Gray Television Inc. Q1 2023 Earnings Call

[music].

Operator: Welcome to the Gray Television Q1 2023 Earnings Call. I will now turn the call over to our Chairman and CEO, Hilton Howell. You may begin.

And here are.

Welcome to the Gray television Q1 from <unk> 23 earnings call I will now turn the call over to our chairman and CEO Hilde and Hallow you may begin.

Hilton Howell: Thank you, Misty. Good morning, everyone. As our operator mentioned, I am Hilton Howell, the Chairman and CEO of Gray Television. I want to thank all of you for joining our Q1 2023 earnings call. With me today are our executive officers, our President and Co-CEO, Pat LaPlatney, our Chief Legal and Development Officer, Kevin Latek, and our Chief Financial Officer, Jim Ryan. As you all know, I'm sure since our last earnings call, our Chief Operating Officer, Bob Smith, has retired after a long and singularly distinguished career. We wish him all the best in his next adventures and thank him for some of the extraordinary and bold initiatives that he began and that our company still benefits from. With that, we will begin with the disclaimer that Kevin will provide. Kevin?

Thank you Mr. <unk> good morning, everyone as our operator mentioned I am Hilton Howell, the chairman and CEO of Gray television I want to thank all of you for joining our first quarter 2023 earnings call with me today R. R.

Executive officers, our president and co CEO , Pat <unk>, our chief legal and development Officer, Kevin Latex and our Chief Financial Officer, Jim Ryan.

As you all know I'm sure since our last earning call our Chief operating Officer, Bob Smith has retired after a long and singularly distinguished career.

We wish him all the best in his next adventures and thank him for some of the extraordinary and bold initiatives that he began and that our company still benefits wrong with that we will begin with the disclaimer that Kevin will provide the Kevin hi, Thank you Hilton and good morning, everyone. Gray uses its website as a key source of company information.

Kevin Latek: Hi. Thank you, Hilton. Good morning, everyone. Gray uses its website as a key source of company information. The website address is www.gray.tv. We will file our quarterly report on Form 10-Q with the SEC later today. Included on the call may be a discussion of non-GAAP financial measures, and in particular, broadcast cash flow, operating cash flow, free cash flow, and certain leverage ratios. These metrics are not meant to replace GAAP measurements but are provided as supplements to assist the public in their analysis and valuation of our company. Included in our earnings release, as well as on our website, are reconciliations of the non-GAAP financial measures to the GAAP measures reported in our financial statements. Certain matters discussed on this call may include forward-looking statements regarding, among other things, future operating results. Those statements are subject to a number of risks and uncertainties.

Formation. The website address is www G. R. A Y got TV, we will file our quarterly report on Form 10-Q with the SEC Later today.

Got it 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 laboratory ratios east 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 of the non-GAAP financial measures to the GAAP measures reported in our financial statements.

Certain matters discussed in this call may include forward looking statements regarding among other things future operating results.

Kevin Latek: Actual results in the future could differ from those expressed or implied in any forward-looking statements as a result of various important factors that have been set forth in the company's most recent reports filed with the SEC, including our most recent annual report on Form 10-K and our most recent earnings release. The company undertakes no obligation to update these forward-looking statements. I now return the call to Hilton.

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 factors that have been set forth in the company's most recent reports filed with the SEC, including our most recent annual report on Form 10-K, and our most recent.

Our earnings release, the company undertakes no obligation to update these forward looking statements I now return the call to Hilton.

Hilton Howell: Thank you, Kevin. Gray Television reported an exceptionally strong start to 2023, despite strongly raising interest rates, fears of recession, and the off year of the political cycle. Our total revenue of $801 million surpassed our guidance, and our core advertising revenue was even with last year's Q1 after adjusting for the impact of the Super Bowl last year and the Winter Olympics broadcasts. Our retransmission revenue was 12% ahead of Q4 2022, also beating our guidance. As noted in the earnings release, Gray's Q1 results benefited from continued strong advertiser demand from our local market-leading local television stations and our digital products. Even as many are still telling this country that a recession is just a few months away, businesses, particularly local businesses, are still working hard with a strong demand to find customers to move their products and to sell their services.

Kevin Great television reported an exceptionally strong start to 2023, despite strongly raising interest rates fears of recession and the off year of the political cycle. Our total revenue of 801 million surpassed our guidance and our core advertising revenue was even.

With last year's first quarter after adjusting for the impact of the Super Bowl last year in the Winter Olympics broadcast our retransmission revenue was 12% ahead of the last quarter of 'twenty 'twenty. Two also beating our guidance as noted in the earnings release <unk> first quarter results benefited from continued.

Along advertiser demand from our local market, leading local television stations and our digital products, even as many are still telling this country that a recession is just a few months away businesses, particularly local businesses are still working hard with a strong demand to bond customers.

Hilton Howell: Increasingly, local businesses are rediscovering that in this age of audience fragmentation, broadcast television and its digital channels that support it provide one of the most effective ways to achieve their goals, regardless of the state of the economy and regardless of the news cycles. We therefore continue to be very bullish on the value proposition that our industry, and in particular, our company, offer to those who want to grow their own businesses. Besides our strong earnings this morning, we are happy to report by the time that we convene our next earnings call, the Assembly Studios, in conjunction with Third Rail Studios, will be opening and operating, and Gray will have welcomed NBCUniversal Studios under our long-term lease and are happy to have that esteemed company join the vibrant Georgia film and television industry.

To move their products and to sell their services and increasingly local businesses are rediscovering that in this age of audience fragmentation.

Broadcast television and its digital channels that supported provide one of the most effective ways to achieve their goals, regardless of the state of the economy and regardless of the news cycles.

We therefore continue to be very bullish on the value proposition that our industry and in particular, our company offered to those who want to grow their own businesses.

Besides our strong earnings. This morning, we are happy to report by the time that we can be in our next earnings call. The Assembly studios in conjunction with third rail studios will be opening and operating and Gray will have welcomed NBC Universal Studios.

Under our long term lease and are happy to have that seemed company joined the vibrant Georgia film and television industry.

Hilton Howell: As you will hear more from Pat, we're extremely pleased that people are rediscovering the essential value of broadcast television, from local sports teams to local businesses who we are seeing coming to broadcast for the first time ever. I also want to reiterate an outstanding fact with regard to our political advertising. For the first time ever in the year before a presidential election, we are receiving significant presidential ad buys from all major candidates and parties. This is a great sign for this year and for next year. I also want to congratulate all of our stations. They are operating at the top of their respective games. I would particularly like to call out some stations that we acquired and have had stewardship over for the last 18 months, particularly some of the Meredith TV stations.

As you will hear more from from Pat We were extremely pleased that people are rediscovering the central value of broadcast television from local sports teams to local businesses, who we're seeing coming to broadcast for the first time ever.

I also want to reiterate and outstanding fact with regard to our political advertising for the first time ever in the year before a presidential election, we are receiving significant Kent presidential AD buys from all major candidates and parties.

This is a great sign for this year.

And for next year.

I also want to congratulate all of our stations. They are operating at the top of their respective games, but I would particularly like to call out some stations that we acquired and have had stewardship over for the last 18 months, particularly some of the merit of television stations.

Hilton Howell: We have seen a dramatic improvement across the board, but with particular improvements in very important markets to our company in Atlanta, Phoenix, Nashville, and Greenville. Further, the top performing stations in the portfolio that we purchased have increased their success, particularly in Las Vegas, St. Louis, and Hartford. While we predicted cost synergies from the acquisition, we are now seeing revenue synergy, not just from Meredith, but also from our Quincy acquisitions. While 2023 may be remembered for many challenges, Gray will nevertheless continue producing local content that our audiences want and delivering the value that drives solid advertising and retransmission revenues. I believe, however, that 2023 could be the year in which the value, the tremendous reach, and the efficiency of local broadcast televisions gets rediscovered by new and existing advertisers, by sports leagues and teams, and perhaps even by Wall Street investors.

We have seen a dramatic improvement across the board, but with particular improvement in very important markets to our company in Atlanta.

Phoenix, Nashville, and Greenville Fair.

Further the top performing stations in the portfolio that we purchased have increased their success, particularly in Las Vegas, St. Louis and Hartford, So while we predicted cost synergies from the acquisition. We are now seeing revenue synergy not just from Meredith, but.

So from our Quincy acquisitions.

While 'twenty three 2023 may be remembered for many challenges.

Ray will never met the last continue producing local content that our audiences want and delivering the value that drive solid advertising and retransmission revenues.

I believe however that 2023 could be the year in which the value the tremendous reach and the efficiency of local broadcast televisions gets rediscovered by new and existing advertisers buy sports leagues and teams.

Hilton Howell: It should go without saying that we are tremendously unhappy with Gray's stock price and market valuation, both personally and professionally. This company is undervalued for its current operations and its future promise. Yet, with all that and all that we have to report today, we remain very bullish on the industry and especially on Gray's ability to prove the naysayers wrong and return this company's valuation to its appropriate place. I would now like to introduce Pat LaPlatney to provide more color on our operations. Pat?

And perhaps even by Wall Street investors.

It should go without saying that we are tremendously unhappy with Gray's stock price and market valuation both personally and professionally.

This company is undervalued for its current operations.

And its future promise.

And yet with all that and all that we have to report today, we remain very bullish on the industry and especially on Gray's ability to prove the naysayers wrong and return this company's valuation to its appropriate place.

I would now like to introduce patent flattening to provide more color on our operations Pat.

Pat LaPlatney: Thanks, Hilton. Gray's television stations and production companies are executing well and seemingly better than other parts of the advertising ecosystem. Our local advertising continues to demonstrate positive results. National advertising, while softer, is a small portion of our business, and it tends to recover when the economy returns to growth. Overall, the auto category continued its recovery in Q1 and is pacing to continue improving throughout the year. Other strong categories include services and home improvement. Our local direct ad business, which has been a big priority of ours for the past few years, continues to yield new leads and new contracts. In Q1, our new local direct business brought in over 2,000 new accounts and 9% more revenue than Q1 2022. This momentum has continued into Q2.

Thanks, Phil.

Great television stations production companies are executing well seemingly better than other parts of the advertising ecosystem.

Our local advertising continues to demonstrate positive results national advertising, while softer is a small portion of our business and it tends to recover when the economy returns to growth.

Overall, the auto category continued its recovery in Q1.

Patiently continue improving throughout the year.

Strong categories include services and home improvement.

Our local direct AD business, which has been a big priority of ours for the past few years continues to yield new leads and new contracts.

In the first quarter, our new local direct business brought in over 2000, new accounts and 9% more revenue than first quarter of 2022.

Pat LaPlatney: In April of 2023, our stations brought in nearly $11 million of new business, which was our best monthly number we have ever had. Our April 2023 new business revenue was 17.5% higher than April 2022. What this tells us is that year after year, new advertisers are learning how our linear and digital platforms can help them drive their own business success in a brand safe and cost-efficient manner. In some of our large markets, third party audits of local television stations reveal that our stations are growing their core spot TV revenue. At the same time, the ad dollars in some of the markets are declining. As Hilton mentioned, we're seeing this result quite clearly in the former Meredith markets, including Atlanta and Phoenix.

This momentum has continued into the second quarter and the April of 'twenty three our stations brought in nearly $11 million of new business, which is our best monthly number we have ever had.

Our April 23, new business revenue was $17, 5% higher than April 'twenty two.

What this tells US is that year after year, new advertisers are learning, how our linear and digital platforms can help them drive their own business success in a brand safe and cost efficient manner.

And some of our large markets third party audits of local television stations revealed at our stations are growing their core spot TV revenue at the same time the AD dollars and some of the markets are declining.

As Hilde mentioned, we're seeing this is all quite clearly in the former Meredith markets, including Atlanta and Phoenix.

Pat LaPlatney: Between our core revenue performance overall, our new business success, and individual market successes like these, we know that Gray has the right people providing the right solutions at the right price for local advertisers who need to grow and maintain their own businesses. Q1 also included a pleasant surprise of political ad revenue coming in at double the amount our current television station portfolio posted in Q1 of 2019, which was the last pre-presidential year in the cycle. This is obviously a good sign. Already in the Q2, we've received our first presidential political ad buys, as Hilton referenced. I'm pleased to report that we've not one, but three presidential campaigns already advertising on Gray stations in the early primary states. With the presidential election still 17 months away, the size and scope of these ad buys coming this early is encouraging.

Between our core revenue performance overall, our new business success and it is individual market successes like these we know the gray has the right people, providing the right solutions at the right price for local advertisers, who need to grow and maintain their own businesses.

First quarter also included a pleasant surprise of political AD revenue coming at coming in at double the amount of our current television station portfolio posted in the first quarter of 2019, which was the last pre presidential year in the cycle.

This is obviously a good sign already in the second quarter. We've received our first presidential political advisers Holton referenced I'm pleased to report that we not one but three presidential campaigns already advertising on gray stations and the early primary states.

With the presidential election is still 17 months away the size and scope of these AD buys coming this early is encouraging.

Pat LaPlatney: Meanwhile, our digital businesses are also excelling. In Q1, we set new records for engagement with digital audiences. Importantly, we continue to experience double-digit growth in digital revenue. We continue to launch literally dozens of our FAST channels on Samsung TV Plus, Amazon's News on Fire TV, and the news category on The Roku Channel Live TV. From longstanding advertisers like the auto industry returning to the medium and early season political campaigns to new business development, there is real momentum behind the local broadcast business. We also see enthusiasm for our medium coming from the sports world that Hilton mentioned. That's really accelerated in the last few weeks. Since last fall, we've had many calls with professional sports teams seeking to explore how our stations could expand their reach and promotional footprint in their home markets and beyond.

Meanwhile, our digital businesses are also excelling in the first quarter, we set new records for engagement with digital audiences. Importantly, we continued to experience double digit growth in digital revenue. We continue to launch literally dozens of our fast channels on Samsung TV plus <unk>.

The Amazons of news by fire TV and the news category on the Roku Channel live TV.

From long standing advertisers like the auto industry returning to the medium.

And early season political campaigns to new business development, there is real momentum behind the local broadcast business.

We also see enthusiasm for medium coming from the from the sports World Hilton mentioned, that's really.

Right in the last few weeks.

Since last fall, we've had many calls with professional sports teams seeking to explore our stations could expand their reach and promotional footprint in their home markets and beyond last Friday, we announced a new broadcast rights deal with the Phoenix SUNS had Phoenix Mercury is conditioned on the Sun's existing RSM deal expiring assuming the deal proceeds.

Pat LaPlatney: Last Friday, we announced a new broadcast rights deal with the Phoenix Suns and Phoenix Mercury that's conditioned on the Suns' existing RSN deal expiring. Assuming the deal proceeds, our Arizona stations will make all of the Suns and Mercury games available to roughly three times more people than the teams have been reaching with the current RSN model. We know our business faces real challenges, but that's nothing new for us. We've shifted our course repeatedly over the past few decades. Right now, we're moving forward in new and creative ways with our audiences, with a growing advertiser base, and with new partnerships with local professional sports teams. We also expect that our industry's and our company's work on the NextGen TV technology will open even more doors to growth for us in the medium term.

Our Arizona stations will make all of the sounds of Mercury games available to roughly three times more people and the teams have been reaching with the current Rs and model.

We know our business faces real challenges, but that's nothing new for US we've shifted our poorest repeatedly over the past few decades, yeah right now we're moving forward in new and creative ways with our audiences with a growing advertiser base and with new partnerships with local professional sports teams.

We also expect that our industries and our companies work on the next Gen. TV technology will open even more doors to growth for us in the medium term.

Pat LaPlatney: In short, it's a very good time for Gray in the broadcast business.

Hilton Howell: Kevin?

Kevin Latek: Hi. Thank you, Pat. Today we can announce that Gray has successfully completed another retransmission renewal cycle. We have agreements or agreements in principle with three very large MVPDs just since the beginning of this year. Consistent with Gray's 3-decade history of retrans negotiations, these important new deals were reached without any consumer disruptions or public rhetoric. Equally important, due to the strength of our local content and operations, we have also managed to secure retransmission rates for our content that met or exceeded our budgets. Our next round of retrans negotiations will occur at the end of this year when we will renew with most of our MVPD partners. In related news, since the first of this year, Gray has entered into the ABC opt-in agreement for Hulu TV and the CBS opt-in agreements for Hulu TV, YouTube TV, and fuboTV.

Sure. It's a very good time for gray in the broadcast business.

Kevin.

Thank you Pat.

Today, we can announce it gray has successfully completed another retransmission renewal cycle.

We have agreements or agreements in principle with three very large mvpds just since the beginning of this year.

Same with Grays three decade history of Retrans negotiations. These important new deals were reached without any consumer disruptions where public rhetoric.

Important due to the strength of our local content and operations. We have also managed to secure retransmission rates for our content that met or exceeded our budgets.

Our next round of Retrans negotiations will occur at the end of this year when we will renew with most of our M. B P D partners.

And related news since the first of this year <unk> entered into the a B C. Aten agreement for Hulu TV and the C. B S Aten agreements for Hulu, TV Youtube Youtube TV and <unk>.

Kevin Latek: As a reminder, the Big Four networks negotiate these agreements with virtual MVPDs and present agreements for us to accept or reject. We are not permitted to negotiate carriage of Big Four affiliates with a virtual MVPD directly. We do, however, have breaking news to report in the virtual MVPD space. Just this week, Gray reached an agreement with YouTube TV that secures carriage of six of Gray's independent, non-affiliated television stations that provide local news and local sports-focused content in our largest markets, including Peachtree TV in Atlanta and Arizona's Family 3TV in Phoenix. This is Gray's first-ever retransmission agreement with a virtual MVPD for the linear distribution of local television stations. While limited in scope, this deal proves that local broadcasters are, in fact, fully capable of negotiating retransmission agreements with a large, sophisticated virtual distributor.

As a reminder, the big four networks negotiate these agreements with virtual mvpds and presenting agreements for us to accept or reject that we were not permitted to negotiate carriage of big four affiliates with the virtual mvpds directly.

We do however have breaking news to report in the virtual Mvpds space.

Just this week Gray reached an agreement with Youtube TV that secures carriage was six upgrades independent non affiliated television stations that provide local news and local sports focused content in our largest markets, including Peachtree TV in Atlanta, and Arizona family T V. Three in Phoenix.

This is grace first ever retransmission agreement with a virtual mvpds for the linear distribution of local television stations are limited limited in scope. This deal proves that local broadcasters are in fact fully capable of negotiating retransmission agreement with a large sophisticated virtual distributor.

Kevin Latek: As such, we are hopeful that deals like this one with YouTube TV opens the door for similar deals with Hulu and fuboTV to bring these independent stations to our customers and their customers, and eventually helps lead to the return of our right to negotiate the carriage of our Big Four affiliated stations with all the MVPDs. The Q1 retransmission results we posted today are better than expected. Particular retrans revenue as compared to the Q4 2022 grew 12% on a gross basis and 25% on a net basis. These results benefited from higher rates in our distribution contracts, with some positive true-ups and adjustments in the quarter that were related to last year's distribution. We continue to forecast low single-digit growth in gross and net retrans for the year.

As such we are hopeful the deals.

This one with Youtube TV opens the door for similar deals with Hulu and food O T V to bring these independent stations to our customers and their customers and eventually helps lead to the return of our right to negotiate the carriage of our big four affiliated stations with all of the Mvpds.

The first quarter retransmission results, we posted today are better than expected, particularly our retrans revenue as compared to the last quarter of 2022 grew 12% on a gross basis and 25% on a net basis. These results benefited from higher rates and our distribution contracts with some positive true ups and adjustments in the quarter.

Now were related to last year's distribution.

Kevin Latek: As a reminder, we will renew about 58% of our MVPD sub-base in Q1 of next year, or throughout next year, primarily in Q1 of next year. At that time, we expect some improvement in reverse comp rates that, with higher retrans rates, will produce higher net retrans dollars in 2024 as well. This concludes my remarks. I now turn the call back to Jim Ryan.

We continue to forecast low single digit growth in gross and net retrans for the year.

As a result, we will renew about and as a reminder, we will renew about 58% of our Mvpds sub base in the first quarter of next year.

Or.

First throughout next year, primarily in the first quarter of next year.

At that time, we expect some improvement in reverse comp rates that with higher retrans rates will produce higher net retrans dollars in 2024 as well. This concludes my remarks, and I'll now turn the call back to Jim Ryan.

Jim Ryan: Thanks, Kevin. Good morning, everyone. I'm going to keep my remarks very brief, given Hilton, Pat, and Kevin have covered the highlights. Relating to Q2 2023 guidance, our core revenue is expected to be up over Q2 last year. We believe the revenue guidance demonstrates the company is continuing a very good start in 2023. Covering the full year, I'll make a few comments on our expectations for the full year. Obviously, when you're talking in billions of dollars, numbers will change as the year progresses up or down. Our expectations have not changed significantly since our last Q4 call. Total revenue of approximately $3.3 billion, core revenue of approximately $1.55 billion, which would be up low single digits, retransmission revenue of approximately $1.54 billion, again, up low single digits.

Thanks, Ken and good morning, everyone.

I'm going to keep my Mark our remarks, very brief given Hilton Pat and Kevin as he has covered the highlights.

Relating to Q2 'twenty three guidance our core revenue is expected to be up over Q2 last year. We believe the revenue guidance that demonstrates the company's continuing a very good start in 2023.

However, in the full year I'll make a few comments on our expectations for the full year and obviously when he was talking in billions of dollars.

Numbers will change as the year progresses up or down our expectations have not changed significantly since our last Q4 call.

Total revenue of approximately $3 3 million core revenue of approximately 1.55 billion, which would be up low single digits Retrans mission revenue of approximately 1.54 billion again up low single digits.

Jim Ryan: Political revenue of $50 million, which is an improvement from the $40 to $50 million range we provided on our last call. That would be including, to date, approximately $1 million of 2024 presidential spend, and obviously, that presidential spend is changing and increasing, if not day by day, week by week. That's a bright spot going through the rest of this year. We expect total broadcast revenue of about $3.2 billion. Our total operating expenses before depreciation, amortization, gain, and loss on disposal of assets of about $2.5 billion, with broadcast expenses of approximately $2.3 billion, network reverse comp of about $940 million, non-cash stock comp of about $5 million, and non-cash 401(k) expense of about $10 million. Our corporate expenses are tracking to be approximately $120 million, including $17 million of non-cash stock comp.

Political revenue of 50 million, which is an improvement from the $40 million to $50 million range, we provided on our last call.

And that would be including to date approximately $1 million of 'twenty 'twenty four presidential spend and that obviously that presidential spend is changing.

And in increasing if not day by day week by week. So that's a bright spot going through the rest of this year.

We expect total broadcast revenue of about $3.2 billion.

Our total operating expenses before depreciation amortization gain loss on disposal of assets of about $2 5 billion with broadcast expenses of approximately $2 3 billion.

Network reverse comp of about $940 million.

Noncash stock comp of about 5 million and noncash 401k expense of about $10 million, our corporate expenses are tracking to be approximately $120 million, including $17 million of noncash stock comp.

Jim Ryan: For full year 2023, our operating cash flow, as defined in our senior credit agreement, we currently anticipate of a range of about $800 million to $825 million. Continuing on for significant cash uses in 2023, cash interest, we expect $420 million to $430 million. We do have a 5% SOFR interest rate cap on $2.6 billion of our floating rate debt, we are insulated from further increases in SOFR. Cash taxes of about $35 million to $45 million, which is a reduction from our previous estimates and a positive for us. Routine capital expenditures of about $105 million to $115 million. The preferred dividend is $52 million, our required amortization on our Term Loan D, as in dog, is $15 million. We currently estimate our free cash will be in a range of about $160 million to $170 million.

For full year 'twenty, three our operating cash flow as defined in our senior credit agreement. We currently anticipate a range of about 800 to 825 million.

Continuing on for significant cash uses in 'twenty three cash interest, we expect $420 million to $430 million, we do have a 5% sulfur interest rate cap on $2 6 billion of our floating rate debt. So we are insulated from further increases in sulfur.

Cash taxes of about 35 to 45 million, which is a reduction from our previous estimates.

And a positive for us.

Routine capital expenditures of about $105 million to $115 million at the preferred dividend is 52 million and our required amortization on our term loan b as in dog is $15 million. We currently estimate our free cash will be in a range of about 160 million to 170 million.

Jim Ryan: We are very well positioned starting 2023, and we look forward to a successful year and continuing into a strong 2024 with the return of another presidential election cycle. I'll now turn the call back to Hilton.

Yeah.

We are very well positioned starting 2023, and we look forward to access high school year and continuing into a strong 2024 with the return of another presidential election cycle.

Hilton Howell: Thank you, Jim. At this point, operator would like to open up our call for questions from anyone in our audience.

Now I'll turn the call back to Hilton.

Thank you Jim at this point operator, we'd like to open up our call for.

Operator: Okay. If you would like to ask a question, please press star one on your telephone keypad. Again, to ask a question, please press star one on your telephone keypad. I'll just give it a few moments for the queue to build. Okay, it looks like our first question is going to come from Dan Kurnos from Benchmark. Dan, your line is open.

Questions from anyone in our audience.

Okay. If you would like to ask a question. Please press star one on your telephone keypad again to ask a question. Please press star one on your telephone keypad.

And I'll just give it a few moments for the Q2 balance.

And I'll just give it a few moments for the Q2 balance.

Okay.

Okay.

Okay. It looks like our first question is going to come from Dan <unk> from benchmark Dan Your line is open.

Dan Kurnos: Great. Thanks. Good morning. Maybe, I guess, Pat, since you brought this up, I think you guys are the only ones so far that have said services is strong into Q2, clearly you guys have generated substantial revenue synergies already, I think, from Meredith and Quincy. I'm just trying to parse out the underlying there. How much of that is sort of underperformance that you've now brought up to market level versus how much is sort of intrinsic in-market, just outperformance?

Great. Thanks, Good morning, maybe.

Maybe I guess Pat since you brought this up I think you guys are the only one so far that it services strong into QQ and clearly you guys have generated substantial revenue synergies already I think from Meredith and thank you. So I'm just trying to kind of parse out the underlying there.

How much of that is sort of underperformance that you've now brought up to market levels versus how much is sort of intrinsic in market just outperformance.

Pat LaPlatney: Yeah. Services for us have been healthy right along, Dan. Look, I think we have sales teams focused on some of these categories. I think that helps us. That's one of the reasons why I think we could be doing a little better than the other guys. If you just take legal, for instance, that category for us has been on a steady upward arc for years. Literally years. Home improvement continues to be very strong. Yeah, I like where we are there.

Yeah. So.

Services for us a bed healthy right along Dan.

So look I think we you know we have.

Team sales teams focused on some of these categories I think that helps us. So that's one of the reasons why.

We could be doing a lot better than the other guys.

But you know for the last.

Maybe just take legal for instance that that category for US has been on a steady upward arc for years literally years and home improvement continues to be very strong.

Jim Ryan: Dan, services in Q1 2023 is about 29% of core. Q1 2022 services was 28% of core.

So yeah I E.

I I like where we are there.

Dan services in Q1, 'twenty three is about 29% of core.

Q1, 'twenty two services was 28% of Corp.

Dan Kurnos: Okay. It's just a better result, your Q2 pacings are better than everybody else so far, it's a good call-out. Kevin, just on the dynamics in Q1, you called out a true-up. I don't know if you can size the true-up. We've heard that virtuals have been kind of outpacing, we've heard some upsides to sort of net subs, I guess, in Q1 from virtuals. Given all of the recent virtual negotiation dynamics, can you just help us think through both the true-up and then I know we have the full year guide, just your pace and thoughts on subs and impacts from this kind of virtual mix shift?

Okay.

It's just a better result in your QQ pacings are better than everybody else so far so.

You could call out.

On Kevin just on the dynamics in Q1, you called out a true up I don't know if you can size that true up.

We've heard that virtually have been kind of outpacing and we've heard some upside to kind of start of net subs I guess in Q1 from virtual but given all of the REIT and virtual negotiation dynamics can you just kind of help us think through both the true up and then kind of I know we have the full year guide, but just kind of your pace and thoughts on subs and impact.

Kevin Latek: Hi, Dan. We have true-ups and adjustments throughout the year, every year. They tend to primarily hit us in Q1. Sometimes they're very positive. There was one year, remember, that the true-ups turned out to be a little negative. True-ups are part of the story primarily in Q1 every year. Since we set the guidance, on the prior call, we saw some better-than-expected true-ups across the board, primarily coming from the, what we call OTT providers. We don't break down virtual versus direct-to-consumer. Our sub-trends, I think, are, at this point, pretty consistent with everybody. We're seeing large declines in the traditionals. We're seeing continued really strong growth on the new distributors. We are modeling continued large declines in traditional MVPDs and continued growth in the OTT distributors. I don't see anything in the near term that would change either one of those trends or trajectories.

From this kind of virtual mix shift.

Hi, Dan.

We have.

True ups and adjustments in throughout the year every year.

They tend to be primarily.

Primarily hit us in Q1.

Sometimes.

Sometimes they're very positives theres, one year remember the trips turned out to be.

Negative.

True ups are.

As part of the story, primarily in Q1 every year and since we set the guidance.

We have seen.

On the prior call we saw some.

Better than expected true ups across the board, primarily coming from me will be called OTT providers.

Don't breakdown virtual versus direct to consumer.

But where are our sub trends I think are at this point pretty consistent with everybody. We're seeing large declines in the traditional as we're seeing continued really strong growth.

On the the new distributors.

We are modeling continued arch declines in traditional mvpds and continued growth in the OTT.

Distributors.

Operator: The overall mix is obviously like everybody else. It's shifting more towards the virtuals and the direct-to-consumer folks. Again, we're happy that people are still getting our signals. We're getting great distribution. The economics would certainly be better if we were doing the negotiations ourselves instead of getting just an average rate for everybody in the country. Again, we have better stations. Those command higher rates, and we should get paid for the content and the value that we're delivering. That's, I think, a long-winded way of, I hope, answering your question.

I don't see anything in the near term that would change that either one of those trends or trajectories. So the overall mix is obviously I can.

Everybody else, it's becoming.

Shifting more towards the.

Virtually in the direct to consumer folks.

So we're again, we're happy that people are still getting our signals we're getting great.

We're getting great distribution.

The economics would certainly be better if we were doing the negotiations ourselves instead of getting an average rate for everybody in the country. We have again, we have better stations we.

It does come in higher rates and.

We should get paid for their content and the value that we're delivering.

Dan Kurnos: Yeah, no, that's helpful. One last one just for Hilton. I know you guys are trying to be very thoughtful about this, and anyone can obviously jump in on this, but sort of the Assembly Atlanta unlock. I know it's kind of a tricky proposition, and you're getting excited for the launch here, but just how close are you to having something to share with us? How advanced are you guys in the process of giving us either more disclosure and/or color on the economic frame?

So that's I think along with the way I hope Anthony answering our question.

Yes, that's helpful.

One last one just for Hilton.

No you guys are trying to be very thoughtful about this.

And anyone can obviously jump in on this but sort of.

Atlanta Assembly Assembly Atlanta unlock.

I know, it's kind of a tricky proposition and youre getting excited for the launch here, but just how closer you can get kind of having.

Something to share with us or how advanced are you guys in the process of kind of.

Hilton Howell: Sure, Dan. We have an NDA on the lease terms with NBCU that we will not be disclosing. We will obviously be releasing our revenue numbers quarter to quarter. The Assembly spending has largely wound up. I'm really, Dan, so proud and candidly would love to host everyone on this phone call at the Assembly, because when you see it, you're going to understand what a remarkable economic engine it's going to be. So, while we won't be disclosing our lease agreement with NBCUniversal, you will be seeing revenue beginning, certainly, in Q3, but more importantly in Q4, and then consistently from there on out. So you can back into anything you want to at that point, but we think it could end up being one of our single most important assets in the entire portfolio.

Given us either more disclosure indoor color on.

The economics.

Sure Dan.

We have a an NDA on the the lease terms with NBC you that we will not be disclosing but.

But we will obviously be releasing our revenue numbers quarter to quarter and the assembly spending is largely wound up.

I'm really Dan.

So I'm, so proud and candidly, we would love to host everyone. On this phone call at the assembly because when you see it youre going to understand what a remarkable economic engine is going to be.

And so Paul we won't be disclosing our lease agreement with NBC universal you'll be seeing revenue beginning.

Certainly in the third quarter, but more importantly in the fourth quarter and then consistently from there on out and so you can back into anything you want to at that point, but we think it could end up being one of our single most.

Dan Kurnos: Got it. Thank you for the color.

Important assets in the entire portfolio.

Hilton Howell: Sure. Thank you, Dan.

Got it thank you for the color sure. Thank you Dan.

Operator: Our next question is going to come from Courtney Bowman from Barclays. Courtney, your line is open.

Our next question is going to come from Courtney Baughman from Barclays.

Courtney Bowman: Thanks, guys. Congrats on the quarter. Just a really quick one from me. I know a lot of the economics are still trying, or you guys are still trying to figure a lot of the Phoenix Suns deal out, and you're probably limited in what you can mention.

Your line is open.

Thanks, guys. Congrats on the quarter, just a really quick one from me I know a lot of the economics are still trying are you guys are still trying to figure a lot of the Phoenix SUNS deal out and you're probably limited in what you could mention but.

Hilton Howell: You nailed it.

Courtney Bowman: How do we think about the longer-term strategy of the company? Is this inherently a move back towards a more cyclical model? How do we think about that as a hedge on the retrans side? How do we think about the balance?

How do we think about you've nailed it.

Yeah.

How do we think about.

You know kind of the longer term strategy of the company is just like inherently a move back towards a more cyclical model how do we how do we think about that is it's kind of a hedge on the retrans side, how do we think about the balance.

Kevin Latek: Hi, this is Kevin, Courtney. Let me, I guess, first just clarify that as broadcasters generally.

Hi, This is Kevin Courtney.

Let me I guess.

Kevin Latek: are adding professional sports games.

First just clarify that.

As broadcasters generally are are adding professional sports games.

Courtney Bowman: Yep

Kevin Latek: we are adding them to non-Big Four stations, so that we're adding them to independent TV stations.

They are adding we're adding them to a non big four stations, so that we're adding them to independent television stations.

Kevin Latek: Some of those have other content that gets displayed. Some are stations that we're sort of spinning up with Spectrum or spinning up from scratch. There's no impact on the Big Four operations of any broadcaster. As a general matter, as we're talking about the sports, again, not us, but across the whole industry, we're talking about bringing sports to independent TV stations. I think the whole industry is pretty excited about what opportunities may lie ahead over the next several years. The core business remains Big Four affiliate TV stations, and for Gray, it remains a local news focus. Majority of our revenue comes from local news. That's not going to be impacted. If we add, for example, we added Telemundo at a bunch of stations last year.

So some of those have you have other content that gets displaced some of our stations that were sort of spinning up at spectrum are spinning up from scratch. So there's no impact on the big four operations of of of any broadcaster of them or as a general matter as we're talking about the sports.

Again, not not us but across the whole industry, we're talking about adding a bringing sports two independent television stations and so I think the whole industry is pretty excited about what opportunities may lie lie ahead over the next several years.

But the core business remains big four affiliate television stations and for Gray It remains a local news focus.

A majority of our revenue comes from local news, that's not going to be impacted so.

Kevin Latek: If we add sports to stations in a region of the country, it's not going to be something that's going to make the whole business suddenly cyclical. In fact, at least in the next several years, you're probably not going to see much change in the numbers, just given the ebb and flow of our business, because we do not think that our business is going to fundamentally change from one that is built around and derives its revenue out of local news. From retrans, again, I don't know this would have any impact on retrans, where we have, outside of what I mentioned today, we now have our first deal ever with YouTube, and that is driven by the sports that we do have on some of these stations already. College sports and it's a big driver.

If we add for example, we had a telemundo at a bunch of stations out last year, we added sports to Jason's and our reach in the country, it's not going to be something that's going to make that whole business suddenly cyclical in fact is not probably going to be much of a.

And at least for the next several years, you're probably not going to see much change in the numbers.

Just given that sort of ebb and flow of our business because.

We do think that our business is going to fundamentally change from one that is.

Around and drive as revenue out of local news.

From Retrans again, I don't see them.

No. This would have any impact on Retrans mirror, we have.

Outside of what I mentioned today, we now have our first deal ever with Youtube and that is driven by the sports that.

Kevin Latek: Other sports are added in different markets. Obviously, that can come over time. The sports and the local news we have on these independent stations is what's driving at least the YouTube conversations. In Atlanta and Phoenix in particular, the independent stations have a fair amount of local news already and some local sports.

We do have on some of these patients are ready.

Powered sports and.

It's big it's a big driver and other sports are added in different markets obviously.

And that can come over time.

But.

Sports and local news we have on these independent stations.

Is what's driving I always that Youtube conversations in Atlanta, and Phoenix in particular, the independent stations are a fair amount of local news already in some local sports.

Courtney Bowman: Yep.

Kevin Latek: It's not stuff that's going to move the needle. It is, as Pat said, this along with the new business development shows folks are rediscovering broadcast and the reach that we can deliver in a way that other mediums cannot.

Yeah.

But it's not stuff that's going to move the needle, but it is as Pat said.

This along with the.

New business development shows folks are rediscovering broadcast and the reach that we can deliver in a way that other mediums cannot.

Courtney Bowman: Okay. That makes sense. A lot of moving parts. Thank you.

Hilton Howell: Thank you.

Okay that makes sense a lot of moving parts. Thank you.

Operator: Our next question is going to come from Aaron Watts with Deutsche Bank. Aaron, your line is open.

Thank you Kim.

Our next question is going to come from Aaron Watts with Deutsche Bank. Your line is open.

Aaron Watts: Hi, guys. Thanks for having me on. I've got a couple questions. One follow-up on the advertising side. That core seems to be holding steady for you from Q1 into Q2. Can you talk a little bit more about the monthly cadence or what you're hearing from your reps? Are you seeing sentiment improve or worsen month to month, and how that plays into your confidence in full year guidance around core that you provided?

Hi, guys. Thanks for having me on I've got a couple questions one follow up on the advertising side.

And of course seems to be holding steady.

Okay.

Monday.

What youre hearing from them.

Are you seeing.

True.

Okay.

Hilton Howell: Aaron, I hate to tell you kind of broke up there, so we missed that. Any chance you could repeat?

Yes.

Yes.

Okay.

Okay.

Aaron I hate to tell you you kind of broke up there. So we missed that could any change you could repeat.

Aaron Watts: Sure.

Hilton Howell: That's perfect.

Aaron Watts: On the advertising side, encouraged to hear that core seems to be holding steady from Q1 into Q2. Can you talk a little bit more about the monthly cadence you're seeing or what you're currently hearing from your reps on the street? Are you seeing sentiment improve or worsen month to month, and how that plays into your confidence in full year guidance you've provided?

Sure.

On the average on the advertising side encouraged to hear that core seems to be holding steady from <unk> into <unk> can you talk a little bit more about the monthly cadence you're seeing or what you are currently hearing from your reps on the street are you seeing sentiment improve or worsen month to month and how that plays into.

Hilton Howell: Yeah. Jim, did you want to take that or?

We are confident in full year guidance you've provided.

Jim Ryan: I'd say core in April is up healthily, healthy single digits, 4-ish plus percent. Obviously, May is looking strong as well. I think the June is a little too early to call, but June is always a tricky month depending on the entire industry cycles from Q2 rates, which are higher than Q3 rates, and at some point in June, that Q3 rate scenario starts kicking in. That's probably why June is maybe not quite as strong as April and May, but still looking healthy and looking in positive territory.

Yeah, I mean, yeah.

Jimmy do you want to take that or.

I'd say.

Core in April is up.

Healthily healthy single digits.

Orange plus percent.

Obviously.

May is looking strong as well I think the the.

June is a little too early to call, but June is always a.

A tricky month, depending on.

You know the entire industry cycles from second quarter rates, which are which are higher than third quarter rates.

And at some point in June that that third quarter right Sidney always starts kicking in so that's that's a probably by June is.

Maybe not quite as strong as April and May, but still looking healthy and looking back in positive territory.

Aaron Watts: Okay. That's helpful. Jim, I think maybe aiming at you again here, but question around the margin profile of the business, both in the Q1 you just reported, your Q2 guide. Can you talk about some of the factors resulting in margins being a bit below where we've seen them historically?

Okay. That's helpful and then Jim I think maybe aiming at you again here, but a question around the margin profile of the business. Both in the first quarter. You just reported your <unk> Guide can you talk about some of the factors, resulting in margins being a bit below where we've seen them historically.

Jim Ryan: Two things. One, I think you need to spot us the $35 million of one-time charges that hit the production expense line in Q1 for basically things that were out of our control. Secondly, we've talked about this both last fall and in the Q4 call, especially in broadcast, our operating expenses are running higher this year than they have been in longer than I can remember. Quite frankly, as we talked on the Q4 call, inflation has caught up to us. We've wrung out all the cost synergies that were available from the acquisitions a couple of years ago. As we've talked about on the last two calls, as an operational issue, we are having a hard time recruiting and retaining staffing at the levels we deem adequate at our stations.

And two things one I think.

You need a spot at the 35 million of one time charges that hit the production expense line in Q1 for basically things that were out of our control.

Secondly, and we've talked about this both.

Last fall and in the Q4 call our especially in broadcast our operating expenses are running higher this year than they have been.

And many have been longer than I can remember.

Quite frankly, as we talked on the Q4 call inflation has caught up to us we've wrung out all the cost synergies that were available from the acquisitions a couple of years ago.

And as we've talked about it in the last two calls we have we have as an operational issue. We are having a hard time recruiting and retaining staffing at the levels. We deem adequate at our stations, we are making progress on that and part of that progress.

Jim Ryan: We are making progress on that, and part of that progress was adjusting wages and benefits. We are still running significantly understaffed, from where our optimum model would be. We're continuing to address that. I don't think the cost increases that you're seeing this year are necessarily going to continue through over the next several years. I think this is kind of the reset year for us, and then we can hold it to a lower increase in future years.

Adjusting wages and benefits.

But we are still running.

Significantly understaffed from where our optimum model would be and we're continuing to address that I don't think the cost increases that you're seeing this year are necessarily going to continue through over the next several years I think this is kind of the.

Aaron Watts: Okay. Got it. Jim, I know this is nuanced, but are those one-time expenses that you've highlighted, are those in your defined operating cash flow as per your credit agreement?

Reset year for US and then we are we can break it you know we can hold it to a lower increase in future years.

Okay got it and Jim I know this is a nuance but are those one time expenses.

Jim Ryan: Yes. Unfortunately, yes.

That you've highlighted are those in your defined operating cash flow as per your credit agreement, yes. Unfortunately, yes.

Aaron Watts: Got it. Okay. One last from me, and I appreciate all the time. If I can wear my credit hat for a moment, just wanted to confirm that Assembly is an unrestricted subsidiary as it relates to your debt. I ask that in the context of thinking about your de-leveraging efforts. As the Assembly platform begins to generate profits and/or if you have monetization events around the project in the future that raise cash proceeds, should we be thinking about those cash flows going towards paying down debt and de-leveraging at the restricted group?

Got it Okay and then one last one for me and I. Appreciate all the time I, if I can where my credit hat for a moment just wanted to confirm that assembly as an unrestricted subsidiary or as it relates to your debt and I ask that in the context of thinking about your deleveraging efforts as the assembly platform begins to generate.

Profits and or if you have monetization events around the project in the future that raised cash proceeds.

Should we be thinking about those cash flows going towards paying down debt and deleveraging at the restricted group.

Jim Ryan: First, you are correct. Assembly is an unrestricted subsidiary, presently. Obviously, I'm going to be careful about talking about possible future cash flows and/or monetizations. It would be reasonable, I think, to assume, just like the rest of the company, that we run a centralized treasury system, so cash comes in from all sources in the company, and we have been very clear over the last several calls that our number one priority is for capital allocation is to pay down our debt as quickly as possible.

Our first you are correct assembly as an unrestricted subsidiary at presently.

Obviously, I mean I'm not going to.

I'm going to be careful about talking about possible future cash flows and the war monetization speak.

But it would be reasonable I think to assume just like the rest of the company that I mean, we run a centralized treasury system. So you know cash comes in and from all sources in the company and we have been very clear over the last several calls.

Cause that our number one priority is for capital allocation is to pay down our debt as quickly as possible.

Operator: Our next question is going to come from Arun Seshadri with BNP. Arun, your line is open.

Our next question is going to come from.

Arun Seshadri: Yes. Hi. Thanks for taking my questions. A couple from me. Good to see the bolstered liquidity via the securitization facility. Just to clarify on the prior question, the reduction in broadcast cash flow, the $35 million was one time. From the high end of guidance, there's another $15 million or so. Just wanted to clarify that piece. What was that related to?

Hi, Erin.

Vishal James with BMT and your line is open.

Yes, hi, Thanks for taking my questions. A couple from me good to see the bolstered liquidity via the securitization facility.

Just to clarify on the prior question the reduction in broadcast cash flow of.

35 million was one time from.

From the high end of guidance Theres. Another you know another $15 million or so.

Jim Ryan: I'm not sure. The 15 you're speaking to, I'm not exactly sure what that is. Is that a total expense?

And just wanted to clarify that piece what was that related to.

I'm not sure what.

The 15, you're speaking to I'm not exactly sure.

Arun Seshadri: Oh, no. Sorry. The broadcast cash flow prior guidance, I think was $850 to $875, versus today, I think you're saying.

What that is is that a total expense Oh no sorry, the broadcast cash flow. Prior guidance I think was 850 to 875 versus today, I think you're saying Oh, well, obviously, yeah. Obviously 35 is a direct hit in Q1, which we didn't see coming.

Jim Ryan: Oh. Well, obviously, yeah. Obviously 35 is a direct hit in Q1, which we didn't see coming.

Arun Seshadri: Yep.

Jim Ryan: I think the rest of it is just a little bit of fine-tuning on full year estimates. Certainly not very significant at all on $15 million on $800-plus million is not a very big delta.

I think the rest of it is just a little bit of fine tuning on a full year estimates.

Certainly not very significant at all on it and.

Arun Seshadri: No, totally. I just wanted to make sure I understood the puts and takes. Separately, you're obviously focused on de-leveraging. You see your unsecured bonds trading in the low 60s. Clearly, with the market cap where it is, it seems like it would make sense for you to buy discounted debt as a way to potentially accelerate de-leveraging. Just wanted to hear your thoughts on that prospect, especially given the depressed market cap on the equity.

$15 million on 800 plus million is not a big very big Delta.

No totally I just wanted to make sure I understood I.

I understood the puts and takes and then separately.

You're obviously focused on deleveraging.

You see your unsecured bonds trading in the low sixty's clearly with the market cap, where it is it sounds like I mean, it seems like it would make sense for you to buy you know.

Discounted debt as a way to potentially accelerate deleveraging just wanted to see just wanted to hear your thoughts on on on that prospect, especially.

Jim Ryan: I'll preface my comments by saying, never say never. At least as of today, I appreciate that the bond tranches are trading at significant discounts, but we view that as just a fact of where short-term interest rates are. We look at the longer-term maturities of the bond issues and the absolute coupons we're currently paying, and I compare that to the Term Loan B that is capped now at 8% with our rate cap, and the Term Loan E as in Edgar, it's pricing at 7.5% all in. In shorter term maturities, I would tend to lean towards paying down the more expensive coupons that have shorter maturities.

Especially given the depressed market cap on the equity.

So I'll I'll preface my comment by say never say never.

But.

At least as of today I appreciate that the bond tranches are trading at significant discounts, but we view that as just a.

In fact of where short term interest rates are we look at the longer term maturities of the bond issues in the absolute coupons were currently paying and I compare that to the term loan a.

D that is cap now at 8% with the with this with our rate cap and the term loan is an accurate pricing at seven 5% all in and in shorter term maturities I would tend to lean towards paying down the more expensive coupon.

Arun Seshadri: Got it. Very helpful. Finally, in terms of de-leveraging potential, are there any other avenues, sort of either non-core asset sales, et cetera, that you would consider to potentially accelerate the de-leveraging? Because it looks like by my numbers, at least, into 2024, even if you generate the full level of cash flow that you expected at prior years and maybe more, you'd still be levered in the fives. Is there any further plans or any further thoughts in terms of accelerating de-leveraging would be helpful. Thank you.

Yes.

And then have shorter maturities.

Got it very helpful. And then finally in terms of in terms of deleveraging potential are there any other.

Avenues.

So do either noncore asset sales et cetera.

That you would consider to potentially accelerate the deleveraging because it looks like by my numbers at least you know into 2020 or.

Even if you generate the full level of cash flow that you expect in prior expected in prior years, and maybe more you'd still be levered in the fives. So is there any further plans or any further thoughts in terms of accelerating deleveraging would be helpful. Thank you. There are no assets core or noncore that we plan to dispose of.

Jim Ryan: There are no assets, core or non-core, that we plan to dispose of. Quite frankly, anything that's non-core is so tiny that it would not move the needle one iota.

And quite frankly any anything that's noncore is so tiny that it would not move the needle one iota.

Operator: As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Our next question is going to come from Nick Zangler with Stephens Inc. Nick, your line is open.

As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.

Our next question is going to come from Nick Zheng Lu with Stephens, Inc. Nick Your line is open.

Dean Sublett: Hey, this is Dean on for Nick. We've been seeing an industry peer shutter some local news programs across various markets. I think there's even some overlap with Gray stations. Are you seeing any indication of pressure on viewership within the local segment?

Hey, this is <unk>.

Dean on for Nick.

We've been seeing in the industry peer shutter some local news programs across various markets.

And I think there's even some overlap with gray stations are you seeing any indication of pressure on viewership within the local segment.

Hilton Howell: The answer quickly is no. We're doing the exact reverse of that. We have, in almost every market, been increasing our local news coverage, and in some cases, quite significantly. That ranges across the board regardless of market sizes. We are actually moving more aggressively to create our own local news content and are supplanting, in many cases, the syndicated product that others may have. There is no potential of Gray eliminating news coverage anywhere. I think this is a validation of our acquisition strategy over many years. We have always focused upon news-generating and news-gathering centered TV stations, number one, number two stations in important markets.

The answer quickly is no we're doing the exact reverse of that we have in almost every market.

Increasing our local news coverage and in some cases quite significantly and in that and that ranges across the board with regardless of market sizes.

We are actually moving more aggressively to create our own local news content and are supplanting in many cases, the syndicated product that others may have so there is no potential of gray eliminating news coverage anywhere I think this is about.

<unk>.

Our acquisition strategy over many many many years, we have always focused upon news generating and news gathering centered TV stations number one number two stations and <unk>.

Hilton Howell: Here in Atlanta, for instance, because I watch it every morning, we've gone in 18 months from the smallest news-producing station to, by far, having the largest number of news hours of anyone in the market. Because at the end of the day, viewers want the news when they want the news, we need to be there to provide it. You'll see no pullback on news from us.

Important markets and so.

Here in Atlanta for instance, because I watch it every morning, but we've gone in 18 months from the smallest news producing stations two by far having the largest number of news hours of anyone in the market because at the end of the day viewers want the news when they want the news and so we need to be there to.

Dean Sublett: Got it. Thank you. In getting more aggressive on more local news content, I know you had just mentioned being understaffed in some markets. Is that a bottleneck for expanding that local news coverage?

Provided so youll see no pullback on news from us.

Got it thank you and getting more aggressive on more local news content is any of that.

Mentioned.

Hilton Howell: It's not a bottleneck, and I'll let Pat follow up on all of those. I think it's just an indication that many different companies and industries have across the country post-COVID. Everybody's trying to find good people, and there's just not enough good folks out there to fill them.

Under staffed in some markets is that a bottleneck.

For expanding that local news coverage, it's not a it's not a bottleneck and I'll, let Pat follow up on all of those.

You know, it's I think it's just an indication that that many different companies and industries have across the country post COVID-19 everybody is trying to find good people and theres just not enough good folks out there to fill them.

Pat LaPlatney: High labor market, too.

Hilton Howell: Yeah.

Pat LaPlatney: Yeah, it has not caused us to pull back in any way. We've been able to produce, as Hilton mentioned, the number of news hours we're producing as a company is going up every year. We use technology as best we can to make sure that we do it efficiently and effectively. Yeah, we've been able to get through it with a little bit short-staffed, and we've made some fairly significant progress in hiring over the last 6, 8 months. That's sort of headed in the right direction.

Tight labor market too.

So yeah. It has not caused us to pull back in any way, we've been able to produce as Hilton mentioned the number of news hours will produce against the company is going up every year, we'll use technology as best we can to make to make sure that we do it efficiently and effectively but yeah. We've been.

Able to.

We've been able to get through it.

With a little bit short staffed and that we.

We've made some fairly significant progress in hiring over the last six eight months. So that's sort of headed in the right direction.

Dean Sublett: Okay, appreciate it. Thanks.

Hilton Howell: Thank you.

Operator: Our next question is going to come from Jim Goss with Barrington. Jim, your line is open.

Okay. Appreciate it thanks.

Kim.

Jim Goss: Okay, thanks. Kevin, I was wondering if you might comment on reverse comp requests from the networks at this stage with any programming cost rationalizations they've been undergoing. Have they been any less aggressive than they've typically been in the past?

Our next question is going to come from Jim Goss with Barrington, Jimmy Your line is open.

Okay. Thanks.

Kevin I was wondering if you might comment on reverse comp requests from the networks at this stage with any programming cost rationalizations that have been undergoing have there been any less aggressive than they've typically been in the past.

Jim Ryan: At a high level, Jim, I think fair to say that our peers and I have been prefacing that we expect the rate of growth of reverse comp will be coming down for a couple reasons. I think several folks have said that over the last few calls. That's

Hi.

At a high level Jim.

Got it.

Thanks.

Fair to say that our peers and I have been.

Uh huh.

Promising that we expected the rate of growth in reverse comp will be coming down.

For a couple reasons and.

Kevin Latek: That is our expectation. It's not changed. I don't want to talk about specific negotiations at this time because we are in specific negotiations. I'll just talk at a fairly high level, at what several folks are saying across the industry right now.

And I think several folks have said that over the last few calls.

And that's.

That is our expectation has not changed I don't want to talk about.

Perfect.

The negotiations at this time, because we do arent, we arent specific negotiation, so just talking apparently high level.

Jim Goss: Okay. I wondered too, some thoughts that have been expressed, and I think they seem reasonable, that maybe retrans is leveling off to some extent, and your guidance for the next quarter seems to suggest that a little bit. That with the erosion in subs offsetting increasing in prices, even aside from any reverse comp requests, that maybe you've hit somewhat of a max. Which isn't bad to have a stable base to provide from, in addition to ad sales. Do you think you've started to hit somewhat of a limit with net retrans in total?

Yeah.

Several folks are saying across the industry right now.

Okay.

I wonder to.

Some thoughts have been express and I think there's some reasonable that that may be retrans is leveling off to some extent in your guidance for next quarter seems to suggest that a little bit that.

With.

The erosion in subs offsetting increasing in prices given aside from any reverse comp requests that.

Maybe you've hit.

Somewhat of a Max which isn't bad to have a stable base to.

To provide.

From an in addition to AD sales, but do you think of that started to hit somewhat of a limit with the retrans that.

Kevin Latek: I wasn't sure if the question is about gross or about net.

Net retrans in total.

Jim Goss: Well, I guess if you're getting higher pricing but you're losing some of the subs, if they offset one another, and then you do have the reverse comp issue, I'm wondering if probably both the gross and the net retrans are sort of going about as far as they might go. Do you think there is more upside? Over the past years, everybody's argued for onward and upward, I'm wondering if that's starting to slow to a point that maybe we shouldn't be thinking in those terms.

Unless you were talking to.

I wasn't sure you questions about gross or net.

Well.

I guess if.

If youre getting higher pricing, but you're losing some of the subs that if they offset one another.

And then you do have the reverse comp issue I'm wondering if if the.

The well the probably both the gross and the net.

Reverse.

Retrans.

Sort of going about as far as they might go or do you think there is more upside over the past years everybody's arguing for.

We're in an upward, but I'm wondering if that's starting to slow to a point that maybe we shouldnt be thinking in those terms.

Kevin Latek: Yes. I guess I'd just reiterate, we still expect gross and net to be up low single digits this year. Next year, we have a large rate reset, and we have new network comp agreements, so we'll have a different reverse comp level next year. I can just reiterate, we expect that we will still see growth in both gross and net.

Yes.

I guess I'd, just reiterate we still expect gross and not to be up low single digits. This year.

Next year, we have a large rate reset.

And we have new network agreements. So we will have a different reverse comp level next year or so.

Jim Goss: Okay. I wondered about, any of you, with a Premion update and any impact from the TEGNA deal uncertainties that might be introduced from that relationship.

I'm going to reiterate we expect that we will still see growth in both gross and net.

Okay.

And then I wondered about are any of you with a premium update and any impact from the.

Pat LaPlatney: Really no impact, Jim. Our stations are doing a great job of selling Premion. The product is excellent. It's in high demand in the market. Year-over-year growth there is substantial.

<unk> deal uncertainties that might be introduced from.

From that relationship.

I'm really really no impact Jim.

Our stations are doing.

Doing a great job of selling premium on the product is excellence in high demand in the market.

Jim Goss: Okay. Finally, as you've emphasized, news is your key driver. With your broadened platform across the nation, is it big enough to provide any national effort, either for a separate business or at least within your own news programs, to get sort of a local-national feel?

And year over year growth there is substantial.

Okay.

Finally.

As you've emphasized news as your.

T a driver.

With your broadened platform across the nation.

Is it big enough to provide any national effort to either.

For a separate business or at least within your own.

Hilton Howell: We're really looking to remain very focused on local markets, sort of across the board. One of the things that we have done is had the opportunity with our particular footprint to do things on a statewide basis across all markets. The most relevant one immediately is what we've done with Telemundo. We've taken Telemundo statewide so far in Georgia, Alabama, and Tennessee, and Susan O. and her team are working to take it to an eventual total of 42 markets. We look at that on a local and statewide basis, not on a national scale.

News programs to get sort of.

Local national feel we're really looking to remain very focused on local markets sort of across the board.

One of the things that we have done is had the opportunity with our particular footprint to do things on a statewide basis across all markets.

Most relevant one immediately as what we've done with Telemundo.

Because we've taken Telemundo statewide so far in Georgia, and Alabama, and Tennessee, and Susan O and her team are working to take it to an eventual total of 42 markets. So, but we look at that on a on a local and statewide basis not on a.

Jim Goss: All right. Thanks very much.

Kevin Latek: Thank you.

Our national scale.

Operator: Our next question is going to come from John Kernan with JK Media. John, your line is open.

Alright, thanks very much.

Sure.

John Kernan: Yeah, hi. Jim or Kevin, you reiterated a couple of times that net retrans should be up low single digits this year, yet the Q1 was down 3.5%, and your guidance for the Q2 is that net retrans will be down 4%. I take it you're expecting about a 10% year-over-year net retrans increase starting in the Q3.

Our next question is going to come from John Kornreich JK.

JK media John Your line is open hi.

Jim.

Kevin.

You reiterated a couple of times is net retrans should be up low single digits. This year, yet the first quarter was down three 5%.

Your guidance for the second quarter.

Is that net retrans will be down 4%.

Yes.

I take it you're expecting about at 10% year over year net retrans increase starting in the third quarter.

Kevin Latek: We're not giving that level of granularity on guidance at this point.

John Kernan: Okay. You are reiterating up for the whole year, net retrans for 2023.

We're not giving that level of granularity on guidance at this point.

Kevin Latek: Yes.

Okay, but you are reiterating up for the whole year net Retrans 23.

John Kernan: An acceleration of that next year as you do more agreements.

Kevin Latek: Correct. Yes.

John Kernan: Okay.

Yes.

Jim Ryan: John, we have a lot of subs to reprice next year, and we will also have reverse comp agreements that have been negotiated and locked in that have slightly different rate structures next year, which will be, as we commented, the rate of reverse comp growth, for the ones we've locked in, is significantly less than what we've seen over the last five years or so.

And an acceleration of that next year as you do more of agreements.

Correct, yes.

Kevin.

We have a lot of subs to reprice next year and.

And we will also be entering and we will also have.

Reverse comp agreements.

That had been negotiated and locked in that.

<unk>.

Slightly different rate structures next year, which will be as we commented at the rate of reverse comp growth.

John Kernan: That will affect 2024, not 2023.

For the ones we blocked in.

It is significantly less than what we've seen over the last five years or so.

Jim Ryan: Correct.

John Kernan: Secondly, just quickly on the guidance of $160 to $170 free cash flow. Again, that excludes CapEx and reimbursement on the Assembly project.

We will affect 'twenty four 'twenty three correct okay.

Secondly, just quickly on the guidance of 160 to 170 <unk> free cash flow again that include.

Jim Ryan: That would be correct, and it also excludes the roughly $30 million of common dividend.

That excludes capex and reimbursement.

One the assembly projects.

John Kernan: Right.

That would be correct and it also excludes the roughly $30 million of common dividend.

Jim Ryan: In the queue, which will be filed a little later today, there is good disclosure on what we see for Assembly as far as finishing off from the cost side to complete phase I, as well as reimbursement. If you look at the liquidity section of MD&A, you'll get some good detail there.

Right.

And in India, and in the Q, which will be filed a little later today there is.

A good disclosure on what we see for assembly.

As far as.

Finishing off from the cost side to complete phase one as well as reimbursement. So if you look at the liquidity section of M. D N a you'll get some good detail there.

John Kernan: Okay. When do you guys expect to hit your stride on revenue coming in from the Assembly project? Is that early 2024?

Yes.

Uh huh.

When do you guys expect to hit your sort of hit your stride on revenue coming in from the Assembly.

Hilton Howell: It'd be full year 2024.

John Kernan: Is 2024 full?

Hilton Howell: Full year 2024.

Is that early 'twenty, four or it would be full year 2024.

John Kernan: Okay, cool.

Hilton Howell: It will come online in June, and then it will take a period of months to ramp it up. We will see it in 2023, but full year 2024, it will be fully operational, and we'll have the benefits of its revenue in addition to it being what I think is going to be a remarkable presidential year. That's going to bring the combination of all of those things are just like after we closed from Raycom, we're going to bring our debt down rapidly in a 2-year period of time, and we're very excited for that.

24.

Full year 'twenty 'twenty four.

It should it will come online in June and then it will take a period of months to ramp it up but we will see it in 2023, but full year 2024, it will be fully operational and we will have the benefits of its revenue in additional in addition to it being a what.

I think he is going to be a remarkable presidential year ever.

<unk>.

And that's going to bring the combination of all of those things are just like after we closed from Ray Com, we're going to bring our debt down rapidly in a two year period of time.

John Kernan: Sounds like we should not only buy your stock but buy your bonds, too.

Hilton Howell: I would. I will tell you, I'm going to be buying stock. Our current price is ridiculous. The Assembly project by itself is worth more than our market cap.

We're very excited for that.

Not only by your by your bonds.

I would both have I mean, and I will tell you I'm gonna be Bob I'm going to be buying stock. So.

John Kernan: Thanks. One last thing. Kevin, can you reiterate or put together again the flow of retrans agreements starting with this Q1 of this year, and then go through 2024 again?

Our current prices ridiculous.

The Assembly project by itself is worth more than our market cap.

One last thing Kevin.

Can you reiterate I'll put together again the flow of Retrans agreements starting in with this first quarter of this year and then go through 'twenty four again.

Kevin Latek: Sure. Just bear with me. It's in our deck, and I want to be sure to read it from the deck so I don't misspeak. Let's see. 2023, we had 22% of the traditional MVPD subscribers renewing in Q1, 18% in Q2. 2024, it's 38% in Q1, and then 23% in the H2.

Sure.

Bear with me so not in our DAC and I Wanna be sugar weighted from that from the Jackson Dome Misspeak.

Let's see 2023.

22% of the traditional and the PD.

Subscribers renewing in Q1, 18% in Q2.

John Kernan: Sorry, say 2024 again. Sorry.

2024% to 38% in Q1, and then 23% in the second half.

Kevin Latek: 2024, 38% in Q1, and then 23% in H2.

I'm really sorry.

John Kernan: Thanks a lot. Appreciate it.

24 again alright.

Kevin Latek: Sure thing.

24% to 38% in Q1.

John Kernan: Okay.

Kevin Latek: Sure. Thanks, sir.

And then 23% in the second half.

Operator: Our next question is going to come from Monica Liu from Onyx. Monica, your line is open.

Thanks, a lot I appreciate it sure thanks, Sir.

Monica Liu: Hi, thanks for taking my question. Can you provide a little more color on the $17 million special charge taken during the quarter to basically account for the credit allowances related to Diamond Sports bankruptcy? What is the nature of that expense, and what are the assumptions behind that number? Also relatedly, there have been some headlines around Diamond Sports filed a lawsuit to try to stop the Phoenix Suns agreement with GRAY. In addition to the $17 million, is there any potential other liabilities that we should think about? Thank you.

Our next question is going to come from Monica Lu from Onyx Monica Your line is open.

Hi, Thanks for taking my question can you provide a little more color on the 17 million special charge taken during the quarter.

Basically accounts for the credit license related to Dennis for bankruptcy, what is the nature of that expense in R&D assumptions behind that number.

Also relatedly there have been some headlines around that and it's work.

The lawsuit she tried to stop the Phoenix SUNS agreement weighed that gray.

I'm sorry.

Jim Ryan: The $17 million related to an accounts receivable with Diamond that we fully reserved due to the bankruptcy.

Turning to the 17 is there any potential liabilities that we should think about thank you.

He is 17 million.

Kevin Latek: We're not commenting on litigation with any party.

Related to an accounts receivable with diamond that we fully reserve due to the bankruptcy.

And we're not commenting on litigation.

Monica Liu: Okay, thanks.

Hilton Howell: Thank you.

With any party.

Operator: Our next question is going to come from Steven Cahall with Wells Fargo. Steven, your line is open.

Okay. Thanks.

Thank you Jim.

Steven Cahall: Thanks. Maybe just first kind of Jim and Hilton tying a few things you said together. Hilton, you talked about how much you think the stock is undervalued, and Jim, you've given us some helpful movers on free cash flow. One of your peers today said that they do expect to be probably at a higher level of leverage by the end of the year. We kind of think that leverage is the key to getting the equity value higher. Just wondering if you could comment as to where you see leverage trending before you get to 2024. Does it have some upward pressure? With the ad market performing as well as it is, do you think you can bring it down between now and the end of the year?

Our next question is going to come from Steven Cahall with Wells Fargo. Stephen Your line is open.

Thanks.

So maybe just first kind of Jim and Hilton tying a few things. He said together you know holding you've talked about how much you think the stock is undervalued and Jim you've given us some helpful. Movers on free cash flow one year peers today said that they do expect to be probably at a higher level of leverage by the end of the year, we kind of think that leverage is the key to getting there.

The equity value higher so just wondering if you could comment as to where you see leverage trending before you get to 2024 does it have some upward pressure or with the AD market performing as well. It is is do you think you can bring it down between now and the end of the year.

Jim Ryan: We're currently about 5.3. In the last Q4, we were about 5.4. I think we're somewhere between five and a quarter and five and a half. The variability, I think, will really depend on how much pull forward of the 2024 presidential cycle we see in 2023. Quite frankly, none of us, at least at this end of the phone call, have any idea what that number is yet. Although we've been delighted at what we've seen in May already.

So we're currently about five three and the last fourth quarter. We were about 5.4 I think were you know.

Somewhere between five and a quarter in five and a half I. The variability I think will really depend on.

How much pull forward of the 24 presidential cycle, we see in 'twenty, three and quite frankly, you know.

None of us at least at this end of the phone call have any idea what that number is yet although we've been delighted in.

Steven Cahall: Got it. Just on sports and the MVPDs. You talked about the YouTube TV deal with the independents, and you've got the deal now for some regional sports. Given that you can negotiate directly with the MVPDs with your independents, does that give you a bias to put more sports on those independents? Or do those sports teams or leagues have a preference for Big Four? How do you think about balancing where you might look for some of those rights going forward?

In may already.

Got it and then just on sports N V M B P DS.

You talked about the Youtube TV deal with the independence and you've got the deal now for some regional sports given that you can negotiate directly with the Mvpds with your independence does that gives you a bias to put more sports on those independents or did those sports teams or leagues have a preference for big four how do you think about.

Kevin Latek: Yeah. Again, just to go back to very specific what Pat said on the call, and we're not saying that we have an agreement, so just want to be sure we parse the words on that carefully. We have been talking to a number of teams over the last several months, as I believe every broadcast group has been doing. I think there'll be lots of broadcasters announcing lots of sports deals over the next several years. I would fully expect that professional sports will be on non-Big Four stations because the networks program so many hours a week that are overlapping with the times of the game. The professional sports, and frankly, we have this issue with college sports that we air on our D2 channels already, they generally don't air on Big Four affiliates.

Balancing where you might look for some of those rights going forward.

Yeah just.

Can I just go back to very specific what Pat said on the call and I'm, not saying that we have a.

An agreement.

Sure.

So just to be sure we parse the words on a carefully we have been talking to a number of teams over the last several months.

Yeah.

As I believe every broadcast.

Broadcast group has been doing.

I think there'll be lots of broadcasters announcing lots of sports deals over the next several years.

And I would fully expect that.

Sports will be professional sports will be on non big four stations because the network's program.

So many hours a.

A week that are overlapping with the times of the game. So this professional sports and frankly, we have this issue with college sports and we are in our DTC channels already.

Kevin Latek: I would say our interest in bringing sports back to broadcast is not a new thing. We have been pretty aggressive over the last several years in trying to line up more college sports, line up more of the marquee teams. We've always been looking to add sports, and that's not going to change. The YouTube deal is certainly big news for us. We're obviously happy we have it. We believe we had a sort of compelling justification why these six stations should be carried, and it is sports and some of it's also a lot of local news. Phoenix in particular, that station has a tremendous amount of local news already and is a leader in terms of ratings in that market, and so it just makes sense that station would be available on every platform.

They don't Erin.

They generally don't era of big four affiliates.

I would say we are interested bringing sports back to broadcast is not a new thing we have been pretty aggressive.

Over the last several years in trying to find out more college sports lineup more non.

The marquee teams.

But we are we've always been looking to add sports.

And that's not going to change the Youtube deal is certainly big news for us.

We're obviously happy with habit, we have we believe we had a sort of a compelling justification justify why these fixed stations should be carried in it is it is sports and some of it's also a lot of local news.

Phoenix in particular that station.

Kevin Latek: Again, it comes back to what we think we've always done, which is create TV stations that have content that local audiences want to see, and sometimes that's sports, and sometimes it's news, and sometimes it's other local content. Sometimes it's entertainment, sometimes it's game shows. Our constant striving is to find the right mix of content to drive the local audiences. I'm happy to see YouTube has recognized that, and we hope to see more deals like that in the future. I hope that answered the question. If not, try me again.

Has a tremendous amount of local news already and as a leader in terms of ratings in that market until it just makes sense that station will be available on every platform.

So it's again it comes back to what we what we have we think we've always done which is key.

Great television stations that.

Alright.

Have content of local audiences want to see and sometimes that sports and sometimes its news and sometimes it's other local content, sometimes as entertainment sometimes its game shows Abbott are constant is driving us to find the right mix of content drive the Laguardia answers.

And I'm happy to see Youtube has recognized that and we hope to see more deals like that in the future.

Steven Cahall: No, that was comprehensive. Maybe just lastly, I think historically, two out of the four networks have structured reverse comp as a programming fee. Two have done it as a variable per sub fee. We've heard that the national networks, at least one or maybe two of those, may be moving towards programming fee. Three or four out of four might look to do fixed versus variable. Was just wondering if you could comment as to the structure of how you expect reverse comp going forward. Do you think it'll be the same variable fixed split you've always seen or moving more towards that fixed fee? Thank you.

I hope that answered the question, but its not try me again.

No.

Hence of and then maybe just lastly.

I think historically two out of the four networks of structured reverse comp as a programming fee to have done. It is a variable per sub fee we've heard that the.

The the national networks at least one or maybe two of those may be moving towards programming fee. So three or four out of four might look to do fixed versus variable I was just wondering if you could comment as to the structure of how you expect to reverse comp going forward do you think it'll be the same variable fixed split you've always seen or moving more towards that XT.

Kevin Latek: Yeah. Steven, we're talking with half the Big Four right now. I don't think it's really appropriate for us to talk about terms and structures of deals. We need to respect the confidentiality of our negotiations.

Thank you.

Yeah, Steven where we're talking with half the big four right now so I'm not really I don't think it's appropriate for us to talk about.

Steven Cahall: Got it. Thank you.

Terms and structures.

Kevin Latek: Thank you.

Deals so we need to respect the confidentiality of our negotiations.

Operator: Our next question is going to come from Alan Gould with Loop Capital. Alan, your line is open.

Got it thank you thank.

Thank you.

Alan Gould: Thanks for taking the question. Hilton, one for you, and then I've got a couple for Kevin.

Our next question is going to come from Alan Gould with loop capital your.

Hilton Howell: Sure.

Hilton Howell: In terms of the Assembly Atlanta, I understand that you can't discuss the revenue. Can you give us some sense of cost? Has the project gone a little over budget relative to the initial expectations? When will we be able to see real estate sales, or do we have to wait until the studio is operating before we get some interest on real estate sales?

Your line is open.

Thanks for taking the question.

And one for you and then I've got a couple for Kevin in terms of the Atlanta.

Understand that you can't discuss in revenue can you give us some sense of course has the project done.

Little over budget relative to the initial expectations.

Hilton Howell: Well, largely, the real estate sales will come on the other side of the property from where the current studios are placed. We own this property outright. There's no debt on it. We, at the end of the year, because there's a community improvement district that overlays the property, we were able to place tax-deferred bonds that closed 28 December, which is where GRAY is receiving its reimbursements from. We raised north of $100 million at the end of the year. As the public improvements, roads, sewers, et cetera, get finished, then GRAY gets paid back for it. Actually, I think the project is coming in on budget and ahead of time, and I'm really excited about that, and I'm very proud of our real estate development partner, The Gipson Company, because it's stunning.

And when will we be able to see real estate sales or do we have to wait until the plant is operating before we get some interest on real estate sales.

Well I mean, largely the real estate sales will come on the other side of the property for where the current studios are placed.

We own this property outright theres no debt on it we at the end of the year, because theres a community improvement district that overlays. The property, we were able to place tax deferred bonds.

Closed December 28, which is where gray is.

Receiving its reimbursements from we have we raised north of $100 million at the end of the year, but as the public improvements roads sewers, etc.

Finished them.

Then.

Greg it's payback for it.

So actually I think the project is coming on.

On budget and ahead of time and I'm really excited.

Hilton Howell: We poured our first slab last March. In June, this dadgum thing opens. It's an extraordinary facility. We've had six different CEOs of the film division of respective places that have told us it's the finest film and television production facility, not just in Georgia, but perhaps even in the world. We have a long line of people that have lined up to come here to produce their movies.

Excited about that and I'm very proud of R. R.

Our real estate and development partner, the Gibson companies, because it's stunning we poured our first slab last March.

And in June this Dadgum thing opens.

And it's an extraordinary facility we've had.

Six different Ceos of the film Division of respective places that have told us.

It's the finest film and television production facility not just in Georgia.

Hilton Howell: I think it's going to be an outstanding investment for our company, our shareholders, for our city and our state as well. We'll start seeing, as I said earlier, revenue from it in 2023, but 2024 it'll be full on.

Perhaps even in the world and we have a long line of people that have lined up to come here to.

To produce our movies and so I think it's going to be an outstanding investment for our company our shareholders, who are sitting in our state as well and so we will start saying as I said earlier revenue from it in 2023, but 2020 for.

Kevin Latek: Okay, thanks.

Kevin Latek: On the land sales, when there are 4,000-plus people going to work every day in that complex by this fall, there's the excitement of that traffic and the movies being produced, TV shows happening there. That's, we believe, the best time to start talking about land sales. Not now when it's still dirt. Certainly, you could do that, but we're trying to maximize value here. We've included some numbers here for a while, but those land sales are conversations we expect will be taking place when there's more excitement visible as you're standing there and watching the activity around you.

It'll be full.

The land sales.

When when there are 4000, plus people going to work every day in that complex.

This fall.

There is the excitement of that traffic and the movie is being produced television shows happening there.

That's we believe the best time to start talking about.

And sales not now and it's still dirt.

Certainly you can do that but we're trying to maximize value here. So we expect that.

We've included some numbers here for a while but those land sales of conversations we expect taking place.

Hilton Howell: Absolutely.

Alan Gould: Makes sense. Kevin, two quickies. Can you just update us on the sub-trend year over year? Secondly, historically, how much difference is there in the primaries when you have an incumbent versus not having in the race in terms of political ads?

And there's a there's more excitement visible.

As your standing there in March and the activity around you.

Absolutely.

Mackenzie Kevin two quickie on can you just update us on the sub trend year over year and secondly, historically.

How much differences there in the primaries when you have an incumbent versus not.

Kevin Latek: Yeah. On sub-trends, at this point, we largely are mirroring the industry and our peers. If we look at our sub-trends, again, the MVPDs are down double digits. The OTT, which is direct to consumer, and the virtuals are growing nicely. Sub-trends are really, I think, kind of matching everybody else at this point. We're modeling again the more dire case in the MVPDs than we've seen in the past, and that's, again, we're trying to be realistic and conservative. On the political side, as we said, we have an order from one of the leading candidates who happens to not be in a primary at this point, and that is unprecedented for us.

And the duration.

Politically yeah on sub trends at this point, we've largely mirroring our.

Mirroring the industry and our peers there's nothing.

We look at our R or sub trends again in the Mvpds are down double digits. The.

OTT, which is direct to consumer and the virtual as are growing nicely.

Sub trends are.

Really I think kind of matching everybody else at this point so.

I'm not.

No we're not we're modeling again.

The more dire case and the mvpds than we've seen in the past and that's again, we're trying to be realistic and conservative.

On the political side.

We have as we said we've had and we have an order from one of the leading candidates who happens to not be in a primary at this point and that is.

Kevin Latek: If you go back and look at the last few presidential primaries, you'll see there's a whole bunch of money coming in Q4 before the first primary there in Iowa, and that has been pretty much limited to the people who are competing in the primary, not the incumbent. We have money from someone who's not in a primary. That's new, and it's 17 months before the election. It wasn't that long ago we would comment how crazy it was we were seeing ads 12 months before an election. Now we're seeing ads from someone who has a name recognition already 17 months before election day. If we only have one primary, we think it's going to still be significant spending on primaries. As we saw the last couple of cycles, we typically had one primary, not two.

Generally I understand it is unprecedented for us.

We had a if you go back look at glass.

Few presidential primaries, you'll see there's a whole bunch of money coming in the fourth quarter before I present, the first primary there in Iowa.

And that is has been.

Pretty much limited to the people who are competing in the primary not being nothing the incumbent so we have we have money from someone who's not in the prime rate, that's that's new and it's 17 months before the election.

It wasn't that long ago, we would comment how crazy was we were seeing ads 12 months before an election now we're seeing ads from.

Someone who has a name recognition already 17 months before election day. So.

If we only have one primary.

Think it's going to still be.

Kevin Latek: I'm not smart enough to know there's going to be a Democratic primary of any strength. What we're assuming at this point, there'll be a primary just on the Republican side, and that will be some unknown volume this year, but it's going to certainly be meaningful.

Yeah.

Significant spending on primaries as we saw in the last couple of cycles. We only had we typically had won one primary not too.

I'm not smart enough to know there's going to be a democratic primary.

Any strength.

So what we're assuming at this point there'll be a primary to send the Republican side.

Alan Gould: Okay. Thanks a lot.

Hilton Howell: Thank you.

And that that will be.

Some unknown volume this year, but it's going to certainly be meaningful.

Operator: Our next question is going to come from Craig Huber with Huber Research. Your line is open.

Okay. Thanks, a lot.

Craig Huber: Great. Thank you. You guys mentioned that April for core advertising was up 4%+. That's quite good, particularly given the environment that we're in here and stuff. You talked earlier about synergies you're getting on the revenue side from Quincy and the Meredith TV stations and stuff. Can you maybe parse that out, that 4%+ number? Is it roughly half of it from the revenue synergies? Also maybe if you could touch on the national piece. Obviously, that sounds like it's down. Could you maybe quantify that a little bit for us?

Thank you Jim.

Our next question is going to come from Craig Huber with Huber Research. Your line is open.

Great. Thank you.

You guys mentioned that April for core advertising was up four plus percent that's quite good, particularly given the environment that we're in here and stuff you talked earlier about synergies youre getting on the revenue side from Quincy into the Meredith television stations and stuff can you maybe parse that out that 4% plus number is at roughly half of it.

Pat LaPlatney: Yeah, Jim, if you want to look at some numbers. I can't tell you exactly what percent of the 4% is due to Quincy and Meredith. I can tell you that, as Hilton alluded to, those stations are performing at a very high level. Anecdotally, I'll talk about Phoenix for a second. When we acquired these two stations in December 2021, their rankings and their ratings were number 3 and number 4. Today, they're number 1 and number 2. For that reason, they're taking a much higher share of the advertising market in Phoenix, Arizona, and that is a phenomenon that's playing out really across that group. While I can't give you an exact number, I'm sure there is a fairly material contribution from the Meredith stations to that increase.

From the revenue synergies.

And also maybe if you could touch on the national piece, obviously that sounds like it's down maybe quantify that a little bit for us.

Yeah I can.

Jim if you want to look some numbers.

I can't tell you exactly what percent of the 4% is due to Quincy and Meredith I can tell you that as Hilton alluded to those stations are performing at a very high level.

It globally.

I'll talk about Phoenix for a second when we acquired these two stations.

You know in December of 'twenty, one their rankings in the ratings were number three and number four today, they're number one and number two for that reason theyre, taking a much higher share of the advertising market in Phoenix, Arizona, and that's a that is a.

A phenomena, that's playing out really across that group.

So while I can't give you an exact number I'm sure. There is a fairly material contribution from the Meredith stations to that increase.

Craig Huber: Okay. The national piece, if you can help us with that? It sounds like it is down.

Jim Ryan: In Q1, national was down, but as we commented earlier, national is a relatively small component of overall core. Looking ahead to Q2, I think national has the potential to improve a little bit. It probably is still down a little bit, although it might be closer to flattish than as down as much as it was in Q1.

Okay.

National piece, if you can help us with that I mean, it sounds like it's down.

In first quarter National was down but as we commented earlier the nationals are very small relatively small component of overall core.

Looking ahead to the second quarter, I think national has the potential to improve a little bit.

Probably is still down a little bit, although it might be closer to flattish than us.

Craig Huber: Okay. On the retrans sub side of things here, three months ago in your last conference call, you said you guys were down about 1.5%, I believe, retrans subs year over year. Now you're talking about it being in line with the market. Your peers are talking on a net basis, the virtual and the legacy MVPDs down mid-single digits year over year. It sounds like now you're sort of in that zip code now when you roll it all up.

<unk> down as much as it was it was in first quarter.

Okay, and then on the Retrans subs side of things here.

Three months ago on your last conference call. You said you guys were down about one and a half for semi belief retrans subs year over year now you're talking about athene in line with the market. Some of your peers are talking on a net basis, the virtual and the legacy Mvpds down mid single digits year over year. It sounds like now you're sort of in that.

Jim Ryan: Yeah. We've been giving sub number, our total subs, which is everyone who pays us a monthly fee to receive a linear signal period. We've been getting, frankly, just a lot of questions about why we're giving a number that's different than others, so we're just not going to do that any longer. What matters is the gross revenue and the net revenue. Overall, I'd say we're reading what other people are saying about their sub trends. Obviously the MVPDs are reporting their sub trends. We're seeing numbers that are generally consistent with what everyone else is doing. We're seeing estimates on the DTC and the virtuals and public media, and both reported numbers and estimates. They're generally consistent with what we're seeing now. Not sure there's been much value in us giving that year-over-year calculation. It seems to have, unfortunately, created a little too much confusion.

ZIP code now.

Roll it all up.

We've been giving.

Sub number.

Our total subs, which as everyone, who pays us a monthly fee to receive a linear signal period.

And we've been getting frankly, just a lot of questions about why we're giving a number that's different than others. So we're just not going to do that any longer.

Matters is the gross in the gross revenue and net revenue.

Overall, I'd say, our we were reading what other people are saying about their sub trends.

Honestly the Mvpds are reporting their sub trends, we're seeing numbers that are generally consistent with what everyone else is doing we're seeing estimates on the DTC and the note and the virtual and public media and reported numbers and estimates.

They are generally consistent with what we're seeing now so.

Jim Ryan: We can confirm that what we're seeing is pretty consistent with what everybody else is seeing and what's being publicly reported.

Im not sure theres been much value when I was giving that.

Year over year calculation, it seems too unfortunate created little too much confusion. So we.

Craig Huber: Okay. Now, on the leverage side, looking at some old notes here. In your August conference call last year, you guys said publicly your goal at the end of 2024 for debt leverage was in the low fours conservatively. Just curious at this stage, do you feel that's still doable?

Can confirm that what we're seeing is pretty consistent with what everybody else is seeing.

And what's been publicly reported.

Okay, and then on the leverage side smoke no cure.

In August conference call last year, you guys said publicly the goal at the end of 2024 for debt leverage was in the low fours conservatively just curious at this stage do you feel that you're still doable.

Jim Ryan: That was before interest rates went up 450 basis points in a year.

Craig Huber: Do you have a new outlook?

Jim Ryan: Through '24, our leverage will come down. I think whether it's in the low fives or somewhere in the fours is going to entirely depend on what the final dollars of the '24 election cycle come out to be. Obviously, we're optimistic about the presidential, as we've said. We are also very strongly positioned in the majority of Senate seats up next year as well. We think there'll be a strong spend on the Senate side as well.

That was before interest rates went up 450 basis points in a year.

So with new outlet.

I, we will through 'twenty four we will let our leverage will come down.

Thank God.

Whether it's in the.

Whether it's in the low fives are somewhere in the fours.

Is getting an entirely depend on what the final dollars of the 'twenty 'twenty four election cycle come out to be.

Obviously, we're optimistic about the presidential as we've said we are also very least very strongly positioned.

And.

Craig Huber: Has this cycle of much higher interest rates and obviously the poor economic backdrop here, has that changed your thoughts long term on where you want to sort of sit at as a company, where your debt ratio will be at long term? In other words, if you brought that down given what we've gone through right now, would you think out several years?

The majority of Senate seats are up next year as well. So we think there'll be a strong strong spend on the Senate side as well.

Has this cycle of much higher interest rates in off the street.

Poor economic backdrop here has that changed your thoughts long terminal, where you wanted to sort of sit out as a company where your debt load will be out debt ratio will be at long term in other words, if you brought that down given what we've gone through right now.

Jim Ryan: We are still committed to bringing down our debt level and our overall leverage as quickly as possible. We have said consistently for years as we levered up to do an acquisition and then levered down following the acquisition, whether it was Polk, Raycom, Quincy, Meredith, and Schurz was in there somewhere too. Large acquisitions, we've ended up in the roughly mid-fives area for a little bit of time and then have come down into the fours. Just before we did Quincy, we were in the very high threes. It's our intention to work the same cycle again over the next few years and bring down leverage again.

So we would still we are still committed to bringing down our debt level and our overall leverage as quickly as possible. We have said consistently.

For years as we Levered up to do an acquisition and then Levered down following the acquisition whether it was.

Hope Ray Cotton, Quincy, Meredith and I'm, probably not sugars was in there somewhere too you know we've large acquisitions. We've ended up in the roughly mid fives area for a little bit of time, and then have come down into the fours. Yeah, just before we did Quinn.

See we were in the very high threes we.

Hilton Howell: Let me add something else to that. You've got to realize this company has articulated for decades now our intention to grow our portfolio. We are now a national broadcaster. Not implying that we're going to be broadcasting nationally, we're going to be doing it locally. We're in 113 markets. We're the second-largest broadcast company in the country. We have achieved that. We are sitting just barely below the articulated cap without the UHF discount. The two largest things that we will be doing, since we have already gotten the scale that we need, is reducing our leverage and then returning capital to our shareholders through both stock buybacks and dividend increases, as the board sees fit and as they feel comfortable. Our board ratified our dividend yesterday at our board meeting, and that's what we're going to be doing.

We would we it's our intention to work the same cycle again over the next few years and bring down leverage again.

Let me add something else to that I mean, you've got to realize this company has articulated for.

I mean decades now our intention to grow our portfolio. We are now a national broadcaster not implying that we're going to be broadcasting nationally, we're going doing it locally but weren't 113 markets. We're the second largest broadcast company in the country. We have achieved that we were sitting just barely below the articulated cap.

Without the UHF discount and so.

The two largest things that we will be doing since we have already gotten the scale that we need is reducing our leverage and then returning capital to our shareholders through both stock buybacks and dividend increases.

Yes.

The board sees fit and as they are.

Hilton Howell: We have done everything that we have told you guys we were going to do, and now we have built what I think is one of the most remarkable broadcast television companies in the country. Now we just go about and operate our business, pay down our debt. I don't see huge acquisitions like we did with Meredith and Quincy in the same year coming. There's just not enough room in the cap for us to do it unless the laws change. I really expect to see our stock price improve dramatically over the course of this year and next as we de-lever and we continue to prove the quality of the assets that are underlying this company.

Feel comfortable.

Our board ratified our dividend yesterday at our board meeting.

And that's what we're going to be doing and so we have done everything that we have told you guys. We were going to do and now we have built what I think is one of the most remarkable broadcast TV companies in the country and so now we just.

Go bout and operate our business pay down our debt and you know I don't see huge acquisitions like we did with Meredith and Quincy in the same year now coming there's just not enough room on the cap for us to do it unless the laws change.

So.

I really expect to see our stock price improved dramatically over the over the course of this year and next as we Delever and we continued to prove the quality of the assets that are underlying this company.

Craig Huber: My last quick question. I appreciate your time here. Auto, what was that year-over-year percent change in the quarter? Maybe what's your outlook there, please? Thank you.

Pat LaPlatney: Somewhere in the mid-teens.

My last quick question I appreciate your time here auto.

Jim Ryan: Yeah. Hang on, I'm trying to grab it. Auto in Q1 2023 was very healthy. It was around 18%, 18.5% of core in Q1 2023 compared to 15% last year. As we commented before, auto started to get healthy last year, and it's continuing to get healthy this year.

What was that year over year percent change in the quarter and maybe what's your outlook. There. Please thank you.

Somewhere in the mid teens.

Uh huh.

Yeah hang on I'm trying to grab it.

Yeah.

Auto in Q1 was very healthy.

Sure.

It was.

Around 18% 18, 18, 5% of core in Q1 dollars 23 compared to 15% last year. So as we commented before auto is.

Craig Huber: Okay, great. Thank you.

Operator: Our last question is going to come from Michael Kupinski with Noble Capital. Your line is open.

Starting to get healthy last year and its continuing to get healthy this year.

Okay, great. Thank you.

Michael Kupinski: Thank you. A lot of good questions. My question is, many in the industry are embracing next gen and indicating the prospects for some revenue contributions by building out a core infrastructure, looking for opportunities in agriculture, utilities, and so forth. Some have indicated that data casting could be a $6.5 to $15 billion industry. Where does Gray stand in terms of building out its core to offer data casting, and are you as sanguine about the opportunities in data casting as others in the industry? If so, do you think you'll see revenues in 2024 from data casting?

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

Thank you a lot of good questions.

My question is many in the industry are embracing nextgen and indicating the prospects for some revenue contributions by building out our core infrastructure and are looking for opportunities in agriculture utilities and so forth.

And some have indicated that data casting could be a six and a half 215 billion dollar industry, where does gray stand in terms of building out its core to offer data casting and King are you as sanguine about the opportunities in data caffeine as others in the industry and if so do you think you will see.

Pat LaPlatney: To answer your last question first, I don't think '24, I think '25 is a possibility. We continue to build out our 3.0 infrastructure. I can't remember the exact numbers now, but I think we're somewhere, in terms of our population coverage, over 50%, maybe 60%. Look, we see great promise in 3.0. For us, it's been a challenge to nail down exactly when that money starts coming in. We are active in sort of the datacasting world, where there's a lot of opportunities, whether they're single market or networks. As it relates to the networks, we're having discussions with our peers about setting up the appropriate infrastructure. I think it's starting to come into a little better focus, and I would guess we'd start seeing money in '25.

Revenues in 2024 from data casting.

So to answer your last question first I don't think 24, I think 25 is a possibility.

We continue to build out.

<unk> three point.

Infrastructure.

And I can't remember the exact numbers now, but I think we're somewhere in terms of our population coverage over 50%, maybe maybe 60%.

So look we see we see great promise in three point out what's been a challenge for US it's been a challenge too.

Dale down exactly when that money starts coming in but we are active active in.

And in sort of the data casting world, where it's there's a lot of opportunities, whether they're single market or networks and as it relates to the networks were having discussions with our peers about setting up the appropriate infrastructure. So I think.

Michael Kupinski: Okay, great. Thank you. That's all I have.

Pat LaPlatney: To be clear, I don't think it'll be a material number in 2025.

I think it's starting to come into a little better focus and I would guess, we'd start seeing money in 'twenty five.

Michael Kupinski: Okay, great. Thank you.

Operator: Okay, there are no more questions in queue, so I'll turn it back to you for any closing remarks.

Okay, great. Thank you that's all I had.

Be clear I don't think it'll be material number 25.

Hilton Howell: Thank you, operator. I'd like to say just a few things before we close up and wrap it up this morning. I just want you all to know that we're very proud of our results this morning. We candidly don't see current signs of recession looming on the horizon. We have the best television station portfolio in the business. We're the largest local news producer in the television industry. We have presidential money for 2024 coming in H1 2023. Assembly comes online next month. Sports and local businesses are returning to the broadcast model. Having said all that, I must emphasize, we are tremendously comfortable with our liquidity. We have no near-term maturities. We have already converted our variable rate debt from LIBOR to SOFR, and we have interest rate caps in place.

Okay, great. Thank you.

Okay. There are no more questions in queue. So I'll turn it back to you for any closing remarks.

Operator, I'd like to say just a few things before we close up and wrap it up this morning, but I just want you all to know that we're very proud of our results. This morning, we candidly don't see current signs of recession looming on the on the horizon, we have the best TV station portfolio and the business, we're the largest local news.

<unk>.

Reducer in the TV industry, we have presidential money for 2024 coming in the first half of 2023 Assembly comes online next month.

Sports and local businesses are returning to the broadcast model.

And having said all that I'm. Most emphasize we are tremendously comfortable with our liquidity we.

We have no near term maturities, we have already converted our variable rate debt from LIBOR to sofa.

Hilton Howell: Our balance sheet, as well as our core television station business, remains strong enough to weather any macroeconomic pressures that we may face before we begin to reap the benefits of significant amounts of political revenue, not just later this year, but fully in 2024. The future is bright. Thank you for your time. We look forward to talking to you if you all need to have individual conversations. Thank you for your time this morning.

And we have interest rate caps in place.

Our balance sheet as well as our core TV station business remained strong enough to weather any macroeconomic pressures that we may face before we began to reap the benefits of significant amounts of political revenue.

Not just later this year, but fully in 2024. So the future is bright. Thank you for your time, we look forward to talking to you. If you all need to have individual conversations and thank you for your time this morning.

Operator: This concludes your call. You may now disconnect.

This concludes your call you may now disconnect.