To Gray Television Q1 2023 earnings call. I will now turn the call over to our Chairman and CEO, Hilton Howell. You may begin. Thank you, Misty. Good morning, everyone. As our operator mentioned, I am Hilton Howell, the Chairman and CEO Gray Television. I wanna thank all of you for joining our 1st quarter 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, James 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 from. With that, we will begin with the disclaimer that Kevin will provide. Kevin? Hi. Thank you, Hilton. Good morning, everyone. Gray Television 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 non-GAAP financial measures and, in particular, Broadcast Cash Flow, Operating Cash Flow, Free Cash Flow, and certain leverage ratios. These metrics are 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 in 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. 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. Thank you, 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. Our core advertising revenue was even with last year's 1st quarter after adjusting for the impact of the Super Bowl last year and the Winter Olympics broadcasts. Our retransmission revenue was 12% ahead of the last quarter of 2022, also beating our guidance. As noted in the earnings release, Gray Television's 1st quarter 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. 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 Television 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. 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 1st time ever. I also want to reiterate an outstanding fact with regard to our political advertising. For the 1st time ever in the year before a presidential election, we're 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. 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. 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 Television 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. It should go without saying that we are tremendously unhappy with Gray Television'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 Television'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? Thanks, Hilton. Gray Television'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 the 1st quarter, our new local direct brought in over 2,000 new accounts and 9% more revenue than 1st quarter of 2022. This momentum has continued into the 2nd quarter. In April of 2023, our stations brought in nearly $11 million of new business, which is our best monthly number we 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. Between our core revenue performance overall, our new business success, and individual market successes like these, we know that Gray Television 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 in at double the amount our current television station portfolio posted in the 1st quarter of 2014, which was the last pre-presidential year in the cycle. This is obviously a good sign. Already in the 2nd quarter, we've received our first presidential political ad buy, as Hilton referenced. I'm pleased to report that we've not one, but three presidential campaigns already advertising on Gray Television 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. Our digital businesses are also excelling. In the 1st quarter, 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 by 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 in 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. 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. That's nothing new for us. We've shifted our course repeatedly over the past few decades, yet right now we're moving forward in new and creative ways with our audiences, with a growing advertiser base, with new partnerships with local professional sports teams. We also expect that our industries and our company's work on the NextGen TV technology will open even more doors to growth for us in the medium term. In short, it's a very good time for Gray Television in the broadcast business. Kevin? Hi. Thank you, Pat. Today, we can announce that Gray Television 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 Television's three-decade history of retransmission 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 retransmission negotiations will occur at the end of this year when we will renew with most of our MVPD partners. In related news, since the 1st of this year, Gray Television has entered into the ABC opt-in agreement for Hulu TV and the CBS opt-in agreements for Hulu TV, YouTube TV and Fubo. 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 Television reached an agreement with YouTube TV that secures carriage of six of Gray Television's independent, non-affiliated television stations that provide local news and sports-focused content in our largest markets, including Peachtree TV in Atlanta and Arizona's Family 3TV in Phoenix. This is Gray Television's 1st-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 such, we are hopeful that deals like this one with YouTube TV opens the door for similar deals with Hulu and Fubo TV 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 1st quarter retransmission results we posted today are better than expected. In particular, our retransmission revenue as compared to the last quarter of 2022 grew 12% on this 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. Continue to forecast low single-digit growth in gross and net retransmission for the year. As a result, we will renew about 58% of our MVPD sub-base in the 1st quarter of next year, or throughout next year, primarily in the 1st quarter of next year. At that time, we expect some improvement in reverse comp rates that with higher retransmission rates will produce higher net retransmission dollars in 2024 as well. This concludes my remarks. I now turn the call back to James Ryan. Thanks, Kevin. Good morning, everyone. I'm gonna 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. Political revenue of $50 million, which is an improvement from the $40 million-$50 million range we provided on our last call. That would be including to date approximately $1 million of 2024 presidential spend, and that 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 disposed 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. 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-$825 million. Continuing on for significant cash uses in 2023, cash interest, we expect $420 million-$430 million. We do have a 5% SOFR interest rate cap on $2.6 billion of our floating rate debt, so we are insulated from further increases in SOFR. Cash taxes of about $35 million-$45 million, which is a reduction from our previous estimates and a positive for us. Routine capital expenditures of about $105 million-$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-$170 million. We are very well-positioned starting 2023. We look forward to a successful year and continuing into a strong 2024 with the return of another pre-presidential election cycle. I'll now turn the call back to Hilton. Thank you, Jim. At this point, operator would like to open up our call for 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. 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 Daniel Kurnos from Benchmark. Dan, your line is open. 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 2Q. Clear guys have generated substantial revenue synergies already, I think, from Meredith in Quincy. I'm just trying to kind of parse out the underlying there, you know, 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. Yeah. You know, services for us have been healthy right along, Dan. Look, I think we, you know, we have a team sales 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. You know, for the last, if you just take legal, for instance, you know, that category for us has been on a steady upward arc for years, literally years. And home improvement continues to be strong. Yeah, I, you know, I like where we are there. Dan, services in Q1 2023 is about 29% of core. Q1 2022 services was 28% of core. Okay. I mean, it's just a better result, and your 2Q pacings are better than everybody else so far. It's a good call-out. Kevin, just on the dynamics, and you called out a true-up. I don't know if you can size the true-up. You know, We've heard that virtuals have been kind of outpacing, and we've heard some upsides to kind of sort of net subs, I guess, in Q1 from virtuals. You know, given all of the recent virtual negotiation dynamics, can you just kinda help us think through both the true-up and then kind of the... I know we have the full year guide, but just kinda your pace and thoughts on subs and impacts from, you know, this kind of virtual mix shift? Hi, Dan. We have true-ups and adjustments throughout the year every year. They tend to be primarily hit us in Q1. It's sometimes they're very positive. There is one year, remember, that the true-ups turned out to be a little negative. We. True-ups are part of the story primarily in Q1 every year. 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 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, you know, large declines in the traditionals. We're seeing continued really strong growth on the new distributors. We are modeling the continued large declines in traditional MVPDs and continued growth in the OTT distributors. I, you know, I don't see anything in the near term that would change either one of those trends or trajectories. The overall mix is obviously like everybody else. It's becoming 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 stated those command higher rates. 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. Yeah. No, that's helpful. One last one just for Hilton. You know, I know you guys are trying to be very thoughtful about this and, you know, anyone can obviously jump in on this. Sort of the Atlanta Assembly, The Assembly Atlanta unlock just. You know, I know it's kind of a tricky proposition, and you're getting excited for the launch here, but just, you know, how close are you to kind of having, you know, something to share with us or, you know, how would you guys in the process of kind of, you know, giving us either more disclosure and/or, color on, you know, the economic frame? Sure, Dan. you know, 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, you know, largely, you know, wound up. I'm really, Dan, I'm so proud and candidly would love to host everyone on this phone call at the Assembly because when you see it, you're gonna understand what a remarkable economic engine it's going to be. While we won't be disclosing our lease agreement with NBCUniversal, you will be seeing revenue beginning, certainly, in the third quarter, but more importantly in the 4th quarter, and then consistently from there on out. You can back into anything you want to at that point. We think it could end up being one of our single most important assets in the entire portfolio. Got it. Thank you for the color. Sure. Thank you, Dan. Our next question is going to come from Courtney Bowman from Barclays. Courtney, 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, 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. How do we think about? You nailed it. Yeah. How do we think about, you know, kind of the longer-term strategy of the company? Is this, like, inherently a move back towards a more cyclical model? How do we think about that as kind of a hedge on the retransmission side? How do we think about the balance? Hi, this is Kevin, Courtney. Let me, I guess, first just clarify that as broadcasters generally. Mm-hmm are adding professional sports games, Yep we are adding them to non-Big Four stations so that we're adding them to independent TV stations. Mm-hmm Some of those have other content that gets displayed. Some are stations that we're sort of spinning up, and Spectrum are 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. So, 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 Television. It remains a local news focus. You know, majority of our revenue comes from local news. That's not gonna be impacted. If we add, for example, we had a Telemundo at a bunch of stations last year, we add sports to stations in a region in the country, it's not gonna be something that's gonna make the whole business suddenly cyclical. In fact, it's not probably gonna be. At least in the next several years, you're probably not gonna see much change in the numbers, just given the ebb and flow of our business because we do not think that our business is gonna fundamentally change from one that is built around and derives its revenue out of local news. From retransmission, again, I don't know this would have any impact on retransmission. 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, you know, we do have on some of these stations already, college sports, and it's a big driver. If 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. Yep ... we may, but it's not stuff that's gonna move the needle. It is, as Pat said, this, along with the new business development, shows folks are kind of rediscovering broadcast and the reach that we can deliver in a way that other mediums cannot. Okay. That makes sense. A lot of moving parts. Thank you. Thank you. Our next question is going to come from Aaron Watts with Deutsche Bank. Aaron, your line is open. Hi, guys. Thanks for having me on. I've got a couple questions. One follow-up on the advertising side procedure. That core seems to be holding steady for you from 1Q to Q. 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? Hey, Aaron, I hate to tell you kinda broke up there, so we missed that. Any chance you could repeat? Sure. Okay on the advertising side, encouraged to hear that core seems to be holding steady from 1Q into 2Q. 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? Yeah, I mean, yeah, what, Jim, did you wanna take that or? I'd say core in April is up healthily, healthy single digits, 4-ish%+. Obviously is looking strong as well. I think June is a little too early to call, but June is always a tricky month depending on, you know, the industry cycles from 2nd quarter rates, which are higher than third quarter rates. At some point in June, third quarter 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. 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 1st quarter you just reported your 2Q guide. Can you talk about some of the factors resulting in margins being a bit below where we've seen them historically? Two things. One, I think, you need to spot us the $35 million in one-time charges that hit the production expense line in Q1 for basically things that were out of control. Secondly, 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 in well, 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 years ago. As we've talked about in the last two calls, 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 was adjusting wages and benefits. 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 gonna continue through over the next several years. I think this is kind of the reset year for us, and then we can bring it, you know, we can hold it to a lower increase in future years. Okay. 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 co as per your credit agreement? Yes. Unfortunately, yes. Got it. Okay. One last for me. 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 deleveraging 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 deleveraging at the restricted group? First, you are correct. Assembly is an unrestricted subsidiary, presently. Obviously, I mean, I'm gonna 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, I mean, we run a centralized treasury system, so, you know, cash comes in and from all sources in the company. 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 next question is going to come from, Arun Seshadri with BNP. Arun, 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, the $35 million was one time. From the high end of guidance, there's another, you know, another $15 million or so. 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 what that is. Is that a total expense? Sorry. The Broadcast Cash Flow prior guidance, I think was $850-$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. Yep. 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, you know, $15 million on $800+ million is not a big, very big delta. Nope. Nope. Totally. I just wanted to make sure I understood the puts and takes. Separately, you're obviously focused on deleveraging. You see your unsecured bonds, you know, trading in the low 60s. 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 hear your thoughts on that prospect, especially given the depressed market cap on the equity. I'll preface my comment 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 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 is in SOFR. It's pricing at 7.5% all in and shorter term maturities. I would tend to lean towards paying down the more expensive coupons that have shorter maturities. Got it. Very helpful. Then finally, you know, in terms of deleveraging potential, are there any other, you know, as sort of either non-core asset sales, et cetera, that you would consider to potentially accelerate the deleveraging? It looks like by my numbers at least, you know, into 2024, even if you generate the full level of cash flow that you expect in prior, you know, expected in prior years and maybe more, you'd still be levered in the five. 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 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. 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. Hey, this is Dean on for Nick. We've been seeing an industry peer shutter some local news programs across various markets, and I think there's even some overlap with Gray Television stations. Are you seeing any indication of pressure on viewership within the local segment? 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 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. There is no potential of Gray Television 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, you know, important markets. Here in Atlanta, for instance, because I, you know, I watch it every morning, but 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, and so we need to be there to provide it. You'll see no pullback on news from us. Got it. Thank you. Getting more aggressive on more local news content, is any of that I know you had just mentioned, being 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 this. You know, 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, you know? Tight labor market too. Yeah. I mean, 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 we're producing as a company is going up every year. You know, 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, you know, a little bit short-staffed, again, we've made some fairly significant progress in hiring over the last six, eight months. That's sort of headed in the right direction. Okay, appreciate it. Thanks. Thank you. Our next question is going to come from Jim Goss with Barrington. Jim, your line is open. Okay, thanks. Kevin, a few 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? 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, and that is our expectation. It's not changed. I don't wanna talk about specific negotiations at this time because we are in specific negotiations, so I'll just talk at a fairly high level. Several folks are saying across the industry right now. Okay. I wondered too, some thoughts have been expressed, and I think they seem reasonable, that maybe retransmission 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 retransmission, net retransmission in total? I'm not sure. I wasn't sure the question is about gross or about net. Well, I guess if you're getting 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 the... Well, the probably both the gross and the net reverse or retransmission are sort of going about as far as they might, or do you think there is more upside? Over the past years, everybody's argued for, onward and upward, but I'm wondering if that's starting to slow to a point that maybe we shouldn't be thinking in that, those terms. I guess, I 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 bubble next year. I can just reiterate, we expect that we will still see growth in both gross and net. Okay. I wondered about any of you with a Premion update and any impact from the deal uncertainties that might be introduced from that relationship. Really, really, 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. Okay. Finally, as you've emphasized, news is your key driver. With your broadened platform across, 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? 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, you know, because we've taken Telemundo statewide so far in Georgia and Alabama, in 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. All right. Thanks very much. Sure. Our next question is going to come from John Kornreich with JK Media. John, your line is open. Yeah, hi. Jim or Kevin, you reiterated a couple of times that net retransmission should be up low single digits this year, yet the 1st quarter was down 3.5%, and your guidance for the 2nd quarter is that net retransmission will be down 4%. I take it you're expecting about a 10% year-over-year net retransmission increase starting in the third quarter. We're not giving that level of granularity on guidance at this point. Okay. you are reiterating up for the whole year net retransmission for 2023? Yes. An acceleration of that next year as you do more agreements. Correct, yes. Okay. Kevin. 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 is significantly less than what we've seen over the last five years or so. That will affect 24, not 23. Correct. Okay. Secondly, just quickly on the guidance of $160 million-$170 million Free Cash Flow. Again, that excludes CapEx and reimbursement. On the Assembly project. That would be correct. It also excludes the roughly $30 million of common dividend. Right. Right. In the queue, which will be filed a little later today, there is a good disclosure around what we see for Assembly, as far as finishing off from the cost side to complete phase one as well as reimbursement. If you look at the liquidity section of MD&A, you'll get some good detail. Okay. When do you guys expect to sort of hit your stride on revenue coming in from the Assembly project? Is that early 2024? Full year 2024. 2024? Full year 2024. Okay. It will come online in June, and then it will take a period of 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 additional, in addition to it being a, what I think is gonna be a remarkable presidential year. That's gonna bring the combination of all of those things are just like after we closed from Raycom, we're gonna bring our debt down rapidly in a two-year period of time. We're very excited for that. That's why we should not only buy your stock but buy your bonds too. I mean, I will tell you, I'm gonna be buying stock. Our current price is ridiculous. The Assembly project by itself is worth more than our market cap. Thanks. one last thing. Kevin, can you reiterate or put together again the flow of retransmission agreements starting in the 1st quarter of this year and then go through 2024 again? Just, you know, bear with me. It's in our, it's in our deck, I wanna 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, then 23% in the 2nd half. Sorry. Say 2024 again. Sorry. Yeah. 2024, it's 38% in Q1, and then 23% in the 2nd half. Thanks a lot. Appreciate it. No, thanks. Sure. Thanks, sir. Our next question is going to come from Monica Lu from Onex. 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 to basically account for the credit losses 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 Television. In addition to the $17 million, is there any potential other liabilities that we should think about? Thank you. The $17 million, related to an accounts receivable with Diamond that we fully reserved due to the bankruptcy. We're not commenting on litigation, with any party. Okay, thanks. Thank you. Our next question is going to come from Steven Cahall with Wells Fargo. Steven, your line is open. Thanks. Maybe just first kinda Jim and Hilton tying a few things you said together. You know, Hilton, you talked about how much you think the stock is undervalued, and Jim, you've been 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 kinda 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? We're currently about 5.3. In the last 4th quarter, we were about 5.4. I think we're, you know, somewhere between 5.25 and 5.5. The variability, I think, will really depend on how much pull forward of the presidential cycle we see in 2023. 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. Yeah. at what we've seen in May already. Got it. Then, just on sports and the MVPDs, you know, you talked about the YouTube TV deal with the independents, and you've got the deal now for some 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, you know, do those sports teams or leagues have a preference for Big Four? How do you think about kind of balancing where you might look for some of those rights going forward? Yeah, just again, I just go back to very specific what Pat said on the call, and we're not saying that we have an agreement. Just 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 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 and 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. I would say we are interested 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 non, the marquee teams. We've always been looking to add sports, and that's not gonna change. The, the YouTube deal is certainly big news for us. We're obviously happy we have it. We believe we had a sort of a compelling justification justify why these six stations should be carried. It is sports, and some of it's also a lot of local news. You know, Phoenix in particular, that station, has a tremendous amount of local news already and is a leader in terms of ratings in that market. It just makes sense that station would be available on every platform. It's, again, it comes back to what we think we've always done, which is create TV stations that have content that local audiences wanna 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. No, that was comprehensive. Then maybe just lastly, I think historically, two out of the four networks have structured reverse comp as a programming fee. Two have the 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, so 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. Yeah, Steven, we're talking with half the Big Four right now, so 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. Got it. Thank you. Thank you. Our next question is going to come from Alan Gould with Loop Capital. Alan, your line is on. Thanks for taking the question. Hilton, one for you, and then I've got a couple for Kevin. Sure. In terms of the Atlanta center, I understand that you can't discuss the revenue. Can you give us some costs? 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 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 from where the current studios are placed. You know, 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 December 28th, which is where Gray Television is receiving its reimbursements from. We have, we raised north of $100 million at the end of the year. As the public improvements, roads, sewers, et cetera, get finished, then, you know, Gray Television 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. We poured our first slab last March, and in June, this daggum 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. I think it's gonna 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. Okay. Thanks. On the land sales, the when there are 4,000+ 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 expect that, 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. Absolutely. 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 in the race? Uh. In terms of political ads. Yeah, on sub-trends, at this point, we largely are mirroring our mirroring the industry and our peers. There's nothing, if we look at our sub-trends, again, the MVPDs are down, you know, 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. I'm not, we're modeling again the, you know, the more dire case in the MVPDs than we've seen in the past. That's again, we're trying to be realistic and conservative. On the political side, we have, 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 generally, I mean, it's not generally, it is unprecedented for us. We had a, if you go back and look at the last, you know, few presidential primaries, you'll see there's a whole bunch of money coming in the 4th quarter for the first primary there in Iowa. 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 could, you know, 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. I, you know, if we, if we only have one primary, we think it's going to still be significant spending on primaries. As we saw the last couple cycles, we typically had one primary, not two. I'm not smart enough to know there's gonna 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 volume this year, but it's going to certainly be meaningful. Okay, thanks a lot. Thank you. 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 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? 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? Yeah, I could, you know, Jim, if you wanna look at some numbers. I mean, I can't tell you exactly what% of the 4% is due to Quincy Media and Meredith. I can tell you that, you know, as Hilton Howell alluded to, those stations are performing at a very high level. Anecdotally, I'll, I can talk about Phoenix for a second. When we acquired these two stations, you know, in December of 2021, their rankings and their ratings were number three and number four. Today, they're number one and number two. For that reason, they're taking a much higher share of the advertising market in Phoenix, Arizona. That's a, that is a phenomena that's playing out really across that group. While I can't give you an exact number, I'm sure there is a, you know, a fairly material contribution from the Meredith stations to that increase. Okay. Then the national piece, if you can help us with that? I mean, it sounds like it's down. In 1st quarter, national was down, but as we commented earlier, national is a very relatively small component of overall core. Looking ahead to 2nd quarter, I think national has the potential to improve a little bit. It probably is still down a bit, although it might be closer to flattish than as down as much as it was in 1st quarter. Okay. On the retransmission sub side of things here, three months ago on your last conference call, you said you guys were down about 1.5%, your retransmission subs year-over-year. Now, you're talking about it being in line with the market. I mean, your peers are talking on a net basis, the virtual and the legacy MVPD is down mid-single digits year-over-year. It sounds like now you're sort of in that zip code now, when we roll it all up. Yeah. We've been giving, sub number. Our total subs, which is everyone who pays us a monthly fee to learning your signal period. We've been getting, frankly, just a lot of questions about why we're giving a number that's different than others. We're just not gonna do that any longer. What matters is the gross and the gross revenue and the net revenue. Overall, I'd say our, 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 when I was giving that year-over-year calculation. It seems to unfortunately created a little too much confusion. We can confirm that what we're seeing is pretty consistent with what everybody else is seeing and what's being publicly reported. 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 4s conservatively. Just curious at this stage, do you feel that's still doable? that was before interest rates went up, 450 basis points in a year. Do you have a new outlook? Through 2024, our leverage will come down. I think, whether it's in the low 5s or somewhere in the 4s is gonna entirely depend on what the followers of the 2020, the 2024 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 strong spend on the Senate side as well. Has this cycle of much higher interest rates and obviously the poor economic backdrop here, has that changed your thoughts along where you wanna sort of sit at as a company where your debt load will be at, debt ratio will be at long term? In other words, have you brought that down given what we've gone through right now? We should think out several years. 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 Hoak, Raycom, Quincy, Meredith, and I'm probably, Schurz was in there somewhere too. You know, we know we've large acquisitions, we've ended up in the roughly mid-5s area for a little bit of time and then have come down into the 4s. Just before we did Quincy, we were in the very high 3s. 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 gonna be broadcasting nationally, we're gonna 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. 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. As, you know, 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 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. You know, I don't see huge acquisitions like we did with Meredith and Quincy in the same year, are 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. My last quick question. I appreciate your time here. Auto, what was that year-over-year% change in the quarter? Maybe what's your outlook there, please? Thank you. Somewhere in the mid-teens. Yeah. Hang on, I'm trying to grab it. It... Auto in Q1 was very healthy. It was around 18.5% of core in Q1 2023 compared to 15% last year. As we commented there, auto is, you know, started to get healthy last year and it's continuing to get healthy this year. Okay, great. Thank you. Our last question is going to come from Michael Kupinski with Noble Capital. Your line is open. Thank you. A lot of good questions. My question is on the industry are embracing NextGen and indicating the prospects for some revenue contributions by building out a core infrastructure, you know, looking for opportunities in agriculture, utilities and so forth. Some have indicated that datacasting could be a $6.5 billion-$15 billion industry. Where does Gray Television stand in terms of building out its core to offer datacasting? Are you as sanguine about the opportunities in datacasting as others in the industry? If so, do you think you'll see revenues in 2024 from datacasting? To answer your last question first, I don't think 24, I think 25 is a possibility. You know, we continue to build out our ATSC 3.0 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 60%. We see great promise in ATSC 3.0. It's been a challenge for us, you know, 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. Okay. Okay, great. Thank you. That's all I have. To be clear, I don't think it'll be a material number in 2025. Okay, great. Thank you. Okay, there are no more questions in queue, so I'll turn it back to you for any closing remarks. Thank you, operator. I'd like to say just a few things before we close up and wrap it up, 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 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 the first half of 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. 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. This concludes your call. You may now disconnect.