Gray Television's CEO Discusses Q4 2013 Results - Earnings Call Transcript

| About: Gray Television, (GTN)

Gray Television, Inc. (NYSE:GTN)

Q4 2013 Earnings Conference Call

March 11, 2014 10:00 a.m. ET

Executives

Hilton Howell - CEO, President and Vice Chairman

James Ryan - CFO & SVP of Finance

Kevin Latek - SVP of Business Affairs, General Counsel and Secretary

Analysts

Marci Ryvicker - Wells Fargo

Lance Vitanza - CRT

Davis Hebert - Wells Fargo

Avi Steiner - J.P. Morgan

Howard Rosencrans - VA

Jim Goss - Barrington Research

Barry Lucas - Gabelli

Colin Wilson-Murphy - Bowery Investments

Matthew Dodson - Jay West

Operator

Good day, and welcome to Gray Television's Fourth Quarter and Year End 2013 Earnings Release Conference Call. Today's conference is being recorded.

At this time, I'd like to turn the conference over to Mr. Hilton Howell, President and Chief Executive Officer. Please go ahead.

Hilton Howell

Thank you so much Katie. Good morning. Thank you so much for being here for joining us on this conference for your interest in our company and for your interest in our industry.

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

In many ways, 2013 was a defining year for Gray Television. We restructured and we focused on management team. We rebranded our company and launched a new corporate Web site, better communicate our story and our culture. We repositioned our balance sheet and issued 375 million of new senior notes, filling up our senior debt capacity to grow the company.

We partnered with Excalibur Broadcasting to look at transactions in our consolidated industry, and thereafter returned to growing the company. In October of this year, 2013, with Excalibur we purchased KJCT, ABC, CW and Telemundo affiliate in Grand Junction, Colorado from the News-Press Gazette Company.

Later that month, we acquired 99% of the equity in Yellowstone Television with four TV stations in Cheyenne, Wyoming, Scottsbluff, Nebraska, Casper, Wyoming and Laredo, Texas.

In November, we announced the pending acquisition of Hoak Media, adding 12 market-leading TV stations in six markets. Concurrently, with our Hoak announcement, Excalibur announced the acquisition of Prime Cities Broadcasting's Fox stations in Minot-Bismarck, North Dakota.

Thereafter, we agreed to acquire the CW affiliate from Lockwood Broadcasting in Charleston, West Virginia, and brought the year to a close with the announcement that we were acquiring KEVN-TV, a Fox affiliate in Rapid City, South Dakota.

Pro-forma of all acquisitions, Gray will operate the leading media news provider in 40 TV markets with 136 program streams and 73 affiliates of the Big Four Networks. Even more importantly, all of these acquisitions each of which is significantly accretive to our earnings and free cash flow have yet to possible enhance our numbers. And despite shouldering the cost of these acquisitions, our core operations reported record quarterly and annual results by almost every measure.

For the fourth quarter, our revenue hit a record 95.6 million compared to the previous non-political record of 84.7 million set in the fourth quarter of 2011. For the year, our revenue was likewise a record 346.3 million compared to the previous non-political record of 307.1 million in 2011.

Our free cash flow or broadcasting cash flow for the quarter was also a record. Gray reported 36.8 million in broadcasting cash flow this quarter compared to the previous record quarter of 34.4 million in 2011. For the year, free cash flow was a record 128.2 million compared to the previous non-political record of 109.6 million set in 2011.

All of the acquired or seem to be acquired stations added only 2.4 million to revenue and 1.1 million to broadcast cash flow to these results. All of the legal and transaction and M&A cost associated with all of these transactions were expensed as incurred during the quarter.

In comparing 2013 to 2012, virtually all components of our revenue, except political advertising are up nicely. Over the year, local advertising revenue increased 11.7 million or 6% to 203.1 million. National advertising increased 1.5 million or 3% to 58.3 million. Internet advertising revenue increased 0.4 million or 2% to 25.4 million.

Retransmission consent revenue increased 6 million or 18% to $39.8 million. And as expected, political advertising decreased a whopping 83.2 million or 95% to 4.7 million for the year. 2013 was indeed an outstanding year, but more importantly, it positions us for an extraordinary 2014.

We began the year with new retransmission consent contracts with two significant providers in our market. And we accomplished this without public noise, dark television stations or harsh PR. We are very proud about how we got these deals closed while meeting our financial objectives.

2014 is also a political year with significant races in both our existing and seem to be acquired markets. As you know and can infer from the 83.3 million in political ad spend Gray reported in 2012. Gray TV stations did a disproportionate share of all local political advertising dollars. Our dominant local news and virtually all of our market make our stations must buy for a successful politician. Cables won't cut it and most of our other competitors won't either. Further, we fully intend to keep growing Gray Television's portfolio in 2014 with stations that fit our profile in corporate culture.

Finally, I would like to conclude my comments with one more observation. There is a lot of public and published concerns about the FCC's position on JSAs and SSAs, and its potential impact on broadcasting. I can only speak for Gray Television, and we clearly believe that both JSAs and SSAs can serve the public interest. But with regard to Gray directly, the issue is simply not material.

And the numbers we reported this morning drove the results of exactly one such arrangement, and there are only four small wins in the pending acquisitions, all of which just recently passed the Department of Justice scrutiny and all of which we believe clearly served the public interest.

With that, I will finish my comments and turn the call over to Jim Ryan. Jim?

James Ryan

Thank you, Hilton. Just kind of briefly recap; starting with first quarter again, we were pleased, core revenue in the quarter, local was up 13, national up seven. All categories except furniture and appliances were up and even furniture and appliances was basically flat, it was down less than 1%.

Our expenses came in at expectations, and again as Hilton mentioned before, comparing to the last off-year, we had a strong broadcast cash flow and operating cash flow compared to the last political off-year, 2011.

The stations we acquired, which would be the three Yellowstone Stations and the KJCT SSA are both in basically for two months in the quarter. Net revenue combined for those stations are only accounted for about 2.4 million of the total results we reported. And its operating expenses in the aggregate were about 1.3 million. So, we are very pleased with the cash flow of 1.1 it generated, but again, as we've talked before those are relatively small markets and they were only in for part of the quarter.

Turning to the whole year, again, we are very pleased with the results in core revenue with local up six, national up three. Again, all categories were up except for medical, which was down a little over 1% than restaurant, which is essentially flat with about three tenths of a percent decline.

Our broadcast operating expenses for the year were within our expectations, only up about 2% year-over-year. And again it was a record setting broadcast cash flow and operating cash flow numbers when compared to the last off political year.

Turning briefly to our guidance for Q1, we are pleased with the start of the year. The Winter Olympics for us, which generated about 3.8 million, which is up from the 3 million of the last Winter Olympics in 2010. We are pleased with the core local growth. We are estimating it will be approximately 10%. National maybe up around 2%, beginning an upward growth pattern again with our digital as we talked before, '13 was a recouping year and we are looking forward to strong growth as the year progresses there.

And Hilton already mentioned the redo of two large retransmission consent contracts. So, we are obviously going to show very, very strong growth in our retrans line this year.

Our operating expenses, there is a couple of pieces in there; I think people need to focus on with, first of all for the TV. We did have our ABC affiliations renewal at the beginning of this year. So, we are now paying reverse comp for ABC, NBC and Fox. And a quarter-over-quarter step-up in aggregate reverse comp piece of the network is about 2.2 million of overall expense increase that we are forecasting, as well as about 700,000 of non-cash stock compensation.

And frankly, our acquisitions, the Yellowstone Stations and the SSA and Grand Junction account for about 3.1 million at the quarter's increase in operating expenses.

The corporate line also is showing an increase. There is non-cash stock compensation of about 1.1 million in our guidance. In addition, we are giving our continuing M&A activity, our work with the DOJ first part of this year, and moving the pending acquisitions to closing, hopefully it has been second quarter. We have an estimate of about 1 million additional in M&A cost as we proceed to closing the acquisitions.

Turning to the balance sheet briefly, at year end, it was 837 million of debt. Our covenant leverage under a senior credit facility, which again is calculated on a trailing average eight quarter basis was 5.67, which is exactly where we thought we would be, I guess the covenant of 775. So, there is ample covenant room there.

On a trailing 12 month basis, our total leverage ratio would have been 7.29. Cash was 13.5 million. So, in detail our free cash flow numbers, CapEx for the quarter was 5.7 million bringing us really 24.1 for the year. We had no cash taxes in quarter, and only 500,000 for the year. Thinking ahead to '14, I think cash taxes will be a lot like 12 where we had about $1 million cash taxes to various states. And our current NOL is 225 million for federal purposes, so there still be several years down the road before federal tax payer.

Program payments were 2.9 million bringing the total for the year to 11.4. Reverse comp in fourth quarter for the networks was 2.9 million, breaking out total in 2013, and reverse comp to 11.4 -- I'm sorry, those were amortization numbers, I misspoke. I'll get you the reverse comp numbers in a minute. I apologize for my error.

Our total operating cash flow on a trailing eight quarter basis again was 146.95, and that is as allowed under senior credit facility that does pro-forma for the inclusion of Yellowstone and KJCT. And our trailing 12 months cash flow number was 110.4.

And at this point, I will turn the comments over to Kevin.

Kevin Latek

Thank you, Hilton. Thank you, Jim. Recent press reports indicate that the FCC may soon adopt new rule regarding sales agreements in TV stations in the market. Well, it's not entirely clear what the FCC will do. The reports indicate that the FCC will not prohibit such JSAs, simply imposed some allocations on the amount of joint ad sales between the station.

In our pending transactions with Hoak Media, Prime Cities, Dish TV, there are existing JSAs in place that will create two more. We propose to continue to JSAs and expand the JSAs, because we believe that those rankings that comes from the local community that deserves.

We hope that the FCC in reviewing our applications for the pending acquisitions will treat Gray like any other companies using JSAs in many TV markets. It gives us adequate opportunity to comply with whatever new rule the FCC adopts.

We do not see the FCC rule change is materially impacting our approval at the FCC, or our timing on the closing of the Hoak and other transactions. We have been working with the FCC to obtain necessary approval. We will continue to do so. As Hilton mentioned, we did clear the Department of Justice last week. We've also cleared the FCC public comment period without any objection. But this time I can't give you a target based approval of the transaction. We do believe we are close.

Once a new FCC rule is adopted, we will review our existing agreements, determine how best to ensure that we are in compliance to span all those changes to our agreement. They also include seeking away with the FCC. We are prepared to do that compliance.

The bottom line is that the FCC rule change, it requires some actions on our part. Do not believe that we are seeing an important process; however, we will have a major impact on our existing operations or pending acquisitions hopefully.

I'll turn the call back to Hilton. We have connection issue with Hilton. Operator?

Hilton Howell

I'm still here.

Kevin Latek

So, that concludes my remark. I'll turn it back to Hilton at this time.

Hilton Howell

Operator, we will open the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) We will take our first question from Marci Ryvicker with Wells Fargo.

Marci Ryvicker - Wells Fargo

Thanks. I have a couple. I just want to make sure I understand with Hoak, all you need is FCC approval, final approval. Is that all you need to get that done?

Hilton Howell

Yes, that's correct.

Marci Ryvicker - Wells Fargo

Okay. And then Kevin, you talked about sort of proving that the JSAs are necessary for the local communities. What data can you provide to the FCC that could prove that these stations are necessary?

Kevin Latek

Marci, what we will provide the FCC? I think it's going to turn on what (indiscernible). In the cases where we have, we have one JSA currently. So, we have a very short operating history with JSA. In that market we did explained to the FCC staff, we met with them that we -- they are taking two stations that were big stations and made them better, and their programming spend, their offerings book for advertisers and has invested considerably in the operations.

And I think in the small markets like Grand Junction, which is marked at 185, the JSAs and SSAs make the economics more compelling and give us an incentive to invest further in those markets. So, we can point to what we have done in the past, the existing Hoak JSAs, and the two kind of create give some more expectations for both investing and improving output from the advertiser's standpoint and from a viewer's standpoint.

Marci Ryvicker - Wells Fargo

What percent of revenue or ad revenue do you sell on behalf the JSAs?

Kevin Latek

Under single JSA that we had so far, the sidecar that does turn the lead (indiscernible) KJCT and Excalibur also employs the accounting section for KJCT and they sell their own time. We coordinate everything through shared services agreement through the same building and offices show how the back office functions. So, I'd say Excalibur people are selling Excalibur's time.

Marci Ryvicker - Wells Fargo

Okay. And then just in general, have the M&A discussions in the industry slowed at all given all this regulatory noise around JSA's [methods] (ph)?

Hilton Howell

Marci, this is Hilton. I don't think so. I think they still continue to suppose all -- I think people are waiting to see kind of what the final rules are on the 31st of March.

Marci Ryvicker - Wells Fargo

Okay. And then Jim, I have one question for you. You talked about some of the M&A expenses and some of the one-time expenses for the Q1 guide. Was there anything in expenses for the fourth quarter, like anything related to the transactions or any one-time items that maybe we should exclude, so we could find kind of a core EBITDA?

James Ryan

In the corporate line in the fourth quarter there was $1 million at least of M&A expense as well.

Marci Ryvicker - Wells Fargo

And that's it?

James Ryan

Yeah. There was also some in corporate line, again some incentive compensation, which given the year performance drove up the overall comp numbers a little bit. And I think that might be somewhat of a one-time only type of event. I will give you a feel for that magnitude.

Marci Ryvicker - Wells Fargo

Okay. Well, there is lot of questions I have. So, you can come back to me later. And thank you all so much for answering the questions.

Hilton Howell

All right. Thank you, Marci.

Operator

We will take our next question from Lance Vitanza with CRT Capital Group.

Lance Vitanza - CRT

Thanks, guys. It looks like you had a pretty strong quarter on the core, revenue growth certainly seem to accelerate from Q3. And it looks like even a little bit better in Q1. And I'm wondering what's behind all the strengths there? If there is any particular, is it the market is overall improving? Are you guys kind of taking some share? Could you just talk a little bit about that please?

Hilton Howell

I'll comment. And I'll let Jim and Kevin comment as they see fit. I think in general we are beginning to see an overall improving economy in a lot of areas. Also think that our stations are performing quite well. We just finished last week. One of our most significant GSO meetings and we have our account executives that are out and filling our stations at a strong pace. The morale of our company has never been this high as it is today. I think its better showing in terms of what we are doing on the street everyday, because at the end of the day you got to have the product, we have it. And then you have to have people who enthused to sell it, we have that too. So, I think it's a combination of things. Jim and Kevin, do you want to add anything to that?

James Ryan

One other point I would add to what Hilton said is that, through the micro level, we have been working on operations across the company. And one of the recent developments in the last year was the launch of new network affiliate in a number of our markets. We had more market -- short markets that we are missing affiliation and we invested last year. We look forward to acquire some dark station, build them on HD, programming especially affiliations with CBS, NBC and those are ramping up now.

So, I think from the investments that we've made in the past, as Hilton mentioned, a lot of small things that add up to and improve morale and by giving our first general sales manager meeting in a decade that was for the last week. And we are really working on the stuff that we don't issue press releases on that are that do make a difference at the market level.

Lance Vitanza - CRT

Okay. And then, one other question if I could, which is that, if I look at the broadcast cash flow last corporate line, it looks like adjusting for maybe some M&A fees, it looks like you are flat sort of over 2011 despite a fairly substantial increase in revenue. So, I'm just wondering is that just really a function of increased reversed re-trends or are there other sort of big picture themes that are impacting the margins?

James Ryan

The biggest impact over '11 would be the increase in reverse comp. And actually in '13, we paid total of 7.6 million in reverse comp for the year, and it was 2.1 for the quarter. That's probably the single largest driver on the expense side after as you said the M&A, and obviously the acquisitions brought in some additional expenses, but also some additional revenues, I already talked 1.1 million of additional cash flow that generated in the end once we have them.

Following up on the other question on OTO for corporate again, in Q4 it was about $1 million of M&A type expense. And then there was what I would probably characterize is at $800,000 of what could be -- I think would be fair to consider to be kind of OTO incentive compensation to certain individuals.

Operator

We will take our next question from Davis Hebert with Wells Fargo Securities.

Davis Hebert - Wells Fargo

Good morning, everyone. Thanks for taking the questions. Jim, I just want to focus in on the 7.29 leverage point I think you gave. Could you provide …

James Ryan

That's a T12. That's a trailing 12 months. Yes, that was a T12 on our trailing eight quarter, which is the covenant we are tested against under our senior facility. We were at 5.67 against the covenant of 7.75.

Davis Hebert - Wells Fargo

Okay. All right, thank you. And any thoughts about a year end leverage target? I know probably the timing of the close of these acquisitions may factor in. But is that anything you are willing to provide?

James Ryan

I take in general. And again the timing of the acquisition closing to have some impact although under the covenants through our pro-forma rights for the full period whether it's 12 months or eight quarters depending on whether you are looking to the indenture or looking to the senior credit facility. But in broad terms, I think we are at the end of '14 -- and maybe we are a little conservative, but we are back in that 560 range, right about where we are today in a trailing eight quarter basis and go 567.

So, maybe a little bit higher, maybe it's a little bit lower, and in political, stronger, and most likely maybe potentially a little conservative on our political estimates. In coming November we will know one way or the other. But if political is a little stronger, we will be a little lower as well. So, call it mid five-ish range. And again timing on things with have some bearing on just how much free cash we can have access to these between now and the end of the year.

Davis Hebert - Wells Fargo

Okay, that's helpful. And then on the funding side, could you just walk us through what remains left to be funded, I guess is a factoring in the sales of Nexstar admission etcetera?

James Ryan

Yeah, in round numbers, it's about 330 million. That includes all the pending acquisitions. And that assumes we don't use any existing cash for that. And that would be after the next year. The Hoak, the primary transaction with Hoak, our funding need is approximately 300 million after the Nexstar buys the two stations that they are buying.

Davis Hebert - Wells Fargo

Okay, that's helpful. And then, last question. Just curious if you are having any internal discussions or external discussions with your network partners around some of this over-the-top providers. Verizon is talking increasingly about Dish's recent deal with Disney. Just curious that if the industry, the broadcast industry significantly is talking about how to participate in that?

Kevin Latek

This is Kevin. It's fair to say that we are engaged with each of the networks pretty regularly on all of these issues over-the-top, retransmission, quality of programming, it's very much in relationship and world is interested in moving forward on mobile over-the-top etcetera as they are. We are all trying to find common ground. I don't think Gray has the magic silver bullet or any network does, but we are actively trying to find the right balance, the right fit makes sense for us to broadcast affiliates.

Davis Hebert - Wells Fargo

Okay. Thanks for all the color. I appreciate it.

Operator

We will take our next question from Avi Steiner with J.P. Morgan.

Avi Steiner - J.P. Morgan

Thanks for the question, just one quick follow up on leverage and I apologize, maybe I missed it. Can you give me the pro-forma number at the end of '13 as all acquisitions and dispositions were closed. Do you have that, Jim?

James Ryan

Yeah. Under our senior credit facility, our pro-forma operating cash flow number was 147 million.

Avi Steiner - J.P. Morgan

And you have with the pro-forma debt balance would be against that?

James Ryan

When you say pro-forma, I am only pro-forming for the closed acquisitions. I am not pro-forming for any pending acquisitions.

Avi Steiner - J.P. Morgan

Do you have the pending acquisition number, because if everything was closed at the end of '13 and again if not, I can follow-up afterwards.

James Ryan

Well, we just said …

Avi Steiner - J.P. Morgan

I know you gave a 14 number. I want to make sure.

James Ryan

Yeah. We said where funding needs to close the pending were about 330 and we had 837 at the end of the year. So, on round numbers that puts us about 1 billion 170, give or take a little. On pro-forma after closes for that number, we haven't discussed in detail what the pro-forma '13 numbers are with the pending. But I mean I think it's fair to say on a blended basis, we are probably on a two-year blended basis of approaching a $500 million revenue company. And I'll call it again in very, very round terms a high hundreds, millions to maybe about a 200 million average operating cash flow company on a two-year blended basis.

Avi Steiner - J.P. Morgan

That is helpful. And then, if I get one more in kind of the bigger picture in nature and I appreciate all the comments around JSAs and SSAs. Can you guys comment on the FCC rules around joint negotiations with respect to retrans, and maybe the proposal that is out on the agenda just around network non-duplication and what that could possibly mean with respect to retrans going forward?

Kevin Latek

Sure. This is Kevin. We have experienced a fairly limited experience with joint negotiations. We have, again our first SSA began in the fourth quarter of last year. And in our agent retrans contracts, the major MVPDs require that they get consent from us for any station that is operating pursuing to an SSA. So, it's not optional for us.

Going forward, if Excalibur, another (indiscernible) SSA with Gray negotiated, we trend on their own -- we would expect that they would define revenue negotiating retrans. In fact, we don't anticipate negotiating retrans for Excalibur. We are acquiring stations that have network programming and good local programming. I think they will stand up in retrans marketplace as well as our stations. So, we don't see any impact on the joint negotiation on us. And likewise, our network non-duplication, that's not particularly a concern for us either.

Avi Steiner - J.P. Morgan

Okay, thanks gentlemen.

Operator

We will take our next question from Howard Rosencrans with VA.

Howard Rosencrans - VA

Yes. Hi, thank you. In light of what is transpiring with the FCC, and obviously we don't know what trend they'll be on the 31st or subsequently, but how do you feel like it changes particularly in regard to retrans potentially or I guess less of a shared agreement, but how do you feel like it impacts the M&A environment going forward, or your interest in pursuing it yourselves?

Hilton Howell

Well, this is Hilton, let me start with that. If you look at the portfolio that Gray Television currently owns of our TV stations, we have historically and then throughout the course of this last year when we returned to M&A are focused on dominant stations, number one and number two in the markets. And those stations stand on their own. And so, with regard to what we have and where we'll be going, the rules and regulations have very little impact.

Our acquisition strategy and the whole [don't know] (ph) behind what Gray Television does is to have predominant news station in the markets that it serves. And so, we have never built it around putting the number four, number five TV station together and then making them better. We always look to get the top one. So, a lot of those issues will not slow our M&A efforts, because we will continue to look for stations that kind of have that profile that we've had traditionally in our company.

And so, that makes us different than most of the other large, not all, but most of the other broadcast companies that are public. And so, it will not slow us down with regard to M&A, because we'll still be looking for stations and station groups that share our corporate DNA and our commitment to our local communities. And so, I don't think it will slow us down, but it will do for other companies, really I have no idea. That's how I see it, Howard.

Howard Rosencrans - VA

Okay. That's great color. Thank you for that. Just to tag on to that, is it possible that the environment for the type of top Tier stations, if this was to transpire would become sharply more competitive?

Hilton Howell

I actually think it will sort of be to Gray Television's benefit.

Howard Rosencrans - VA

And that would be because …

Hilton Howell

We're a natural home for those television stations, because we share an operating philosophy. And I think that the overall economic trends in our industry, regardless of what the FCC is doing still compel consolidation in the industry. And so, what's happening is they want to trim their sails based on where the winds are coming, and that makes complete sense. But in terms of where Gray is going, our direction has never changed or wavered. And we are not in the way of the regulations that the FCC is putting out because we have not built our M&A strategy around that philosophy. And so, other people may have to deal and adjust to that. We won't.

Howard Rosencrans - VA

One quickie last up, what percentage would you say, just ballpark of your pro-forma revenues are in this sort of shared category that's now being attacked and would you say that …

Hilton Howell

On a pro-forma basis, because it's really almost inconsequential, which we reported this morning, but on a pro-forma basis, it's substantially less than 5% of revenue.

Howard Rosencrans - VA

And the margin associated with that, would that be a 100% margin or dramatically different from the margin you get or not?

Hilton Howell

I don't know what the exact margin on that revenue was. We will have that number in time, but we just haven't had -- we are not part of it yet, and so I don't really have a pro-forma number for that.

Howard Rosencrans - VA

Okay. Thank you. I will get back in queue. Thank you so much.

Hilton Howell

Okay.

Operator

We will take our next question from Jim Goss with Barrington Research.

Jim Goss - Barrington Research

Thanks. A few about retrans and reverse comp, the reverse comp negotiations to this point have been of what nature? How would you describe it? Were they looking for some percentage of retrans or were they doing more or like -- CBS has indicated where they were determining a value without their signal head and then it's up to you to do the best deal and you do better or worse. How would you describe it to this point?

James Ryan

Jim, each -- I'm sorry, go ahead, Hilton.

Hilton Howell

Just go ahead, Jim.

James Ryan

Jim, each -- right now, we are paying to ABC, NBC and Fox. We have not had any discussions yet with CBS, so we don't know what CBS' approach is. But of the three we've done, it would be fair to say each of them takes a slightly different approach, but based on our experience to-date, and we have been very consistent about this over many calls. At the end of the day, the math is kind of working out to be a 50/50 split of the gross retrans number.

Jim Goss - Barrington Research

Okay. And is there an accounting requirement that you take in retrans as revenue and put the reverse comp in the expense category, or should they be sort of contra revenue so that it separates the louder, actually [too loud] (ph)?

James Ryan

No, I think it's pretty much industry standard, at least from I've seen the major public company's report, everybody is reporting the reverse comp as an expense, because the networks are one way or the other characterizing that as a programming fee. So therefore, it is a programming expense.

Jim Goss - Barrington Research

Okay. And then to the extent that your reverse comp is fairly smaller at this point, and if these patterns go out, do the math and figure out about what that number should be, can you talk about the case of inclusion you expect for those reverse comp numbers into the press basis? How fast -- is it a two or three-year process, shorter or longer or what are you thinking …

James Ryan

When you get to reverse comp with a network, again, I think you are basically at a 50/50 split for all intents and purposes out of the box. There maybe some variances early on, but they're not significant. Again, our ABC agreements have started this year. As expected, NBC is in full force, Fox is in full force. The only agreements we have loved to come up as we've been very clear about many times in the past that most of our CBS are up for renewal at the end of this year. So, we will begin paying reverse comp to CBS in January of '15.

Jim Goss - Barrington Research

Okay. And then, one last separate question. As you look at acquisition targets, are there markets where the Spanish language stations might have particular appeal? And would you pursue those or would that not be part of the mix?

Hilton Howell

This is Hilton. Let me address that. This past year '13 was the first time that Gray expanded into the Telemundo markets, and we jumped into proceeds with the acquisition of the Laredo, Texas operations. And so far, we've been very pleased with what we've seen. We are very new to it, but I think that it is a dynamic market. It's clearly a growing market. And our company is interested in anything that's growing. We can return value to our shareholders now. And so, we are brand new, but we are looking and if we have an opportunity we will certainly be interested.

Jim Goss - Barrington Research

Okay. Thank you very much.

Operator

We will take our next question from Erin (indiscernible) with Sidoti & Company.

Unidentified Analyst

Hi, most of the questions have been asked, I just kind of have one follow-up for you, Jim. When you gave the local and national core pacing for first quarter, does that number, is that a same station number from last year, does that include the stations that closed in fourth quarter?

James Ryan

No, it would include the stations that closed in fourth quarter, although again because of their size, they're not impacting the overall numbers for sharing by any large extent. As we talked about in the release, in the guidance section, the first quarter revenue for the acquired stations is only about 3.7 million out of the 91 million to 92 million we were expecting. So, it's not going to move the needle very much at all.

Unidentified Analyst

Okay, great. And then just one question for you Kevin, last quarter you kind of talked a little bit about the mobile TV update, how it's kind of rolling out to all the markets. Anything, any traction there that you've seen in the past few months or kind of where your hopes and expectations for mobile TV rollout is?

Kevin Latek

Thanks, that's a fair question. Unfortunately, there is not a lot to report right now. Global is still -- we all realize our future, but at this point our mobile employment has been hampered by the inability to include the network programming and those conversations obviously are pretty far along, and each network is taking different approach. As we get -- I think we have high hopes for mobile audience and mobile business once we add the network content. It would have to be authenticated as well through the TV everywhere paradigm. At this point, we do not have any network content on our mobile streams (indiscernible) or otherwise. So, we're seeing some traction and we are promoting it. And we are happy to see some folks watching our local and a lot of our syndicated content on a mobile basis, but the network content is really going to provide that adoption.

Unidentified Analyst

Okay, great. Thanks.

Operator

We will take our next question from Barry Lucas of Gabelli & Company.

Barry Lucas - Gabelli

Thanks and good morning, a couple of little questions, and maybe one bigger one. On the retrans side, are there any watch contracts are coming up in '14 that would materially affect '15 or more or less just annualize roughly the …

Hilton Howell

Virtually all the rest of our contracts come at the end of this year. Jim, will follow-up on that.

James Ryan

We renewed two large MVPDs at the end of last year, but everything else, albeit they are large, mid size and small MVPD retrans agreements expired at the end of this year.

Barry Lucas - Gabelli

And roughly, what percentage of your households would that represent?

Hilton Howell

Roughly …

James Ryan

Rough numbers is about 4.5 million or so subs.

Barry Lucas - Gabelli

Okay. Guidance provides a lot of detail, but any color you could offer on categories, in particular as you think about the way our inventory is expanding, one would hope that those guys are going to have to start putting a little bit more in the way of marketing dollars against, I'd say, inventory increases?

James Ryan

Actually very year-to-date through February, I mean auto was up roughly 10%. So, I mean that certainly looks like a healthy number to me, and it was -- you know February obviously is probably little stronger than January, but I think Olympics was playing -- had something to do with that a little, but overall solid so far, and the only thing, we're seeing some softness in year-to-date would be in the restaurant category and department stores and all supermarkets are not big dollars, they are also soft, but I suspect especially with the department stores and the restaurant category, a lot has to be with the weather. And people would just agree to go out (indiscernible).

Barry Lucas - Gabelli

Okay, thanks, Jim. And would you care to handicap the political outlook on numbers about 58 million the last non-presidential year of 86 million in '12 …

James Ryan

We are still -- right, on a same station basis, and we're still being consistent that we think we should be able to with the number of races and the number of open senate seats, we are comfortable that we will beat 2010 number of 58, starting to get up around that record shattering 86 million that had 25 or 30 million of presidential money involved in that. That might be a bit of -- that would be more challenging for us, but we certainly have the capability and capacity. And we've never ever turned down a political order, I don't think. We will be happy to take everything we can get. And so, we're looking for very strong non-presidential political year for us, and we generally try to be little conservative in political as you know the 50% of whatever number we get won't show up until October.

So, we are -- our own assumptions maybe end up being a tad conservative, but we'd rather be that, and overly optimistic and end up disappointed.

Barry Lucas - Gabelli

Okay. Last one from me, a little bit bigger picture as well, I've listened to a lot of discussions about the spectrum auction and participation and your need for spectrum for the major metropolitan areas. How do you view the auction? What do you think the shape will be? And are you likely to be a participant?

Hilton Howell

Well, Gray is not going to be participating in the auction. If you take a look in our 10-K, we have a fabulous category about how fantastically well the company has utilized, not only for our shareholders' benefit, but for those community benefit, our spectrum and our markets. And so, we don't intend to participate in the auction at all. I know a lot of the demand for spectrum space is in the larger markets. Of course we don't really play in those markets. So, we can't speak to that. But with regard to our company, we want to keep our spectrum.

Barry Lucas - Gabelli

Great, thanks very much, Hilton.

Hilton Howell

All right.

Operator

We will take our next question from Colin Wilson-Murphy with Bowery Investments.

Colin Wilson-Murphy - Bowery Investments

Thank you very much. My questions have been answered.

Operator

We will go next to Matthew Dodson with Jay West LLC.

Matthew Dodson - Jay West

Yes. Can you just talk a little bit about national and your local, I think in the guide you gave that local is going to be at about 10% on the same-store and national is about, roughly about 2%. Can you talk a little bit about kind of what you are seeing in national and do you expect that to reaccelerate as the year goes on?

James Ryan

We would expect it is consistent I think with prior results over last several years. We would expect lower growth rates out of national for the year. We think it probably will pickup a little bit although as you get into our fourth quarter when political comes in very, very strong.

National tends to be the first thing that gets displaced. National in first quarter has been a little soft. Again, maybe somewhat weather-related when they tend to be more bigger -- the retail chains and the fast food franchises, in which we are definitely seeing some softness in. So, we are not necessarily surprised given the weather conditions the first couple of months of the year. We think it will pick back up a little bit, but certainly expect much stronger growth during the course of the year out of our local than national.

Matthew Dodson - Jay West

Okay. And then, can you talk on the retrans, you gave guide that it will be up 67% Q1-over-Q1? Can you talk a little bit about each? Did you receive all the benefit -- will you receive all the benefit in Q1 from the repricing? And is that 60 plus percent kind of growth how we should think about retrans revenues for the year, or can you give us any help there?

James Ryan

I think kind of to get the big picture, you could take the Q1 number and annualize it, and you are going to get in the ballpark of what we expect for the year. So, wherever we repriced at the end of last year on those two big agreements, I mean that pricing is uniform throughout this year.

So, we obviously, in our Q1 we're saying is in ballpark numbers about 16 million. And you can kind of just roll that forward there is a little bit of variance quarter-to-quarter because of very, very small amount of that overall revenue numbers tied to some guaranteed airtime buys. But those dollars are not large, but they tend to be a little lumpy because it's really up to the MVPD, the place -- given their own marketing plans for the year.

Matthew Dodson - Jay West

Got it. And then could you just talk a little bit, so you have 2/3rds of your retrans repricing at the end of this year. Can you help us at all to think about maybe how grossly underpriced that 2/3rds is? And I'm sure you don't want to …

James Ryan

The 2/3rds that we'll reprice at the end of this year were all prices for market at the end of 2011. So, while the market rates certainly have gone up over the last few years, it's we're expecting a significant step-up but it is not going to be as dramatic as the two contracts we repriced at the end of 2013. Both of those contracts were very old. And we're not part of the 2011 pricing repricing.

So, that the step-up on those was much more dramatic than what we would be expecting at the end of this year. But we do expect significant increases and obviously that significant -- that will significantly advance our retrans revenue number in 50.

Matthew Dodson - Jay West

Got it. And then the last question, I guess relative to acquisitions, if your stock gets cheaper than acquisitions, I mean, it seems like it's pretty cheap on free cash flow basis, but we've had buyback stock as opposed to make acquisitions or do you think it's just better to buy acquisition?

Hilton Howell

Well, this is Hilton. And I hope we could reverse that with regard to our stock price. And we intend to do all we can because I do think that the company is very under priced. And but I do think that we're in a unique window right now, where the industry is consolidating. And I think we have a relatively unique role to play in that process. And so unless things change more dramatically than we anticipate from a 2014, we'll probably stay on-track.

We will not be purchasing things for the pure sake of purchasing them, but we will be looking at sort of the unique value propositions that an individual station or station groups bring to the overall value of Gray Television. So, we're going to be looking and talking and probably won't be doing the dramatic stuff -- in the immediate future.

Matthew Dodson - Jay West

Got it. And just the last question, you alluded to this to a question earlier, but you seem to express that you thought if the FCC rules going into place, it might benefit you from an acquisition standpoint. Would you be willing to give us any more information or expound on that?

Hilton Howell

Well, I wish I could but I don't have any information to share with you. And really the essence to the point I was making, that we'll relatively -- really almost dramatically not affected by what the FCC has done with regard to almost any of our existing station.

And in terms of our M&A strategy; those agreements are not key to what we're attempting to do. And so I think that's where our advantage comes from.

Matthew Dodson - Jay West

Got it. Thank you so much for your time.

Operator

(Operator Instructions) We'll go next -- we will take a follow-up from Howard Rosencrans with VA.

Hilton Howell

Hi, Howard.

Howard Rosencrans - VA

All of my questions have been addressed. Thank you so much.

Hilton Howell

All right.

Operator

And at this time, there are no additional questions in the queue. I'd like to turn it back over to our speakers for any additional or closing remarks.

Hilton Howell

Thank you so very much, operator. And I want to thank each and every one of you for being on the call this morning. These are exciting and interesting times for our company and for our industry. And we're very bullish in 2014 and look forward to talking to you at the end of Q1 to give you our final results.

Thank you and we'll talk soon. Bye-bye.

Operator

That concludes today's conference. We appreciate your participation.

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