Gray Media Inc (GTN.A) 2015 Q2 法說會逐字稿

Good day everyone and welcome to the Gray Television's second-quarter 2015 earnings call. Today's conference is being recorded.

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

Thank you so much operator. Welcome to the second-quarter earnings call for Gray Television.

On the call with me as usual is Jim Ryan, our Chief Financial Officer. Kevin Latek, who is usually on these calls, is unavailable today. We will each have a few brief comments and then answer any questions that you may have.

First, we were thrilled with Gray's performance this quarter and year to date. We achieved record revenue for the quarter and year of $143.5 million and $276.8 million respectively, a 34% increase for the quarter and 839% increase year to date.

These gains led to record broadcast cash flow of $57.2 million and $104 million for the quarter and year. This is an historic high for Gray Television.

Likewise we achieved record net income of $12.1 million and $17.7 million for both periods which represents again an all-time high. We achieved record retransmission consent revenue of $36.9 million and $73.2 million, the highest of any periods in our history. And following our successful secondary offering at the end of March of this year, and the strong free cash flow generation our stations and Company delivers, we had $222.2 million of cash on hand on our balance sheet at the end of the second quarter, reducing our net leverage ratio to 4.8 times.

We have made good use of the proceeds of our secondary and of the cash that our Company has generated. On July 1, we announced five individual acquisitions, all of which that we closed at the beginning of the third quarter.

First, we announced the acquisition of KMVT, the CBS affiliate, and KSVT, the Fox affiliate, in Twin Falls, Idaho. Second, we announced the acquisition of WAGM, the CBS and Fox affiliate in Presque Isle, Maine. Third, we announced the acquisition of KOSA, the CBS affiliate in Odessa, Midland Texas. Fourth, we announced the acquisition of the Fox affiliate in Wausau, Wisconsin to add to our existing operations in that DMA. Fifth, we announced the acquisition of KVTV, the CBS affiliate in Laredo, Texas to similarly add to our operations in the Texas Valley.

We are extremely happy to add these operations, viewers and associates to the growing Gray Television business family. We continue to look at suitable acquisitions that fit our criteria of dominant television stations in attractive and growing markets. We're very proud of our acquisition track so far this year and hope to bring other acquisitions to bear in the second half of this year.

All-in, we couldn't be more pleased with our results. This past Friday we also announced the addition of Beth Neuhoff to our Board of Directors. Beth is an experienced broadcaster and the CEO of Neuhoff Communications.

Gray is blessed to have an outstanding Board of Directors and Beth will add greatly to our governing structure. I'd like to publicly welcome Beth Neuhoff to our Board of Directors.

With that, since the success of this quarter says so much and really says it all I will turn it over to Jim Ryan for his comments.

Thank you, Hilton. Good afternoon everyone. I'm going to first pre-apologize for a bad summer cold I have, so pardon me for my voice and maybe some occasional coughing.

I'm going to focus my comments specifically on the combined historical results for both the second quarter and year to date because I think that's most meaningful to everyone as we're comparing our 2015 results to and give you an effect of all of the acquisitions we've been doing through 2014. For the quarter, our core local was up 6% on a combined historical basis.

National was up 4% right in line with our expectations for the quarter. The local and national core together was up 6% which we feel very, very good about. Our retransmission revenue came in at $36.9 million which is what we expected.

Our political at $2.2 million was a little bit better than we had anticipated. And that's I think the best reference point is that the second quarter at $2.2 million is about $1.3 million over 2013 results so we're comparing off year to off year and again we feel good about that.

Our operating expenses for television were up -- up $6.1 million. Most importantly and as we've talked about on the last several calls that expense increase quarter over quarter is really being driven by the increased reverse comp, especially with our paying CBS for the first time ever this year.

Our reverse comp was up in the quarter $11.1 million, so actually our core expenses including reverse comp are down about $5 million. And we're extremely pleased with that.

Year to date again we're pleased with where we are so far. It's tracking to expectation. As we said in our Q1 call we had some tough comps in Q1 of 2015 with Winter Olympics from last year but on a year-to-date basis again core local up a solid 4%, national up 3%, retrans a little bit over $73 million.

Political at $3.4 million which is double the year-to-date run rate of 2013. Again we're encouraged by that. And our broadcast operating expenses are up $15 million but again that's being driven by a $22 million increase as expected in reverse comp.

So on a year-to-date basis, on a combined historical basis our core expense in TV less reverse comp is actually down a little over $7 million. And we're very, very pleased with.

Turning to our guidance for third quarter, and again focusing on combined historical. And here in our third-quarter guidance for combined historical we are also picking up for the first time the impact of the acquisitions Hilton mentioned at the beginning of the call. So this is a full comparative.

We are -- it appears our third-quarter revenue will come in around $145 million which actually would be equal to 2014. And while it may have happened in the past I'm hard-pressed to recall a third quarter in a nonpolitical year where net revenue actually equaled third quarter of a political year. So we're very pleased at our trajectory for third quarter.

Core local growth is appearing strong at up 7% to 9%. Core national growth appears that it might be a touch better at 8% to 10%. But at that slightly better run rate is partly explained by political replacement because obviously we are going up against a strong political from last year and usually our national advertising is one of the first things that gets crowded out a little bit when the political advertising comes in.

Again we expect about on the high side maybe $1.9 million of political. We certainly have always tried to be conservative in our political estimates. It is very difficult to predict, there certainly is some room for upside in the political as we move through the rest of the third quarter.

Also looking out farther into the year, we had seen what I would characterize is some relatively small buys already being placed for later in the year. Primarily issue money in a few states, it's not really big dollars yet, I characterize it as probably still less than $1 million. But we are very encouraged by the fact that there is already some early buying for later fourth quarter.

And we think that bodes well for political late this year. And certainly as we've talked in prior calls our 2016 political is going to be exceedingly strong.

As Hilton mentioned, our leverage ratio if we net all cash on the balance sheet calculated under the terms of our senior credit facility would have been 4.8 times at the end of Q2 and that's down a little bit as we had anticipated from Q1. We see that trajectory absent any further acquisitions to be going into the mid-4s by the end of the year and then significantly lower than that by the end of 2016.

Our debt on the balance sheet at the end of the quarter was $1.231 billion. Our senior leverage ratio under the credit facility was at 2.51. We had CapEx in the quarter of about $5.5 million, $8.4 million for the year.

We are still viewing our CapEx run rate between $20 million and $25 million for this year. Our cash taxes for the quarter were $1 million and we think for the full year we're going to end up somewhere between $2 million and $3 million in cash taxes. Program payments were about $3.5 million for the quarter, $7.1 million year to date and we think full-year basis that's looking to be about $14 million to $15 million and the equivalent program amortization are about the same numbers.

Quarter to date again retransmission revenue was $36.9 million, reverse comp was $17 million leaving us a net reverse comp of $19.9 million. The stations we picked up on July 1 will be slightly additive to the numbers we've already published in our investor presentation for both total comp, obviously increased reverse comp as well but most importantly our net retrans on a full-year basis in our investor presentation we said was probably going to be about $78 million.

Now with the additional acquisitions we're probably up around $80 million.

With that, Hilton, I'll turn the call back to you.

Great, thank you, Jim. Operator, let's open up for questions.

(Operator Instructions) Aaron Watts, Deutsche Bank.

Guys, thanks for taking the call and Jim I'll try to take it easy on you today. First question just on your performance moving from second quarter to third quarter, I think you mentioned that national might be ramping up a little bit because of the political displacement factor. Anything notable on the local side that is helping boost your performance there?

I characterize that more on local as a little bit more broad-based. We certainly have going up against a reasonable amount of political from last year in Q3 it was about $23 million. So that's a part of it.

I wouldn't point to any one single thing. I think I describe it is just a lot of base hits and doubles and nothing really home run-ish, just a good solid off year Q3.

Okay. On the auto category it looks like it was down slightly. How do you reconcile SAAR being very strong right now yet the auto category not really showing growth? Is it just the cars are flying off the lots and the local dealers --?

I think that's part of it. And with the SAAR going up I mean certainly they're earning credits at the local level.

And I don't know exactly how long they have window to have to use those credits. But I would think with the cars moving so fast they're probably saving -- they could well be saving some of those credits they're earning now for down the road when they need it more.

Okay. And one last one for me just on M&A, you guys have obviously been more active than others recently in what I would characterize as kind of smaller acquisitions. What do you think is holding back larger scale M&A right now both for Gray or the sector as a whole and what do you think jolts everyone back into considering larger M&A?

Let me start with that. This is Hilton.

The answer for Gray which is the only thing that I can speak to is it's not -- nothing is holding us back. With regard to the industry every company in our industry has different issues and different opportunities and they look at things differently. There's been a lot of controversy about the impact of the repacking and everything that's happening with the FCC.

I think that's very company-specific. That is something that we have publicly said that it was extremely unlikely that Gray will participate in because our stations make a lot of money, they've got tremendous free cash flow and they have an enormously important role in their individual communities.

And so Gray looks for stations and groups, that's just hard to find them, that we can add to our portfolio. So absolutely nothing is holding us back.

Every other company will have to answer that for themselves. So that's about all I can really speak to.

Do you feel that a material type of transformative transaction for Gray would be beneficial just given the changing landscapes throughout television right now?

Well I don't know exactly what a transformational merger means. Well actually I probably do.

The answer is it actually depends on who the partner would be. I think that Gray has now sufficient vertical scale in its markets to stand on its own for the duration.

I think that horizontal scale is something that we should continue to work on. And I think net of all of our transactions that we announced July 1 we're in 47 markets out of 204, 205, 206, something like that, in the country and out of those 47 markets if we're not the dominant provider we are daggone near it. And we think that gives a tremendous amount of staying power and gravitas and I think that our retransmission concern negotiations this prior year proves that and so we feel good about where we are.

There's a lot of assets that are in this business and people may be deciding whether or not they want to continue to have them and run them or not. The one thing I will say is that Gray is a permanent player in this space and we are interested in talking with anyone but I think that we have a sterling team. We have sterling assets and we know how to run a TV station.

So I would be remiss if I said that we weren't in discussions. They occur all the time. There are a few obstacles to things happening in the next two to three quarters for other companies.

There is zero standing in the way for Gray Television. Because the thing that makes us move are the ones that have a broadcast operating business that coins money and serves its community. And those are television stations that are not going to be turned back to the FCC.

So we are ready and able to move. We have demonstrated our ability to move and move quickly. And we have the capital and the assets and the access to capital to make those potentialities a reality.

Understood. Helpful insights, Hilton. Thank you.

Lance Vitanza, CRT Capital Group.

Hi, I have a couple of questions. The first is on the core national guidance.

I understand reverse crowding out, but if you compare the guidance to what you actually achieved in 3Q of 2013 this is much stronger. It's really not in the same ballpark.

So my question is what's driving that? Is this a stronger ad recovery than we saw back in 2013? Or is it more a question of better execution on the --

Our 2015 guidance for national includes all the acquisitions completed to date. I'm not sure what you're looking at for Q3 2013. But if it's our historic as reported then it's obviously doesn't have all the impact of the acquisitions in it.

Just so I'm clear, though, I thought when you said the growth and rates in the guidance that includes you're comping off of it on a combined basis are you not?

Yes and so that combined basis in -- I thought you said Q3 2013, maybe you said Q3 2014 and I misunderstood.

No, no, no. I did. What I'm saying is you're growing more quickly than the old legacy business was growing in Q3 2013, the last time that you had reverse crowding out as a benefit.

So I'm making the point, I guess, I'm trying to understand it's not just -- it occurs to me that you're doing better than you were doing in 3Q 2013 because the growth rates are higher. And if I'm hearing you right it sounds like you're saying that there's something, you're outperforming on basically on the properties that you've acquired.

There's some of that. I think that goes to the properties that we acquired and we felt as we were acquiring them we thought there was some potential there. I think it could be also depending on the market as far as our relative performance scale we may be picking up a little bit more share in some markets as well that's helping boost the overall number.

Okay, thank you. So on the reverse comp side if I heard you earlier in the comment, $17 million of reverse comp in 2Q, is that a flat fee or does that number vary with your retrans? And in either case how long should we expect that $17 million to remain the run rate?

It depends on the network how the fee is worked. A couple of networks have a fixed fee, a couple of other networks have a hybrid where there's a quote fixed fee component. But then the agreement has a variable component as well.

But in our case as you can clearly see in the existing investor deck where we laid those numbers out for the next 2015, 2016, 2017, regardless of the network and how they choose to do their individual fee we think our run rate on a net basis is roughly 50-50 over the next several years. Now the $17 million that you mentioned will step up a little bit in Q3 and Q4 because obviously the additional acquisitions we've made. But like I said earlier on a full-year basis we originally had expected about $78 million of net at the end of the day and that's with the additional acquisitions they were relatively small markets but that will boost the number of little bit higher to about $80 million.

Okay, that's helpful. And then for Hilton just regarding transformational M&A I gather you get a lot of questions about that and there's perhaps some interest in that. But I wanted to make the comment that in Q1 you were the top TV performer in terms of core revenue growth and so forth and with the numbers you reported today I'd be surprised if you weren't the top performer in 2Q and the guidance for 3Q suggests you're doing well again.

So I would just say that literally the last thing I would want to see is for you to be involved in a transformational transaction because you're already where we would want you to be so I don't know what you would be transforming into. It's hard to imagine that you'd be transforming into something better, for what it's worth.

That's the nicest comment I've ever gotten in one of these calls. I will tell you yesterday I was in South Bend, Indiana and I talked to all of our employees at WNDU, our station there that we purchased a number of years ago from Notre Dame University, and the team that we have in place, the management that we have in place it's truly extraordinary.

I'm so proud of what they're doing on an individual market-by-market basis. Because no matter how much Jim and I and everybody else at that level the individual stations and their performance and what they do on a local basis that leads to what we have and what we reported.

I'm enormously proud of the corporate culture that we have created within Gray Television because we invest a great deal into our stations. We invest a great deal in technology and we invest a great deal into content. And I'm very happy to be able to consistently report that those investments pay off for our shareholders.

When we did our secondary at the end of March we showed our numbers and despite being an invest and build broadcaster or maybe because we're an invest and build broadcaster, likely because, we have the highest EBITDA of any publicly traded comp in the country and we'd like to keep it that way as best as we can. However, our industry is changing and we have to stay cognizant and confident of what's happening and what's moving.

And every one of our guys works 24/7, 365 and a lot of people say that but ours really do. And they have (technical difficulty) and we're going to pay attention to how the industry shifts and changes but we will never lose sight of what we owe and are obligated to do for our shareholders in this Company. And I thank you for your comment.

Thanks a lot.

Marci Ryvicker, Wells Fargo Securities.

Thanks for anyone looking at their screens I'm sure you can see that media stocks are down big today. It's dragging Gray down and I think it's coming off the commentary from Disney on pay-TV subs.

So one of the questions I'm getting is in terms of reverse comp on the affiliate side, if you're paying a fixed fee by market what happens if your pay-TV subs go down as well so that you're getting less retrans revenue but still paying the same amount? Or is it the case that given your broadcast you're a little bit safer because you will be included in all the skinny bundles, so your pay-TV subs may not go down as much as something like cable?

Marci, I completely agree with the second half of that comment that, yes, given that we're operating big four affiliates and strong news stations that we will be in skinny bundles so we're not distressed by that. You know will there be over time a little bit of cord cutting? Certainly, but again we think given the size market we operate in and the high quality news operations we think we're probably a little more insulated on that than maybe a major metro market might be.

So again we're not overly concerned. And certainly the retrans agreements themselves are generally three years long.

So there are definitely opportunities to reprice and adjust not all that infrequently. So we're pretty comfortable with that landscape over the next several years.

Okay. And then can you remind us how many stations or what percent of your markets you have number one or number two ranked new stations? On top of that I believe that the number one or number two ranked news station usually gets over 50% of the political revenue in a market.

All of us do.

Yes, and Hilton is right, in the 47 markets we're in currently it's all but two that we operate a number one or a number two station.

All right. Thank you.

Marci, let me give you one example, though, on that number three station because I think even that exaggerates it. One of them is Albany, Georgia where we have operating out of our Tallahassee station the CBS, I think the Fox and the CW and I apologize for not being able to put that out there correctly.

Within that DMA we rank as number three but we used to own the number one, WLD, which is now a Raycom station. And the FCC forced us to relinquish that market but we were able to bring service to that community out of our station in Tallahassee that keeps our cost down but is dramatically profitable.

And so with regard to market ranks another thing to keep in mind about the quality of what we do, a lot of the places where we report a number three it's really not a number three. I mean it's a unique opportunity where we can make outsized profits and actually deliver outsized public returns to the viewers in those communities that didn't used to have that. So I would argue that we're number one, number two everywhere, but that's because of some of the unique issues that accompany our number three stations.

Got it, thank you both very much.

Jim Goss, Barrington Research.

Thanks. I have got a couple of questions. First, as you've gotten somewhat bigger and your platform has gotten more extensive, is there any shift in the appropriate size of markets as you scale higher?

Let me answer that, Jim and then I will let you come back around to that. I think there's a lot of discussions about market size by companies. There's some companies that come in and say we only want to operate in X market and above.

My personal opinion about the way we operate if we are able to make the profit margin the EBITDA margins and yet deliver the service that we deliver in our smaller markets, when you get into a bigger market where there is a lot more cash flow if we operate in the same way we're going to be very successful. Sometimes I think it's harder for a big market group to come into smaller markets but I think Gray has the potential to do that.

Let me say that that is not the strategic vision of our Company but by the same token I would never preclude that. Gray has the capacity to grow into one of the if not the dominant television broadcaster in this country.

And by that I mean also in larger markets but by quality. We are passionate about this business. We believe in it and we believe that we are in the period of really a new golden era for what we're doing.

And technology is helping us. And we make more money now on our digital platforms than we ever got in the old days of reverse comp. So, not reverse comp but compensation from the networks.

We just see so many different silver linings to apparent clouds. So Gray does not limit itself by market size. We do limit ourselves by quality but there is also an issue of competition.

If you just go through the market stats as markets get larger and larger you don't typically see a station or group of stations that have marketshares that we are accustomed to. And that's something Gray will have to learn if it ever has an opportunity to grow to larger markets.

We look at each deal on a station-by-station basis. We have no ego invested in the process. We have a desire to build our Company to enrich our shareholders and to serve our communities because we think those are all three things that work intimately together.

And so we look at every deal and we'll see. But broadcasting is a sticky business with its viewers and so we look at everyone. And so don't think that Gray wouldn't go to a larger market as long as it was something that was within our comfort zone.

Jim Ryan made a comment either last earnings call or the one before or maybe both, but at one point I think he worked at the number 38 market size in Grand Rapids. And from his own personal experience there's really not much difference between a market of that size and our largest market which is currently Knoxville, Tennessee. So we have the ability to look up and to look down.

The one thing I'm really proud of is that we have created because of the talent in our Company and it's spread all through the United States the ability to make significant money in a community as vibrant but yet as small as North Platte, Nebraska or Presque Isle, Maine, a great addition to our portfolio. And those station serve their communities and they make handsome returns for what they're doing. And if we can do it in those markets and we can deliver the quality which if you show up in any of our markets just turn our television stations on, it looks like anything you can see in the top 10 markets in this country.

And I have a lot of confidence that I think is well-founded in fact and experience and our ability to get bigger. We're not going to be at the top with them but we can get larger than 65 or 64.

You've always had an affinity or an inclination to look at capital cities and college towns and there used to be a company called Capital Cities Communications that eventually bought ABC that seemed to have a pretty good record along those lines. I'm wondering are you proactively going after some of those markets as you sort of initiate, try to initiate discussions where you can? What sort of process do you go through?

I will say this. We have a strong management team and we go through the inventory of stations that are out there. And I hate to call it anything other than it is but it's really a shopping list and it's some of the best stations in the country.

Some of them are groups, some of them are individual stations but all of them come with a great deal of pride of ownership, of respect for the business they're in, and candidly a love for the business that they're in. It is a delicate process. It's a courting process for Gray.

And we look at ourselves with regard to existing markets we have and I refer to this in every one of our videos as being stewards of those stations because that's how I view it and that's how we view it. Now we create a ton of free cash flow which is what our investors really care about but at the end of the day it is the substance that people put out in the individual markets that creates that free cash flow.

And so we have a strong and very articulated shopping list and we work it every day and we are sometimes successful and sometimes we fail. I think we have demonstrated to the market that we are disciplined in our pricing because when we started this round of acquisitions we have actually been able to do it and everyone has been accretive.

It will continue to be because that allows us to continue to build the broader scale of this operation and I'm really proud of what our team has accomplished. So we do have a very strong identification process and a great shopping list. I just wish we could get all of it.

All right. Well, one risk factor I'd like to bring up, over the years broadcasting, television broadcasting in particular, combination of broadcasting and cable has been able to maintain its share of total domestic ad spending pretty well. The latest encroachments have been Internet and now digital.

I'm wondering if there is some risk with streaming and over-the-top that there might be some potential shift in your ability to maintain the industry. In particular in ability to maintain its share of total ad dollars since they can't really grow too much out of the line of GDP.

Let me start with that and I will let Jim follow up with me when I'm finished. I've grown up in this business and it's the biggest Chicken Little business I've ever studied.

I mean whether it was the remote control or cable or any one of the other different technological challenges, all of the people that were predecessors of mine in any company, whether it's Capital Cities ABC or had to deal with questions just exactly like that. It is not to make light of that question because we have seen the power of technology and how it is changing our world every day.

But something I mentioned two quarters ago, we commissioned SmithGeiger to study what we do. And they looked at all of our stations by regions and then interviewed literally thousands of people per region in terms of their view of our stations and what we did. And their results were presented at our General Managers Meeting at the end of February of this year and the results were really quite stunning.

Our individual websites, our digital presence, our apps that Gray Digital Media puts out there are the single most viewed local, digital or mobile product in any of our markets by region. And in fact the only thing that beats them is Facebook, Google, YouTube and what I really don't understand but this is what the results showed was weather.com. Those four.

In every one of those regions we were the dominant number one, ahead of newspaper, ahead of our competition, of everything. And I think that a lot of that is due to the talented team that we have that made us first.

We were the first broadcast Company in the country to have an Apple app that you can download by market across the country. We were the first broadcast Company in the country to have it for Android. We were the first one to have it for the Kindle Store.

We have fabulous digital properties and we made more money on that than we ever had before. So now let me turn to your question. Over-the-top, all of the rest of it, because of the quality of what we have in the portfolio on an individual microeconomic basis I don't think it's a big challenge for Gray Television.

And I think that we will have some adjusting to do. But I think the power of the content that we create is going to see us through in a very solid fashion. And so I'm not really concerned about that.

I don't see any bundle or anything else being capable of dislodging us from where we are and in fact I see the local competition in each of our markets getting less, not getting higher. 10 or 15 years ago the biggest competitor that we had was the local newspaper and it is the odd situation where that is currently the case.

But your comment is a legitimate one that we battle all the time because our competition today is everything from Google all the way down the chain. And I just wish our regulators would look at it that way and the FCC would understand that we have to continue to evolve because there are many paths to making this business even better. And we still remain as a local television station the single best avenue of reporting and news coverage and I think it is vital to our community and I would hazard to guess it's actually vital to our democracy.

It's one of the reasons that we launched the Gray Washington, DC bureau was to bring real news to allow our legislators to talk directly without filter to their voters back and forth and it has been a stunning success for us. We've seen it in our ratings, we've seen it in the amount of product the Washington bureau puts out and it's irreplaceable. And so we feel good no matter what the technology comes out.

Thanks. Your passion is showing through.

Thank you.

Barry Lucas, Gabelli & Co.

Thanks. Good afternoon, Hilton. Good to talk to you.

Couple of quick odds and ends. On auto, could we talk a bit about how that's actually pacing in Q3 given the strength in national?

I think, Barry, right now it's a little bit better. How it will translate for the whole quarter I think it's just a little too early to tell.

But we don't -- it doesn't seem to be going in the wrong direction for us. In general our pacing for Q3, again, we're encouraged and it's reflective in the local and national growth rates on a combined historical basis.

But July is appears right now it's pacing healthy upper single digits. August is similar, September local and it's still pretty early for September, remember it's only the first week of August.

But local is up pacing right now at a nice solid mid-single-digit range and national is doing a little bit better. And again it's given the relatively earliness in the quarter that local in September is what we would expect and we think obviously it will pick up a little bit as we get closer to really selling September. So we're pleased with what we're seeing.

Okay so you're saying auto was up in all three months?

It felt like it picked up a little bit in July . Where it will end up for the whole quarter I think it's a little too early but it doesn't, right now it doesn't feel like it's -- right now it's kind of flattish year to date or thereabouts.

And it doesn't seem to us like I'm trying to think -- eroding it's not going south. If anything third quarter will look a lot like the first part of the year but it has the potential to get a little better.

Great. And Jim as long as -- I don't want to keep you on with your cold here but you did outperform on the expense side when you strip out reverse comps. So where are those savings coming from?

That was a little bit across-the-board. We did have a reasonably good quarter, in our health and welfare plan we're self-funded so that there is some volatility there and so Q3 was relatively good. We're seeing some, I'm sorry Q2.

Our payroll was down a little bit quarter -- year over year, that's partly reflective of a one-time charge we took last year, our non-cash charge when we changed our vacation policy to a paid time off policy. So that's certainly helping a little bit.

But also as base payroll is down, I think that's again partly reflective of working the opportunities we've seen, we saw in the acquisitions that we were making in 2014. We're saving a little bit in national rep commission because obviously without the political, most of political comes through the national rep and we're not having to pay those commissions on the political this year. So that's certainly helpful as well.

But, Barry, really it's as I describe it I guess on in answering a revenue question earlier it's a lot of plain old-fashioned singles and doubles and grinding it out. Not any one single company-wide initiative that's really driving it, it's just everybody at the stations working hard to try to be as cost-efficient as they can.

Great. And last time for me and Hilton, I don't want to rain on the parade at all here, especially given Internet up 4.9%, but shouldn't that number be a little bit stronger?

Well we would certainly like it to be and I think the answer is yes but I think it's going to come. We had a few pratfalls that we have fixed and I think that you will see that number growing as we go forward quarter to quarter. But we're still very proud of (technical difficulty)

Barry, as we said before this year for that line item is kind of a regrouping year for us. We had the last few years some very, very strong growth.

And we're as Hilton said redoubling the efforts to take it now again to the next level and push it forward. And we've had if you track it back far enough I think you'll see a couple of other times where it's had a growth spurt, leveled a little and then sprinted again. So we're gearing up to push it forward again.

Great, thanks very much. Feel better, Jim.

Thank you, Barry.

Leo Kulp, RBC capital markets

Hi, good afternoon, thanks for taking the questions. I just have two quick points.

First, can you provide an update on your big four subscriber count? I think the last one I saw was 9.6 million.

The five acquisitions will increase that a little bit. To be honest I don't have that immediately handy but given the size of the markets it's not going to change that dramatically. I'll get this wrong, I know I will, but it's like Presque Isle, Maine has 15,000 subscribers or something.

It's just indicative of the markets. So it will move it a little bit but not, certainly nothing at a material level.

But you're not seeing an erosion on your underlying base?

No, we're really not seeing anything significant. As I said earlier there's occasionally there's some what appears to be cord cutting or sometimes it's more of just changing between one provider and another. But again given our size markets and our very strong news operations, we think we're probably a little bit more insulated than maybe a big metro market.

Okay. And then any thoughts on how the DIRECTV-AT&T merger will impact your retrans use?

The simple answer is worst-case we don't think it will really impact things. There is the possibility that it might actually be helpful to us.

It's still a little unclear to us exactly how they are structuring that and at the end of the day which set of contracts will apply or is it ending up more status quo of the ATT side as that static and the TW side is static. It's a little unclear to us but we certainly are not expecting a negative out of it.

Got it, thank you.

Marci Ryvicker, Wells Fargo Securities.

Having no response we'll go to John Huh with Wells Fargo Securities.

Hey guys, sorry, I think that was me on Marci's line actually. I just had a couple of follow-ups. Jim, given that you've closed a bunch of deals on July 1 are there any one-time deal costs embedded into your Q3 expense guide?

There is a little bit but really some of that given the actual size of those deals and it's not going to be a lot they tended to proceed actually quickly and without -- and very cordially I would phrase it as. And so unlike maybe a big deal that takes a lot of legal time to get it put together these were pretty straightforward deals. And so there's a little bit but it's baked into the number we put out there.

Okay, perfect. And then just on your Q3 political guide, it seems like it implies a sequential decline from Q2. Now I know you said you're staying on the conservative side there, but it's a little bit surprising given the way that political usually tends to trend and given the stations you're adding in the quarter. So like any color there would be helpful.

Yes, I mean I really the range we put out certainly we would hope we were at the high-end or a little bit above it. And obviously there's certainly the opportunity for political to skew father up.

I can't really cite anything in particular, John, that would say well it was X thing in Q2 that boosted the number up. I think it's just kind of is what it is right now. But certainly we're not bashful in taking political orders, so if the opportunities are there we will always try to get more than our fair share.

Got it. That's it for me. Thank you so much.

Let me just add one other thing just as an issue of reinforcement. We really get the highest political revenue per household of any station group in the country. And it's because of what we've put on the field and (technical difficulty)

I am also proud of what Jim does because it's hard to predict political but it's not impossible. Because it changes all the time depending upon polls and leads and contested races. So it's a little hard for anyone sitting in Jim's position to project political.

But I think it is fair to say that we think this whole process is going to be extremely bullish for us and for our industry. I think on a percentage basis we're going to get more than our fair share of it because of what we do.

And so I think it's going to be a huge upside and I think that it's going to expand dramatically and I expect that we'll start seeing increases in the third and fourth quarters just based upon what we've got going on and that's more than the presidential election year. We've got competitive Senate races, competitive governors races and they just simply have to be on our stations to get elected in their communities. So we're very bullish about that for the next six quarters.

Great, I appreciate the color.

(Operator Instructions) With no further questions in the queue I would like to turn the program back over to Mr. Howell for any additional or closing comments.

Thank you very much, operator, and thank all of you for being here this afternoon. Thank you for your interest in our Company and thank you for your interest in our industry.

We're excited about where we are and excited about where we're going. So we look forward to talking to you next quarter or if you have any questions you know how to reach us. Give us a ring.

Have a great afternoon. Thank you.

That does conclude today's call. Thank you for your participation.