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Executives

Hilton H. Howell - Vice Chairman, Chief Executive Officer and Member of Executive Committee

Robert S. Prather - President, Chief Operating Officer, Director and Member of Executive Committee

James C. Ryan - Chief Financial Officer and Senior Vice President

Analysts

Aaron Watts - Deutsche Bank AG, Research Division

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

Barry L. Lucas - Gabelli & Company, Inc.

Davis Hebert - Wells Fargo Securities, LLC, Research Division

Lawrence J. Haverty - Gabelli Entertainment & Telecommunications Acquisition Corp.

Gray Television (GTN) Q1 2013 Earnings Call May 2, 2013 11:30 AM ET

Operator

Good day, everyone, and welcome to the Gray Television's First Quarter 2013 Earnings Release Conference Call. Today's call is being recorded. For opening remarks and introductions, I would like to turn the call over to Hilton Howell. Please go ahead, sir.

Hilton H. Howell

Thank you very much, operator, and good morning, everyone. Welcome to the first quarter 2013 Gray Television Earnings Call. We appreciate your time, your attendance and your support of our company. As usual, I will have a few brief comments and will be followed by Bob Prather, our Chief Operating Officer; and then Jim Ryan, our Chief Financial Officer, will add his thoughts to this quarter's results. Questions will follow.

We are off to a very good start for 2013 and have reported a very solid quarter. We beat our high-end guidance on revenue reporting $78.2 million in revenue for the quarter compared to $80.1 million during a political year in 2012. That represents a 3% or $1.9 million decrease. The decrease was entirely driven by a drop in political revenue from $4.3 million from last year's quarter to $600,000 this quarter. Of our 5 largest local and national advertising categories, automotive, medical, restaurants, communications and furniture and appliances, automotive has increased by 12%; medical has decreased by 8%; restaurants decreased by 2%; communications decreased by 8%; and furniture and appliances have increased by 5%. For the quarter, we reported net income of $870,000 or $0.02 per share compared to net income of $2.2 million or $0.04 per share last year.

I would like also to use this opportunity to publicly welcome Michael Spies into our company. Almost everyone in the broadcast industry knows Michael, and we are so pleased that he brings his expertise in national advertising to Gray Television. All of us believe that he will be able to represent the company as a compelling advertising buy because Gray's local television meets -- media offers -- represents an excellent opportunity for our national advertising customers. We believe that he will be able to even more effectively represent our company to the national advertisers by being part of our company.

I also want to take a special moment to recognize the dramatic loss from the explosion in West, Texas and how it has impacted so many of our viewers in that community. Our thoughts and our prayers go out to all those who has suffered due to this horrific explosion and the many personal tragedies it has created.

In West, for those of you who don't know, over 350 homes were destroyed or damaged. 15 people were killed, 12 of which were first responders and the explosion created a crater 90 feet in diameter and 10 feet deep. It destroyed a building that had a concrete foundation 3 feet thick and tossed concrete up to 150 yards away. Our coverage of this catastrophe was superb. Bob Bunch and his entire team at KWTX in Waco, Texas, my hometown, should be complemented on their superb wall-to-wall coverages. Their professionalism, dedication and love of community represents the highest standards in broadcast industry and in all of our local media properties.

Of note, in addition to our dominant viewership in the community, our website received 1.9 million page views and 260,000 video views. We received a 16% growth in Facebook fans, 61% of which came from mobile viewers and a 21% growth in Twitter followers. So many people were involved in our efforts that I cannot publicly thank them all. But for those investors, including myself on this call this morning, it is this kind of coverage provided by KWTX that makes our investment in Gray Television of continuing value.

With that, let me turn it over to Bob for his comments.

Robert S. Prather

Thanks, Hilton. I want to welcome everybody and tell you we had a good quarter. I think we're all a little bit -- after having such a great year last year, a little bit nervous about what this year is going to bring, but it started out strong and our GMs are telling me their markets are looking good for second quarter and beyond. So while I think the economy is still fragile, I think people realize the value of advertising in today's world.

I always use a quote a lot of times that Confucius said about, "May you live in interesting times." I think we are living in some very, very interesting times. Back in 2009, we had about 6 investment banks come in and advice us and everybody in the television broadcasting business to file a bankruptcy sometime the next 12 months. And then 2010, the same 6 came back and advised us to sell stocks. So what's going on today doesn't surprise me. It's just a -- I think it's a reaffirmation that TV has been a good business and will be a good business.

A lot of merger and acquisition activity going on. We look at a lot of these things. Really so far, we haven't found a deal that's compelling enough to -- that fits our criteria and compelling enough that we felt we could buy at the right price and make it accretive for us. So I think all of you know our #1 priority is paying down debt, which we want to continue to do. But if the right deal came along at the right price, I think you know we've been willing to move on those kind of things in the past. But our #1 priority will continue to get our balance sheet in better shape and to make ourselves a much more efficient and productive company going forward.

On that note, we are continuing with our automation projects. We are doing a -- most of our stations in our larger markets will have automation, and this year we will have virtually all our local HD done except in a couple of very small markets and they will be finished up early next year. So we think we'll be in a position in over the next few years to be top of the market in efficiency and newsgathering. We're still doing a lot with the mobile -- in the mobile area as far as newsgathering with our TVU units, which are backpack multitask journalism units.

Our Chief Technology Officer, Jim Ocon, has come up with an idea, which we've gotten approved and patented that will allow us to do what's called hotspots in our local markets where we can actually do the Internet, live Internet without having to go through the phone companies, which should be a tremendous savings for us of operating expenses in the years ahead. But all these things, we're trying to stay at the very cutting edge of technology without jumping off the ledge, so to speak.

We're very careful about trying these out in selected markets and when they work, then we roll them out pretty fast. But so far, it's been working great for us, and we want to continue to be the #1 news source in the towns we're in and continue to be the technology leader in the towns we're in and make sure we're out there doing the right thing for these communities, both from the news coverage side and from the news technology side.

So I know the viewers don't really care what's going on in the backroom, but I think they do care about getting the fastest, most efficient news in their markets. And I tell everybody, all our managers, nowadays our competition is any of you people walking down the street with an iPhone, that takes a video and puts it up on YouTube 30 seconds later and suddenly you're the breaking news in that town.

So we're embracing Twitter, we're embracing Facebook, we're embracing Pinterest, all of these social media that people really have embraced worldwide, and we're trying to make sure that we're in the same camp they are as far as our news gathering and our relationship with our communities and our communication with the people in our town. So I think this will continue to be important.

I think Hilton mentioned Waco. I think our -- Bob Bunch and his team out there doing an incredible job. We were on-air 28 hours of uninterrupted coverage, and I think we clearly were the station in town for people to watch. They wanted to know what was going on, on that horrible tragedy that happened outside of Waco in West, Texas.

I think this year, the rest of the year, I think is going to be a good year. We will continue the path we're on right now. As I said, we always keep an open mind to look at possible additions to the company. But in the meantime, our #1 priority is going to be continue to strengthen our balance sheet.

At this point, I'll turn it over to Jim Ryan and he can go over some numbers for you. Jim?

James C. Ryan

Thanks, Bob. Good morning, everyone. I'll focus my comments primarily on the balance sheet because I think between Hilton and Bob, they kind of covered the highlights of the operating results for the first quarter which again, we were very pleased with.

From a balance sheet perspective, total debt at the end of the quarter was $835 million. We had $20 million of cash on the balance sheet as well. Our trailing 8-quarter average cash flow is defined in our credit facility. Again, it's a 2-year average definition of the credit facility with $136.5 million, which put our leverage ratio under the credit facility at 5.97 against the covenant of 7.75. Certainly, as Bob said, the first priority will be continue to reduce debt with free cash flow generation this year. So that average leverage ratio will be coming down during the course of the year. Our CapEx for the quarter was $6.4 million. We had $81,000 in cash taxes, $2.9 million in syndicated program payments and $2.8 million of program amortization.

Turning briefly to the guidance for second quarter. Again, as Bob had indicated, we feel very good about the quarter and where it's going. We see core growth local national, x political, of course, but in a very healthy 7% range, which we're very, very pleased about. We'll also see continuing growth in the retrans number basically because of the addition of some additional channels, as well as normal price increases in the retrans.

As we've talked before, we do have a large contract coming up for repricing, about 1 million subscribers at the end of this -- at the end of October. And we're looking forward to stepping that up to current market rates, and we have another 1 million subscribers on a different contract that will be repriced at the end of this year as well. So we'll have a significant step-up in the retrans as we head into early '14.

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

Robert S. Prather

Thanks, Jim. Operator, we're ready for questions at this time.

Question-and-Answer Session

Operator

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

Aaron Watts - Deutsche Bank AG, Research Division

So I just wanted to start out with a question, obviously, it feels like based on your guidance, the momentum in your core advertising continues to be quite good. And if I think about, for instance, what we heard last night from CBS, and I know you have a bunch of CBS affiliates so, they're not seeing as good a performance. Can you maybe just talk about some of the variances there? If you think that's big market versus smaller market or what else might be going on that's allowing you to outperform?

Robert S. Prather

Aaron, I think it's probably a combination of things. Network advertising is really -- we're almost disconnected from it. It sounds crazy, but I think you've all seen our presentation in the past where our #1 stations stayed #1 year in and year out even when then network that they represented was even as low as #3. Including CBS was a poor #3 back 10, 12 years ago, and all our CBS stations maintained their #1 status in the past. So I think there's a lot of -- and trying to think of the right word, experimentation, I guess. I've used that term before on these advertisers on so many different ways they can advertise now. And the big guys all want to try big things. And so sometimes, they move money out of TV and put it in something else or it gets moved around. I think everybody's been a little nervous about the upfront this year not looking quite as strong. But on the local level, our businesses stayed strong. And when we refer to the term national business, it's a little bit a misnomer. What national business means to a local broadcaster is it means the advertising was involved in our market. In other words, international advertiser buys a what we call a national ad. They may only be buying in 2 or 3 of our stations or 5 or 10, rarely ever all our stations. But we call that national advertising because the buyer came from somewhere outside of our market. So same way with what we'd call a regional ad where we get a like, for example, a lot of the fast food groups have regional ad groups where their ads may be bought in Chicago, for example, for all the Midwest. We call that our -- we term that under national regional and not local even though it may only be in 8 or 10 of our market. So the network business and our business is a lot different. I guess that's what I'm trying to say in -- while we pay attention to it and we want our networks to be doing good and it helps us that CBS has the #1 ratings right now, it's not a drastic effect on us day in and day out. Hope I didn't make it too long.

Aaron Watts - Deutsche Bank AG, Research Division

Yes. No, that makes sense. And just one follow-up, I'm curious, within your kind of station portfolio group, are you seeing variances between the different affiliations? So CBS versus your NBC affiliates, for instance, just based on some of the network viewership trends right now? Or is that also less impactful?

Robert S. Prather

Here, again, I think NBC, probably because they've been so weak in a lot of areas, other than Monday night with The Voice, they've hurt us some in the past because they're in some of our bigger markets. They're in Omaha, in Madison, in Charleston, Huntington, some of our bigger markets. The 10:00 lead-in being weak has hurt our 11:00 news. I don't think there's any doubt of that. And the Leno disastrous experiment back a couple of years ago hurt us then. But here again, if we've got a strong affiliate in a market and the market itself is doing fine, usually our affiliates is going to be doing fine, even if the prime time ratings are hurting. One of the areas that we do see -- NBC's morning stuff is -- we haven't seen it affect the status [ph] yet, but I mean, that makes me nervous because that's been so strong for so long that I don't want those guys to slip off the perch there. And the Good Morning America is giving them a run for their money and been actually ahead of them a couple of times. But that's a key element for NBC. And I think morning is, we've talked about before, is becoming more and more important in the TV business. Our morning news, it gets better every year. Our ratings get better, and we want to make sure we got a good lead-in and then a follow-up afterward, coming out of whatever morning show NBC, ABC and CBS have.

Aaron Watts - Deutsche Bank AG, Research Division

Okay. And one last question for me. You talked about the M&A going on and how you haven't participated to date. Do you feel like as other groups get larger, that you'll be at a disadvantage negotiating distribution agreements, programming agreements and the such if you don't participate and get larger scale?

Robert S. Prather

That's a good question, Aaron. I would say I think we're big enough to have enough clout and we've got -- as long as we keep our strong station with strong ratings in these markets, the syndicators want to be on our air. We have Wheel and Jeopardy in 22 markets, and we've had them for over 30 years and they continue to be leading syndicated programming for us. And they -- we just renewed for another, I think, 2, 3 years at very good prices. So I think the strength of our local stations give us an edge there. And look, being bigger, like these AT&T commercials, maybe being bigger is better. But we want to get better and bigger if we grow. So we'd like to, like I said, maintain our discipline on the kind of stations we buy and maintain our discipline as far as how we run them. So I think that's more important than being big, just to be big. Look, David Smith is a friend of mine, extremely smart guy. I'm proud of what he's doing. I think it's good for the industry. I give David -- he knows I clap for him every time he does something. And he's really been a leader. He was leader in the retrans effort back several years ago, and he's obviously got a good thing going there and I'm all for him continuing to grow, continuing to build his business. But we've always had a different, I guess, game plan. You can have 2 different game plan and both of them would be good. But we keep a close eye on M&A. And like I said, if we see a deal that really makes sense for us and we can justify it under our current mantra, we want to make sure we get our balance sheet in better order, we'll take a hard look at it.

Operator

Our next question will come from Marci Ryvicker from Wells Fargo.

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

First question I have is, your second quarter seems to be accelerating in core advertising. I'm just curious if it's being driven by certain categories, if some of that were down in the first quarter have turned positive, or any color you can give us on why your second quarter is so strong.

Robert S. Prather

Jim, you want to take that one?

James C. Ryan

Marci, in part we had thought all along that the year would start relatively slowly and then start to take up as the year goes on. And certainly, one of the things to keep in mind with us is that as we go farther and farther into the year, there was an awful lot of political spots sold last year. And certainly, the political buyers aren't there this year but we'll still be selling spots. So obviously, local and national absorbed some of that, which is obviously a good thing. I think the trendline on categories, so far of what we're seeing in second quarter is not extremely dissimilar from first. Autos is -- auto was strong in the first quarter. It's continuing to be very strong. We are seeing an uptick in the communications category, at least as far as current pacing goes from the first quarter. And I think some of that is just some -- whether they were MVPDs that do air buys in our markets or other telco companies, I think that's just some dollar shifting as people work their own marketing plans and strategies. And certainly because of that, quarter-to-quarter, you could get some volatility there. Other things are generally consistent. So all in all, the second quarter is good and certainly, we think the second half of the year ought to be pretty good, too.

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

So do you anticipate acceleration throughout the year? Is that what your underlying commentary is referring to?

James C. Ryan

Well, it's -- we would expect a pretty good third quarter. It's a little bit -- that's a little farther out to say exactly how good; certainly a very strong second quarter. I think third quarter naturally is a little weaker for everybody in the business. So there'll be some of that just the natural cycle of the dollar spend slows up during the summer a little bit. And I think fourth quarter, if the year tracks like we would expect, and certainly the economy continues along at about the current pace or improves slightly, we -- fourth quarter would show some more acceleration too over second, a little bit more. But some of that is just going to be, again, replacing political dollars with core local and national dollars, replacing some of the political dollars with core local and national dollars.

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

Okay. And CBS has been one of the networks talking about when the potential responses to Aereo is taking the broadcast model and pretty much going straight to cable. How do you feel about this possibility? And does it -- will it happen, number one? And number two, what do you think it would do to the TV station business model?

Robert S. Prather

Marci, we've talked -- Jim and I have talked about that a lot. First of all, I think part of it is just some posturing for the lawsuit. Number two, I think it would be very difficult because of -- I'll use 3 elements. Number one, NFL, they got a 9-year deal, and the NFL definitely does not want to go all broadcast TV. Number two would be NCAA Final Four, same situation, and then number three is Congress. I'm not sure that Congress is ready to give away a free broadcast model. And so all of those things enter. And then there are a lot of companies signing agreements right now with CBS for 5 years, 6 years, 7 years in affiliation deals and they don't just abrogate those. I don't think so. I know Aereo has got all these guys spooked and winding it's way through the courts right now. I don't think anybody knows the ultimate outcome. But I think we need to be figuring out a way to make sure our audience wants to keep us where we are. And I don't think at the end of the day, any industry can fight technology that's coming. I think we need to figure out a way. We're content providers, and we got to figure out a way to make sure we get the content to our viewers however they want it and I think we've got to embrace all these areas. So I think it would be very difficult for these guys to do that. I'm not saying that's impossible, but I think Congress at some point is going to have something to say about this because I think even though we're only probably talking about 10% of the population now, that 10% is the elderly and the poor and a lot of people in those categories that I don't think Congress wants to offend. So that's my answer to the CBS and the FOX issues ongoing. And also, at the end of the day, we're very important to them with our local news. You've seen our presentation before. We have 2x or 3x many viewers on our local news as they do. We bring viewers to them and not vice versa. So we're important to them in the markets we're in. We're not a huge factor, obviously, nationally, but in the markets we're in, we're a very important factor to all our networks. Does that answer your question?

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

Yes. Perfect.

Operator

And now we'll go on to Larry Schnurmacher [ph] with Morgan Stanley.

Unknown Analyst

On one of the reviews I see, Capital IQ has a couple of estimates. I'm not sure where they get those estimates from. But they're saying that your guidance is a little light according to their -- what they have as estimates of $87.5 million for, I guess, that's revenue and you guys are guiding to $84.7 million, $85.7 million. I guess, where do they get those estimates? And was that your stuff, or is that light or is that just their...

James C. Ryan

I have no idea where they get their estimates. You'd have to ask them. But I think, again, if you go back and look and see where core local, core national is up a very healthy 7% range, maybe a little bit more than that, I would consider that to be a very healthy growth rate for core business, especially in an off political year.

Unknown Analyst

I agree. I was just curious if you [indiscernible]

James C. Ryan

And you've followed us for a very, very long time. You know that we, if anything, we try to be a little conservative in our guidance because the last thing we've tried very hard over the years, not try to overpromise and underdeliver. And I think our track record has said that we're usually in range or slightly above range, but we're pretty good about delivering on what we say we can deliver. And if we can do a little better, we certainly go for it and push it all that we can.

Unknown Analyst

Okay. Also just -- I might have missed this, did you say anything about resolving any more -- paying down any more debt or anything along those lines?

James C. Ryan

Well, again, most of the free cash flow this year that we'll generate and really that most -- a lot of that generation is because of natural cash use and timing of interest payments and stuff will happen more towards the back of the year. But the first priority with the free cash flow this year would be to reduce debt.

Operator

Our next question will come from Larry Haverty with GAMCO.

Robert S. Prather

Larry, are you there?

[Technical Difficulty]

We'll go on to our next question from Barry Lucas from Gabelli & Company.

Barry L. Lucas - Gabelli & Company, Inc.

Just really 2 items, Bob. On -- just coming back to the M&A front and with the understanding that debt reduction is job #1 this year. But how would you prioritize the perfect deal for Gray in this environment where so many stations are coming to market? So is it affiliation-specific, is it geography-specific or is it all a matter of price?

Robert S. Prather

Frankly, it boils down to -- we've been at the same criteria for 20 years now, Barry. We want to -- we like to find #1 our strong #2 stations in what we consider good markets, big 4 affiliates ideally and we've had a bias to CBS, usually because CBS has strong news operations in local markets but -- and we want to have a strong news operation. We're not looking for turnarounds. I always say we like to turn up situation where we think we can come in and make a good thing better, and we've been able to do that pretty successfully over the years. And obviously in the today's world, I think here again we wanted to be accretive, if possible. I mean, we're -- I guess if it was neutral, it'd be okay. But we don't want to have our debt to cash flow ratio jump up with an acquisition. So that might sound impossible to find, but we've been -- we've found them in the past and I think we'll find them again in the future.

Barry L. Lucas - Gabelli & Company, Inc.

Great. And if we could just touch on the other use of cash and cap spending. It's a nonpolitical year, so your free cash is down a bit. Where do you think CapEx is this year? And with some of those big projects winding down '14 and '15, where do you think that CapEx number stays or goes?

Robert S. Prather

We're running -- we're actually moving in to the 2 new buildings this year, Barry, that we have. One of them was under construction for latter part of last year and this year. The other one we bought, but we're actually doing some renovation. And we're doing this for 2 reasons. One, we just need a new building, but as I think I've talked about before, we're going from much bigger space down and much smaller buildings as we think there going to be much more automated network, to very energy-efficient, trying to come up with what we call a prototype of the station of the future. So we're spending a little extra money doing that. I think if you -- and then we've got a couple of these what we call small add-on acquisitions. We bought the station out in North Platte which is market 209 and we had it with our CBS affiliates in there. And we bought a small station in Milton, Alabama where we're going to have an NBC along with our CBS there. All of those added together, around $22 million. But like I said, probably $4 million or $5 million of that will be involved in those buildings and acquisitions. We -- I would say our normal CapEx for this -- a year like this would be $15 million. In a political year, next year, probably to wrap up everything we need to do. And frankly, we got a couple older facilities out there, we'd still like to look at possibly if these buildings were as good as we think, doing the same thing. We've got some valuable real estate we think we could sell off now that the market's better and actually pay for the buildings and the new equipment with real estate we sold from the old properties. So those are kind of the things we're looking at and -- but I would say $20 million in a political year, $15 million in a normal off year. For the next 2 or 3 years, it's probably reasonable for us to look at. It's probably no more than that.

Operator

[Operator Instructions] And our next question will come from Davis Hebert with Wells Fargo Securities.

Davis Hebert - Wells Fargo Securities, LLC, Research Division

I just wanted to ask a question about auto, up nicely in Q1. It sounds like it's a pretty big driver of your revenue guidance this year. I know the notion is to look at SAR and unit sales and talk about the growth we're expecting to see from the industry. But maybe if you could drill down a little bit to the micro level? What's going on at the local dealer level from their comfort level in spending versus the OEMs and then foreign versus domestic?

Robert S. Prather

David, I would say local dealers are feeling really good right now, and I think it really boils down to 2 key things. If you go back to '09 -- really the end of '08, '09 and '10 and even '11, part of '11, the amount of cars being built and amount of cars being sold was almost 50% under historical levels. So there's been a huge pent-up demand. The other thing that happened in '09 and '10 was financing virtually dried up for auto for a point there. And so people just couldn't get financing that was decent to buy a car. Both of those things have turnaround. They're producing a lot more. They're up to I think going to be 15 million, 16 million cars this year and the financing rates are incredibly cheap right now. And then the other thing is incredibly is leasing is back. So leasing virtually disappeared in '09 and '10. All these things are just -- it's manna from heaven for the average local dealer. And I think they're all trying to -- I think the biggest problem I've actually heard is them getting product. They're -- most of the real strong dealers, the biggest complaint they get right now is getting product. So I think you're going to see the auto continue to be very strong. I think it would take a drastic -- something happening in the economy that macro that none of us could foresee right now to slow down the auto business.

Davis Hebert - Wells Fargo Securities, LLC, Research Division

Okay. That's a good answer. And then a different topic, Intel, talking about rolling out a pay-TV service to compete with cable and others. Have you had any discussions with them? Or do you feel like that's a positive for the industry?

Robert S. Prather

Can we see what it is? Here again, I think I've said earlier, I think we got to consider ourselves content providers. We got to consider ourselves the #1, I'll use the term again, local news source in the markets we're in. And we've got to convince the people that live in those markets if they want to get local news, we're the place to come. We're using the technology we need to get it to them, and I think that's the key for us as a company is we got to be flexible in the way we look at how we deliver the product. Think about it, 3 years ago, we weren't doing any tablets or desktop or mobile. We're doing all that now and doing a job of it. And I think live mobile is right around the corner, again, hopefully. And I think you're going to see more ways for us to -- we can -- people can get TV through the Xbox now and through all kind of other devices. So I think Intel, I don't know, I think they've been pretty quiet about exactly what they're going to do. But if there's a way for us to utilize it to get content to markets, we're -- we'll utilize it.

Davis Hebert - Wells Fargo Securities, LLC, Research Division

And then a question for Jim, cash taxes for the quarter and I apologize if you already gave it?

James C. Ryan

Yes, it was de minimis. It was $81,000.

Operator

And we do have Larry Haverty back into the question.

Lawrence J. Haverty - Gabelli Entertainment & Telecommunications Acquisition Corp.

So I'll ask the same thing more or less in retail. Do you see any change in the mode of your retail customers, indicating that they might be feeling better or worse?

Robert S. Prather

Larry, that's a good question. I would say retailers are nervous. I would use that term. I think business is okay for them right now, but I think most of them are nervous. I think the showroom-ing stuffs scares them to death. I think they're all looking -- I think the penny debacle has scared retailers at thinking about trying something different. So I would say retailers are nervous. We haven't seen a drastic drop from retailers, but the people I talk to in that business are -- they just -- they're nervous about a lot of things going on in their industry that they don't feel like they really got any control over.

Lawrence J. Haverty - Gabelli Entertainment & Telecommunications Acquisition Corp.

Tell them to spend some time with their auto friends.

Robert S. Prather

Yes, yes, exactly. Yes. Well, the worm turns as they say. So I think they need to the patient. If you read about Bed Bath & Beyond and the guys that really know what they're doing out there, they're cooking along pretty good right now. So I think you just got to have a -- you got to be good in what you do to survive in today's world.

Operator

Our next question will come from Patrick Fitzgerald [ph] with Robert W. Baird.

Unknown Analyst

I wanted to ask you about the non-presidential year in 2014 given the emergence of super PACs political spending. How should we think about that compared to 2010 and 2012?

Robert S. Prather

Our off-years have been going off every year. I'm not sure if they're going to this year. We had a really strong -- we had a record off-year in '11. I think there's not as many voices out there this time. We are seeing -- here's your money coming in some markets already in Florida. We've seen it in Wisconsin. So there is -- the off-years are getting better every year. I don't know if this will be a record year like '11 was or not. Right now, we're not budgeting that, but we've been surprised in the past.

Unknown Analyst

And what about 2014? I know it's a long ways from then but...

Robert S. Prather

I think here, again, I think Republicans are still licking their wounds. I think they're more getting mad and get it even and get somebody elected President. I'm sure that Democrats feel strong about the -- how the demographics are working in their favor. But both sides they've proved they can raise tremendous amounts of money in today's world. And if they raise the money, they're going to spend it. So I see no reason not to do better than we did in '12 in '14, frankly.

Hilton H. Howell

Patrick, this is Hilton. Can I add one think to Bob's comment on the political front? We saw one thing in 2012 broadly and certainly in all of our markets, and that was the President and the market with advertising very, very early, probably historically early in the cycle and established a very firm imprint, as the final results showed, in terms of finding himself and finding his opponent. And when we used to look at political cycles, both off year and on presidential cycle times, there was a relatively short window with limited amount of inventory that was available for an advertiser in the political space to buy. I think 2012 changed all of that, and I think that the whole political year is now open in terms of advertising. And there's going to be a whole lot more money coming forward because everybody in that endeavor knows that they've got to get on the air and they'll get establish things early. So I think it's enormously bullish for broadcasters and enormously bullish for Gray Television in all of our years.

Unknown Analyst

Great. And just in terms of pricing for super PACs versus candidates, could you talk about what you've learned -- how that's different and what you've learned that can help you going forward about how to adjust your rates?

Robert S. Prather

Super PACs, we can charge them anything we want to. We charge them whatever the maximum rate at our stations are for that particular time slot. And most of the candidate also pay a fairly high rate because they want to guarantee time slots, and we normally keep those guaranteed time slots. We don't discount them, rarely ever, because most of our news is strong anyways. So I think our managers did a great job of managing the rates over the years, especially, and I think we'll continue to do that. But we're very conscious that rates are -- that we've got strong stations, they're in demand in political years and we want to make sure we get the absolute top dollar we can for our product.

Unknown Analyst

But were the rates that you charge the super PAC advertisers, like in terms of a percentage, 10% more than what you've charge the actual candidate advertisers?

Robert S. Prather

I don't think anybody in companies figured that out. Like I said, we charge the super PAC whatever we feel is the top rate we can get in a time period they want to be. And like I said, the candidates -- if they want guarantee, they're paying the same thing also. So the only time -- and most candidates won't guarantee time slots. They want to be in our 5:00, 6:00 news or 11:00 news or whatever, in our special program and during the day if they got some show. They really -- and Wheel and Jeopardy actually get some pretty good ad money. So I don't think there's that much difference in what the super PACs are paying than what anybody else. And one thing, the super PACs, a lot of times do. They come in at the last minute and want to spend money. And we probably, like any business, we probably charge them more at that point, if they want to get on-air at the last minute. But in general, look, we want to please all our customers, and we want to make sure we're doing the right thing. And it's really the same -- this boils down to supply and demand. There's a tremendous demand for those time slots in our news and in these markets. A typical #1 station in our markets will get 2/3 of the TV ad spending in that market. So we're very conscious of watching our rates, watching our -- keeping our inventory so we can -- have inventory available when these guys want it. It's a very meticulous process, and our GMs over the years have done an excellent job. I think that's why we've been the #1 group in the country in the percentage of political advertisers since -- really since the '90s.

Operator

[Operator Instructions] And at this time, we have no further questions in the queue and I'll turn it back over to our presenters for any additional or closing remarks.

Robert S. Prather

Thanks, everybody, for joining us. As you all know, you can catch us anytime on the phone. We look forward to talking to you at the end of our second quarter, and thanks everybody for your support. Good bye.

Operator

That does conclude our conference for today. Thank you for your participation. You may now disconnect.

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