Gray Television, Inc. announces record results of operations for the three-months ended June 30, 2018, including record revenue and Broadcast Cash Flow (a non-GAAP financial measure, defined below). Our net income per diluted share for the second quarter of 2018 was $0.46.

Financial Highlights, Selected Operating Data and Other Recent Developments:

• Record Second Quarter Revenue and Broadcast Cash Flow - Our revenue for the second quarter of 2018 was an all-time record of $250.3 million, increasing $23.7 million, or 10%, from the second quarter of 2017. Our net income for the second quarter of 2018 was $40.7 million and our Broadcast Cash Flow was an all-time record of $108.3 million for the second quarter of 2018, increasing $15.2 million, or 16%, from the second quarter of 2017.

• Political Revenue – Our second quarter of 2018 political advertising revenue was $18.1 million, exceeding the high-end of our guidance range of $15.0 million. After giving effect to stations acquired and divested since 2014, we earned $16.5 million of political advertising revenue in the second quarter of 2014 which was the most recent non-presidential election year. Our political advertising revenue for the second quarter of 2018 was 9% greater than that of the second quarter of 2014.

• Retransmission Revenue, Expense and Net - Our second quarter of 2018 gross retransmission revenue was $85.3 million, and our second quarter 2018 retransmission expense was $39.2 million. Our retransmission revenue, net of retransmission expense, was $46.1 million for the second quarter of 2018, exceeding the high end of our guidance by approximately $0.6 million. We currently anticipate that for calendar year 2018, gross retransmission revenue will be approximately $350.0 million to $353.0 million and retransmission revenue, net of retransmission expense, will be approximately $182.0 million to $184.0 million.

• Total Leverage Ratio, Net of all Cash - As of June 30, 2018, our total leverage ratio, as defined in our senior credit facility, was 3.91 times on a trailing eight-quarter basis, netting our total cash balance of $510.6 million.

• Pending Merger with  Raycom Media - On June 23, 2018, we entered into a merger agreement with, among others, Raycom Media, Inc. Giving effect to the merger and prior to divestitures of stations due to market overlaps, we expect to own and/or operate 142 full-power television stations serving 92 markets. Upon completion, we expect to reach approximately 24 percent of U.S. television households through nearly 400 separate program streams including approximately 165 affiliates of the ABC/NBC/CBS/FOX networks, and over 100 affiliates of the CW, MyNetwork, and MeTV networks. These stations were ranked number-one in all day Nielsen ratings in 62 of the combined markets and number-one or number-two in 92% of the combined markets. In addition to high quality television stations, we also expect to acquire additional Raycom businesses that provide sports marketing, production and digital signage services, resulting in our becoming a more diversified media company. The consummation of the transaction is subject to the satisfaction or waiver of certain customary conditions, including, approval from the Federal Communications Commission, the expiration or early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act, the absence of any legal impediments to the merger, and customary third-party consents. We anticipate that the transaction will be completed during the fourth quarter of 2018.

Total revenue increased $23.7 million, or 10%, to $250.3 million for the second quarter of 2018 compared to the second quarter of 2017. Total revenue increased primarily as a result of increased retransmission consent revenue, due primarily to increased retransmission consent rates, and increased political advertising revenue due to 2018 being the "on-year" of the two-year election cycle.

Broadcast Operating Expenses.
Broadcast operating expenses (before depreciation, amortization and gain or loss on disposal of assets) increased $8.2 million, or 6%, to $141.9 million for the second quarter of 2018. The increase reflects, in part, the following:

• Non-compensation expense increases of $6.5 million, or 10%, in the 2018 period primarily as the result of increased retransmission expense of $5.4 million, or 16%, to $39.2 million in the second quarter of 2018 and increases in professional fees.

• Compensation expense increases of $1.7 million in 2018, primarily due to routine increases in compensation and severance costs. Including the effect of a $0.5 million adjustment related to forfeitures of equity incentive awards, we did not incur any non-cash stock-based compensation expenses in the second quarter of 2018. In the second quarter of 2017, our non-cash stock-based compensation expenses were $0.4 million.

Corporate and Administrative Operating Expenses.
Corporate and administrative expenses (before depreciation, amortization and gain or loss on disposal of assets) increased $2.4 million, or 28%, to $10.8 million in the second quarter of 2018. The increase reflects, in part, the following:

• Non-compensation expense increases of $2.1 million, primarily due to an increase of $1.9 million of professional fees related to acquisition activities. Professional fees related to acquisition activities were $3.7 million in the second quarter of 2018.

• Compensation expense increases of $0.3 million, primarily due to increases in incentive compensation costs. Non-cash stock-based amortization expenses were $1.2 million and $1.1 million in the second quarters of 2018 and 2017, respectively.

Taxes.
During the second quarter of 2018, we made aggregate federal and state income tax payments of approximately $3.6 million.

Total revenue increased $46.5 million, or 11%, to $476.6 million for the six-months ended June 30, 2018 compared to the six-months ended June 30, 2017. Total revenue increased primarily as a result of increased retransmission consent revenue, due primarily to increased retransmission consent rates, and increased political advertising revenue due to 2018 being the "on-year" of the two-year election cycle. Local and national advertising revenue decreased only slightly, in spite of the $2.3 million of revenue we earned from the broadcast of the 2018 Super Bowl on our NBC-affiliated stations, compared to $0.6 million that we earned from the broadcast of the 2017 Super Bowl on our FOX-affiliated stations. In addition, revenue from the broadcast of the 2018 Winter Olympic Games on our NBC-affiliated stations was approximately $5.5 million.  

Broadcast Operating Expenses.
Broadcast operating expenses (before depreciation, amortization and gain or loss on disposal of assets) increased $24.3 million, or 9%, to $291.6 million for the six-months ended June 30, 2018. The increase reflects, in part, the following:

• Non-compensation expense increases of $19.6 million, or 15%, in the 2018 period, primarily as the result of increased retransmission expense of $14.9 million, or 23%, to $80.9 million in 2018 and net increases in several other expense categories including programming and other professional fees. Our programming costs related to the 2018 Winter Olympic Games were $1.5 million.

• Compensation expense increases of $5.0 million in the 2018 period, primarily due to routine increases in compensation and severance costs. Including the effect of a $0.5 million adjustment related to forfeitures, our non-cash stock-based compensation expenses were $1.2 million and $0.7 million in the 2018 and 2017 periods, respectively.

Corporate and Administrative Operating Expenses.
Corporate and administrative expenses (before depreciation, amortization and gain or loss on disposal of assets) increased $3.0 million, or 18%, to $19.1 million for the 2018 period. The increase reflects, in part, the following:

• Non-compensation expense increases of $2.4 million, primarily due to an increase of $2.0 million of professional fees related to acquisition activities. Professional fees related to acquisition activities were $3.8 million in the 2018 period.

• Compensation expense increases of $0.6 million, primarily due to increased incentive compensation costs. Non-cash stock-based amortization expenses were $2.2 million and $2.1 million in the 2018 and 2017 periods, respectively.

(Gain) Loss on Disposal of Assets.
During the 2018 period, we reported gains on disposals of assets of $1.6 million compared to $76.8 million in the 2017 period. On June 1, 2017, we tendered two of our broadcast licenses and made other modifications to our broadcast spectrum related to our participation in the FCC's broadcast spectrum auction. Our proceeds from this auction were $90.8 million and the cost of the assets disposed was $13.1 million.

Loss from Early Extinguishment of Debt.
In the 2017 period, we recorded a loss from early extinguishment of debt of approximately $2.9 million related to the amendment and restatement of our senior credit facility.

Taxes.
During the 2018 period, we made aggregate federal and state income tax payments of approximately $12.0 million. During the remainder of 2018, we anticipate making income tax payments (net of refunds) of approximately $23.9 million.

Comments on Third Quarter of 2018 Guidance

Revenue.
Based on our current forecasts for the third quarter of 2018, we anticipate the following changes from the third quarter of 2017:

• We believe our third quarter of 2018 local advertising revenue (including internet/digital/mobile) will change to be within a range of approximately $107.0 million to $110.0 million, representing a -3% to +0% change.

• We believe our third quarter of 2018 national advertising revenue will change to be within a range of approximately $28.5 million to $29.5 million, representing a -8% to -5% change.

• We believe our third quarter of 2018 political advertising revenue will be within a range of approximately $41.0 million to $45.0 million. After giving effect to stations acquired and divested since 2014, we earned $41.1 million of political advertising revenue in the third quarter of 2014 which was the most recent non-presidential election year. We estimate that our political advertising revenue for the third quarter of 2018 will be equal to or as much as +9% greater than that of the third quarter of 2014.

• We anticipate that our gross retransmission revenue for calendar year 2018 will be within a range of approximately $350.0 million to $353.0 million and net retransmission revenue will be within a range of approximately $182.0 million to $184.0 million. We believe our third quarter of 2018 retransmission consent revenue will be within a range of approximately $90.0 million to $92.0 million.

Broadcast Operating Expenses (before depreciation, amortization and gain or loss on disposal of assets, net).
For the third quarter of 2018, we anticipate that our broadcast operating expenses will increase primarily due to retransmission expense which we expect to increase by a range of approximately $6.3 million to $7.3 million to within a range of approximately $41.0 million to $42.0 million.

Corporate and Administrative Operating Expenses (before depreciation, amortization and gain or loss on disposal of assets).
For the third quarter of 2018, we anticipate our corporate and administrative operating expense will increase to within a range of approximately $10.0 million to $11.0 million, primarily attributable to increases in professional services fees. We anticipate that costs related to our pending acquisitions, and in particular the Raycom merger, will be approximately $2.0 million to $3.0 million in the third quarter.