Gray Television, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; filed February 23, 2024. The filing is for Gray Television, Inc., notwithstanding the request metadata naming Gray Media, Inc. It reports annual results, not a standalone fourth quarter.
Business context
Gray owns local television stations and digital assets serving 113 U.S. markets, reaching approximately 36% of U.S. television households, and operates production businesses and studio facilities. Revenue is primarily from broadcast and internet advertising and retransmission consent fees.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $3.281 billion | $3.676 billion |
| Operating income | $383 million | $990 million |
| Operating margin | 11.7% | 26.9% |
| Net income (loss) | $(76) million | $455 million |
| Net income (loss) attributable to common stockholders | $(128) million | $403 million |
| Net cash from operating activities | $648 million | $829 million |
| Cash at year-end | $21 million | $61 million |
| Debt principal outstanding | $6.210 billion | $6.520 billion |
| Revolver availability at year-end | $494 million | $496 million |
Capital expenditures were $348 million, including $240 million for Assembly Atlanta. Operating cash flow less capital expenditures was approximately $300 million, a simple subtraction rather than a company-defined free-cash-flow measure. The company paid $310 million in net required and voluntary debt principal reductions, $30 million in common dividends, and $52 million in preferred dividends. Total assets were $10.640 billion; current assets were $468 million and current liabilities $395 million.
Revenue mix in 2023: retransmission consent $1.532 billion (47%); core advertising $1.514 billion (46%); political advertising $79 million (2%); production companies $86 million (3%); and other revenue $70 million (2%). These amounts are reported net of agency commissions.
Material changes versus FY2022
- Revenue fell 11%, primarily because political advertising declined $436 million in the non-election “off-year.” Core advertising rose $18 million and retransmission consent revenue rose $36 million, partly offsetting that decline.
- Broadcasting expenses increased $103 million (5%) to $2.3 billion, including higher payroll, healthcare, retirement contributions, and retransmission expense.
- Interest expense increased $86 million (24%) to $440 million. The average interest rate on debt rose to 6.5% from 5.1%, while average debt outstanding declined to $6.3 billion from $6.7 billion.
- Operating income declined by $607 million. In addition to lower revenue, results included a $43 million non-cash impairment charge related to Diamond Sports Group, a $29 million investment impairment, and a $21 million net loss on asset disposals, including the sale of KNIN.
- Operating cash flow decreased $181 million to $648 million; the company cited lower net income, partly offset by working-capital changes, including receivables sold under its securitization facility.
Outlook, management commentary, risks and unusual items
- Management expects 2024 routine capital expenditures of approximately $115–$120 million, plus approximately $21 million net for Assembly Atlanta, assuming expected incentive payments. Estimated 2024 income tax payments, before refunds, are $190–$210 million; anticipated pension contributions are $4 million.
- Management said cash, operating cash flow, and revolver availability should fund operations and material obligations for at least the next 12 months. It expects 2024 liquidity uses to include debt reduction, working capital, interest, taxes, capital expenditures, and strategic opportunities. No quantified 2024 revenue or earnings guidance is provided.
- Political advertising is cyclical: it represented approximately 2% of 2023 revenue versus 14% in 2022. Management notes that even-numbered election years generally generate higher political revenue; actual 2024 results remain uncertain.
- Debt is substantial. Year-end principal was $6.210 billion, and a large portion of term-loan debt carries variable rates. Interest-rate caps cover a portion of exposure through December 2025; approximately $34 million in related fees are due at maturity. The company reported compliance with debt covenants at year-end.
- Broadcast licenses and goodwill totaled approximately $8.0 billion in carrying value. Their valuations depend on estimates and could be impaired if market conditions or future performance weaken. The auditor identified broadcast-license impairment assessment as a critical audit matter; the financial-statement and internal-control audit opinions were unqualified.
- Key risks include economic and advertising cyclicality, competition from streaming and digital platforms, reliance on major network affiliations and retransmission agreements, refinancing and interest-rate exposure, FCC ownership rules, and pending advertising antitrust litigation. A pending FCC fine of $518,283 concerning the Anchorage-market top-four rule is under judicial challenge.
- Subsequent events: Gray received $110 million in pre-tax proceeds from the sale of its BMI investment in February 2024, used $50 million to repay its then-outstanding revolver balance, and expects to use the remainder for general corporate purposes. Its revolver commitments were amended to $625 million, with portions extended to 2027. A station exchange is expected to close in Q2 2024, subject to approvals. The CFO transition is planned for July 2024, with the incumbent expected to retire after 2025.
Investor verification points
- Confirm the drivers and durability of 2023 operating cash flow, particularly the impact of receivables securitization and working-capital movements.
- Review debt maturities, refinancing plans, revolver terms, covenant headroom, variable-rate exposure, and the 2025 interest-cap fee obligation.
- Assess the 2024 political advertising outlook and whether growth in core advertising and retransmission fees can offset election-cycle volatility and subscriber losses.
- Track Assembly Atlanta spending, incentive receipts, studio utilization, and the expected return on the project.
- Monitor Diamond-related recoveries or continuing effects, the Anchorage FCC challenge, and the local TV advertising antitrust litigation.
- Evaluate assumptions underlying broadcast-license and goodwill valuations, and the concentration of assets in these long-lived intangible balances.