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Gray Television (GTN) Q2 2022 Earnings Call Transcript

Motley Fool - Sat Aug 6, 5:00AM CDT
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Gray Television(NYSE: GTN)
Q2 2022 Earnings Call
Aug 05, 2022, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day, and welcome to the Gray Television Q2 earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Hilton Howell, executive chairman and CEO.

Please go ahead, sir.

Hilton Howell -- Chairman and Chief Executive Officer

Good morning. Thank you, Sarah. Thank you all for joining us. As our operator mentioned, I am Hilton Howell, the chairman and CEO of Gray Television, and thank you for joining our second quarter 2022 earnings call.

With me today, as traditional, are Gray's executive officers: our president and Co-CEO, Pat LaPlatney; our chief legal and development officer, Kevin Latek; our chief financial officer, Jim Ryan; and our chief operating officer, Bob Smith. We will begin this morning with a disclaimer that Kevin will provide. Kevin?

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Kevin Latek -- Chief Legal and Development Officer

Thank you, Hilton, and good morning, everyone. Gray uses its website as a key source of company information. The website address is www.gray.tv. We will file our quarterly report on Form 10-Q with the SEC later today.

Included on the call may 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. 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 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 annual report on Form 10-K and our most recent earnings release. The company undertakes no obligation to update these forward-looking statements. I now turn the call over to Hilton.

Hilton Howell -- Chairman and Chief Executive Officer

Thank you, Kevin. We are truly excited to be with you today to discuss another quarter of record financial and operational results. With the Quincy closing now fully one year behind us and the Meredith Local Media Group closing approximately eight months behind us, we are now delivering solid results flowing from our increasingly efficient operations across a truly meaningful scale, including many of the nation's best local television stations, journalists, sales and technical professionals and support staff. By design and with a tad of luck, we made last year's two large all-cash acquisitions just as we entered the on year of a two-year political advertising cycle that also happens to be significantly beating all of our expectations as we will discuss soon in this morning's call.

Overall, our total revenues for the second quarter were $868 million, which exceeded the guidance provided on our prior earnings call. On a year-over-year basis in the second quarter of 2022, broadcast cash flow was $327 million, an increase of 79%. Adjusted EBITDA was $309 million, an increase of 32%. Core advertising revenue increased by 31%.

Retransmission consent revenue increased by 58%. And political advertising revenue increased by 1,400%. These excellent results, combined with total lower operating expenses than previously anticipated, contributed to a 231% increase in net income attributable to our common stockholders in the second quarter of 2022 of $86 million or $0.91 per fully diluted share. We will add more color on the second quarter results and our forward outlook on this call.

But overall, while we see some challenging environments for our clients and some slowing retrans growth, we have increased and interest expenses. Gray Television is set for an exceptional year. On a combined historical basis, which gives effect to both acquisitions and disposition, our core revenue was flat year over year with our second quarter political revenue hitting an all-time record. And we remain on track to finish the year at a record retransmission revenue level of $1.5 billion.

Importantly, we continue to expect that Gray will end 2022 with a total leverage ratio net of all cash of right at 5% and likely below that, trailing eight-quarter operating cash flow as defined in our senior credit facilities. Gray's solid results produced strong cash flow that enabled us to return a significant amount of capital to our shareholders during the second quarter. In total, we returned $125 million in capital through a $54 million paydown of outstanding debt, a $50 million stock buyback in the open market and $21 million of cash dividends paid to our preferred and common shareholders. We ended the quarter with $162 million of cash on hand and unshaken conviction that our strong operating results and political advertising revenue will fund further significant debt paydown and our regular cash dividends during the remainder of this year and thereafter.

Beyond these solid financial numbers, the second quarter included a number of big announcements about our new long-term agreement with NBCUniversal. We announced this on the 1st of June, and I'm very excited about this multifaceted relationship with our partners now at NBCU, not just what it means for Atlanta and the state of Georgia, but what it means for Gray Television and all of our stockholders. As most of you know, Assembly Atlanta is a 135-acre mixed-use real estate complex now owned entirely by Gray. It is located at the former side of the General Motors assembler plant in the city of Doraville, along the I-285 perimeter highway.

It is a few miles up the road from our offices here in Atlanta. The signature component of Assembly Atlanta and its development is our 43-acre assembly studios complex. That section will feature soundstages, production offices, warehouse and mill buildings, studio bungalows, event space and multiple parking decks. Along with the Gibson Company as the developer and the construction manager and with our strategic advisors at JLL, the project went vertical in the second quarter when all the walls were erected for the first new soundstages that will be used by Gray's Swirl Films.

Construction will begin soon on the buildings that NBCU will utilize, and we currently expect that NBCU will be producing its first new shows at Assembly Studios in the second half of 2023, about a year from right now. In addition to reaching a long-term lease with NBCU, we also entered into additional agreements whereby NBCU will handle the day-to-day management of both Assembly Studios and our existing studio businesses at Third Rail Studios. In other words, NBCU will bring its extensive expertise in managing studio lots around the world to maximize the leasing of our facilities, efficient scheduling across many soundstages as well as accounting, security and other back-office functions. In this way, our partners at NBCU will retain our focus on our own video production business.

And finally, having NBCU as the employer anchor at Assembly Atlanta greatly improves the visibility and the value of the entire project, which in turn makes larger development all the more enticing for our future residents and for our businesses. Quite simply, our new partnership with NBCU is a financial and operational code for Gray Television. We could not be more eager for the impressive construction work to finish and for the new day-to-day studio operations for Gray and NBCU to commence at Assembly Studios. On this very positive note, I will now turn our call over to our President and Co-CEO, Pat LaPlatney.

Pat LaPlatney -- President and Co-Chief Executive Officer

Thank you, Hilton. Gray's Television stations and production companies continued to perform well in the second quarter despite the current macroeconomic headwinds. We're very pleased with our results. In fact, on a combined historical basis, core revenue held strong, roughly flat from Q2 '21, even though political advertising revenue rose $82 million from the second quarter of last year.

Normally, we would expect core advertising revenue to decline when political advertising rises substantially. It takes advertising inventory normally utilized by local, regional and national advertisers. One reason our core revenue held up in the face of skyrocketing demand from political is the scale the Gray has achieved in the television industry. As the second-largest broadcast group nationally and often the largest media company in a state, Gray is earning viewers and dollars that otherwise would have flowed to other platforms and other parties.

In line with our leading positions in most markets, we believe that this scale will soften the impact of broader economic factors on Gray's advertising revenues while also allowing Gray to bounce back more quickly when the economy generally returns to expansion. For many of these same reasons, our digital viewership and revenues are doing very well, too. Total digital revenue increased double digits from last year's second quarter on a combined historical basis. We expect that digital revenue will finish the year even stronger as our digital products and approach become fully integrated into news and sales efforts of our newly acquired stations.

In June, for example, we posted our highest all-time users, highest all-time sessions and highest all-time screen views in the company's history. Increasing digital traffic and better sales products are the right combination, and that's exactly what we have right now. Interestingly, pure digital billing was essentially the same as national billing in Q2 2022. And in 49 of our 113 markets, digital revenue exceeded national billing.

Also worth noting that Gray stations in Richmond, Omaha, Greenville, Spartanburg and Shreveport launched NextGen TV services in the second quarter. We now have launched NextGen in 19 markets with many more midsized markets to follow before year-end. We are keeping a close eye on macro developments and client sentiment. Nevertheless, given our success to date and the progress that I just reviewed, we remain confident that we have the right assets and the right people to weather any economic slowdown that may or may not come our way.

Next, Bob Smith will offer additional color on our station operations. Bob?

Bob Smith -- Chief Operating Officer

Thank you, Pat. We have spoken on past calls about our concentrated focus on sales, and you're now seeing the results of that emphasis. We continue to see great progress developing new local direct business in both legacy and new stations every month. Our healthcare and our travel and our tourism sales verticals are putting newfound emphasis on industries that remain strong in this economy and yet have not traditionally leveraged local television to drive their businesses.

Meanwhile, although auto remains challenged, we continue to experience solid demand from the home improvement and legal categories. We continue to leverage the best sales techniques through our in-house sales training program. This year, at last, we believe we are seeing some tangible results from the year's long efforts with our fellow broadcasters to smooth out some of the friction in the broadcast buying process of our work with Matrix and other third parties. Meanwhile, this year's political races, including many primaries, have been more competitive than anyone expected.

As expected, Gray's stations benefit more than any other platform from a competitive political environment. in addition to Gray's historic vantage only more top-rated stations in many of the most competitive political battlegrounds, Gray is also -- is now also benefiting from the scale of our news station footprint. The scale offers political campaigns a very efficient platform to reach voters across the entire state. And in many cases, it's the first time that statewide campaigns have a one-stop shop to reach the local audiences that they most covet.

Indeed, most competitive races this year are for statewide races for governor or the U.S. Senate. And most of those races are current places where the top local news stations reaching nearly all the media markets are owned by Gray, including especially Georgia, Nevada, Arizona, Wisconsin and Missouri. Now for the first time in many places, we are able to offer statewide scale to political advertisers, which helps to decrease their transaction costs and helps increase the shares that we receive from their advertising orders.

For the first quarter and again for the second quarter, we provided aggressive guidance ranges for political advertising revenue. And just like the first quarter, our actual results blew pass all of our expectations. In particular, for the second quarter of 2022, we had guided political advertising revenue of $65 million to $70 million. That said, we reported $90 million of political revenue in the quarter.

A year ago and even three months ago, we have dismissed the notion that 2022's political revenue could rival 2020's political revenue on a combined historical basis. Two years ago, our current station footprint benefited immensely from significant presidential general election spending, significant presidential primary spending and significant Mike Bloomberg and Tom Steyer spending. In addition, we recorded $50 million in the Georgia sendoff -- runoff spending as a result of various unmatched collection of television stations in this new swing state. It would have to be one banner year for '22 to overcome all those meaningful sources of political revenues that are completely absent this cycle.

In recent weeks, however, political fundraising trends nationally, combined with our own experiences and conversations with buyers, have led us to conclude that 2022 really can climb that hill. Consequently, we announced in our earnings release this morning that we are raising our political revenue guidance for the full year 2022 from $575 million to the same $652 million that our current group of stations received in 2020. In conclusion, core revenue and political revenue continue to be very solid across Gray's superior footprint of leading local news stations. I now turn the call over to Kevin.

Kevin Latek -- Chief Legal and Development Officer

Thank you, Bob. As you saw in the release this morning, we completed and signed new agreements with the FOX Network that renew the affiliations for all of our 27 FOX-affiliated markets. Our next major network affiliation deadline comes at the end of 2023 when our ABC and NBC agreements expire. In terms of retransmission, we posted strong second quarter retransmission revenues of $382 million.

On a GAAP basis, retrans revenues increased 58% from the year earlier period, just slightly behind the 59% year-over-year gain we posted in the first quarter. On a combined historical basis, retrans revenues increased almost 9% from the year earlier period, which is also just slightly behind the 10% year-over-year gain we posted in the first quarter. Retransmission revenues net of network compensation were $157 million in the second quarter, which marks a 60% increase over the prior-year period on a GAAP basis and a 9% increase on a combined historical basis. As a reminder, Gray does not have any material retransmission agreements repricing between the middle of last year and the start of 2023.

We are now modeling somewhat larger MVPD sub declines, yet still solid OTT and virtual MVPD sub gains throughout the rest of this year, and that's to reflect the macroeconomic traction and likely slowdown in household formation. In the end, our new model continues to forecast gross retrans revenues of $1.5 billion for the full year of 2022. At this level, gross retrans revenues would be about 43% higher than last year on a GAAP basis and about 5% higher on a combined historical basis. Looking further ahead, we anticipate the gross retrans and net retransmission revenues will grow at mid-single-digit rates in the next couple of years.

Reaching $1.5 billion in retrans revenue this year will be an impressive achievement. Gray Television's total advertising and retransmission revenues only surpassed $1 billion for the first time in 2018. Consequently, even if this macro environment slows over the next year, Gray Television will be able to face those challenges as a much stronger and more diversified company than it was just three or four years ago. This concludes my remarks and turn the call to Jim Ryan.

Jim Ryan -- Executive Vice President and Chief Financial Officer

Thank you, Kevin. Good morning, everyone. As Kevin mentioned earlier, the 10-Q will be filed a little bit later today. Hilton, Pat, Bob and Kevin have covered a lot of the highlights out of Q2, so I'll keep my comments relatively short.

To recap our guidance, core revenue we're forecasting for Q3 of $345 million to $355 million. Given the volume of political advertising revenue we're expecting for Q3, our core advertising revenue will definitely start experiencing increasing displacement due to the political revenue. Also as a reminder, Q3 2021 had $14 million of Olympic net revenue that is obviously not returning this year. Retransmission revenue for Q3 of $365 million to $370 million, political advertising revenue of $193 million to $195 million, and that's equivalent to the combined historical Q3 2020 of $190 million.

The production companies will have between $20 million and $21 million of revenue, and our total revenue will -- is forecast to be between $940 million and $959 million. Broadcast expenses are forecast to be $545 million to $550 million, of which $225 million is retransmission expense, production company expenses of approximately $17 million and corporate expenses of $30 million to $35 million. Again, we're very pleased with our Q2 results. And as many people have said already, been flattish in core revenue with the amazing amount of political that came in, in Q2 is not surprising at all.

Our services group, which includes financial, legal and medical, is still running about 27% to 28% of our total core revenue excluding political, and we're pleased to see that holding in. Auto was approximately 15% of core revenue and is beginning to appear to maybe settling in finally to -- and level off. Total operating expenses between broadcast production and corporate of $567 million was well below expectations. We were pleased to see that.

The biggest driver in expense growth still remains to be reverse comp to the networks. Turning now to debt and leverage. Our trailing two-quarter -- or two-year average operating cash flow at 6/30/22 was $1.283 billion. Total debt outstanding was $6.778 billion.

Our cash on hand was $162 million. Our leverage ratio as defined in our senior credit agreement was 5.16 times, which is down from the 5.47 times at year-end '21. And our first lien leverage ratio was at 2.39 times. Now, turning to some comments on the full year of 2022.

We'll share the filing forecast data we currently anticipate, but we caution that these comments are as of today and actual facts, circumstances and results may change materially in the future. For revenue, we anticipate approximating $1.5 billion for the year. We've already said we anticipate political revenue of $6.52 million. Now the ultimate mix of core and political is impossible to determine.

We obviously expect a great political environment in the fourth quarter. But obviously, if political should skew a little higher, then you can anticipate core will skew a little lower due to the political displacement. As Kevin mentioned earlier, our retransmission revenue for the full year, we're anticipating approximating $1.5 billion. And our total revenue, we anticipate will approximate $3.8 billion.

Our total operating expense before depreciation, amortization, gain loss and disposal of assets would be -- is anticipated to approximate $2.35 billion, and that would include $23 million of noncash stock compensation. Our operating cash flow as defined in the senior credit agreement, we anticipate approximating $1.5 billion, which would put our two-year average operating cash flow at about $1.25 billion. We anticipate our leverage ratio will continue to decline from 5.16 as we move through the rest of the year to approximately five times and a possibility that we may be into the very high 4s by the end of the year. We expect our free cash before common dividends, stock repurchases, acquisitions, investments and our assembly construction costs will approximate $800 million for the year.

Commenting now on free cash flow and cash uses for the full year of 2020, again, we expect $1.5 billion in operating cash flow. We are currently estimating full year cash interest of $340 million, which is up from our previous guide of $300 million, reflecting the rapid increase in LIBOR rates, especially since May, which is up 150 basis points more. And we have an expectation based on the forward yield curve of further increases in LIBOR between September and December of 2022. Cash taxes, we're estimating for the full year of $195 million.

That is net of a $21 million tax refund we currently expect to receive from the IRS by the end of the year. As we've said on our last two calls, we believe our routine capital expenditures will be about $125 million for the year, and our preferred dividends will be $52 million for the year. Other uses of cash during full year 2022 are anticipated to be common -- a total of common stock dividends of approximately $31 million. As you -- we've already said, we repurchased $50 million of common stock in Q2.

As we announced on June 1, our Assembly Atlanta construction costs, we are anticipating to be between $130 million and $140 million for this year. We anticipate full year acquisitions and/or investments of approximately $80 million, and that would include the $30 million of acquiring the Telemundo station here in Atlanta earlier this year. And we have a required Term Loan B amortization of $15 million. But most importantly, in addition to the $50 million of voluntary debt repayment we made in Q2, we currently anticipate making an additional $450 million of debt repayment by the end of the year.

That would bring the total voluntary debt repayment to $500 million in 2022. If you include the $50 million of stock repurchased in Q2, the $15 million of required amortization on Term Loan B and a voluntary debt repayment of $500 million, the aggregate $565 million of value transfer to our common stockholders by year-end given 93 million shares currently outstanding is approximately $6.08 per share at enhanced value. We are very well positioned and look forward to a very successful year. I turn the call back to Hilton.

Hilton Howell -- Chairman and Chief Executive Officer

Thank you very much. Operator, we will now open up the call to any questions that anyone may have.

Questions & Answers:


Operator

Thank you. [Operator instructions] And we'll take our first caller from Dan Kurnos, The Benchmark Company.

Dan Kurnos -- The Benchmark Company -- Analyst

Great. Thanks. Good morning. Obviously, a solid print guys.

Yes, despite what you guys said, it was, I think, a little bit of a surprise to see -- for us anyway, to see 2Q core almost flattish given, Hilton, to steal some thunder here, your Boku buckets of political in the quarter. So can you just talk about a couple of things? We never usually talk about crowd out in Q2. So maybe if there were some timing or other reasons why you guys were the best performer, I think, in the space on that metric. And then as we head into Q3, just anything you can give us -- I know there was Olympics and some other one-timers in there.

But just any color outside of auto, which I think Jim gave us, just around how maybe July was pacing or underlying category strength? Because your full year core number is actually pretty decent, again, notwithstanding that massive political guide.

Pat LaPlatney -- President and Co-Chief Executive Officer

So -- hey, Dan. Yeah, yeah. So it's Pat. I'll start.

There's a lot of questions there, so we need to help me with numbers three, four, five, six and seven. But I would tell you, as it relates to Q2 and just a general year, some of what Bob talked about was what's going on with the newly acquired stations. So I think when we acquired those stations, we mentioned that we thought there was significant upside on the ad sales side with them. And I think you're seeing some of that right now.

I talked a little bit about digital. And I think it's going to -- I think it actually is going to accelerate -- the digital piece of it is going to accelerate through the end of the year. So I think that's a big part of it. I think -- and again, Bob can fill in here, but I think political crowd out, look, we've got some pretty -- some of our biggest markets very active and political right now.

I think that's -- that runs that -- that tends to run that number up a bit. And -- but I think -- and then Bob also talked about the category specialists we have and the health team and the auto team and the travel and tourism team. All that has been in the works for a long time, and we're starting to see the benefit of it. So I think in general, that's what you're seeing.

And Bob, I'll throw it over to you for...

Bob Smith -- Chief Operating Officer

Sure. Thanks, Pat. I would add just a couple of things, and I've mentioned it before on past calls. But in my belief, we have the best training group in the entire broadcast industry.

It's a robust team of many, many people. And we spend a lot of time with our AEs on training and our sales managers. In addition, we track all-local direct new business, as we call it, very carefully. And we're averaging about 2,000 new local accounts per quarter, and we had our biggest month ever in May on local direct and our best quarter in second quarter we've ever had on new local direct.

And the new stations have greatly contributed to that. The other thing I would tell you is that in a lot of -- some markets as well where heavy political does drive up the average unit rate for everyone, whether it's political or retail or core. And so some of those factors also play into it. But I think it comes back to -- with great stations and great personnel and they're very well trained and we expect that to continue.

Did we get you, Dan?

Operator

It looks like he has removed himself from the queue. Would you like me to pull him back?

Bob Smith -- Chief Operating Officer

No, that's all right. Go ahead.

Operator

OK, thank you. Next, we'll move on to Aaron Watts with Deutsche Bank.

Aaron Watts -- Deutsche Bank -- Analyst

Hey, everyone. Thanks for having me on. I just have really one quick question probably pointed to Jim. I wanted to confirm what debt you paid down within that $54 million amount in the second quarter.

And as you look ahead, you spoke to another $450 million in debt repayment for the rest of the year. Would that be mainly term loan debt or potentially some secondary bond market purchases as well?

Jim Ryan -- Executive Vice President and Chief Financial Officer

Hey. As of right now, today, it's more likely than not term loan repayment. The Term Loan D has $15 million of required amortization with it. The voluntary repayment in Q2 was targeted at the Term Loan C that has the shortest maturity date coming up for us in '24.

Most likely the other $450 million will go to the -- again, the '24 in maturity as well. But I wouldn't rule out stability if the bond market gets -- creates an opportunity there, I wouldn't necessarily rule it out. But we've got some very long-dated paper that in the current rate environment is starting to look like pretty attractive rates. And so it's a little bit of balancing long-term attractive-priced paper in a rising rate market versus an upcoming '24 maturity that we can easily deal with.

Aaron Watts -- Deutsche Bank -- Analyst

Yeah, make sense. And I apologize if I missed this. What percent of your cap stack now is fixed versus floating?

Jim Ryan -- Executive Vice President and Chief Financial Officer

It's about 50-50.

Aaron Watts -- Deutsche Bank -- Analyst

OK. All right. And then just one last one, Jim. With regards to -- you're expecting to be at or below 5x leverage by year-end.

What leverage trajectory does that put you on looking a little further out, perhaps year-end '23 or '24, taking into consideration some of the current macro uncertainties?

Jim Ryan -- Executive Vice President and Chief Financial Officer

I think '24, we're probably -- I mean this is two years out, right? And so that's at least four lifetimes. But I think conservatively, we're probably in the lower 4s very comfortably, maybe in the high 3s, depending on macro and also the size of political in '24. But the glide slope we see between year-end this year and the next couple of years, we think, is not overly dissimilar to the glide slope we had after we did the big Raycom deal a couple of years ago. And you get down into the low 4s or high 3s, for us, we would be extremely comfortable.

Aaron Watts -- Deutsche Bank -- Analyst

OK. That's helpful context. Appreciate it. Thank you.

Pat LaPlatney -- President and Co-Chief Executive Officer

Thank you, Aaron.

Operator

Thank you. Next, we'll move on to Jim Goss, Barrington Research.

Jim Goss -- Barrington Research -- Analyst

Good morning. I have a couple of questions. First, one of you, I think, made some reference to the streaming shifts and the impact on distribution of your stations. You tend to be lined up being distributed in some form.

And I'm just wondering if you could talk about how this has been and how you're looking at it happening and the impact on both retrans dollars and any impact on the reverse comp obligations?

Kevin Latek -- Chief Legal and Development Officer

Hi. Jim, this is Kevin. I totally understand. I mean streaming -- there's two pieces of streaming for us.

Our news content has obviously been available online forever, more on an episode or a story basis. Anything that streams our signal full 24/7 comes with a fee. So whether that's a Paramount Plus or Hulu TV or Comcast or DISH Network, those are all per fee. We've said we want our signal and our content to be as widely available as possible.

We're not going to really give it away. So we monetize through advertising and through fees for the full signal. Looking at our retrans in particular. As the subscribers are transitioning from cutting the cord, at least in terms of our numbers, people who are cutting the cord are then still signing up for the OTT and virtual services.

So our signals are still being distributed. People are not leaving us. They may be leaving cable channels that can't get replicated in the streaming environment, but they are still getting our signal. They're leaving MVPDs and signing up with OTT is why sub counts are largely stable and have been for many years.

Economically, from a pure dollar standpoint, we would prefer people to stay in the pay-TV environment, operated by the cable and satellite companies as opposed to the streaming environment. I think it's a better value proposition and certainly, economically, it's a bit better for us. But at the end of the day, we need our signal everywhere, and there are other puts and takes with the -- with all these deals. So we're -- we would strongly prefer to have people under contracts that we negotiate the contracts and networks negotiated, but the world is not ideal.

So we strike the best deal that we can. So I don't know. Does that address your question?

Jim Goss -- Barrington Research -- Analyst

Yes. And it was partly the -- not just the new source, but the actually full daily usage of your signal in a given market. And -- but I think you've been -- you were addressing it. So appreciate that.

The other thing I wanted to ask about a little bit more is your studio. I don't recall exactly why you decided that there would be a good idea unless you had owned the property. And Georgia has been a great market for movie production lately and TV production. But I was wondering if you're going to have any usage of the studio for any local new shows of your own or even any cross-platform programming to take advantage of your increased scale.

So you did try that once with Greta Van Susteren and discontinued it. And I didn't know if that was an individual thing or a broader decision and...

Jim Ryan -- Executive Vice President and Chief Financial Officer

In the Assembly Studios project is when we first talked about it, Gray will own and operate a few soundstages within that complex. Primarily, those will be utilized for our Swirl Films, which we are the majority owner of that company. And they don't produce content. They are -- they produce some content on a third-party contract basis.

Our Third Rail Studios that we already own, that's also on that same property is purely a soundstage for lease. And we don't -- other than using those soundstages for some of what we already are doing, we don't really anticipate any large-scale content creation on the part of Gray. NBC is a content -- NBCU is a content company. They will lease the soundstages that we've talked about on a long-term basis, and they'll generate content from those for their own use.

But I don't see us getting into a large-scale content production. It's just not in our wheelhouse.

Jim Goss -- Barrington Research -- Analyst

No. I didn't think it was, but it would remain fairly nominal in the context of your numbers, I'm sure, or maybe off balance sheet or off income statement?

Jim Ryan -- Executive Vice President and Chief Financial Officer

Absolutely.

Jim Goss -- Barrington Research -- Analyst

OK. All right. That's all I have at the moment.

Jim Ryan -- Executive Vice President and Chief Financial Officer

Thank you. All right. Any other questions, operator?

Operator

Thank you. [Operator instructions] And next, we'll move on to Steven Cahall with Wells Fargo.

Steven Cahall -- Wells Fargo Securities -- Analyst

Thanks. Maybe first, just, Kevin, I think the Q3 retrans guide is a pretty big step down. And I know you've talked about seeing a little bit of a pickup in cord cutting. We've seen that across the ecosystem as well.

But just the kind of pace of change seems a little bit abnormal. So I was wondering if there's anything going on there that you can help us with. And then I've got a couple of follow-ups.

Kevin Latek -- Chief Legal and Development Officer

Yeah. I think -- I'm not sure it's a giant step down. Our guide is a couple of million dollars lighter in the third quarter than what we posted in the second quarter on -- so I don't have the number in front of me, but what is it 1% or 2%. It's not -- I don't see that as significant.

I'll remind you, we don't reprice contracts during the year. So our rate on January 1 is essentially the rate for the entire calendar year. So as -- if somebody loses 10% of their subs, then we're going to get 10% loss revenue from them. There is not -- we're not on a constant revolving wheel of repricing contracts to keep giving a little bit of gas that we reprice pretty much always on January 1.

So some clients are obviously occurring and as people switch from the contracts that we negotiate to the contracts negotiated by the networks, our net is impacted. So we'd rather have the people. We'd rather have the money than not have the money. Again, in an ideal world, we negotiate every OTT contract, and in which case, we'd have higher rates.

That would benefit our shareholders. But this is not an ideal world. So we have struck, like everyone else the best deals that have been available at the time and happy to have our signals available on YouTube and Hulu and the other ones, Paramount and Peacock. Yes, I just don't see it as a big step down.

It's just -- we've seen this, I think, over the last couple of years where we have a big first quarter then it steps down a little bit each quarter. Sub erosion hits our revenue.

Jim Ryan -- Executive Vice President and Chief Financial Officer

I'd probably just add in on that, Steven, is that a modest little correction on $1.5 billion. So what's -- and that's -- I never thought I'd be talking about retrans at $1.5 billion.

Steven Cahall -- Wells Fargo Securities -- Analyst

Yeah. No, point taken. And maybe, Jim, just to follow up. If I kind of understand that you're maintaining the free cash flow guidance.

Cash interest is up more than 10%, but political advertising is also kind of up nicely, maybe versus your original base case. When you kind of think about the complexion of free cash flow for the year, has anything else changed or are those kind of the big moving pieces that are offsetting?

Jim Ryan -- Executive Vice President and Chief Financial Officer

I think those are the two big moving pieces that are mostly offsetting. And obviously, with the big raise in political of $77 million up to get to $652 million for the full year, that's just sheer displacement, putting a little more pressure on core than we would have thought of last call or the call before, right? I mean that -- it just is, right? I mean at $652 million, we're going to have more core displacement than we would have at $575 million. But I think you're right. Interest in political are the two big toggles.

And we've tried to bake in increasing interest rates for the rest of the year. We can all decide whether the yield -- forward yield curve is accurate or not, but we've tried to be conservative in the interest estimate for the rest of the year.

Steven Cahall -- Wells Fargo Securities -- Analyst

Great. And then maybe just lastly on Assembly. It's amazing what's happening there. I had a chance to see it from an Uber about a month ago.

I know it's not in free cash flow, but the capex does kind of run through the cash flow statement. It's going to impact leverage or buyback. How do you kind of think about the cash profile of that whole project in terms of when it goes from consuming cash to either being neutral or generating cash for the company?

Jim Ryan -- Executive Vice President and Chief Financial Officer

Well, obviously, it will start generating cash once we build the soundstages and deliver them to NBCU on that long-term lease. And that's -- that will be very positive for us. And we know NBCU is just extremely delighted to be partnering with us on this and are very eager to take -- get in and get going on their own productions. Also remember, this is 43 acres out of about 135-ish acres.

The -- as Hilton alluded to, the -- when NBCU goes live and there are thousands of jobs up in that complex, the entire rest of those acreage is going to be becoming much more valuable. And I think it's still safe to say it's kind of a white canvas that's yet to be painted on. But I think there's a lot of opportunities for enhanced cash generation out of the remaining acreage, which is currently right now ground-up concrete and dirt.

Steven Cahall -- Wells Fargo Securities -- Analyst

Great.

Operator

Thank you. And next, we'll move on to John Kornreich with JK Media.

Unknown speaker

Kevin, previously, you had been saying that you only see sub declines of 1%. So I guess you're seeing a lot more than them now.

Kevin Latek -- Chief Legal and Development Officer

No, John. So we have -- through the last couple of years, I always talk about our sub count as a total number of Big four subscribers for which we get paid. And that number has been hovering around plus or minus 1% for the last couple of years. So that's not actually changed at all.

What we're seeing is we had some last quarter, the MVPDs -- the traditional MVPDs dropped had more sub losses than we have traditionally seen on a year-over-year basis, while our OTT subs had picked up -- actually had better growth than we had seen, and it netted out to about negative 1% on a year-over-year basis. If I go back and check, what we -- over the last several quarters, we've either been up 1% or down 1% on a total basis. And so it's just that mix of pay-TV versus OTT. Obviously, one side is gaining and one side is losing.

Unknown speaker

And the side that's gaining isn't quite as profitable as the one you're losing? Correct?

Kevin Latek -- Chief Legal and Development Officer

That's correct.

Unknown speaker

OK. Another issue on retrans, if I'm doing my arithmetic right, the net retrans margin in the first quarter was something like 42%. And then second quarter, 40%. And the third quarter, according to your guidance, 39%.

When do we reach that point in negotiations where you say to Disney, hey, you're pulling some of your best program away from us. We're paying...

Kevin Latek -- Chief Legal and Development Officer

I think we crossed that point, John, a couple of months -- several weeks ago. That point has been made loud and clear to the ABC folks. Our ABC deal's up to the end of '23. Our CBS deal ended last year, and our just-completed FOX deal were consistent with what I predicted last fall on the earnings call, which was that our reverse comp fees going forward would continue to go up like everything else, but they would slow down significantly over prior step-ups that we've experienced.

Our first quarter is always a bit off in terms of retrans because that's when most true-ups come through. It typically will be positive. Sometimes it can be negative. And so first quarter, what we suggested don't take first quarter multiple at times four because there's always the impact of true-ups and audits in there.

Overall, our margin is about 40%. It's kind of where we think it will probably stay. Gross will grow, reverse comp is going to grow, the net's going to grow, again, probably mid-single digits over the next few years. We are definitely having the conversations with the networks.

And I think all broadcast affiliate groups are having conversations with the networks about some of the best programming moving off. Some programming we don't care about is also moving over to streaming and being replaced with somewhat better programming. But days are -- Dancing with the Stars was definitely a source of very significant conversations with ABC by the affiliate groups.

Unknown speaker

OK. And when you talk about 5% or 6% gains in retrans, are you talking about gross and net?

Kevin Latek -- Chief Legal and Development Officer

Yes.

Unknown speaker

That's just for -- that's kind of a 23, 24.

Kevin Latek -- Chief Legal and Development Officer

Yeah, it's in mid-single digits, around that neighborhood for both gross and for net.

Unknown speaker

When does gross pick up again based on your cycle of renewals?

Kevin Latek -- Chief Legal and Development Officer

We have a significant 2023 renewal window. Most of that is the beginning of the year, not all but mostly at the beginning of the year. It's a little more than half of ourselves, 56% of our MVPD sub base is up next year, again, most effectively January 1. I will say we are -- we tend to be conservative in our analysis.

And given that we were -- came in on the low side of guidance, I'd say we're definitely very -- going to be very conservative on our guidance going forward, but that will be the next big pricing step up.

Unknown speaker

So that will -- your step-up will affect 2023 since it's on January 1?

Kevin Latek -- Chief Legal and Development Officer

That's correct.

Unknown speaker

And for, Jim, you bought the $50 million of stock in the second quarter. How many shares did you rebuy -- repurchased based on that price?

Jim Ryan -- Executive Vice President and Chief Financial Officer

Two points -- give me a second to look it up.

Kevin Latek -- Chief Legal and Development Officer

I'll look it up. Do you want to go to the next question? It's in the 10-Q, I think.

Jim Ryan -- Executive Vice President and Chief Financial Officer

Yes. It's in the back of the Q, on the -- 2.3, 2.5.

Kevin Latek -- Chief Legal and Development Officer

If you want to go on, I'll put the number up.

Unknown speaker

What is the share count, not average for the second quarter, but right now? Is it 92 million?

Jim Ryan -- Executive Vice President and Chief Financial Officer

93 million, 93.1 million.

Unknown speaker

Right now? OK.

Jim Ryan -- Executive Vice President and Chief Financial Officer

Right now. Yes. Just quick -- as we said, we'll pull up -- let us pull up the -- I'm trying to pull up the buyback.

Unknown speaker

That's it. Thank you.

Kevin Latek -- Chief Legal and Development Officer

Let's pull up. Buyback's right here.

Jim Ryan -- Executive Vice President and Chief Financial Officer

Yes. OK. Now I got it. It was -- John, it was 2,646,000 shares.

Unknown speaker

I would think that the share count would be lower than 93 million. All right. Anyway. It is what it is.

I appreciate it. Thanks.

Operator

Thank you. Next, we'll move on to Alan Gould with Loop Capital.

Alan Gould -- Loop Capital Markets -- Analyst

Yeah. Thanks for taking my question. Pat, just wondering with the guidance of core down 6% for 3Q, is there any way of breaking out how much of that is sort of truly core versus how much of that is the impact of political...

Pat LaPlatney -- President and Co-Chief Executive Officer

Not really. The truth is there's going to be a ton of political displacement in Q3. And at this point, it's just really difficult. It's only something -- and it's even difficult to do in retrospect.

So all we really can tell you is that there will be significant political displacement.

Alan Gould -- Loop Capital Markets -- Analyst

OK. And Jim, a quick question. As your leverage comes down, if it falls below five times, does that actually lower the rate you pay on any of your debt?

Jim Ryan -- Executive Vice President and Chief Financial Officer

No. The floating rate debt is that -- the Term Loan C and -- Term Loan B and Term Loan C are LIBOR 250, and the Term Loan D is LIBOR 300. And we'll switch to SOFR or whatever, we need to switch to SOFR. But none of our -- our pricing is not geared to leverage.

Pat LaPlatney -- President and Co-Chief Executive Officer

Yes. It's Pat again. If this is helpful, I would say that in the absence of political, we think core would be up pretty modestly.

Alan Gould -- Loop Capital Markets -- Analyst

Then it would be up without political?

Pat LaPlatney -- President and Co-Chief Executive Officer

Yeah, political get replaced, right?

Alan Gould -- Loop Capital Markets -- Analyst

That's very interesting. Thanks, Pat.

Operator

Thank you. Next, we will move on to Craig Huber with Huber Research Partners.

Craig Huber -- Huber Research Partners -- Analyst

Thank you. Macro question for you guys. I mean, there's been a lot of commentary on recent media company conference calls in recent days in other industries as well. Where do you guys come down at in terms of the economic impact and what you're seeing out there and hearing out there from your advertising clients out there?

Bob Smith -- Chief Operating Officer

I would say we're seeing some impact. But at the same time, we're doing a lot of things to counter that. And in fact, in some of these categories like auto, we're actually seeing some of the auto guys come back, and that's filling in some of the gaps with General Motors in particular is strong. But we haven't had any drastic moves in any market from an economic perspective, I think, we're holding up very well.

Pat LaPlatney -- President and Co-Chief Executive Officer

I would add that in the absence of this sort of political onslaught, I think we would be up slightly in core. The vast majority of our stations, core is strong. Are there a few pockets of weakness? Yes, we're seeing a little bit. We're monitoring it, but it's a very healthy market right now.

Craig Huber -- Huber Research Partners -- Analyst

My second question, guys, auto and sports betting, can you maybe just give us the percent change there in the core ad revenue on a pro forma basis for the second quarter and how that's trending in the third quarter?

Kevin Latek -- Chief Legal and Development Officer

So auto was about of core, excluding political, in Q2, actually closer to -- it was about the same in Q1, excluding political. Q3 pacing is -- and I'd caution on the pacing because when -- especially when we hit September with a lot of political. Auto is -- auto and political advertisers always love a strong local newscast. So auto will go to the sidelines in September, to some extent, which would be very natural.

But I -- we -- in a big picture, it feels like the pace of the decline in auto in Q3 based on pacing has very much decelerated from what we've been seeing in the last year or more. So as I said earlier, it kind of feels like it's finally found the bottom, hopefully, and can start climbing back up -- climbing back out after a multi-quarter period of decline because of -- especially because of supply chain issues.

Pat LaPlatney -- President and Co-Chief Executive Officer

I mean heavy political skew what actually is going on there, particularly in September. But look, it looks like we've lapsed and the comps aren't quite what they were. And there is some new money coming back into the market.

Craig Huber -- Huber Research Partners -- Analyst

The sports betting side, please?

Bob Smith -- Chief Operating Officer

Yeah, this is Bob. We're seeing sports gambling, there's a lot of activity for September. It's a little softer in the summer because football is the driver, plain and simple. And so we have a lot of activity in September, including Ohio, which just went live.

We just got requests late last week for Cincinnati, Cleveland and Toledo. And we think that's going to be very impactful to finish out the quarter.

Craig Huber -- Huber Research Partners -- Analyst

And then also on the ATSC 3.0 rollout, can you just update us on the percent of your households or percent of your markets that you've rolled it out to or where you think you'll be at the end of this year and maybe by the end of next year?

Pat LaPlatney -- President and Co-Chief Executive Officer

The percent of households will be bigger than percent of markets. I think percent of -- our percent of homes -- well, we're in, I think, roughly 20 -- low 20s or high teens in terms of percent national coverage in our footprint for 3.0. In terms of number of stations, it's significantly lower because we're going to work our way through the midsized markets into the smaller markets. So I'm going to -- I don't have that number sitting in front of me, but I'm going to guess it's somewhere on the order of -- Mark say somewhere on the order of 15%, maybe 16% of the station.

Craig Huber -- Huber Research Partners -- Analyst

OK, great. Thank you.

Operator

Thank you. [Operator instructions] And next, we'll move on to Michael Kupinski with NOBLE Capital Markets.

Michael Kupinski -- NOBLE Capital Markets -- Analyst

Thank you. And just a quick follow-up on Craig's question. NextGen was always heralded as the opportunity -- a revenue opportunity for the broadcasters and as an opportunity to offset what might be maturing retransmission revenue growth. And I was just wondering if we start, if models have -- revenue models have started to gel now, do you guys have a path to where you might see some significant revenue contributions from NextGen, I'm just wondering, or is that still pretty much further out into the future?

Pat LaPlatney -- President and Co-Chief Executive Officer

Look, I would say that there's a ton of models out there, and there's a lot of very real conversation that has been going on for some time. So is it going to be there? Yes. I cannot tell you exactly when. I do think they'll be a data business.

I think they'll be a business, particularly getting into the automotive space. And then there's other things you can do with that spectrum, but I think it's going to take a few years to develop that. I know that's not a ton different than the way we would have answered that question six months ago, but that for us is the reality.

Michael Kupinski -- NOBLE Capital Markets -- Analyst

OK, that's all I have. Thank you.

Operator

Thank you. And there are no further questions. So that will conclude our question-and-answer session. I would now like to hand your conference back over to the chairman for any additional and/or closing remarks.

Hilton Howell -- Chairman and Chief Executive Officer

I just want to take a moment to say thank you for all of us joining us for the second quarter results, and we look forward to talking to you next quarter and at the end of the year. Thank you. Bye bye.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Hilton Howell -- Chairman and Chief Executive Officer

Kevin Latek -- Chief Legal and Development Officer

Pat LaPlatney -- President and Co-Chief Executive Officer

Bob Smith -- Chief Operating Officer

Jim Ryan -- Executive Vice President and Chief Financial Officer

Dan Kurnos -- The Benchmark Company -- Analyst

Aaron Watts -- Deutsche Bank -- Analyst

Jim Goss -- Barrington Research -- Analyst

Steven Cahall -- Wells Fargo Securities -- Analyst

Unknown speaker

Alan Gould -- Loop Capital Markets -- Analyst

Craig Huber -- Huber Research Partners -- Analyst

Michael Kupinski -- NOBLE Capital Markets -- Analyst

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