Gray Television, Inc.

Good day and thank you for standing by. Welcome to the Q1 2022 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. And if you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Hilton Howell, Chairman and CEO. Please go ahead, sir.

Thank you, Operator, and good morning, everyone. As Lori mentioned, I'm Hilton Howell, the Chairman and CEO of Gray Television. Thank you all for joining us on this first quarter 2022 earnings call. As usual, with me today are Gray's executive officers, our President and Co-CEO, Pat LaPlatteny, our Chief Legal and Development Officer, Kevin Latech, 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.

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 evaluation of our company. included in our earnings release, as well as on our website, our reconciliation to the non-GAAP financial measures, to the GAAP measures reported in our financial statements. Certain matters discussed in this column 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. The company undertakes no obligation to update these forward-looking statements. Now I turn the call to Hilton. Thank you, Kevin.

We are quite simply thrilled to be with you today to discuss our first full quarter as the nation's second largest broadcast affiliate group owner. Quite simply, the company is firing on all cylinders. Our first quarter financial results exceeded our expectations And we today are guiding to another great quarter in what will be a truly banner year for great television. Once again, our earnings released this morning also confirms that our execution remains best in class. Our total revenue in the first quarter of 2022 was $827 million, which was an amazing 52% higher than the first quarter of 2021. Our total revenue blew past the high end of our guidance of $812 million for the quarter. Our net income in the first quarter was $49 million, or 52 cents per fully diluted share. That figure represents an 88% increase over the first quarter of 2021 on a dollar basis and a 93% increase over the first quarter on a per share basis. Moreover, excluding transaction related expenses and non-cash stock compensation, our adjusted net income would have been $55 million for the first quarter of this year, or 58 cents per fully diluted share. As you all know, our earnings release presents financial results according to GAAP, as well as on our own defined combined historical basis. We refer to it as CHB, and it gives effects to both acquisitions and dispositions in order to provide more transparency on how our currently owned stations and businesses are performing compared to prior periods. Our results today are just as impressive on this combined historical basis. In particular, we had guided that total revenue would increase from a low of 5% to a high of 8% over the prior year period on a CHB basis. Well, in fact, our company finished the first quarter of 2022 up double digits by 10%. On core advertising revenue, our stations finished the quarter up 4 percent on a CHB basis, in contrast to our anticipated range of between flat to 3 percent higher than the first quarter of 2021. Likewise, we exceeded first quarter's 2021 CHB numbers, as well as our own guidance on retransmission consent revenue, political advertising revenue, and production company revenue. These revenue gains, as well as the expense savings reported in our release today, are the result of our peerless combination of top-rated local television stations and fantastic professional employees at every level of our company. In August, we welcomed the Quincy Media Group into our fold. And in December, we welcomed the Meredith Television Group into our fold. The Quincy stations today are fully integrated into our company, and their revenues and expenses are noticeably better in just this very short time. Meanwhile, we have progressed about halfway through our integration of the Meredith stations. Those stations and the local teams are busy adding news, sales, and creative personnel, as well as technology and sales resources. Their financial results for the first quarter more than met our expectations and those expectations will certainly grow as we get more and more of the integration efforts behind us. In short, we have very good news to report, not just on the financial statements, but on the ground and in the trenches, trenches of all of our latest acquisitions. Looking ahead, we are today guiding to a combined core revenue and political revenue for the second quarter of between $435 million to $445 million. If we land just below the midpoint, of our traditionally conservative guidance, Gray Television will break all its previous records for second quarter advertising revenue in the company's 100 year plus history, both on an as reported and on a combined historical basis. In closing, we look ahead with great excitement at a strong year for core revenue, for continued growth in retransmission revenues. for record-breaking political revenue around this important midterm election, and for growth in our emerging production and studio businesses. With the wind behind us and with more scale than ever before, Gray will achieve strong free cash flow that should enable us to de-lever quickly, as we did following the Raycom acquisition in 2019. Indeed, with our very strong start to 2022 and our bright prospects for the balance of this year, we anticipate being able to fund our growth objectives for the year as well as pay down a significant portion of our debt prior to year end. Naturally, as our strong free cash flow drives our leverage lower, we are actively increasing the equity value of our company that we expect will help our stock price recover to a level that better reflects the fact that our business is as strong as it has ever been and that our prospects have never been brighter. Next, I will turn the microphone over to our president and co-CEO, Pat LaPlattening, who will address our ad revenues in more detail. Pat?

Thank you, Hilton. We are very happy with our ad sales performance in the first quarter. Despite the war in Europe, meaningful inflation, and continued headwinds in the auto category, Gray's stations continue to operate at the top of their game. Hilton reviewed the impressive core revenue gains we posted in the first quarter. There are many reasons for a 4% year-over-year growth in CHB core revenue across the group. We're making great progress on developing local direct business, especially in our newly acquired stations. Our new local direct business efforts have been a focal point for some time. And now we are writing between $9 and $10 million per month of new local direct business. Throughout the first quarter and continuing today, we are concentrating on integrating the former mayor of the stations as we did with the Quincy stations in the back half of last year. We clearly inherited a lot of talented sellers and terrific managers from both companies. Between this talent and great resources, Stations from both Meredith and Quincy are having great success with digital products that they can now offer our advertising clients, and the skills they've acquired at our in-house sales training center are playing a large role in their success. It's clear that there will be revenue synergies in the months and years ahead as our digital resources and sales training roll through the former Meredith stations. Even though the automotive category is struggling, other categories are growing. In fact, the health category is pacing just slightly behind auto. While that is good news and bad news to some degree, it's a clear victory for our in-house health vertical sales team and for our stations who have done outstanding work in developing this category. Our new travel and tourism team is also beginning to make meaningful contributions to our sales efforts. We also expect that contribution to grow dramatically in the months and years ahead. The gambling, home improvement, and legal categories also continue to grow. The services group comprising financial, legal, and health is continuing to post strong results and accounted for approximately 29% of our core revenue in Q1. While we all wish I was stronger and we believe it will come back, this exercise in revenue diversification has been beneficial for great television long term. Digital ad sales continue to grow in the double digits. In 19 markets, both large and small, Our digital billing exceeds national billing now. And as you probably have read, money is pouring into digital video, and we're well positioned to take advantage with our premium OTT sales partnership. We've seen digital video revenue grow dramatically over the last two years, and we do not see that growth slowing down in the foreseeable future. We continue to invest in digital sales training in what we believe to be the best digital sales force in the industry. Recently, we joined Hearst Television, Graham Media, and Cox Reps in an investment in cash and resources in an ad sales software package called Ad Sales Service Matrix to facilitate the launch of its new media sales gateway named Admiral. The gateway will be a sell-side tool that provides both the infrastructure and workflows to automate converged advertising sales and further reduce the friction in broadcast advertising. But the past few weeks, we've been working on a rollout of Admiral across our stations. Through the amazing hard work of our sales support team, we expect to onboard all great stations on the system before the end of the quarter. This transition should provide more wind at our sails as we move into the second half of what will be a banner year for great television. Next, Bob Smith will offer additional color on our station operations. Bob?

Thank you, Pat. We have never had such tough competition in our local markets from other broadcasters, digital companies, and new entrants. Nevertheless, our stations continue to offer the best value proposition for companies and campaigns who want to reach the largest possible audiences in local communities. Even a slowing economy, our stations provide a superior value proposition compared to alternative advertising options. Our stations are operating at the top of their game, and they're only getting better and more efficient. Of course, our sales efforts will be nothing without our leading local news franchises. Since the beginning of this year, we have had a number of developments in this area. In February, we created the Gray Media Training Center in partnership with WLBT, our top-ranked NBC affiliate in Jackson, Mississippi. The revolutionary media training program will prepare students for today's unique operating environment. It will educate and train students who attend Mississippi colleges and universities with a focus on historically black colleges and universities in the state. We believe this initiative will help us prepare students for a career in broadcasting and attract quality talent in a tight labor market. Over the past few weeks, we have accelerated and expanded our plans to add more local newscasts across our portfolio. In the past two months, three syndicated programs coincidentally came to an end. Full Court Press with Greta Van Susteren, which we produced and distributed for two years, People TV, which we inherited with the Meredith acquisition, and Right This Minute, a weekday entertainment program that we jointly own with some other broadcasters. In nearly all cases, our television stations replace these programs with new, locally created, locally focused newscasts. Through these moves, we are leveraging our local news gathering talents and resources in new ways that better serve our local communities and provide better opportunities for our local advertising clients to reach their customers and potential customers. After the close of the quarter in late April, the National Association of Broadcasters Leadership Foundation announced the finalists for this year's coveted Service to America Awards. The Service to America Awards recognize outstanding community service by local broadcasters. We are humbled and honored that five of the six stations in small and medium market categories are owned by great television. Congratulations to WMTV, WIS, WTOC, WBNG, and KWQC. Last week, our investigative unit called Investigate TV was recognized with a first place national headliner award for Collision Division. The investigation exposed how federal crash standards favor men. despite women being at higher risk for injury and death behind the wheel. This investigation led to congressional hearings and a bill addressing this disparity that was enacted into law late last year. Two days ago, the southeast chapter of the National Academy of Television Arts and Sciences, NATAS, nominated our most recently acquired television station, Telemundo, Atlanta, for six Emmy Awards for the 2021 calendar year. These nominations were made in the following areas. Overall station excellence, news excellence, journalistic enterprise, hard news report, continuing coverage, and investigative reporting. We are thrilled to welcome Telemundo Atlanta into our portfolio of leading news stations. Taking a step back, we acquired Telemundo Atlanta on April 1st to serve as the cornerstone of our group of Telemundo-affiliated stations that we see as another growth engine for the company. To that end, we are very excited to announce on Tuesday of this week that Gray will be watching the first-ever local Telemundo-affiliated television station channels in 22 markets, When fully built out this year, our Telemundo station group will deliver Telemundo's top-tier programming with our local programming to more than 3.75 million Hispanics. We are very excited about our new partnership with Telemundo and the amazing opportunities ahead to leverage our news and sales resources to serve a greater portion of the local audiences and local businesses in our local communities. The expansion includes the upcoming launch of Telemundo Georgia, a new network that initially will distribute the signal of Telemundo Atlanta in all Georgia markets. Over time, the individual markets will create and launch local content supported by the flagship Atlanta affiliate station. Telemundo Georgia will be the first and only Spanish language media organization serving nearly all Hispanic residents throughout the state. This provides important and efficient avenues for advertisers to reach Spanish-speaking consumers across Georgia, especially political advertisers who have a lot of reasons to reach this important part of the electorate in 2022. I now turn the call over to Kevin.

Thank you, Bob. So speaking of political advertisers, great television is continuing to punch above its weight on political advertising. With this in perspective, during the first two quarters of 2020, on a combined historical basis, our television stations sold $79 million in political ads. A remarkable feat in 2020 was fueled by presidential primary spending in Iowa, New Hampshire, South Carolina, Nevada, and Super Tuesday states, all places where gray has a big presence. Remember, too, that 2020's primary spending in late 2019 and early 2020 was supercharged by the supposedly irreplaceable spending from candidates Mike Bloomberg and Tom Steyer. As impressive as $79 million in the first half of 2020 was, we expect to blow well past that figure in the first half of 2022. In particular, our first quarter political revenues of $26 million plus the $65 to $70 million of political revenue And our second quarter guide would produce a first half political revenue figure of $91 to $96 million. So therefore, even the low end of this range would be a 15% increase over the presidential primary-fueled first half of 2020. Now, for the full year, we anticipate political revenue of $575 million, which would be a 55% increase over the last midterm election year of 2018 on our combined historical basis. It's better, however, to compare again to 2020, when our current station portfolio booked $652 million in political revenue. Roughly $192 million of that 2020 total came from presidential primaries, presidential general election, and the two Georgia Senate runoffs that began after Election Day. Consequently, our political guide to $575 million for full year 2022 represents a 25% increase over 2020's CHB political advertising revenue, excluding the presidential and Georgia runoff advertising in 2020. So without a doubt, political revenue is remarkable no matter how you look at it. I'll turn to the other good news now in our release. As you saw, we posted a strong first quarter growth in retransmission revenues at $393 million. On a GAAP basis, retrends revenues increased a whopping 59 percent from the year earlier period. On a combined historical basis, retrends revenues increased 10 percent from the year earlier period. The retrends revenues exceeded our guidance range, in part due to the annual true-up payments for prior periods that were booked in the first quarter. Looking forward, we anticipate retrends revenues of $385 million to $390 million for the second quarter, and we expect retrends revenues will exceed $1.5 billion for the full year of 2022. Thankfully, our subscriber counts continue to remain relatively stable. In particular, our big four pay TV subscribers across our current portfolio stations, including those we acquired from Meredith and Quincy last year, declined by less than 2% between the fourth quarter of 2020 and the fourth quarter of 2021. This concludes my remarks. I turn the microphone to Jim Ryan.

Jim Ryan Thank you, Kevin. Good morning, everyone. As mentioned earlier, we'll be filing our 10Q a little later today. And as we discussed in our fourth quarter call, and you will note in our presentation beginning Q122, gray no longer segregates local advertising revenue from national advertising revenues in our income statements. The local versus national distinction may be relevant for other broadcast companies who sell national revenue through a sales rep and sell local and regional ads through their own sales force. As you know, Gray does not use a national sales rep, and all of our sales are being conducted at the local level. So the distinction between local and national for us is irrelevant, and we've retired it. Hilton, Pat, Bob, and Kevin all covered the key highlights for the Q1, so I'll keep my remarks relatively brief and just try to recap them for everybody. First, on Q2 guidance, Again, core advertising revenue, we're expecting to be between 370 and 375 million. Retransmission revenue of 385 to 390. As Kevin just commented, our Q1 had some one-time only positive adjustments of about 5 million in our retrans number in Q1, which we do not expect to be repeated in Q2. Political advertising revenue for Q2 will be 65 to 70 million, production revenue between 10 and 12 million, total revenue 846 to 864 million. Our operating expenses for Q2 are expected to be between 533 and 537 for broadcast, and that includes 226 million of reverse comp payments to the networks. approximately $1 million of non-cash stock comp and $1 million of transaction-related expenses. Production companies will have about $12 million of expenses, and corporate expenses are expected to be between $30 and $35 million, including $1 million of transaction-related expenses and about $5 million of non-cash stock comp. Again, we're very pleased with our Q1 results. Total core revenue, again, was up 4 percent compared to 2021 on a combined historical basis. We were very pleased with a strong start to political, and obviously you can see we have very strong expectations for political in Q2. As mentioned earlier, the services group, which includes financial, legal, and medical, represented approximately 29 percent of our Q1-22 core revenue. Gaming revenue for the first quarter was about $20 million. The Super Bowl contributed about $7 million, and the Winter Olympics contributed about $10 million. Our trailing eight-quarter operating cash flow at 3-31-22 was $1.214 billion. Our principal amount of debt outstanding at the end of the quarter was $6.835 billion. Our cash on hand was $247 million. Our total leverage ratio, net of all cash, was 5.43 times, which is down from our Q4 leverage ratio. First lien leverage ratio, net all cash, was 2.5 times. To recap our expectations for the full year, 2021 combined historical, I'm sorry, To recap some metrics from 21 so you can put it in perspective with our expectations for 22, our 21 combined historical net revenue was $3.15 billion. Our two-year blended average operating cash flow, our two-year blended 2021 net revenue was $3.25 billion. And our operating cash flow on a combined historical basis in 21 was about $1 billion in our L8 operating cash flow on a combined historical basis was about $1.2 billion. Our 2021 free cash was $443 million. Our blended two-year average combined historical 2021 free cash was $626 million. As we discussed in our Q4 call, and we'll remind everybody today, that for 2022, we expect cash interest of about $300 million, cash taxes of $190 million, routine capital expenditures of about $125 million, preferred dividends of $52 million, and required term loan deamortization of $15 million. And our routine dividend would be a little over $30 million. We're going to reaffirm that we currently anticipate that our free cash flow before common dividends, acquisitions, investments will exceed $800 million in 2022. And obviously, if political skews to the high side, that free cash number will skew accordingly higher. We're very well positioned starting 2022 and look forward to a very successful year. I'll now turn the call back to Hilton.

Thank you very much, Joan. And before I turn it over to the operator to ask for your questions, I just want to reach out to our station in Louisville and say congratulations on the Kentucky Oaks and the Kentucky Derby tomorrow. We've received your photographs and are thrilled about what you're doing there in Louisville. So go after it. Operator, at this time we'll open up for questions.

Thank you. And again, as a reminder, to ask a question, please press star, then the number 1 on your telephone keypad. Again, that is star 1 on your telephone keypad to ask a question. And our first question is from Dan Kernos from Benchmark. Your line is open.

Great. Thanks. Good morning. Super strong results. I guess maybe if you guys can, you know, We'll address the topic du jour just quickly, get it out of the way, just in terms of what you're seeing around core. The 2Q CHP core guide looks pretty strong relative to the fact that you guys are maybe some 50% higher on political than we would have anticipated at this point. So maybe if you could just talk a little bit initially, just color what you're seeing, macro when you're talking, booking windows, just anything on that front would be a good start. Thanks.

So I'll start off. As far as Q2 goes, as you said, we are pleased with where we're guiding in core, especially May and June at current expectations, at current pace, look to be reasonably strong in the, call it, low to middle single-digit range. April was a little bit soft. but not alarmingly so. It was just a little bump in the road, and we're encouraged with positive pace in May and June, and I'll let others comment on probably, certainly in some markets, some political displacement already.

Yeah, I can jump in. This is Bob Smith. We are seeing some strong political in certain markets, and There has been some displacement. That being said, as Jim just mentioned, we're optimistic about May and June. Several categories, as also mentioned in the last 20 minutes, are pretty healthy. Automotive, as mentioned, is still a challenge and probably will be for a while, but we are making it up in other categories. And then, as Pat mentioned, our new direct business, we're developing probably 2,000 new accounts, direct local accounts a quarter on average, and that continues to grow. And we think that'll just get, it will increase as the year goes on.

Yeah, I think one category to highlight would be what we call entertainment, where we're seeing strong growth in second quarter. That's sort of local performance venues, state tourism boards,

really healthy growth in that uh in that category you know coupled with all the others we talked about earlier so it's it's a you know pretty healthy quarter got it that's super helpful and up on the aforementioned political um i'd be lying by saying i wasn't hoping for some more colorful words from you this time around but kevin did his best so um just uh you know some thoughts on you know like If Roe v. Wade ends up getting overturned, we've heard that there's already been a ton of money coming in on issue. So can you just kind of talk about the balance between, you know, whether it's Senate gubernatorial versus issue and where you might be seeing potential for outperformance in some of those articles?

Let me just say we have no idea what's going to happen on the decision or politics, but what is possible. What is known is in the last three days, there are PACs and candidates on both sides that have had fundraising records. The leak has galvanized folks on both sides. If we had this call last week, we would have said the interest in the campaign and fundraising is just as strong as we have seen in 2020 and higher than we'd seen in prior years, and that bodes well for a strong political season. The primary in Ohio was obviously a lot of intense voters there and a lot of ads. Clearly, we're going to see – we think that the leak is only going to focus more people. on the elections, and that's going to drive more fundraisings. We've already seen that will continue. And as you've heard me say many times, no campaign manager wants to end a campaign with money left in the bank. They've raised the money. They've got to spend it. So we couldn't possibly be more specific in how it impacts other than to say it probably is focusing people to get involved, donate money, and that's good for political advertising.

Dan, I don't know if I have colorful words for this, but one thing that Jim has always said on these calls is that 90% of our political revenue, sorry, I misspoke, 50% of our political revenue comes in in Q4, and we are seeing a much earlier than ever in history beginning of political ads. I mean, we're having ads for 2022 that began in Q4 of 2021. and have certainly occurred, as you've seen, with our numbers through the first quarter. And, you know, currently they're booming. It changes from state to state, but the primary advertising is very strong. Both parties are very competitive and enthusiastic. Both have raised lots of money. And then Gray has done something with our acquisitions that I think positions us even better. Because Bob and his teams locally, we have been adding news and local news everywhere. And he mentioned that in his formal comments. But what's important about that is that is the venue that political advertisers prefer to use to reach voters that might be the deciding votes. And so we have more and more local news that they will have a position and inventory to buy political ads. I think it's going to be a gargantuan year in this mid-year election, and I think it will likely rival, if not exceed, any previous presidential election.

All right. That made me feel better, Hilton. Thank you.

All right. That's good, Dan.

And just, I'll let you go with this, just having just, you know, I know there was a true-up in Q1. You know, we've heard some pretty positive things out of the VMPD, picking up some slack, just if there's any update on your thoughts on that retranslayer.

Nope, no updated thoughts.

That's what I figured. Thank you, guys. I appreciate it. Thank you, Dan.

Thank you. And our next question is from Jim Goss from Barrington Research. Your line is open.

Thank you. I was going to ask about that earlier comment regarding the integration of the Quincy properties and about halfway through Meredith and that comment that related to the transition of some of the news coverage. And aside from what you just said about the political importance, I wondered if you might talk about, say, how many syndicated programs might be replaced by local news efforts or how many hours, and what might be the typical impact on ad revenues and syndicated cost reductions in making that transition. And you might relate it to what you've just experienced and how it might have helped inflate some of the recent results. I can take that one. Go ahead, Pat.

Go ahead, Pat. That's fine.

That's fine. No, as I said, Jim, we recently replaced People, the syndicated show that Meredith was producing with news in a number of our largest markets. And while I can't quantify the effect, I would tell you it'll be material, not only on the cost-saving side, but also on the increased ad revenue, given that we're rolling out a a number of new newscasts in those time periods. You know, Hilton mentioned this, and Bob did, too, in his formal comments. We're putting more news in, it seems like, every week, because that's not only, you know, helping us serve our communities, but also good on the business side of what we do. And so I see that continuing long-term and happy to turn it back to you, Bob, or Hilton, for more comments there.

Yeah, I would just add that the one point that it did not inflate our first quarter because a lot of those shows, as I mentioned, ended April 1st. So that came after the fact. However, our overall goal is to we believe in localism in a big way. And so whenever we can replace syndication and often a lot of syndication is poorly performing and put local news in there, it's a win-win for us. We have all the the local avails inventory, and we think it serves our communities well. And we have in some markets, and I think I've mentioned this on prior calls, but we have some syndication-free stations right now that have no syndication at all, and it's all local content. Charlotte's one of them. Louisville is one of them. We're almost there in Hartford. And that's a long-term goal is to have less emphasis on syndicated programming and more emphasis on local news. And we'll continue to to grow in that area.

Okay, and is it fair to think you also benefit in terms of saving the cost of the syndicated programming by whatever you wind up spending with what you produce in addition to the ad revenue benefits you get? Yeah, absolutely. Yes, we do. Okay. The other thing you mentioned, you had cut back on several programs you were syndicating, the Greta Van Susteren that was your own. plus a couple from Meredith, I'm guessing, um, are you sort of getting out of that, whatever strategy you might've had? I know, I know Greta Van Susteren was sort of waiting in the waters a little bit, but, um, or, or is that, is just specific to those particular programs?

Yeah, let me, this is, hi Jim, it's Kevin. Um, these are all, these are all coincidental and, um, sort of coincidental endings that were not planned. Greta's show was an experiment. We said that when we launched it two years ago. We wanted to try a national Sunday talk show out of Washington. We're very happy with the way the show was produced. We're happy with the content. The guests were spectacular. The show was really well done. It just didn't quite find the audience that we had hoped for. And those Sunday shows ended April 1st. Greta is now on our air actually more often than she used to be. She's able to do more talkbacks and less time spent preparing for Sunday shows. So it really was a win-win. The stations got back a half hour on Sundays that they're generally able to put local news in. People TV was a show that was produced by Meredith that we inherited. It, too, just didn't get the traction we had. had hoped for, Meredith historically had hoped for, so that came to an end, again, coincidentally on April 1. And then right this minute, as Bob mentioned in his remarks, that's been around for a number of years. That was RACOM and some other folks put that show together, gosh, I'm forgetting now, for five, six or so years ago, Pat?

Eleven years ago, actually.

Okay, yeah, and that too, it kind of ran its course. There was no master plan, Jim, to kind of strategy here, It was, as I hope you guys have seen from Gray, we tend to try things and we hope we fail fast when they're not working. Sometimes things work for a while and they stop working and we have to fess up and make decisions and move on. We don't want to let things that aren't working continue to take our time and resources. And as Bob mentioned, ending a syndicated show and adding local news is a win-win for us. And as you mentioned, if it eliminates a cost, it's really a triple win for us. Okay.

Thanks very much. Appreciate it. Thank you, Jim.

Thank you. And our next question is from Karen Watts from Deutsche Bank. Your line is open.

Hi, everyone. Thanks for having me on. I just wanted to quickly follow up on an earlier question on the ad outlook. 2Q is clearly very solid and political flowing in. Do you have any good visibility beyond 2Q on whether the current economic backdrop, consumer confidence, concerns about a macro slowdown, are yet leaking into ad buying decisions and commitments. And I suppose this is more pointed at what you're seeing a little further out or beyond 2Q.

Aaron, we, as usual, other than the immediate quarter in front of us, and this has been traditional in the business for a long time now, we really don't have a lot of visibility. Business tends to get placed quarter by quarter. So no, we would be no better, you know, estimating or forecasting what the overall economy is going to be doing and the economies in our markets in Q3 and Q4 than anybody else. We may remain optimistic. We're pleased with the results from Q1, what we expect for Q2. So we don't see any big red flags, but we don't have a ton of visibility either.

I mean, this is Kevin. I'm just accentuate something Pat said on the call. We just went through a quarter with a major war in Ukraine and historical inflation, and yet the consumer in our market and the businesses who advertise in our markets have remained really strong. So despite the macro headwinds that are out there, our business remains strong, and you saw it not just in Q1 results, you see it in our Q2 guide. So we don't know what the future is going to hold in Q3 or Q4, But we're cautiously optimistic because we're doing fine despite some real pressures out there in the macro side. Yep, fair point.

Okay. And I apologize if I missed this, but we've heard about some increased rates of sub-turn from the MVPDs. You've always seemed to trend a little bit better in the past than some of the market averages. Can you just speak to what you've been seeing from your sub, basically?

Yeah, we said...

on a we look at the full year from quarter uh fourth quarter of 2020 to the fourth quarter of 2021 our total sub big four uh pay tv sub count declined by less than two percent okay great and then just one more uh and i appreciate the time just given some of the continued pressures on network broadcast viewership prime time specifically curious how that's impacting your business or decisions with ad clients. And I appreciate that prime ads are not a main driver of grades revenues, but from a perception standpoint, considering lead in, lead out strength, network programming trends, I imagine can matter indirectly from a viewership or sales perspective. So anything you can kind of give on color there, and maybe also if you could speak to your, how your local news ratings are performing of late relative to prime.

Bob Smith, I'll take that. Prime is less and less important really every year. We don't depend on the networks. Local news, as we mentioned a few minutes ago, is where we drive our revenue from. Prime time is looking at about 12% of our revenue in network prime. So it's nothing like it was 10 or 20 years ago. And again, that goes back to our emphasis on developing local news content. 50% of our revenue comes in local news.

Okay.

As far as the ratings are going, the ratings are holding up. I can tell you that. As you know, we have so many number one stations, and they continue to perform very well.

Okay. Thank you again.

Thank you, Aaron.

Thank you. And our next question is from Stephen K. Hall from Wells Fargo. Your line is open.

Thanks. First, maybe Hilton, just on the political commentary that you made, I think you said that now you expect political to maybe be above the 2020 level. I don't know if that's included in your current free cash flow guidance or if that prognostication would be upside to free cash flow guidance. Maybe just a little bit of help there.

No, Stephen, that's not included in any of our free cash flow guidance. That's just aspirational because we see a lot of political stuff that's starting earlier and earlier every political cycle.

Stephen, our guide of $575 million remains unchanged. Yep, got it. Point out, again, you're running about 25% better than 2020 when we back out the presidential, which is obviously not happening now. And you back out the Georgia Senate runoff from November, December of 2020. So we take out those things, which you get an apples to apples comparison. Our guide is already 20 percent or say 25 percent better than 2020.

Gotcha. And then on the Telemundo deal that you announced, could you just talk about what the upside could look like to Telemundo? I assume those are, you know, MyTV and CW stations that you have some conversion opportunities. I'm guessing those don't really generate much in the way of retrans at the moment. Maybe the ad sales are better as well. So can you just kind of help us think about what the value impact could be from your larger Telemundo deal?

Yeah, we are not converting it. We're not dropping any affiliations. We were able to add Telemundo in 22 new markets this year by adding an additional channel to stations we already own. And over the last several months, we've been quietly buying low-power TV stations in our markets. And folks have been wondering what we were going to do with them. The plan has been to buy some low-power TV stations literally to serve as the Telemundo affiliates for these markets. Because they're low-power, they tend to cover smaller areas than full power. So in some markets, we have to have two low powers to cover the DMA. So we're not dropping anything in favor of Telemundo. Telemundo is additive. So as we said, we're going to begin with the national feed, and in some markets, we'll have local news and local insertion of commercials. There will be many that never have that. There will be many that will start off with the national feed or the Atlanta feed throughout the Georgia markets. And then as the market can support local ads and local news, we'll convert the station to more of a local feed. So this is not going to be a material driver, but we think it is going to be a growth engine. We think it will help our station's local ad sales and help us leverage what we do with sales and what we do with news to reach a greater part of the audience. So not material to the company, but probably probably material to some of the markets where we're adding Telemundo.

Thank you. And then maybe just lastly, Hilton, I think at the end of the last call, you talked about maybe being in a position to look at some share repurchases by the end of this calendar year. It sounds like you're incrementally bullish since then. Is that still kind of the same where if the November cycle hits the way you think it could, then that outlook is still possible?

Those are always opportunities for our board to consider. And we look at it every quarter. And so we will be looking at that as we see sort of the course of 2022 sort of turn out. And so it's more likely than not, if the optimistic side of the year turns out, that we will see something along those lines. And we'll just see what our board comes up with. But yes, it is certainly an opportunity. Great. Thank you. Thank you, Steven.

Thank you. And, again, if you have any questions, please press star 1 on your telephone keypad. And we have a question from Alan Gold from Loop Capital. Your line is open.

Thanks for taking the question. I've got a couple here. First, Pat, could you drill down a little bit more on digital? The numbers seem pretty impressive. If you quantify, for example, how much of your core revenue is coming digital?

I'm not going to give you the exact number, but it is in the teens. And, uh, and, and I, you know, I think that's a pretty solid number and it's growing and continues to grow quickly on a, on a, on what is now a relatively significant base. So we're pretty happy with our efforts there.

Okay. And Jim or Hilton, could you give us a little more insight on the Atlanta assembly project? Uh, how much you think capital expenditures are going to be for the year? I recognize that there's a shortage of production space for all the content that's being developed, but the revenue opportunity is there as well.

We don't expect to see a large amount of capital expenditures there, just enough to get our studios up and going.

Okay, so the $30 million that you spent in the first quarter, would that be a run rate for the year? It'll be...

It'll be around $100 million, but in later years, the CID, which is unique there, will be issuing bonds that are separate and apart from anything on our balance sheet, and that will offset what we have here because the property itself, where the studios are, are uniquely benefited by the tax-free bond capacity that we have there. And before the end of the years, those bonds will reduce the capital expenditure for creating these studios.

Okay, thanks. And Kevin, could you just give us some sense in general on the tone of reverse comp discussions? I think the thought was that the networks wanted to raise the prices prior to the new NFL contract. Yeah, I've heard some rumblings that they're asking for more again. Can you just give us some sense of the tone there?

So what I said on the last call was that we believe that Gray, Meredith, and Quincy had large step-ups in the last two rounds of reverse comp or network affiliation negotiations as the networks prepared for the NFL renewal conversation and that going forward that the increases would be more muted than what we had seen in the recent rounds. You know, I can't tell you what the industry is hearing overall because we're not really in those discussions right now. We've got some up at the end of this year. We'll have those conversations later on, but that's our general sense of where things are at.

Okay.

Thanks a lot.

Thank you. And there are no further questions on cue. Do you have any closing comments?

Thank you, Operator. I want to thank everyone for joining us today. It's been a fantastic quarter. We expect a fantastic Q2 and an even better full year results. And so we look forward to talking to you at our next quarterly report. Thank you.

And this concludes today's conference call. Thank you for participating. You may now disconnect.