EARNINGS CALL

Gray Sees Good Things Ahead In 2012

Strong fourth quarter 2011 performance looks to continue into this year. The company says it will stay focused on paying down debt and upgrading technology rather than actively looking for acqusitions.

Gray Television anticipates a “robust and likely record” 2012,  according to Hilton Howell Howell Jr., vice chairman-CEO. But don’t look for any free cash flow upside to translate into acquisitions, company executives said during this morning’s fourth-quarter earnings conference call.

The company will stay focused on paying down debt and upgrading technology. If anything, Gray would consider selling stations but only under the right terms.

“We look all the time,” at potential acquisitions, Robert Prather, president-COO of Gray, said in response to a question from Gabelli & Co. analyst Barry Lucas. “It’s incumbent on us to take advantage of opportunities out there.

“But my impression is multiples just aren’t attractive enough to sell anything at this time,” Prather continued. “We’re not looking to sell anything, but if something came along, we’d look at an offer we couldn’t refuse. I think the private-equity guys are on the sidelines kind of looking in. I don’t think we’re going to see many deals get done in the near future. I think most TV guys are looking to pay down debt, not increase debt.”

At roughly $832 million, about a 7.2X two-year average leverage ratio, Gray’s debt burden remains substantial.

Picking up some cash from the voluntary spectrum auction, highly unlikely this year in any case, isn’t a particularly attractive option either, Prather said, noting that the company has 40 digital channels and is using spectrum in the way the FCC intended.

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“If an auction happened and there was a real viable market that makes selling some spectrum more valuable than doing what we’re doing with it, we’d have to take a look at it,” he said. “I don’t see that happening anytime soon. We never say no, but it would have to be a real attractive offer for us to consider selling any of our stations.”

The company will continue to focus on adding HD to its eight or nine remaining stations that don’t already have it and embracing social media, Prather said.

“All our news directors and general managers are focused on making sure all on-air personalities have Facebook or Twitter dialogs with viewers,” he said. “We have to make sure we’re what the public wants. We’ve got to embrace [social media] and make sure we’re seen as being on the cutting edge as far as viewers are concerned.”

In addition, Gray is exploring development of live local programming, some of which it would control 100%, Prather said.

Addressing a question from Wells Fargo analyst Marci Ryvicker, Prather noted that roughly 70% of station revenues come from local advertising, taking some of the sting out of flat national spot.

“We’d love to be at 80%,” he added.


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