Gray Media - Earnings Call - Q1 2020
May 7, 2020
Transcript
Speaker 0
Ladies and gentlemen, thank you for standing by and welcome to the Gray Television Inc. First Quarter twenty twenty Earnings Call. At this time, all participants are in a listen only mode. Please be advised that today's conference is being recorded. After the speakers' presentation, there will be a question and answer session.
I would now like to turn the call over to your speaker today, Hilton Howell, Chairman and CEO. Please go ahead.
Speaker 1
Thank you so much, operator, and good morning, everyone. As the operator mentioned, I'm Hilton Howell, Chairman and CEO of Gray, and I wanna thank all of you for joining us this morning for our twenty twenty q one earnings call. Today, we are all virtually present and spread all over the country. On the line with me, are our President and Co CEO, Pat LaPlatney our chief legal and development officer, Kevin Latek and our chief financial officer, Jim Ryan. We also have today our chief operating officer, Bob Smith, and I'd like to welcome Bob.
This is the first time that he has joined us on this call, and he may be able to provide some interesting color to some of you during the q and a session, if not before. We will begin this morning with a disclaimer that Kevin will provide. So, Kevin?
Speaker 2
Thank you, Hilton, and good morning, everyone. Certain matters discussed in this call may include forward looking statements regarding, among other things, future operating results. Those statements are subject to a number of risks and uncertainties. Actual results in the future could differ from those described in the forward looking statements as a result of various important factors. Such factors have been set forth in the company's most recent reports filed with the SEC and included in today's earnings release.
The company undertakes no obligation to update these forward looking statements. Gray uses its website as a key source of company information. The website address is www.gray.tv. Included on the call will be a discussion of non GAAP financial measures and, in particular, broadcast cash flow, broadcast cash flow less corporate expenses, operating cash flow, free cash flow, adjusted EBITDA and certain leverage ratios. These metrics are not meant to replace GAAP measurements but are provided as supplements to assist the public in their analysis and valuation of our company.
Included in our earnings release as well as on our website are reconciliations of the non GAAP financial measures to the GAAP measures reported in our financial statements. And I'll return the call to Hilton.
Speaker 3
Thank you,
Speaker 1
Kevin. Well, this year began, as strong as we could have ever hoped for it to begin. I'm certain that you felt our optimism, on our year end earnings call in late February and then coronavirus hit. Certainly, much has changed since then. As a company, I could not be more proud of the efforts of our stations and production companies, their employees, our corporate and shared services staff, and our entire leadership team.
We moved quickly into a remote work policy across the company, adopted numerous protocols to protect our employees, dramatically ramped up our local news and other local programming, went out of the way to drum up and keep business and double down on our already deep community service. Our advertisers by and large faced historic headwinds, but they have stayed with us more than many had expected. As you saw today, we ended the quarter with revenue up slightly due to increases in retransmission and political advertising revenue more than offsetting the decline in core advertising revenue, which was largely centered in the month of March. At the same time, we managed to reduce expenses during the quarter. However, I want to note, due to furloughs, not due to layoffs, and not due to benefit cuts.
In the end, our EBITDA, broadcast cash flow, and net income all increased from the first quarter of last year, and all three measures were roughly in line with the lower end of the guidance that we had issued before the onset of the coronavirus pandemic. In particular, revenue was $534,000,000 increasing 16,000,000 or 3% from the 2019. Net income attributable to common shareholders was $40,000,000 or $0.40 per fully diluted share. Broadcast cash flow was $181,000,000 increasing $58,000,000 or 47 percent from the 2019. Adjusted EBITDA was $169,000,000 increasing $19,000,000 or 13% from the 2019.
Business slowed considerably in March, and it continued in the month of April. Our sales teams used this tough environment to strengthen the strong bonds that we have with our best customers. Some or all of plan buys and even bring in many, many new customers that you will hear about more later in the call. The clouds begin to appear to be clearing as we enter the month of May. Still, our visibility is exceptionally constrained given all of the uncertainty and variability from market to market and from state to state.
We're in a very, very strong position with regard to our liquidity to ride out this tough patch. And even if the situation remains changing for the rest of the year, we expect our liquidity position to remain enhanced as we undergo the next three quarters. So we look forward to carrying forward with the rest of the year and turning in a a decent performance. And now I will turn it over to Kevin.
Speaker 4
Hey. Yeah. Actually, Hilton, I might have taken from here. It's Pat. No problem.
Sorry. Nope. Thanks, and good morning, everyone. The first quarter started out well. In January and February, our core advertising was close to flat compared to the prior year as significant political revenue rolled in.
Of course, come March, we saw a significant slowdown in the economic activity across the country due to the public health emergency as well as slowdowns in the oil and gas business in some of the states in which we operate. For the quarter, our core advertising revenue was down about 4%. Due to the strong political revenue this year, our total ad revenue, that is our core ad revenue plus political ad revenue, finished higher by about 8% compared to the first quarter of last year. The video production companies, while much smaller, are significantly more impacted by the current crisis on our television stations. Recall that this group comprises Raycom Sports, RTM Studios and Tupelo Raycom.
RTM generally produces evergreen content. Raycom Sports and Tupelo, however, primarily produce video content around live sports, concerts, and other public performances. Needless to say, with the suspension and cancellation of live public events, especially sports, the production company's business largely dried up in March. To be candid, the impact of the shutdown in significant portions of the economy had a bigger impact on April than we saw in March. Like everyone, we're cautiously optimistic that the gradual relaxation of state stay at home orders will be successful.
If so, pent up demand from consumers and businesses could improve our advertising and production businesses later in the second quarter and beyond. We will, however, need to wait and see just like everyone else. It's important to recognize, though, that our television stations are alive, well, and serving their communities as local markets endure varying degrees of lockdowns. Our stations rose to the challenges presented by both the public health health crisis and unfortunate springtime severe weather. Our sales managers and account executives worked with our clients to preserve buys that clients had intended to cancel.
Sales teams actively courted businesses that remained open to get that message out to local communities, And our training team was busier than ever coaching our sellers on business development efforts in this unique environment, digital products, and Premion. Our guys sold clients new spots, thanking their first responders or otherwise burnishing their brands rather than promoting their own goods and services for sale. Our sales professionals continue to bring in new business throughout this crisis with over 700 new clients added in March and more than 800 new clients written in April. All of this great effort helped us preserve revenues that otherwise would have declined even more. In early April, Gray stations launched interactive online business directories to enable residents to find which businesses remained open and their new hours.
Directories also allowed online visitors to place orders directly through the site for pickup or delivery, obtain coupons, even apply for jobs. By the April, more than 14,500 local businesses joined the online directories, all for free, across various markets. And as of last night, we actually crossed the 15,000 local business threshold. Meanwhile, our stations' news departments have never been busier. For many, March and April, for that matter, had been the career equivalent of covering a major hurricane that lasted weeks rather than hours.
In March and April, our stations added several hundred hours of additionally pardon me, additional regularly scheduled local newscasts as well as new specials, fundraisers, and telephones, lessons for children at home, and live coverage of press conferences and town hall meetings. It's also worth noting that our stations broadcast more than twenty five hundred additional hours of network special reports in March and April to ensure the local communities got the information they want and need from their most trusted news source. Early numbers from the ratings agencies indicate that most of our afternoon, evening, and nightly local newscasts saw material ratings increases well into double digits in March and April over the prior year. While all stations added viewers, the number one and strong number two stations seem to do the best in most cases with some truly incredible increases in viewership. Putting on the market in the newscast, it's not unusual to see viewership increases of thirty, sixty, and even a 100% or more over the year ago time period.
Not all of these viewers will stick around when summer arrives or when the current crisis abates. We have established the value of our local news franchise to our loyal viewers as well as large groups of younger consumers who rarely watch local news previously. That's not all gonna disappear once people return to work and school. Our digital usage also experienced huge gains recently. We had 4,100,000,000 page views across all platforms between January and April 2020, a 24% increase over the same period last year.
The year over year increases were significant in January and February before the COVID nineteen crisis, but they really soared in March with page view pardon me, with page views hitting 1,260,000,000, a 45% increase over our previous high set just in January 2020. In March, we had a 191,000,000 users and nearly 600,000,000 sessions, figures that were around 60% higher than our previous record set again just this past January. Our news, weather, and OTT apps also set records for users in March. Beyond sales and news, our our television stations responded to public health and economic challenges by using their time and resources in March and April to help support local food banks and relief organizations. These efforts ran the gamut from telephones to on air and online fundraisers to musical concerts and other events lasting from one hour to a few weeks.
We are humbled to report that their collective efforts helped raise roughly $12,800,000 in just a couple of months. All these efforts are always the right thing to do for our local communities. Supporting local businesses, charities, and viewers is always a smart long term investment for the future. We're optimistic that our country has now started to turn the corner on this public health crisis. With that, I turn the call to Kevin.
Speaker 2
Thank you, Pat. We are very proud of the tremendous community service that our stations have provided during the crisis that Pat just relayed. We owe much to our employees, most of whom are not only essential to us, but are also essential to keeping their communities informed, protected, and prepared for the future. I therefore wanna spend a few minutes highlighting how we as a company and as an employer of about 8,000 individuals has handled the crisis so far. Early on, we adopted mandatory work from home protocols for all employees who could safely do so.
We essentially ended business travel, banned nonessential visitors, and imposed new health screening protocols for those entering our locations. We announced that we did not anticipate that we will need to furlough employees, lay off employees, reduce hourly or salary compensation levels, reduce paid time off, health care, other benefits, nor suspend, delay, or reduce contributions to the employee's four zero one k's. We adopted self quarantine requirements where appropriate as well as physical distancing rules for employees within workspaces and out in the field. We adopted a new a new benefit that ensures continued pay for salaried, hourly, full time, and hourly part time employees who cannot work due to the coronavirus. We had a telehealth and telemedicine options, relaxed health benefit caps, and waived certain insurance charges and fees.
We provided thermometers, face masks, and lots and lots of hand sanitizers for all locations. Thankfully, our efforts are now turned toward working with each station and office individually to identify the physical and other changes that they will need to make in order to begin transitioning some employees back to work at that location. We're hopeful that some of our facilities will begin to bring back a portion of the remote workers starting as soon as June 1, others to file in the weeks thereafter. It may be a long and complicated road back to some version of normal. We are, however, comfortable that Gray Television proactively took the steps necessary to protect our employees, keep them focused on doing great work, and ensure that this company retains the loyalty of our employees that they have provided to us.
Turning now to retransmission. We are very close to concluding renewals with two very large MVPDs. The public health crisis did not impact the outcome of those negotiations, just simply the timing. We're pleased to say that these these negotiations, like all of our negotiations, have been conducted quietly, respectfully, and in good faith by all parties. In the fourth quarter, we will begin renewal negotiations covering most of our roughly 500 MVPD partners.
We look forward to our next month of retrans renewals, we can again demonstrate the value of our leading group of television stations on cable and satellite platforms. In terms of subs, it is too early for us to know how the macro situation has impacted our subscriber counts. On the one hand, we are concerned that the economic contraction and the loss of sports may negatively impact subscription levels. On the other hand, we know that viewers are tuning into local TV stations at remarkable rates. With the programming and information we offer and with less competition for the attention and for disposable income, it seems reasonable to assume that the pay TV bundle will be more popular in this environment, not less popular.
As usual, we will have a better handle on subscriber counts when we receive actual sub reports for the current period in the next two quarters. Turning to political advertising revenue in our release this morning, you saw that we maintained our full year 2020 political advertising guide of 250 to $275,000,000. Quite simply, we believe that nothing has occurred in the last two months to shake the willingness of political donors to donate towards anything occurred to reduce the interest of potential voters in this year's election. To the contrary, we believe that interest in this year's election is and will be higher than we could have anticipated earlier this year. The relevant issue set for many voters has changed, and that changes how candidates stack up.
Voters are more aware than ever who their governors, mayors, and senators are and just how much their political leader leaders can impact their daily lives. All of this means that political advertisers likely have a larger pool of both likely persuadable voters than we would have anticipated earlier this year. Because broadcast television is by far the best medium for persuading voters and getting out the vote, we remain very bullish on political ad revenue this year. Moreover, social distancing could be with us until a vaccine is widely deployed. In that case, campaigns will not be able to rely on the many traditional ways of reaching voters and gaining attention, such as political rallies, door to door canvassing, and working the crowds at county fairs and sporting events.
Television advertising should therefore be even more dispensable for these candidates and campaigns who actually wanna win in 2020. To be sure, the pacing of political advertising will be a bit different than anticipated. March political ad buying slowed for a few obvious reasons. We see plenty of signs, including significant recent activity in numerous markets, to convince us that political candidates, parties, campaigns, and super PACs will make up for lost time in the remaining months, with probably an even greater share of political ad revenue materializing in the fourth quarter than in recent years. Thank you for your time.
I now turn the call to Jim Ryan.
Speaker 5
Thank you, Kevin. Good morning, everyone. Our earnings release and the 10 Q that will be filed a little later today provide a great deal of information. You'll also note that starting with today's release, we are no longer presenting results on a combined historical basis because the acquisitions and dispositions that occurred late in 2019 were individually and collectively immaterial. So we are moving forward reporting on an as reported basis.
Given the dramatic events that began in March, we are pleased with our Q1 results. As Hilton mentioned earlier, while revenue was a little lighter than we had wanted, expenses were also lower allowing for solid EBITDA delivery. Our LAQA leverage ratio net of the $296,000,000 in cash on hand was 4.23 times, as expected sequentially declining from the December ratio of 4.35 times. During Q2, we increased our cash on hand by $84,000,000 So with the $296,000,000 of cash on hand plus an undrawn revolver of $200,000,000 we are in a very strong liquidity position. Moreover, at this time, we do not expect that we will I'm sorry.
At this time, we do expect that we will continue to generate significant amounts of free cash during each quarter of 2020 and for the full year of 2020. Given our strong liquidity position, free cash generation, relatively low leverage and no debt maturities until 2024, we believe we are in a very good position to weather the global pandemic we are all experiencing and emerge just as we are today as one of the strongest local broadcast companies in the country. As mentioned earlier, given all the uncertainty around COVID-nineteen, we have withdrawn our previous full year guidance and are not issuing formal guidance for Q2. However, we remain bullish on the 2020 political, as Kevin just mentioned, with, our expectation of two fifty to two seventy five million. That said, I know all of you wanna know about more q two.
And as with our peers, we are certainly are experiencing significant declines in core ad sale revenue in q two, and our visibility is understandably very limited. We are cautiously optimistic that as the states lift stay at home restrictions, the core ad environment will begin to improve. As of today, again, cautioning that the situation is fluid and our visibility is very limited, we believe that core ad revenue for Q2 will decline at least 33%. But with each month of the quarter appearing to show sequential improvement. We estimate that our political ad revenue, retransmission revenue, and other broadcast revenue in Q2 will increase over the prior year.
With these forecasts, core revenue would comprise about 44% of total net revenues in Q2, and retransmission in addition to the political, about 48% in total which is also about the same amount as the retransmission revenue. To be clear again, these figures about q two are based on current forecasts in our system. We do not regard internal forecasts as formal guidance. We realize, however, everyone is eager for some kind of predictions and whether and how Q2 will unfold. So we're providing our internal forecast as a potential data point, but not as formal guidance.
Nevertheless, we are cautiously optimistic about the direction of the core revenue forecast. If they hold for our Q2 revenue, it would be down about 33% year over year which is not as severe as many observers have predicted. Naturally, we'll do all we can to mitigate those declines through close work with our advertising clients. We are encouraged by the determinations by most of the states in which we operate, the conditions permit the relaxation or termination of stay at home orders. As of tomorrow, roughly 8085% of our stations will be operating in states that have opened up.
The balance of our stations operate in states that will lift their orders by June 1. We do not have any stations operating in states that currently have orders in effect past June 1. We currently anticipate that our Q2 broadcast and corporate expenses will be in the general range as we have reported for Q1. The expenses for our production companies in Q2 will aggregate in the single millions of dollars reflecting in part the seasonality of those businesses. A few key liquidity items to update you on.
Our current forecast for full year cash interest is $175,000,000 versus our previous forecast of $194,000,000 reflecting the significant decline in LIBOR over the last few months. Our capital expenditures currently are estimated at $60,000,000 versus our previous forecast of $80,000,000 And our cash taxes are currently estimated at $65,000,000 versus a previous estimate of 80,000,000 providing an aggregate savings of 50 more 54,000,000 in cash. I'll turn the call back to Hilton. Thank you.
Speaker 1
Thank you, Jim. Our company, like virtually every other business in the world right now, has been subject to historic shocks over the last few months. Considering the extent of stateside lockdowns and the limitations on everyday life, it seems many people questioned our ability to keep our heads above water. Well, we've done an awful lot better than that. Our stations reestablished the importance of local broadcast television stations, and our first quarter results demonstrated the ongoing importance of owning high quality local institutions and operating a lean company.
We have no doubt that the country will fully reopen, business will return, and lives will return to a more comfortable and familiar pace sometime during the course of this year. Through it all and well beyond, we remain convinced that Gray Television's best days are ahead. Operator, at this time, we ask that you open the line for questions.
Speaker 0
Thank you. At this time, we will be conducting our question and answer session. Your first question comes from the line of Kyle Evans with Stephens. Kyle, your line is open.
Speaker 6
Jim, I know this is not guide, but you gave the numbers really quickly, and I just want to bounce them back off of you or you can give them again. What But I heard you say was as a percent of total revenue for 2Q core, '44, political four, and retrans '48. Is that right? Correct. Okay.
Just want I just wanted to make sure. And I'm looking at the the net retrans margins, and I'm kinda looking back at the CHB for prior years. And I I know it's hard to do right now, but any any thoughts on where net retrans margins will go longer term? And I know you could just say lower, and you have, but I'm looking for a little bit more detail than that.
Speaker 5
You are correct. We've said repeatedly that we thought the margins will decline over time. You can do the math on the margins in Q1 and you can see that to some extent, although that has, as we've said repeatedly for well over a year or more, we've expected that in most parts reflecting the increases in the reverse comp going forward.
Speaker 6
Got it.
Speaker 5
And again, our key has always focus on the net dollars and to maximize the net dollars and not worry about a percentage point.
Speaker 6
Got it. Maybe some commentary on what you're seeing between local versus national and core and maybe any regional or state differences that are jumping out at you?
Speaker 5
I don't see a big difference in local versus national. Local is a little bit better by, you know, anywhere from five to maybe 10 points on a percentage basis depending on the month and so the whole quarters. There's not a huge difference there. State by state, not really anything that jumps out at you. Mentioned in the opening remarks, certainly we are in some well patched states and they're taking it a little bit harder than others.
But no, other than that, I wouldn't say there's any tremendous pattern.
Speaker 6
Okay. Lastly, I think I think Kevin said that he expects more political in the fourth quarter as a percent of total versus prior cycle. I I missed the reasoning behind that. And as a follow on to that, is there any concern that when these political dollars get here that lower sell through rates and lower minimum rates will somehow mute the pricing impacts that we've seen in the past? Thanks.
Speaker 5
There is a potential for more back weighted in the fourth quarter. I think it's in part because, obviously with current conditions, several primaries have slid. It will be our sense is that it's gonna be more traditional campaign season. We are seeing, and Bob can speak to this a little bit too, we are seeing nice phase size already coming in for the fall campaign season. As far as the rates go, we think the demand is gonna be so heavy that it's not going to make a difference on rate.
Remember, all soft money is pure supply and demand. And if there is the significant amount of political revenue coming in that we expect, we only have a finite supply. So the pricing will be, you know, it'll be the pricing will go up accordingly regardless of where the base business is.
Speaker 6
Great. Thank you.
Speaker 0
Your next question comes from the line of Steven Cahall with Wells Fargo. Steven, your line is open.
Speaker 7
Thanks. Jim, so you haven't drawn on the credit facility, and it sounds like you'll be free cash flow positive each quarter. So is your expectation that you won't need to tap that facility at all right now? I mean, you highlighted in the release. So just trying to think after all the cash savings, what you feel like your need is for it.
And if you did have to use it, can you just remind us of any covenant requirements that you might have or any conversations you might be having with, with lenders? Yeah. Quick follow-up.
Speaker 5
Okay. As we look out, obviously, as we said, visibility is is limited. But as we look out kind of a a base case, we see no need whatsoever to draw on the revolver. We are going to continue to monitor that, but I don't see the sense of drawing cash down onto the balance sheet that I don't think I'm gonna need. As we model various downside cases, again, we can't envision a case where we would probably need to draw the revolver.
There is one maintenance test associated with the revolver. It's a first lien test on an L-eight basis. The current covenant is 4.5 times. That steps down to 4.25 times on January 1. And when we ran the calculation at the end of the quarter, we were at 1.82.
So I don't see any issue with the maintenance covenant even if we were to draw the revolver, and we don't even think we're gonna need to draw the revolver. So we're again, we're in a very good position from a liquidity standpoint.
Speaker 7
Great. And then, Hilton, I have one for you. And I'm sorry to put you on the spot here a little bit. TEGNA said that he's engaged with m and a discussions with four parties. So maybe you can give us a little bit of an outlook for m and a
And I think there's a perception out there that Gray is less amenable to approaches because it's a controlled company. So again, sorry to put you on the spot, but was just wondering if you could just comment on that industry theme at all. Thank you.
Speaker 1
Well, with regard to industry m and a, Steven, I I candidly, I think from Gray's standpoint, we continue to plan on trying to grow the company through that process. Whether or not really large transactions would even be desirable in a in an environment like we're in right now is an open question. But there are and will, I think, perhaps accelerate with, some of the issues that have arisen in the last couple of months, a lot of operations for a lot of singles and doubles to come up. And so I expect us to continue to grow with NNA. With regard to Gray being a controlled company or at least, the family having a large position with it, You know, our company is is not for sale, but I have made it very clear, on many different calls, that we are open to, many different structures that will continue to grow the company and add to shareholder value, across the board.
Know, there is nothing in there, that is going to apply that, you know, we're gonna let it lose its stability because I think that's an essential quality of a company is to have the stability to carry forward and invest more than quarter to quarter to invest for the long term. And I've had, the blessing and the curse, of being with this company since we had one TV station and have taken it to the pink sheets to, you know, to the New York Stock Exchange in a, you know, a little bit north of a two decade period of time. And, we hope to continue that pattern. We think beyond just TV stations, there are other alternatives and other venues for growth. But if you just look with regard to the TV station portfolio, there are so many different things, that we have that can lead to growth as they begin to get, rolled out, whether that is ATSC three point o, whether it is our digital footprint.
If you listen to Pat's comments, when we're getting 4,100,000,000 hits, I think that our ability to monetize that and continue to grow that is remarkable. Our other assets with regard to the production companies, while, you know, sports is shut down, sports will return. And I hope sooner rather than later, and those businesses will be returning, good returns to our company and good growth to the company as well. So we think we have, all avenues of growth open to gray, and, in no way does that put me in a hot spot. I've said the same thing for quarters and quarters and years and years.
Speaker 7
Great. Great answer. Thank you.
Speaker 1
Thank you.
Speaker 0
Your next question comes from the line of John Jandis with Wealth Research. John, your line is open.
Speaker 8
Hi. Thanks, guys. Couple for me. One, just going back to the new clients that I think Pat talked about written in March and April, seems like a pretty big number under the circumstances for sure. Can you give us some color on how those were sourced and to what extent they'll be ongoing clients?
And then separately, you talked to the cost savings that didn't include headcount or furloughs. Can you talk about where you're finding the savings, and is there a run rate for us to think about going forward?
Speaker 4
Yeah. So I can, John, it's Pat. I can I can take that question on the, the new clients? The it it is a big number, and we were proud of it. I would tell you that it's in line with, with non pandemic times.
So so that's a good thing. There were a lot of sort of different types of new advertisers. We actually had a a fair number of churches and and other sort of spiritual groups reach out and want to air, you know, messages of hope and and and prayer lines and that type of thing. You know, it it actually it added up to what is a pretty significant number. Then we had a lot of sort of home improvement, new home improvement clients.
A lot of people were sitting at home, you know, felt like they wanted to do those honeydew jobs that they've been putting off for a while, so we saw some of that. We saw some auto dealers that hadn't been on TV for a long time. And and so, you know, will we keep those clients? You know, that's certainly our hope. You know, we think we'll have a good chance of of keeping a lot of them.
And for the second, I think your second question, I'll turn it over to, I guess, Jim or Kevin, you wanna handle that one?
Speaker 5
Yes. As far as the expense reductions or the expenses coming in under guidance, a combination of a couple of things. While we certainly weren't furloughing or laying anybody off Q1 or Q2, you know, there was just been because of the circumstances virtually no new hiring. So that was part of it. We generally forecast heavy in expenses Q1 thinking we're going to come out of the box a little faster with our plans for the year and that tends to not happen as quickly as far as operational tempo goes.
Another piece of it was we had some favorable turns on our accounts receivable allowance for bad debts. At the end of the year, it was higher than we would have liked to have seen it. We worked hard on that early part of the quarter, January and February, and we were able to take down our reserves accordingly. So that was some of the favorable difference as well that produced the results you're seeing this morning.
Speaker 8
Great. Thanks. So maybe one big picture
Speaker 5
of And also, obviously, the once the pandemic hit, as we mentioned earlier, I mean, you know, travel's nonexistent. Entertainment is nonexistent for all intents and purposes. You know, some things like that. You know, not huge dollars, but it it does, you know, every little bit adds up.
Speaker 8
Okay. And maybe one quick follow-up. You know, big picture, how are you guys thinking about longer term subscriber attrition as it relates to retrans? You know, if there's an acceleration from here, does that change the negotiating dynamic between Gray and the distributors' networks? Would it be better if actually all parties were just less aggressive?
Speaker 2
John, I I don't know what the direction of the sub counts as I said on on the call. I think we have I think our negotiations over the last couple months are exactly the the way they were last few years and the way they'll be the rest, you know, with the foreseeable future, which is we have a what is deemed an aggressive view of the value of our stations. And the other side, it's to their benefit to try to negotiate the lowest possible cost. That's the way it's kind of always been. And we have conversations in good faith about what we we bring to the table and our viewership and our viewership relative to Network Prime and relative to everything else on the dial.
And we come up with terms that are mutually beneficial. So I I don't know how this necessarily impacts other than us. You know, we'll be making much stronger points about our dominance on ratings in these negotiations. So I I don't really know that that I don't I don't know how to more clearly answer the question because I'm not sure really how to answer the main thrust, which is what's happening to subs. I don't we don't know, we won't know for some time.
Speaker 8
Alright. Thank you. Let
Speaker 1
me can I just add one thing? This is Hilton. Just sort of the silver lining to this sort of dark cloud that this coronavirus has thrown over our industry and the whole country, I think that it has validated the the business strategy of Gray seeking to acquire and then continue to grow and invest in the highest quality local television broadcasting companies in in the country. And for in a time period when industries and businesses are simply shut down, I mean, close their doors, for us to pick up 700 new clients in the first month and 800 new clients in the next that had never been on our airwaves before. I think that proves the strength of our dominance in those local markets.
And then to have the the the the stunning numbers of increased viewership, and then if you go back to Pat's comment, it's gone from 30 to a 100% increases in all of those, different categories, I think that that augurs well. I think that with regard to retransmission consent, there should be, and I think it may be Gray that needs to lead this charge, you know, a different calculation based upon, you know, our market share versus just being a national affiliate because these kind of numbers and this kind of proof, I think is absolutely outstanding. I I could not think of a better validation of the company that we have built than what we have been able to lay out. And so I just want to repoint that out to you because there is a silver lining for our company and then for our industry as well. So I'm I'm bullish about the future.
Speaker 0
Your next question comes from the line of Jim Goss with Barrington Research. Jim, your line is open.
Speaker 9
Thanks. And, Hilton, this might go in line with what you're saying. I've I've wondered with the increased viewership as at the onset of the pandemic, but you didn't get it to take advantage of it so much because of the reduced ad demand and pricing. And now you'll have a reversal of that trend as the economies open up because you'll probably lose some of the viewership. They won't be home, But maybe you'll have an opportunity to get some of the ad demand to the extent, some of the local advertisers are able to open up and have that the funds available to spend.
How do you see that dynamic working working out in terms of, like, the pace of the recovery and the shape of that recovery?
Speaker 1
I I think when, I I believe, and I'll let anyone else that's on here put their own opinions on it, but I I have been through. You know, this is the third really dramatic advertising recession that I've been through personally. One thing that always happens is the strongest station has has the fastest recovery. I think that what we have done here has proven our numbers to the viewing community and then the people that turn on television. Right?
And then especially with regard to local ads, I think it's gonna give us a a very good position as as we go forward because, you know, auto automobile advertising, you know, they still have a lot of stuff that they've gotta get moved up there up there up there, you know, showrooms with regard to legal, financial, everything. And I think they're all going to come back to the place that can actually move their products, and that's our TV stations. So I think it will help us with regard to pricing. I think it will help us with regard to demand. And I think that because we didn't retreat in the in the face of this this disgusting thing we are going through.
Instead, we doubled down and tripled down. We invested. We added to our news. We put in late night newscast. We were able to do it and then and then have our anchors in all of our markets relate almost immediately to the people that were at home because they were broadcasting from their homes.
So, you know, over 90 some of the markets I mean, it's there's a connection that has been established through the course of this pandemic that I think is going to argue well for the success of our business in the medium and long term. I hope I answered the question. And we're also just on my soapbox.
Speaker 9
No. I I was also wondering, though, partly, do the advertisers who pulled back for various reasons, come back into position and, interest in placing those ads and and paying the higher prices? Or do you think they'll some of your market has been damaged, and it'll be harder to get some of those dollars back?
Speaker 1
I do not think we have been damaged one iota. I think that, when people come back, and we've seen some of this, on our own board of directors, the chief financial officers of Havard East Furniture serves on our board. Board adjourned yesterday. They have gotten 54 of their, I'm sure it's in excess of a 100, stores, you know, back open. And where they are in our markets, they're trying to advertise with the people that can get the eyeballs, and that's gonna be us.
And I think that we have better data to sell, and our account executives will have a better sales ability to make that pitch across the board. So I think we're gonna keep the pricing.
Speaker 9
Okay. Maybe one other I think maybe for Jim. Gray tends to run a tight ship in every way, shape, and form. But, one of the things that's been coming out is the revaluation of physical office space requirements in a you know, with a demonstration that people can work remotely to a greater extent. Is there any consideration of addressing or developing any cost savings in that area that that might be sustainable?
Speaker 5
I don't think there's gonna be any significant cost savings even if if in some circumstances we continue to run more dispersed and more remotely. Simply because we are now and it seems to be actually working, it seems to be working relatively well. But I think the basic costs of whatever we're doing probably still stay about the same. As mentioned early on in Kevin's remarks, we are just now beginning to start to think through in each of our locations across the country how transition back some to all or some portion of our employees. And that's highly dependent on the physical plant we're dealing with, the size of the staffs, lots of variables that are literally location by location.
And we're just now beginning to start to think through that and what it'll mean. There may be a little bit of cost associated with that if we have to do some modifications to buildings, help social distancing, things like that. But right now we don't expect that those costs would be significant. As we continue to work through that, and as we report on our next call, you know, we can update everybody on on our progress on that project.
Speaker 9
Okay. And maybe one last thing. Kevin, does this sort of environment create any potential for relief in Washington for things like major market major affiliate duopolies or any of the other things that you might have had an interest in?
Speaker 2
I think it's a a little too early I've and the overarching fact that we are a couple months from a election means it's it's a especially tough push to expect the SEC will be taking any major actions.
Speaker 9
Okay. Thanks very much.
Speaker 4
Mhmm.
Speaker 0
Your next question comes from the line of Dan Cronos with Benchmark. Dan, your line is open.
Speaker 10
Thanks. Good morning. Most of the high level stuff's been talked about, but maybe, Jim, I don't know if I can pin you down explicitly on how April core came in. And then maybe just further, you know, just talk about booking trends, what gives you that optimism outside of what Hilton talked about? Or, you know, we've heard some other companies mention maybe an OEM, you know, restart once the plants get back up and running, if that's contributing to sort of why you think things continue to get better?
And then on on the political side, is there any change in sort of the buckets in the way you think that comes in? You know, you reaffirmed your guidance, and, Kevin, you gave kinda good overall color. But is there any concern that maybe presidential's a little bit lower just due to the free airtime, but the down ballot stuff which we've heard has been coming in incredibly heavy right now kinda makes up for that, or is sort of the general outlook still relatively the same giving fundraising level?
Speaker 2
The president has a quarter of a trillion dollars in cash right now and more days ahead to raise money. And you've seen the articles the president is now the president's campaign is actually placing ads on TV. Remember, there were no ads for president Trump, I said, for candidate Trump four years ago, and we're seeing the ads today. And I think we'll see a lot more, part because there is a fear that this may be slipping away. He's running for reelection.
That's very different than perhaps his intentions when he ran four years ago. And as I've mentioned, if we didn't have this COVID crisis, he probably would have done 20 rallies in the last forty days, and that would have counted a lot of free press. Instead, he's he's not doing rallies, the podium in the White House is not necessarily helping him right now. So I I think advertising is gonna be important for them to define Biden and to get the vote out. So we're certainly expecting presidential spending from him, and so nothing has happened that would suggest that it's gonna be lighter, I think, as I said.
I think this environment suggests that we'll see more spending in at all levels, not just not less.
Speaker 5
So to go to the question on the sequentialness of q two, as we said, currently based on pacing, we think, you know, it's looking down at least 33% for the whole quarter. But we said there was sequential, appears to be sequential improvement. So you can assume, obviously, was down more than 33%. May is looking better. And June, as of today, is looking like the best month of the quarter.
So we're again cautiously optimistic on that trend line and we'll see how it's encouraging that it looks like it's getting better.
Speaker 0
Your next question comes from the line of John Kornreich with JK Media. John, your line is open.
Speaker 3
Yeah. Hi, Jim. Just humor me a bit on retrans, and you can reiterate some things that you've said already and in the past. How much is up for renewal this year and when?
Speaker 5
Kevin, you wanna jump in?
Speaker 3
In terms of subs.
Speaker 2
Yeah. Fifth about 56% of the subs are up for renewal this year. We have one major deal that was up in March and that we are still negotiating. The rest of them are up at the end of this year, at December 31, more or less.
Speaker 3
One major now and the rest at the end of
Speaker 8
the year?
Speaker 11
Yep. Correct.
Speaker 3
And your annualized retrans in the first quarter was about 850, 860. Is that pretty much the way it's looking now for the year? A little bit on the low side, but
Speaker 5
No. I think it would be for a full year basis, it would end up being, a little bit higher than that because again Kevin mentioned that there was a deal up at the So end of obviously that doesn't go to a new rate grid. You know, the first three months of this year were at the rates negotiated three years ago. So there there would be with that contract, there's a step up beginning, or will be a step up beginning retroactive to April 1. So that'll move the number up a little bit, over the next nine months.
Speaker 3
K. And what what was unusual in the first quarter, 213,000,000?
Speaker 5
I don't think there was anything really unusual in first quarter.
Speaker 3
So you expected all along that your net retrans was gonna be down in the first quarter?
Speaker 5
Yeah. I mean, I think, I'd have to go back and see what we said exactly when we guided for q, one. But, the the gross number came in pretty close to the guide, and the the expense number was also pretty much what we thought it would be. So I so, yes, we we would have expected a a muted, q one.
Speaker 3
Are you willing to say that net retrans for the years, just a very simple, will be up? Forget about how much. Just will be up.
Speaker 2
I mean, tell me, are subs gonna are subs gonna be down 12%? Are they gonna be down 5%?
Speaker 3
They'll be down five to seven.
Speaker 2
Yeah. I I mean, that was a rhetorical question. I I I I don't John, I don't I don't know the direction of the subs. And because half of our contracts are fixed fees regardless of sub count, that, you know, that impacts the net. So that's why we're not making any guidance and directly in the release or or indirectly.
Speaker 3
Okay. I was surprised that the net retrans was actually down 10% in the first quarter.
Speaker 2
Mean, recall all of the contracts step every network contract steps up on January 1 and the last year was rolling into new rate rate grades.
Speaker 5
And we've said repeatedly that '20 was a tough year for us on the reverse side because of the affiliation agreements that renewed in, you know, part years in 2019. So now we're getting a full twelve month effect as well as a rate increase effective January 1. So this was always gonna be for many years, we've said this was always gonna be a tough year in reverse for us.
Speaker 3
And that cycle could reverse in '21 when you negotiate 56% that carries into next year and the reverse side has already been settled?
Speaker 5
Well, there will be another step up in all those agreements and January 1 next year too. But you're right. With basically being able to reprice roughly 50% of our sub base at the end of this year, you know, it's a much better picture for gross next year, you know, with with that many sub three pricing.
Speaker 3
Okay. I got an easy one for you, Jim. Are you willing to say revenues will be up in the '21 versus the '20?
Speaker 5
'20. Yes. I'm willing to I'm willing to bet I'm willing to I'm willing to stick my neck out. That's right for that one. I think I I I think that that's a reasonably safe assumption to make at this point in time.
Okay.
Speaker 3
Thanks for your help. I really appreciate it.
Speaker 0
Your next question comes from the line of Michael Kupinski with Noble Capital Markets. Michael, your line is open.
Speaker 8
Thank you. I just have a couple of quick questions. I was just wondering, do you have a sense of how your stations have or are performing relative to the other stations in your markets? And I'm just trying to get a sense of, like, whether your local station rankings or actions you've taken to reach out to your best clients have had, in your particular markets.
Speaker 2
Maybe, Bob, do you wanna take that?
Speaker 11
Sure. I could do that. Just Bob Smith. You know, we we monitor our competition, you know, quite heavily. As you know, the strong performance of our stations means that we have a lot of number one producing revenue markets and along with political as well.
So we're pretty comfortable, that, we're seeing the lion's share of the dollars in most of our markets, probably not a 100% of them, but, very very close to that. Secondly, we're doing all you know, we do outreach, to our biggest clients in our markets. The general matter gets involved. GSN gets involved. I've talked to a few big clients.
I've talked to seven ad agency owners, to some of the biggest ad agency owners in the political world just this week, and so just to take their temperature. And, so we're pretty thorough in our we have a lot of strong relationships in our local markets, and and that's why we've been able to, I think, also get some new business on the air. There's been a, you know, a few superstars in that regard, throughout the company. So, we're in a good competitive position, I would say that.
Speaker 8
Okay. And then thank you for your comments on, your interest in m and a. I was just wondering, given this pandemic, has your comfort level on debt leverage post this pandemic changed in any way?
Speaker 5
Well, our our leverage, you know, at the end of the quarter was 4.23. We had said, in our, you know, year end call back in February, we we indicated that we thought we would end up the year somewhere in the threes. Now, obviously, we've withdrawn full year guidance for all the obvious reasons. But at the same time, I still think leverage is probably somewhere in the lower 4s by the end of the year. It may be a little bit, it might fluctuate a little bit as we move quarter to quarter, but when the political hits in fourth quarter, I think we, you know, the leverage is somewhere in the lower four's.
I think overall in, you know, where we would be by the end of the year, and then thinking ahead to '21, assuming '21 is normal, we feel pretty good about our leverage range. And I think we'd be I think we currently are among the lowest in the peer space and, you know, moving over a period of time, moving even lower. So I think we've got some flexibility with leverage. But we also like we like the zip code we're in currently and the zip codes we'll be heading to over the next, you know, now to the '21 and into '22.
Speaker 8
Gotcha. And as you think about acquisitions going forward post the pandemic, any thoughts about the high end of your leverage range, what you're willing to go to, what you're not willing to go to? Has that changed?
Speaker 5
We've always been a little careful to, you know, set arbitrary highs and lows. Certainly before the pandemic, I mean, I think the the rule of thumb for the industry and depending on timing of deals, size of deals, if you just think about how the peer group has run over the last three, four years, it it kind of, you know, big large deal, you might be a little bit over five to maybe five and a half going with the trajectory going into the fours and into the threes. And, people have done that and then watched and repeated, right? And we've done that several times. I think going forward, what would be probably a more comfortable range really, you know, we we need to get through the current environment and understand clearly what the what the future environment is.
If it's pretty much back to normal like, you know, 1819, and what everybody thought '20 would be before the pandemic hit, then I think that would lead you to one conclusion. If the post pandemic new normal is slightly different, you know, than the old normal, then you might end up at a little bit more conservative leverage standpoint. I think right now kind of impossible to say other than we're very comfortable with where we are and where we see ourselves heading over the next twelve to eighteen months.
Speaker 8
Great. Thank you very much for that. Appreciate it.
Speaker 0
Gentlemen, your final question comes from the line of Davis Hebert with Wells Fargo. Davis, your line is open.
Speaker 12
Hi, everyone. I was gonna ask the lenders question, so thank you for that answer. But I guess just one last one. Thanks for fitting me in here. With no live sports, I'm just curious.
I think the answer is no. But are there any triggers in your agreements with the networks for lower payments and or rebates to the MVPDs? And as you renegotiate some of these deals, you know, do you think that's going to be a conversation? Thank you.
Speaker 2
Hi, Davis. It's Kevin. The short answer is no. Remember this the network sports agreements are negotiated between the network and their respective affiliate associations and then presented to affiliates with the recommendation to enter a nonentered to the agreement. And so you basically have a form agreement for all affiliates in the country, which you pay a pro rata share of the total amount negotiated based on the human population.
You don't have an individual negotiation over sports with with a network when you're doing your affiliation. The the sports deals are separate. So I I I don't anticipate well, there is no there is no trigger. For example, with NBC, you pay an NBC Olympic fee every year even though Olympics
Speaker 11
are every two years. That's the
Speaker 2
way the payments were structured. And we are we are gonna get Olympics. We'll get it in 2021, but I I don't see any near term relief, especially since the networks, as our understanding, is largely required to pay the leagues regardless of the the state of play. If there are refunds from the leaks to the networks, then that will open the conversation. But at this point, it seems that they'll the networks are still paying the leaks for under their contracts.
Speaker 12
Great. Thank you.
Speaker 0
This concludes our question and answer session. I will now turn the call back over to Hilton Howell for closing remarks.
Speaker 1
Well, thank you very much, operator, and thank everyone for your very insightful questions. Thank you for your time this morning. It is interesting times that we live in, but we will come through these. My personal feeling is we will come through these times a lot faster, and I know that this company will emerge from it much stronger than it was when it even began, and it was strong when we started. So thank you for your time, and we will talk to you next quarter.
Speaker 0
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.