Good morning everyone, and welcome to the Gray Television Q1 2024 Earnings Call. I will now hand it over to Executive Chairman and CEO, Hilton Howell Jr.

Thank you, operator. Good morning everyone. Thank you for joining our First Quarter 2024 Earnings Call. With me here in Atlanta are all of our Executive Officers; Pat LaPlatney, our President and Co-CEO; Sandy Breland, our Chief Operating Officer; Kevin Latek, our Chief Legal and Development Officer; Jim Ryan, our Chief Financial Officer; and for the first time as an Officer of this company, Jeff Gignac, currently our Executive Vice President of Finance. And as you all know, on July 1, Jeff will succeed Jim as the Chief Financial Officer of Gray Television after Jim's serving 26 years in that Chair and by my count, over 100 public earnings calls. As usual, we will begin with the 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 filed our quarterly report on Form 10-Q with the SEC today. Included on the call may be a discussion of non-GAAP financial measures, and in particular, adjusted EBITDA, leverage ratio denominator and certain leverage ratios. These metrics are not meant to replace GAAP measurements but are provided as supplements to assist the public in its analysis and valuation of our company. Included in our earnings release, as well as on our website are reconciliations of these 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, including our most recent Quarterly Report on Form 10-Q and our most recent earnings release. The company undertakes no obligation to update these forward-looking statements. Now I will turn the call to Hilton.

Thank you, Kevin. Once again, Gray Television has begun a new year in an excellent and strong position. It is a testament to the power of our high-quality local news operations that our television stations grew core advertising revenues by 4% over the first quarter of 2023. We are extremely pleased with the superb results from our fantastic in-house sales and business development teams. Throughout our markets, we’re leveraging our intensive sales training and development efforts with our high-quality advertising platforms to deliver results for our advertisers. Our first quarter core advertising results reflect growth in categories including Automotive and National that have been challenging in the past. We appear to be growing not only revenues but also our share of advertising budgets. For the first quarter, the net income attributable to common shareholders was $75 million or $0.79 per diluted share. Our adjusted EBITDA was $197 million, an increase of 21% from the first quarter of 2023. Meanwhile, we continue to focus on debt reduction, and on April 1, we used $50 million of our cash on hand to prepay portions of our term loans, as debt reduction and deleveraging remain a top priority for our company. In the first quarter of 2024, our TV stations core advertising business was higher on a pro forma basis than the first quarter of 2019. Importantly, we’re guiding to 2024's full year core advertising revenues to beat 2019's full year core revenue on a pro forma basis despite what we expect to be a large amount of displacement caused by a very strong political advertising revenue later this year. Speaking of political revenue, we believe that Gray will undoubtedly, as it always has, earn more than its fair share of political advertising revenue this year. Number 1 and Number 2 stations, that are hyper local news focused, have historically over-indexed on political revenue within their markets because these stations deliver the audience that matters to campaigns, and no one delivers that better than Gray Television. In the first quarter, our political advertising revenue was slightly lower than our political advertising revenue in the first quarter of 2020 on a pro forma basis. This should not be a surprise to anyone because 2024 did not feature the same highly competitive presidential primary contest as the country experienced four years ago. We still expect political advertising revenues for the full year to be strong and will materialize later in the year as usual. In fact, consistent with expectations, we’re currently guiding for political advertising revenue in the second quarter of 2024 to range between 55% and 72% higher than the second quarter of 2020 on a pro forma basis. Overall, of the seven most competitive presidential swing states, Gray station covers all the markets in three big states; Arizona, Georgia, and Nevada, and it has a very strong presence in three of the four remaining states: North Carolina, Michigan, and Wisconsin. In addition, Gray has leading local news stations in nine of the 11 states, with governor's races and 26 of the 34 senate races, including many of the most competitive governor and senate races in the country. Finally, all of our markets have House of Representatives elections, and many markets involve competitive primaries or General Elections triggered by a historic wave of house resignations. All of our markets also have down ballot races, and some appear likely to have very contentious referendums on the ballot this year as well. Given this unparalleled exposure to competitive races, we expect that our political advertising revenues will come in at a very large and healthy amount in 2024, which will support our efforts to reduce our total debt. Finally, I am thrilled to confirm that Gray has essentially completed the construction of Assembly Studios and the larger infrastructure work for Assembly Atlanta. We began this project, as many of you know, a few years ago when interest rates were low and demand for studio space in Georgia was white-hot. We saw and still see immense value for Gray in owning a multiuse development close to Buckhead that is anchored by world-class studio production facilities and a premier tenant under a long-term lease. By last spring, as the capital markets began to become more challenging and Hollywood strikes came into focus, we determined that it would be prudent to pause capital expenditures at the assembly site after completion of the studios portion, and that’s exactly what we did. As of the end of the first quarter of 2024, approximately 95% of our projected total capital expenditures for Assembly Studios and Assembly Atlanta, net of reimbursements are now behind us. As you all know, late last year NBCU commenced its long-term lease for two-thirds of the Assembly Studios portion, and the studios are now contributing revenues to Gray Television in totality. Today, we’re still in the early innings of what we believe will be a decades-long valuable cash flow contributor to our company. We will continue to carefully evaluate strategic opportunities to unlock the immense value that the investments we have created for our stakeholders, including through collaborations with outside partners for additional development at Assembly. There is no question that the tremendous reach and efficiency of our local broadcast television industry is still getting rediscovered and reaffirmed by audiences, advertisers, sports leagues, and sports teams. Wall Street, however, seems to be missing this universal message. We, therefore, remain personally and professionally very disappointed that this company remains so undervalued given our operational success in near-term and long-term opportunities. We will continue to focus on executing and delivering for our viewers, our employees, and our investors. Pat will now provide some more color around our successful start to 2024.

Thank you, Hilton. Looking at our first quarter financial results, it should be clear that Gray Stations are continuing to find and attract strong advertiser demand for our market-leading local television stations and premium brand-safe digital products. Throughout our markets, local businesses are doing generally well. We believe local businesses are tuning out the political and geopolitical noise to focus on finding customers, moving their products, and selling their services. In fact, during the first quarter, our new local direct business, which is our local sales force finding a customer that is new to Gray, continued to break records set just a year earlier. In the first quarter of 2024, our new local direct business brought in 18% more revenue than the first quarter of 2023, which itself was 8% higher than the first quarter of 2022. These strong results continued into April 2024, just last month, which delivered 14% higher new local direct business than April of 2023. Meanwhile, our digital businesses are also very healthy. In the first quarter, we set new records for engagement with digital audiences, as well as double-digit growth in digital revenue. As we continue to expand our connected TV and fast channel offerings, and as consumers increasingly find our content on those platforms, we are seeing significant growth in this space. In fact, our station's CTV fast revenue more than tripled over the same period last year. Our first quarter results also benefited from our successful efforts to bring professional sports back to our broadcast stations. In addition to broadcasting the full season of games for the Phoenix Suns across Arizona, our technical coverage in Georgia and Louisiana allowed us to bring the NBA's Atlanta Hawks and New Orleans Pelicans games to their local fans in all the markets located in those states and some adjacent markets. In total, we partnered with eight NBA and three WNBA teams this season, to expand their reach while also bringing new viewers and new advertisers to our local stations. The impressive ratings that Gray's broadcast of basketball games have generated, as well as those of our peers, confirms the reach of local broadcast television for professional sports fans, teams, and leagues. And looking ahead, we’re upbeat about our core advertising guidance for the second quarter despite a range that shows modest growth against a strong comparison to the 2023 second quarter. It is important to remember that we are facing tough comparisons because Q2 of 2023 was very good. In last year's second quarter, we posted 4% growth in core advertising revenue on a year-over-year basis compared to an average 4% decline across our publicly traded broadcast peer group. We saw our success last year in part due to having the NCAA Final Four and a couple of one-time only advertising campaigns that will not recur in our broadcast channels in the second quarter of 2024. Thinking ahead to the summer, we are excited about the Summer Olympic Broadcast from Paris on our NBC affiliates that cover about 11% of US TV households. We currently anticipate generating $15 million to $20 million of advertising revenue related to those broadcasts in the third quarter of this year. We already have approximately $6 million of advertising revenue booked for the Olympics. Our core advertising revenue consistently performs above average because we have the largest and most watched news teams in the major markets, and we intend to maintain that leadership. Our content attracts audiences on linear television, on connected television, and on virtually every other platform that exists. We are a content-first company. And for a few high-profile examples of our recent successes in this area, I turn the call over to Sandy Breland.

Thanks, Pat. Beyond the numbers, Gray has continued to deliver exceptionally well from an operational perspective. Late in March, we announced that CBS had retained Gray's in-house News Research and Consulting Group, which we call our Strat, to provide market research and news consulting services to all 14 of CBS' owned and operated television stations. This first of its kind partnership between a network and an affiliate group's news research division began on April 1. We are thrilled to partner with CBS stations on this news research venture. In the past few weeks, we have also made other important announcements that I would like to highlight briefly. On January 26, the Columbia Journalism School honored Gray TV's InvestigateTV Unit and WANF, our CBS station here in Atlanta, among the 15 winners of the 2024 DuPont Columbia Awards for their joint multi-part investigative series, 'The Sixth,' which exposed a critical shortage of public defenders in Georgia and many other states where defendants can languish in jail for months, even years, awaiting trial. On April 8, Gray's Local News Live, a streaming news network that provides live news coverage from Gray's television markets and our DC Bureau streams continuous and frankly excellent coverage of the total solar eclipse from Gray's DC Bureau and local reports for more than 20 markets along the path of totality from KGNS in Eagle Pass, Texas to WAGM in Presque, Maine, it was pretty cool. Last September, we launched a New Daily 30 minute news Magazine, Investigate TV-Plus. Since then, the show has built an audience throughout its first season with an average of 25% growth in adults 18+ across all Gray markets. This kind of ratings growth for any new syndicated program is rare in today's world. Moreover, the show is drawing higher audiences than nearly all prime-time cable news and cable entertainment programs, as well as many syndicated programs on broadcast television, even though it only reaches 36% of US households at this time. The program clearly has found an audience, so no surprise, we are thrilled to renew Investigate TV-Plus for a second season. We also recently launched a Spanish-language version of this highly successful show in 26 of Gray's Telemundo markets. 2024 has begun very well due in large part to the great work of our content professionals. Earlier, Hilton talked about how important it is for us to own and operate highly rated television stations. The selected accomplishments I've highlighted here this morning are evidence that our employees are doing what it takes for us to maintain our station's high rankings and put us in a position to continue to over-index in this year's political advertising relative to other stations and platforms in our markets. I now turn the call over to Kevin.

Thank you, Sandy. Our retransmission revenues and network affiliation fees were largely stable despite headwinds in subscriber trends in the pay-TV industry. Indeed, we recently announced that we have completed the renewals of retransmission consent agreements with cable, satellite, and telco operators who collectively represent more than 70% of the Big 4 traditional MVPD subscriber base in a three-year renewal cycle that began in the second half of 2022. For a number of reasons, including strong and loyal viewership of our news station, we completed all of those negotiations covering roughly 400 operators without a single blackout. We remain comfortable with the guidance provided on the February earnings call for stable retransmission revenues and network affiliation fees for the full year 2024. The other topic I want to highlight is the increasing litany of positive developments involving the new transmission standard for broadcast signals called NEXTGEN TV. It was less than seven years ago that the FCC approved its first advancement in broadcast technology since the 1990s. Importantly, NEXTGEN TV deployment is already well ahead of HDTV and the DTV transition at the same seven-year mark. The first NEXTGEN TV did not go on sale until 2020; yet by 2026, the Consumer Technology Association projects that NEXTGEN set sales in the US will exceed smartphone sales in the US at the same six-year mark in the product life cycle. To date, just four years after the first set was sold, more than 10.3 million NEXTGEN TV sets have been sold in the US, and there will be more NEXTGEN channels available in 2024 than DTV channels in 2004. By 2026, fully 65% of TV set shipments in the US are projected to include NEXTGEN TV receiver chips. In addition to the successes with receiver rollout, station transmitter buildouts continue, and the industry now delivers a NEXTGEN signal reaching 75% of US TV households. This milestone brings Gray and the industry much closer to being able to deliver vastly improved picture and features for viewers as well as new monetization opportunities for broadcasters. Indeed, just this past Saturday, our NBC affiliate in Louisville, Kentucky, WAVE, made history with the Kentucky Derby broadcast as the first major sporting event in the United States using Dolby Vision HDR as part of NEXTGEN technology. The progress in NEXTGEN TV across broadcasters and technology companies is tangible and important. We expect there will be many more impressive achievements and milestones announced over the next few months in this area. This concludes my remarks. I now turn the call to Jim Ryan.

Thanks, Kevin. Hilton and Pat covered the key highlights of the quarter. As such my remarks today will be very short. You will see a few changes in the definitions and metrics in our earnings release and 10-Q today. These changes and potentially a few other changes in the next quarter result from comments that we received from the SEC recently, as part of the agency's routine review and comment process that all public companies undergo every few years. Turning to our Q1 '24 results. Again, we are very pleased with our results, especially our plus 4% growth in core ad revenue. While the Super Bowl on our CBS channels allowed us to generate $18 million of core ad revenue compared to $6 million on our then 27 Fox channels in 2023. The quarter benefited from broad-based advertising demand with most categories being up, including services and automotive. Our operating expenses, excluding depreciation, amortization, impairment, and gain or loss on disposal of assets were better than our initial expectations, and we will continue to monitor our expenses for additional efficiencies as we proceed through 2024. Demonstrating our commitment to debt reduction, we paid $50 million of revolver borrowings in February and prepaid an additional $1 million of term loan debt on April 1. These amounts are in addition to the routine quarterly term loan amortization of $3.75 million that we made in the first quarter. As of March 31, 2024, our leverage ratio was 5.63 times, and more importantly, our first-lien leverage ratio was a very modest 2.34 times, both on a trailing eight-quarter basis, netting our total cash balance of $134 million and excluding the results of our unrestricted subsidiaries and our $110 million gain on the sale of our BMI shares. And again, all of that is calculated in accordance with our senior credit agreement. Turning to our full year guide, we are reaffirming the guidance of approximately $1.6 billion in core ad revenue for the year and again reaffirming our $1.5 billion of retransmission revenue for the year. We are reducing our broadcast operating expense guide for the full year to approximately $2.3 billion from the previous guide of $2.4 billion. We look forward to a very successful full year 2024 including strong political ad spending later in the year. It's now time for me to introduce my successor as CFO. Jeff is the ideal person for this role given his very close working relationship with Gray, as a key banking partner for almost 20 years. I'm therefore very happy to turn the call over to Jeff.

Thank you, Jim. As Jim mentioned, with my prior firm, I was the lead debt banker for virtually all of Gray's market activity for a very long time, including the recent acquisitions of Raycom, Quincy, and Meredith. Incidentally, I was also the lead debt banker to Raycom and Quincy, among others. From that long history, I've learned the business and come to know the talented and dedicated management team at Gray. What attracted me to Gray is the exceptional set of assets and scale of the company. As you all know, the portfolio has Number One and Number Two ranked local news stations in 102 out of 114 markets. At this time, Gray's large-scale M&A for expansion is complete, and the asset's key functions and people are fully integrated. Today, you are seeing those results in our core business. When I first discussed the opportunity of joining Gray with Hilton, it was clear that deleveraging was this top priority, which aligned with my view. Deleveraging is good for our shareholders, for our debt holders, and for our employees. It's also how we position the company to capitalize on changes in the media landscape and the most straightforward way to increase our equity value. In that light, earlier this week, our Board authorized spending up to $250 million of liquidity for debt repurchases, giving us another tool to implement our deleveraging plan in an efficient way. In late January, Gray took advantage of strong market conditions to launch a refinancing of the revolver and 2026 term loan. We successfully completed an amendment, upsizing, and extending the duration of our revolver with the banks who know us best, and we again thank them for their support. Obviously, the term-loan marketing process became more challenging with news from three other media companies regarding their plans to bundle their sports rights into a new virtual MVPD, which was misunderstood by the investment community in the first several days after its announcement. In the end, Gray made the decision to close the revolver and postpone the term-loan refinancing process until the new cycle quieted down, and we can capitalize on our positive outlook for 2024. Going forward, you should expect to see us act quickly when necessary but always in a smart way to manage our capital structure. The company has been and will continue to be very thoughtful about the cost of capital, as being measured over a period of time rather than at any specific point in time. And that's extremely important. Our current low secured leverage at 2.34 times allows us access to multiple pockets of capital in the public and private markets. We also expect significant cash from political advertising later this year that will allow us to further reduce total indebtedness and extend our maturity profile. We believe that we can do all this in a way that is positive for all stakeholders. And lastly, as a new shareholder myself, I look forward to engaging further with all of our investors to maximize value for all of our stakeholders. And with that, I will turn the call back to Hilton for some closing remarks.

Thank you, Jeff, and welcome on board. I'll leave all of you with this perspective. There are challenges in the media business, most of which are not of our making, but many of which provide opportunities for us. What we can control are our leading local franchises, expansion of digital ad sales, our retransmission rates, expansion of sports content partnerships, implementing NEXTGEN TV, and probably most importantly, in the short-term where we deploy capital. All of those things are going exceptionally well. So operator, at this time, we ask that you open the line for any questions for me or anyone here at the table.

The first up it looks like we have Daniel Kurnos. Your line is now open.

Great. Thanks, good morning. Nice start to the year guys. Kevin, just a quick housekeeping. What's left this year either by quarter or however you want to put it in terms of distribution renewals?

Good morning Dan. We have a very small number of contracts with cable companies to cover about 30% of the big four traditional MVPD subs. Those will be in the second half of the year.

Perfect. You all have been emphasizing this for a while. I don't think anyone would have predicted that you would surpass 2019 figures at this point. It has taken considerable time to detail this. Is this level of performance sustainable? How do you anticipate this will trend moving forward? What strategies are you implementing to achieve such significant outperformance?

Hi, Dan, it's Pat. I'll start. Look, at a private company from 2010 through 2019, we watched core deteriorate slowly but steadily, mostly with the auto category for a long time, and to be ahead of 2019 now is, in my mind, pretty remarkable. Do I think it's sustainable? Yeah, I think we can continue to grow. I think that we now have a much more diverse basket of advertisers. If you go back to '18 or '19, auto was probably 25% or 30%. Today, it is mid-to-high teens, and services are a huge part of our revenue. And so I think we are in much better shape. I think the reasons for that, at least for Gray, it's our investment in training. It is our investment in going after having a team that focuses on certain categories, verticals, and we've had that team in place now for years, with training in place probably for eight years now. So it's paying dividends for us. And I think we absolutely have the capacity to continue to grow.

Yes. This is Sandy, Dan. I want to add that we emphasize our strong focus on new local direct, and Pat mentioned the increase compared to last year. I want to point out that we challenge our stations, and they consistently deliver impressive results each month, continuously breaking records, which is within our control. Additionally, we've discussed the significance of high-quality content and well-ranked stations; this also provides us with an advantage and a competitive edge.

All right. Thank you so much. I appreciate it, guys.

Next up, we have Aaron Watts. Your line is now open.

Hi everyone. Thanks for having me on. I've got a couple of questions. One on core advertising, I heard your comments around core and the tough comps you're up against in Q2. Anything more you can kind of tell us on the underlying themes, areas of strength and softness looking forward? And any reason for optimism that it can improve from here despite some of the macro uncertainties that seem to still be weighing on advertiser decision-making?

Yes, we consider ourselves a Main Street company rather than a Wall Street company. As I mentioned earlier, local businesses are performing well and choosing to advertise with us. In terms of categories, the auto sector experienced a long decline leading up to COVID, but it bounced back strongly post-COVID before slightly leveling off. The services sector remains very robust for us. The gambling category has seen some variability, with some quarters showing growth and others experiencing declines. Overall, when we examine the key categories, the situation looks promising. We believe we have improved our sales organization over the past few years, having invested significantly in that area, and we are optimistic about our potential for continued growth. Sandy, do you have any comments on this?

I agree. It’s great to see growth in several categories, not just in auto but also in legal, where we've performed particularly well. This growth continues to expand into furniture and restaurants as well, reflecting a spread across multiple sectors.

I think our scale also adds a significant benefit. You go back and look at the company five years ago, a very different company than it is today.

Aaron, this is Hilton. I want to just add one other thing. And to the extent that they're on this telephone line right now, it's our people. Aaron, I mean we give them the tools to do their job, and they execute. One of the things I'm very, very proud of this company is we execute across the board. At every moment, we do the right thing and carry it out, and it all comes down to the people that we have in our TV stations in all our 114 markets.

Okay. Got it. Thanks. On the debt repurchase program, to-date, I believe your focus has been on addressing that front-end term loan maturity. But you do also have debt trading at discounts to par value. How are you thinking about balancing, attacking the nearest maturities with perhaps capturing greater discounts to further your deleveraging aspirations? Is this authorization a sign of maybe being more open to repurchasing discounted debt securities than you've been open to previously?

Yes. Aaron, I think you nailed it. I mean it is a balanced approach. With the front end, the short maturities, we'll have to address those in due course here, but we are not oblivious to the fact that we've got debt trading in the 60s. It would be nice to capitalize on some of that to accelerate the deleveraging. Again, not sacrificing our liquidity position or the need in the near term, maybe reapproach the markets for the refinancing.

Next up we have Steven Cahall of Wells Fargo. Your line is now open.

Yeah. Thanks. I've got a few. So Kevin, I was wondering if you could just talk about the structure of reverse comp on a medium-term basis. It is something we've talked about before, but I think you are looking to potentially convert fixed programming fees to something that's more variable. Just wondering if you're having any early conversations around those and how you think those conversations may trend over time? And then, Pat, just to pick up on some of the advertising commentary. I think you are the first media company I've heard in about 18 months to talk about national advertising being better. So I would love to know what's going on underneath the surface there for Gray? And then lastly, Hilton, you talked about how Wall Street is kind of missing the point about the business fundamentals. I know we can have a myopic view. I think a lot of the debate is just when there's going to be free cash flow that's available to the equity holder and how you can deleverage? So I'm wondering what you think about as potentially helping with deleveraging, whether you would look at asset sales, whether you look at changes to the dividend, or whether you think you can get there purely organically?

Thank you, Steven. All right. Kevin, do you want to start?

Yes, Steven, our network affiliation agreements are scheduled as follows: we have ABC expiring at the end of this year, CBS and Fox in the second half of 2025, and NBC at the very end of 2025. I'm not aware of any instances where network and affiliate groups have started negotiations early or changed terms ahead of schedule. At Gray, we have handled numerous negotiations with the networks. Typically, we secure agreements with earlier expiration dates while extending terms in other markets so they all align. We do not reopen existing contracts; we adhere to the current agreements until they expire and then move into the most recent negotiations, which can sometimes be planned two or three years ahead. Currently, we are not acquiring anything. All our stations follow the same timetable with the four networks. We are likely to engage with CBS and Fox a year from now, so many other broadcasters will likely negotiate with all networks before us. We expect all broadcasters, including the networks, to be aware of the impacts of cord-cutting, adjusting programming fees to reflect changes in how we deliver ads and the exclusivity of the content. However, aside from ABC at the end of this year, I don't foresee discussions about changes to our existing contracts until they expire, which is not until the second half of 2025.

Pat?

Yes. So Steven, your question around National, we had a good quarter in the first quarter for National. There were a number of categories that I think contributed to that, one that I'd point out would be consumer goods for us, which was up high single digits. Look, National for us is a much smaller piece than local, which we have more control over. But at the end of the day, you're going to see National, it's going to be a little bit lumpy, but this quarter was a very good one. I think it's due in large part just from a broad number of categories that happened to be up in Q1.

I appreciate all of your comments, even those with which I may disagree. However, we will continue to operate as we always have. We do not plan to sell any assets and are not in a state of panic or concern. Our TV stations and other assets are generating significant free cash flow, which we will use to reduce our debt. Our Board has not considered cutting the dividend. While some competitors may have taken different actions, each company has its own strategy. Gray is a strong company, and our results reflect that. We have dedicated 30 years to building some of the best assets in the media industry, and our team is among the best. Moving forward, our focus will be on our daily operations, not on selling our assets or succumbing to pressure. We will continue to decrease our debt as we have for the past 30 years. Our debt ratio increased due to our acquisitions of Quincy and Meredith, which have enhanced our company's value. Now, we will continue on this path without any changes.

The next up, we have Craig Huber. Your line is now open.

Great. Thank you. I wanted to ask about the Assembly Atlanta project here. I mean, I think last call, you guys talked about how the revenues are starting to generate off that got delayed because of the Hollywood strikes and stuff. Maybe just update us on your thoughts on when you think you full revenues will start coming through? It sounds like a 2025 event. That's my first question and I'll take the second one after that, if I could please.

Sure, Craig. This is Hilton. Let me see if I can answer that for you. Obviously, we have a long-term lease with the Universal Production Services division of Comcast, NBCU. And what that effectively creates is a financial 70% occupancy rate for all of our studios. The other 30% of not only assembly but third rail studios, which are two separate businesses, but all operated together have always been producing, but we have had a lag in commitments. What everyone has told me is because of the lack of actually getting greenlit due to a potential writer's strike. By the end of the month of May, it is my understanding that that issue will either fully matriculate or it will go away. And I think once that happens, we are going to have a great boom in terms of what we are doing because the only issue that we have is getting TV productions that are getting quotes left and right, getting greenlit from Hollywood. I think that green light is going to come. And I think it is just a matter of time. In the meantime, we're in a remarkable position. We've got about four productions shooting currently. Our reviews from people using our studios have been superb. I anticipate that we will see a fully leased out 100% sometime during the course of 2024, and then it will really carry on in future years.

Great. I appreciate that. And my other question, if I could ask just longer term here. You guys have plenty of broadcast spectrum, of course, and with the continued rollout of ATSC 3.0. Just curious, when do you think you might start being able to monetize that to some degree? Once we start seeing somewhat of some material revenues off that? And I assume the whole thing may be late this decade, but just maybe talk about what you're kind of doing on that front, the extra spectrum you have? Thank you.

Yes, it's Pat. So I would say that we'll start seeing revenues probably first quarter of next year. In terms of material revenues, it is a little bit difficult to forecast. It will be a matter of years. I'm not certain it will be the end of the decade though. I think it will be sooner than that. Although I can't give you a hard and fast number, but we will start seeing money next year. In a few years, the money will be meaningful.

All right. Next up, we have James Goss. James, your line is now open.

Okay. Just one thing following up on what you just said, what sort of monetization efforts do you think can be made with NEXTGEN TV? How will it come into play, do you expect?

Yes. There are several areas of focus, with one major aspect being digital data delivery. This involves transmitting data to vehicles and managing data transferred from cellular networks. We've had discussions about this for years, and I believe this will be the initial focus. In the longer term, the new 3.0 standard allows us to target advertisements, which could significantly change the landscape for local television if our current impressions from linear TV become targetable. Ultimately, this is the direction that 3.0 will take us. It may require some time, but we will reach that point.

Okay. And there was also a discussion earlier about fast channels and connected TV offerings. What sort of economic model are you pursuing along those lines?

It's an ad sales model, Jim. And while it is a small number today, we expect it to grow dramatically as we roll out more of our stations on the fast platforms. We are in the early stages of rollout right now. And as you might guess, the more stations you roll out, the higher the revenue. The rollout period is going to grow quicker than it would in a sort of a static period. So we would expect that again, a small number today to grow significantly over the next few years.

Okay. One last one. Jeff mentioned that Wall Street may have misunderstood the impact of the Sports JV. Could you elaborate on that? What do you believe the misunderstanding was, and what should we take away from it?

Do you want to take it?

I'll start, and Kevin can add to it. When the Sports JV was first introduced, there were limited details regarding its implications for our existing distribution channels and target audience. If this JV provides us with another avenue through a virtual MVPD using our programming, it should be beneficial for us. I refer to it as a misunderstanding because it has been portrayed as a threat to our business, but in reality, it should enhance our strategy moving forward.

I want to emphasize that we noticed a high volume of inquiries regarding the joint venture over just two days. Many questions appeared to stem from a misunderstanding about the nature of the sports joint venture, which was thought to involve 14 linear channels, including 12 cable channels and a couple of broadcast channels, leading people to believe there were national networks for ABC and Fox that do not actually exist. It's clear that a lot of individuals didn't grasp how local broadcast networks operate. For instance, if you’re in Cedar Rapids and wish to watch Fox, you don’t tune into a national Fox network, but rather to a local Fox affiliate owned by a different broadcaster. The same applies to ABC, where viewers would watch a local ABC station affiliated with the network, which is owned by Gray Television. This key difference seems to have been overlooked. Feedback from the networks, both privately and publicly, helped clarify that broadcast differs from cable channels that are uniformly distributed to all homes at the same time with identical content. As this distinction became clearer, people began to understand our earlier statement about a virtual MVPD that includes local affiliates and compensates them for their signals. Our aim is not to undermine the traditional MVPD subscriber base, which brings in substantial revenue and distribution for cable channels and the two broadcast networks. Instead, our focus is on attracting those who currently do not pay for television, which would generate additional revenue for everyone involved. There are currently a few virtual MVPDs, though one has already ceased operations. This concept is evolving, and the industry remains dynamic—new virtual MVPD announcements do not signal the end. It seems that people now have a better understanding of what a virtual MVPD is and the limited scope of these offerings, realizing that such a virtual MVPD that carries Fox and ABC affiliates is advantageous for those affiliates.

All right. Next up, we have John Kornreich. Your line is now open.

I have two questions for Jim. First, should we anticipate that leverage will decrease to just under five by the end of this year? Second, can we expect that net retrans, which you forecast will decline by about 3% this year, might experience some small growth in 2025 and 2026?

Yes, John, it's Jeff. I'll take your first one; in terms of leverage towards the end of the year. I don't think we quite get below 5%, but we should be getting into the low 5s by the end of the year. Sorry, low 5.

You had me excited for a minute.

So this is Jim. I'll lead off, and Kevin can provide a little bit more color. Given the pace of our sub renewals after we finish the remaining roughly 30% this year, rate renewals, I mean we have about 18 months where we don't have any retrans agreements up for renewal. So I think the retrans is going to be more stable in 2025. Then I think, as you get past 2025 and into 2026, 2027, we have an opportunity again to grow. Kevin feel free to add more color.

Yes, I think that's correct. The fixed fee network contracts were set at a time when we all anticipated that retrans would be in a different position or I should say, the traditional MVPD sub numbers will be higher than they are today. We fully expect that we will be resetting those prices when we renew in 2025, and that should allow us to return to net retrans growth going forward.

After '25?

I would say that whether it happens in 2025 will rely on a few factors regarding our renewals this year and subscriber losses, as well as migrations from traditional to virtual subscriptions and how that unfolds. This year, we anticipate stable to possibly a low single-digit decline in that area for next year. There are still some variables to consider. However, looking at the trend over several years, we should see net retransmission return to a growth path.

All right. Next up, we have Davis Hebert. Your line is now open.

Hi everybody. Thanks for taking the question. I wanted to ask a follow-up on the retrans because I think your guidance shows a mid-single digit decline in the second quarter. And you could just give some data on cord cutting, but are you able to sort of segment out what the pressure is between cord cutting versus mix shift of linear subs moving to virtual because I know YouTube has had some nice growth over the past couple of quarters Sunday Ticket. So I just wanted to ask for a comment there.

I haven't fully considered the philosophical aspects or how to break down the factors affecting us. It's well recognized that traditional MVPD subscriptions are declining significantly, while virtuals and direct-to-consumer services are experiencing strong growth. We're definitely feeling these trends, similar to our peers, but we might be a bit more affected due to the price and revenue differences between traditional and virtual subscribers, especially since our traditional subscription rates are among the highest in the industry. Some broadcasters may still be maintaining similar rates between traditional and what they receive from networks for virtual offerings. Larger groups tend to have greater success in negotiating their traditional retransmission rates, and those with higher rates will see a more significant impact when shifting to a standard fee applicable to all affiliates regardless of market quality. We are likely more vulnerable in this respect. However, as virtual fees align more closely with market rates, Gray would stand to gain more than others. We're all striving for the same goals as an industry. This involves broadcast affiliates returning rights to us, allowing us to negotiate distribution of our signals across all platforms, instead of excluding a few. When we achieve this, although it may take time due to the complexities in Washington, I believe Gray and the entire industry will see positive outcomes. But as for your subsequent question about timing, I can't predict what will happen in Washington.

No, it makes sense. If I could just follow up with one broad sports question. I think broadcasting clearly offers an incredible reach. But you have NBC doing exclusive NFL games on Peacock, which suggests some experimentation with exclusive sports on streaming. What kind of commitment levels do you get from your broadcast partners regarding keeping sports on traditional media and limiting that shift to streaming services? Also, on sports, what feedback have you received about your early distribution of local games, such as in the NBA? What has been the feedback from fans or the teams themselves? Thank you.

To address your second question first, the feedback from the fans and teams has been outstanding, and there's a solid reason for that. The audience numbers we are generating for these teams are significantly higher than what they were previously achieving. For example, in Phoenix, we experienced increases of 70% to 80%. In other markets where we offered smaller packages, like five and ten-game options, the numbers were often double or triple compared to their previous carriers. This has generated enthusiasm among the teams and has allowed fans, many of whom felt disconnected in recent years, to reconnect with their teams. It’s a thrilling time for everyone involved. Advertisers are also excited about reaching these new audiences. As for networks, they are experimenting with direct-to-consumer models on a limited basis, with many of their games being simulcast, particularly at NBC. While there is some audience leakage, it's minimal, and we remain successful in selling our high-profile sports properties. I can't discuss specific commitments, but I believe you'll notice some innovations in this area as several leagues will be exploring this further. Over the last six months, broadcast television has clearly demonstrated its value.

Yes, Dave, just one additional point to that is that in Phoenix, where we’ve an independent station, KTVK, it's the Number One billing station in that market. For some context, if you go back 10 quarters to when we made the Meredith acquisition, our CBS station and our KTVK, the independent, were the Number Three and Four stations in that market from a revenue perspective. They're now the Number One and Number Two stations in the market. Now, in fairness, KPHO, the CBS, had the Super Bowl in first quarter, but KTVK is the Number One station in Phoenix. I think that tells you a little bit about the value and the impact of local sports and where that can head. So we are excited about that.

David, this is Hilton. You requested some anecdotes, so let me share a couple quickly. We took our Board to Phoenix, where we are proud of our partnership with the Suns and the Mercury, and attended a game on Sunday afternoon, followed by our Board meeting. I encountered an issue with our hotel’s TV not having our channel, and when I inquired about programming it, the staff member asked if I was part of the companies that brought the Suns back to free TV. I confirmed that I was, and he expressed his excitement, saying he couldn’t afford to pay for cable options. That evening, during dinner with our Board, the waitstaff applauded our efforts in bringing the Suns back to the market. If that doesn’t indicate our impact, I don’t know what does. These are wonderful stories, and we are pleased with our involvement with the Suns, which I believe resonates with everyone in Arizona as well.

All right. And it looks like we have time for just one more question. So Michael Kupinski will be our final question.

Most of my questions have been already addressed, but a quick one here. You've always prided yourself on local direct business, which has been just an incredible success for you. The agency business looked like it ticked up in the last quarter 48% of your revenue. I assume that's because of the pickup in national, but I was wondering if you maybe provide a little color there if that was maybe a little political. Do you anticipate that the agency business will be a greater percent of total revenues as national recovers? And then maybe because of some of your initiatives like sports or targeting advertisers that have a broader geographic reach. I was just some thoughts of what you think Agency business will be in terms of the 'norm' local direct versus agency.

Yes. Since we focus on midsize and smaller markets, we have a lower percentage of agency business compared to most groups. I don't expect our agency share of revenue to grow significantly going forward. I believe the area we have the most control over is local direct, so we are better positioned there. Sandy may have some comments.

Yes, that's true. For the first quarter, you will observe an increase in the agency business, especially in the political sector.

One of the issues is strong. It will be agency side business too.

Yes. So we should just look for that to go up this year, but maybe kind of go back to more of a normalized in the 43%, 44% range going forward.

Yes, it would go back to a more normalized range going forward.

All right. Thank you.

Thank you, operator. Before we close out this morning, I just want to take a moment to thank Jim Ryan for his time with our company. I don't know if he's feeling a sense of great elation that this is his last earnings call. I know that he'll have other phone calls to talk with you guys. But for 26 years, and as I mentioned at the beginning, over 100 of these calls, he has been there, steady and true. I greatly thank him for his time and service. I will say we still have him around to help us out for the next year. I also want to welcome Jeff Gignac to our company. I could not be more proud of that individual and the succession that we have accomplished. Jeff knows our company. He may know some parts of it better than the rest of us around this table. Now he's getting to know the people and the assets that create the financial numbers that all of you look at. Thank you, Jim, and welcome, Jeff. With that, we’ll sign off for Q1, and we’ll see you next quarter. Thank you.

All right. Ladies and gentlemen, this does conclude your call. You may now disconnect your lines, and thank you very much again for joining us today.