Gray Q4 down 25% on political

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Gray TelevisionGray Television’s Q4 revenue was $95.6 million, off 25% from $126.6 million in Q4 2012. Local, national and internet advertising revenue and retransmission consent revenue all increased, while, as expected, political revenue, consulting revenue and other revenue decreased, the company said.


Local, national and internet advertising revenue increased primarily due to increased sales to customers in the automotive and medical industries. Retransmission consent revenue increased primarily due to increased rates.  Political ad revenue decreased due to decreased advertising from political candidates and special interest groups in the off year of the two-year political ad cycle.

Comps from Q4 2013 and Q4 2012:

Local ad revenue increased $6.7 million, or 13%, to $57.0 million.

National ad revenue increased $1.1 million, or 7%, to $16.2 million.

Internet ad revenue increased $0.4 million, or 6%, to $7.0 million.

Retransmission consent revenue increased $3.0 million, or 35%, to $11.5 million.

Political advertising revenue decreased $41.5 million, or 96%, to $1.8 million.

Other revenue decreased $0.1 million, or 7%, to $2.0 million.

Our five largest nonpolitical advertising customer categories on a combined local and national basis, by customer type, demonstrated the following changes in revenue in the fourth quarter of 2013 compared to Q4 2012: automotive increased 6%; medical increased 13%; restaurant was unchanged; furniture and appliances decreased 1%; and communications increased 5%.

Broadcast expenses increased $1.9 million, or 3%, to $58.6 million for the fourth quarter of 2013 compared to Q4 2012. This increase was due primarily to an increase in compensation expense of $3.1 million, offset in part by a decrease in non-compensation expense of $1.2 million.

Said Hilton Howell, Jr., Gray’s CEO: “I am proud of the significant strides the Company made in 2013, recording record results for an off political year.  Our results reflect our continued commitment to owning and/or operating top stations in our local markets, and to leveraging the benefits of our operational excellence in order to deliver value to our stockholders.  We also entered into a number of significant transactions in 2013, and we continue to work toward completing the successful acquisition and integration of these operations, which we believe will further strengthen our Company.”

On 10/31/13, Gray and Excalibur Broadcasting completed previously disclosed transactions resulting in Gray’s ownership and/or operation of the following stations and their satellite stations: KJCT-TV in Grand Junction, Colorado; KCWY-TV in Casper, Wyoming; KCHY-TV in Cheyenne, Wyoming; KGNS-TV in Laredo, Texas and KGWN-TV in Cheyenne, WY.

The operating results of the acquired stations have been included in Gray’s consolidated operating results since 11/1/13. For Q4 of 2013 and FY, the acquired stations contributed $2.4 million of revenue and $1.3 million of broadcast expense to Gray’s consolidated operating results.

FY, local, national and internet advertising revenue, retransmission consent revenue and consulting revenue all increased while, as expected, political advertising revenue and other revenue decreased. Local and national advertising revenue in the year was positively influenced by the broadcast of the 2013 Super Bowl on Gray’s 20 CBS channels, earning $1.1 million, an increase of approximately $0.3 million compared to the broadcast of the 2012 Super Bowl on their 10 NBC channels that earned $0.8 million.  Local and national ad revenue in the year ended 2012 included benefits from advertising during the Olympic Games that did not occur in the year ended 2013.

Local and national ad revenue in 2013 benefited significantly from increased sales to customers in the automotive and legal industries.  Retransmission consent revenue increased in 2013 primarily due to increased rates. Political ad revenue reflected decreased advertising from political candidates and special interest groups during the “off year” of the two-year political advertising cycle. Other revenue decreased due to an anticipated reduction of certain copyright royalty payments during the 2013 period. As a result of the foregoing, total revenue decreased $58.5 million, or 14%, to $346.3 million for the year compared to last year.

Comps from FY 2013 vs FY 2012:

Local ad revenue increased $11.7 million, or 6%, to $203.1 million.

National ad revenue increased $1.5 million, or 3%, to $58.3 million.

Internet advertising revenue increased $0.4 million, or 2%, to $25.4 million.

Retransmission consent revenue increased $6.0 million, or 18%, to $39.8 million.

Political advertising revenue decreased $81.4 million, or 95%, to $4.6 million.

Other revenue decreased $1.5 million, or 16%, to $8.0 million.

Consulting revenue increased $4.7 million to $7.1 million.

Gray’s five largest nonpolitical advertising customer categories, vs 2012: Automotive increased 8%; medical decreased 1%; restaurant decreased less than 1%; communications increased 3%; and furniture and appliances increased 3%.

Q1 2014 guidance:

“We believe our first quarter of 2014 local advertising revenue, excluding political advertising revenue, will increase from the first quarter of 2013 by approximately 10%.

We expect our first quarter of 2014 national advertising revenue, excluding political advertising revenue, will increase from the first quarter of 2013 by approximately 2%.

We anticipate our first quarter of 2014 internet advertising revenue, excluding political advertising revenue, will increase from the first quarter of 2013 by approximately 4%.

We believe our first quarter of 2014 retransmission consent revenue will increase from the first quarter of 2013 by approximately 67%.”

Noted Marci Ryvicker, Wells Fargo Securities Senior Analyst: “GTN’s stock price performance post the Q4 print is unwarranted, in our view. Despite a pretty nice Q4 print and Q1 revenue guide, GTN’s stock was off 5% vs. the S&P’s -0.5% and the rest of the broadcast space’s -2%. While expenses were somewhat higher in both quarters than we had initially modeled, a lot of the incremental was one-time in nature (incentive comp and M&A-related costs) and didn’t detract too much from overall EBITDA (Q4 still beat and Q1 is just slightly below). In general, investors remain concerned over the potential regulation around retrans and JSAs, but GTN did a great job of providing reasons why such regulations would not be material to its operations. At the end of the day, we raise our 2014 ests, which move to $512MM in rev., $216MM in EBITDA, $1.23 in EPS and $2.01 in FCF/sh. from $503MM, $215MM, $1.23 and $2.01, respectively. And we introduce our 2015 ests as follows: rev. of $511MM, EBITDA of $185MM, EPS of $0.97 and FCF/sh of $1.48.
•    We still expect Hoak to close “on time”. Recall on 11/20/13, GTN and Excalibur announced its acquisition of 15 stations from Hoak Media and Parker Broadcasting for $335MM in cash & a working capital adjustment, representing a 6.8x ’13/’14 EBITDA multiple. In order to comply by FCC rules, on 12/19/13, GTN agreed to divest 5 stations to NXST for $37.5MM. The initial closing date for these transactions was expected to be either Q1 or Q2 of 2014, and we are sticking with our Q2 timing as the FCC’s report and order should be finalized before then (we anticipate at the 3/31 meeting). We currently estimate that Hoak will contribute $100MM to rev., $59MM to EBITDA and $0.76 to FCF/sh when all is said and done (PF 2014), as well as add 4 JSAs. Interestingly, the acquisition already got through the DOJ as well as the FCC’s public commentary.
•    GTN has some pretty nice retrans trends this year and next. The company renewed~2MM of its ~6MM sub base in Q4 (we believe with DISH and CMCSA) and will be renegotiating the remaining 2/3rds of its sub base at year-end. The good news is that Q4 retrans came in ahead of our estimate, as did the Q1 retrans guide – which means rates are likely higher than what we had estimated for GTN. At the same time, our reverse comp was a little light – we raised our expense expectations, which result in a roughly 10-60-30% split with GTN’s FOX, NBC and ABC stations. Overall, we currently forecast reverse comp at roughly 30% of TOTAL retrans revenue for 2014.
•    We like core ad trends. One big positive that seemed to be overlooked today was the really nice core revenue trends that GTN posted – both for Q4 as well as in the Q1 guide. Local happened to be +13% in the print (vs. our +10%) and is expected to be +10% in Q1 (vs. our +5%). We think part of this is an improvement in the economy, in addition to GTN’s execution and market leading stations. Regardless, we take this as a positive read for the industry, esp. now that most of the “winter weather” seems to be behind us.”

RBR-TVBR observation: In November Gray announced it would purchase Yellowstone Holdings for $23 million, adding four stations to its current 22-station roster. Three weeks later, Gray announced it would purchase Hoak Media and Parker Broadcasting for $335 million, with some spinoffs to Excalibur, Nexstar and Mission Broadcasting. What sort of damage will the 3/31 vote on banning/unwinding JSAs and eliminating joint retrans consent negotiations do to the value of these deals? No grandfathering here if Wheeler wins.


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Carl has been with RBR-TVBR since 1997 and is currently Managing Director/Senior Editor. Residing in Northern Virginia, he covers the business of broadcasting, advertising, programming, new media and engineering. He’s also done a great deal of interviews for the company and handles our ever-growing stable of bylined columnists.