Sunny Days Ahead For Gray

Hilton Howell Jr.

By Adam R Jacobson

Gray Television Chairman/CEO Hilton Howell Jr. opened Wednesday’s Q4 and FY2016 conference call with Wall Street analysts by noting that he is “extremely happy” with his company’s results for both the final three months of 2016 and for the full year.

The owner and operator of TV stations saw its net income surge — thanks to political dollars — in Q4, rising 139% year-over-year to $35.8 million (49 cents per diluted share) from $15 million (21 cents).

The earnings came on Q4 revenue (less agency commissions) of $237.6 million, a rise from $169.5 in the year-ago period.

On a full-year basis, net income swung to $62.3 million (86 cents per diluted share), from $39.3 million (57 cents). Compared to FY2014, net income was up 30%.

Full-year revenue soared to $812.5 million, from $597.4 million.

“We are pleased to have reached these milestones in 2016 despite a most unexpected and challenging political season that affected both our company and our entire industry,” Howell said. “We believe we are positioned for continued success in 2017 and beyond.”


“Gray is not a company that moves slowly at any level,” Howell told analysts in reviewing some of Gray’s key deals in 2017.

In January 2017, the company completed the acquisitions ABC affiliate WBAY-2 in Green Bay, Wisc., and NBC affiliate KWQC-6 in the Quad Cities, Iowa-Ill., market; and officially welcomed three stations in Fairbanks, Alaska, into the Gray family.

The Fairbanks stations are “already integrating nicely with KTUU in Anchorage,” Howell said. NBC affiliate KTUU-2 is one of Alaska’s most dominant stations.

He also noted that, in early February, Gray amended and restated its senior credit facility to, among other things, reduce its interest rate and increase its available credit from $60 million to $100 million. The company concurrently extended the maturity of its revolving credit facility to 2022 and lengthened the maturity of its term loan facility to 2024.

This means that Q1 2017 will see a loss on the extinguishment of debt of about $4.5 million, or $2.8 million after tax.

Then, there was the Feb. 16 deal that saw Diversified Communications sell its two television stations — located in Bangor, Maine and Gainesville, Florida — to Gray for $85 million.

With all of these activities, Howell says Gray has a “much stronger balance sheet than just one year ago.”

Political dollars may be squarely to thank for Gray’s ability to accomplish the moves without increasing its leverage in a significant way. Political revenue came in at $48.52 million during Q4. But, while it was in line with Gray’s guidance, this is down 26% from 2014, when factoring in agency commissions, as political dollars totaled $65.17 million.

For the full-year of 2016, political dollars totaled $90.1 million — up 10% from 2014 on an overall basis and in line with guidance, but down when taking into account agency commissions. On that basis, political dollars in FY2016 were $90.8 million, off 24% from $119 million in FY2014.


Gray reiterated with its full-year 2016 earnings release that it attracted $90,824,000 in proceeds from the FCC’s Reverse Auction. With the proceeds coming in Q3 or Q4, the spectrum its giving up is theoretically being replaced with the addition of KWQC, the company’s CFO, James Ryan, said. The proceeds will go to Diversified, to pay for the Gainesville and Bangor stations, he added.

Looking ahead to Q1 2017, Gray is offering operating revenue guidance of between $192 million and $196 million — a 11%-13% year-over-year decrease. Howell noted that there are “hard comps due to the Super Bowl,” but that he remains generally optimistic toward the remainder of 2017.

Indeed, while broadcast expenses for Q1 2017 are expected to rise 25%, to between $136 million and $138 million, Gray will continue to de-lever to the lower 5x range and  “well into the 4x” range by the end of 2018.

Investors seem pleased with Gray’s results, as the company’s stock rose 85 cents, to $14.45 in Wednesday’s trading on exceptionally high volume of 2.35 million shares.