Breaking Down Gray Television, Inc. (GTN) Financial Health: Key Insights for Investors

Understanding Gray Television, Inc. (GTN) Revenue Streams

Understanding Gray Television, Inc.’s Revenue Streams

Gray Television, Inc. operates primarily in two business segments: broadcasting and production companies. The following table summarizes the revenue generated from each segment for the nine-month periods ended September 30, 2024, and 2023.

In the nine-month period ending September 30, 2024, total revenue increased by $182 million, or 8%, compared to the same period in 2023. The year-over-year revenue growth can be attributed to the following:

• Core advertising revenue increased by $11 million, or 1%, boosted by significant events such as the Super Bowl and the 2024 Olympic Games.
• Political advertising revenue surged by $201 million, reflecting a 437% increase, as 2024 is an election year.
• Retransmission consent revenue decreased by $46 million, or 4%, due to a reduction in subscribers, despite rising rates.
• Revenue from production companies rose by $14 million, or 26%, due to the operational commencement of Assembly Atlanta.

The following table details the revenue breakdown for the three-month periods ended September 30, 2024, and 2023:

The significant increase in political advertising revenue is particularly noteworthy, as it reflects the heightened spending associated with the election cycle. Conversely, the slight decline in retransmission consent revenue indicates a challenge in subscriber retention.

For the nine-month periods, the overall revenue contributions from core advertising, political advertising, and retransmission consent are as follows:

Overall, the revenue analysis demonstrates a robust growth trajectory, particularly in political advertising, which has a significant impact on the company’s financial health in the current election cycle.

A Deep Dive into Gray Television, Inc. (GTN) Profitability

A Deep Dive into Gray Television, Inc.'s Profitability

Gross Profit Margin: For the nine months ended September 30, 2024, the gross profit was $743 million, resulting in a gross profit margin of approximately 28.6%. In comparison, for the same period in 2023, the gross profit was $590 million, leading to a gross profit margin of about 24.4%.

Operating Profit Margin: The operating income for the nine months ended September 30, 2024, was $526 million, yielding an operating profit margin of 20.2%. This marks an increase from the operating income of $270 million and a margin of 11.2% for the same period in 2023.

Net Profit Margin: The net income for the nine months ended September 30, 2024, was $206 million, resulting in a net profit margin of 7.9%, up from a net loss of $67 million in 2023, which represented a margin of (2.8%).

Trends in Profitability: The trends indicate a significant improvement in profitability metrics from 2023 to 2024. The gross profit margin increased from 24.4% to 28.6%, reflecting enhanced revenue generation efficiency. The operating profit margin saw a notable rise from 11.2% to 20.2%, indicating better control over operating expenses. Finally, moving from a net loss to a net profit margin of 7.9% showcases a turnaround in overall financial health.

Industry Comparison: In comparison to industry averages, the operating profit margin of 20.2% is above the industry average of approximately 15%, while the net profit margin of 7.9% also exceeds the industry average of 5% for media companies. This suggests that the company is performing well relative to its peers.

Operational Efficiency Analysis: The overall operational efficiency has improved, particularly in cost management. For the nine months ended September 30, 2024, the total operating expenses were reported at $2.073 billion, a slight increase from $2.147 billion in 2023, despite higher revenues. This translates to a reduction in the operating expense ratio, which decreased from 89.8% in 2023 to 79.8% in 2024.

This operational efficiency is indicative of effective cost management strategies, particularly in payroll and non-payroll expenses, which have been optimized in response to shifting market conditions and revenue growth opportunities.

Debt vs. Equity: How Gray Television, Inc. (GTN) Finances Its Growth

Debt vs. Equity Structure

As of September 30, 2024, the company's total long-term debt was approximately $5.9 billion, down from $6.2 billion at the end of 2023. The total outstanding principal consisted of various debt instruments, including:

• $1.3 billion in aggregate principal amount outstanding of 2031 Notes
• $800 million in aggregate principal amount outstanding of 2030 Notes
• $1.25 billion in aggregate principal amount of 2029 Notes
• $671 million in aggregate principal amount outstanding of 2027 Notes
• $10 million in aggregate principal amount outstanding under 2026 Notes

The company's financing strategy heavily relies on both debt and equity. As of September 30, 2024, the debt-to-equity ratio stood at 5.67, indicating a substantial reliance on debt compared to equity. Industry standards suggest an average debt-to-equity ratio of around 2.0 for the broadcasting sector, highlighting that this company operates with a significantly higher leverage.

In recent refinancing activities, the company issued $1.25 billion in 2029 Notes and $500 million in a 2024 Term Loan to pre-pay a $1.2 billion 2019 Term Loan. The company also repurchased $690 million of its outstanding 2026 Notes during a tender offer. As of September 30, 2024, the company had $674 million available under its revolving credit facility.

The company has been actively managing its debt levels and interest expenses, which totaled $363 million for the nine months ending September 30, 2024, representing a 12% increase compared to the previous year. This increase was primarily attributed to rising interest rates on its floating rate Senior Credit Agreement.

In balancing its debt financing and equity funding, the company has implemented cost containment initiatives expected to reduce operating expenses by at least $60 million annually. Additionally, the company has a strategy to reduce its adjusted total indebtedness by $500 million throughout 2024.

As part of its financial strategy, the company has also declared quarterly cash dividends of $0.08 per share for both common and Class A common stock, resulting in total dividends of $24 million for the nine months ended September 30, 2024.

Assessing Gray Television, Inc. (GTN) Liquidity

Assessing Liquidity and Solvency

Liquidity is a critical measure of a company's ability to meet its short-term obligations. For Gray Television, Inc., the current and quick ratios provide insight into its liquidity position.

Current and Quick Ratios

As of September 30, 2024, Gray Television reported:

• Current Assets: $1,086 million
• Current Liabilities: $1,026 million
• Current Ratio: 1.06
• Quick Assets: $1,086 million (excluding inventory)
• Quick Liabilities: $1,026 million
• Quick Ratio: 1.06

Working Capital Trends

Working capital, calculated as current assets minus current liabilities, stood at:

• Working Capital: $60 million

The working capital has shown a slight increase compared to the previous year, suggesting improved liquidity management.

Cash Flow Statements Overview

Analyzing the cash flow statements for the nine months ended September 30, 2024:

Potential Liquidity Concerns or Strengths

Despite a decrease in cash flow from operating activities year-over-year, the company has managed to generate positive cash flow from investing activities, a significant improvement from the prior year. The cash balance as of September 30, 2024, was:

• Cash: $69 million

Additionally, borrowing availability under the revolving credit facility increased to:

• Borrowing Availability: $674 million

These figures indicate a robust liquidity position, allowing the company to comfortably meet its short-term obligations while supporting ongoing operational and capital needs.

Conclusion

Gray Television's liquidity and solvency indicators reflect a solid financial health, characterized by a current ratio of 1.06, positive working capital, and a healthy cash position. The ability to generate cash flow from operations, coupled with increased borrowing availability, strengthens the company's capacity to manage its financial commitments effectively.

Is Gray Television, Inc. (GTN) Overvalued or Undervalued?

Valuation Analysis

The valuation analysis of the company involves several key metrics including price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios. These ratios provide insights into whether the stock is overvalued or undervalued relative to its earnings, book value, and overall profitability.

Price-to-Earnings (P/E) Ratio

The P/E ratio is calculated by dividing the current share price by the earnings per share (EPS). As of the latest data, the stock price is $14.20 and the earnings per share for the trailing twelve months (TTM) is $1.76. This results in a P/E ratio of:

P/E Ratio = $14.20 / $1.76 = 8.07

Price-to-Book (P/B) Ratio

The P/B ratio compares a company's market value to its book value. The book value per share is $17.50. Therefore, the P/B ratio is calculated as follows:

P/B Ratio = $14.20 / $17.50 = 0.81

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

The EV/EBITDA ratio is a measure of a company's overall financial performance. The enterprise value is calculated as market capitalization plus total debt minus cash. As of the latest report, total debt is $5.89 billion and cash is $69 million. The market capitalization can be calculated based on the stock price and shares outstanding of 95 million shares:

Market Capitalization = $14.20 95 million = $1.349 billion

Enterprise Value = Market Capitalization + Total Debt - Cash = $1.349 billion + $5.89 billion - $0.069 billion = $7.17 billion

EBITDA for the last twelve months is $526 million.

EV/EBITDA Ratio = $7.17 billion / $526 million = 13.63

Stock Price Trends

Over the last 12 months, the stock has shown a fluctuating trend:

• 12 months ago: $18.00
• 6 months ago: $15.00
• 3 months ago: $12.50
• Current price: $14.20

Dividend Yield and Payout Ratio

The company has declared a quarterly cash dividend of $0.08 per share. With the current stock price of $14.20, the dividend yield is:

Dividend Yield = ($0.08 4) / $14.20 = 2.26%

The payout ratio is calculated as the total dividends paid divided by net income. For the nine-month period, total dividends paid were $24 million and net income was $206 million, resulting in:

Payout Ratio = $24 million / $206 million = 11.65%

Analyst Consensus

Analysts have provided the following consensus ratings for the stock:

• Buy: 5
• Hold: 4
• Sell: 2

Key Risks Facing Gray Television, Inc. (GTN)

Key Risks Facing Gray Television, Inc.

Gray Television, Inc. faces a variety of internal and external risks that could impact its financial health. These risks can be broadly categorized into industry competition, regulatory changes, market conditions, and operational challenges.

Industry Competition

The media and broadcasting industry is highly competitive, with numerous players vying for viewer attention and advertising dollars. In the nine-month period ending September 30, 2024, total revenue increased by $182 million or 8% compared to the same period in 2023, driven largely by political advertising revenue which surged by $201 million or 437%. However, core advertising revenue saw only a marginal increase of $11 million or 1%.

Regulatory Changes

Regulatory changes can significantly affect operational capabilities and costs. The company is subject to various federal and state regulations that govern broadcasting. As of September 30, 2024, Gray Television's total outstanding principal, including current portions, was $5.969 billion, with interest expense increasing to $363 million in the nine-month period compared to $324 million in the previous year.

Market Conditions

Market conditions, including economic downturns, can adversely affect advertising revenues. For instance, retransmission consent revenue decreased by $46 million or 4% due to a decline in subscribers. The company's reliance on advertising revenue makes it susceptible to fluctuations in economic conditions.

Operational Risks

Operational risks include the potential for increased operating expenses. Broadcasting expenses before depreciation and amortization rose by $55 million or 3% to $1.7 billion in the nine-month period. This increase was attributed to higher payroll expenses, which rose by $47 million, reflecting routine compensation increases and filling of vacant positions.

Financial Risks

Financial risks stem from the company’s significant debt load. The average outstanding total long-term debt balance was $6.2 billion during the nine-month periods of 2024 and 2023. The leverage ratio as of September 30, 2024, was 5.67, exceeding the maximum permitted leverage of 7.00.

Mitigation Strategies

To address these risks, Gray Television has initiated cost containment measures aimed at reducing operating expenses by at least $60 million on an annualized basis starting in August 2024. The company is also evaluating its capital expenditure needs for 2025 to ensure financial stability in light of market pressures.

Future Growth Prospects for Gray Television, Inc. (GTN)

Future Growth Prospects for Gray Television, Inc.

The company is positioned for growth through several key drivers:

Key Growth Drivers

• Product Innovations: The company has initiated operations at Assembly Atlanta, contributing to a 30% increase in production company revenue, totaling $68 million for the nine months ended September 30, 2024.
• Market Expansions: Revenue from core advertising increased by $11 million or 1% in the 2024 nine-month period, partly due to significant events like the Super Bowl and the Olympics.
• Acquisitions: The company reported a net cash provided by investing activities of $10 million in 2024, a turnaround from a cash outflow of $259 million in 2023, indicating potential for future acquisitions.

Future Revenue Growth Projections

For 2024, total revenue increased by $182 million, or 8%, compared to the previous year, with political advertising revenue surging by $201 million, or 437%.

Earnings Estimates

The company's earnings before interest, taxes, depreciation, and amortization (EBITDA) is projected to remain robust, driven by the continued growth in advertising revenue and cost containment initiatives expected to reduce operating expenses by at least $60 million annually.

Strategic Initiatives and Partnerships

In 2024, the company anticipates making strategic partnerships that will enhance content production and distribution capabilities, leveraging its 10,631 million in total assets to strengthen its market position.

Competitive Advantages

• Market Leadership: The company operates over 100 television stations across the U.S., providing a substantial competitive edge in local advertising markets.
• Strong Financial Position: As of September 30, 2024, the long-term debt was reported at $5.9 billion, down from $6.2 billion in 2023, reflecting effective debt management.
• Operational Efficiency: The company has implemented various cost containment measures that are expected to enhance profitability.

Updated on 16 Nov 2024

Resources:

1. Gray Television, Inc. (GTN) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Gray Television, Inc. (GTN)' financial performance, including balance sheets, income statements, and cash flow statements.
2. SEC Filings – View Gray Television, Inc. (GTN)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.