Gray Television, Inc. (GTN) Q4 2022 Earnings Call Transcript

Gray Television, Inc. (NYSE:GTN) Q4 2022 Earnings Conference Call February 24, 2023 11:00 AM ET

Company Participants

Hilton Howell - Chairman & CEO

Pat LaPlatney - President & Co-CEO

Kevin Latek - Chief Legal & Development Officer

Jim Ryan - CFO

Bob Smith - COO

Conference Call Participants

Dan Kurnos - Benchmark Company

James Goss - Barrington Research

Alan Gould - Loop Capital

Craig Huber - Huber Research Partners

Nick Zangler - Stephens

Michael Kupinski - Noble Capital Markets

Steven Cahall - Wells Fargo

Operator

Ladies and gentlemen, convey you for joining nan 2022 Q4 Earnings Call.

I will now move nan telephone complete to President and CEO, Mr. Hilton Howell. You whitethorn begin.

Hilton Howell

Thank you, Misty. Good morning, everyone. As nan usability mentioned, I americium Hilton Howell, nan Chairman and CEO of Gray Television. I want to convey each of you for joining our 4th fourth 2022 net call.

With maine today, arsenic usual, are our executive officers, 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're going to shorten and streamline our telephone today. We will begin, arsenic usual, pinch a disclaimer that Kevin will provide. After that, you will perceive abbreviated comments from myself, past Kevin, and past Jim, and each 5 of america will past beryllium disposable to return immoderate of your questions. So, Kevin?

Kevin Latek

Yes. Thank you, Hilton. Good morning, everyone.

Gray uses its website arsenic a cardinal root of institution information. The website reside is www.gray.tv. We will record our Annual Report connected Form 10-K pinch nan SEC later today.

Included connected nan telephone whitethorn beryllium a chat of non-GAAP financial measures, and successful particular, broadcast rate flow, operating rate flow, free rate flow, definite leverage ratio. Metrics are not meant to switch GAAP measurements, but are provided arsenic supplements to assistance nan nationalist successful their study and valuation of our company.

Included successful our net merchandise arsenic good arsenic connected our website are reconciliations of financial measures to nan GAAP measures reported successful our financial statements.

Certain matters discussed connected this telephone whitethorn see forward-looking statements regarding, among different things, early operating results. Those statements are taxable to a number of risks and uncertainties. Actual results successful nan early could disagree from those expressed aliases implied successful immoderate forward-looking statements arsenic a consequence of various important factors that person been group distant successful nan company's astir caller reports revenge pinch nan SEC, including our astir caller Annual Report and nan 1 we'll record coming connected Form 10-K and our astir caller net release. The institution undertakes nary responsibility to update these forward-looking statements.

And now I'll move nan telephone to Hilton.

Hilton Howell

Thank you, Kevin.

Today, erstwhile again, we reported a beardown decorativeness to 2022. On an as-reported ground successful nan 4th fourth of 2022 compared to nan 4th fourth of 2021, our full gross accrued 49% to a grounds $1.1 billion. Core advertizing gross accrued by 13%, broadcast rate travel accrued by 88%, nan 4th fourth capped an exceptionally bully twelvemonth for Gray. For nan full-year of 2022, full gross was a grounds $3.7 billion, an summation of 52% from 2021, marking our highest ever yearly revenue.

Core advertizing gross was $1.5 billion, an summation of 26% from 2021, and broadcast rate travel was $1.4 billion, an summation of 77% from 2021. These grounds results flowed from a number of factors, nan astir important of which was different grounds twelvemonth for governmental advertizing gross successful a mid-term cycle. In particular, for nan full-year 2022, our governmental advertizing gross was $515 million, which exceeded 2018's governmental advertizing gross by 232% connected an as-reported ground and by 38% connected a mixed humanities basis. We property these stellar governmental advertizing gross results to Gray's unsocial operation of our market-leading news stations successful competitory battleground states, our news professionals' unbiased sum of divisive governmental issues and campaigns and our fantabulous and nonstop narration pinch nan governmental advertizing agencies.

Our Board and our elder activity proceed to attraction connected our equilibrium sheet. Since we announced our acquisition of Meredith Corporation's section tv stations 2 years ago, we person consistently emphasized that Gray, its Board and its activity squad are committed to reducing our leverage. Our actions show this commitment.

During 2022, we paid down $315 cardinal of main nether our outstanding word loans. Yesterday, we received $300 cardinal nether a three-year accounts receivable securitization facility. On March 1, we intend to usage those proceeds to salary disconnected wholly nan remaining main equilibrium of $295 cardinal nether our Term Loan B. At that point, Gray will person reduced astir $610 cardinal successful indebtedness complete nan people of little than 12 months.

To further fortify our equilibrium sheet, yesterday, we besides entered into an liking complaint headdress agreement. The complaint caps will efficaciously limit nan yearly liking charged connected each of our adaptable complaint indebtedness to a one-month LIBOR maximum of 5%, positive an applicable separator done December 31, 2025. These arrangements will limit our vulnerability to astir an further 40 ground points of yearly liking disbursal complete existent marketplace rates, which will trim our consequence to unforeseen events that could summation marketplace rates supra our existent expectations.

Looking ahead, arsenic we proceed to nutrient important free rate successful 2023, and particularly successful nan Presidential Election Year of 2024, we afloat intend to allocate a important information of free rate to further indebtedness reduction. We will besides usage a information of our beardown rate travel to complete nan first shape of our Assembly Atlanta project, which will put america successful a position to statesman earning gross from nan task later this year.

As you know, Assembly Atlanta and Assembly Studios will supply diversification from our broadcasting conception by participating successful nan accelerated increasing movie and tv accumulation manufacture headquartered successful our location authorities of Georgia.

Construction connected Assembly Studios and nan infrastructure for nan remaining area wrong Assembly Atlanta continues to tally up of immoderate of our schedules. This was only imaginable owed to our determination successful 2021 to pre-order alloy and to nutrient actual on-site and definite different cardinal materials earlier nan proviso concatenation issues created delays, inflation, costs overruns for truthful galore different projects successful 2022.

We presently expect that building connected nan Assembly Studios information of nan improvement and overmuch of nan infrastructure for nan full task will beryllium completed arsenic soon arsenic this June. At that time, some NBCUniversal and Gray Television will statesman producing tv shows and movies astatine Assembly Studios connected onshore that little than 2 years agone was an quiet business side. Once this shape of building is complete, Gray intends to region its backing of building projects crossed nan remaining astir 80 acres that will comprise Atlanta Assembly. We are now and will proceed complete nan adjacent respective months, to actively measure opportunities to maximize nan semipermanent worth of this rather unsocial finance to nan use of each of Gray's shareholders.

While 2023 will beryllium marked by immoderate macro challenges, Gray will proceed producing locally focused -- and different contented that our audiences want and delivering nan worth that drives coagulated advertizing and retransmission revenues.

I will now move nan telephone backmost complete to Kevin Latek. Kevin?

Kevin Latek

All right. Thanks again.

Gray Television stations and accumulation companies continued to execute good successful nan 4th quarter, opening 2023 successful a amended position than you mightiness presume based connected headlines astir definite sectors of nan economy.

For nan full-year 2022, our tv stations halfway advertizing revenues were $1.5 billion. This is an awesome result because halfway successful 2022 arsenic compared to 2021 declined by a specified 1% connected a mixed humanities basis. That's contempt our inventory being displaced by $455 cardinal of further governmental gross successful 2022. Since we cannot manufacture further inventory, this very insignificant 1% dip successful halfway gross pinch each that other governmental confirms nan beardown underlying advertizing request from accepted advertisers that Gray successfully converted into income passim nan year.

As noted successful this morning’s release, we property our coagulated advertizing results to real-world assurance among advertisers and businesses successful section markets mixed pinch standard and portfolio of high-quality section stations, investments successful precocious acquired tv stations and businesslike income and news operations.

Turning to retransmission revenues. Gray posted 5% maturation successful full-year 2022 complete nan anterior year. Recall that Gray did not renew its retransmission agreements successful 2022. Consequently, our gross retrans gross summation of 5% is simply a consequence of our yearly complaint increases outpacing subscriber declines and outpacing nan effect of subscribers rotating into OTT platforms. In nan first 4th of 2023, we will renew and re-price accepted MVPD retrans contracts covering astir 22% of our MVPD subscribers. Virtually each different retrans contracts knowledgeable yearly complaint step-ups successful January. For nan first 4th of 2023, we expect that our gross retransmission gross will summation by astir 10% to 11% complete nan 4th fourth of 2022.

Retrans value increases astatine some this yearly escalator level and astatine statement renewal stay successful nan aforesaid vicinity arsenic we person seen previously. Sub declines are impacting our expertise to support reaching to beryllium paid adjacent worth for our content.

In addition, reverse comp payments to nan networks did step-up connected January 1 nether nan contracts that were negotiated a fewer years ago. As we person discussed now galore times, we expect reverse comp rates will diminution starting successful 2024, arsenic much precocious negotiated web affiliation agreements kick-in.

We will renew retrans contracts for astir 18% of MVPD subs successful nan 2nd 4th of 2023, 38% of MVPD subs successful nan first 4th of 2024, and 23% of MVPD subs successful nan 2nd half of 2024.

In position of subscriber counts, subscriber reports that we received for nan 3rd 4th of 2022 provided a much affirmative image than what we received for nan 2nd 4th of 2022. Specifically, successful nan 3rd 4th of 2022, our Pay TV subscriber full declined by astir 1.5% from nan 3rd 4th of 2021.

We are gratified that our subscriber guidelines remains reasonably stable. We proceed to beryllium impacted by nan rotation of households from accepted MVPDs to virtual MVPDs and nan direct-to-consumer platforms wherever nan networks dictate some nan position of our distribution and our revenues.

Gray for illustration virtually each connection groups will proceed to push for power of our ain signals connected each platforms.

Putting this each together, we expect that gross retrans will proceed to turn annually. Net retrans will proceed to turn complete a multi-year period, particularly existent successful 2024 and 2025, moreover pinch blimpish assumptions for continued sub losses. These projections are based connected our demonstrated expertise to proceed to bid beardown retrans rates of accepted MVPD platforms for our portfolio of apical rated section news stations, coupled pinch immoderate alleviation successful reverse comp payments starting adjacent year. We expect that macroeconomic conditions will proceed to beryllium much challenging successful 2023 than we knowledgeable successful caller years. Still based connected our vantage constituent coming and our beardown capacity successful 2022, we expect that our halfway revenue, accumulation gross and retransmission gross successful 2023, we do not comparison to 2022.

This concludes my remarks. I'll now move nan telephone to Jim Ryan.

Jim Ryan

Thank you, Kevin. Good morning, everyone.

Hilton and Kevin person covered nan cardinal highlights for nan 4th and nan full-year of 2022, truthful I'll make my remarks very short today.

First of all, it varied pinch our Q4 and full-year 2022 results. Turning to Q1 2023 guidance. We judge our gross guidance demonstrates nan institution is disconnected to a bully commencement successful 2023, particularly erstwhile you see that it's an disconnected twelvemonth of nan governmental cycle, and we are facing, we expect astir $6 cardinal of nett gross from nan broadcast of nan Super Bowl connected our 27 Fox channels, but that's compared to an aggregate of $13 cardinal of nett gross relating to nan broadcast of nan Winter Olympics and nan Super Bowl connected our 56 NBC channels during Q1 2022. That's a $7 cardinal non-recurring arena for halfway revenue. So erstwhile you look astatine our guidance for Q1 and see that $7 cardinal headwind we deliberation we're disconnected to really a very bully commencement successful Q1.

I'll make a fewer comments connected our existent expectations for nan full-year of 2023, and I'll preface these comments by saying that fixed nan size and [indiscernible] nan company, these information points are our existent expectations arsenic of coming and will undoubtedly alteration up aliases down arsenic nan twelvemonth progresses. When I'm talking astir amounts successful billions of dollars, I will afloat admit that I'm not nan past 10 aliases much millions of dollars smart. So again, this is directionally what we spot today.

So for full gross successful 2023 we're expecting presently astir $3.3 billion. Core gross of astir $1.55 billion, which would beryllium up low-single-digits complete 2022. Retransmission gross of astir $1.55 cardinal arsenic well. So our halfway astatine our retrans conscionable for illustration it was successful 2022 are beautiful good matched set.

Political gross of astir $40 cardinal to $50 cardinal fixed $23 cardinal is nan disconnected year, but importantly, that scope does not see immoderate imaginable early governmental advertizing gross for nan 2024 rhythm that we could perchance spot later this year. So nan guideline connected governmental is blimpish and not counting successful immoderate 2024 Presidential.

Total broadcast gross would beryllium astir $3.2 billion. Our operating expenses earlier depreciation, amortization, and summation and nonaccomplishment connected disposal of assets is presently anticipated to beryllium astir $2.5 billion. Of that, broadcast expenses will beryllium astir $2.3 billion. Network recourse comp is going up to $945 cardinal approximately.

On nan broadcast $2.3 billion, we person non-cash banal comp of $5 cardinal and non-cash 401(k) disbursal of $10 million, accumulation expenses of astir $80 million, and firm expenses of astir $120 million. That $120 cardinal includes $17 cardinal of non-cash banal comp.

Our operating rate travel arsenic defined successful our elder in installments statement will beryllium astir $850 cardinal to $870 million.

Turning to awesome rate uses successful 2023. As Hilton mentioned, we person put successful spot liking complaint caps, which insulate america a important summation successful marketplace rates for nan adjacent respective years. So we expect rate liking of $420 cardinal to $430 million.

Our 5% LIBOR liking complaint caps are connected $2.6 cardinal of our floating complaint debt. We expect rate taxes of $100 cardinal to $105 million, regular superior expenditures of $105 cardinal to $115 million. Preferred dividends are $52 million, and our required Term Loan D amortization is $15 million. That would spot our estimated free rate betwixt $150 cardinal and $160 million. We are very well-positioned starting 2023, and we look guardant to a successful twelvemonth and continuing into a beardown 2024 pinch nan return of different statesmanlike cycle.

I'll move nan telephone backmost to Hilton.

Hilton Howell

Thank you very much. Operator, astatine this time, we'd for illustration to unfastened up nan statement for immoderate questions for Pat, Jim, Kevin, Bob and me.

Question-and-Answer Session

Operator

Okay. [Operator Instructions].

And it looks for illustration your first mobility is going to travel from Dan Kurnos pinch Benchmark Company. Dan, your statement is open.

Hilton Howell

Hello, Dan.

Dan Kurnos

Hey sorry. Can you guys perceive me?

Hilton Howell

We can.

Dan Kurnos

All right. Sorry astir that. I don't cognize what happened there. But bully morning, and convey you for each nan ace adjuvant colour really admit it. The 1 point I did miss, Kevin, could you conscionable spell backmost complete nan sub cadence again for me?

Kevin Latek

Hi Dan, successful nan first 4th of 2023, we will renew and re-price accepted MVPD retrans contracts covering 22% of our MVPD subs. We will renew astir 18% of MVPD subs successful nan 2nd 4th of 2023, 38% of MVPD subs successful nan first 4th of 2024, and astir 23% of MVPD subs successful nan 2nd half of 2024.

Dan Kurnos

All right. Perfect. Jim, benignant of gave america nan nett retrans answer, truthful we tin benignant of do nan math. But I deliberation it's astir apt a small spot amended than -- group were expecting. And for what it's worth, your nett guideline is -- aliases your reverse guideline astir apt a small connected nan little side, a small spot upside connected retrans. So Kevin, I'm judge you person plentifulness of questions connected this. But arsenic we benignant of look astatine nan marketplace coming moreover nether benignant of blimpish sub assumptions, you've evidently sewage nan bequest Meredith stations coming up for renewal. It seems for illustration your ABC was comparatively benign. And I'm guessing that Meredith --

Kevin Latek

Hey, Dan, we mislaid you astatine Meredith.

Hilton Howell

Hello. Operator, are we still online?

Operator

Yes. Dan, your statement is on, and I'm not judge what happened there.

Hilton Howell

All right. Well, let's spell connected to nan adjacent question. And erstwhile Dan is capable to get backmost on, we will put him backmost successful nan queue.

Operator

Okay. No problem. Our adjacent mobility is going to travel from James Goss. James, your statement is open.

James Goss

All right. Thank you. I person a mates of things. One, I was funny and possibly this is Kevin mobility astir nan streamer usage of nan nationalist web channels alternatively than immoderate of nan section connection fees. And I deliberation you were talking a small astir them, small unclear astir really nan contracts reside those issues because, traditionally, you ain nan marketplace and nan advertisement income successful those markets. But this is changing that move a small bit. Could you talk astir that?

Kevin Latek

I think, Jim, what you're referring to is nan CBS affiliates mostly did not opt-in to nan Fubo, CBS contract.

James Goss

That's nan 1 that is nan example. And possibly that's a unsocial situation.

Kevin Latek

Yes. So we've said now, I deliberation each nan broadcast groups for galore years that we fto nan networks do nan first information of virtual negotiations pinch Hulu, YouTube, past Sony PlayStation to get them disconnected nan ground. And astatine nan time, they were negotiating deals for their owned and operated stations. And those deals will mostly connection to nan affiliates to opt-in. Fast guardant now respective years, nan virtual besides person gotten overmuch larger. Sony PlayStation Vue has evidently gone away. Fubo has travel connected nan market.

And nan affiliates person each nan connection boards. And I deliberation each nan connection groups person been beautiful loudly saying nan past respective months aliases longer that we should beryllium controlling our destiny. These are now established providers conscionable arsenic we discuss a awesome nether different MVPDs we tin surely manus each negotiations pinch 3 virtual MVPDs.

In nan CBS, Fubo business was that CBS presented a statement to nan connection Board into nan CBS affiliates and what CBS affiliates were offered an opportunity to motion a statement pinch CBS and which CBS would have, we past return our section signals and our section contented and supply it to Fubo. And nan CBS affiliates Board did not endorse that deal. Gray did not opt-in to that deal. As a result, Fubo did not person nan entree to CBS connection signals. So nan CBS Network created immoderate replacement provender aliases feeds to supply nationalist CBS contented to Fubo customers alternatively than nan section CBS signals.

I'm not judge what you're talking astir different streamers carrying nationalist feeds. The only -- to our knowledge, nan first clip affiliates person said nary to an opt-in agreement, and nan virtual discourse was past -- precocious past period pinch CBS, Fubo. I don't deliberation it changes nan wide picture. This is something, again, that we’ve been discussing for a mates of years and truthful successful nan past respective net calls that nan connection groups consciousness beautiful powerfully that we should power our ain destiny, and that's happening successful this case. So we are continuing to talk to CBS, to expect your adjacent question.

The connection -- nan groups are optimistic and hopeful that we'll beryllium capable to scope caller semipermanent agreements pinch this web and different networks that make consciousness for nan affiliates. But that's each we're going to opportunity connected that speech and each those.

James Goss

Right. No, admit that color. And possibly it brought nan rumor to ray a small bit. The 1 different point I was going to inquire astir nan Atlanta Assembly Studios. Now that you're getting adjacent to coming -- aliases opening them to usage of you and NBCUniversal initially, is location immoderate framing of nan financials you mightiness supply successful position of nan wide investment, nan gross expectations, costs estimates aliases thing other that we mightiness beryllium capable to deliberation astir successful position of really it impacts your statements?

Hilton Howell

James, for conscionable a -- for a number of reasons, we’re incapable to supply awesome specifications connected that correct now, peculiarly connected nan gross side. Suffice it to opportunity that we're very happy pinch what it's going to beryllium producing not conscionable successful position of rental gross but accumulation gross opening this summer. So while we won't person those numbers to talk astir about apt astatine our adjacent call, it will beryllium very adjacent to opening it because we'll beryllium turning it complete to our partner, NBCUniversal, nan June 1.

James Goss

Okay. And truthful it will beryllium connected them alternatively than connected you? And -- aliases will location beryllium immoderate intercompany predictions and that you'll beryllium utilizing it arsenic well?

Hilton Howell

Well, I mean they will beryllium utilizing it and making movies and TV shows location connected nan properties that they are leasing from us. We will beryllium doing them nan aforesaid connected nan properties and nan studios and stages that we person retained. And truthful location is immoderate accumulation done our subsidiary Swirl Films that will beryllium happening connected our stages. In summation to their stages successful Paulding County, but past Gray will beryllium separately leasing retired to different movie producers, nan stages that we person retained.

Operator

[Operator Instructions].

And our adjacent mobility comes from Dan Kurnos from Benchmark. Dan, your statement is open.

Hilton Howell

Welcome back, Dan. Sorry astir that.

Dan Kurnos

I'm going to effort this again, Hilton, and I'm going to beryllium really speedy earlier I get nan hook again, I guess.

Hilton Howell

We tin springiness you nan hook, I'm sorry. Technology ever benignant of messes up from clip to time, it seems like.

Dan Kurnos

It decidedly wasn't you guys. It was decidedly me. But connected nan Atlanta, conscionable to beryllium clear, is immoderate gross aliases immoderate use from that included successful nan guideline that you guys gave? And Hilton, if you could grow a small spot upon your thoughts connected monetization opportunities, arsenic you laid retired successful nan property release, I'd emotion to perceive it. Thanks.

Hilton Howell

Sure. Jim?

Jim Ryan

There would beryllium a small spot successful nan guide. But retrieve that NBCU is really -- by nan clip we move it over, astatine slightest really commenced payments to america nether its terms. There's not a batch of -- there's not galore months successful this year. So it’s a beautiful mini number for 2023, conscionable by timing.

Hilton Howell

We -- nan Assembly upon maturity is going to beryllium a rather important contributor to nan free rate travel of business connected an individual plus basis. And I'm really rather excited astir it because 1 of nan things that we person to proceed to support a attraction connected is really we proceed to turn nan company. And while we are currently, successful position of distribution pinch our TV stations somewhat possibly 2.5% to 3% beneath nan presently articulated headdress since nan FCC doesn't look to beryllium recognizing astatine nan infinitesimal nan UHF discount arsenic they did pinch some Scripps and Nexstar successful nan past, Gray seems to beryllium capped astatine nan 39% number.

And truthful our guidance squad is charged pinch continuing to turn our company. And while those of you who whitethorn not travel this business aliases whitethorn not unrecorded successful nan authorities of Georgia, truthful you whitethorn not understand afloat nan stunning magnitude of accumulation that has travel to nan state, and that's for a number of reasons, Dan. It evidently began 20 years agone pinch nan creation of nan Georgia Film Tax Credits. But what Georgia has done that I deliberation is really rather unsocial and it's a awesome testament to I deliberation wise legislators 20-plus years ago, they created nan Georgia Film Academy, if I'm calling this correctly.

And we now person astatine slightest 2 generations of young Georgians who person learned nan trade of making movie and tv successful this state. And truthful nan crews, nan talent, everything is here. And truthful location is simply a immense magnitude of accumulation that's coming to this state. Last year, nan only nationalist numbers that we person for nan magnitude of accumulation successful Georgia, and this was astir apt from nan 2021 year, truthful it's -- I cognize it's old, but it's each we sewage correct now. The full productions were $4.4 billion, which is simply a immense generator of gross here.

The Assembly Studios I judge will beryllium 1 of nan finest -- fto maine backmost it up. I person been told is 1 of nan finest studios built anyplace successful nan world. And truthful we person immense request that we person coming successful for usage of each of nan studios. Obviously, we person a semipermanent financial statement pinch NBCUniversal, and I'm happy to opportunity that they are looking guardant to being present successful Atlanta and successful Georgia. But I would really opportunity that we person had nonstop consent from -- nonstop interaction pinch nan afloat gamut of contented creators, whether independent aliases different individuals, to bring characteristic films and tv and candidly, station accumulation to nan Assembly and to Georgia. And we're very excited astir that. It's going to beryllium a profitable endeavor from time one, and it's going to beryllium a immense plus for our company, our shareholders and for nan metropolis of Atlanta and nan State of Georgia.

Dan Kurnos

Got it. That's ace helpful. And I'll effort this existent quick, Kevin, I mean we sewage nan numbers from Jim connected nan reverse now. So we're -- we tin benignant of do nan mathematics connected your thoughts here. Legacy Meredith evidently comes up successful nan backmost half, I deliberation of this year, and it doesn't look excessively onerous. And obviously, your ABC seemed comparatively benign based connected nan guideline you've given. So conscionable trying to get a sense, you commented that nett evidently should beryllium up beautiful substantially adjacent twelvemonth and because you besides get immoderate alleviation connected that reverse trend. So conscionable possibly complete for illustration a three-year clip horizon, I mean do you expect to outperform? What's benignant of your view? And what are your benignant of underlying sub assumptions successful nan exemplary correct now?

Kevin Latek

Yes. Dan, truthful we've ne'er commented connected what we usage successful our model. We've said we've been conservatively projecting sub losses, and we will proceed to do that. We -- again, we had a spot of a daze successful nan 2nd 4th that we revealed connected nan past telephone call.

As I said, our sub numbers improved comparatively successful nan 3rd quarter. We do not person each nan 4th fourth sub count astatine this point, but they frankly look amended than what nan 3rd 4th was. So things look to beryllium benignant of trending astatine slightest correct now successful a bully -- successful a decidedly a amended guidance than what we person modeled, but we'll proceed to exemplary conservatively connected sub losses and nan sub rotations to nan virtual and direct-to-consumers.

We've not modeled retired and fixed guidance complete a 2 aliases three-year period. I admit this is astir apt nan astir guidance we've ever fixed successful a February telephone telephone for nan full-year. So we're going to benignant of instrumentality pinch nan existent guidance we person now, which is simply a small circumstantial for this twelvemonth and a small much general.

I'm not really prepared to beryllium much circumstantial aft than what we gave successful nan net book today. We do deliberation that nett will beryllium improved adjacent twelvemonth complete this year, nan reasons mentioned successful nan script, and again, 2025, again for nan aforesaid reasons. But I'm not prepared to put percentages connected that correct now.

Dan Kurnos

Okay. Fair enough. Thanks guys for fto maine backmost on.

Kevin Latek

Yes.

Hilton Howell

All right. Thank you, Dan.

Operator

Our adjacent mobility is going to travel from Alan Gould pinch Gray TV. Alan, your statement is open.

Alan Gould

Thank you. Loop. A mates of questions. Hilton, first, connected nan Atlanta Assembly plant, 1 easy one. How galore sound stages are there? And two, it looks for illustration nan CapEx portion was a small higher than -- it was a spot higher than expected this year. Was that a pull-forward? Or is nan ostentation causing costs to beryllium a small higher than expected?

Hilton Howell

Well, ostentation is ever there, but fto maine reply your first question. The full stages are 19. The full quadrate footage is astir 1,250,000 quadrate feet successful position of production, mill and agency abstraction total. But it's 19 sound stages nether building correct now. And successful fact, past Thursday, we had our topping retired ceremony. So we're almost done.

Kevin Latek

Third Rail.

Jim Ryan

Third Rail.

Hilton Howell

Plus you asked astir Assembly, but I'll adhd in, there's an further 3 stages that are presently operational and whose numbers are incorporated pinch Third Rail Studios. We besides person a further 2 studios that are presently named Atlanta Film Studios that are portion of nan Swirl Films Group that is simply a 51% owned subsidiary of Gray Television.

Alan Gould

Okay. And nan costs?

Jim Ryan

So Alan, nan CapEx number -- nan regular CapEx number was higher than we had guided. It's -- there's -- it's a multi-phased nan answer, 1 is inflation, 2 is what -- astatine immoderate pull-forward and proviso concatenation issues earlier successful nan year. We thought immoderate of what really sewage delivered successful Q4 would person really shown up successful 2024.

So we -- that was a pleasant surprise, connected nan 1 hand, but besides not thing we had expected. And also, I'll return work that, internally, we should person guided better. And I will guarantee you that we're watching CapEx -- regular CapEx for illustration a hawk successful 2023 and going into 2024.

And nan past portion of nan equation connected nan regular CapEx was we thought we could push immoderate workplace renewal projects further into 2024, but our existent landlords were not unfastened to extending leases. So we had to move a small faster than we had primitively thought because our leases will beryllium expiring adjacent year, and we've sewage to move retired and move in. So arsenic I said a operation of respective factors. But obviously, successful nan guideline this year, regular CapEx is $105 cardinal to $115 million. And again, we're going to watch that very cautiously and to nan grade possible, put arsenic overmuch into 2024 arsenic we can.

Alan Gould

And Jim, really overmuch much do you expect to walk connected nan Atlanta Assembly works until June aliases until it's completed?

Jim Ryan

In 2023, connected a nett basis, we're presently estimating that to beryllium astir $72 cardinal to decorativeness nan Studio project.

Alan Gould

Yes. Okay. And 1 speedy mobility for Kevin. Your rotation to VMVPD, should we conscionable presume you're matching beautiful adjacent to what nan manufacture inclination is there?

Kevin Latek

In position of what pinch nan MVPDs? I'm sorry, Alan.

Alan Gould

Your rotation from accepted MVPDs to virtual MVPDs. Is that -- is your stock much for nan manufacture for Gray Television?

Kevin Latek

To beryllium honest, I don't cognize what we would opportunity was nan manufacture rotation. I'd opportunity we're seeing a batch of it. I mean we person a beautiful important diminution successful nan MVPDs, and we person a beautiful important maturation of nan virtual successful nan direct-to-consumer. So again, our full sub count connected a year-over-year ground was minus 1.5%. So we're converting fundamentally everybody -- almost everybody who's leaving nan traditionals into a caller subscriber connected nan integer side. I don't rather cognize really that tracks pinch everybody else, but our number is minus 1.5% connected a year-over-year basis.

Alan Gould

Okay.

Kevin Latek

Total subscribers.

Alan Gould

Let maine conscionable -- possibly I tin inquire you differently, tin you show america what percent of your subs are now coming done VMVPDs aliases digital?

Kevin Latek

No, we person not disclosed that.

Operator

Our adjacent mobility is going to travel from Craig Huber pinch Huber Research Partners. Craig, your statement is open.

Craig Huber

Great. Thank you. My first mobility is this liking complaint cap. I'm gladsome to spot you guys are putting this into place. You mentioned successful your property merchandise that $32 cardinal that's payable connected it. I conjecture this is connected December 31 of 2025. Is that going to beryllium amortized? And really -- what's nan effect connected your P&L successful position of nan costs to put this successful spot from a quarter?

Hilton Howell

From a GAAP accounting perspective, that will beryllium amortized successful much aliases little ratably complete -- betwixt now and December 31 of 2025. But again, I deliberation nan important portion is nan rate colony is astatine December 31, 2025. So we've put that measurement down nan road, and we're pleased pinch -- arsenic you said, we're very pleased to person gotten successful place, and we're afloat insulated now connected continuing complaint hikes. And I'm -- I'd opportunity this somewhat jokingly, but really successful absolute sincerity, I'm gladsome I sewage nan -- I'm gladsome we sewage nan complaint caps connected earlier this week. I would not person been pleased pinch trying to value 1 coming fixed nan ostentation headlines this morning. So we're very pleased pinch wherever we came out.

Craig Huber

And they're very bully connected that. And past 2nd mobility if I could, you're down 1.5% retrans sub count declines year-over-year, are rather good, certainly, a batch amended than you are talking publically astir down mid-single-digits, and that inclination for them has been very akin down mid-single-digits. What is it astir your company, your markets that you're only down 1.5%? I conscionable want to perceive your thoughts there, please.

Kevin Latek

Yes. We person been trailing nan manufacture really forever. When you first announced sub declines successful August of 2015, we were still seeing immoderate gains. A mates of years later, our broadcast adjacent groups said that they were benignant of seeing sub stabilization. We were still seeing growing. I whitethorn denote that we're seeing small declines, and we saw a stabilization. Now they're seeing immoderate greater sub declines than we are. So we've decidedly been trailing behind. The champion conjecture we person is we person much agrarian vulnerability than different folks. We are surely successful immoderate ample markets, but we're successful a full bunch of smaller markets and immoderate that are geographically very large.

And those folks person been a small later to nan virtual MVPD because their broadband entree is not arsenic awesome arsenic it is successful Philadelphia and San Francisco and different ample markets. So nan YouTube, Hulu, Sony, Fubo, et cetera, benignant of launching section signals successful our markets later than others and they were not afloat substitutes until much precocious than they were successful ample markets because broadband was not arsenic -- was not deployed arsenic much.

So we're seeing broadband rolling retired much aggressively now successful nan past mates of years. So we're astir apt seeing much group prime those subscriptions up, and that's covering nan nonaccomplishment connected MVPDs. But that's our champion conjecture is nan type of footprint we person is simply a spot different than others.

Craig Huber

Okay. Great for that. Thank you. And past my 2nd -- my adjacent question, sorry, is replacement uses of your broadcast spectrum. Can you possibly conscionable update america connected your thoughts connected that, really fierce you mightiness -- spot successful nan coming years?

Pat LaPlatney

Yes. So that -- it's Pat LaPlatney. So I would show you that for illustration nan remainder of nan industry, we are rolling retired ATSC 3.0. We've rolled out, I conjecture 3 markets successful 2022, and we person nan mostly of our larger markets rolled retired astatine this point. There's been rather a spot of talk astir nan anticipation of utilizing that spectrum for information into automobiles and a number of different uses. I deliberation we're a fewer years distant from that still. But nan reality is that nan rollout is moving on astatine a beautiful bully clip. We expect to beryllium northbound of 70% by nan extremity of 2023.

And past it's a matter really of -- successful position of nan tv broadside of 3.0 of getting nan chips into TV sets. The immense mostly of manufacturers are trading chips aliases trading sets coming pinch nan chips astatine them. So that's connected nan TV side. And past connected nan replacement uses, it's a matter of getting nan footprint filled out, and that's happening beautiful quickly.

Craig Huber

Okay. My past question, guys, conscionable funny what's your thoughts connected nan wide economical situation correct now, fixed each nan markets you guys are successful astir nan U.S.? I mean, really are you guys [indiscernible] funny your thoughts there.

Bob Smith

This is Bob Smith. We're really beautiful optimistic, arsenic Jim mentioned, a small spot astir nan numbers and our projections. But we're seeing a batch of bully things successful our section markets, a batch of -- really a ton of caller business development. Those are section nonstop accounts that are coming connected to TV, and we're having a batch of occurrence pinch that. We're besides seeing automotive coming backmost successful a batch of markets.

General Motors is beautiful strong. Nissan is strong. And ineligible continues to do well. We precocious saw sports gambling get approved successful Ohio. So our Ohio markets are seeing a batch of beautiful large buys present successful nan first 4th and will proceed successful nan 2nd quarter. We're optimistic that North Carolina will walk gambling present successful clip for nan shot season. So each successful all, contempt nan headwinds, contempt each nan chatter, if you will, there's a batch of bully things happening successful our section markets correct now.

Operator

Our adjacent mobility is going to travel from Nick Zangler pinch Stephens. Nick, your statement is open.

Nick Zangler

Yes. Hey, guys. On immoderate of nan direct-to-consumer stuff, truthful nan entree of your section broadcast provender done direct-to-consumer assets, I deliberation it's beautiful new. I'm funny really nan economics activity betwixt Gray and nan networks erstwhile your section provender is made disposable done an app for illustration Paramount Plus aliases Peacock. Are you fundamentally conscionable recognizing possibly a nett retrans fig connected nan top-line here? And is this a worldly portion of gross publication astatine nan moment?

Kevin Latek

Yes. Hi, it's Kevin. So connected nan first point, CBS -- our CBS signals were disposable connected nan CBS All Access app from time one. We really beta tested CBS All Access pinch nan O&Os arsenic a company, and we launched CBS All Access retired of nan gate. Every position we acquired that was not connected moreover successful a small mini markets we put connected CBS All Access. So conscionable to beryllium clear, nan direct-to-consumer portion is not really caller for us. The CBS All Access has been a portion of our distribution for immoderate time. Obviously, that was rebranded arsenic Paramount Plus.

Peacock, benignant of adding nan section affiliates precocious past year. And nan gross connected some this -- nan connection boards negotiated a value per sub per month. That is simply a interest that is paid by CBS aliases NBC, respectively, based connected nan number of subs successful nan respective markets for each station. Revenue comes into america arsenic retransmission revenue. There's nary offset of further disbursal against it. Those dollars would driblet to nan nett retrans line. And they're not -- nan Peacock again, it conscionable added signals to precocious December. So I don't -- I couldn't moreover show you what nan subs are arsenic we beryllium present conscionable later.

Nick Zangler

Yes. Got it. Okay. No, that's fair. And past connected -- I did want to inquire astir nan full guidance for nan year. Obviously, I perceive you guys $3.3 cardinal successful full -- for full revenues. Political upside would hap if nan Presidential Election run commencement to rotation successful early. So we could perchance spot upside successful that conception later connected successful nan year. And past erstwhile we talk astir nan halfway presumption for nan year, if you exclude nan governmental displacement that you saw successful 2022, does that guideline presume fundamentally year-over-year maturation successful advertizing successful nan halfway into 2023? And past also, it sounds like, moreover successful nan property release, you referred to possibly for illustration a recessionary situation successful 2023. Is that your underlying presumption erstwhile you make that guide? And truthful obviously, if things proceed to show improvement, naturally, you'd get upside to nan halfway gross portion for 2023 comparative to your expectations currently.

Jim Ryan

So first, you are correct. There is imaginable upside successful nan governmental number from early superior money. Later this year, we saw that successful nan 2020 cycle. We saw that successful nan each -- fundamentally each rhythm for nan past respective years. Several cycles, we've seen early superior money. But we person not baked that into nan guide. Hopefully, that's bully news and upside we tin talk astir a mates of telephone calls from now.

In nan core, yes, you're -- we would expect immoderate maturation complete and supra nan governmental displacement from past year. So I'd opportunity we are pleased pinch wherever we're seeing halfway spell successful 2023. And no, we are not readying arsenic a institution for a recession. We -- a batch of headlines for illustration everybody other does. But arsenic Bob commented a fewer minutes ago, erstwhile we excavation down to our section business successful each -- successful our 113 section markets, we spot bully news astatine nan commencement of nan year, and we person nary logic to deliberation it won't continue. Now if nan macro changes, nan macro changes, we can't power that.

But arsenic Bob said earlier, too, nan attraction has been creating caller section nonstop business, and it was very successful past year, and nan budgets for caller section nonstop are moreover higher this year. So we're -- section is -- section is our breadstuff and food connected core, and we're focused connected it and moving difficult to bring successful each dollar we can.

Nick Zangler

Got it. And did halfway -- conscionable because I support proceeding this everyplace else, that December was very anemic successful nan advertisement market, soft commencement to January and past betterment from location connected out. Did halfway acquisition -- aliases I'm sorry, did section advertizing acquisition for illustration a akin cadence? Or was it conscionable stronger altogether?

Bob Smith

All successful each -- it's Bob Smith again. It's been beautiful decent successful December and carried complete into nan first of nan year. As Jim mentioned, there's immoderate governmental and Olympic dollars not returning successful February. But different than that, again, we consciousness beautiful bully astir nan 4th and moving guardant aft that.

Operator

Our adjacent mobility is going to travel from Michael Kupinski pinch Noble Capital Markets. Your statement is open.

Michael Kupinski

Thank you. Most of nan questions connected halfway person been -- I person different mobility here. You indicated that you scheme to region backing for nan Atlanta Assembly task to measure opportunities. And I'm wondering if you could conscionable talk a small spot astir what options you mightiness beryllium considering there.

Hilton Howell

Well, I mean, I benignant of dislike to put connected a nationalist grounds of what options we're considering. We've sewage -- we person 80 acres complete there, and we're pausing. There's immoderate macroeconomic interest astir existent property and what's going connected retired there. So we're conscionable taking a break. Our attraction is connected building studios and we conscionable astir person each those built.

Operator

And our adjacent mobility is going to travel from Steven Cahall pinch Wells Fargo. Steven, your statement is open.

Steven Cahall

Thanks. Maybe Kevin, a mates for you. So you talked astir nan trailing manufacture sub trends that you've seen. Kind of connected our numbers, it looks for illustration nan manufacture subs are down astir 6% for 2022. So do you deliberation that you'll catch-up to that complete time? Do you scheme nan business astir thing for illustration that? Or do you deliberation that location is thing a spot much structural astir your agrarian vulnerability that intends that you're not going to revert to that inclination and you'll proceed to execute amended complete nan adjacent twelvemonth aliases so?

Kevin Latek

I would opportunity it's benignant of correct down nan middle, Steven. At immoderate point, we will apt revert to nan mean, but it's not going to beryllium complete nan adjacent year. We person been trailing -- for astatine slightest 7 years now, 8 years. I don't spot why that would abruptly reverse successful 1 twelvemonth and we'd revert to nan mean. So -- but we're…

Steven Cahall

Yes.

Kevin Latek

I don't person immoderate penetration beyond benignant of what we've seen. And arsenic I said, 3rd 4th was really amended than nan 2nd 4th shock. And nan 4th fourth is truthful acold coming successful moreover better. So I'm emotion bully astir retrans and emotion subs and, certainly, arsenic we're going done these re-pricings, emotion really bully astir nan situation for Gray -- nan worth of Gray signals.

Steven Cahall

Great. And past different one, Kevin, conscionable connected nan VMVPD issues and nan Fubo deal, we've heard you and a fewer of your peers benignant of talk astir nan unfairness of nan manufacture and nan expertise to discuss straight pinch VMVPDs. What is nan system that moves that into place? It doesn't sound for illustration this is really an FCC issue. It sounds for illustration it's an connection to nationalist web issue. So erstwhile you deliberation astir your relationships pinch nan nationalist networks, what benignant of is nan usability by which you deliberation they mightiness alteration nan quality of those arrangements truthful that you tin discuss directly?

Kevin Latek

I conjecture I would reply by saying each 4 of nan web connection boards person been having progressive discussions pinch nan networks astir nan 4 of them negotiating pinch nan virtual providers alternatively of nan affiliates. And we are attempting to activity retired a backstage speech -- privately negotiated improvements aliases solution of this issue, but it's an rumor that animates each 4 connection boards and each of nan connection groups. So we are actively working, each of us, for rather immoderate clip now to scope a much equitable statement pinch nan network.

Steven Cahall

Yes. And then, Jim, acknowledgment for nan free rate travel number. And past should we conscionable deliberation astir rate disposable for indebtedness paydown? Is nan free rate travel little what you talked to is Assembly CapEx and past little nan dividends that you'll person for nan year?

Jim Ryan

Yes. The measurement we specify free rate travel wouldn't see nan dividend aliases nan Assembly investment. But arsenic Hilton mentioned astatine nan opening of nan call, I mean what free rate travel we person this year, nan remaining portion of nan year, astir of that will spell towards indebtedness reduction.

It could beryllium a small -- that indebtedness simplification could beryllium a small higher depending connected what -- particularly 4th fourth governmental does, which is to beryllium determined, right? Obviously, we've sewage a beardown twelvemonth successful 2024 for further indebtedness reduction. And I'll punctual everybody that connected -- adjacent Wednesday, we're paying disconnected $295 cardinal of debt.

In little than nan past 12 months, we person paid down $610 cardinal of debt. So I would opportunity that $610 cardinal wrong nan past 12 months is simply a darn bully commencement to what we promised everybody erstwhile we closed Meredith that we were going to beryllium focused connected bringing down our indebtedness arsenic accelerated arsenic we could.

Kevin Latek

If I tin just, Steven, conscionable add, we were only a small much than 100 days past nan election, and we've only been enjoying this break from governmental ads connected TV. You whitethorn person seen -- nan first statesmanlike superior statement has already been scheduled. It's going to beryllium this August successful Milwaukee.

So again, we're not making projections connected superior -- statesmanlike superior money, but Republican primaries will still beryllium held successful Iowa we person a immense presence; New Hampshire, we person a very beardown station; Nevada, wherever we ain stations successful some markets; successful South Carolina, we person a very beardown presence. And that run originates really officially pinch nan first statement this August, truthful I mean a small six months from now. So bask nan quiet now, but nan governmental play is going to beryllium upon america earlier you cognize it.

Hilton Howell

Absolutely. Steven, fto maine adhd 1 different point to your first question. Just please understand that arsenic a matter of conscionable basal rule and communal sense, nary different institution has a correct to discuss connected behalf of my institution without our consent. That's conscionable common.

Now, I person nary volition of negotiating successful nationalist aliases criticizing anyone anywhere. The negotiations successful nan past, everyone agreed to. And truthful they were handled that way. The connection groups will, astatine times, change. And I will mention you to our friend, Chris Ripley, who, successful his earning call, I deliberation setout superb Sinclair's position, and I personally endorse his comments and wherever he articulated it.

I picked it up done a Broadcasting & Cable article that covered immoderate of those issues. And that's wherever Gray stands arsenic well. I'm very hopeful that we tin activity retired thing pinch each of nan networks, but we consented to wherever it has been. We will not beryllium consenting going forward.

Operator

And location are nary much group successful queue.

Hilton Howell

All right. Well, everyone, convey you very, very overmuch for joining america today. We're very excited astir what we did successful 2022 and we really are really rather excited astir 2023. We are not seeing signs of nan overmuch heralded recession. We're really seeing a batch of robustness successful Main Street passim our 113 markets, and we spot nary location dips, it seems to beryllium crossed nan Board. So we participate 2023 pinch a awesome woody of optimism and look guardant to talking to you pinch respect to our first 4th of this year. Thank you.

Operator

Thank you for participating. You whitethorn now disconnect.