Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Gray Television Inc (GTN -2.77%)
Q4 2019 Earnings Call
Feb 27, 2020, 10:00 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 Fourth Quarter 2019 Earnings Conference Call. [Operator Instructions]

I would now like to hand the conference over to your speaker today Hilton Howell. Thank you. Please go ahead sir.

Hilton H. Howell -- Chairman, Chief Executive Officer

Thank you operator. We've been informed that we have several people still in queue. So we've decided to start since we need to go through some preliminary things before we get into the meat of our discussion this morning but I'd like to welcome you all to our fourth quarter 2019 earnings call. I am Hilton Howell the Chairman and CEO of Gray Television. And during the week when our markets continue to melt down we're exceptionally pleased that you have chosen to join us this morning and spend your time with us. As usual I'm joined today by our President and Co-CEO Pat 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.

Kevin Latek -- Chief Legal and Development Officer

All right. Thank you Hilton and good morning everyone. Certain matters discussed in this call may include forward-looking statements regarding among other things future operating results. Those statements are subject to a number of risks and uncertainties. Actual results in the future could differ from those described in the forward-looking statements as a result of various important factors 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 will also post an updated investor deck to the website within about two 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 our website are reconciliations of the non-GAAP financial measures to the GAAP measures reported in our financial statements.

And now I'll turn the call to Hilton.

Hilton H. Howell -- Chairman, Chief Executive Officer

Thank you Kevin. We are exceptionally pleased to report the results of the fourth quarter of 2019 and our full year results. As those of you who follow Gray already know we completed our acquisition of Raycom on January 2 2019 as well as several smaller acquisitions subsequent in the year. These transactions have positively affected our results. Our as-reported total revenue for the fourth quarter was $579 million. And our net income was $94 million. Our broadcast cash flow was $229 million. And our adjusted EBITDA was $216 million. This was simply a fantastic quarter in which we set new best ever records for quarterly revenue and broadcast cash flow and our adjusted EBITDA significantly exceeded our collective expectations. For the full year 2019 our revenue topped $2.1 billion which was a $1 billion or 96% increase over 2018. Our net income for 2019 was $179 million. Our broadcast cash flow was $729 million. And our adjusted EBITDA in 2019 was $714 million.

Our performance this year has set new records for annual revenue and broadcast cash flow. Our 2019 free cash flow was $273 million which was 4% higher than in 2018 and 60% higher than 2017 the last half year of the two-year political advertising cycle. On a combined historical basis that adjusts for our acquisitions and dispositions our free cash flow for full year 2019 was $358 million which was 19% higher than our free cash flow in 2017 which also significantly exceeded our previously issued guidance range. Turning to political. We again posted political advertising revenue that well exceeded what initially had seemed to be very high expectations. The fourth quarter produced $38 million of political advertising revenue. And for the full year 2019 our political advertising revenue was $68 million. For comparison on a combined historical basis which again adjusts for our M&A activity our political advertising revenue was 171% higher in the fourth quarter of 2019 than the fourth quarter of 2017.

And 2019's full year political revenue was 119% greater than 2017's full year political advertising revenue. We are bullish about political avenue revenue prospects for 2020 and are off to a fine start this year. Our net income available to common stockholders excluding transaction-related expenses and noncash compensation was $91 million or $0.91 per share for the fourth quarter and $198 million or $1.98 per share for the full year 2019. 2019 was not only a year of new milestones and records for Gray Television it was also another year of Gray's local television stations and their great journalists making a real difference in their individual communities. Last year our stations collectively won nearly 1000 prestigious awards including 281 AP awards 200 State Broadcast Association awards 59 Edward R. Murrow awards and 73 Emmy awards. We could not be more proud of the great work of our colleagues from Hawaii and Alaska to Maine and Florida and a whole lot of places in between. In terms of the business we finished the fourth quarter with the best showing for local and national core advertising in several quarters. Both local and national core revenue stabilized in the fourth quarter.

And when you factor in the political displacement that crowded out our core advertisers and an awful lot of our markets the quarterly results reveal that core advertising demand is growing again. Likewise the first quarter of 2020 is showing the same stable core revenue despite heavy political demand and the greater-than-usual displacement this year felt by our ABC CBS and NBC stations resulting from FOX broadcasting the Super Bowl this year. In short we are very pleased with how the fourth quarter and the year finished and we are very much looking forward to the new year. Pat Kevin and Jim will now add some additional color to today's earnings release.

And thereafter I will make some concluding remarks and then open the line to any of your questions.

Pat LaPlatney -- President and Co-Chief Executive Officer

Thanks Hilton and good morning everyone. Yesterday Gray and Tegna jointly announced a strategic partnership of which Gray will acquire a minority ownership interest in Premion and our local stations will gain access to Premion's OTT inventory as local resellers with service. As many of you know Premion is Tegna's industry-leading OTT advertising platform. In fact Premion is one of the most prominent and probably the most local advertiser-friendly ad platform in the marketplace today. Through Premion our stations will be able to sell inventory to their local advertisers on a broader way of streaming networks platforms and devices other than our own station websites and apps. By using Premion to place their clients' messages alongside premium long forum live and on-demand video channels our stations will be able to grow their ad revenue and better compete in the very competitive digital video space.

To be clear Premion does not change our digital strategy as we still control all the inventory in our own websites and apps. And in that regard we have completed the integration of two really fine digital teams at Gray and Raycom brought in-house the work previously done by outside digital vendors and now have a much stronger business under Gray digital media. These efforts are producing clear results. Just in terms of traffic in December of 2019 we crossed 100 million unique users across our digital platforms for the first time. For the full year on a same-station basis we saw a 20% increase in sessions a 31% increase in video plays and a 32% increase in unique visitors. Then following a record-breaking December we saw traffic grow even more in January primarily because of severe weather events to 119 million visitors. Clearly our own digital products are resonating with local viewers. Just as importantly we're doing a better and better job each quarter of monetizing this traffic particularly video. In short our own digital products plus the Premion reseller arrangement ensure the Gray's content and sales operations are exactly where consumers and advertisers are moving today.

In terms of our two national programming initiatives we started the year strong and we continue to surpass our own internal milestones earlier than expected. First the new linear multicast service called Circle launched on January one has made quite a splash among its target audiences. Recall that Circle is a 50-50 joint venture with Opry Entertainment Group which is a subsidiary of Ryman Hospitality Properties. We and Ryman are investing intelligently to make Circle a success right out of the gate. The network launched with 17 original shows and we have more in development. For comparison the average basic cable network runs about 10 originals per year. You may recall that we were aiming to launch Circle in a bit more than 50% of U.S. television households. Today just two months in Circle is distributed by television stations reaching roughly 66% of total U.S. TV households thanks to Circle's distribution partnerships with CBS Tegna Meredith Gray and other broadcasters. Our second national program initiative is Full Court Press with Greta Van Susteren which launched in September with a number of high-profile guests. The production is top-notch and Gray is doing a great job of melding Washington policymakers with the resources of local television stations to create a different kind of Sunday political show.

We're very pleased to report that Full Court Press is now cleared in over 82% of the country including each of the top 25 markets. Circle and Full Court Press are off to great starts. We do not however envision launching any additional national programming networks or programs in the near term. Instead we're focusing our efforts on making sure that these initiatives meet and surpass the goals we set for them. This brings me to our video production companies. This group comprises Raycom Sports RTM Studios and Tupelo Raycom. Collectively their revenues and expenses were flat between 2018 to 2019 and they produced about $12 million in annual positive cash flow.In the first quarter of '20 we're anticipating a decrease of approximately $16 million of revenue offset by a drop of $15 million in expenses. Revenues at the production companies will be down primarily because Raycom Sports no longer distributes and sells advertising in certain collegian football and basketball games. The revenue loss is offset by a decline in rights fees and associated production expenses as well as additional production revenue. After the first quarter the production company's margins should improve so we expect to see them produce a higher margin in 2020 than the last couple of years.

I'll now turn the call over to Kevin.

Kevin Latek -- Chief Legal and Development Officer

Thank you Pat. I'll begin as usual with retransmission. For the full year 2019 you saw in today's release that we posted $799 million of gross retransmission revenues on our combined historical basis. That figure was slightly ahead of our guide of about $795 million for the full year. Looking ahead we currently anticipate grocery transmission revenue of $213 million to $215 million for the first quarter 2020. Retransmission revenues will be higher in the second third and fourth quarters due to rate increases are phasing into place during the first several weeks of this year. We are negotiating two major retransmission agreement at this time. Upon the successful conclusion we will be able to provide guidance for full year retransmission revenue and retransmission expense. I do want to emphasize though that our gross retransmission revenue will be higher in each of the last three quarters of 2020 when compared to the first quarter of this year. At the beginning of this year we had retransmission consent agreements expiring that comprise about 20% of our current paid MVPD sub base.

The vast majority of our retrans contracts will be up for renewal and repricing over the next 10 to 11 months covering about 56% of our current paid MVPD sub base. In mid-2021 we will renew and reprice contracts covering the remaining 24% of our MVPD sub base. These percentages are updated from the figures we provided earlier because they incorporate the movement of MVPD subs among providers as well as sub losses and the terms of recent agreements reached with MVPDs. I also want to add that our total sub base in 2019 was essentially flat from the beginning from the end of 2018. Turning to political revenue. We announced in our last call that we anticipate that 2020 will be strong enough to break the all-time high for political advertising revenue that we set in 2018 when we booked $235 million on a combined historical basis. Today we are raising our full year political advertising revenue guide to a range of $250 million to $275 million. We feel very comfortable with this new full year guide. The fourth quarter of 2019 was only the latest in the string of quarters in which we encountered a much stronger political ad environment than we had expected going into the period. In the last call we pointed out numerous positive developments and trends that we thought would support our then aggressive guide for the fourth quarter.

And then soon after our call ended Mike Bloomberg entered the presidential race and Tom Steyer noticeably increased his spending in South Carolina where we have a very large presence. They had a noticeable impact on our results. Mr. Bloomberg and Mr. Steyer in fact were our top two political advertisers in the fourth quarter but they did not account for all of the over-delivery on our fourth quarter political guide. To the contrary if we exclude this inning from both Mr. Bloomberg and Mr. Steyer our political advertising revenue in the fourth quarter still exceeded our guidance the high end of our guidance by more than 20%. This tells us that their two campaigns are adding incremental money to a market that is already very robust. In 2019 we received about $13.5 million political advertising revenue from presidential campaigns which is about 46% of the total. While a large figure for an off-year in the political cycle remember that Gray has a strong presence in the four early presidential campaign states of Iowa and New Hampshire Nevada and South Carolina.

We also performed quite well last year in terms of the share of political buys that came into our markets. 62 of our 93 markets are audited by an outside accounting firm. The audit review at the legacy Raycom stations which on the whole operate in larger markets than legacy Gray stations increased their share of political spending in the market by slightly more than one percentage point in 2019 over 2018. The legacy Gray stations increased their political shares by two points in 2019 over 2018. Given that our stations in both of these groups are comprised of lots of top-rated local stations facing very strong competition it is always an achievement to maintain shares. The fact that we increased shares on both sides of the company is a remarkable achievement that we believe is due in part to the new scale of Gray Television. Our earnings release puts 2019's political numbers in context by looking back at 2017 the most recent non-presidential election year. We've also gone back and looked at political advertising revenue in 2015 the most recent year prior to a presidential election. For this exercise we created a same-station dataset consisting only of the stations owned by Gray prior to Raycom United KDLT and WVR WVIR acquisitions that all occurred in 2019.

The same-station comparisons are striking. Fourth quarter 2019 political advertising revenue was 48% higher than the fourth quarter of 2015. Full year 2019 political advertising revenue was 37% higher than full year 2015 advertising revenue. In short the-just-completed pre-presidential year was significantly better than 2015 and 2017 and that all bodes well for 2020. Moreover the political landscape looks very different now than it did in 2016. This time around both parties seem fully engaged and fully committed to the presidential campaign this year. Control of the Senate is very much in place. The Democrats need to flip just three or four seats to take control. The Senate is a political firewall by both parties if they lose the White House which means we should see significant issue in super PAC spending in the most competitive Senate races. And Gray has the most top-rated local news stations of any broadcaster in the most competitive Senate races Colorado Arizona Maine Alabama North Carolina Kentucky and Georgia. In addition some believe that Republicans have a real shot at flipping the House and thereby ending the Democrats control of investigative and powers against their elected President Trump. Right or wrong that perception could fuel even more political engagement in advertising. In total the Republicans need to flip 18 House seats to take back control. In terms of Gray's footprint we have 16 markets with an open house race this year.

We have 12 markets with a democratically held seat in a district that went for Trump in 2016. For the current year we estimate a range of $35 million sorry for the current quarter we estimate a range of $35 million to $40 million in political advertising revenue. By comparison on a combined historical basis we had just $9 million of political advertising revenue in the first quarter of 2018 and $26 million of political advertising revenue in the first quarter of 2016. In closing it should now be clear that we are very excited about the prospects for political advertising revenue over the rest of this year.

I'll now turn the call over to Jim Ryan.

James Ryan -- Chief Financial Officer

Thank you Kevin. Good morning everyone. As usual the earnings release and the 10-K that will be filed today provide a great deal of information. As always we report results on a GAAP basis which we call as-reported in our earnings release and then we present additional information on a combined historical basis which gives effect to the acquisitions and dispositions as if all of those had occurred on January one 2017. As we've already mentioned we're very pleased with overall results for the fourth quarter and full year 2019 core local was flat to 2018 in the quarter. But if you factor the political displacement we think it would have been up low single digits. Core national was up 2%. We showed a marked improvement over previous quarters of 2018. As already mentioned political was at $38 million was far ahead of what we anticipated. Our operating cash flow for full year 2019 was $718 million and free cash flow was $358 million and both were nicely ahead of our previous guides of $700 million and $325 million respectively. And as expected our leverage ratio continued to decline to 4.35x on a trailing 8-quarter basis netting all cash on hand at December 31 2019. Turning to Q1 2020. Core local and national continue to demonstrate improvement after considering the continuing political displacement in select markets and also the year-over-year impact of the 2020 Super Bowl on FOX versus the 2019 Super Bowl on our much larger slate of CBS affiliates. FOX Super Bowl in 2020 was about $2.7 million for us versus $4.7 million on our CBS stations in 2019.

But the FOX Super Bowl in 2020 was up 9.5% over the last FOX Super Bowl in 2017 which generated $2.5 million for us. As Kevin already mentioned our Q1 gross retrans guidance of $213 million to $215 million is not indicative of the full year 2020. And the political guide of $35 million to $40 million reflects the increased exposure to the early primary states and is dramatically above prior year amounts. Looking ahead at the full year 2020 we are currently forecasting $2.375 billion to $2.425 billion of revenue total revenue. Political advertising revenue again the range is $250 million to $275 million. We still expect the vast majority of that will fall in the fourth quarter of 2020. Total operating expenses before depreciation amortization gain/loss or disposals we currently anticipate to be in a range of $1.53 billion to $1.545 billion. That range would include $20 million of noncash stock comp. And that $20 million it would be split evenly between television and corporate. Based on the high side of our operating guidance our operating cash flow for 2020 will be approximating $900 million. Our primary uses of the 2020 operating cash flow are currently estimated to approximate $194 million of cash interest preferred dividends of $52 million.

Our capital expenditures excluding the reimbursable repack expenditures of $80 million. And our cash taxes we have increased our estimate to $80 million for 2020. That's a $40 million increase from our previous estimates of early to middle 2019. And it's based on updated tax forecast as we concluded the year. Our free cash based on those cash uses and a $900 million approximate OCF number will approximate $500 million. Our leverage ratio net of all cash at the end of 2020 is currently anticipated to range between 3.7 and 3.8x on a trailing 8-quarter basis netting all cash and assuming no material M&A transactions in 2020.

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

Hilton H. Howell -- Chairman, Chief Executive Officer

Thank you Jim. We are now a bit more than one year into earning and operating the much larger Gray Television. The integration of our companies and our people could not have gone better and the integration is essentially complete. As we predicted when we announced the Raycom transaction in June of 2018 we have smoothly integrated two great companies made the combined operation more efficient generated robust cash flow launched new programming and revenue initiatives and have rapidly delevered the balance sheet. Today this team remains on the lookout for more and large and small M&A opportunities that would grow our company in a prudent fashion and make Gray an even stronger player in the broadcast industry. However we think that the M&A market is and will likely remain fairly quiet for the rest of the year as political advertising revenue opportunities keep potential sellers on the sidelines. We are exceptionally proud of the company we have built. We have among the best margins efficiency portfolio quality and people most importantly people at any media company today. While the market had begun to raise its valuation of the company prior to all of this macroeconomic news and virus concerns over the past week or so the market still has not shown a full appreciation for the right future that we see ahead.

Quite simply we believe that recent market prices do not fully reflect the value of Gray stock because the market continues to undervalue our company. The broadcast business for all of our many challenges and deep-pocketed unregulated competitors remains an exceptional and great business. As you know we have recently reported some insider stock purchases a $150 million stock repurchase authorization the purchase of one million shares in the open market and $200 million of debt paydown. These moves should all confirm our collective belief in the future of our company in 2020 and beyond. In fact this year I have personally invested in excess of $1 million in the common stock of this company. Absent an opportunity for further significant M&A over the next year deleveraging remains the first priority for Gray for at least the rest of this year. At the same time our Board believes that in the near future we may be able to continue our deleveraging activities while at the same time begin returning more capital to shareholders by reinstituting a quarterly dividend. Our Board has not reached a decision to resume the dividend just yet.

It has however decided to take up this issue formally when our total leverage ratio as defined in our senior credit facility falls below 4x on a trailing 8-quarter basis after netting our total cash on hand. If this were to occur in the second half of this year as we anticipate it will the Board will then consider whether conditions will permit us to return to paying quarterly dividends.

So operator at this time we would ask that you open the line for questions.

Questions and Answers:

Operator

[Operator Instructions] And our first question comes from the line of Dan Kurnos from The Benchmark Company. Your line is open.

Dan Kurnos -- Benchmark Company -- Analyst

Great, thank you. Good morning. Nice sprint guys. Just Kevin thanks for all the color around retrans. I think timing was certainly an issue. I know you have at least one big one in Q2. Is it all are the two major ones you're negotiating now are they both Q2? Or can you give us some more color on that? And then just around just generalized sub assumptions. I know you guys are probably not going to talk too much since you have you got to have the discussions on rate first. But just your generalized sub assumptions for the year? And if you're willing to go back now ahead of these negotiations and talk about sort of the modest net improvement in net that I think you guys called out last year would be helpful.

Kevin Latek -- Chief Legal and Development Officer

Dan like I said we have two major agreements that are under negotiation. We expect you will see the impact of those starting in the second quarter of this year. That's why Q1's retrans gross retrans will be lower than the gross retrans you'll see in Q2 three and 4. Our sub trend for the year was down low single digits. If you exclude the two providers who had a number of drops high-profile drops this summer our sub base was actually completely flat and that includes MVPDs and OTT. Internally we model declines because as you know from our guides and working with us for many years we are always conservative. What we have said on retrans and gross is we expect to see both increasing this year not given and cannot give a more specific guide until we have the bigger deals resolved. We also reminded folks that we essentially renewed all of our retrans contracts in 2014 with the networks.

And those imposed those were great rates when we're looking back in retrospect. But each of those deals expired at a certain point in 2019 and had to be repriced and we repriced all of our NBCs new modern days or sort of market rate on January one of last year FOX repriced in July one of last year CBS repriced on September one of last year and there are some ABCs that were randomly scattered throughout the year. Point being our net retrans took a step-up last year because we were we knew this.

We've been telling folks about this for a couple of years that 2019 would be a step-up year and then 2020 the impact of those step-ups will be felt by all four networks the entire year. So net retrans is going to be more challenged this year certainly much higher than rephrase that. Our reverse comp will be higher this year certainly than it was in 2019 because of the full year impact of the higher rates. That's how we've been saying for some time we expect net retrans will grow and gross retrans will grow this year over the prior year.

Dan Kurnos -- Benchmark Company -- Analyst

Got it. That's super helpful. And then just Hilton appreciate all the color on the capital return especially around the dividend. I just not to put words in your mouth or paraphrase the wrong way. I just want to understand if this is more of just a timing issue. Because obviously the stock market right now being uncertain is presenting you with a rather hefty free cash flow yield. And so just the decision to maybe get more aggressive on the buyback early on. Is that maybe being tempered by your expectations around political and how the year shapes up because it's so early? Or I mean are those conversations really just ongoing and fluid?

Hilton H. Howell -- Chairman, Chief Executive Officer

Well they're really ongoing and fluid. We look at things every quarter. Our Board discussed it yesterday. We have been quite aggressive in the fourth quarter with our stock repurchase and bought in an excess of one million shares and then have reduced debt. We'd like to see debt come down even more aggressively. And we think in the first and second quarter it will. And then I think we'll be able to do even more in terms of shareholder return absent any sort of really significant M&A activity.

Dan Kurnos -- Benchmark Company -- Analyst

Got it. Thanks, guys. Appreciate it.

Kevin Latek -- Chief Legal and Development Officer

You bet. Thanks, Dan.

Operator

Our next question comes from the line of Kyle Evans from Stephens. Your line is open.

Kyle Evans -- Stephens -- Analyst

Thank you. A few core questions. Could you Jim maybe take a minute and talk about some of the underlying drivers behind the growth in local and national? And maybe some special attention on national given how weak it's been kind of on a trailing three-year four-year basis? And I have a follow-up.

James Ryan -- Chief Financial Officer

Yes. In fourth quarter we definitely saw some again some sequential improvement in auto. It was still trailing but it was better than the first three quarters of the year. Local services has been very strong and continue to be strong both in fourth quarter and first quarter. So that's your legal your medical your financial categories is really kind of driving it there. And I think in national again auto is a little bit better looking a little bit better in Q1 than certainly it had been in 2019.

Kyle Evans -- Stephens -- Analyst

What is the overall pacing looking like for 1Q?

James Ryan -- Chief Financial Officer

It's if you factor for the political displacement and the lower revenue on FOX for the Super Bowl versus CBS I think we're up somewhere around low single digits. I think the January was a little bit soft out of the gate. February look I'm sorry January was a pretty good month I misspoke. February was soft. That a lot of its Super Bowl flip-flopped based on footprint. And then March is looking pretty good right now but it's still a little early.

Pat LaPlatney -- President and Co-Chief Executive Officer

Kyle it's Pat. To underscore what Jim said about the services piece of our business. If you just combine legal with the health side those 2 in aggregate are roughly the same number will be close to the same number as auto in first quarter of '20. So that should give you an idea of the growth in those areas.

Kyle Evans -- Stephens -- Analyst

Got it. And you gave a 4Q auto Jim could you kind of talk about where it's pacing in 1Q and what your outlook for 2020 is?

James Ryan -- Chief Financial Officer

I think we for all of 2020 excluding the fourth quarter we'd probably expect to see it up very low single digits flattish to up a little. Q4 we'd expect it to be down because of the crowd-out. We expect all closed to be down in Q4 because of the crowd-out. Just how much crowd-out would be? Almost anybody's guess right now. For the quarter still a little soft out of the gate but better than it had been most of last year. So it's bound it's pacing right now down just a little which again is better than the mid-singles or worse cases than it had last year.

Kyle Evans -- Stephens -- Analyst

Great. Thanks, guys.

Kevin Latek -- Chief Legal and Development Officer

Thank you, Kyle.

Operator

Our next question comes from the line of Steven Cahall from Wells Fargo. Your line is open.

Steven Cahall -- Wells Fargo -- Analyst

Thanks. Maybe Jim first we could unpack the $500 million free cash flow guidance. If I just kind of think about on a combined historical basis you've got political revenue up around $200 million in 2020. I think the 2019 free cash flow base is around $360 million. I know political revenue isn't a 100% margin. But maybe just help us think about what else might be going on on the cash flow side. Such that that free cash flow number doesn't look more like $360 million plus $200 million or a high percentage of $200 million? And then I got a follow-up.

James Ryan -- Chief Financial Officer

Well as I said earlier we're expecting an operating cash flow number of about $900 million. As Kevin commented earlier we're getting full year impact of all the network agreements we renewed and extended last year this year. And we've said that repeatedly for over a year now that that was going to be a pretty big impact in 2020. The $194 million of cash interest $52 million of preferred dividend is pretty straightforward. The $80 million of capex excluding reimbursable repack is pretty consistent with what we've been saying all of last year that would be for this year. I think the really the biggest change is the approximate $80 million of cash taxes we're now expecting versus you had asked me that question about this time last year mid-summer last year my expectation would have been it was probably more like $40 million.

So that the change in the cash tax estimate is probably the biggest delta from what you're expecting and what we're now pointing to. There's really not much cash taxes. We still have a also I want to just add to that. We still have a sizable NOL as of 12/31. And we're still taking the benefit of that through '20 and my expectation would be '21 it's probably gone by the time we start '22 but that was certainly a valuable asset that we picked up in the Raycom acquisition and we are making we made good use of that in 2019 and we'll be continuing to make good use of that in '20 and '21.

Steven Cahall -- Wells Fargo -- Analyst

Okay that's very clear. And then Kevin I think Q4 retrans was a few percent below where you were at the beginning of 2019. And you said subs were roughly flat. Is the delta in there like some of the just flow-through or the blackouts? Or anything else you can help us with just to think about that cadence in 2019?

Kevin Latek -- Chief Legal and Development Officer

Yes. Steven in Q1 we had a number of billing adjustments from 2018 that were the result of sort of a number of things that came in. We had some estimated payments that turned out to be too low. We had some results of audits of MVPDs that resulted in makeup payments. We also had changed some of the collection and processes for a portion of the MVPD piece that Raycom had. So we had received I think we addressed this in the second or the third quarter call. The first quarter benefited from a number of onetime-only positive adjustments.

Every first quarter we go through more adjustments then the rest of the year is some of the distributors audit their numbers and it's an adjustment true-up. Sometimes that is negative and sometimes it's positive. Last year it was several million dollars to the positive. So that was a onetime only Q1 event. And we said it's generally almost a steady date last year but for some subs moving around right? If somebody leaves a very very large MVPD and goes to the smaller MVPD and paid us a higher rate that's beneficial. If they move from a smaller MVPD to a bigger MVPD that could keep the sub but reduce the revenue. So those fluctuations have always occurred. That MVPD marketplace is competitive. Those guys are big advertisers on television. So it's a competitive market and subs do move around. And that's why we're not going to have sort of a perfect sort of quarter-to-quarter. But Q1 is definitely higher because of positive adjustments that were made that quarter.

Steven Cahall -- Wells Fargo -- Analyst

Great. Very clear. And then just a last one maybe for Hilton. I mean the whole space has been devalued over the last few weeks. Could you maybe talk to us a little bit about what you might see in the private market? And is there still an active private market do you think in broadcast with different valuation metrics for companies like yours?

Hilton H. Howell -- Chairman, Chief Executive Officer

Yes and I'm sure Kevin will follow up with me. First in terms of this I kind of look at the broadcast stocks is they should be a safe haven. If people get quarantined they're going to be watching television all right guys? So this is a good place to move your money. We have no exposure to China or South Korea or Iran or Italy for that matter. I know this morning's announcement of something in Sacramento has sort of discombobulated the markets. But at the end of the day guys I mean we have 15000 people just this sort of in the last 12 months that have passed away from the flu and we have yet to have a fatality in the United States on any of this new virus that's out there. We're always looking at any kind of M&A opportunity. There still is absolutely a private market out there. We don't have anything to tell you about right now either large or small but we're always looking for good opportunities and quality operations. Kevin do you want to follow up with that?

Kevin Latek -- Chief Legal and Development Officer

Yes. I will just say remember there's not a lot of data points to say what's the multiple in the private market because there's just frankly people are sitting on the sidelines as Hilton said in his remarks. And so there's not much that people are talking about selling. You're going on data points that can vary from and operator of some TV stations with no local news or maybe local news produced in one location 3000 miles away to a robust local news heritage station like the kind that we would typically buy. So it's a little hard to kind of figure out to say what multiples might be in the private market today because there's a complete dearth of data points. So I just want to make that clear. It's not that we it's not that we're unable to answer the question it's we don't want to answer the question because there's just no data points to answer the question right now.

Steven Cahall -- Wells Fargo -- Analyst

Great, thanks. I don't want to watch TV.

James Ryan -- Chief Financial Officer

Okay, thank you.

Operator

Our next question comes from the line of John Kornreich from JK Media. Your line is open.

John Kornreich -- JK Media -- Analyst

Some quick questions. That $900 million number that's is that BCF or OCF?

James Ryan -- Chief Financial Officer

It's operating cash flow John. So it's

John Kornreich -- JK Media -- Analyst

Right. On retrans you said that 56% will be done by the end of the year?

Kevin Latek -- Chief Legal and Development Officer

I said 56% over the next 10 to 11 months.

John Kornreich -- JK Media -- Analyst

Okay OK. So there's a good case to be made I guess that OCF in '21 should be higher than 2019 because the gross retrans will be much higher than 2019 and I assume the programming costs will be somewhat stable because it hits you in 2019 and '20.

Kevin Latek -- Chief Legal and Development Officer

Well John we're not going to have $250-ish million of political.

James Ryan -- Chief Financial Officer

No he said 2019.

John Kornreich -- JK Media -- Analyst

No versus 2019

Kevin Latek -- Chief Legal and Development Officer

Oh I am sorry 2019.

James Ryan -- Chief Financial Officer

So John yes it would certainly be our expectation that '21 would be better than 2019. Just as we said we had said we expected 2019 would be better than 2017 on a combined historical basis.

John Kornreich -- JK Media -- Analyst

Thank you. Right. And one other question on retrans. You made very clear. That gross retrans should be higher second third fourth quarters. Two questions in regard to that. By the end of the year could you be approaching $250 million?

Kevin Latek -- Chief Legal and Development Officer

I don't know until I know what the rates are in these last two deals I don't know how to do that. The ones that are up are very very large MVPDs.

John Kornreich -- JK Media -- Analyst

Okay. And so all you're willing to say right now is it will be higher than $215 million?

Kevin Latek -- Chief Legal and Development Officer

It will definitely be higher than $215 million each quarter going forward.

John Kornreich -- JK Media -- Analyst

So it's very clear that the gross will be trending up near term. The net margin which was 42.5% in the first quarter versus 45% 46% last year as the contracts worked in. Is 42.5% going to be going lower in the next few quarters? Or is it stable?

Kevin Latek -- Chief Legal and Development Officer

It should be if the gross goes up. Remember half of our contracts are fixed fees with two networks and 1/2 our percentage is the two networks. So at a high level I would expect that if gross goes up our margin should improve a bit.

John Kornreich -- JK Media -- Analyst

Should improve? I was thinking down?

Kevin Latek -- Chief Legal and Development Officer

I believe we will keep a little bit more of the additional dollars that we bring in because some of that retrans space the CBS FOX space is fixed. So we bring in an extra penny on a CBS or FOX we keep it. So some of obviously some of the retrans contracts are going to bump up CBS FOX revenue. Others they bump up ABC NBC while obviously trigger a percentage basis. So that's not going to be necessarily helpful.

John Kornreich -- JK Media -- Analyst

I got it. Your clarification in this call on retrans was extremely helpful. As you know investors get super spooked on any little change in retrans. Thanks for your help. Thank you so much.

Operator

[Operator Instructions] Our next question comes from the line of Jim Goss from Barrington Research. Your line is open.

Jim Goss -- Barrington Research -- Analyst

Thanks, Kevin as long as you're continuing to get into retrans I thought I'd ask a couple more things. Are the latest deal time frames in retrans getting shorter? And can you compare it with the length of the contracts you're doing with the networks whether they're about the same length or longer or shorter? I know they don't happen at the same time.

Kevin Latek -- Chief Legal and Development Officer

Yes. One of the networks only does three-year deals with few exceptions. The other network for us has generally been on five-year terms sometimes a little bit longer if we're trying to catch up some of the stations that we acquired or a little bit shorter to get everybody on the same end date. So generally the big three contracts are on five-year terms. Our retrans contracts are three years and we have been very generous with extensions. We extend our negotiations a lot. We don't believe in an arbitrary deadline. I think since our typically when we extend a retrans contract the agreement is that the new rates will apply retroactively. So whether we get a deal done on January 1 one minute into the year or we get the deal done on March 15 in the long run it doesn't matter to us from a dollars and cents standpoint. From a relationship standpoint we think it's helpful to be respectful of the fact that MVPDs may have other negotiations that are more sensitive more time-consuming. And frankly sometimes negotiators actually have to deal with personal issues and want to take vacation or deal with their kids.

So we try to be very very accommodating. At the end of the day we're going to get the contract done. We need them they need us. We like to keep a very positive relationship and I'm happy to say and the time I've been here many years now we've only had one dispute the last four days and we have renewed with that operator I think 3x sense without any problems whatsoever. So I say they're roughly three years but keep in mind sometimes it takes us a bit longer to negotiate it. I don't think the period to get those done has taken I don't think it takes any longer than it used to. The issues we deal with are I think more complicated than they used to be even just three years ago. The non-financial issues of distribution and rights are frankly it's just a lot harder to think through all that and word it and come to agreement on terms. But we're getting there. I don't think it's necessarily extending the time period for negotiations. Is that helpful Jim?

James Ryan -- Chief Financial Officer

Yes I'd expect nothing less than respectable negotiations out of Gray Television. The maybe one other thing on political. I was wondering it is getting pretty interesting and there is a lot of extra money from Bloomberg and Steyer. Have you are there any assumptions you've made as to how long everybody is in the spec whether it runs through the conventions or whether it's short? Is there any assumption that goes into what you've been talking about in that regard so far?

Kevin Latek -- Chief Legal and Development Officer

Yes. From our standpoint it's kind of if a nominee is essentially known after Super Tuesday that theoretically means that we see general advertising spending on both sides starting pretty early because the candidates are framed. On the other hand if the candidate is not known by the Super Tuesday and it takes another month or two or it even goes to convention then you've got a lot more primary spending. And maybe the other side spends more money attacking a variety of opponents. Our view is it's six one way or half dozen another. There is not much way we could really say one is better than the other from a Gray standpoint.

Gray standpoint we're uniquely positioned to benefit kind of either I think whatever happens in presidential. And remember the presidential as important as it is still it's less than 1/2 of our political revenue. And this year I don't think will be any different. We have really really high-profile Senate races and frankly a bunch of House seats as well that are going to be the majority of our political revenue this year.

Hilton H. Howell -- Chairman, Chief Executive Officer

Let me just if I could just add to that. I think in Kevin's comments there were a couple of things that I think are really quite remarkable. If you take our fourth quarter numbers that we released on political and you exclude the Democratic billionaires we're still up over 20% excluding them from our highest level guidance across the board in Q4. And then with regard to what we have obviously we are in a remarkable position that we have such strong stations in states where big Senate races are coming up. And then we've got in our markets 16 House seats that are open which are going to be massively competitive. And once again just to reiterate at the 12 markets out of the 18 the Republicans have to retake where they've got a Democrat currently in that seat the Trump period in 2016 we've got 12 of the 18. So I think it's going to be big across the board and for the duration.

Jim Goss -- Barrington Research -- Analyst

All right, thanks very much.

Operator

Our next question comes from the line of Davis Hebert from Wells Fargo. Your line is open.

Davis Hebert -- Wells Fargo -- Analyst

Hi, thanks for fitting me in. Just two questions. One is with some comments from Discovery about the Olympic games potentially being canceled. I don't think that's the base case right now. But can you give us a quick one-on-one on Olympics inventory for a typical NBC affiliate? And then second question is encouraging to hear the leverage commentary be below 4x by the end of the year. Are you comfortable there? And what's your sort of long-term leverage target?

Hilton H. Howell -- Chairman, Chief Executive Officer

Thanks. Well we actually heard that the Olympics are going to continue. I think that Japan and the Olympic Committee actually have confirmed that recently this week. And so it's going forward. We had to battle the Zika problem in Brazil the last time around and that was a bunch of hullabaloo that didn't never really materialize.

James Ryan -- Chief Financial Officer

As far as the leverage goes yes we think it will be by the end of the year 3.7 to 3.8 range on an L8 basis. Certainly in the 3s like that we are if we're not the lowest levered in the peer space we're among the very lowest levered. I mean I don't know exactly how everybody else is going to come out but it's getting down to very comfortable levels for us. If there wasn't any large M&A it probably still come down a little bit more. At some point a little farther down the road with leverage coming down we may be up maybe and I stress the maybe maybe opportunistic on preferred stock. So we'll look at that. But certainly anything south of four is getting into a very comfortable range.

Davis Hebert -- Wells Fargo -- Analyst

Okay, thank you. And the preferred is redeemable at par. Is that correct?

James Ryan -- Chief Financial Officer

Yes. In whole or in part at our sole discretion at par. I don't know if Kevin wants to answer your you had a question about inventory in Olympics.

Kevin Latek -- Chief Legal and Development Officer

No I will let Pat take that. So the inventory load in Olympics NBC this summer. I mean it will be meaningful will be a meaningful revenue part.

Pat LaPlatney -- President and Co-Chief Executive Officer

Yes.

Kevin Latek -- Chief Legal and Development Officer

We should probably have some political advertising in there. But if Olympics goes away we're still going to be political advertising. Political advertisers will find the way to our local news and our syndicated content. It could be no way to quantify what happens.

Pat LaPlatney -- President and Co-Chief Executive Officer

Yes it would be difficult to quantify. Look you usually get a little left in Olympics but there's going to be a ton of money out there either way. And so and we're quite a ways off. So we'll see what happens.

Davis Hebert -- Wells Fargo -- Analyst

Okay, great. Thanks so much for the color.

Operator

And we have no further questions in queue. I turn back to the presenters for closing remarks.

Hilton H. Howell -- Chairman, Chief Executive Officer

Well listen I just want to thank everyone for taking your valuable time today during another tumultuous day in our markets. Like I said we're a great safe haven. So come back to the broadcast stocks. Thank you and we'll talk to you next quarter.

Operator

[Operator Closing Remarks]

Duration: 57 minutes

Call participants:

Hilton H. Howell -- Chairman, Chief Executive Officer

Kevin Latek -- Chief Legal and Development Officer

Pat LaPlatney -- President and Co-Chief Executive Officer

James Ryan -- Chief Financial Officer

Dan Kurnos -- Benchmark Company -- Analyst

Kyle Evans -- Stephens -- Analyst

Steven Cahall -- Wells Fargo -- Analyst

John Kornreich -- JK Media -- Analyst

Jim Goss -- Barrington Research -- Analyst

Davis Hebert -- Wells Fargo -- Analyst

More GTN analysis

All earnings call transcripts

AlphaStreet Logo