Gray Television, inc (GTN) Q2 2021 Earnings Call Transcript

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Gray Television, inc (GTN 1.73%)
Q2 2021 Earnings Call
Aug 5, 2021, 11:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by, and welcome to the Quarter two 2021 Earnings Call. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Hilton Howell, Chairman, Chief Executive Officer. Please go ahead.

Hilton H. Howell Jr. -- Chairman and Chief Executive Officer

Thank you, operator, and good morning, everyone. As the operator indicated, I'm Hilton Howell, the Chairman and Chief Executive Officer of Gray Television. Thank you all for your time this morning and for joining our second quarter 2021 earnings call. With me in person here at Gray's corporate offices are our President and Co-Chief Executive Officer, Pat LaPlatney; our Chief Legal and Development Officer, Kevin Latek; our Chief Financial Officer, Jim Ryan. And joining us remotely is our Chief Operating Officer, Bob Smith.

We begin this morning with a disclaimer that Kevin will provide. Kevin?

Kevin Latek -- Chief Legal and Development Officer

Thank you, Hilton, and good morning, everyone. Certain matters discussed on this call may include forward-looking statements regarding, among other things, future operating results, our pending acquisitions and related divestiture and the impact of the novel coronavirus and its disease, or COVID-19, on our future operating results. Those statements are subject to a number of risks and uncertainties. Actual results in the future could differ from those expressed or implied in any forward-looking statements as a result of various important factors that have been set forth in the company's most recent reports filed with the SEC, including our most recent annual report on Form 10-K and our most recent earnings release.

The company undertakes no obligation to update these forward-looking statements. Gray uses its website as a key source of company information. The website address is www.gray.tv. Included on the call may be a discussion of non-GAAP financial measures, and in particular, broadcast cash flow; broadcast cash flow, less corporate expenses; operating cash flow; free cash flow; adjusted EBITDA; and certain leverage ratios. These metrics are not meant to replace GAAP measurements but are provided as supplements to assist the public in their analysis and valuation of our company. Included in our earnings release, as well as on our website, are reconciliations of the non-GAAP financial measures to the GAAP measures reported in our financial statements.

And now I will turn the call over Hilton.

Hilton H. Howell Jr. -- Chairman and Chief Executive Officer

Thank you, Kevin. Well, as you all know, on Monday, we completed our acquisition of Quincy Media and our divestiture of the Quincy stations in the overlap markets to Byron Allen's Allen Media Broadcasting. I therefore want to open this call by formally welcoming all of the new employees and associates who joined us from Quincy Media on Monday. Welcome to Gray. We are honored to be the new stewards of the fine Quincy television stations across eight new markets that Ralph Oakley, his family and his team carefully built over many decades. At the same time, we are thrilled to play a part in the near doubling of Allen Media's television portfolio. I and the Gray Board extend our gratitude and appreciation to all those who made these transactions a reality, including our colleagues at Gray, as well as the professionals at Quincy Media and Allen Media, and all of the bankers, lawyers and accounting firms involved in this transaction.

Today, we announced our financial results for the second quarter, and I am extremely proud of them. Our results prior to the Quincy acquisition once again proved that we see continually improving ad trends and revenues resulting from the improving economic climate, our own prudent cost management and a variety of strategic initiatives that we will address this morning. To summarize, we reported total second quarter revenue of $547 million, an increase of $96 million or 21% from the second quarter of 2020. Net income attributable to common stockholders was $26 million or $0.27 per diluted share. In the second quarter of 2021, our combined local and national broadcast revenue, excluding political advertising revenue, which we call total core revenue, nearly matched our total core revenue from 2019, which is obviously prior to the pandemic. Specifically, total core revenue increased by $81 million or 41% compared to the second quarter of 2020. Total core revenue nearly matched our total core revenue from 2019, again, prior to the pandemic. We reported $785 million of cash on hand at the end of the quarter with a total leverage ratio as defined in our senior credit facility of 3.92 times on a trailing eight-quarter basis after netting our cash on hand and giving effect to all transaction-related expenses. Our broadcast cash flow of $183 million was $60 million or 49% higher than the second quarter of 2020. Our adjusted EBITDA for the second quarter of 2021 was $170 million, increasing $62 million or 57% compared to the second quarter of 2020.

We were able to produce these very positive results through the hard work of our many thousands of employees, now literally from coast to coast in our television stations and production companies. We also successfully managed the business in the second quarter and really throughout this year while also devoting countless hours to new strategic sales initiatives, technology improvements and, of course, a great deal of M-and-A work, including the major deals involved in Quincy and Allen Media, as well as our pending acquisition of Meredith Corporation. Among all these challenges and opportunities, Gray Television is also closely monitoring the evolution of the pandemic among our workforce, our customers and our communities. We maintain our strong optimism in a quickly recovering economy that, with some exceptions, will continue to drive increased consumer spending and increased advertising in nearly all of our markets. We believe that our core revenues and retransmission revenues will end the year in a very strong position just as we enter another year with undoubtedly strong political revenues. We also remain confident that we will close the Meredith transaction in the fourth quarter of this year. For these reasons and as exemplified by our return to paying quarterly cash dividends, Gray's Board and senior management agree that our business is stable, our prospects are bright, and we remain on track to Gray Television into one of the finest television and media companies in this country. We will next hear a few remarks from my colleagues with additional color to our second quarter earnings release.

Thereafter, I will open the line for questions. Pat?

Pat LaPlatney -- President, Co-Chief Executive Officer

Thank you, Hilton. On a previous call, I said that we were optimistic that our combined local and national broadcast revenue, excluding political advertising revenue, which we call total core revenue, would return to 2019 levels later this year. With strength in nearly all advertising categories, we finished the second quarter '21 within one point or so of the second quarter of 2019 in terms of total core revenue, as Hilton mentioned. The outlier, relative to '19, remains the auto category, which was down and continues to face chip shortages and supply constraints that are depressing auto advertising. In fact, if the auto category in the second quarter of '21 was simply flat with '19, our total core revenue would have been 6.5% higher in the quarter versus the second quarter of 2019.

Similarly, total core revenue would have been 4.3% higher in the first half of this year compared to the first half of '19 if the auto category is flat with '19. The fact that other categories, especially legal, home improvement, financial health and gambling, effectively backfilled the big holes left by the challenged auto advertisers illustrates the underlying strength of our local television stations and the revenue diversification that has taken place over the last few years. And if the automobile supply chain stabilizes relatively soon, we would expect to see that category rebound in the fourth quarter of this year and into 2022. Our training team and the health and auto teams continue to provide tremendous benefits to the Gray sales effort. Our investment in these areas is helping build the best, most effective sales organization in the industry. The health and auto teams have a particularly strong focus on digital, and they've helped to grow digital revenue dramatically over the last few years. Our partnership with Premion is paying dividends as money continues to pour into digital video, and our sellers are now fully trained in picking up new clients and revenue every day. And our digital programming team and national hub continued to do great work in growing our digital audience. Our sports and entertainment groups are rebounding nicely, and Raycom Sports has recently launched Origin Sports, an OTT platform that has a unique take on their expansive archive and look at the up-and-comers in the sports world. We expect record results at RTM as well as Swirl this year. In addition, Tupela Honey is a tremendous new business pipeline and amazing partnership with World Chase Tag, which will pay dividends going forward. We're really proud of the work of our national investigative unit and the impact of their journalistic efforts.

In a recent series, Collision Division, Lee Zurik, Jon Decker and our investigative team highlighted how federal crash standards only require crash test dummies designed around the male body from the early 1970s despite women being at higher risk for injury and death behind the wheel. In fact, Jon Decker raised a question on this previously unknown issue at a recent White House press briefing, thereby raising the issue among the executive policy folks as well as the National Press Corp. Thereafter, members of Congress began to address this important safety and equity issue, and we are pleased to see that there's now language in the $1.2 trillion bipartisan Senate infrastructure bill that would authorize crash test dummies modeled on females as well as children. We're also very proud of our Great Health Divide initiative, focusing on health disparities in the Appalachia and Mississippi Delta regions of the country. 32 of our stations in our investigative team were involved in producing a one-hour investigative documentary that's airing across all Gray stations this month.

Our shining a light on these areas that have far worse health outcomes in other parts of the country has already resulted in positive action. One story by WXIX, our Cincinnati station, showed how Robertson County, Kentucky, did not have a single doctor in the county. Following their story, a primary care practice out of Cincinnati informed Robertson County that it wants to open a primary care clinic there. Finally, we want to salute our Director of Investigations, Lee Zurik, for another amazing honor that he can add to his shelf. Lee recently was nominated for a National Emmy for a series of reports on the collapse of a hotel that was under construction in New Orleans. Congratulations to all of our news professionals as well as our very busy investigative teams.

And with that, I turn the call to Kevin.

Kevin Latek -- Chief Legal and Development Officer

Hi. Good morning again. Turning first to M-and-A. I'm pleased to report that our Meredith transaction remains on track to close in the fourth quarter. We received no objection to the transaction of the FCC, and the transaction does not require any FCC waivers or special accommodations. We anticipate closing the sale of our Flint television station a few weeks prior to the Meredith closing. In the second quarter, we completed the last of our major retransmission consent negotiations for this three-year cycle. Across more than 400 separate MVPDs, we achieved favorable renewal prices in other terms with virtually no disruptions in the service for our viewers and our customers.

Looking forward, our MVPD renewal cycle resumes with the next set of contract expirations at year-end 2022. In other words, we will have essentially no retransmission renewals for the next 18 months. Our retransmission revenues in the second quarter were $242 million. This amount is roughly $2 million or so less in our guidance for the quarter, which is the same amount by which our first quarter retransmission revenue exceeded our first quarter guidance. These fluctuations are the result of basic timing issues with subscriber reports and payments, primarily from two of our very large retrans customers. For the third quarter, we currently anticipate retrans revenue of approximately $255 million, reflecting the impact of our recently renewed retransmission agreements over the last few months.

For the full calendar year, we expect total gross retransmission revenue of approximately $1 billion, excluding the Quincy and Meredith stations. We continue to see wide variations in subscriber levels among our various cable, satellite and OTT distributors. We have now received nearly all subscriber reports from the MVPDs and from most OTT providers for the first quarter of 2021 due to the natural lag in payments and reports from distributors and some unexpected delays with those reports. At this point, it appears that our total in-market Big four subscriber count across all paid platforms for the first quarter of 2021 was approximately 1% lower than the count for the first quarter of 2020. We are encouraged that we continue to see a much lower rate of sub-erosion than many of the pay TV providers and pay TV channels, which we believe is a testament to the value of the live, local content that our stations provide.

Finally, I want to briefly address an issue that has been largely misunderstood and misreported over the last month: our transaction last year in Alaska and the FCC's proposed forfeiture. To be clear, last month, FCC decision was a proposed forfeiture, not a final finding. Gray now has the opportunity to respond to the FCC's proposed fine, and we intend to do so. Later this week, we will submit our response to the FCC's decision, and I invite everyone to read that response once it is filed. Until then, however, Gray cannot and will not comment further on the still pending proceeding.

And with that, I turn the call over to Jim Ryan.

James Ryan -- Chief Financial Officer

Thank you, Kevin. Good morning, everyone. The 10-Q will be filed a little later today. And obviously, the earnings release contains a great deal of information that you have either read already or certainly can read today. Dovetailing on Hilton's Q2 remarks, again, we're very pleased that total core revenue came in very close to 2019 levels. We recently acquired approximately $80 million of land in Metro Atlanta. This investment is treated as a capital expenditure for GAAP purposes. However, internally, we view that acquisition as an investment and accordingly have excluded that $80 million from our free cash flow calculations for Q2 and year-to-date Q2. Now some brief comments on our Q3 guidance. And as you will see in our release, we've separated our baseline Q3 guidance and then provided additional incremental revenue expenses and broadcast cash flow for the Quincy stations. So with our baseline guidance on legacy Gray, combined local and national revenue, or what we call total core revenue, is anticipated to exceed the third quarter of 2019 in the low single-digit percentage increase range. This demonstrates the continuing sequential improvement of total core revenue and makes us optimistic of continuing improvements later this year. As Pat said, while auto is still lagging, it is continuing to improve, and it's only about 19% of our year-to-date core revenue.

Following up on Pat's comments about the diversification of our core revenue, our services group, which comprises financial, legal and medical, in the first six months of this year represents about 28% of our total core revenue, and the services group has been performing well on a relative basis all year. We currently are anticipating approximately $14 million to $15 million of net revenue in the third quarter relating to the Olympic broadcast. Turning specifically to the incremental impact of the Quincy acquisition for the third quarter, which would mean August and September, we expect Quincy to add an additional $22 million to $24 million of net revenue, approximately $14 million to $15 million of incremental expense, resulting in approximately $8 million to $9 million of incremental broadcast cash flow. For your help in adjusting your full year models for the fourth quarter of 2021, we expect Quincy will provide incremental broadcast revenues of $32 million to $35 million, broadcast operating expenses of $22 million to $24 million, resulting in cash flow of $10 million to $11 million, and that would be before synergies. Our corporate expenses are not materially impacted by the Quincy acquisition.

Let me now recap certain metrics associated with the completed Quincy transaction and the pending Meredith transaction that we currently expect to close in the fourth quarter of 2021. The total combined purchase price before divestitures of these two transactions is $3.75 billion. The total purchase multiple on a '19/'20 blended cash flow average is 7.9 times. Total gross divestiture proceeds, pre-tax, are $450 million. Our '19/'20 combined historical basis operating cash flow is $1.23 billion, and that would include $78 million of expected synergies. And I would remind everybody, in the Raycom transaction that was closed in early 2019, which was a slightly larger transaction, we achieved $85 million of synergies within the first year. We currently anticipate our 12/31/21 leverage ratio, net of cash, as defined in our senior credit facility pro forma for both the Quincy and Meredith transactions closing, to be approximately 5.4 times with an estimated total debt outstanding at 12/31/21 on a pro forma basis of $6.96 billion. Some comments on free cash flow and free cash flow per share. As of today, we have approximately 95.8 million shares outstanding. In 2020, as published in our current investor presentation, we generated full year free cash of $559 million or approximately $5.84 per share.

As we look to 2021, which is a nonpolitical year and as we said on our Q1 call, we currently anticipate total free -- total year free cash flow -- free cash, I should say, will be in a range of $300 million to $325 million. That excludes any incremental free cash generated by Quincy or Meredith and also excludes the $31 million of dividends we expect to pay this year. Our average '19/'20 cash flow is expected to be $458 million -- was $458 million or $4.78 per share. So let me repeat that because I did kind of mess up that sentence. Our average '19/'20 free cash flow was $458 million or $4.78 per share. We anticipate our average 2021 free cash flow, excluding Quincy and excluding Meredith and excluding the $31 million of common dividends, would be in a range of $430 million to $442 million, which equates to $4.49 per share to $4.61 per share. While we are not providing a formal guide for 2021 operating cash flow nor a formal guide for our -- '21/'22 operating cash flow nor a formal guide for '22 political because that would be premature, We are very confident that our 2021/2022 blended free cash flow per share would be approximately 45% to 50% accretive when we include the impact of the Quincy and Meredith transactions. We are very well positioned going into '22 with the Meredith transaction expected to close late 2021. A brief comment on political, just to remind everyone. On a combined historical basis for Quincy and Meredith, net political in 2018 was $397 million, and net political in 2020 was $692 million. It's anyone's guess what our '22 net political revenue will be, but it is safe to say it will be large and that it will help us delever relatively quickly from an expected 5.4 times leverage ratio at close to something in the low 5s by the end of '22.

I'll now turn the call back to Hilton.

Hilton H. Howell Jr. -- Chairman and Chief Executive Officer

Thank you, Jim. So operator, at this point, we'd like to open up for questions that anyone may have.

Questions and Answers:

Operator

Thank you, sir. [Operator Instructions] Your first question is from John Janedis from Wolfe Research. Your line is open.

John Janedis -- Wolfe Research -- Analyst

Thanks. Good morning, guys. I had a couple...

Hilton H. Howell Jr. -- Chairman and Chief Executive Officer

Good morning, John.

James Ryan -- Chief Financial Officer

Good morning.

John Janedis -- Wolfe Research -- Analyst

One is -- good morning -- can you talk about the trajectory of your non-retrans expenses? Are there expenses that come back into the business that we should be thinking about? And then separately, Hilton, on the land acquisition, I'm sure you've seen there's been a lot in the press in the last few weeks about demand for sound stages. So can you give some more color on what's -- what that's going to look like? What's the cost to build out? And there is -- is there potential for meaningful cash flow generation there? And then finally, Jim, you mentioned the cash flow for Quincy was pre-synergy. Do you expect to have the after-acquired clauses -- or cost savings, etc., hit prior to year-end? Or is that more of a '22 event?

James Ryan -- Chief Financial Officer

The after-acquired clauses for retrans will take effect immediately. The rest of the synergies is -- just like in Raycom, I think you should think about it more as a month-to-month phase-in. It will be -- it won't be perfectly linear, but it's not all going to happen day one or will it all happen on day 364 either.

Hilton H. Howell Jr. -- Chairman and Chief Executive Officer

And then, John, let me ask -- or answer your questions on the assembly purchase. Candidly, we used the funds from the Doraville Senate runoff, so it's sort of a little lineup that we have. It's a wonderful piece of property. And with the studios that are coming up, we expect, upon completion of them, that they will generate a quite large free cash flow in a very short period of time. And so we believe within 12 to 13 months, you will see significant free cash flow from those studios. As you know, the business in production is massive, and it's the fastest-growing section of the Georgia economy right now, and we're very bullish on what we see ahead.

John Janedis -- Wolfe Research -- Analyst

Thanks. Maybe just back to the other question on expenses away from retrans for the, I'll call it, legacy Gray. Are those going to be kind of flattish? Or are those going to tick higher? Just kind of thinking about the third quarter guidance and maybe beyond.

James Ryan -- Chief Financial Officer

So in third quarter, again, go to the guidance, there is $10 million to $13 million total of deal-related costs flowing through third quarter at least, and there might be some more that trickles in a little bit later. But at least that much we know of. So that's popping it a little bit, but those were both for broadcast and corporate were shouted out in the guidance section of the release. We also gave to almost all of the employees in the company modest midyear increases in base compensation. I'll remind everybody that when we started this year, we held everybody's compensation flat to 2020 levels. As things have been improving, we felt it was only right to come back around and do something midyear, which is very unusual for us, but do something midyear for our employees since we had held them flat for the first six months of the year. And that's increasing payroll expenses by -- it's in the single millions of dollars range each quarter for Q3, Q4. And obviously, your reverse comp was one of the biggest drivers of expense increases, Q3, Q4, and that will tick up a little bit for both of those quarters from the levels of Q1, Q2, just because of the repricing that we've done kind of midyear. And again, a lot of -- a good deal of our retrans is based on a percentage basis for reverse comp. So there will be a modest increase there for Q3, Q4. And I think the guidance, if I recall, we singled that out for Q3 what that number is expected to be.

John Janedis -- Wolfe Research -- Analyst

Thanks a lot.

Operator

Your next question is from the line of Dan Kurnos from The Benchmark. Your line is open.

Dan Kurnos -- The Benchmark -- Analyst

Great. Thanks. Good morning. Maybe, Kevin, a quick one for you, and I'm expecting a somewhat relatively quick answer here. Any update on the CBS negotiations currently?

Kevin Latek -- Chief Legal and Development Officer

You're right. So short answer, no. That's what I figured.

Dan Kurnos -- The Benchmark -- Analyst

Okay. I had to try. Then maybe just a better question just around retrans. Obviously, you called out some timing issues, and you don't have anything till the end of the year. Just maybe -- I think I've asked this before but just how you're thinking about in the marketplace, both the runway of gross versus net. And then as you approach the market with these deals, there's obviously a wide variance of outcomes where you ask for more upfront versus higher escalators. Just -- I'm sure everybody wants as much as they can get upfront but just how you're kind of thinking about how that -- those conversations might evolve over the balance of this year and into next year.

Kevin Latek -- Chief Legal and Development Officer

I have no idea how negotiations will evolve, the balance of this year and next year, because we have no negotiations in the balance of this year or next year. Our contracts are virtually all three-year terms, and they -- the cycle ended on June 30 when we renewed our last two contracts in this cycle, so there's nothing up. So I don't -- I won't have any feel for where the market is over the next 18 months. We're just not in the market. In terms of what we've just completed, we pushed through 400 contracts over the course of about 18 months or so. And we are very happy with the way that they came out, both in the sense that they were done, I think, without what we used to see some years ago with sort of more aggressive posturing, both publicly and privately. I think they were constructive conversations.

We always take a look at the whole three-year relationship, not just with the next -- the first year rate is going to be. We want to find something that's going to work for both parties. And I think we were able -- actually, clearly, we're able to do that in virtually every one of the negotiations. So we're certainly happy the way they came out. Going forward, I don't see any reason to change our view that we remain grotesquely undervalued in terms of retrans. And over time, we will close the gap between the value we deliver and the value we receive. So there's nothing that has changed our view on that. We continue to deliver. And certainly last year had tremendous ratings. People who hadn't watched local TV, they're tuning into local TV. And while we obviously didn't keep all those folks, we certainly demonstrated our value, and we demonstrate our value unfortunately every day with whether it's an investigative piece or it's weather emergencies or a crisis in a community. So somewhere, there's always a critical moment happening now across our footprint, and people are turning to local TV. They're not turning to newspapers or other media, and we feel very good about being, in many cases, one of the last reliable sources of local news.

Dan Kurnos -- The Benchmark -- Analyst

Super helpful. Maybe just one last quick one, just on political. Understanding you guys don't want to talk about '22. So maybe we can just get a sense of how you're thinking about maybe even some of that creeping into Q4. You guys mentioned it, I think, last call. Obviously, the environment is incredibly -- or talk -- or pick your descriptor there. But just how do we think about maybe going into this year, spending you're seeing ton of ballot issues? Just help us kind of frame the narrative as we think about political going into next year?

Kevin Latek -- Chief Legal and Development Officer

Yes. And I will start by saying I think very substantial, I think somewhat similar to what Jim said. Even this year, we're seeing political advertising for races, for elections that don't happen till next year. That's a phenomenon. We started to see roughly a little bit in '17, certainly in 2019. And it's -- the calendars keeps getting extended out for political advertising. As you know, I now live in D.C., so I read the D.C. stuff a lot more perhaps than you guys do. And it seems every couple of days, there's another headline of another record-breaking fundraising call by one of the Congressional committees, one of the Senate committees, one of the parties, the super PACs, the new super PACs and super super PACs. The money being raised now is certainly dwarfing anything that's been seen in prior off-year political elections. Trump, alone, has $100 million of unspent cash raised in the last several months, but the Democrats are still highly motivated. There has not been this drop-off when Trump's gone, so therefore the Democrats aren't going to donate money. That's actually not been the case at all. And on the other side, the Republicans are -- both large and small dollar donations are breaking records for both individual candidates and campaign committees. So we definitely don't see a kumbaya moment coming in this country where political elections are going to go back to being smaller, quieter affairs as we maybe somewhat remember from the '70s. It seems that we are on a continual upward trajectory. We can't put a dollar figure on it because the folks who are closer to it than we are can't put any reasonable estimates on what political, other than to say, pick your adjective, very substantial next year.

Hilton H. Howell Jr. -- Chairman and Chief Executive Officer

And can I follow up just briefly on what Kevin said? Everything that we have seen is that the people in the know, but who knows if they know it or not, think that 2022 will meet or exceed the spending from 2020 in a presidential election year, which is an amazing sum. And one of the great rationales for the Meredith acquisition is that the way it is positioned the company when we -- they are part of our operations, and they will be for all of 2022. We are in a very significant position in almost every political battleground. And out of the 10 most competitive and consequently most expensive Senate races in the country, Gray has almost the entirety of nine out of the 10 states that are up for grabs. And so I think that we will, upon the closing of the Meredith acquisition, receive an extremely strong and very significant political ad spend in 2022. And so we look at it with a great deal of confidence and optimism but an inability to tell you exactly what it's going to be. But we know it's going to be big.

Dan Kurnos -- The Benchmark -- Analyst

Got it. That's super helpful. And I think Meredith is only 15% presidential historically, so you have that going for you, too. Thanks, guys.

Hilton H. Howell Jr. -- Chairman and Chief Executive Officer

Thank you.

Operator

Your next question is from Kyle Evans from Stephens. Your line is open.

Kyle Evans -- Stephens -- Analyst

All right. Thanks. Good morning. Kevin, congrats on getting through the retrans negotiations. Now that you've got $400 million of them behind you, are the OTT and the cable satellite subs still at parity on a net basis?

Kevin Latek -- Chief Legal and Development Officer

You guys keep asking us that question, and I'm going to kind of keep giving the same answer, which is we are happy to get paid by a subscriber. An OTT customer is not necessarily the same value to us as a cable customer. Sort of go into that in depth, we -- it's important that we get paid. We get paid a lot by some OTT and less by other OTT. We get paid a lot by some MVPDs and a lot less by other MVPDs. When it all shakes out, I don't have a strong view whether at which someone was coming from Comcast versus mom-and-pop cable versus Hulu TV I want them in the bundle. And when I've got folks who are cutting the cord, I want people back in the bundle. And sometimes that means we need to be -- take a different view on the value of that customer coming back into the bundle or staying in the bundle, even if it's not the traditional cable or satellite. So we are indifferent to where the customer comes from so long as they are paying a fee that gets back to us.

Kyle Evans -- Stephens -- Analyst

Got it. And I guess pro forma for the deals, you guys are maxed out on U.S. TV households. You partnered with Tegna and Premion. Could you update us on...

Hilton H. Howell Jr. -- Chairman and Chief Executive Officer

Actually, let me -- this is Hilton. Let me just stop you there. We have roughly a 3% opening, so we're not completely capped out. And we're certainly not above the national cap. And so while we can't do something maybe the size of the Meredith acquisition right now, we have a lot of other possibilities to come. I just wanted to make sure you understood that. But thank you.

Kyle Evans -- Stephens -- Analyst

Okay. So you still have three points to work with?

Hilton H. Howell Jr. -- Chairman and Chief Executive Officer

More or less.

James Ryan -- Chief Financial Officer

Yes. We'll be about 36%, and the cap is at 39%.

Kyle Evans -- Stephens -- Analyst

Okay. Thank you for that clarification. But ex large-scale deals, I mean, you're -- we're not going to see anything else like the two that you're in the process of here. So can you just update us on the digital solution set, where that sits today? Speak to some areas where you expect to grow and then whether or not we should look for more partnerships. Is that M-and-A? Is it both? Just kind of a high-level view of digital going forward. Thanks.

Pat LaPlatney -- President, Co-Chief Executive Officer

Yes. So Kyle, it's Pat. So we highlighted our partnership with Premion, and I've mentioned there's a whole lot of money chasing digital video right now. So I think that's one area that we're focusing on at the stations. If the question is are we going to go out and try to find sort of digital pure plays or other investments in that area, we're not focused on that right now. As opportunities arise, we'll take a look at them. There's some pretty healthy valuations certainly in the digital video world right now but not -- again, not something that we're squarely focused on. What we are focused on is executing at a very high level at all the stations, and I'm happy to tell you that we're really doing that right now. And so there's a significant amount of upside, we feel, with our current footprint. But look, we'll -- as Jim and Kevin and Hilton have told you over the years, we look at pretty much everything that comes in, and we'll continue to do that.

Kyle Evans -- Stephens -- Analyst

Thank you.

Operator

Your next question is from Aaron Watts from Deutsche Bank. Your line is open.

Aaron Watts -- Deutsche Bank -- Analyst

Hi, guys. Thanks for having me on. Just two questions for me. One, on the auto side, it sounds like there's some optimism. Do you think you can see that category maybe turn a corner in the fourth quarter? Curious if you kind of look at your crystal ball, given the growth you've seen in some other categories like services or sports betting, do you think auto ever gets back to being the clear and out-front category leader again? Or do you think you'll see a little bit more even dispersion across your ad categories?

Pat LaPlatney -- President, Co-Chief Executive Officer

Yes. It's Pat again. I think the latter. I think you're looking at a much more sort of even split. I mean, as you guys know, auto used to be a huge category. And I think that the diversification is a huge benefit to the industry and to Gray. And I don't see auto ever being back to -- really probably not back to 20% even, although we'll see, but certainly not 25% or 30%.

Aaron Watts -- Deutsche Bank -- Analyst

And Pat, just I think I'm hearing that you believe that that's due to growth in other categories. Is it fair to say that's not being driven by some of the former auto spend going to other mediums, whether it's digital or otherwise?

Pat LaPlatney -- President, Co-Chief Executive Officer

No. Auto is moving into other mediums, but we can catch some of those digital dollars with our television stations. So it's both. But to be clear, it's not like when they go to digital, they're going outside our house where we can -- we still have products that address their needs on the digital side.

Aaron Watts -- Deutsche Bank -- Analyst

Okay. Perfect. And then my second question, I see the healthy guidance you've provided on advertising, and maybe that answers this question. But as there's some increased concerns around the Delta variants, are you seeing any reaction from your advertising partners to those headlines? Or is it sort of a wait-and-see approach at this point and the spending continues?

Pat LaPlatney -- President, Co-Chief Executive Officer

Yes. So I would say not as of this point. The Delta variant is a concern. But as we sit here today, we haven't seen any type of slowdown because -- in really any of our markets because of the Delta variant, but we obviously are watching it closely, as our clients. And so it's a concern, but I -- hopefully, what happens to this country is what happened in Britain. It could -- we moved through it quickly and onward and upward.

Aaron Watts -- Deutsche Bank -- Analyst

Okay, great. Thank you for taking my questions.

Pat LaPlatney -- President, Co-Chief Executive Officer

Sure.

Operator

Your next question is from Jim Goss from Barrington Research. Your line is open.

Jim Goss -- Barrington Research -- Analyst

Hi. So earlier, I think you were referring to this Doraville, Georgia studio production facility you were acquiring -- or the property, anyway. And I'm wondering, it sounded like you were referring more as to being a host or a landlord to other producers, but I wondered if you had any intent to create more of your own programming given your ownership of such a facility and what the nature of the program possibilities might be and whether you might even have some opportunity with the Raycom properties or perhaps rights issues get in the way of that.

Hilton H. Howell Jr. -- Chairman and Chief Executive Officer

Well, it's not a direct avenue. As you know, we own majority control of Swirl Films, which is a remarkable film producer based here in Atlanta. They will be using those facilities as well as the facilities that they already have here in Atlanta. And we anticipate using it for them, perhaps other of the production companies within the company, but that decision has not been made at this time. And then to the extent that we are able to reach an agreement with other folks that may be interested in it, we have -- I mean we're very open to that, but we have not -- don't have anything in hand that we can talk about at this moment.

Jim Goss -- Barrington Research -- Analyst

Okay. And I was wondering, too. It seemed like you've been doing more -- or having more involvement with Allen Media. I'm wondering if you have some continuing relationship with them or along -- either a programming line or digital ad sales or anything else that you might think of as a partner?

Hilton H. Howell Jr. -- Chairman and Chief Executive Officer

No. We don't have any continuing formal relationship with them. They've been a very solid broadcast operator operating at a distance from us that has acquired the stations in both divestitures that we had to do as a result of the Quincy and the Meredith acquisitions, but there's no partnership or anything else involved.

Jim Goss -- Barrington Research -- Analyst

Okay. And lastly, I might just ask Kevin since you mentioned your attention for the news and being in Washington. Are there any Washington priorities right now that you would point out that might be running under the surface?

Kevin Latek -- Chief Legal and Development Officer

I mean in terms of regulation? I mean...

Jim Goss -- Barrington Research -- Analyst

Yes, regulation or anything that might affect the operations in the industry.

Kevin Latek -- Chief Legal and Development Officer

I think, as I've mentioned, I think, on our prior call, I think the FCC's main priorities are going to be net neutrality, broadband build-out. And those don't really impact us at all. There surely will be a closer look at broadcast ownership rules and unsure where that's going, but those would be the big issues. Outside of that, Congress is pretty focused on much, much bigger issues than media and broadcasting. The conversations around big tech could be helpful, depending on how they play out. But again, no direct impact on us. Just -- and Jim, you mentioned Washington, I just -- to amend my prior comments on political, I think Aaron may have raised. In 2019, we had three governors' races: Kentucky, Louisiana, Mississippi. In the first half of 2019, we had $9 million of political revenue. In 2021, we have one governor's race: Virginia.

We have -- it's a hot -- you may have seen a House runoff in Cleveland, took place two days ago. And then there's some, as I mentioned, early spending for next year. The first half of this year's political revenue was $15 million. So with one governor's race instead of three, we're very big in Mississippi, Louisiana and Kentucky in '19, just like in Virginia. We're very big in Virginia. So one governors' race versus three, and yet, our political revenue in the first half of this year was nearly double what it was in 2019. So I definitely think we're on the right track to expect a very strong next year, where we've got -- both the House and the Senate are very close. And so fundraisers on both sides can tell their potential donors that, literally, the control of the House or the control of the Senate could be at stake with this particular race. So it bodes very well for political next year. But I just want to put into context our 2019 first half versus the 2021 first half results with, frankly, 1/3 of the number of governors' races is -- I think that's quite an element.

Jim Goss -- Barrington Research -- Analyst

Okay. Thanks very much. Appreciate it.

Operator

Your next question is from Steven Cahall from Wells Fargo. Your line is open.

Steven Cahall -- Wells Fargo -- Analyst

Hi. Thanks for taking the questions. Maybe first on the net retrans side. Thanks for that color on your gross timing. Could you update us on the timing of your upcoming affiliate agreements? And is there any as-acquired benefit on the reverse compensation side as you move through those acquisitions in the months ahead? And then, historically, I think you've had a great chart in your investor deck about political spending per household in your footprint and was pretty much just as good after Raycom. I was wondering if you've run those numbers yet on a combined historical basis and have an idea historically whether the addition of these station groups changes that picture much?

Kevin Latek -- Chief Legal and Development Officer

Yes. Steven, so our cadence for the network contract is -- our CBS deal, we did about four years ago. If I remember correctly, it was up at the end of this year. Our ABC and NBC are up at the end of 2022. Our FOX is up at the end of 2023. In terms of the per household, I have not rerun the numbers. If you look back at our decks when we have done the dollars per household, in 2018, we were at $8.72. Meredith was right behind us, $8.68, and that was in the 2018 election. There were very significant Senate races in Missouri, Arizona, Nevada, where they have, as you know, very big exposure. Quincy was, frankly, right on top of those numbers. In 2020, Gray was again the top of the public companies. Meredith was again number two. And Quincy was, again, kind of on top of where we were at. So I've not rerun the numbers, but I have every confidence that a combined Gray, Meredith, Quincy will continue to be -- if we go back and restate '18, '19, '20, '21 and as we go into '22, I have no doubt that our political footprint and our number one stations will keep us as the highest political revenue per TV household. We have -- again, those numbers have been in our deck for some time. There's really -- outside of Gray, Meredith got close to us in '18. Outside of that, folks are pretty far behind us. So I don't see any reason that would change. Our news remains on top, and our political footprint is actually even better now with Meredith and Quincy, the two closest competitors to our number one ranking.

Steven Cahall -- Wells Fargo -- Analyst

Thank you.

Operator

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

John Kornreich -- JK Media -- Analyst

Good morning. Jim, on cash taxes, can you give us a rough -- I mean a rough estimate what they might be this year? And is some rough guidance for next year, like could they double next year or be up 50%? That's the first question.

James Ryan -- Chief Financial Officer

John, we had $38 million year-to-date so far in cash taxes, and I'd remind everybody that, that will look large in relation to 2020. But last year, the IRS suspended normally quarterly payments due to the pandemic, and people could catch up those payments late 2020. So some of the six-month comparisons are going to be skewed because of timing differences. But for the full year, we'd be expecting cash taxes of about $50 million. Next year, obviously, that's going to go back up again.

John Kornreich -- JK Media -- Analyst

Could it double?

James Ryan -- Chief Financial Officer

Significantly because of just the natural political hit or maybe the influence of political is a better way to say it, which, again, we don't know how big is big, but it's -- we expect big. So yes, it wouldn't surprise me if it did.

John Kornreich -- JK Media -- Analyst

Okay. Second question. On your guidance for free cash flow for 2021, that did include all of the $73 million cost synergies. Is that correct?

James Ryan -- Chief Financial Officer

No. Our guidance on free cash for 2021 was before Meredith and Quincy and before the expected $31 million of common dividends. What we did...

John Kornreich -- JK Media -- Analyst

[Speech Overlap] Yes, I know. But then you gave pro forma guidance by saying $430 million to $440 million and then add 50%.

James Ryan -- Chief Financial Officer

No, no. Well -- OK, the $430 million to $440 million would be legacy Gray 2021. What we said was '21/'22, when we add in the Meredith impact, the Quincy impact and the synergy impact...

John Kornreich -- JK Media -- Analyst

Full synergy.

James Ryan -- Chief Financial Officer

Full synergy, we would expect '21/22 on a fully pro forma basis with everything closed in full synergies. We think it would be 45% to 50% accretive to free cash flow per share.

John Kornreich -- JK Media -- Analyst

And that assumes, I guess, no more share repurchase?

James Ryan -- Chief Financial Officer

Correct. That's based on the current shares outstanding of 95.8 million.

John Kornreich -- JK Media -- Analyst

Last question, Kevin. When you said that your subs were down roughly 1%, that was through the first quarter, not through the second quarter, correct?

Kevin Latek -- Chief Legal and Development Officer

Right. That's right, John. We do lots of estimates because there are lots of reports come in two and three, sometimes five and six months after the end of the month. And so I gave Q1 to Q1 because we had nearly all of the reports from the MVPDs at this point for Q1, and we have some of the reports for Q1 on OTT.

John Kornreich -- JK Media -- Analyst

Right. Actually, one last one for you, Kevin. The simple arithmetic of your net margin, you're the only one that gives this, was that your net margin on retrans was 40.5% in the second quarter and about that for the first half. Are we starting to near a bottom on that 40% level? Or are we still going lower?

Kevin Latek -- Chief Legal and Development Officer

It would certainly be our hope that we are at the bottom. I don't -- I mean it's hard for me to gauge. We still have a big negotiation to do with CBS, which is 1/3 of our subs.

John Kornreich -- JK Media -- Analyst

Okay, thanks. It really helped. Really appreciated it.

Kevin Latek -- Chief Legal and Development Officer

Sure thing. Thanks, John.

Operator

There are no questions over the phone. Let me now turn the call over to our Chairman and Chief Executive Officer, Hilton Howell.

Hilton H. Howell Jr. -- Chairman and Chief Executive Officer

Well, thank you all so very much for joining us this morning. We're very excited about our results this quarter and even more optimistic now that we've closed on Quincy and soon to close on Meredith that we're going to be reporting remarkable results as we go forward. So thank you again. Bye-bye.

Operator

[Operator Closing Remarks]

Duration: 55 minutes

Call participants:

Hilton H. Howell Jr. -- Chairman and Chief Executive Officer

Kevin Latek -- Chief Legal and Development Officer

Pat LaPlatney -- President, Co-Chief Executive Officer

James Ryan -- Chief Financial Officer

John Janedis -- Wolfe Research -- Analyst

Dan Kurnos -- The Benchmark -- Analyst

Kyle Evans -- Stephens -- Analyst

Aaron Watts -- Deutsche Bank -- Analyst

Jim Goss -- Barrington Research -- Analyst

Steven Cahall -- Wells Fargo -- Analyst

John Kornreich -- JK Media -- Analyst

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