For broadcast television, growth in a non-political year is a challenge — especially coming after a record-breaking electorate-focused advertising season. Yet, Gray Television in Q4 2023 enjoyed a 2% core advertising increase as retransmission consent revenue increased by 3% year-over-year.
While that’s highly positive news for the broadcast TV station owner, a 6% increase in broadcasting expenses put a damper on what the company calls “strong” financial results for the fourth quarter. Investors reacted negatively, sending Gray shares down significantly on Friday morning.
In Q4, total revenue of $864 million was seen. This was down 19% from $1.07 billion in Q4 2022, yet the Q4 2023 result was in-line with the high end of Gray’s revenue guidance. And, the revenue came in ahead of the $863.31 million consensus estimate of 8 analysts polled by Yahoo! Finance.
With total broadcasting expense up to $604 million, from $570 million, Gray swung to a net loss attributable to common stockholders of $22 million (-$0.24 per dilulted share), shifting from net income of $173 million ($1.88 per diluted share).
The EPS loss was a miss, as 5 analysts’ combined estimates yielded a -$0.16 consensus.
While Executive Chairman and CEO Hilton Howell Jr. and Chief Financial Officer Jim Ryan were upbeat and spoke positively of Gray’s performance in the fourth quarter during the company’s earnings call for analysts and investors on Friday morning, Gray shares declined by more than 22% in heavy trading, to $6.19.
With Gray’s total leverage ratio sitting at 5.6x, Free Cash Flow for Gray dipped to $43 million, compared to $59 million in non-political Q4 2021 and $242 million one year ago.
Broadcast Cash Flow was also down in a similar manner, coming in at $245 million; in Q4 2021 it was $258 million, while in Q4 2022 it totaled $485 million.
As previously noted, core advertising was up, and it improved to $415 million from $406 million. Retransmission consent revenue increased to $365 million from $353 million.
On the earnings call, the Q&A period began with a question from Aaron Watts of Deutsche Bank. He started with a question about retransmission revenue growth, which he believes implied a growth slowdown. What could Gray EVP/Chief Legal & Development Officer Kevin Latek share? “We renewed a number of our contracts that were expiring at the end of the year. As the numbers are getting bigger, percentage increases can’t be as big but we are very happy with the numbers we received.”
Growth was not as what Gray had hoped, however, due to subscriber declines at MVPDs, Latek added, suggesting the subscriber losses were a result of the combined SAG-AFTRA and WGA East/WGA West work stoppages in 2023.
Asked to comment on growth rates or offer specific numbers by Watts on the political advertising pacing, given new concerns that U.S. presidential campaigns won’t be spending as much as previously expected, Gray executives declined. “We’ve got a lot of Senate and House races as well,” Ryan said, but noted it was too early to project where the dollars will end up.
Howell added that a “rapidly moving Republican primary season” is in process, and there are efforts from third-party candidate Robert F. Kennedy Jr. and potential advertising from Donald Trump that can’t be counted out. Some $114 million, Howell believes, have been raised for political advertising from the Biden-Harris campaign. “Hopefully this all matriculates through to an ad business, because they are not going to pay their debt on that,” Howell said. “They are going to spend that money.”
Watts concluded his questions by asking about further deleveraging by Gray. “Our No. 1 priority with our Free Cash is to de-lever as rapidly as possible,” Ryan said, noting that this has not changed and has been stated repeatedly. “I see us getting into the lower 5s and as we get out a little farther I see it in the 4s,” he added.
Looking ahead, Gray offered the following guidance for Q1 2024:
- Revenue:
- Total Core Revenue of $365 million to $375 million, up low to mid-single digit percentage increases.
- In the three months ended March 31, 2024, we anticipate approximately $18 million of net revenue from the broadcast of the Super Bowl on our 49 CBS channels compared to an aggregate of $6 million of net revenue relating to the broadcast of the Super Bowl on our 27 FOX channels during the three months ended March 31, 2023.
- Retransmission revenue of $375 million to $380 million.
- Political revenue of $30 million to $33 million.
- Production company revenue of $23 million to $24 million.
- Total revenue of $810 million to $830 million.
- Total Core Revenue of $365 million to $375 million, up low to mid-single digit percentage increases.
- Operating Expenses:
- Broadcasting expenses of $585 million to $595 million, including retransmission expense of approximately $235 million and non-cash stock-based compensation expense of approximately $1 million.
- Production company expenses of approximately $21 million to $22 million.
- Corporate expenses of $35 million to $40 million, including non-cash stock-based compensation expense of approximately $4 million.
