Gray Media Inc (GTN.A) 2014 Q2 法說會逐字稿

Good day, everyone, and welcome to the Gray Television second-quarter 2014 earnings release conference call. Today's conference is being recorded.

At this time, I'd like to turn the call over to Hilton Howell, President and Chief Executive Officer. Please go ahead, sir.

Thank you so much, Operator. Good afternoon and welcome to the second-quarter 2014 earnings call of Gray Television. We appreciate your time and thank you for your interest in our Company and in our industry.

As usual, I will be making a few brief opening remarks followed by Jim Ryan, our Senior Vice President and Chief Financial Officer. And then Kevin Latek, our Senior Vice President of Business Affairs, will have a brief summary of our recent milestones over the last year at Gray Television. At the conclusion of our comments, we will all three be available to answer any questions that you may have.

Before we move to the quarter's results, I want to note the announcement that we made on July 24 that we will be adding WJRT-TV and WTVG-TV to our growing portfolio of market-leading news centered TV properties. These two ABC affiliated stations with WJRT servings the Flint, Saginaw, and Bay City, Michigan market, the 67th largest in our country.

And WTVG serving the Toledo, Ohio market, the 76th largest in our country. Both lead the local markets in all day ratings and in most, if not all, local newscasts.

According to BI revenue data WJRT-TV is the highest ranked television station in its market and WTVG-TV is a close second ranked in its market. We are also pleased that we will be adding the CW affiliation in the Toledo, Ohio market at closing.

We are extremely happy with this pending acquisition. These stations have extremely strong news franchises, have strong political advertising potential and are an excellent geographic fit with our existing stations in the area, WILX, the NBC affiliate and Lansing, Michigan, and WNDU, NBC affiliate in South Bend, Indiana.

We are also very happy to be directly entering the Ohio market. We have a significant number of Ohio viewers out of our West Virginia stations in the southern part of the state, but this is our first entirely Ohio-based property. We expect little regulatory problems with this acquisition and hope that the SEC will act expeditiously on their approval.

Upon the closing of all announced and pending acquisitions, Gray Television will own and/or operate TV stations in 44 television markets broadcasting 142 program streams including 77 affiliates of the big four networks. At that time, our owned and/or operated stations will include 27 channels affiliated with CBS, 24 stations affiliated with NBC, 16 stations affiliated with ABC, 10 stations affiliated with the FOX Network, 16 with the CW Network and 17 with My Network TV. Including the pending acquisitions, we have added 14 television markets and 32 television stations since this call last year.

In short, we are very excited to be expanding in Michigan and entering Ohio directly and I would like to take this opportunity to publicly welcome the management, the associates and the viewers of WJRT and WTVG to the Gray business family.

Moving along to our results. We are very pleased with our quarter and year-to-date results. Our revenue reached a new record of $107.2 million for the quarter compared to $84.3 million in the prior year's comparable quarter, a 27% increase. For the year to date, our revenue also reached a record of $198.5 million compared to $162.5 million in 2013, at 22% increase.

As we noted in our release this morning, on a combined historical basis, if we began the year with all currently closed acquisitions, our year-to-date second-quarter revenue would have been approximately $235.7 million. We had a great deal of combined historical data in our press release this morning and I would like to refer you to this information, as I think it's very relevant to Gray and where it's going.

For the second quarter, our local advertising increased by $5.8 million or 11% to $56.7 million. Our national advertising had a slight decrease of $200,000, or 2%, to $14.8 million.

Internet advertising revenue increased by $900,000, or 15%, to $7.2 million. And political advertising revenue increased $7.9 million, or 1047%, to $8.6 million. And retransmission consent revenue increased $8.3 million, or 88%, to $17.7 million.

Additionally, our net income was reported at $1.6 million for the quarter. This compares to $5.14 million in the second quarter of 2013, but we have to take into account that we took a charge of $4.9 million for the early extinguishment of debt as a result of the refinancing of our outstanding debt.

Year to date, local advertising revenue has increased by $10.4 million or 11%, to $107.7 million. National advertising revenue decreased $300,000, or 1%, to $28.2 million.

Internet advertising revenue increased $1.3 million, or 11%, to $13.2 million. And political advertising increased by $10 million for the year, or 720%, to $11.4 million. Retransmission consent revenue increased $14.7 million, or 77%, to $33.8 million.

We reported net income for the year of $2.9 million compared to $6 million in the year to date in 2013, but also that takes into account the charge of $4.9 million for the early extinguishment of debt.

As we look forward to the balance of the year and released in this morning's release our guidance for the third quarter, obviously, we are very excited about the potential of this political year. And Gray, because of its news leading stations and because of its locations and very important politically sensitive states, has a number of races that are going to be highly contentious. And while we have good political revenue that's been reported year to date and quarter to date, we think the third and then the fourth quarter are going to be quite good in a non Presidential year.

Based on the data we have to date, we have 18 very competitive Senate races in all of our states. We have 13 very competitive Governors races in our states. And then amazingly, because we haven't gotten any political revenue out of our two stations in Wichita and Topeka, Kansas, in some time, we're expecting to have a very competitive political season in the third and fourth quarter in both the, as I understand it, the Governor and the Senate races in Kansas, which will be a very happy surprise.

All in all, we feel it was an excellent quarter. We feel that it is a great year-to-date performance and we think the balance of the year is going to be sterling. And with that, I will turn it over for Jim Ryan for his comments.

Thank you, Hilton. Good afternoon, everyone. I think Hilton covered pretty well the as reported highlights out of the second quarter. I'd like to focus a few comments on the combined historical, where we've gone back and added the revenue and operating expenses of the acquired stations, as if we had owned them from the beginning of 2013.

For the second quarter on a combined basis, our local was up 3 %. Our national was down as similar trends as to the rest of the industry has been reporting over the last week or so. We were pleased to see internet growth on a combined basis up 12% year -- quarter over quarter. Our retransmission revenue on a combined basis would have been $20.3 million and the political revenue for the second quarter would have been $10 million.

Speaking to operating expenses, the big driver both in the as reported and also on a combined basis was our change in our paid time off policy. We, in second quarter, revamped and revised a very antiquated vacation and sick time policy and turned it into a paid time off policy. We indicated that a charge would be coming through when we issued our second-quarter guidance.

That amount is about $3.8 million in the second quarter. It's a non-cash charge. We just had to increase the accrual based on our changes in policy. And that's really one of the more significant expense drivers in the entire second quarter, both as reported or on a combined basis.

The other big driver, on the expense side that we've talked about repeatedly, on the TV line, is the increase in reverse comp to the networks. That was up about $2.2 million in the quarter, $2.4 million on an as reported basis. And that in part reflects, again that we just started paying reverse comps to ABC at the beginning of this year.

On the six months numbers, again, we were pleased on a combined basis with the local growth of a solid 4 %. National has been sluggish as others have reported. But we also saw, again, on a six-month combined basis, strong Internet growth of 9%. We think Internet, going forward, over the next year or so, especially with the acquired stations, gives us a big opportunity with the acquired stations, it certainly was a place where we thought we could add a lot of value and begin to ramp up those revenues.

And again on an expense basis, for the first six months of the year, the big driver again was the change in paid time off policy, which was the non-cash charge. And then the reverse comp to the networks was about $4.5 million. And again, that in large part that reflects the new agreements with ABC.

Turning to add categories, this would exclude the acquired stations, so this would just be the legacy historic Gray stations. But we were very pleased to see our auto was up a solid 6% in the quarter and it is still tracking up 8% for the year, so we think that's very healthy.

We did see weakness in communications, furniture and appliances, both in the quarter and year to date. And we also saw weakness in the financial category, but we did see improvements in entertainment throughout the year, as well as strong performance in department discount stores in the second quarter and home improvement, as well.

Our broadcast cash flow, this would be before our corporate expense, was up 25% in the quarter on an as reported basis. And it was up a solid 19% on a combined historical basis. And year to date, BCF on a reported basis was up 25%. And our -- on a combined historical basis, broadcast cash flow, again, was up a very strong 20% year over year. We're very pleased to see that.

Quick comment on our expense line in the corporate for the second quarter and year to date. Again people need to keep in mind that we did close the Hoak transaction mid-June. With the closing of that transaction, we had a lot of the deal cost that hit the corporate line late Q2. There was about $4.5 million of deal costs that we had to expense as we came to close Hoak that ran through the corporate expense line in second quarter. So again that's the main driver of any changes year over year there.

Turning ahead to guidance for a minute, for third quarter. We see actually improving trends in national, although that trend line is improving as the quarter moves on. July remains sluggish, but August was looking a little bit better and September is pacing actually in positive territory, which is very good to see.

We're also tracking up lower single digits in local revenue, as well. And again as Hilton had commented, we're expecting a very strong performance in political in third quarter. And our retrans run rate now with the stations that we've acquired for the quarter is about -- just shy of $20 million on a run rate, now that we've closed the transactions.

Turning to the balance sheet and the credit facilities for a minute. First of all, we were extremely satisfied and pleased with the new senior credit facility we put in upon closing Hoak. Just to remind everyone quickly, that was a $525 million senior facility, it prices at LIBOR plus 300 with a 75 point LIBOR floor. So our current all in rate is 3.75% and that facility matures in 2021 and it's a covenant light with just a total incurrence test of 7 times on a trailing eight-quarter basis.

There is a revolver maintenance test when the revolver is drawn, currently our 40 million -- or our revolver is undrawn and those maintenance tests were set to the same test we had at the old facility. So there's ample room there.

But our total leverage, as defined in the credit facility at the end of the quarter would have been 6.17, again, on a trailing eight-quarter basis. With a first lien leverage of 2.6 which is -- from a first lien standpoint is relatively low. And our trailing eight-quarter cash flow is approximately $191.7 million.

Total debt at the end of the quarter was $1.2 billion, which is $525 million of the senior facility and another $675 million of or 7.5% senior unsecured notes. From a CapEx perspective, we had $6.7 million of CapEx in the quarter, $10.5 million so far this year. On an all in basis for the year, we're still expecting total CapEx will be approximately $30 million with and in part because of the acquisitions we've made this year.

We had virtually no cash taxes in the quarter and only $18,000 in cash taxes so far this year. I would expect a little bit more later in the year, but still a relatively small de minimis number of $1 million, $1.5 million, in that range.

Program payments for the quarter were $3.9 million. All-in on a reported basis for the year, that's probably going to be about $17 million with the acquisitions.

On a combined historical basis, it's probably closer to $18.5 million or $19 million. And the amortization numbers track pretty close to the payment numbers.

So the retransmission revenue, again, on an as reported basis by the end of the year, we'd expect retransmission to be about $73 million. And an all in rate on a combined basis for this year it would be closer to $80 million.

And then again on a reported basis, about $19 million in reverse comp this year. And on a combined basis it would be -- on a full year combined, it would be closer to $21 million.

So we are tracking the year as we had expected. We're pleased with where we've come so far. We're pleased with what we're are seeing in core local. We are expecting a very strong second half of the year with the political. And I'll remind everyone that historically, anyways, at least half of our political revenue doesn't hit until the fourth quarter.

We've got a very good capital structure with very low cost of overall debt for us. So we're well positioned as we've talked about in the last several calls, to generate very good free cash flow both in nonpolitical years as well as even stronger free cash flow in the political years with the added benefit of the very large political that we attract with our number one news stations.

So as we talked about in other calls and as you can see in the investor presentation that's on our website from June, we're well positioned at this point to conservatively generate $100 million of free cash flow on a two-year average. And 100 -- or $200 million plus the free cash flow on a combined two-year cycle with the political. And I would hope the future unfolds, those numbers prove to be a little bit conservative.

At this point, I'll turn the comments over to Kevin.

Thank you, Hilton, thank you, Jim. Last July, Gray announced a streamlined management structure than we predicted at the time would allow us to be decisive, innovative and agile. To quote Hilton from that press release announcing the Management changes, our new structure is scalable in a way that allows us to grow our Company and our local brands quickly.

Now one year later, we thought it would be worthwhile to take a few minutes on this call to review the Company's progress in light of those bold predictions. Most obviously, Gray is a larger more dynamic broadcast Company today.

One year ago, as Hilton mentioned at the opening of the call, Gray owned and operated television stations in 30 markets broadcasting 45 channels affiliated with the big four and 41 additional channels of programming. Through carefully selected acquisitions and the creation of a handful of new local channels, Gray has grown its portfolio of television stations and digital assets pretty significantly over the past year.

With the recently announced transactions in Helena, Great Falls, Flint and Toledo closed in the coming weeks and months, Gray will own and/or operate television stations in 44 markets broadcasting 142 program streams including 77 affiliates in the big four networks. We will then own or operate the number one ranked television station in 29 of 44 markets, the number one and number two ranked station operations in 40 of those 44 markets. At that point, we will reach slightly more than 8% of the total US television households.

Jim has spoken about the impact of these new stations on the results of our operations. It's also worth noting that over capital structure is much improved over the last year as well.

Last October, Gray announced that we successfully completed an offering of $375 million of additional senior notes due 2020, proceeds to which were used to pay down credit facility debt and general corporate purposes. This past June, Gray completed the refinancing with senior credit facility which now consists, as Jim mentioned, with 7-year $525 million term loan facility and a 5-year $50 million revolving credit facility.

Returning to last October, we announced then the launch of a new look for the Company including a modern three-dimensional iconic logo and a cutting-edge website. By now, you're all probably familiar with the iconic camera lens logo that represents the camera -- the Gray lens through which millions of people across the country see the world. We encourage you to visit our website where we now feature, among other things, the countless historic milestones, awards and achievements of our local stations that we believe sets Gray apart from the others.

This April we launched LocalX marketing which is a new Gray-owned digital marketing solution that brings products and services to local businesses throughout all our markets in which Gray operates television stations. LocalX offers fully customizable solutions for local businesses and local nonprofits to grow and thrive in additional space, including mobile and responsive design, search engine optimization, social media management, e-Commerce, data base management, call tracking and reputation management. Our digital team now also licenses our homegrown digital vertical know as MomsEveryday to television stations outside of the Gray footprint.

In June, of course, we completed the Hoak transaction. That deal represents the second-largest acquisition in our Company's 117-year history. And it added 12 excellent stations and the programming and operations of three additional stations that were previously owned or operated by Hoak Media.

At that time we also embarked on a new approach to unwind our shared services agreement that has not been attempted previously by any broadcaster to our knowledge. Specifically we worked with Hoak and Prime Cities Broadcasting to transition the program lineups of KHAS CNBC in Hastings, KNDX of FOX in Bismarck and KXND the FOX in Minot to five other television stations owned by Gray in those stations' markets.

We also announced an effort to transfer these former shared services stations and our remaining Gray shared service stations to new owners. But not just any owners, with the assistance of Hoak, Excalibur, Parker and Prime Cities, we are marketing these stations only to individuals and institutions that are underrepresented in broadcasting such as women and minority-owned businesses and nonprofit groups. We hope they're innovative approach expands diversity and opportunity in the broadcast business while also becoming a new model for the rest of the industry.

The acquisitions over the past year have been consistent with Gray's announced strategy of enhancing shareholder value through select acquisitions of market leading stations that show the culture and values our existing TV stations. Moreover, each acquisition, when closed, has been or will be immediately free cash flow accretive to Gray.

The past 12 months have witnessed a very exciting string of acquisitions and new Company initiatives. It is truly a great time to follow Gray. And Hilton, Jim and our nearly 3000 colleagues appreciate your interest and support.

Thank you for your time, turn the call back to Hilton.

Thank you very much, Kevin Operator, at this time we'd be glad to take any questions from anyone.

(Operator Instructions)

Aaron Watts with Deutsche Bank.

Jim, a couple quick clarifiers, make sure I'm thinking about this right. You highlighted a couple, I will call it non regular items, expenses in the quarter that you guys incurred.

I think you mentioned almost $4 million of the employee benefit policy switch cost that was non-cash and you had some legal and professional fees tied to your acquisition, $4.5 million. Is it fair to say that that dragged down your EBITDA in the quarter, if I wanted to think about normalized EBITDA, I could exclude those items?

The simple answer is yes. Certainly, the deal cost dragged down our EBITDA. I'm not sure if that's completely -- I think I might take a different view of that. If you go back to the guidance we actually published in the Q -- in our Q1 earnings release for Q2, and do a high side revenue, low side expense, pick up the corporate number, the EBITDA, you calculate there comes into I think about within $0.5 million or so of the actual EBITDA that we generated in the quarter.

So, yes we had some unusual things, almost $4 million in non-cash on the PTO change and certainly, the $4.5 million or so of deal cost in Q2. While we will have some more deal costs in Q3, unless another transaction comes our way at some point in time, certainly that $4.5 million would not be recurring down the road, that's for certain.

Okay. All right, want to make sure I was thinking about that right. And secondly, did I hear you correctly your trailing eight quarter leverage right now 6.17 against that 7 times incurrence test in the credit facility?

I think I misspoke. Just a minute, thank you for asking me, again. Let me get to the right page of my notes, please. You are right, it's a 6.17 is what I calculated.

Got it. And then the last financial detail, on any -- could you quantify the additional funding requirements you have for acquisitions that have already been announced?

Well we've announced the SJL acquisition that we'll be -- we have -- obviously we're in a very strong cash position with over $60 million of cash on the balance sheet. We'll be building cash the rest of the years with the political cycle.

So I think a large part of that transaction, we'll be able to finance with existing cash on hand. The residual piece that will need to be financed, more likely than not, right now, I would say would probably end up being a relatively small amount of incremental on our existing term loan facility.

Okay. One question on the core ad trends. It looks like if I compare your second quarter detail with what you're providing us in terms of outlook for the third quarter, that national advertising is trending in the right direction. Is that a fair comment that -- or a fair thought that continued to improve from what looks like a low point in the second quarter? (multiple speakers)

That certainly is what we're seeing right now in the pacing. And certainly what we're suggesting in our guidance.

Guidance has national down in Q3 on a combined historical basis, low single digits versus the more stronger declines we've already seen so far this year. So certainly, it does appear to be improving.

And if you look at pacing sequentially through the quarter, July and August are still sluggish but moving in the right direction. And September currently is actually pacing positive in the mid single-digit range. So based on what we're seeing right now, yes, it does look like it's improving.

Okay. All right, thanks a lot for taking the questions.

Marci Ryvicker with Wells Fargo.

I think the reason why your stock is down is because there's -- we can't figure out how much of the acquired stations are Hoak. And so if you take out all of that $8.9 million of revenue, it looks like you missed guidance on the top line. Can you reconcile what you gave us for revenue guidance with what your reported ex Hoak and maybe that will help clarify what's going on?

Yes, just give me a minute to get to the right place to look that up. The simple answer would be -- and again, I'm trying to pull up some more detail.

But the simple answer, Marci, is that if you strip out the couple of weeks we had of Hoak in the second quarter, our revenue would have come in at $103.9 [million]given -- against the $104 [million] side high range. And our expense would have come in at $64.7 [million], which actually was still underneath the low end of the range. And those are the TV revenue and TV expense lines. The corporate line would then have roughly the $4.5 million of deal cost that went through second quarter when we actually closed Hoak.

Okay, I think that probably helps a lot. And then in terms of your portfolio, when you think of uses of cash, you're doing so many different things. How do you think about the return on a digital asset versus a return on a TV station?

Well our digital assets, we're growing internally, even the LocalX is -- we didn't go out and buy a company, we're partnering with people to help us provide those services but white labeling it under our brand. So the -- the historic digital activities we've had have come generally at higher margin than the core TV, because we were able to lever that.

For instance, the MomsEveryday product we have that we generated internally, we were able to lever that off of a lot of things we're already doing. Something like a LocalX, we're just getting started with that. We expect good things out of it over time, but we think it'll take a little time to develop.

There it's probably a business that's a lower margin than the historic TV but higher volume. But we see that as an important place to be in our markets because our clients, over the last year to two years have been coming to us and saying we need help with these other services, too. Can you provide it? And we kept saying no we can't.

And we started seeing them go to other people to get those services. And then starting to see -- as that increased, we ran the risk of other people being able to talk to our clients and start to move ad budgets around. So we wanted to be in the best position possible in our markets to be able to control those types of things, which is why we decided to get into the digital services in our markets, a little earlier this year.

Okay. Thank you.

And specifically in Q2, Hoak revenue was $3.3 million from the date of close to the end of the quarter and the Hoak expenses were $1.3 million.

That was very helpful. Thank you so much.

David Hebert with Wells Fargo Securities.

Jim, I wanted to clarify something you said earlier on July, August, September, the monthly outlook. Was that specific in national or core?

Yes, it was. Those comments in it were specific to national, yes.

Okay, got it just wanted to make sure.

But also in general, local is running in the up low single-digit area.

Okay, okay. That's what I thought, just wanted to confirm. And then on the two acquired stations, can you talk about the revenue profile for those two stations? How much political is a factor? I would guess it's fairly large, being those two are battleground states. Wonder if you can talk about that.

Yes. They do have a strong track record both in presidential and non-presidential years of a very strong political performance. When we issued our release a few weeks ago, we said that was on a blended two-year average of 2012 and 2013, it was about a 7 times multiple. So they are -- the combination of those two stations, they're very strong performers and we're looking forward to getting to the closing there as quickly as possible, because it is a clean FCC process there. It's a straight up clean one on one station buy so we're hoping it will track quickly with the commission.

Okay. Can you give us an estimate on what the 2012, 2013 revenue is for those two stations?

Given that they're privately held, I'm a little reluctant to do that prior to closing without having gotten pre-permission from the sellers. I'll try to not answer your question, but I think you can derive the cash flow based on the multiple I gave you. And then their margins, I'd say are as good or given that they're strong stations in those markets, their margins are very strong TV margins. So I think I can get you to back into that a little bit.

Okay, that helps. And can you -- you gave the [trailing] eight quarter EBITDA of $191.7 million. That includes Hoak, right, but not anything related to SJL or the two --?

That would be correct. The $191.7 million is only for acquisitions closed and/or stations being operated under servicing agreements. It would not include anything for the pending acquisitions in Flint and Toledo.

Would you have LTM pro forma available?

Yes. The LTM there is approximately $166.5 [million].

Okay and then last question for me. Any update -- are you having negotiations, talks with CBS on renewal of that affiliation agreement?

This is Hilton. I will answer that question and then Kevin may want to follow up with me. But yes, we have spoken to CBS but we're not going to -- negotiate publicly. We feel pretty confident that we will be able to reach agreement with CBS. We think we are very good partner of CBS and with every one of our network partners. And so we feel like we'll be able to reach agreement on solid terms at the appropriate time.

Okay. Thank you, Hilton. Thank you, Jim.

(Operator Instructions)

Jim Goss with Barrington Research.

Is CBS the main outstanding reverse comp issue you have to address?

Yes, it is. Kevin, you want to touch on that as well with some color?

Sure. CBS is the last of the networks that we have yet to begin paying reverse comp. The rest of those kicked in over the last couple years and I think we reported those as they've kicked in with ABC most notably kicking in this year. Just to put one thing in context, in the last 12 months, we have assumed or signed new affiliation for over 40 big 4 stations.

So -- we've not negotiated in the press. We don't issue press releases when they're done. We've done long-term reprint contracts with two of our three biggest providers in the last several months. Again, we don't issue press releases on them. These deals get done in the ordinary course.

At this time, we're talking with lots of important parties about lots of different things and I expect we'll continue our track record of coming to agreements without fanfare and public outcry or public statements.

In the past occasions, when you've made such agreements, do they phase then, or do they come in more quickly than that on the reverse comp side?

Historically, and I'll have to speak more generally to all networks and my experience all broadcast stations, your network affiliation specifies comp, no comp or reverse comp. And when the new term kicks in, you negotiate the different financial arrangements at that point, so it would depend on the contract. But for years we had a lot of -- a lot of broadcasters had contracts where they were getting comp for a number of years and then it went to a zero comp situation and it went to a reverse comp the last couple years of the contract.

The general rule if its reverse comp, starting each time a new contract has been renewed, in a general manner for the whole industry. Our contracts with CBS, we've been clear so far, do not include reverse comps, we went comps with no comp period and we didn't (inaudible) reverse comp cycle with them. And those contracts again, the bulk of those expire at the end of this year.

All right. Couple of other things. In political, seems like you had a somewhat better quarter than I might have expected, given that you do tend to do better in the presidential election years. And I'm wondering if the races you outlined at the beginning of the call was one of the factors that you have unusually large momentum from that standpoint?

This is Hilton. I'll give you some local color. I was at our station, KKTV in Colorado Springs a couple of days ago. They've got aggressive gubernatorial and senatorial races going on there and our station is full of them. And they began much earlier in the cycle then perhaps has been traditionally expected.

And I think that's a new reality that's very positive for the broadcast business, because election day is often months away from when people start voting today and I think that President Obama in the last Presidential elections demonstrated very possibly to the (inaudible) of advertising early. His first advertisements that Gray received were also similarly, at least that I recall, in Colorado and Grand Junction.

And we got Presidential election money in May. And that was much earlier -- for the general -- and so that was much earlier than what we had been seeing in the past. I think the political window has been expanded significantly. I think that's part of why we've had decent political so far this year.

Okay. And then one other area, Gray's traditionally been one of the more aggressive leaders in digital and mobile and some of the other initiatives like that. And I'm wondering if you are seeing any potential to participate in the emerging mobile ad market in a way that could become more meaningful? What pricing you'd be getting and that area? And whether or not some of these initiatives might help offset some of the inherent cyclicality that you have with the political cycles and your success in carving up the political revenues in your markets?

I think that the industry and everyone else can agree on a mobile standard, I think that we're going to be right there in the vanguard of it. Because we have worked very hard to have mobile capacities in each one of our DMAs in every market. And we have been very aggressive and very, very successful at creating digital assets that we have monetized in an outstanding fashion. I think it's one of the best standards in the industry.

And so that is certainly our goal and our hope, because more and more, we're going to be seeing mobile being an important portion of everyone's lives. I don't think that in any way diminishes the power of big screen television and what that brings to our home. But I think it adds to that power and allows television and the creators and broadcasters of television to be even more ubiquitous. And I think that's for important and very exciting for our entire industry.

All right. Thank you.

(Operator Instructions)

Barry Lucas with Gabelli and Company.

A couple of items here. One, could you discern or even describe any geographic differences in terms of national or local? And where there is much very is between your markets, either by geography or size?

I'm not seeing much of a pattern, Barry. It is in every quarter and every year, some markets are doing better than others. But there doesn't -- I wouldn't say there's any pronounced pattern one way or the other. We see that year in and year out. Whether it's everything is robust or whether it's a little sluggish like national has been so far this year. But -- so o real clear pronounced pattern.

Okay. And I'm not sure if you've done this in the past, but do have the pro forma combined politicals for 2010 and 2012?

I don't. I can give you some -- give me half a second. I can maybe give you an idea of 2012. But, I do not have 2010.

And this wouldn't pick up everything, but the big picture for 2012 would be Gray had historically $86 million and Hoak had about $12 million. The others would have contributed some, but not a huge amount. So, that'll give you some feel.

Okay. And then finally, Jim, I wanted to make sure I heard you right. On the description of free cash flow that was a $200 million per year --

No, no, $200 million over a full two-year cycle and that would average to be roughly $100 million. And if you did a simple per year average it would be $100 million. But obviously the political year is going to be heavier than the nonpolitical year.

Right. But are you thinking that's more 2013/2014, 2014/2015, 2015/2016?

I think it's -- whether it's 2013/2014, 2014/2015, I don't think it's a whole lot different. 2015 is probably a little bit better. I would expect 2015 being a little bit better than 2013, because obviously we and many other people in the industry are going to get another round of retrans at the end of this year. We'll be -- we've got roughly 5 million subscribers that will be negotiating for at the end of the year. So certainly, we're looking for uplift there.

Now you get out into 2015/2016 and you go further out, it's going to get -- it's going to improve that much more. It's more of a near term next couple of years or what the last couple of years would have look like.

Okay, last item for me, Jim and maybe more for Hilton, actually. But when I look over at what David Smith is doing on the programming side, and it probably makes a lot of sense since he's bumping up against cap. But he's not the only one.

You've got scripts investing in program narrative because of their unique properties doing some of the home and garden kind of programming. How much of an opportunity -- how much does it make sense, given your size and scale, to be thinking about programming more of the day on your own stations?

I think that while we don't have 39% of the country, I think that we have a very real possibility to continue to expand and create our own programming. It's something that we've looked at every day. We've got folks on our creative and our programming sides across the board looking at doing things just like that as we speak. A lot of what we've done, the most obvious example being MomsEveryday, is something that was created in-house and now we're taking it to non-Gray properties outside of where we do business.

And so I think there's going to be a lot of opportunities to do just exactly that. I'll say one of the things with regard to the Hoak acquisition, they have created, I believe it's called Dakota Today program where they are doing a lot more programming directly in the Dakota areas, which as you know, because of all oil and gas phenomenon over the last five or six years, is one of the fastest-growing places, if not the fastest growing place in the United States right now. And that's a property that we're excited to have in those areas and we'll be expanding and looking to create even more.

I will say, further, at our General Managers meeting, the last one was about 1.5 years ago where we did this, each one of our properties presented their own ideas for different programming and went through a pretty thorough analysis. So, we continue to look at them.

Right now, we're very happy with what we have out there. We're prepared and able to expand pretty dramatically the amount of programming that we create and what we have in-house.

And one of the reasons that I think that we're particularly good at that, is because we're not at David Smith's percentage of the country. Our average market share in each of our 44 markets is pretty substantial. And so we can quickly yet product on the air that we think is going to have a solid audience and that we can quickly monetize. And I think that's because of the quality of the stations that we have invested in over the past decades.

Great. Thanks very much, Hilton. I appreciate it.

And gentlemen, we have no further questions at this time. I'll turn the call back to you for any additional remarks.

All right, well thank you so much, Operator. And I want to thank each and everyone of you for your time today. I know it's been a full week with a lot of news in the broadcast business and I appreciate your time to listen to us.

We're really truly excited about what we've been able to accomplish over the last year and we're pretty excited about what the future has to bring. Thank you for joining us and we'll talk to next quarter. Thank you.

Thank you. And that does conclude today's conference. Thank you for your participation.