Gray TV Core Returning To 2019 Level

With second quarter core revenue (excluding political advertising) nearly matching the pre-pandemic period of 2019, Gray Television Chairman-CEO Hilton Howell told Wall Street analysts Thursday morning that Gray is now seeing a quickly recovering economy that, “with some exceptions, will continue to drive increased consumer spending and increased advertising in nearly all of our markets.”

Gray President-Co-CEO Pat LaPlatney reported strength in nearly all advertising categories. “The outlier, relative to ’19, remains the auto category, which was down and continues to face chip shortages and supply constraints that are depressing auto advertising,” he noted.

“The fact that other categories — especially legal, home improvement, financial, health and gambling — effectively backfilled a big hole left by the challenged auto advertisers, illustrates the underlying strength of our local television stations and the revenue diversification that has taken place over the last few years,” LaPlatney said. Also, if the supply chain gets back on track, he’s expecting the auto category to rebound in the fourth quarter of this year and into 2022.

Gray closed its purchase of Quincy Media this past Monday and execs told analysts that the pending acquisition of the Meredith TV group is on track to close in the fourth quarter.

As for the current quarter, CFO Jim Ryan offered guidance to Wall Street that core revenue is anticipated to exceed the third quarter of 2019 by a percentage in the low single digits. “This demonstrates the continuing and sequential improvement of total core revenue and makes us optimistic of continuing improvements later this year. As Pat said, while auto is still lagging, it is continuing to improve, and it’s only about 19% of our year-to-date core revenue,” he said. The CFO noted that the services group — comprising financial, legal and medical — represented about 28% of core advertising in the first six months of this year.

“Do you think auto ever gets back to being the clear and out front category leader again?” asked Deutsche Bank analyst Aaron Watts in the Q&A session.

“You’re looking at a much more even split. Auto used to be a huge category. I think diversification is a huge benefit to the industry and to Gray. I don’t see auto ever being, probably not back to 20% even. We’ll see, but certainly not 25% or 30%,” LaPlatney answered.

For the current third quarter, Gray is telling Wall Street to expect that local ad revenue will rise 8% to 20% to approximately $222 million-$225 million, while national ad revenue will increase by 14%-16% to $50 million-$57 million.

Howell spoke for the first time in the call about Gray’s recent $80 million purchase of a 128-acre former GM plant site for a film and TV production sound stage site. Gray is the majority owner of Swirl Films, which will make use of the facility, and the CEO said other production companies within Gray may use it as well. And other companies are expected to lease the facilities, since Georgia has become a hotbed of movie and TV production.

“We expect that, upon completion, that they will generate a quite large free cash flow in a very short period of time. So, we believe, within 12 to 13 months we will see significant free cash flow from the studios,” Howell said of the facility to be built in Doraville, Ga., a suburb of Atlanta.