Gray Television, Inc. announces record results of operations for the three-months ended March 31, 2018, including record revenue, net income and Broadcast Cash Flow (a non-GAAP financial measure, defined below). Our net income per diluted share for the first quarter of 2018 was $0.22.

Financial Highlights and Selected Operating Data:

• Record First Quarter Revenue, Net Income and Broadcast Cash Flow - Our revenue for the first quarter of 2018 was $226.3 million, increasing $22.8 million, or 11%, from the first quarter of 2017. Our net income was $19.9 million for the first quarter of 2018, increasing $9.4 million, or 90% from the first quarter of 2017. Our Broadcast Cash Flow was $77.7 million for the first quarter of 2018, increasing $7.3 million, or 10%, from the first quarter of 2017. 

• Retransmission - We have now completed negotiations to renew the retransmission consent agreements with multichannel video programming distributors ("MVPDs") that expired at the end of 2017 and the beginning of 2018.  We currently anticipate that gross retransmission revenue for calendar year 2018 will be within a range of approximately $350.0 million to $353.0 million and retransmission revenue, net of retransmission expense, will be within a range of approximately $178.5 million to $180.0 million.

• Stock Repurchases - During the first quarter of 2018, we repurchased approximately 1.6 million shares of our common stock on the open market at an average price of $12.64 per share, including commissions, for a total cost of approximately $19.6 million.

• Total Leverage Ratio - As of March 31, 2018, our total leverage ratio, as defined in our senior credit facility, was 4.23 times on a trailing eight-quarter basis, netting our total cash balance of $443.4 million.

We acquired three television stations between April 1, 2017 and March 31, 2018. Collectively, these three television stations accounted for $9.6 million of the increase in our total revenue for the first quarter of 2018. Including the revenue attributable to these three stations, local and national advertising revenue increased, in part, due to 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 $16.1 million, or 12%, to $149.7 million for the first quarter of 2018 compared to the first quarter of 2017.

The three television stations that we acquired between April 1, 2017 and March 31, 2018, collectively, accounted for $6.6 million of the increase in broadcast operating expenses for the first quarter of 2018. Including the broadcast operating expenses attributable to these three stations, significant changes in our total broadcast operating expenses included:

• Non-compensation expense increased $13.1 million, or 19%, in the first quarter of 2018 compared to the first quarter of 2017. This increase was due largely to an increase in retransmission expense of $9.4 million. The remaining increase was due primarily to increases in programming expense, licensing fees and professional fees.

• Compensation expense increased $2.9 million, or 4%, in the first quarter of 2018 when compared to the first quarter of 2017. Non-cash stock based compensation expenses were $1.2 million in the first quarter of 2018, compared to $0.3 million in the first quarter of 2017.  

Corporate and Administrative Expenses.

Corporate and administrative expenses (before depreciation, amortization and gain or loss on disposal of assets) increased $0.6 million, or 7%, to $8.3 million in the first quarter of 2018 as compared to the first quarter of 2017. The increase reflects the following:

• Non-compensation expense increased $0.3 million.

• Compensation expense increased $0.3 million, primarily due to routine increases in compensation. Non-cash stock based compensation expenses were $0.9 million in the first quarter of 2018 compared to $1.0 million in the first quarter of 2017.

Loss from Early Extinguishment of Debt.

In the first quarter of 2017, we recorded a loss from early extinguishment of debt of approximately $2.5 million related to the amendment and restatement of our senior credit facility.

Taxes.

During the first quarter of 2018, we made aggregate federal and state income tax payments of approximately $8.5 million. During the remainder of 2018, we anticipate making income tax payments (net of refunds) of approximately $36.0 million.

Comments on Second Quarter of 2018 Guidance:

Revenue.

Based on our current forecasts for the second quarter of 2018, we anticipate the following changes from the second quarter of 2017 as outlined below:

• We believe our second quarter of 2018 local advertising revenue (including internet/digital/mobile) will change to be within a range of approximately $115.8 million to $117.0 million, or -2% to -1%.

• We believe our second quarter of 2018 national advertising revenue will change to be within a range of approximately $28.8 million to $30.0 million, or -7% to -3%.

• We believe our second quarter of 2018 political revenue will be within a range of approximately $13.0 million to $15.0 million.

• We have completed negotiations to renew the retransmission consent agreements with MVPDs that expired at the end of 2017 and the beginning of 2018.  We currently anticipate that gross retransmission revenue for calendar year 2018 will be within a range of approximately $350.0 million to $353.0 million and retransmission revenue, net of retransmission expense, will be within a range of approximately $178.5 million to $180.0 million. We believe our second quarter of 2018 retransmission consent revenue will be within a range of approximately $87.0 million to $88.0 million.

Broadcast Operating Expenses (before depreciation, amortization and gain or loss on disposal of assets, net).

For the second quarter of 2018, we anticipate our broadcast operating expenses will increase from the second quarter of 2017, reflecting increases in retransmission expense of approximately $8.2 million, to total approximately $42.5 million for the second quarter of 2018.

Corporate and Administrative Operating Expenses (before depreciation, amortization and gain or loss on disposal of assets).

For the second quarter of 2018, we anticipate our corporate and administrative operating expense will increase approximately $1.2 million to approximately $9.6 million, primarily due to routine increases in compensation and professional service fees.