Prepared remarks
Good morning, and welcome to the Gray Media 2024 Q4 Earnings Call. I will now turn the program over to Chairman and CEO, Mr. Hilton Howell.
Thank you so much, operator, and good morning, everyone. As the operator mentioned, I'm Hilton Howell, the Chairman and CEO of Gray Media. Thank you all for joining our fourth quarter 2024 earnings call. With me here, as usual at 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. As usual, we will begin with a riveting disclaimer that Kevin will provide.
Thank you, Hilton. Great introduction. Good morning, everyone. Today, we filed on Form 8-K, our earnings release and investor presentation. Later today, we will file with the SEC our annual report on Form 10-K. These materials are all available on our website, which is www.graymedia.com. 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. Further discussions and reconciliations of the company's non-GAAP financial measures to comparable GAAP measures can be found on our website. All statements and comments made by management during this conference call other than statements of historical facts should be deemed forward-looking statements. These forward-looking 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 that are contained in our most recent filings with the SEC. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. I now turn the call to Hilton.
Thank you, Kevin. You do that particularly well. Good morning again, everyone. For many reasons, today is a great day to discuss with you the state of our company and its direction. This past Sunday on NBC and obviously, all of our NBC-affiliated stations, Grosse Pointe Garden Society, the first of the broadcast shows produced at our own Assembly studios, premiered at 10:00 p.m. Eastern Time. Next, this Monday, on CBS, the first new soap opera in over 30 years, Beyond the Gates, also shot at Assembly, premiered at 3:00 p.m. Eastern Time, and then, every day, so far this week on all of our stations and across the country. Significantly, the Gates is a coproduction between CBS and the NAACP that focuses on a very successful African-American family in Maryland, the Dupree family, a milestone show in broadcast history, and we are exceptionally proud to help get it on the air out of Assembly Studios here in Atlanta.
And tonight, we are thrilled to reinforce the news that across 24 Gray Television markets, the Atlanta Braves America's Team, will debut on live television from spring training in Florida. Tonight's game against the Washington Nationals will be the first of 10 preseason games produced by Gray that will air across Braves Nation and we will follow up with 15 regular season games simulcast across the same footprint. These are accomplishments that we are truly proud of. Now let's turn to our financials. We are very happy to announce that our results for the fourth quarter finished better than our guidance on both revenues and expenses. Total revenue in the fourth quarter of 2024 was $1 billion, an increase of 21% from the fourth quarter of 2023. Total operating expenses in the fourth quarter of 2024 were 2% below the low end of our previously announced guidance. Net income attributable to common stockholders was $156 million in the fourth quarter of 2024, compared to a net loss attributable to common stockholders of $22 million in Q4 2023.
Adjusted EBITDA was $402 million in the fourth quarter of '24, an increase of 86% from the fourth quarter of 2023, due primarily to political advertising revenue. In addition to these operating results, we're proud of the progress we made on our balance sheet during the fourth quarter. Just two weeks after our third quarter earnings call, we announced that we had completed a series of transactions that collectively reduced the company's principal amount of debt outstanding by $278 million since October 1. During the full year of 2024, we reduced the company's total principal debt by $520 million, exceeding our $0.5 billion goal. That November announcement was a fitting way to complete the year in which we executed on our pledge to concentrate our free cash on reducing our debt and improving our balance sheet. In addition to reducing our total debt during the year, we also refinanced our debt to extend our maturity days, increased our revolving loans available, and greatly lowered our capital spending as we completed numerous projects.
In the end, we finished the year with a lower leverage ratio than we began. Operationally, we continue to enhance our local content offerings in 2024. We devoted tremendous efforts to reaching new local sports back to our television stations. Last year's milestones included a historic deal, as I had mentioned earlier, bringing Atlanta Braves games back to broadcast on Gray's TV stations in our hometown of Atlanta and throughout most of the Southeast this spring. We also renewed our affiliation agreement with the ABC network for four additional years. In 2024, our Investigate TV and local news live franchises both continued their momentum with viewers and both also significantly expanding their distribution across broadcast, digital, and mobile platforms. The success of NBCU and CBS at Assembly Studios provides wind in our sails as we continue discussion about leasing our remaining studio facilities with other production companies.
We expect to have more announcements about Assembly Atlanta throughout this year, including progress on the buildup of other parts of our mixed-use campus on the land that we own, importantly, utilizing financial resources of our future business partners at the site. With our significant capital investments now largely behind us, future projects at Assembly Studios and Assembly Atlanta should enable the development to expand its financial contributions to our entire company. We are also encouraged by signs from Washington, pointing to a long overdue reform of the regulatory constraints that have literally harmed local broadcasters. While every day, we compete for local ad dollars with tech giants free from constraining rules that we are shackled with, which, as one of our more eloquent lawyers wrote, were enacted before the Japanese bombed Pearl Harbor. It remains a fundamentally wrong and harmful policy for the government to burden our local news sales employees with these decades-old restraints while imposing essentially no restraints on much larger companies who compete vigorously with us for the attention of viewers and advertising budgets.
We are optimistic that the federal government, as well as our upcoming negotiations with our network partners, CBS, FOX, and NBC, will recognize the reality of today's media marketplace in 2025. Such actions will enable us and our peers to operate more efficiently, compete better against the tech giants, and deliver better services for our viewers, our advertisers, and indeed, our shareholders. At this time, I would like to turn it over to Pat LaPlatney.
Thank you, Hilton. Last year, our business was primarily remembered for political ad revenues. Broadcasters overall took in record revenue from political ad spending and a lot of new dollars that entered the space were used to buy ads on Connected TV. Gray also sells ads on Connected TV platforms and has a dedicated team focusing on ways to better leverage our strong digital audiences and local connections in the political ad space, as we expect that sector to grow going forward. Overall, in '24, we saw increases in each category of political ad revenues other than Senate, which is our largest category. Despite the Senate map not favoring Gray's footprint in 2024, we still believe that our political advertising revenues for the year exceeded our peers in total dollars and on a per television household basis, based on the results announced by our peers right after the election. The $250 million of political ad revenue in the fourth quarter had the expected effect of displacing a large amount of core advertising revenue through election day, as happens every election year.
As we mentioned on the Q3 call, we also heard from our commercial advertising clients in the third and fourth quarters about some hesitancy around advertising during the election given the tone of some of the political campaigns. We did, however, exceed our Q4 core guidance. The hesitancy and caution around advertising we saw during last fall's election season persisted into January; we think resulting from economic uncertainty due to potential government policy changes. This caution is most evident among our automobile advertising customers. We hear that some dealers and manufacturers are pausing or reducing their advertising campaigns as they evaluate how tariffs and continued high-interest rates may impact near-term demand for new and used cars. Our January core ad revenues were down from last year; our February core ad revenues were about the same as last year's, excluding Super Bowl bookings and Leap Day, and March pacings are currently showing improvement and tracking roughly flat to last year's actual core ad revenues.
Overall, for the first quarter of 2025, we currently expect that core advertising revenue will be down 7% to 8% compared to the first quarter of '24. Again, there are three primary factors causing this decline. First, is the political or economic uncertainty that I just discussed. The second impact on core results was from the Super Bowl airing on our 33 FOX channels in 2025, compared to our 54 CBS stations in 2024. Our FOX stations did very well, increasing their Super Bowl advertising revenue by about 50% from the last time the big game aired on FOX in 2023. This, however, was still only about half of what we sold during last year's Super Bowl that aired across our much larger CBS footprint, including our CBS station in the Chiefs' hometown of Kansas City, as well as St. Louis, Topeka, and Wichita. Finally, our first quarter of 2025 will be negatively impacted by one less billing day due to Leap Day, which we estimate impacted our core revenue by $3.5 million to $4 million.
Excluding Super Bowl and Leap Day impact, our core advertising revenue guide for the first quarter of 2025 is down 3.3% to 4.6% from the first quarter of 2024. We are encouraged by our success in acquiring Pro Sports rights Hilton mentioned, the Braves, which will impact 24 Gray markets. We announced our Memphis Grizzlies deal this morning and expect to announce a couple more agreements in the next few weeks. We anticipate having local sports product in 75 to 80 Gray markets by the end of the first quarter. With that, I'll turn it over to Jeff.
Thank you, Pat. As Hilton mentioned earlier, reducing debt and leverage remains our top capital allocation priority, and we made significant progress again in the fourth quarter. As everyone saw in our release, we finished the year at 2.97x first-lien leverage, and 5.49x total leverage. And as a side, I would note that our leverage ratio as defined in our senior credit agreement does not allow us to take credit immediately for cost containment initiatives, and that may not be comparable to what is indicated by publicly available documents for others out there. So to be clear, we've not retroactively included the benefits from the $60 million of cost initiatives we announced last quarter in our December 31, 2024 calculations. We are, however, on pace to be at the full $60 million run rate by the end of this quarter. We've been very transparent and opportunistic on our debt reduction efforts and are proud that we reduced our principal balance by $520 million during 2024.
Through the use of open market repurchases, we captured $46 million in debt discounts during 2024. We continue to have our $250 million Board authorization available for further open market repurchases, and I think as we've pretty clearly demonstrated, we'll continue to be thoughtful and nimble in deploying our liquidity to further delever the company. We entered 2025 in a very strong liquidity position. As of December 31, 2024, we had $135 million in cash, plus $680 million revolving credit facility available. We expect that the next political cycle in 2026 will provide significant cash that together with the liquidity that I just mentioned will be more than sufficient to address our remaining $528 million 2027 bond maturity. While repaying debt is our number one capital allocation priority, we could also access the debt markets if attractive terms and pricing are available. A couple of other items to mention.
Our cash taxes were a little above our Q4 guidance. That's primarily due to taxes on cancellation of indebtedness income. Our CapEx came in slightly below our fourth quarter guide at $96 million, and we expect slightly lower CapEx again in 2025. Yesterday, our Board of Directors declared our regular quarterly common dividend of $0.08 per share and the cash payment of our quarterly preferred dividend. As a reminder, the common dividend is a small use of cash for the year that helps the company on the equity side of the balance sheet. Going forward, the Board will continue to evaluate our dividends in light of our financial position, capital needs, and other appropriate factors on a quarterly basis. Before I turn the call back to Hilton, a couple of comments on what we're seeing on retrans. Over the last two years, our traditional MVPD subscriber base has declined at essentially the same year-over-year overall rate.
We're encouraged, however, by recent sub reports from major cable companies showing a modest improvement in their rate of sub declines, which we attribute to a number of factors that have been discussed on many of our prior calls, including better consumer value proposition by staying with cable. As you know, we entered into a four-year affiliation agreement with ABC at the end of last year. That agreement and the upcoming renewals this year with the other broadcast networks provide opportunities for us to rebalance the economics of those deals in light of the MVPD subscriber erosion and loss of exclusivity that have occurred since our last renewal cycle. It's worth noting that our network affiliation fees increased for many years at double-digit rates. Over the past few years, those network affiliation fees have flattened out. And even better, we booked the first-ever year-over-year decrease in network affiliation fees in 2024, which we anticipate will continue and even accelerate. This concludes my remarks, and I'll now turn the call back to Hilton.
Thank you very much, Jeff. And now operator, I'd like to open up the call to any questions that anyone may have.
Questions and answers
We'll take the first one, Mr. Aaron Watts of Deutsche Bank. Your line is now open.
All right, thanks for having me on. I have two questions. Maybe I'll just cover one at a time. The first is around core advertising. Your comments on the softness at the end of '24 and into '25 seem to echo your peers. Given the modest firming up you saw as 1Q played out, as you look ahead, do you think core ads can move to growth on a full-year basis? And if so, what might drive that?
Yes. Aaron, it's Pat. So I think the answer is yes. It's early, but we are encouraged by the second quarter pacing currently. Some of those categories that have been challenged over the last four to six quarters are showing improvement at this point. So again, based on the data we have today, I would answer yes to your question and say that as we look out a little bit, things are more encouraging.
And Aaron, this is Hilton. Can I add just a little bit of something to that? We discussed this at length in our Board meeting yesterday. A lot of our weakness is in the automobile department. And really for the first time since the end of World War II, the automobile productions don't know what the cost of goods sold are going to be. So many parts come from Mexico and Canada and other places around the world. And as we discussed tariffs, I think that's putting a natural chilling effect upon advertising in the automobile sector. That will settle out. And as President Trump has said, there may be some initial pain. This too will pass. When they know exactly what the prices they need to have to sell their products profitably, I think you're going to see all of the automobile sector returning to advertising.
Okay. That's helpful comments. And then my second question is around expenses in the first quarter. Can you parse out your guide, which looks relatively flat year-over-year, how much of the cost efficiencies you've highlighted flowed through in the first quarter? And what other factors are at play there, including maybe any incremental sports rights? And if you can, how should we think about expenses overall as the year unfolds?
Yes, I'll start, and then others can add. As we consider the impact of the initiatives we've announced, I estimate that about two-thirds to 75% of that will be realized in Q1, with further growth anticipated. This doesn’t imply that we’re finished either; we continuously evaluate our spending strategy. For the full year, we hope to maintain our expense growth rate below inflation and potentially achieve a reduction during the year.
Yes, I just wanted to emphasize what Jeff mentioned. We review these numbers daily and are actively seeking ways to reduce costs. In fact, there have been several initiatives over the past few weeks that, while they may not have been part of the major project we announced in the fourth quarter, align with our ongoing efforts.
And so offsetting some of those costs you're taking out, what were some of the kind of offsetting ups in costs that are playing into the flat overall guidance in 1Q?
We need to maintain strong local businesses and attract and retain talent across the organization. So, we have implemented standard raises as part of our business operations. With around 9,700 employees, there is some increase in this area, along with normal contractual increases in other areas. Overall, as Pat mentioned, our focus remains on finding the most efficient way to deliver high-quality products in our markets.
Okay. Appreciate the time. Thank you.
Thank you, Aaron.
All right. Next up we have Daniel Kurnos of The Benchmark Company.
Great. Thanks. Good morning. Hilton, maybe I'll stick with you, or Pat, a little bit here since you talked about the Braves. Obviously, we have a somewhat public breakup between Major League Baseball and ESPN. So just curious, the RSNs have picked up a bunch of local games and other sports, but curious if you view that as an opportunity? And then separately, Hilton, you've talked a lot about expanding sort of the mixed-use zones with regards to Assembly. It seems like that's starting to move forward. So I'd love to get a sense from you on TAM, timing, monetization, just how we should think about contribution to that, either this year or next year and for however you want to frame it.
Well, you heard this in Pat's discussions. Let me start with sports. It's a remarkable opportunity. By the end of this quarter, Pat mentioned that we will have live professional local sports in over 80 markets across our 113 market profile. That's amazing. We've been working diligently. A year ago, we had Arizona and the Suns, and now we have stations across our footprint. If you look at our investment deck, you can see the Gray regional sports networks we established ourselves, all in broadcast, and we're incredibly proud of what we've accomplished, especially with local sports teams down to the high school level across these networks. This will significantly enhance our viewership and profits, as it creates a substantial halo around the stations and attracts viewers. A year ago, we didn't have that. It's a fantastic addition to our portfolio. Now, regarding Assembly, the studios are complete, and they are producing shows.
I'm extremely proud of what Grosse Pointe Garden Society on NBC achieved Sunday night, and also very proud of Beyond the Gates in terms of the productions airing on our stations. From a business perspective, I couldn't be happier with Assembly Studios and the Georgia Film Production we have in the state. Concerning Phase 2, I'm not ready to announce anything yet, but we are exploring opportunities to grow other assets in partnership with other companies. We've received interest from many parties. We don’t plan on making big capital expenditures in Assembly. We'll contribute our land, and they will handle their investments, allowing us to add more profitable operations without significantly impacting our balance sheet. This will help the remaining 80 acres begin contributing profits to the broader company, which we're very excited about. I hope I answered your question, Daniel.
And Dan, I'll just touch on ESPN real quick and baseball. I'm not sure that's a huge opportunity for broadcast. As Hilton mentioned, there's all kinds of opportunities out there. That particular divorce, if you will, I'm not sure that creates a ton like the Sunday Night package, right? Is that going to end up in syndication? I kind of doubt it, but who knows? The reality is, just if you look at our new investor deck and the logo suite page on the sports section, there's a lot of baseball that's going to land in small packages on broadcast television this year, and we're involved in many of those. Hilton touched on the halo impact of having sports on your stations that I'm going to turn it to Sandy to talk about that perspective. It's very real.
Yes, Dan, it is. I mean these relationships not only bring viewers to the games, but there's an overall halo effect. We're seeing that. Phoenix is a perfect case study. We're in our second full season with the Suns, and we have seen that. We have seen advertisers who came to us for the games and now rediscovered the power of broadcast and local broadcast reach, and are now advertising in other dayparts. So we've seen that halo effect across the board.
All right. Moving right along, next up, we have Craig Huber, Huber Research.
Thank you. On Assembly Atlanta, maybe can you just give us the updated figure for what the total cost is for the project, gross and net cost? Let me start there, please.
Land cost, acquisition cost, building costs is roughly $500 million more or less.
Specific numbers are in the 10-K, which we are filing later this afternoon.
Roughly $500 million net, is that what you're saying?
Yes, net or gross, I didn't look at it.
Okay. Very good. You mentioned that you expect production company revenue in the first quarter to be between $27 million and $28 million, which would reflect an increase of about $5 million to $6 million over the past two years. Do you anticipate that number to increase significantly throughout the year, aside from seasonality? I'm trying to understand the return on investment from that $500 million.
The answer is yes, but there are a couple of things to consider. The immediate effect will be increased revenue as more productions get underway, as many of you already know. Currently, Hollywood faces several challenges that are beyond our control and weren't caused by our company, but the strikes have slowed down progress for 2024. However, productions are still ongoing, and I am genuinely excited about our current projects and the television shows we have. For the first time in Georgia, we have a broadcast TV show launching before it goes to streaming or cable. We have Grosse Pointe and the Gates on our channels, and I'm thrilled about it. Our stages are about 70% booked, indicating we have approximately 30% or more potential for additional bookings. We have quotes for every empty station that is not currently hosting a film or television production. We are seeing significantly more activity in film and television.
While I can't disclose specific details about individual projects, sometimes I'm not fully informed myself, as productions often use code names and keep information under wraps until the last minute to manage their publicity. You will see immediate returns from the studios. Additionally, we have another 80 acres that is not currently productive. As I noted, we won't be investing much more capital but will seek partnerships for various assets. We are drawing inspiration from what has been achieved at the Battery with the Braves, which has added substantial value to their franchise and audience engagement, and we are looking to replicate that in our city. We will approach opportunities on a case-by-case basis. We delayed many plans because the market conditions were unfavorable. Banks were not lending, and the situation changed in November. We are observing a lot of positive energy out there, and we are very optimistic about opportunities and partnerships moving forward.
My second question, if I could. On potential deregulation here, do you guys feel that you will be a major participant if deregulation happens or if assets become available out there? Or does your debt load preclude you from participating much? How are you thinking about that?
We will ensure that any deal we pursue will be a wise one. There are numerous opportunities we are keen to explore, especially with the prospect of deregulation. We have experience in this arena and have made various acquisitions in the past, often aimed at reducing our debt. We are prepared to evaluate each opportunity as it arises. Fortunately, we do not have any deals that we absolutely need to pursue. I believe we have an outstanding presence in broadcast history, unmatched by any competitor, demonstrated by our successful collaboration with The Braves across 24 markets. The performance we have achieved and our potential is quite impressive. Our investment deck published today highlights our successes in Arizona, Nevada, the American Midwest, and the Southeastern states, which differ significantly from one another. Our achievements in the Gulf Coast with the Pelicans are something we are very excited about, and we aim to replicate that success in other areas. While major markets are important, we also cater to smaller markets that have a strong support base for these teams.
My last question, you guys talked about the potential here for retrans subscriber declines to moderate. I'm just curious if maybe you're willing to share with us how are you guys budgeting subscriber declines in your financials for this year? Are you expecting it to materially get better, say, in the back half of the year on a year-over-year basis?
This is Kevin. We do expect the rate of subscriber declines to slow - same thing last year, what we have seen some encouraging signs late last year as have other folks in the media industry expressed that. Our internal numbers are assuming things stay the same. We're not giving full-year guidance on retrans. So that's just an internal number. We are not projecting a material increase or decrease. We're presuming that the rate of decline will just be the same. That's the easiest baseline to budget.
Okay. Thank you.
Thank you, Craig.
All right. Next up, we have Avi Steiner of JPMorgan Chase & Company.
Thank you. Good morning. On the reverse comp trends, you mentioned an opportunity to rebalance economics. And I think you rightly pointed out the decrease in fees in '24. I thought you mentioned it could be lower in '25. Could you dimensionalize that for us this year or maybe put a little more context around it? Thank you. And then I have one more.
Yes, Avi, it's Jeff. Our two larger contracts, CBS and FOX, are up this summer, and then NBC at the end of the year. I don't want to say a lot about specifics around where those contracts are going to be going. We're not going to be giving a full-year guide until we have more clarity on where those negotiations are going to come out.
Suffice it to say, Avi, we're very optimistic and proud of our new relationship with ABC. This collaboration effectively balances the value of their affiliation with our local TV stations. As noted in our earnings reports, it's the first time we've seen a decrease in our network payments, which is significant in today's media landscape in 2025.
Perfect. I appreciate that. Thank you for that color. One last one for me. maybe, Jeff, for you or anyone else. But you guys were opportunistic late last year across the debt stack. And as we move into '25, you have the authorization you highlighted, perhaps some other cash coming in. The question is how do you view the trade-off from here between discount on the longer-dated debt, but lower coupon debt, versus some front-end needs you will have in the coming years? Thank you.
Look, I think the best place to look is what we did last year. The market guided where we were going. I wanted to finish the year with a manageable 2027 maturity. At $528 million, that is manageable, either via the revolver or a nice round offering size if we went back to the debt market. We'll just have to see where things are trading at any point in time when we have excess cash available to deploy it and let that be our guide.
I just want to add some context to your question about our capital expenditures. It's important to note that our company has made numerous acquisitions over a significant period. We have openly stated that we are reducing our capital expenditures. This decision reflects the fact that we've completed most of the necessary capital investments from the acquisitions, as we inherited many portfolios that required updates. For instance, several stations needed new transmitters, and some had unsafe buildings that posed risks to our employees. We had various capital expenditure needs. However, we are not entirely cutting off funding; our stations are fully equipped to compete effectively in their markets.
Appreciate the time. Thank you everyone.
Next up, we have Steven Cahall of Wells Fargo.
Thank you. First, Hilton, I was wondering if you could just touch a little more on some of your comments around the M&A opportunity. It seems like it could be an exciting next few years with what the FCC is doing. You mentioned swaps as something that might be attractive to Gray. How do we think about those and what the financial benefits of those could be? And I know Assembly is close to home, figuratively and literally; do you have the large acreage there that you spoke about. Would you ever consider monetizing some of that to give you more dry powder for station M&A since you're at a point of a little higher leverage now? And then just a second question on political. Some of the things stayed the same this last political cycle. Some of the things changed. As you look to 2026 and maybe have a little bigger fight against Connected TV to retain your share of political dollars, what can you kind of do this year and next year to be ready to maintain that share?
Well, I think we're going to have to pass these questions around to each other. Make sure I understand the question about what we're doing at Assembly, Steven. What were you asking?
Yes, if you would just monetize any of your unused acreage, just to give yourself some more dry powder for station M&A?
I mean we don't foreclose any profitable and appropriate transaction, all right? So we're willing to listen to all kinds of folks. So the answer is, yes. Does that mean we're going to do that? No. But I'm not going to foreclose any kind of opportunity. It would depend on the individual transaction. We have considered a variety of things, all of which add great value to our company and to our shareholders. I really encourage you, Steven, and actually everybody on this call, we really should have an investor meeting at our studios. I think when you see them, it will change your view of what we've created and the value that it has for this company and future opportunities. A core business for us is the studio. We've got 80 acres, and we're going to be looking at a lot of deals and financially beneficial structures as we see what we can do with the remaining land. In regard to political and Connected TV, Sandy, is that…
I'll just echo as Pat said in the comments. We are fortunate that with the strength of our stations, we have strong local reach on the linear broadcast side, but because of that also on all of our platforms. We have strong digital audiences, and we have strong connections in those communities. We have a dedicated team now actively working to better leverage our strong digital audiences going forward. We know that that's going to continue, and we have a lot of opportunities in '26. We have a lot of political opportunities in all of our markets, so that is a high focus for us, and we expect that to grow certainly for Gray.
You asked about mergers and acquisitions, and anyone in our room can share their views. There are numerous opportunities we are exploring. We will consider swaps, especially if the FCC and the Department of Justice permit them, as it can be challenging to achieve solid profits in smaller markets due to the expenses associated with minimal local news coverage. A significant advantage for our company, which we have communicated to the public markets, is that we have exclusively acquired top-performing new stations during our M&A efforts. Although we have a few that are not meeting our expectations, we have addressed this issue. Our news content is solid, consistent, and focused on local matters. We do not engage in opinion journalism, which I take pride in. I would like to highlight John Decker, who has been frequently called upon by the White House, attending almost daily at the White House conferences, and I am proud of that. Adding duopolies in smaller markets, which has been controversial, as well as in larger markets, will help us maintain strong local news content.
Thank you.
Thank you.
Our final question is going to come from Alan Gould of Loop Capital.
Thank you. Thanks for taking the question. Thanks for the investor deck earlier today. First, Jeff, in the investor deck, it shows a leverage goal of 4x. You're about 5.5x today. You usually go up in political years. How long until we get to 4x? And then the second question, I guess, for Kevin, your Washington slide talking about deregulation. So besides the M&A and station swaps, what other deregulation opportunities are there? I know specifically you also mentioned there the network-affiliate relationships. I assume that's with the vMVPDs, but what else will help benefit with deregulation?
I'll go first because it's easy. Our big goals from Washington are, as Hilton mentioned, relaxing the one market rule adopted in 1940. Secondly, the SEC has shown some interest in the network-affiliate relationship, primarily around the networks' complete control of our distribution on the virtual MVPDs, which are a sizable part of the distribution industry at this point. And then third, NEXTGEN TV is a huge and important growth opportunity for this industry. We've gotten some middling progress from the SEC in the last couple of years. We really need them to step forward and remove some of the shackles on our business regarding NEXTGEN. There are a lot of things that can happen there. Those are the big three pillars in Washington regulation.
Yes, and Alan, on your other question about getting to the 4x, it's going to take a few years to get there. Obviously, the heavy cash flow years are the political years. Even in off years, we are cash flow positive. It's just not to the same extent. It will take us a few years to get there. But I think there's clear line of sight after what we've done in '24 and capturing a little bit of the discount accelerated it in the fourth quarter. That accelerated some of the principal reduction, which drives lower interest expense, and starts to get the cash flow. The discretionary free cash flow to a spot where we have more ability to reduce the principal further.
Well, Alan, just let me tell you a little bit about history. When we closed on the Raycom transaction, one of the best deals in the history of broadcast, we got up to a 5.5, and within 18 months, we got down to 3.5. That was at a time when the interest rates were very much lower than what we have had in the past. Over the last couple of years since we finished the acquisition of Meredith and Quincy, we've seen during the Biden administration a very rapid increase in interest rates. I'm happy for me at least that the Fed has seemed fit to reduce interest rates through 2024. I know they kind of paused at the beginning of 2025, but I think that we are in an interest rate diminishing area prospectively. That's going to help us tremendously because this is a free cash flow generating business and Gray particularly is a robust free cash flow generator. We look forward to getting it deleveraged in a lot of areas.
Okay. Thank you.
And with that, we will now turn the program back over to Mr. Hilton Howell for closing remarks.
Thank you so much, operator, and everyone on this call. Listen, everybody, Gray is an exceptional company with an exciting future that will continue to evolve and invest to meet the opportunities in our ever-changing, and really quite exciting industry. Our revenues and cash flow are solid. We have walked the talk on reducing our debt. Our expenses have slowed significantly. Our investment in NEXTGEN TV and Assembly Atlanta are poised to deliver. We are reaching new audiences with local sports, and we expect that the government will finally level the playing field for companies like Gray. These are the main reasons why I personally remain buoyed and excited by our long-term prospects. We thank everyone for joining the call today. Operator, at this time, we ask that you close the line, and thank you all for being with us.
And with that, ladies and gentlemen, this does conclude your call. You may now disconnect your lines, and thank you again for joining us today.