Q3 2024 Gray Television Inc Earnings Call
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Speaker Change: Welcome, ladies and gentlemen, to the GrayMedia Q3 2024 earnings call.
Speaker Change: I will now turn the program over to Chairman and CEO, Mr. Hilton Howell Jr.
Speaker Change: Thank you, Operator, and good morning, everyone, and thank you all for being here. As the operator mentioned, I'm Hilton Howell, the chairman and CEO of Grey Television.
Speaker Change: And 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 Gignac, our Chief Financial Officer.
Kevin Latek: As usual, we will begin with a disclaimer that Kevin will provide. Thank you, Hilton. Good morning, everyone. Great Television, Inc., commonly known as Gray Media or Gray, uses its website as a key source of company information. The website address is www.graymedia.com.
Speaker Change: We will file our quarterly report on Form 10-Q with the SEC today.
Speaker Change: Included on the call may be a discussion of non-GAAP financial measures, and in particular, adjusted EBITDA, leverage ratio denominator, and certain leverage ratios. These metrics are not meant to replace GAAP measurements, but are provided as supplements to assist the public in its analysis and valuation of our company.
Speaker Change: Included in our earnings release, as well as on our website, are reconciliations of these financial measures to the gap measures reported in our financial statements.
Speaker Change: Certain matters discussed in the 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.
Speaker Change: important factors that have been set forth in the company's most recent reports filed with the SEC including our most recent
Speaker Change: Quarterly Report on Form 10-Q and our most recent earnings rollies.
Hilton Howell: The company undertakes no obligation to update these forward-looking statements, and now I'll give the call to Hilton.
Thank you, Kevin.
Hilton Howell: Great Media is an exceptionally strong company that has continued to grow, invest, and evolve to meet the challenges and opportunities in our ever-changing industry. We take great pride in reporting to you every quarter great success in serving our communities and continuing to deliver financial results for all of our stakeholders.
Speaker Change: As you all saw in this morning's earnings release, Gray had a strong third quarter with our revenues largely in line with our guidance.
Speaker Change: with the exception of slightly lower than expected political advertising revenues.
Speaker Change: In addition, you saw that our expenses were well below the low end of our guidance range as we continue to focus on ways to be more efficient.
Specifically, the highlights for the quarter are as follows.
Speaker Change: Total revenue in the third quarter was $950 million, an increase of 18% from the third quarter of 2023, due to the increase in political advertising revenue.
Speaker Change: Net income attributable to common shareholders was $83 million in the third quarter compared to a net loss of $53 million in the third quarter of 2023.
Speaker Change: Adjusted EBITDA was $338 million in the third quarter of 2024, an increase of 61% from the third quarter of 2023.
Speaker Change: Core ad revenue in the third quarter of 2024 was $365 million, an increase of 1% from the third quarter of 2023.
Speaker Change: Political ad revenue in the third quarter alone was $173 million.
which was slightly below our guidance range.
Speaker Change: but only $17 million below our political advertising revenues in the record year of 2020. At the end of the third quarter, our leverage ratio is calculated in our senior credit agreement, net of all cash.
Speaker Change: was 5.67 to 1 as we repaid almost $250 million during the third quarter and are looking at a total repayment of half a billion dollars by the end of the year.
Speaker Change: We are proud that we have managed to grow our core ad revenue in the third quarter despite some headwinds and political displacement.
Speaker Change: Our exceptionally strong station sales teams continue to drive poor ad revenue growth, particularly within digital and new local direct sales channels, by continuing to execute on the mission of delivering exceptional value and reach for our advertising clients.
Many of our southeastern markets
Speaker Change: suspended and or curtailed airing commercials in the last days of the third quarter as they ramped up coverage of the threat from Hurricane Helene and the terrible damage that followed.
Speaker Change: We believe that our commitment to those communities made a significant difference before and after the storm, and we believe perhaps saved a number of lives, particularly in the affected areas of Florida, Georgia, and our North Carolina communities.
Speaker Change: Our political ad revenue was very strong in the first half of the year, relative to 2020. When you adjust for the absence...
Speaker Change: of a competitive presidential primary in either party. We began the third quarter with strength and optimism as we saw all the ingredients of a record political cycle.
Speaker Change: As we saw two years ago, many of the expected competitive races and ballot issues were simply not that competitive by Labor Day.
Speaker Change: Thereafter, tremendous amounts of political ad spending shifted to a fewer number of more competitive races that largely fell outside of our station footprint, essentially Montana and Pennsylvania.
Speaker Change: In the end, our third-quarter political ad revenue was quite strong, yet finished below our record third-quarter political ad revenues in 2020.
for the full year for 2024.
Speaker Change: We expect approximately half a billion dollars of political revenue, which as it appears to us makes us the largest recipient of political ad dollars in the television broadcasting business on both a gross
and a per TV household basis.
Speaker Change: That is something that we are exceptionally proud of, because we reached 36 and some of our competitors double our reach. So we're happy to be at the top of that pile.
Today's earnings release also highlighted that the company
Speaker Change: is not sitting still. We are continuing our keen focus on developing local, direct, and digital business across our station footprint.
Speaker Change: We are continuing to produce news and investigative pieces that local audiences want. In fact, we recently had five stations in our national investigative unit, Investigate TV.
Speaker Change: received eight National Edouard Murrow Awards for Excellence in Journalism. We also are continuing to expand our local sports broadcast.
Speaker Change: On the expense side, we launched a significant cost containment exercise this past August that touches nearly all aspects of the company.
Speaker Change: As Pat will explain, the leadership team here has worked hard to find more efficient ways to continuing delivering the highest level of service.
to our local communities and customers.
or our sincere commitment to our local communities.
Speaker Change: Reducing debt and leverage remains our top capital allocation priority. We have taken concrete steps to act on this priority, and we will continue to do so until we have achieved our goals in this area.
Speaker Change: Our earnings release details our most recent efforts, which Jeff will address further later in the call.
Speaker Change: Looking ahead to 2025 and beyond, we are taking actions necessary to be a stronger, more efficient, and impactful company that is the best equipped to compete in the ever-changing business environment.
Speaker Change: What you read in today's press release, and will hear in today's call, will reinforce our commitment to positioning the company for long-term success. And now we'll ask Pat to provide more color on our operations.
Speaker Change: Thank you, Hilton. Our core ad revenues this quarter were 1% higher than the third quarter of 2023, which was also 1% ahead of the third quarter of 2022. As Hilton mentioned, our core ad revenue strength occurred despite a number of headwinds.
Speaker Change: particularly political displacement. This achievement is driven by our success in recruiting new local businesses to advertise on our stations and or digital platforms. Our new local direct business in Q3 2024 was up almost 14 percent over Q3 2023.
Speaker Change: In our local markets that are audited by a third party, the audits show that we increased our share of the total local TV ad markets to a new third quarter record.
Speaker Change: These results are very encouraging and gratifying, especially because many stations posting share growth in these audits did so as affiliates of CBS, ABC, and Fox, competing against the record viewership of the Paris Olympics this summer.
Speaker Change: Our NBC stations performed well at the Summer Olympics, generating more than 20 million dollars, some of which was political advertising.
Speaker Change: Digital ad sales continues to be a bright spot for us.
Speaker Change: We are seeing year-over-year double-digit growth rates and new records for digital ad revenue and new digital accounts nearly every month. In the third quarter, we had 22 markets that did more than $1 million in digital ad sales.
Speaker Change: which is a new record for us. In terms of political ad revenue, Hilton provided a good description of the political ad landscape for us.
Speaker Change: Our political ad revenues were, from a historical basis, quite strong going into third quarter. As the third quarter progressed, it appears that the political parties felt there were fewer truly competitive Senate and gubernatorial races in our footprint.
Speaker Change: We expect that when the year ends, we will see our political ad revenue in 2024 meeting or exceeding 2020 numbers at the presidential level, the house level, state and local level, as well as issue and ballot initiatives.
Speaker Change: The only category where we saw a revenue decrease occurred in Senate races, which has long been our largest political ad category.
Speaker Change: In 2020, our current station portfolio had about $331 million of political revenue from Senate races, including the two Georgia runoffs, versus $121 million of political ad revenue for Senate races this year.
Speaker Change: The $200 million difference resulted from less spending in some competitive Senate races in our footprint this year compared to 2024. In the end, we brought in about half a billion dollars, which is a lot of money, and which we'll use to pay down debt.
Speaker Change: In most quarters since the end of the pandemic, Gray has beaten the public peer group average year over year in core ad revenue performance, and it appears that we led the peer group average again in the third quarter.
Speaker Change: Despite this momentum, we anticipate the core ad revenues in the fourth quarter will be down compared to 2023.
Speaker Change: For context, in 2020, Corad revenue from our current station group declined 10% in the fourth quarter from the prior year, due primarily to political displacement and COVID pressures.
In Q4'22, our core ad revenue declined 4% from Q4'21.
Speaker Change: We also attribute a significant piece of our core ad revenue slowdown to the move of southeastern conference football from CBS to ABC We are the largest CBS affiliate owner and we have CBS as our affiliation in many southeastern markets
Speaker Change: I think Atlanta, Knoxville, Baton Rouge, Lexington, Waco College Station, among others.
Speaker Change: The replacement of SEC with Big Ten will reduce core and political ad revenue in the fourth quarter. Overall, for the full year 2024, we expect core ad revenue to be down slightly, which is not unusual in a political year.
Speaker Change: On the expense side, for the third quarter of 2024, our broadcast operating expenses and corporate operating expenses were $14 million and $3 million below the low end of the expense guidance ranges, respectively.
Speaker Change: For full year 24, we currently expect broadcast OPEX and corporate OPEX to be significantly below our initial full year guidance provided in February.
Speaker Change: To prepare for 2025, we launched a major effort in August to reduce spending across the company and to find ways to streamline operations without cutting back on the mission to serve our communities.
Speaker Change: Since August, we've identified and begun implementing various initiatives that will allow us to reduce our operating expense run rate by approximately $60 million on an annualized basis.
Speaker Change: We're also closely evaluating our capital expenditure needs for 2025. Most of our expense reductions involve non-personnel expense categories. We've also taken steps to reduce our personnel expenses.
Speaker Change: Beginning in August, we eliminated positions by suspending recruiting and by not filling certain positions following attrition in the ordinary course. We also made some targeted reductions in headcount.
Speaker Change: Every individual who is directly affected has played an important role in the success of our company.
Speaker Change: These actions are personally difficult for everyone at Gray, and particularly painful for those impacted by the job restructurings.
Speaker Change: They are, however, necessary for the company to operate more efficiently for the long-term benefit of all other employees and the communities that depend on us.
Sandy will now address some important operational developments.
Sandy Breland: Thank you, Pat. Once again, in the third quarter and into the fourth quarter, our stations along the Gulf Coast served as a critical lifeline of information for communities dealing with devastating storms.
Sandy Breland: Our trusted news and weather teams provided around-the-clock coverage of Hurricanes Francine, Helene, and Milton, even while some of the homes of our own employees suffered damage from those storms. But we didn't let that slow us down. In late September, we announced a significant media rights deal with the New Orleans Pelicans.
Sandy Breland: It brings every non-national Pelican NBA game to 4.1 million households through Gulf Coast Sports and Entertainment Network, our new multi-state distribution venture that is anchored by our New Orleans television station.
Sandy Breland: Continuing with this momentum, our stations will be broadcasting an ever-increasing number of local and regional games from professional and college teams through this fall and next spring. From the Chicago Bulls, Blackhawks, and White Sox games to the NBA Mavericks and the NHL Kraken.
Finally, this brings me to a question...
Speaker Change: Ladies and gentlemen, it looks like we lost the speaker's line. We will get them back on promptly.
Speaker Change: Yes, hello, this is Hilton Howell. Apparently we got cut off right, we believe, where Sandy began her comments. And so once again, let me turn it over to Sandy Breland, our Chief Operating Officer.
Sandy Breland: for her to reboot and restart. Thank you, Hilton. I hope it wasn't something I said. Yeah. Once again in the third quarter and into the fourth quarter, our stations along the Gulf Coast served as a critical lifeline of information for communities dealing with devastating storms.
Sandy Breland: Our trusted news and weather teams provided around-the-clock coverage of Hurricanes Francine, Helene, and Milton, even while some of the homes of our own employees suffered damage from those storms.
Sandy Breland: This is where local broadcasters best serve their community. But we didn't let the storm slow us down. In late September, we announced a significant media rights deal with the New Orleans Pelican.
Sandy Breland: It brings every non-national Pelicans NBA game to 4.1 million households through Gulf Coast Sports and Entertainment Network, our new multi-state distribution venture that's anchored by our New Orleans television station.
Sandy Breland: Continuing with this momentum, our stations will be broadcasting an ever-increasing number of local and regional games from professional and college teams through this fall and next spring.
Sandy Breland: from the Chicago Bulls, Blackhawks, and White Sox games to the NBA Mavericks and the NHL Kraken.
Sandy Breland: Finally, this brings me to a question we get asked sometimes by investors as to why businesses, political campaigns, and local sports teams want to be on local television.
Sandy Breland: We keep sharing our news ratings results, including a deep dive in an October 2023 Investor Deck.
Sandy Breland: Still, I think it's worth answering this question with an interesting comparison between the top-rated cable news show and our own local newscast.
Sandy Breland: In the third quarter of 2024, the Fox News program, The Five, which is available in 67 million homes, pulled in more viewers than any program on cable, with an average of 3.5 million viewers.
Sandy Breland: That's impressive, but not nearly as impressive as Gray's 5 p.m. newscasts, which are available in 36 percent of U.S. households.
Collectively, our 5 p.m. newscast averaged 4.4 million viewers.
Sandy Breland: That's 25% more viewers than the five, despite reaching less than one-half as many homes.
Think about that.
That is the power and reach of local broadcast television.
Sandy Breland: And that's the reach that local businesses, political campaigns, and local sports teams need, want, and can get from gray media.
Sandy Breland: We're obviously very proud of the great work of our news teams from coast to coast.
Sandy Breland: In these ratings show, our loyal viewers appreciate and depend on their important work. I now turn the call over to Jeff. Thank you, Sandy. The team's already covered our Q3 and our outlook, so my comments will focus on our balance sheet.
Speaker Change: As Hilton mentioned earlier, reducing debt and leverage remains our top capital allocation priority. We continue to improve our balance sheet in Q3. During the quarter, we reduced our outstanding debt principal balance by $246 million.
Speaker Change: returning our first lean and total leverage levels to 3.0 and 5.67 times respectively.
Speaker Change: This is in line with the levels following our early June refinancing in a sequential
and a sequential improvement.
Speaker Change: of approximately a quarter turn of leverage from June 30, 2024.
Speaker Change: The debt reduction during third quarter was completed through a combination of open market repurchases under our previously announced board authorization and repayments at par. In addition to the previously announced $29 million repurchase of our 2027 notes,
Speaker Change: At 92.1% APAR, we repurchased approximately $16 million of our 2021 Term Loan D at an average price of just under 91% APAR.
Speaker Change: During Q3, we repaid the full $200 million that was drawn under our $680 million revolving credit facility at June 30.
Also during Q3, we entered into agreements.
Speaker Change: whereby we will retire an additional $39 million of our 2021 term loan.
Speaker Change: at an average price of 92.6% APAR, which we expect to close in November of 2024. Looking forward for full year 2024, we expect to reduce our total net debt outstanding by approximately $500 million.
Speaker Change: We announce this morning that our board has authorized a reset of our open market repurchase authorization to 250 million dollars.
Speaker Change: and we will continue to take a balanced approach and look to capitalize on opportunities to efficiently reduce our debt.
Speaker Change: One notable change to our free cash flow outlook that I'd like to highlight is on the tax side.
Speaker Change: As you may have seen in our release, we determined during the course of filing our 2023 tax return that the portion of our interest expense attributable to real estate, primarily due to Assembly Atlanta coming online, is fully deductible rather than limited under IRS rules.
Speaker Change: As a result, we expect to benefit from that deduction in our cash tax payments this year and on a go-forward basis.
So to summarize, we're continuing to execute on the plan.
Speaker Change: and pulling the levers that we have available to us to generate cash flow. The actions that we've taken on the expense side, a closer look at our capital needs, and repaying our debt to reduce our interest burden, all enhance our cash flow profile going into 2025.
Speaker Change: This concludes my remarks, and I will now turn the call back to Hilton for some closing remarks. Thank you, Jeff. Operator, at this time we ask you that you open up the line for any questions for any of our leadership team.
Speaker Change: Absolutely. Ladies and gentlemen, at this time, if you would like to join the question queue, you can press star 1 on your telephone keypad. Once again, that's star 1 on your telephone keypad to join the question queue. And seeing several joining, we'll take our first question from Aaron Watts of Deutsche Bank.
Aaron Watts: Hi everyone, thanks for having me on. I have a couple questions. The first is a question around your core ad guidance. I'm hoping you can parse out your 4Q down 10.5% guide a bit more.
Aaron Watts: Are you able to say how much of that was weather related, and it'd be really helpful to hear what you're seeing in the post-election.
Aaron Watts: core ad environment, generally areas of strength, weakness, etc., and how things feel turning the corner into 2025.
Speaker Change: I guess second maybe Jeff I point your way with regards to the 60 million of run rate savings you announced how should we think about the timing of that phasing in and hitting the P&L over the next several quarters and
Speaker Change: Are there any further cost actions you're exploring in any ways?
Speaker Change: to kind of frame that incremental opportunity. And then finally, just regarding capital allocation, it sounds like the focus remains on debt reduction.
Speaker Change: Do you envision continuing to be in the market repurchasing front-end loans and bonds? How do you think about the timing of potentially accessing the capital markets to address your first maturities and has there been any further consideration on reducing the dividend?
Thank you.
Thanks, it's Pat LaPlatney, I'll start.
Speaker Change: number of factors at play here right so there's there's political crowd out we talked about SEC which is for us was material and then you know we have we have some I would say that say I'd say going forward which I think was the thrust of your question
Speaker Change: You know, we are cautiously optimistic about the remainder of the quarter. We have seen some green shoots.
Speaker Change: just in the last couple of days, which we think is a good sign.
Speaker Change: to be candid, not completely unexpected. So, you know, the better, the more improvement we see in Q4, the more optimistic we are about Q1 25 and the remainder 25. So I think there's, I think there's some reason for optimism there.
Speaker Change: Jeff, I know you've got a bunch of questions. Yeah, Aaron, I jotted down a list, so I'll try to tick through them in the order, and if I miss anything, just weigh in. So, first of all, on the $60 million of run rate savings and the timing of those,
I guess.
Speaker Change: Most of that, especially the personnel piece of that, is already completed. So that's already, we've already achieved that. It's in the rear view mirror, and that will start filtering through. I think you should think about that as much as anything as bending the curve. If you look over the last,
Speaker Change: A couple of years and quarters, you've seen our run rate on expense growth come down.
Speaker Change: So you'll continue to see that come down as a result of these actions. There are a number of things that were renegotiations of contracts and workflow changes that we were able to make and those will take a little bit longer but will be in starting beginning of the year in first quarter.
Speaker Change: In terms of further cost actions, look, we're continuously monitoring it, but there's nothing specific that's been identified as of right now. So, we'll continue to look at things, but nothing else planned at the moment.
capital allocation, so,
Speaker Change: You can see that we reloaded the $250 million authorization from the board, so we're going to continue to be guided by where we can get good value.
It's not limited to any tranche of debt.
Speaker Change: We'll look at where things are trading. We will look if there's an opportunity to tap the capital markets at a reasonable price that doesn't work against us too much in terms of cash flow and de-levering, that's certainly of interest.
Speaker Change: And then, on the dividends, Hilton can weigh in on this as well, but I would say that we look at it from quarter to quarter and, you know, where we sit today, we're comfortable paying it for this quarter. Hilton, I don't know if you want to comment any further on that. No further comment right now.
. . .
All right. Thanks, guys. I appreciate the thought.
Thank you, Aaron.
Thank you.
All right, next up we have Marlaine Pierrero.
Speaker Change: Thank you for taking my questions. You actually just addressed many of them. A quick one though, in terms of the political, is it possible to provide some, you know, number around potentially the impact from the hurricane specifically? Meaning, you know, what would political have been without that hurricane impact?
Thank you. It's a few million dollars.
Okay, great.
Thank you.
Speaker Change: All right, next up we have Patrick Scholl of Barrington Research.
Thank you. I was wondering with
Speaker Change: The political, if you're seeing any difference between maybe local affiliates and networks and just sort of your opportunities within selling on the station apps and the ability that you were able to capture some viewing share shift there.
Thanks for watching!
Speaker Change: Yeah, I guess what I was trying to ask was, you know, is there any sort of shift between political and buying local stations?
versus networks.
Speaker Change: trying to reach, yeah, buying on the networks versus, and your ability to sell political inventory on the station apps versus in the linear broadcast and being able to capture any of that share ship there.
Speaker Change: Yeah, so if you look through our political results, we talked about this a little bit.
Speaker Change: You know, all of our categories were up, you know, all the different categories of political spending were up with the exception of Senate, which historically has been far and away our largest.
Speaker Change: So we, you know, the money, the money was there in the market, it just got shifted out of our footprint, essentially, and a lot of it, as Hilton mentioned, landed in Pennsylvania and Montana.
Speaker Change: Okay, and then just within the core ad verticals, are you seeing any sort of like strength or weaknesses across different categories or industries?
Speaker Change: Yeah, so during third quarter, it was a mixed bag, you know, Otto has been weak for us. It was weak in third quarter, it's weak in fourth quarter.
Speaker Change: The communications category has been somewhat weak. We talked a little bit about political crowd out, but there was also political hesitancy as well. People held on to their money.
Speaker Change: either not wanting to be on the air during the onslaught of political ads or not really understanding what the economic outlook would be depending on which party prevailed the elections, right? So that impacted a lot of different categories.
Speaker Change: As we talked about before, we're starting to see some green shoots coming out of the election and so we're, you know, we're cautiously optimistic, but we would expect
Speaker Change: You know most of those categories to approve for the remainder fourth quarter that pick up next year Yeah And just one other interesting note on that even with the strong political in October our new local direct is up over a year over Year fueled mainly by digital and that's consistent with the laser focus. We've had on growing new local direct
Okay, thank you.
Speaker Change: Retrans kind of beat our number on both a gross and a net basis, and it looks to me like...
Speaker Change: Retrans expense might be down on the year. Can you just talk a little bit about that's something you guys have talked about He's a little talk a little bit about that and your confidence as you look at retrans next year Because I think that's been a you know, probably one of the biggest concerns for investors
And then I have a couple more after that.
Speaker Change: Core Retrans has been in growth mode for a long time and we certainly saw it this year.
Speaker Change: We went from growing a lot to growing a little bit, and this year we went backwards. We talked a lot on the prior calls. We've been getting the rate increases we want. We've been really struggling with the sub-erosion. Our sub-numbers are...
Speaker Change: And you see this for all media companies that the sub situation has not been getting much better there are some hopeful signs in the recent Comcast and Charter
Speaker Change: sub reports that maybe their sub losses have stabilized. So we we were predicting that the sub declines would stabilize earlier this year. It seems that now have
It's beyond our control and it's kind of that simple.
Speaker Change: We've talked a lot about why we think we should be seeing that rate of growth slow, so we'll go into that again.
But we are certainly optimistic it's going to be.
Speaker Change: that we have seen kind of the worst of it now and we're going to move forward with.
Speaker Change: a world where the sub declines are muted, and I think you've heard that from some of our peers and some third party folks as well. On the network fees, we've said for a while that the network fees need to come down. They were priced at...
Speaker Change: in a different world, under different factors, and we've had some success with our contracts to start bringing those fees down. We have more work to do. We have a lot more work to do over the next couple of years.
Speaker Change: roughly 14 months as we renegotiate with all four networks for the next round of contracts.
Speaker Change: And I can tell you the focus on cost, which every quarter we've talked about bringing our costs below it.
Speaker Change: cutting our cost guide and the actions we disclosed on that earnings call today. Make it pretty clear that we're really focused on bringing our cost down and that's not just operational cost and that is going to include our network fees.
Speaker Change: We're not giving any guidance obviously on next year, but those are kind of the ingredients of things we're looking at.
Speaker Change: Let me just emphasize one point that Kevin made, the $60 million does not include anything related to any network agreements.
Speaker Change: Great, and then just changing gears, on the political side, is there anything structural about your footprint that causes you concern, or is this just simply a case of bad luck?
Speaker Change: Actually, we didn't have any bad luck. We hit half a billion dollars, which is the largest gross number of political ads of any peer in the broadcast sector.
Speaker Change: That said, you guys did kind of at least miss people's expectations, and I think it's because of where some of these races met, so I'm just trying to understand that a little bit.
Kevin Latek: This is Kevin. I'd come back to, we made more money in presidential.
Kevin Latek: than we did four years ago. We made more money in state and local races than we did four years ago. We made more money in house races than we did four years ago. We have more money on ballot initiatives than we did four years ago, all which was consistent with our expectations.
Kevin Latek: going into this year. Our internal expectations, and I think where everybody else got ahead of it, was the Senate, and we had we look at the results today, and we see
Kevin Latek: really, really close results in places where gray has a big footprint. Arizona, Nevada, Wisconsin, Michigan.
Kevin Latek: And, frankly, the spending was not, the spending by both sides did not match the way the polls worked out. And this happens from time to time. Sometimes there's a lot of money spent and a candidate is, turns out to be,
Kevin Latek: Well ahead of another candidate and yet a ton of money was wasted on that race We've there's a couple examples of that just this week and there are sometimes the flip side There are our races where not a lot of money was spent or nowhere near as much as people expected Because the polls indicated a certain outcome and it turns out that the competitor was a lot stronger
Kevin Latek: The race was a lot tighter than people expected, and unfortunately again for us, that was four Senate races.
Kevin Latek: It happened to be states were great as stations and most if not all the markets
Kevin Latek: So, this is entirely a story about Senate races for gray.
It's not about money leaving our markets, we got...
Kevin Latek: the same political share of dollars that came in the market that we got four years ago. We excelled in every category, but there was a shortfall from what we would have expected in a handful of very expensive Senate races. That's the story. This is not about...
Kevin Latek: Certainly, and we've said that in 2022 quite a bit, and other folks have felt confident to give political guidance, and that's their right.
Kevin Latek: make political estimates on broadcasters, and that's people's right, but we caution that it's really, really difficult, and lots of people are going to...
Kevin Latek: exceed and some people are going to miss just based on factors completely beyond our control. And I think you've seen that not just with Gray and our Senate outcome, but I think you've seen that in the whole sector. Some people really beat.
Kevin Latek: The streets expectations and some did not. It's based on factors that none of us can control. So long as we're getting our market share, we're doing what we can, but we can't force a party to spend another hundred million dollars in the state of Nevada, which may or may not have changed the outcome of the race there.
Speaker Change: No, that context is exactly what I was looking for, super helpful. So long and short of it, no structural issues with the footprint. My last – it's just more a comment. I know people asked about the dividend. We are a shareholder, so I would just point out that we think the ability to take some of that cash and buy back debt at significant discounts is really helpful for shareholders, reduces interest expense, and you kind of compound that over time. It could really help with your deleveraging strategy. But thank you guys for the questions.
Thanks Doug, appreciate the comments.
Speaker Change: All right, next up we have Craig Huber of Huber Research.
Craig Huber: Thank you. I'll try to make this easy for you. I'll go one question at a time.
Speaker Change: On the regulatory front with the new administration starting January 20th here. What are your expectations for any potential changes with the ownership cap? Regulatory environment here for M&A in the broad media space in general when we start their place
will be deregulatory.
Speaker Change: on ownership and, just as importantly, if not more importantly for our future, on ATSC 3.0 Next Gen Matters.
Speaker Change: and a series of operational issues for broadcasters and other regulated entities. In terms of specific policies, that's going to depend on...
Speaker Change: The outcome of some pending court cases, further guidance from the courts on the FCC's
Speaker Change: actual jurisdiction, and absolutely who the commissioners are going to be. So I would say broad strokes, headlines, we see a deregulatory FCC coming, but I don't think we're really in a position to be handicapping specific policy issues right now.
Speaker Change: And then longer term, what is your goal here for your net debt to EBITDA ratio?
on a two-year basis.
Yeah, on a two-year basis, Craig did.
Speaker Change: Look, longer term, the company has been, has levered up to make acquisitions and then aggressively repaid debt. I think we're proving that we're getting back to the repaid debt piece of that by our actions so far and our expectations for the rest of the year.
Speaker Change: And so, look, longer term, it gets more comfortable when we're below four, but I realize that's a little ways away still, so we have the liquidity, we have the runway from a maturity profile point of view.
Speaker Change: To get there, it's just going to take beyond the 26th political cycle when we've got the next big influx cash to get us back down into the fours and ideally right around that four times number longer term.
Next question, guys, on the cost-cutting front,
Speaker Change: significantly more costs that you could take out in another round here if you think over the next 12 plus months.
without doing too much of the business of course.
Speaker Change: Yeah, I would say, yeah, I don't think that there's necessarily, look, we did a pretty
Speaker Change: And we'll continue to watch things, and as things come up, we'll be aggressive on renegotiating. I think the bigger cost-saving side for us that's more impactful will be where we land on the affiliate renewals.
Speaker Change: So the pinch point on that is 2025, and we renew all of them over the next 14 months. So that's the next part of the discussion.
Speaker Change: Okay, and my last question, on the core advertising outlook for the fourth quarter down 10% or so.
Speaker Change: If you would, in your mind, I know this is hard to get to, but if you would adjust it for political crowding out the SEC football that you chatted about and stuff, where do you think that number would land at?
Speaker Change: Is it close to flat or slightly down? What do you think?
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Speaker Change: The crowd out from SEC? The crowd out plus SEC. Where do we think it landed?
of course.
We would have a lot more inventory to sell.
without the political crowd out.
Speaker Change: And then the SEC moving to Big Ten, or CBS moving to Big Ten from SEC, it cost us a few points in terms of the percentage change in the overall revenue line.
Speaker Change: But you take that and again the political crowding out, you could remove those you think you'd be much closer to flatter. What do you think the underlying growth is right now in the marketplace for your TV advertising?
We adjust for those two things.
two items.
Speaker Change: Look, there's a lot of noise in it right now. It's hard to quantify a specific number on that, and we really haven't historically quantified what exactly we think the crowd out number is. What we can tell you is what we see in the data as we sit here today. And as Pat described, and our guide covers that, and as Pat described it, there's...
There's reasons for cautious optimism from here.
Speaker Change: Based on what we're seeing, but it's it was there was hesitancy to commit for the near term. And so we're starting to see some of it, but it's too hard to can't give a specific number on any of this stuff right now. Okay, fair enough. Thank you guys.
Thank you.
Hey, good morning, Amit.
Speaker Change: Thank you for all the color on political. I just want to follow up on the regulatory question if
specifically about the potential opportunity for you guys.
Speaker Change: If you're allowed to own more than one station in a market, is that something that would be a huge opportunity for your margins and operational costs if you were able to?
consolidate within a single market.
Kevin Latek: This is Kevin. It depends on the station we acquire. If we have, in our 113 markets, we have lots of markets with more than one station. If the second station we acquire is...
Kevin Latek: is a CW or a MyNetwork or a Telemundo. It's not particularly helpful if we require a Big Four affiliate that doesn't have any news.
Pretty significant, overlapping.
Kevin Latek: tasks and facilities, then there's more synergy. So, you know, we, the industry just went through 15 years of creating duopolies, and I think there's a pretty good track record of companies
Kevin Latek: identifying synergies when they're buying in-market stations with local news where they already have a local news station. So the amount is going to completely depend on the market and the type of stations that we're putting together.
Kevin Latek: We're obviously, we've been pretty active in that space and we would expect to continue to be active if opportunities present themselves and the balance sheet permits it.
Great, that's all I had. Thanks.
All right, next up we have Bill Matthews of NUFG.
Bill Matthews: Hi, great. Thank you for taking the question. Many of my questions have been answered. One, I kind of wanted to circle back on some of the comments that you've made in terms of the sub-losses. A huge concern.
beyond your control.
Bill Matthews: The political spending and predicting race is very difficult to predict.
And then the cost saves of $60 million.
Speaker Change: What's clearly in your control is the common dividend and the dividend of the preferred.
Speaker Change: You've had a previous person who is an equity holder voice that it would be helpful for the equity to reduce your debt.
Thank you.
Thank you.
Speaker Change: Yes, so, it's Jeff. So, look, we, like I said, we talk about this on a quarterly basis.
Speaker Change: They count that as debt. They count that as an uptick in debt. So really the savings from a, and from an equity point of view, it's in front of the equity holders. So we think about it as the $30 million plus whatever discount you could capture.
Speaker Change: With the full 30 or 80 if you went down that route that route
Speaker Change: We talk about it each quarter and we'll continue to evaluate where things are in the business with the leverage profile, etc. as we move into 2025.
Speaker Change: I mean, I would just follow up that there's $440 million of interest expense on the debt. The series they preferred is a pickable instrument at the board's discretion.
Speaker Change: And if you look at the equity reaction today to the results, I think there's a lot you're managing and managing well.
Thank you.
Speaker Change: Yeah, I understand. I'm just, I guess, the point that I was making is that if we pick the preferred...
Speaker Change: It works against that calculation, it's $50 million that works the opposite direction by picking. But, point taken, I understand your point.
Speaker Change: All right, next up we have Alan Gould of Loop Capital.
Thanks for watching!
Alan Gould: Thanks for taking the question. I've got a broader question on political. I mean, it seems like political fundraising was higher than ever. And if I look across the spectrum, it's more of an industry question, it looks like almost every player with the potential exception of Fox is going to have disappointing relative expectations on political advertising.
Alan Gould: So, are we seeing a reallocation of political dollars, yeah, out of broadcast, into CTV, people spending more time on podcasts to reach the audience?
Alan Gould: Is there a structural change occurring and also related to this
Alan Gould: If you look, typically 4Q political used to be 75-100% greater than 3Q. We're not seeing that this year. Was there some pullback? Any reason why 4Q is...
Alan Gould: so much weaker relative to its normal results versus 3Q. Thank you.
Speaker Change: Okay, you want to start with the 4Q, Kevin? Let me pull the number up on our new... Yeah, okay, sure, yeah, look, so...
Speaker Change: You know any of those great words at the end of the day. There's a there's a change, but for us
Speaker Change: The impact in our political was simply a function of money moving from state to state. In terms of your question around the fourth quarter, I think Kevin and Jeff, Kevin and Jeff are the ones.
Speaker Change: Our fourth quarter was 55% of the total, 55% of the total, 50% of the total, 51% of the total.
Speaker Change: So I don't see a sea change here. In the third quarter, our political revenue is 30 percent, 32 percent, 28 percent, 35 percent. So the allocation of the dollars is frankly pretty stable across the four. The one thing that...
State and gubernatorial elections, those primaries tend to be.
Speaker Change: Q2 event so sometimes we see you know a bit more and
Speaker Change: certainly in 18 and 22, which is very heavy on gubernatorial races.
Speaker Change: Q4 is a factor of Q3, but if we instead look at how the dollars have been allocated by quarter over the last, now, four cycles with our current footprint, we're seeing the fourth quarter was...
Speaker Change: right around 30 to 35% every year. So I'm not really seeing the numbers reflect.
Any particular
Speaker Change: concern here for Ed Gray. Okay, thanks Pat, thanks Kevin. Sure thing.
Thank you. Thank you.
Speaker Change: All right, next up we have Daniel Kernes of the Benchmark Company.
Speaker Change: If the FCC, not the FCC, Congress were to eliminate the ownership cap, what's your openness to some kind of transaction, buyer-seller merger in order to unlock incremental value with stock?
Speaker Change: I think the answer to that, I'd be very open to consider anything.
Thank you.
That's helpful.
Pat LaPlatney: Pat, nitpicky, but the shift from SEC on the local, the network change there, is there any cash flow ramification or is that all just a revenue impact?
It's revenue.
Pat LaPlatney: Okay, and then, Jeff, just appreciate, you know, the deep dive on the expenses. Just trying to get a sense, and obviously you mentioned, you know, the big delta could be on the affiliate side, but, like, how do we think of...
Pat LaPlatney: 24 going into 25 you know your need to reinvest something in growth or head count like what are the offsets to what you've just taken out or can we just kind of
Pat LaPlatney: Look at where we think the year ends up and then, you know, we've got our kind of our run right here
Speaker Change: Yeah, so, at a macro level, I would say this is against the current run rate. You know, there will be, there will still be some typical adjustments that you might see for
Speaker Change: Employee raises and things like that going into going into 25 sort of the natural stuff in the business. So
Speaker Change: You know, I think what we've talked about here is to bend the curve and flatten this out and ideally, you know, try to bring it down where we can. But on our last call, we talked about taking a very thoughtful approach.
Speaker Change: And so the things that we did are really more managing the business in a smart way.
Speaker Change: and thinking about how can we do things in a better way but still serve the community, still make sure we have local news in all of our markets, all of the things that are hallmarks of the success of this company.
Speaker Change: Gotcha. I'll sneak one last one in, I guess, maybe for Kevin, just on...
Speaker Change: Political, looking at 26, obviously there's going to be some, you know, angst I think to try to
Speaker Change: combat what just happened so and then in 28 we have two open primaries theoretically so I don't know if that
Speaker Change: It gives you any more confidence. I know obviously you guys have spent the entire call today telling everybody that you did a good job in political, but if it just, you know, kind of helps frame how we should be thinking about the competitive nature of the races in the next two cycles relative to your footprint might be helpful.
Speaker Change: You're absolutely right. At 26 we should have not one but two presidential primaries. We've not had that for quite some time now.
I'm sorry, sorry, 28, 28. In 26...
Speaker Change: Remember, the Senate being up every six years, we get sort of a random selection of competitive versus uncompetitive races. The off year is always very, very big with gubernatorial races, state races.
I do not anticipate that...
Speaker Change: This election is going to unify America and we're going to suddenly have a quiet, non-terribly competitive round of elections in two years. I suspect we'll continue to see high political engagement and high stakes.
Speaker Change: for both parties, so I, yeah, I just don't see things becoming...
Returning to any kind of
Speaker Change: more calm political situation in the next two or four years. People will continue to be engaged with ever more complicated issues.
Okay, thanks for bearing with me guys, appreciate it.
Thank you.
Alright, next up we have Stephen Cahill of Wells Fargo.
Speaker Change: Thanks for squeezing me in. Maybe first with a more favorable FCC deregulatory backdrop, can you just expand on maybe in-market duopoly opportunities? I know this question came up before.
Speaker Change: But I'm just wondering if you think the FCC might allow just threes and fours. Could it even allow some twos in there? And if there's any way to size or dimensionalize what a significant opportunity that could be for the industry. Love to hear more on that. And then, Kevin and Jeff, I think you both talked about
Speaker Change: The reverse compensation expense is, you know, a big focus for next year. Just wondering how early you start to have those conversations with your major counterparty. They're going through a lot of management changes. I don't know if that makes things easier or harder, and if you've learned anything from some of the recent peer renewals, but we'd just love to get some more color there as well.
Speaker Change: On the FCC, we don't know exactly who the five commissioners are going to be. There are a number of pending court cases involving FCC decisions in broadcast areas and non-broadcast areas. That will inform their authority.
So, I don't know quite how we could...
Speaker Change: started pining on what a new FCC rule may look like that would...
Speaker Change: be proposed, you know, at what point next year, by what FCC, given what new guardrails may be imposed as a result of the pending court cases. And remember, there's also court cases not involving the FCC that address administrative law that...
Speaker Change: can also impact what the FCC can do. So I just I don't know how to again go say anything more than we expect the FCC will be deregulatory and we think that they will address ownership and 3.0
Speaker Change: But I don't know who has that crystal ball, and if so, I wish they would have told us the results of the election a couple days ago.
Speaker Change: I just think that's impossible. On network, our network conversations tend to happen...
Speaker Change: Fairly close to the expiration date. We start talking months earlier, but they tend to like retrend
Speaker Change: tend to get serious towards the very end. As you know, ABC is up end of this year, CBS Fox next summer, NBC end of the year. So, again, I think those conversations will get serious a month or two beforehand.
Speaker Change: And I don't, your last question, I haven't learned anything from my peers.
with recent renewals because we have no absolutely no clue.
Speaker Change: what the terms are in any other network affiliation agreement other than our own. I literally have none. No one talks about it. All we can see is the aggregated number reported by public companies.
Speaker Change: across all their network contracts. So we literally have no, we have no intel on what our peers are paying the networks or what their structures are. Absent what they would say on a public, you know, earnings call. That's all the insight we get. So I don't know how to...
Speaker Change: how to answer that any more sort of clearly, except we've been very clear about our own situation and the strength of our stations and what we deliver to these networks in terms of reach and eyeballs that they monetize for advertising.
Speaker Change: and that they use to promote their programs that they then monetize in the aftermarket So we know our situation. They know what we're delivering and that's what we're going to talk about. I hope that helps
Speaker Change: All right, next up we have David Hamburger of Morgan Stanley.
Speaker Change: Thank you very much for taking the question. Jeff, last quarter you had mentioned that you expected leverage to end the year in the low to mid fives.
Speaker Change: Can you update us on where you think leverage will now shake out for the year-end? And how should we think about 2025? I know you spoke about kind of longer term, but can we expect to see some
Speaker Change: debt reduction next year and how, you know, how will you execute on that?
Speaker Change: Yeah, let me let me take the second part first. In 25, I mean, some of the actions that we took are designed to make sure that we have the ability to continue to pay down our debt going into 25. So that's, that's part of the overall plan. With respect to where we finish.
Speaker Change: 2024 Depending on you know open market activities and things like that. We should be flat to maybe slightly down from where we are today Or for the third quarter by the end of the year
Speaker Change: And the public calls, and I apologize, we see there's a couple other folks still in the queue. I think we have calls scheduled with all of you individually. So we do need to end this to stay on schedule for the rest of the day.
Speaker Change: Well, thanks everyone for being here. We're actually quite proud of our quarter and most particularly we're happy where we stack up against our peers in terms of our
Speaker Change: both our core and our political advertising. And we're particularly proud that by the end of the year, we will have paid off half a billion dollars in debt, which I'm actually pretty impressed with and pretty proud of. Thank you all for spending time, and we look forward to talking to you next quarter.
Thank you.
Speaker Change: All right, ladies and gentlemen, this does conclude your call. You may now disconnect your lines, and thank you again for joining us today.