Q1 2024 Gray Television Inc Earnings Call

Participants

Hilton Howell; Executive Chairman of the Board, Chief Executive Officer; Gray Television Inc

Kevin Latek; Executive Vice President, Chief Legal and Development Officer, Secretary; Gray Television Inc

Donald Laplatney; President, Co-Chief Executive Officer, Director; Gray Television Inc

Sandra Breland; Chief Operating Officer, Executive Vice President; Gray Television Inc

James Ryan; Chief Financial Officer, Executive Vice President; Gray Television Inc

Jeff Gignac; Executive Vice President - Finance; Gray Television Inc

Daniel Kurnos; Analyst; The Benchmark Company, LLC.

Aaron Watts; Analyst; Deutsche Bank AG

Steven Cahall; Analyst; Wells Fargo & Company

Craig Huber; Analyst; Huber Research Partners LLC

James Goff

John Kornreich; Analyst; JK Media LP

Davis Huber

Michael Kupinski; Analyst; Noble Financial Capital Markets

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Gray Television Q1 2024 earnings call. If you know, you'd like to ask a question, you may join the queue at any time during the call by pressing star one on your telephone keypad. Again, that's star one on your telephone keypad to join the question queue. And with that for you, I will now turn the program over to Executive Chairman and CEO, Hilton Howell junior.

Hilton Howell

Thank you, operator. Good morning, everyone. Thank you for joining our first quarter 2020 for earnings call with me here in Atlanta are all of our executive officers, Potlatch flattening, our President and Co-CEO, Sandy Brillon, our Chief Operating Officer, Kevin Latek, our Chief Legal and Development Officer, Jim Ryan, our Chief Financial Officer, and for the first time as an officer of this company, Jeff Gignac, currently our Executive Vice President of Finance. And as you all know, on July the first, Jeff will succeed Jim as the Chief Financial Officer of Gray Television after Jim serving 26 years in that chair and by my count over 100 public earnings calls. As usual, we will begin with the disclaimer that Kevin will provide.

Kevin Latek

Thank you, Scott, and good morning. Everyone. Gray uses its website as a key source of company information. The website address is www.gray.tv. We filed our quarterly report on Form 10 Q with the SEC today Included on the call may be a discussion of non-GAAP financial measures and in particular, adjusted EBITDA leverage ratio denominator and certain leverage ratios.
These metrics are not meant to replace GAAP measurements but are provided as supplements to assist the public in its analysis and valuation of our company. Included in our earnings release as well as on our website are reconciliations of these financial measures to the GAAP measures reported in our financial statements. Certain matters discussed in this call may include forward-looking statements regarding, among other things, 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 that have been set forth in the Company's most recent reports filed with the SEC, including our most recent quarterly report on Form 10 Q and our most recent earnings release. The Company undertakes no obligation to update these forward looking statements.
Now I will turn the call to Hilton.

Hilton Howell

Thank you, Kevin. Once again, great television has begun a new year and an excellent and strong position. It's a testament to the power of our high quality local news operations that our television stations grew core advertising revenues by 4% over the first quarter of 2023. We are extremely pleased with the support results from our fantastic in-house sales and business development teams throughout our markets. We are leveraging our intensive sales training and development efforts with our high quality advertising platforms to deliver results for our advertisers.
Our first quarter core advertising results reflect growth in categories, including automobile and national that have been challenging in the past. We appear to be growing not only revenues, but also growing our share of advertising budgets.
For the first quarter, the net income attributable to common shareholders was $75 million or $0.79 per diluted share. Our adjusted EBITDA was $197 million, an increase of 21% from the first quarter of 2023. Meanwhile, we continue to focus on debt reduction and on April 1, we use $50 million of our cash on hand to prepay portions of our term loans as debt reduction and deleveraging remains a top priority for our Company in the first quarter of 2024.
Our TV stations, core advertising business was higher on a pro forma basis than the first quarter of 2019. Importantly, we are guiding to 2024 full year core advertising revenues to beat 20 nineteen's full year core revenue on a pro forma basis, despite what we expect to be a large amount of displacement caused by very strong political advertising revenue later this year.
Speaking of political revenue, we believe that Gray will undoubtedly, as it always has, again earn more than its fair share of political advertising revenue this year, number one and number two stations that are hyper local news focused have historically over-indexed on political revenue within their markets because they these stations deliver the audience that matters to campaigns.
And no one delivers that better than Gray Television in the fourth, in the first quarter, our political advertising advertising revenue was slightly lower than our political advertising revenue in the first quarter of 2020 on a pro forma basis, this much this should not be a surprise to anyone because 2024 did not feature the same highly competitive presidential primary contests as the country experienced four years ago.
We still expect political advertising revenues for the full year to be strong and will materialize later in the year as well. In fact, consistent with expectation, we are currently guiding for political advertising revenue in the second quarter of 2024 to range between 55% and 72% higher than the second quarter of 2024 on a pro forma basis.
Overall of the seven most competitive presidential swing states Gray's station covers all the markets in three big states, Arizona, Georgia and Nevada. And it has and we have a very strong presence in three of the four remaining states, North Carolina, Michigan and Wisconsin. In addition, Gray has leading local news stations in nine of the 11 states with governors races and 26 of the 34 Senate races, including many of the most competitive governor and Senate races in the country.
Finally, all of our markets had House of Representatives in many markets involved. Competitive primaries were general elections triggered by historic wave of house resignations. All of our markets also have down ballot races and some appear likely to have very contentious referendums on the ballot this year as well. There is no given this unparalleled exposure to competitive races. We expect that our political advertising revenues will come in at a very large and healthy amount in 2024, which will support our efforts to reduce our total debt.
Finally, I'm thrilled to confirm that Gray has essentially completed the construction of assembly studios and the larger infrastructure work for assembly Atlanta. We began this project as many of you know, a few years ago when interest rates were low and demand for steel space in Georgia was white hot. We saw them and still see today immense value for Gray and owning a multi-use development close to bucket that is anchored by world-class studio production facilities and a premier tenant under a long-term lease. While last spring as the capital markets began to become more challenging and Hollywood strikes came into focus.
We determined that it would be prudent to pause capital expenditures at the assembly site after completion of the studios portion, and that's exactly what we did. As of the end of the first quarter of 2024, approximately 95% of our projected total of capital expenditures for assembly studios and assembly. Atlanta net of reimbursements are now behind us.
As you all know, late last year, NBCU commenced its long-term lease for two thirds of the assembly studios portion and the studios are now contributing revenues to the totality of Gray Television. Today, we are still in the early innings of what we believe will be a decade's long, valuable cash flow contributor to our company. We will continue to carefully evaluate strategic opportunities to unlock the immense value that the investments we have created for our stakeholders, including through collaborations with our outside partners for additional development at Assembly.
There is no question that the tremendous reach and efficiency of our local broadcast television industry is still getting rediscovered and reaffirmed by audiences. Advertisers, sports leagues and sports teams. Wall Street, however, seems to be missing this universal message. We, therefore remain personally and professionally very disappointed that this company remains so undervalued. Given our operational success and near term and long-term opportunities. We will continue to focus on executing and delivering for our viewers, our employees and our investors.
Pat will now provide some more color around our successful start to 2024.

Donald Laplatney

Thank you, Hilton. Looking at our first quarter financial results, it should be clear. The great stations are continuing to find and attract strong advertiser demand for our market-leading local television stations and premium brand-safe digital products throughout our markets. Local businesses are doing generally well. We believe local businesses are turning out the political and geopolitical noise to focus on finding customers moving their products and selling their services.
In fact, during the first quarter, our new local direct business, which is our local sales force finding a customer that's new to Gray, continue to break records set just a year earlier. In the first quarter of '24, our new local direct business brought in 18% more revenue than the first quarter of 23, which itself was 8% higher than the first quarter of '22. These strong results continued into April 24 just last month, which delivered 14% higher new local direct business than April of 23. Meanwhile, our digital businesses are also very healthy. In the first quarter, we set new records for engagement, digital audiences as well as double-digit growth in digital revenue as we continue to expand our Connected TV and FastChannel offerings. And as consumers increasingly find our content on those platforms, we are seeing significant growth in this space. In fact, our station CTV. fast revenue more than tripled over the same period last year.
Our first quarter results also benefited from our successful efforts to bring professional sports back to our broadcast stations. In addition to broadcasting the full season of games that Phoenix zones across Arizona, our unmatched coverage in Georgia and Louisiana allowed us to bring the MBA's Atlanta Hawks and New Orleans Pelican to games to their local fans at all of the markets located in those states and some adjacent markets. In total, we partnered with eight MBA and three WMBA. teams to season to expand their reach while also bringing new viewers and new advertisers to our local stations.
The impressive ratings the Gray's broadcast of basketball games generated as well as those of our peers, confirms the reach of local broadcast television professional for professional sports fans teams and leagues. And looking ahead we are upbeat about our core advertising guidance for the second quarter despite a range of shows modest growth against a strong comp to 2023 second quarter. It's important to remember that we're facing tough comps because Q2 of 2023 was very good.
In last year's second quarter, we posted 4% growth in core advertising revenue on a year-over-year basis compared to an average 4% decline across our publicly-traded broadcast peer group. We accepted last year in part on having the and CWA final for a couple of one-time only advertising campaigns that will not recur in our broadcast channels in the second quarter of '24.
Thinking ahead to the summer, we're excited about the summer Olympic broadcast from payers on our NBC affiliates that cover about 11% of US TV households. We currently anticipate generating $15 million to $20 million of advertising revenue related to those broadcasts in the third quarter of this year. We already have approximately $6 million of advertising revenue booked for the Olympics.
Our core advertising revenue consistently performs above average because we have the largest and most watched news teams in the mature markets, and we intend to maintain that leadership. Our content attracts audiences on linear television, on connected television and on virtually every other platform that exists. We think we are a content first company and for a few high-profile examples of our recent successes in this area, I'll turn the call over to Sandy.

Sandra Breland

Beyond the numbers, Gray has continued to deliver exceptionally well from an operational perspective. Late in March, we announced that CBS had retained Grace and house news research and consulting group, which we call our strength to provide market research and news consulting services. So all 14 of CBS's owned and operated television stations. This first-of-its-kind partnership between a network and an affiliate groups and news research division began on April 1. We are thrilled to partner with CBS stations on this news research venture.
In the past few weeks, we've also made other important announcements that I would like to highlight briefly on January 26th, the Columbia journalism school honor Grace TV.'s investigate TV unit and WANF., our CBS station here in Atlanta. Among the 15 winners of the 2020 for DuPont Columbia awards for their joint multipart investigative series, the six which exposed a critical shortage of public defenders in Georgia and many other states where defendants can languish in jail for months even years awaiting trial on April eighth, Gray's local news live streaming news network that provides live news coverage from Gray's television markets and our DC bureau streamed continuous and frankly excellent coverage of the total solar eclipse from Gray's DC bureau and local reports from more than 20th markets along the path of totality from KG. excuse me, from KGNS. and Eagle Pass Texas to WAGM. and Presque Isle, Maine, it was pretty cold. Last September we launched a new daily 30-minute news magazine investigate TV plus.
Since then, the show build audience throughout its first season with an average of 25% growth in adults 18-plus across all Gray markets. This kind of ratings growth for any new syndicated program is rare in today's world. Moreover, the show has drawn higher audiences than nearly all primetime cable news and cable entertainment programs as well as many syndicated programs on broadcast television, even though it only reaches 36% of US households at this time. The program clearly has found an audience. So no surprise, we're thrilled to renew investigate TV plus for a second season.
We also recently launched a Spanish language version of this highly successful show in 26 of Grace teller window markets, 2020 24 has begun very well due in large part to the great work of our content professionals earlier, Hilton talked about how important it is for us to own and operate highly rated television stations. The selected accomplishments I've highlighted here this morning are evidence that our employees are doing what it takes for us to maintain our station's high rankings and put us in a position to continue to over-index in this year's political advertising relative to other stations and platforms in our markets.
I now turn the call Evan.
Thank you, Sandy.

Kevin Latek

Our retransmission revenues and network affiliation fees were largely stable despite headwinds in subscriber trends in the pay-TV industry. Indeed, we recently announced that we have completed the renewals of retransmission consent agreements with cable, satellite and telco operators, who collectively represent within 70% of the big four traditional MVPD subscriber base in a three year renewal cycle that began in the second half of 2022 for a number of reasons and strong and loyal viewership of our news stations. We completed all of those negotiations covering roughly 400 operators without a single blackout. We remain comfortable with the guidance provided on the February earnings call for stable retransmission revenues and network affiliation fees full year 2024.
The other topic I want to highlight is the increasing litany of positive developments involving the new transmission standard for broadcast signals called next-gen TV. It was less than seven years ago that the FCC approved this first advancement in broadcast technology since the 1990s. Importantly, next-gen TV deployment is already well ahead of HGTV. and the DTV. transition at the same seven year mark. First, the first next-gen TV did not go on sale until 2020 yet by 2026, the Consumer Technology Association projects that next gen set sales in the US will exceed smartphone sales in the U.S.
At the same six year mark in the product lifecycle to date, just four years after the first set was more than 10.3 million next-gen TV sets have been sold in the US and there will be more next-gen channels available in 2024 than D TV channels in '24. Backed by 2026, fully 65% of TV set shipments in the US are projected to include Nextra and TV receiver chips.
In addition to the successes with receiver rollouts. Station transmitter buildouts continue. And the industry now delivers a next-gen signal reaching 75% of US TV households. This milestone brings gray and the industry much closer to being able to deliver the vastly improved picture and features for viewers as well as new monetization opportunities for broadcasters. Indeed, just this past Saturday on our NBC affiliate in Louisville, Kentucky, WAVY., the Kentucky Derby broadcast. We estimate history as the first major sporting event broadcast in the United States using Dolby Vision HDR as part of next-gen technology. The progress in next gen TV across broadcasters and technology companies is tangible and important. We expect will be many more impressive achievements and milestones announced over the next few months in this area. This concludes my remarks and now turn the call to Jim Ryan.

James Ryan

They settled filled impact, covered the key highlights in the quarter. As such, my remarks today will be very short, and you will see a few changes in the definitions and metrics in our earnings release and 10 Q today, it changes and potentially a few other changes. Next quarter results from comments that we received from the SEC recently as part of the agency's routine review and comment process that all public companies undergo every few years.
Turning to our Q1 '24 results. Again, we're very pleased with our results, especially our plus-4% growth in core ad revenue. While the Super Bowl on our 50 TBS channels allowed us to generate $18 million of core ad revenue compared to $6 million on our then 27 Fox channels in 2023, the quarter benefited from broad-based advertising demand with most categories being up, including services and auto. Our operating expenses, excluding depreciation, amortization, impairment and gain loss on disposal of assets, were better than our initial expectations, and we'll continue to monitor our expenses for additional efficiencies as we proceed through 2024, demonstrating our commitment to debt reduction, we paid $50 million of revolver borrowings in February and prepaid an additional million of term loan debt on April 1.
These amounts are in addition to the routine quarterly term loan amortization of $3.75 million that we made in the first quarter. As of March 31, '24, our leverage ratio was 5.63 times. And more importantly, our first lien leverage ratio was a very modest 2.34 times on a trailing eight quarter basis, netting our total cash balance of $134 million, and excluding the results of our unrestricted subsidiaries and our $110 million gain on sale of our BMI shares. And again, all of that's calculated in accordance with our senior credit agreement.
Turning to our full year guide, we are reaffirming the guidance of approximately $1.6 billion in core ad revenue for the year and again, reaffirming our $1.5 billion of retransmission revenue for the year. We are reducing our Broadcast operating expense guide for the full year to approximately $2.3 billion from the previous guide of $2.4 billion. We look forward to a very successful full year '24, including strong political ad spending later in the year.
It's now time for me to introduce my successor as CFO. Jeff is the ideal person for this role, given his very close working relationship with grey as a key banking partner for almost 20 years. And therefore, I'm very happy to turn the call over to Jeff.

Jeff Gignac

Thank you, Jim. As Jim mentioned with my prior firm, I was the lead banker for virtually all of Grace market activity for a very long time including the recent acquisitions of Raycom, Quincy and Meredith. Incidentally, I was also the lead banker to Raycom, Quincy, Raycom and Quincy, among others from that long history, I've learned the business and come to know the talent and a dedicated management team at Graham. What attracted me to gray is the exceptional set of assets and scale of the company.
As you all know the portfolio has number one and number two ranked local news stations in 102 out of 114 markets at this time, Gray's large-scale M&A for foot mansion is complete and the assets key functions and people are fully integrated today. You're seeing those results in our core business when I first discussed the opportunity of joining great with Hilton, it was clear that deleveraging was his top priority, which aligned with my view, de-levering is good for our shareholders for our debt holders and for our employees.
It's also how we position the Company to capitalize on changes in the media landscape and the most straightforward way to increase our equity value. In that light earlier this week, our Board authorized spending up to $250 million of liquidity for debt repurchases, giving us another tool to implement our delevering plan in an efficient way.
In late January. Great took advantage of strong market conditions to launch a refinancing of the revolver and 2026 term loan. We successfully completed an amendment upsizing and extending the duration of our revolver with the banks who know us best. And we again thank them for their support. Obviously, the term loan marketing process became more challenging with news from three other media companies regarding their plans to bundle their sports rights into a new virtual MVPD, which was completely misunderstood by the investment community in the first several days after its announcement. In the end, Gray made the decision to close the revolver and postpone the term loan refi process until the new cycle quieted down, and we can capitalize on our positive outlook for 2024 going forward.
You should expect to see us act quickly when necessary, but always in a smart way to manage our capital structure. The company has been and will continue to be very thoughtful about the cost of capital as being measured over a period of time rather than at any specific point in time. And that's extremely important. Our current low secured leverage at 2.34 times allows us access to multiple pockets of capital in the public and private markets. We also expect significant cash from political advertising this year that will allow us to further reduce total indebtedness and extend our maturity profile. We believe that we can do all this in a way that is positive for all stakeholders.
And lastly, as a new shareholder myself. I look forward to engaging further with all of our investors to maximize value for all of our stakeholders.
And with that, I'll turn the call back to Hilton for some closing remarks.

Hilton Howell

Thank you, Jeff, and welcome onboard. I'll leave all of you with this perspective. There are challenges in the media business, most of which are not of our making But many of which provide opportunities for us, what we can control our leading local franchises, expansion of digital ad sells our retrans rates, expansion of sports content partnerships, implementing next-gen TV and probably most importantly, in the short term where we deploy capital, all of those things are going exceptionally well.
So operator, at this time, we ask you to open the line for any questions of me or anyone here at the table.

Question and Answer Session

Operator

(Operator Instructions) Daniel Kurnos. Your line is now open.

Daniel Kurnos

Great thanks. Good morning. Nice start to the year, guys. Kevin, just a quick housekeeping. What what's left this year either by quarter or however you want to put it in terms of distribution renewals.

Kevin Latek

We have a very small number of contracts with cable companies cover about 30% of the big four traditional MVPD subs. Those will be in the come up in the second half of the year.

Daniel Kurnos

Perfect. And then I look at core, you guys have been harping on this for a while. You know, I don't think any of us years ago would have thought you guys would have beaten 2019 at this point. And you know, Pat spent a good time a good amount of time detailing it but I mean, is this sustainable? How do you guys think this trends from here? And what are you guys doing differently to get such massive outperformance?

Donald Laplatney

Hey, Dan, it's Pat. I'll start looking at a private company from 2010 through 2019, we watched core deteriorate slowly, but steadily mostly with the auto category for a long time and to be ahead of 2019 now is, in my mind, pretty remarkable. So I think it's sustainable. Yes, I think we can continue to grow. I think that we now have a much more diverse group of advertisers. If you go back to '18 or '19, auto was probably 25% or 30%. Today, it's mid to high 10s. And services are a huge part of our revenue. And so I think we're in much better shape. I think the reasons for that lease for Gray, it's our investment in training. It's our investment in going after or having a team that focuses on certain categories, verticals. We've had that team in place now for years and the training in place probably eight years now. So it's paying dividends for us. And I think I think we have we absolutely have the capacity to continue to grow.

Sandra Breland

And this is Sandy, Dan. The other thing I would add to that, we talk a lot about our both our laser focus on new local direct and Pat talked about the increase over last year. But I will tell you we challenge our stations and they deliver month after month after month continuing to set records there, and that's something we can control.
And just one other point, we talked about the importance of strong content and strong ranked station that also gives us an advantage and a competitive edge there.

Operator

We have Aaron Watts, your line is now open.

Aaron Watts

I've got a couple of questions. One on core advertising. I heard your comments around core and the tough comp you're up against in 2Q. Anything more you can kind of tell us on the underlying theme areas of strength and softness looking forward? And any reason for optimism ad trends can improve from here despite some of the macro uncertainties that seem to still be weighing on advertiser decision?

Donald Laplatney

Yes. Again. So I know we're a sort of the mainstream company as opposed to whole history company. I think they are early in our comments. What we're seeing is local businesses doing well and advertising with us at the end of the day. So looking at the categories on auto was auto again, had this long, steady decline into COVID, and it came out of COVID pretty strong start to level off a little bit. But the services sector for us is extremely wrong. We had a we had a bump with some with the gambling category and now that's a little sort of lumpy. Some quarters. It's up some quarters. It's down, but all in, you know, if you look at the look at the broad set of key categories for us, it's a good story. So again, I think we're a better sales organization than we were a few years ago, and we've invested heavily in that area and I think we can continue to grow. Sandy, do you want to add comments.

Sandra Breland

And the nice thing too, is we're seeing growth among multiple categories, not just items that legal and particularly we've done very well and we continue to see that grow furniture restaurants as well. So we're seeing it spread across multiple categories that grow.

Donald Laplatney

I think our scale also adds a significant benefit. You go back and look at the company five years ago, very different company it is today,

Hilton Howell

Aaron, this is Hilton. I want to add, I would just add one other thing. And to the extent that they're on this telephone line right now. It's our people. I mean, we give them the tools to do their job and they execute. And one of the things I'm very, very proud of this company is we execute across the board. And in every moment, we do the right thing and carry it out. And it all comes down to the people that we have in our TV stations in all of our 114 markets.

Aaron Watts

Yes, thanks, John. I'm on the debt repurchase program, to date, I believe your focus has been on addressing that front end term loan maturity, but you do also have debt trading at discounts to par value. How do you think about balancing attacking the nearest maturities with perhaps capturing greater discounts to further your deleveraging aspirations? Is this authorization a sign of maybe being more open to be purchasing discounted debt securities than you've spoken to previously.

Jeff Gignac

Yes, Aaron, I think you nailed it. I mean, it's a balanced approach with the front end and the short maturities, we'll have to address those and in due course here. But we're not oblivious to the fact that we've got that trading in the [60s], and it would be nice to capitalize on some of that too. But to accelerate the deleveraging, again, not sacrificing our liquidity position or or the near the need in the near term, maybe reapproach the markets for the refi.

Operator

Steven Cahall, Wells Fargo.

Steven Cahall

So Kevin, I was wondering if you could just talk about the structure of reverse comp on a medium term basis. It's something we've talked about before, but I think you're looking to potentially convert fixed programming fees to something that's more variable. Just wondering if you're having any early conversations around those and how you think those conversations may trend over time?
And then, Pat, just to pick up on some of the advertising commentary. I think you're the first media company I've heard in about 18 months, talk about national advertising being better. So I'd love to know what's going on underneath the surface there for Gray.
And then lastly, Hilton. So you've talked about how Wall Street is kind of missing the point about the business fundamentals. I know we can have a myopic view. I think a lot of the debate is just when there's going to be free cash flow that's available to the equity holder and how you can deleverage. So I'm wondering what you think about as potentially helping with deleveraging, whether you would look at asset sales, whether you would look at changes to the dividend or whether you think you can get there purely organically? Thank you.

Hilton Howell

Thank you, Steven. Kevin, you want to start?

Kevin Latek

Yeah, Stephen, our network affiliation agreements, our hope and the following schedule. We have a Bcf at the end of this year. We have CBS and Fox up in the second half of '25. We have NBC up at the very end of 25. There's not really I'm not aware of any precedent where in network and affiliate group have opened negotiations early and changed terms early. We've done a gray. We have done countless negotiations with the networks. Typically we buy we buy something with an earlier expiration date and will add years to are there markets, so they'll have a coterminous.
And so we don't reopen the existing contract. We've levered where whatever contracts exist until they expire and then we roll into or has been negotiated either recently or sometimes two or three years in advance. Where we are now is we are not acquiring anything. All of our stations are on the same schedule with our four networks, we will likely talk with CBS and Fox now a year from now. So I think there'll be a lot of other broadcasters who will be talking to all of the networks before we will.
And we would expect that on all the all broadcasters, including those we own the networks, are crystal very aware of what's happening with cord cutting and we'll be adjusting, but the programming fees to reflect where retrans is at and the exclusivity of the content we're receiving. But we are not I don't anticipate us as an ABC. at the end this year having any conversations on any changes to our existing contracts until those contracts are over. And again, that's not until the second half of '25.

Donald Laplatney

So Steven, your question around national, we had a good quarter in first quarter for national and there were a number of categories that I think contributed to that one that I'd point out would be consumer goods for us, which was up high single digits. And yes, look, national for us is a much smaller piece than local, which we have more control over. But again, today, you're going to see national. It's going to be a little bit lumpy, but this quarter was a very good one. And I think it's due in large part just to have sort of a broad, you know, a number of categories that happen to be up in Q1.

Hilton Howell

And Stephen, I guess on the last one here on. So let me say that I read everything that you write, and I appreciate every comment that you have some of which are greatly different words, but I appreciate every word, you're right. That being said, we're going to do it the way.
Great, great as everything else we execute. And it's really simple because we don't intend to sell any assets. We see no panic. We are not concerned. We will operate our our TV station or our other assets, and we are generating a huge amount of free cash flow and we will use that to deleverage the Company. We have no intentions. Our Board has not even considered cutting the dividend nor picking anything. Some of our competitors may have chosen to do so each company is their own best guide in that regard.
Gray, as this quarter's results, I think demonstrate as a standalone company, we have spent 30 years assembling some of the finest assets and the people around this table and talk to you today represent one of the greatest in my judgment media companies currently operating. And I think our results demonstrate that. So what we're going to do is go to work every day. We're not going to sell things. We're not going to blank and we're not going to panic and we're just going to reduce our debt, just like we've done for the last 30 years, we moved our debt ratio up to what we consider to be as high as we would ever like it to be due to the opportunities to acquire both Quincy and Meredith, and that completed a remarkable footprint for our company. And now we are enjoying the fruits of those efforts. And so we're just going to carry on and on it is still it.

Operator

(Operator Instructions) Craig Huber. Your line is now open.

Craig Huber

Great, thank you. Wanted to ask what the assembly and land project here. I mean, you I think last call you guys talked about how revenues are starting to generate off that got delayed because of the Hollywood strikes and stuff. Maybe just thought I'd just update us on your thoughts on when you think you have the full revenues will start coming through, it sounds like a 2025 event. That's my first question, and I'll take a second one after, if I could.

Hilton Howell

Sure, Craig, this is Hilton. And honestly, if I can answer that for you. Obviously, what we have a long-term lease with the needle Production Services division, Comcast, NBCU and bought that effectively create a financial 70% occupancy rate for all of our studios, the other 30% of not only assembly, but third, Royal Studios, which are two separate businesses, but all operated together, some have have always been producing but we have had a lag in commitments. And what everyone has told me it is because of the lack of actually getting greenlit do a due to a potential I am struck by the end of the month of May. It is my understanding that issue will either fully matriculate for it'll go away.
And I think once that happens, I think we're going to have a great burden in terms of what we're doing because the only issue that we have, it's getting TV productions that are getting quotes left and right getting greenlit from Hollywood. And so I think that GreenLight is going to come, and I think it's just a matter of time. In the meantime, we're in a remarkable position. We've got I think about four production shooting currently and on our reviews from people using our studios have been superb. And so I anticipate that we will see a more fully leased out 100% sometime during the course of 2024, and then it will carry for obviously in future years.

Craig Huber

Great. I appreciate that. And my other question, if I could ask on just longer term here, you guys have plenty of broadcast spectrum, of course. And with the continued rollout of ATSC 3.0, just curious when do you think you might start be able to monetize that to some degree once we start seeing somewhat of system material revenues off that. And I think the whole thing, maybe I believe late this decade but just maybe talk about what you kind of do on that front, the extra spectrum you have. Thank you.

Donald Laplatney

Yes, Pat. So I would say that we'll start seeing revenues probably first quarter of next year. In terms of material revenues. Now it's a little bit difficult to forecast. It will be a matter of years, um, I'm not certain it will be the end of the decade, though? I think it will be sooner than that. I so I although I can't give you a hard fast number there, but we'll start seeing money next year. And I think in a few years, the money we'll be meaningful.

Operator

[James Goff].

James Goff

Okay. And just one thing following up on what you just said, what sort of monetization and efforts do you think can be made with next-gen TV? How will it come into play do you expect?

Donald Laplatney

So there's a number of different areas on one of the sort of prime areas, digital on the digital data delivery. So getting data into automobiles, taking data that gets offloaded from the cellular network. There's a number of conversations that have been going on in that area for years. I think that will probably be the first but a little longer term, the new 3.0 standard gives us the ability to target ads, which you know can be a game changer if all of our current impressions on linear television were targetable that really changes the paradigm for local TV. And ultimately, that's where 3.0 leads us. It's going to take a little bit of time, but we'll get there.

James Goff

Okay. And there was also a discussion earlier about the FAST channels and connected TV offerings, what sort of economic model are you pursuing along those lines?

Donald Laplatney

It's an ad sales model, Jim, and while it's a small number today, we expect it to grow dramatically as we roll out more of our stations on the fast platforms. So we're in the early stages of rollout right now. And as you might guess, the more stations you roll out, the higher there and in a rollout period is going to grow quicker than it would in a sort of a static period. So we'd expect that again, small number today to grow significantly over the next few years.

James Goff

Okay. One last one. Jeff mentioned -- and welcome, Jeff, and that Wall Street sort of misunderstood the sports JV impact. And I wonder if you might expand on that a little bit. What do you think was the nature of the misunderstanding and please clarify what we should understand about it.

Kevin Latek

Do you want me to take --

Jeff Gignac

I'll start and Kevin can correct me. But look, the business looked at the sports JV when it was first announced, there were very few details about what it meant as it relates to the existing distribution channels and who was targeting, et cetera. And so the if we are if it is another avenue for us and another MVPD. virtual MVPD using our programming, that should be a positive for us. So that I think is the is the crux of why I use the term misunderstanding on it because it was it was declared as the latest way that we're going to get disintermediated and in fact, it should help us to be part of the plan going forward.

Kevin Latek

I just to echo that too. I think we probably fielded four dozen phone calls on the JV in two days. And a fair number of questions seem to stem from the idea that this sports JV was going to have 14 linear channels, 12 cable and then the reference, the two broadcast channels, Fox and ABC, somehow a national ABC network and national Fox Network that don't exist. It discipline. Quite a lot of people do not understand it the way the broadcast networks work is that there are local TV stations that carry certain number of hours a day of content, two hours a day for fall.
Our sports and about 15 hours a day for ABC plus sports content. And so for example, if you're in Cedar Rapids and you want to watch FOX, you don't turn on the Fox Network, you turn on the Fox affiliate owned by another broadcaster period, Cedar Rapids, and you want to achieve JBC, you don't turn on ABC network. You turn on the ABC station that's ABC affiliated TV station in Cedar Rapids that's owned by Gray Television, and people just seem to completely miss that. I think the comments from the and networks to us privately and the comments publicly return people to the understanding that broadcast is different than a cable channel that's distributed to all homes at essentially the same time, it was the same content.
And that again, people, I think started to appreciate what really we said in the statement we issued that day, which was a virtual MVPD that carries local affiliates will compensate the local affiliates for their signals. And therefore, as we learn many times and many subs and conversations, the target audience here is not to destroy the linear, the traditional MVPD sub base is bought. It contributes a significant amount of money in distribution for the cable channels that are distributed there as well as the two broadcast networks. But it is going to target the core never crowd.
So to the extent they're bringing in people from that do not currently pay for television, and that's incremental revenue for all of us. So if it's successful. It's incremental revenue and that's a good. And there are a couple there are three or four virtual MVPDs today. Funds already gone out of business. So this is another new virtual MVPD that may be more in the future. It's a dynamic business and would the industry does not. And every time somebody announces a new virtual MVPD with it seems like that's what happened for that first week. So I think I think we are at the point where people understand now what a virtual MVPD is and how strong these offerings will be and that a virtual MVPD that carries Fox and ABC affiliates, it's a benefit to Cox ABC affiliate.

Operator

All right. Next up, we have John Kornreich. Your line is now open.

John Kornreich

I had two questions, I guess for Jim. One, should we expect leverage to get a little bit under five by the end of this year? And secondly, can we be hopeful that net retrans, which by your forecast will begin to decline by about 3% this year, could resume some small growth in '25 and '26?

Jeff Gignac

Yes, John, it's Jeff, maybe I'll take your I'll take your first one. In terms of leverage towards the end of the year, I don't think we quite get below five, but we should be getting into the low 4s by the end of the year.
Low 5 --

Hilton Howell

sorry, low 5 by the end of the year.

John Kornreich

You had me excited for a minute.

Jeff Gignac

Yes, my apologies.

John Kornreich

And the other question is that anybody can take I guess so this is Jim.

James Ryan

I'll give and Kevin can provide a little bit more color, given the pace of our Subrah renewals after we finish the remaining roughly 30% this year would say that rate renewals. I mean, we have about 18 months where we don't have any retrans agreements up for renewal. So I think the retrans is going to be more stable in '25. And then I think as you get past '25 and into '26. One is seven. If we have an opportunity again to grow. Kevin can feel free to add more color.

Kevin Latek

I think that's correct. The the fixed fee nature of our contracts were set at a time when we all anticipate that retrends would be and it would be in a different position or I should say the traditional MVPD sub numbers will be higher than they are today. And we fully expect that we will be resetting those prices when we renew in 2025. And that should allow us to return to net retrans growth going forward after '25. I would say after '25 that whether it occurs in '25 will depend on a couple of puts and takes with our renewals this year and sub losses. So sub migrations, subs that move from traditionals to the virtual, how that flows. So I think I think this year we're looking at it, we talked about stable to maybe low single-digit decline on that next year. There's still some puts and takes. I'd say, as we look over a number of years, we should see net retrans returning to a growth trajectory.

John Kornreich

What is your calculated as the sharp decline?

Kevin Latek

Gray's experience is fairly consistent with the overall industry. Our TV households break down about 40%, -- 45% roughly in large markets, 45% in midsized markets and the balance in small markets. And that SKUs and a little bit more towards midsized markets than the overall US population distribution. But our experience with the MVPDs is, I'd say, pretty similar to what you read overall and estimates for the overall industry.

Operator

[Davis Huber].

Davis Huber

I wanted to ask a follow-up on the retrans because I think your guidance shows and mid-single digit declines in the second quarter, and you could just give some data on cord cutting but are you able to sort of segment out what the pressure is between cord-cutting versus mix shift of linear subs moving to virtual? Because I know YouTube has had some nice growth over the past couple of quarters, sunday ticket. So just wanted to ask for a comment there.

Kevin Latek

I haven't really thought through philosophically, what's the bigger driver or the relative breakdown is the traditional MVPD subs are declining double digits. That's fairly well known in the and the virtuals and the DTCs are growing at a pretty healthy clip that's also fairly well known so that we're not immune to that at all and we're exposed to it. It's kind of the same level as everybody else. We probably are a bit more exposed than others.
In terms of the price difference, the revenue difference we get from a traditional sub versus a virtual seller because our traditional rates are at the high end of the industry. And there are some broadcasters who probably are still looking at kind of parity between traditional rates and what you received from the networks for the virtuals. I think that the large groups have had more success in driving their traditional retrans rates. And so and those who have higher rates are obviously going to have a bigger delta when they move to a fund at essentially the same fee that's paid to all affiliates and all markets have all quality level. And so we probably do are bit more exposed in that area.
On the flip side, you know, we can remove those fees and if the virtual side can move closer to a market rate, Gray would benefit more than others. So we are all rowing in the same direction as an industry, meaning broadcast affiliates. We turn our rights to us. That is our ability to negotiate for the distribution of our signals on all platforms, not just our platforms minus three or four. And when we succeed there, which unfortunately will not be quite because it's a solution and we will see good benefits for Gray as well as the whole industry.
And but your following question to the ones that can happen, and I can't tell you whether anything's going to happen in Washington it's been out and it may make sense to have.

Davis Huber

Thank you for that. And if I could just follow with once kind of all-encompassing sports question. I think one, I think broadcast is clearly offers an incredible reach medium when you have NBC doing exclusive NFL games on Peacock. And so there seems to be some experimentation with DOING exclusive sports on streaming what sort of commitments do you get from your broadcast partners in terms of keeping sports on the broadcast, medium and limiting sort of that leakage to streaming services? And then my second question is on sports is what sort of feedback have you gotten on your sort of early innings and distribution of local games, NBA, et cetera? What's what's been the feedback I guess, from either fans or the teams themselves?

Donald Laplatney

Thank you. Sure. To answer your second question first, I mean, the feedback's been extraordinary from the fans from the teams and there's a really good reason for that. I mean the numbers the audience that we're generating for these teams is and significantly above there would be FORMER levels or what they're currently doing, right. So and in Phoenix, we were up 70%, 80% in some of the other markets where we did smaller packages, we did some 5 and 10 game packages in some markets, the numbers were double or triple what they were on the current carrier. So obviously, the teams are going to be excited about that. But the fans who many of which have been sort of some disenfranchised over the last few years are able to see their team. And it's and it's a really exciting moment.
And so the feedback's been extraordinary and not only from the fans, but also from the advertisers. They're really excited to have those games have reached the types of audiences that they're now reaching as far as the networks and sports show there. They're dabbling in, you know, direct to consumer. I would put them with a small number of games in and a lot of the games are the case of NBC, the vast majority of the sports they do is simulcast. So we're not some of the audiences. There's a little bit of audience leakage there, but not a lot. And so we continue to be very, very effective in selling those high-profile sports properties. So yes, I can't as far as commitments go, I can't I can't get into that but I think you're going to see some experimentation in that area. I think you'll see that with a number of the leagues. But I think that broadcast television has clearly illustrated its value over the last six months.

Sandra Breland

Yes, David, just wanted additional point to that is that in Phoenix, the center where we have the full commitment of policies and commitments and in side-by-side gains were gains or carried on national cable, our local broadcast and our station just absolutely significantly higher ratings. People are turning to us to see the gain and the feedback has been fantastic from both the team and the fans. Pat mentioned the small package of games that we had, just to give you one example. So in New Orleans with the Pelican, their ratings were up over 200% and over 300% in adults 25 to 54. So as you probably know, surprise, we're getting great feedback from both the teams and the fans.

Donald Laplatney

I think one other sort of interesting point there is that, Bob, we know in Phoenix where we have an independent station KTBK. It's the number one billing station in that market. And for some context, if you go back 10 quarters to go back when we made the Meredith acquisition, our CBS station in our KDKTBK., the independent were the number three and four stations in that market from a revenue perspective as they're now the number one and number two stations in the market.
Now in fairness, KPHO., the CBS had the Super Bowl in Q1, but KTBK. is the number one station in Phoenix so I think that tells you a little bit about the value of the impact of local sports and dumb and where that could head. So we're excited about that.

Sandra Breland

And frankly, shout out to the team there.

Donald Laplatney

Absolutely.

Sandra Breland

Our team family.

Hilton Howell

Well, David, this is Hilton. You asked for some anecdotes. Let me give you a couple of just real quick. We took our Board to Phoenix because we are really proud of what we're doing with the science and the Mercury and talking to a again a one Sunday afternoon held our Board meeting out there and a lockdown because the hotel we were saying and didn't have our independent on the television and I asked them if they could program it and the guy that was sitting there behind the fingers, are you part of the companies that bought the sons to Live Free TV.I should. Yes, actually, I am and he goes oh, my God, I'm a college student I can afford to pay X was it the fact you brought it back to free TV. It's unbelievable that night we go up and we had all our board at a dinner and we were just talking about what we had done with the size of where we're going to go to the game, et cetera, et cetera. And then we freaking got three of our folks that were serving us our dinner applauding because we brought the sons back to the market. Now if that doesn't tell you something I don't know what does those are great anecdotes, and we are thrilled with our experience with the Suns. And I think everybody in Arizona is too.

Operator

All right. And it looks like we have time for just one more question. So Michael Kupinski will be our final question.

Michael Kupinski

Most of my questions have been already addressed, but a quick one here you've always prided yourself on local direct business, which has been just an incredible success for you. The agency business looked like it ticked up in the last quarter 48% of your revenue. I assume that's because of the pickup in national. But I was wondering could maybe provide a little color there, if that was maybe a little political on do you anticipate that the agency business will be a greater percent of total revenues as national recovers? And then maybe because of some of your initiatives like sports or targeting advertisers that have a broader geographic reach. I was just some thoughts of what you think agency business will be in terms of the quote unquote, norm of local direct versus agency?

Donald Laplatney

Yeah. So because we skew to midsize and smaller markets, we have a lower percentage of agency business than most groups. So I think that I don't I wouldn't say that we think our our revenue is the agency share of our revenue is good going to grow significantly going forward. Again, I think the area that we control the most is local direct so our control better is local direct. And on Sandy may have some comments.

Sandra Breland

Certainly political plays a part in that --

Donald Laplatney

That's true right for first quarter. Yes, So you'll see a lot of political year, obviously, as the business goes after --

James Ryan

(multiple speakers) strong, it'll be agency side business, too.

Sandra Breland

Yes, absolutely.

Michael Kupinski

So we should just look for that to go up this year, but maybe kind of go back to more of a normalized 43%, 44% range going forward?

Donald Laplatney

Yeah. We go back to a more normalized range going forward.

Operator

And with that, we'll now turn the program back over to Chairman Howell for closing remarks.

Hilton Howell

Thank you, Operator. Before we close out this morning, I just want to take a moment to thank Jim Ryan for his time with our company. I don't know if he's feeling a sense of great relation. That's his last earnings call. Arm, I know that you don't have other phone calls to talk to with you guys, but for 26 years and as I mentioned at the beginning over 100 of these calls, he has been there steady and true, and I greatly thank him for his time and service. And I will say we still have a lot around to help us out for the next year.
And also want to welcome Jeff Jack to our company. I could not be more proud of that individual and the succession that we have accomplished. Jeff knows our company. He may know some parts of it better than the rest of us around this table. And now he's getting to know the people and the assets that create the financial numbers that all of you look at. And so thank you, Jim, and welcome, Jeff. With that, we'll sign off for Q1, and we'll see you next quarter. Thank you.

Operator

All right. Ladies and gentlemen, that does conclude your call. You may now disconnect your lines, and thank you very much again for joining us today.