Good day, and welcome to the Gray Television’s First Quarter 2017 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn conference over to Mr. Hilton Howell. Please go ahead..

Thank you, operator. Good morning, everyone. I am Hilton Howell, the Chairman and CEO of Gray Television. Thank you for joining our first quarter 2017 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 begin this morning with the disclaimer that Kevin will provide.

Kevin?.

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’ll post both an audio recording and a transcript of this call on our website.

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 to non-GAAP financial measures to the GAAP measures in our financial statements that are available on our website. I’ll now turn the microphone to Hilton..

Thank you, Kevin. We begin this morning with the announcement of our latest acquisition of a very high quality television station in a dynamic midsized market.

In particular, we have reached an agreement with Mount Mansfield Television to acquire WCAX-TV, the CBS affiliated television station in the Burlington, Vermont-Plattsburgh, New York market, which is the 97th ranked BMA for $29 million.

The purchase price multiple including expected synergies is less than 6x expected blended 2016/17 pro forma broadcast cash flow. In fact this transaction will be leverage neural for us. We anticipate closing the transaction in the third quarter of this year.

Quite simply, we are thrilled to be able to acquire WCAX, and we are equally excited about our acquisition of WBI in Bangor, Maine and WCJB in Gainesville, Florida from Diversified Communications, which closed this past Monday.

These three televisions are truly institutions of record in their local communities and they have been led for decades by some of the most dedicated families in broadcasting history. We are confident that WCAX, WABI and WCJB will prosper even further with the full resources of Gray Television behind them. Of particular note to me.

This acquisition leads Gray to, for the first time in its corporate history, have three New England stations and all three of those New England stations have some of the highest political revenue in their markets and we are quite excited about that.

It moves us into New Hampshire for the very first time in the Northern part of that state, and we add to our operations in Maine, which is a politically-sensitive state during the presidential election year.

The Gainesville acquisition adds another Florida station to our panhandle concentration, and we are very excited about its dominance in its local market. The first quarter of 2017 has been a very busy and noteworthy 2 months for us. While the year began slowly and the Super Bowl made for tough comps, our core business generally held up.

Overall, our total revenue for the first quarter of 2017 increased 17% from the first quarter of 2016 to a new record high of $203.5 million. We posted net income of $10.5 million, and our broadcast cash flow was $70.5 million.

As you know, with our prior earnings call in January, we closed on previously announced acquisitions of WBAY in Green Bay, Wisconsin and KWQC TV in Davenport, or the Quad cities, in Iowa and Illinois as well as 3 stations in Fairbanks, Alaska, which will join in our operations with our planned door station, KTVU, in Anchorage.

Also in February, we refinanced our secured facilities with a new $556.1 million term loan and $100 million revolver, which further lowered our cost of capital and extended our maturities. In addition, we announced that month that we anticipate receiving nearly $91 million in proceeds from the FCC’s spectrum auction.

A few days later, we announced that we had agreed to acquire WABI and WCJB from Diversified. We began operating those stations on April 1. To fund that purchase while we await receipt of the FCC auction proceeds, we borrowed $85 million under an incremental term loan in early April.

On May 1, 2017, as noted earlier, we completed the acquisition of the 2 Diversified television stations. In addition, we finally closed the acquisition of WDTV and WFXXTD in Clarksburg, West Virginia. We had been operating in the Clarksburg stations since June 1.

Meanwhile, the FCC has wasted no time recognizing the obvious fact that the broadcast industry and the media landscape generally have changed dramatically over the past 2 decades.

The FCC already has moved to relax the national ownership cap and announced its intentions to review the local ownership rules as well as operational regulations that have been with us for far too long. While the national ownership cap and UHF discount have no immediate direct impact for Gray.

We are very encouraged that FCC Chairman Pai has begun his tenure with quick, substantive and decisive actions. 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.

Kevin?.

Good morning. As Hilton explained, 2017 has begun as another year in which we have been characteristically busy with numerous long-term strategic efforts. Through all these activities, we remain focused on building the single best portfolio of high-quality local television stations.

To that end, I too would like to welcome WCAX to the great corporate family. Personally, I want to thank the wonderful Martin family of Burlington, Vermont for entrusting Gray with the stewardship of this premier local institution. Like this latest acquisition, Nielsen’s February sweeps reports provide another example of Gray’s high-quality portfolio.

During February, a Gray-owned television station was the highest rated local station sign-on to sign-off in 42 separate markets. In all but 2 markets, Gray owns and/or operates the first and/or second highest rated station sign-on to sign-off.

And in addition, in the February sweeps, Gray had the number1 CBS affiliate in the country, the number 1 NBC affiliate in the country and the number 2 ranked ABC affiliate in the country, although that station did happen to rank first in 18 to 49 and 25 to 54.

Separately, last week brought more good news when the Radio Television Digital News Association announced this year’s winner of Regional Murrow Awards.

The RTNDA reviewed nearly 4,300 entries and bestowed awards in 16 categories that recognized the Best Electronic Journalism produced by radio, television and digital news organizations around the world, including overall excellence, breaking news, investigative reporting and excellent in innovation.

We are proud to report that Gray Television stations, including WCAX in Burlington, won a total of 26 Regional Murrow awards. For context, only Tegna received more Regional Murrow awards than Gray among all broadcast owners. Meanwhile, Gray, like the rest of our broadcast brethren, continues to push forward in digital.

Our local digital marketing business, LocalX Marketing, achieved premier Google partner status in March. This badge is a culmination of effort, ability and determination and one that less than 5% of U.S. digital ad agencies achieve. Facebook also has highlighted Gray’s success in seamlessly integrating local news with its instant articles platform.

In fact, Gray Television serves as a Facebook case study for how broadcasters can launch in instant articles to better reach their audiences and advertisers.

Finally, as you probably know, we have aggressively and quickly launched every one of our television station apps in the Apple Store, Google Play, Kindle and other platforms, including Roku and Apple Watch. Just recently, we added another platform. We moved all of our TV station apps to Amazon’s Alexa.

In fact, in just the past few weeks, Gray stations have already provided well over 100,000 total briefing to Alexa users. In recent weeks, we signed new distribution agreements with a handful of over the top providers, covering all of our ABC and NBC affiliates.

Those agreements provided -- obviously, provided appropriate economic and noneconomic terms for the local channels that the local audiences want to watch. In the near future, we expect to enter into additional agreements for affiliates of those networks and perhaps for affiliates of our other networks as well.

Distributing our stations on OTT platforms should allow us to protect our retransmission revenues, while also helping us to reach those segments of our local audience who are now or in the future may find themselves outside of the traditional MVPD ecosystem. Turning to the FCC.

We continue to expect significant relaxation of local and national broadcast ownership restrictions over the next 12 to 18 months. We are, as we’ve said before, supportive of any effort to reform antiquated regulatory rules that no longer serve the public interest.

Indeed, as Hilton noted, we are encouraged that the FCC took its first steps in the first 100 days of the new administration even though the UHF discount has no practical implications for Gray.

We anticipate that the coming months may see significant M&A activity among larger players, such domes do not, however, alter our acquisition criteria nor our goals.

Rather, we intend to continue our efforts to grow the size and scale of our portfolio with high quality assets in a prudent manner that permits us to achieve greater economies of scale, higher return to our shareholders and a more conservative balance sheet. To that end, I remind you of the May 1st closing.

The Diversified transaction represents our 24th separate station closing since the third quarter of 2013. Thank you for your time. I’ll now turn the call to Jim Ryan..

Thank you, Kevin. Good morning, everybody. I’m going to keep my comments brief because I think there’s a wealth of information that’s already in the earnings release as well as the 10-Q that’s being filed this morning as well. While we’re very pleased with our first quarter results, all the revenue lines were better than we had expected.

When we talked about our Q1 expectations in our fourth quarter call, January, in core, was up with the very top Super Bowl comps that we had with $2.1 million last year on our CBS stations going against $600,000 on our FOX stations this year. February was down as we had anticipated. March ended up, up, and we were pleased to see that.

As we talked about on our last call, the business does feel like it’s breaking a little later than usual and we’re seeing the same type of trend in Q2. Speaking to our Q2 guidance, our core, we expect to be flat to up slightly. I think in general, we see that as an improvement over Q1. April started out a little sluggish. May is up very nice for us.

We’re pleased how May is tracking. June is a little too early to tell, but we are cautiously optimistic. I’ll remind everybody that since we commenced a pre-closing LMA with Diversified on April 1, our Q2 guide includes a full quarter of both of the Diversified stations.

And as a final note for Q2, we’re indicating political of approximately $1 million, a little bit more. We’re certainly are very optimistic that there will be nice upside in political by the time we get to the end of the quarter. Turning to our leverage.

Our trailing 8 quarter average operating cash flow was 316 million under our credit agreements, net of 23.5 million of cash. We had debt outstanding of 1,757,000,000. Our leverage ratio was 5.56.

If we were to pro forma for a full trailing eight quarter, including the Diversified stations and including the Vermont acquisition that we announced today that is still pending, our trailing eight quarter average cash flow at 331 would be approximately 334 million, and that would have given -- give us an approximate pro forma leverage ratio of about 5.26.

As we’ve said before, we expect to end the year with our leverage in the very low 5s and possibly even get into the high 4s.

We expect to end ‘18 in the low 4s with leverage with a definite possibility of breaking into the high 3s, again assuming we take all free cash generated and use it to reduce debt over the next -- between now and the end of ‘18. At this point, I’ll turn the call back to Hilton..

Thank you, Jim. Operator, we’ll take time to open up the line for questions..

[Operator Instructions] We’ll go first to Aaron Watts. Please go ahead..

Just a couple of questions from me, starting with the core ad backdrop. As best you can tell, can you speak to some of the levers or pressures that you’re hearing from your advertisers that are maybe pressuring down spend at the moment? And I guess you seem a little bit more optimistic as you roll through 2Q.

Do you feel like that’s something that can unfold or a trend that can continue to unfold throughout 2017?.

We’re still somewhat optimistic for the whole year as we go through the back half of the year, especially in the fourth quarter. We will be going against the political displacement from last year that will make the comps, or should make the comps, a little bit easier.

I think the -- a little bit of sluggishness we’re seeing in core, I think I would break it into kind of 2 larger pieces to talk about. First, as usual, in any given year, you’ve got some larger advertisers making corporate decisions. Like we talked about last call, Ford took Tier 2 money back to Detroit and took it out of the regional hands.

Things like that come and go just like a fast food restaurant or 2 may decide to go to national cable or national network, or then they decide from there they’re going back to TV. So those trends that we talked about last call are what we’re still seeing, they’re normal in the business.

If you kind of go then to our pure local, I think -- I mean, it’s feeling okay to us. There’s no big red flags coming up from the markets.

We still think it’s a little bit of mid- to small-town Main Street, still wanting to understand a little bit more clearly exactly what the path from Washington is going to be, whether it’s health care reform, tax reform, any other kind of reform. They’re a little bit in a wait-and-see mode as near as we can tell.

And so part of it is, just like we saw in first quarter, they may not want to be buying 13 weeks at a time. They may be buying six or seven and then they come back and heavy up towards the end of the quarter. We think second quarter is going to follow a similar trend.

And I think as the year goes on and people get more information that they can then can synthesize as to what it means for their business, I think we probably pick back up a little bit and get back to a little bit more normal pattern..

Okay, that’s helpful. And then just 1 quick add-on to that. Auto, I think you said on an apples-to-apples basis, was unchanged in 1Q.

How is that trending in 2Q so far?.

Right now, it’s down a little. If we went back to about the same period in Q1, I probably would have ended up saying the same thing. So we are kind of watching June. It’s too early to tell how June is going to do and that may decide how auto does for the quarter. It’s a little bit mixed. Dodge, Chevy, Ram are up in the quarter.

Ford is down as we had expected with the Tier 2 money out. So it’s a bit of a mix, but we’re not overly alarmed with anything we’re seeing in auto right now..

Okay. And one quick cap structure question for me to end it. You’ve announced several acquisitions recently, including the one today. Has that changed your plan for what to do with the auction proceeds when you receive them? And, I guess, relative to the term loan that you just recently added on.

And also, can you maintain on that de-leveraging track that you described if you continue to be acquisitive?.

First of all, we -- it’s our intention, at least right now, that we will eventually use the auction proceeds to pay down the incremental term loan that we borrowed on to bridge the Diversified closing.

Now if some good opportunities come up over the next nine months, that answer may change but that will be dependent on whether the opportunities are there or not there. Even if we are acquisitive and the transactions are relatively small, I still think we can generally track to those leverage targets for the end of ‘17 and the end of ‘18.

If something larger comes our way, that might be a slightly different story, but that would be obviously fact dependent on a larger deal..

And we’ll go next to Marci Ryvicker. Please go ahead. Your line is open..

I know that national is such a small part of your business, but it’s been weak pretty much all around, except we heard from Lamar this morning their national is up.

So is the TV industry, in general, losing share? Or are ad dollars just not being spent? And then secondly, Jim, can you give a little bit more color on political and in terms of what may drive the acceleration for the quarter..

I’m going to, I’ll take the national first on share, and then I’ll let Kevin comment on the political since he’s our in-house expert. On national, we, actually, when we looked at our share in Q1 this year compared to Q1 last year for all the markets where we have Miller Kaplan reports, which are an industry standard, third party audit of a market.

And, I guess, the good news is our share is pretty much consistent with first quarter last year. Some markets are up a little bit, some markets are down a little bit. Not by much in either case. It looks like a fairly normal pattern right now. So that’s the good news.

The bad news is what that tells me is, at least in our size, markets, yes, dollars feel like they’ve been shifting a little bit to other medium. And we talked about that a little bit on, like I said, some of the restaurant categories or the Ford money.

But as you’ve seen in other times, Marcie, when people do that for a time, you wait a few quarters or a year or so and you see them coming back into TV again. So time will tell. But again, the good news is our share is holding up..

Marcie, on political, we have 2 special house races that were not expected to be competitive. One in Kansas and then one in Georgia. In Kansas, that’s our Wichita market, the Trump appointee was expected, opened up, we thought, a safe seat and did not expect political money there.

We ended up seeing several hundred thousand dollars being spent in that market, sort of a testament to our strategy of having number 1 TV station. The independent audit tells us that we received about 78% of all the political dollar spent, TV ad dollars spent for that race, so we’re happy with the way that turned out.

The other special here in Atlanta, unfortunately Gray does not own a TV station in Atlanta because the spending here has seemingly set records for a special House race. Overall, we’ve gotten, things were a little bit better in political than we expected.

There’s been basically some issue running around a couple of issues in Washington targeting some target, some members of Congress who might be deemed to be persuadable. We’re not, we don’t have really high expectations for this year because it’s an off year.

As we’ve always said, the only truly big race we have this year is the Virginia governor’s race. And as always, if we have candidates in the primaries and/or the general that seem to have a shot at it, the money will flow into the race. If it’s deemed to be competitive, TV will benefit.

We’re, we have some high hopes for Virginia, but we’re keeping in perspective that this is an off year. So 1 governor’s race in 1 state will not be a huge number for this company..

Got it. And I have one quick one. There’s resurgence of this fear of cord cutting in the past couple of days and the fear that it’s going to hit the broadcasters.

Can you just talk about your footprint and pay TV sub trends?.

Sure. We said now for some time that we don’t see cord cutting as a threat. Our sub numbers have been stable for the past several years. We are participating in very limited OTT and direct to consumer products in the networks. The uptake on those is infinitesimal.

I understand the numbers nationwide are respectable, but those are seemingly not coming out of our markets. So, we understand that the commentary’s out there. We saw the commentary yesterday. To the extent people are adjusting their MVPD bundles in our markets, we see -- we think people are rotating to skinny bundles.

Getting high speed Internet access and then the broadcast basic package, which, of course, by law requires all the broadcast stations. And because we have typically the number 1 and number 2 TV station in the market, we’re always going to be included in those packages.

We get paid for every subscriber whether they are in a skinny bundle or a fat bundle. We don’t have any problem with skinny bundles. In fact, we think our value proposition is higher in the skinny bundles.

But we’re not seeing this great migration away from pay TV that we read about -- read about yesterday and have been hearing about for some of the cable networks..

Marcie, look, can I add one thing to Kevin’s comments on political? As I know you recall after the conclusion of the presidential election year, Gray had a miss in our historical comparisons to our political numbers. And one thing that the course of this first quarter has proven is the strength of political dollars coming into television markets.

I live in the -- in Atlanta in the 6th congressional district here is -- it’s a wonderful race between Ossoff on the Democratic side and Handel on the Republican side. And the spending is simply through the roof. You cannot turn on either a local broadcast channel or a television cable channel and not see ads in this market.

That was true in the previous congressional race in Kansas as well. And then I was even more heartened when at the 100 day mark, President Trump came forward with a million -- couple million dollar buy on television to note that mark.

And so our stock sold down pretty dramatically in the fourth quarter because of this perception that ad dollars were leaving TV to go somewhere else, and I think this quarter has proven that fear to be unfounded..

And we’ll go next to Kyle Evans. Please go ahead..

Kevin, you alluded to end market ownership rules getting relaxed. What’s your best guess at a timeline there? Just a guess. I’m asking for a guess..

I’m guessing that the FCC needs a lot of time to write a notice of proposed rulemaking and if they put all the resources on it, we’ll see something when the summer is over or early fall. I think there is a -- I think this FCC Chairman is highly motivated to get the biennial review started as quickly as possible.

Getting it started this fall through -- as we go through comments, reply comments and analysis, lobbying, etcetera, will put us maybe a year to 15 months away from adoption of new rules, assuming they relax the rules, which seems to be a pretty safe bet.

So timeline, I think second half of the year is when we should see the FCC proposing or starting the quadrennial review and hopefully proposing some specific relaxation of the local TV ownership rules..

Got you. You and Hilton are both on affiliate boards.

Could you give us just kind of a high-level view of what you see in terms of the logjam in OTT kind of coming loose and the affiliates being more broadly included across the auctions that are out there?.

The network affiliate boards have been discussing the OTT deals with their networks for well over a year. They have been extremely active negotiations. The folks who, “volunteered" to be part of this negotiating committees spent probably thousands of hours on these issues. These are complicated issues, they are complicated contracts.

There are multiple, obviously, there are three way negotiations for each deal. Mind you we have five, six or seven different OTT providers and four networks and seemingly everyone has a different path forward. ABC and its affiliate association a few months ago reached an agreement on four OTT providers.

It was a very encouraging step as we have a representative on that Board and voted to recommend that all affiliates sign this agreement, we did as well. Obviously, NBC’s announcement a couple of weeks ago that they have reached parameters of some agreements with its affiliate board for a couple of agreements, so that’s obviously a milestone.

And the CBS Board has been working -- not sure if there have been daily phone calls for the last six months, but it sure seems like it. There’s a lot of effort. Engineers, lawyers, business folks, et al, the providers, the network and the affiliate board.

So there’s a lot of time and effort going into a lot of work for, of course at this point, no subscribers. But we’re all highly motivated to be involved in that.

And I guess, Kyle, just to remind a point that some folks don’t get, these affiliate boards have been around for decades and the affiliate boards have negotiated agreements on affiliate-wide basis in lots of different areas over this time period. So this is not an unusual step.

It’s the efficient way of getting the affiliate body together to -- on the same page regarding, for example, the launch of the SOAPnet channel or an exclusivity issue or any other number of issues that impact an affiliate-wide process. So I think we’ve made really tremendous progress, considering how short the time period has been.

And we’re hopeful we’ll see more of these agreements for the Big 3 networks coming out in the next couple of weeks..

Great. One last one for Jim.

Do you have a CapEx guide for the year?.

Right now, it’s consistent with what we said last call. It’s 30 million to 35 million for the year..

And we’ll go next to Jim Goss. Please go ahead..

This might be in Kevin’s sphere. The comment about New England and having additional exposure there made me wonder if there are any other particular geographies you might covet.

And sort of on a related basis, are there any geographic synergies? And how close in terms of physical proximity there must be for such synergies to be relevant and achievable?.

Jim, I think we have a pretty strong presence in all of the purple areas in the country other than Pennsylvania. Most of the tossup, house, senate, governor races fall into places in which Gray operates, there are certainly some exceptions.

And, of course, we’re always surprised by the break of races, such as this -- Newt Gingrich’s old seat here, that is being -- that is competitive beyond anyone’s expectations. So all-in-all, I think we’re -- we want to be in places where there -- where political is important and have the top news station operations in those areas.

And we -- other than Pennsylvania, I think we’ve done a pretty good job of covering the map in that direction. Typically, the -- if you talk about synergies, it has more to do with an in-state issue. If you drive from Bangor to Burlington, that’s 5 hours by car.

But if you drive from Bangor to Presque Isle, are both in Maine, there’s a lot we can do there from a news and sales standpoint with folks in adjacent markets in the same state.

So if you look at our profile, you see that we own TV stations in all the markets in North Dakota, South Dakota, Kansas, almost all of Wisconsin, almost all of Nebraska, all of Wyoming, two to three markets in Colorado. That’s not an accident. That’s very deliberate.

So we are certainly trying to build a strong presence in markets, it helps from -- certainly it helps from our D.C. Bureau, but it helps from a sales standpoint and certainly helps from a news standpoint..

Okay.

And did any states start to break into areas that might be of greater political interest with this last election and little bit of a reshuffling for what it meant to be, maybe Democrat versus Republican?.

Not -- no, not particularly. The places that were of interest to -- the swing states for Trump are generally the same swing states we’ve had for the last couple of presidential election cycles. If anything, Virginia has gotten more blue. It used to be a purple state.

But other than that, there really -- I don’t think we’ve had a lot of changes out there on the presidential side..

I’ll actually add something to that, Jim. I think actually the last presidential election reinforced the idea of where the swing states were because I think that the Clinton campaign took a lot of the industrial Midwest for granted and a part of our miss was that Trump didn’t spend and she moved her money elsewhere, and then she lost those states.

I don’t think there’s going to be a Democratic nominee ever again to take that so-called blue wall for granted. And so I think that our positioning in that area from a presidential election year political ad spend is exceptionally well-poised..

Okay. And maybe a couple for Jim, there was a note -- or you noted that on a combined historical basis, you thought your second quarter retrans revenues would be up about 25%.

I was wondering if that would include certain share that would be reflective of benefit from repurchase or from purchase up-scaling?.

Yes, there’s a little bit in there with Diversified being in the mix in Q2, but it’s -- I mean, given the size of the markets, it’s not a big uptick in sub counts for us. So a lot of that up is just reflective of the deals we repriced at the beginning of this year rather than just an uptick in sub counts..

Okay.

And the last thing, I don’t think this probably is significant for you, but is there any benefit as the networks move to C3 and then to C7 for you relative to your ads, or are all of your ads between the programs, rather than within the programs so you don’t really get any additional benefit from them?.

Jim, I would say that we, locally, some ads are sold on a C3 basis. What the networks are doing is not really relevant to us. We don’t sell very much at all based on rate -- we don’t do ratings guarantees. We tend to show what the C3s are, but we don’t sell based on it.

So the local sales are the bulk of what we do, and that’s more of a transactional value proposition to the advertiser as opposed to "we think we can achieve a such and such a number in The Voice next Thursday.".

We’ll go next to Leo Kulp. Please go ahead..

Obviously, you just announced a deal, but can you talk generally about the volume of activity you’re seeing in the market right now? Is it fairly quiet? Or is there a good amount of volume out there?.

Leo, this is Kevin. We’ve got a number of phone calls when the quiet rule ended from folks that did not really have stations that would fit our acquisition criteria. We really have not seen what we expected, which was going to be a lot of activity or a lot of inventory hit the market.

And we’ve been asked by a couple of folks why there isn’t more activity, and we don’t know. We’re not sellers. So some folks have speculated that they’re waiting for the quiet rule to end and then waiting for the FCC’s press release to come out and then waiting for clarity on health care and then waiting for taxes.

And it could well be any number of those or other issues. But we’ve seen a lot of folks talking about where they might fit in the world within the next couple of months or next year or 2, but we’ve only had this one conversation of something that really fit our acquisition criteria.

Hilton, did you want to address the tax issue?.

Obviously, there’s some questions from folks that looking at what Donald Trump is proposing on taxes and that may be slowing some of them down. There’s other transactions that are clearly going forward that we all read about in the press. And there are a number of things, I think, that it’s building.

I do think there’s a little bit of a hangover that affects a lot of things when really fundamental structures of your tax base and your health insurance and everything else are up in the air and people want to kind of get an idea, especially the people that own the kind of stations that were particularly interested in and when, the timing of when they want to do something.

So we’re seeing a number of things and we’re working on a few things right now. But it’s not the rush that we expected at the very beginning of the year, but we think the rush is on its way..

[Operator Instructions] We’ll go next to Lucas Barry [ph]. Please go ahead..

Kevin, I was hoping you could provide maybe just a little bit of color with the understanding that the OTT deals are very early in the onset.

But how would you characterize the economics of the deals for a station owner relative to traditional retrans?.

With the caveat that the economic -- the rates are different from operator to operator, and network to network. And our payments that we owe the networks vary based on who the network is and who the OTT provider is. So at a very high level, the OTT deals, in order to get, I think, any of the big broadcasters assigned, have to be net positive for us.

I don’t -- the affiliate boards are, not surprisingly, made up of folks from not only Gray but all the major broadcast groups, and none of us are prepared to do deals that take us backwards.

So I -- without commenting so specifically we’re certainly pleased that our net retrans on these OTT deals should be incrementally positive to us and to our peers..

[Operator Instructions] We do have another question from David Atterbury..

I just had a quick question. Are you guys open to -- or how are you thinking about doing anything on a larger more strategic level? Clearly, you’re hitting a lot of singles and those are nice. As you get bigger, they do have less of an impact.

So I’m just wondering, Hilton, how you, how the Board thinks about maybe a transaction on a larger scale like we are seeing some of your peers contemplate in the space?.

Well, quite candidly, David, we had our Board meeting yesterday and our Board discussed a lot of different scenarios. I think it is a fair comment to say in this business right now that everybody’s talking to everybody, and there’s nothing that is precluding Gray from a broader, more transformative merger to give us really grander scale.

The key for us is that it’s the right structure and that it’s the right player. I think that Gray is uniquely benefited by having a very, very strong culture, and we have worked very hard to build and enhance that. And there is a number of other players, that you could probably guess who they are, who have culture similar to ours.

And there’s others who have completely different ones. And some people look at this business as just being a retrans play. That is not the way Gray looks at it. We have a solid, solid business with the highest market share and the highest margins of any broadcaster in the industry.

And while not everybody can have that position, because we’ve got it, there are a lot of very attractive candidates in larger markets, similar size markets and other things that I could see a combination with that would make the resulting company truly powerful and truly a profound player in this business.

There -- we would all be foolish to say that the pressure that is coming with deregulation is not going to force everyone to readjust their sales and what they do. Nevertheless, though, Gray is not for sale. We plan on continuing to be in this business and continuing to grow. And then we’ll just have to wait and see what the future brings..

And it appears we have no further questions at this time. I’ll turn it back to you for any closing comments..

Well, thank you. Thank you so much, Stephanie. I’m going to thank all of you for taking your time to be with us this morning. We are exceptionally proud of this quarter, as you know, when we spoke last, I guess, in January, things started slowly and we’re very happy that it turned around through the course of the quarter.

And we’re very pleased with so many things that we’re seeing in the business and just look forward to the rest of this year and to 2018 with a great deal of optimism. So I appreciate you being with us, and I look forward to talking to you next quarter..

Thank you, everyone. This does conclude your teleconference for today. We appreciate your participation. You may disconnect at any time, and have a wonderful day..