Gray Media Inc (GTN.A) 2018 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Good day, and welcome to the Gray Television's First Quarter 2018 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Chairman, President and CEO, Mr. Hilton Howell. Please go ahead, sir.

Thank you so much, operator. Good morning, everyone. As the operator mentioned, I am Hilton Howell, the Chairman and CEO of Gray Television. I thank all of you for joining our first quarter 2018 earnings call. As usual, I'm joined today by our Chief Legal and Development Officer, Kevin Latek; and our Chief Financial Officer, Jim Ryan. We will begin this morning with a brief disclaimer that Kevin will provide.

Thank you, Hilton. Good morning, everyone. Certain matters discussed in this call may include forward-looking statements regarding, among other things, future operating results. Those statements are subject to a number of risks and uncertainties. Actual results in the future could differ from those described in the forward-looking statements as a result of various important factors. Such factors have been set forth in the company's most recent reports filed with the SEC and included in today's earnings release. The company undertakes no obligation to update these forward-looking statements. Gray uses its website as a key source of company information. The website address is www.gray.tv. We also will post an updated investor deck to the website within the next few weeks.

Included on the call will be a discussion of non-GAAP financial measures, and in particular, broadcast cash flow, broadcast cash flow less cash corporate expenses, operating cash flow, free cash flow and certain leverage ratios. These metrics are not meant to replace GAAP measurements but are provided as supplements to assist the public in their analysis and evaluation of our company. We include reconciliations of the non-GAAP financial measures to the GAAP measures in our financial statements that are made available on our website. Now I'll return the call to Hilton.

Thank you, Kevin. Gray Television began this year as busy as ever, building a larger, better and stronger company, balance sheet and income statement. As you saw this morning from our earnings release, our first quarter 2018 local and national advertising revenue increased by approximately $23 million or 11% compared to first quarter last year. Our net income was $19.9 million for the first quarter of 2018, increasing 90% from the first quarter of 2017. Our broadcast cash flow was $77.7 million for Q1 2018, increasing 10% from the year-earlier period. Our net income per fully diluted share for the first quarter of 2018 was $0.22 per share. Further, we repurchased approximately 1.6 million shares of our common stock on the open market at an average price of $12.64 per share, including commissions, for a total cost of approximately $19.6 million. As of March 31, 2018, our total leverage ratio as defined in our senior credit facility was 4.23x on a trailing 8-quarter basis, netting all of our total cash balance of $443.4 million against that calculation.

We are extremely pleased with these results, and we remain very optimistic about the balance of 2018. However, it's important to note that we've also had some unexpected softness as we began Q1. Our core advertising had some soft areas, but the reasons for this are enormously varied. Out of our 57 markets, some economies are somewhat softer than the national headlines might suggest. But in many of our markets, the economy is so strong that many of our traditional advertisers are selling all of the inventory they have access to and they consequently have pulled back in their traditional ad spend.

A typical example of this is one of our long-time car dealer advertising client in Wisconsin. That individual is selling over 500 vehicles a month just based on word-of-mouth, which literally exhausts all of his available inventory. Consequently, he doesn't need to spend quite as much as he has typically during these time periods.

This quarter, we also continued seeing that our top-ranked television stations hold up better than lower-ranked stations when the market becomes volatile. And be it across all the markets in which we have third-party revenue audits, we saw greater declines in total market revenues than our individual stations in those markets experienced. In fact, in first quarter revenue audits, it showed that we had significant increases in Gray's aggregate share of local and national advertising revenue in each of our markets -- or most of our markets. Results like these prove the enduring value of top-ranked legacy, trusted and brand safe advertising platforms in dynamic times.

In April, we were extremely honored and humbled by the recognition bestowed on several of our local television stations by our peers. First, the National Associations of Broadcasting Educational Foundation announced the winners and finalists in its annual Service to America competition, which honors the outstanding public service commitment of local television and radio broadcasters.

In the media market category, the NAB Educational Foundation chose Gray's WJRT, the ABC affiliate in Flint, Michigan as the winner. It named 2 other Gray stations as 2 of the 4 finalists for this award: KWTX-TV, the CBS affiliate in Waco, Texas and WMTV, the NBC affiliate in Madison, Wisconsin. In the small market category, Gray's WCTV, the CBS affiliate in Tallahassee, Florida, won the 2018 Service to Community Award. The National Association of Broadcasters Educational Foundation also named Gray's WEAU, in Eau Claire, Wisconsin, as one of the 4 finalists for this prestigious award.

On top of this fantastic set of honors, which actually was replicated 2 years ago, we learned at the end of April that the Radio Television and Digital News Association named several Gray Television stations as the winners of a combined 19 regional Edward R. Murrow Awards for Excellence in Journalism. The Murrow Awards are among the most respected journalism awards in the world. We wanted to take this time to salute the dedicated individuals employed at each of these winning television stations for doing a job exceptionally well.

In separate news, the increasing demand for political advertising on Gray's station is now becoming quite noticeable. Once again, our first quarter political revenue beat our guidance. The second quarter, as usual, will be much better than the first quarter for political revenue. In fact, we have primaries just this month in West Virginia, Indiana, Ohio, North Carolina, Nebraska, Idaho, Georgia and Kentucky. In June, we will have primaries in Alabama, Iowa, Mississippi, South Dakota, Maine, Nevada, North Dakota and Colorado. In addition, we have already booked a few million dollars in base buys for the third and fourth quarter for a number of House and gubernatorial campaigns and issue groups. We have begun 2018 very well, and we remain quite optimistic that 2018 will prove to be a very good year, with a strong political season for our top-performing stations. At this point, I will turn the call over to Kevin Latek and then to Jim Ryan, and after their remarks, we will open the line for questions from anyone.

Good morning. As you saw in our earnings release this morning, we have completed all of the retransmission agreements that expired around the end of last year. Specifically, we negotiated new retransmission consent agreements with over 350 separate MVPDs covering roughly 58% of our total subbase over the course of several months, starting at the end of 2017. Despite this tremendous volume of complex and sometimes difficult negotiations, we never once pulled our signal from a cable or satellite operator nor even ran a single crawl or other announcement signaling that we had reached an impasse in any negotiation.

In the end, we are very pleased with the tenor, tone and, especially, the results of these many negotiations. At the same time, we are seeing significant growth in OTT subs, although the base does remain rather small. At year-end 2017, the pure OTT platforms, plus DIRECTV NOW and CBS All Access, hosted enough combined subs to get our attention. In fact, our total OTT sub universe erased more than 1/2 of the decline in our MVPD sub-universe last year.

In addition, our total MVPD and OTT combined sub count for 2018 is roughly unchanged from 2017. Moreover, since year-end 2017, the OTT operators have continued to launch Gray stations throughout the country. As you may know, Gray launched every CBS affiliate on CBS All Access, just as its service launched 3 years ago and where necessary, we launched any acquired CBS signal on All Access at or very soon after closings.

In addition to having every CBS affiliate carried in All Access, we now have had 145 station signals launched on the other OTT platforms as of this morning. Based on year-end sub numbers and assuming simply modest growth in OTT subs, we now expect to realize a few million dollars in subscription revenue from these platforms in 2018, which will boost both gross and net retransmission this year.

Today, we are slightly raising our retrans revenue guidance for the full year from what we announced in our last call. In particular, we currently anticipate that 2018's gross retransmission revenue will be within a range of approximately $350 million to $352 million, while retransmission revenue net of retransmission expense will be within a range of approximately $178.5 million to $180 million. This increased retrans guidance results from better-than-expected pricing of our retransmission agreements expiring around the end of last year, in addition of some OTT retransmission revenues.

Due to the term of some contracts, retransmission revenue will not necessarily be perfectly linear throughout the year as it has been in the past. Either some increases will occur at different points in the year, which should result in gross and net retrans revenues moving somewhat higher in subsequent quarters than what we posted for the first quarter of 2018. Meanwhile, as we have for the past few years, we remain busy with multiple M&A opportunities, large and not so large, that satisfy our acquisition criteria.

While the overall pipeline is healthy, our acquisition criteria does present a high bar. Specifically, we remain committed to growing portfolio only through high-quality acquisitions that will be immediately cash flow accretive. Since the beginning of this year, we have entered into a few relatively smaller transactions that continue to build our scale by adding additional television stations in a handful of markets. These opportunities will add a second Big 3 network affiliate to our existing operations. We are busy as ever at working at more M&A opportunities, and hopefully, we will have more to announce in the coming weeks and months. Thank you for your time. I now turn the call over to Jim Ryan.

Thank you, Kevin. Good morning, everyone. As we said on our last call, as we look out to the full year 2018 revenue, we still expect to exceed $1 billion of revenue, which would be an all-time record for the company. Secondly, our leverage at the end of March, net of all cash, was 4.23x on a trailing 8-quarter basis. And as we've said since our last call, we continue to expect our leverage to be in the lower 3s, net of all cash, by the end of the year, absent any significant M&A activity. Finally, I'd like to mention again, as Kevin said, that the increased full year growth retransmission guide of $350 million to $353 million, with net of $178.5 million to $180 million is definitely higher than we discussed in our Q4 call. If you'll recall, on the call, we told people that we firmly believe that we would finish within the midpoint of the range we had given of gross retrans between $340 million and $350 million. We're obviously very pleased with the final results of the negotiations. Also, as Kevin mentioned as well, I just want to reiterate that the retrans revenue in 2018 will not be perfectly linear. The back half of the year, back portion of the year, will show larger increases over Q1 and Q2. At this point, I'll turn the call back to Hilton.

Thank you, Jim. Operator, we'll now open up the call for any questions.

(Operator Instructions) And our first question will come from Leo Kulp with RBC Capital Markets.

Just on core, it seems to us like core was down about 5% combined -- on a combined historical basis from 1Q and it's pacing down 3% to 5% for 2Q. Can you talk about what you're seeing in terms of category specifically around auto and how much you have booked for 2Q versus what you would normally have?

I think, first of all, Q1 on a combined historical basis, local, national, core is down about 3.5%. The auto category in Q1 was down high single digit. It's a little bit softer currently on pacing in Q2, and I would stress that any comment about a pacing is as of last Friday on a date specific, so it will change over time. But it was slightly softer looking in Q2 than Q1. And as Hilton already made some comments on some color we've been getting from some markets. In general, most categories were down in Q1. The 2 categories we had up were furniture and appliances as well as home improvement and...

Legal.

Legal, actually in Q2, looking again to current pace. Communications is up a little. Home improvement is up, legal is up as well. Everything else is a little soft.

Got it. And then one follow-up on the increase to the retrans revenue. How much of that is coming from better pricing on the final 2 deals versus how much is coming from a better subscriber outlook?

Leo, I don't know -- honestly, I haven't gone back and parsed it that much, and we have a massive file, as you can imagine, with all the contracts and subs across 57 markets and all the different signals that we get carried, and we just keep recalculating, we put the new numbers in and we get new sub reports, and we get payments, we negotiate new contracts, and I just looked at the -- we took the numbers that are currently in our chart for today's call, I can go back and parse and figure out what part came from retrans increases versus subs -- changes in subs expectations versus anything else. It's fair to say, some of the -- there's a little bit of revenue from OTT subs that's in there, but it's a small percentage, but there's a little bit in there. And I'm -- I gave some color on the sub counts on this call, so all in all, obviously, it's a better picture than we were expecting on our last call.

And moving on, we'll go to Aaron Watts with Deutsche Bank.

One follow-up on auto. Guys, is it your sense that the declines are somewhat of a temporary issue? Or do you feel like there's something more kind of a long-term shift in how -- whether your local dealers or kind of more of the Tier 1, is there a shift in how they're allocating their budgets? Are they shifting more money to digital or national? Just any commentary around that.

We don't think that there's a shift in spending patterns to other opportunities. Clearly, especially in auto, there has been spending on digital for a while, but we don't think that's accelerating. Anecdotally, we've talked to one large agency recently, and they've indicated, too, that they're not seeing a shift to other medium outside of television. They're just saying that the budgets are being wound in a little bit. And as we commented both at the Q3 call, if I remember correctly, and certainly on the Q4 call, what we're seeing continuing is not -- is Chrysler, Dodge, Jeep is down. I think some other people have commented on that. Ford, for us, happens to be up. The 2 are basically canceling each other. But what we're seeing is as you go up and down the, literally, thousands of auto accounts we have on the air in any given quarter, other than those 2 shifts, nothing really pronounced. It's a lot of little things that add up to real numbers. You get people coming in and coming out, which is normal, but it's that -- kind of that midrange, just as I said in the last call, that people seem to be taking a few dollars off the table more than they're putting a few dollars on the table, and we think that is a somewhat temporary situation as the dealers are realigning their businesses. As Hilton said earlier, it's anecdotal, it's one dealer, but if their business is so hot right now, they don't really need to advertise. I can see why they put some dollars in their pocket to save it for a time when they really need it.

Aaron, this is Hilton. Let me just say that, I mean, we went through and spoke with a vast number of our general managers, a vast number of our RVPs and EVPs, and then actually we had an opportunity to talk to a number of really quite significant ad agencies about where everything stood. And we've seen really no shifting from advertising other than really, in many instances, (technical difficulty). The anecdotal example of that (technical difficulty). I heard from almost every agency that I spoke to over the last 10 days. And so that gives me a great deal of confidence that this is a temporary situation.

All right. That's helpful context. Just, Kevin, I apologize if I missed this. But as we think about the next few years after you've now locked in some of your -- majority of your distribution deals, also thinking about your affiliation agreements, are you able to give us some goalposts on that retransmission fee growth maybe over the next kind of 3-year horizon or somewhere in that ballpark?

We continue to believe that net retrans will continue to grow. We've not put any numbers around it, in large part because all of our NBC affiliations are up at the end of this year, and NBC is about 1/3 of our sub base, 1/3 of our portfolio. So until we know what that number is going to be, it would be foolish for us to be trying to estimate on what our reverse comp is going to be and, therefore, what our net is going to be.

Aaron, to add to that a little bit. As we said a couple of times before as well, we have, basically, only have some very small percentage, 2%, 3% of our subbase up for renewal at the end of this year. And as Kevin said, NBCs affiliation agreements will reset to a new rate January 1 of '18 and we'll remind everybody that our CBS agreements that we extended last year, the majority of those will, according to the extension terms, will reprice in the ordinary course in August of '19. So while we expect net to grow over the next several years, we've also told everyone that 2019 would show the lowest amount of growth that we've seen in many years because of the confluence of those 3 events.

Okay, got it. And last one for me if I could sneak one more.

And as we reprice then in '20 and '21, basically, all of our sub base, we would expect better growth than that.

Okay, got it. One last one for Hilton, maybe bigger picture. Just as you think about the acquisition opportunities that are out there, from the outside looking in, it seems like a lot of groups, at least, are talking like buyers rather than sellers. So maybe you could just tell us what you're seeing in the pipeline in terms of what opportunities will be there for Gray, whether it's going to be groups or you think more singles and doubles, one-off stations that you're going to be able to plug into the existing platform?

Well, Aaron, I would tell you, I think we have said that Gray is open to a large variety of transactions. We don't intend to be a seller of this company, but we continue to look at growing our total platform. We think that there's an opportunity for both sides of that coin to continue to add stations, not only in markets, but in new markets and then there's also the possibility of other acquisitions that are much larger than that. I can assure you, I know there's been a lot of talk in the market about oh, why is no M&A happening? But this company and its management team has been working really nonstop on trying to continue to build it. We've done a lot of very small acquisitions that really weren't big enough to put out into the public world, that we think is going to help our bottom line tremendously going forward and then we had the recent one in Sioux Falls, which we're very excited about. And it's really the first acquisition in the marketplace with an opportunity to see what the new rules are going to allow. And we look at the balance of the year in a very optimistic fashion with regard to our ability to execute, and we'll just have to see. You've got to have a willing buyer and a willing seller or a willing partner to be able to put companies together. We have a wonderful platform as we look at our own television stations and what we do, and so we think there's a tremendous amount of opportunities. Sorry, I couldn't give you anything more concrete, Aaron, but that's the nature of the world right now.

And next, from Noble Capital Markets, we'll go to Michael Kupinski.

I'm sorry if you stated this, but what was the CapEx in the quarter?

CapEx was -- just a minute, I'm looking it up for you, it was about $6.3 million, and full year, as we said before, we're expecting somewhere between $50 million and $55 million.

Got you. And many broadcasters are highlighting the progress of ATSC 3.0, what is the company's strategy in terms of the investment at this part -- point regarding that new broadcast standard?

So this is Kevin. I think we've been vocal supporters of the transition to ATSC 3.0 and participated, to some extent, in the adoption of the standard. The test markets right now are Dallas and Phoenix. That clearly is well outside of the Gray market size. Our largest market is Knoxville. We're not in any top 10 markets. We expect that the test markets and then the rollouts will occur in the top 10 markets, and then they'll move to the next tranche markets, and then the next tranche markets, just as we did with the DTV transition many years ago. So it's going to be some time before ATSC 3.0 becomes an opportunity for Gray. So we've told folks for a number of years now, don't expect Gray's going to be broadcasting in 3.0 in 2018 or 2019. When and if there's a positive ROI to transition a station, we will do so. We are open and eager to transition, but it's going to be done on a station-by-station basis, where there is a positive ROI. We have previously been a leader with building up mobile DTV a number of years ago in a bunch of markets, and then there was no pickup. We streamed all of our signals online many years ago, and there was no pickup there either, so we decided this time around rather than being the first ones over the hill, spend a lot of money, make a lot of mistakes, we're going to wait and let the technology develop and business plans ripen a bit before we plunge into it. So it's not a 2019 event for Gray. It may be, to some extent, a 2020 event for us.

Got you. And at this point, your plans for CapEx have no allocation for 3.0 at this point?

Well, to be clear, you can't buy equipment today that doesn't -- that's not 3.0 compatible. It's just like you can't go out and buy a TV set today that's in black-and-white. Everything -- all the transmitters are compliant with 1.0 or 3.0. Whether we actually broadcast in the 3.0 standard will require some upgrade to the encoders, and then some additional work that has to be done in the market. So it's not safe to say that we're not -- we won't have any of the capability. We just aren't going to actually transition over to that capability until there's a positive return on that investment.

Got you. And you indicated a large number of races that you're expecting a lot of political -- and you're expressing a lot of confidence in political coming. I was wondering, are you already getting placeholders or actual bookings in political? And how far in advance are you seeing that in terms of visibility going to the rest of the year?

Right. So political always -- most political comes in at the last minute. Year after year after year, 50% or more of our political revenue comes in the fourth quarter. So we are obviously far away from that. Hilton mentioned on the call, we had seen some base buys laid in by House and gubernatorial campaigns and issues, so we do have some on that on the books already for Q3 and Q4. The political is typically booked at the last minute, and so far, as we said, all signs point to a very good year, any number of measures, but we won't -- we will not know our political number for 2018 until Election Day, and that's -- I, mean that's not a copout, that's just the way that's been every year, going back as many years as we've been in this business. Political gets booked, and more than 1/2 of it is going to show up in the fourth quarter. A lot of it's going to show up in the last 2 weeks. In the last cycle, we had a Wisconsin race we thought was going to be very, very expensive, and the Wisconsin Senate race turned out to be rather quiet until 10 days out. In the last 10 days, we saw a very significant amount of spending as the polls changed. That is very typical in competitive races. So it would have been -- if you had asked us 11 days beforehand, we would've said Wisconsin will have almost no Senate political money, and we ended up finishing up Wisconsin's Senate race very strong. So it's just impossible for any of us to predict how any individual race is going to go, and therefore, we don't -- we're not providing any guidance for the year on what the political number will be.

I will say, I'm pleased with the base buys that we've received so far, which is a very optimistic sign. And we actually will know a whole lot more, Michael, after the results of the primaries that occur today. Obviously, we're pretty heavy in Indiana, we're pretty heavy -- very heavy in West Virginia. And then depending on who the Republicans nominate in those primary races, we'll know even more because once it's finished, we can have really dramatic races that start off tomorrow.

Next, we'll go to Marci Ryvicker with Wells Fargo.

I have a couple. The first, I just want to clarify a couple of things. Q1 core, was it down 3.5%, excluding the Olympics?

No, that would be inclusive of the Olympics.

Okay. And then did you say anything about Q2? I think it was just that it was softer than Q1.

We said auto was a little softer. It was down about 9% in Q1. Again, at current pace, which is obviously just one data point, one day in time, it was a little softer, it was about minus 10% or 11% for Q2.

Okay, so Q2 is probably tracking softer than Q1. And then how much inventory is booked at this point? I mean, how much visibility do you have into the second quarter? Can this change when we get to June?

I'd say roughly about half the book is in, which at this point in the quarter, maybe a little bit more than that, but at this point in the quarter would not be unusual.

Okay. And then I'm sorry if I missed it. It was tough to get on your call. Expenses for the first quarter came in lower than your guide. Q2 expenses are higher than where the street is. Was there a timing shift from the first quarter to the second quarter?

There was a little bit. We also worked hard in first quarter implementing some efficiencies at some of the more recently acquired stations, so I think that helped us out a little bit. If you go back and look at a combined historical basis, our first quarter payroll ended up being down about 4% for the full year. It will probably be, on a combined historical basis, flattish, which I think is very, very good. Obviously, it will uptick probably in Q2, 3, 4 as we work through that first round of efficiencies. We've got a few more things we're doing, too. There's probably also some timing differences. You've planned things for the beginning of the year and then it always takes you a little bit longer. All in all, if we think about it on a full year basis, again, going against combined historical, I mean, it's really -- if payroll comes out about flattish, my reverse comp, you've got the range out there, so you can see that that's basically the entire expense driver for the year if you're comparing against combined historical numbers. Non-payroll expenses might be up a few million dollars year-over-year, low few million dollars. So from the expense standpoint, we're trying real hard.

Okay. And then just last for our big picture. Kevin, just curious, your thoughts on the UHF discount and maybe when we might hear back a decision from the court and what you think might happen there.

Honestly, I'm going to plead ignorance here. UHF discount does not have any relevance to Gray. It's about as relevant to us as the radio ownership rules, so it's somewhat interesting. Obviously, there's a lot of focus on it, but it's just -- it doesn't mean anything to us. The rules on JSAs don't mean anything to us, so we're -- we focused on the local TV ownership rules, very pleased how the CBS FCC adopted some relaxation. We lobbied hard for that last summer. That's really where our focus is at. So it seems the court and the FCC are both working on national ownership caps/UHF discount right now. Hopefully, there's some resolution there because we know it's an overhang. But it is a little frustrating, because as we have with the FCC, it was trending up on JSAs. And we didn't have any JSAs, people were asking us lots of questions, and I think it had some impact on our stock price, which is unfortunate because it's just -- it's not an issue for us. 10% of the U.S., there's a hell of a lot we can do without regard to whether there's UHF discount or not.

Our next question will come from Dan Kurnos with Benchmark Company.

Most of my questions have been asked. But just 2 kind of -- one housekeeping here just on Q2. Your political is a little bit -- tracking a little bit higher than we anticipated. I know, obviously, the bulk's going to come in the back half of the year. But is it fair to say that there is any maybe 1% or so crowd out in Q2, and just to make sure since you said Sioux Falls was going to close Q2 or Q3, I'm assuming there's no acquisition in the guidance.

No. We -- there is no -- the acquisition would not be reflected in the guidance, and that would -- I mean, it's -- given the size of the market, it's not really going to have a significant impact on Q2 if it closes in Q2 or for that matter Q3, if it closes in Q3. It's a great little acquisition for us, great end market play, but it's not big just because it's a reasonably small market.

And on crowd out, Jim, is there any at all that you're seeing in Q2? Or is that not really a factor until you get to the back half of the year?

I don't think it's really any -- a factor of any significance, nor would we have expected it. You might be seeing a little bit in like West Virginia with the primaries today and Indiana with the primary today, but it's not -- I wouldn't say it's widespread enough yet nor the demand for political advertising deep enough yet to -- I mean, if there's some crowding out, it's going to be very hard to see and identify at this stage, which would be perfectly normal.

Well, yes, no. That makes sense. And then Kevin, as much as I know you love talking about UHF discount, to ask Marci's question maybe a different way, I would think more to your point on M&A, I'm just curious if it gets overturned if you think that ends up bringing more assets to market or makes the competitive landscape -- alters the competitive landscape, makes it more competitive. Alternatively, if you think it's more just a clarity on resolution issue at this point, that would be most beneficial regardless of the fact that you get unfairly lumped in with kind of the broader space from an overhang perspective.

Resolution would undoubtedly be good. I don't think there's much of any impact on us. In the last 20-some odd acquisitions we've done in the last few years, we have bumped up against Sinclair and/or Nexstar very, very, very few times. Most of our acquisitions have been private negotiations between Gray and the other party. We've been involved, obviously, in a couple auctions and it's clear which ones we did not prevail in. I don't see that situation changing one way or the other. We have -- those 2 folks, in particular, are close to whatever cap there is, and I think they're -- they and others seem to be particularly focused on larger markets. And certainly, as we look at opportunities in larger markets, there's a lot more competition than there is in midsized and small markets. It often seems that there's no other logical buyer for a lot of the assets that we're buying, which is a good thing. I would -- as you know, we've done a lot of acquisitions, and we've -- at this point, we roll them all on a combined basis. Our buy side multiple, trailing 8-quarter basis, including all synergies, is about 6.8x. We think that is -- it's a pretty good sign for how well we've been able to negotiate our contracts given that we're buying, we think, pretty high-quality stations. So if there's a discount, there's not a discount, there's an ownership cap, there's not an ownership cap, we don't see it impacting the competition for stations. Potentially, if the margin maybe there's few more people interested in larger market stations, as you know, we've not been very successful in bidding for large market TV stations, so I don't really think there's any impact on us.

And so then, just since maybe you're a little bit more of a test case being down market, I know this was asked on the Scripps call, but is there any sense that there is pressure or maybe a longer waiting period for these guys to cross the finish line because they think that there's some sort of pot of gold here with political coming at the end of the year? Or is that not really factoring into people's decisions right now?

I mean, I can't speak to why people are not -- more people are not engaged right now. I mean I can -- we hypothesize a lot of reasons every 2 years. That tends to be seem to be like a logical reason. But I think what we have learned in almost every case so far is that the people who are selling to us are almost always families. They're almost always multi-generational broadcasters. They are almost always people who own the largest megaphone in the market and, basically have vanity asset, and that they are motivated by factors that have absolutely nothing to do with anything that's in the headlines. Market prices, public comps, FCC actions, et cetera, have almost no bearing on folks. And often I find that when we ask them about these things, they don't even know what we're talking about. They are motivated by weddings and deaths and whether their children want to step forward or the bad fight they just had with an MVPD, or factors that are unique to them, unique need to their family, maybe unique to their market. That's what seems to have, in our experience, convinced folks that now is the time to sell and not anything that those of us in the public companies and companies of scale are focused on every day and reading and talking about every day. They're in a completely different ecosystem than we are operating in. So I don't see the headlines as having one bit of difference. Is there probably some people who are waiting until '18 political is over to sell? Maybe. But we did some transactions in 2016, and our big [Schurz] transaction was in 2016. Those folks clearly didn't wait for the political -- the Presidential year, and we did a couple of other transactions before the 2016 presidential year when we all thought is was going to be a heck of a political return for folks. So I don't really -- I guess I don't subscribe to the idea that there's a lot of headline, macro headlines that lead in to why people are selling or not selling. We've said in the last call, and it's still true today, we're just as busy in M&As as we were a year ago and 2 years ago and 3 years ago, and we just can't predict what's going to cross the finish line. Some things we work on, and then they fall apart. Other things, we were kind of making across the finish line and right now, we've just had made a lot of half dozen or so really small deals. And I know we're as eager as you are to be announcing bigger things, but sometimes, those just take more time and become more complicated, and it's just something we can't control the pipeline. We're very optimistic about the pipeline and the opportunities ahead of us, but we just can't control what's actually going to cross the finish line.

(Operator Instructions) Moving on, we'll go to Barry Lucas with Gabelli & Company.

Hilton, you made some comments earlier about the share repurchases. And just wondering, as you look at the purchase of Sioux Falls and buying back stock, how do you think about capital allocation there. And was it just opportunistic in fact on the repurchase?

No. I mean, we very much want to be there in terms of protecting our stock price when we can, and obviously from time to time, if we enter into negotiations with different folks that may or may not progress, sometimes, we have to pull back and not step into the market. And everybody knows what the rules are for doing that. But I mentioned yesterday in our Annual Meeting of Shareholders, our Board of Directors considers, on a regular basis, capital returns to our shareholders. They consider dividends. They consider stock buybacks. We obviously, have one that's out there. And we are not happy with the performance of the entire broadcast sector, but, in particular, the one -- the stock price that we're responsible for, which is the price of Gray Television. And so we will continue to look for opportunistic times to step in and buy back shares, but it just depends on when we're able to do it and when we can.

Great. And maybe one for Kevin, if I can sneak one in. As you look at your -- the acquisition in Sioux Falls, with your existing footprint there, maybe you could touch base a little bit on the oversight or regulation and revenue share, in particular, because that seemed to have been an issue with Sinclair. So how do you feel about that and how much scrutiny would you expect to get?

Barry, we -- this is a market in which there is a legacy TV station that for many, many, many years has led the market in ratings and revenue and is not owned by Gray Television. Our station, and the station that we have proposed to acquire, combined will provide a more competitive offering for advertisers and dealers in Sioux Falls than having -- than the current arrangement where one party sweeps up more than 1/2 of the ratings and 1/2 the ad dollars. It's also -- whatever reason folks focus on local TV, we continue to think that's silly. That market is a competitive market. It's not just local TV stations. In fact, local TV stations take less than 10% of the local ad dollars in that market. And if you look at it on that basis, I guess they question why all the TV stations can't be owned by one party. We own less than -- combined, own less than 10% of the local ad market. But if we narrow this down to the smallest possible market definition, we still think this is a pro competitive transaction, and we're obviously, we would not have signed a deal and invested a lot of effort into this transaction if we were not completely confident that this transaction would be approved and closed.

And next, we'll go to Jim Goss with Barrington Research.

First, a couple of small ones for Kevin. You mentioned earlier, the OTT CBS All Access, still in very early stages, but it's beginning to roll out. I'm wondering, are the economics right now such that you're indifferent as to whether someone receives your signal in that form versus -- or -- over the airwaves or through cable.

Jim, just to be clear, when All Access launched 3 years ago, and we launched all of our stations with All Access within a couple of weeks of All Access going live, we were all-in on that. So we've been with All Access as a pretty major party from the very beginning. I think we were probably 3/4 of -- the first group of launches were Gray TV stations. So we've been with that platform for some time. We have -- our stations are available on all kinds of platforms. We have -- we created our own Roku app a couple of years ago, our own Apple Watch app since the Apple Watch came out. We try to be everywhere our viewers are at. We've had and we've done -- I think, we talked about these couple of calls ago, all of our stations have Alexa apps. So we don't really think of things as discreetly, I think, as analysts do of All Access versus Comcast, for example. We really think of trying to be as broad as possible. In terms of whether people are coming to us from All Access versus Comcast versus any other platform, we're generally indifferent. They're watching our programming. That's -- those our viewers we can serve, and we can monetize. In terms of the economics, we've said, I think, for a couple of calls now, we're pretty indifferent between which platform delivers somebody to us, and we still subscribe to that. I do think some of the OTT subs are people who have not subscribed to cable in the past, and for some period of time, and that's probably a good thing. So we want our viewers to have no trouble finding us anywhere and anywhere -- anywhere they are, at any time.

Okay. I was just thinking the indifference is what I was after. Because I know it's been around for several years, but it's still pretty early stage in terms of the uptick, I believe. Another question, you were just talking about the pipeline and how your method of closing on acquisitions might differ more because of the family seller issues. Is there some normalized type of pipeline? I think you mentioned a half a dozen smaller deals. Is that the sort of number that might be bubbling up at any given time? Or is there no consistency to that?

No. Unfortunately, it's like the rain. Sometimes it's very quiet and sometimes you can't believe how much there is to do.

Okay. And then maybe, Jim, the displacement factor, when it does start to become more important later in the year, is that sort of a last-minute cancellation type issue, or is there total flexibility for your advertisers to decide that the prices are getting beyond what they're willing to pay, and they can defer to the political advertisers at that point.

No, that's exactly what it is. The prices get too high and a great number of the regular core advertisers just go to the sidelines until the political period is over.

Okay. And finally, are there any other growth elements that we should be thinking about? Some of the competitors are looking at either digital or programming or things of that nature. Maybe, Hilton, are there certain things that you're thinking in terms of -- that is the direction we should think of for Gray to be adding to its franchise?

Well, Kevin, first we're going to continue on the path that we're on in terms of trying to grow the TV station portfolio. We have not launched a separate programming division within the company other than what we do with Moms Everyday, which has been a very successful and moneymaking endeavor. Our digital continues to grow. And unlike many others, we have a significant profit margin in that. And one of the things that we think remains a distinguishing differentiation within Gray is that we don't attempt to do things where we think we're going to be losing money for an extended period of time before things start breaking even. We do expect to have a return on investment, and one that's there immediately. That applies from M&A to things that go forward on a programmatic basis. Right now, we don't see those as something that we need to put our money into right at this point because we have better places to put it. Now as this company grows and matures, there's no telling where we will go. But we still feel that we have a very direct path to grow the profile, not just end market, which is what we have done of late, but also with new markets. And so that will remain our focus for a period of time. Kevin mentioned ATSC 3.0. I think we are all very excited about that. But as is often the case, our medium-sized to small markets will probably be taking that on in 2020. So we have the rest of '18 and '19 to see how that sort of transpires out. But we are very excited about that and candidly, with the way time flies, 2020 will be here before we know it.

And there are no further questions in the queue at this time. We'll turn the conference over to Mr. Hilton Howell for any additional or closing comments.

This is Jim, and I wanted to clarify something. I will apologize to both Leo and Marci because I misread the column on my cheat sheet. The question was, what core local and national was down in Q1 and it would be about 4.5%. I apologize for saying it was 3.5%. Again, I just misread the wrong number, and I wanted to clarify that.

Thank you, Jim. I'm glad you did. Thank you, everyone, for taking the time this morning to be with us. We are very excited about this company and our future growth and what all is going to happen in 2018. We look forward to speaking with you when we close up Q2. Have a great day.

And that does conclude today's conference. We'd like to thank everyone for their participation. You may now disconnect.