Gray Television today reported record third quarter revenue and broadcast cash flow despite what it called “disappointing political revenue of $22.3 million.” Revenue totaled $204.5 million, up 35% from the year-ago quarter; broadcast cash flow came in at $84.2 million, an increase of 60%.
Net income was a loss of $213,000.
On a pro forma basis (what Gray calls “Combined Historical Basis”), total revenue increased 12% and broadcast cash flow increased 24% in the third quarter of 2016 compared to the third quarter of 2015. In addition, on a Combined Historical Basis, Gray’s broadcast operating expenses, excluding network compensation fees, decreased in the third quarter of 2016 when compared to the third quarter of 2015.
The expected increases in network compensation fees were offset by increases in gross retransmission revenue, the company said.
Hilton H. Howell Jr., Gray’s chairman-CEO, commented: “This year’s political election season presented extraordinary challenges from the top of the ticket to the bottom, especially after mid-September. These challenges created a ‘perfect storm’ for our political revenue. Earlier this year, a large number of races were expected to be highly competitive and political fundraising appeared to be highly encouraging through the summer. However, actual spending by candidates, political parties and third-parties fell far short of expectations, especially in Gray’s markets.”
Howell continued: “The political uncertainty also appears to have led to significant economic uncertainty and created new headwinds for our core business that we hope will dissipate as the results of today’s elections are announced tonight. In any event, the political revenue results and uncertain macro environment make it more likely that Gray will place the highest priority on debt repayment over the next four to five quarters.”
Historically, Gray has reported its local television advertising revenues and its internet/digital/mobile advertising revenues separately. Beginning in 2016, it is reporting a single line item identified as “Local (including internet/digital/mobile)” that combines both its local television ad revenues and its internet/digital/mobile advertising revenues.
First quarter financial highlights included:
Total revenue increased $53.4 million, or 35%, for the third quarter of 2016 when compared to the three-months ended Sept. 30, 2015. Nevertheless, the shortfall in political advertising revenue during the third quarter of 2016, along with a $32 million loss from early extinguishment of debt ($19.5 million, net of tax), contributed to a net loss of $0.2 million for the third quarter of 2016.
Gray’s broadcast cash flow was $84.2 million for the third quarter of 2016, which was the highest for any third quarter in its history and a 60% increase from the third quarter of 2015.
The principal types of revenue were:
- Local advertising revenue (including internet/digital/mobile) increased $18.2 million, or 22%, to $102.2 million.
- National advertising revenue increased $4.5 million, or 22%, to $25.4 million.
- Political advertising revenue increased $17.7 million, or 385%, to $22.3 million.
- Retransmission consent revenue increased $11.8 million, or 30%, to $51.1 million.
- Other revenue increased $1.2 million, or 52%, to $3.5 million.
Within Gray’s local and national advertising revenue categories, and excluding the 2016 Acquired Stations and 2015 Acquired Stations, its five largest customer categories experienced the following approximate changes during the third quarter of 2016 compared to 3Q 2015:
- Automotive increased 1%
- Medical decreased 5%
- Restaurant decreased 17%
- Furniture and appliances increased 6%
- Home improvement increased 11%
On a Combined Historical Basis, total revenue increased $21.6 million, or 12%, to $204.5 million in the third quarter of 2016 compared to the third quarter of 2015. On a Combined Historical Basis, the principal types of revenue for the third quarter of 2016 compared to the third quarter of 2015 were approximately as follows:
- Local advertising revenue (including internet/digital/mobile) increased $0.9 million, or 1%, to $102.2 million.
- National advertising revenue decreased $1.9 million, or 7%, to $25.4 million.
- Political advertising revenue increased $17.2 million, or 338%, to $22.3 million.
- Retransmission consent revenue increased $6.8 million, or 15%, to $51.1 million.
- Other revenue decreased $1.3 million, or 27%, to $3.5 million
Within Gray’s local and national advertising revenue types, and including revenue from the Acquired Stations, its five largest customer categories experienced the following approximate changes in revenue for the third quarter of 2016 compared to the third quarter of 2015:
- Automotive decreased 1%
- Medical increased 5%
- Furniture and appliances increased 10%
- Restaurant decreased 17%
- Home improvement increased 8%.
Read the company’s report here.
Editor’s note: The following paragraph was added at 8:24 p.m. ET on Tuesday, Nov. 8:
In the report, Gray also said it had “recently entered into an agreement to acquire KTVF (NBC), KXDD (CBS), and KFXF (Fox) in Fairbanks, Alaska, for a total purchase price of $8 million…. We anticipate completing the Fairbanks Acquisition using cash on hand following receipt of regulatory approvals in the first or second quarter of 2017. With an effective purchase price multiple for the Fairbanks Acquisition of less than five times blended average 2015-16 pro-forma broadcast cash flow, this transaction will be immediately cash flow accretive.”
Also today, Gray announced plans to repurchase up to an additional $75 million of its outstanding common stock prior to Dec. 31, 2019. This authorization is in addition to existing authorization for the company to repurchase up to an aggregate of 5,000,000 shares of its common stock and Class A common stock.
Howell explained: “Reducing our debt level remains a high priority for Gray as we end this political season. But we also see this as an opportunity to provide a return of capital to our stockholders. We therefore intend to judiciously exercise our new authority to repurchase stock while keeping a close eye on our leverage. Simply put, we anticipate that the total repurchases in any year would range between 10% and 20% of our free cash flow.”
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