Good day everyone and welcome to the Gray Television Second 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 afternoon and welcome to the second quarter 2014 earnings call of Gray Television. We appreciate your time and thank you for your interest in our company and in our industry.

As usual, I will be making a few brief opening remarks, followed by Jim Ryan, our Senior Vice President and our Chief Financial Officer; and then Kevin Latek, our Senior Vice President of Business Affairs will have a brief summary of our recent milestones over the last year at Gray Television.

At the conclusion of our comments, we will also be available to answer any questions that you may have. Before we move to the quarter's results, I want to note the announcement that we made on July the 24th, but we will be adding WJRT-TV and WTVG-TV to our growing portfolio of market leading new-centered TV properties.

These two ABC affiliated stations with WJRT serving the Flint, Saginaw and Bay City, Michigan market, the 67th largest in our country and WTVG serving the Toledo, Ohio market the 76th largest in our country both lead the local markets and all day ratings and in most if not all local news cast.

According to BIA revenue data WJRT-TV is the highest ranked television station in its market and WTVG-TV is a close second ranked in its market. We are also pleased that we will be adding the CW affiliation in the Toledo, Ohio market at closing. We are extremely happy with this pending acquisition.

These stations have extremely strong news franchises have strong political advertising potential and are an excellent geographic fit with our existing stations in the area WILX, NBC affiliate in Lansing, Michigan and WNDU, NBC affiliate in South Bend, Indiana. We are also very happy to be directly entering the Ohio market.

We have a significant number of Ohio viewer out of our West Virginia station on the Southern part of the state but this is our first entirely Ohio based property. We expect little regulatory problems with this acquisition and hope that the [SEC] will act expeditiously on their approval.

Upon the closing of all announced and pending acquisitions Gray Television will own and/or operate TV stations in 44 television markets broadcasting 142 program streams including 77 affiliates of the big four networks, at that time our owned and/or operated stations will include 27 channels affiliated with CBS, 24 stations affiliate with NBC, 16 stations affiliated with ABC, 10 stations affiliated with the Fox Networks, 16 with the CW Network and 17 with My Network TV.

Including the pending acquisition we have added 14 television markets and 32 television stations since this call last year. In short, we are very excited to be expanding in Michigan and entering Ohio directly.

And I would like to take this opportunity to publicly welcome the management, the associates and the viewers of WJRT and WTVG to the Gray business family. Moving on to our results, we are very pleased with our quarter and year-to-date results.

Our revenue reached a new record of $107.2 million for the quarter compared to $84.3 million in the prior year’s comparable quarter, a 27% increase. For the year-to-date, our revenue also reached a record of a $198.5 million compared to a $162.5 million in 2013, a 22% increase.

As we noted in our release this morning, on a combined historical basis, if we began the year with all currently closed acquisitions, our year-to-date second quarter revenue would have been approximately $235.7 million.

We had a great deal of combined historical data in our press release this morning, and I would like to refer you to this information as I think it's very relevant to Gray and where it's going. For the second quarter, our local advertising increased by $5.8 million or 11% to $56.7 million.

Our National advertising had a slight decrease of $200,000 or 2% to $14.8 million. Internet advertising revenue increased by $900,000 or 15% to $7.2 million and political advertising revenue increased $7.9 million or a 1,047% to $8.6 million. And retransmission consent revenue increased $8.3 million or 88% to $17.7 million.

Additionally, our net income was reported at $1.6 million for the quarter. This compares to $5.14 million in the second quarter of 2013 but we have to take into account that we took a charge of $4.9 million for the early extinguishment of debt as a result of the refinancing of our outstanding debt.

Year-to-date, local advertising revenue has increased by $10.4 million or 11% to a $107.7 million. National advertising revenue decreased $300,000 or 1% to $28.2 million. Internet advertising revenue increased $1.3 million or 11% to $13.2 million. And political advertising increased by $10 million for the year or 720% to $11.4 million.

Retransmission consent revenue increased $14.7 million or 77% to $33.8 million. We reported net income for the year of $2.9 million compared to $6 million in the year-to-date in 2013 but also that takes into account the charge of $4.9 million for the early extinguishment of debt.

As we look forward to the balance of the year and we released in this morning’s release our guidance for the third quarter, obviously we’re very excited about the potential of this political year.

And Gray because of its news leading stations and because of its locations in very important politically sensitive states has a number of races that are going to be highly contentious.

And while we have a good political revenue that’s been reported year-to-date and quarter-to-date, we think that third and then fourth quarter are going to be quite good in an non-presidential year.

Based on the data we have to-date, we have 18 very competitive senate races in all of our states, we have 13 very competitive Governors races in our state.

And then amazingly because we haven't gotten any political revenue out of our two stations in Wichita and Topeka, Kansas in sometime we're expecting to have a very competitive a political season in the third and fourth quarter and both as I understand that the Governor and the Senate races in Kansas, which will be a very happy surprise.

All in all we feel an excellent quarter. We feel that it is a great year-to-date performance and we think the balance of the year is going to be sterling. And with that I will turn it over for Jim Ryan for his comments..

Thank you. Good afternoon everyone. I think Hilton covered pretty well the as reported highlights out of the second quarter.

I'd like to focus a few comments on the combined historical where we’ve gone back and added the revenue and operating expenses of the acquired stations as if we’d owed them from the beginning of 2013 for the second quarter on a combined basis our local was up 3%, our national is down, similar trends to the rest of the industry has been reporting over the last week or so.

We're pleased to see internet growth on a combined basis up 12% quarter-over-quarter, our retransmission revenue on a combined basis would have been $20.3 million and the political revenue for the second quarter would have been $10 million.

Speaking to operating expenses, the big driver both in as reported and also on a combined basis was our change in our paid time-off policy in second quarter, revamped and revised, a very antiquated vacation and sick time policy and turn it into paid time-off policy we indicated that charge will be coming through when we issued our second quarter guidance that amount is about 3.8 million.

In the second quarter, it's a non-cash charge we just had to increase the accrual based on our changes and policy. And that really one of the more significant expense drivers in prior second quarter, both as reported we're on a combined basis.

The other big driver on the expense side that we've talked about repeatedly on the TV line is the increase and reverse comp to the networks, that was up about 2.2 million in the quarter, 2.4 million on a as a reported basis. And that in part reflects again that we just started paying reverse comp to ABC at the beginning of this year.

On the six months numbers again we were pleased on a combined basis with the local growth of a solid 4% on national has been sluggish as others have reported, but we also saw again on a six months combined basis, strong Internet growth of 9%.

We think Internet going forward over the next year or so especially with acquired stations gives us big opportunity with the acquired stations and certainly with the place we get add a lot of value and begin to ramp up those revenues.

And again on an expense basis for the first six months of the year, the big driver again was the changing paid-time-off policy which was non-cash charge. And then reverse comp network was about 4.5 million and again that in large part reflects the new agreements with ABC.

Turning add categories, this would exclude the acquired stations, so this will just the legacy historic Gray stations, but we're very pleased to see our auto was up a solid 6% in the quarter and it is still tracking up 8% for the year so we think that’s very healthy.

We did see weakness in communications, furniture and appliances both during the quarter and year-to-date.

And we also saw weakness in the financial category, but we did see improvements in entertainment throughout the year as well as strong performance in department discount stores in the second quarter and home improvement as well? Broadcast cash flow, this would be before our corporate expense was up 25% in the quarter on an as reported basis and was up a solid 19% on a combined historical basis and year-to-date BCF on a reported basis was up 25%.

And on a combined historical basis broadcast cash flow again was up a very strong 20% year-over-year, we are very pleased to see that. Quick comment on our expense line in the corporate for the second quarter and year-to-date. Again please keep in mind that we did close the Hoak transaction mid June.

With the closing of that transaction we had a lot of deal costs that hit the corporate line late Q2. There was about 4.5 million of deal costs that we had to expense as we came to close Hoak that ran through the corporate expense line in second quarter. So again that’s the main driver of any changes year-over-year there.

Turning ahead to guidance for a minute for third quarter. We see actually improving trends in National, although that trend line is improving as the quarter moves on, July remained sluggish, but August is looking a little bit better and September is pacing actually in positive territory, which is very good to see.

We're also tracking up lower single-digits in local revenue as well. And again as Hilton commented, we are expecting a very strong performance in political in third quarter and our retrans run rate now with the stations that we have acquired for the quarter is about to just shy of $20 million on a run rate, now that we've closed the transactions.

Turning to the balance sheet and the credit facilities for a minute. First of all, we were extremely satisfied and pleased with the new cedar credit facility we put in upon closing Hoak. Just to remind everyone quickly, there was a $525 million senior facility prices at LIBOR plus $300 with a 75 point LIBOR floors, our current all in rate is 3.75.

And that facility matures in 2021 and it's a covenant like with just the total incurrence test of seven times on a trailing eight quarter basis.

There is a maintenance test when the revolver is drawn, currently are $40 million, our revolver is undrawn and those maintenance tests were set to the same test we had at the old facility so there is ample room there.

But our total leverage is defined in the credit facility at the end of the quarter would have been 6.17 again on a trailing 8 quarter basis with a first lien leverage of 2.6 which is from a first lien standpoint is relatively low. And our trailing eight quarter cash flow was approximately $191.7 million.

Total debt at the end of the quarter was $1.2 billion which is the $525 million of the senior facility and another $675 million of our 7.5% senior unsecured notes. From a CapEx perspective we had 6.7 of CapEx in the quarter $10.5 million so far this year on an all-in basis for the year.

We’re still expecting total CapEx will be approximately $30 million with and impart because of the acquisitions we’ve made this year. We had virtually no cash taxes in the quarter and only $18,000 of cash taxes so far this year.

I would expect a little bit more later in the year but still a relatively small de minimus number $1 million, $1.5 million in that range. Program payments for the quarter were 3.9 million.

All-in reported basis for the year that’s probably getting to that 17 million with the acquisitions on a combined historical basis is probably close to 18.5 million or 19 million. And the amortization numbers track pretty close to the payment numbers.

Retransmission revenue, again down on as reported basis, by the end of the year we’d expect retransmission to be about 73 million. And in all-in rate on a combined basis for this year it would be closer to 80 million.

And then again on a reported basis about 19 million in reverse comp this year and on a combined basis it would be, on a full year combined, it would be closer to 21 million. So, we are tracking the year as we expected. We’re pleased with where we’ve come so far. We’re pleased with what we’re seeing in core local.

We are expecting a very strong second half of the year with the political and I'll remind everyone that historically anyways, at least half of our political revenue doesn't hit until the fourth quarter. We’ve got a very good capital structure with a very low cost of overall debt for us.

So, we're well positioned as we’ve talked about last several calls to generate a very good free cash flow, both in non political years as well as even stronger free cash flow in the political years with the added benefit of the very large political that we attract with our #1 number news station.

So, as we talked about in other calls as we -- and you can see in the investor presentation that’s on our website. From June, we’re well positioned at this point to conservatively generate a $100 million of free cash flow on a two year average and $200 million plus of free cash flow on a combined two year cycle with the political.

And I would hope as the future unfolds, those numbers prove to be a little bit conservative. At this point, I’ll turn the comments over to Kevin..

Thank you, Hilton. Thank you, Jim. Last July, Gray announced a streamline management structure, so we predicted at the time would allow us to be decisive, innovative and agile. To quote Hilton from that press release announcing the management changes, our new structure is scalable in a way that allows us to grow our company in our local brands quickly.

Now one you later, we thought it would be worthwhile to take a few minutes on this call to review the company's progress in light of those bold predictions. Obviously, Gray is a larger more dynamic broadcast company today.

One year ago, as Hilton mentioned at the opening of the call, Gray own and operate television stations in 30 markets, broadcasting 45 channels affiliated with the Big Four and 41 additional channels programming.

Through carefully selected acquisitions and the creation of a handful of new local channels, Gray has grown its portfolio of television stations and digital assets pretty significantly over the past year.

With the recently announced transactions in Helena, Great Falls, Flint and In Toledo closed in the coming weeks and months, Gray will own and/or operate television stations in 44 markets broadcasting a 142 program streams including 77 affiliates to the Big Four network.

We will then own or operate the number one ranked television station, 29 of 44 markets the number one or number two ranked station operations, 40 of those 44 markets. And that point we will reach slightly more than 8% of total U.S. television households.

Jim has spoken about the impact of these new stations on the result of our operations; it's also worth noting that our capital structure has much improved over the last year as well.

Last October, Gray announced that we successfully completed an offering of $375 million of additional senior notes due 2020, proceeds of which were used to pay down credit facility to added general corporate purposes.

This past June, Gray completed the refinancing with senior credit facility which now consists, as Jim mentioned with seven year $525 million term loan facility and five year $50 million revolving credit facility.

Returning to last October, we announced then the launch of a new look for the company, putting a modern and three dimensional iconic logo and a cutting edge website. By now you're all probably familiar with iconic camera lens logo that represents the great lens so which millions of people across the country see the world.

We encourage you to visit our website where we now feature among other things that come as historic milestones, awards and achievements of our local stations that we believe sets Gray apart from the others.

This April we launched LocalX Marketing, which is a new Gray owned digital marketing solution that brings products and services to local businesses throughout our markets in which Gray operates television stations.

LocalX offers fully customizable solutions for local businesses and local non-profits to grow in private and digital space including mobile and responsive design, search engine optimization, social media management, e-commerce, database management, call tracking, reputation management.

Our digital team now also licenses our home grown digital vertical known as MomsEveryday to television stations outside of the Gray footprint. In June of course, we completed the Hoak transaction.

That deal represents second largest acquisition in our company’s 117 year history and added 12 excellent stations in the programming and operations to be additional stations that were previously owned or operated by Hoak Media.

At that time we also embarked on a new approach to unwind our shared service agreement that has not been attempted previously by any broadcaster to our knowledge.

Specifically we worked with Hoak and Prime Cities Broadcasting to transition the program lineups of KHAS, CNBC and Hastings; KNDX, the FOX of this market, KXMB, the FOX and [what not] to five other television stations owned by Gray in those stations markets.

We also announced to transfer these former shared serviced stations and are remaining three shared services stations to new owners but not just any owners with the assistance of Hoak, Excalibur, Parker and Prime Cities, we are marketing these stations only to individuals institutions that are underrepresented in broadcasting such women and minority owned businesses and non-profit groups.

We hope that our innovative approach expensed versus an opportunity in the broadcast business while also becoming a new model for the rest of the industry.

The acquisitions over the past year have been consistent with Gray’s announced strategy of enhancing shareholder value through select acquisitions of market leading stations that show the cultured values of our existing TV stations. Moreover each acquisition when close, has been or will be immediately free cash flow accretive to Gray.

The past 12 months have witnessed a very exciting string of acquisitions and new company initiatives. This truly great have to follow Gray. And Hilton Jim our nearly 3,000 colleagues appreciate your interest and support. Thank you for your time. I'll turn the call back to Hilton..

Thank you very much, Kevin. Operator, at this time we'd be delighted to take any questions from anyone..

Thank you. (Operator Instructions). And we'll go first to Aaron Watts with Deutsche Bank..

Afternoon guys..

Afternoon..

So Jim, a couple of quick clarifiers to make sure I'm thinking about this right.

You highlighted a couple, called a non-regular items expenses in the quarter that you guys incurred, I think you mentioned almost 4 million of the employee benefit policy switch cost that was non-cash and you had some legal and professional fees type your acquisition $4.5 million.

Is it fair to say that dragged down your EBITDA in the quarter? If I wanted to think about normalized EBITDA, I could exclude those items?.

I mean the simple answer is yes, certainly the deal cost drag down our EBITDA, I'm not sure if that's completely, I think I might take a different view of that. If you go back to the guidance we actually published in our Q1 earnings release for Q2.

And do like a high side revenue, low side expense to pick up the corporate number, the EBITDA you calculate there comes into, I think was about $0.5 million or so, the actual EBITDA that we generated in the quarter.

So, yes we had some unusual things almost $4 million in non-cash and on the personnel on the PTL change and certainly the $4.5 million or so of deal cost in Q2 while we will have some more deal cost in Q3, unless another transaction comes in a way at some point in time, certainly that $4.5 million would not be recurring down the road that’s for the certain..

Okay, all right. Just wanted to make sure I was thinking about that right.

And I guess secondly, did I hear you correctly you’re trailing a quarter leverage right now 6.17 against that 7 times in current test in the credit facility?.

I think I misspoke. Just a minute thank you for asking me again. Let me just get to the right page in my notes please. No, you’re right it’s 6.17..

Okay..

This was exactly it..

Got it.

And then kind of the last kind of financial detail on any kind of could you quantify just the additional funding requirements you have for acquisitions that have already been announced?.

Well we’ve announced the SJL acquisition that’s -- will be we have obviously we’re in a very strong cash position with the over $60 million of cash flow on the balance sheet, we’ll be building cash in a rest of the years with the political cycle.

So I think a large part of that transaction we’ll be able to finance with the existing cash on hand, the residual piece that will need to be financed more likely than not. Right now I would say with probably under been a relatively small amount of incremental on our existing term loan facility..

Okay. And then one question on just kind of a core ad trends, it looks like if I compare your second quarter detail with what you're providing us in terms of outlook for the third quarter that national advertising is trending in the right direction.

Is that a fair comment that, or a fair thought that continue to improve from what looks like a low point in the second quarter and what was pushing that?.

That is certainly, is what we're seeing right now in the pacing and certainly what we are suggesting in our guidance, the guidance has national down in Q3 on a combined historical basis low single-digits versus the more stronger declines we've already seen so far this year.

So, certainly it does appear to be improving and if you look at just like pacing sequentially through the quarter July and August are still sluggish but moving in the right direction and September currently is actually pacing, positive in the mid single-digit range. So, based on what we're seeing right now, yes it does look like it's improving..

Okay. All right. Thanks a lot for taking my questions..

And we'll take our next question from Marci Ryvicker with Wells Fargo..

Thanks. I think the reason why your stock is down is because we can't figure out how much of the acquired positions are Hoak, and so if you take out all of that $8.9 million of revenue it looks like you missed the guidance on the top-line.

Can you reconcile what you gave us for revenue guidance with what you reported ex-Hoak and maybe help clarify what's going on?.

Yes. Just give me a minute to get to the right place to look that up. The simple answer would be and again I'm trying to pull up some more details. But the simple answer Marci is that if you strip out just a couple of weeks we had of Hoak in the second quarter.

Our revenue would have come in at 103.9 against the 104 side higher rage and our expense would have come in at 64.7, which actually was still underneath the low end of the range. And those are the TV revenue and TV expense line.

The corporate line would then have roughly the 4.5 million of field costs that went through second quarter when we actually closed Hoak..

Okay. I think that probably helps a lot. And then just in terms of your portfolio when you think of uses of cash. You're doing so many different things.

How do you think about the return on a digital asset versus a return on a TV station?.

Well, our digital assets were growing internally even the LocalX is we didn't grow by our company, we're partnering with people to help us provide those services but we are labeling it under our brand so the historic digital activities we have had, have come generally at higher margins in the core TV, but we are able to lever that for instance the MomsEveryday product we have that we generated internally we are able to lever that also a lot of things we are already doing.

Something like a LocalX, we are just getting started with that.

We expect good things out of it overtime, but we think it will take a little time to develop, there it’s probably a business that’s a lower margin and the historic TV, but higher volume, but we see that as an important place to be in our markets because our clients over the last year to two years have been coming to us and saying we need help with these other services too, can you provide it? And we kept saying no we can’t and we started seeing them go to other people to get those services and then starting to see and as that increased we ran the risk of other people being able to talk to our clients and start to move ad budgets around.

So we wanted to be in the best position possible in our markets to be able to control those types of things which is why we decided to get into the digital services in our markets a little earlier this year..

Okay, thank you..

And specifically in Q2 Hoak revenue was 3.3 million from the date of close to the end of the quarter and the Hoak expenses were 1.3 million?.

That was very helpful. Thank you so much..

And we'll take our next question from Davis Hebert with Wells Fargo Securities..

Hi, good afternoon. Thanks for taking the question. Jim, I just wanted to clarify something you said earlier on July, August, September the monthly outlook.

Was that specific to national?.

Yes, it was. Those comments, I think were specific to national, yes..

Okay, got it. Just want to make sure..

But also in general, in general local is running in the up low single-digit area..

Okay, okay. That's what I thought just want to confirm. And then on the two acquired stations, can you talk about the revenue profile for those two stations. How much political is a factor, I would guess it's fairly large being those two are battleground states. Just wonder if you could talk about that..

Yes, they do have a strong track record both in Presidential and non-Presidential years of very strong political performance. When we issued our release a few weeks ago, we said that was a blended two year average of ‘12-‘13, it was about a 7 times multiple.

So they are -- the combination of few stations, they are very strong performers and we're looking forward to get it to a closing there as quickly as possible, because it is a clean FCC process there, it's a straight up one on one station. So we're hoping they will try quickly with the commission..

Okay.

Can you give us an estimate of what the ‘12-‘13 revenue is for those two stations?.

Given that they are privately held a little reluctant to do that prior to closing without having gotten pre-permission from the sellers and I’m not trying to not answer your question but I think you can drive the cash flow based on the multiple I gave you and then their margins, I’d say are as good or given that there is strong stations in those markets, their margins are very strong TV margin.

So I think you can get ship back into that a little bit..

Okay. That helps. And can you -- you gave the eight quarter EBITDA of $191.7 that includes Hoak, right but not anything related to SJL….

Right. That would be correct, the 191.7 is only for acquisitions closed and/or stations being operated under servicing agreements. It would not include anything for the pending acquisitions in Flint and Toledo..

Would you have LTM pro forma available?.

Yes. The LTM there is approximately 166.5..

Okay.

And then last question from me, just any update, are you having negotiations, talks with CBS on renewal of that affiliation stream?.

This is Hilton, I will answer that question and then Kevin may want to follow-up with me. Yes, we’ve spoken to CBS and but we’re not going to negotiate publicly. We feel pretty confident that we will be able to reach agreement with CBS. We think we’re very good partner of GBS and with every one of our network partners.

So we feel like we’ll be able to reach agreement on solid terms at the appropriate time..

Okay. Thank you Hilton. Thank you Jim..

(Operator Instructions). We'll go next to James Goss with Barrington Research..

Thanks.

Is CBS the main outstanding reverse comp issue you have to address?.

Yes, it is.

Kevin, do you want to touch on that as well with some color?.

Yes. Sure. CBS is the last network, so we get to begin and reverse comp, the rest those kick in over the last couple of years, I think support those as they’ve kicked in ABC, so kicking in this year. Just to put one thing in context, in the last 12 months we have assumed or signed new affiliation with over 40 big four stations.

So, we’ve not negotiated any of those in press. We don't issue press releases when they’re done. We’ve done long-term contracts with two of our three biggest providers in the last several months. And we don't issue press releases on them.

If deals get done in the ordinary course, at this time we're talking with [possibly four] parties about lots of different things and I expect we'll continue our track record of coming to agreements without fanfare and public outcry or public statements..

In the past occasions, when you’ve made such agreements, do they phase in or do they come in more quickly than that on the reverse comp side?.

Historically, and I’ll speak more generally to all networks and help our broadcast stations. Your number conciliation specifies comp, no comp or reverse comp. And when the new term kicks in, you negotiate the different financial range at that point, so it would depend on the contract.

For years we had a lot of broadcasters had contract where they were getting comp for a number of years and then went through zero comp situation and then went through reverse comp for the years to contract. And the general rule of reverse comp starting each time for new contracts been renewed is general matter of industry.

Our contracts with CBS as we've been clear so far do not include reverse comp, (inaudible) comp period, we did now the end reverse comp cycle with that in those contracts again with the bulk of those at the end of this year..

Alright. Couple of other things. In political, it seems like you had somewhat better quarter than might have expected, given that you do tend to do better in the presidential election years.

And I’m wondering if the races you outlined at the beginning of the call was one of the factors that you have unusually large momentum from that standpoint?.

This is Hilton. I'll just give you some local color. I was at our station KKTV in Colorado Spring couple of days ago. And they've got aggressive gubernatorial and some senatorial races going on there. And our station is full off. And they've begun much earlier in the cycle than perhaps has been traditionally expected.

And I think that's a new reality that’s very positive for the broadcast business because Election Day is often months away from when people start voting today. And I think that President Obama in the last Presidential election demonstrated very positively to the run of advertising earning.

His first advertisements that Gray received were also similarly at least I recall in Colorado in grand junction. And we got presidential election money in May and that was much earlier for the general. And so that was much earlier than what we have been saying in the past. So I think the political window has been expanded significantly.

And so I think that’s part of what would had decent political so far this year..

Okay.

And then one other area, Gray has traditionally been one of the more aggressive leaders in digital and mobile and some of the other initiatives like that and I man wondering if you are seeing any potential to participate in the emerging mobile ad market in a way that to become more meaningful and what sort of pricing you would be getting in that sort of area? And whether or not some of these initiatives might help offset some of the inherent cyclicality that you have with the political cycles in your success in driving up the political revenues in your markets?.

I think that the industry and everyone else can agree on a mobile standard, I think that we are going to be right there in the vanguard audit because we have worked very hard to have mobile capacities in each one of our [DMOs] in every market.

And we have been very aggressive and been very, very successful at creating digital assets that we have monetized in an outstanding fashion. I think it’s one of the best standards in the industry. And so that is certainly our goal and our hope because more and more we are going to be seeing mobile being an important portion of everyone’s lives.

I don’t think that in any way diminishes the power of midstream television and what that brings to our home. But I think it adds to that power and allows television and the creators and broadcasters of television to be even more ubiquitous. And I think that's very important and I'm very excited for our entire industry..

Alright. Thank you..

(Operator Instructions). We'll go next to Barry Lucas with Gabelli & Company..

Thanks and good afternoon.

Just a couple of items here, one could you discern or even describe any geographic differences in terms of national or local and was there much variance between your markets either by geography or size?.

I'm not seeing much of pattern Barry, I mean it just is, in every quarter and every year some markets are doing better than others. But it doesn't, I won't say there is any pronounced pattern one way or the other. We see that year in and year out.

Whether it's everything is robust or whether it's a little sluggish like national has been so far this year. So, no real clear pronounced pattern..

Okay.

And I'm not sure if you have done this in the past, but do you have the pro forma combined politicals for 10 and 12?.

I don't, I can give you some, give me half a second here. I can maybe give you an idea of 12, but I do not have 10.

And this wouldn’t pick up everything but the big picture for 12 would be Gray had historically $86 million and Hoak about 12 so that would give -- and the others would have contributed some but not a huge amount, sort of give you some feel..

Okay.

And then finally Jim I want to make sure I heard you right on the description of free cash flow that was a $200 million per year?.

Over, over, no, no 200 over rate of full two year cycle and that would average to be roughly 100 million and if you just do, you did a simple full year your average it would be a 100 but obviously the political year is going to be heavier than the non-political year..

Right.

But, are you thinking that’s more 13-14, 14-15, 15-16?.

I think whether it’s a 13-14, 14-15, I don’t think it’s whole a lot different, ‘15 is probably a little bit better, I would expect ‘15 being a little bit better than ‘13 because obviously we and many other people in the industry are going to get another round of retrans at the end of this year and will be we’ve got roughly 5 million subscribers that will be negotiating before the end of the year.

So certainly we’re looking for uplift there. But now you could add in ‘15, ‘16, to go further out, it’s going to improve that much more. And so it’s more of a near-term next couple of years or what the last couple of years would have looked like..

Okay.

Last item for me Jim and maybe more for Hilton actually but when I look over it what David Smith is doing on programming side and probably makes a lot of sense since he is bumping up against cap but he’s not the only one, you’ve got scripts investing in program, narrative because of their unique properties doing some of the home and garden kind of programming, is how much of an opportunity, how much does it make sense given your size and scale to be thinking about programming more of the day on our own stations?.

So, I think that while we don't have 39% of the country, I think that we have a very a real possibility to continue to expand and create our own programming. It's something that we'd look at beginning. We got folks on our creative and on our programming sides across the board looking and doing things just like that as with speak.

A lot of what we've done in most obvious example being MomsEveryday it’s something that was created in house and now we're taking it to non-Gray properties outside of where we do business. So, I think there is going to be a lot of opportunities to do just exactly that.

I’ll say one other thing with regard to the Hoak acquisition, they’ve created a I believe it's called Dakota today program where they are doing a lot more programming directly in the Dakota areas which as you know because of all oil and gas phenomenon over the last five or six years is one of the fastest growing places.

If not the fastest growing place in the United States right now and that's a property that we're excited to have in those areas and we'll expanding and looking to create even more. I will say further at our General Managers Meeting I guess the last one study was about a year and a half ago where we did this.

Each one our properties presented their own ideas for different programming and went through a pretty thorough analysis. So, we continue to look at them. Right now we're very happy with kind of what we have out there.

But we're prepared and able to expand pretty dramatically the amount of programming that we create and what we have in-house and one of the reasons that I think that we're particularly good at that is because we're not at David Smith’s percentage of the country. Our average market share and each of our 44 markets is pretty substantial.

And so we can quickly get product on the air that we think it's going to have a solid audience and that we can quickly monetize. And I think that's because of the quality of the stations that we have invested in over the past decades..

Great. Thanks very much. I appreciate it..

Thanks..

And gentlemen, we have no further questions at this time. I'll turn the call back to for any additional remarks..

Well thank you so much operator and I want to thank each and every one of you for your time today. I know it's been a full week with a lot of news in the broadcast business. And I appreciate your time to listen to us.

We're really truly excited about what we've been able to accomplish over the last year and we're very excited about what the future has to bring. Thank you for joining us and we'll talk to you next quarter. Thank you..

Thank you and that does conclude today's conference. Thank you for your participation..