Earnings Call Transcript - GTN Q3 2022

Operator, Operator

Ladies and gentlemen, welcome to the Gray Television Third Quarter 2022 Earnings Call. Your host for today, Chairman, Hilton Howell. You may now begin.

Hilton Howell, Chairman and CEO

Thank you, operator. Good morning, everyone. Thank you for being here this morning. As mentioned, I'm Hilton Howell, the Chairman and CEO of Gray Television. And I want to thank all of you for joining our Third Quarter 2022 Earnings Call. With me today are our Gray executive officers: our President, co-CEO, Pat LaPlatney; our Chief Legal and Development Officer, Kevin Latek; our Chief Financial Officer, Jim Ryan; and our Chief Operating Officer, Bob Smith. We will begin this morning with a disclaimer that Kevin will provide. Kevin?

Kevin Latek, Chief Legal and Development Officer

Thank you, Hilton. Good morning, everyone. Gray uses its website as a key source of company information. The website address is www.gray.tv. We will file our quarterly report on Form 10-Q with the SEC later today. Included on the call may be a discussion of non-GAAP financial measures and, in particular, broadcast cash flow, broadcast cash flow less corporate expenses, operating cash flow, free cash flow, adjusted EBITDA, and certain leverage ratios. These metrics are not meant to replace GAAP measurements but are provided as supplements to assist the public in their analysis and valuation of our company. Included in our earnings release as well as on our website are reconciliations of the non-GAAP financial measures to the GAAP measures reported in our financial statements. Certain matters discussed on this call may include forward-looking statements regarding, among other things, future operating results. Those statements are subject to a number of risks and uncertainties. Actual results in the future could differ from those expressed or implied in any forward-looking statement as a result of various important factors that have been identified 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. Now, I'll turn the call to Hilton.

Hilton Howell, Chairman and CEO

Thank you, Kevin. Today, we reported once again record quarter total revenues, better core revenue results than anticipated and lower expenses than in our guidance. Our political advertising revenue was much stronger than the same time in the third quarter of this year in 2018, the last midterm election year. In fact, our results on political were up 200% on a GAAP basis and 30% on a combined historical basis. To give you some idea, our total political in 2018 was $372 million on a same-station basis. This year, we're expecting over $500 million, $0.5 billion. That's a $130 million improvement apples to apples. With just a few days remaining before election day, we do anticipate that our full year 2022 total political advertising revenue will approximate $500 million. This is a tremendous amount of political revenue for any company, especially in a nonpresidential year. We are thrilled that full year 2022's political advertising revenue appears set to exceed 2018's already very strong political advertising revenue, as I mentioned, by a very wide margin. We are admittedly disappointed that our political revenue fell short of our aspirational expectations. Nevertheless, our third quarter financial results overall were extremely impressive. On a year-over-year as-reported basis, in the third quarter of 2022, core advertising revenue increased by 23%; retransmission consent revenue increased by 38%; broadcast cash flow was $357 million, an increase of 75%; and adjusted EBITDA was $336 million, an increase of 81%. Our net income attributable to our common shareholders in the third quarter was $95 million or $1.03 per diluted share. Consistent with our prior commitments to allocate our robust cash flow to reducing our leverage, we made voluntary debt principal prepayments of $100 million during the third quarter. On November 1, we made a further $100 million voluntary debt principal prepayment, bringing the total voluntary prepayments for the year to $250 million. Also, I am happy to report that our construction projects at our studios at Assembly Atlanta are running significantly ahead of schedule. We remain on track for our Swirl Films division to begin its productions in its new studios in the first quarter of 2023. We also remain on track to complete the studios and other facilities for NBCUniversal in the summer of 2023, in particular, on June 1, 2023. At that time, we will have a new state-of-the-art television and movie production campus 8 minutes north of our corporate headquarters here in Buckhead, Georgia. Also at that time, we intend to largely pause Gray's funding of construction and development to examine the most profitable avenues by which Gray and other third parties will be able to leverage the full value of the Assembly Atlanta project for Gray's shareholders. You will hear on this call that our core revenue is holding strong in this economy, which will generate strong cash flow in the fourth quarter and in 2023. At this time, I'd like to turn the call over to our President and Co-CEO, Pat LaPlatney, who has further insights on the quarter. Pat?

Pat LaPlatney, President and Co-CEO

Thank you, Hilton. Gray's television stations and production companies continue to perform well in the third quarter despite the current macroeconomic headwinds affecting political advertising displacement. On a combined historical basis, core revenue held strong in the third quarter, exceeding our guidance by declining just 3% from the third quarter of last year. For context, we earned $130 million more political revenue in the third quarter of this year than the year prior period while losing only $13 million of core revenue. In addition, our stations did not have any revenues from the Summer Olympics in the third quarter this year unlike last year. In terms of categories, we saw the automotive category turn positive in the third quarter relative to Q3 '21 for the first time in a number of years and as a percentage of our core revenue relative to the second quarter of '22. Additionally, our services sector remained our strongest category, which is unchanged from last year's third quarter. We attribute the muted political advertising displacement on our core revenues through a combination of factors. First, our core revenues benefited from double-digit growth in digital advertising revenues, which are largely unaffected by political advertising displacement. Second, our recently acquired stations, particularly those from Meredith, have larger sales forces selling more effectively than last year as these sales teams have received some of the very best training available in the industry through our in-house sales training division. Third, our emphasis over the past three years on developing new local direct business is delivering solid results. In fact, we set new records in the third quarter in this area by generating over $29 million from approximately 2,000 new accounts. It's not an overstatement to say that our sales teams have never been better trained or skilled at competing successfully against our broadcast peers and especially our strong competitors in big tech. So far in the fourth quarter, excluding the fog of political displacement, we are still seeing reasonably strong demand from core advertisers, even in markets that are currently inundated with ads, and we believe this demand may signal a better fourth quarter core advertising result than much of the general economic news would suggest. However, we are continuing to keep a close eye on macro developments and client sentiment. With our success to date, we remain confident that we have the right assets and the right people to weather any economic conditions. Now I'll turn the call over to Bob Smith.

Bob Smith, Chief Operating Officer

Thank you, Pat. Political advertising revenues began this year with strong momentum and shattered our guidance in the first and second quarters of this year. As August began, the momentum was as strong as we have ever seen it, and the political buyers were as upbeat and busy as you would expect in the final weeks of a presidential year rather than the summer of a midterm year. But then, shortly after our August earnings call, we began to experience large and unexpected pullbacks in political advertising in a number of key races. In several major statewide races, some campaigns completely stopped spending any money on advertising after winning their expensive primaries, a trend that continued in most cases until October. Also, immediately after the key primaries that occurred in the first half of August, a couple of the major super PACs unexpectedly canceled fairly large orders for the general campaign. As a result, we have several close Senate and gubernatorial races where one party's candidate supporting issue advertising were simply not even on the air in August and September. Meanwhile, the 2022 political field widened in the third quarter with newly competitive state and federal races in places that historically have not been very competitive, such as New York, California, Oregon, and Oklahoma. Gray, unfortunately, does not have much of a presence in those states. Much of the political advertising dollars that moved to these newly competitive races seem to have diverted from the traditionally hypercompetitive states and markets where Gray does have a very strong presence, such as Alaska, North Carolina, Florida, and Michigan. Despite the unexpected pullback in early August and the widening of the political map, our political advertising revenues for the first 9 months of this year were $260 million. That amount nearly matched the $269 million of political revenues that we recorded on a combined historical basis in the first 9 months of the presidential election year of 2020. We now expect to finish 2022 with political advertising revenues between $495 million and $505 million, assuming no runoff races after election day. Interestingly, 2022 now appears to be the first election cycle in at least 20 years in which the fourth quarter of the year does not produce more than half of our political advertising revenue for the full year. In July and early August, we expected that the year would rival 2020 with $652 million of political revenue on a combined historical basis. Our 2020 political revenue included roughly $192 million from the presidential primaries, the presidential general election, and the two Georgia Senate runoff races that began after election day. In other words, we now expect that our 2022 political revenue estimate of roughly $500 million will finish about 6% ahead of our 2020 political revenue after excluding the presidential and the Georgia runoff races. In closing, I want to quickly mention two big operational announcements for this week. First, on Tuesday, Matrix announced that its new automated cross-platform media sales gateway called Admiral launched across all of Gray's markets. We are thrilled to be the first company to transition to this technology. Second, on Wednesday, we announced that we will be launching a new in-house division that will provide news research and new consulting services for our television stations starting January 1. With our new scale, now is the time to replace the fine outside vendors that have long served our stations with an in-house team comprised of some of the best experts in the business. Through both of these moves, Gray continues to evolve in a rapidly changing marketplace to ensure that our local news and sales professionals have the resources they need to best serve their local communities. I now turn the call over to Kevin.

Kevin Latek, Chief Legal and Development Officer

Thank you, Bob. In the third quarter, we recorded $368 million of retransmission revenues, which were slightly above year ago results on a combined historical basis and at the midpoint of our guidance range. As expected, retransmission expense, also called network compensation, was $226 million, which was higher than the year ago period due to escalators in our network affiliation agreements. As a reminder, Gray has not had any material retransmission agreements repricing between the middle of last year and the start of 2023. Currently, our retrans revenues reflect the interplay of annual price escalators in our retrans contracts and the declines in the number of paying subscribers. In the second quarter of 2022, we experienced larger declines in traditional MVPD subscribers than we have previously encountered. Most of those losses were compensated by increasing OTT subscriber numbers. In the second quarter of 2022, our Pay TV subscriber total declined by a low single-digit figure from the second quarter of 2021, which represents a bit of an uptick from our generally flat subscriber levels. We are hopeful that the third quarter and fourth quarter subscriber numbers will be better than the second quarter sub reports due to the return of all sports. Still, we remain conservative. We are now using the more conservative estimates for subscriber levels at the pay-TV companies in our retrans models. At this time, we expect our gross retrans revenues will approach $1.5 billion for the full year of 2022. Around the end of this year, we will reprice some major retrans contracts that cover about 22% of our MVPD subscriber base. We expect to renew those contracts on favorable terms with minimal disruption just as we have in prior years. With the uncertainty around pricing for the large portion of our retrans contracts combined with less visibility into subscriber trends, we do not have sufficient visibility into retransmission revenue for 2023. That said, over a multi-year basis, we continue to believe that we will be able to unlock the full value that our stations confer on all distribution systems, which in turn will result in increases in both gross and net retransmission revenues. Now I turn the call to Jim Ryan.

Jim Ryan, Chief Financial Officer

Thank you, Kevin. Good morning, everyone. Hilton, Pat, Bob, and Kevin have covered the key highlights of the quarter relatively succinctly. As Hilton mentioned a little earlier, we've already prepaid year-to-date $250 million of our term loans. We also required amortization of $11 million on our term loan D. So our total debt reduction through November 1 of this year is currently at $261 million. Turning to a full year 2022 outlook, I would say that, obviously, this is a forecast based on our current understanding, and actual facts and circumstances could change things before we get to year-end. Our core revenue is approximating $1.5 billion. As we've already said, we expect political revenue of approximately $0.5 billion. If the Georgia Senate race goes to a runoff, we would expect additional political revenue for the runoff election date through December 6. Stay tuned next week to see if that happens or not. Retrans revenue, as Kevin mentioned, is approximating $1.5 billion. We expect our total revenue to approximate $3.6 billion. Total operating expenses before depreciation, amortization and gain or loss on disposal of assets will be approximately $2.35 billion. Included in that number is approximately $22 million of noncash stock compensation. Our operating cash flow, as defined in our senior credit facility, is expected to approximate $1.3 billion for this year, and the eight-quarter average operating cash flow is expected to approximate $1.17 billion. We anticipate the total principal amount of our outstanding debt at 12/31/22 will be approximately $6.525 billion, assuming at least an additional $50 million of debt reduction by the end of this year. If the Georgia Senate race goes to a runoff, we obviously will have a little more cash to better pay down a little more debt. We expect free cash flow before common dividends, stock repurchases, acquisitions, investments, and our assembly construction costs will approximate $650 million this year. Our combined historical 2021 free cash flow was $443 million, with 93.1 million shares outstanding; the average '21/'22 combined historical free cash flow per share is $5.39. That's equivalent to 40% of yesterday's closing price of GTN. Again, we expect our operating cash flow, as defined in our credit facility, to be $1.3 billion. Including amounts already used in 2022, we expect the following approximate material uses of cash for the full year of 2022. Currently, we anticipate cash interest of $345 million, cash tax payments of $200 million. We have a pending federal and state refund aggregating $22 million, but we cannot assure anyone that that $22 million will be reached before the end of the year. Routine capital expenditures of approximately $125 million, preferred dividends of $52 million, required amortization on our term loan of $15 million. Other uses of cash for the full year 2022 are anticipated to be common stock dividends of approximately $31 million. As we reported in Q2, we had common stock repurchases of $50 million. We currently anticipate that our full year Assembly Atlanta construction cost will be approximately $201 million. Acquisitions and/or investments this year will approximate $85 million. And again, most importantly, in addition to the $250 million voluntary debt repayment we've done, and our $11 million required amortization for this year. We anticipate that we will be able to pay down at least an additional $50 million more of debt before the end of the year to bring total debt repayment this year to $315 million. The company is on track to have its best year ever of operating cash flow results on an as-reported basis and, importantly, on a combined historical basis, its second best year ever of operating cash flow results only slightly lower than the record set during the combined historical basis in 2020. I'll turn the call back to Hilton.

Hilton Howell, Chairman and CEO

Thank you, Jim. To summarize what you've heard today, Gray Television posted record third quarter total revenues, met our retransmission guidance, and exceeded our core advertising revenue despite tremendous political displacement. We managed our costs to achieve lower expenses than guidance. In terms of our political advertising revenue, we are truly disappointed that several unexpected factors will keep us from hitting our previous guidance. Nevertheless, we are very proud of a 30% or $130 million increase over apples to apples, midterm to midterm. Still, our political revenue is in line on a combined historical basis to hit our revenue level of 2020 that we will be proud of. In the end, 2022 is poised to be our second best year ever for total revenue and second best year ever for operating cash flow with only the presidential and runoff year of 2020 beating this year's results. So operator, at this time, we'd love to open the line for questions.

Operator, Operator

Our first caller question in the queue is Craig Huber with Huber Research Partners. Please go ahead.

Craig Huber, Analyst

Yes. Maybe a little more color, if you could, please. Can you tell me how much of your retrans subscribers are down year-over-year, including the OTT benefit?

Kevin Latek, Chief Legal and Development Officer

So we received reports on a delayed basis of one to two quarters. And so we have been providing the best numbers we have on these earnings calls. On this call, I will address the second quarter. In the second quarter, our pay-TV subscriber total declined by a low single-digit figure from the second quarter of 2021, which represents an uptick from our generally flat sub levels.

Operator, Operator

Our next question comes...

Kevin Latek, Chief Legal and Development Officer

Sorry, yes, let me just finish that. In the second quarter, our pay-TV subscriber total declined by a low single-digit figure from the second quarter of 2021, which represents an uptick from our generally flat subscriber levels.

Craig Huber, Analyst

Because I think last time on the three months ago, you guys said it was down about 1% year-over-year. Now you're saying it's down in the third quarter, low single digits, if I heard you right. What are you thinking is going to be down for the fourth quarter that impacts your retrans revenue number?

Kevin Latek, Chief Legal and Development Officer

We provided our retrans guidance. As mentioned, we have projected declines for the second quarter over the next several quarters. We will not have the fourth quarter subscriber numbers until April of next year. Our guidance is based on the most recent full reports available. For the fourth quarter, we are estimating second quarter's mid-single-digit figures. These figures could improve with the return of sports in the fall, but they could also decline. We lack visibility into real-time subscriber numbers, as our reports arrive one to two quarters after the end of the month.

Craig Huber, Analyst

Okay. My last question, please. Just a little bit more color on your political revenues, why they were less than what you were thinking maybe three months ago. Are you thinking that the total political dollars available in the marketplace are significantly lower than what you were thinking three months ago? Or is it just a shift of those other states that you talked about?

Kevin Latek, Chief Legal and Development Officer

Yes. I think a lot of detail in Bob's remarks, but the two things that happened is, in mid-August, we had a number of cancellations and campaigns that went dark that were expected to be spending by all accounts. And then as they came back late in the quarter, there was a wall there that was not made up. The total dollars coming into the industry and to spending in advertising in general seems to be fairly strong, but the spending was diverted to places like California and New York, Oregon, Washington State, and Oklahoma, places where we don't have a strong presence. Places where we do have a really strong presence fell short, Florida, North Carolina, for example, Michigan, Alaska, that we just didn't see the spending there because those dollars seemed to have kind of moved to places that historically have not been particularly competitive in this cycle but have become very competitive. So yes, the dollars were there, but they moved to places where we don't own TV stations, for example, in New York City, Los Angeles, San Francisco, Seattle. We have very little presence in Oregon. We had a little presence in Oklahoma. And we have a big presence in Florida, a big presence in North Carolina, a big presence in Alaska. So in a way, the cookie crumbled, if you will, the spending was there, but the map has become so much more competitive than folks were expecting three months ago. You can look at reports out of Washington that indicate races that were won by five points or more are seeing tremendous spending from both parties on races that were not expected to be competitive six months — three to six months ago. So the dollars are being funneled in as expected, but they're going to places that were not on the map six months ago.

Hilton Howell, Chairman and CEO

And Craig, please remember we're up $130 million on where we were at the last midterm election. That's a 30% increase. Our political revenue hasn't decreased; we just haven't hit a Presidential election year, which is like at least through the first three quarters, we were pacing at — three quarters, I apologize. We were pacing at a Presidential election year basis. And so I'm immensely proud of these numbers, immensely proud of this truly gargantuan political number, it's $0.5 billion. And so talking about a miss is a misnomer.

Operator, Operator

Our next question comes from Steven Cahall with Wells Fargo.

Steven Cahall, Analyst

Jim, thanks for the new free cash flow guidance. First, it came down about $150 million versus prior. I was wondering if you could just kind of help us allocate. The obvious one would be political, but curious if there's anything in retrans or cash interest that's in there. And just to extend on this, I know you're not guiding to 2023, but I think we're all going to be trying to do a lot of work to figure out what kind of cash you have next year. So maybe you could talk a little bit for next year about what assembly CapEx is going to be. What I'm really trying to figure out is if you'll be able to pay down some debt between assembly CapEx and the preferred and the common. And then I've got a follow-up for Kevin.

Jim Ryan, Chief Financial Officer

Steve, you're right. Most of that $150 million down on free cash is the delta in the political; cash interest would be up a little bit from our last guide. Obviously, rates have continued to increase. Our current guide is locked in through November, and we're estimating some numbers for December, but I think it's pretty solid, probably still going up a little bit in December. But there's a little bit of timing difference on our assembly construction costs. As Hilton mentioned earlier, actually, believe it or not, construction is ahead of schedule. So when it's ahead of schedule and the dollars are a little bit ahead of schedule, too, but that's a timing difference between 2022 and 2023. So the simple answer is, yes, the political is the obvious answer. Construction costs for assembly next year — hang with me a second, I'm trying to — we said we will say in the Q when we file it a little later today, approximately $73 million for the full year 2023, which anticipates about $59 million of either $59 million of land sale and/or certain incentive payments on public infrastructure that we would receive in 2023 and then an additional $20 million of additional incentive payments probably late 2023 or early — I'd say, late 2023 right now based on the construction schedule. So I do anticipate that we should have the ability to pay down some debt additionally in 2023. We're still working on our 2023 numbers. So I really don't want to elaborate on full year 2023 yet, but I do expect we will have capacity to pay down some degree of debt as we move through 2023.

Steven Cahall, Analyst

And then, Kevin, just looking at some of the retrans guide plus your commentary, so I think if I understand it correctly, your MVPD renewals in 2023 look a lot like 2022. Sub declines are a little worse. So I'm guessing gross retrans is a little bit lower. Do you expect to be positive on net retrans cash flow growth in 2023?

Kevin Latek, Chief Legal and Development Officer

Steven, we had no renewals in 2022 at all and no renewals in the second half of 2021. So there hasn't been a repricing of retrans for an 18-month period. So what we have this year is literally just the retrans rates minus the subscriber declines for this year. In 2023, we'll begin 2023 by renewing some big operators. And so that will push gross up. Obviously, sub declines will push growth down. Since we don't have a feel of whether the uptick that we saw in the subscriber declines was temporary or permanent, it's hard to give guidance. Plus, I don't know where these big contracts are going to wind. I think we will get the repricing that we need on those contracts. But at this point, it's premature to provide guidance until we know kind of where those numbers are going to come in. Also, we want to see where the third quarter sub numbers look like. Again, it drives you back to more pay-TV subs. The prices of streaming platforms go up and people return to cable. That's a benefit for us as well. So it's just hard for us to be talking about 2023 based on subs that were recorded in basically the second quarter of 2021. So there's reason to be optimistic, but we're not ready yet to provide 2023 guidance. We need more data points.

Steven Cahall, Analyst

Kevin, would you mind just updating us on the cadence of your affiliate renewals for next year? I don't remember if you covered that in your remarks.

Kevin Latek, Chief Legal and Development Officer

We renewed all CBS last year. We renewed all of Fox last year as well. Time flies. Meredith CBS stations are up in summer of 2023. The Meredith Fox stations are up in 2025. The ABC and NBC contracts expire at the end of 2023. So at this point, there's no need to worry; there's not really any renewal cycle with a network until CBS next summer. Meredith markets that are about a half dozen, and then the full ABC-NBC group is up at the end of 2023.

Operator, Operator

Our next question comes from Dan Kurnos with Benchmark Company.

Dan Kurnos, Analyst

A couple of questions for you guys. Kevin, if I can just stick with that theme perspective, maybe understanding that you still need more time to see the data, but two parts on retrans. Just one, if subscriber declines were to remain elevated permanently at current levels for the foreseeable future. Is there any way to quantify the impact on your three-year or medium-term net retrans CAGR of mid-single digits? And separately, on the reverse side, yes, we know you had some renewals there. But historically, we thought your portfolio was about 50-50 fixed versus variable. So maybe it’s a little surprising that the reverse didn’t step down with the incremental sub declines. So maybe you can just talk to those two things. And then I have a follow-up.

Kevin Latek, Chief Legal and Development Officer

Yes. I'm not really going to talk about guidance. There's too many unknown data points. On the reverse, we don't have a formula of cable operator basis amount, and therefore, we pay the network contracts. The OTT piece is becoming fairly noisy. Remember, we get sort of net dollars in the most cases, not all of them, but in most cases are net dollars, and they're obviously lower than our net on the MVPDs. So kind of the — it’s harder for us to make estimates on, again, on net retrans because we have to make a pretty big assumption on how much OTT is moving as well. I think the reason we didn’t see much of a step-down on the reverse is a bit also this interplay of how OTT is coming in. We are generally about half and half mixed, but there are just some of those are not moving down. It’s not a sort of one-to-one relationship; when a dollar retrans doesn't come in, and gross rises by $0.50 less of net. The math has become much more cloudy now.

Dan Kurnos, Analyst

Got it. And then Hilton, I appreciate the commentary on political and you too, Kevin. I think maybe the bigger concern just broadly here to know because we haven't seen a lot from anyone else. Maybe you guys have some insight on this with your Premion partnership. But obviously, the fundraising seems to be there. I think, Kevin, you intimated the dollars are still there, and it's really more a market shift, which we can all appreciate. We've seen that before. Is there any way to get a sense of — do you guys believe that there’s no mix shift to say, CTV or other media? It doesn't seem like social is doing particularly well, but maybe in the back half of August, September, even into October, maybe there were more digital dollars, maybe it's easier to flex dollars into different races. So is there any way to kind of get a sense of your view on broadcast share of political versus other media?

Bob Smith, Chief Operating Officer

This is Bob. The fact of the matter is that void of political spending in August after the primaries and into September was largely due to a lack of funds available in those states where we have large footprints. It wasn't going to other places. The fact is that there was just a pullback and some candidates were also underfunded. So it was really a metric of people sitting on the sidelines in key states. Then, as Kevin pointed out earlier, we didn't get the kind of money we expected in certain states, particularly North Carolina and Florida at times in Arizona. And as Kevin mentioned, in Alaska and Michigan, those are just states where the dollars weren't there. They had to sit on the sidelines until the first week of October.

Jim Ryan, Chief Financial Officer

To answer the broader macro question. Obviously, there will be a lot of reporting coming out in the next few weeks about what the total spend was and what was digital versus broadcast. But our sense is that there hasn't been a seismic shift in the allocation of the spend. Broadcast is doing fine for the whole industry. It's just the luck of the draw of what footprint you had this year versus historical patterns. So we're — as far as we know, broadcast got its fair share or more this cycle just like it’s done every other cycle.

Operator, Operator

Our next question comes from Jim Goss from Barrington Research.

Jim Goss, Analyst

Okay. So just a little more slicing and dicing of this. To the extent that usually half of the political dollars tend to come in the fourth quarter and the first six weeks of the fourth quarter. Was there also bigger spending in the earlier parts of the year in the primaries, for example, including — I think there have been some reports that some of the parties have gone across the aisle to try to influence the real spending to influence the potential components. So I wonder if there were things that happened that created a better experience earlier than you might have expected and now you're then coming down from in terms of these aspirational ambitions.

Jim Ryan, Chief Financial Officer

Yes, Jim, I think in perfect hindsight, we would agree that we probably ended up with — on a relative basis, from historical patterns, more robust primaries than we probably anticipated. So I think that's part of it. But then again, if the primaries in this cycle were more robust than what history would have suggested, that may bode well for late 2023 and early 2024, when we start looking at and talking about the primary cycle in the 2024 year. That's quite a ways out yet, but this cycle may become an indicator of what the next cycle looks like; we’ll have to wait and see what the lineups look like in a year from now.

Jim Goss, Analyst

And did the larger markets you've entered make any difference? I recognize that they would have been in the comps as well. And on a quarter basis, we always talk about displacement being influenced by the size of political. Is there some offset in terms of not as much to displace? Perhaps you do a little better in core than you might have otherwise?

Jim Ryan, Chief Financial Officer

That's exactly what happened. We did do better in core than we anticipated, and we feel very good about that. We were — was in the commentary, we're up for the third quarter.

Pat LaPlatney, President and Co-CEO

We were down 3% in the third quarter.

Jim Ryan, Chief Financial Officer

Yes, which is better than guidance, Jim.

Jim Goss, Analyst

Okay. That's good. Maybe one other non-political question. You've talked about the construction being close on the studio. And I wonder if you might talk about the route of the project and remind us of the financial impact that might have, and whether you're going to use that facility somewhat for your programming as well as farming it out to content makers.

Hilton Howell, Chairman and CEO

We will use it for some of our own individual production needs, but we will also be using it as a large cash generator. We expect it to be a lot of cash flow beginning mid-year next year when it should be completed. The studio itself will finish up June 1, 2023. And we'll be making movies there across the board, whether it's an NBCUniversal deal or other potential tenants in the fall.

Jim Ryan, Chief Financial Officer

Jim, just to add on, as we've said many times in the past, we are not planning to become a large-scale content production company. We do have production, and we have had it for years. We're adding to our existing capacity. But the vast majority of what we are constructing in the studio complex will be on a long-term lease to NBCUniversal, and we're merely being the landlord, not the content creator.

Operator, Operator

Our next question comes from Nick Zangler with Stephen.

Nick Zangler, Analyst

You guys are guiding core revenues up 9% sequentially into the fourth quarter. And we've heard some very pessimistic views, I guess, on the fourth quarter with a large CTV player effectively calling for no seasonal uptick. You guys are obviously more optimistic. Just hoping if you could unpack that guide a bit, where you might be seeing some strength, and where you might be seeing some softness. I think in prior years, from 3Q to 4Q core for you guys has been up maybe 20%. So maybe the 9% here is handicapping some of the weak macro expectations. But just maybe unpacking that fourth quarter expectation relative to some of these weaker views that we've heard.

Jim Ryan, Chief Financial Officer

Well, you are right that for us and the entire industry, there is seasonality. Second and fourth quarters are always the stronger quarters of the year. First and third are weaker. So an increase sequentially from Q3 to Q4 is a natural seasonal influx. Other than the political displacement, I mean we're pretty happy with what we're seeing so far in our core whether we look at October or November. Actually, core is down a little bit because of the volume of political. The displacement factor in Q4 is not dissimilar to the displacement we saw in Q3. And then we — again, between — we feel pretty good about where December probably will come out. It's still a little early to tell because we admittedly don't have a tremendous amount of visibility yet. People tend to wait until after election day to lock in the rest of the year. But based on what we've been seeing so far and what core has been doing in place in markets that doesn't naturally have a lot of political, we're cautiously optimistic. Our cores have held up so far in the first nine months of this year pretty well. So absent some massive macro events, we think it will end up reasonably well for the fourth quarter.

Nick Zangler, Analyst

Got it. No, that's helpful. And on the political side, you guys talked about geography, obviously playing a role in some of the political, I guess, softness relative to maybe the last guide. But I'm curious if you could point to any markets where you might actually expect political advertising dollars to match that of the 2020 election. Or maybe that's just not the case at all, but I'm just curious if there are certain markets where that actually might play out.

Kevin Latek, Chief Legal and Development Officer

I don't think we've examined it that way internally. We tend to look at midterm comparisons. Our internal reports cover 2022 to 2018, and for 2020, we look back to 2016. In 2024, we'll reference 2020. Some markets remain robust; however, Arizona was disappointing overall but still showed strength. We have a competitive seat and governor's race in a costly primary as well, which is definitely encouraging. Nevada was exceptionally strong, Wisconsin too, and Illinois had a fairly expensive governor's race, although there typically isn't much presidential funding in Illinois. Overall, there are numerous areas of strength. As Hilton mentioned, we anticipate $0.5 billion in political revenue, which must come from somewhere. Despite the challenges of meeting 2020 figures, it's important to note that our 2020 political revenue included over $190 million from presidential campaigns and $58 million from the Georgia Senate runoff. The Georgia runoff alone contributed $58 million, and we haven't even reached election day yet. All in all, there has been considerable strength, especially as we head into the third quarter. We finished the first nine months nearly matching 2020 levels. Things were quite strong, although we faced challenges in mid-August, and the environment became more competitive in many areas.

Nick Zangler, Analyst

Right. No, that's helpful. And then you might have just referred to it a little bit, but is there any way to think of the potential upside from a Georgia runoff as you suggested? Obviously, you got a flagship presence there, but — and maybe if you're willing to offer it, what your crystal ball says.

Jim Ryan, Chief Financial Officer

It's impossible to say, and we certainly don't want to front-run the results of Tuesday's election, although the polling does — polling this week does suggest that there's a likelihood it will go to a runoff. But it's impossible to say what kind of dollars that might mean for us. Among the variables is, first of all, you can't compare to 2020 because the runoff cycle this year is 30 days less than in 2020. It's one month instead of two months. And there's no way to know yet whether if it does go to a runoff, whether that race will decide the balance in the Senate or whether the balance of the Senate will be decided on Tuesday. So it's just impossible to tell right now. I couldn't predict it any better than I could predict whether I got the winning lottery ticket on Saturday.

Nick Zangler, Analyst

No, that's fair. Last one super quick. Local automotive advertising trends still under the interpretation that they're around 15% of the core mix, but seeing any improvement there? Or are we still trending at that rate?

Pat LaPlatney, President and Co-CEO

We did see some improvement in the third quarter, as I mentioned. Looking forward, we think it will continue to improve.

Jim Ryan, Chief Financial Officer

About 18% for the quarter, so definitely an improvement.

Operator, Operator

There are no further questions at this time.

Hilton Howell, Chairman and CEO

All right. Thank you so very much for everyone’s attendance today and for your questions. We're actually enormously proud of Q3's performance. We look forward to seeing you to talk about our Q4 and the whole year. Thank you.

Operator, Operator

Ladies and gentlemen, this concludes your call. You may disconnect at this time.