Earnings Call Transcript - GTN Q2 2024

Operator, Operator

Welcome, everyone, to the Gray Media Conference Call. I will now hand it over to our Chairman and CEO, Hilton Howell, Jr.

Hilton Howell, Chairman and CEO

Thank you, operator. Good morning everyone. As the operator mentioned, I'm Hilton Howell, the Chairman and CEO of Gray Television. Thank you all for joining our second quarter 2024 earnings call. With me here in Atlanta are all of our executive officers, Pat LaPlatney, our President and Co-CEO; Sandy Breland, our Chief Operating Officer; Kevin Latek, our Chief Legal and Development Officer, and Jeff Gignac, who succeeded Jim Ryan as our Chief Financial Officer on the 1st of July. As usual, we will begin with the disclaimer that Kevin will provide. Kevin?

Kevin Latek, Chief Legal and Development Officer

Thank you, Hilton. Good morning everyone. Gray Television, commonly known as Gray Media or Gray, uses its website as a key source of company information. The website address is www.graymedia.com. We will file our quarterly report on Form 10-Q with the SEC today. We issued an updated investor presentation this morning that can be found on our website under Investor Relations. Included on the call may be a discussion of non-GAAP financial measures and, in particular, adjusted EBITDA, leverage ratio denominator, and certain leverage ratios. These metrics are not meant to replace GAAP measurements, but are provided as supplements to assist the public in its analysis and valuation of our company. Included in our earnings release as well as posted on our website, a reconciliation of these financial measures to the GAAP measures reported in our financial statements. And 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 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 quarterly report on Form 10-Q and our most recent earnings release. The company undertakes no obligation to update these forward-looking statements. And I now turn the call to Hilton.

Hilton Howell, Chairman and CEO

Thank you, Kevin. As usual, there was no slowing down this summer for Gray. We certainly packed a lot of very exciting innovation, collaboration, and straightforward quality journalism into the last couple of months. Our local news stations and our production companies are performing at the top of their game. Our financial results evidenced this success as much as the fantastic award-winning work of several stations that have been recognized over just the past few months from the investigative reporters and editors and National Association of Broadcasters Leadership Foundation, the Mental Health America Association, and the Society of Professional Journalists. We are honored to work with dedicated employees at every level of this company and we congratulate all those involved on these award-winning projects who are making a real impact with investigative journalism one story at a time. Gray has also continued to expand our content and reach in many ways from the announcement of our upcoming live broadcast of the Harlem Globetrotters game on August 18th, which will be produced by our subsidiary, Raycom Sports, to the launching of new networks like Rock Entertainment Sports network in Ohio and Palmetto Sports & Entertainment in South Carolina. We are constantly looking for ways to entertain and inform our viewers. With this backdrop, I am personally pleased to review our second quarter results for our company with you today. Our total revenue in the second quarter was $826 million, an increase of 2% from the second quarter of 2023. Net income was $22 million in the second quarter compared to $4 million in the second quarter of 2023. Adjusted EBITDA was $225 million, essentially unchanged from the second quarter last year. Our core advertising revenue in the second quarter was $373 million, which was slightly below the low end of our guidance range. To be specific, our core advertising revenue was about $5.7 million less than 2023's result. But please remember that Q2 and 2023 was an exceptionally strong 4% ahead of 2022's results. So, all-in-all, we feel quite good with where we are. Political advertising revenue in the second quarter was $47 million. On a combined historical basis, which includes the results of our acquired stations and excludes the results of our divested stations, our second quarter political ad revenues blew by the second quarter of 2020, the last Presidential election year by a whopping 62%. As you may have seen in this morning's earnings release, we are lowering our full revenue guide by $75 million for core ad revenue and $25 million for retransmission revenue. These adjustments reflect our current expectations for a continuing healthy local economy, continuing growing digital ad business, continuing strong political revenues, and a significant amount of political displacement. At the same time, we are continuing to carefully review all of our opportunities to increase revenue, reduce expenses even more intensely than this already efficient company always does. Meanwhile, we have really good news to share on Assembly Atlanta. Last week, IATSE and the Teamsters unions ratified new collective bargaining agreements that cover the important trade and craft workers in the film and television production industry. With the risk of another Hollywood strike averted, we are now busy again, lining up film and television productions for our sound stages and related facilities here in Atlanta. In fact, we already signed our first long-term studio lease for multiple stages within the portion of assembly studios that are not leased by NBCUniversal. Last week, Gray entered into a lease with one of the major studio companies for the full suite of facilities needed to support a new high-quality episodic television drama for one of the Big-Four broadcast networks. Our own stations that are affiliates of that network will actually start airing this new network show early next year. We are sincerely thrilled to welcome this production to the Atlanta Metro area into our world-class studio production complex at Assembly Atlanta and we expect it to be a mutually beneficial long-term relationship. While we are proud of our recent and anticipated operational achievements, the most significant activity for Gray in the second quarter was undoubtedly the successful refinancing of our 2026 debt maturities. In particular, we extended almost $2 billion of debt maturities to 2029, while also increasing our revolving credit facility to $680 million. As a result of these efforts, we no longer have material near maturities through smart execution of the business, including increased efforts to raise revenues and thoughtful decisions around reducing costs and capital expenditures. We expect to generate significant free cash flow later this year and through 2026 that can and will be used to repurchase and pay off debt. As Jeff Gignac will soon explain in his remarks, we began open market repurchases of our 2027 notes immediately after the closing of our refinancing, and that effort continues into this quarter. Reducing debt and leverage remains our top capital allocation priority. We have said this now for a few quarters and we will continue to reiterate this guiding principle until our debt and leverage come back down to our usual more comfortable levels. More importantly, in pledging our support to reducing leverage, you will continue to see great doing what it said it would do on this critical topic as well as every other regard. Pat and the rest of the team will now provide some more color around our recent experiences and upcoming opportunities.

Pat LaPlatney, President and Co-CEO

Thanks, Hilton. Our core advertising revenue started strong in the second quarter but declined slightly in June. Ultimately, the advertising revenue for the second quarter of 2024 is about 1.5% lower than in 2023. It's important to note that the core revenue this quarter did not include around $5 million from the NCAA final four games we broadcast in 2023, which we didn’t have in 2024. As Hilton mentioned, we were also up against a tough comparison from last year's growth of 4%. Looking ahead to the third quarter of 2024, we expect core to remain flat or increase by low single-digit percentages compared to the third quarter of 2023, primarily driven by the Olympics, which are proving to be a significant event for both viewers and advertisers. We expect our 56 NBC affiliates, covering about 11% of U.S. homes, to generate roughly $19 million in Olympic advertising revenue during the third quarter. Additionally, some of this revenue will come from political ads. However, core revenue will face pressure from strong political demand as we progress through the third quarter of 2024, especially in September. We anticipate that the impact of displacement will be greater than initially expected, with political ad revenue arriving later this year in a condensed timeframe, requiring us to shift more commercial ads to accommodate political ads. Therefore, we have decided to lower our internal forecast for core revenue in the fourth quarter. As a consequence, we have revised our full-year guidance for core from $1.6 billion to $1.525 billion. It’s worth noting that we previously reduced our full-year 2024 forecast for broadcast operating expenses by $50 million on our last earnings call. Today, we are also lowering our guidance for broadcast operating expenses and corporate and administrative expenses for the full year by an additional $20 million, along with our capital expense range by approximately $20 million. Although Gray has made significant progress in managing costs this year, we are intensifying our efforts to thoughtfully reduce operating and capital expenses. We are continuing to rely on our robust in-house sales training programs and our dedicated efforts to develop new local direct business, which involves our local sales team targeting new customers. In the second quarter, we achieved record-breaking results by posting a double-digit percentage revenue increase for new local direct business compared to the second quarter of 2023. These strong outcomes have continued into July 2024, which reported a 20% increase in new local direct business versus July 2023, partially attributed to the Olympics on our NBC stations. Our digital businesses are also witnessing growth in audience and revenue. In the second quarter, we set new records for engagement as well as double-digit growth in the number of digital advertisers and total digital revenue, which is included in core ad revenue. Our connected TV and fast channel offerings continue to expand, attracting viewers and advertisers in this crucial and growing segment of the ecosystem. Regarding political advertising revenue through June 30 of this year, we recorded $74 million compared to $79 million in the first half of 2020 on a combined historical basis. The first half of 2020 had benefitted from $31 million in lower presidential primary ad spending compared to the first half of 2024, influenced by the Bloomberg-Steyer effect. We cannot accurately predict where political revenue will conclude this year, given the unprecedented circumstances of this presidential race. However, we are encouraged by the competitiveness and energy of the presidential race since the end of the second quarter, which has driven significantly more fundraising. For these reasons, we continue to expect very strong political advertising revenues for the full year. I will now hand the call over to Sandy.

Sandy Breland, Chief Operating Officer

Thanks Pat. We not only have success on the sales side, but once again, we served our audiences with high-quality local journalism. Throughout the second quarter, we continued breaking important new stories as well as gathering awards, recognitions and most importantly, audiences as we have been documenting on numerous recent calls and press releases. We are investing in local news, weather, and sports, as well as investigative, political, and franchise stories that our local communities want. It is these efforts that allow our great sales team to provide the advertising solutions that are clearly resonating with businesses in our markets. In some of our large markets, we participate in third-party audits with all other local television stations to track the shares our stations obtained from the television-only portion of local ad markets. These audits from the second quarter indicate that total ad dollars in some markets did decrease slightly over the past year. At the same time, however, the second quarter audits revealed that Gray stations grew their shares of total advertising as well as their shares of core revenue fueled by strong digital sales and political ad revenue. We are not surprised by these results because we have seen again and again that maintaining a strong focus on local newscast and community involvement retains viewers regardless of economic conditions. Our strong local stations proved themselves over the past year as they demonstrated the power of television to a large number of local professional sports teams and fans alike. In the last two weeks, as Hilton mentioned, we announced the launch of Rock Entertainment Sports in partnership with Dan Gilbert, Sports and Entertainment Properties, as well as Palmetto Sports Entertainment, a new statewide sports network in South Carolina. Throughout this year, we have been working aggressively on a number of other opportunities to bring more sports back to local broadcast television stations. We are optimistic that we will have some exciting news in this area to announce soon. So, please stay tuned. I'll now turn the call over to Kevin.

Kevin Latek, Chief Legal and Development Officer

Thank you, Sandy. As most of you know, over the course of a three-year cycle, Gray renews retransmission consent agreements covering roughly 400 traditional pay-TV operators to be our TV station signals to tens of millions of our mutual customers. Our current cycle began in the second half of 2022. While we had anticipated some final renewals throughout the second half of this year, we can now report that within the past few days, Gray has reached agreements and agreements in principle completing the current 2022-2024 renewal cycle. Our next set of material MVPD retrans renewals occurs in the first quarter of 2026, with operators who serve approximately 23% of our traditional MVPD subscriber base. In the second quarter of 2026, our renewals will cover about 18% of our traditional MVPD subscribers. The next group covering about 34% of these subscribers will come up in the first quarter 2027, with the remaining 25% of traditional MVPD subscribers covered in the final tranche of renewals occurring in the third quarter of 2027. Once again, Gray has completed a retrans renewal cycle without a single public dispute impacting our business, the distributors' business, or our mutual customers. We evaluate the collaborative approach with our retrans partners to secure continued distribution of our strong diversification without interruption. Importantly, Gray obtained the necessary rate increases and terms that reflect the formidable value that the content our stations deliver to these distributors. We remain optimistic that the pace of subscriber declines will slow going forward. This is a result of the addition of more streaming apps to MVPD bundles, the proliferation of ads and price increases in streaming products, more MVPD control over the carriage and payment for the smaller cable channels, and the migration of sports to broadcast networks and local stations. To date, however, the traditional MVPD subscriber base has continued to decline, at about the same pace as last year. This is in contrast to our more optimistic expectations earlier this year. Given these experiences through the first half of 2024, we are bringing our guidance for full year retransmission down by about 3%, to approximately $1.475 billion. We continue to anticipate network affiliation fees of approximately $935 million for the year, essentially in line with last year's amount. As a reminder, we will be negotiating new affiliation agreements with each of the Big-Four networks over the next 18 months. The networks see the same trends we do, and we know that they also see the same value to their businesses that only strong local affiliates can provide. We will not get into details or specifics of our network affiliation agreements, which remain strictly confidential. What we can tell you is that Gray has been and will remain committed to adjusting the network cost side of the retransmission equation to ensure that they reflect the significant changes to the television ecosystem that have occurred over the past few years. This concludes my remarks, and I'll turn the call now to Jeff.

Jeff Gignac, Chief Financial Officer

Thanks, Kevin. Hilton and Pat addressed the main financial highlights of the quarter, which you can find in the earnings release and the 10-Q. I will focus mainly on the significant improvements we've made to our balance sheet. First, as Hilton mentioned, our adjusted EBITDA for Q2 was $225 million, surpassing our expectations, with operating expenses coming in at $17 million below the lower end of our guidance range of $624 million. During this quarter, we took advantage of favorable debt market conditions to extend $1.85 billion of our 2026 maturities. We also raised our revolving credit facility commitments to $680 million, all due on December 31st, 2027. This financing gives us a clear view of addressing our 2027 notes maturity using our on-balance sheet liquidity and the substantial cash flow we anticipate generating later this year and again in 2026. We are very grateful to the banks in our lending group that have supported us for many years, as well as those that have joined recently. We also appreciate the backing of the many investors who recognized our business and our plans and made strong commitments to purchase our new senior secured loan and notes. As Hilton highlighted earlier, reducing debt and leverage is our top priority for capital allocation. After completing the refinancing in Q2, we bought back $50 million of our 2027 notes through open market repurchases at an average price of roughly 90.5% of par. After the quarter ended, in July, we purchased an additional $29 million of face value of the 2027 notes at just over 92% of par. As of August 7th, we have $178 million left from the previously announced $250 million open market purchase program, and we will keep an eye on market conditions for more repurchase opportunities. Our strong cash flow generation in July enabled us to repay $75 million of our revolver on August 1st, leaving $125 million currently drawn. As of August 7th, we have over $600 million available in liquidity from cash on hand and undrawn revolver capacity. Based on the timing of further repurchase activities, we expect to fully repay our revolver by the end of the quarter. Lastly, I would like to mention that our leverage metrics increased slightly from Q1 to Q2, which was anticipated and primarily due to the timing of our refinancing, as we incurred fees and expenses related to the refinancing and had to pay interest on the 2026 notes tender offer before the quarter ended. Another important factor is the leverage ratio denominator; there was a timing difference related to political revenue. In Q2 of 2022, the political revenue was $90 million, while in Q2 of 2024, it was $47 million. Our guidance for year-to-date political revenue through Q3 2024 suggests that we expect Q3 to be similar to our year-to-date 2022 and 2020 political revenues, which will normalize the denominator in our calculation in line with third-quarter cash flows. This wraps up my remarks, and I will now hand the call back to Hilton.

Hilton Howell, Chairman and CEO

Thank you very much. Operator, at this time, I would like to open up the call for any questions anyone may have.

Operator, Operator

All right. It looks like our first question will come from Daniel Kurnos of Benchmark Company.

Daniel Kurnos, Analyst

Great. Thanks. Good morning. I have three questions. First, regarding political matters. Third-party sources have significantly increased their estimates for the year, even before the transition and the Democratic Party's candidates were determined. Your peers are now all predicting record outcomes, at least without the runoff. I understand that visibility was quite limited in July, especially until Biden exited the race. Can you provide any updates? I assume you believe you will gain political market share here. I would like to know your level of confidence compared to 2020 and how you expect this to unfold.

Kevin Latek, Chief Legal and Development Officer

I think we're all pretty optimistic on political, but I think we've also been crystal clear that we're not going to give a guide for the full year. So, we provided a pretty strong guide for Q3, that puts Q3 at the same spot as 2020. And also for what it is worth, the same spot as 2022, despite the fact we didn't have $30 million of Presidential primary money. But we're going to leave it to everyone else to make their projections on what Q4 is going to be like and what the full year will be. But we're very optimistic. We're seeing lots of good signs, but we are not going to put a number out.

Hilton Howell, Chairman and CEO

Dan, and I hope you understand that, but I will tell you, everybody here is extremely bullish on political for this entire year. We've only got roughly 90 days until the election and, in some states, they start voting about 30 days. And so we're seeing a tremendous amount of political advertising that is coming in, and we expect it to be a really good year.

Daniel Kurnos, Analyst

Okay, fair enough. Kevin, when are the network renewals up?

Kevin Latek, Chief Legal and Development Officer

We have all the network renewals up for the next 18 months. There's a schedule in our investor deck from March that lists them out by network.

Daniel Kurnos, Analyst

Okay. And then Hilton, just on assembly, any way to kind of gauge your optimism on how the cash flow evolves from here? And how you're thinking about the payback now that you guys have most of the costs sunk?

Hilton Howell, Chairman and CEO

Well, as you know, the studios are built and profitable from day one. With the conclusion of securing support from IATSE, the Teamsters Union, and ensuring full votes from everyone, we have gained significant momentum. In fact, I will be meeting this afternoon with individuals who are interested in viewing our studios, including some prominent figures in the industry. It's remarkable how quickly things have changed. We have secured a very solid lease with an important client that we are extremely proud of, and they are currently operating. We anticipate that all of our studios will be fully leased in the near future.

Operator, Operator

All right. Next up, we have James Goss of Barrington Research.

James Goss, Analyst

Okay. Thanks. One question I have is about local sports. You've always been involved a lot into it, especially with Raycom. And you and your peers have been leaning even more into that in recent years. I wonder if you might talk any more about the approach you might take to identify additional ways you can be involved since that's obviously a clearly attractive way to keep people in the broadcast area?

Sandy Breland, Chief Operating Officer

Yes, I think that we've been really clear that we're interested in doing more local sports partnerships. We had just concluded our first year with the Phoenix Suns, extremely successful. We are happy with how it's going, so is the team. We're working currently with four NBA teams, the Atlanta Dream, the Las Vegas Aces, the Phoenix Mercury, and through a partnership with TEGNA, the Indiana Fever in several markets. And we're happy with how that's going as well. I mean it's a great local sports and local news or a great combination. And the teams that we're working with are seeing that increased distribution and reach. And so we are absolutely interested and have shared with you guys on multiple calls that we are working on additional partnerships. And as I've said, we hope to have some really exciting news soon.

Operator, Operator

Okay, great. Moving right along, our next question will come from Craig Huber. Your line is now open.

Craig Huber, Analyst

Great. Thank you. My first question, can you just elaborate a little bit further on your core ad revenue comment about it tailing off in the month of June? Do you feel that that was more economic driven? Or is it just one or two categories? And whatever you saw in June, what parts of that on the negative side you have carried forward into the third quarter? Anything you can comment there, please.

Pat LaPlatney, President and Co-CEO

Yes, it's Pat. I would say it was primarily driven by auto, tailing off at the end of the second quarter. In the third quarter, our auto is down mid-single-digits, although we've seen an uptick here in the last couple of weeks, possibly due to the Olympics. So, look, in terms of broader economic outlook, I think we're projecting to be flat to plus 3. Things are pretty positive out there. If you look at the long list of categories that we track, we have many more up and down in third quarter. And while auto is down and it's a big one, there are other large ones that are up as well. So, we are pretty bullish as far as Main Street goes in the third quarter.

Sandy Breland, Chief Operating Officer

Yes, I think just to add to that, Pat, too, we see that over and over again with our strong performance on new local direct and the emphasis we've had there with our really strong sales teams. And we saw an increase in the second quarter, again, a record-setting of double-digits, and we just finished July with a 20% increase in new local direct.

Operator, Operator

All right. Next up, we have Avi Steiner of JPMorgan.

Avi Steiner, Analyst

Thank you and good morning. I recognize you're not going to give a political guide. So I'm going to try and ask it a little bit differently, if I could. You took revenue down for the full year by $100 million. How much better do you think political has become for Gray since Biden stepped down? And if you don't answer it that way, I think BIA took up their estimates for political spend this year by about 5%. Is that the right way to think about it as they think of offsets for the decline? Thank you.

Pat LaPlatney, President and Co-CEO

Really hard to make that call. I mean, clearly, Biden stepping back had a significant positive impact, not just on the Presidential, but right down the ballot. So, look, there are going to be more money out there, but we're not in a position to quantify what exactly that is. It's going to be a very good year.

Hilton Howell, Chairman and CEO

We feel really good. I would like to highlight our presence because one of the exciting aspects about Gray is that we have a strong presence in nearly every battleground state where this election will be determined at the Presidential level, alongside significant involvement in highly competitive congressional and senatorial races. While we are not providing guidance, I want to emphasize that we are very optimistic about our position. Last quarter, there were many questions about whether we would see any political activity this year. However, it's happening, and it’s coming in quickly.

Operator, Operator

So, next up, we have Steven Cahall of Wells Fargo.

Steven Cahall, Analyst

Thanks Jeff for the commentary on what drove the leverage a little higher this quarter. I know that's been a big focus has been getting that refinancing done and you're repurchasing those 2027 notes. I was just wondering if you have a number in mind for leverage where you think you can be at the end of the year between the free cash flow that you'll generate, maybe some benefit from assembly and obviously, political, that sort of thing. Then to follow up on Dan's question, is there any way to think about the run rate of assembly EBITDA as you exit the year? And you have so many more studios kind of signed up and chugging along there. I think we're all trying to understand what that can mean for earnings generation in the years to come? And then maybe finally, Kevin, I would just love to get a little more thinking on your subscriber outlook. You said that you're optimistic that subscriber declines could start to improve here at some point. As a long media analyst, I've not necessarily observed much of that in my career, but would just love to kind of compare notes on it and see when you think that might just start to happen? Thank you.

Jeff Gignac, Chief Financial Officer

Yes, Steven, it's Jeff. So I guess what I would say on the production companies line, we didn't change our guide. That's still at the same 105 number, and it reflected our expectations around leasing at the studios, along with the other production companies. So, I think that will directionally get you to what we expect for the full year from that piece of it. As it relates to leverage, I'm sure when people saw the 5.9, there was maybe a little bit of head scratching. We view it as a timing thing. By the time we get to the end of the third quarter, with the cash that we expect to generate, as I said in my prepared remarks, we should be out of the revolver depending on exactly where the final political number shakes out, and the priority for the political cash flow is to get the debt repaid. So, again, depending on exactly where political shakes out, we should be probably something in the low to mid 5s at the end of the year, just depending on where things shake out.

Operator, Operator

All right. Next up, we have Mike Kerrane of Truist Securities.

Mike Kerrane, Analyst

Thank you for taking my question. I wanted to ask about the political situation in a different way. You reduced your core guidance for the full year by around $75 million, partly because your Q2 results were about eight or nine million short of expectations. I’d like to know how much of the remaining decline of approximately $66 million to $67 million in your core guidance is related to displacement or crowding out, and how much is related to the weakness observed towards the end of Q2. Are you anticipating core to remain a bit weaker, or is this primarily due to displacement from the political aspect?

Kevin Latek, Chief Legal and Development Officer

Yes, I guess I'll start, and Pat and Sandy can provide some color. I mean if you look at our guide and where it's shaking out the revised $1.525 billion, that's still up versus 2023 despite the fact that we are going to be cramming a whole heck of a lot of political into the next 90 days. So I don't know that there's a specific read through. When we look at the business itself, we've got new local direct that's performing well. That's a barometer for the broader economic outlook there. From a data point of view, let me just cite a specific data point. In the last Presidential cycle, if you compare Q4 of 2020 to Q4 of 2019, we had about 10% displacement in the 2020 political cycle. So, it's at least a data point that you can think about, but it's very difficult to put a specific number on exactly how much impact we're going to see there.

Pat LaPlatney, President and Co-CEO

I think that covers.

Operator, Operator

All right. The next question is from David Hamburger of Morgan Stanley.

David Hamburger, Analyst

Hi thank you for the question. So, your distribution revenue, the trends over the last few years continue to deteriorate. And I know you called out subscriber churn as being a primary driver of that. Now that you've locked in all of your distribution renewals for the next couple of years, I'm curious, it seems as though the affiliate expense growth has flattened. So, you have a pretty significant structural imbalance here. I wonder, as you go into the next 18 months, renewal process with the networks, what can you do? And how can you position yourself to get some of the relief necessary to get that back in balance? I mean, does it mean trying to get more of the networks onto a variable pricing model? Or how do you see reversing this trend that seems to be a bit pernicious in your numbers persistent?

Kevin Latek, Chief Legal and Development Officer

Sure. Hi, this is Kevin Latek. We have seen probably a peak decline in our retrans this quarter. Going forward, we should see the declines should be less and less. There are a couple of reasons for that, but we do not going to get into the details of our contracts. You're right, the network fee growth slowed and has been largely stable over the last couple of years as the growth has not come down. What we've said a couple of times, kind of to reiterate it again, is we and everyone else have had a lot of discussions with the networks about what's happened to the growth side of the equation and the subscriber numbers that underpin the assumptions that went into the network affiliation pricing. Certainly, for us, we had models, and I'm sure they had models, and the subscriber numbers have been not as good as we had expected. As a result, our expectations were not met in the current contracts. In the next run of contracts, we will need to price what we're paying the network more fairly and appropriately. I'll remind you that we compensate networks through cash and audience reach and networks derive between half and two-thirds of their revenue from selling advertising that appears in the affiliate markets, not their owned and operated stations. Those ads that we are airing and our peers are airing on their stations are a significant amount of compensation for the networks. The affiliates who have stronger local ratings are delivering more eyeballs to those network programs, allowing the networks to monetize these programs better than other opportunities. That is part of the compensation that we are providing them. So, our conversation with the networks will continue to be that we are compensating you with these eyeballs, which are above the affiliate average. We're compensating you in money, and we need to set the amount we are compensating you at an appropriate level that rewards us for delivering what we're delivering in both eyeballs and dollars. The headline is that we need this cost to come down in order to remain affiliated with the networks, and we expect there is a number there that works for both parties.

Operator, Operator

All right. Next up, we have Richard.

Unidentified Analyst, Analyst

Good morning. Regarding the refinancing for five years, is there any consideration for extending some of that debt to a longer term?

Jeff Gignac, Chief Financial Officer

Yes, it's Jeff. So, yes, look, we evaluated the market. We looked at a whole range of different opportunities and availability of capital. Ultimately, it came down to putting something in place that was the right balance of cost and tenure and that really accomplished our objective of getting rid of our 2026 maturities in the most efficient way with the best terms.

Operator, Operator

Next up, we have Craig Huber at Huber Research.

Craig Huber, Analyst

Hi there. On Assembly Atlanta, can you just update us on what the final cost for the project will be net in gross at the end of this year? And then also, it sounds like based on your commentary and your guidance for the rest of the year for Assembly, the 105 number that maybe we should assume the first quarter next year we start to see a meaningful return on that benefits your P&L? Is that fair?

Hilton Howell, Chairman and CEO

I think that's fair in first quarter. Yes.

Jeff Gignac, Chief Financial Officer

Yes. And Craig, on the other part of your question, the final cost was $571 million.

Operator, Operator

All right. And our final question for today will be from Mike Kerrane of Truist Securities.

Mike Kerrane, Analyst

Hey thanks. Just one more question on the bond repurchase authorization. Are you guys planning to continue to only target the 2027 notes, or would you look at other bonds in the capital structure?

Jeff Gignac, Chief Financial Officer

Yes, I believe we will focus on where we can achieve the best return, considering our 2027 maturity and the current pricing. In the meantime, we are not required to take any action. We also have an additional $125 million available on the revolver, so our approach will be entirely opportunistic, guided by market conditions.

Hilton Howell, Chairman and CEO

Thank you all for your time this morning. We are very excited about our next conversation because we will have real numbers regarding this political race, which is developing positively for the entire broadcast industry. Thank you again, and we look forward to speaking with you in November.

Operator, Operator

With that, ladies and gentlemen, this does conclude the call. You may now disconnect your lines and thank you again for joining us today.