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Gray Television Inc (GTN) Q1 2019 Earnings Call Transcript


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Gray Television Inc (NYSE: GTN)
Q1 2019 Earnings Call
May. 8, 2019 , 11:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Kelly, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Gray Television's First Quarter 2019 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the prepared remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

I would now like to turn the call over to Mr. Hilton Howell, Executive Chairman and CEO. Please go ahead.

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

Thank you so much, Kelly, and thank you everyone for joining us this morning. As Kelly mentioned, I'm Hilton Howell and I'm really appreciate everyone joining us for our first quarter 2019 earnings call . As usual, I'm joined today by our President and Co-CEO, Pat LaPlatney; our Chief Legal & Development Officer, Kevin Latek; and our Chief Financial Officer, Jim Ryan.

We will begin this morning with the disclaimer that Kevin will provide and then each of the four of us will have a brief statement and then open it up for questions.

Kevin Latek -- Executive Vice President, Chief Legal & 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. Those results 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 the various important factors. Such factors have been set forth in the company's most recen t report s filed with the SEC and included in today's earnings release. The company undertakes no obligation to update these forward-looking statements.

Gray uses its website as a key source of company information. The website address is www.gray.tv. We also will post an updated investor deck to the website in 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 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. We include reconciliations of the non-GAAP financial measures to the GAAP measures in our financial statements that are made available on our website.

Now I will turn the call to Hilton.

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

Thank you very much, Kevin. We're exceptionally pleased to report the results this morning of our very first quarter is the new, larger, more diversified Gray Television. We're exceptionally pleased to report once again all-time record news.

Our total revenue for the first quarter was $518 million, a 129% increase. This is an exceptionally strong showing and I believe it confirms the wisdom of the Raycom transaction that we closed on the 1st of January of this year. Our profits would have been an all-time high for the company and outstanding record except for the transaction related expenses that we will cover subsequent in the conversation. Across the board, we saw continued improvement in our local business conditions that started last summer, really builds during the first quarter.

Recall that we had guided our Q1 core local and national ad revenue, excluding the non-returning (ph) Winter Olympics revenue would be approximately flat instead on a combined historical basis, excluding 2018 Winter Olympics revenue, our first quarter local and national advertising revenue grew by $7 million from the year earlier period, representing a 3% increase for the quarter.

As you saw in our release this morning, our GAAP net loss attributable to common shareholders for the first quarter was $31 million. As we also explained in the release, the Raycom transaction necessitated the immediate expensing of $68 million transaction related expenses. Specifically, those cost included incentive and severance compensation, third-party termination fees and legal, accounting, finance and other professional fees. Excluding those transaction related costs, our net income attributable to our common shareholders would have been our best first quarter ever, of approximately $27 million, and our diluted net income per common share would have been approximately $0.27. We are again exceptionally pleased that our broadcast cash flow for the first quarter was $123 million. Our best first quarter broadcast cash flow in the company's history.

We need to be careful not to read too much into one quarter's results. Nevertheless, we take great pride in our Q1 results, because it proves the wisdom of the Raycom transaction and indicates all of the hard work and sacrifices made by all of our many colleagues here in Gray and Heritage Gray and Heritage Raycom and by our advisors over the past several months.

We are off to a brilliant start as a major television broadcast group, and I cannot wait to keep building on the success, we are reporting today.

I'd now like to turn the call over to Pat to address a few operational milestones and the progress of our new company.

Pat LaPlatney -- President and Co-Chief Executive Officer

Thanks, Hilton, and good morning , everyone. Today's result and our guidance today certainly paid a good picture. We saw general market conditions improve each quarter last year, and while this year began slowly in part due to long government shutdown, business conditions and sentiment appear to be improving as the year progresses. We're particularly pleased the core finished up this quarter, ex-Olympics, which was certainly better than we expected in February.

On our las t earnings call, we announced that Greta Van Susteren joined Gray as our Chief National Political Analyst. She hit the ground running appearing on countless local newscasts every week from Washington. She has already provided our local news rooms of expert, unbiased coverage of national and international political developments of which there have been many in the past few weeks. At the NAB Show last month, we announced a global launch of new weekly program this September, called "Full Court Press with Greta". This new weekend political show will focus on how policy and national events impact local communities across the country, will also involve a broad bench of great television journalists from newsrooms across the country including the award-winning team of Investigate TV out of New Orleans.

Since that announcement, we've reached verbal commitments to clear the shelf from television stations across the country, including stations in the New York, Los Angeles, Chicago and San Francisco markets. Today, we have preliminary reach of 46.5% of the country for Full Court Press and we still have many active discussions that will ensure broad distribution for the show when it launches in September.

Two weeks ago, we announced another exciting new venture. Specifically, we have entered into a joint venture with Opry Entertainment Group, a subsidiary of Ryman Hospitality Properties to create and distribute a premier linear multicast and over-the-top channel dedicated to the country lifestyle. We expect this new channel will transform the current landscape of country music media offerings by providing a dedicated home for artist-driven country lifestyle programming. The new channel will deliver a premium entertainment service featuring content that highlights country music artists and the passions, hobbies and love of music to share with their fans. The new service will be based on national and will be fueled by marketing and promotional resources for both companies extensive network of media assets. We will announce a new name for the channel soon and we expected to launch in early 2020 across TV stations located throughout the country, followed by a companion premium over-the-top service in mid-2020.

I now turn the call to Kevin.

Kevin Latek -- Executive Vice President, Chief Legal & Development Officer

Thank you, Pat. I'll begin this morning with retransmission, which we know has been a key concern for me, investors lately (ph). Our retransmission revenue for the first quarter came in at $204 million. This figure represents on a combined historical basis, an increase of $42 million, or 26% over the first quarter of last year. We beat even our guidance here because of better than expected OTT an MVPD subscriber numbers as well as some catch-up payments from certain providers. We guided on our last call that approximately 20% increase in gross retransmission revenue for the year. We remain very comfortable with that guide, which could turn on to be very cautious given the factors that led our first quarter numbers to come in a little stronger.

Yes, we are like everyone else, seeing some modest sub erosion in the MVPD universe. The same time, however, our non-traditional subscriber base has been growing faster than anticipated. In fact, our non-traditional sub count nearly doubled between the end of 2017 and the end of 2018. Moreover, we have now crossed an important milestone and that the number of monthly paid subscribers receiving Big Four channel via an OTT or direct-to-consumer platform, now exceeds last year's decline in the number of traditional MVPD subs.

Given all this, we continue to expect growth in our gross and net retransmission revenues. We will provide guidance on our net retrans revenues once we complete our ongoing negotiations to renew our existing FOX Network agreements, all 21 of which expire this June 30. FOX makes up a fairly small portion of our sub base in our total revenues. We're just not comfortable providing net retrans guidance until we have full visibility into our anticipated expenses.

As a reminder, already this year, we entered into new long-term agreements and agreements in principle renewing and extending the terms of affiliations with ABC, CBS, NBC, CW and Telemundo, are all the stations acquired from Raycom as well as our many -- many of our legacy Gray Television stations. Consequently, while we cannot predict the outcome of any individual discussions, we remain optimistic and new mutually beneficial agreement can be reached with FOX to preserve the networks presence in our markets.

Our business, of course, is a lot more than retransmission and networks, the past several weeks have demonstrated too often the powerful necessary role that local broadcasters play in our communities. This winter, which seems never to end in some parts of the country, brought life threatening blizzard's at KOTA and KEVN in Rapid City, KSFY in Sioux Falls, KFYR in Bismarck and KVLY in Fargo dedicated extensive time and resources to predict warning cover for the local communities.

This spring, we saw historic flooding as a critical issue facing our stations all across Nebraska as well as WVLT in Knoxville, and right now KWQC in Davenport. In March, our stations in Montgomery and Columbus saved countless lives with the breadth plus coverage of the Lake County Alabama tornadoes, which still tragically claimed the lives of 23 people.

Just two weeks ago, KYTV in Springfield also went into continuous coverage and logged (ph) 5 million page views as a warning covered a mind-boggling 45 tornado warnings and eight confirmed tornadoes in just one day. And these historic moments for our local communities, our stations mobilize our staff and often those from other great television stations, they replace regular programming with live on the spot coverage, they run into storms and toward rising floodwaters, do everything in their power to look ahead provide lifesaving emergency information and cover the destruction and healing that follows.

In several of the instances above our stations follow up with on-air telecoms (ph) and concerts to benefit the victims. Through all these efforts, our stations demonstrate that they're not just important, but they are critical institutions in their markets. Reporting natural disasters is only part of the way the local broadcasters to serve the public interest, every single day in every market journalist are working hard to find and report the news, inform the public and investigate wrongdoing. Sometimes those efforts are acknowledged publicly. So I'll close my remarks by highlighting some of the prestigious honors awarded to a few of our thousands of excellent journalist throughout the company.

In April, 22nd National Headliner Awards recognized our investigative unit Investigate TV with two first-place awards. We also had tremendous success in this year's regional Edward R. Murrow Awards for Excellence in Journalism. Less than 23 of our great television stations earned at least one of this cover in honors. Four stations received honors for Overall Excellence, highest honor given WVUE in New Orleans with its 5th consecutive win, WAVE in Louisville, WAFB in Baton Rouge and WJHG in Panama City.

In fact, that WVUE in New Orleans took top honors in 10 categories time from rose in the large market category, KGMB, KHNL in Honolulu received top honors in eight categories time for the most Murrow's in that category. We are quite proud of the commitments to quality local journalism that is exemplified by all of the winners. We're also quite humbled very recently with the National Association of Broadcasters Leadership Foundation announced that it had chosen six great television stations for its coveted 2019 Service to America Awards. These awards recognize outstanding public service by local broadcasters.

The winning stations included the second consecutive Small Market Winner for WCTV, our CBS affiliate in Tallahassee. We understand WCTV winning this award for the second time in a row, it was the very first back to back win in the history of the awards. We are equally proud that Gray's stations constituted five of the competition six finalists in the Medium Market, Small Market categories that WAFB in Baton Rouge, WTOC in Savannah, KWQC in Davenport, WECT in Wilmington, WJHG in Panama City. NABLF also selected Raycom Media as one of three finalists in the Service to Community Award ownership group category.

Few days ago, the Society of Professional Journalists selected WVUE in New Orleans for three Sigma Delta Chi Awards, which honor exceptional

professional journalism. The Society honored WVUE's investigative pieces in the 51 plus market category in three separate categories: Documentaries, Investigative Reporting and Public Service in Television Journalism.

As we continue with more good news, over the past week, Wisconsin Broadcasters Association chose WSAW, our CBS affiliate in Wausau, a Station of the Year and TV News Operation of the Year in the State of Wisconsin. The second consecutive win in both of these categories for WSAW.

Meanwhile in South Carolina, WIS or NBC affiliate in Columbia earned an amazing 14 nominations in the Southeast Regional Emmy Competition, more than any other station in the state. WIS has now been recognized for 34 Emmy nominations in just the last three years. And Sunrise newscast was nominated for best morning newscast in the Southeast for the fourth (ph) year in a row and indeed Sunrise has been nominated in one each of the last three years.

Several other Gray stations received numerous Emmy nominations in the same competition including WRDW in Augusta, Georgia and WMBF in Myrtle Beach. It's all very impressive awards with finalists and winners. The challenges facing local journalism today especially outside the very largest media market are profound and growing. The finalists and winners in all these awards not just those are great television, confirmed that thousands of journalists and lots of local media companies remain committed, despite unprecedented pressures to keep their focus on impactful local journalism and to truly serving the local communities. We salute all the best journalism across the country.

With that, I turn the call to Jim Ryan.

James Ryan -- Chief Financial Officer

Thank you. Kevin. Good morning, everyone. Our earnings release and our 10-Q were filed a little earlier this morning. I'll keep my comments and results of operations for Q1 as well as comments on Q2 to a combined historical basis. As Hilton mentioned earlier, we are very pleased with where our first quarter revenue came out, especially considering the $13 million of Olympic revenue we're going against from last year, and we are encouraged that March finished stronger than originally been anticipated.

First quarter expenses were inline with our guidance and as I've discussed in our Q4 call and as well as Hilton mentioned earlier today, our Q1 results were impacted significantly by the one-time only costs associated with the Raycom merger, which again included $28 million of third-party contract termination fees, $22 million of professional fees and $18 million of incentive and/or of severance compensation. Of those costs, approximately $36 million hit our broadcast expense line and approximately $32 million hit our corporate expense line. If you back out those one-time only costs, then our net income available to common shareholders for the first quarter of 2019 would have approximated an income of $27 million or about $0.27 per share.

Quickly updating everyone again on our Raycom merger synergies, as we discussed on our last call as well. Payroll, we have currently taken actions to implement approximately an aggregate of $62 (ph) million worth of annualized savings, that includes payroll reductions involving over 130 positions in $22 million of annual compensation. Contractual arrangements terminating the national Rep Firm and other contract changes produced $18 million to $20 million of annualized savings. We're still very comfortable with the $15 million of net retransmission uplift that we have talked about. And the Raycom aviation unit was closed down immediately upon closing and this -- and the aircraft were sold for just shy of $3 million in Q1.

Those annualized savings approximate about $11 million of real year-over-year savings in Q1, and I would expect in Q2 that year-over-year savings is a little higher somewhere between $12 million and $15 million.

Turning to the balance sheet, as of March 31, 2019, our total leverage ratio, as defined in our senior credit facility was 4.86 times. That was based on a trailing eight quarter operating cash flow number of $770 million, the aggregate principal amount of debt outstanding as of 3/31 was $3.967 billion, cash on hand was approximately $225 million.

Our second quarter guidance, we anticipate revenue increasing low single-digit percent with strong mid 20s growth in retransmission revenue and low single-digit growth in core. Broadcast expenses are really being driven in Q2 by an increase of reverse comp of $22 million to $23 million as the principal driver.

I'll turn the call back to Hilton.

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

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

Questions and Answers:

Operator

(Operator Instructions) Your first question comes from the line of Marci Ryvicker from Wolfe Research. Please go ahead. Your line is open.

Marci Ryvicker -- Wolfe Research -- Analyst

Thank you. I have just a couple of questions. Jim, that $12 million to $15 million of net synergies for Q2, I guess is that net or are there any other one-time expenses we need to think about that may hit either corporate or broadcast OpEx?

James Ryan -- Chief Financial Officer

We said in our guidance that we expect in Q2 maybe about $1 million of OTO (ph) related to the merger and the broadcast line and somewhere between $1 million and $2 million in the corporate line. There would be similar OTO coming later in the year as we make additional progress in reaching our $80 million worth of total synergies, and which we feel very comfortable about attaining on an annualized basis.

Marci Ryvicker -- Wolfe Research -- Analyst

Okay.

James Ryan -- Chief Financial Officer

But there would be Q2 and Q4 and we'll talk about that as we get through our -- get to our Q2 call.

Marci Ryvicker -- Wolfe Research -- Analyst

Okay. For the new channels that you're launching, how should we think about investment spend on those throughout the year?

James Ryan -- Chief Financial Officer

It's de minimis, I would describe it as immaterial and any investments especially in the joint venture with Ryman would be over a two to three year period. So it's -- we're very excited. In fact, we're speaking more to the project, but from a cash investment standpoint, it's not a material event for us.

Marci Ryvicker -- Wolfe Research -- Analyst

Okay. And then Kevin, for FOX, can you remind us when this is up and I couldn't tell from your comments, if you're already talking to them.

Kevin Latek -- Executive Vice President, Chief Legal & Development Officer

We've been to -- we've sort of talked with all the network sometime ago, we got the other negotiations done pretty quickly. FOX is always in my experience has taken a lot longer, and usually goes up to (inaudible) and pass the deadline with extensions. So our -- all 21 of our affiliations are up on June 30 of this year, which is sort of a typical expiration date for FOX contract, it typically do expire in June 30, most companies.

Marci Ryvicker -- Wolfe Research -- Analyst

Okay. Thank you.

James Ryan -- Chief Financial Officer

Thank you, Marci.

Operator

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

Kyle Evans -- Stephens -- Analyst

Hi, Jim, you rip through those $62 million in synergies. I'm sorry, would you mind taking through those one more time, a little bit more slowly and then I've got some follow-ups.

James Ryan -- Chief Financial Officer

Yes, sure. So $28 million is contract termination fees; $22 million would be professional fees, so that's bankers, lawyers, everybody else gets paid in a large deal accountants; and $18 million of a combination of incentive pay and/or severance stemming from the merger.

Kyle Evans -- Stephens -- Analyst

Great. Thank you.

James Ryan -- Chief Financial Officer

And as I said, $36 million of that hits the broadcast line in Q1 and about $32 million hits the corporate expense line in Q1.

Kyle Evans -- Stephens -- Analyst

Great. You mentioned low singles on core pacing in 2Q. Could you dive down just kind of tell us what's driving that there with some specific commentary on auto, please?

James Ryan -- Chief Financial Officer

Auto has continued to be sluggish. Maybe Pat has a little more color for that.

Pat LaPlatney -- President and Co-Chief Executive Officer

Sure. So auto was sluggish, although we're seeing pretty strong performance out of legal and financial. In fact, both are really very strong relative to the past few quarters, but the auto continues to be weak.

James Ryan -- Chief Financial Officer

As we talked about on our Q4 call, we mentioned that Ford spending was off this year. We think that's due to their product line shifts from sedans to trucks and SUVs. So we are seeing that a little bit. And as we've commented several times over the last few calls, Dodge, Chrysler Jeep continues to be a challenge by other product issues.

Kyle Evans -- Stephens -- Analyst

Where do you think auto shakes out for the year?

James Ryan -- Chief Financial Officer

It's off to a slow start, first half of the year. So I think it's -- I don't have it. I don't know exactly where it shakes out, but it's not going to be as I don't think quite as robust for us as we originally had hoped.

Kyle Evans -- Stephens -- Analyst

Okay. And I'm not looking for a real detail here given that digital is now no longer its own segment, but just curious as to kind of what you're seeing underlying in digital as its embedded in your local, national core?

James Ryan -- Chief Financial Officer

We see continued growth there.

Kyle Evans -- Stephens -- Analyst

Low-single? Mid-single? High-single? Just --

James Ryan -- Chief Financial Officer

Low double-ish.

Kyle Evans -- Stephens -- Analyst

Okay. Great. I'll hop back in the queue. Thank you, guys.

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

Thanks, Kyle.

Operator

Your next question comes from the line of Davis Hebert from Wells Fargo Securities. Please go ahead. Your line is open.

Davis Hebert -- Wells Fargo Securities -- Analyst

Hi, everyone. Thanks for taking the question. I want to ask about the some of the adjustments or the one-time only costs you laid out, if I had those back the severance, the third-party contract and professional fees, I get about $147 million of, I guess, what I'd call EBITDA. But then your allowance for the credit agreement seems to be more limited. I think you reported a little over $100 million there. So just wanted to understand the things in between --

James Ryan -- Chief Financial Officer

Yes, you are perceptive. The credit agreement by the way the definition works, we're allowed to add back the $22 million of professional fees that we incurred around the merger. I'm not allowed under the strict definition to add back the $28 million of third-party contract termination fees, nor the $18 million of incentive/severance comp. So you can add. I mean, everybody has those data points and you can add back as appropriate, because they are definitely one time only costs, so they're in our rearview mirror at this point.

Davis Hebert -- Wells Fargo Securities -- Analyst

Okay. So if that's the case, I mean, I guess I can say at liberty, then the 4.86 times slightly over estimates your leverage, is that accurate? If I were to add back all those costs?

James Ryan -- Chief Financial Officer

Yes. As a matter of fact, if you do those add backs, it's more or like a 4.74 times rather than the 4.86 that the strict definition makes us in here too.

Davis Hebert -- Wells Fargo Securities -- Analyst

Okay. And then looking at your operating expense guidance for the second quarter, just looking through the the various items, I estimated $2 million to $3 million of one-time expenses that you expect to incur in the second quarter, is that accurate?

James Ryan -- Chief Financial Officer

Yes, that is what our guidance indicated. And as I mentioned few minutes ago, I would anticipate that there's going to be more OTO costs, sometime in the third or fourth quarter, as we continue to move forward in the year and get the full $80 million of annualized synergies that we had promised, nearly a year ago when we first announced the deal.

Davis Hebert -- Wells Fargo Securities -- Analyst

Okay, understood. And then lastly on the leverage trajectory here, I think you -- in the past you've said, in the mid-4 times area by the end of this year and then the mid-3 times areas by the end of 2020. Do you anticipate any changes to those levels?

James Ryan -- Chief Financial Officer

Well, we have said -- to say it slightly differently as we think we will be lower in the 4s by the end of this year and I would anticipate right now that's south of 4.5 and we will definitely be somewhere comfortably in the 3s at the end of next year. I don't think we've quite characterized where -- I wouldn't describe it as necessarily low 3s but comfortably in the 3s.

Davis Hebert -- Wells Fargo Securities -- Analyst

Okay. Even better. All right. Thank you.

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

Thank you.

Operator

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

Dan Kurnos -- Benchmark Company -- Analyst

Great, thanks. Good. I guess it's afternoon now. Kevin, look, I don't want to be cynical or whatever. I know you guys have said that the outlook might be a little bit cautious, but based on Q1 and your guide and obviously, we've had some. I'd love to get your thoughts on this. You kind of alluded to in your commentary, we had next are also mentioning that some of the MVPDs have moved more aggressively down markets. So I'm wondering if that's part of the reason why you're seeing some of the upside here, but you would need, obviously, some kind of sub attrition baked in or a reset of rate which can obviously happened with timing in order to get back down to your original guide or just maybe any additional color you could provide around how you're thinking about retrans over the balance of the year it would be helpful.

Kevin Latek -- Executive Vice President, Chief Legal & Development Officer

Yeah. We're -- last call we expected gross would be up about 20% for the year. We think that's very doable. I think Jim said in his remarks, we expect gross retrans could be up in the mid 20% for this year. So, that's on a combined historical basis, not just coming off of the as reported GAAP number for the Raycom. So I think that's pretty strong relative to our peers. Haven't done a line by line, but we're pretty happy with being up 20% on a combined historical basis, that's pretty in line with where we've been in the last couple of years, given that we had very few renewals this year. As I said, we are seeing some -- some loss like everybody else but our OTT growth is really strong and the net-net is that our gross is doing better than expected. So I think we are in better shape now retrans and we even thought we did last year at this time. So I'm not sure what the concern, if you're asking --

Dan Kurnos -- Benchmark Company -- Analyst

It's not a concern, Kevin. My point is that you guys are bidding (ph) by pretty big margin and it seems like it's going to flow through the rest of the year. So, I mean, to get to your original guide there would have to be some kind of weird step down in the back half of the year that I don't think (Multiple Speakers) anticipating.

Kevin Latek -- Executive Vice President, Chief Legal & Development Officer

No, retrans can sometimes be lumpy and that's kind of what we said by 20% or so, gets you a little above $800 million in gross for the year, but payments wide we have some folks who just pay late, we have some folks who missed a month and we're getting caught up. We've had some audits that turned up some under payments. So that stuff just a little bit of lumpy, no worst. We're still confident the year is going to be 20% or better increase on growth on a combined historic basis. So we think that's pretty strong.

Dan Kurnos -- Benchmark Company -- Analyst

Yeah, and for the record, Kevin, I think we all think that your retrans is pretty damn strong relative to everybody else. Anyway, just -- now let me shift to core given kind of the auto softness with crowd out, obviously, our benefits from displacement in the back half of the year. I think you guys still said you thought core would be up, and has that changed at all given sort of the incremental squeezing (ph) is in auto category?

Kevin Latek -- Executive Vice President, Chief Legal & Development Officer

I think local has an opportunity to be up a little bit by the time we get through a full-year given national off to a slow start and national is going reflect the auto more than the local will. That's probably not going to show growth year-over-year, but I think core has an opportunity still -- especially -- hopefully things will pick up later in the year and as you mentioned comps were easier especially in Q4 that local could still be showing in the green territory by the time we get to the end of the year.

Dan Kurnos -- Benchmark Company -- Analyst

Got it. Perfect. Thanks guys.

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

Thank you.

Operator

Your next question comes from the line of John Kromalic (ph) from Gray (ph) Media. Please go ahead. Your line is open.

John Kromalic -- Gray Media -- Analyst

Hi, Jim. Tell me again, what was that $770 million number you threw out. Was that trailing 24 months?

James Ryan -- Chief Financial Officer

Yeah, trailing eight quarter. Yes.

John Kromalic -- Gray Media -- Analyst

Through the end. And on a normalized basis, would you say that the conversion rate or free cash flow to EBITDA should be south of 50% or north of 50%?

James Ryan -- Chief Financial Officer

John, actually, I don't think I've thought about that, quite like that.

John Kromalic -- Gray Media -- Analyst

I mean in that $770 million is the free cash flow, in the $400 million range, which is north of 50%.

James Ryan -- Chief Financial Officer

I'd say it a little differently and it depends on, you're taking -- I mean, you're talking about two-year blended, so you get the full political cycle.

John Kromalic -- Gray Media -- Analyst

Yeah, absolutely.

James Ryan -- Chief Financial Officer

It's probably, definitely in the 40 -- well into the 40% conversion rate and maybe getting closer to 50%. But -- I mean, it's very strong, as we've talked about many times. I mean, you can see it in the historical numbers that we've published in several investor decks and obviously with the $770 million (ph) you really need to add back about $42 million or $46 million of OTO that the definition doesn't let me add-back. So you're north -- if you do that, you're north of $800 million (ph), I got $220 million of cash interest you can tell -- you can pick that up right from the balance sheet in the Q. We have $14 million of required debt amortization every year, $75 million of CapEx, roughly we've talked about several times with people, $52 million of preferred dividends and then it's -- what's the cash taxes over the next couple of years and this year we're saying it's probably -- in the Q says, we're expecting maybe $13 million -- $12 million, $13 million of cash taxes, obviously next year gets up significantly higher with the political. But we still have NOL to use up next year as well and probably end of the year and back -- year after that to some extent. So you get very strong free cash flow generation out of this company on a two-year basis.

John Kromalic -- Gray Media -- Analyst

I just did the quick numbers in response to what you said it is definitely north of 50%. (Multiple Speaker) And what I'm -- I'm trying to fix what it is.

James Ryan -- Chief Financial Officer

That's good John. I like your math. Keep it up.

John Kromalic -- Gray Media -- Analyst

And what could the -- what should the normalized tax rate be in the next two, three years, cash tax rate? Should be --

James Ryan -- Chief Financial Officer

This year were especially low and I'm -- I mean it just because of -- basically some prepayments last year that didn't needed, you know, that we actually get the benefit of this year. So, I think next couple of years and an off year you're -- and non-political year you're probably in the mid 30-ish range in cash taxes, in a political year, obviously, that's going to depend a little bit on the political revenue, but as we've all talked about many times 2020 especially will be a good year, when we can all argue that how good is good.

I think you're probably in the $60 million, $70 million, $75 million range. So, on an average $40 million to $50 million, maybe.

John Kromalic -- Gray Media -- Analyst

Okay. Lastly, you used to put in your slide shows, the breakdown of revenue between networks. Can you, at least, roughly give that to us now, on a pro forma basis?

James Ryan -- Chief Financial Officer

We haven't done that for a while. But I'd say CBS and NBC probably -- yeah, probably accounts for about two-thirds in total and their split now pretty much equal. FOX revenue is maybe 10 -- high-single digit percentage maybe 10%. It's not big, even with the new company combined. And the other piece that would be your ABC that trying to do math in my head, but I think that probably accounts for about high-teens percentage, 20-ish, maybe.

John Kromalic -- Gray Media -- Analyst

Okay. So, I mean if the FOX renegotiations go pretty much as planned. Is that how we get the 25% increase in gross and net returns?

James Ryan -- Chief Financial Officer

No, we are talking about gross increase in retrans, we have not given any guide for net retrans yet this year and we won't until we get through the FOX negotiation.

John Kromalic -- Gray Media -- Analyst

Okay. Even though FOX is 9% of revenue.

James Ryan -- Chief Financial Officer

Correct.

John Kromalic -- Gray Media -- Analyst

Okay. That's it. Thank you.

James Ryan -- Chief Financial Officer

Thank you, John.

Operator

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

Jim Goss -- Barrington Research -- Analyst

Thanks. Maybe this is Kevin or possibly to Jim. But in terms of the sub-stabilization, if you will with OTT versus exceeding lots in subscriber levels, is that -- are you implying that that's also true in financial terms that they're pretty much the -- the give and take is pretty much even on both sides, so that -- so not just in terms of your viewers and subscribers, but it's also in the financial impact?

Kevin Latek -- Executive Vice President, Chief Legal & Development Officer

Jim, we don't know how, at this point to guess how many OTT subs are our core cutters versus people who already have an MVPD sub versus people who never had an MVPD subscription. But we have said, that we are largely indifferent as to how a sub gets to us, whether it's through traditional or non-traditional means that the MVPD, I've said -- the non-MVPD sub base is certainly growing a lot faster than expected and so we're pretty happy with that. But we have not any -- we haven't done any and I don't know how we would do any kind of analysis this side, whether it's a -- we're financially better off or not because there's too many assumptions as to where these subs are coming from.

Jim Goss -- Barrington Research -- Analyst

Is the retrans you generally negotiate going to be based on the certain value or certain markets to not on a per sub basis such that any impact and the change of that subscriber base wouldn't happen until the next renegotiation?

Kevin Latek -- Executive Vice President, Chief Legal & Development Officer

I'm not sure, I understand the question directly. All of our MVPD contracts pay per sub per month fee for the target channels that are being carried and that's I think consistent and probably every single retrans contract across the industry2.

Jim Goss -- Barrington Research -- Analyst

Okay. And the other question regarding some of the programming you had with Greta Van Susteren and Opry. I think, Jim, you indicated to Marci that it was somewhat immaterial in terms of cost. I was wondering what the primary purposes were of the programming, is it for branding to the extent you syndicate some of the programs? Or are there, is it to create some programming for a local ad sales rather than purchase programming from others? And if you have any further ambitions, I wonder if you could frame that out in terms of programming?

James Ryan -- Chief Financial Officer

I mean, I would say the channel with Opryland, we are doing a 24/7 channel that we're going to launch on Multicast Networks. We're doing it because we think we're going to make money. Remember, Pat comes from a company that had launched multicast nos (ph) in the past and done pretty well with it, so we're hoping to repeat that success. Greta's is shown on the channel, we want -- Greta has been really valuable to our local TV stations and their franchises already, but taking a -- creating a political shows are the next step in our relationship with her and we're doing that again because we think we're going to make money on it, and it's a weekend program. So it's not like we're looking to save money on traditional game shows or judges shows. This is a weekend political show. So it's going to be on -- it's not really to place -- it's not replacing content that we're buying from syndicators, it's something we think will be good for the audience, good for our demo and again at the end of day we're spending a little bit of money, I think we're going to make it back. So neither one of these is a big material investment or a material cost, but we're doing them -- we do things because they make money.

Jim Goss -- Barrington Research -- Analyst

Okay. That's it. Thanks.

James Ryan -- Chief Financial Officer

Great, thanks.

Kevin Latek -- Executive Vice President, Chief Legal & Development Officer

Thank you.

Operator

(Operator Instructions) Your next question comes from the line of Michael Kupinski from NOBLE Capital Markets. Please go ahead. Your line is open.

Michael Kupinski -- NOBLE Capital Markets -- Analyst

Thanks and congratulations on your quarter. Can you give some color, you gave guidance in terms of the second quarter, in terms of corporate and administrative expenses as well as production expenses. The second quarter in a good runway for what we should expect for the balance of the year and those line items.

James Ryan -- Chief Financial Officer

The production expenses are very seasonal. If you go look back, I mean, first quarter, basically the production company think about it with the (inaudible) sports schedule and the professional sports schedule. First quarter you've got basketball, fourth quarter you've got football. Second and third quarters are pretty lean both in the revenue lines and the expense lines and that's just a natural flow of that business.

I think your -- the corporate line in Q2 to some extent would be a reasonable indicator for Q3. We're certainly working on some synergies. But I think Q4 corporate line usually runs a little bit higher than Q2 and Q3 just because of seasonality and incentive comps walking the final numbers.

Michael Kupinski -- NOBLE Capital Markets -- Analyst

Got it. Thanks for that. And I know that you plan to focus on digesting the Raycom acquisition, but I also know that the company always things about the next acquisition given that you likely start to see the developing relationships quite early on. Can you discuss the pipeline for future acquisitions and the nature of those, whether their targets might be larger or smaller in nature, maybe geographic areas or affiliations or areas of interest there?

Kevin Latek -- Executive Vice President, Chief Legal & Development Officer

Yeah, I mean this -- we don't have the luxury of choosing from among a large number of data points in same that we -- now we're going to focus on the state of Oregon or we're going to focus on CBS affiliations. There is a limited number of markets. So by definition, a limited number of number one and number two TV stations that would meet our criteria of those a lot of stations are already owned by a network or one of our larger peers. So our pipeline are the number one, strong number two TV stations that are not owned by a conglomerate or another large peer who is not selling. Their decisions as to when to exit are driven entirely by factors really beyond our control and beyond our visibility. So we have seen in our 30 some transactions over the last few years that people decide to sell based on generational issues, family issues and has nothing to do with where the stock market is or where the networks are at or what football team is doing. It is entirely up to sort of family dynamics. And so we are at their mercy. We keep close with lots of folks and we'll continue to do so. The pipeline is kind of the same group of stations that we've talked about for a long time now, when people decide to sell, it will be up to them.

So what we're always looking at stuff and if we can -- if something makes sense on a dollar value and it's in a new state for us that's -- we're not going to walk away if it's in the state, we're already at, we're not going to walk away because we already sort of in that market, we're really just looking for the quality stations and over the long term, it will all work out, we'll have an even bigger portfolio that we have today, but we don't have -- it's not like there's 20 stations for sale and just picking on a -- we want CBS affiliates in the State of Oregon, just to make something up. It's really we're waiting for the right opportunity as Jim has said many times, we plan to be opportunistic, but also very patient.

Michael Kupinski -- NOBLE Capital Markets -- Analyst

Got you. And in terms of just how active, the pipeline is at this point, do you feel that it's likely that you will make acquisitions on this year? Or do you think it's just something that you have to assess and like you said, whether or not these families might decide to sell?

Kevin Latek -- Executive Vice President, Chief Legal & Development Officer

I would expect there will still be acquisitions this year.

Michael Kupinski -- NOBLE Capital Markets -- Analyst

Great. Okay. That's all I got. Thank you.

Operator

Your next question comes from the line of Dennis Lewis (ph) from Active (ph) Partners. Please go ahead. Your line is open.

Dennis Lewis -- Active Partners -- Analyst

Thanks you. When you released the fourth quarter, you made an estimate of free cash flow preliminarily for 2018, a $500 million to $525 million, I wonder if that was refined specifically and if you combine that with 2017, you would have gotten somewhere over $4 a share and free cash flow per share. And aside from those numbers, I wondered if you combined '18, '19 in your outlook, would that be more or less?

James Ryan -- Chief Financial Officer

We have not yet updated that free cash estimate for '18, we will be doing so over the next couple of weeks and we will be updating our investor presentation and we'll post that within a couple of weeks as well. But I think that number is still in the right zip code. It will -- we will lock it down with the final calculation though in the next couple of weeks. I don't disagree with your math about an '18 estimate and '17, that sounds about right to me. I think, I didn't quite catch the piece of the question about '18, '19.

Dennis Lewis -- Active Partners -- Analyst

Yeah. Whether would it be at least high for '18, '19 and then presumably it would be higher for '20, when you throw in political and retrans.

James Ryan -- Chief Financial Officer

It could without having '18 locked down yet and we haven't commented specifically on '19. It might be a little bit higher certainly net retrans growth '17 to '19 is very nice growth. I think your core '19 to '17 is probably not vastly different, maybe up a little, but it's really the key would be the growth in net retrans, so that probably makes it a little bit higher and political in '19 would be, I would expect it to be lower than '17 because in '17, there were some off-year governor races that don't occur in '19. So it's not quite as straight apples-to-apples comparison.

Dennis Lewis -- Active Partners -- Analyst

And if you extended to '19, '20, wouldn't you assume that would have to be higher because of political in '20 and growth in retrans?

James Ryan -- Chief Financial Officer

Certainly retrans will grow. We have not -- we've not give it a number for '20 political other to say that we think it will be a very strong year. So does that equal '18 which was a very strong year. Is that a little bit better than '18, I'd -- I mean, everybody can have their own opinion on that. I think '19, '20 combined free cash flow though will again be very significant for the company as we talked about a little bit earlier.

Dennis Lewis -- Active Partners -- Analyst

Okay. Thank you.

Operator

And there is no further questions at this time. I will now turn the call back to Mr. Hilton Howell for closing remarks.

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

Thank you very much, Kelly. And I just want thank all of you for being on the line today. We're exceptionally pleased with our quarter's results and look forward to Q2 and the rest of this year, it's going to be an exciting time. Talk to you soon.

Operator

This concludes today's conference call. You may now disconnect.

Duration: 51 minutes

Call participants:

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

Kevin Latek -- Executive Vice President, Chief Legal & Development Officer

Pat LaPlatney -- President and Co-Chief Executive Officer

James Ryan -- Chief Financial Officer

Marci Ryvicker -- Wolfe Research -- Analyst

Kyle Evans -- Stephens -- Analyst

Davis Hebert -- Wells Fargo Securities -- Analyst

Dan Kurnos -- Benchmark Company -- Analyst

John Kromalic -- Gray Media -- Analyst

Jim Goss -- Barrington Research -- Analyst

Michael Kupinski -- NOBLE Capital Markets -- Analyst

Dennis Lewis -- Active Partners -- Analyst

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