Good day and thank you for standing by. Welcome to the Q1 2022 Earnings Call. At this time, all participants are in listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Hilton Howell, Chairman and CEO.

Please go ahead, sir..

Thank you, Operator, and good morning, everyone. As Laurie mentioned, I am Hilton Howell, the Chairman and CEO of Gray Television. Thank you all for joining us on this first quarter 2022 earnings call.

As usual with me today are Gray’s executive officers, our President and Co-CEO, Pat LaPlatney; our Chief Legal and Development Officer, Kevin Latek; our Chief Financial Officer, Jim Ryan; and our Chief Operating Officer, Bob Smith. We will begin this morning with a disclaimer that Kevin will provide..

Thank you, Hilton. Good morning, everyone. Gray uses its website as a key source of company information. The website address is www.gray.tv. We will file our quarterly report on Form 10-Q with the SEC later today.

Included on the call may be a discussion of non-GAAP financial measures in particular broadcast cash flow, broadcast cash flow as corporate expenses, operating cash flow, free cash flow, adjusted EBITDA and certain leverage ratios.

These metrics are not meant to replace GAAP measurements but are provided as supplements to assist the public and their analysis and valuation of our company. Included in our earnings release, as well as on our website our reconciliation to the non-GAAP financial measures to the GAAP measures reported in our financial statements.

Certain matters discussed 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 expressed or implied any forward-looking statements as a result of various important factors that have been set forth in the company’s most recent reports filed with the SEC. Company undertakes no obligation to update these forward looking statements. Now I will turn the call to Hilton..

Thank you, Kavin. We are quite simply thrilled to be with you today to discuss our first full quarter as the nation’s second largest broadcast affiliate group owner. Quite simply, the company is firing on all cylinders.

Our first quarter financial results exceeded our expectations and we today are guiding to another great quarter in what will be a truly banner year for Gray Television. Once again, our earnings released this morning also confirms that our execution remains best-in-class.

Our total revenue in the first quarter of 2022 was $827 million, which was an amazing 52% higher than the first quarter of 2021. Our total revenue blew past the high end of our guidance of $812 million for the quarter. Our net income in the first quarter was $49 million, or $0.52 per fully diluted share.

That figure represents an 88% increase over the first quarter of 2021 on $1 basis and a 93% increase over the first quarter on a per share basis. Moreover, excluding the transaction related expenses and non-cash stock compensation, our adjusted net income would have been $55 million for the first quarter of this year or $0.58 per fully diluted share.

As you all know, our earnings release presents financial results according to GAAP, as well as on our own defined combined historical basis. We refer to it as CHB. And it gives effect to both acquisitions and dispositions in order to provide more transparency on how our wholly-owned stations and businesses are performing compared to prior periods.

Our results today are just as impressive on this combined historical basis. In particular, we had guided that total revenue will increase from a low of 5% to a high of 8% over the prior year period on a CHB basis. Well, in fact, our company finished the first quarter of 2022 up double digits by 10%.

On core advertising revenue, our stations finished the quarter of 4% on a CHP basis, in contrast to our anticipated range of between flat to 3% higher than the first quarter of 2021.

Likewise, we exceeded first quarter 2021’s CHB numbers, as well as our own guidance on retransmission consent revenue, political advertising revenue and production company revenue.

These revenue games, as well as the expense savings reported in our release today are the result of our peerless combination of top rated local television stations and fantastic professional employees at every level of our company. In August, we welcomed the Quincy Media Group into our fold.

And in December, we welcomed the Meredith Television Group into our fold. The Quincy stations today are fully integrated into our company, and the revenues and expenses are noticeably better in just this very short time.

Meanwhile, we have progressed about halfway through our integration of the Meredith stations, those stations and the local teams are busy adding news, sales and created personnel, as well as technology and sales resources. Their financial results for the first quarter….

I got to talk about in minute, so if you keep it quiet, that would be great..

Their financial results for the first quarter more than met our expectations and those expectations will certainly grow as we get more and more of the integration efforts behind us. In short, we have very good news to report, not just on the financial statements, but on the ground and in the trenches, trenches of all of our latest acquisitions.

Looking ahead, we are today guiding to a combined core revenue and political revenue for the second quarter of between $435 million to $445 million.

If we land just below the midpoint of our traditionally conservative guidance, Gray Television will break all its previous records for second quarter advertising revenue in the company’s 100-year-plus history, both on an as reported and on a combined historical basis.

In closing, we look ahead with great excitement at a strong year for core revenue, for continue growth in retransmission revenues, for record breaking political revenue around this important midterm election and for growth in our emerging production and studio businesses.

With the wind behind us and with more scale than ever before, Gray will achieve strong free cash flow that should enable us to delever quickly as we did following the Raycom acquisition in 2019.

Indeed, with our very strong start to 2022 and our bright prospects for the balance of this year, we anticipate being able to fund our growth objectives for the year, as well as pay down a significant portion of our debt prior to year end.

Naturally, as our strong free cash flow drives our leverage lower, we are actively increasing the equity value of our company that we expect will help our stock price recover to a level that better reflects the fact that our business is as strong as it has ever been and that our prospects have never been brighter.

Next, I will turn the microphone over to our President and Co-CEO, Pat LaPlatney, who will address our ad revenues in more detail.

Pat?.

Thank you, Hilton. We are very happy with our ad sales performance in the first quarter. Despite the war in Europe, meaningful inflation and continued headwinds in the auto category, Gray stations continue to operate at the top of the game. Hilton reviewed the impressive core revenue gains we posted in the first quarter.

There are many reasons for 4% year-over-year growth in CHB core revenue across the Group. We are making great progress on developing local direct business, especially in our newly acquired stations.

Our new local direct business efforts have been a focal point for some time and now we are writing between $9 million and $10 million per month of new local direct business. Throughout the first quarter and continuing today we are concentrating on integrating the former Meredith stations as we did with the Quincy stations the back half of last year.

We clearly inherited a lot of talent -- talented sellers and terrific managers from both companies.

Between this talent and Gray resources, stations for both Meredith and Quincy are having great success with digital products they can now offer our advertising clients and the skills they have acquired at our in-house sales training center are playing a large role in their success.

It’s clear that there will be revenue synergies in the months and years ahead, as our digital resources and sales training roll through the former Meredith stations. Even though the automotive category is struggling other categories are growing. In fact, the health category is pacing just slightly behind auto.

Well, that is good news and bad news to some degree. It’s a clear victory for in-house health vertical sales team in core stations who have done an outstanding -- who have done outstanding work in developing this category. Our new travel and tourism team is also beginning to make meaningful contributions to our sales efforts.

We also expect that contribution to grow dramatically in the months and years ahead. Gambling, home improvement and legal categories also continued to grow. The services group comprising financial, legal and health is continuing to post strong results and accounted for approximately 29% of our core revenue in Q1.

While we all wish I was stronger and we believe it will come back, this exercise in revenue diversification has been beneficial for Gray Television long-term. Digital ad sales continue to grow in the double digits. In 19 markets both large and small, our digital billing exceeds national billing now.

As you probably have read money is pouring into digital video and we are well positioned to take advantage with our Premion and OTT sales partnership. We have seen digital video revenue grow dramatically over the last two years and we do not see that growth slowing down in the foreseeable future.

We continue to invest in digital sales training in what we believe to be the best digital sales force in the industry.

Recently, we joined the Hearst Television, Graham Media and CoxReps in an investment in cash and resources in an ad sales software package called ad sales service matrix to facilitate the launch of its new Media Sales Gateway named Admiral.

The gateway will be a sell side tool that provides both the infrastructure and workflows to automate converged advertising sales and further reduce the friction in broadcast advertising. For the past few weeks, we have been working on the rollout of Admiral across our stations.

Through the amazing hard work of our sales support team we expect to onboard all Gray stations on the system before the end of the quarter. This transition should provide more win in our sales as we move into the second half of what will be a banner year for Gray Television. Next, Bob Smith will offer additional color on our station operations.

Bob?.

Thank you, Pat. We have never had such tough competition in our local markets from other broadcasters, digital companies and new entrants. Nevertheless, our stations continue to offer the best value proposition for companies and campaigns who want to reach the largest possible audiences in local communities.

Even a slowing economy our stations provide a superior value proposition compared to alternative advertising options. Our stations are operating at the top of their game and they are only getting better and more efficient. Of course, our sales efforts will be nothing without our leading local news franchises.

Since the beginning of this year, we have had a number of developments in this area. In February, we created the Gray Media Training Center in partnership with WLBT, our top ranked NBC affiliate in Jackson, Mississippi. The revolutionary media training program will prepare students for today’s unique operating environment.

It will educate and train students who attend Mississippi colleges and universities with a focus on historically black colleges and universities in the state. We believe this initiative will help us prepare students for a career in broadcasting and attract quality talent in a tight labor market.

Over the past few weeks, we have accelerated and expanded our plans to add more local newscasts across our portfolio.

In the past two months three syndicated programs coincidentally came to an end, Full Court Press with Greta Van Susteren, which we produced and distributed for two years, PEOPLE TV which we inherited with the Meredith acquisition and Right This Minute, a weekday entertainment program that we jointly own with some other broadcasters.

In nearly all cases our television stations replaced these programs with new locally created locally focused newscasts.

Through these moves we are leveraging our local news gathering talents and resources in new ways that better serve our local communities and provide better opportunities for our local advertising clients to reach the customers and potential customers.

After the close of the quarter in late April, the National Association of Broadcasters Leadership Foundation announced the finalists for this year’s coveted Service to America Awards. The Service to America Awards recognize outstanding community service by local broadcasters.

We are humbled and honored that five of the six nations in small and medium market categories are owned by Gray television. Congratulations to WMTV, WIS, WTOC, WBNG and KWQC. Last week our investigative unit called Investigate TV was recognized with the first place national headliner award for Collision Division.

The investigation exposed all federal crash standards favor men, despite women being at higher risk for injury and death behind the wheel. This investigation led to a congressional hearings and a bill addressing this disparity that was enacted into law late last year.

Two days ago, the Southeast Chapter of the National Academy of Television Arts and Scientists, NATAS nominated our most recently acquired television station to Telemundo Atlanta for six Emmy Awards for the 2021 calendar year.

These nominations were made in the following areas, overall station excellence, news excellence, journalistic enterprise, hard news report, continuing coverage and investigative reporting. We are thrilled to welcome Telemundo Atlanta into our portfolio of leading new stations.

Taking a step back we acquired Telemundo Atlanta on April 1st to serve as the cornerstone of our group of Telemundo affiliated stations that we see as another growth engine for the company.

To that end, we are very excited to announce on Tuesday of this week that Gray will be watching the first ever local Telemundo affiliated television station channels in 22 markets. When fully built out this year our Telemundo station group will deliver Telemundo’s top tier programming with our local programming to more than 3.75 million Hispanics.

We are very excited about our new partnership with Telemundo and amazing opportunities ahead to leverage our news and sales resources to serve a greater portion of the local audiences and local businesses in our local communities.

The expansion includes the upcoming launch of Telemundo Georgia, a new network that initially will distribute the signal of Telemundo Atlanta to in all Georgia markets. Over time, the individual markets will create and launch local content supported by the flagship Atlanta affiliate station.

Telemundo Georgia will be the first and only Spanish language media organizations serving nearly all Hispanic residents throughout the state.

This provide -- this provides important and efficient avenues for advertisers to reach Spanish speaking consumers across Georgia, especially political advertisers, who have a lot of reach -- to reach this important part of the electorate in 2022. I now turn the call over to Kevin..

Thank you, Bob. So speaking of political advertisers, Gray television is continuing to punch above its weight and political advertising. Put this in perspective, during the first two quarters of 2020 on combined historical basis, our television station sold $79 million in political ads.

A remarkable feat in 2020 was fueled by presidential primary spending in Iowa, New Hampshire, South Carolina, Nevada and Super Tuesday states, all places where Gray has a big presence.

Remember too that 2020’s primary spending in late 2019 and early 2020 was supercharged by the supposedly irreplaceable spending from candidates Mike Bloomberg and Tom Steyer. As impressive as $79 million in the first half 2020 was, we expect to blow well past that figure in the first half of 2022.

In particular, our first quarter political revenues of $26 million plus a $65 million to $70 million of political revenue in our second quarter guide will produce a first half political revenue figure of $91 million to $96 million.

So, therefore, even the low end of this range would be a 15% increase over the presidential primary fuel first half of 2020. Now for the full year, we anticipate political revenue of $575 million, which would be a 55% increase over the last midterm election of 2018 on this -- on our combined historical basis.

It’s better, however, to compare again to 2020 when our current station portfolio booked $652 million in political revenue. Roughly $192 million of that 2020 total came from presidential primaries, presidential general election and the two Georgia Senate runoff that began after Election Day.

Consequently, our political guide of $575 million for full year 2022 represents a 25% increase over 2020 CHB political advertising revenue, excluding the presidential and Georgia runoff advertising in 2020. So without a doubt, political revenue was remarkable no matter how you look at it. I will turn to the other good news now in our release.

As you saw, we posted a strong first quarter growth in retransmission revenues of $393 million. On a GAAP basis retrains revenues increased a whopping 59% from the year earlier period. On a combined historical basis retrans revenues increased 10% from the year earlier period.

Retrans revenues exceeded our guidance rain in part due to the annual true-up payments for prior periods that were booked in the first quarter. Looking forward, we anticipate retrains revenues of $385 million to $390 million for the second quarter and we expect retrains revenues will exceed $1.5 billion for the full year 2022.

Thankfully, our subscriber counts continue to remain relatively stable. Particularly our big four pay TV subscribers across our current portfolio stations, including those we acquire from Meredith and Quincy last year, declined by less than 2% between the fourth quarter 2020 and the fourth quarter of 2021. This concludes my remarks.

I turn the microphone on Jim Ryan..

Thank you, Kevin. Good morning, everyone. As mentioned earlier, we will be filing our 10-Q a little later today and as we discussed in our fourth quarter call and you will note in our presentation beginning Q1 2022, Gray no longer segregates local advertising revenue from national advertising revenues in our income statements.

The local versus national distinction may be relevant for other broadcast companies who sell national revenue to a sales rep and sell local and regional ads to their own sales force. As you know, Gray does not use a national sales rep and all of our sales are being conducted at the local level.

So the distinction between local and national for us is irrelevant and we have retired it. Hilton, Pat, Bob and Kevin, all covered the key highlights for the Q1. So I will keep my remarks relatively brief and just try to recap them for everybody.

First on Q2 guidance, again, core advertising revenue we are expecting to be between $370 million and $375 million, retransmission revenue of $385 million to $390 million. As Kevin just commented, our Q1 had some one-time only positive adjustments of about $5 million in our retrans number in Q1, which we do not expect to be repeated in Q2.

Political advertising revenue for Q2 will be $65 million to $70 million, production revenue between $10 million and $12 million. Total revenue $846 million to $864 million.

Our operating expenses for Q2 are expected to be between $533 million and $537 million for broadcast and that includes $226 million of reverse comp payments to the networks, approximately 1 million of non-cash stock comp and $1 million of transaction-related expenses.

Production companies will have about $12 million of expenses and corporate expenses are expected to be between $30 million and $35 million, including $1 million of transaction-related expenses and about $5 million of non-cash stock comp. Again, we are very pleased with our Q2 -- Q1 results.

Total core revenue again was up 4% compared to 2021 on a combined historical basis. We were very pleased with a strong start to political, and obviously, you can see we have very strong expectations for political in Q2.

As mentioned earlier, the services group which includes financial, legal and medical represented approximately 29% of our Q1 2022 core revenue. Gaming revenue for the quarter -- first quarter was about $20 million. The Superbowl contributed about $7 million and the Winter Olympics contributed about $10 million.

Our trailing eight quarter operating cash flow at 3/31/22 was $1.214 billion. Our principal amount of debt outstanding at the end of the quarter was $6.835 billion. Our cash on hand was $247 million. Our total leverage ratio net of all cash was 5.43 times, which is down from our Q4 leverage ratio. First-lien leverage ratio net all cash was 2.5 times.

To recap our expectations for the full year, 2021 combined historical, sorry, to recap some metrics from 2021, so you can put it in perspective with our expectations for 2022. Our 2021 combined historical net revenue was $3.15 billion. Our two-year blended average operating cash flow or -- our two-year blended 2021 net revenue was $3.25 billion.

And our operating cash flow on a combined historical basis in 2001 was about $1 billion and our LAQ operating cash flow at a combined historical basis was about $1.2 billion. Our 2021 free cash was $443 million. Our blended two-year average combined historical 2021 free cash was $626 million.

As we discussed in our Q4 call and we will remind everybody today that for 2022, we expect cash interest of about $300 million, cash taxes of $190 million, routine capital expenditures of about $125 million, preferred dividends of $52 million and required term loan deamortization of $15 million and our routine quarter -- our routine dividend would be a little over $30 million.

We are going to reaffirm that we currently anticipate that our free cash flow before common dividends, acquisitions, investments will exceed $800 million in 2022, and obviously, if political skews to the high side, that free cash number will skew accordingly higher. We are very well positioned starting 2022. We look forward to a very successful year.

I will now turn the call back to Hilton..

Thank you very much, Jim. And before I turn it over to the operator to ask for your questions, I just want to reach out to our station in Louisville and say congratulations on the Kentucky Oaks and the Kentucky Derby tomorrow. We have received your photographs and are thrilled about what you are doing there in Louisville. So go after it.

Operator, at this time, we will open up for questions..

Thank you. [Operator Instructions] And our first question is from Dan Kurnos from Benchmark. Your line is open..

Great. Thanks. Good morning. Super strong results. I guess maybe if you guys can, well address the topic, just quickly get it out of the way just in terms of what you are seeing around core. The 2Q CHB core guide looks pretty strong relative to the fact that you guys are maybe some 50% higher on political than we would have anticipated at this point.

So really if you can just talk a little bit initially just color what you are seeing macro when you are talking about key windows, just anything on that front would be a good start? Thanks..

So I will start off. As far as Q2 goes, we are -- as you said, we are pleased with where we are guided in core. Especially May and June, at current expectations, at current pace, look to be reasonably strong in the, call it, low-to-middle single-digit range. April was a little bit soft, but not alarmingly.

So it was just a little bump in the road and we are encouraged with the positive pace in May and June. And I will let others comment on, probably, certainly, in some markets and political displacement already..

Yeah. I could jump in. This is Bob Smith. We are seeing some strong political in certain markets and there has been some displacement. That being said, as Jim just mentioned, we are optimistic about May and June. Several categories are as also mentioned in the last 20 minutes are pretty healthy.

Automotive, as mentioned is still a challenge and there will be for a while, but we are making it up in other categories.

And then, as Pat mentioned, our new direct business, we are developing probably 2000 new accounts, direct local accounts a quarter on average and that continues to grow and we think that will just get, it will increase as the year goes on..

I think one category to highlight would be what we call entertainment where we are seeing strong growth in second quarter that’s sort of local performance venues, state tourism boards, really healthy growth in that category, coupled with all the others we talked about earlier is a -- it’s a pretty healthy quarter..

Got it. That’s super helpful..

Thanks..

And on the aforementioned political, I’d be lying by saying I wasn’t hoping for some more colorful words from you this time around, but Kevin did his best. So just some thoughts on, look, if Roe v Wade ends up getting overturns? We have heard that there’s already been a ton of money coming in on issue.

So can you just kind of talk about the balance between, whether it’s Senate directorial versus issue and where you might be seeing potential for outperformance in some of those verticals?.

Let me just say, we have no idea what’s going to happen on the decision or politics. But what it is known as in the last three days, there are packs and candidates on both sides that have had fundraising records. The release -- the leak has galvanized folks on both sides.

I would -- if we had this call last week, we would have said the interest in the campaign and the fundraising is just as strong as we have seen in 2020 and higher than we have seen in prior years, and that bodes well for a strong political season.

The primary in Ohio was obviously, there are a lot of intense voters there and a lot of ads clearly, we are going to see -- we think that the leak is only going to focus more people on the elections, and that’s going to drive more fundraising as we have already seen, that will continue.

And as you have heard me say many times, no campaign manager wants to end a campaign with money left in the bank. They raised the money, they got to spend it. So, we couldn’t possibly be more specific on how it impacts other than to say, it probably is focusing people to get involved, donate money, and that’s good for political advertising..

Dan, I don’t know if I have colorful words for this, but one thing that Jim has always said on these calls is that 90% of our political revenue -- sorry, I misspoke. 50% of our political revenue comes in Q4. And we are seeing a much earlier than ever in history, beginning of political ads.

I mean we are having ads for 2022 that began in Q4 of 2021 and have certainly occurred, as you have seen with our numbers through the first quarter. And currently, they are booming. It changes from state to state, but the primary advertising is very strong. Both parties are very competitive and enthusiastic. Both have raised lots of money.

And then Gray has done something with our acquisitions that I think positions us even better because Bob and his teams locally, we have been adding news and local news everywhere, and he mentioned that in his formal comments.

But what’s important about that is that is the venue that political advertisers prefer to use to reach voters that might be the deciding votes. And so we have more and more local news that they will have a position and inventory to buy political ads. And so, I think it’s going to be a gargantuan year in this midyear election.

And I think it will likely rival if not exceed any previous presidential election..

All right. That may be still better Hilton. Thank you….

All right. That’s good, Dan..

And just -- I will let you go with this just having just I know there was a interrupt in Q1.

We have heard some pretty positive things out of the MPD picking up some slack, just if there’s any update on your thoughts on net retrains layer?.

No. No, updated thoughts..

Well, I thank you guys. I appreciate it..

Thank you, Dan..

Thank you. And our next question is from Jim Goss from Barrington Research. Your line is open..

Thank you. I was going to ask about that earlier comment regarding the integration of the Quincy properties and about halfway through Meredith. And that comment related to the transition of some of the news coverage.

And aside from what you just said about the political importance, I wondered if you might talk about, say, how many programs might be -- syndicated programs might be replaced by local news efforts? Or how many hours? And what might be the typical impact on ad revenues and syndicated cost reductions in making that transition? And it might relate it to what you have just experienced and how it might have helped inflate some of the recent results..

I can take that one..

Yeah..

Oh! Go ahead, Pat..

Go ahead, Bob..

No. Go ahead Pat. That’s fine..

That’s fine. No. As I said, Jim, we recently replaced people. The syndication showed that Meredith was producing with news in a number of our largest markets. And I can’t quantify the effect I would tell you it will be material.

Not only on the cost savings side, but also on the increased ad revenue given that they are rolling out a number of new newscasts in those time periods. Hilton mentioned this, and Bob did, too, in his formal comments. We are putting more news in, it seems like every week.

And because that’s not only helping us serve our communities, but also good on the business side of what we do. And so, I see that continuing long term. And happy to turn it back to you, Bob, or Hilton for more comments there..

Yes. I would just add that the one point that it did not inflate our first quarter because a lot of those shows, as I mentioned, ended April first. So, that came after the fact. However, our overall goal is to -- we believe in localism in big way.

And so, whenever we can replace syndication and often, a lot of syndication is poorly performing and put local news in there. It’s a win-win for us. We have all the local avails on inventory and we think it serves our communities well.

And we have -- in some markets, and I think I have mentioned this on prior calls, but we have some syndication-free stations right now that have no syndication at all, and it’s all local content. Charlotte is one of them. Louisville is one of them.

We are almost there in Hartford, and that’s a long-term goal is to have less emphasis on syndicated program and more emphasis on local news, and we will continue to grow in that area..

Okay.

And is it fair to think you also benefit in terms of saving the cost of the syndicated programming by whatever you wind up spending with what you produce in addition to the ad revenue benefits you get?.

Yes. Absolutely..

Yes. We do..

Okay. The other thing, you mentioned you had cut back on several programs you were syndicating the grave ancestran that was your own, plus a couple from Meredith, I am guessing.

Are you sort of getting out of that, whatever strategy you might have had? I know rather than assessing [ph] sort of waiting in the waters a little bit, but -- or is that is just specific to those particular programs?.

Yes. Let me -- this is -- Jim, it’s Kevin. These are all coincidental. And it’s a coincidental endings, that were not planned. Greta’s great show was an experiment. We said that when we launched it two years ago. We wanted to try a national Sunday talk show out of Washington. We are very happy with the way the show was produced.

We are happy with the content, the guests were spectacular. The show was really well done. It just -- it didn’t quite find the audience that we had hoped for. And those Sunday shows ended April first. Greta is now on our air actually more often than she used to be.

He’s doing more -- she’s able to do more talk back unless time spent preparing for Sunday show. So it really was a win-win. The stations got back a half hour on Sunday that they are generally able to put local news in. PEOPLE TV was a show that was produced by Meredith that we inherited.

It, too, didn’t get much -- distinct get the traction we had hoped for. Meredith historically held out for. So that came to an end, again, coincidently on April one. And then write this minute, as Bob mentioned in his remarks, that’s been around for a number of years.

That was Raycom and some other folks put that show together I am forgetting after five, six or so years ago, Pat?.

11 years ago, actually..

Okay. Yes. And that too it kind of ran its course. There was no master plan, Jim, to kind of strategy here. It was, as I hope you guys have seen from Gray, we tend to try things, and we hope we fail fast when they are not working. Sometimes things work for a while and they stop working, and we have to fess up and make decisions to move on.

We don’t want to things that aren’t working, continue to take our time and resources. And as Bob mentioned, ending a syndicated show and adding local news is a win-win for us. And as you mentioned, if it eliminates the cost, it’s really -- it’s a triple win for us..

Okay. Thanks very much. Appreciate it..

Thank you, Jim..

Thank you. And our next question is from Aaron Watts from Deutsche Bank. Your line is open..

Everyone thanks for having me on. I just wanted to quickly follow-up on an earlier question on the ad outlook from 2Q is clearly very solid and political flowing in.

Do you have any good visibility beyond 2Q on whether the current economic backdrop, the consumer confidence, concerns about a macro slowdown? Are you yet leaking into ad buying decisions and commitments? And I suppose this is more pointed at what you are seeing a little further out and beyond 2Q..

Aaron, we -- as usual, other than the immediate quarter in front of us, and this has been traditional in the business for a long time. Now we really don’t have a lot of visibility. It’s business tends to get placed quarter-by-quarter.

So, no, we would be no better estimating or forecasting what the overall economy is going to be doing in the economies in our markets in Q3 and Q4 than anybody else. We remain optimistic. We are pleased with the results from Q1, what we expect for Q2. So, we don’t see any big red flags, but we don’t have a ton of visibility either..

Let me, this is Kevin. I am going to accentuate something Pat said on the call. We just went through a quarter with a major war in Ukraine and historical inflation, and yet the consumer in our market and the businesses who advertise in our markets have remained really strong.

So, despite the macro headwinds that are out there, our business remains strong, and you saw it not just in Q1 results, you see it in our Q2 guide. So we don’t know what the future is going to hold in Q3 or Q4, but we are cautiously optimistic because we are doing fine despite some real pressures out there on the macro side..

Yes. Fair point. Okay. And I apologize if I missed this, but yeah, we have heard about some increased rates of sub churn from the MVPDs. You have always seemed to trend a little bit better in the past than some of the market averages.

Can you just speak to what you have been seeing from your sub base of late?.

Yes. We said on a -- we look at the full year quarter -- fourth quarter 2020 to the fourth quarter of 2021, our total sub Big 4 pay-TV sub count declined by less than 2%..

Okay. Great. And then just one more, and I appreciate the time. Just given some of the continued pressures on network broadcast viewership, prime time, specifically. Curious how that impacting your business or decisions with ad clients. And I appreciate that prime ads are not a main driver of Gray’s revenues.

But from a perception standpoint, considering lead-in, lead-out strength, network programming trends, I imagine, can matter indirectly from a viewership or sales perspective.

So anything you can kind of give on color there? And maybe also if you could speak to your -- how your local news ratings are performing of late relative to Prime?.

This is Bob Smith. I will take that. Prime is and less important really every year. We don’t depend on the network’s local news, as we mentioned a few minutes ago, is where we drive our revenue from prime time is -- we are looking at about 12% of our revenue in Network Prime. So it’s nothing like it was 10 or 20 years ago.

And again, that goes back to our emphasis on developing local news content. 50% of our revenue comes in local news….

Okay..

Ratings are holding up. We are doing -- I can tell you that. As you know, we have so many number one stations, and they continue to perform very well..

Okay. Thank you again..

Thank you, Aaron..

Thank you. And our next question is from Steven Cahall from Wells Fargo. Your line is open..

Thanks. First, maybe Hilton, just on the political commentary that you made. I think you said that now you expect political to maybe be above the 2020 level. I don’t know if that’s included in your current free cash flow guidance or if that prognostication would be upside to free cash flow guidance. So maybe just a little bit of help there..

No. Steven, that’s not included in any of our free cash flow guidance. That’s just aspirational because we see a lot of political stuff that’s starting earlier and earlier every political cycle..

Steven, our guide of $575 million remains unchanged. Again, point out that’s -- again, that’s -- you are running about 25% better than 2020 when we back out the presidential, which is obviously not happy now, and you back out the Georgia Senate runoff from November, December of 2020.

So we take out those things, which -- and get an apples-to-apples comparison, our guide is already 20% say, 25% better than 2020..

Got you. And then on the Telemundo deal that you announced, could you just talk about what the upside could look like? I assume those are my TV and CW stations that you have some conversion opportunities. I am guessing those don’t really generate much in the way of retrains at the moment. Maybe the ad sales are better as well.

So can you just kind of help us think about what the value impact could be from your larger Telemundo deal?.

Yes. We are not converting it. We are not dropping any affiliation. We were able to add Telemundo in ‘22 new markets this year by adding an additional channel to stations we already own. And over the last several months, we have been quietly buying low power TV stations in our markets.

And folks have been wondering what we were going to do with them, the plan has been to buy some low power TV stations to, literally to service the Telemundo affiliates for these markets because they are low power, they tend to cover smaller areas than full power. So in some markets, we have to have two low powers to cover the DMA.

So we are not dropping anything in favor of Telemundo. Telemundo Is additive. So as we said, we are going to begin with the national feed and in some markets, we will have local news and local insertion of commercials. There will be many that never have that.

There will be many that will start off with a national feed or the Atlanta, Georgia -- and the Atlanta feed throughout the Georgia markets. And then as the market can support local ads and local news, we will convert the station to more of a local feed. So this is not going to be a material driver, but we think it is going to be a growth engine.

It’s certainly going to help our -- we think it will help our stations’ local ad sales and help us leverage our -- what we do with sales and what we do with news to reach at a part of the audience. So, not material to the company, but probably material to some of the markets where we are adding Telemundo..

Thank you. And then maybe just lastly, Hilton, I think at the end of the last call, you talked about maybe being in a position to look at some share repurchases by the end of this calendar year. It sounds like you are incrementally bullish since then.

Is that still kind of the same where if the November cycle hits the way you think it could, then that outlook is still possible?.

Those are always opportunities for our Board to consider, and we look at it every quarter. And so we will be looking at that as we see sort of the course of 2022 sort of turn out. And so it’s more likely than not, if the optimistic side of the year turns out that we will see something along those lines, and we just see what our Board comes up with.

But yes, it is certainly an opportunity..

Great. Thank you..

Thank you, Steven..

Thank you. [Operator Instructions] And we have a question from Alan Gould from Loop Capital. Your line is open..

I have got a couple here. First, Pat, could you drill down a little bit more on digital. The numbers seem pretty impressive. If you quantify, for example, how much of your core revenue is coming digital..

It’s -- I am not going to give you the exact number, but it is in the teens. And I think that’s a pretty solid number and it’s growing -- it continues to grow quickly on what is now a relatively significant base. So we are pretty happy with our efforts there..

Okay. And Jim or Hilton, could you give us a little more insight on the Atlanta assembly project? How much you think capital expenditures are going to be for the year? I recognize that there is a shortage of production space for all the content that’s being developed, what the revenue opportunity is there as well..

We don’t expect to see a large amount of capital expenditures there, but just enough to get our studios up and going..

So the $30 million that you spent in the first quarter, would that be a run rate for the year?.

It will be in around $100 million, but in later years, the CID, which is unique there, we will be issuing bonds that are separate apart from anything on our balance sheet, and that will offset what we have here because the property itself for the studios are uniquely benefited by the tax-free bond capacity that we have there.

And before the end of the year, those bonds will reduce the capital expenditure for creating these studios..

Okay. And Kevin, could you just give us some sense in general on the tone of reverse comp discussions? I think the thought was that the networks wanted to raise the prices prior to the new NFL contract. I have heard some runway that they are asking for more again.

Can you just give us some sense of the tone there?.

Yes. So what I said on the last call was that we believe that gray narrative and Quincy had large step-ups in the last 2 rounds of reverse comp or network affiliation negotiations as a networks prepared for the NFL renewal conversation, and that the -- going forward that the increases would be more muted than what we had seen in the recent rounds.

I can’t tell you what the industry is hearing overall because we are not really in those discussions right now. We have got some up at the end of this year. We will have those conversations later on, but that’s our general sense of where things are at..

Okay. Thanks a lot..

Thank you. And there are no further questions on queue.

Do you have any closing comments?.

Thank you, Operator. I want to thank everyone for joining us today. It’s been a fantastic quarter. We expect a fantastic Q2 and an even better full year results. And so we look forward to talking to you at our next quarterly report. Thank you..

And this concludes today’s conference call. Thank you for participating. You may now disconnect..