Good day and thank you for standing by. Welcome to the Q1 2022 Earnings Call. At this time, all participants are in listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. I would now like to hand the conference over to your speaker today, Hilton Howell, Chairman and CEO. Please go ahead, sir.

Thank you, Operator, and good morning, everyone. As mentioned, I am Hilton Howell, the Chairman and CEO of Gray Television. Thank you all for joining us on this first quarter 2022 earnings call. As usual, with me today are Gray’s executive officers, our President and Co-CEO, Pat LaPlatney; our Chief Legal and Development Officer, Kevin Latek; our Chief Financial Officer, Jim Ryan; and our Chief Operating Officer, Bob Smith. We will begin this morning with a disclaimer that Kevin will provide.

Thank you, Hilton. Good morning, everyone. Gray uses its website as a key source of company information. The website address is www.gray.tv. We will file our quarterly report on Form 10-Q with the SEC later today. Included on the call may be a discussion of non-GAAP financial measures, in particular, broadcast cash flow, broadcast cash flow as corporate expenses, operating cash flow, free cash flow, adjusted EBITDA, and certain leverage ratios. These metrics are not meant to replace GAAP measurements but are provided as supplements to assist the public in their analysis and valuation of our company. Included in our earnings release, as well as on our website, our reconciliation to the non-GAAP financial measures to the GAAP measures reported in our financial statements. Certain matters discussed in this call may include forward-looking statements regarding, among other things, future operating results. Those statements are subject to a number of risks and uncertainties. Actual results in the future could differ from those expressed or implied in any forward-looking statements as a result of various important factors that have been set forth in the company’s most recent reports filed with the SEC. The company undertakes no obligation to update these forward-looking statements. Now I will turn the call to Hilton.

Thank you, Kevin. We are quite simply thrilled to be with you today to discuss our first full quarter as the nation’s second largest broadcast affiliate group owner. Quite simply, the company is firing on all cylinders. Our first quarter financial results exceeded our expectations, and we are guiding to another great quarter in what will be a truly banner year for Gray Television. Once again, our earnings released this morning also confirm that our execution remains best-in-class. Our total revenue in the first quarter of 2022 was $827 million, which was an amazing 52% higher than the first quarter of 2021. Our total revenue blew past the high end of our guidance of $812 million for the quarter. Our net income in the first quarter was $49 million, or $0.52 per fully diluted share. That figure represents an 88% increase over the first quarter of 2021 on a dollar basis and a 93% increase over the first quarter on a per share basis. Moreover, excluding the transaction-related expenses and non-cash stock compensation, our adjusted net income would have been $55 million for the first quarter of this year or $0.58 per fully diluted share. As you all know, our earnings release presents financial results according to GAAP, as well as on our own defined combined historical basis. We refer to it as CHB. And it gives effect to both acquisitions and dispositions in order to provide more transparency on how our wholly-owned stations and businesses are performing compared to prior periods. Our results today are just as impressive on this combined historical basis. In particular, we had guided that total revenue would increase from a low of 5% to a high of 8% over the prior year period on a CHB basis. Well, in fact, our company finished the first quarter of 2022 up double digits by 10%. On core advertising revenue, our stations finished the quarter up 4% on a CHB basis, in contrast to our anticipated range of between flat to 3% higher than the first quarter of 2021. Likewise, we exceeded first quarter 2021’s CHB numbers, as well as our own guidance on retransmission consent revenue, political advertising revenue, and production company revenue. These revenue gains, as well as the expense savings reported in our release today, are the result of our peerless combination of top-rated local television stations and fantastic professional employees at every level of our company. In August, we welcomed the Quincy Media Group into our fold. And in December, we welcomed the Meredith Television Group into our fold. The Quincy stations today are fully integrated into our company, and the revenues and expenses are noticeably better in just this very short time. Meanwhile, we have progressed about halfway through our integration of the Meredith stations; those stations and the local teams are busy adding news, sales, and creative personnel, as well as technology and sales resources. Their financial results for the first quarter more than met our expectations and those expectations will certainly grow as we get more and more of the integration efforts behind us. In short, we have very good news to report, not just on the financial statements, but on the ground and in the trenches of all of our latest acquisitions. Looking ahead, we are today guiding to a combined core revenue and political revenue for the second quarter of between $435 million to $445 million. If we land just below the midpoint of our traditionally conservative guidance, Gray Television will break all its previous records for second quarter advertising revenue in the company’s 100-year-plus history, both on an as-reported and on a combined historical basis. In closing, we look ahead with great excitement at a strong year for core revenue, continued growth in retransmission revenues, record-breaking political revenue around this important midterm election, and growth in our emerging production and studio businesses. With the wind behind us and with more scale than ever before, Gray will achieve strong free cash flow that should enable us to deleverage quickly as we did following the Raycom acquisition in 2019. Indeed, with our very strong start to 2022 and our bright prospects for the balance of this year, we anticipate being able to fund our growth objectives for the year, as well as pay down a significant portion of our debt prior to year-end. Naturally, as our strong free cash flow drives our leverage lower, we are actively increasing the equity value of our company that we expect will help our stock price recover to a level that better reflects the fact that our business is as strong as it has ever been and that our prospects have never been brighter. Next, I will turn the microphone over to our President and Co-CEO, Pat LaPlatney, who will address our ad revenues in more detail.

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

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

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

Thank you, Kevin. Good morning, everyone. We will be filing our 10-Q later today. As shared in our fourth quarter call, you will see that starting Q1 2022, Gray no longer separates local advertising revenue from national advertising revenues in our income statements. While the distinction may matter for other broadcast companies who use national sales reps and local sales teams, Gray operates solely on a local level for all sales. Therefore, the local versus national distinction is not applicable for us, and we have done away with it. Hilton, Pat, Bob, and Kevin covered the key highlights for Q1, so I will keep my comments brief and summarize them. For Q2 guidance, we expect core advertising revenue to be between $370 million and $375 million, with retransmission revenue between $385 million and $390 million. Q1 included one-time positive adjustments of about $5 million in our retrans number, which we do not anticipate recurring in Q2. Political advertising revenue for Q2 is projected to be $65 million to $70 million, with production revenue estimated between $10 million and $12 million. Overall, total revenue is expected to be between $846 million and $864 million. Our Q2 operating expenses are expected to be between $533 million and $537 million for broadcast, which includes $226 million in reverse comp payments to the networks, around $1 million in non-cash stock compensation, and $1 million in transaction-related costs. Production companies will incur approximately $12 million in expenses, while corporate expenses are anticipated to be between $30 million and $35 million, including $1 million in transaction-related costs and about $5 million in non-cash stock compensation. We are pleased with our Q1 results, showing a 4% increase in total core revenue compared to 2021 on a historical basis. We are encouraged by a strong start in political advertising and have robust expectations for Q2. The services group, which includes financial, legal, and medical services, represented about 29% of our Q1 2022 core revenue. Gaming revenue for the first quarter was around $20 million, with the Super Bowl contributing about $7 million and the Winter Olympics about $10 million. Our trailing eight-quarter operating cash flow as of March 31, 2022, was $1.214 billion. We had $6.835 billion in debt outstanding at the end of the quarter and cash on hand of $247 million. Our total leverage ratio, net of cash, was 5.43 times, down from our Q4 leverage ratio, and our first-lien leverage ratio was 2.5 times. To summarize our expectations for the full year, combined historical net revenue for 2021 was $3.15 billion. Our two-year blended average operating cash flow was $3.25 billion, and our operating cash flow on a combined historical basis for 2021 was around $1 billion. The trailing eight-quarter operating cash flow on a combined historical basis was approximately $1.2 billion. Our free cash for 2021 was $443 million, while the blended two-year average free cash was $626 million. As stated previously in our Q4 call and reiterated today, we expect cash interest of about $300 million, cash taxes of $190 million, routine capital expenditures of roughly $125 million, preferred dividends of $52 million, and required term loan deamortization of $15 million. Our routine dividend is expected to be just over $30 million. We currently anticipate that our free cash flow, before common dividends and acquisitions, will exceed $800 million in 2022, with the potential for this number to increase if political revenue exceeds expectations. We are well positioned for the start of 2022 and look forward to a successful year. I will now turn the call back to Hilton.

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

Thank you. And our first question is from Dan Kurnos from Benchmark. Your line is open.

Great. Thanks. Good morning. Super strong results. I guess maybe if you guys can, address the topic; just quickly get it out of the way in terms of what you are seeing around core. The Q2 CHB core guide looks pretty strong relative to the fact that you guys are maybe some 50% higher on political than we would have anticipated at this point. So really if you can just talk a little bit initially just color what you are seeing macro when you are talking about key windows; just anything on that front would be a good start? Thanks.

I will start by saying that we are pleased with our guidance for core in Q2. May and June are shaping up to be reasonably strong, showing low-to-middle single-digit growth. Although April was slightly soft, it’s nothing alarming—just a minor setback. We are encouraged by the positive trends we’re seeing in May and June. I will now allow others to provide further insights, especially regarding specific markets and any political changes.

Yeah. I could jump in. This is Bob Smith. We are seeing some strong political in certain markets, and there has been some displacement. That being said, as Jim just mentioned, we are optimistic about May and June. Several categories are also mentioned in the last 20 minutes are pretty healthy. Automotive, as mentioned, is still a challenge and there will be for a while, but we are making it up in other categories. And then, as Pat mentioned, our new direct business, we are developing probably 2000 new accounts, direct local accounts a quarter on average and that continues to grow, and we think that will just get, it will increase as the year goes on.

One category to highlight is entertainment, where we are experiencing strong growth in the second quarter. Local performance venues and state tourism boards are showing really healthy growth in this area, and combined with the other categories we discussed earlier, it makes for a pretty strong quarter.

Got it. That’s super helpful. And on the aforementioned political, I’d be lying by saying I wasn’t hoping for some more colorful words from you this time around, but Kevin did his best. So just some thoughts on, look, if Roe v Wade ends up getting overturned? We have heard that there’s already been a ton of money coming in on issues. So can you just kind of talk about the balance between whether it’s Senate races versus issue ads and where you might be seeing potential for outperformance in some of those verticals?

We are uncertain about the implications of the decision or political landscape. However, in the past three days, there have been record fundraising efforts from PACs and candidates on both sides. The leak has energized people across the spectrum. If we had this discussion last week, we would have noted that interest in the campaign and fundraising is as strong as in 2020, if not stronger than in previous years, which is promising for a vigorous political season. The primary in Ohio showcased intense voter engagement and a significant amount of advertising. We believe the leak will further draw attention to the elections, driving additional fundraising, as we've already observed. As I've mentioned before, no campaign manager wants to end a campaign with leftover funds. They need to utilize the money they have raised. Therefore, while we can't be specific about the effects, it seems to be motivating people to get involved and contribute, which is beneficial for political advertising.

Dan, I’m not sure I have any colorful words for this, but one thing Jim always mentions on these calls is that half of our political revenue comes in the fourth quarter. We are experiencing the earliest start to political ads in history. Ads for 2022 began in the fourth quarter of 2021, and as you’ve seen from our numbers in the first quarter, they are thriving. The situation varies by state, but primary advertising is very robust. Both parties are competitive and enthusiastic, having raised significant amounts of money. Additionally, Gray has made strategic acquisitions that enhance our position. Bob and his local teams have been adding news and local coverage, which he highlighted in his comments. This is important because it’s the preferred platform for political advertisers aiming to reach voters who could make a difference. Consequently, we have an increasing amount of local news, providing political advertisers with ample space for their ads. I believe this mid-year election year will be massive and may rival or even surpass any previous presidential election.

All right. That may be still better, Hilton. Thank you… I understand there was an interruption in Q1, but we've heard some positive news from the MPD picking up some slack. Can you provide any updates on your thoughts regarding the net retrans layer?

No, no updated thoughts.

Well, I thank you guys. I appreciate it.

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

Thank you. I wanted to ask about the earlier comment regarding the integration of the Quincy properties and the transition you mentioned with Meredith. Specifically, I'm interested in how this affects the news coverage transition. In addition to the political significance you mentioned, could you elaborate on how many syndicated programs might be replaced by local news initiatives, how many hours that would entail, and what the typical impact could be on advertising revenues and reductions in syndication costs during this transition? It would also be helpful to hear how this relates to your recent experiences and any effects it may have had on your results.

I can take that one.

Yeah.

Oh! Go ahead, Pat.

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

Yes. I would like to point out that our first quarter results were not affected significantly because many of those shows concluded on April 1st. Nonetheless, our overarching objective is to strongly support localism. Whenever we can substitute poorly performing syndicated content with local news, it benefits us greatly. We have ample local inventory available, and we believe this approach is beneficial for our communities. In certain markets, as I've mentioned in previous calls, we currently have stations without any syndication, focusing solely on local content. Charlotte and Louisville are examples of this. We are making progress in Hartford as well, with our long-term goal being to reduce reliance on syndicated programming and increase the focus on local news. We will continue to expand in this direction.

Okay. And is it fair to think you also benefit in terms of saving the cost of the syndicated programming by whatever you wind up spending with what you produce in addition to the ad revenue benefits you get?

Yes, absolutely.

Yes, we do.

Okay. You mentioned cutting back on several programs, including the Greta Van Susteren show and a couple from Meredith. Are you moving away from that strategy? I understand that you might be cautiously assessing the situation, or is this limited to just those specific programs?

Yes, this is Jim, it’s Kevin. These developments are all coincidental and not planned. Greta’s show was an experiment, as we expressed when we launched it two years ago. We aimed to try a national Sunday talk show from Washington. We are pleased with the production quality, the content, and the exceptional guests. However, the show didn’t quite connect with the audience we had expected. The Sunday shows concluded on April 1st. Greta is now appearing on our network more frequently than before and can engage in more talk segments since she spends less time preparing for the Sunday show. This situation has turned out to be beneficial for everyone. The stations regained a half hour on Sundays to allocate for local news. PEOPLE TV was produced by Meredith and inherited by us, but it also did not achieve the traction we anticipated. Meredith historically held it longer than expected, so it also ended on April 1st. As Bob mentioned, Right This Minute has been around for several years and was put together by Raycom and others about five or six years ago.

11 years ago, actually.

Okay. Yes. It ran its course. There wasn't a master plan to strategize here. As you may have seen from Gray, we try different things and aim to fail fast when something isn't working. Sometimes things succeed for a time, but then they stop being effective, and we need to recognize that and make decisions to move on. We don’t want unsuccessful initiatives to continue consuming our time and resources. Ending a syndicated show and introducing local news is beneficial for us, and if it reduces costs, it's even better for us.

Okay. Thanks very much. Appreciate it.

Thank you, Jim.

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

Everyone, thanks for having me on. I just wanted to quickly follow-up on an earlier question on the ad outlook from Q2. It's clearly very solid, and political flowing in. Do you have any good visibility beyond Q2 on whether the current economic backdrop, the consumer confidence, concerns about a macro slowdown are yet leaking into ad buying decisions and commitments? And I suppose this is more pointed at what you are seeing a little further out and beyond Q2.

Aaron, as usual, aside from the immediate quarter ahead of us, we don't have much visibility. The business is traditionally assessed on a quarter-by-quarter basis. Therefore, we aren't any better at estimating or forecasting what the overall economy will do in the markets for Q3 and Q4 than anyone else. We remain optimistic and are pleased with the results from Q1 and our expectations for Q2. While we don’t see any major red flags, our visibility is limited.

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

Yes. Fair point. Okay. And I apologize if I missed this, but yeah, we have heard about some increased rates of sub churn from the MVPDs. You have always seemed to trend a little bit better in the past than some of the market averages. Can you just speak to what you have been seeing from your sub base of late?

Yes. We noted that from the fourth quarter of 2020 to the fourth quarter of 2021, our total Big 4 pay-TV subscriber count decreased by less than 2%.

Okay. Great. I have one more question and I appreciate your time. Given the ongoing pressures on network broadcast viewership, especially in prime time, I'm curious about how this is affecting your business or your decisions with ad clients. I understand that prime ads do not significantly drive Gray's revenues, but from a perception standpoint, considering lead-in and lead-out strength along with network programming trends must indirectly matter to viewership or sales. Could you provide some insights on this? Also, could you discuss how your local news ratings are performing lately compared to prime time?

This is Bob Smith. I will take that. Prime is becoming less significant each year. We do not rely on the network's local news, as we mentioned a few minutes ago; that is where we generate our revenue. Currently, network prime represents about 12% of our revenue, which is quite different from what it was 10 or 20 years ago. This shift aligns with our focus on producing local news content, which contributes to 50% of our revenue.

Okay.

Ratings are holding steady. I can tell you that we have many number one stations, and they continue to perform very well.

Okay. Thank you again.

Thank you, Aaron.

Thank you. And our next question is from Steven Cahall from Wells Fargo. Your line is open.

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

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

Our guidance of $575 million remains unchanged. It’s important to note that we are performing about 25% better than 2020 when we exclude the presidential election, which is no longer relevant, as well as the Georgia Senate runoff from November and December of 2020. By removing those factors for a fair comparison, our guidance is already about 20% to 25% higher than 2020.

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

Yes. We are not converting it or dropping any affiliation. This year, we added Telemundo in new markets by integrating an additional channel into stations we already own. Over the past few months, we have been quietly acquiring low power TV stations in our markets. People have been curious about our intentions; the strategy is to use these low power TV stations to serve the Telemundo affiliates in these areas, as they tend to cover smaller regions compared to full power stations. In some markets, we need two low power stations to adequately cover the designated market area. Therefore, we are not sacrificing anything for Telemundo; it is an additive advantage. Initially, we will utilize the national feed, and in some markets, we will have local news and local commercial insertions. Some markets may not have local news, starting instead with the national feed or the Atlanta feed, which will serve the Georgia markets. As local ads and news support grow, we will transition the stations to more localized feeds. While this will not be a significant driver for the company overall, we believe it will act as a growth engine. It should enhance our local ad sales and help synchronize our sales and news efforts to engage part of the audience. Thus, it may not be material to the company as a whole but could be quite significant for the markets where we are introducing Telemundo.

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

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

Great. Thank you.

Thank you. And our next question is from Alan Gould from Loop Capital. Your line is open.

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

I won’t provide the exact number, but it is in the teens. I think that’s a solid figure and it’s growing quickly from a relatively significant base. We are quite pleased with our progress in that area.

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

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

So the $30 million that you spent in the first quarter, would that be a run rate for the year?

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

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

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

Okay. Thanks a lot.

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

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

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