Gray Media Inc (GTN.A) 2015 Q3 法說會逐字稿

Good day, and welcome to the Gray Television's third-quarter 2015 earnings 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. Good morning, everyone. Thank you, operator. Welcome to the third-quarter earnings call for Gray Television. This quarter and year has been a time of great achievement for your Company, of which we, and we trust you, are justifiably proud.

For the quarter and year Gray achieved record revenue of $151.1 million and $427.9 million respectively. Also for the quarter, our free cash flow was $0.22 per share and for the year $0.96 per share or $15.6 million and $65 million respectively.

Net income was $0.09 per share for the quarter and $0.36 per share for the year. Significantly, this quarter's results contained special charges relating to our previously announced termination of our national sales agreements and various costs related to our closed and our pending acquisitions. Without those one-time costs, our net income per share would have been $0.18 for the quarter and $0.45 for the year to date.

Since October 1, 2013, we have completed 16 acquisition transactions, which collectively have added 30 television stations and 18 markets to our operations. Last quarter, we completed five transactions that added six TV stations to our operations: KOSA Television, the CBS in [middle] Odessa; KMVT, the CBS and KSVT, the FOX in Twin Falls, Idaho; the FOX affiliate in Wausau, Wisconsin, which we have re-christened as WZAW, named after one of our legendary employees in that market, and that now broadcasts together with CBS affiliate, WSAW in Wausau; WAGM-TV, the CBS/FOX in Presque Isle, Maine; and KVTV, the CBS affiliate in Laredo, Texas, which is now broadcasting with our other network affiliated broadcast in the Laredo market.

Then, on September 1 of this year, we announced the acquisition of KCRG in Cedar Rapids, Iowa. This ABC affiliate is an absolute jewel, and we are formally closed on it as of November 1, just a couple of days ago. I would like to welcome the associates, the viewers, and all the rest of the partisans of KCRG to the Gray family.

Soon thereafter, on September 14, we announced the cap to our year so far, the acquisition of the broadcast assets of Schurz Communications, adding seven superb and indeed unique stations to our growing Company. While it is distinctly premature, I also want to publicly welcome the Schurz associates, viewers and communities to Gray Television. At the conclusion of the Schurz acquisition, since that is all that we have pending currently, Gray will broadcast in 50 television markets and broadcast over 175 program streams to viewers from Alaska to Maine and Texas to Wisconsin.

Most importantly, as 2016 approaches quickly, Gray has significant broadcasting assets in almost every battleground state in the country that are simply must-buy stations if any politician hopes to carry that respective state. Consequently, we have enormous optimism about next year. And the acquisitions that we have made this year and through the last couple of years have only enhanced our strategic position.

We also want to stop and take a moment to thank TVNewsCheck for selecting Gray as its Station Group of the Year. We were quite surprised but very happy for the recognition, the entirety of which is due to the hard-working men and women who make what we put on the air in each of our markets such compelling viewing. Because without them, not a single deal, transaction, or paradigm-shifting decision would have been possible.

We also announced yesterday that we had reached agreements to divest, at the time of the closing of the Schurz transaction, all radio assets we picked up in that deal. We are very pleased with the quality of the soon-to-be new owners of these radio stations. We believe that we got a very fair price for them, and we have continued to stick to our play book of being a pure play television broadcaster with dominant news-centered community-focused stations nationwide.

With that, I'll bring my former comments to a close and turn it over to Kevin Latek. Kevin?

Thank you, Hilton. With my time today, I'll address three most frequently asked questions from our investors of the past several weeks.

First, how is the Schurz transaction proceeding? Our short answer, very well. Within about the first 72 hours after announcing the Schurz acquisition, Ray and Schurz filed our HSR application with the Department of Justice, filed all of our numerous FCC applications and had our first sit-down meetings with the DOJ and with the FCC. Over the next two weeks, we began and quickly concluded an auction to divestitures of South Bend Station and our Wichita stations, both of which will be completed, as you know, as swaps with Sinclair and Lockwood that will bring two more great stations to our portfolio.

Before we could even ink those deals and announce them, we also managed to reach agreements to divest certain assets of Schurz's Rapid City television station and separately to acquire KYES, the local MyNetwork affiliate in Anchorage that we view as a natural complement to the very strong local NBC affiliate that we are acquiring from Schurz. As Hilton just mentioned, yesterday we announced the sale of the Schurz's radio stations to three excellent local and family-owned companies who will provide great leadership to those fine stations. Meanwhile we have continued extensive and productive discussions with both the DOJ and the FCC.

Today, just seven weeks after we announced the Schurz transaction, we have made tremendous progress towards obtaining regulatory approval. Consequently, we were able to reaffirm our original guidance that Gray will close the Schurz transaction as well as all related transactions before the end of the first quarter of 2016.

As an aside, I want to point, as Hilton mentioned, over the weekend we closed the final steps in our acquisition of KCRG and completed divestiture of our Gray small-line cluster. Consequently, the only pending transactions at this time are those we have announced at and after the Schurz press release, September 14.

Our second most popular question lately is: Will Gray participate in the SEC's spectrum auction? The answer is yes, but to a limited extent. We have discussed on prior calls and at recent investment conferences that we do not expect the FCC Spectrum Auction will present meaningful financial opportunities for Gray. This is because we have few stations in markets with strong Spectrum demand, and even those stations that are in markets with strong spectrum demand tend to have higher enterprise values than the expected clearing price for their market.

When we announced the Schurz transaction, we disclosed that we intended to place one of Schurz television stations in the auction, specifically WAGT in Augusta, Georgia appears to have a high Spectrum value for the auction. We were able to move its programming streams to our existing stations in that market, thus placing the station into the auction just makes good sense.

Last month, the FCC released opening bid prices for every television station in the country. Some of the opening bid prices are higher than we anticipated and much higher in some cases. We still believe that the auction will not present meaningful opportunities for Gray outside of WAGT in Augusta. Nevertheless, we are taking a close look at our options in a handful of markets. If it appears that the auction could lead to significant proceeds beyond WAGT, we will not hesitate to pursue those opportunities by filing the appropriate auction application with the FCC by its mid-December deadline.

Finally, our third most popular question currently is why is Gray building a national rep firm? And answer is we're not. On August 31, we announced that we had notified the two national ad sales rep firms of our decision to terminate nearly all of our rep agreements at the end of this year. We recorded a special charge of $6.1 million in the third quarter to reflect anticipated termination fees, which will be paid in monthly installments mostly through 2016 with some trailing in fees due in the first half of 2017.

We also announced that we anticipate that expense savings due to the termination of the national advertising subcontracts, net of increased personal expense, will be in the range of $8 million to $9 million in 2016, with net savings continuing in the year thereafter. Since that release, we have also arranged the termination of the national sales rep relationships that all of the television stations that we will acquire from Schurz, Sinclair and Lockwood, and each case effective at the closing or January 1, whichever is later.

Our decision to terminate the rep firms was not a reflection of their levels of service under the current agreements. Rather, we simply came to the conclusion after a full year of analysis that the quality of our stations combined with our new scale creates an opening for us to handle our national sales directly. We are not building a new rep firm to replace or compete with the existing firms. Under our new approach, all but two of our stations will deal directly with their national advertising clients and agencies, precisely as all of our stations now deal directly with local clients and agencies.

We've hired two former reps to coordinate our station activities. We may hire a few additional account reps spread across our stations, and that's about it. We will not open staff offices in Detroit, Chicago, and/or Los Angeles. Nor will Gray be building a new office in Manhattan. We simply do not believe that those expenses are necessary to accomplish our objective.

Importantly, roughly one-quarter of our stations already handle national sales directly, including newly acquired KCRG in Cedar Rapids, which like many of Gray's existing stations, did not have a national rep for several years. These stations have certainly held their own in national buys. We therefore can reiterate today that we expect that our new strategy on national sales will have a marginally positive impact on national advertising revenue into 2016 and beyond.

Those are our most frequently asked questions. I'm sure there are some additional ones, and I want to save those for the folks who have dialed into the call today.

This concludes my remarks. I turn the call over to Jim Ryan. Thank you.

Thank you, Kevin, and good morning, everyone. As Hilton and Kevin have said, we are very pleased with the results for our Q3 and our year-to-date Q3. I'm going to focus most of my comments on what we call the combined historical results, where we took Gray's actual results and combined them with the historical results of the acquisitions that we've been doing both in 2015 and 2014 to have the most comparable data available for you.

We were very pleased with our combined historical revenue. It is, for the third quarter, actually it's notable that 2015, being a non-political year, it's actually a little bit ahead by about 2% of the comparable quarter in the 2014 political year. We had the same thing going on in year-to-date results with the non-political year being about 6% ahead of the political year. That's the first time that we can recall that we have been able to do that in a non-political year going against a political year.

As both Hilton and Kevin commented, we did make the final closing on our Cedar Rapids station on November 1, but as you may recall, we actually started a pre-closing LMA, effective as of September 1. So Cedar Rapids was in our numbers for the month of September on an as-reported basis. It had a couple million dollars of revenue, about $1 million expense and a little bit over $1 million of cash flow, and we were delighted at its performance in September and look forward for a very good fourth quarter and early part of next year, especially with the Iowa political scene.

Q3 net revenue, again, we were very pleased with results. Local was up 9% and national was up 10%. That was in line with the high side of the guidance we had issued. Political was stronger than we had expected at $4.9 million. We continue to see good trends in fourth-quarter political, more spending than we had expected. We think that's a good sign for 2016 in general.

On the operating expense side, combined historical for Q3, we were up 18% a little over $15 million. But again, as we've talked about many times over the past several earnings calls, our reverse comp to our networks was up about $11.8 million. We did take the one-time only charge to terminate the national rep agreements that Kevin discussed, and that was a $6.1 million charge in the quarter. As we said, as we announced that we expect to save more than that run rate next year of over and above that $6 million charge.

Most notably, our payroll and benefits costs were flat quarter over quarter. If you exclude the reverse comp, it's increasing both because the gross comp is increasing as well as CBS being paid for the first time this year. Our actual core, what we call core base costs, are down about $2.5 million, and we are very pleased with that. Year to date, again, local is up 6%. We're very pleased. National is up 4%, political at $8.5 million, again, is higher than we expected, and we are very pleased to see that.

Again on the cost side, while we were up about $31 million for the nine months ended, the reverse comp is actually up $34 million. If you exclude the one-time charge for the national rep termination, our core nine-month run rate is actually down about $9.5 million. We are very proud of the work we've been able to do on the core expenses. We were pleased with the category trends in Q3.

Turning now to guidance for Q4, we are pleased with what we are seeing overall. Again focusing on the combined historical guidance for Q4, we think local will be up a healthy 3% to 5%. National is going to be down a little, but that is, we think, somewhat reflective of a little softness in Chrysler Jeep Dodge, but actually the rest of the trend line for fourth quarter is looking pretty good. And on a combined local/national basis for fourth quarter, we're currently at about 87% of last year's final with two months left to go with selling in the quarter. So we feel very good about our directionality in Q4. Obviously, our political, again, is tracking a little bit higher than we expected and probably has the ability to, hopefully, come in a little bit stronger even than what our guidance is suggesting.

Obviously, with the nine-month numbers in and our guidance for Q4 what it is implying is that we expect on a full-year basis for combined historical results that 2015 local would be up somewhere around 5% over 2014 and our full-year national should be up somewhere in the 2% to 3% zip code. So all-in-all, we think 2015 on a non-political year has been very solid. We're very pleased with what we've seen so far and where we're going for Q4. We're pleased with the political trends in Q4 as well.

Turning to the balance sheet a little bit, our leverage is calculated under our senior credit facility, as defined in the senior credit facility, was 5.15 times. As we said in the body of our release, if you actually netted all the cash on our balance sheet off, we'd -- actually our trailing eight-quarter leverage ratio is about 4.9 times. Senior leverage, as defined in the credit agreement, was at about 2.6 times.

CapEx during the quarter was just shy of $7 million, just over $15 million year to date. We think we'll finish the year somewhere between $20 million and $25 million. Cash taxes are still within expectation. We had a de minimis amount in Q3. We're still expecting somewhere between $1.5 billion and $2.5 billion for the year.

Full-year combined historical for programming payments is tracking at about $15 million to $16 million, and the amortization is in the same zip code. We are very pleased with where we were seeing our retransmission revenue growing to, and that detail is in the body of the release.

At this point, Hilton, I will turn it back to you.

All right. Great. Thank you, Jim. Operator, we would like to open up the line for any questions anyone may have.

(Operator Instructions )

Aaron Watts, Deutsche Bank.

Hey, guys. Thank you.

Jim, one quick housekeeping question to make sure I'm understanding right. The $6 million charge for the national sales effort and the $3.8 million of expenses tied to your M&A activity, both of those depressed EBITDA in the quarter? Is that correct?

Yes. And both of those amounts were not included in our original guidance that we issued in conjunction with our 2Q call.

Both of those events occurred afterwards and when we issued our press release about the rep firm termination, we did spotlight that $6.1 million at that point in time. But we are still, even whether you include them or exclude them, we are still very pleased with where we came out in the quarter.

Got it. Okay. Perfect.

And then, secondly, on the advertising environment, as we think about the cadence from 2Q, you saw an acceleration into 3Q, a little bit less of a growth rate as you moved into fourth quarter with what you're saying there.

Can you maybe just talk about what's driving the ebbs and flows? And then also maybe a comment on auto, which I think was down in the second quarter on a combined basis, but you saw a nice pop in the third, and maybe how that's trending into the fourth?

Yes. Again we were very pleased with the pop in third quarter in auto. We don't necessarily have a full explanation for that but we are very happy to be the recipients of that in Q3. I think it may be just how the ebb and flow of markets get targeted from quarter-to-quarter by the auto industry.

Fourth-quarter auto right now appears to be okay. As I said the only thing we're seeing a little softness in is Dodge Chrysler Jeep. And that is looking to us like just some routine rotation between our size markets and dollars looking like it's maybe going to other markets during the fourth quarter.

In general we see fourth quarter is healthy with the core combined in the, call it 4% to 5% zip code. So it's maybe a little bit less of a growth pattern then in Q3 but quite frankly we just had an outstanding Q3. We're very happy with what we're generally seeing in Q4 and I think it's a good finish to the year. And I commented on a combined historical, the core local-national is going to come out in a healthy growth rate year-over-year and we're happy with that.

Okay. Thank you.

Marci Ryvicker, Wells Fargo.

Thanks. Two questions.

You mentioned, well we know political came in better than expected in the third quarter. So I guess the first question is were there specific markets? Is it broad-based? And it feels a little bit like your fourth-quarter guidance, I think you said it too, Jim, is a bit conservative.

And then secondly, on your portfolio and your M&A plans. Is it correct to assume you're sort of on the sidelines at this point until Schurz is integrated or is there a situation where you could consider raising equity if the right thing came along? Thank you.

Marci, I'll take the first part of your question on political. Certainly we benefited with Cedar Rapids in for the month of September and that contributed probably, you know call it, $400,000 or $500,000 of the political number.

And certainly we will benefit from Cedar Rapids in Q4, and obviously, with Iowa politics ramping up quickly. I think that the market we probably have the most potential to have some pleasant surprises.

But as we have discussed many times, predicting political is nearly impossible because you never really know what the dollars are and what the order until literally the phone rings and they start telling you. So we also picked up dollars in Kentucky this year with the governor's race.

And the rest of it, I would say, is scattered around a little bit. Nothing -- you need some early, a couple of markets move with early spend for 2016, very early spend. Not huge dollars but again encouraging that they are actually spending a few dollars here and there for 2016 already.

Marci, this is Hilton. Let me begin and maybe Kevin will follow-up on our portfolio and our M&A strategy.

The first thing I want to tell you is that we are definitely not on the sidelines. We have no acquisition targets that are currently imminent that we are looking at. But if you look at our track record over the course of this year and really the previous two years, you know that we move very, very quick and in a very disciplined way.

And so what you would see from us is similar to what you what you'd have seen in the past. Opportunities in this current environment come up unexpectedly and while we don't have anything imminent, we sure wouldn't want to be characterized as being on the sidelines.

That being said, with regard to your question about the issuance of equity. We obviously went to the markets at the end of March and did raise equity and the Company has no current plans to do that.

As things stand, we think 2016 is going to pretty much dramatically de-lever Gray television all by itself. So we do not have any plans currently to go to the equity markets.

I really am quite positive about our prospects of closing the Schurz transaction in a very prompt fashion. And I think the radio divestitures that we announced yesterday will help get along in that process and so we are still out there looking. Kevin, you want to follow up with that?

I would just add a little color. This year our transactions with the station in Odessa, Twin Falls, Presque Isle and Cedar Rapids all moved very quickly. The longest of those four station acquisitions, from the time we signed the NDA to the time we signed the purchase agreement was two weeks.

And I don't think anybody has such a track record of moving that quickly, let alone doing it on all four acquisitions this year besides Schurz. And Schurz itself moved very quickly, given the complexity and the size of that transaction.

My point is that while we have nothing imminent today, the phone could ring tomorrow with an excellent target that we would very much like to pursue and we could move quickly if there is an agreement on price.

Per the way we think about this is we have seen a pattern here of what number one TV stations in midsize/small markets are worth to us, what they are worth to the market, and while there's a lot of things that we can find (technical difficulty).

If we, as we look at where we are in the cycle, this is probably not a bad time if the right opportunity came along and it had an accretive. Otherwise a good term transaction, now may be the right time to pursue that and that means bringing the leverage ratio up just a little bit.

Now is the time to do that as we go into a big political year, as opposed to say a year from now. So again, just to emphasize, we have nothing imminent. We're not looking to do any more [OR] transactions.

We are really focused, really almost seven days a week, on pushing Schurz over the finish line and the related transactions over the finish line faster than anyone would expect. But we could get, if the right thing came along at the right price, we certainly would certainly be interested in having that conversation.

Got it. Thank you very much.

Thank you, Marci.

Lance Vitanza, CRT Capital Group.

Hi, guys. I've a few questions if I can. The first on same station revenue growth, the core revenue growth, really strong, up 9%, 10% local national respectively.

Did the acquired stations augment or detract from that performance? I mean I understand it's same station, but if we think about the trends and what you've acquired versus what you've been running for a period of time, can we draw any distinction there?

I think they are both doing well. I mean, it gets down to in any given year, one particular market will tend to do a little bit better than another and they'll all trade back and forth a little bit in a portfolio if it's 50 stations.

But I don't think there's any big difference between the acquired stations and the legacy stations. The acquired stations in some cases might be, certainly are up a little bit, would be up naturally in retrans because of being able to apply after acquired clauses.

But if you're looking thinking about local and national, again, it's going to be more due to the individual characteristics of that market in this year versus last year than any broad trend.

Got you. On the political side, and I did hear the comments regarding Q3 and Q4, but we've been looking forward to 2016 for a few years now. Do you think expectations might have gotten a bit ahead of themselves, especially considering the Democrats appear to have anointed Hillary without any kind of a primary fight?

No, we still have strong expectations for 2016. Fully pro forma-ed for Schurz, the 2012 political was about $141 million, where we've said many times that our general expectation is 2016 should be better -- will be better, than 2012 from a political standpoint.

I think, even on one side, if there is a strong candidate so that the Democratic primaries are somewhat muted, certainly the Republican primaries have got a ways to go yet given the depth of their field and ebb and flow of some of their candidates, I would think.

And, in general, the real heavy spending doesn't come until well after the primaries are done and the general election is on. And we have said repeatedly that at least historically and we don't know why, and obviously 2016 could be a little different.

But historically, in every political cycle we've seen so far, at least half the political spend of the year shows up in the fourth quarter. So the real money comes out when it's down to the two candidates of each party.

Great. And just on the retrans front.

If I take the $17.5 million of incremental gross retrans you reported on a same station basis and subtract out the $11.8 million increase in reverse comp, I get a $5.7 million increase in net retrans, as it were. It's about a 33% margin. Is that the right way to think about the flow through on incremental gross retrans going forward?

No, because the numbers, and I think your numbers are approximately right. I have to go back through that math. I think I'm -- but the answer would be no because those combined historicals are simply adding the historical results of the various acquisitions.

The real run rate on a go-forward basis is going to be better than that as we apply our after-acquired clauses. And again we're comfortable over 2015, 2016, 2017, at least that our net, even after Schurz is fully rolled in and everything's applied there, that our net retrans is probably running right around a 50/50 split.

Thanks very much. Appreciate it.

Davis Hebert, Wells Fargo Securities.

Thanks for taking the questions. Just on the retrans, I appreciate the commentary on net but is there anything you could give us on how to model 2016 retrans on the growth side? And how many subscribers you have renewing next year?

Prior to Schurz, we have less than 1 million subscribers renewing at the end of this year. And we've got 3 million -- just a minute, I'm trying to get to the right page, we've got about 3.5 million subscribers renewing at the end of 2016 going into 2017.

Now, again, those subscriber counts are on a, roughly a $10.2 million total subscriber base and that is prior to Schurz. And on page 15 of our September investor presentation that's out on our website, we, again pre-Schurz, we have rolled out 2015, 2016, and 2017, both gross estimated reverse comp and the net numbers.

So we will see a little bump next year with a few subscribers we've got to reprice this year. And we'll obviously see some normal escalators within our existing agreements. But the next opportunity to take a nice step up in the gross number, as well as the net number, will be 2016 going into 2017.

Okay, thank you.

And then digital was down slightly on a pro forma basis. Just curious how that's looking for the fourth quarter? And I know you've talked about this being sort of a regrouping year. So do you anticipate having some momentum heading into 2016 on the internet side?

I think as we go through 2016, things will improve. I think it will be a year that kind of ramps rather than just jumps right out of the gate, which kind of makes sense.

Fourth-quarter trends I would expect it still to be somewhat soft, but we've said this year was a regrouping year and kind of refocusing and so we're not surprised with what we've seen. And I think 2016 will pick up as the year goes along.

Okay. Thank you. And then last question.

Your 7.5% bonds are now callable. Just curious if you foresee a refinancing opportunity at some point?

And then kind of a follow-up to that question. Given your increasing size and that potential refi opportunity, just curious how important it is to you to have, Moody's perhaps, upgrade your rating?

Certainly we would always like an upgrade. But that is going to be up to Moody's. I think the bond investment community has always read a little bit past that and we've traditionally priced and traded more align with what S&P has on us.

That being said, we will be thoughtful on a bond call. I think a lot would depend on what the market is doing and just how attractive the NPV is on a new rate, that while we are in our first call period, that's a pretty expensive call for us. So I think we will be thoughtful and opportunistic, I guess is how I would characterize that.

And it is a practical matter while maybe the market might present a great opportunity for us and again we will happy to be very thoughtful. I think we're more inclined to get Schurz closed and in and then start thinking harder about what we do with the bonds, than trying to do something very, very quickly.

Okay. Thank you.

(Operator Instructions )

Jim Goss, Barrington Research.

Thank you. You probably noted that you are the only broadcaster, I believe, with the D.C. Bureau. And I'm wondering if there is any meaning to that right now besides the flag in the ground?

And given that this is a political season, is this the opportunity to create added meaning for that? And maybe you can discuss those options and what potential financial impacts you might have from that presence.

This is Kevin.

Kevin, you want to handle that one?

Yes, I will take that. Since we announced our launch of our D.C. Bureau earlier this year, Media General has sponsored D.C. Bureau. So we're now no longer the only pure play broadcaster with the Bureau but I'm proud of what our folks are doing already.

The Bureau exists to provide content to our local stations that is not available otherwise and it truly functions as a Bureau, with the news director in the market contacts the D.C. Bureau and asks to track down this person in (administration around the hill) et cetera. We're doing it because I think it helps the local product and moving the local product has a benefit to the bottom line.

There is no ROI attached to this. This is not a very significant investment for us to call, but it has raised our profile with the politicians and we think we are providing a better service to the local communities andI can't give you the direct measure of what that means to us but we do think it is net positive to us.

In terms of political revenue, we have not made any tie between (inaudible) that we're providing and what we may get from the political dollars and we don't think they expect to make any tie.

I do think that just as a general matter, to the extent incumbents see us in the hallways and be able to help them that they will have at least a somewhat more positive impression than us than they may have with other stations that we compete with.

Whether that translates to changes in political ad volume by their agencies, their campaigns and their (inaudible), I doubt it, but it certainly can't hurt. So I would say I think the bottom line is the Bureau is an inexpensive ability for us to add some unique local content and that's really the way we think of it.

Kevin, is there an ability to create an ROI aspect by maybe involving some affiliates or some other stations not owned by Gray that are in other markets that you might want to partner with?

That is a good question. We thought about that and we would want to be selective in that because we don't want to bring in stations that have kind of the same kind of body of news casts and operations that we have and are not already owned by one of our larger competitors. Actually it's a smaller potential user base.

At this point, we're still focusing on trying to staff up to cover the increased stations we bought this year. And we need to make sure we have the right talent in place for stations before we think about adding talent and infrastructure for additional stations.

So I don't see a lot of potential customers out there for it and at this point I don't think we are going to have much time to hire before 2016 enough people to cover all of our stations as well and some additional stations that we don't own yet.

So I think the interest is possible, but probably not until after 2016. I mean there are the folks who are going to be on the road a lot and capability to have a full staff be focused on the Gray stations, not on potential customers. Maybe long-term, but not in 2016.

Okay. All right. And just one other thing.

Jim, you and I, in a conversation were discussing the sort of the conversions of Olympics and political next August, at least in terms of your NBC affiliates. And I think you had indicated that the convergence of those two actually could maybe increase your political opportunities rather than sort of displace them. And I wondered if you might talk about the supply/demand pricing impact of those two elements coming along and how that might play in, either in your own NBC affiliates, or the non-NBC affiliates.

With regard to the NBC affiliates, there's certainly that opportunity. The Olympics are marquee programming, so we would normally be pricing that inventory on a premium basis. And then, if indeed there are political advertisers that are interested in getting into that marquee programming and the probably fairly extensive viewership, that certainly can drive the pricing on political as well.

We've mentioned this before, but all party money, all political action committee money is purely priced on supply and demand. So if you've got a super pack that really wants to be in a certain program at a certain time and the pricing can go up dramatically and in very short order.

So there's certainly that potential. It will be a terrific problem to have. Now, how that actually plays out next year, we'll have to wait until after August and after the Olympics are over, but it's certainly a possibility that it could give us a little boost in August with our political.

Now, that also being said, well there's only so much inventory we have available in association with the Olympics. But it could be a high-class problem to have next summer.

Normally Olympic dollars as far as skewing dollars from other stations in the market, yes, there could be a little of that and that. The buyers will deliberately budget it in an Olympic year some dollars to be on the Olympics, so that may cause some shifting of dollars a little bit from quarter-to-quarter.

And in third quarter of next year with the Olympics it could very well, I mean where we have NBCs, we'll be doing very well. And we may see a little shifting away from the CBSs and ABCs at the same point in time.

A little bit of that, though, depends on the -- obviously we've got a portfolio of very strong stations. So if the Olympics is on a weak NBC in a market, while there is some halo effect, it's not as pronounced as if the NBC was a strong number one like many of our NBCs.

All right. Well, thank you very much.

Leo Kulp, RBC Capital Markets.

Hi, thanks for taking questions. I think, Jim, you mentioned that your normalized core expenses ex-reverse comp were down a couple of percent in the quarter. Can you provide a little color around what were the drivers there.

And then when we look out to 2016, how should we think about overall expense growth?

In the quarter, again, combined historical, I think the biggest driver of the core expenses being down would be that basically the payroll costs for quarter-over-quarter were flat and were down on a year-to-date basis a little bit, about almost $2 million. So that helps a lot in managing the overall number.

We also saw some natural savings in professional services this quarter over last. Last year we were involved in converting many of our stations to our wide orbit traffic system, which is the traffic system we use. And we were going through an expensive implementation training phase all throughout last year.

And that certainly wound down for the legacy stations and the acquisitions we made in 2014 and 2013. Now, we obviously have a little bit of that going on in some cases for the 2015 acquisitions, but we picked up some ground year-over-year on that as well.

Thank you.

Dennis Leibowitz, Act II Partners.

Thanks. You had mentioned, I think at the past pro forma, that free cash flow per share on average for 2013/2014 was $1.93. You talked about, I think, $35 million free cash flow on average for the Schurz stations.

If you subtract the cost of debt, I come up with $2.17 per share free cash flow on average for 2015/2016 without any growth next year. Is my math correct?

You did a lot of math in a big hurry. So what I would say and what we've said several times in earlier calls as well as the presentations we have been making, we certainly expect the free cash flow per share in 2016 to be better than 2014. And, I don't recall, did you say 2015/2016 time frame or you were out 2016/2017?

Well I thought the figure you gave was 2013/2014, so I'm talking about 2015/2016.

Yes, so again, we would very much say that 2015 is better than 2013 and we certainly expect 2016 to do better than 2014.

Yes. And that's true of Schurz as well?

Yes.

All right. Thanks.

Barry Lucas, Gabelli & Company.

Thank you and good morning and thanks to Dennis for providing a good opening there. Hilton, we talked a little bit about this before and you were kind enough to address the free cash flow for the quarter and year-to-date.

So I want to come back to capital allocation and return of cash to shareholders. You seem to be hitting on at least eight cylinders today. So what goes into your thinking about returning cash?

Is it that the M&A is priority? Do you have covenants that are a little bit too restrictive or what should we looking for down the road in terms of those returns of cash to shareholders? Thank you.

I think my answer is similar to what it was last quarter, but I will try to reiterate it. I do think that the policy in the short-term is continuing to grow the footprint of Gray television. The industry is consolidating very, very quickly.

And so if you had asked me what is our first priority, I would tell you that would be it. As a shareholder with most of my net worth caught up in this Company, I would very much personally and professionally like to see us have not just a stock buyback but a dividend attached to our common shares.

I don't think that time is imminent. Not in the next six to nine months. But I can see when we get our leverage down and we see what our political really is going to be in 2016, that we have that opportunity to do that. But once we do it we want to make sure that we are very, very cautious.

I think that we had demonstrated to the market that we tried to and have delivered exactly what we said we were going to do. And when we accessed the public markets in March, there was some skepticism about our ability to grow our portfolio. But we knew that we had that ability one way or another and that's allowed us to really do, I mean, fantastic things in 2015.

So I guess the way of saying it is return of capital to shareholders in whatever event is something that I would definitely recommend at some point to our Board of Directors, who would obviously be the final decision-makers there. But I think that the most imminent and top priority is continuing to grow. We need to get through this (option), see kind of how things go and then take an assessment at that time. Does that answer it, Barry?

Yes, Hilton. Thanks very much for that color.

All right.

(Operator Instructions )

John Huh, Wells Fargo Securities.

Hey, guys. Thanks for taking the questions.

Jim, can you just clarify what one-time costs are embedded into the Q4 expense guide? I was a little confused by the wording in the release.

And how much stock-based comp is included in the corporate guide?

Okay, first of all, the one-time costs, and those would be in the corporate numbers -- bear with me just a second, I'm trying to get to the text so I can walk you through it. Right now, we think we would probably have about $3.5 million of continuing deal costs in Q4, either associated with the cleanup of the deals we've already done this year or continuing to move the Schurz transaction forward through the regulatory process.

If, and again we think, we've clearly said we think Schurz would be closed by the end of first quarter 2016. If Schurz, and we should be fortunate enough to have it closed essentially at the end of 2015, we would then pick up probably $5 million to $7 million more of final deal costs. A lot of that is just M&A fees and final closing legal fees.

But that $5 million to $7 million that is mentioned in the guidance is only if Schurz should happen to close in Q4 and it is not currently in the guide of the numbers that we said in the chart of approximately $9 million to $10 million. If that same set of dollars, if we don't close in Q4, will probably fall into, would obviously fall into Q1. Does that take care of the question you had, John?

Yes. It's perfect. That's very helpful.

And then how much stock-based comp is there in [the corporate cuts]?

If you give me a second, I think I can pull that level of detail out to you, but I got to dig down to it. Give me half a second here. Probably about $800,000 real quick looking at it.

Okay. That's perfect. Thank you so much.

Sure.

Operator, are there any other questions? Hello? Hello?

Well operator, are you there? Well, I don't get any response to my questions.

So my assumption is there are no further questions and so I just want to take this opportunity to thank each and every one of you for attending our earnings call and for your questions. We look forward to bringing our Schurz transaction to an end and are really looking forward to all of the opportunities that 2016 is going to present to us. Thank you for being here and we'll talk to you next quarter.