Gray Television, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. The filing identifies the registrant as Gray Television, Inc. (the metadata names Gray Media, Inc.). Amounts are in millions of dollars unless stated otherwise.
Business context
Gray operates local television stations and digital assets in 113 U.S. markets and owns television production businesses and studio facilities. Its two reportable segments are broadcasting and production companies. Results reflect the 2021 acquisitions of Quincy Media and Meredith Local Media, among other transactions, so reported year-over-year growth is not solely organic.
Key financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $868 | $547 | $1,695 | $1,091 |
| Operating income | $218 | $108 | $382 | $209 |
| Net income | $99 | $39 | $161 | $78 |
| Net income attributable to common stockholders | $86 | $26 | $135 | $52 |
| Diluted EPS | $0.91 | $0.27 | $1.44 | $0.55 |
| Interest expense | $81 | $47 | $160 | $95 |
- Q2 revenue rose 59%; six-month revenue rose 55%. Acquisitions contributed $253 of Q2 and $487 of six-month revenue, according to management.
- For the six months, revenue included $847 advertising ($731 core and $116 political), $775 retransmission consent, and $36 production companies. Excluding acquisitions, political and retransmission revenue increased; core advertising was up $8, primarily as COVID-related effects eased.
- Approximate operating margin was 25.1% in Q2 versus 19.7% a year earlier, and 22.5% for the six months versus 19.2%. Higher amortization and depreciation, largely associated with acquisitions, partially offset operating income growth.
- Six-month operating cash flow was $330, versus $238. Investing cash outflow was $201, including $159 property and equipment purchases and $40 net acquisition spending. Financing cash outflow was $156, including $58 of debt repayments, $50 of share repurchases, and dividends. Cash declined $27 to $162.
Debt and liquidity
- At June 30, principal debt was $6,778; carrying debt including current portion, net of deferred financing costs, was approximately $6,705. Cash was $162 and revolving-credit availability was $496. The company also had $650 of cumulative redeemable preferred stock.
- Debt principal declined $57 from year-end, including a voluntary $50 prepayment on the 2017 Term Loan and required repayments. The company reported compliance with debt covenants.
- Term-loan interest rates were 3.6%, 3.6%, and 4.1% at June 30; management reported average debt rates of 4.6% for Q2 and 4.5% for the six-month period. It estimated approximately $325 of interest payments over the following 12 months and noted rates could rise.
- Management stated that cash, operating cash flow, and available borrowing were expected to fund obligations and expenditures; it expected these resources to support long-term debt service at least through the February 2024 maturity of the 2017 Term Loan.
Outlook, risks, and unusual items
- No specific revenue or earnings guidance was provided. Expected 2022 routine capital expenditures were $120–$130, in addition to $130–$140 for Assembly Atlanta; the company expected another $80–$90 for Assembly Atlanta in 2023. Project estimates are net of anticipated property-sale proceeds and certain incentives.
- Gray announced a long-term NBCUniversal agreement to lease and operate studio facilities at the Assembly Atlanta development, which was under construction. In April, Gray acquired the Atlanta Telemundo affiliate WKTB-TV and certain digital assets for $31, funded with cash.
- Management cited advertising-market uncertainty, the continuing effects of COVID-19, internet competition, seasonality and political-advertising cycles, and rising interest rates. Services and automotive advertisers were significant sources of nonpolitical broadcast advertising.
- A previously identified material weakness involved user-access controls and segregation of duties in certain financial systems. The company described remediation steps and said management considered internal control over financial reporting effective at June 30, 2022; it reported no related improper access or financial-statement misstatements.
- Legal proceedings arise in the normal course of business; management did not expect them to materially affect results, while noting the inherent uncertainty of litigation. No material changes to the risk factors in the 2021 Form 10-K were reported.
Most important facts for investors to verify
- How much revenue and operating cash flow growth is sustainable after separating acquisition effects from organic performance.
- Whether political advertising, core advertising, and retransmission revenue develop as expected, and how the election cycle and advertiser demand affect results.
- Debt-service capacity and refinancing exposure, particularly the 2024 term-loan maturity, floating-rate exposure, and rising interest expense.
- Assembly Atlanta’s remaining costs, construction timeline, expected sale proceeds and incentives, and the economics of the NBCUniversal lease.
- Progress in remediating the previously identified control weakness and any subsequent assessment of control effectiveness.