Hilton Howell – Chairman, President and Chief Executive Officer Kevin Latek – Chief Legal and Development Officer Jim Ryan – Chief Financial Officer.

Leo Kulp – RBC Capital Markets Aaron Watts – Deutsche Bank Michael Kupinski – Noble Capital Markets Marci Ryvicker – Wells Fargo Dan Kurnos – Benchmark Company Barry Lucas – Gabelli & Company Jim Goss – Barrington Research.

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 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'm 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 on 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 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 included 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 turn 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 total cost of approximately $19.6 million.

As of March 31, 2018, our total leverage ratio as defined in our senior credit facility was 4.23 times on a trailing eight-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 remained very optimistic about the balance for 2018.

However, it's important to note that we have 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 headline might suggest.

But in many of our markets, the economy is so strong that many of our traditional advertisers are selling all of their inventory they have access to and they consequently have pulled back on their traditional ad spend. A typical example of this is one of our long-time car dealer advertising clients 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 this time periods.

This quarter we also continue to see that our top-ranked television stations hold up better than lower rank stations when the market becomes volatile. Indeed across all the markets in which we had third-party revenue audit, 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 in several of our local television station by our peers.

First, the National Associations of Broadcasting Educational Foundation announced the winners and finalist 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 two other Gray stations as two of the four 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 Associations of Broadcasting Educational Foundation also named Gray's WEAU in Eau Claire, Wisconsin as one of the four finalists for this prestigious award.

On top of this fantastic set of honors which actually was replicated two years ago. We learned at the end of April, that the Radio Television Digital News Association named several great 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 individual employed at each of these winning televisions stations for doing a job exceptionally well. In separate news, increasing demand for political advertising on Gray's station is now becoming quite noticeable.

Once again, our first quarter political revenues beat our guidance. The second quarter as usual will be much better than the first quarter for political revenue. In fact, we had 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 newly transmission consent agreements with over 350 separate MVPDs covering roughly 58% of our total sub base 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 the cable or satellite operator, nor even ran a single call or announcements signaling that we had reached an impasse in any negotiation.

In the end, we are very pleased with the tenor, tone and especially the result of these many negotiations. 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 hosting up combined subs to get our attention.

In fact, our total OTT subs universe erased more than half of the declines 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 great stations throughout the country.

As you may know, Gray launched every CBS affiliate on CBS All Access just as the service launched three years ago, and where necessary we launched any acquired CBS signal on All Access at or very soon after closing.

In addition, to having every CBS affiliate carried in All Access, we now have had 145 station signal launched on the other OTT platforms as of this morning.

Based on year-end sub number sand assuming simply modest growth in OTT subs, we now expect to realize a few millions 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 the 2018 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 increase retrans guidance results in better than expected pricing of our retransmission agreements expiring around the end of last year and the addition of some OTT retransmission revenues. Through the termination of some contracts, retransmission revenue will not necessarily be perfectly linear throughout the year as it has been in the past.

Rather some increases will occur at different points in the year which should result in gross and net returns revenues moving somewhat higher in subsequent quarters than what we posted for the first quarter of 2018.

Meanwhile, as we have in the past few years, we remain basically with multiple M&A opportunities, large enough to 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 three network affiliate to our existing operations. We are busy as ever of working on M&A opportunities and hopefully we will have more to announce in the coming weeks and months. Thank you for your time and I'll 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 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 4.23 times on a trailing eight quarter basis and as we 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 was net of $178.5 million to $180 million is definitely higher than we discussed at our Q4 call.

If you recall on that call, we told people that we firmly would believe that we would finish within the midpoint of the range we had given of growth retrans between $340 million and $350 million. So, 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 retran 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. .

Hi good morning. Thanks for taking the question. So, just on core, it seems to us like core was down about 5% combined – on a combined historical basis in 1Q and its pacing down 3% to 5% for 2Q.

Can you talk about what you are 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 digits. It's a little bit softer currently on pacing in Q2. And I would stress to the comment about 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 you know Hilton already made some comments on and some color we've been getting from some markets. In general, most categories were down in Q1.

The two categories we had up were furniture and appliances, as well as home improvement, and 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..

Alright, thanks Jim.

And then one follow-up on the increased retrans revenue, how much of that is coming from better pricing on the final two deals versus how much is coming from better subscriber outlook?.

Hi, Leo. I don't know, I honestly haven't gone back and parsed that much. 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 didn't go back and parse and figure out what part came from retrans increases versus sub – changes to sub expectations versus anything else.

It's fair to say, some of the – there is a little bit of revenue from OTT subs that's in there, but I'd say – I mean it's a small percentage, there's a little bit in there and I'm getting 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..

Got it. Thanks a lot Kevin..

Sure..

Thank you, Leo..

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

Hey guys, thanks for having me on.

One follow-up on auto, guys, is it your sense that the declines are somewhat of a temporary issue, but you feel like there is something more kind of a long-term shift in how whether your local dealers or you know kind of more up the tier 1, is there a shift in how they are allocating their budgets, are they shifting more money to digital or national, just any commentary around that?.

We don't think that there is a shift in spending patterns to other opportunities. It's 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 are not seeing a shift to other medium outside of television. They are 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 are seeing continuing is not – price with Dodge jeep is down. I think some other people have commented on that. Ford for us happens to be up.

The two are basically canceling each other, but what we are 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 two shifts nothing really pronounced, it's a lot little things that add up to the real numbers.

You get people coming in and coming out which is normal, but if that kind of that mid-range just as I said in the last call that people seem to be taking a few dollars off the table more than they are 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, as anecdotal it's one dealer, but if their business is so hot right now, you know 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, vast number of RVPs and EVPs.

And then actually had the opportunity to talk to a number of really quite significant ad agencies about where everything stood, and we've seen really low shifting from advertising other than, really in many instances – the anecdotal, examples that – I've heard from almost every agency that I spoke to them in 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. Thank you. 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 -- a good majority of your distribution deals, also thing about your affiliation agreements.

Are you able to give us some goal posts on that retransmission fee growth maybe over the next kind of three year horizon somewhere in that ballpark?.

We continue to believe in 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 a third of our sub-base, third 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 comps is going to be, and therefore what our net is going to be..

Aaron to add to that a little bit. As we've said a couple of times before as well, we have basically only a very small percentage, 2%, 3% of our sub-base up for renewal at the end of this year. And as Kevin said, NBC affiliation agreements will reset to a new rate January 1 of 2018.

And we'll remind everybody that our CBS agreements that we extended last year, the majority of those will according to the extension terms with great price in the ordinary course in August of 2019.

So, while we expect net to grow over the next several years, we've also told everyone that 2019 which show the lowest amount of growth that we've seen in many years because of the confluence of those three events..

Okay. Got it. All right, thanks. And last one for me if I could sneak one more..

We'll reprice that in 2020 and 2021, basically all of our sub-base we would expect better growth in that..

Okay. Got it. One last one for help me, a bigger picture. Just as you think about the acquisition opportunities that are out there, from the outside looking and 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 are 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 station that you are going to be able to plug into the existing platform?.

Aaron, I will 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 at this company, but we continue to look at growing our total platform. We think that there is an opportunity for both sides of that coin to continue to add stations not only in-markets, but in new markets.

And there was also the possibility of other acquisitions that are much larger than that. I can assure you, I know there is 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 with a nonstop on trying to continue to build it.

We've done a lot of very small acquisitions that really work big enough to put out into the public world, but we think it's going to help our bottom line tremendously going forward.

And then, we had the recent one in Sioux Falls which we are very excited about it and it's really the first acquisition in the marketplace was an opportunity to see what the new rules are going to allow.

And when we look at the balance of the year in a very optimistic fashion with regard to our ability to execute, and we just have to say, 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 is a trench of opportunities. So I couldn't give you any more concrete, but that's the nature of the world right now..

I understood. Thanks guys..

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

Thank you. Thanks for taking the questions.

I am sorry if you stated this, but what was the CapEx in the quarter?.

CapEx was, just a minute, I am 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 it. And many broadcasters are highlighting the progress of ATSC 3.0.

What is the company's strategy in terms of the investment at this point regarding that new broadcast standard?.

This is Kevin. I think we've been vocal supporters of the transition of ATSC 3.0 and participated to some extent on the adoption of standards. The test markets right now are Dallas and Phoenix that clearly is well outside of the Gray market size of this market is Knoxville. We are not any top 10 markets.

We expect that the test markets and then rollouts will occur in the top 10 markets, and then they'll move to the next trench market – into the next trench markets as 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 have told folks for a number of years now don't expect Gray to be broadcasting in 3.0 in 2018 or 2019. One and if there is a cost of ROI to transition any station, we will do so where we are open and eager to transition, but it's going to be done on a station-by-station basis where there is a cost of ROI.

We have previously been a leader with building at mobile DTV a number of years ago in a bunch of markets, and then there was no pick up. We screened of our signals online many years ago and there was no pick up there either.

So we've started this time around rather than being the first ones over the hills, we spent a lot of money and make a lot of mistakes. We are going to wait and let the technology develop and business plans ripping a bit before we plunge into it. So it's not a 2019 event for Gray, it maybe to some extent at 2020 event for us..

Got it. And at this point you are 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 3.0 comparable. It's just like you can't go out and buy 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 the 3.0 standard, we'll require some upgrades entity encoders, and then some additional work that has been done in the market. So it's not fair to say that we are not – we won't have any of the capability, we just aren't going to actually transition over that capability until there is return on that investment..

Got it. And you indicated a large number of races that you are 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?.

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..

As Hilton mentioned on the call, we have seen some base buys made in by house and gubernatorial campaigns and issues. So we do have some of that on the books ready for Q3 and Q4. The political is typically book at the last minute, and so far as we said, all signs point to a very good year, any number of measures.

But we will not know our political number for 2018 until Election Day and that's I mean not a copout, that's just the way to spend every year as going back as many years as we've been in this business. Political gets booked and more than half this is going to show up in the fourth quarter. A lot of it's going to show up in the last two weeks.

In the last cycle, we had Wisconsin race, we thought which is 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's very typical in competitive races, so it would have been – you would have asked is 11 days beforehand, we would have said Wisconsin will have almost no Senate political money and we end up finishing up Wisconsin 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 are not planning any guidance for the year on what the political number will be..

I will say I am pleased with the base buyers that we had received so far, which is a very optimistic sign and we actually will know a whole lot more Michael on after the results of the primaries that occurred today. And obviously, we are pretty heavy in Indiana. We are pretty very heavy in West Virginia.

Depending on who the Republicans nominate in those primary races will know even more, because once it's finished, we could have really a dramatic races that start off tomorrow..

Got it. I greatly appreciate the color. Thank you..

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

Thanks. 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, could you say anything about Q2, I think it was just was a softer than Q1..

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

Okay. So, Q2 is probably tracking softer than Q1.

And then how much inventory is booked in this plan? I mean how much visibility do you have until 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 a quarter maybe a little bit more than that, but at this point in the quarter would not be unusual..

And then I am 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 shifts from the first quarter to the second quarter?.

There was a little bit. We also worked hard in first quarter implementing some efficiencies in some of the most recently acquired station. 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 at a combined historical basis flattish, which I think is very, very good. Obviously, we will uptick probably in Q2, Q3, Q4, as we work through that first round of efficiencies. We've got a few more things, we are doing too. There is probably also some timing differences.

You 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 is got the range out there.

So you can see that that's basically the entire expense driver for the year if you are comparing against combined historical numbers. Non-payroll expenses might be up few million dollars year-over-year, low few million dollars. So from the expense standpoint, we are trying real hard..

Okay. And then, just lastly, one of a big picture. Kevin, I am just curious your thoughts on UHF discount and maybe when we might hear back a decision from the court? What you think might happen there? Thanks..

Honest, I am going to plead ignorance here. UHF discount does not have any relevance to Gray about as relevant to us as the radio ownership rules. So if someone interesting, obviously there is a lot of focus on it, but it doesn't mean anything to us as the rules on JSA is dominating to us.

So, we have focused on the local TV ownership rules, very pleased that obviously FCC adopted some relaxation. We'll obviously, 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 cap/UHF discount right now.

Hopefully, there is some resolution because we know it's an overhang, but it is a little frustrating because as we haven't, the FCC was turning up on JSA and we didn't have any JSA's people asking about the questions. And I think it had some impact on our stock price which is unfortunate because it's not an issue for us.

A 10% of the U.S., there is a hell of a lot we can do without regard to whether there is UHF discount or not..

All right. Thank you..

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

Thanks. Most of my questions have been asked, but just two kind of, one housekeeping here. Just on Q2, your political are little bit tracking a little bit higher than we anticipated. I know obviously the bulks going to come from the back half of the year.

But it is fair to say that there is any maybe 1% or so crowd out in Q2? And just to make sure that you said Sioux Falls is going to close Q2 or Q3, I am assuming there is no acquisition in the guidance?.

No. There is no – the acquisition would not be reflecting in the guidance. 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 in 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 you're seeing in Q2 or is that not really a fact until you get the back half of the year?.

I don't think it's really any a factor of any significance and nor would we have expected it. You'd might be seen a little bit in like West Virginia with the primaries today, in 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.

So, I mean if there is some crowding out, it's going to be very hard to see and identify. At this stage which would be perfectly normal..

Yeah. That makes sense. And then Kevin, as much I know you love talking about UHF discount just ask Marci's question maybe a different way. I would think more to your point on M&A.

I am just curious if it gets overturned if you think that ad ends up bringing more assets to market or make 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 a broader space from an overhang perspective..

Resolution would undoubtedly be good. I don't think there is much as any impact on us. In the last 20 some odd acquisitions we have done in the last few years, we have bumped up against Sinclair and or Nexstar very, very, very few times. And most of our acquisitions have been private negotiations between Gray and the other party.

We've been involved obviously in a couple of options 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 two folks in particular are close to whatever cap there is. And I think they are – they and others seem to be particularly focused on larger markets.

And certainly as we look at opportunities in larger markets, there is a lot more competition than there is in mid-sized and small markets. It often seems that there is – now there no other logical buyer for the assets that we are buying, which is a good thing.

I would – as you know, we've done a lot of acquisitions and we – at this point we roll them all together on a combined basis. Our buy side multiple on a trailing eight quarter basis included off synergies is about 6.8.

We think that is – it's a pretty good time for how well we've been able to negotiate our contracts, given that we are buying, we think pretty high quality stations. So, if there is a discount, there is no discount, there is an ownership cap, it's on ownership cap. We don't see it impacting the competition for stations.

Potentially, at the margin maybe it is a 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 is any impact on us..

And so then just, since maybe 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 you know or maybe a longer waiting period for these guys to cross the finish line, because they think that there is some sort of pot of gold here with political come 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've hypothesized a lot of reasons. You know every two years that tends to – 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 family.

They are almost always multi-generational broadcasters. They are almost OAs, people who own the largest megaphone in the market and basically have vanity assets and that they are motivated by practice of absolutely nothing to do with anything that's in the headlines.

Market prices, public coms, FCC actions, et cetera have almost no bearing on folks and often I find them, we ask them about these things, they don't even know what we're talking about.

They are motivated by weddings and debts and whether the children want to step forward or the bad fight, they just have an MVPD or factors that are unique to them, unique to their family, maybe unique to their market.

That's what seems to have in our experience, convince 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 are in a completely different ecosystem than we are operating in.

So, I don't see the headlines as having one bit of difference. There are probably some people who are waiting till 2018 protocol over to sell, maybe, but you know we – we did some transactions in 2016 and our big shares transaction was in 2016.

Now those folks clearly didn't wait for the presidential year and we did a couple of other transactions before the 2016 presidential year, when we all thought it 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 is a lot of headline, macro headlines that lead into why people are selling, not selling, we said in the 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 two years ago and three years ago.

And you 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 work on, they can cross the finish line and right now we 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 now seeing bigger things, but sometimes those just take more time and become more complicated and it's just something we can – we can't control the pipeline.

We're very optimistic about the pipeline and the opportunity is ahead of us, but we just can't control what's actually going to cross the finish line..

Perfect. That's super helpful color. Thanks guys..

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

Thank you and good morning.

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

No. I mean we are – we're very much going to be 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 you know we are not happy with the performance of the entire broadcast sector, but in particular, we're on the stock price that we are responsible for, which is the price of Gray Television, and so we are – 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't..

Great. Thanks and maybe one for Kevin, if I can sneak one is. As we look at your – the acquisition in Sioux Falls with your existing footprint there, let me touch base a little bit on the oversight of 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 viewers in Sioux Falls than having than the current arrangement where one party sweeps up more than half of the ratings and half the ad dollars.

It's also – whatever reason folks focus on local TV, we – just continue to think that's silly. That market is a competitive market. It's not just local TV station buy local TV stations take less than 10% of the local ad dollars in that market.

And if you look at on that basis, you know I guess the question why all the TV stations can't be on my one party owned list and combine 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 the deal and invested a lot of effort into this transaction if we were not completely confident of this transaction would be approved and closed..

Great. Thank you, Kevin..

Thank you, Barry..

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

Thanks. First 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 up.

I'm wondering, are the economics right now such that your indifference is whether – as to whether someone receives your signal in that form versus over the air waves or through cable?.

Hi Jim. It's needs to be clear. All Access launched three years ago and we launched all of our stations with All Access within a couple of weeks of the 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 three quarters of – we were the first group of launches of TV stations. So, we've been with them partnering 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, soon as the Apple Watch came out, we tried to be everywhere our viewers are at. We've had – we've been I think talked about this couple of calls ago, we – 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 other the people are coming to us from All Access versus Comcast versus any other platform.

We're generally indifferent to watching our programming that's – those are viewers we can serve and we can monetize in terms of the economics. We've said I think for couple of calls now, we're pretty indifferent between which platform delivers somebody to us and still subscribe to that.

I do think some of the OTT subs are people who are – have not subscribed to cable in the past and for some period of time and that's a probably good thing. So, we want our viewers to have no trouble finding us anywhere and anywhere – anywhere they are at any time..

I was just thinking the indifference is what I was after, because I know it's been around for several years, but it still pretty early stage in terms of the uptake 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 half a dozen smaller deals.

Is that the sort of number that might be bubbling up at any given time or is there an enough consistency to that?.

I think for us it's like the rain. Some time it's very quiet and sometimes it's – you can't believe how much there is to do..

And then, maybe Jim, the displacement factor when it does start to become more important later in the year, is that sort of a less than a cancelation type issue? Is there a total flexibility for your advertisers to decide that the prices are getting down what they are willing to pay and they can differ to the product advertisers at that point?.

No. That's exactly what it is. The prices get too high and a great number of regular core advertisers just go to the side lines and some of the political period is over..

And finally, are there any other growth elements that we should be thinking about? Some of the competitors looking at either digital or programming or things of that nature, maybe help, are there certain things that you are thinking in terms of that is directional issue to think or great it would be adding to its franchise?.

Well, you know 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 every day, which has been a very successful and you know money making endeavor.

Our digital continues to grow and unlike many others, we have a significant profit margin in that. And many of the things that we think is – 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 investments and one that's there immediately, but 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 in, right at this point, because we have better places to put it.

Now, as this company grows and matures, there is no telling where we 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 of 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 smaller markets you know will probably be taking that on 2020. So, we have the rest of 2018 and 2019 to see how that sort of transpires out, but we are very excited about that and handling the way we capitalize, 2020 will be before we know it..

Okay. Thanks very much..

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

This is Jim, 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. 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 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..