Ladies and gentlemen, thank you for joining the 2022 Q4 Earnings Call. I will now turn the call over to President and CEO, Mr. Hilton Howell. You may begin.

Thank you, Misty. Good morning, everyone. As the operator mentioned, I am Hilton Howell, the Chairman and CEO of Gray Television. I want to thank all of you for joining our fourth quarter 2022 earnings call. With me today, as usual, are our executive officers, our President and Co-CEO, Pat LaPlatney; our Chief Legal and Development Officer, Kevin Latek; our Chief Financial Officer, Jim Ryan; and our Chief Operating Officer, Bob Smith. We're going to shorten and streamline our call today. We will begin, as usual, with a disclaimer that Kevin will provide. After that, you will hear abbreviated comments from myself, then Kevin, and then Jim, and all five of us will then be available to take any of your questions. So, Kevin?

Yes. 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 Annual Report on Form 10-K with the SEC later today. Included on the call may be a discussion of non-GAAP financial measures, and in particular, broadcast cash flow, operating cash flow, free cash flow, and certain leverage ratio metrics which are not meant to replace GAAP measurements but are provided as supplements to assist the public in their analysis and valuation of our company. Included in our earnings release as well as on our website are reconciliations of financial measures to the GAAP measures reported in our financial statements. Certain matters discussed on this call may include forward-looking statements regarding, among other things, future operating results. Those statements are subject to a number of risks and uncertainties. Actual results in the future could differ from those expressed or implied in any forward-looking statements as a result of various important factors that have been set forth in the company's most recent reports filed with the SEC, including our most recent Annual Report and the one we'll file today on Form 10-K and our most recent earnings release. The company undertakes no obligation to update these forward-looking statements. And now I'll turn the call to Hilton.

Thank you, Kevin. Today, once again, we reported a strong finish to 2022. On an as-reported basis in the fourth quarter of 2022 compared to the fourth quarter of 2021, our total revenue increased 49% to a record $1.1 billion. Core advertising revenue increased by 13%, broadcast cash flow increased by 88%, and the fourth quarter capped an exceptionally good year for Gray. For the full year of 2022, total revenue was a record $3.7 billion, an increase of 52% from 2021, marking our highest ever annual revenue. Core advertising revenue was $1.5 billion, an increase of 26% from 2021, and broadcast cash flow was $1.4 billion, an increase of 77% from 2021. These record results flowed from a number of factors, the most significant of which was another record year for political advertising revenue in a mid-term cycle. In particular, for the full year 2022, our political advertising revenue was $515 million, which exceeded 2018's political advertising revenue by 232% on an as-reported basis and by 38% on a combined historical basis. We attribute these stellar political advertising revenue results to Gray's unique combination of our market-leading news stations in competitive battleground states, our news professionals' unbiased coverage of divisive political issues and campaigns, and our excellent and direct relationship with the political advertising agencies. Our Board and our senior leadership continue to focus on our balance sheet. Since we announced our acquisition of Meredith Corporation's local television stations two years ago, we have consistently emphasized that Gray, its Board, and its leadership team are committed to reducing our leverage. Our actions demonstrate this commitment. During 2022, we paid down $315 million of principal under our outstanding term loans. Yesterday, we received $300 million under a three-year accounts receivable securitization facility. On March 1, we intend to use those proceeds to pay off entirely the remaining principal balance of $295 million under our Term Loan B. At that point, Gray will have reduced approximately $610 million in debt over the course of less than 12 months. To further strengthen our balance sheet, yesterday, we also entered into an interest rate cap agreement. The rate caps will effectively limit the annual interest charged on all of our variable-rate debt to a one-month LIBOR maximum of 5%, plus an applicable margin through December 31, 2025. These arrangements will limit our exposure to approximately an additional 40 basis points of annual interest expense over current market rates, which will reduce our risk to unforeseen events that could increase market rates above our current expectations. Looking ahead, as we continue to produce significant free cash in 2023 and especially in the Presidential Election Year of 2024, we fully intend to allocate a significant portion of free cash to additional debt reduction. We will also use a portion of our strong cash flow to complete the first phase of our Assembly Atlanta project, which will put us in a position to begin earning revenue from the project later this year. As you know, Assembly Atlanta and Assembly Studios will provide diversification from our broadcasting segment by participating in the fast-growing film and television production industry headquartered in our home state of Georgia. Construction on Assembly Studios and the infrastructure for the remaining area within Assembly Atlanta continues to run ahead of any of our schedules. This was only possible due to our decision in 2021 to pre-order steel and to produce concrete on-site and certain other key materials before the supply chain issues created delays, inflation, and cost overruns for so many other projects in 2022. We currently anticipate that construction on the Assembly Studios portion of the development and much of the infrastructure for the entire project will be completed as soon as this June. At that time, both NBCUniversal and Gray Television will begin producing television shows and movies at Assembly Studios on land that less than two years ago was an empty industrial site. Once this phase of construction is complete, Gray intends to pause its funding of construction projects across the remaining roughly 80 acres that will comprise Assembly Atlanta. We are now and will continue over the next several months to actively evaluate opportunities to maximize the long-term value of this unique investment for the benefit of all of Gray's shareholders. While 2023 will be marked by some macro challenges, Gray will continue producing locally focused programming and other content that our audiences want and delivering the value that drives solid advertising and retransmission revenues. I will now turn the call back over to Kevin Latek. Kevin?

All right. Thanks again. Gray Television stations and production companies continued to perform well in the fourth quarter, beginning 2023 in a better position than you might presume based on headlines about certain sectors of the economy. For the full year 2022, our television stations core advertising revenues were $1.5 billion. This is an impressive outcome because core in 2022 compared to 2021 declined by a mere 1% on a combined historical basis. That's despite our inventory being displaced by $455 million of additional political revenue in 2022. Since we cannot manufacture additional inventory, this very minor 1% dip in core revenue with all that extra political confirms the strong underlying demand from traditional advertisers that Gray successfully converted into sales throughout the year. As noted in this morning’s release, we attribute our solid advertising results to real-world confidence among advertisers and businesses in local markets combined with scale and portfolio of high-quality local stations, investments in recently acquired television stations, and efficient sales and news operations. Turning to retransmission revenues, Gray posted 5% growth in full-year 2022 over the prior year. Recall that Gray did not renew its retransmission agreements in 2022. Consequently, our gross retrans revenue increase of 5% is a result of our annual rate increases outpacing subscriber declines and outpacing the impact of subscribers rotating into OTT platforms. In the first quarter of 2023, we will renew and re-price traditional MVPD retrans contracts covering approximately 22% of our MVPD subscribers. Virtually all other retrans contracts experienced annual rate step-ups in January. For the first quarter of 2023, we anticipate that our gross retransmission revenue will increase by approximately 10% to 11% over the fourth quarter of 2022. Retrans price increases at both this annual escalator level and at contract renewal remain in the same neighborhood as we have seen previously. Subscriber declines are impacting our ability to keep reaching to be paid fair value for our content. In addition, reverse compensation payments to the networks did step up on January 1 under the contracts that were negotiated a few years ago. As we have discussed many times, we expect reverse compensation rates will decline starting in 2024, as more recently negotiated network affiliation agreements kick in. We will renew retrans contracts for approximately 18% of MVPD subscribers in the second quarter of 2023, 38% of MVPD subscribers in the first quarter of 2024, and 23% of MVPD subscribers in the second half of 2024. In terms of subscriber counts, subscriber reports that we received for the third quarter of 2022 provided a more positive picture than what we received for the second quarter of 2022. Specifically, in the third quarter of 2022, our Pay TV subscriber total declined by roughly 1.5% from the third quarter of 2021. We are gratified that our subscriber base remains fairly stable. We continue to be impacted by the rotation of households from traditional MVPDs to virtual MVPDs and the direct-to-consumer platforms where the networks dictate both the terms of our distribution and our revenues. Gray, like virtually all affiliate groups, will continue to push for control of our own signals on all platforms. Putting this all together, we anticipate that gross retrans will continue to grow annually. Net retrans will continue to grow over a multi-year period, especially true in 2024 and 2025, even with conservative assumptions for continued subscriber losses. These projections are based on our demonstrated ability to continue to command strong retrans rates of traditional MVPD platforms for our portfolio of top-rated local news stations, coupled with some relief in reverse compensation payments starting next year. We anticipate that macroeconomic conditions will continue to be more challenging in 2023 than we experienced in recent years. Still, based on our vantage point today and our strong performance in 2022, we expect that our core revenue, production revenue, and retransmission revenue in 2023 will not compare to 2022. This concludes my remarks. I'll now turn the call to Jim Ryan.

Thank you, Kevin. Good morning, everyone. Hilton and Kevin have covered the key highlights for the quarter and the full year of 2022, so I'll make my remarks very short today. First of all, I varied with our Q4 and full-year 2022 results. Turning to Q1 2023 guidance, we believe our revenue guidance demonstrates the company is off to a good start in 2023, especially when you consider that it's an off year of the political cycle, and we anticipate about $6 million of net revenue from the broadcast of the Super Bowl on our 27 Fox channels, but that's compared to an aggregate of $13 million of net revenue relating to the broadcast of the Winter Olympics and the Super Bowl on our 56 NBC channels during Q1 2022. That's a $7 million non-recurring event for core revenue. So when you look at our guidance for Q1 and consider that $7 million headwind, we think we're off to actually a very good start in Q1. I'll make a few comments on our current expectations for the full year of 2023, and I'll preface these comments by saying that given the size and complexity of the company, these data points are our current expectations as of today and will undoubtedly change up or down as the year progresses. When I'm talking about amounts in billions of dollars, I will fully admit that I'm not the last 10 or more million dollars smart. So again, this is directionally what we see today. So for total revenue in 2023, we're expecting currently about $3.3 billion. Core revenue of approximately $1.55 billion, which would be up low-single-digits over 2022. Retransmission revenue of approximately $1.55 billion as well. So our core at our retrans just like it was in 2022 are pretty well matched set. Political revenue of approximately $40 million to $50 million given that $23 million is the off year, but importantly, that range does not consider any potential early political advertising revenue for the 2024 cycle that we could possibly see later this year. So the guide on political is conservative and not counting in any 2024 Presidential. Total broadcast revenue would be approximately $3.2 billion. Our operating expenses before depreciation, amortization, and gain and loss on disposal of assets is currently anticipated to be approximately $2.5 billion. Of that, broadcast expenses will be approximately $2.3 billion. Network recourse compensation is going up to $945 million approximately. On the broadcast $2.3 billion, we have non-cash stock compensation of $5 million and non-cash 401(k) expense of $10 million, production expenses of approximately $80 million, and corporate expenses of approximately $120 million. That $120 million includes $17 million of non-cash stock compensation. Our operating cash flow as defined in our senior credit agreement will be approximately $850 million to $870 million. Turning to major cash uses in 2023. As Hilton mentioned, we have put in place interest rate caps, which insulate us from a significant increase in market rates for the next several years. So we expect cash interest of $420 million to $430 million. Our 5% LIBOR interest rate caps are on $2.6 billion of our floating-rate debt. We expect cash taxes of $100 million to $105 million, routine capital expenditures of $105 million to $115 million. Preferred dividends are $52 million, and our required Term Loan D amortization is $15 million. That would place our estimated free cash between $150 million and $160 million. We are very well-positioned for 2023, and we look forward to a successful year and continuing into a strong 2024 with the return of another presidential cycle. I'll turn the call back to Hilton.

Thank you very much. Operator, at this time, we'd like to open up the line for any questions for Pat, Jim, Kevin, Bob, and me.

Okay. Your first question is from Dan Kurnos with Benchmark Company. Dan, your line is open.

Hello, Dan.

Hey sorry. Can you guys hear me?

We can.

All right. Sorry about that. I don't know what happened there. But good morning, and thank you for all the super helpful color, really appreciate it. The one thing I did miss, Kevin, could you just go back over the subscriber cadence again for me?

Hi Dan, in the first quarter of 2023, we will renew and re-price traditional MVPD retrans contracts covering 22% of our MVPD subscribers. We will renew approximately 18% of MVPD subscribers in the second quarter of 2023, 38% of MVPD subscribers in the first quarter of 2024, and about 23% of MVPD subscribers in the second half of 2024.

All right. Perfect. Jim provided the net retrans answer, so we can do the math. However, I believe it may be a bit better than what people were expecting. For what it's worth, your net guidance or reverse guidance is likely on the lower side, which suggests some upside on retrans. Kevin, I’m sure you have many questions about this. As we examine the marketplace today, even with conservative subscriber assumptions, the legacy Meredith stations are coming up for renewal. It seems that your ABC situation has been relatively stable, and I suspect that Meredith...

Hey, Dan, we lost you at Meredith.

Hello. Operator, are we still online?

Yes. Dan, your line is on, and I'm not sure what happened there.

All right. Well, let's go on to the next question. And when Dan is able to get back on, we will put him back in the queue.

Okay. No problem. Our next question is going to come from James Goss. James, your line is open.

All right. Thank you. I have a couple of things. One, I was curious, and maybe this is Kevin's question about the streamer usage of the national network channels rather than some of the local affiliate fees. And I think you were talking a little about them. I was a little unclear about how the contracts address those issues because, traditionally, you own the market and the ad sales in those markets. But this is changing that dynamic a little bit. Could you talk about that?

I think, Jim, what you're referring to is the CBS affiliates largely did not opt-in to the Fubo, CBS contract.

That's the one that is the example. And maybe that's a unique situation.

We've mentioned for many years that we allow the networks to handle the initial round of virtual negotiations with platforms like Hulu, YouTube, and Sony PlayStation to get them started. Initially, they were negotiating deals for their owned stations, which were mainly offered to the affiliates as an option. Now, several years later, the virtual platforms have expanded significantly. Sony PlayStation Vue is no longer in the market, while Fubo has come on strong. The affiliate boards have been vocal recently about wanting to take control of their futures. These are well-established providers, and just as we negotiate well under different MVPDs, we can certainly manage negotiations with three virtual MVPDs. In the case between CBS and Fubo, CBS offered a contract to its affiliates that would have allowed CBS to provide our local signals and content to Fubo. However, the CBS affiliates Board did not support that deal, and Gray chose not to opt in. Consequently, Fubo did not get access to CBS affiliate signals, and CBS created alternative feeds to deliver national content to Fubo customers instead of local signals. I'm unclear on the mention of other streamers providing national feeds, but to our understanding, it's the first instance where affiliates have declined an opt-in agreement in the virtual space, specifically in the CBS and Fubo case last month. I don't believe this alters the broader perspective. This is something we've been discussing for years, and during recent earnings calls, the affiliate groups have expressed a strong desire to control their futures, and that is indeed occurring now. We are still in conversations with CBS, anticipating further questions. The affiliate groups remain optimistic and hopeful that we can establish new long-term agreements with CBS and other networks that are beneficial for the affiliates, but that's all we can share regarding those negotiations at this time.

I appreciate that insight. I wanted to ask about the Atlanta Assembly Studios. As you approach the opening for use by you and NBCUniversal, could you share any details regarding the financials, such as overall investment, revenue expectations, cost estimates, or anything else that might help us understand its impact on your statements?

James, for a number of reasons, we’re unable to provide great details on that right now, particularly on the revenue side. Suffice it to say that we're very happy with what it's going to be producing not just in terms of rental revenue but production revenue beginning this summer. So while we won't have those numbers to talk about probably at our next call, it will be very near to beginning it because we'll be turning it over to our partner, NBCUniversal, on June 1.

Okay. Will it be their responsibility rather than yours? Or will there be some intercompany forecasts that you will also utilize?

Well, I mean they will be using it and making movies and TV shows there on the properties that they are leasing from us. We will be doing them the same on the properties and the studios and stages that we have retained. And so there is some production through our subsidiary, Swirl Films, that will be happening on our stages in addition to their stages in Paulding County, but then Gray will be separately leasing out to other film producers the stages that we have retained.

Our next question comes from Dan Kurnos from Benchmark. Dan, your line is open.

Welcome back, Dan. Sorry about that.

I'm going to try this again, Hilton, and I'm going to be really quick before I get the hook again, I guess.

We can give you the hook. I'm sorry. Technology always kind of messes up from time to time, it seems like.

It definitely wasn't you guys. It was definitely me. But on the Atlanta, just to be clear, is any revenue or any benefit from that included in the guidance that you guys gave? And Hilton, if you could expand a little bit upon your thoughts on monetization opportunities, as you laid out in the press release, I'd love to hear it. Thanks.

Sure. Jim?

There will be a slight adjustment in the guidance. However, keep in mind that by the time we take it over, NBCU has already begun making payments to us as per the agreement. There are not many months left this year, so the figure for 2023 is relatively small due to timing.

The Assembly is expected to become a significant source of free cash flow for the business on a per-asset basis. I'm very enthusiastic about this because it emphasizes our need to focus on continued growth for the company. Currently, in terms of distribution among our TV stations, we are around 2.5% to 3% under the stated cap, as the FCC is not recognizing the UHF discount like they did in the past for Scripps and Nexstar. Gray appears to be limited to a 39% cap. Our management team is tasked with driving the company's growth. Those who may not be familiar with our business or those outside of Georgia might not realize the impressive volume of production happening here. This surge began 20 years ago with the introduction of the Georgia Film Tax Credits. Georgia has done something quite unique by establishing the Georgia Film Academy, which has trained at least two generations of Georgians in film and television production. Consequently, we have a wealth of crews and talent locally, leading to significant production activity in the state. The most recent public figure we have, from 2021, shows that production in Georgia reached $4.4 billion, which generates considerable revenue. The Assembly Studios is regarded as one of the best studios in the world, and we have significant demand for all of our studio spaces. We also have a long-term financial agreement with NBCUniversal, and they are excited about their presence in Atlanta and Georgia. We've been in touch with a wide range of content creators, from independent filmmakers to larger entities, looking to bring feature films, television, and post-production work to the Assembly and Georgia. We're thrilled about this opportunity, as it promises profitability from the outset and will be a tremendous asset for our company, our shareholders, and the city of Atlanta and the State of Georgia.

Got it. That's super helpful. And I'll try this real quick, Kevin, I mean we got the numbers from Jim on the reverse now. So we can kind of do the math on your thoughts here. Legacy Meredith obviously comes up in the back half, I think, of this year, and it doesn't seem too onerous. And obviously, your ABC seemed relatively benign based on the guide you've given. So just trying to get a sense, you commented that net obviously should be up pretty substantially next year and because you also get some relief on that reverse trend. So just maybe over like a three-year time horizon, I mean do you expect to outperform? What's kind of your view? And what are your sort of underlying subscriber assumptions in the model right now?

Yes. Dan, so we've never commented on what we use in our model. We've said we've been conservatively projecting subscriber losses, and we will continue to do that. We had a bit of a shock in the second quarter that we revealed on the last phone call. As I said, our subscriber numbers improved relatively in the third quarter. We do not have all the fourth quarter sub count at this point, but they frankly look better than what the third quarter was. So things seem to be sort of trending at least right now in a definitely better direction than what we have modeled, but we'll continue to model conservatively on subscriber losses and the subscriber rotations to the virtual and direct-to-consumer platforms. We've not modeled out and given guidance over a two or three-year period. I appreciate this is probably the most guidance we've ever given in a February phone call for the full year. So we're going to kind of stick with the current guidance we have now, which is a little specific for this year and a little more general. I'm not really prepared to be more specific after than what we gave in the earnings script today. We do think that net will be improved next year over this year, the reasons mentioned in the script, and again, 2025, again for the same reasons. But I'm not prepared to put percentages on that right now.

Okay. Fair enough. Thanks guys for let me back on.

Yes.

All right. Thank you, Dan.

Our next question is going to come from Alan Gould with Gray TV. Alan, your line is open.

Thank you. A couple of questions. Hilton, first, on the Atlanta Assembly plant, one easy one. How many sound stages are there? And two, it looks like the CapEx part was a little higher than it was a bit higher than expected this year. Was that a pull-forward? Or is the inflation causing cost to be a little higher than expected?

Well, inflation is always there, but let me answer your first question. The total stages are 19. The total square footage is about 1,250,000 square feet in terms of production, mill and office space total. But it's 19 sound stages under construction right now. And in fact, last Thursday, we had our topping-out ceremony. So we're almost done.

So Alan, the regular CapEx number was higher than we had anticipated. The explanation is multi-faceted. Firstly, inflation has played a role, and secondly, we experienced a pull-forward due to supply chain issues earlier in the year. We expected some of the deliveries in Q4 to occur in 2024, so while it was a pleasant surprise, it was also unexpected. I admit that we could have provided better guidance internally. I assure you that we will monitor regular CapEx closely throughout 2023 and into 2024. Additionally, we had planned to delay some studio renovation projects to 2024; however, our current landlords were not willing to extend leases. This required us to accelerate our timeline since our leases will expire next year and we need to relocate. Therefore, several factors contributed to this situation. For this year, we are guiding regular CapEx to be between $105 million and $115 million, and we will keep a close eye on that, aiming to allocate as much as possible into 2024.

And Jim, how much more do you expect to spend on the Atlanta Assembly plant until June or until it's completed?

In 2023, on a net basis, we're currently estimating that to be about $72 million to finish the Studio project.

Yes. Okay. And one quick question for Kevin. Your rotation to VMVPD, should we just assume you're matching pretty close to what the industry trend is there?

In terms of what with the MVPDs? I'm sorry, Alan.

Is your share of the industry for Gray Television aligned with the shift from traditional MVPDs to virtual MVPDs?

To be honest, I'm not sure how to define the industry rotation. We are definitely observing a significant decline in traditional MVPDs alongside notable growth in virtual and direct-to-consumer services. Our total subscriber count decreased by 1.5% year-over-year. Essentially, we are converting nearly all traditional subscribers who leave into new digital subscribers. I'm not certain how this compares to the broader industry, but our figure shows a 1.5% decline year-over-year.

Okay.

No, we have not disclosed that.

Our next question is going to come from Craig Huber with Huber Research Partners. Craig, your line is open.

Thank you. My first question is about the interest rate cap. I'm pleased to see you implementing this. You mentioned in your press release that there is a $32 million payment due on December 31, 2025. Will this be amortized? What will be the impact on your profit and loss in terms of costs each quarter for putting this in place?

From a GAAP accounting perspective, that will be amortized more or less evenly until December 31, 2025. However, the key point is that the cash settlement is due on December 31, 2025. We have pushed that obligation far into the future, and we are pleased to have secured this, as it fully protects us against ongoing rate increases. Joking aside, I truly appreciate that we finalized the rate caps earlier this week. I would not have been happy trying to negotiate one today given the inflation news this morning. Overall, we are very satisfied with the outcome.

And they're very good on that. And then second question, if I could, you're down 1.5% retrans sub count declines year-over-year are quite good, certainly, a lot better than you are talking publicly about down mid-single-digits, and that trend for them has been very similar down mid-single-digits. What is it about your company, your markets that you're only down 1.5%? I just want to hear your thoughts there, please.

We have been lagging behind the industry for quite some time. When we first reported subscriber declines in August 2015, we were still experiencing some gains. A few years later, our broadcasting peers mentioned they were seeing stabilization in subscriber numbers, while we continued to grow. Now, however, they are experiencing declines that are greater than ours. We believe our slower performance is due to having more rural exposure compared to others. While we do operate in some large markets, we are also present in numerous smaller markets, which are geographically extensive. These areas have been slower to adopt virtual MVPD services because their broadband access is not as robust as that in cities like Philadelphia and San Francisco. Consequently, services like YouTube, Hulu, Sony, and Fubo launched local channels in our markets later than in larger ones, and they weren't effective substitutes until recently due to limited broadband deployment. In the past couple of years, we’ve noticed broadband expansion becoming more aggressive, resulting in more people subscribing to these services and offsetting the losses from traditional MVPDs. Our assessment is that the nature of our market footprint differs significantly from others.

Okay, thank you for that. My next question is about the alternative uses of your broadcast spectrum. Can you provide us with an update on your thoughts regarding that and how aggressive you might be in the coming years?

Yes, it's Pat LaPlatney. I can tell you that like others in the industry, we are implementing ATSC 3.0. We rolled out this technology in three markets in 2022, and we have most of our larger markets deployed at this time. There has been considerable discussion about using that spectrum for data transmission to automobiles and other applications. However, I believe we are still a few years away from that. The rollout is progressing well, and we anticipate exceeding 70% by the end of 2023. On the television side of 3.0, the key will be getting the chips integrated into TV sets. Most manufacturers are currently selling TVs with these chips included. As for alternative uses, we are making good progress in expanding the coverage area, which is happening rapidly.

Okay. My last question, guys, just curious what's your thoughts on the broad economic environment right now, given all the markets you guys are in around the U.S.? I mean, how are you guys feeling? I'm just curious your thoughts there.

This is Bob Smith. We're actually pretty optimistic about the numbers and our projections. We're seeing a lot of positive activity in our local markets, with significant new business development from local direct accounts coming on to TV, and we're experiencing a lot of success with that. The automotive sector is also rebounding in many markets, with General Motors and Nissan performing well. The legal sector is thriving as well. Recently, sports gambling was approved in Ohio, resulting in substantial buys in our Ohio markets during the first quarter, which we expect to continue into the second quarter. We are hopeful that North Carolina will approve gambling in time for the football season. Overall, despite some challenges and conversations around headwinds, there are many positive developments occurring in our local markets right now.

Our next question is going to come from Nick Zangler with Stephens. Nick, your line is open.

Yes. Hey, guys. On some of the direct-to-consumer stuff, so the access of your local broadcast feed through direct-to-consumer assets, I think it's pretty new. I'm curious how the economics work between Gray and the networks when your local feed is made available through an app like Paramount Plus or Peacock. Are you basically just recognizing maybe a net retrans figure on the top-line here? And is this a material piece of revenue contribution at the moment?

Yes, it's Kevin. Regarding the first point, our CBS signals were available on the CBS All Access app from the very beginning. We actually beta tested CBS All Access with our owned and operated stations and launched it right away. Every station we acquired, including those in smaller markets, was added to CBS All Access. To clarify, the direct-to-consumer aspect is not entirely new for us; CBS All Access has been part of our distribution strategy for a while and has since been rebranded as Paramount Plus. Peacock added local affiliates late last year. For both, the affiliates negotiated a fee per subscriber each month, which CBS or NBC pays based on the number of subscribers in their respective markets for each station. We recognize this revenue as retransmission revenue without any offsetting additional expenses, meaning it directly contributes to the net retransmission line. However, Peacock only added its signals in late December, so I can't provide subscriber numbers at this point.

Yes, I understand. That's reasonable. I wanted to inquire about the overall guidance for the year. I hear that you're forecasting $3.3 billion in total revenues. There may be potential for increased revenue if the Presidential Election campaign begins earlier than expected. This could lead to more growth in that segment later in the year. Regarding your main assumptions for 2023, if we disregard the political impacts seen in 2022, does your guidance indicate year-over-year growth in advertising for the core business? Also, it seems that even in your press release, you mentioned a potential recessionary environment in 2023. Is that part of your underlying assumptions for the guidance? If conditions improve, that could obviously lead to higher core revenue than what you currently expect for 2023.

You are correct that there is potential for increased returns in the political sector from early primary funding. We observed this trend in the 2020 cycle and in nearly every cycle over recent years. While we have not included this in our guidance, it is something we hope to discuss in future calls. Regarding our core business, we anticipate growth beyond the political shifts we experienced last year. We are optimistic about how our core business is performing in 2023, and we are not preparing for a recession as a company. We follow the news like everyone else, but as Bob mentioned earlier, when we examine our local business in all 113 of our markets, we see positive developments at the beginning of the year, and we have no reason to believe this won’t last. If there are changes in the broader economy, we will have to adapt, but we remain focused on building our local direct business, which was very successful last year, and our budgets for new local direct initiatives are even higher this year. Our core business relies heavily on local initiatives, and we are dedicated to maximizing our revenue in this area.

Got it. I keep hearing that December was very weak in the ad market, with a soft start to January and then improvement afterward. Did local advertising have a similar pattern, or was it stronger overall?

All in all, it's Bob Smith again. It's been pretty decent in December and carried over into the first of the year. As Jim mentioned, there's some political and Olympic dollars not returning in February. But other than that, again, we feel pretty good about the quarter and moving forward after that.

Our next question is going to come from Michael Kupinski with Noble Capital Markets. Your line is open.

Thank you. Most of the questions on core have been covered. I have another question here. You indicated that you plan to pause funding for the Atlanta Assembly project to evaluate opportunities. And I'm wondering if you could just talk a little bit about what options you might be considering there.

I don't really want to detail the options we're evaluating. We have 80 acres there, and we're taking a pause due to some macroeconomic concerns regarding real estate. Right now, our priority is on building studios, and we're nearly finished with that.

And our next question is going to come from Steven Cahall with Wells Fargo. Steven, your line is open.

Thanks. Maybe Kevin, a couple for you. So you talked about the trailing industry sub trends that you've seen. Kind of on our numbers, it looks like the industry subs are down about 6% for 2022. So do you think that you'll catch up to that over time? Do you plan the business around something like that? Or do you think that there is something a bit more structural about your rural exposure that means that you're not going to revert to that trend and you'll continue to perform better over the next year or so?

I would say it's essentially in the middle, Steven. At some point, we will likely return to the average, but that's not expected to happen within the next year. We have been lagging for at least seven or eight years now. I don't see any reason why that would suddenly change in just one year and we would revert to the average. But we're...

Yes.

I don't have any additional insights beyond what we've already observed. As I mentioned, the third quarter performed better than the second quarter. So far, the fourth quarter is looking even better. I feel optimistic about retransmissions and subscriber counts, and certainly, as we navigate through these re-pricings, I feel very positive about the environment for Gray and the value of Gray signals.

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All right. Well, everyone, thank you very, very much for joining us today. We're very excited about what we did in 2022, and we really are actually quite excited about 2023. We are not seeing signs of the much heralded recession. We're actually seeing a lot of robustness in Main Street throughout our 113 markets, and we see no regional dips, it seems to be across the board. So we enter 2023 with a great deal of optimism and look forward to talking to you with regard to our first quarter of this year. Thank you.

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