Gray Media Inc (GTN.A) 2013 Q4 法說會逐字稿

Good day, and welcome to Gray Television's fourth-quarter and year-end 2013 earnings release conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Hilton Howell, President and Chief Executive Officer. Please go ahead.

Thank you so much, Katy. Good morning, thank you so much for being here, for joining us on this conference, for your interest in our Company, and for your interest in our industry. I will be making a few brief comments, and then those comments will be followed by Jim Ryan, our Senior Vice President and Chief Financial Officer; and then Kevin Latek, our Senior Vice President of Business Affairs. Following that, we will answer any questions that you may have.

In many ways, 2013 was a defining year for Gray Television. We restructured and refocused our Management team, we rebranded our Company, and launched a new corporate website to better communicate our story and our culture. We repositioned our balance sheet and issued $375 million of new senior notes, freeing up our senior debt capacity to grow the Company. We partnered with Excalibur Broadcasting, [to look at] transactions in our consolidated industry, and thereafter, returned to growing the Company.

In October of this year, 2013, with Excalibur, we purchased KJCT, the ABC, CW and Telemundo affiliate in Grand Junction, Colorado from the News-Press/Gazette Company. Later that month, we acquired 99% of the equity in Yellowstone Television with four TV stations in Cheyenne, Wyoming, Scottsbluff, Nebraska, Casper, Wyoming and Laredo, Texas. In November, we announced the pending acquisition of Hoak Media, adding 12 market-leading TV stations in six markets.

Concurrently with our Hoak announcement, Excalibur announced the acquisition of Prime Cities Broadcasting's Fox stations in Minot and Bismarck, North Dakota. Thereafter, we agreed to acquire the CW affiliate from Lockwood Broadcasting in Charleston, West Virginia, and brought the year to a close with the announcement that we were acquiring KEVN-TV, the Fox affiliate in Rapid City, South Dakota.

Pro forma of all acquisitions, Gray will operate the leading media and news provider in 40 TV markets with 136 program streams and 73 affiliates at the big four networks. Even more importantly, all of these acquisitions, each of which is significantly accretive to our earnings and free cash flow, have yet to positively enhance our numbers. And despite shouldering the cost of these acquisitions, our core operations reported record quarterly and annual results at almost every measure.

For the fourth quarter, our revenue hit a record $95.6 million compared to the previous non-political record of $84.7 million set in the fourth quarter of 2011. For the year, our revenue was likewise a record $346.3 million compared to the previous non-political record of $307.1 million in 2011. Our free cash flow, or broadcasting cash flow, for the quarter was also a record. Gray reported $36.8 million in broadcasting cash flow this quarter compared to the previous record quarter of $34.4 million in 2011.

For the year, free cash flow was a record $128.2 million compared to the previous non-political record of $109.6 million set in 2011. All of the acquired or soon-to-be acquired stations added only $2.4 million to revenue and $1.1 million to broadcast cash flow to these results. All of the legal and transaction and M&A costs associated with all of these transactions were expensed as incurred during the quarter. In comparing 2013 to 2012, virtually all components of our revenue, except political advertising, were up nicely.

For the year, local advertising revenue increased $11.7 million, or 6%, to $203.1 million. National advertising increased $1.5 million, or 3%, to $58.3 million. Internet advertising revenue increase $0.4 million, or 2%, to $25.4 million. Retransmission consent revenue increased $6 million, or 18%, to $39.8 million. And as expected, political advertising decreased a whopping $83.2 million, or 95%, with $4.7 million for the year.

2013 was indeed an outstanding year, but more importantly, it has positioned us for extraordinary 2014. We began the year with new retransmission consent contracts with two significant providers in our market, and we accomplished this without public noise, dark television stations, or harsh PR. We are very proud of how we got these deals closed while meeting our financial objectives. 2014 is also a political year with significant races in both our existing and soon-to-be acquired markets.

As you know, and can infer, from the $83.2 million in political ad spend Gray reported in 2012, Gray TV stations get a disproportionate share of all local political advertising dollars. Our dominant local news in virtually all of our markets make our stations a must-buy for a successful politician. Cable won't cut it and most of our other competitors won't either. Further, we fully intend to keep growing Gray Television's portfolio in 2014 with stations that set our profile and corporate culture.

Finally, I would like to conclude my comments with one more observation. There is a lot of public and published concern about the SEC's position on JSAs and SSAs and its potential impact on broadcasting. I can only speak for Gray Television, and we clearly believe that both JSAs and SSAs can serve the public interest. But with regard to Gray directly, the issue is simply not material.

In the numbers we reported this morning, they are the result of exactly one such arrangement, and there are only four small ones in the pending acquisitions, all of which just recently passed Department of Justice scrutiny, and all of which, we believe, clearly serve the public interest. With that, I will turn -- finish my comments and turn the call over to Jim Ryan. Jim?

Thank you, Hilton. Just to briefly recap, starting with first quarter again, we were pleased. Core revenue in the quarter, local, was up 13%, national up 7%. All categories, except furniture and appliances, were up, and even furniture and appliances was basically flat, it was down less than 1%. Our expenses came in at expectations. Again, as Hilton mentioned before, comparing to the last off year, we had strong broadcast cash flow and operating cash flow compared to the last political off year of 2011.

The stations we acquired, which would be the three Yellowstone stations and the KJCT SSA, are both in basically for two months of the quarter. Net revenue combined for those stations only accounted for about $2.4 million of the total results we reported, and its operating expenses in the aggregate were about $1.3 million. So we're very pleased with the cash flow of $1.1 million it generated. But, again, as we've talked before, those are relatively small markets and they were only in for part of a quarter.

Turning to the whole year, again, we were very pleased with the results in core revenue with local up 6%, national up 3%. Again, all categories were up except for medical which was down a little over 1%, and restaurant was essentially flat with about 0.3% decline. Our broadcast operating expenses were, for the year, were within our expectations, only up about 2% year-over-year. And, again, it was a record-setting broadcast cash flow and operating cash flow numbers when compared to the last off political year.

Turning briefly to our guidance for Q1, we are pleased with the start of the year. The Winter Olympics for us, which generated about $3.8 million, which is up from the $3 million of the last Winter Olympics in 2010. We are pleased with the core local growth. We're estimating it will be approximately 10%, national may be up around 2%, beginning and upward growth pattern, again, with our digitals. We've talked before, 2013 was a regrouping year and we're looking forward to strong growth as the year progresses there. Hilton had already mentioned the redo of two large retransmission consent contracts.

So we are, obviously, going to show very, very strong growth in our retrans line this year. Our operating expenses, there are a couple pieces in there I think people need to focus on. First of all, for the TV, we did have our ABC affiliations renew at the beginning of this year, so we are now paying reverse comp to ABC, NBC and Fox. And a quarter-over-quarter step-up in aggregate reverse comp fees to the network is about $2.2 million of our overall expense increase that we are forecasting, as well as about $700,000 of non-cash stock compensation.

And finally, our acquisitions, the Yellowstone stations and the SSA in Grand Junction account for about $3.1 million increase of the quarter's increase in operating expenses. The corporate line also is showing an increase. There is non-cash stock compensation of about $1.1 million in our guidance. In addition, we are continuing M&A activity, our work with the DOJ first part of this year and moving into the pending acquisitions to closing, hopefully, spend second quarter. We have an estimate of about $1 million additional in M&A costs as we proceed to closing the acquisitions.

Turning to the balance sheet briefly, at year-end, there was $837 million of debt. Our covenant leverage under our senior credit facility which, again, is calculated on a trailing average eight-quarter basis was 5.67%, which is exactly where we thought we would be against the covenant of 7.75%, so there's ample covenant room there. On a trailing 12-month basis, our total leverage ratio would have been 7.29%. Cash was $13.5 million.

Some detail in our free cash flow numbers, CapEx for the quarter was $5.7 million bringing us to $24.1 million for the year. We had no cash taxes in the quarter and only $500,000 for the year. Thinking ahead to 2014, I think cash taxes will be a lot like 2012 where we had about $1 million of cash taxes to various states, and our current NOL is $225 million for federal purposes, so there will be several years down the road before we are a federal taxpayer.

Program payments were $2.9 million, bringing the total for the year to $11.4 million. Reverse comp in the fourth quarter to the networks was $2.9 million, bringing our total in 2013 in reverse comp to $11.4 million. I'm sorry, those were amortization numbers, I misspoke. Reverse comp, I'll get you the reverse comp numbers in a minute. I apologize for my error.

Total operating cash flow on a trailing eight-quarter basis, again, was $146.95 million, and that is as allowed under the senior credit facility that does pro forma for the inclusion of Yellowstone and KJCT. And our trailing 12-month cash flow number was $110.4 million. And at this point, I will turn the comments over to Kevin.

Thank you, Hilton. Thank you, Jim. Recent press reports indicate that the FCC may soon adopt a new rule regarding joint sales agreements between TV stations in the market. While it's not entirely clear what the FCC will do, the reports indicate that the FCC will not prohibit such JSAs, simply impose some limitations on the amount of joint ad sales between the stations. And our pending transactions with Hoak Media, Prime Cities, Mission TV they are our existing JSAs in place, we will create two more. We propose to continue the JSAs and expand the JSAs because we believe that those arrangements makes sense for the local communities that we serve.

We hope that the FCC in reviewing our applications for the pending acquisitions will treat Gray like many other companies using JSAs in many markets, and give us an adequate opportunity to comply with whatever new rule the FCC adopts. We do not see the FCC rule changes as materially impacting our approval at the FCC, or our timing on the closing of the Hoak and other transactions. We have been working with the FCC to obtain necessary approvals, we will continue to do so.

As Hilton mentioned, we did clear the Department of Justice last week. We've also cleared the FCC public comment period without any objections. At this time, I cannot give you a target date for approval of the transactions. But we believe we are close. Once the new FCC rule is adopted, we will review our existing agreement to determine how best to ensure that we are in compliance, which may involve some changes to our agreement.

It may also include seeking a waiver from the FCC and we're prepared to do that [exact warrant]. The bottom line is that the FCC rule change may require some action on our part. We do not believe that what's being reported in the press, however, will have a major impact on our existing operations or our pending acquisition of Hoak Media. I'll turn the call back to Hilton.

We have a connection issue with Hilton. Operator, what is the --

I'm still here.

Okay, there you are. That concludes my remarks. I'll turn the call back to Hilton at this time.

Operator, we will open the call for questions.

Thank you.

(Operator Instructions)

We will take our first question from Marci Ryvicker with Wells Fargo.

Thanks. I have a couple. I just want to make sure I understand, with Hoak all you need is FCC approval -- final approval -- is that all you need to get that done?

Yes, that's correct.

Okay. And then, Kevin, you talked about sort of proving the JSAs are necessary for the local communities. What data can you provide to the FCC that could prove that these stations are necessary?

Marci, what we will provide the FCC, I think, is going to turn on what exactly they are looking for in cases where we have one JSA currently. We have a very short operating history with JSAs. In that market, we did explain to the FCC staff when we met with them that we are taking two stations that were good stations and made them better, expanded their programming, expanded their offerings, booked advertisers, and have invested considerably in the operation.

I think in a small market like Grand Junction, which is market 185, the JSAs and SSAs make the economics more compelling and give us an incentive to invest further in those markets. So we can point to what we've done in the past, the existing Hoak JSAs and the two we're trying to create, we have similar expectations for both investing and improving output from an advertiser standpoint and from a viewer standpoint.

What percent of revenue, or ad revenue, do you sell on behalf of the JSAs?

On the single JSA that we have so far, the sidecar, that's a term that we mostly dislike, but Excalibur Broadcasting that owns the license of KJCT, and Excalibur also employs the accounting executives at KJCT and they sell their own time. We coordinate everything through a shared services agreement through the same building, and, obviously, share a lot of back office functions. So I would say Excalibur's people are selling Excalibur's time.

Okay. And then, just in general, have M&A discussions in the industry slowed at all given all this regulatory noise around JSAs [methods]?

Marci, this is Hilton, I don't think so. I think they still continues the pace, although I think people are waiting to see kind of what the final rules are on the 31st of March.

Okay. And then, Jim, I have one question for you. You talked about some of the M&A expenses and some of the one-time expenses for the Q1 guide. Was there anything in the expenses for the fourth quarter, like anything related to the transactions, or any one-time items that maybe we should exclude, so that we can find kind of a core EBITDA?

In the corporate line in the fourth quarter there was $1 million at least of M&A expense, as well.

And that's it?

Yes. There was also some in the corporate line, again, some incentive compensation, which given the year, the performance, drove up the overall comp numbers a little bit. I think that might be somewhat of a one-time only type event. And if you give me a minute, I can give you a feel for that magnitude.

Well, those are all the questions I have, so you can come back to me later. Thank you all so much for answering the questions.

Thank you, Marci.

We'll take our next question from Lance Vitanza with CRT Capital Group.

Thanks, guys. It looks like you had a pretty strong quarter on the core revenue growth, certainly, seemed to accelerate from Q3, and it looks like even a little bit better in Q1. I'm wondering what's behind all the strength there?

If there's anything in particular? Is it the markets overall improving? Are you guys taking some share? Could you just talk a little bit about that, please?

I will comment and I'll let Jim and Kevin comment as they see fit. I think in general were beginning to see an overall improvement in the economy in a lot of areas. I also think that our stations are performing quite well.

We just finished last week one of our most significant GSM meetings, and we have account executives that are out and selling our stations at a strong pace. The morale of our Company has never been as high as it is today, and I think that that is showing in terms of what we're doing on the street every day because at the end of the day you've got to have the product, we have it.

And then you have to have people who are enthused to sell it, we have that too. So I think it is a combination of things. Jim or Kevin, do you want to add anything to that?

I think you summed it up.

One other point I would add to what Hilton said is that at sort of the micro level we've been working in operations across the Company, and one of the recent developments in the last year was the launch of new network affiliates in a number of our markets. We had small market, short markets that were missing an affiliation and we invested last year and the year before to acquire some off, dark stations, build them out in HD, put on local programming and especially affiliations with CBS, NBC and those are really ramping up now. So I think some of the investments that we made in the past plus, which Hilton mentioned, a lot of small things add up to an improved morale, like even in our first general sales manager meeting in a decade was last week and we're really working on the stuff that we don't issue press releases on that do make a difference at the market level.

Okay. And then, one other question, if I could, which is that if I look at the broadcast cash flow less corporate line, it looks like adjusting for maybe some M&A fees, it looks like you are flat over 2011 despite a fairly substantial increase in revenue. I'm just wondering, is that just really a function of increased reverse retrans, or are there other sort of big picture things that are impacting the margins?

The biggest impact over 2011 would be the increase in reverse comp, and actually in 2013, we paid a total of $7.6 million in reverse comp for the year, it was $2.1 million for the quarter. That's probably the single largest driver on the expense side. After, as you said, the M&A and, obviously, the acquisitions brought in some additional expenses, but also some additional revenues and we've already talked about the $1.1 million of additional cash flow being generated in the (inaudible) months we had them.

Yes.

Following up again on the other question on OTO for corporate, again. In Q4, there was about $1 million of M&A type expense, and then, there was probably, what I would characterize, as about $800,000 of what could be, I think, would be fair to consider to be kind of OTO incentive compensation to certain individuals.

We will take our next question from David Hebert with Wells Fargo Securities.

Good morning, everyone, thanks for taking the questions. Jim, I just wanted to focus in on the 7.29% leverage point I think you gave. Could you provide --

That's a T-12. That's a trailing 12-month, yes, that was a T-12. On our trailing eight-quarter, which is the covenant we're tested against under our senior facility, we were at 5.67% against a covenant of 7.75%.

Okay. All right, thank you.

And any thoughts about a year end leverage target? I know the timing of the close of these acquisitions may factor in. But is that anything you're willing to provide?

I think in general, and, again, the timing of the acquisition closings will have some impact, although under the covenants there are pro forma rights for the full period whether it's 12 months or eight quarters, depending on whether you are looking to the indenture or you are looking to the senior credit facility. In broad terms, I think we are, at the end of 2014 back, and maybe we're a little conservative, but we're back in that 5.6% range, right about where we are today on a trailing eight-quarter basis and go 5.67%.

So maybe a little bit higher, maybe a little bit lower, and if political is stronger, and we're still, I think, maybe potentially a little conservative on our political estimates and come November we'll know one way or the other, but if political is a little stronger we'd be a little lower, as well. So in a, call it, [mid-5%-ish] range, and, again, timing on things will have some bearing on how just much free cash we can access to use between now and the end of the year.

Okay, that's helpful. And then, on the funding side, could you walk us through what remains left to be funded? I guess factoring in the sale to Nexstar and Mission, et cetera?

Yes, in round numbers, it's about $330 million, that includes all the pending acquisitions, and that assumes we don't use any existing cash for that. And that would be after Nexstar. The Hoak, the primary transaction with Hoak, our funding need is approximately $300 million, after Nexstar buys the two stations that they are buying.

Okay, that's helpful. And then, last question, just curious if you're having any internal discussions, or external discussions, with your network partners around some of this, the over-the-top providers? Verizon is talking increasingly about it, Dish's recent deal with Disney, just curious if the industry, the broadcast industry, is significantly talking about how to participate in that?

This is Kevin. I would say it's fair to say we are engaged with each of the networks pretty regularly on all of these issues, over-the-top, retransmission, the quality of programming, it's very much a relationship and we are as interested in moving forward on mobile, over-the-top, et cetera, as they are. We are all trying to find common ground. I don't think Gray has a magic silver bullet or any network does, but we are actively trying to find the right balance at a right fit that makes sense for us as broadcast affiliates.

Okay. Thanks for all the color. I appreciate it.

We'll take our next question from Avi Steiner with JPMorgan.

Thanks for the question. Just one quick follow-up on leverage, and I apologize if maybe I missed it. Can you give me the pro forma number at the end of 2013, if all acquisitions and dispositions were closed? Do you have that, Jim?

Yes. Under our senior credit facility, our pro forma operating cash flow number was $147 million.

And do you have what the pro forma debt balance would be against that? If not, I can follow-up.

It is -- when you say pro forma, I'm only pro [forma-ing] for the closed acquisitions, I'm not pro [forma-ing] for any pending acquisitions.

Do you have the (inaudible) number by any chance? Because if everything was closed at the end of 2013, and, again, if not, I can follow-up afterwards.

Well, we just had --

I know you gave a 2014 number, I want to make sure --

Yes, well, we said our funding needs to close, the pendings are about $330 million, and we had $837 million at the end of the year. So in round numbers, that puts it at about $1.17 billion give or take a little. On a pro forma after closes for a debt number.

We haven't discussed in detail what the pro forma 2013 numbers are with the pendings, but I think it's fair to say on a blended basis, we're probably on a two-year blended basis approaching a $500 million- revenue Company, and, call it, again, in very, very round terms, a high hundreds millions to maybe a $200 million average operating cash flow Company. On a two-year blended basis.

That is helpful. And then, if I can get one more in, kind of a bigger picture nature, and I appreciate all the comments around JSAs and SSAs. But can you guys comment on the FCC's rules around joint negotiations with respect to retrans, and maybe the proposal that is out on the agenda just around network non-duplication and what that could possibly mean with respect to retrans going forward?

This is Kevin. We have in Gray's experience a fairly limited experience with joint negotiations. We have, again, our first SSA began in the fourth quarter of last year. And in our major retrans contracts, the major MVPDs require that they get consent from us for any station that is operated pursuant to an SSA, it is not optional for us.

Going forward, if Excalibur or another party to an SSA with Gray negotiated retrans on their own we would expect that they would do a fine job negotiating retrans. In fact, we don't anticipate negotiating retrans for Excalibur. We're acquiring stations that have network programming, and good local programming, and we think they will stand up in the retrans marketplace as well as our stations do.

So we don't see any impact. We don't see any impact on a joint negotiation ban on us. And likewise, on network non-duplication, that is not particularly a concern for us either.

Okay, thanks, gentlemen.

Will take our next question from Howard Rosencrans with VA.

Yes, hello, thank you. In light of what is transpiring with the FCC, and, obviously, we don't know what terms they'll do on the 31st, or subsequently. But how do you feel like it changes, particularly in regard to retrans potentially, or, I guess, less of a shared agreement, but how do you feel like it impacts the M&A environment going forward, or your interest in pursuing it yourselves?

Well, this is Hilton. Let me start with that. If you look at the portfolio that Gray Television currently owns of our TV stations, we have historically, and then throughout the course of this last year when we return to M&A, have focused on dominant stations, number one and number two in their markets, and those stations stand on their own. And so with regard to what we have and where we will be going, the rules and regulations have very little impact.

Our acquisition strategy and the whole MO behind what Gray Television does is to have the dominant news station in the market that it serves. So we have never built it around putting the number four and number five TV station together and then making them better. We've always look to get the top one.

So a lot of those issues will not slow our M&A efforts because we will continue to look for stations that have that profile that we have had traditionally in our Company. And so I think that makes us different than most of the other large, not all, but most of the other large broadcast companies that are public.

So it will not slow us down with regard to M&A because we will still be looking for stations and station groups that share our corporate DNA and our commitment to our local communities. And so I don't think it will slow us down. What it will do for other companies, really, I have no idea. That's how I see it, Howard.

Okay, that's great color. I thank you for that. Just to tag on to that, is it kind of possible that the environment, though, for the type of top-tier stations, if this was to transpire, would become sharply more competitive?

I actually think it will sort of enure to Gray Television's benefit.

And that would be because?

We are a natural home for those television stations because we share an operating philosophy, and I think that the overall economic trends in our industry, regardless of what the FCC is doing, still compel consolidation in the industry. So what is happening is, people are going to trim their sails based on where the winds are coming, and that makes complete sense.

But in terms of where Gray is going, our direction has never changed or wavered, and we are not in the way of the regulations that the FCC is putting out because we have not built our M&A strategy around that philosophy. So other people may have to deal and adjust to that, we won't.

And one quickie last, what percentage, would you say, just ballpark, of your pro forma revenues are in this sort of shared category that's now being attacked and would you say that --

On a pro forma basis, Howard, because it's really almost inconsequential on the numbers we reported this morning, but on a pro forma basis, it's substantially less than 5% of revenue.

And the margin associated with that, would that be a 100% margin, or dramatically different from the margin you get or no?

I don't know what the exact margin on that revenue is. We will have that number in time, but we just haven't had -- they are not part of us yet, and so I don't really have a pro forma number for that.

Okay. Thank you, I'll get back in queue. Thank you so much.

We'll take our next question from Jim Goss with Barrington Research.

Thanks. A few about retrans and reverse comp. The reverse comp negotiations to this point have been of what nature? How would you describe it? Were they looking for some percentage of retrans or were they doing more like, CBS has indicated where they were going to determine a value of their signal had, and then it is up to you to do the best deal, and you do better or worse. How would you describe it to this point?

Jim, each -- I'm sorry, go ahead, Hilton, I apologize.

Go ahead.

Jim, right now were paying to ABC, NBC and Fox. We have not had any discussions yet with CBS, so we don't know what CBS's approach is. But of the three we've done, it would be fair to say each of them takes a slightly different approach, but based on our experience to date, and we've been very consistent about this over many calls, at the end of the day, the math is kind of working out to be a 50/50 split of the gross retrans number.

Okay. And, is there an accounting requirement that you take in retrans as revenue and put the reverse comp in the expense category, or should they be sort of a contra revenue so that it separates it out, or isolates it out?

No, I think it's pretty much industry standard, at least from what I've seen the major public companies report, everybody is reporting the reverse comp as an expense because the networks are one way or the other characterizing that as a programming fee. So, therefore, it is a programming expense.

Okay. And then to the extent that your reverse comp is fairly small at this point, and if these patterns go out, do the math, and figure out about what that number should be, can you talk about the pace of inclusion you expect for those reverse comp numbers into the cost basis? Like how fast -- is it a two- or three-year process, shorter, or longer, what are you thinking?

When you get to reverse comp with the network, again, I think you're basically at a 50/50 split, for all intents and purposes, out of the box. Now there may be some variances early on, but they are not significant.

Again, our ABC agreements have started this year as expected. NBC is in full force. Fox is in full force. The only agreements we have left to come up, as we have been very clear about many times in the past, is that most of our CBS are up for renewal at the end of this year, so we'll begin paying reverse comp to CBS in January of 2015.

Okay, and then one last separate question. As you look at acquisition of targets, are there markets where the Spanish language stations might have particular appeal? And would you pursue those, or would that not be part of the mix?

This is Hilton, let me address that. This past year, 2013, was the first time that Gray expanded into the Telemundo markets and we jumped in with both feet with the acquisition of the Laredo, Texas operations. So far we've been very pleased with what we've seen.

We're very new to it. But I think that it is a dynamic market, it is clearly a growing market, and our Company is interested in anything that's growing that we can return value to our shareholders on. So we are brand new, but we're looking, and if we have an opportunity we would certainly be interested.

All right. Thank you very much.

Will take our next question from Aaron Syvertsen with Sidoti & Company.

Hi. Most of my questions have been asked, but I just have one follow-up for you, Jim. When you gave the local and national core pacings for first quarter, does that number -- is that the same station number from last year or does that include the stations that closed in fourth quarter?

No, it would include the stations that closed in fourth quarter, although, again, because of their size, they are not impacting the overall numbers we're sharing by any large extent. As we talked about in the release, in the guidance section, the first quarter revenue for the acquired stations is only about $3.7 million out of the $91 million, $92 million we're expecting. So it's not going to move the needle very much at all.

Okay, great. And then, just one question for you, Kevin. Last quarter, you kind of gave, talked a little bit about the mobile TV update, how it is kind of rolling out to all the markets. Any traction there that you have seen in the past few months, or kind of what your hopes and expectations for a mobile TV rollout at this point?

Thanks, that's a fair question. Unfortunately, there's not a lot to report right now. Mobile is still, we all realize, our future. But at this point, our mobile deployment has been hampered by the inability to include the network programming, and those conversations, obviously, are pretty far along and each network is taking a different approach.

As we get, I think we have high hopes for a mobile audience and mobile business once we add the network content. It would have to be authenticated, as well, through the TV everywhere paradigm.

But we do not, at this point, we do not have any of the network content on our mobile streams (inaudible) or otherwise. So we're seeing some traction and we are promoting it, and were happy to see some folks watching our local and a lot of our syndicated content on a mobile basis, but the network content is really going to drive that adoption.

Okay, great. Thank you.

We'll take our next question from Barry Lucas with Gabelli & Co.

Thanks, and good morning. A couple little questions, and maybe one bigger one. On the retrans side, are there any other large contracts that are coming up in 2014 that would materially affect 2015 or could we more or less just annualize roughly, the --

Virtually all the rest of our contracts come up at the end of this year. Jim, do you want to follow-up on that?

All the rest --

We renewed two large in the MVPD's at the end of last year. But everything else, all the other large and mid-size and small MVPD retrans agreements expire at the end of this year.

And what percentage of households would that represent?

Roughly --

In rough numbers, it's about 4.5 million or so subs.

Okay. Guidance provides a lot of detail, but any color you could offer on categories, in particular, as you think about dealer inventories expanding one would hope that those guys are going to have to start putting a little bit more in the way of marketing dollars against those inventory increases?

Actually, Barry, year-to-date, through February, auto was up roughly 10%, so that certainly looks like a healthy number to me, and it was, February was probably a little stronger than January, but I think the Olympics had something to do with that a little. But overall, solid so far, and the only things we've seen some softness in year-to-date would be in the restaurant category, and the department stores and supermarkets are not big dollars, they are also soft, but I suspect especially with the department stores in the restaurant category a lot has to do with the weather and people were -- just too ugly to go out, they stayed home.

Okay, thanks, Jim. And would you care to handicap the political outlook on -- I'm looking at numbers, about $58 million the last non-presidential year, $86 million-odd in 2012.

We are still being, right, on a same-station basis. We are still being consistent. We think we should be able to, with the number of races and the number of open Senate seats, we're comfortable that we will beat the 2010 number of $58 million.

Starting to get up around that record shattering $86 million that had $25 million or $30 million of presidential money involved in that. That would be more challenging for us, but we're, certainly have the capability and capacity and we have never ever turned down a political order, I don't think.

We will be happy to take everything we can get, and so we're looking for a very strong non-presidential political year for us, and we generally try to be a little conservative in political because, as you know, 50% of whatever number we get won't show up until October. So our own assumptions may end up being a tad conservative, but we'd rather be that than overly optimistic and end up disappointed.

Okay, last one from me, a little bit bigger picture, as well. When you listen to a lot of discussions about the spectrum auction and participation, and the need for spectrum for the major metropolitan areas, how do you view the auction? What do you think the shape will be, and are you likely to be a participant?

Well, Gray is not going to be participating in the auction. If you take a look in our 10-K, we have a fabulous category about how fantastically well the Company has utilized, not only for our shareholders benefit, but for the community benefit our spectrum and our markets. And so we don't intend to participate in the auction at all.

I know a lot of the demand for spectrum space is in the larger markets. Of course, we don't really play in those markets, so we can't speak to that. But with regard to our Company, we want to keep our spectrum.

Great. Thanks very much.

From a broader industry spot.

We will take our next question from Colin Wilson-Murphy with Bowery Investments.

Thank you very much. My questions have been answered.

We'll go next to Matthew Dodson with JWest, LLC.

Yes, can you just talk a little bit about national and your local, I think, in the guide you gave that local was going to be up about 10% on the same-store and national was about 2%. Can you talk a little bit about what you're seeing in national, and do you expect that to reaccelerate as the year goes on?

We do expect, consistent, I think, with prior results over the last several years, we would expect lower growth rates out of national for the year. We think it probably will pick up a little bit, although as you get into our fourth quarter when political comes in, very, very strong. National tends to be the first thing that gets displaced.

National in first quarter has been a little soft, and that, again, may be somewhat weather related when they tend to be more, the bigger retail chains and the fast food franchises which we're definitely seeing some softness in. So we're not necessarily surprised given weather conditions the first couple months of the year. We think it will pick back up a little bit, but certainly we would expect much stronger growth during the course of the year out of our local than national.

Okay. And then, can you talk on the retrans? You gave guide that it would be up 67% Q1 over Q1. Can you talk a little bit about -- did you receive all the benefit, will you receive all the benefit in Q1 from the repricing, and is at 60%-plus kind of growth how we should think about retrans revenues for the year or can you give us any help there?

I think, kind of to get the big picture you could take the Q1 number and annualize it and you are going to get in the ballpark of what we expect for the year. So wherever we repriced at the end of last year on those two big agreements, that pricing is uniform throughout this year.

So we, obviously, Q1 we are saying is in ballpark numbers about $16 million. You can kind of just roll that forward. There is a little bit of variance quarter-to-quarter because of very, very small amount of that overall revenue number is tied to some guaranteed air time buys, but those dollars are not large, but they tend to be a little lumpy because it's really up to the MPVD to place it given their own marketing plans for the year.

Got it. And then, could you just talk a little bit -- so you have two-thirds of your retrans repricing at the end of this year, can you help us at all think about maybe how grossly under priced that two-thirds is? I'm sure you don't want too --

The two-thirds that will reprice at the end of this year were all priced to market at the end of 2011. So while the market rate certainly have gone up over the last few years, we expect a significant step up, but it is not going to be as dramatic as the two contracts we repriced at the end of 2013. Both of those contracts were very old and were not part of the 2011 pricing, repricing, so the step up on those was much more dramatic than what we would be expecting at the end of this year. But we do expect significant increases and, obviously, that will significantly advance our retrans revenue number in 2015.

Got it. And then the last question, I guess, relative to acquisitions, if your stock gets cheaper than acquisitions, it seems like it's pretty cheap on a free cash flow basis, will you guys buy back stock as opposed to make acquisitions, or do you think it is just better to buy acquisitions?

Well, this is Hilton. I hope we could reverse that with regard to our stock price. And we intend to do all we can, because I do think the Company is very under priced. I do think that we are in a unique window right now where the industry is consolidating, and I think we have a relatively unique role to play in that process.

So unless things change more dramatically than we anticipate them in 2014, we will probably stay on track. We will not be purchasing things for the pure sake of purchasing them.

But we will be looking at sort of unique value propositions that an individual station or station groups bring to the overall value of Gray Television. So we are going to be looking and talking, and probably won't be doing a dramatic stuff (inaudible) in the immediate future.

Got it. And just the last question, you alluded to this to a question earlier, but you seemed to express that you thought if the FCC rules went into place it might benefit you from an acquisition standpoint. Would you be willing to give us any more information, or expound on that?

Really, I wish I could, but I don't have any information to share with you. And, really, the essence of the point I was making was that we are relatively, really, almost dramatically not affected by what the FCC has done with regard to almost any of our existing stations.

And in terms of our M&A strategy, those agreements are not key to what we are attempting to do. So I think that's where our advantage comes from.

Got it. Thank you so much for your time.

(Operator Instructions)

We will go next to -- we'll take a follow-up from Howard Rosencrans with VA.

Most of my questions have been addressed. Thank you so much.

And at this time, there are no additional questions in the queue. I'd like to turn it back over to our speakers for any additional or closing remarks.

Thank you so very much, operator, and I want to thank each and every one of you for being on the call this morning. These are exciting and interesting times for our Company and for our industry, and we are very bullish on 2014 and look forward to talking to you at the end of Q1 to give you our final results. Thank you, and we will talk soon. Bye-bye.

That concludes today's conference. We appreciate your participation.