When it came time for Gray Television to deliver its Q2 2023 results, difficult comps to a political ad-fueled second quarter of 2022 were offset by a 14% rise in retransmission consent fees. Now, along with its Q1 2024 financial results, the broadcast television station group headed by Hilton Howell Jr. and Pat LaPlatney has also offered guidance for Q2.
How did Gray fare, and are the second quarter numbers shaping up to beat last year’s results?
For the three months ending March 31, 2024, Gray enjoyed increases in both its broadcasting revenue and its fledgling production companies segment, with dollars rising to $799 million for broadcast (from $779 million) as the business that includes Assembly Atlanta saw revenue jump to $24 million from $22 million.
Total that up, and revenue increased to $823 million from $801 million.
That was shy of the consensus estimate of $824.98 million offered by 7 analysts polled by Yahoo! Finance. Investors at first were unfazed, with “GTN” up 7.8% within the first 15 minutes of trading on Tuesday. That momentum fizzled by the end of trading on Tuesday, however, with “GTN” up just 4 cents to $6.70.
Perhaps the bigger takeaway was a swing to net income of $75 million ($0.79 per diluted share), from a Q1 2023 net loss of $44 million (-$0.48). The 5 financial analysts polled by Yahoo! Finance that had chimed in offered data that put the consensus EPS at $0.11 — making the per-share finish well above expectations.
The shift to net income comes as Gray tightened its expenses, perhaps a herculean effort given the rollout of Assembly in an environment where NEXTGEN TV adoption, the creation of owned programming and the buildout of streaming video platforms is essential for the long-term health of the broadcast television industry. For Gray, total operating expenses in Q1 shrank to $699 million, from $734 million.
Adjusted EBITDA grew to $197 million, from $163 million. This compares to $248 million in political ad dollar-heavy Q1 2022.
CORE GAINS AS POLITICAL WANES
One of the bigger Q1 2024 takeaways for Gray is how the company grew its Core Advertising by 4%, to $372 million from $357 million, while retransmission consent revenue declined by 4%.
Still, retransmission consent dollars continue to serve as the leading revenue-generation segment for Gray Television, even as they declined to $381 million from $395 million.
Meanwhile, the political ad-dollar engine has revved up, and political dollars in Q1 2024 totaled $27 million, up from a paltry $8 million in the first quarter of last year.
MORE CASH IN THE COFFERS
The other notable takeaway from Gray’s Q1 2024 earnings report is its fluidity.
It has more cash on hand ($131 million as of the end of Q1 ’24, compared to $21 million at the end of 2023), and its borrowing availability under its Senior Credit Facility increased to $619 million from $494 million.
At the same time, Gray’s long-term debt, including its current portion, less deferred financing costs, slipped to $6.154 billion, from $6.16 billion.
Gray’s leverage ratio is now at 5.63x; this compares to 5.38x one year ago.
A good reason it has more cash on hand can be thanks to Broadcast Music, Inc. (BMI).
On February 8, Gray received $110 million in pre-tax cash proceeds from the closing of the sale of BMI. Some $50 million of the net proceeds were used to pay in full the amount then outstanding under Gray’s Revolving Credit Facility. Then, on April 1, Gray used a further $50 million of cash on hand to voluntarily pre-pay additional portions of its outstanding term loans.
Meanwhile, Gray revealed that on Monday (5/6) its Board of Directors authorized the company to use up to $250 million of available liquidity to repurchase its outstanding indebtedness through December 31, 2025 — a decision that likely contributed to the stock gain seen early Tuesday for Gray. “The extent of such repurchases, including the amount and timing of any repurchases, will depend on general market conditions, regulatory requirements, alternative investment opportunities and other considerations,” the company said.
Gray said the repurchase program does not require the company to repurchase a minimum amount of debt, and it may be modified, suspended or terminated at any time without prior notice.
For Gray Executive Chairman and CEO Hilton Howell Jr., “superb results” were seen, as it grew its share of advertising budgets and experienced increases in challenged categories including Automotive. As such, Gray is in “an excellent and strong position,” with Howell calling it a testament to its high-quality local broadcast television stations.
Howell added that Gray’s core advertising business has more than fully recovered from the pandemic, with core advertising revenues 3% higher in the first quarter of 2024 than the corresponding quarter of the pre-pandemic year of 2019.
Thank live sports events, including the Super Bowl ($18 million of net revenue is directly attributed to the NFL’s championship game on 54 CBS affiliates owned by Gray ) to local packages of NBA games, for the ad dollar growth. “We believe these solid results are attributable to real-world confidence among advertisers and businesses in local markets who rely on our high-quality television stations to reach local audiences,” Howell said.
DOWN TO THE CORE ON Q2 GUIDANCE
For Gray’s second quarter, core advertising revenue is expected to come in between $379 million and $385 million, surpassing retransmission consent revenue, forecast to come in between $370 and $375 million.
Expenses are expected to total between $575 million and $580 million.
How does this guidance compare to the super-strong Q2 2023 results?
Then, core advertising revenue for Gray grew by 4%, to $379 million from $366 million. Thus, flat to up activity points to smooth sailing against any macroeconomic headwinds that peers may be facing.
Retransmission consent revenue in Q2 2023 grew to $394 million from $382 million.
