Ladies and gentlemen, thank you for standing by, and welcome to the Gray Television Fourth Quarter 2020 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Hilton Howell, Executive Chairman and CEO, to begin.

Good morning. Thank you, operator. As she mentioned, I am Hilton Howell, the Chairman and CEO of Gray Television. I want to thank all of you for joining our fourth quarter and year-end 2020 earnings call. On the line with me, as usual, are 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. Kevin?

Thank you, Hilton, and good morning, everyone. Certain matters discussed on this call may include forward-looking statements regarding, among other things, future operating results and the impact of novel coronavirus and its disease, the COVID-19, on our 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 in any forward-looking statements as a result of various important factors. For more information about such factors, please refer to our company's most recent reports filed with the SEC, including our most recent annual report on Form 10-K, that will be filed today. The company undertakes no obligation to update these forward-looking statements. Gray uses its website as a key source of company information. The website address is www.gray.tv. We also will post an updated investor deck to the website within the next 2 weeks. Included on this call will be a discussion of non-GAAP financial measures and in particular, broadcast cash flow, broadcast cash flow less corporate expenses, operating cash flow, free cash flow, adjusted EBITDA and certain leverage ratios. These metrics are not meant to replace GAAP measurements but are provided as supplements to assist the metric -- assist the public in their analysis and valuation of our company. Included in our earnings release as well as on our website are the reconciliations of non-GAAP financial measures to the GAAP measures reported in our financial statements. Now I'll turn the call to Hilton.

Thank you, Kevin. Today, we have lots of very good news to report and to discuss. As we approach the 1-year anniversary of the beginning of the most eventful 12 months in my life so far, I am extremely gratified that Gray Television today is able to report record fourth quarter results, a fantastic acquisition, continuing momentum in our business and strong guidance for the year ahead. Our people and our company overcame unprecedented challenges over the past year. Last May, despite the challenges, we predicted that we would remain cash flow positive each quarter of 2020. We met the challenge. We did not withdraw on our revolver nor accepted any government financial support. We adopted work-from-home and report-from-home and even produce-from-home policies very quickly in March. We imposed no pay cuts, no furloughs, no layoffs, no benefit cuts and no benefit delays. In fact, we expanded health benefits to those exposed or potentially exposed to coronavirus. Our stations expanded their coverage of the coronavirus, the hurricanes and fierce storms, one even known as a derecho, which I have never heard of before in my life, and widespread social unrest. In fact, in December, we paid bonuses to each and every full-time employee in recognition of their hard work during these hard times. In response, our stations and production companies teamed up to organize and lead extensive efforts to support local residents through fundraisers, virtual concerts, school on television, virtual food drives and other projects that collectively raise literally tens of millions of dollars for their local communities. And in fact, Pat LaPlatney will shortly discuss one such effort that we will be launching this weekend. Our managers and account executives throughout the company put new emphasis on sales training, new business development and new ways of selling. We also…

Thank you, Hilton. Gray was blessed throughout 2020 with political advertising revenue at historic levels in a very wide field of competitive races across our footprint. Geographical location plus high-quality, highly rated local news operations were once again the one-two punch that's unbeatable. Recall that our earnings call 1 year ago, we predicted full year political advertising revenues in the range of $250 million to $275 million. Later, we increased our estimate to be between $275 million to $300 million. When we reported third quarter results in early November, we raised our full year political advertising revenue guide to at least $380 million. Then in late December, we announced that we had broadcast over $400 million of political ads through that point in the year, with more orders on the books and anticipated to arrive thereafter. Today, we are thrilled to announce that our political advertising revenue crossed $245 million in the fourth quarter alone, which exceeded our political revenue in all of 2016, as well as exceeding what was nearly our expectation for all of 2020 at one time. In the end, our political advertising revenue was $430 million for full year 2020. I'd like to put that number in perspective, if I can. In 2016, on a combined historical basis through year-end, Gray generated $9.63 of political advertising revenue per TV household despite the lack of historical presidential spending levels and some real lackluster statewide races. In 2018, on a combined historical basis through year-end, and with no presidential races at all -- president race at all, Gray generated $8.80 in political advertising revenue per TV household. In 2020, that figure was $17.57 per TV household or 82% more per household than in 2016. It's worth noting, too, that Gray's political advertising revenue per TV household was the…

Good morning again. To state the obvious, we are thrilled to have reached an agreement to acquire Quincy Media, and the stations that will join Gray Television are precisely the type of strong local institutions that we have consistently strived to add to our portfolio. In this case, the new markets are also a hand-in-glove fit for Gray's geographic footprint and even more perfect fit with our company culture of empowering local managers and local professionals to make the content, sales, operational and staffing decisions that they believe best suit their individual local needs. As disclosed in our Quincy press release, we are divesting the Quincy television stations in all 6 markets, in which both Gray and Quincy already own a full-power network-affiliated television station. Wells Fargo commenced a formal divestiture process on the same day that we announced the Quincy acquisition. While [ first on bids ] are not due until tomorrow, we are very encouraged at the level of interest in the divestiture stations that we have seen so far. We are also gratified that the pool of interested parties is wider and more diverse than we've experienced in prior divestiture processes. We expect the process will continue to move quickly with final contracts executed, announced and submitted to the SEC and DOJ in April. Another major recent development is our successful completion of a negotiation and renewal of our largest batch of retransmission consent agreement. This batch of contracts will expire between late 2020 and January of this year, covers a bit over 40% of our paid MVPD subscriber base through individual contracts with more than 480 different MVPDs. That includes 1 of its 2 DBS companies, several of the largest cable operators and nearly all of our small and midsized cable operators. We successfully concluded retransmission…

Thank you, Kevin. Good morning, everyone. In addition to this morning's release, we will be filing our 10-K later today, which will have a great deal of additional information for you. Also, as a quick reminder, remember that beginning in the first quarter of 2020, all of our reporting is on an as-reported basis because we considered the acquisitions and dispositions of late 2019 and during 2020 as being immaterial. One final quick comment about political. Yes, Q4 was all about the $245 million of political, but I just wanted to point out that, that $245 million actually exceeded the $235 million combined historical political from 2018. As Hilton mentioned earlier, our leverage ratio at the end of the quarter was 3.95, netting $773 million of cash on hand. And we stated with the announcement of the Quincy transaction at the first of the month that at the end of this year, with the Quincy transaction having been closed, we expect our leverage ratio pro forma for Quincy to be approximately 4x. During fourth quarter, we increased our cash by $306 million. And as of today, we have an undrawn $300 million revolver, so we're in a very strong liquidity position. At this time, we expect we will continue to generate significant amounts of free cash during each quarter of '21. As of today, we have approximately 95.4 million shares outstanding. In 2020, we generated full year free cash of $559 million or approximately $5.86 per share with the record-setting political revenue. As we look to 2021, a nonpolitical year, we currently anticipate total year free cash will range between $300 million and $325 million. That is excluding any additional free cash generated by Quincy -- the Quincy acquisition, post-closing that transaction. So to sum it up, our average '19/'20…

Thank you very much, Jim. Let's begin with any questions that everyone may have.

[Operator Instructions] Our first question comes from the line of Kyle Evans of Stephens.

Jim, you rip through those free cash flow numbers. If you don't mind, could you just slowly tick back through them again? And if you didn't give one for Quincy, can you help us think about that plug? Then I've got some follow-ups.

So the 2020 free cash was $559 million, and that translates to $5.86 per share, with 95.4 million shares outstanding as of today. We believe our free cash, excluding Quincy, this year in '21, will range somewhere between $300 million and $325 million. So our blended 2-year '19/'20 free cash flow average is $459 million, and that would imply a 2021 free cash flow prior to Quincy of between $430 million and maybe $442 million. The free cash flow generation from Quincy, obviously, is going to be dependent on when we close. We are currently anticipating a close sometime in the middle of the year. And obviously, Quincy is free cash flow accretive. We haven't gotten into exactly how accretive that will be right now, in part because Quincy is a private company and we're trying to respect their private information. We'll have more to say once we close the transaction on how much additional free cash flow Quincy will bring in sometime in the second half of this year. But I think it would be fair to say that on a 2-year blended average basis, whether it's '19, '20, 2021, even without Quincy, it's a very, very compelling free cash flow story and especially on a free cash flow per share basis.

And historically, you've given great CHB numbers when you do deals. Do you anticipate this with Quincy?

Yes. Quincy is large enough that we will update CHB for Quincy once we close it. It may -- I will caution, it may take a couple of weeks or a little bit of time post-closing to get that all pulled together. But that is our intention, yes.

Great. And then, Kevin, you kind of gave us the cadence on retrans growth in '20, and I think you said 4%, 9%, 11%, 11%. Were you implying that we would -- we should be thinking about those same deltas off of the 15%, 16% year-over-year guide for the 1Q for the balance of the year?

No. It's not implying that. I was just simply referring to accelerated -- acceleration in growth because we were renewing a group last year and a large group this year. Given what we have had, certainly, as Jim and I both mentioned, that retrans should be higher -- the year-over-year increases should be higher in subsequent quarters than we have in this quarter. But I don't think the cadence last year is going to be indicative of this year because we renewed 40-plus percent of our sales on January 1. We didn't have that last year. And we didn't -- we won't have a big April 1 renewal like we had last year. And then we had something going on this summer that we did not have last year. So I don't think last year is really indicative except for the trend line of getting continued increase for the year.

Okay. While I have you, can you help us think about the virtual component of your retrans sub base? Could you size that from a number or revenue perspective? And then -- and if not, which, I'm guessing you won't, will you talk a little bit at a high level about what the per sub per month rate has done in virtual since inception? Has it tracked the more traditional cable satellite? And then one more follow-up.

The OTT is certainly bigger than we thought it was going to be, and it's grown much faster than we thought it would grow. You've heard this from us before with a couple of big guys out there and some very, very small OTT providers. And each network taking a different approach by operator, there's -- we don't have growth and -- growth and reverse arrangements with everybody. Some of it's just simply, we paid a fee by the network, others would negotiate directly and pay a fee. And so there's a lot of variation. Overall, I would say that our -- we -- our preference is to have people in the pay-TV ecosystem. If we had the luxury of choosing, we'd all want them to be with the operator who's paying us the most, not the operator who's paying us the least. In some cases, the OTT guys are the least; in some cases, they're higher than MVPD. So it's a mixed bag. There's a lot to do with when the deal was last negotiated. A deal that we did -- that we negotiated 3 years ago is not going to be anywhere close to deals that we've negotiated in the last week. So it's hard to put generalities around the OTT. Those all renew at different times as well. So the rates there have been going up just as they've been going up in the MVPD place. There's a lot of room to grow on both of them. I mean the headline -- the OTT providers are definitely large. They've become a meaningful component of our sub base at this point.

Great. And then lastly, you guys didn't do a call around Quincy. So a public congratulations to you and especially Ralph. I hope he's playing golf right now. Could you help us think about the opportunity to further consolidate and grow for your station, group M&A? And maybe in thinking about that or talking about that, touch on the Supreme Court case and the UHF discount.

Okay. I'm going to assume that's for me. We think there's still plenty -- we still think there's still a lot of stations out there and smaller groups that we think will be good fit for Gray, geographically, operationally, culturally. There obviously are some that would not, but we -- it's a small industry, and folks are -- in this industry are very involved in joint efforts as just the example Pat mentioned on this weekend, Opry. Actually, that happens all the time in this business. So we know the people who own the stations that we would like to own. They obviously know that we're interested in buying it at some point. And hopefully, that will happen. I think it's a fairly safe bet that the UHF discount will not survive over the next 4 years. And at this point, as you know, it doesn't impact us. With a discount, we're at 17%. Without the discount, we're at 24%. After Quincy, we'll be at 25%. So we still have a great amount of room to grow the company without worrying about whether the UHF discount is in place or not in place. So it would appear based on the Obama administration policy views that are reflected in this administration that UHF discount will go away. It's unclear if they'll also raise the cap. I don't -- those discussions haven't really seem to have started yet. There are other focuses that at FCC today, which are obviously split Q2 as we sit here today. What was the last question, which is probably the first question you asked me?

Supreme Court case.

Yes.

The Supreme Court case, obviously, we benefited from the 2017 deregulation that we spent a lot of time lobbying for and supplying lots of evidence to the FCC that acquiring non-Big 4 TV stations is not the end of the republic. And we backed that up this past fall with a study by BAA that showed that acquiring non-Big 4 stations and even acquiring Big 4 stations in our markets result in higher news and more news. And we've demonstrated again and again and again that we offer hard data to prove that. The Supreme Court case, which Gray asked CFC -- asked the Supreme's to take up an amicus, and then we [indiscernible] to address our unique experience here, unique from other broadcasters. In a different perspective, we were very encouraged by the oral argument. We're encouraged by the briefs. We have no insight into when the Supreme Court is going to act other than the Supreme Court almost always issues its decisions by the end of June. So I think we'll see a decision by the end of June. I would caution again, though, a lot of folks think the Supreme Court is going -- is considering getting rid of all ownership rules. That's not what its for. The 2017 FCC deregulation was a very small step that allows us to acquire non-Big 4 stations outside of the largest market. The FCC has allowed non-Big 4 acquisitions in its largest market since '99 and outside the largest market, only be a waiver in certain circumstances. So the 2017 is a very small step of common sense. It is not going to unleash great station trading activity, at least with respect to Gray, perhaps a little with others, but we don't see a great opportunity to be swapping away our legacy #1 TV station, so that we can pick up a MyNetwork affiliate or a Telemundo in some other market. So again, other people may have different views on what the court decision might mean. But for us, it would mean that there may be some additional independent stations, off-air stations, Telemundo affiliates, CW affiliates that are -- that might make sense for us to acquire as we've done sort of steadily and quietly for many years through waiver processes, just to eliminate the need for a waiver process. So we're encouraged. We -- but it does not open floodgates to massive consolidation, as I've read so many people predicting.

Your next question comes from the line of John Janedis of Wolfe Research.

Can you guys talk about what you're seeing on the ground from an advertising perspective? Meaning it sounds like you're tracking flattish, call it, for the last 4 months or so before any of the COVID comps and with a few categories dark. And I think the market would have expected more pressure and results with some of the other station owners were a bit softer than what you guys are seeing. So are you seeing market share gains from lower-rated stations even given your market share where you are today? So any market share stats you can share, I think, would be helpful. And as the weaker categories come back into the market, can there be a tailwind that translates to a few points of growth? And I guess, finally, you talked about the dollars, but how does your gambling footprint look?

Bob, you want to take that one?

Sure. I'll address the gambling issue first. First of all, it's -- there's a tremendous upside, in our view, for the entire year. We're already seeing it in the first quarter. We saw it in the fourth quarter as well. The gambling money is going to be a significant category from this point forward. And currently, we're active. And when you talk about it, I should add that most people think of FanDuel and DraftKings, for example, because you see those all the time. But there are several more players in the market, and they're all pretty active. And they're active currently in 8 of our states with pretty heavy schedules in the first quarter. There's 4 other states that are approved but not live yet. But 3 of them will impact our markets, and we assume that will happen yet this year, and it could -- early the second quarter, we could add those 3 other states. In addition, there's 14 other states, the prefile legislation that potentially, we could see those states become active in the second half of the year. So even on its own, in the 8 states that are active, it's pretty robust schedules, and our stations are benefiting greatly from that. With regards to the other questions, our market shares are growing. We've outperformed in most of our markets. We have extraordinarily strong sales team, sales management. We probably have the, in my opinion, the best sales training program in the business. And all that together combined has allowed us to, in often cases, in a lot of markets, outperform our market share -- or already is market share. So we're -- I can speak for our group and our senior vice presidents who oversee the stations, but they're pretty bullish as the year goes on. I think you're going to see more and more local sales activity. And in our case, we spend a lot of time on direct local new sales development, and we're seeing some terrific numbers in that regard.

Okay. And maybe, Kevin, one quickly for you. On the sub count, that 1.1% decline looks like an outlier. Anything in terms of relative over or underexposure in a region or with a distributor to call out there?

John, as I said, we saw a lot of noise within the numbers. It's been no surprise when the public reports kind of which big MVPDs have been shedding a lot of customers over the last year. But then we saw other folks picking them up. So what we've been looking at with last year and this year, in these comments, we try to get -- try to break through the noise is not to pick a date certain because, obviously, people all report differently, but to try to look at our total number of subs in the fourth quarter. So what we take is a little, as I said, the total paid Big 4 subs, we were paid on in the fourth quarter of 2019 for which we have complete records now. And we have a good number of records and estimates on the complete Big 4 OTT and MVPD revenues we'll get, and the total sub base year-over-year from fourth quarter to fourth quarter relative to that was just slightly down. That's a big improvement from where we -- what we were looking at earlier in the year. So we said folks were going to come back. They got jobs, and hotels reopened, and bars reopened, and sports returned. And that did certainly -- did seem to occur. So we're trying to smooth out the noise talking at full quarter versus full quarter. But I don't mean to say that everyone's kind of moving a lot. Actually, it's the opposite. There are some -- when we look at the top 15 operators, I bet you, half of them has double-digit moves over the course of the year, up or down. There's was a lot of noise in there that shakes out that negative 1%.

Your next question comes from the line of Aaron Watts of Deutsche Bank.

A couple of questions. Let me start with just an advertising question. Can you talk about what you saw from the auto category in the fourth quarter and maybe how it's starting off the year here in first quarter, second quarter?

So in fourth quarter, auto was still down, but remember, there's a huge amount of noise in October. Political advertisers and auto advertisers always love your local news. And so obviously, it's -- I think the whole quarter is not necessarily indicative. If you look at November, it was down about 10% and maybe a little bit softer than that in December, which is still a marked improvement over where it was last April. So far this year, it is still lagging. I'd say it's -- overall for the quarter, it's down. Pacing -- on pacing, which is not necessarily completely indicative of where you end up but down about 10% for the quarter. January was pretty good. February was softer. And March is it's still kind of early to see how that breaks. But it is definitely better than it had been for many quarters last year. And it does look like it's slowly coming back. And Bob, I don't know -- or Pat, I don't know if you want to add something to that.

Yes, I would just add that a couple of our key advertisers, including Ford, the same one is that's a real bright spot for us and showing some real positive comps. And the only other thing I'd add that is Stellantis, the new name for Chrysler Jeep Dodge advertising, is -- has been dark for -- it was dark in fourth quarter and really for a considerable amount of time on -- in local spot. But they're coming back or have come back here in first quarter. Most of those dollars are in March, but there's some still in the process to be in place. So that's a positive sign to see them back in play.

Yes. I would just add, we still have issues with chip shortages impacting manufacturing. And I think once that gets ironed out, the supply chain gets ironed out, you're going to see that category come back much stronger than where it is right now.

Okay. That's really helpful. Second question, Kevin, I think I'll point this one at you. With the renewals that you got done at the end of 2020 and early this year, are you comfortable enough yet to get -- put some goalposts around what net retrans growth could look like over the next few years for you guys?

No, not really. Short answer.

Okay. Okay. All right. Let me ask another way. I guess, with the renewals you've done on the distribution side and then also with your visibility on the affiliate side, how -- can you give us any more color on how to think about margins for retrans?

The retrans margin will be better this year than last year. Remember that we had repriced our network contracts at various points in 2019. On the first of January -- January 1 of 2020, all of them had an annual step-up. And we knew that was coming. We predicted it for 5 years. It was a timing issue. So last year was just as we thought it would be. This year, with so many of the retrans repriced somewhat -- starting last year and now this cycle, net retrans margin should be better. I would say without quantifying our net retrans certainly will grow this year over last year in absolute dollars, and that's what we care about. As you know, we don't -- we're not running the business for margin. We're running for dollars. Net retrans, as we've said, will grow over time. In some years, it's going to be a little challenge. That was 2020. This year's net retrans will be higher than last year's, for sure.

Okay. Got it. And last question for me. Just with the acceleration in streaming service adoption, there's been plenty written on the pressure that prime time viewership has been under. And I appreciate that the last year hasn't been a normalized template for viewership. But assuming continued pressure for prime time audiences on broadcast, how do you think about that impacting your business on the local level, both from an audience perspective as well as kind of advertising coming in and perception on that?

Yes. So it's Pat. I -- look, it's not a great trend. On the other hand, it's a trend that's been sort of out there for a number of years. And at this point, prime time in terms of the revenue it represents to our company is -- yes, I think I've got some kind of range or a point, but it's below 20%, I think, or lower. So it's not what it used to be. It's not as important as it used to be, and it's nowhere near the amount of money or -- on a percentage basis that our local news represents. So Kevin, you might have something to add there.

Yes, we -- the exact numbers, 2019, 2020 revenue by time period, network prime time was 15% to 16% of our total revenue. So 50% of our revenue comes from local news year-in, year-out, again 2019 and 2020. Network prime time is 16%.

And Kevin, I guess, just as a follow-up. I appreciate that prime is not driving your revenue base. But as you think about your local news viewership and other local content, have the ratings been holding up there considerably better than what we've seen at the prime time, time slots? I guess I'm just trying to think about kind of the overflow effect on your local content.

Bob, do you want to talk about ratings?

Yes. Yes. Actually, the old days of how much prime had an impact on local news is not really an issue anymore. Local news tends to stand on its own. And so really the lead-in and lead-out factor, that was certainly a term used much more prominently many years ago is really not an issue today. So my point is that local news can stand on its own. So -- and then necessarily not coming to ours, 6:00 news or 10:00 news or to prime or in the prime access or anything like that. And so, I guess, the bottom line is that the prime does not have much impact on our local news viewership.

Yes. I would just add that...

Or not as much. Sorry, Pat.

I would just add that the local news in 2020 had an extraordinarily strong year for a lot of good reason. We've -- we've found younger viewers actually discovering local news. And while viewing levels have moderated, it's still very, very strong.

Your next question comes from the line of Steven Cahall of Wells Fargo.

Maybe to start off, Pat, you made some really interesting comments about Q2 being back to those 2019 core levels. And you talked about some really strong growth in gaming or gambling. So as we think about the mix, as you get back to 2019 levels, it sounds like sports betting and others will be a much bigger percentage. Are there any sectors that you think will be a smaller percentage going forward? Or anything else like gambling that you think is also kind of growing a lot more?

Yes. So I think the legal category for a long time has been growing, and we're continuing to see growth there. The health category, which we have a sort of a company-wide focus on, we have a health team, continues to show pretty solid growth. I think that -- look, I think right now, as we talked about, auto is soft for -- there's a lag of cars and -- or issues in the supply chain have caused availability issues. So I think that -- I think once automotive comes back, and I think it will, that's going to put even more pressure out there. So that's encouraging.

Yes. And then, Jim, I think before you talked about maybe putting a buyback structure in place that can be automatic during blackout periods or on a grid system, given the Quincy deal, will you be foregoing that, so that you're just going to focus on the dividend and deleveraging through that transaction?

No.

Great. And then maybe a last one. Last night, Paramount Plus talked about a lighter tier that doesn't include local station content, and Peacock has done some of that within NBC. Those are really, obviously, big constituents sort of partners of yours. How do you think about the evolution to streaming and how to make sure that your really important local station content is included in a lot of those services going forward?

Because it's virtual, we can -- you can't point to someone in the room and tell them to answer the question. So apologize for that. Also, the Paramount news is we know as much about it as you do. So we're -- we need to -- we have a lot of questions, and we'll learn -- and obviously, we'll learn more as time goes on, but we don't know enough about it. We are -- in terms of streaming, we're in the big streaming packages, obviously. In terms of local news, it's just people can get local news on any device currently. It's obviously part of VUit as well as our local websites and our station apps. So we're there, whether we need our local news and other packages, and there's obviously no end to it. There's no shortage of streaming packages and streaming platforms at this point. It's a -- we're looking at some of them, and some will be a part of, and some, we won't. Some will be good to be a part of, and some we'll wish we were part of, and some we don't really need to be a part of. So it's a mixed bag. It's just -- we keep -- every day, I think if there's another streaming package, the whole world is obviously getting a lot more complicated. And we need to be in some of them, and we don't need to be in others. But where -- what exactly Paramount Plus means to us is that the news came out after the market closed last night, and we yet to have a conversation with the network, and I know all of its broadcasters are looking for more information from CBS on that.

Your next question comes from the line of Jim Goss of Barrington Research.

A couple. First, with regard to your capital allocation priorities. I wonder if you could talk a little more about them right now in the light of your resumption of a dividend for the first time in more than a decade and now with the new acquisition of the Quincy stations. And also, with -- on a related basis with Quincy, with the $925 million purchase price, it looks like you're adding 9 stations but divesting about 6. Is there any guidance you can give in terms of what that net purchase price might be?

No. We have no guidance on what that net is, Jim. I think you can -- you understand why we're certainly not negotiating in public on potential -- with divestiture buyers. When the contracts are signed up and done, we will -- just like we did with other divestitures in the past and other transactions, we'll let everybody know where that net number lands. As far as capital allocation goes, I think, first and foremost, look at the free cash flow generation of the company, there is ample room now, a, continue to return to shareholders in part with the reinstatement of the dividend starting this quarter. As Hilton made clear a couple of minutes ago, there will, from time to time, be a stock buyback. We will continue to reduce our leverage over time. And it makes very clear on many, many calls that if a good opportunity for a station or a group of stations that our criteria become available, we will always take a look, and we will always be interested. Whether we transact or not, it depends on the facts and circumstances at that point in time. But I think our allocation will be a mix because our cash flows now are large enough and, especially, on a 2-year-blended basis, stable enough that we have the luxury of being able to do a mix of the allocation rather than having focused primarily on delevering over the past several years.

Okay. And maybe...

And Jim, this is Hilton. Let me just add just one thing to that. I mean really, when the Board took on the discussion yesterday, I mean, it was pretty clear and use a cliche, you can walk and chew gum at the same time, all right? I had probably been the highest one about reinstating the dividend because we have focused and I have frequently said that our -- besides delivering post acquisitions, that growing the company is our #1 priority. It still remains an extremely high priority, but we truly believe that we can do both. I chimed into a previous question with regard to our stock buybacks during blackout periods. We have that in place at a certain price level. I hope we never get to that price level again because we are a much better company. One of the things that the Board considered and that I certainly want to tout is that this management team is now responsible for a company with the finest balance sheet, the finest group of assets and the highest free cash flow generating capacity that we have ever, ever had. And I've been with the company since 1993. And so that free cash flow capacity is going to give us the ability to do a lot of things opportunistically and otherwise. But this dividend is important. We hope that as we continue to run lean and mean that we'll be able to increase the dividend. And then as we look at relative weaknesses, we will step into the market and buy back stock if we have -- if it begins to fall excessively. I would say you guys, and this is just sort of an aside, candidly, Jim. But this time about a year ago, I made a comment during the Q&A session, and Harry Jessell of TVNewsCheck picked up on it. And that was during a pandemic, in COVID-19, broadcast stocks with a perfect safe haven. And that's proven to be true. At the time, Gray was in the 9s. Nexstar was in the 40s to 50s, and Tegna was in the 9s. And you can see what the course of the pandemic has done for our stock prices. So we have a heck of a business. We're going to be able to handle all different pieces of it.

Okay. One other thing then. Yes, clearly, local news and other local programming is the most profitable thing any local broadcaster can do in terms of owning your own content. I wonder if you feel you have more room to add additional programming right now that might -- you might be able to take advantage of in that way and how that might be impacted by the tremendous surge in additional content availability with all the new streaming services.

It's Pat. I'll -- I think -- and I want to make sure I understand your question. So I think, look, we will add local news at every opportunity, whether it's a recent acquisition or stations we've had for a long time. Where we add local news, it's a better service to our community and candidly a better business. So I hope that answers your question. Are you suggesting -- was the question around how we're distributing local news on OTT platforms?

No. It's more that -- to the extent that you can replace programming, you have to pay a syndication fee for and replace with something you create on your own and you own all of the content or all of the [ aspects ]. That tends to be the most profitable thing any local broadcaster can do. And I wonder if there's more room for more of that. Or is that -- is there more of a challenge because of the abundance of programming that's becoming available?

No. I would say that there is room to do more local programming, and we will do -- and we've been going down that path for some time now, and that's going to continue. So I think you could plan on seeing more, not less, local programming on Gray station side.

If I could jump in, this is Bob. Just to further answer that question, we've actually eliminated quite a bit of syndicated programming over the last 2-year period and saved a substantial amount of money and replaced it, in most cases, with local news. And in fact, we have a couple of our markets currently with no syndicated program, whatsoever. And they're substantially larger markets that rely mostly on local news. So it's something we believed in for a long time. And certainly, any time we get that opportunity to add local news, we try to do that.

Your next question comes from the line of Michael Kupinski of NOBLE Capital Markets.

First of all, congratulations on your quarter, and congratulations on Quincy. Regarding Quincy, you indicated that there are going to be $23 million in synergies. And I was wondering, can you break that up between revenue and cost synergies? And also, are you expecting that in your first year of operations? Or is this multiple years?

First of all, when we talk about synergies, we don't include revenue synergies other than whatever our retrans uplift is given our contractual rights. The $23 million in Quincy is roughly 1/3 retrans uplift, roughly 1/3 other contractual advantages we bring to the table and roughly 1/3 of elimination of duplicate costs. So it's a nice mixture. And the way we have consistently defined a synergy is a fully annualized 12-month amount that the synergy can be achieved and implemented sometime within the first year. So to say that a little differently, if you can achieve the synergy day 1, then a full 12 months, obviously, accrues to our benefit. If we achieve that synergy on day 364, we will still score as a synergy the full 12-month annualized amount because we were able to put it into effect within the first year.

Perfect. And then as the company has obviously played in smaller markets and you just brilliantly executed, now that your reach is 25%, it may indicate that you need to move into the larger markets. And as you see the television industry consolidate, kind of have you changed your thoughts on where Gray plans to position itself in the industry? What is the limit in terms of the size of markets that you might consider? And is it important for the company to reach that 39% ownership cap? And how urgent is that in you achieving that target to get there?

So Michael, this is Kevin. We have not been buying small market stations because we like small market stations. We've been buying high-quality TV stations. Most of them happen to be in midsized and small markets because that's where the opportunity set has been. In the top 50 markets, there are less than 5 TV stations that are right #1 or #2 that are not already owned by a network or one of the larger owners like Hearst or Tegna. In the market 100 to 210, there are still a very large number -- or there's a sizable number of TV stations that are not owned by a network or one of the large group owners that meet our requirements to be a #1 or strong #2. We have participated in every single TV option. I've been with the company for 9 years now that involves a TV station, and that's the #1, #2 test regardless of market size. We just simply were outbid with stations in larger markets like San Diego, like Las Vegas came in the market. And while we certainly could have purchased those and we weren't afraid of the market size, it was rather our priority. We talked -- Hilton talked about our priorities of paying debt down and managing the balance sheet is more important than adding one more TV station. So while we certainly regret not being able to buy those great TV stations that were available, we needed to put our -- our emphasis is on the balance sheet first, and we purchase what we can afford. And if we can't, then we move on. It's not -- there is no must-have station. So I first want to correct the idea that we buy stations in midsize and small markets because that's what…

Yes, you did. Thanks for the clarification. Appreciate that.

Your next question comes from the line of Alan Gould of Loop Capital.

I've got 2, please. One, we see what's happening with the big Internet platform starting to pay for newspaper content. Do you think there's a possibility that they will also start paying for broadcast news content? And how much of your broadcast news content finds its way on to the large Internet platforms? And then the second question is with respect to the reverse comp. Based on your guidance for first quarter, it looks like it's up 20% year-over-year. That seems like more than just escalators. So I was wondering if I'm missing something in there.

On reverse comp, we had a large step-up on reverse on January 1 this year and last year. Last year, we did not move the top number, the growth very much. And so we were -- our margin was higher, and our reverse comp was not as good last year as it has been in prior years. And that was, again, a function of renewing all of our network contracts in 2014 with 5-year terms. This year is going to be a better year. And I think you'll see -- coming in a particular margin, I think you'll see a better reverse -- a better retrans margin this year for that reason. We're in the process of renewing so many contracts that's going to drive the gross number up. Again, you got 15% this quarter on a year-over-year basis. That's going to continue through the year.

And on your first question...

We can go to Pat, yes.

Yes. Sure. So look, we don't -- we can't say whether our stations will benefit from the move to have the large platforms. Begin paying as they are in Australia. I think there is a chance of that happening. And I think, in general, supporting the originators of content, which, in many instances, are local TV stations, is a positive development. And so what will happen, not sure. We certainly hope it does, but I can't say at this point.

At this time, there are no further questions. I will now return the call to Hilton Howell for any additional or closing comments.

Hilton, you may be on mute.

And it does appear that he has disconnected.

He has. And we just want to thank everybody for participating today, and enjoy the rest of your day. Thank you.

Thank you for participating in the Gray Television Fourth Quarter 2020 Earnings Conference Call. You may now disconnect.