Good day, and welcome to the Gray Television's First Quarter 2014 Earnings Release Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Hilton Howell, President and Chief Executive Officer. Please go ahead, sir..

Thank you so much, operator. Good morning. Welcome to the first quarter 2014 earnings call of Gray Television. Thank you so much for your interest in our company and your interest in our industry.

As usual, I will be making a few brief opening remarks, followed by Jim Ryan, our Senior Vice President and Chief Financial Officer; and then by Kevin Latek, our Senior Vice President of Business Affairs. Following the conclusion of these comments, we will answer any questions that you might have.

Before we discuss the quarter's results, I wanted to note the announcement we made last night that Gray is adding another #1 news station and state capital to its station roster with the acquisition of the NBC affiliate in Helena, Montana, KTVH.

We're also acquiring the NBC affiliate in the adjacent market of Great Falls, Montana, KBGF, both of which we will be acquiring from Intermountain West Communications Company. We're also seeking to acquire the CW affiliate for the Helena market, KMTF, from Rocky Mountain Broadcasting Company, subject to a failing station waiver from the FCC.

We're very excited to be entering Montana, and I'd like to publicly welcome the management, associates and viewers of these stations to the Gray business family.

These news-centered and community-centered stations will fit perfectly with our growing presence in the Great Plains and Rocky Mountain states and will complement our operations in Montana, Wyoming, North and South Dakota, Colorado, Nebraska and Kansas. Turning to the quarter, we are very pleased with our results.

Our revenue reached $91.3 million for the quarter compared to $78.2 million in the prior year's comparable quarter, a 17% increase. Local advertising increased $4.6 million or 10% to $51 million. Retransmission consent revenue increased $6.4 million or 66% to $16.1 million.

National advertising decreased by $100,000 or slightly less than 1% to $13.3 million. Internet advertising increased by $0.3 million or 6% to $6 million. And our political advertising increased $2.2 million or $336 million -- or 336% to $2.8 million. We reported net income of $1.3 million, up 46.7% from $870,000 in the first quarter of 2013.

And even more significantly, we increased our broadcast cash flow by 25% to $30.6 million compared to $24.5 million last year. All in all, we are very pleased with our acquisitions. All in all, we're extremely pleased with the results of our quarter. With that, I'll bring my prepared comments to a close and turn it over to Jim Ryan..

Thank you, Hilton. I think Hilton covered the highlights from the revenue side. Again, our expenses were under -- a little bit under expectation.

And really, the big increases there year-over-year reflect the additional reverse comp with our ABC agreements triggering this year, as well as the stations we acquired late last year contributed to $3 million of the expenses in Q1. Turning to the balance sheet for a moment.

Our trailing 8-quarter average operating cash flow under our credit facility definition was $146.4 million, which gave us a trailing 8-quarter leverage ratio of 5.65, which was down slightly from the 5.67 at year end. Our debt remained unchanged at $837 million between end of quarter and end of last year.

$159 million currently outstanding on our term loan, and $675 million outstanding of our senior notes. Our first lien leverage ratio was at 0.98.

The CapEx for the quarter was $3.8 million, and as we said in our fourth quarter call earlier this year, we would expect total CapEx this year to be $25 million to $30 million, with $30 million reflecting the pending acquisitions that are still awaiting closing. Cash taxes for the quarter was $31,000.

Our NOL position at the end of the year was $225 million. Program payments were $3.8 million. We expect about $14 million of program payments for the year. Retransmission revenue, as Hilton commented earlier, was up substantially. It was $16.1 million in the quarter.

You can see from first quarter, as well as our guidance for second quarter, that our run rate for retransmission revenue for this year would put us in the $64 million, $65 million range for the entire year.

Our reverse comp with our ABC agreements starting this year, in addition to the NBC agreements and the FOX agreements, was $3.9 million for the quarter, which, again, if you extrapolate, would suggest about a $16 million run rate for this year.

And as we've talked many times in the past, our CBS agreements will kick in beginning next year, and we'll be fully leaded in reverse comp as we start '15. Briefly, on guidance for second quarter. Our local, we're extremely pleased with how it's tracking and trending. We expect local to be up about 10%.

Our Internet revenue will be increasing as well quarter-over-quarter, which we're pleased to see, and we expect that to continue to build as the year goes on. And we've already commented on the retrans being a significant increase this year, reflecting the 2 agreements we negotiated at the end of last year.

And then, as we've said before, our remaining subscriber base for the historical Gray stations will be up at the end of this year. Our national in Q1 was a little weak. We expect that, that will continue a little bit into Q2 as well, be basically flattish year-over-year, but we're very, very pleased with the strong local growth we're seeing.

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

All right. Thank you very much, Jim.

Kevin, do you have any comments?.

Oh, just a couple of items. And I'll also be brief. Gray Television has begun 2014 by continuing the efforts initiated last year to grow our portfolio of winning television stations in ways that increase our scale in local regions and local markets.

As you've seen from our press releases and this morning's earnings release, we have closed on all previously announced acquisitions other than Hoak Media, and we signed one new deal. In particular, in February, we created a legal duopoly in Charleston-Huntington, West Virginia, between WSAZ, our NBC affiliate; and WQCW, low power CW.

On May 1, we closed on our acquisition of our first [indiscernible] FOX station, KEVN, in Rapid City, South Dakota. We also began operating KNDX, a FOX affiliate in Minot-Bismarck, which is a market immediately to the north of Rapid City.

We also entered into an agreement to purchase the low power stations there, and we expect to close that acquisition in the second or third quarter. Yesterday, we announced, as Hilton mentioned at the top of the call, an agreement to purchase 2 NBC affiliates and a CW affiliate in Montana.

KTVH, as you know, is the state capital of Helena and is the flagship of this small group. In fact, upon the consummation of all pending transactions, we'll be proud to own the #1 television station in 28 of 42 markets and #1 or #2 television station in 38 of those 42 markets. The Hoak Media transaction is a top focus of our management team.

In the first quarter, the FCC public comment period closed without any objection to the transaction. In early March, the DOJ's Antitrust Division closed its investigation. In late March, the SEC granted Gray's applications to acquire Hoak stations.

And in April, the FCC granted Nexstar's applications to acquire Hoak stations in Panama City and Grand Junction that Gray spun off as part of our agreement with Hoak Media. The SEC, however, has not yet acted upon the remaining 4 applications.

One pending application proposes that Mission Broadcasting acquire a station that would continue operating under a 1994 LMA that was grandfathered back in 1999. The other 3 pending applications seek consent for Excalibur Broadcasting to acquire stations that would continue or would start a new shared services agreement.

None of these applications proposed to start attributable joint sales agreements, and none propose a loan guarantee or put call option with Gray or Nexstar. The FCC has repeatedly required the parties to amend their applications and supply documents and information, and the parties have complied in all respects.

Nevertheless, no one can predict when the FCC will act on these applications or any other applications that also seem to be stuck at the FCC. Under the various purchase agreements, the closings are conditioned on grant of all applications.

The parties, therefore, continue to prosecute the remaining applications at the FCC, and are hopeful that the FCC will allow this relatively small transaction to proceed in the near term. Our highest priority is and will remain working to resolve the impasse and allow a closing as soon as possible.

In the legislative and regulatory front, the chief developments affecting the TV broadcast industry have been widely reported, not just in the trade press, but in the general press in recent months.

And therefore, we'll not take your time detailing those developments, but it's important to note that at Gray, we do not foresee any impact on our business from the FCC's recent actions. The FCC decision banning joint sales agreements and banning joint negotiation retransmission consent simply does not affect us.

Gray currently has a single shared services agreement in Grand Junction, Colorado, which is DMA #184. Under the SSA that Gray and Excalibur Broadcasting negotiated actually last summer, Excalibur stations are sold by Gray -- by Excalibur employees, not by Gray. The Gray stations are sold by Gray employees, not by Excalibur.

Excalibur retained its retransmission consent rights in that contract and, in fact, has its own retransmission consent agreements with cable operators. Therefore, the new FCC rules do not affect our single SSA operation in Grand Junction.

The Hoak transaction would create additional shared services arrangements for Gray in Lincoln, Nebraska; Fargo, North Dakota; Monroe, Louisiana; Minot-Bismarck, North Dakota. We do not believe that any of these arrangements need to be modified to comply with the FCC's new rules, however.

The FCC's JSA and retrans orders simply will have no effect on Gray's results. The FCC has proposed to require the filing of shared services agreements and has asked many questions about how they work, what they cover and whether they serve local communities. The FCC has not proposed to ban shared services agreements.

Gray's existing SSA in Grand Junction has benefited the stations in the local community, and we foresee the same result in the 4 markets where we would begin SSAs after the Hoak closing. We plan to participate in the FCC rulemaking to demonstrate these benefits.

Gray does not anticipate that the FCC will move to ban SSAs that, like ours, do not include joint sales or joint retransmission negotiation. This concludes my remarks. I turn the mic back to Hilton..

Thank you very much, Kevin. Operator, we'd like to open up the forum for any questions anyone may have..

[Operator Instructions] And our first question will come from Aaron Watts with Deutsche Bank..

A couple of clarifiers for me here to kick off. Same-station revenues.

Is it as simple as kind of backing out that $3.4 million of revenue you highlighted for the acquired stations, which just kind of gets you to like a 12.5% year-over-year growth? Am I thinking about that right?.

Yes, you're thinking about that exactly right. Yes, if you're talking about Q1, yes. And it'd be similar -- it's about $4.7 million in Q2..

Got it. Okay. And then, on a same-station basis, would you mind filling out local -- what local and national kind of spot was in the first quarter? I think you gave us 10% and 1% growth kind of on a reported basis..

Sure. If you're excluding the impact of the acquisitions, so you're basically doing same station to same station, local would be up a very healthy 5%. National was down, reflective of the overall decreases in national. Digital would be up. It's about the same 6% -- it'd be up the same 6%.

And our broadcast operating expenses would be up about 7% if you backed out the acquisitions..

Okay. And I know you mentioned, along with a handful of your peers, that national was a little soft in the quarter.

What are you attributing that softness to?.

We think in part, early in the quarter -- early to mid-quarter, it was reflective -- we think, in part, it was weather-related. Obviously, our strong presence in the Midwest -- in west of -- certainly, weather around -- weather was a big factor all over the country.

We've also seen softness in restaurant, which probably initially was weather-related as well. But in fast food, we're seeing some major accounts, some of them kind of pulled back in Q1, some of them are coming back a little bit in Q2. So there's a little bit of shift in that category as well.

Some of the key ones also could be reflective of dollars shifting to both Olympics and Super Bowl..

Okay, that's helpful. And on auto, I think in the release, you talked about 11% growth year-over-year.

Is that kind of a good apples-to-apples comparison, or is there moving parts in that number?.

I think it's a good comparison, and the impact of the acquired stations, all of the -- the few stations we picked up late last year were all relatively small stations in small markets. So basically -- I mean, auto was healthy across the board whether you're with or without the acquisitions..

Okay. And just thinking about the M&A pipeline, you guys have been active lately. You walked us through that.

As you think about things going forward, do you think -- I guess, what should we expect from Gray, more kind of tuck-ins like you've been doing? Is there the potential for something of a little more scale? Maybe you can just comment about that..

Aaron, this is Hilton. Quite candidly, we're actively looking at transactions, both small and large. And obviously, we're having to adjust some of our expectations and some of the things that we would like to do to take into account the FCC and some of their various different issues that they have with probably JSAs and SSAs.

But there are a number of companies that we are in discussion with and more that we hope to be in discussion with. And the sizes are all up and down the chain.

Kevin, do you have anything to add that?.

I would just only add that I think there may be opportunities coming from new places that we haven't seen in the past as the FCC moves to unwind JSAs, in some cases.

That and some increased acquisition activity among other parties may lead to some spinoff opportunities that would, if attractive and meet Gray's profile, would certainly be another source of things that Gray would look at..

Okay, got it. And....

I'll just add on to that real quick. Certainly, as we look at all of this, we're still going to be very mindful of our leverage and continue to be prudent.

We've talked about, post-closing Hoak, we'd be just about 6x L-8 heading into the mid-5s, we think, by the end of this year because, obviously, it will be a very, very strong back half of the year with political for us. And that -- certainly, that zone and that trajectory's very comfortable.

So we will be, again, mindful of, first of all, looking for high quality and also, as we continue to evaluate things, mindful of our overall leverage as well..

You stole my last question. That was exactly it..

And the next question will come from Davis Hebert with Wells Fargo Securities..

Jim, I'm not sure if you provided this. What is pro forma LTM EBITDA? You gave the 8-quarter average..

The pro forma number, the operating cash flow number I gave you of $146.4 million would be pro forma for the minor acquisitions we made in latter part of last year and also the Charleston-Huntington CW that we picked up mid-quarter this year..

And would that -- is that LTM, or is that trailing 8 quarter?.

No, that's -- I'm sorry, that was the trailing 8 quarter. The LTM -- the equivalent LTM number on a T-12 is $120.4 million..

$120.4 million, okay. And then on the Internet side, you're seeing -- you're expecting some double-digit growth on that side.

I know that the dollars are still relatively small, but I wondered if you could give me a sense for -- does that Internet growth cannibalize, at all, your time sales, or do you view that as an incremental separate siloed kind of business?.

We clearly view it as an incremental business. We always have. I mean, there could be some generic shift of dollars, but that wouldn't -- I mean, that'd be just be representative of broader macro trends. But in general, it's sold separately, it's billed separately.

We're also pleased, as we announced earlier in the year, that we are just now beginning to introduce a full-service digital ability in our markets to not only serve -- sell spots on our site, but come in and do design work and optimization work.

Our clients have been asking for it, and we finally found a partner company to provide the support services that we needed and white label it so it could be our brand in our local markets, and that's just getting off the ground in the last handful of weeks.

And we think, as that deploys to the entire platform later this year, we are expecting to see some nice growth out of it..

Okay. And some of your peers have been acquiring some Internet companies, Nexstar and LIN being 2 at the top of the list.

I mean, do you feel like you need some more products and services that you're going to acquire inorganically?.

What we did with the partner company, I think, is an excellent way for us to start. It is -- I mean, it's a fixed passed-through fee, so we know exactly what they charge to do certain services. And we can build that into what we then charge our clients. It allows us to support services we need without the major upfront investment.

It get -- it allows us to -- since this is a new endeavor for us, it allows us to gain some experience in selling it and in dealing with our clients in our markets.

And it gives us the flexibility down the road that we can either continue to partner or we could potentially acquire those services by an acquisition or develop certain services internally.

But we think the initial start with a partner company, just like we've done many times in the past with a lot of our Internet or digital initiatives, we prefer to partner white label, learn as we go, rather than investing a lot of money upfront and then going to school..

Okay, makes sense. Last question for me. I was on a telecom earnings call yesterday, and they'd mentioned some -- this is a rural telecom company, and they'd mentioned some small businesses having some financial issues, a lot of them going out of business.

And since you're in some of those smaller markets, just curious to know what -- how you view the small -- the health of the small business and how that might affect local ad spending..

Well, our local spend is, obviously, very healthy, both first and second quarter. We really aren't seeing anything unusual in our receivable collection.

So we think, in general, while there's always a few small businesses in any given market and any given year that will go under, it's just kind of the nature of small businesses, we're not seeing any unusual trend so far. And Main Street for -- in our market seems to be healthy..

And our next question will come from Marci Ryvicker with Wells Fargo..

I know nationals is flat in the second quarter.

Do you have any visibility into national trends for the third quarter?.

That's just -- Marci, in all candor, it's just too far out to really have a trend on it yet. I mean, there's really not enough dollars to form a conclusion..

Okay. We heard from some of your peers it's picked up. That's what's driving the question.

And then -- yes?.

Go ahead..

The next question is on expenses. I think you came in a little bit lower in Q1, a little bit higher in Q2, excluding some onetime costs.

So should we use Q2 as a run rate for the rest of the year?.

I think it's partly reflective of maybe an average of Q1 and Q2. And obviously, there's, in Q2, as we pointed out very clearly in the release, there is an OTO [ph] noncash charge for our -- because we revised our paid time-off policies effective April 1.

And with us, it's always -- I think using an average is probably a little better because we tend to -- some of our employee counts will swing a little bit from quarter to quarter as, given the nature of small markets, we have a fair amount of turnover, which is inherent in our size markets and our business model.

Also, we get a little variability in our health and welfare since we're self funded. So I -- blend first and second quarter, and that's probably a reasonable estimate.

Now, the only other thing I'd add to that is, as we get into, especially, fourth quarter, you would see an increase in national rev fees because they'll take their commission on virtually all of the political dollars that would come in..

Great. Okay.

And then, can you give us an update on your D2 stations, remind us how many you have and maybe what the revenue and EBITDA contribution is?.

Yes. Through 2013 is probably the easiest number to look at and compare to '12 on a full year basis. Our digital second channels, at the end of '13, we had 58 program streams. It was about $20 million of net revenue and $10 million of cash flow. And that would compare to about $15 million in 2012 of net revenue and about $8 million of cash flow in 2012.

So it's reasonably sized. It's not huge in relation to the overall company, but certainly, very healthy cash flow. It comes in on a higher margin than our core business because of the nature of the D2 channel, and its expenses are significantly lower. And it's growing nicely for us, so we're very pleased with them..

And next, we'll take a question from Charlie Tris from Tiburon..

A question I have with regards to comments you've made about your leverage and how you try to utilize free cash flow to want to get to a reasonable leverage and delever.

Can you comment a little bit about what your expectation is for the year? Today's level, is this kind of where you want to be, or you had expectations to be lower?.

Well, I think -- first of all, we've clearly said that with -- post closing Hoak, we'd be at about 6x on a trailing 8-quarter basis going back into the 5s, which is certainly, by the end of the year, given the strength of the political, which is not an uncomfortable zone.

I think the bigger question is to, over the next -- over the shorter term on leverage would be if it stays in that zone because we have good acquisition opportunities that fit our profile because they're a strong, market-leading station. And clearly, something like that would be free cash flow accretive.

Or if those opportunities either take longer to present or, quite frankly, there isn't the opportunity because we like high-quality and we're willing to be patient for that, then obviously, free cash flow is -- free cash flow generation is significant, and we would probably delever a little quicker..

Okay. And then one last question with regard to maybe the guidance or just the strength in the local ad space as it relates to auto. You had a pretty good quarter. In light of some of the OEMs having very weak 1Q numbers and, obviously, the recall news, are you seeing pacing levels for 2Q affected? Are the U.S.

OEMs having a little bit of a bump, or do you still continue to believe that the auto sector is -- in the U.S.

and in your markets are doing okay?.

No. Right now, and for what we've seen so far in Q2, that seems to be doing okay. And there's no -- certainly, no big red flags in that sector that we're seeing..

And one last question on M&A. You'd mentioned earlier something -- in the first question that you look -- you would be looking for smaller or bigger deals.

Is this something more of a second half focused? Are you willing to make deals ahead of the Aereo news, or are you still waiting for that overhang and then start to really tack on the strategy?.

Aereo has absolutely no impact on us one way or another, and it certainly doesn't have any impact on us with regard to M&A. So we are looking now, and the only thing that slows us down is just trying to find the right quality of assets that fit with our corporate culture and getting a price that we can mutually agree upon..

Okay. So a lot of the opportunities out there -- there's no one that's saying, hey, we will renegotiate or engage post Aereo. It's -- everyone seems to sort of be -- it's not an issue to trying to close a deal or why folks have been quiet about transactions, is what you're saying..

No, it is not. I don't think it has an issue, really, one way or another, and I think it has a negligible impact upon our business. And I don't think it's slowing M&A down at all. I think, probably, the biggest issue we have, really, is more FCC uncertainty rather than Aereo uncertainty..

And next, we'll take a question from Jon Evans with JWest, LLC..

Can you just talk a little bit about your retrans? I think, last quarter, that was a surprise there. And I think you said that they'd be at this level.

What I was curious is, then, can you help us understand, is it Q1 of next year that you'll have another significant bump as you go through the upgrade process?.

Yes, it would be Q1 next year because we -- just speaking for the historical subscriber base for Gray, we have roughly 4.5 million subscribers that would come up for renewal at the end of this year. So we'll obviously see that benefit as we begin 2015..

And that 4.5 million is on your base of what, I'm sorry?.

Our total historic base is about 6.5 million..

Got it. And then the other....

And we renegotiated 2 million very late last year..

Got it. And then the 4.5 million that you have coming up, are those fairly old contracts, or are they fairly recent or, I guess....

The majority of those would have been repriced, basically, 3 years ago. And this is kind of a standard 3-year cycle that a lot of people in the industry are in, which is obviously coming up again at the end of this year. So they were not terribly old. They were priced, we think, basically, to market a couple of years ago.

Certainly, the market has moved up since they were priced. We would expect significant increases as we move into the renewals at the end of this year. But it's not a case of -- the 2 contracts we did at the end of last year, we've indicated, were very old and very underpriced. So the step to market was very significant for them.

We certainly expect a big step-up on the 4.5 million at the end of this year, but it wouldn't be -- probably -- we wouldn't be as dramatic as the step-up we saw on the 2 million we did the end of last year..

Got it. And then the last question relative to that, when does the other side of the cost start to escalate on you that you had to take the....

Our ABC reverse comp started this year with our renewal of ABC. We've been paying NBC for a couple of years now, as well as FOX. The CBS agreements come up at the end of this year, and we'll be, obviously, paying CBS beginning next year.

So actually, it times out pretty well because, as we go into next year and start paying CBS, we will have completely repriced our subscriber base within about -- most of our subscriber base concurrent with that happening and all of the subscriber base within the last 12 months of stripping CBS and starting to pay them in '15.

So we think we're in pretty good shape from that standpoint..

And would you expect to keep kind of this 50% where you get about half of what it goes up by, or how do you view that?.

It's been our sense so far that, that's where, at least in the deals we have seen to date, that's where the marketplace is. And we'll -- it's still very early in the year, and I'm sure we'll be talking a lot with CBS as the year goes on, and we'll -- I'm sure we'll come to a mutually agreeable set of terms by the end of the year..

[Operator Instructions] And our next question will come from Jim Goss with Barrington Research..

Before I ask the questions I was going to ask, piggybacking on what you were just saying, Jim, basically, you're making an interesting point in that if you are getting into renegotiations that could potentially as much as double, in some cases, the value of your retransmission, then when you have to pay reverse comp for the first time, you'll basically hit a flattening rather than a -- any sort of dip in the value you would have in that revenue stream.

Is that a fair way to look at it?.

I think that's kind of the way we're looking at it, yes. Now I mean, obviously, we get -- you say doubling. I'm not sure we're doubling. We've got a lot of subscribers up, so we certainly will price to whatever the market standard is at the end of the year, it'll be a significant increase.

And again, with CBS kicking in at the same time, we think the -- being able to reprice our subs at the end of this year is going to have a significant smoothing effect for that. Obviously, that's an increase that's been -- we've been planning for quite some time..

Okay. A couple of other things.

I was wondering if the FCC approach to JSAs, et cetera, given your command of smaller markets, would these rules possibly even provide you an opportunity since you're uniquely poised to provide local benefits in those sort of markets in the way you always have in getting multiple touch points or presence in a lot of the smaller markets because they were sort of underserved markets anyway? And we can have -- can that work out to your favor rather than be an impediment?.

This is Kevin. I think what you're asking is are there any opportunities for us to start new JSAs under the FCC waiver outline. I think the answer to that is we'll have to wait and see if the FCC actually grants waivers and, if so, what the actual criteria are. At this point, there's [indiscernible] announced criteria.

We're not sure how they'll be applied. So I think the whole industry is going to just need to wait and see if there's actually going to be an opportunity to complete their JSAs down the road. We're much encouraged with the dominance of our stations in a lot of markets.

Our market share is pretty strong in some markets already, so adding an additional TV station to our market share has been a reason why we've done export JSAs in a lot of markets already.

I think the more interesting opportunity coming from the FCC's crackdown is the possibility that some folks, some broadcasters may simply unwind JSAs and SSAs entirely and seek to sell a station and -- or break the stations up, either to clean things up themselves or as part of a large transaction.

I think that is where we may find some opportunities in that, an outright acquisition in an attractive market or potentially a station that was failing under someone else's leadership that we may be able to run a little bit more efficiently, run a little bit better.

But in terms of just a straight-out charter of a JSA under the new waiver criteria, it's just too early to predict whether that's actually going to provide an avenue for everybody..

Okay.

Also, with the somewhat softer scatter market going into the upfronts, recognizing that's a network event, not a local station event, is there any carryover impact on your own ad pricing in the local markets?.

No, the upfront market has no impact or bearing on what we do in our markets..

Okay.

So it has -- it's not reflective of any trends that you might be experiencing as well?.

Right..

Okay. Last thing.

There was an interesting article in the Wall Street Journal this morning titled "More Ad Dollars Flows to Pirated Video" pointing out that some of the digital ad sales placements that were intended to specifically target certain types of ads, certain types of activities and placements, wound up not getting used entirely in those intended areas, and then they wind up on a lot of other sites, some of which are pirated, some of which might be worse, and it effectively offset some of the perceived benefit of digital ad sales placement, which should be that targeted element.

I was wondering if you have any experience along those lines that might, perhaps, hold up the more traditional ad sales where you have a better idea exactly where things are being located and what you're going to get for your money?.

Well, with our digital platforms, we're controlling those -- that inventory and that placement. So -- I mean, I think there were -- I mean, our customers are -- we know what they're buying, and we're servicing them accordingly.

I didn't have the opportunity to read the article, so -- but it strikes me as being maybe more of very broad-based, national-type buys that are putting themselves over multiple platforms. And I think that's a completely different market and a completely different buy.

And again, in our markets and in our platforms, we're controlling what's available to be sold, and we know who we're selling to.

So we obviously want to deliver on our sales and make them effective for our clients because we've got to go back and see them next week or the week after, and we've got long relationships with all of those people in those small markets, and service is #1 for us..

Well, I was thinking less about your digital ad sales and more about the notion that -- the old saw about we know half of our ad dollars are wasted, we just don't know where. That sort of thing.

If the same experience winds up happening in some of the supposedly better-targeted alternatives, that might negate some of the perceived advantage and provide some support from your own ad sales efforts in the broadcast area and other traditional media. And that was really my train of thought..

You may be right that, if people are dissatisfied with where they're spending now, that some of that may get reallocated. And certainly, if they want to put money down in our markets, we'll be happy to talk to them about it..

And next, we'll take a question from Barry Lucas from Gabelli & Company..

I was just hoping to get a little political update, if you will, and thoughts about whether or not you can beat 2010, the last non-presidential year, and any particular races or states that may provide some upside with technology, in that we're still pretty early in the year?.

Well, as you pointed out, Barry, Q1 was basically at our expectation. We're pleased with where our numbers look like they're going to come out for Q2. Certainly, as we've talked many times, 50%-plus of our total political spend ends up in Q4. I mean, you go back year after year, and that's been a consistent trend.

So we obviously expect a very, very strong fourth quarter and a very -- and a healthy third quarter. I don't think there's been anything terribly surprising yet. We might have -- Kevin, you can feel free to chime in here, but all in all, we're pleased with what we're seeing so far.

And we think we -- we've said that we did $58 million in '10, the last off year, and we think we'll do better than that in '14. But clearly, as we've said many times, we're not expecting to break the presidential year record of $86 million from 2012..

[Operator Instructions] And at this time, I show no further questions in the queue. And I'd like to turn the call back over to our speakers for any additional or closing remarks..

Thank you very much, operator. I just want to thank everyone for joining us this morning. We're excited about our results. We really are excited about what looks ahead for 2014. So thanks for joining us, and we'll talk to you next quarter. Thank you..

That does conclude our conference for today. Thank you for your participation..