Q4 2022 Gray Television Inc Earnings Call

Hum.

[music].

Okay.

[music].

Okay.

Ladies and gentlemen, thank you for joining the 'twenty 'twenty to Q4 earnings call I will now turn the call over to President and CEO , Mr. Hu and Hello, you may begin. Thank you Mr. <unk> good morning, everyone.

The operator mentioned I am Hilton Howell Chairman and CEO of Gray television I want to thank all of you for joining our fourth quarter 2022 earnings call with me today as usual are executive officers, our president and co CEO , Pat <unk>, our chief legal and development Officer, Kevin Latex.

Our Chief Financial Officer, Jim Ryan and our Chief operating Officer, Bob Smith, we're going to shorten and streamline our call today, we will begin as usual with a disclaimer that Kevin will provide after that you will hear abbreviated comments from myself and Kevin and then John and all.

Five of US will then be available to take any of your questions. So Kevin. Thank you Hilton and good morning, everyone. Gray uses its website as a key source of company information. The website address is www G. R. A Y dot TV, we will file our annual report on Form 10-K with the SEC later today.

Included on the call may be discussion of non-GAAP financial measures and in particular broadcast cash flow operating cash flow free cash flow and certain leverage ratios metrics are not meant to replace GAAP measurements, but are provided as <unk>.

Couple of months to assist the public in their analysis and valuation of our company.

Included in our earnings release as well as on our website a reconciliation.

<unk> 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.

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 Companys. Most recent reports filed with the SEC, including our most recent annual report and the one we will filed today on Form 10-K, and our most recent earnings.

The company undertakes no obligation to update these forward looking statements now ill turn the call to Hilton. Thank you Kevin today. Once again, we reported a strong finish to 2022 on an as reported basis in the fourth quarter of 2022 compared to the fourth quarter of 2021 or two.

Total revenue increased 49% to a record $1 $1 billion core advertising revenue increased by 13% broadcast cash flow increased by 88% the fourth quarter capped an exceptionally good year for gray.

The full year of 2022 total revenue was a record $3 $7 billion, an increase of 52% from 2021, marking our highest ever annual revenue core advertising revenue was $1 5 billion, an increase of 26% from <unk>.

'twenty, one and broadcast cash flow was $1 4 billion, an increase of 77% from 2021.

These record results flowed from a number of factors the most significant of which was another record year for political advertising revenue and a mid term cycle in particular for the full year 2022, our political advertising revenue was $515 million, which is.

Exceeded 2000, Eighteen's political advertising revenue by 232% on an as reported basis and by 38% on a combined historical basis.

We attribute these stellar political advertising revenue results to Grays unique combination of our market leading news stations in competitive battleground States are news professionals unbiased coverage of divisive political issues and campaigns and are excellent and direct.

Relationship with the political advertising agencies.

Our board and our senior leadership continued to focus on our balance sheet.

Since we announced our acquisition of Meredith Corporation as local TV stations two years ago, we have consistently emphasized that gray its board and its leadership team are committed to reducing our leverage our actions demonstrate this commitment during 2022, we paid down.

$315 million of principal under our outstanding term loans yesterday, we received $300 million under a three year accounts receivable receivable securitization facility on March burst, we intend to use those proceeds.

The pay off entirely the remaining principal balance of $295 million under our term loan b.

That point grey will have reduced approximately $610 million in debt over the course of less than 12 months.

To further strengthen our balance sheet yesterday, we also entered into an interest rate cap agreement.

The rate caps will effectively limit the annual interest charged on all of our variable rate debt to a one month LIBOR maximum of 5%.

Plus an applicable margin through December 31, 2025.

These arrangements will limit our exposure to approximately an additional 40 basis points of annual interest expense over current market rates, which.

We will reduce our risk to unforeseen events that could increase market rates above our current expectations.

Looking ahead as we continue to produce significant free cash in 2023, and especially in the presidential election year of 2024.

We fully intend to allocate a significant portion of free cash to additional debt reduction.

We will also use a portion of our strong cash flow to complete the first phase of our Assembly Atlanta project, which will put us in position to begin earning revenue from the project later this year.

As you know by Assembly, Atlanta and Assembly Studios.

It provides diversification from our broadcasting segment by participating the fast growing film and television production industry headquartered in our home state of Georgia Construction on Assembly studios in the infrastructure for the remaining area within Assembly Atlanta continues to.

Run ahead of any of our schedules.

This was only possible due to our decision in 2021 to pre order steel and to produce concrete on site and certain other key materials before the supply chain issues created delays inflation cost overruns for so many other projects in 2012.

Two.

We currently anticipate that construction on the Assembly studios portion of the development and much of the infrastructure for the entire project will be completed as soon as this June .

At that time, both NBC Universal and Gray television will begin producing TV shows and movies at Assembly studios on land that less than two years ago was an empty industrial side.

Once this phase of construction is complete gray intense deposits funding of construction projects across the remaining roughly 80 acres that will comprise Atlanta assembling.

We are now.

We'll continue over the next several months to actively evaluate opportunities to maximize the long term value, but there is quite unique investment to the benefit of all of Gray's shareholders. While 2023 will be marked by some macro challenges.

Gray will continue producing locally focused than it is in other content that our audiences want and delivering the value that drives solid advertising and retransmission revenues.

I'll now turn the call back over to Kevin Latex, Kevin Thanks again.

Great television stations and production companies continue to perform well in the fourth quarter or beginning 2023 in a better position than you might presume based on headlines about certain sectors of the economy.

Full year 2022, our TV stations core advertising revenues were $1 5 billion.

This is an impressive outcome because core in 2022 as compared to 2021 declined by a mere 1% on a combined historical basis.

That's despite our inventory being displaced by $455 million of additional political revenue in 2022.

Since we cannot manufacture additional inventory is very minor 1% dip in core revenue with all of that extra political confirms the strong underlying demand from traditional advertisers that gray successfully converted into sales throughout the year.

As noted in this morning's release, we attribute our solid advertising results to real world confidence among advertisers and businesses in local markets combined with our portfolio of high quality local stations.

<unk> and recently acquired television stations and efficient sales and news operations.

Turning turning to retransmission revenues, great posted 5% growth in full year 2022 over the prior year.

Call that grade did not renew its retransmission agreements in 2022.

Sequentially, our gross Retrans revenue increase of 5% as a result of our annual rate increases outpacing subscriber declines and the M and outpacing the impact of subscribers rotating into OTT platforms.

In the first quarter of 2023, we will renew and reprice traditional mvpds retrans contracts covering approximately 22% of our <unk> subscribers.

Virtually all other retrans contracts experienced annual rate step ups in January .

For the first quarter of 2023, we anticipate that our gross retrans.

Transmission revenue.

We will increase by approximately 10% to 11% over the fourth quarter of 2022.

Retrans price increases at both this annual escalator level and a contract renewal remained in the same neighborhood as we have seen previously.

Sub declines are impacting our ability to keep reaching to be paid fair value for our content.

In addition, reverse comp payments to the networks did step up on January one under the contracts that were negotiated a few years ago.

As we have discussed now many time, we expect reverse comp rates will decline starting in 2024.

More recently negotiated network affiliation agreements kick in.

We will renew retrans contracts of approximately 18% of Mvpds subs in the second quarter of 2023.

38% of Mvpds subs in the first quarter 2024, or 23% of Mvpds subs in the second half of 2024.

In terms of subscriber counts.

Subscriber reports that we receive for the third quarter of 2022 provided a more positive picture and what we received for the second quarter of 2022.

Typically in the third quarter of 2020 to our pay TV subscriber total declined by roughly one 5%.

Third quarter of 2021.

We are gratified that our subscriber base remained fairly stable, we continued to be impacted by the rotation of households from traditional mvpds virtual mvpds and the direct to consumer platforms, where the networks to take both the terms of our distribution and our revenues.

Gray like virtually all affiliate groups will continue to push for control of our own signals on all platforms.

Putting this all together.

We anticipate that gross Retrans will continue to grow annually.

Net retrans will continue to grow over a multiyear period.

<unk> true in 2024, and 2025, even with conservative assumptions for continued sub losses.

These projections are based on our demonstrated ability to continue to command strong retrans rates traditional mvpds platforms, our portfolio of top rated local news station, coupled with some relief and reverse comp payments starting next year.

We anticipate that macroeconomic conditions will continue to be more challenging in 2023, then we experienced in recent years.

Still still based on our vantage point today and our strong performance in 2022, we expect that our core revenue production revenue and retransmission revenue in 2023, which compared to 2022.

<unk> My remarks, and I'll now turn the call to Jim Ryan.

Thank you Kevin good morning, everyone.

Hilton and Kevin covered the key highlights for the quarter and the full year of 'twenty two so I'll make my remarks very short today.

First of all.

With our Q4 and full year 'twenty two results.

Turning to Q1 'twenty three guidance, we believe our revenue guidance demonstrates the company is off to a good start in 'twenty three, especially when you consider that it's an off year of the political cycle.

We are facing.

Anticipate about $6 million of net revenue from the broadcast of the Super Bowl on our 27 Fox channels.

But that's compared to an aggregate of aggregate of $13 million of net revenue related to the broadcast of the Winter Olympics and the Super Bowl on our 56 NBC channels. During Q1, 'twenty two that's a $7 million.

Non recurring.

Hi.

Event for core revenue. So when you look at our guidance for Q1 and consider that $7 million headwind. We think we're off to actually a very good start in Q1.

I'll make a few comments on our current expectations for the full year of 'twenty three.

And I'll preface these comments by saying that given the size of the company. These data points are our current expectations as of today, and we will undoubtedly change up or down as the year progresses.

When we're when I am talking about amounts in billions of dollars I will fully admit that I'm not the last 10 or more million.

The dollars smart.

So again this is.

Directionally, what we see today.

So for total revenue and 23, we're expecting currently about $3 $3 billion.

Core revenue of up nearly 155 billion, which would be up low single digits over 'twenty two.

Retransmission revenue of approximately 1.5.

$5 5 billion as well so our core at our Retrans just like it was going to you are pretty well matched set.

Political revenue of approximately $40 million to $50 million, given 23 is the off year, but.

Importantly that range does not consider any potential early political advertising revenue for the 2024 cycle that we could possibly see later this year. So the guide on political is conservative.

Not counting in any 24 presidential.

Total broadcast revenue would be approximately $3 2 billion.

Our operating expenses.

Before depreciation amortization and gain and loss on disposal of assets is currently anticipated to be approximately two 5% of that broadcast expenses will be approximately $2 3 billion.

Network reverse comp is going up to $945 million approximately.

On the broadcast $2 3 billion, we have noncash stock comp of $5 million and noncash 401, K expense of $10 million production expenses of approximately $80 million and corporate expenses of approximately $120 million that $120 million include.

<unk> 17 million of noncash stock comp.

Our operating cash flow as defined in our senior credit agreement will be approximately $8 $850 million to $875.

Turning to a major cash uses in 'twenty three.

As Hilton mentioned, we have put in place interest rate caps, which insulate us from significant increase in market rates for the next several years. So we expect cash interest of $420 million to $430 million.

Our 5% LIBOR interest rate caps around $2 $6 billion of our floating rate debt.

Cash taxes of one <unk> to $105 million.

Routine capital expenditures of $105 million to $115 million.

Preferred dividends of $52 million and our required term loan amortization is $15 million.

That would place our estimated free cash between $150 million and $160 million.

We are very well positioned starting 2023, and we look forward to access tax full year and continuing into a strong 24 with the return of another presidential cycle will turn the call back to Hilton.

You very much operator at this time, we'd like to open up the line for any questions.

Pat Jim Kevin Bob in Maine.

Thank you I'd like to ask a question. Please press star one on your telephone keypad again to ask a question press fire one on your telephone keypad.

And it looks like your first question is going to come from Dan <unk> with benchmark Company. Your line is open.

Okay.

Hello, Dan.

Hey, sorry can you guys hear me we can.

Alright, sorry about that what happened there.

Good morning, and thank you for all the Super helpful color really made it the one thing I did Miss Kevin could you just go back over the sub cadence again for me.

Okay.

Hi, Dan.

Yes.

In the first quarter of 2023, we will renew and reprice traditional mvpds retrans contracts covering 22% of our Mvpds subs.

We will renew approximately 18% of Mvpds subs in the second quarter of 2023.

38% of Mvpds subs in the first quarter of 2024 and about 23% of Mvpds subs in the second half of 2024.

Alright perfect.

Yes.

Tim kind of gave us the net retrans answer so we can kind of do the math, but I think it's probably a little bit better.

People were expecting and for what it's where your net guide.

Are you a reverse side, probably a little on the lower side, a little bit outside on Retrans. So Kevin I'm not sure you plenty of questions on this.

But as we kind of look at the marketplace today, even under sort of conservative assumptions.

Assumptions, you've obviously got the legacy Meredith stations coming up for renewal.

It seems like Youre ADC was relatively benign and I am guessing that.

Meredith.

Hey, Dan we lost you at Meritor.

Hello.

Operator, we still online.

Yes, Dan your line of Jonathan I'm, not sure what happened.

Alright.

Well, let's go onto the next question and Dan is able to get back on we will put him back in the queue.

Okay. No problem. Our next question is going to come from James call.

James Your line is open.

Alright, thank you.

Couple of things one I was curious.

And maybe this is Kevin question about the streamer usage of the national and network channels, rather than some of the local affiliate fees.

You were talking a little about them a little unclear about how the contracts address those issues.

Traditionally you own the market and the AD sales in those markets, but this is changing that dynamic a little bit could you talk about that.

I think Jim what you're referring to is.

CBS affiliates largely did not opt into the <unk> Cvs contract.

That's the one that was the example, maybe that should make situations.

So we have said now I think all of the broadcast groups for many years.

We let the networks due to the first round of virtual negotiations with Google Youtube and Sony Playstation.

To get them off the ground and at the time they are negotiating deals for their owned and operated stations.

And those.

Those deals were largely offer to the affiliates to opt in.

Fast forward now several years, they virtually have gotten much larger Sony Playstation Vue has obviously gone away through both come on the market.

And the affiliates has all of the affiliate boards and I think all of the affiliate groups been pretty loudly, saying in the last.

Several several months or longer that we should be controlling our destiny.

These are now established providers just as we negotiate.

Under different Mvpds.

Surely handle negotiations with three.

<unk>.

The CBS Google situation with it.

<unk> presented a contracted the affiliate board into the CBS affiliates.

And what's your CBS affiliates were offered an opportunity to sign a contract with Cvs and with Cvs would have we then take our local signals in our local content and provided to <unk>.

The CBS affiliates.

Our board and non endorsed that deal Gray did not opt into that deal as a result, the ROE to not have the access to CBS affiliate signals.

The CBS network created.

Some alternative feed ore feed.

To provide national CBS content to Google customers, rather than the local Cvs signals.

I'm not sure what you're talking about other streamers carrying national feeds the OE or.

Our knowledge. The first time affiliates have said no to an option agreement and the virtual contacts was lost.

Late last month with CBS Cubo.

<unk>.

I don't think it changes the overall picture. This is something again that we've been discussing for a couple of years since or in the last several earnings calls it.

The affiliate.

Groups feel pretty strongly that we should control our own destiny.

And that's happening in this case. So we are continuing to talk to Cvs anticipate your next question.

Other groups are optimistic.

I'm hopeful that we'll be able to reach new long term agreements with.

This network and other networks that.

Makes sense for the affiliates, but thats all were going to say on that negotiation.

All of those networks.

No I appreciate that color.

Maybe it drops the issue till late a little bit.

The one other thing I was going to ask.

Thus the Atlanta Assembly studios.

Now the door getting close to.

Sure.

Coming.

Our opening them to usage are you an NBC universal initially.

Is there any.

Framing of the financials and they provide in terms of the overall investment the revenue expectations cost estimates or anything else.

We might be able to think about in terms of how it impacts your statements.

James just to for a number of reasons, we are unable to provide great details on that right now, particularly on the revenue side.

<unk> to say that we're very happy with what it's going to be producing not just in terms of.

Rental revenue, but production revenue beginning this summer so while we won't have those numbers to talk about probably at our next call it'll be very near.

Two beginning it because we'll be turning it over to.

To our partner NBC Universal versus June .

Okay.

So it will be on them rather than new.

Or will there be some intra company.

And that youll be using it as well.

Well I mean, they will be using it in making movies and television shows there on the properties that they are leasing from us we will be doing under the same on the properties and the studios and the stages that we have retained and so.

There is some production through our subsidiaries will films that will be happening on our stages. In addition to their stages in Paulding County, but then gray will be separately.

Leasing out to other film producers.

The stages that we have retained.

Alright, Thank you very much.

Jim.

As a reminder, if you would like to ask a question. Please press star one to join the queue again to ask a question star one to join the queue and our next question will come from Dan Sorry, Nelson. Thank you Mike Dan Your line is open.

Welcome back sorry about that I'm going to I'm going to try this again Hilton and theyre not going to be really quick before I get the hook again I guess.

To give you a hug I'm sorry, yes technology always kind of messes up from time to time. It seems like it definitely wasn't you guys. It was definitely me, but on the Atlanta just to be clear is is there any revenue or any benefit from that included in the guide that you guys gave and Hilton if you could expound a little bit upon your thoughts on that.

Monetization opportunities that you laid out in the press release I'd love to hear it thanks sure.

Okay.

There would be a little bit in the guide we remember.

NBC U.

Is actually by the time, we turn it over at lease actually commence payments to us under its terms.

Not a latter and theres not many months in this year. So it's it's.

Pretty small number for 2023.

Just by timing.

Hello.

The assembly upon maturity is going to be a quite significant contributor to the free cash flow of bidding on an individual asset basis.

And.

I'm really quite excited about it because one of the things that we have to continue to maintain a focus on is how we continue to grow the company and while we are currently in terms of distribution with our TV stations slightly maybe two 5% to 3% below the currently articulated.

Since the FCC doesn't seem to be recognizing.

At the moment.

The UHF discount as they did with both scripts and nexstar in the past.

Gray seems to be capped at the 39% number.

And.

So our management team is charged with continuing to grow our company and while those of you who may not follow this business will may not live in the state of Georgia. So you may not understand fully the stunning amount of production that has come to this state and thats.

For a number of reasons Dan <unk>.

Obviously began 20 years ago with the creation of the Georgia film tax credits, what Georgia has done that I think is really quite unique and it's a great Testament to that.

Thank wise legislators 20, plus years ago, They created the Georgia film Academy.

Calling this correctly.

And we now have at least two generations.

<unk>.

Young Georgians, who have learned the craft of making film and television and the state.

And so the crews.

And everything.

Is here and so there is a huge amount of production that's coming to the state last year. The only public numbers that we have for the amount of production in Georgia.

And this was probably from the 2021 years so.

I know it's old, but it's all we got right now the total productions were $4 $4 billion, which is a huge generator of revenue here.

The Assembly studios I believe.

We will be one of the fund as a middle and back it up I have been told.

Is one of the finest studios build anywhere in the world.

So we have immense demand that.

That we have coming on or use all of the studios. Obviously, we have a long term financial agreement with NBC, Universal and I'm happy to say that they are looking forward to being here in Atlanta and in Georgia.

<unk>.

I would actually say that we have had direct comps.

<unk> or direct contact with the full gamut.

Content creators, whether independent or other individuals to bring future films and television and candidly.

Post production to the assembly and the Georgia, and we're very excited about that it's going to be a.

A profitable endeavor from day, one and it's going to be.

A huge asset for our company, our shareholders and for the city of Atlanta, and the state of Georgia.

Got it that's super helpful and I'll try this real quick Kevin.

The numbers from Jim on the reverse now so we're we kind of do the math on your thoughts here legacy Meredith obviously comes up in the back half I think of this year.

And it doesn't seem too onerous and obviously your ABC seemed relatively benign based on the guide you've given so.

Just trying to get a sense you commented that net obviously should be up pretty substantially next year.

And.

Because you also get some relief on that reversed trend. So just maybe over like a three year time horizon. I mean do you expect to outperform what's kind of your view and what are your sort of underlying sub.

Assumptions in the model right now.

Yeah, Dan So we've never commented on what we use in our model.

We renewed.

We've been conservatively projecting.

Losses, and we will continue to do that.

Again, we had a bit of a shock in the second quarter that we revealed on the the.

Our last phone call.

As I said, our sub numbers.

Improved relative realm.

Relatively in the third quarter.

We do not have all the fourth quarter sub counts at this point, but they frankly look better than what the third quarter was so.

Things seem to be trending at least right now in a good.

Definitely better direction than what we have modeled.

But we'll continue to model conservatively on on sub losses in the rotation to the virtual and direct to consumers.

We have not modeled out and giving guidance over a two or three year period.

I. Appreciate this is probably the most guidance we've ever given in February phone call for the full year, So we're going to kind of stick with sticky.

The current guidance, we have now which is.

What are the specific for this year and a little more general I'm, not really prepared to be more specific asset.

We gave on the earnings script today we.

We do think that net will be improved.

Next year over this year for the reasons mentioned in the script and again, 25% against the same reasons, but I'm not prepared to put percentages on that right now.

Okay Fair enough. Thanks, guys for letting me back on.

Tom.

Our next question is going is going to come from Alan Gould with Gray television Allen Your line is open.

Okay.

Thank you Luke.

Couple of questions Hilton first on the Assembly plant on one easy one how many stages are there into it looks like the Capex part was a little higher than it was a bit higher than expected. This year was that a pull forward or or is the inflation caused the cost to be a little higher than expected.

Inflation is always there, but let me answer your first question. The total stages are 19. This total total square footage is about $1 million 250000 square feet.

In terms of production Middle and office space total, but its 19000 stages under.

Under construction right now and in fact last Thursday.

We had our topping out ceremony, so we're almost done.

Rail.

Plus you ask about assembly, but I'll add in there is an additional three stages that are currently operational and whose numbers are incorporated with third rail studios. We also have a further two studios that are currently named Atlanta film Studios that are part of the swirl films.

Group that has a 51% owned subsidiary of Gray television.

Okay and the costs.

So.

Alan the Capex number the regular Capex number was.

Higher than we had guided.

It's.

It's a multi phase the answer one is inflation too is what of some pull forward.

And supply chain issues earlier in the year, we thought some of what actually got delivered in Q4 would have actually shown up in 2024.

So we.

And that was a pleasant surprise on the one hand, but also not something we had expected.

Also.

I'll take responsibility that internally.

We should have guided better and I will assure you that we are watching capex regular capex like a hawk in 'twenty, three and going into 'twenty four and the last piece of the equation on the regular Capex was.

We thought we could push some studio renovation projects farther into 'twenty four but our current landlords.

We're not.

Not open to extending leases. So we we had to move a little faster than we had originally thought because our leases will be expiring.

Next year, and we've got to weave.

We've got to move out and move in so.

As I said, a combination of several factors, but obviously in the guide this year regular capex.

105 to $1 15, and again, we're going to watch that very carefully and to the extent possible put as much into 'twenty four as we can.

And Jim how.

How much more do you expect to spend on assembled on the Atlanta Assembly plant.

Until June or until through until its completed.

And 23 on a net basis, we're currently estimating that to be about $72 million.

Many of these studio project.

Okay and one quick question for Kevin Youre locations of <unk> should we just assume you're matching pretty close to what the industry trend is there.

In terms of in terms of what with the Mvpds and sorry Alan.

Your your rotation from traditional Mvpds virtual mvpds is that.

Sure sure and most of the industry for Gray television.

To be honest I don't know what we would say is the industry rotation I'd say, we're seeing.

A lot of it I mean, we have a pretty significant decline in the mvpds and we have a pretty significant growth of the virtual.

And the direct to consumer so again.

Total sub count on a year over year basis was minus one 5%. So we're converting essentially everybody almost everybody who is leaving the traditional.

To a new.

Subscriber on the digital side.

Don't quite know how that tracks with everybody else, but our number is minus one five on a year over year basis.

Okay.

Subscribers.

Let me just maybe I can ask differently can you tell us what percentage of your subs are now coming through <unk>.

<unk>, our digital no we have not disclosed that okay. Thank you sure.

Our next question is going to come from Craig Huber with Huber Research partners.

Your line is open.

Great. Thank you.

My first question is this interest rate cap I'm glad to see you guys are putting this into place you mentioned in a press release of $32 million is payable on it.

On December 31, 25 is that going to be amortizing.

What's the impact on your P&L in terms of the cost to put this in places.

Hey, Michael.

From a GAAP accounting perspective that will be amortized in more or less ratably over.

Between now and December 31 of 2025.

But again I think the important part is the cash settlement as at December 31, 2025, So we've.

We've put that way down the road in.

We're pleased with as you said, we're very pleased to have gotten in place and where.

Fully insulated now on.

Continuing rate hikes and.

I say this.

Somewhat jokingly, but actually in absolute sincerity I am glad I got them.

I'm glad we got the rate caps and earlier this week I would be I would not have been pleased with trying to price one today given the inflation headlines this morning.

So we.

We're very pleased with where we came out.

The very good on that and then a second question if I could your down one 5%.

Retrans sub count declines year over year.

Quite good certainly a lot better neutral talking publicly about down mid single digits that trend for them has been very similar till mid single digits. What is it about your company your market. So you're only down one 5%, which one of your thoughts there. Please.

Yes.

We have been trailing the industry really forever.

When.

<unk>.

When <unk> announced sub declines in August of 2015, we were still seeing sub gains a couple of years later, our broadcast peer groups. So that they were sort of thing.

Subs.

Sub stabilization, we were still seeing Ryan may announced they were seeing.

Clients and we saw a stabilization now they are seeing.

Some greater declines than we are so we've definitely been trailing behind.

Okay.

The best guess, we have is we have more rural exposure than other folks.

We are certainly in some large markets, but we're in a whole bunch of smaller markets and some that are geographically very large and those folks have been.

A little later to the virtual mvpds because their broadband access is not as great as it is in.

Philadelphia.

San Francisco and other large markets.

Youtube Hulu.

Sony Kobo et cetera, sort of launching local signals in our markets later than others and they were not full substitutes until more recently and they were in large markets because broadband was not us.

Not deployed as much so we're seeing broadband rolling out more.

More aggressively now in the last couple of years, So we're probably seeing more people pick those subscriptions up.

And thats covering the loss on Mvpds, but thats, our best guesses type of footprint, we have is a bit different than others.

Okay, great for that thank you and then my second My next question sorry is.

Alternative usage of your broadcast spectrum can you maybe just update us on your thoughts on that health risks might be.

A place in the coming years.

Yes.

<unk>.

So I would tell you that.

Like the rest of the industry, we are rolling out <unk> three point out we've rolled out I guess three markets.

In 'twenty two.

And we have the majority of our larger markets rolled out at this point.

Hi.

Theres been quite a bit of talk about the possibility of using that spectrum.

Data and automobiles.

And a number of other uses I think we were a few years away from that still but the reality is that the rollout is moving along.

And a pretty good clip, we would expect to be north of 70% by the end of 'twenty three.

<unk>.

And then it's a matter really of.

In terms of the television side of three point of getting the chips into television sets. The vast majority of manufacturers are selling chips or selling sets today with the chip set them.

So thats on the TV side and on the alternative uses.

It is a matter of getting the footprint filled out and thats happened pretty quickly.

Okay. My last question guys. Just curious what's your thoughts on the broad economic environment right now given all of the markets you guys are in and around the U S. I mean, how are you guys give us a call just curious your thoughts there.

Bob Smith.

We're actually pretty optimistic.

Jim mentioned, a little bit about the numbers and our projections, but we are seeing.

A lot of good things in our local markets.

A lot of.

Actually.

A ton of new business development. Those are local direct accounts that are coming onto television. We're having a lot of success with that we're also seeing automotive.

Coming back and a lot of markets General Motors is pretty strong Nissan is strong.

You know.

Legal continues to do well.

We recently saw sports gambling get approved in Ohio, So our Ohio markets are seeing.

A lot of pretty big buys here in first quarter and will continue into second quarter. We are optimistic that North Carolina will pass.

Gambling here.

For the football season, so all in all.

Despite the headwinds despite.

All of the chatter if you will.

A lot of good things happening in our local markets right now.

Okay. That's it thank you very much.

Thank you Jim.

Our next question is going to come from Nick <unk> with <unk>.

Mitch Your line is open.

Yes, Hey, guys.

Some of the direct to consumer stuff, so that the access of your local broadcast feed through direct.

Direct to consumer App.

Its pretty new I am curious, how the economics work between Gray and the networks. When your local feed is made available through an app like Paramount plus our Peacock are you basically just recognizing maybe net retrans figure on the top line here and is this a material piece of revenue contribution at the moment.

Hi, it's Kevin.

So on.

On the first point.

CBS CBS signals were available on the CBS all access App from day, one we actually beta tested CBS all access with the <unk>.

As a company and we launched CBS all access out of the gate.

Mutation, we acquired that was not uneven little tiny markets, we put on CBS all access so just to be clear the direct direct to consumer piece.

It's not really new for us.

With all access has been a part of our distribution for some time.

That was rebranded as Paramount plus.

No.

Peacock.

Adding the local affiliates.

Late last year and.

The revenue on both of us.

Affiliate boards negotiated a price per sub per month that is a fee that is paid by CBS NBC, respectively based on the number.

In the respective markets for each station.

Revenue comes into us as retransmission revenue, there's no offset of additional expense against it so those dollars would.

That dropped to the network.

And theyre not the.

Peacock again, just it just added signals.

December so.

I don't I Couldnt, even tell you with the subs are.

Sit here later.

Yeah got it Okay, that's fair and then on.

Yes, I did want to ask about the total guidance for the year, obviously I hear you guys $3 3 billion in total for total revenues political upside with it.

Occur if the presidential election.

Campaign start to roll in early so we could potentially see upside in that segment later on in the year and then when we talked about.

The core assumption for the year, if you exclude the political displacement that you saw in 2022 does that guide assume basically year over year growth in advertising and the core into 2023, and then also it sounds like even.

In the press release, you referred to maybe like a recessionary environment in 2023 is that your underlying assumption when you make that guide.

And so obviously if things continue.

Continuing to show improvement naturally you would get upside to the core revenue piece for 2023 relative to your expectations currently.

So.

First you are correct there is potential upside in the political number for from early primary money.

Later this year, we saw that in the 2020 cycle, we saw that in the.

And allow every.

Basically every cycle for the last several years several cycles, we've seen early primary money.

But we have not baked that into the guide.

Hopefully thats good news and upside we can talk about.

A couple of phone calls from now.

In the core yes.

We would expect some growth.

Over and above the political displacement from last year. So.

I'd say.

We are.

We are pleased with where we're seeing core go in 2023 and no. We are not planning as a company for a recession.

A lot of headlines like everybody else does but as Bob commented a few minutes ago, when we dig down to our local business in all of that or 113 local markets.

We see.

Good good news at the start of the year end.

We have no reason to think it won't continue.

Now if the macro changes the macro changes.

We can't control that but as Bob said earlier too.

The focus has been creating new local direct business and it was very successful last year and the budgets for new local direct or even higher this year. So we're.

Local as well.

Local is our bread and butter encore and we're focused on it and working hard to bring in every dollar we can.

Got it and did core.

I keep hearing this everywhere else that December was very weak in the AD market soft start to January and then improvement from there on out at core experience or I'm, sorry, I did local advertising experience like a similar cadence or was it just.

Stronger altogether.

Alright, alright.

All in all of those parcels again.

<unk>.

It's been pretty decent <unk>.

In December and carried over into the first of the year.

As Jim mentioned there is some.

Political and Olympic dollars that non returning in February but other than that.

Again, we feel pretty good about the quarter.

And.

Moving forward after that.

Great I appreciate it thanks, guys. Good luck.

Thank you.

Our next question is going to come from Michael Pinsky with Noble capital markets. Your line is open.

Most of the questions on <unk>.

I have another question here you indicated that you plan to pause funding for the Atlanta Assembly project to evaluate opportunities.

Wondering if you could just talk a little bit about what options you might be considering there.

Well I mean, I kind of hate to put on a public record what options were considering we've got.

80 acres over there and.

And we are.

We'll pause on this some macroeconomic concern about.

Real estate and what's going on out there. So we're just taking a break our focus is on building the studios and we just about have all of those.

Have all those built.

Gotcha Gotcha, Okay. That's all I have thank you.

Thank you Michael.

And our next question is going to come from Steven Cahall.

Wells Fargo Stephen Your line is open.

Thanks.

Maybe Kevin a couple for you so you talked about the trailing industry.

<unk> that you've seen kind of on our numbers it looks like the industry subs are down about 6% for 'twenty. Two so do you think that youll catch up to that over time do you plan the business around something like that or do you think that there is something a bit more structural about your rural exposure that means that youre not going to revert to that trend in your <unk>.

<unk> performed better over the next year or so.

I would say it is.

Kind of right down the middle Stephen at some point, we will likely revert to the mean, but it's not going to be over the next year.

We have been trailing three fairly seven years now eight years I don't see why that would suddenly reverse in one year and we would revert to the mean.

So.

Yes.

Don't have any insight beyond kind of what we've seen as I said third quarter was actually better than.

Okay.

The second quarter shock in the fourth quarter's SOCAR coming in.

Even better so.

I'm feeling good about retrans and feeling subs and certainly as we're going through this repricing is feeling really good about the environment.

Great value great signals.

Great and then another one Kevin just on the <unk>.

<unk> issues and the food Rodeo, we've heard you in a few of your peers kind of talk about the unfairness.

Fairness of the industry and the ability to negotiate directly with <unk>.

What is the mechanism that moved that into place. It doesn't sound like this is really an FCC issue. It sounds like it's an affiliate to National network issue. So when you think about your relationships with the national networks, what kind of is the is it a function by which you think they might change the nature of those arrangements. So that you can negotiate directly.

Okay.

I guess I would answer by saying all for the network affiliate boards.

I've been having active discussions with the networks about.

<unk> of them negotiating with the virtual providers instead of the affiliates.

We are attempting to work out.

Private negotiation privately negotiated.

Improvements or resolution of this issue, but it's an issue that animates elsewhere affiliate boards and all of the affiliate groups.

So we are.

We are actively working all of us for.

Quite some time now.

To reach.

More equitable arrangement with the network.

Yep.

And then Jim Thanks for the free cash flow number and then should we just think about cash available for debt pay down is the free cash flow less what you talked to you as assembly capex.

And then last the dividends that you will have for the year.

Yes, the way, we define free cash flow wouldnt include the dividend or the assembly investment.

But as Hilton mentioned at the beginning of the call I mean, what free cash flow we have this year.

The remaining part of the year.

Most of that will go towards debt reduction.

Could be a little debt reduction could be a little higher depending on what.

Especially fourth quarter political does.

Which is.

To be to be determined right.

Obviously, we've got a strong year in 'twenty four for further debt reduction and I'll remind everybody that on.

Next Wednesday, we're paying off $295 million of debt.

In less than the last 12 months, we have paid down $610 million of debt. So.

I would say.

$610 million within Alaska.

12 months is a darn good start to what we promised everybody. When we closed Meredith that we were going to be focused on bringing down our debt as fast as we could.

If I could.

Yes.

We're only a little more than 100 days past the election.

And.

Maybe enjoying this break from political ads on TV.

We have seen that.

First presidential primary debate.

Arguments schedule that is going to be this August in Milwaukee.

So again, we're not making projections on primary presidential primary money, but the Republican primaries will still be held in Iowa, where we have a huge presence new Hampshire, we have very strong station.

Nevada, where we own stations in both markets.

We have a very strong presence in that campaign begins really officially with the first debate. This August .

Six months from now.

So.

Enjoyed it enjoyed a quiet now that the political seasons can be upon us before you know it absolutely Stephen let me add one other thing to your initial question.

Just please understand that as a matter of just base.

Basic.

Law and common sense no. Other company has the right to negotiate on behalf of my company without our consent.

Just common.

Now I have no intention.

Negotiating in public.

Or criticising anyone anywhere the negotiations in the past every.

Everyone agreed to and so they were handled that way.

The <unk>.

The affiliate groups.

Times change and I'll refer you to our friend, Chris Ripley, who in his earnings call I think set out brilliant.

And clears position and I personally endorse his comments.

And where he articulated it.

I picked it up through a.

Broadcasting and cable article that covered some of those issues and that's where grey stands as well.

I am very hopeful that we can work out something with all of the networks, but.

We consented to where it has been we will not be consenting.

Going forward.

Yes.

That's fair thanks, everybody.

Thank you.

And there are no more people. Thank you.

Alright, well everyone. Thank you very very much for joining us today, we're very excited about what we did in 2020 and we really are actually quite excited about 2023, we are not seeing signs of the much heralded recession, we're actually seeing a lot of robustness.

And main street throughout our 113 markets.

And we see no regional dumps it seems to be across the board. So we enter 2023 with a great deal of optimism and look forward to talking to you.

With regard to our first quarter of this year. Thank you.

Okay.

Thank you for participating you may now disconnect.

Okay.

[music].

Yes.

[music].

Okay.

[music].

Yes.

Okay.

[music].

Yes.

[music].

Okay.

[music].

Okay.

[music].

Okay.

Yes.

Yes.

Okay.

[music].

Okay.

[music].

Okay.

Yes.

Sure.

Sure.

Yes.

Yes.

[music].

Yes.

Yes.

[music].

Yes.

[music].

Okay.

Yes.

Yes.

Ladies and gentlemen, thank you for joining the 2022 Q4 earnings call I will now turn the call over to President and CEO , Mr <unk> and Hello.

You may begin thank you Mr. <unk>. Good morning, everyone as the operator mentioned I am Hilton Howell, the chairman and CEO of Gray television I want to thank all of you for joining our fourth quarter 2022 earnings call with me today as usual are our executive officers, our president and co CEO Pat <unk>.

<unk>, our chief legal and development Officer, Kevin <unk>, Our Chief Financial Officer, Jim Ryan and our Chief operating Officer, Bob Smith.

We're going to shorten and streamline our call today, we will begin as usual with a disclaimer that Kevin will provide after that you will hear abbreviated comments from myself and Kevin and then John and all five of US will then be available to take any of your questions. So Kevin. Thank you Hilton.

Everyone grew.

<unk> uses its website as a key source of company information. The website address is www G. R. A Y dot TV, we will file our annual report on Form 10-K with the SEC later today.

Included on the call may be discussion of non-GAAP financial measures and in particular broadcast cash flow operating cash flow free cash flow and certain leverage ratios 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 a reconciliation.

<unk> 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 statements. As a result of various important factors that have been set forth in the Companys. Most recent reports.

With the SEC, including our most recent annual report and the one we will filed today on Form 10-K, and our most recent earnings release. The company undertakes no obligation to update these forward looking statements and I will turn the call to Hilton. Thank you Kevin.

Today once again, we reported a strong finish to 2022 on an as reported basis in the fourth quarter of 2022 compared to the fourth quarter of 2021, our total revenue increased 49% to a record $1 1 billion core advertising.

Revenue increased by 13% broadcast cash flow increased by 88%.

Fourth quarter capped an exceptionally good year for gray for the full year of 2022 total revenue was a record $3 $7 billion, an increase of 52% from 2021, marking our highest ever annual revenue.

Core advertising revenue was $1 5 billion, an increase of 26% from 2021 and broadcast cash flow was $1 4 billion, an increase of 77% from 2021.

These record results flowed from a number of factors the most significant of which was another record year for political advertising revenue and a mid term cycle in particular for the full year 2022, our political advertising revenue was $515 million, which is.

Exceeded 2000, Eighteen's political advertising revenue by 232% on an as reported basis and by.

38% on a combined historical basis.

We attribute these stellar of political advertising revenue results to <unk> unique combination of our market, leading new stations and competitive battleground States are news professionals unbiased coverage of divisive political issues and campaigns and are excellent and direct.

Relationship with the political advertising agencies.

Our board and our senior leadership continued to focus on our balance sheet.

Since we announced our acquisition of Meredith Corporation local TV stations two years ago, we have consistently emphasized that gray its board and its leadership team are committed to reducing our leverage our actions demonstrate this commitment during 2022, we paid down.

$315 million of principal under our outstanding term loans yesterday, we received $300 million under a three year accounts receivable receivable securitization facility on March one we intend to use those proceeds.

To pay off entirely the remaining principal balance of $295 million under our term loan b at.

At that point grey will have reduced approximately $610 million in debt over the course of less than 12 months.

To further strengthen our balance sheet yesterday, we also entered into an interest rate cap agreement.

The rate caps will effectively limit the annual interest charged on all of our variable rate debt to a one month LIBOR maximum of 5%.

Plus an applicable margin through December 31, 2025.

These arrangements will limit our exposure to approximately an additional 40 basis points of annual interest expense over current market rates, which will reduce our risk to unforeseen events that could increase market rates above our current expectations.

Looking ahead as we continue to produce significant free cash in 2023, and especially in the presidential election year of 2024.

We fully intend to allocate a significant portion of free cash to additional debt reduction.

We will also use a portion of our strong cash flow to complete the first phase of our Assembly Atlanta project, which will put us in position to begin earning revenue from the project later this year.

As you know by Assembly, Atlanta, and Assembly Studios will provide diversification from our broadcasting segment by participating.

Fast growing film and television production industry headquartered in our home state of Georgia Construction on Assembly studios in the infrastructure for the remaining area within Assembly Atlanta continues to run ahead of any of our schedules.

This was only possible due to our decision in 2021 to pre order steel and to produce concrete on site and certain other key materials before the supply chain issues created delays inflation cost overruns for so many other projects in 2002.

92.

We currently anticipate that construction on the Assembly studios portion of the development and much of the infrastructure for the entire project will be completed as soon as this June .

At that time, both NBC Universal and Gray television will begin producing TV shows and movies at Assembly studios on land that less than two years ago was an empty industrial side.

This phase of construction is complete gray intends to pause its funding of construction projects across the remaining roughly 80 acres that will comprise Atlanta Assembly. We are now.

We will continue over the next several months to actively evaluate opportunities to maximize the long term value of this quite unique investment to the benefit of all of Gray's shareholders. While 2023 will be marked by some macro challenges gray will continue producing locally focused.

And other content that our audiences want and delivering the value that drives solid advertising and retransmission revenues.

I will now turn the call back over to Kevin Latex, Kevin Thanks again.

Great television stations and production companies continue to perform well in the fourth quarter. They are beginning 2023 in a better position than you might presume based on headlines about certain sectors of the economy.

Full year 2022, our TV stations core advertising revenues were $1 $5 billion.

This is an impressive outcome because core in 2022 as compared to 2021 declined by a mere 1% on a combined historical basis that despite our inventory being displaced by $455 million of additional political revenue in 2022.

Since we cannot manufacturer additional inventory is very minor 1% dip in core revenue with all that extra political confirms the strong underlying demand from traditional advertisers that gray successfully converted into sales throughout the year.

As noted in this morning's release, we attribute our solid advertising results to real world confidence among advertisers and businesses in local markets.

<unk> portfolio of high quality local stations investments in recently acquired television stations and efficient sales and news operations.

Turning to turning to retransmission revenues Gray posted 5% growth in full year 2022 over the prior year.

Recall that grade did not renew its retransmission agreements in 2022.

Consequently, our gross Retrans revenue increase of 5% as a result of our annual rate increases outpacing subscriber declines.

<unk> and outpacing the impact of subscribers rotating into OTT platforms.

In the first quarter of 2023.

We will renew and reprice traditional mvpds retrans contracts covering approximately 22% of our <unk> subscribers.

Virtually all other retrans contracts experienced annual rate step ups in January .

For the first quarter of 2023, we anticipate that our gross retrans.

Retransmission revenue.

We will increase by approximately 10% to 11% over the fourth quarter of 2022.

Retrans price increases at both this annual escalator level and a contract renewal remained in the same neighborhood as we have seen previously.

Sub declines are impacting our ability to keep reaching to be paid fair value for our content.

Okay.

In addition, reverse comp payments to the networks did step up on January one.

Under the contracts that were negotiated a few years ago.

As we have discussed now many times, we expect reverse comp rates will decline starting in 2024 is more recently negotiated network affiliation agreements kick in.

We will renew retrans contracts of approximately 18% of Mvpds subs in the second quarter of 2023.

38% of Mvpds subs in the first quarter 2024, or 23% of Mvpds subs in the second half of 2024.

In terms of subscriber counts.

Subscriber reports that we receive for the third quarter of 2022 provided a more positive picture and what we receive for the second quarter of 2022.

Typically in the third quarter of 2022, our pay TV subscriber total declined by roughly one 5% from the third quarter of 2021.

We are gratified that our subscriber base remained fairly stable, we continued to be impacted by the rotation of households from traditional mvpds to virtual mvpds and the direct to consumer platforms, where the networks to take both the terms of our distribution and our revenues.

Gray like virtually all affiliate groups will continue to push for control of our own signals on all platforms.

Putting this altogether we.

We anticipate that gross Retrans will continue to grow annually.

Net retrans will continue to grow over a multiyear period.

Especially true in 2024, and 2025, even with conservative assumptions for continued sub losses.

These projections are based on our demonstrated ability to continue to command strong retrans rates traditional mvpds platforms for our portfolio of top rated local news station, coupled with some relief and reverse comp payments starting next year.

We anticipate that macroeconomic conditions will continue to be more challenging in 2023, then we experienced in recent years.

Still still based on our vantage point today and our strong performance in 2022, we expect that our core revenue production revenue and retransmission revenue in 2023, which are not compared to 2022.

Concludes my remarks, and I'll now turn the call to Jim Ryan.

Thank you Kevin good morning, everyone.

Hilton and Kevin covered the key highlights for the quarter and the full year of 'twenty two so I'll make my remarks very short today.

First of all very put our Q4 and full year 'twenty two results.

Turning to Q1 'twenty three guidance, we believe our revenue guidance demonstrates the company is off to a good start in 'twenty three, especially when you consider that it's an off year of the political cycle.

And we are facing.

We anticipate about $6 million of net revenue from the broadcast of the Super Bowl on our 2017 Fox channels, but that's compared to an aggregate of aggregate of $13 million of net revenue related to the broadcast of the Winter Olympics and the Super Bowl on our 56 NBC channels during Q1 'twenty two.

That's a $7 million.

Non recurring.

<unk>.

Event for core revenue. So when you look at our guidance for Q1 and consider that $7 million headwind. We think we're off to actually a very good start in Q1.

I'll make a few comments on our current expectations for the full year of 'twenty three.

Our profits these comments by saying that given the size of the company. These data points are our current expectations as of today, and we will undoubtedly change up or down as the year progresses.

When I am talking about amounts in billions of dollars I will fully admit that I'm not the last 10.

Or more.

Millions of dollars smart.

So again this is.

Directionally, what we see today.

So for total revenue in 'twenty, three we were expecting currently about $3 $3 billion.

Core revenue of nearly 155 billion, which would be up low single digits over 'twenty two.

Retransmission revenue of approximately 1.55 billion as well so our core at our Retrans just like it was going to you are pretty well matched set.

Political revenue of approximately 40% to $50 million given 23 is the off year, but.

Importantly that range does not consider any potential early political advertising revenue for the 2024 cycle that we could possibly see later this year. So the guide on political is conservative.

And not counting in any 24 presidential.

Total broadcast revenue would be approximately $3 2 billion.

Our operating expenses.

Before depreciation amortization and gain and loss on disposal of assets is currently anticipated to be approximately two 5%.

Of that broadcast expenses will be approximately $2 3 billion.

Network reverse comp is going up to $945 million approximately.

On the broadcast $2 3 billion, we have noncash stock comp of $5 million and noncash 401, K expense of 10 million production expenses of approximately $80 million and corporate expenses of approximately $120 million that $120 million include.

<unk> $17 million of noncash stock comp.

Our operating cash flow as defined in our senior credit agreement will be approximately $8 $850 million to $875 million.

Turning to a major cash uses in 'twenty three.

As Hilton mentioned, we have put in place interest rate caps, which insulate us significant increase in market rates for the next several years. So we expect cash interest of $420 million to $430 million.

Our 5% LIBOR interest rate caps around $2 $6 billion of our floating rate debt.

Cash taxes of a high end to $105 million.

Routine capital expenditures of $105 million to $115 million.

Preferred dividends of $52 million and our required term loan amortization is $15 million.

That would place our estimated free cash between $150 million and $160 million.

We are very well positioned starting 2023, and we look forward to access <unk> full year and continuing into a strong 24 with the return of another presidential cycle or turn the call back to Hilton.

You very much operator at this time, we'd like to open up the line for any questions.

Pat Jim Kevin Bob in Maine.

Thank you I'd like to ask a question. Please press star one on your telephone keypad again to ask a question press star one on your telephone keypad.

And it looks like your first question is going to come from Dan <unk> with benchmark Company. Your line is open.

Okay.

Hello, Dan.

Sorry can you guys hear me we can.

Alright, sorry about that Doug what happened there.

Good morning, and thank you for all the Super helpful. Color really is the one thing I did note Kevin could you just go back over the sub cadence again for me.

Okay.

Hi, Dan.

In the first quarter of 2023, we will renew and reprice traditional mvpds retrans contracts covering 22% of our Mvpds subs.

We will renew approximately 18% of mvpds in the second quarter of 2023.

38% of Mvpds subs in the first quarter of 2024 and about 23% of Mvpds subs in the second half of 2024.

Alright perfect.

Yes.

Can you kind of gave us the net retrans answer so we can kind of do the math, but I think it's probably a little bit better.

People were expecting and for what it's worth your net guide.

Or your reverse guide probably a little on the on the lower side, a little bit outside on Retrans, So Kevin I'm not sure any final question.

But as we kind of look at the marketplace today, even under sort of conservative assumptions.

Assumptions, you've obviously got the legacy Meredith stations coming up for renewal.

It seems like Youre ADC was relatively benign and I'm guessing that.

Meredith.

Hey, Dan last year at Meredith.

Hello.

Operator, we still online.

Yes, Dan Your line is now open I'm not sure what happened.

Right.

Well, let's go onto the next question and then Dan is able to get back on we will put him back in the queue.

Okay. No problem. Our next question is going to come from James call.

James Your line is open.

Alright, thank you.

Couple of things one I was curious.

And maybe this is Kevin question about the streamer usage of the national and network channels, rather than some of the local affiliate fees.

You were talking a little about them a little unclear about.

How the contracts address those issues.

Traditionally you own the market and the AD sales in those markets, but this is changing that dynamic a little bit to talk about that.

I think Jim what you're referring to is that the.

CBS affiliates largely did not opt into the <unk> Cvs contract.

Thats the one Thats. The example, maybe that should make situations.

So we have said now I think all of the broadcast groups for many years.

We let the networks due to the first round of virtual and negotiations with Hulu Youtube within Sony Playstation.

To get them off the ground and at the time they were negotiating deals for their owned and operated station.

Those.

Yes.

Those deals were largely offered to the affiliates to opt in.

Fast forward now several years, they virtually have gotten much larger Sony Playstation Vue has obviously gone away if Google has come on the market.

And the affiliates have all of the affiliate boards and I think all of the affiliate groups been pretty loudly, saying in the last.

Several several months or longer that we should be controlling our destiny.

These are now established providers just as we negotiate a grave under different mvpds.

Surely handle negotiations with three.

<unk>.

The CBS Google situation with that.

<unk> presented a contracted the affiliate board into the CBS affiliates.

And what your CBS affiliates were offered an opportunity to sign a contract with Cvs and with Cvs would have we then take our local signals in our local content and provided to <unk>.

CBS affiliates.

Our board and non endorsed that deal Gray did not opt into that deal as a result, we will go to not have the access to CBS affiliate signals for the CBS network created.

Some alternative feed ore feed.

To provide national CBS content to Google customers, rather than the local Cvs signals.

I'm not sure what you're talking about other streamers carrying national feeds the only you.

Our knowledge. The first time affiliates have said no to an option agreement and the virtual contacts was lost.

Late last month with CBS Google.

<unk>.

I don't think it changes the overall picture. This is something again that we've been discussing for a couple of years since or in the last several calls it.

The affiliate.

Groups feel pretty strongly that we should control our own destiny.

And thats happening in this case. So we are continuing to talk to Cvs anticipate your next question.

Other groups are optimistic.

I'm hopeful that we'll be able to reach new long term agreements with.

This network and other networks.

Makes sense for the affiliates, but thats all were going to say on that negotiation.

All of those scenarios.

No I appreciate that color.

Maybe it drops the issue to let a little bit.

The one other thing I was going to ask.

Thus the Atlanta Assembly studios.

Now the door getting close to.

Sure.

Coming.

Our opening them to usage are you an NBC universal initially.

Is there any.

The framing of the financials you might provide in terms of the overall investment the revenue expectations cost estimates or anything else.

We might be able to think about in terms of how it impacts your statements.

James just to for a number of reasons, we are unable to provide great details on that right now, particularly on the revenue side.

<unk> to say that we're very happy with what it's going to be producing not just in terms of.

Rental revenue, but production revenue beginning this summer so while we won't have those numbers to talk about probably at our next call it'll be very near.

Two beginning it because we will be turning it over to.

To our partner NBC Universal versus June .

Okay.

So so it will be on them rather than new.

Or will it be some intra company.

And that you'll be using it as well.

Well I mean, they will be using it in making movies and television shows there on the properties that they are leasing from us we will be delivering under the same on the properties and the studios and the stages that we have retained and so.

There is some production through our subsidiaries will films that will be happening on our stages. In addition to their stages in Paulding County, but then gray will be separately.

Leasing out to other film producers.

The stages that we have retained.

Alright, thanks very much.

Jim.

As a reminder, if you would like to ask a question. Please press star one to join the queue again to ask a question press star one to join the queue and our next question will come from Dan <unk> from benchmark Dan Your line is open.

Welcome back sorry about that.

I'm going to try this again Hilton, they're not going to be really quick before I get the hook again I guess.

To give you a hug I'm, sorry technology always kind of messes up from time to time. It seems like it definitely wasn't you guys. It was definitely me, but on the Atlanta just to be clear is is any revenue or any benefit from that included in the guide that you guys gave and Hilton if you could expound a little bit upon your thoughts on.

Monetization opportunities that you laid out in the press release I'd love to hear it thanks sure.

Okay.

There would be a little bit in the guide we remember.

NBC U.

Is actually by the time, we turn it over a lease actually commence payments to us under its terms.

Not a latter and theres not many months in this year. So it's.

Any small number for 2023.

Just by timing.

Okay.

The assembly upon maturity is going to be a quite significant contributor to the free cash flow of bidding on an.

Individual asset basis.

And.

I'm really quite excited about it because one of the things that we have to continue to maintain a focus on is how we continue to grow the company and while we are currently in terms of distribution with our TV stations slightly maybe two 5% to 3% below the currently articulated.

Since the FCC doesn't seem to be recognizing at.

At the moment.

The UHF discount as they did with both scripts and nexstar in the past.

<unk> seems to be capped at the 39% number.

So our management team is charged with continuing to grow our company and while those of you who may not follow this business will may not live in the state of Georgia. So you may not understand fully the stunning amount of production that has come to the state.

And that's for a number of reasons Dan <unk>.

Obviously began 20 years ago with the creation of the Georgia film tax credits, what Georgia has done that I think is really quite unique and it's a great Testament to I think wise legislators 20, plus years ago. They created the Georgia film Academy.

If I am calling this correctly.

And we now have at least two generations of.

Young Georgians, who have learned the craft of making film and television and the state.

And so the crews.

Talent everything.

<unk>.

Is here and so there is a huge amount of production that's coming to this day last year. The only public numbers that we have for the amount of production in Georgia.

And this was probably from the 2021 years so.

I know it's old, but it's all we got right now the total productions were $4 $4 billion, which is a huge generator of revenue here.

Assembly Studios I believe.

We will be one of the fund let me back it up I have been told.

Is one of the finest studios build anywhere in the world and so we have immense demand that we have coming on or use of all of the studios. Obviously, we have a long term financial agreement with NBC Universal.

Happy to say that they are looking forward to being here in Atlanta and in Georgia, but.

I would actually say that we have had direct comps.

<unk> or direct contact with the full gamut.

Content creators, whether independent or other individuals to bring future films and television and candidly.

Post production to the assembly and the Georgia and were.

Very excited about that it's going to be a.

A profitable endeavor from day one.

And it's going to be.

A huge asset for our company, our shareholders and for the city of Atlanta, and the state of Georgia.

Got it that's super helpful and I'll try this real quick Kevin.

I mean, we got the numbers from Jim on the reverse now so we can kind of do the math on your thoughts here legacy Meredith obviously comes up in the back half I think of this year and it doesn't seem too onerous and obviously your ABC seemed relatively benign based on the guide you've given so just trying to get a sense.

Commented that.

Net obviously should be up pretty substantially next year.

And.

Because you also get some relief on that reverse trends, so just maybe overlays.

Three year time Horizon, I mean, do you expect to outperform what's kind of your view and what are your sort of underlying sub.

The assumptions in the model right now.

To answer we've never commented on what we use in our model. We said we went.

We've been conservatively projecting.

Losses, and we will continue to do that.

Again, we had a bit of a shock in the second quarter that we revealed on the the.

The last phone call.

As I said, our sub numbers.

Improved relative realm.

Relatively in the third quarter.

We do not have all the fourth quarter sub counts at this point, but they frankly look better than what the third quarter was so.

Things seem to be trending at least right now in a good.

Definitely better direction than what we have modeled.

But we'll continue to model conservatively on on sub losses in the rotation to the virtual and direct to consumers.

We have not modeled out and given guidance over a two or three year period.

I. Appreciate this is probably the most guidance we've ever given in February phone call for the full year, So we're going to kind of stick with sticky.

The current guidance, we have now which is.

What are specific for this year and a little more general I'm, not really prepared to be more specific asset.

We gave on the earnings script today we.

We do think that net will be improved.

Next year over this year for the reasons mentioned in the script and again 25 again for the same reasons, but I'm not prepared to put percentages on that right now.

Okay Fair enough. Thanks, guys for letting me back on.

Hey, Dan.

Our next question is going to it's going to come from Alan Gould with Gray television Allen Your line is open.

Okay.

Thank you Luke.

Couple of questions Hilton first on the Assembly plant on one easy one how many stages are there into it looks like the Capex part was a little higher than it was a bit higher than expected. This year was that a pull forward or or is the inflation caused the cost to be a little higher than expected.

Inflation is always there, but let me answer your first question. The total stages are 19. This total total square footage is about $1 million 250000 square feet.

In terms of production mill and office space total, but its 19000 stages under.

Under construction right now and in fact last Thursday.

We had our topping out ceremony, so we're almost done.

Rail underground plus.

Plus you ask about assembly, but I'll add in there is an additional three stages that are currently operational and whose numbers are incorporated with third rail studios. We also have a further two studios that are currently named Atlanta film Studios that are part of the swirl films.

Group that has a 51% owned subsidiary of Gray television.

Okay and the costs.

So.

Alan the Capex number the regular Capex number was.

Higher than we had guided.

It's.

It's a multi phase the answer one is inflation too is what about.

Of some pull forward.

And supply chain issues earlier in the year, we thought some of what actually got delivered in Q4 would have actually shown up in 2024.

So we.

That was a pleasant surprise on the one hand, but also not something we had expected.

And also.

I'll take responsibility that internally.

<unk>.

We should have guided better and I will assure you that we are watching capex regular capex like a hawk in 'twenty, three and going into 'twenty four and the last piece of the equation on the regular Capex was.

We thought we could push some studio renovation projects farther into 'twenty four but our current landlords.

We're not not open to extending leases. So we we had to move a little faster than we had originally thought because our leases will be expiring.

Next year and we've got a.

We've got to move out and move in so as I said, a combination of several factors, but obviously in the guide this year regular Capex is 105 to $1 15, and again, we're going to watch that very carefully and to the extent possible put as much into 'twenty four as we can.

And Jim.

Much more do you expect to spend an example on the Atlanta Assembly plant.

Until June or until through until its completed.

And 23 on a net basis, we're currently estimating that to be about $72 million, depending on the studio project.

Okay and one quick question for Kevin your location to <unk> should we just assume you're matching pretty close to what the industry trend is there.

In terms of in terms of what would the Mvpds and sorry Alan.

Youre rotation from traditional Mvpds virtual Mvpds is that is your share in most of the industry for Gray television.

To be honest I don't know what we would say is the industry rotation I'd say, we're seeing a.

Lot of it I mean, we have a pretty significant decline in the mvpds and we have a pretty significant growth of the the virtual.

And the direct to consumer so again.

Our total sub count on a year over year basis was minus one 5%. So we're converting essentially everybody almost everybody who is leaving.

Traditional into a new subscriber.

Subscriber on the digital side.

Quite how that tracks with everybody else, but our number is minus one five on a year over year basis.

Okay.

Subscribers.

Let me just maybe I can ask it differently can you tell us what percentage of your subs are now coming through <unk>.

<unk>, our digital now we have not disclosed that okay. Thank you sure.

Our next question is going to come from Craig Huber with Huber Research partners.

Your line is open.

Great. Thank you.

My first question is this interest rate cap I'm glad to see you guys are putting this into place you mentioned your press release of $32 million is payable on it.

Yes.

December 31, 25 is that going to be amortized and what's.

What's the impact on your P&L in terms of the cost to put this in places.

From.

GAAP accounting perspective that will be amortized in more or less ratably over.

Between now and December 31 of 2025.

But again I think the important part is the cash settlement as at December 31, 2025, So we've.

We've put that way down the road in.

We're pleased with that as you said, we're very pleased to have gotten in place and where.

Fully insulated now on.

Continuing rate hikes and.

I say this.

Somewhat jokingly, but actually in absolute sincerity I am glad I got.

I'm glad we got the rate caps and earlier this week I would I would not have been pleased with trying to price one today given the and.

Inflation headlines this morning.

So we.

We're very pleased with where we came out.

The very good on that and then a second question if I could you're down one 5%.

Retrans sub count declines year over year.

Quite good certainly a lot better than neutral talk publicly about down mid single digits that trend for them has been very similar till mid single digits. What is it about your company. Your market. So you are only down one 5%, which one of your thoughts there. Please.

Yes.

We have been trailing the industry really forever.

When.

When <unk> announced sub declines in August of 2015, we were still seeing sub gains a couple of years later, our broadcast peer groups.

We're sort of thing.

Subs.

Sub stabilization, we were still seeing Ryan May announced they were seeing little declines and we saw a stabilization now they are seeing.

Some greater declines than we are so we've definitely been trailing behind.

Okay.

The best guess, we have is we have more rural exposure than other folks.

We are certainly in some large markets, but we're in a whole bunch of smaller markets and some that are geographically very large and those folks have been.

Total later today virtual mvpds because their broadband access is not as great as it is in.

Philadelphia, San Francisco and other large markets.

Youtube Hulu.

Sony Kobo et cetera, sort of launching local signals in our markets later than others and they were not full substitutes until more recently and they were in large markets because broadband was not is.

Not deployed as much so we're seeing broad enrolling out.

More aggressively now in the last couple of years, So we're probably seeing more people pick those subscriptions up.

And thats covering the loss on Mvpds, but that's our best guess as to the type of footprint, we have is a bit different than others.

Okay, great for that thank you and then my second My next question sorry is.

Alternative uses of your broadcast spectrum can you maybe just update us on your thoughts on that health risks might be.

Depletion in the coming years.

Yes.

<unk>.

So I would tell you that.

Like the rest of the industry, we are rolling out <unk> three point out we've rolled out I guess three markets.

In 'twenty two.

And we have the majority of our larger markets rolled out at this point.

Hi.

Theres been quite a bit of talk about the possibility of using that spectrum.

Data and automobiles.

And a number of other uses I think we were a few years away from that still but the reality is that the rollout is moving along.

And a pretty good clip, we'd expect to be north of 70% by the end of 'twenty three.

<unk>.

And then it's a matter really of.

In terms of the television side of three point of getting the chips into television sets. The vast majority of manufacturers are selling chips are selling sets today with the chips in them.

So thats on the TV side, and then on the alternative uses.

It's a matter of getting the footprint filled out and thats happening pretty quickly.

Okay. My last question guys. Just curious what's your thoughts on the broad economic environment right now given all of the markets you guys are in and around the U S. I mean, how would you guys give us a call them just curious your thoughts there.

Bob Smith.

We're actually pretty optimistic.

Jim mentioned, a little bit about the numbers and our projections, but we are seeing.

A lot of good things in our local markets.

A lot of.

Actually.

A ton of new business development. Those are local direct accounts that are coming onto TV and we're having a lot of success with that we're also seeing automotive.

Coming back and a lot of markets General Motors is pretty strong Nissan is strong.

You know.

Legal continues to do well.

Recently saw sports gambling get approved in Ohio, So our Ohio markets are seeing.

A lot of pretty big buys here in first quarter and will continue into second quarter. We are optimistic that North Carolina will pass.

Gambling here.

For the football season, so all in all.

Despite the headwinds despite all the chatter if you will.

Lot of good things happening in our local markets right now.

Okay. That's it thank you very much.

Thank you Jim.

Our next question is going to come from Nick <unk> with Stephens.

Your line is open.

Yes, Hey, guys.

Some of the direct to consumer stuff. So the access of your local broadcast feed through.

Direct to consumer App.

Pretty new I am curious, how the economics work between Gray and the networks. When your local feed is made available through an app like Paramount plus our Peacock are you basically just recognizing maybe a net retrans figure on the top line here and is this.

Cereal piece of revenue contribution at the moment.

It's Kevin.

So on.

On the first point.

CBS CBS signals were available on the CBS all access App from day, one we actually beta tested CBS all access with the <unk>.

As a company and we launched CBS all access out of the gate.

Mutation, we acquired that was not uneven little tiny markets, we put on CBS all access so just to be clear the direct direct to consumer piece.

It's not really new for us.

With all access has been a part of our distribution for some time, obviously that was rebranded as Paramount plus.

No.

Peacock.

Adding the local affiliates.

Late last year and.

The revenue on both as the affiliate boards negotiated a price per sub per month that is a fee that is paid by CBS NBC, respectively based on the number.

In the respective markets for each station.

Revenue comes into US is as retransmission revenue there is no offset of additional expense against it so those dollars would.

That dropped to the network.

And theyre not the.

Peacock again just.

It just added signals.

December so.

I don't I couldn't even tell you with the subs are as we sit here later.

Yes got it Okay, that's fair and then on.

Yes, I did want to ask about the total guidance for the year, obviously I hear you guys $3 3 billion in total for total revenues political upside would occur if the presidential election.

Campaign start to roll in early so we could potentially see upside in that segment later on in the year and then when we talked about.

The core assumption for the year, if you exclude the political displacement that you saw in 2022 does that guide assume.

Basically year over year growth in advertising and the core into 2023, and then also it sounds like even in the press release, you referred to maybe like a recessionary environment. In 2023 is that your underlying assumption when you make that guide.

And so obviously if things continue.

Continuing to show improvement naturally you would get upside to the core revenue piece for 2023 relative to your expectations currently.

So.

First you are correct there is potential upside in the political number for from early primary money.

Later this year, we saw that in the 2020 cycle, we saw that in the.

Eight <unk>.

Basically every cycle for the last several years several cycles, we've seen early primary money.

But we have not baked that into the guide.

Hopefully that's good news and upside we can talk about.

A couple of phone calls from now.

In the core yes.

We would expect some growth.

Over and above the political displacement from last year, So I would say.

We are.

We are pleased with where we're seeing core go in 2023 and no. We are not planning as a company for a recession.

A lot of headlines like everybody else does but as Bob commented a few minutes ago, when we dig down to our local business and our 113 local markets.

We see.

Good.

Good news at the start of the year end.

We have no reason to think it won't continue.

Now if the macro changes the macro changes.

Can't control that but as Bob said earlier too.

Focus has been creating new local direct business and it was very successful last year and the budgets for new local direct or even higher this year. So we're.

Local is.

Local is our bread and butter encore and we're focused on it and working hard to bring every dollar we can.

Got it and did core.

I keep hearing this everywhere else that December was very weak in the AD market soft start to January and then improvement from there on out at core experience or I'm, sorry did local advertising experience like a similar cadence or was it just.

Stronger altogether.

Alright, alright.

All in all this past month again.

It's been pretty decent.

In December and carried over into the first of the year.

As Jim mentioned there are some.

Political and Olympic dollars that non returning in February but other than that.

Again, we feel pretty good about the quarter.

And.

Moving forward after that.

Great I appreciate it thanks, guys. Good luck.

Thank you.

Our next question is going to come from Michael Pinsky with Noble capital markets. Your line is open.

Most of the questions on <unk>.

I have another question here you indicated that you plan to pause funding for the Atlanta Assembly project to evaluate opportunities and I am wondering if you could just talk a little bit about what options you might be considering there.

Well I mean, I kind of hate to put on a public record what options were considering we've got.

Have 80 acres over there.

<unk>.

We'll pause on with some macroeconomic concern about.

Real estate and what's going on out there. So we're just taking a break our focus is on building the studios and we just about have all of those.

Have all those built.

Gotcha Gotcha, Okay. That's all I have thank you.

Thank you Michael.

And our next question is going to come from Steven Cahall.

Wells Fargo.

Steven Your line is open.

Thanks.

Maybe Kevin a couple for you. So you talked about the trailing industry sub trends.

<unk> trends that you've seen kind of on our numbers. It looks like the industry subs are down about 6% for 'twenty. Two so do you think that youll catch up to that over time do you plan the business around something like that or do you think that there is something a bit more structural about your rural exposure that means that youre not going to revert to that trend in your <unk>.

<unk> performed better over the next year or so.

I would say.

It's kind of right down the middle of Stephen at some point, we will likely revert to the mean, but it's not going to be over the next year.

We have been trailing three fairly seven years now eight years I don't see why that would suddenly reverse in one year and we would revert to the mean.

Yes.

Yes.

I don't have any insight.

Beyond kind of what we've seen as I said third quarter was actually better than.

Okay.

Second quarter shock in the fourth quarter's SOCAR coming in.

Even better so.

I'm feeling good about retrans and feeling subs and certainly as we're going through this repricing is feeling really good about the environment.

For great value great signals.

Great and then another one Kevin just on the <unk> issues and the food rodeo.

We've heard you in a few of your peers kind of talk about.

The unfairness of the industry and the ability to negotiate directly with <unk>.

What is the mechanism that moved that into place. It doesn't sound like this is really an FCC issue. It sounds like it's an affiliate to National network issue.

Do you think about your relationships with the national networks, what kind of is the is the.

Function by which you think they might change the nature of those arrangements. So that you can negotiate directly.

I guess I would answer by saying all for the network affiliate boards.

I've been having active discussions with the networks about.

<unk> of them negotiating with the virtual providers instead of the affiliates.

We are attempting to work out.

Private negotiation privately negotiated.

Improvements or resolution of this issue, but it's an issue that animates elsewhere affiliate boards and all of the affiliate groups.

So.

Where we are.

We are actively working all of us for.

Quite some time now.

To reach.

More equitable arrangement with the network.

Yep.

And then Jim Thanks for the free cash flow number and then should we just think about cash available for debt Paydown is the free cash flow less what you talked to as Assembly capex.

And then last the dividend that you will have for the year.

Yes, the way we define free cash flow wouldnt include the dividend or the assembly investment, but as Hilton mentioned at the beginning of the call I mean, what free cash flow we have this year.

The remaining part of the year.

Most of that will go towards debt reduction.

Could be a little debt reduction can be a little higher depending on what.

Especially fourth quarter political does.

Which is.

To be to be determined right.

Obviously, we've got a strong year in 'twenty four for further debt reduction and I'll remind everybody that.

Next Wednesday, we're paying off $295 million of debt.

In less than the last 12 months, we have paid down $610 million of debt. So.

I would say.

$610 million within the last two.

12 months is a darn good start to what we promised everybody. When we closed Meredith that we were going to be focused on bringing down our debt as fast as we could.

If I could just add.

Yes.

We're only a little more than 100 days past the election.

And I'll, maybe enjoying this break from political ads on TV.

You may have seen that.

First presidential primary debate.

Arguments schedule that is going to be this August in Milwaukee.

So again, we're not making projections on primary presidential primary money, but the Republican primaries will still be held in Iowa, where we have a huge presence new Hampshire, we have very strong station.

Nevada, where we own stations in both markets.

So on a we have a very strong presence in that campaign began really officially with the first debate. This August so.

Six months from now.

So.

Enjoyed it enjoyed a quiet now that the political seasons can be upon us before you know it absolutely Stephen let me add one other thing to your initial question.

Just please understand that as a matter of just base.

Basic.

Law and common sense no. Other company has the right to negotiate on behalf of my company without our consent.

Just common.

Now I have no intention of.

Negotiating in public.

Or criticising anyone anywhere the negotiations in the past every.

Everyone agreed to and so they were handled that way.

The <unk>.

The affiliate groups.

Times change and I'll refer you to our friend, Chris Ripley, who in his earnings call I think set out brilliant.

And clears position and I personally endorse his comments.

And where he articulated it.

I picked it up through a.

Broadcasting and cable article that covered some of those issues and Thats, where gray stands as well.

I am very hopeful that we can work out something with all of the networks, but.

We consented to where it has been we will not be consenting.

Going forward.

Yes.

That's very clear thanks, everybody.

Thank you.

And there are no more people. Thank you.

Alright, well everyone. Thank you very very much for joining us today, we're very excited about what we did in 2020 and we really are actually quite excited about 2023, we are not seeing signs of the much heralded recession, we're actually seeing a lot of robustness.

And main street throughout our 113 markets.

And we see no regional dumps it seems to be across the board. So we enter 2023 with a great deal of optimism and look forward to talking to you.

With regard to our first quarter of this year. Thank you.

Okay.

Thank you for participating you may now disconnect.