管理層發言
Welcome, ladies and gentlemen to the Gray Media's Q3 2024 Earnings Call. I will now turn the program over to Chairman and CEO, Mr. Hilton Howell, Jr.
Thank you, operator and good morning, everyone, and thank you all for being here. As the operator mentioned, I'm Hilton Howell, the Chairman and CEO of Gray Television. And with me here in Atlanta are all of our Executive Officers, Pat LaPlatney, our President and Co-CEO; Sandy Breland, our Chief Operating Officer; Kevin Latek, our Chief Legal and Development Officer, and Jeff Gignac, our Chief Financial Officer. As usual, we will begin with a disclaimer that Kevin will provide.
Thank you, Hilton. Good morning, everyone. Gray Television, Inc., commonly known as Gray Media or Gray, uses its website as a key source of company information. The website address is www.graymedia.com. We will file our Quarterly Report on Form 10-Q with the SEC today. 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. Included in our earnings release, as well as on our website are reconciliations of these financial measures to the GAAP measures reported in our financial statements. Certain matters discussed in the call may include forward-looking statements regarding, among other things, future operating results. Those statements are subject to a number of risks and uncertainties.
Actual results in the future could differ from those expressed or implied in any forward-looking statements as a result of various important factors that have been set forth in the company's most recent reports filed with the SEC, including our most recent Quarterly Report on Form 10-Q and our most recent earnings release. The company undertakes no obligation to update these forward-looking statements. And now, I'll give the call to Hilton.
Thank you, Kevin. Gray Media is a very strong company that has continued to grow, invest, and adapt to the challenges and opportunities in our evolving industry. We take great pride in sharing with you each quarter the success we have in serving our communities and delivering financial results for our stakeholders. As shown in this morning's earnings release, Gray had a solid third quarter with revenues largely in line with our guidance, except for slightly lower-than-expected political advertising revenues. Additionally, our expenses were well below the lower end of our guidance range as we focus on becoming more efficient. The highlights for the quarter are as follows: Total revenue in the third quarter was $950 million, an 18% increase from the third quarter of 2023, driven by higher political advertising revenue. Net income attributable to common shareholders was $83 million in the third quarter, compared to a net loss of $53 million in the third quarter of 2023.
Adjusted EBITDA was $338 million in the third quarter of 2024, up 61% from a year earlier. Core ad revenue for the third quarter of 2024 was $365 million, a 1% increase from the same period last year. Political ad revenue for the third quarter alone amounted to $173 million, which was slightly below our guidance range but only $17 million shy of our record 2020 political advertising revenues. By the end of the third quarter, our leverage ratio calculated under our senior credit agreement net of all cash was 5.67 to 1.00, as we repaid nearly $250 million during the third quarter and aim for a total repayment of $0.5 billion by year-end. We are proud to have grown our core ad revenue this quarter despite headwinds and political displacement. Our strong station sales teams have driven core ad revenue growth, especially in digital and new local direct sales channels, focusing on delivering exceptional value and reach for our advertising clients.
Many of our Southeastern markets had to halt or reduce airing commercials in the last days of the quarter to provide coverage of Hurricane Helene and its aftermath. We believe our commitment to these communities made a significant difference both before and after the storm, potentially saving lives, particularly in affected areas of Florida, Georgia, and North Carolina. Our political ad revenue was quite strong in the first half of the year when adjusted for the absence of a competitive presidential primary in either party. We started the third quarter with strength and optimism, seeing all the ingredients for a record political cycle. However, similar to two years ago, many competitive races and ballot issues turned out to be less competitive by Labor Day. This led to a significant shift in political ad spending toward a fewer number of competitive races that primarily fell outside our station footprint, mainly Montana and Pennsylvania.
Ultimately, while our third quarter political ad revenue was strong, it finished below our record third quarter political ad revenues from 2020. For the full year of 2024, we expect around $0.5 billion in political revenue, which positions us as the largest recipient of political ad dollars in the television broadcasting business, both on a gross and per TV household basis. We are exceptionally proud of this achievement, as we have a reach that is approximately double that of some of our competitors. Today's earnings release also underscores that the company is taking proactive steps. We are focused on developing local, direct, and digital business across our station footprint. We are continuing to produce news and investigative pieces that our local audiences seek. Notably, five stations from our national investigative unit, InvestigateTV, have recently received 8th National Edward R. Murrow Awards for Excellence in Journalism.
We are also expanding our local sports broadcasts. On the expense side, we initiated a significant cost containment exercise this past August that impacts nearly all areas of the company. As Pat will discuss, our leadership team is diligently working to find more efficient ways to maintain the highest level of service to our local communities and customers without compromising our values, news coverage, or dedication to our communities. Reducing debt and leverage is our top priority for capital allocation. We have taken concrete steps to address this priority and will continue until we achieve our goals in this area. Our earnings release outlines our recent efforts, which Jeff will elaborate on later in the call. Looking ahead to 2025 and beyond, we are implementing necessary actions to strengthen, streamline, and enhance our impact, enabling us to compete more effectively in this changing business environment.
The information in today's press release and what you will hear in this call will reaffirm our commitment to positioning the company for long-term success. Now, I will turn it over to Pat for further insights on our operations.
Thank you, Hilton. Our core ad revenues this quarter were 1% higher than the third quarter of 2023, which is also 1% ahead of the third quarter of '22. As Hilton mentioned, our core ad revenue strength occurred despite a number of headwinds, particularly political displacement. This achievement is driven by our success in recruiting new local businesses to advertise on our stations and/or digital platforms. Our new local direct business in Q3 2024 was up almost 14% over Q3 2023. In our local markets that are audited by a third party, the audits show that we increased our share of the total local TV ad markets to a new third quarter record. These results are very encouraging and gratifying, especially because many stations posting share growth in these audits did so as affiliates of CBS, ABC, and FOX competing against the record viewership of the Paris Olympics this summer. Our NBC stations performed well at the Summer Olympics, generating north of $20 million, some of which was political advertising.
Digital ad sales continue to be a bright spot for us. We are seeing year-over-year double-digit growth rates and new records for digital ad revenue, and new digital accounts nearly every month. In the third quarter, we had 22 markets that more than $1 million in digital ad sales, which is a new record for us. In terms of political ad revenue, Hilton provided a good description of the political ad landscape for us. Our political ad revenues were, from a historical basis, quite strong going into the third quarter. As the third quarter progressed, it appears that the political parties felt there were fewer truly competitive Senate and gubernatorial races in our footprint. We expect that when the year ends, we will see our political ad revenue in 2024 meeting or exceeding 2020 numbers at the present level, the house level, state and local level, as well as issue and ballot initiatives. The only category where we saw revenue decrease occurred in Senate races, which has long been our largest political ad category.
In 2020, our current station portfolio had about $331 million of political revenue from Senate races, including the two Georgia runoffs, versus $121 million of political ad revenue for Senate races this year. The $200 million difference resulted from less spending in some competitive Senate races in our footprint this year compared to 2024. In the end, we brought in about $0.5 billion, which is a lot of money, which we'll use to pay down debt. In most quarters since the end of the pandemic, Gray has beaten the public peer group average year-over-year in core ad revenue performance, and it appears that we led the peer group average again in the third quarter. Despite this momentum, we anticipate that core ad revenues in the fourth quarter will be down compared to '23. For context, in 2020, core ad revenue from our current station group declined 10% in the fourth quarter from the prior year due primarily to total displacement and COVID pressures.
In Q4 '22, our core ad revenue declined 4% from Q4 '21. We also attribute a significant piece of our core ad revenue slowdown to the move of Southeastern Conference Football from CBS to ABC. We are the largest CBS affiliate owner and we have CBS as our affiliation in many Southeastern markets; think Atlanta, Knoxville, Baton Rouge, Lexington, Waco, College Station, among others. The replacement of SEC with Big 10 will reduce core and political ad revenue in the fourth quarter. Overall, for the full-year 2024, we expect core ad revenue to be down slightly, which is not unusual in a political year. On the expense side, for the third quarter of 2024, our broadcast operating expenses and corporate operating expenses were $14 million and $3 million below the low end of the expense guidance ranges, respectively. For full-year '24, we currently expect broad CapEx and corporate OpEx to be significantly below our initial full-year guidance provided in February.
To prepare for 2025, we launched a major effort in August to review spending across the company and to find ways to streamline operations without cutting back on the mission to serve our communities. Since August, we've identified and begun implementing various initiatives that will allow us to reduce our operating expense run rate by approximately $60 million on an annualized basis. We're also closely evaluating our capital expenditure needs for 2025. Most of our expense reductions involve non-personnel expense categories. We've also taken steps to reduce our personnel expenses. Beginning in August, we eliminated positions by suspending recruiting and by not filling certain positions following attrition in the ordinary course. We also made some targeted reductions in headcount. Every individual who is directly affected has played an important role in the success of our company. These actions are personally difficult for everyone at Gray and particularly painful for those impacted by the job restructurings.
They are, however, looking for the company to operate more efficiently for the long-term benefit of all other employees and the communities that depend on us. Sandy will now address some important operational developments.
Thank you, Pat. Once again, in the third quarter and into the fourth quarter, our stations along the Gulf Coast served as a critical lifeline of information for communities dealing with devastating storms. Our trusted news and weather teams provided around-the-clock coverage of hurricanes Francine, Helene, and Milton, even while some of the homes of our own employees suffered damage from those storms. But we didn't let that slow us down. In late September, we announced a significant media rights deal with the New Orleans Pelicans. It brings every non-national Pelican NBA game to 4.1 million households through Gulf Coast Sports and Entertainment Network, our new multi-state distribution venture that is anchored by our New Orleans television station. Continuing with this momentum, our stations will be broadcasting an ever-increasing number of local and regional games from professional and college teams through this fall and next spring, from the Chicago Bulls, Blackhawks, and White Sox games to the NBA Mavericks and the NHL Kraken. Finally, this brings me to a question.
Ladies and gentlemen, it looks like we lost the speakers' line. We will get them back on promptly.
Hello. This is Hilton Howell. Apparently, we got cut off right we believe, where Sandy began her comments. And so, once again, let me turn it over to Sandy Breland, our Chief Operating Officer, for her to reboot and restart. Thank you.
I hope it wasn't something I said. Once again, in the third quarter and into the fourth quarter, our stations along the Gulf Coast served as a critical lifeline of information for communities dealing with devastating storms. Our trusted news and weather teams provided around-the-clock coverage of Hurricanes Francine, Helene, and Milton, even while some of the homes of our own employees suffered damage from those storms. This is where local broadcasters best serve their community. But we didn't let the storm slow us down. In late September, we announced a significant media rights deal with the New Orleans Pelicans. It brings every non-national Pelicans NBA game to 4.1 million households through Gulf Coast Sports and Entertainment Network, our new multi-state distribution venture that's anchored by our New Orleans television station. Continuing with this momentum, our stations will be broadcasting an ever-increasing number of local and regional games from professional and college teams through this fall and next spring, from the Chicago Bulls, Blackhawks, and White Sox games to the NBA Mavericks and the NHL Kraken.
Finally, this brings me to a question we get asked sometimes by investors as to why businesses, political campaigns, and local sports teams want to be on local television. We keep sharing our news ratings results, including a deep dive in an October 2023 investor deck. Still, I think it's worth answering this question with an interesting comparison between the top-rated cable news show and our own local newscast. In the third quarter of 2024, the FOX News program 5, which is available in 67 million homes, pulled in more viewers than any program on cable with an average of 3.5 million viewers. That's impressive, but not nearly as impressive as Gray's 5 PM newscast, which is available in 36% of U.S. households. Collectively, our 5 PM newscast averaged 4.4 million viewers. That's 25% more viewers than Five despite reaching less than one half as many homes. Think about that. That is the power and reach of local broadcast television, and that's the reach that local businesses, political campaigns, and local sports teams need, want, and can get from Gray Media.
We're obviously very proud of the great work of our news teams from coast to coast. And these ratings show our loyal viewers appreciate and depend on their important work. I now turn the call over to Jeff.
Thank you, Sandy. The team has already covered our Q3 and our outlook. So, my comments will focus on our balance sheet. As Hilton mentioned earlier, reducing debt and leverage remains our top capital allocation priority. We continue to improve our balance sheet in Q3. During the quarter, we reduced our outstanding debt principal balance by $246 million, returning our first lien and total leverage levels to 3.0 and 5.67 times respectively. This is in line with the levels following our early June refinancing and a sequential improvement of approximately a quarter turn of leverage from June 30, 2024. The debt reduction during the third quarter was completed through a combination of open market repurchases under our previously announced board authorization and repayments at par. In addition to the previously announced $29 million repurchase of our 2027 notes at 92.1% of par, we repurchased approximately $16 million of our 2021 Term Loan D at an average price of just under 91% of par.
During Q3, we repaid the full $200 million that was drawn under our $680 million revolving credit facility at June 30. Also during Q3, we entered into agreements whereby we will retire an additional $39 million of our 2021 term loan at an average price of 92.6% of par, which we expect to close in November of 2024. Looking forward for full-year 2024, we expect to reduce our total net debt outstanding by approximately $500 million. We announced this morning that our board has authorized a reset of our open market repurchase authorization to $250 million. And we will continue to take a balanced approach and look to capitalize on opportunities to efficiently reduce our debt. One notable to our free cash flow outlook that I'd like to highlight is on the tax side. As you may have seen in our release, we determined during the course of filing our 2023 tax return that the portion of our interest expense attributable to real estate, primarily due to Assembly Atlanta coming online is fully deductible rather than limited under IRS rules.
As a result, we expect to benefit from that deduction in our cash tax payments this year and on a go-forward basis. So, to summarize, we're continuing to execute on the plan and pulling the levers that we have available to us to generate cash flow. The actions that we've taken on the expense side, a closer look at our capital needs and repaying our debt to reduce our interest burden all enhance our cash flow profile going into 2025. This concludes my remarks. And I will now turn the call back to Hilton for some closing remarks.
Thank you, Jeff. Operator, at this time, we ask you to open up the line for any questions directed to any of our leadership team.
分析師問答
And we'll take our first question from Aaron Watts of Deutsche Bank.
Hi, everyone. Thanks for having me on. I have a couple of questions. The first is a question around your core ad guidance. I'm hoping you can parse out your 4Q down 10.5% guide a bit more. Are you able to say how much of that was weather-related? And it'd be really helpful to hear what you're seeing in the post-election core ad environment generally, areas of strength, weakness, et cetera, and how things feel turning the corner into 2025? I guess, second, Jeff, I'd point your way with regards to the $60 million of run rate savings you announced. How should we think about the timing of that phasing in and hitting the P&L over the next several quarters? And are there any further cost actions you're exploring in any way to kind of frame that incremental opportunity? And then finally, just regarding capital allocation, it sounds like the focus remains on debt reduction. Do you envision continuing to be in the market repurchasing front-end loans and bonds? How do you think about the timing of potentially accessing the capital markets to address your first maturities? And has there been any further consideration on reducing the dividend? Thank you.
Thanks, Aaron. It's Pat LaPlatney. I'll start. In the fourth quarter, several factors are influencing our outlook. There's the political crowd out, and we've talked about the SEC, which is significant for us. Looking ahead, I would say that while we are cautiously optimistic about the rest of the quarter, we've observed some positive signs in the last few days that we believe are encouraging and not entirely unexpected. The more improvement we see in the fourth quarter, the more hopeful we are for the first quarter of 2025 and the rest of that year. So, there are reasons to feel optimistic. Jeff, I know you have a lot of questions.
Yes, Aaron, I made some notes and will go through them sequentially. If I overlook anything, feel free to jump in. Firstly, regarding the $60 million in run rate savings and their timing, most of that, particularly the personnel part, has already been completed. We have achieved that and it's behind us, so you can expect to see the benefits soon. Consider this as bending the curve; over the past few years, you've noticed a decrease in our expense growth rate, which will continue to decline due to these actions. We have also made several renegotiations on contracts and workflow changes that will take a bit longer to implement, but they should start showing results in the first quarter of the upcoming year. As for further cost-cutting measures, we are continually assessing the situation, but nothing specific has been identified right now. We will keep evaluating options, but no other initiatives are planned at this time.
Regarding capital allocation, we've reestablished the $250 million authorization from the board. We will focus on opportunities that provide good value, not limited to any specific type of debt. We will assess current trading conditions and if we find a chance to access the capital markets at a favorable price, it will be a consideration as long as it doesn't negatively impact our cash flow and deleveraging efforts. About the dividend, Hilton can share his perspective as well, but I can say that we review it quarterly, and as of now, we feel comfortable maintaining it for this quarter. Hilton, would you like to add anything?
No further comment right now.
All right. Thanks guys. Appreciate the thoughts.
Thank you, Aaron.
Thank you for taking my questions. You actually just addressed many of them. A quick one though, in terms of the political, is it possible to provide some number around potentially the impact from the hurricane specifically? Meaning what would political have been without that hurricane impact? Thank you.
It's a few million dollars.
Okay, great. Thank you. All right.
Thank you. I was wondering with the political, if you're seeing any difference between maybe local affiliates and networks and just sort of your opportunities within selling on the station apps and the ability that you're able to capture some viewing share shift there?
Patrick, we didn't you kind of cut in and out there. Could you repeat that question? I'm sorry.
Yes. I guess what I was trying to ask was, is there any sort of shift between political and buying local stations versus networks trying to reach buying on the networks versus and your ability to sell political inventory on the station apps versus in the linear broadcast and being able to capture any of that share shift there?
Yes. If you examine our political results, you'll notice that all categories of political spending increased, except for the Senate, which has traditionally been our largest area. The funds were available in the market, but they were essentially diverted from our footprint. As Hilton mentioned, a significant portion ended up in Pennsylvania and Montana.
Okay. And then just within the core ad verticals, are you seeing any sort of like strength or weaknesses across different categories or industries?
Yes. So during Q3, it was a mixed bag. Auto has been weak for us. It was weak in the third quarter. Candidly, it's weak in the fourth quarter. Communications category has been somewhat weak. And then look, given we talked a little bit about political crowd out, but there was also political hesitancy as well. People held on to their money, either not to be on the air during the onslaught of political ads or not really understanding what the economic outlook would be depending on which party prevailed in the elections, right. So that impacted a lot of different categories. As we talked about before, we're starting to see some green shoots coming out of the election. And so, we're cautiously optimistic, but we would expect most of those categories to improve for the remainder of fourth quarter that pick up next year.
Yes. And just one other interesting note on that, even with the strong political in October, our new local direct is up year-over-year, fueled mainly by digital and that's consistent with the laser focus we've had on growing new local direct.
All right. Next up, we have Doug Pardon of Brigade Capital Management.
Hi, good morning everyone. I wanted to shift gears a bit. We've experienced some bad luck with political issues and hurricanes. It seems that retransmission has outperformed our expectations on both a gross and net basis, and it appears that retransmission expenses might decrease this year. Could you discuss this a bit more and share your confidence in retransmission for next year? This has been a significant concern for investors. I have a couple more questions after that.
Hi Doug, this is Kevin. Our core retransmission services have experienced significant growth over a long period. This year, however, we transitioned from strong growth to a slight decline. We've discussed in previous calls that while we are achieving the rate increases we desire, we are facing challenges with subscriber erosion. Our subscriber numbers reflect a trend seen across all media companies, and the situation has not improved significantly. There are some encouraging signs in recent reports from Comcast and Charter suggesting that their subscriber losses might be stabilizing. Earlier this year, we anticipated that the decline in subscribers would start to stabilize, but it seems that the consensus is moving toward a later timeframe, perhaps later this year or next year, for a slowdown in subscriber declines. Our revenue in this area hinges on a straightforward formula: the rate multiplied by the number of subscribers for each operator.
As subscriber losses diminish, our growth will improve. This situation is largely out of our control. We remain optimistic that the worst is behind us and that we will move forward in an environment where subscriber declines are lessened. This sentiment has also been echoed by some of our peers and third-party analysts. Regarding network fees, we've indicated for some time that these fees need to decrease, as they were established under different conditions. We have seen some success in renegotiating contracts to lower these fees, although there is still more work to be done in the next 14 months as we negotiate with all four networks for upcoming contracts. Our ongoing focus on reducing costs, which we’ve discussed each quarter, is evident in our efforts to lower not only operational costs but also our network fees. While we are not providing guidance for next year at this time, these are the factors we are considering.
Yes. let me just emphasize one point that Kevin made. The $60 million does not include anything related to any network agreements.
Great. And then just changing gears. On the political side, is there anything structural about your footprint that causes you concern? Or is this just simply a case of bad luck?
Actually, we didn't experience any bad luck. We generated $0.5 billion, which is the highest gross amount of political ads compared to any peer in the broadcast sector. So, the main difference is...
Okay. But that said, you did miss people's expectations. I think it's due to where some of these races ended up. I'm just trying to understand that a little bit.
This is Kevin. We earned more in Presidential races than we did four years ago. We earned more in state and local races than we did four years ago. We earned more in house races than we did four years ago. We have more money on ballot initiatives than we did four years ago, all of which aligns with our expectations going into this year. Our internal forecasts and where others may have been overly optimistic was in the Senate. Looking at the results today, we observe very close outcomes in areas where Gray has a significant presence, such as Arizona, Nevada, Wisconsin, and Michigan. The spending by both sides did not align with the poll results. This can happen occasionally; often, substantial funds are spent on a race where one candidate leads significantly, resulting in wasted expenditure. There have been a couple of instances of this just this week. Conversely, there are races where not much money was spent, and significantly less than anticipated, because the polls suggested an outcome that turned out to be inaccurate; the competitor was much stronger, leading to a tighter race than expected.
Unfortunately for us, this scenario occurred in four Senate races, specifically in states where Gray has coverage in most, if not all, markets. Therefore, this situation solely revolves around Senate races for Gray, rather than money departing our markets. We maintained the same political share of dollars as four years ago. We excelled across the board, but there was a shortfall in a few very costly Senate races. That’s the essence of the matter. It's not that expectations were too high; we have internal expectations that we don’t disclose because predicting these races with any certainty is challenging. We emphasized this in 2022, while others felt confident enough to provide political forecasts and those are their prerogatives. However, we warned that it's highly difficult, and some will exceed expectations while others will fall short due to factors beyond our control. You've seen this not only with Gray's Senate results but throughout the entire sector.
Some have outperformed Expectations while others have not, based on uncontrollable factors. As long as we capture our market share, we are doing what we can, but we cannot compel a party to spend an additional $100 million in Nevada, which might or might not have influenced the race outcome there.
That context is exactly what I was looking for, super helpful. So, long and short of it, no structural issues with the footprint. My last is just more a comment. I know people asked about the dividend. We are shareholders. I would just point out that we think the ability to take some of that cash and buy back debt at significant discounts is really helpful for shareholders, reduces interest expense and you kind of compound that over time. It could really help with your deleveraging strategy. But thank you guys for the questions.
Thanks, Doug. Appreciate the comments.
All right. Next up, we have Craig Huber of Huber Research.
Thank you. I'll try to make this easy for you. I'll go one question at a time. On the regulatory front with the new administration starting January 20th here, what are your expectations for any potential changes with the ownership cap, regulatory environment here for M&A in the broad media space in general? Let me start there, please.
We would expect that the FCC will be deregulatory on ownership and much just as importantly, if not more importantly for our future on ATSC 3.0 NextGen Matters, and a series of operational issues for broadcasters and other regulated entities. In terms of specific policies, that's going to depend on the outcome of some pending court cases, further guidance from the courts on the SEC's actual jurisdiction and absolutely, who the commissioners are going to be. So, I would say broad strokes headlines, we see a deregulatory SEC coming, but I don't think we're really in a position to be handicapping specific policy issues right now.
And then longer term, what is your goal here for your net debt-to-EBITDA ratio on a two-year basis?
Yes. Looking at a two-year timeframe, the company has leveraged itself to make acquisitions and has then aggressively reduced its debt. I believe our recent actions indicate that we are focusing on paying down debt, and we expect to continue this trend for the rest of the year. In the long run, achieving a net debt-to-EBITDA ratio below four will be more comfortable, although I acknowledge that it's still a bit of a way off. We have sufficient liquidity and a favorable maturity profile to reach this goal. However, it will likely take place after the 2026 political cycle when we expect a significant influx of cash, allowing us to lower our ratio towards that four times target in the long term.
All right. The next question, guys. On the cost-cutting front, you talked about the $60 million. I appreciate that. Do you feel there's significantly more cost that you could take out in another round here if you take out over the next 12 plus months without doing damage to the business, of course?
Yes. I would say that we conducted a thorough review, and we'll continue to monitor the situation. If necessary, we'll be proactive about renegotiating. The larger opportunity for cost savings will primarily come from the affiliate renewals, with the critical point being 2025 when we will renew all of them in the next 14 months. So, that's the upcoming focus of our discussions.
Okay. I have one last question about the core advertising outlook for the fourth quarter, which is projected to be down about 10%. If you were to consider the impact of political advertising and the SEC Football influence, where do you think that number would stand? Do you think it would be close to flat or slightly down? What’s your perspective?
The crowd out from SEC?
The crowd out plus SEC, where do we land?
Yes.
We would have significantly more inventory available for sale if it weren't for the impact of political crowding out. Additionally, the SEC's transition to the Big 10 on CBS has resulted in a decline of several points in our overall revenue.
You take that and again, the political crowding out, if you could remove those, you think you'd be much closer to flat? And so, when you get to what do you think the underlying growth is right now in the marketplace for your TV advertising just for those two items?
There's a lot of uncertainty right now. It's difficult to provide a specific figure on that, and we haven't historically tracked what we believe the crowd out number to be. What we can share is our current data insights. As Pat noted in our guidance, there are reasons for cautious optimism based on what we're observing. However, it's too difficult to provide a specific figure on any of these matters at the moment.
Okay, fair enough. Thank you, guys.
Thank you.
All right. Next up, we have Michael Kerrane of Truist Securities.
Hey. Good morning. Thank you for all the color on political. I just want to follow up on the regulatory question. If specifically about the potential opportunity for you guys, if you're allowed to own more than one station in a market, is that something that will be a huge opportunity for your margins and operational costs if you're able to consolidate within a single market?
This is Kevin. It depends on the station we acquire. In our 113 markets, many have more than one station. If the second station we acquire is a CW, My Network, or Telemundo, it's not particularly beneficial if we need a big four affiliate without news and we add news to it. There will certainly be some additional revenue, but there won’t be significant costs to eliminate. If two stations have substantial overlapping tasks and facilities, then there are more synergies. The industry has just experienced 15 years of creating duopolies, and there’s a strong track record of companies finding synergies when purchasing in-market stations with local news, especially where they already have a local news station. The amount will depend entirely on the market and the types of stations we are combining. We have been active in this area and anticipate continuing to pursue opportunities as they arise and as long as our balance sheet allows.
Great. That's all I had. Thanks.
All right. Next up, we have Bill Matthews of MUFG.
Hi, great. Thank you for taking the question. Many of my questions have been answered. When I kind of wanted to circle back on some of the comments that you've made in terms of the sub-losses, a huge concern beyond your control. The political spending and predicting races very difficult to predict. And then the cost saves of $60 million what's clearly in your control, common dividend and the dividend of the preferred. You've had a previous person, who is an equity holder voice that it would be helpful for the equity to reduce your debt. So, is there a conversation in the boardroom? Is there a voice in the boardroom that is advocating to take that $80 million and even pause it for a year until you get your leverage down?
Yes, it’s Jeff. We discuss this on a quarterly basis. The $80 million you mentioned includes the preferred dividend, which is considered debt by rating agencies and is seen as an increase in debt. From an equity perspective, this impacts the equity holders. We view it in terms of the $30 million, or potentially the full $80 million if that route is taken. We have conversations about this every quarter and will continue to assess the situation regarding our leverage profile as we approach 2025.
I mean, I would just follow up. There's $440 million of interest expense on the debt. The Series A preferred is a pickable instrument at the board's discretion. And if you look at the equity reaction today to the results, I think there's a lot you're managing and managing well with what you have, but you're compounding the difficulty with the leverage. And so, if you can eliminate that leverage, that value will accrue to the equity.
Yes, I understand. The point I'm trying to make is that choosing the preferred option actually goes against your calculation. It represents a $50 million impact that works in the opposite direction by making that selection. However, I acknowledge your perspective.
All right. Next up, we have Alan Gould of Loop Capital.
Thanks for taking the question. I've got a broader question on political. I mean, it seems like political fundraising was higher than ever. And if I look across the spectrum, it's more of an industry question, it looks like almost every player with the potential exception of FOX is going to have disappointing relative expectations on political advertising. So, are we seeing a reallocation of political dollars, yes, out of broadcast into CTV, people spending more time on podcasts to reach the audience? Is there a structural change occurring? And also, related to this, if you look typically 4Q political used to be 75% to 100% greater than 3Q, we're not seeing that this year. Was there some pullback? Any reason why 4Q is so much weaker relative to its normal results versus 3Q? Thank you.
Hey, you want to start with the 4Q, Kevin?
Let me put the numbers up on it.
Yes. Okay. Sure. Yes. Look, so we believe some money is going towards CTV, but we don't believe there's any kind of fee change there. There is more money going in there in other media than it used to be. I think that's pretty basic. And it's not something that's foundational or structural, or any of those grand words. At the end of the day, there's a change. But for us, the impact in our political was simply a function of money moving from state to state. In terms of your question around the fourth quarter, I think Kevin and Jeff.
Sure. If I go back to 2018 on our combined historical 2018-2020, so I'm talking about our current footprint. Our fourth quarter was 55% of the total 55% of the total, 50% of the total, 51% of the total. So, I don't see a sea change here. In the third quarter, our political revenue is 30%, 32%, 28%, 35%. So, the allocation of the dollars is frankly pretty stable across the four. The one thing that we have seen slightly change are primaries. We have a presidential primary that pulls some more money into the first quarter. State and gubernatorial elections, those primaries tend to be a Q2 event. So, sometimes we see a bit more in certainly in 2018 and 2022, which is very heavy on gubernatorial races. You see sort of a bigger Q2. But we've never talked about Q4 as a factor of Q3. We instead look at how the dollars have been allocated by quarter over the last now four cycles with our current footprint. We're seeing the fourth quarter was consistent with the others. It was a bit more than half of the total in the fourth quarter. In the third quarter, it was about right around 30% to 35% every year. So, I'm not really seeing the numbers reflect any particular concern here for at Gray.
Okay. Thanks, Pat. Thanks, Kevin.
All right. Next up, we have Daniel Kurnos of The Benchmark Company.
Yes. Thanks. Good morning. I'll extend this a bit further on regulatory matters. If Congress were to remove the ownership cap, how open are you to considering some sort of buyer-seller merger to unlock additional value through stock?
I hope you answered that. I'd be very open to consider anything.
Thank you.
That's helpful. Pat, nitpicky, but the shift from SEC on the local, the network change there, is there any cash flow ramification? Or is that all just a revenue impact?
It's revenue.
Okay. And then, Jeff, just appreciate the deep dive on the expenses. Just trying to get a sense and obviously, you mentioned the big delta could be on the affiliate side. but like how do we think of '24 going into '25, your need to reinvest something in growth or headcount, like what are the offsets to what you've just taken out or can we just kind of look at where we think the year ends up, and then we've got our kind of our run rate here?
Yes. At a macro level, I would say this is in line with the current run rate. There will still be some typical adjustments for employee raises and similar items as we move into 2025, which are just the natural aspects of the business. What we've discussed is the need to bend the curve and flatten this out, and ideally, try to reduce it where possible. On our last call, we emphasized a thoughtful approach. The measures we've implemented are primarily about managing the business intelligently and considering how we can improve while still serving our communities and ensuring we have local news in all our markets, which are key to our company's success.
Got you. I'll sneak one last question in, perhaps for Kevin, regarding politics and looking ahead to 2026. Clearly, there will be some concerns as we try to address recent events. Additionally, in 2028, we have two open primaries, which may or may not provide you with additional confidence. I understand you've spent the entire call discussing your success in political matters, but it would be helpful to frame how we should approach the competitive landscape of the upcoming races in relation to your presence in those areas.
You're absolutely right. In 2026, we will have not one, but two presidential primaries, which we haven't seen in a long time. I apologize, I meant 2028. In 2026, with the Senate elections occurring every six years, we encounter a mix of competitive and non-competitive races. The off-year elections tend to be substantial as well, featuring gubernatorial and state races. I do not expect this upcoming election to unify the country or lead to a peaceful, less competitive election cycle in two years. I anticipate that political engagement will remain high, with significant stakes for both parties. Therefore, I don't foresee a return to a calmer political environment over the next two to four years; people will continue to be involved with increasingly complex issues.
Okay. Thanks for bearing with me guys. Appreciate it.
Thank you.
All right. Next up, we have Steven Cahall of Wells Fargo.
Thanks for squeezing me in. Maybe, first with a more favorable FCC deregulatory backdrop, can you just expand on maybe end market duopoly opportunities? I know this question came up before. But I'm just wondering if you think the FCC might allow just threes and fours, could it even allow some twos in there? And if there's any way to size or dimensionalize what a significant opportunity that could be for the industry, love to hear more on that.
Sure.
And then Kevin, I think you both talked about the reverse compensation expenses, a big focus for year. Just wondering how early you start to have those conversations with your major counterparties. They're going through a lot of management changes. I don't know if that makes things easier or harder and if you've learned anything from some of the recent peer renewals, but we just love to get some more color there as well. Thanks folks.
Regarding the FCC, we are uncertain about who the five commissioners will be, and there are several ongoing court cases related to FCC decisions that may affect their authority. Therefore, we cannot predict what a new FCC rule might look like or when it will be proposed, especially considering potential new guidelines arising from these court cases. Additionally, there are other court cases unrelated to the FCC that could influence what the SEC can do. While we anticipate that the SEC will pursue deregulatory measures and address ownership and version 3.0, the specifics are unclear. As for our network discussions, these typically start to intensify close to contract expiration dates. Although we begin discussions months in advance, serious negotiations usually happen right before the deadline. Notably, ABC's contract expires at the end of this year, while CBS and FOX will follow next summer and NBC at the end of this year.
So, we expect significant conversations to begin a month or two prior. Regarding insights from peers about recent renewals, we have not gained any information about their network affiliation agreements, as no one shares those terms. The only data we access is the summarized financials reported by public companies related to their network contracts. Thus, we lack any specific intel on what our competitors are paying or their contract structures, beyond what they disclose in earnings calls. However, we are confident about our own position and the strength of our stations, including the audience reach we offer to networks for advertising and program promotion. That’s what we intend to emphasize in our discussions. I hope this clarifies the situation.
I hope that helps. Thank you.
All right. Next up, we have David Hamburger of Morgan Stanley.
Thank you very much for taking the question. Jeff, last quarter, you had mentioned that you expected leverage to end the year in the low-to-mid 5s. Can you update us on where you think leverage will now shake out for the year end? And how should we think about 2025? I know you spoke about kind of longer term. But could we expect to see some debt reduction next year? And how will you execute on that?
Yes. Let me take the second part first. In '25, some of the actions that we took are designed to make sure that we have the ability to continue to pay down our debt going into '25. So that's part of the overall plan. With respect to where we finish '24, depending on open market activities and things like that, we should be flat to maybe slightly down from where we are today, for the third quarter by the end of the year.
We are running late into the first earnings call, so we need to wrap up and end the public calls. I apologize to those still in the queue. We have individual calls scheduled with everyone, but we must conclude this to stay on track for the rest of the day.
Well, thanks everyone for being here. We're actually quite proud of our quarter and most particularly, we're happy we stack up against our peers in terms of our both our core and our political advertising. And we're particularly proud that by the end of the year, we will have paid off $0.5 billion in debt, which I'm actually pretty impressed with and pretty proud of. Thank you all for spending time and we look forward to talking to you next quarter.
All right, ladies and gentlemen, this does conclude your call. You may now disconnect your lines and thank you again, for joining us today.