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Gray Television Inc (NYSE:GTN)
Q3 2019 Earnings Call
Nov 7, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Gray Television Third Quarter 2019 Earnings Conference Call.[Operator Instructions]

I would now like to hand the conference over to your speaker today, Hilton Howell, Executive Chairman and CEO. Thank you. Please go ahead.

Hilton H. Howell -- Executive Chairman of the Board, Chief Executive Officer

Thank you, Cheryl. Good morning, everyone. Thank you for joining us this morning for our third quarter 2019 earnings call. As usual, I'm joined by our President and co-CEO Patrick LaPlatney, our Chief Legal and Development Officer, Kevin Latek and our Chief Financial Officer, Jim Ryan. We will begin this morning with a disclaimer that Kevin will provide and at the end of our comments we will open up the line for questions. Kevin?

Kevin P. Latek -- Executive Vice President, Chief Legal and Development Officer

Thank you, Hilton. Good morning everyone. Certain matters discussed on this call may include forward-looking statements regarding among other things, future operating results. These statements are subject to a number of risks and uncertainties, actual results in the future could differ from those described in the forward-looking statements as a result of various important factors. Such factors have been set forth in the company's most recent reports filed with the SEC and included in today's earnings release. The company undertakes no obligation to update these forward-looking statements. Gray uses its website as a key source of company information, the website address is www.gray.tv. We also will post an updated investor deck to the website within the next few weeks. Included on the call will be a discussion of non-GAAP financial measures and, in particular, broadcast cash flow -- broadcast cash flow less corporate expenses, operating cash flow, free cash flow, adjusted EBITDA and certain leverage ratios. These metrics are not meant to replace GAAP measurements but are provided as supplements to assist the public in their analysis and valuation of our company.

Included in our earnings release as well as on our website are reconciliations of the non-GAAP financial measures to the GAAP measures reported in our financial statements.

I now return the call to Hilton.

Hilton H. Howell -- Executive Chairman of the Board, Chief Executive Officer

Thank you, Kevin. We are extremely pleased to report the results for the third quarter of 2019. This is a quarter of exceeding expectations, both on the high-end and the low-end of our guidance. Our as-reported total revenue for the third quarter was $517 million, which was at the high-end of our previously issued guidance. At this level, our total revenue increased by approximately 85% from the third quarter of 2019. Our broadcast and corporate operating expenses were each below the low side of our guidance. Our Adjusted EBITDA significantly exceeded the high side of our guidance. For the past several quarters in a row, we have set new records for broadcast cash flow.

The third quarter of 2019 also set another all-time record for a third quarter at $192 million, increasing $57 million or 42% from the third quarter of 2018. This figure also set a new best broadcast cash flow for any quarter in our company's history. Our political advertising was a distinct high point of the quarter. Political revenue again greatly exceeded our expectations, especially for an off-cycle year. In particular, our political revenue was $22 million for the third quarter of 2019. Political revenue throughout the year and our expectations for the fourth quarter, certainly point to a record political revenue year in 2020. Our net income available to common stockholders for the third quarter was $46 million, and our net income per diluted common share was $0.46. Excluding transaction relating expenses and non-cash stock compensation, our net income available to common stockholders would have been $0.50 per diluted common share. This figure represents a strong increase over the second quarter of 2019, which was, itself, a strong increase over the first quarter of the year. We ended the quarter with a total leverage ratio, as defined in our senior credit facility at 4.59 times on a trailing eight quarter basis. Netting our total cash balance of $326 million and excluding transaction related expenses. Stepping back from these numbers, we continue to see local advertising improve across our company and look forward to finishing up the year with the best quarter of the year for local advertising. We continue to see double-digit growth in retransmission revenue on both a gross and a net basis over last year. Over the past few months, the headlines have certainly had a lot to say about both broadcast retrans and cable channel fee disputes. Nevertheless, we remain very optimistic about our ability to continue to close the massive gulf between the value we deliver and the value we receive from distributors.

Finally, political revenue has exceeded our expectations every quarter for the past several quarters in a row and this time was no different. For a number of reasons, we now believe that 2020 is shaping up to be another year in which we will set new political advertising records. Our balance sheet has hardly ever been better than it is today. When we announced the Raycom transaction in June of 2018, we committed to paying down our debt and predicted rapid deleveraging resulting from robust free cash flow. Three quarters after closing that transformative transaction, we were able to demonstrate how we have again done exactly what we told you we would do.

In particular, as noted, our net leverage is now in the middle fours and continuing to decline rapidly. We remain on target to close out next year with a net leverage ratio somewhere in the threes. Last Friday, we made a voluntary prepayment up $100 million of the 2019 term loan outstanding under our senior credit facility using cash on hand. Today, we have roughly $200 million cash in the bank.

As always, we remain quietly busy, exploring numerous and various opportunities to continue growing the company through small and large transactions that would make Gray an even stronger player in the broadcast industry. We are now in the latter innings of the consolidation phase in our industry and that makes good M&A opportunities hard to find in the future a bit harder to seeing. Still, we have been guided and will remain guided by our focus in finding the path that will lead to the highest shareholder value in the long term. But, while, I cannot completely rule out the possibility of an excellent opportunity for further M&A over the next year. I can confirm that absent an excellent transformative opportunity, deleveraging remains the first priority of Gray for at least the next 12 months.

Finally, we have been frustrated with the underlying value of the company in the public markets despite the results we have posted in our plans for the future. We are rightly proud of the company we have built, the people who work with us, our margins and efficiency, the quality of our assets and the opportunities that lie ahead for all of us. We believe that recent market prices have not fully reflected the actual value in Gray Television stock. And that the market continues to undervalue the company. Accordingly, the company and some insiders purchased Gray stock during the limited periods of time during the quarter in which we legally could trade. Yesterday, our Board of Directors adopted a new $150 million stock repurchase authorization through December 31, 2022. This new plan supersedes all prior plans, including one from 2016 that was scheduled to expire at the end of this year. It is our intention to return to the market to acquire Gray common stock opportunistically, and always in balance with our commitment to deleveraging the balance sheet. That's a difficult balancing act, but one that we are confident we can handle. We are extremely happy with how the company has performed and the people of Gray and Raycom have come together to the first three quarters of this year. We truly are one company pulling together.

Pat, Kevin, and Jim will now add some additional color to today's earnings release.

Patrick D. LaPlatney -- Co-Chief Executive Officer and President

Thank you, Hilton, and good morning everyone. In September, Hilton accepted broadcasting cables broadcaster of the Year Award of the TVB Forward Conference in New York. In accepting this award, Hilton announced that Gray would join NBCU, CBS, ABC, Hearst and Graham Media, moving from household ratings to cost per impression model for selling advertising. Impressions provide more granular data for advertisers and is a accepted metric used by the digital media platforms with whom broadcast television companies compete. Last week, we were happy to see Nexstar announce that it too would move to impression-based selling.

Selling ads based on impressions will allow us to monetize all of our inventory, better meet the needs of advertisers and therefore should help us and our industry improve local television share video ad sales across the competitive landscape of broadcast MVPDs and digital platforms.

In addition to the move to impression-based selling, Gray is also rolling out a targeted sales strategy across the Group against a couple of key categories, auto and health. We have seen some success here, believe this effort will have a positive impact on core advertising sales. We've also been working on adding capabilities around the sale of OTT advertising. As you know, it's the fastest growing sector in advertising, we are going to broaden our focus in this area. Recently, our joint venture with Opry Entertainment Group, a subsidiary of Ryman Hospitality Properties announced a name for the JVs new 24/7 premier linear multi-cast and SVOD service dedicated to the country music lifestyle experience. We chose Circle in a [Indecipherable] Grand Ole Opry stage. As you probably know, Circle will feature original programming, centered around artist, music, hobbies, outdoor and offstage adventures, food, family and friends. We are on target to launch a linear channel in January 2020 across multicast channels and all of Gray stations, as well as numerous stations owned by third parties. We expect to launch the network in over 50% of US TV homes.

The venture is hard at work finalizing new and library programming sponsorships and ad sales, as well as technology, marketing and staffing. Our other new program ventures Full Court Press with Greta Van Susteren. Since the new show debuted in September, we've attracted high quality guests, such as Secretary of State, Pompeo, Democratic presidential candidates Amy Klobuchar and Tulsi Gabbard, Senator Lindsey Graham and other members of the House and Senate Judiciary Committees. In fact, this week's guest is presidential candidate and Mayor South Bend Indiana, Pete Buttigieg. We're also staying true to our mission of highlighting issues impacting local communities. Tapping into our station resources with stories like an investigation into the high and inconsistent priced in healthcare, to an Alaskan town literally washing away due to coastal erosion. We've now cleared Full Court Press in more than 75% of the country. We're also very pleased with the shows solid ratings performance. Full Court Press routinely post higher rating than longer runnings established network Sunday news shows. In Birmingham, for example, Full Court Press consistently posted for a higher rating and just two weeks ago hit a 6.8, which means that our brand new show was the highest or second highest rated Sunday political talk show on the year in Birmingham, each week.

I now turn the call to Kevin.

Kevin P. Latek -- Executive Vice President, Chief Legal and Development Officer

Thank you, Pat. We posted a 113% year-over-year increase in retransmission revenue on an as-reported basis. That's a 15% increase on a combined historical basis. While, we should be very pleased with double-digit growth at these rates, the numbers could have been a bit stronger. Virtually all of Gray's retrans contracts reset our rates on January 1 rather than at different points during the year. As a result, our retrans revenue in any month is simply a function of the rate on January 1 times a number of subs for the month. If we reprice some major agreements during the year, our retrans revenues would naturally increase at those different points during the year. In fact, these small spikes could mask some fluctuations. But because we have no such repricings during the year, you can see subscriber fluctuations and billing adjustments pretty clearly in our results. In the third quarter, our retrans revenue declined by about 2% from expectations due to sub declines primarily at two very large MVPDs. Not coincidentally, these two operators over this summer dropped or I believe threatened to drop non-Gray local television stations, cable channels and regional sports networks from their offerings across our markets. Of course when local viewers lose -- local viewers drop an MVPD because they no longer can get a local station or a cable channel or an RSN. All the stations in that market lose those subscribers, those sub reductions slightly reduced our Q3 retrans revenue and caused us a slightly reduced our retrans estimates for Q4.

We have no doubt that a good number and probably most of the subs, who left one of these two operators in Q3, signed up with a new provider, soon thereafter, or as soon thereafter a summer ended and the new providers could get them hooked up. The Q3 sub defections from MVPDs do not immediately show up in Q3 retrans revenue, rather they will show up in sub reports and payments that arrive in Q4 and early next year.

We do expect to regain most of the lost subs in revenue in the near term. Nevertheless, we cannot accrue for subs moving to new operators until we actually get sub reports telling us where these folks went. For context, we now have sub reports from virtually all operators for the first half of the year. Our overall sub count was largely stable in the first half. Our sub count for the first half excluding these two very large MVPDs grew a little bit.

In short, we currently anticipate that retransmission revenue for calendar year 2019 will be approximately $795 million. We currently anticipate retransmission expense will be approximately $421 million and our net retrans revenue will be approximately $375 million. Looking further ahead, as Hilton said, we believe that our current and net retrans revenue will continue to grow strongly as we keep chipping away at the massive gulf between the value delivered and the value received.

As a reminder, we renew about 22% of our MVPD subs at the end of this year and about 56% of our MVPD subs at the end of 2020. Turning to our Q3 political revenue, it was obviously much stronger political revenue environment than we had expected. We pointed out numerous positive developments and trends over the last several quarters and this momentum just keeps building and blowing past our already robust expectations.

After excellent results in the first two quarters of the year, we guided to an increased political revenue for the third quarter of about 40% over 2017, the last off cycle year on a combined historical basis. We ripped through even that high expectation and finished the third quarter, up 150% over 2017 on a combined historical basis. This resulted from a number of factors, the way governor races all turn more competitive than anticipated.

We had strong special state and local races, more early, very early presidential primary money in the first contest dates. More issue ads. In short, we continue to see political buyers rely on the power of Local Television Stations to convince, to sway and to get out the vote. We cannot be excited -- we cannot, but be, excited about the prospects for political revenue over the next 363 days. For the current -- for the current quarter, we are comfortable guiding to what we believe is a very conservative range of $25 million to $26 million in political revenue which would represent a roughly 80% increase over 2017 on a combined historical basis.

In short, we see historical [Phonetic] as a fundraising engagement, strong candidates and likely competitive races across our footprint. And now that this week's election is behind us, we expect to see presidential ad spending begin in earnest. In fact, we now believe that our political revenue for calendar year 2020 will set a new record by exceeding the $235 million that we achieved in 2018 on a combined historical basis.

Thank you for your time. I now turn the call over to Jim Ryan.

James C. Ryan -- Chief Financial Officer, Executive Vice President

Thank you, Kevin. Good morning, everyone. I am going to pre-apologize if my voice is a little bit off or I'm coughing. I've managed to pick up a cold in the last couple of days. Our earnings release is -- obviously got a great deal of detail and the 10-Q will be filed a little bit later today. Keeping with the way we've always reported, we report on a GAAP basis, which we call as reported in our disclosures. In addition, we've presented results and guidance in the earnings release on a combined historical basis which gives effect to the acquisitions and dispositions as if the transaction occurred on January 1, 2017.

I'm going to keep my comments on the results of operations for Q3 and our guidance for Q4 to a combined historical basis. Please note that Q3 combined historical does include the two stations acquired from United Communications earlier this year and also please note that our Q4 combined historical guidance does include not only the United stations, but also our acquisition of KDLT in Sioux Falls, which occurred in late September, and the Charlottesville station transactions, which occurred on October 1.

Overall, we're pleased with the results for the third quarter. In general, our third quarter revenue was in line with the higher side of our guidance and core revenue especially local TV revenue did show modest sequential improvement over the first half of 2019. Factoring in the much heavier political revenue in Charlotte, Mississippi, Louisiana and Kentucky, we believe our core local was a flat to 2018 in Q3.

In Q3, we did see strong growth year-over-year in several categories with financial advertising, up 8%, legal up 9%, as well as continuing strength in our home improvement category, which was up 9% compared to 2018. Third quarter broadcast operating expenses were better than expected with an overall quarter-over-quarter increase of $12 million, but that $12 million included an increase in retransmission expense of $16 million, which was then partially offset by decreases in other operating expenses. The production companies and corporate expense lines came in within expectations. In the third quarter of 2019, we had a total of $2 million of transaction-related expenses, of which $1 million hit the broadcast expense line and the remaining $1 million was a corporate expense. Year-to-date, we have an aggregate of approximately $72 million of one-time only costs -- transaction related costs comprised of $28 million of third-party contract termination fees, $24 million of professional fees and approximately $20 million of incentive compensation and or severance. Of these costs, about $38 million was included in our broadcast expense line and $34 million is included in our corporate expense line. in the fourth quarter, we currently anticipate at least $2 million of additional transaction related expenses split approximately evenly between the broadcast in corporate expense lines.

As discussed on our last call, we reaffirm again our belief that the Raycom Merger will result in approximately $85 million of annualized first year synergies, which is $5 million more than originally estimated. And those synergies fall into two basic categories, operational synergies of about $42 million, and contractual arrangements of about $43 million. We're always looking at opportunities to streamline our operations and to make them more efficient as such, there may be a few more synergy related projects that we will be able to accomplish before the end of this year.

Turning to the balance sheet, as Hilton had already mentioned that our total leverage ratio at the end of September was 4.59 times based on a trailing eight quarter cash flow of $791 million with an aggregate principal amount of outstanding debt of $3.96 billion we had cash on hand at the end of the quarter of $326 million, and again, as Hilton said, we used $100 million of that cash last Friday to voluntarily prepay $100 million of our outstanding term loan C. We continue to anticipate [Indecipherable] decreasing lower into the fours by the end of this year and comfortably into the threes by the end of 2020.

Turning to our fourth quarter guidance on a combined historical basis, we currently anticipate that local broadcast revenue will demonstrate improvement over the first nine months, national broadcast revenue while still challenged especially with lower auto advertising is still expected to show continuing improvement over the first nine months. And as Kevin already mentioned, our political revenue guidance, we think is very conservative and we are cautiously optimistic that the political number will pick up as we move through the rest of the fourth quarter. Core broadcast expenses are expected to decrease between $22 million and $25 million compared to Q4 '18, that excludes an anticipated $15 million of increased retransmission expense. Transaction related expenses and non-cash stock compensation are also excluded from that overall decrease.

In addition, corporate expense is currently anticipated to decrease $2 million to $4 million from 2018 reflecting -- excluding transaction related expenses and non-cash stock compensation. These decreases demonstrate in part the realization of our Raycom synergies. Considering the full year '19 based on our Q3 results to-date and our Q4 guidance, we currently anticipate that full year 2019 revenue will approximate $2.1 billion, our total operating expenses for the year before depreciation, amortization, gain and loss on disposal of assets, including the $74 million of transaction-related expenses, will approximate about $1.5 billion. Full year non-cash stock compensation is anticipated to approximate $14 million. Our operating cash flow for 2019 is currently anticipated to approximate $700 million. We currently anticipate our capital expenditures excluding repack related capital expenditures will approximate $80 million and cash taxes are currently expected to approximate $25 million.

Finally, as we said in our Q2 call, that we believed, our free cash flow would be comfortably over $300 million for this year and we're pleased to say at this point that we anticipate that our free cash flow will range between $315 million and $325 million for 2019.

At this point, I'll turn the call back to Hilton.

Hilton H. Howell -- Executive Chairman of the Board, Chief Executive Officer

Thank you, Jim. Operator, we're now open for questions.

Questions and Answers:

Operator

[Operator Instructions] First question comes from Kyle Evans of Stephens. Please go ahead, your line is open. Kyle Evans, your line is open.

Kyle Evans -- Stephens Inc. -- Analyst

Thanks. Sorry, I was on mute. I can hear the excitement in people's voices over there around political. That's traditionally kind of been a blitz after Labor Day. But it looks like we're starting early spending a little bit more, could you tell us what you kind of think the spending curve will look like as we approach the big spend in the six weeks before the race, and then I've got some follow-ups?

Patrick D. LaPlatney -- Co-Chief Executive Officer and President

So historically, cycle after cycle, 50% or more of the total political spend is always shown up in the fourth quarter. 2020 could be a little bit different for us because of our exposure to the early primary states and so there might be a little bit more -- we think in first quarter than normally would be there, but we still think that the bulk of the spend is going to be in that traditional post Labor Day, September-October time-frame, but we do believe that our first quarter, we'll probably see a positive benefit from the early primaries.

Kyle Evans -- Stephens Inc. -- Analyst

And my recollection is that when we were -- when we were trying to put brackets around '18, we were thinking about some difficult comps that were in the '16 numbers from Alaska. Are there any big pieces we need to be thinking about as we grow '20 off of your pro forma -- your CHB '18 number that you gave?

James C. Ryan -- Chief Financial Officer, Executive Vice President

Alaska was $25 million in 2014 not 2016.

Kyle Evans -- Stephens Inc. -- Analyst

Okay. Okay.

Kevin P. Latek -- Executive Vice President, Chief Legal and Development Officer

Kyle, there is a lot of good news out there. So there is nothing that stands out like the Alaska, the $25 million is a huge percentage chunk of what we had on a CHB basis in '20 -- that we were referring back to in 2016. There's nothing that really stands out like that this time.

Kyle Evans -- Stephens Inc. -- Analyst

Got you. You are now in some larger Raycom markets. Could you comment on any notable market size change or difference that you see in terms of core and maybe even retrans sub counts?

Patrick D. LaPlatney -- Co-Chief Executive Officer and President

Want to make sure I understand the question, Kyle. It's Pat LaPlatney. So are you asking about core performance in larger markets relative to smaller markets?

Kyle Evans -- Stephens Inc. -- Analyst

I am. I am.

Patrick D. LaPlatney -- Co-Chief Executive Officer and President

So look, I mean, as with last quarter, we didn't see a huge differential between our performance in larger markets versus the smaller markets and sub counts, I have to [Phonetic] ask you guys, I mean really didn't see any, yes, didn't see any real difference in Charlotte relative to -- Charlotte or Cleveland relative to small markets.

Kyle Evans -- Stephens Inc. -- Analyst

Great. And are you -- I guess this is hard for you to answer, but I think it's only feasible to ask it on a relative basis. How exposed to satellite are you versus your peers? More, less, same, roughly?

Kevin P. Latek -- Executive Vice President, Chief Legal and Development Officer

Yes, Kyle, I have no idea. I don't know how exposed our peers are. So I don't know how to compare that. I mean there -- two of our three largest operators and satellite providers, I suspect that everyone else can say the same thing. But I don't -- I'd have to ask everybody else if that's true.

Kyle Evans -- Stephens Inc. -- Analyst

Okay, great. One last one, the obligatory auto question -- have to ask it kind of, how is it pacing in 4Q and what's your 2020 outlook? Thank you.

Hilton H. Howell -- Executive Chairman of the Board, Chief Executive Officer

Fourth quarter is again on a relative basis looking a little bit better right now and that will again it's pacing, but I would say -- yeah, a little bit better in the first part of the year, which is encouraging. Next year, we're still in our budgeting process. So it's -- we're still kind of framing our expectations for next year, but we have been encouraged by the sequential -- auto seems to be getting a little bit better each quarter of this year, so that would kind of be our expectation going into next year, at least the first part of next year, that continues to get a little bit better now [Technical Issues] massive amounts of political show up later in the year as you've seen many, many times with us. But It will be a different story, but that's a high-class problem to have [Phonetic].

Kyle Evans -- Stephens Inc. -- Analyst

Yeah. Thank you.

Hilton H. Howell -- Executive Chairman of the Board, Chief Executive Officer

Thank you, Kyle.

Operator

Your next question comes from Aaron Watts of Deutsche Bank. Please go ahead, your line is open.

Aaron Watts -- Deutsche Bank -- Analyst

Everyone, thanks for having me on. A couple of questions from me. I -- maybe I'm parsing things too closely here, but it looks like a little bit of a slowdown in kind of the core advertising environment from 3Q to 4Q. Is that just the impact of a little more political or is there some other levers that are kind of pulling the strings there?

James C. Ryan -- Chief Financial Officer, Executive Vice President

Well, there definitely was in a -- sort of a tight part of our geography core displacement due to political so in Charlotte with the NC-9 race in Louisiana, Mississippi and to some degree in Kentucky, with the gubernatorial races, there were some core displacement. So if you take that into account, you're relatively flat there for the quarter on local.

Hilton H. Howell -- Executive Chairman of the Board, Chief Executive Officer

And I think part of it may be just in the the guidance ranges, and rounding large numbers, I mean my personal expectation is that Q4 core, especially the local, is again, at the end of the day, going to be slightly better than what we've seen the first six months, nine months of the year. So I'm maybe a little bit more optimistic -- that it's getting -- again getting a little bit better. And again, if our political ends up in Q4, doing what it did in Q3 and greatly exceeding expectations, then we're probably going to see some displacement. A little bit, which will impact the quarter but if that happens again. It's a -- it's a problem I'm happy to deal with.

Aaron Watts -- Deutsche Bank -- Analyst

And putting political aside, what would you say the biggest overhang is, as you speak with your sales people, who have feet on the ground in the markets that concerns their hearing from your advertisers?

James C. Ryan -- Chief Financial Officer, Executive Vice President

I mean, if you go on a category basis, auto -- auto was challenging, on the upside, legal has been very, very healthy for a long time, and we've got some upside on the finance side which includes insurance, but generally activity is, well, it's not great, it's not awful either.

Aaron Watts -- Deutsche Bank -- Analyst

Okay. And then just, I had a bigger picture question for you guys. Curious if you anticipate the launch of a couple of these heavily promoted new streaming services this month and then obviously a couple more coming next year to have any real impact on your business, whether it's from a kind of audience rating standpoint or on the sub base and cord cutting, just curious, your thoughts on that?

Kevin P. Latek -- Executive Vice President, Chief Legal and Development Officer

I think we counted -- we saw a note that said there are 27 over the top providers that have launched or are launching, it seems like a pretty crowded field. So, I guess our takeaway is whether it's -- whether there's 27 or 26 or 15 of these over the top providers in 2020, the economics are pushing people or should push people to get a cable or satellite bundle. It's a heck of a lot easier, and it seems more cost efficient than signing up for a bunch of these providers. Just wondering off of the ecosystem. We are cautiously optimistic that's going to actually help us retain subs in the ecosystem.

Aaron Watts -- Deutsche Bank -- Analyst

Okay, got it. Thanks very much.

Hilton H. Howell -- Executive Chairman of the Board, Chief Executive Officer

Thank you, Aaron.

Operator

Your next question comes from Steven Cahall of Wells Fargo. Please go ahead. Your line is open.

Steven Cahall -- Wells Fargo -- Analyst

Thank you. So, Kevin, maybe first, just on retrans. So to be clear, do you expect Q4 to be the low watermark for grocery trends between what you're seeing on the subscriber accruals and the repricing that you're doing at the end of the year. And then, I think net retrans decelerated a little more in the quarter, is that just due to the Fox deal, and I was wondering if you have any commentary on maybe what net retrans might look like next year, is it up mid, high single-digit, low doubles, I don't know if I can pin you down, but I figured I'd try?

Kevin P. Latek -- Executive Vice President, Chief Legal and Development Officer

So Q1 started with a lot of billing adjustments coming in from the prior year, a lot of catch-up payments, we audited some providers, we explained it on the call for Q1 results. And we -- we're cautiously optimistic that Q4 is going to turn out better than what we've predicted. As I said, we think these folks who left the two big operators over the summer are going to start showing up again in payments, but we don't -- we can't accrue for it until we know it's there. Come Q1, we will have repriced roughly a fifth of our sub base and all contracts that don't reprice will have an escalator in the low, very low double-digit range. So if we do nothing, our growth should grow by low double-digits, and again, I've got a fifth of the subs will be repriced under the new schedules.

So, yes, I'd say, looking at this year and next year, Q4 is absolutely -- should be the low watermark as you referenced it. Two things happen, second half of this year. Fox repriced on July 1, with -- where -- all markets and if you go back to 2014 when we signed our last CBS deal with a five-year deal that went through August 31 of 2019, that we did a contract with CBS that added a couple of years to all of those CBS market affiliation agreements about two years ago. The new prices kicked in on September 1, 2019. So our CBS has stepped up to a market rate on September 1 instead of the race that we negotiated back in 2014 that we were paying in August of this year.

So we have the CBS impact coming in the middle or [Technical Issues] through the third quarter and we will certainly see that impact through the rest of the fourth quarter. So that is why you will see the net retrans is sort of taking up a bit in Q3, and then especially in Q4, as we have a full quarter of CBS and a full quarter of Fox market rates. And looking at next year, our numbers show us growing net in growth, but we're not prepared to give any guidance. We have again some significant negotiations coming up in this year and don't think it's appropriate to be giving guidance that may be used against us in those negotiations.

Steven Cahall -- Wells Fargo -- Analyst

And then maybe a quick follow-up for -- either for Hilton or for Jim. When we think about the new share repurchase authorization, how much is this about just seeing the value in your shares in the market versus incremental positivity on the free cash flow that you're generating, and I guess, if I think forward with more than probably $400 million in average two-year like blended free cash flow, do we think about like maybe a third of this is something that you would want to put to repurchases versus debt reduction or any way to kind of frame debt reduction versus share repurchases would be helpful? Thanks.

James C. Ryan -- Chief Financial Officer, Executive Vice President

I think Hilton was very clear that the first priority, absent -- some sort of compelling M&A would be to debt reduction and delevering but you are right that there is -- It's nicely over $300 million of free cash this year in '18, we did over -- it was around 500-ish. I don't have the number right in front of me, it was very healthy. So you're 400-ish is -- maybe even be conservative as you move through '20. So I think we do clearly think the stock has been undervalued, and as Hilton said, we intend to be opportunistic from time to time and, but we also have the capability and the free cash to be able to do a little bit of both at the same time of reducing our debt and being maybe a little more strategic from a stock buyback standpoint. So I think you'll see us being, trying to be balanced and a little bit will depend, I think on, especially over the next 12 months where the broader market is valuing us, if we're getting what we think is a reasonably good value that might be one answer. And if we think we're being significantly undervalued. We may tip the scale in favor of the other direction a little bit.

Steven Cahall -- Wells Fargo -- Analyst

Thank you.

Hilton H. Howell -- Executive Chairman of the Board, Chief Executive Officer

And I think that's -- I do, I think that's fair, I think we're going to try to balance this out, but we're going to have to see how everything sort of matures out, but we're seeing the benefits of the synergies from the Raycom transaction and our free cash flow is coming in really in a superb fashion. So we think we've got ample free cash flow to meet our targets to delever while at the same time giving some return to our shareholders through stock repurchases.

Steven Cahall -- Wells Fargo -- Analyst

Great, thanks a lot.

Operator

Your next question comes from Marci Ryvicker of Wolfe Research. Please go ahead, your line is open.

Marci Ryvicker -- Wolfe Research -- Analyst

Thanks. Kevin, do you get this Sling sub numbers on a delay from when you get the dish DBS sub numbers or do -- both of those numbers come at the same time for the same month and I'm obviously asking you because digital part of this morning and Sling, had a pretty big gained.

Kevin P. Latek -- Executive Vice President, Chief Legal and Development Officer

Yeah. We were encouraged to see that the dish number for Q3 was a lot better than what we had expected. So that bodes well for the reports we're going to be getting over the next couple of weeks and months. We do not get Sling numbers of, Marci, because Sling is carrying O&O stations and not carrying affiliates, so they won't give -- there is no -- there's no carriage of local TV stations and therefore no reasons in those reports of payments.

Marci Ryvicker -- Wolfe Research -- Analyst

Got it. And then, I am not complaining about the share repurchase at all, but at some point Gray was a dividend payer. So curious if there has been discussions about returning to paying a regular dividend, if that would depend on your leverage ratio and why repo over dividend, why not both?

Hilton H. Howell -- Executive Chairman of the Board, Chief Executive Officer

Marci, I will tell you honestly, our Board discussed that subject matter yesterday in our Board of Directors meeting. The question is when, not if, we will be returning to paying a dividend and relatively soon. It's something that the Board weighs very seriously and something we are likely to give you some news on at some point in the future.

Marci Ryvicker -- Wolfe Research -- Analyst

Great. Thank you.

Patrick D. LaPlatney -- Co-Chief Executive Officer and President

To follow up, Marci, on it very quickly. If you recall a couple of years ago prior to the Raycom transaction, several quarters in a row, Hilton said exactly the same thing, as we began to bring leverage down, so this was kind of like the '17-'18 cycle and we were thinking ahead to the end -- toward the end of '18 and he said something -- it's kind of the same thing then and so I think we're now having done Raycom that short clock got reset two years forward. And it's really kind of looking through the '19-'20 cycle. And as we go farther and farther into '20, I think those discussions will pick up more and more importance.

Marci Ryvicker -- Wolfe Research -- Analyst

Thank you.

Operator

Your next question comes from Jim Goss of Barrington Research. Please go ahead. Your line is open.

Jim Goss -- Barrington Research -- Analyst

Thanks, and this might tie into what you've just been talking about. It seems to me that if you get leverage -- you're successful in getting leverage down to the threes by the end of 2020. That's really low relative to anything I can remember for lots of years. At some point, do you have to reprioritize your whole notion of what is sequencing of capital allocation because it -- I don't know...

Patrick D. LaPlatney -- Co-Chief Executive Officer and President

I think that...

Jim Goss -- Barrington Research -- Analyst

[Speech Overlap] if you want to get much beyond three?

Patrick D. LaPlatney -- Co-Chief Executive Officer and President

Jim, I think that point is very fair, that if, when we get leverage down, to a very, very comfortable zone, it does allow the company then to reconsider and reprioritize its free cash flow right, in the immediate short-term we're going to be a little more balanced. But if we end up in 2020, where we absolutely expect to be, then I think our -- I think it would be very appropriate to be reconsidering those allocation priorities.

Jim Goss -- Barrington Research -- Analyst

Okay. And this might be at Kevin, but I'm wondering in terms of the sub reductions you have experienced. Is there any greater move to antenna usage as some choose to try to find OTT services that would retain your exposure for advertising but you lose some retrans dollars from that?

Kevin P. Latek -- Executive Vice President, Chief Legal and Development Officer

Jim, I think that's been going on for a number of years, I think, going back to when broadcast just put up digital signals and we put out a very high quality, high definition signal but it's much better than what you can get on a lot of cable and satellite systems. Folks have been discovering antenna. So we've certainly seen the OTT -- OTA penetration, over-the-air penetration, increasing every year, every market. The estimates are kind of all over the place, no one really knows, it's probably a lot of folks who have both the pay-TV subscription and an OTA TV somewhere around their house.

You're right, as people move to OTA, that helps us with our multi-cast business, which is available to those folks and not generally available on cable and it continues to reinforce the message to advertisers that we are the only provider that can reach 100% of the homes in market. Our reach is better than advertising on the cable satellite folks who also sell against us because they can only reach a portion of the market. So it helps us with the sales, I will caution that we don't have real confidence that the rating agencies are measuring any of those OTA households yet, and that's a challenge that -- for the industry and challenge for the rating folks. So we do need to capture those and we think if we were -- we had actually measured the OTA homes, we would see our ratings were a lot higher than what the ratings agencies are showing us now.

Jim Goss -- Barrington Research -- Analyst

Okay. And my last question is, I think everyone has seemed to embrace the notion that political is going to be great in 2020. I'm wondering, is there anything that you think could go wrong, that could derail everyone's optimistic assumptions?

Kevin P. Latek -- Executive Vice President, Chief Legal and Development Officer

President is getting impeached right now. The house and the Senate are in play. They do need to split the state legislature. No, I mean the President is not going to get unimpeached. I don't see a momentum that would make the House of the Senate less competitive if anything, I think the bias is in favor of becoming more competitive -- impeachment's only just starting. We don't have public trials yet or public hearings, we don't have a trial in the Senate. This is going to become more of an issue and more divisive and at any moment, the Supreme Court Justice could retire and that will bring out even more interest in the 2020 elections.

So I think all the bias is in favor of being better, not weaker. So I ask to go back to Trump, when Trump -- Trump's raised more than $150 million, that's about $150 million more than he raised at this point in the 2016 election and they are -- every expectation is that they will be playing aggressively on broadcast television, this time around and the Democrats are not going to make the mistake of skipping states like Wisconsin, Ohio, Michigan and in fact, if anything, we see that the number of [Indecipherable] in competitive presidential states this time is wider than it was in 2016, which is more frankly more states in play. So that's good for us.

Hilton H. Howell -- Executive Chairman of the Board, Chief Executive Officer

Even if you take what we announced this morning in terms of our political, that's an all-time historical record and this is on off -- off-year. So we have absolutely no indications that there is anything other than robust optimism for next year's presidential election year. I know that I'm probably the biggest optimist on this call, but I expect really large numbers.

Kevin P. Latek -- Executive Vice President, Chief Legal and Development Officer

Let me just give you two data points, Jim, on Richmond which we didn't even call out on this call earlier, our NBC Station, Richmond, had 14 separate candidates on the air for State House, that's -- we've never seen that. We typically don't see a lot of spending from State House candidates with 14 on the air and are on NBC in Richmond. And it's another antidote. Election Day, we got to tell you what, it's Tuesday this week, but not Louisiana their Governor's race was couple of weeks ago, there is a run-off, it takes place a week from Saturday. So we are still seeing spending in Louisiana. In fact, on Tuesday, we had -- we got -- can't remember -- in Louisiana we have very strong stations, in New Orleans, Baton Rouge, Freeport, Monroe and Alexandria. So we cover almost the entire state there. We got another $300,000 worth of orders in just one day, and that was on Election Day when everything else is quoting down and the money was still coming in. So the bias is in favor of it being better, not weaker.

Jim Goss -- Barrington Research -- Analyst

Okay, well as concerned as you sounded a few years ago, you sound 180 degrees. You have this time around.

Hilton H. Howell -- Executive Chairman of the Board, Chief Executive Officer

Good to know. That will take '16 [Indecipherable] trend this year that I think any of us have ever been through in terms of political spend. I mean, Hillary didn't spend in the blue stage. She sought up -- she had them, Trump was able to do rallies and get free coverage. It was a unique position that I don't really think we'll ever see again. And so I think 2020 is going to be -- I think it's going to blow through the ceiling.

Jim Goss -- Barrington Research -- Analyst

All right. We're holding it [Indecipherable]. Thank you.

Hilton H. Howell -- Executive Chairman of the Board, Chief Executive Officer

Well, I'll take that. But, all right.

Jim Goss -- Barrington Research -- Analyst

Okay, thanks so much.

Operator

Your next question comes from Dan Kurnos of Benchmark. Please go ahead, your line is open.

Dan Kurnos -- Benchmark. -- Analyst

Great, thanks, good morning. And there goes your political guide for next year. Just a couple of questions. So [Indecipherable] into your, Jim. I don't know if you announced the -- what synergy capture you would have through Q3, but I mean, you guys are crushing it on the expense side. So I mean you sort of mentioned that you could exceed that number even in year one. So I'm just trying to get a sense of where you're at and how much of a delta we could see heading into Q4.

Kevin P. Latek -- Executive Vice President, Chief Legal and Development Officer

I think it's going to be hard to see much more in the Q4. Again that core number which you can see from the guidance table back out the transaction related, you back out the reverse comp, is down significantly year-over-year. So I think that's your real indicator of your synergy realization. We've got a few more automation projects, one at a couple of stations that we -- have a potential of is still being completed this year, which will allow us to reduce staff, a little bit, in those places, but it's getting, it's kind of -- at that point you into the weeds and it's -- while it's helpful and it increases our efficiency -- it's not really going to move those numbers, especially when year-over-year we're down $28-ish million already.

Dan Kurnos -- Benchmark. -- Analyst

Got it. That's helpful. And then I guess, Hilton, probably the only question you haven't been asked is, on the M&A front, do you think there needs to be larger consolidation, at this point in the later innings, and your willingness to be on the other side of the table as a recipient of a bid?

Hilton H. Howell -- Executive Chairman of the Board, Chief Executive Officer

Sure. I'm glad you ask. The answer to your first question is yes. The answer to your second question is Gray is not interested in putting itself out for sale, but it is interested and candidly, I'd say, very interested, in any one of a number of permutations that would grow the footprint of our company larger than it is today and in the best long-term interest of our shareholders.

I suggest that you look at what we did just three months ago with Raycom. We handled lots of social issues, we handle lots of political issues, we handle lots of operational issues in a very seamless, tactile and professional -- personal and professional way. You didn't see us coming in with those synergy numbers and raping and pillaging our TV stations because there's too many on that are too damn good, but Gray is interested in any number of permutations. There's a million ways to get a deal done and we are interested.

Are we interested in picking up the phone and calling a banker and putting us up for sale? Not a chance, but we'll see what the future brings and Gray can move on a dime and has demonstrated its capacity to do so. Our Board is certainly in favor of different potential ideas, whether or not any of those come to pass, we don't know. We're also stubborn. Took us 16 months to get Sioux Falls done, but we stuck with it for 16 months, it damn near killed Kevin Latek who wants everything done by the end of the day, all right. But but we stuck with it. And so, I hope I've answered that question on both sides, Dan.

Dan Kurnos -- Benchmark. -- Analyst

Yeah, I know, that's super helpful. And I think we all know pie is not on Kevin's Christmas card list at this point.

Hilton H. Howell -- Executive Chairman of the Board, Chief Executive Officer

Oh no, he -- he eventually got back on my Christmas card list, it's OK. He's a good man.

Dan Kurnos -- Benchmark. -- Analyst

Thanks for the color, Hilton.

Hilton H. Howell -- Executive Chairman of the Board, Chief Executive Officer

Thank you.

Operator

Your next question comes from Michael Kupinski of NOBLE Capital Markets. Please go ahead, your line is open.

Michael Kupinski -- NOBLE Capital Markets. -- Analyst

Thank you. And first of all, I want to applaud the company for moving toward a cost per impression model. I think it's a logical move it makes sense, but I have a couple of questions. I'm just trying to get my head around that. Historically, TV pricing has always been the umbrella to other mediums in the local market. And in moving to a cost per impression sales model. Can you talk a little bit about the challenges on moving to this model, how have advertisers accepted it? How does your pricing stack up against the other mediums that offer cost per impression. Can you just give us some sense of what the variance in pricing might be?

Kevin P. Latek -- Executive Vice President, Chief Legal and Development Officer

Yeah. So it's early in the game. Right. I think the real upside is that when you sell local television, you have year-on-year, 24 hours a day and all of those quarter hours actually draw audience, and in the world we live in today, it's difficult to sell a 0.6 rating at 1:45 in the morning. Even though there is an engaged audience there. And so -- the good news for local TV is that we have a big audience relative to most other media and being able to take our very large linear audience, and ultimately combine it with what is becoming an enormous digital audience is a great benefit to us. Again, when you've got a bunch of different measurement systems that you deal with today across these different platforms, ultimately the goal will be to bring it all together in which you can aggregate all those impressions in the same place. It's a significant advantage.

Michael Kupinski -- NOBLE Capital Markets. -- Analyst

Got you. And does the move increase the potential revenue opportunity. I mean --I'm just kind of looking at it from the potential positioning the company, to get a larger piece of programmatic or automatic pie and then I'm just wondering in terms of moving toward the cost per impression model, do you now compete with other broadcasters in terms of their rates, I'm just trying to understand how the industry is moving in that direction?

Kevin P. Latek -- Executive Vice President, Chief Legal and Development Officer

Yes, I know. You will still be competing with other broadcasters. But again, I think it's not just Gray. I think most of the other broadcasters, the news business have other platforms where they gather audience, and ultimately it's good for the entire industry to be able to utilize all that audience in a single sale. And by the way, it's really better -- in my opinion, better for the buying community too. One of our challenges is getting our large linear audience, allowing or making it more accessible to buyers and that's something that you've probably read about the tip initiative and other efforts in that area. So it's all sort of -- again early stage, but it's all moving in the right direction.

Michael Kupinski -- NOBLE Capital Markets. -- Analyst

Great, thanks for the color. Appreciate it.

Kevin P. Latek -- Executive Vice President, Chief Legal and Development Officer

Sure.

Operator

Your next question comes from John Kornreich of J. K. Media. Please go ahead, your line is open.

John Kornreich -- J. K. Media -- Analyst

Yes, Jim, real quick, can you repeat what you said about the full year $2.1 billion estimated revenue, what did you say about expenses?

James C. Ryan -- Chief Financial Officer, Executive Vice President

I said estimated expenses including the $74 million of transaction-related, and that would also include a non-cash stock comp is about $1.5 billion.

John Kornreich -- J. K. Media -- Analyst

So adjusted is -- that is more like $1.4 billion -- but is that after corporate overhead or is that a BCF?

James C. Ryan -- Chief Financial Officer, Executive Vice President

No, that's a -- that would include the corporate overhead number and I also said that the full year, operating cash flow, as we've defined it for years, it is tracking to be about $700 million this year.

John Kornreich -- J. K. Media -- Analyst

Right. [Speech Overlap] OCF not a BCF?

James C. Ryan -- Chief Financial Officer, Executive Vice President

That's correct, that's an -- it's an LA OCF, which would put the two-year blended at -- call it a 800-ish zip code.

John Kornreich -- J. K. Media -- Analyst

Right, so BCF.

James C. Ryan -- Chief Financial Officer, Executive Vice President

OCF on a two-year blended average.

John Kornreich -- J. K. Media -- Analyst

Oh, two-year blended? Okay.

James C. Ryan -- Chief Financial Officer, Executive Vice President

May be around 800 in the '19 straight up OCF just for the 12 months of '19 is looking to be around 700.

John Kornreich -- J. K. Media -- Analyst

Right. And on free cash flow, I think you gave a range of $315 million to $325 million. Is that just fiscal '19?

James C. Ryan -- Chief Financial Officer, Executive Vice President

Yes.

John Kornreich -- J. K. Media -- Analyst

And is that net of the $75 million transaction expenses?

James C. Ryan -- Chief Financial Officer, Executive Vice President

It excludes the transaction expenses.

John Kornreich -- J. K. Media -- Analyst

It already excludes it. Okay. That's it. Thank you.

James C. Ryan -- Chief Financial Officer, Executive Vice President

Okay.

Hilton H. Howell -- Executive Chairman of the Board, Chief Executive Officer

Thank you.

Operator

Your next question comes from Kyle Evans of Stephens. Please go ahead, your line is open.

Kyle Evans -- Stephens Inc. -- Analyst

One quick follow-on. I believe that you mentioned broadening the OTT focus of the company. I was hoping for a little bit more detail there, you have the three competitors that have named OTT ad exchanges, I was just kind of wondering where you might go with this new focus on OTT.

Kevin P. Latek -- Executive Vice President, Chief Legal and Development Officer

Yeah. So I can't be terribly specific today, Kyle. But I would tell you that we're moving that direction as quickly as we can.

Kyle Evans -- Stephens Inc. -- Analyst

Okay, thank you.

Operator

There are no further questions at this time. I will turn the call back over to the presenters for closing remarks.

Hilton H. Howell -- Executive Chairman of the Board, Chief Executive Officer

Well, thank you, Cheryl. And I just want to take one quick moment to thank all of you again for attending this morning. We're very excited about what we have achieved so far this year. The synergy numbers are clear. But more importantly, the operational success of bringing these two great companies together, I think has been sterling. We truly are one company and we are working as one, and I'm enormously proud that the team of professionals in our stations, in our shared services, in our corporate headquarters, and across the country and what they've achieved and what they're building. And it really is an exciting and invigorating time for our Company. Thank you for being here. And we will talk to you at the end of the year.

Operator

[Operator Closing Remarks].

Duration: 60 minutes

Call participants:

Hilton H. Howell -- Executive Chairman of the Board, Chief Executive Officer

Kevin P. Latek -- Executive Vice President, Chief Legal and Development Officer

Patrick D. LaPlatney -- Co-Chief Executive Officer and President

James C. Ryan -- Chief Financial Officer, Executive Vice President

Kyle Evans -- Stephens Inc. -- Analyst

Aaron Watts -- Deutsche Bank -- Analyst

Steven Cahall -- Wells Fargo -- Analyst

Marci Ryvicker -- Wolfe Research -- Analyst

Jim Goss -- Barrington Research -- Analyst

Dan Kurnos -- Benchmark. -- Analyst

Michael Kupinski -- NOBLE Capital Markets. -- Analyst

John Kornreich -- J. K. Media -- Analyst

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