Gray Television, Inc. (NYSE:GTN) Q4 2023 Earnings Call Transcript
Gray Television, Inc. (NYSE:GTN) Q4 2023 Earnings Call Transcript February 23, 2024
Gray Television, Inc. misses on earnings expectations. Reported EPS is $-0.24 EPS, expectations were $-0.23. Gray Television, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Welcome to the Gray Television Q4 2023 Earnings Call. I will now turn the call over to Hilton Howell, Chairman and CEO of Gray Television. You may begin.
Hilton Howell: Thank you, operator. Good morning, everyone, and thank you for joining us. As the operator mentioned, I’m Hilton Howell, the Chairman and CEO of Gray Television. Thank you for joining our fourth quarter 2023 earnings call. With me here in Atlanta are all of our executive officers, Pat LaPlatney, our President and Co-CEO; Sandy Breland, Chief Operating Officer; Kevin Latek, our Chief Legal and Development Officer; and Jim Ryan, our Chief Financial Officer. As usual, we will begin with a disclaimer that Kevin will provide. Thereafter, I will discuss the company’s results and expectations, followed by brief remarks from Jim Ryan regarding our financial posture. And then after those remarks, we will have a few questions for all of our officers here with me today. Kevin?
Kevin Latek: Great. Thank you, Hilton, and good morning, everyone. Gray uses its website as a key source of company information. The website address is www.gray.tv. We filed our annual report on Form 10-K with the SEC a few minutes ago. Included on the call may be a discussion of non-GAAP financial measures, and in particular, broadcast cash flow, operating cash flow, free cash flow, certain leverage ratios. These metrics are not meant to replace GAAP measurements, but are provided as supplements to assist the public in their analysis and valuation of our company. Included in our earnings release as well as on our website are reconciliations of the non-GAAP financial measures to the GAAP measures reported in our financial statements.
Certain matters discussed on this call may include forward-looking statements regarding, among other things, future operating results. Those statements are subject to a number of risks and uncertainties. Actual results in the future could differ from those expressed or implied in any forward-looking statements as a result of various important factors that have been set forth. The company’s most recent reports filed with the SEC, including our most recent annual report on Form 10-K and our most recent earnings release. The company undertakes no obligation to update these forward-looking statements. I’ll now return the call to Hilton.
Hilton Howell: Thank you, Kevin. Before turning to today’s earnings release, I want to address Gray’s upcoming transition to a new Chief Financial Officer for the first time in 25 years. A few days ago, after the successful completion of the refinancing and the upsizing of our revolver, Jim Ryan notified me that he would like to transition into retirement after 2025. And as part of that plan to step down from his CFO position later this summer. As many of you know, Jim joined Gray as its CFO in 1998 upon our acquisition of Busse Broadcasting, where Jim had also served as CFO. And during that process, we were so impressed that he negotiated to the very end and really almost negotiated himself out of a job that we decided to offer him a job to take over and run the combined company.
And happily, he agreed. He has provided steady leadership and management of the company as we have divested our previous publishing assets and embarked on two significant waves of acquisitions of the highest quality television stations in the industry. Jim and his entire team have been instrumental in helping to build Gray into the leading multimedia company that it is today. While we will all miss Jim’s day-to-day contributions we are very fortunate to have succeeded in hiring his most logical successor and Jeff Janiak, a 20-year veteran of media and telecom banking at Wells Fargo Securities. Gray’s leadership and finance teams have worked closely with Jeff over many transections or transactions and he knows our company as well as almost anyone who is not already working here.
He is, therefore, the perfect candidate to become our next CFO. So I’d like to welcome Jeff to the Gray Television family. Turning now to our earnings release. It should be clear to all that Gray Television delivered in 2023 by nearly every measure. Our core advertising and retrans revenues increased over the prior year and political advertising revenue increased over 2019, the last year before a presidential cycle. Meanwhile, our local television stations continue to score with our audiences and to bring new business to our airwaves to our digital platforms. Our stations also collected more awards and recognitions from outside organization for their successful news investigations and community service. In the second half of the year, we reached substantial completion of our state-of-the-art assembly studios moving in television production facility here in Atlanta.
And in December, NBCUniversal commenced its long-term lease for two-thirds of our sound stages at Assembly Atlanta. With these achievements in 2023, we have laid a strong foundation for 2024, which we believe will be further powered by another significant presidential election cycle. In the fourth quarter of 2023, Gray had total revenue of $864 million, which was at the high end of our revenue guidance. The company had total operating expenses of $664 million, which was below the low end of our expense guidance for the quarter. Fourth quarter revenue was $143 million or 20% ahead of 2021, our most recent non-political year. Our fourth quarter 2023 core advertising revenue was $415 million, an increase of 2% from the fourth quarter of 2022. Retransmission consent revenue was $365 million, an increase of 3% from the fourth quarter of 2022.
Unfortunately, investments to grow and diversify our company do not always pan out, but in the fourth quarter ‘23 due in part to non-cash write-downs of certain investments, Gray posted a net loss attributable to common stockholders of $22 million. On the other hand, when investments do pay off, the awards can be tremendous. And indeed, we saw such a payoff about two weeks ago with the receipt of $110 million in pre-tax proceeds from the sale of BMI, in which we have long held a position. Operationally, we had a tremendous fourth quarter, not only in sales and content but also in multiple initiatives to leverage our unique assets for future growth. In fact, our significant focus on developing new local direct advertising business continues to be very strong.
During the fourth quarter, we grew our new local direct ad revenue by 12%, and that momentum has continued into 2024. In addition, as the year drew to close, we extended our affiliation agreement with NBC for another two years. We are happy that this long-term relationship continues. The most exciting initiatives involve our aggressive efforts to bring professional sports teams in our markets back to free over-the-air broadcast television. After extensive efforts over the summer and fall, we were able to announce two major deals on top of our previously announced long-term deal with the Phoenix Suns and Mercury, with storied professional sports franchises at the end of the year, literally, New Year’s Eve. First, the Atlanta Hawks returned to Peachtree TV in Atlanta after almost 30 years away for nearly every Friday night game remaining in the 2023-2024 NBA season.
Thereafter, we followed up with the announcement that the New York New Orleans Pelicans would have turn up their games this NBA season broadcast of fans on Gray’s WVUE and our Bounce channel in New Orleans. But significantly, in both cases, we have supported the teams by carrying these games in all of our stations from all of their true fans are. So the Hawks are broadcast throughout the State of Georgia and a good half of Alabama, and the Pelicans are broadcast across the entire great State of Louisiana and most in Mississippi and even part of Alabama. Gray has begun 2024 with great momentum. In January, we hosted our station general managers for our Annual Meeting, and they are universally excited about the year ahead. We have continued to sign up professional sports contracts with new deals announced in the last few weeks to bring Gray stations, games featuring the Cleveland Cavaliers, the Oklahoma City Thunder, and the Milwaukee Bucks.
Over the past several weeks, Gray has also renewed all of its retransmission consent agreements with MVPDs that expired in the fourth quarter of January 2024. These renewals cover a sizable portion of our subscriber base at higher rates and improved terms that recognize the enduring value of our truly unique local stations and what they continue to provide. Earlier this month, our CBS portfolio capitalized on the Super Bowl with $18 million in local ad sales. That was a 200% increase over our Super Bowl net revenue last year across our FOX station portfolio. But significantly, it also represents a 39% increase over the last Super Bowl broadcast on our CBS stations. Most recently, we took advantage of a good opportunity to launch a process to refinance certain of our senior credit facilities.
Unfortunately, an unexpected turmoil and capital markets led us to postpone that effort with regard to our term loan expiring in 2026. We did, however, successfully refinanced our revolving credit facility as our bank stood strongly with us and provide us with a new and larger revolver totaling $625 million. Although we do not have any amounts currently drawn on our revolving credit facility, it will provide us with additional flexibility in the future when and if needed. We very much appreciate the bank’s continuing and deep understanding of our company and our business and their unwavering support of our efforts to grow the company and reduce [indiscernible]. As we now look ahead to 2024, I remain very bullish about our prospects and our future.
Our television stations continue to perform at the absolute top of their game. Sports teams are rediscovering what our local advertisers and viewers already know, which is that our local stations offer unparalleled reach and promotional opportunities for free to 100% of the viewing audience. 2024 will see us continue to build on these foundations for continued success. Finally, I’m very proud that we have created the nation’s finest television and movie production facilities at our Assembly Atlanta Complex here in Atlanta. By relying on local contractors, tradesmen and materials, we were able to deliver the facilities to NBCU in just 19 months from the date of announcement. In 2024, we will be putting the finishing touches on the studio complex and certain infrastructure projects.
These additional projects will require about $52 million in capital expenditures, but they will be netted about by -- against about $31 million in reimbursements for the public nature of these infrastructure projects or a net of about $21 million. It is extremely gratifying to us to now see the major content creator, NBCUniversal, leverage the sound stages and support buildings into a new major center for its class productions. On the Gray side, we are actively marketing the sound stages that we have retained at Assembly as well as our pre-existing sound stages at our adjacent Third Rail Studios to bring additional production work here to Atlanta. This now concludes my remarks, and I will turn the call over to Jim Ryan.
Jim Ryan: Thank you, Hilton. Good morning, everybody. Hilton covered the key highlights of the quarter and of the full year. So my remarks will be very short today. Again, we’re very pleased with our Q4 and year-to-date results, especially the growth in core revenue. On a debt net of cash basis and on terms consistent with our senior credit facility, total leverage ratio at the end of the year was 5.60 times. And our first-lien leverage ratio at the end of the year was 2.38 times. Turning to our Q1 ‘24 guidance. We look forward to successful full year ‘24, and we’re off to a good start in Q1. We’re very pleased with core revenue in Q1’s growth guiding to mid-single-digit percentage increases. Core revenue got off to a great start, helped by the $18 million of Super Bowl advertising revenue in February, providing for a strong year-over-year increase in core revenue in February.
But more importantly, we see both in January and March, core revenue is expected to be increasing in both months year-over-year. I’ll turn now to some comments on the full year ‘24. And as we’ve said consistently for some time publicly, we are not providing a guide on political revenue for the full year of 2024. We will point to 2020 and say that after deducting the $50 million that was associated with the double Senate runoff election in Georgia in that year. We had approximately $600 million of total. And of that $600 million, about 22% represented the presidential campaigns that year. We’ll also point to 2022 where we had approximately $515 million of political revenue. All of you on the call are welcome to plug in whatever political revenue estimate you want for 2024.
And after Election Day, we can compare notes to see who got closest. Turning to some other data points for full year 2024. We expect core revenue of approximately $1.6 billion; retransmission revenue of approximately $1.5 billion; other TV revenue of approximately $70 million; production companies’ revenues of approximately $110 million; our operating expenses before depreciation and amortization, impairment, gain and loss on disposal of assets, broadcasting of approximately $2.4 billion. That would include approximately $937 million of network compensation, also known as retransmission expense. We expect approximately $85 million of expense at the production companies and our corporate expense of approximately $125 million. Significant cash uses in 2024 are as follows: we expect cash interest of approximately $430 million.
Routine capital expenditures between $115 million and $120 million. As Hilton already mentioned, our net additional investment in Assembly Atlanta is expected to be $21 million. Cash or cash taxes are expected to be between $190 million and $210 million that obviously reflects political in 2024. It also reflects the taxes we will be paying on the $110 million of the BMI sales proceeds. Our preferred dividends were approximately $52 million, and our common dividends will be approximately $30 million. Turning in again to the BMI proceeds of $110 million. That translated into approximately $81 million after-tax cash proceeds. We used $50 million of that $81 million to repay in full all outstanding amounts under our revolving credit facility. As Hilton said earlier, we have nothing drawn on the revolving credit facility as of today.
Finally, as Hilton mentioned, we’re very pleased to upsize our revolver to $625 million. And we appreciate our bank syndicates understanding of the fundamentals of our business and partnering with us into the future. I’ll now turn the call back to Hilton. Thank you.
Hilton Howell: Thank you, Jim. Before we open up the floor to take questions, I would like to conclude our remarks on what I view as exceptionally positive note about the momentum that we are building with professional sports, particularly with the NBA. We have been able to use our unmatched regional presence to distribute these games on our stations across the entirety of the States of Arizona, Georgia, Ohio, Louisiana, Mississippi and Alabama. At the same time, we have worked with other broadcasters to fill in a few holes in our distribution map as we have done with Allen Media and soon will announce similar deals with other groups. We have also worked with other broadcasters to enable our stations to provide outer market distribution for NBA teams and cities where we do not have the major market television station as we have done with Griffin Media in Oklahoma City and Tulsa and with Wygo broadcasting and soon with more companies.
I’m happy to see the industry working together to provide the power of broadcasting to local professional sports teams and their amazing fans. Last, but certainly not least, it is worth highlighting the massive increase in viewership that these teams are receiving when their games appear on three local broadcast stations instead of their traditional regional sports networks. In market after market, these NBA teams are enjoying ratings that are 2 and often 3 times higher than what they had been receiving previously. And even more importantly, they’re reaching 100% of their fans. We are racking up impressive ratings for NBA games not just, and this is important to me, in their home market, but throughout the regions where we are distributing the games.
Through local broadcast on Gray Television, they are getting to 100% of their fans. And broadcast stations and professional sports teams are among the strongest local institutions that helped to bond our communities together. When we struck our deal with the Phoenix Suns and Mercury, something occurred that I’m extremely proud of, that I’m a little embarrassed that I didn’t think of beforehand. Once we launched and it went out on broadcast television, our local general managers received many letters from local individual American-Indian viewers who had never been able to watch their basketball teams before. We are immensely proud that we have spread these sports teams to truly 100% of their fans. We are at an important time in history.
When these two powerful forces are proving that coming together can provide unparalleled reach and experience that benefits everyone. So operator, at this time, we ask that you open the line for questions of anyone here on the leadership team.
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