Gray Feels Post-Olympics, Elections Pinch

Gray Television generated $69.7 million in net revenues as reported in the first quarter of 2007, a 2 percent increase over last year.

The Atlanta-based broadcast company said its most recently acquired station helped offset the absence of Olympics and election dollars in this quarter. Gray picked up WNDU in South Bend, Ind., in March 2006, and the station has "added to broadcast cash flows from the date of acquisition," the broadcaster said. In part due to WNDU, Gray said it was able to "replace all but $1.1 million of the prior year's $3.4 million of Olympic and $1.9 million of political advertising revenues."

On a pro forma basis, after giving effect to the WNDU acquisition, Gray logged a 2 percent decrease in overall station revenue, or $1.1 million.

Operating expenses increased 9.4 percent to $48.3 million for the quarter, primarily because of the growth of digital channels. Gray, which owns 36 stations in 30 mid-sized markets, said it was operating 39 digital channels at the end of the first quarter of 2007, compared to six at the beginning of last year. Gray said one more digital channel will be launched during the second half of this year.

Pro forma, local advertising revenue increased 1 percent to $48.8 million and national advertising revenue decreased 4 percent to $17.1 million.

Gray repurchased 647,800 shares of its common stock for $5.5 million during the first quarter of 2007 at an average price per share of $8.49. No similar repurchase was made Q1 '06. On March 19, Gray completed a refinance involving a $100 million revolving credit facility and a $925 million term loan. It drew $8 million from the revolving fund and $610 million from the loan to pay off a previous senior credit facility. In doing so, Gray incurred fees of around $3.2 million and reported a loss of $6.5 million on early debt payoff.

Gray's Q1 results exceeded Bear Stearns expectations of $69 million on an as-reported basis, but the company expects to miss Wall Street expectations in Q2, with the additional expense of running the digital channels. Gray recently issued guidance of $80 million to $81.5 million for 2Q, roughly flat or down from last year's $81.4 million for the same quarter a year ago.