaker Change: We are not surprised by these results, because we have seen again and again that maintaining a strong focus on local newscasts and community involvement retains viewers regardless of economic conditions.
Speaker Change: Our strong local stations proved themselves over the past year as they demonstrated the power of television to a large number of local professional sports teams and fans alike.
Pat LaPlatney: In the last two weeks, as Hilton mentioned, we announced the launch of Rock Entertainment Sports in partnership with Dan Gilbert's Sports and Entertainment Properties, as well as Palmetto Sports and Entertainment, a new statewide sports network in South Carolina.
Hilton: In the last two weeks, as Hilton mentioned, we announced the launch of Rock Entertainment Sports in partnership with Dan Gilbert's Sports and Entertainment Properties, as well as Palmetto Sports and Entertainment, a new statewide sports network in South Carolina.
Kevin Latek: Throughout this year, we have been working aggressively on a number of other opportunities to bring more sport back to local broadcast television stations. We are optimistic that we will have some exciting news in this area to announce soon, so please stay tuned.
Hilton: Throughout this year, we have been working aggressively on a number of other opportunities to bring more sports back to local broadcast television stations. We are optimistic that we will have some exciting news in this area to announce soon, so please stay tuned. I now turn the call over to Kevin.
Kevin Latek: As most of you know, over the course of a three-year cycle, Gray renews retransmission consent agreements covering roughly 400 traditional pay TV operators who carry our TV station signals to tens of millions of our mutual customers. Our current cycle began in the second half of 2022.
Kevin: i thank you sany is most of you know over the course of a three year cycle gre renews retransmission confen reements covering roughly fouror hundred traditional ptv operators who carry our tv station signals to tens of millions of our mutual customers
Kevin Latek: We had anticipated some final renewals throughout the second half of this year. We can now report that, within the past few days, Gray has reached agreements and agreements in principle, completing the current 2022-2024 renewal cycle. Our next set of material MVPD retrends renewals occurs in the first quarter of 2026, with operators who serve approximately 23% of our traditional MVPD sub-base. In the second quarter of 2026, our renewals will cover about 18% of our traditional MVPD subscribers.
Kevin: Our current cycle began in the second half of 2022.
Speaker Change: While we had anticipated some final renewals throughout the second half of this year, we can now report that within the past few days, Gray has reached agreements and agreements in principle completing the current 2022-2024 renewal cycle.
Hilton: Our next set of material MVPD retrends renewals occurs in the first quarter of 2026.
Hilton: with operators who serve approximately 23% of our traditional MVPD sub-base.
Hilton: In the second quarter of 2026, our renewals will cover about 18% of our traditional MVPD subscribers.
Kevin Latek: The next group covering about 34% of these subs will come up in the first quarter of 2027, with the remaining 25% of traditional MVPD subs covered in the final tranche of renewals occurring in the third quarter of 2027. Once again, Gray has completed a retrans renewal cycle without a single public dispute impacting its business, the distributors' business, or our mutual customers.
Hilton: The next group, covering about 34% of these subs, will come up in the first quarter of 2027, with the remaining 25% of traditional MVPD subs covered in the final tranche of renewals occurring in the third quarter of 2027.
Hilton: Once again, Gray has completed a retrans-renewal cycle without a single public dispute impacting our business, the distributor's business, or our mutual customers.
Kevin Latek: We value the collaborative approach with our ReTrans partners to secure continued distribution of our strong telecommunications without interruption. And importantly, Gray obtained the necessary rate increases and terms that reflect the formidable value that the content our stations deliver to these distributors. We remain optimistic that the pace of sub-declines will slow going forward.
Speaker Change: we evaluue the collaborative approachwith our returns partners to secure a continued distribution of our strong ations without interruption
Hilton: Importantly, Gray obtained the necessary rate increases and terms that reflect the formidable value that the content our stations deliver to these distributors.
Kevin Latek: This is a result of the addition of more streaming apps to MVPD bundles, the proliferation of ads and price increases in streaming products, more MVPD control over the carriage and payment for the Little Watch cable channel, and the migration of sports to broadcast networks and local stations. To date, however, the traditional MVPD subscriber base has continued to decline this year at about the same pace as last year. This is in contrast to our more optimistic expectations earlier this year.
Hilton: We remain optimistic that the pace of sub-declines will slow going forward. This is a result of the addition of more streaming apps to MVPD bundles.
Hilton: The proliferation of ads and price increases in streaming products, more MVPD control over the carriage and payment for the Little Watch cable channels, and the migration of sports to broadcast networks and local stations.
Hilton: To date, however, traditional MVPD subscriber base has continued to decline this year at about the same pace as last year. This is in contrast to our more optimistic expectations earlier this year.
Kevin Latek: Given these experiences through the first half of 2024, we are bringing our guidance for full-year retransmission down by about 3%, up to approximately $1.475 billion. We continue to anticipate network affiliation fees of approximately $935 million for the year, essentially in line with last year's amount. As a reminder, we will be negotiating new affiliation agreements with each of the Big Four networks over the next 18 months. The networks see the same trends we do, and we know that they also see the same value to their businesses that only strong local affiliates can provide.
Hilton: Given these experiences through the first half of 2024, we are bringing our guidance for full-year retransmission down by about 3 percent.
Hilton: up to approximately $1.475 billion.
Hilton: We continue to anticipate network affiliation fees of approximately $935 million for the year, essentially in line with last year's amount.
Hilton: As a reminder, we will be negotiating new affiliation agreements with each of the Big Four networks over the next 18 months.
Hilton: The networks see the same trends we do, and we know that they also see the same value to their businesses that only strong local affiliates can provide.
Kevin Latek: We will not get into details or specifics of our network affiliation agreements, which remain strictly confidential. What we can tell you is that Gray has been and will remain committed to adjusting the network cost side of the retransmission equation to ensure that they reflect the significant changes to the television ecosystem that have occurred over the past few years. This concludes my remarks, and I turn the call now to Jeff.
Hilton: We will not get into details or specifics of our network affiliation agreements, which remain strictly confidential.
Hilton: What we can tell you is that Gray has been and will remain committed to adjusting the network cost side of the retransmission equation to ensure that they reflect the significant changes to the television ecosystem that have occurred over the past few years.
Operator: Welcome, ladies and gentlemen, to the Gray Media Conference call. If you know you'd like to ask a question, you may do so at any time during the call by pressing star 1 on your telephone keypad. Once again, that star 1 on your telephone keypad to join the question queue.
Jeff Chignak: Thanks, Kevin. Hilton and Pat covered the key financial highlights of the quarter, which are detailed in the earnings release and the 10-Q. I'll therefore focus most of my remarks on the big improvements we made recently to our balance sheet. But first, I'd like to point out that, as Hilton mentioned, our adjusted EBITDA for Q2 came in at $225 million. This exceeded our expectations as our operating expenses were $17 million below the low end of our guidance range of $624 million.
Speaker Change: with this concludes my remarks and turn the call now to just
Pat LaPlatney: thanks kevin it'op pat covered the key financial highlights of the quarter which are detailed in the earnings release in the ten -q
Hilton Howell: And without further ado, I will now turn the program over to our chairman and CEO, Hilton Howell, Jr. Thank you, operator. Good morning, everyone. I'm at the operator mentioned. I'm Hilton Howell, the chairman and CEO of Gray Television. Thank you all for joining our second quarter, 2024 earnings call. With me here in Atlanta are all of our executive officers, Pat LaPlatney, our president and co-CEO, Sandy Breland, our chief operating officer, Kevin Latek, our chief legal and development officer, and Jeff Chinjak, who succeeded Jim Ryan as our chief financial officer on the 1st of July.
Speaker Change: I'll therefore focus most of my remarks on the big improvements we made recently to our balance sheet.
Hilton: But first, I'd like to point out that, as Hilton mentioned,
Hilton: Our adjusted EBITDA for Q2 came in at $225 million. This exceeded our expectations as our operating expenses were $17 million below the low end of our guidance range of $624 million.
Jeff Chignak: During the quarter, we capitalized on receptive debt market conditions to extend $1.85 billion of our 2026 maturities. We also increased our revolving credit facility commitments to $680 million, all of which is due on December 31, 2027. This financing provides us with a clear line of sight to addressing our 2027 notes maturity, using on balance sheet liquidity and the significant cash flow we expect to generate later this year and again in 2026. We sincerely appreciate the banks in our lending group that have stood by us for many years, as well as those who have joined our lending group in the last few months.
Speaker Change: during the quarter we capitalized on receptive death market conditions to extend one point eight five billion of our two thousand and twenty six maturities we also increased our revolving credit facility commitments to six hundred eighty million dollars all of which is due on december thirty first two thousand and twenty seven
Kevin Latek: As usual, we will begin with the disclaimer that Kevin will provide. Thank you, Hilton.
Kevin Latek: Good morning, everyone. Gray Television, commonly known as Gray Media or Gray, uses its website as a key source of company information. The website address is www.geraymdia.com.
Hilton: This financing provides us with clear line of sight to addressing our 2027 notes maturity.
Hilton: Using on-balance sheet liquidity and the significant cash flow we expect to generate later this year and again in 2026.
Hilton: we sincerely appreciate the banks in our lending group that it stood by us for many years as well as those who joined our lending group in the last few months
Jeff Chignak: We also sincerely appreciate the support of the many investors who understood our business and our plans and followed through with very strong commitments to purchase our new Senior Secured Loan and our new Senior Secured Notes. As Hilton mentioned earlier, reducing debt and leverage remains our top capital allocation priority.
Kevin Latek: We will file our quarterly report on form 10 queue with the SEC today. We issued an updated investor presentation this morning that can be found in our website on your investor relations. Included on the call may be a discussion of non-gap financial measures, and in particular adjusted EBITDA, leverage ratio denominator and certain leverage ratios. These metrics are not meant to replace gap measurements, but are provided as supplements to assist the public and its analysis and valuation of our company. Included in our earnings release, as well as posted on our website, are reconciliation to these financial measures to the gap measures reported in our financial statements.
Hilton: We also sincerely appreciate the support of the many investors who understood our business and our plans and followed through with very strong commitments to purchase our new Senior Secured Loan and our new Senior Secured Notes.
Jeff Chignak: And to that end, following the completion of the refinancing in Q2, we retired $50 million of our 2027 notes via open market repurchases at an average price of approximately 90.5%. Subsequent to quarter end in July, we acquired an additional $29 million of face value of the 2027 notes at just over 92% of par. As of August 7th, we have $178 million remaining under the previously announced $250 million open market purchase program and will continue to monitor market conditions for additional open market repurchase opportunities.
Hilton: As Hilton mentioned earlier, reducing debt and leverage remains our top capital allocation priority. And to that end, following the completion of the refinancing in Q2, we retired $50 million of our 2027 notes via open market repurchases at an average price of approximately 90.5% apart.
Hilton: Subsequent to quarter end, in July , we acquired an additional $29 million of face value of the 2027 notes at just over 92% of par.
Kevin Latek: The certain matters discussed on this call may include poor looking statements regarding among other things, future operating results. Those statements are subject to a number of risks and uncertainties. After results in the future, could differ from those expressed or implied in any forwardal statement as a result of various important factors that have been set forth in companies most recent reports, probably the SEC, including our most recent quarterly report on form 10 queue and our most recent earnings release.
Hilton: As of August 7th, we have $178 million remaining under the previously announced $250 million open market purchase program, and we'll continue to monitor market conditions for additional open market repurchase opportunities.
Jeff Chignak: Further, our strong cash flow generation in July allowed us to repay $75 million of our revolver on August 1st, leaving $125 million currently drawn. As of August 7th, that leaves us with available liquidity of over $600 million from cash on hand and undrawn revolver. Depending on the timing of additional open market repurchase activities, we currently expect to fully repay our revolver by quarter end. One last item I'd like to point out is that our leverage metrics did kick up slightly from Q1 to Q2.
Hilton: Further, our strong cash flow generation in July allowed us to repay $75 million of our revolver on August 1st, leaving $125 million currently drawn.
Hilton Howell: The company undertakes no obligation to update these forwardal statements, and I now turn the call to Hilton. Thank you, Kevin.
Hilton Howell: As usual, there was no slowing down this summer for grey. We certainly packed a lot of very exciting innovation, collaboration, and straightforward quality journalism into the last couple of months. Our local news stations and our production companies are performing at the top of their game. Our financial results evidence the success as much as the fantastic award-winning work of several stations that have been recognized over just the past few months. From the investigative reporters and editors, the National Association of Broadcasters Leadership Foundation, the Mental Health America Association, and the Society of Professional Journalists.
Hilton: as of august seventh that leads us with available liquidity of over six hundred million dollars from cash on hand in undrawn revolver capacity
Hilton: Depending on the timing of additional open market repurchase activities, we currently expect to fully repay our revolver by quarter end.
Jeff Chignak: This was expected and is mostly related to the timing of our refinancing as we paid fees and expenses related to the refinancing and had to settle interest on the 2026 notes tender offer prior to quarter end. The other notable factor is the leverage ratio denominator.
Hilton: One last item I'd like to point out is that our leverage metrics did kick up slightly from Q1 to Q2.
Hilton: This was expected and is mostly related to the timing of our refinancing as we paid fees and expenses related to the refinancing and had to settle interest on the 2026 notes tender offer prior to quarter end.
Jeff Chignak: On that side of the equation, we have a timing swing related to political revenue. In Q2 of 22, the quarter that's rolling out of our eight-quarter calculation, political revenue was $90 million. In Q2 of 24, political was 47 million. Our guidance for year-to-date political through Q3-24 indicates that we expect Q3 to approximate our year-to-date 22 and 2020 political, which will normalize the denominator in our calculation and align with third-quarter cash flows. This concludes my remarks, and I'll turn the call back over to Holt. Thank you very much.
Hilton: The other notable factor is on the leverage ratio denominator.
Speaker Change: on that side we have and that's by the equation we have a timing swing related to political revenue
Hilton Howell: We are honored to work with dedicated employees at every level of this company, and we congratulate all those involved on these award-winning projects who are making a real impact with investigative journalism one-storing at a time. Gray is also continuing to expand our concept and reach in many ways, from the announcement of our upcoming live broadcast of the Harlem Globetrotters game on August the 18th, which will be produced by our subsidiary Raycom Sports, to the launching of new networks like Rock Entertainment Sports Network in Ohio and Palmetto Sports Entertainment in South Carolina. We are constantly looking for ways to entertain and inform our viewers.
Speaker Change: In Q2 of 22, the quarter that's rolling out of our 8th quarter calculation, political was $90 million. In Q2 of 24, political was $47 million.
Speaker Change: our guidance for year todate political to through q three twenty four indicates that we expect q three to approx q three approximate our year to date twenty two in two thousand and twenty political which will nor normalize the denominator in our calculation and aligned with third quarter cash flows
Hilton Howell Jr.: Thank you very much. Operator, at this time, would like to open up the call for any questions anyone may have.
Speaker Change: this concludes my remarks will turn the call back orittin thank you very much operator at this time 'wouldd like to open up the call for any questions andanyone may have
Operator: All right, once again, ladies and gentlemen, please press star 1 on your telephone keypad if you'd like to join the question queue. And I think we have several in queue so far. It looks like our first question will come from Daniel Kurnos of Benchmark.
Hilton Howell: With this, this backdrop, I'm personally pleased to review our second quarter's results for our company with you today. Our total revenue in the second quarter was $826 million, an increase of 2% from the second quarter of 2023. Met income was $22 million in the second quarter compared to $4 million in the second quarter of 2023. Adjusted at the dollar was $225 million, essentially unchanged from the second quarter last year. Our core advertising revenue in the second quarter was $373 million, which was slightly below the low end of our guidance range.
Speaker Change: All right, once again, ladies and gentlemen, please press star 1 on your telephone keypad if you'd like to join the question queue. Press star 1 on your telephone keypad if you would like to join the queue.
Speaker Change: And seeing we have several in queue so far, it looks like our first question will come from Daniel Kurnos of Benchmark Bay.
Daniel Kurnos: Great, thanks. Good morning.
Daniel Kurnos: Great, thanks, good morning. Three, if I could, just first on political, you know, third-party sources have already taken up.
Pat LaPlatney: Three, if I could just first on political, third-party sources have already taken up estimates for the year pretty substantially even before, you know, the transition and the Democratic Party of who's running and the peers, your peers, at, let's say, at least x runoff, are now all calling for records. I know that visibility is super limited. In July, it was slow, obviously, until Biden dropped out of the race. But just What can you guys give us any update? I assume you guys think you're going to take political market share here. I just want to gauge your level of confidence relative to 2020 on how this might affect you.
Daniel Kurnos: Estimates for the year are pretty substantial, even before...
Speaker Change: You know, the transition and the Democratic Party of who's running, and the peers, your peers, let's just say at least X runoff, are now all calling for records. I know that visibility is super limited, and July was slow, obviously, until Biden dropped out of the race, but just...
Hilton Howell: To be specific, our core advertising revenue was about $5.7 million less than 2023's result, but please remember that Q2 in 2023 was an exceptionally strong 4% ahead of 2022's results. So all in all, we feel quite good with where we are. Political advertising revenue in the second quarter was $47 million. When a combined historical basis, which includes the results of our acquired stations, and excludes the results of our divested stations, our second quarter political ad revenues blew by the second quarter of 2020, the last presidential election year, by whopping 62%.
Speaker Change: What can you guys give us any update? I assume you guys think you're going to take political market share here. I just want to gauge your level of confidence relative to 2020 here on how this might play out.
Pat LaPlatney: I think we're all pretty optimistic about politics, but I think we've also been crystal clear that we're not going to give a guide for the full year. We provided a pretty strong guide for Q3 that puts Q3 at the same spot as 2020. And I run, and also, for what it's worth, the same spot is 2022, despite the fact we didn't have thirty million dollars of presidential primary money.
Speaker Change: I think we're all pretty optimistic on political, but I think we've also been crystal clear that we're not going to give a guide for the full year.
Speaker Change: So we provided a pretty strong guide for Q3.
Speaker Change: that puts Q3 at the same spot as 2020.
Hilton Howell: As you may have seen in this morning's earnings release, we are lowering our full revenue guide by 75 million for core ad revenue and 25 million for retransmission revenue. These adjustments reflect our current expectations for a continuing, healthy, locally calming, continuing, growing digital ad business, continuing strong political revenues, and a significant amount of political displacement. At the same time, we are continuing to carefully review all of our opportunities to increase revenue, reduce expenses, even more intensely than this already efficient company always does.
Speaker Change: And also, for what it's worth, same spot as 2022, despite the fact we didn't have $30 million of presidential primary money.
Pat LaPlatney: But we're going to leave it to everyone else to make their predictions on what Q4 is going to be like and what the full year will be. But we're very optimistic. We're seeing lots of good signs, but we're not going to put a number out.
Speaker Change: But we're going to leave it to everyone else to make their predictions on what Q4 is going to be like and what the full year will be. But we're very optimistic. We're seeing lots of good signs, but we're not going to put a number out.
Pat LaPlatney: Ben, and I hope you understand that, but I will tell you, everybody here is extremely bullish on politics for this entire year. You know, we've only got 90-something days to the election, and in some states they start voting in about 30 days. And so we're seeing a tremendous amount of political advertising that is coming in, and we expect it to be a really good year.
Speaker Change: Ben, and I hope you understand that, but I will tell you, everybody here is extremely bullish on political for this entire year. You know, we've only got 90-something days to the election, and in some states, they start voting in about 30 days.
Speaker Change: And so we're seeing a tremendous amount of political advertising that is coming in and we expect it to be a really good year.
Hilton Howell: Meanwhile, we have really good news to share on Assembly Atlanta. Last week, the IOTC and Team Street unions ratified new collective bargaining agreements that covered the important trade and craft workers in the film and television production industry. With the risk of another Hollywood strike averted, we are now busy again lining up film and television and produce productions for our sound stages and related facilities here in Atlanta. In fact, we already signed our first long-term studio lease for multiple stages within the portion of assembly studios that are not leased by NBC Universal.
Kevin Latek: Okay, fair enough. Housekeeping, Kevin, when are the networks? I won't ask for terms; just when are the network renewals up?
Speaker Change: Okay, fair enough. Housekeeping, Kevin, when are the network, not one ask returns, just when are the network renewals up?
Kevin Latek: We have all the network renewals up for the next 18 months. There's a schedule in our investor deck from March that lists them out by network.
Kevin: We have all the network renewals up in the next 18 months. There's a schedule in our investor deck from March that lists them out by network.
Hilton Howell Jr.: And then Hilton, just on assembly, any way to kind of gauge your optimism about how the cash flow evolves from here and how you're thinking about, you know, kind of the payback now that you guys have most of the costs? Well, as you know, we
Hilton: And then Hilton, just on assembly, any way to kind of gauge your optimism on how the cash flow evolves from here and how you're thinking about, you know, kind of the payback now that you guys have most of the costs sunk?
Hilton Howell: Last week, great entered into a lease with one of the major studio companies for the full suite of facilities needed to support a new high quality, episodic television drama for one of the big full broadcast networks. Our own stations that are affiliates of that network will actually start airing this new network show early next year. We are sincerely thrilled to welcome this production to the Atlanta Metro area and to our world class studio production complex at Assembly Atlanta. And we expect it to be a mutually beneficial long-term relationship.
Hilton Howell Jr.: Well, as you know, the studios are built, all right, and they were profitable from day one. The conclusion, as I mentioned in our prepared remarks, getting IOTC and the Teamsters unions and the full votes behind everyone has really put a lot of wind in the sails. And in fact, I meet this afternoon after this call with individuals that are coming in to look at studios that are really prominent folks in this business. It's unbelievable how quickly things have turned out.
Speaker Change: Well, as you know, the studios are built, all right, and they were profitable from day one with the conclusion, as I mentioned in our prepared remarks.
Speaker Change: You know, getting IOTSE and the Teamsters unions and the full votes behind everyone has really put a lot of wind in the sails. And in fact, I meet this afternoon after this call.
Speaker Change: with individuals that are coming in to look at studios that are really prominent folks in this business
Hilton Howell Jr.: We have secured, and you know, Gray, we like to make sure we have our I's dotted and T's crossed before we talk about things. But we have secured a very solid lease with a very important client that we're very, very proud of that is actually operating right now. And so we expect all of our studios to be leased up in the fairly near future.
Hilton Howell: Although we are proud of our recent and anticipated operational achievements, the most significant activity for Greg in the second quarter was undoubtedly the successful refinancing of our 2026 debt maturities. In particular, we extended almost $2 billion of debt maturities to 2029, while also increasing our revolving credit facility to 680 million. As a result of these efforts, we no longer have material near-term materials through smart execution of the business, including increased efforts to raise revenues and thoughtful decisions around reducing costs and capital expenditures, which then expect to generate significant pre-cash flow later this year and through 2026 that can and will be used to repurchase and pay off debt.
Speaker Change: It's unbelievable how quickly things turned.
Gray: We have secured, and you know Gray, we like to make sure we have our I's dotted and T's crossed before we talk about things.
Gray: But we have secured a very solid lease with a very important client that we're very, very proud of that is actually operating right now. And so we expect all of our studios to be leased up in the fairly near future.
James Goss: All right, next up, we have James Goss of Arrington Research.
James Goss: Okay, thanks. One question I have is about local sports. You know, you've always been involved a lot in it, especially with Raycon, and you and your peers have been leaning even more into that in recent years. I wonder if you might talk any more about the approach you might take to identify additional ways you can be involved, since that's obviously a clearly attractive way to keep people in the broadcast area. Yeah, I think that, you know, we
Speaker Change: All right, next up we have James Goss of Arrington Research.
James Goss: Okay, thanks.
James Goss: One question I have is about local sports.
James Goss: You know, you've always been involved a lot.
Speaker Change: into it, especially with Raycon.
Hilton Howell: As Jeff Gignac will soon explain in his remarks, we began open market repurchases of our 2027 notes immediately after the closing of our refinancing, and that effort continues into this quarter. Reducing debt and leverage remains our top capital allocation for financing.
Speaker Change: And you and your peers have been leaning even more into that in recent years. I wonder if you might talk any more about the approach you might take to identify additional ways you can be involved, since that's obviously a clearly attractive way to keep people in the broadcast area.
Pat LaPlatney: Yeah, I think that we've been really clear that we're interested in doing more local sports partnerships. We had a, just concluded our first year with the Phoenix Suns, and it was extremely successful. We are happy with how it's going, and so is the team. We're currently working with four NBA teams, the Atlanta Dream, the Las Vegas Aces, the Phoenix Mercury, and, through a partnership with Tegna, the Indiana Fever, in several markets. And we're happy with how that's going as well.
Speaker Change: Yeah, I think that, you know, we've been really clear that we're interested in doing more local sports partnerships. We had a, just concluded our first year with the Phoenix Suns, extremely successful. We are happy with how it's going, so is the team. We're working currently with four NBA teams, the Atlanta Dream, the Las Vegas Aces, the Phoenix Mercury, and through a partnership with Tegna, the Indiana Fever, and several markets. And we're happy with how that's going as well. I mean, it's a great local sports and local news are a great combination. And, you know, the teams that we're working with are seeing that increased distribution and reach. And so we are absolutely interested and have, you know, shared with you guys on multiple calls that we are.
Hilton Howell: We have said this now for a few quarters and we will continue to reiterate this guide in principle until our debt and leverage comes back down to our usual more comfortable levels. More importantly than pleasureing our support for reducing leverage, you will continue to see Greg doing what it said it would do on this critical topic as well as every other regard.
Pat LaPlatney: I mean, it's a great local sports and local news are a great combination. And, you know, the teams that we're working with are seeing increased distribution and reach. And so we are absolutely interested and have, you know, shared with you guys on multiple calls that we are working on additional partnerships.
Patrick LaPlatney: Pat and the rest of the team will now provide some more color around our recent experiences and upcoming opportunities. Thanks, Elton. Our core advertising revenues started as second quarter strong, the tailed off a little in June. In the end, the 2022 second quarter ad revenues are about a point and a half less than 2023.
Patrick LaPlatney: For context, core of the second quarter of this year did not include about 5 million of revenues attributable to the NCAA final four games that we broadcast in 23, but did not have in 24. And as Elton mentioned, we were working against a pretty tough comp at plus four from 2223. Looking ahead to third quarter of 24, we expect core will be flat to up most individual percentages compared to the third quarter of 23 driven primarily by the Olympics, which are proving to be an extraordinary event for both viewers and advertisers.
Gray: We are working on additional partnerships, and as I've said, we hope to have some really exciting news soon.
Operator: Okay, great. We're moving right along.
Operator: Great, thank you. My first question is, can you just elaborate a little bit further on your core ad revenue? You mentioned it tailing off in the month of June. Do you feel that that was more economic-driven or just one or two categories? And whatever you saw in June, what parts of that on the negative side carried forward into the third quarter?
Speaker Change: butokay great moving right ong or next question comeum from craig a tuber your mind now
Craig Huber: Great, thank you. My first question, can you just elaborate a little bit further on your core ad revenue comment about it tailing off in the month of June ?
Pat LaPlatney: You can comment there, please.
Speaker Change: Do you feel that that was more economic driven, or is it just one or two categories? And whatever you saw in June , what parts of that on the negative side have carried forward into the third quarter? Anything you can comment there, please.
Pat LaPlatney: Yes, Pat, I would say, you know, it was primarily driven by the auto chilling off at the end of the second and third quarter. Our auto sales are down mid single digits, you know, although we've seen an uptick here in the last couple of weeks. So, look, in terms of the broader economic outlook, I think, you know, we're projecting to be flat to plus three.
Patrick LaPlatney: We currently anticipate that our 56 and bishops, it's the cover about 11% of US homes will generate approximately 19 million of Olympic advertising revenue in the third quarter. And for those of you wondering, some of that is political. Obviously, core will be impacted by displacement from strong political demand as we move through the third quarter of 24, especially in September. This placement is likely to be more impactful this year than we originally expected with political ad revenue arriving later in the year in a more compact window, forcing us to displace more commercial ads to make room for political ads.
Speaker Change: Yes, Pat, I would I would say, you know, was primarily driven by auto showing off at the end of the at the end of second and third quarter. Our auto is.
Speaker Change: Down mid-single digits, you know, although we've seen an uptick here in the last couple of weeks.
Speaker Change: possibly due to the Olympics. So, look, in terms of broader, you know, economic outlook, I think
Pat LaPlatney: Things are pretty positive out there. If you look at the long list of categories that we track, we have many more up than down in the third quarter. And while auto is down, and it's a big one, there are other large ones that are up as well.
Speaker Change: we're projecting to be flat to plus three things are pretty positive out there if you look at the
Speaker Change: Long list of categories that we track. We have many more up than down in third quarter.
Patrick LaPlatney: Constantly, as we consider possible ranges of core and political ad revenues in the fourth quarter, we determined that it would be prudent to reduce our internal forecast for core and fourth quarter. As a result of that decision, we today reduced our four-year guide for a core from 1.6 billion to 1.525 days. It's important to remember that we reduced our four-year 2024 guide for broadcast operating expenses by 50 million on our last earnings call.
Pat LaPlatney: So we are, you know, we are pretty bullish as far as Main Street goes in the third quarter. Yeah, I think just to add to that, Pat, too, we see that over and over again with our strong performance on new local direct and the emphasis we've had there with our really strong sales teams. And we saw an increase in the second quarter, again, record setting double digits. And we just finished July with a 20% increase in new local direct.
Speaker Change: And while auto is down, and it's a big one, there are other large ones that are up as well.
James Goss: You know, we are pretty bullish as far as Main Street goes third quarter. Yeah, I think just to add to that, Pat, too, we see that over and over again with our strong performance on New Local Direct and the emphasis we've had there with our really strong sales teams. We saw an increase in second quarter, again, record setting of double digits, and we just finished July with a 20% increase in New Local Direct.
Operator: All right, next up, we have Avi Steiner of J.P. Morgan.
Patrick LaPlatney: Today, we are lowering our guidance for broadcast off-ex and covert admin expenses for the full year by an additional 20 million and our capital expense range by another approximately 20 million. While Grant has made good progress managing costs in expenses this year, we are redoubling our efforts to find thoughtful ways to reduce operating capital expenses. We are continuing to lean on our strong in-house sales training programs in relentless effort in developing new local direct business, which is essentially our local sales force finding a customer that's new to Greg.
Avi Steiner: Thank you, and good morning. I recognize you're not going to give us a political guide, and so I'm going to try to ask it a little bit differently if I can. You took revenue down for the full year by $100 million. How much better do you think politics has become for Gray since Biden stepped down? And if you don't answer it that way, I think BIA took up their estimates for political spend this year by about 5%. Is that the right way to think about it as they think of offsets for the revenue decline? Thank you.
James Goss: All right, next up we have Avi Steiner of J.P. Morgan.
Avi Steiner: Thank you and good morning. I recognize you're not going to give a political guide, and so I'm going to try and ask it a little bit differently if I could. You took revenue down for the full year by $100 million.
Speaker Change: How much better do you think political has become for Gray since Biden stepped down? And if you don't answer it that way...
James Goss: I think BIA took up their estimates for political spend this year by about 5%. Is that the right way to think about it as they think of offsets for the revenue decline? Thank you.
Patrick LaPlatney: In the second quarter, we continued to break records again, by again, posting a double-digit percentage revenue increase for new local direct business over the second quarter of 23. These strong results continued in the July of 24, which delivered 20% more new local direct business than July of 23, some of which is likely attributable to the Olympics on our NBC stations. Our digital businesses are also continuing to grow audience and revenues. In the second quarter, we once again set new records for engagement, as well as double-digit growth in the number of digital advertisers and in total digital revenue, which we include in core ad revenue.
Pat LaPlatney: Really hard to make that call. I mean, clearly, you know, Biden's stepping back had a significant positive impact, not just on the presidential level but right down the ballot. So I look, there's going to be more money out there. But, you know, we're not in a position to really quantify what exactly that is. It's going to be a very good year. Well, we feel really good. And I think this is also true.
Speaker Change: It's really hard to make that call. I mean, clearly, you know, Biden stepping back had a significant positive impact, not just on the presidential, but right down the ballot. So I look, there's going to be more money out there.
Hilton Howell Jr.: Well, we feel really good, and this is Hilton. I'd just like to point you to our footprint, because one of the exciting things about Gray, in particular, is that we have very significant exposure to essentially every single battleground state where this election will be decided at the presidential level, and as well as significant exposure to both gubernatorial and senatorial races that are going to be very competitive. And so, while we're not giving a guide, I will reiterate that we are very, very bullish about where we are going, and I remember last quarter, everybody was asking questions about whether or not we would have any politics at all. But it's going to come in and is coming in at a very rapid rate.
James Goss: But, you know, we're not in a position to really quantify what exactly that is. It's going to be a very good year. Well, we feel really good. This is Hilton. I'd just like to point you to our footprint. Because one of the exciting things about Gray in particular,
Speaker Change: is that we have very significant exposure to essentially every single battleground state where this election will be decided on a presidential level.
Patrick LaPlatney: Our connected TV and fast-general offerings continue to roll out finding viewers and attracting advertisers in this important and growing part of the ecosystem. In terms of political advertising revenue through June 30 in the first half of the year, our political ad revenues were 74 million compared to the 79 million that we record in the first half of 2020 on a combined historical basis. First half 2020 political revenue is benefited from 31 million more in presidential primary outspending that we achieved in the first half of 2024.
Speaker Change: and as well as significant exposure to both gubernatorial and senatorial races that are going to be very competitive.
James Goss: And so, while we're not giving a guide, I will reiterate that we are very, very bullish about where we are coming. And I remember last quarter, everybody was asking questions about whether or not we would have any political at all this year.
James Goss: but it's going to come in and is coming in at a very rapid pace.
Operator: All right, before we take our next question, I just want to remind participants that they can press star one on your telephone keypad if they would like to join the question queue. And just so we can get to everybody in the queue, just keep in mind we're taking one question at a time, but you can always rejoin the queue if you'd like. So next up, we have Steven Cahall from Wells Fargo.
Speaker Change: All right, before we take our next question, I just want to remind participants, you can press star 1 on your telephone keypad if you would like to join the question queue, then star 1 on your telephone keypad if you would like to join the question queue.
Patrick LaPlatney: Otherwise known as the Bloomberg style effect. We certainly cannot predict where political revenue will end up this year giving the unprecedented nature of this year's presidential race. We are particularly encouraged to see the presidential race since the end of the second quarter become very competitive. It energizes races up and down the bow, fueling substantially more fundraising. For these reasons, we continue to anticipate very strong political ad revenues for the four years.
James Goss: And just so we can get to everybody in queue, just keep in mind we're taking one question at a time, but you can always rejoin the queue if you'd like. So next up we have Steven Cahall of Wells Fargo.
Steven Cahall: Thanks, Jeff, for the commentary on what drove the leverage a little higher this quarter. I know that's been the big focus has been getting that refinancing done and you're repurchasing those 2027 notes. I was just wondering if you have a number in mind for leverage where you think you can be at the end of the year, between the free cash flow that you'll generate, maybe some benefit from, you know, assembly and obviously politics, that sort of thing.
Steven Cahall: Thanks, Jeff. For the commentary on what drove the leverage a little higher this quarter, I know that's been a, the big focus has been getting that refinancing done and you're repurchasing those 2027 notes. I was just wondering if you have a number in mind for leverage where you think you can be at at the end of the year between the free cash flow that you'll generate, maybe some benefit from, you know, assembly and obviously political, that sort of thing.
Sandy Breland: I now turn the call over to the city. Thank you, Pat. We not only have to check on the sales side. Once again, we served our audiences with high quality local journalists. Throughout the second quarter, we continued breaking important news stories as well as gathering awards, recognition, and must importantly audiences as we have been documenting on numerous recent calls and press releases. We are very proud to be investing in local news, weather and sports, as well as investigative, political and franchise stories that our local communities want.
Steven Cahall: And then to follow up on Dan's question, is there any way to think about the run rate of assembly EBITDA as you exit the year, Hilton, and you have so many more studios kind of signed up and chugging along there? I think we're all trying to understand what that can mean for earnings generation in the years to come. And then, maybe finally, Kevin, we'd just love to get a little more thinking on your subscriber outlook.
Steven Cahall: And then to follow up on Dan's question, is there any way to think about the run rate of assembly EBITDA as you exit the year, Hilton, and you have...
Speaker Change: So many more studios kind of signed up and chugging along there. I think we're all trying to understand what that can mean for earnings generation in the years to come. And then maybe finally, Kevin, we'd just love to get a little more thinking on your subscriber outlook. You said that you're optimistic that subscriber declines could start to improve here at some point.
Sandy Breland: It is these efforts that allow our great sales teams to provide the advertising solutions that are clearly resonating with businesses in our markets. In some of our large markets, we participate in third party audits with all other local television stations to track the shares our stations obtained from the television-only portion of local ad markets. These audits from the second quarter indicate that total ad dollars in some markets did decrease slightly over the past year.
Steven Cahall: You know, you said that you're optimistic that subscriber declines could start to improve here at some point. As a long-term media analyst, this isn't necessarily something I've observed much of in my career, but would just love to kind of compare notes on it and see when you think that might start to happen. Thank you. Yeah, Steven, it's Jeff.
Speaker Change: As a long media analyst, it isn't necessarily something I've observed much of in my career, but would just love to kind of compare notes on it and see.
Jeff Chignak: Yeah, Steven, it's Jeff. So I guess what I would say on the production company's line: we didn't change our guide, which is still at the same 105 number. And it reflects our expectations around leasing at the studios along with the other production companies. So I think that, you know, that'll give you a directionally get you to what we expect for the full year from that piece of it. As it relates to leverage, I'm sure when people saw the 5.9, they said that there was maybe a little bit of head scratching and it was, we do it as a timing thing by the time we get to the end of the third quarter.
Speaker Change: You know, when do you think that might just start to happen? Thank you. Yeah. Steven, it's Jeff.
Sandy Breland: At the same time, however, the second quarter audits revealed that gray stations grew their shares of total advertising, as well as their shares of core revenue, fuels by strong digital sales and political ad revenue. We are not surprised by these results because we have seen, again and again, that maintain a strong focus on local newscast and community involvement retain viewers regardless of economic conditions. Our strong local stations proved themselves over the past year as they demonstrated the power of television to a large number of local professional sports teams and fans alike.
Jeff Geniak: I guess what I would say on the production company's line, we didn't change our guide, that's still at the same 105 number, and it reflected our expectations around leasing at the studios along with the other production companies, so...
Speaker Change: i think that that will directionally get you to what we expect for the full year from that piece of it
James Goss: As it relates to leverage, I'm sure when people saw the 5.9, they said there was maybe a little bit of head-scratching, and we do it as a timing thing. By the time we get to the end of the third quarter,
Jeff Chignak: With the cash that we expect to generate, you know, as I said in my prepared remarks, we should be out of the revolver, depending on, you know, exactly where the final political number shakes out. And the priority for the political cash flow is to get the debt repaid. So again, depending on exactly where politics shakes out, we should be, you know, probably something in the low to mid fives at the end of the year, just depending on exactly where things shake out.
James Goss: with the cash that we expect to generate. You know, as I said in my prepared remarks, we should be out of the revolver, depending on, you know, exactly where the final political number shakes out.
Sandy Breland: In the last two weeks, as Hilsley mentioned, we announced a launch of rock entertainment sports in partnership with Dan Gilbert, sports entertainment, excuse me, properties, as well as Palmetto sports entertainment, a new statewide sports network inside Carolina. Throughout this year, we have been working aggressively on a number of other opportunities to bring more sports back to local broadcast television stations. We are optimistic that we will have some exciting news in this area to announce it.
James Goss: And the priority for the political cash flow is to get the debt repaid. So, again, depending on exactly where political shakes out, we should be we should be probably something in the.
James Goss: Load them at fives at the end of the year, just depending on exactly where things shake out.
Operator: All right, next up, we have Mike Corain of Truist Securities.
Mike Corain: Hey, thanks for taking my question. I wanted to maybe try to ask the political question in a slightly different way.
James Goss: All right, next up we have Mike Corain of Truist Securities.
Sandy Breland: So please, stay tuned.
Kevin Latek: I now turn the call over to Kevin. I thank you, Sandy. As most of you know, over the course of a three-year cycle, gray renews retransmission consent agreements covering roughly 400 traditional pay TV operators who carry our TV station signals to tens of millions of our mutual customers. Our current cycle began in the second half of 2022, but we had anticipated some final renewals throughout the second half of this year.
Speaker Change: to
Mike Corain: Thanks for taking my question. I wanted to maybe try to ask the political question one slightly different way. You lowered your core guidance for the full year.
Operator: You lowered your core guidance for the four-year by about 75 million. And it looks like, you know, maybe part of that was due to, you know, the Q2 results were, you know, it looks like core was maybe eight or nine lower. And what you were expecting in Q2, but how much of that, you know, the remaining, like, 66 to 67 million decline in your core guidance is from displacement or crowding out, and how much is due to that weakness that you saw kind of at the end of Q2, and, you know, expecting, core to continue to be a little bit weaker, or is that really just displacement from politics? Yeah, I guess.
Speaker Change: by about 75 million. And it looks like, you know, maybe part of that was due to, you know, the Q2 results were, you know, looks like core was maybe eight or nine lower.
Mike Corain: and what you were expecting in Q2. But how much of that, you know, the remaining like 66 to 67 million?
Kevin Latek: We can now report that within the past few days, gray hash reached agreements and agreements in principle completing the current 2022-2024 renewal cycle. Our next set of material MDPD retransm renewals occurs in the first quarter of 2026 with operators who serve approximately 23% of our traditional MDPD subbase. In the second quarter of 2026, our renewals will cover about 18% of our traditional MDPD subscribers. The next group covering about 34% of these subs will come up in the first quarter of 2027 with remaining 25% of traditional MDPD subs covered in the final tranche of renewals occurring in the third quarter of 2027.
Speaker Change: decline in your core guidance is from displacement or crowding out and how much is due to that weakness that you saw kind of at the end of the Q2 and you know expecting Are you expecting core to continue to be a little bit weaker or is that really just displacement from?
Jeff Chignak: Yeah, I guess I'll start, and Pat and Sandy can provide some color. I mean, if you look at our guide and where it's shaking out, you know, the revised billion 525, that's still up versus 23, despite the fact that we are going to be cramming a whole heck of a lot of politics into the next 90. So I don't know that there's, I don't know that there's a specific read through when we look at the business itself.
Speaker Change: from Politico.
Speaker Change: Yeah, I guess I'll start and Pat and Sandy can provide some color. I mean, if you look at our guide and where it's shaking out, you know, the revised billion 525, that's still up versus 23.
Speaker Change: despite the fact that we are going to be cramming a whole heck of a lot of political into the next 90 days.
Jeff Chignak: We've got new local direct that's performing well. That's a barometer for the broader economic outlook that's out there. It's from a data point of view. Let me just cite one specific data point. So if you compare our performance in the last presidential cycle, if you compare Q4 of 2020 to Q4 of 2019, We had about 10% displacement in the 2020 political cycle. So, it's at least a data point that you can think about, but it's very difficult to put a specific number on exactly how much impact we're going to see there.
Speaker Change: So I don't know that there's, I don't know that there's a specific read through when we look at the business itself, we've got
Kevin Latek: Once again, gray has completed a retransm renewal cycle without a single public dispute impacting our business, the distributor's business, or our mutual customers. We evaluate the collaborative approach with our retrans partners to secure continued distribution of our strong stations without interruption. Importantly, gray obtained and necessary rate increases in terms that reflect the formidable value that the content our stations deliver to these distributors. We remain optimistic that the pace of sub declines will slow going forward.
Speaker Change: We've got new local direct that's performing well. That's a barometer for the broader economic outlook that's out there.
Speaker Change: If, from a data point of view, let me just cite a specific data point, so in, if you compare our, in the last presidential cycle, if you compare Q4 of 2020,
Speaker Change: the Q4 of 2019.
Speaker Change: We had about 10% displacement.
Speaker Change: in the 2020 political cycle. So it's at least a data point that you can think about, but it's very difficult to put a specific number on exactly how much impact we're gonna see there.
Kevin Latek: This is a result of the addition of more streaming apps to MDPD bundles. The proliferation of ads and price increases in streaming products, more MVPD control over the carers and payment for the Little Watch cable channels, and the migration of force to broadcast networks and local stations.
Pat LaPlatney: Yeah, I think that covers it.
Operator: All right, the next question is from David Hamburger of Morgan Stanley.
Speaker Change: I think that covers it. Yeah.
Speaker Change: Next question.
David Hamburger: Thank you for the question. So your distribution revenue, the trends over the last few years continue to deteriorate, and I know you called out subscriber churn as being a primary driver of that. Now that you've locked in all of your distribution renewals for the next couple of years, I'm curious, it seems as though the affiliate expense growth has flattened, so you have a pretty significant structural imbalance here, and I'm wondering, as you go into the next 18 months of the renewal process with the networks, what you can do, and how you can position yourself to, you know, get some of the relief necessary to get that back in balance.
Speaker Change: All right, the next question is from David Hamburger of Morgan Stanley .
Kevin Latek: To date, however, traditional MVPD subscriber base has continued to decline this year at about the same pace as last year, and this is in contrast to our more optimistic expectations earlier this year. Given these experiences through the first half of 2024, we are bringing our guidance for full year retransmission down by about 3 percent to approximately $1.475 billion. We continue to anticipate now-work affiliation fees of approximately $935 million for the year, essentially in line with last year's amount.
Speaker Change: Thank you for the question. So, your distribution revenue...
Speaker Change: The trends over the last few years continued to deteriorate and I know you called out subscriber churn as being a primary driver of that. Now that you've locked in...
Speaker Change: all of your distribution renewals.
Speaker Change: for the next couple of years. I'm curious, you know, it seems as though the affiliate...
Speaker Change: expense growth has flattened. So you have a pretty significant structural imbalance here. And I'm wondering, as you go into the next 18 months,
Kevin Latek: As a reminder, we will be negotiating new affiliation agreements with each of the big four networks over the next 18 months. The networks see the same trends we do, and we know that they also see the same value to their businesses that only strong local affiliates can provide. We will not get into details or specifics of our network affiliation agreements, which remain strictly confidential. What we can tell you is that Gray has been and will remain committed to adjusting the network cost side of the retransmission equation to ensure that they reflect the significant changes to the television ecosystem that have occurred over the past few years.
Speaker Change: renewal process with the networks, you know, what can you do and how can you position yourself?
David Hamburger: I mean, is it me trying to get more of the networks onto a very variable pricing model? Or, you know, how do you see reversing this trend that seems to kind of be a bit pernicious in your numbers?
Speaker Change: to you know get some of the relief necessary to get that back in balance i mean is it mean trying to get more than networks on to a very variable pricing model or you know how
Speaker Change: Do you see reversing this trend that seems to kind of be a bit pernicious in your inner numbers? Persistent?
Kevin Latek: Sure, hi, this is Kevin Latek. We have probably seen a peak decline in our re-trends this quarter. Going forward, we should see the declines should be less and less, Governor of Brazzalea County, of the equation and the subscriber numbers that underpin the assumptions that went into the network affiliation pricing. Certainly for us, we had models, and I'm sure they had models, and the subscriber numbers have not been as good as we had expected. And as a result, our expectations were not met in the current contracts.
Speaker Change: Hi, this is Kevin Latek. We have seen probably a peak decline in our re-trends this quarter. Going forward, we should see the declines should be less and less.
Jeff Chinjak: With this concludes my remarks, and I turn the call now to Jeff. Thanks, Kevin. It opened in fact, covered the key financial highlights of the quarter, which are details in the earnings release in the 10Q. I will therefore focus most of my remarks on the big improvements we made recently to our balance sheet. But first, I'd like to point out that, as Hilton mentioned, our Justin EBITDA for Q2 came in at 225 million.
Speaker Change: There's a couple reasons for that, but we're not going to get into the details of our contracts.
Speaker Change: You're right, the network feed growth slowed and then has been largely stable the last couple years as the growth is now starting to come down.
Jeff Chinjak: To succeed at our expectations as our operating expenses were 17 million below the low end of our guidance range of 624 million. During the quarter, we capitalized on receptive debt market conditions to extend 1.85 billion of our 2026 maturities. We also increased our revolving credit facility commitments to $680 million, all of which is due on December 31, 2027. This financing provides us with clear line of sight to addressing our 2027 notes maturity, using on balance sheet liquidity and the significant cash flow we expect to generate later this year and again in 2026.
Speaker Change: What we've said a couple of times, kind of to reiterate it again, is we and everyone else have had a lot of discussions with the networks about what's happened to the growth.
Speaker Change: side of equation and the subscriber numbers and underpinned the assumptions that went into the network atciliation pricing
Speaker Change: Certainly for us, we had models, and I'm sure they had models, and the subscriber numbers have been not as good as we had expected. And as a result, our expectations were not met in the current contracts. The next run of contracts, we will need to price.
Kevin Latek: The next run of contracts, we will need to price what we're paying the networks more fairly, more appropriately. I'll remind you that we compensate networks through cash and through eyeballs, and networks derive between half and two-thirds of their revenue from selling advertising that appears in the affiliate markets, not on their owned and operated stations. Those ads that we are airing and our peers are airing on their stations are a significant amount of compensation for the network. The affiliates who have stronger local ratings are delivering more eyeballs to those network programs, allowing the networks to monetize those network programs better than other opportunities.
Jeff Chinjak: We sincerely appreciate the banks in our lending group that have stood by us for many years as well as those who joined our lending group in the last few months. We also sincerely appreciate the support of the many investors who understood our business and our plans and followed through with very strong commitments to purchase our new senior secured loan and our new senior secured notes. As Hilton mentioned earlier, reducing debt and leverage remains our top capital allocation priority.
Speaker Change: What we're paying the networks more fairly, more appropriately. I'll remind you that we compensate networks through cash and through eyeballs. And networks derive...
Speaker Change: between half and two-thirds of their revenue from selling advertising that appears in the affiliate markets, not their owned and operated stations.
Speaker Change: Those ads that we are airing and our peers are airing on their stations are a significant amount of compensation for the networks.
Jeff Chinjak: And to that end, following the completion of the refinancing in Q2, we retired 50 million of our 2027 notes via open market repurchases at an average price of approximately 90 and a half percent apart. Subsequent to quarter ends in July, we acquired an additional 29 million of face value of the 2027 notes at just over 92 percent apart. As of August 7th, we have $178 million remaining under the previously announced $250 million open-market purchase program, and we'll continue to monitor market conditions for additional open-market repurchase opportunities.
Speaker Change: The affiliates who have stronger local ratings are delivering more eyeballs to those network programs, allowing the networks to monetize those network programs better than other opportunities.
Kevin Latek: That is part of the compensation that we are providing them. So our conversation with the networks will continue to be that we are compensating you with these eyeballs, which are above the affiliate average. And we're compensating you in money, and we need to set the amount we are compensating you at an appropriate level that rewards us for delivering what we're delivering in both eyeballs and dollars. And the end result, and our very strong belief, is that our network of relationships is too high for the current environment and will need to be adjusted down in the next round.
Speaker Change: That is part of the compensation that we are providing them. So our conversation with the networks will continue to be that we are compensating you with these eyeballs, which are above the affiliate average.
Speaker Change: And we're compensating you in money, and we need to set the amount we are compensating you at an appropriate level that rewards us for delivering what we're delivering in both eyeballs and dollars.
Jeff Chinjak: Further, our strong cash flow generation in July allowed us to repay $75 million of our revolver on August 1st, leaving $125 million currently drawn. As of August 7th, that leads us with available liquidity of over $600 million from cash on hand and undrawn revolver capacity. Depending on the timing of additional open-market repurchase activities, we currently expect to fully repay our revolver by quarter-ent. One last item I'd like to point out is that our leverage metrics did kick up slightly from Q1 to Q2.
Speaker Change: And that end result, in our very strong belief, is that our network installation fees are too high for the current environment.
Kevin Latek: And exactly how that happens is not something we can speculate on because, again, those conversations will happen 18 months from now, you know, over the next 18 months. A lot of people are going to negotiate with company networks before then, and a lot of things are going to happen in this industry, no doubt over the next several months and years. So we're not going to speculate on the exact outcome, except the headline is that we need those costs to come down in order to remain affiliated to the networks, and we expect that there is a number there that works for both parties. All right, next up we have Richard Durnley of Long...
Speaker Change: And we'll need to be adjusted down in the next round. And exactly how that happens is not something we can speculate, because again, those conversations happen 18 months, you know, over the next 18 months.
Speaker Change: A lot of people are going to negotiate with company networks before then, and a lot of things are going to happen in this industry, no doubt, over the next several months and years. So we're not going to speculate on the exact outcome, except the headline.
Jeff Chinjak: This was expected and is mostly related to the timing of our refinancing as we paid fees and expenses related to the refinancing and had to settle interest on the 2026 notes tender offer prior to quarter-ent. The other notable factor is on the leverage ratio denominator. On that side, we have a timing swing related to political revenue. In Q2 of 22, the quarter that's rolling out of our eighth quarter calculation, political was $90 million.
Speaker Change: is that we need those costs to come down in order to remain affiliated to the networks, and we expect that there is a number there that works for both parties.
Operator: Good morning.
Speaker Change: All right, next up we have Richard Durnley of Longport.
Richard Durnley: Good morning. The refi for five years, was there any thought about terming a longer term for some of that debt?
Jeff Chinjak: In Q2 of 24, political was $47 million. Our guidance for year-to-date political through Q3, 24, indicates that we expect Q3 to approximate our year-to-date 22 and 2020 political, which will normalize the denominator in our calculation and align with third quarter cash flows.
Jeff Chignak: Yeah, it's Jeff. So yeah, we evaluated the market, we looked at a whole range of different opportunities, different opportunities and availability of capital. And ultimately, it came down to putting something in place that was the right balance of cost and tenor. And that really, you know, accomplished our objective of getting rid of our 2026 maturities in the most efficient way with the best terms.
Speaker Change: Yeah, it's Jeff. So yeah, look, we evaluated the market, we looked at a whole range of different opportunities, different opportunities and availability of capital. And ultimately, it came down to
Speaker Change: Putting something in place that was the right balance of cost and tenor, and that really, you know, accomplished our objective of getting rid of our 2026 maturities in the most efficient way with the best terms.
Jeff Chinjak: This concludes my remarks and I'll turn the call back over to you. Thank you very much.
Operator: Operator at this time would like to open up the call for any questions anyone may have. All right. Once again, would you please press R1 on your telephone keypad if you'd like to join the question to you.
Operator: Next up, we have Craig Huber at Huber Research.
Speaker Change: Okay, thank you.
Craig Huber: Yeah, hi there. At Assembly Atlanta, can you just update us on what the final cost for the project will be net and gross at the end of this year? And also, based on your commentary and your guidance for the rest of the year for Assembly, the 105 number, maybe we should assume the first quarter next year is when we start to see a meaningful return on that that benefits your P&L. Is that fair?
Speaker Change: Next up we have Craig Huber at Huber Research.
Daniel Kurnos: If it starts R1 on your telephone keypad, if you would like to join the Q and saying we have several in Q so far, look for first question, we'll come up from Daniel Kernos of Benchmark V. Great. Thanks.
Craig Huber: Yeah, hi there. On Assembly Atlanta, can you just update us on what the final cost for the project will be, net and gross, at the end of this year? And then also, it sounds like, based on your commentary and your guidance for the rest of the year for Assembly, that 105 number.
Hilton Howell: Good morning. Three, if I could. Just first on political, third party sources have already taken up estimates for the year, pretty substantial, even before the transition and the Democratic party of who's running. The peers at least X run off are now all calling for records. I know that visibility is super limited in July with slow obviously until Biden dropped out of the race, but just what can you guys give us any update?
Hilton Howell Jr.: I think that's fair in the first quarter, yeah.
Speaker Change: That maybe we should assume the first quarter next year is when we start to see a meaningful return on that that Benefits your P&L. Is that fair?
Hilton Howell Jr.: And Craig, on the other part of your question, the final cost, that was $571. $571 million. OK.
Speaker Change: I think that's fair in first quarter, yeah.
Speaker Change: Yeah, and Craig, on the other part of your question, the final cost, that was $571.
Operator: Okay, thank you very much.
Speaker Change: 571 million.
Operator: All right, and our final question for the day will be from Mike Corain of Truist Security.
Craig Huber: Okay, thank you very much.
Speaker Change: All right, and our final question for the day will be from Mike Corain of Truist Security.
Hilton Howell: I assume you guys think you're going to take political market share here. I just want to gauge your level of confidence relative to 2020 here on how this might play out. I think we're all pretty optimistic on political, but I think we've also been crystal clear that we're not going to give a guide for the full year. So we've provided a pretty strong guide for Q3 that puts Q3 at the same spot as 2020.
Mike Corain: Thanks, just one more question on the bond repurchase authorization. Are you guys planning to continue to only target the sevens of 27? Or would you look at other bonds in the capital structure? Yeah.
Mike Corain: Thanks. Just one more question on the bond repurchase authorization. Are you guys planning to continue to only target the 7s of 27, or would you look at other bonds in the capital structure?
Hilton Howell: And also for what it's worth, same spot as 2022, despite the fact we didn't have 30 million dollars of presidential primary money, but we're going to leave it to everyone else to make their predictions on what Q4 is going to be like and what the full year will be. But we're very optimistic. We're seeing lots of good signs, but we're not going to put a number out. Dan and I hope you understand that, but I will tell you, everybody here is extremely bullish on political for this entire year.
Jeff Chignak: Yeah, I think look, I think we'll be guided by where the best return will be balancing the fact that we have a 27 maturity with where the pricing is at any point in time. So, and in the meantime, we don't have to execute on any of that; we do have 125 million more on the revolver. So it's totally opportunistic. We'll be guided by what the markets tell us.
Speaker Change: Yeah, I think, look, I think we'll be guided by where the best return will be balancing the fact that we have a 27 maturity with...
Mike Corain: where the pricing is at any point in time. So, and in the meantime, we don't have to execute on any of that. We do have 125 million more on the revolver, so it's totally opportunistic. We can, we'll be guided by what the markets tell us.
Operator: All right, if that was the last question, operator, I just want to thank everyone for their time this morning. We're very excited about the next time we get a chance to talk to you because I've got some, we'll be able to give you real numbers on this political race, which is evolving in a very positive way throughout this broadcast. Thank you for being with us this morning, and we'll talk to you on the river.
Operator: With that, ladies and gentlemen, this does conclude the call. You may now disconnect your lines, and thank you again for joining us today.
Speaker Change: All right, if that was the last question, operator, I just want to thank everyone for your time this morning.
Hilton Howell: We've only got 90 something days to the election and in some states, they start voting about 30 days. And so we're seeing a tremendous amount of political advertising that is coming in and we expect it to be a really good year.
Speaker Change: We're very excited about the next time we get a chance to talk to you because I've got a, we'll be able to give you real numbers on this political race, which is evolving in a very positive way for the entire broadcast industry. Thank you for being with us this morning, and we'll talk to you in November .
Kevin Latek: Okay, fair enough. How's keeping Kevin, when are the network, not one ask returns, when are the network renewals up? We have all the network renewals up in the next 18 months. There's a schedule in our investor deck from March that lists them out by network.
Speaker Change: With that, ladies and gentlemen, this does conclude the call. You may now disconnect your lines and thank you again for joining us today.
Hilton Howell: Okay, and then Hilton just on assembly, any way to kind of gauge your optimism on how the cash flow evolves from here and how you're thinking about, you know, kind of the payback now that you guys have most of the cost. Well, as you know, we have the studios are built, right? And they are, they were profitable from day one, with the conclusion as I, as I mentioned in our prepared remarks, you know, getting I out, seeing the, and the teams to use and the full votes behind everyone has really put a lot of wind in the sales.
Hilton Howell: And in fact, I meet this afternoon after this call with individuals that are coming in to look at studios that are really prominent folks in this business. It's unbelievable how quickly things turned. We have secured and, you know, great. We like to make sure we have our eyes dotted in T's cross before we talk about things, but we have secured a very solid lease with a very important client that we're very proud of that is actually offering right now. And so we expect all of our studios to be leased up in the early near future. All right.
Janie Scott: Next up, we have Janie's got of Harrington research. Okay. Thanks.
Hilton Howell: One question I was about local sports. You know, you've always been involved a lot into it, especially with Raycom. And you and your peers have been leaning even more into that in recent years. I wonder if that you might talking more about the approach you might take to identify additional ways you can be involved since that's obviously a clearly attractive way to keep you from the broadcast area. Yeah.
Hilton Howell: I think that we've been really clear that we're interested in doing more local sports partnerships. We had a just concluded our first year with the Phoenix Sun extremely successful. We are happy with how it's going. So as the team, we're working currently with four NBA teams, the Atlanta Dream, the Las Vegas Aces, the Phoenix Mercury, and a partnership with Tech. Tech, the Indiana fever in several markets. And we're happy with how that's going as well.
Hilton Howell: I mean, it's a great local sports in local news or a great combination. And you know, the teams that we're working with are seeing that increased distribution and reach. And so we are absolutely interested and have shared with you guys on multiple calls that we are working on additional partnerships.
Hilton Howell: And as I said, we hope to have some really exciting news soon. Okay, great.
Operator: Moving right along.
Craig Huber: Our next question will come from Craig Huber. Your line is now open. Great, thank you. My first question. Can you just elaborate a little bit further on your core ad revenue comment about it tailing off in the month of June. Do you feel that there was more economic driven or just one or two categories? And whatever you saw in June, what parts that on the negative side have carried forward into third quarter?
Craig Huber: I mean, comment there, please. Yeah, it's bad. I would say, you know, it was primarily drawn by auto. Jalen off at the end of the second and third quarter, our auto is down mid single digits. You know, although we've seen an uptake here in the last couple of weeks, possibly due to the Olympics. So look, in terms of broader economic outlook, I think we're projecting to be flat to plus three things are pretty positive out there.
Craig Huber: If you look at the long list of categories that we track, we have many more up than down in third quarter. And while auto is down, and it's a big one, there are other large ones that are up as well. So we are, you know, we are pretty bullish as far as mainstream goes through quarter. Yeah, I think just to add to that, Pat, too, we see, you know, we see that over and over again with our strong performance on new local direct.
Craig Huber: And the emphasis we've had there with our really strong sales teams is we saw an increase in second quarter. Again, record setting of double digits, and we just finished July with a 20% increase in new local direct.
Michael Kerrane: All right, next up, we have all these diner of JP Morgan. Thank you and good morning. I recognize you're not going to give a political guide.
Hilton Howell: And so I'm going to try and ask it a little bit differently if I could. You took revenue down for the full year by 100 million. How much better do you think political has become for gray since Biden stepped down? And if you don't answer it that way, I think BIA took up their estimates for political spend this year by about 5% that the right way to think about it as they think of offsets for the revenue decline.
Hilton Howell: Thank you. It's really hard to make that call. I mean, clearly, you know, Biden stepping back had a significant positive impact, not just on the presidential, but right down the ballot. So I look, there's going to be more money out there, but, you know, we're not in a position to really quantify what exactly that is. It's going to be a very good year. Well, we feel really good. And I just want to point you to our footprint because one of the exciting things about gray in particular is that we have very significant exposure to essentially every single battleground state for this election will be decided on a presidential level.
Hilton Howell: And as well as significant exposure to both boom and a twirl and senatorial races that are going to be very competitive. And so while we're not giving a guide, I will reiterate that we are very, very bullish about where we are coming. And I remember last quarter, everybody's asking questions about whether or not we would have any political at all.
Steven Hale: But it's going to come in and it is coming in at a very rapid pace Well I'm before we take our next question I just want to remind participants you can press star one on your telephone keypad if you would like to join the question queue the star one on your telephone keypad if you would like to join the question queue and just so we can get to everybody in queue just come on we're taking one question at a time but you can always read if you would like to join the queue if you would like so next up we have Steven Hale of Wells Fargo Thanks Jeff for the commentary on what drove the leverage a little higher this quarter I know that's been a the big focus has been getting that refinancing done and you're repurchasing those 2027 notes I was just wondering if you have a number in mind for leverage where you think you can be at at the end of the year between the free cash flow that you'll generate maybe some benefit from you know assembly and obviously political that sort of thing and then to follow up on Dan's question is there any way to think about the run rate of assembly EBITDA as you exit the year and you have so many more studios kind of signed up and and chugging along there I think we're all trying to understand what what that can mean for earnings generation in the in the years to come.
Jeff Chinjak: And then maybe finally Kevin would just love to get a little more thinking on your subscriber outlook. You know you said that you're optimistic that subscriber declines could start to improve here at some point. As a long media analyst it isn't necessarily something I've observed much of in my career but would just love to kind of compare notes on it and see when you think that might just start to happen thank you.
Jeff Chinjak: Yeah Steven it's Jeff so I guess what I would say on the production companies line we didn't change our guide that's still at the same 105 number and it reflected our expectations around leasing at the studios along with the other production companies so I think that you know that'll directionally get you to what we expect for the full year from from that piece of it. As it relates to leverage I'm sure when people saw the 5.9 they said there was maybe a little bit ahead scratching and it was to review it as a timing thing by the time we get to the end of third quarter.
Jeff Chinjak: With the cash that we expect to generate you know as I said in my prepared remarks we should be out of the revolver depending on you know exactly where the final political number shakes out. And the priority for the political cash flow is to get the debt repaid so again depending on exactly where political shakes out we should be you know we should be probably something in the low to mid vibes at the end of the end of the year just depending on exactly where things shake out.
Pat LaPlatney: All right next up with Mike Karein of tourist securities. Hey thanks for taking my question I wanted to maybe try to ask the political question one slightly different way you lowered your core guidance for the four year. By about 75 million and it looks like you know maybe part of that was due to you know the Q2 results were you know looks like core was maybe eight or nine lower than what you were expecting in Q2 but how much of that you know the remaining like 66 to 67 million decline in your core guidance is from this placement or crowding out and how much is due to that weakness.
Pat LaPlatney: That you saw kind of at the end of the Q2 and you know expecting are you expecting core to continue to be a little bit weaker or is that really just displacement from from political. Cool. Yeah, I guess I'll start in Pat and Sandy can provide some color. I mean, if you look at our guide and we're and we're shaking out, you know, the revised billion five twenty five. That's still that's still up versus twenty three.
Pat LaPlatney: Despite the fact that we are going to be cramming a whole heck of a lot of political into the next 90 days. So I don't know that there's, I don't know that there's a specific read through when we look at the business itself. We've got. We've got new local direct that's performing well. That's a barometer for the broader economic outlook that's out there. From a data point of view, let me just cite a specific data point.
Pat LaPlatney: So if you compare our in the last presidential cycle, if you compare Q4 of 2020 to Q4 of 2019, we had about 10% displacement. In the 2020 political cycle, so it's at least a data point that you can think about, but it's very difficult to put a specific number on exactly how much impact we're going to see there.
David Hamburger: Next question. All right. The next question is from David Hamburger of Morton, Stan. Thank you for the question. So your distribution revenue trends over the last few years continue to deteriorate. And I know you called out, you know, subscriber turns is being a primary driver of that. Now that you've locked in all of your distribution renewals for the next couple of years, I'm curious, you know, it seems as though the affiliate expense growth has, has flattened. So you have a pretty significant structural imbalance here.
Kevin Latek: And I'm wondering, as you go into the next 18 months, renewal process with the networks, you know, what can you do and how can you position yourself to, you know, get some of the relief necessary to get that back in balance? I mean, is it me trying to get more of a network onto a variable pricing model or, you know, how do you see reversing this trend that seems to kind of be a bit pernicious in your inner numbers persistent?
Kevin Latek: Sure. Hi. This is Kevin, my tech. We have seen probably a peak decline in our retransist quarter going forward. We should see the declines should be less and less. There's a couple of reasons for that, but we're not going to get into the details of our contracts. You're right, the network fee growth slowed and then has been largely stable the last couple years as the growth has now started to come down.
Kevin Latek: What we've said a couple of times kind of to reiterate it again is we, we, everyone else had a lot of discussions with the networks about what's happened to the growth side of equation and the subscriber numbers that underpin the assumptions that went into the network affiliation pricing. Certainly for us, we had models and I'm sure they had models and the subscriber numbers have been not as good as we had expected.
Kevin Latek: And as a result of our expectations were not in the current contract, the next run of contracts, we will need to price what we're paying the networks more fairly, more appropriately. Remind you that we compensate networks through cash and to eyeballs and networks to arrive, between half and two-thirds of their revenue from selling advertising that appears in the affiliates markets, not their own and operating stations. Those ads that we are airing and our peers are airing on their stations are a significant amount of compensation for the networks.
Kevin Latek: The affiliates who have stronger local ratings are delivering more eyeballs to those network programs allowing the networks to monetize those network programs better than other opportunities. That is part of the compensation that we are providing them. So our conversation with the networks will continue to be that we are compensating you with these eyeballs which are above the affiliate average and we are compensating you and money and we need to set the amount we are compensating you at an appropriate level that rewards us for delivering what we are delivering in both eyeballs and dollars.
Kevin Latek: And that end result in our very strong belief is that our network affiliation fees are too high for the current environment and will need to be adjusted down in the next round. And exactly how that happens is not something we can speculate because again those conversations happen 18 months over the next 18 months. A lot of people are going to negotiate with coming networks before then and a lot of things are going to happen in this industry no doubt over the next several months and years.
Kevin Latek: So we are not going to speculate on the exact outcome except the headline is that we need those to come down in order to remain affiliate to the networks and we expect that there is a number there that works for both parties.
Richard Dernley: All right. Next up we have Richard Dernley of Longports. Good morning.
Jeff Chinjak: Can you, the, the refine for five years? Was there any thought about turning a longer term for some of the, that, that debt? Yeah, it's Jeff. So, yeah, we, we evaluated the market. We looked at a whole range of different opportunities, different opportunities and availability of capital. And ultimately it came down to putting something in place that was the right balance of cost and tenor. And that really, you know, accomplished our objective of getting rid of our 2026 maturities in the most efficient way with the best terms. Okay.
Craig Huber: Next up we have Craig. Yeah.
Hilton Howell: Hi there. On a, assembly Atlanta. Can you just update us on what the final cost for the project will be net and gross at the end of this year? And then also it sounds like based on your commentary and your guidance for the rest of the year for assembly that 105 number that maybe we should assume the first quarter next year is when we sort of see a meaningful return on that that benefit your PNL is that fair? I think that's fair at first quarter. Yeah. Craig, on the other part of your question, the, the final cost that was 571. 571 million. Okay, thank you very much.
Michael Kerrane: All right, and our final question for the day will be from Mike Kerrane of Truist Security. Thanks, just one more question on the bond repurchase authorization. Are you guys planning to continue to only target the 7th of 27 or would you look at other bonds in the capital structure? Yeah, I think, look, I think we'll be guided by where the best return will be balancing the fact that we have a 27 maturity with where the pricing is at any point in time.
Michael Kerrane: So, and in the meantime, we don't have to execute on any of that. We do have 125 million more on the revolvers. So, it's totally opportunistic. We can, we'll be guided by what the markets tell us.
Hilton Howell: All right, if that was the last question, operator, I just want to thank everyone for your time this morning. We're very excited about the next time we get a chance to talk to you because I've got a, we'll be able to give you real numbers on this political race, which is evolving in a very positive way for the entire broadcast industry. Thank you for being with us this morning, and we'll talk to you in the middle.
Operator: Well, that's ladies, gentlemen, this best concludes the call. I mean, I'll disconnect your lines and thank you again for joining us today.