Gray Television, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless noted. Gray operates local television stations and digital assets across 113 U.S. markets, as well as television production businesses.
Financial performance and liquidity
- Revenue: $801 million, down 3% from $827 million. Broadcasting contributed $779 million and production companies $22 million.
- Revenue mix: Core advertising was $357 million (down $8 million); political advertising was $8 million (down $18 million); retransmission consent was $395 million (up $2 million).
- Operating results: Operating income fell to $67 million from $164 million; operating margin was approximately 8.4%, versus 19.8%. Net loss was $31 million versus net income of $62 million. Net loss attributable to common stockholders was $44 million, or $0.48 per share, versus income of $49 million, or $0.53 per share.
- Costs and interest: Broadcasting expenses before depreciation, amortization and asset disposals rose 5% to $555 million. Production company expenses increased to $59 million, including a $17 million Diamond Sports credit-loss provision and an $18 million Assembly Atlanta litigation accrual. Interest expense rose to $104 million from $79 million.
- Cash flow: Operating cash flow was $412 million versus $141 million; investing cash outflow was $95 million versus $53 million; financing cash outflow was $322 million versus $30 million. The operating cash flow increase included $339 million of cash from receivables securitization and other working-capital changes. Capital expenditures were $110 million, including $91 million for Assembly Atlanta.
- Balance sheet and debt: Cash was $56 million at March 31, down from $61 million at year-end. Total debt principal was $6.221 billion, down from $6.520 billion; the company repaid its $295 million 2017 Term Loan. Revolving-credit availability was $494 million. Current assets were $537 million and current liabilities $424 million. The company reported compliance with debt covenants.
- Dividends: Common and Class A shareholders received a declared dividend of $0.08 per share. Preferred stock dividends were $13 million for the quarter.
Material changes and notable items
- Lower political revenue reflected 2023 being an off-year in the election cycle. Core advertising also reflected a different mix of major sports broadcasts: Q1 2023 included $6 million from the Super Bowl on FOX stations, compared with $13 million from the Winter Olympics and Super Bowl on NBC stations in Q1 2022.
- Diamond Sports Group filed for Chapter 11 on March 14, 2023. Gray reserved the full $17 million receivable outstanding at quarter-end.
- Gray established a three-year, $300 million revolving receivables securitization facility in February. At quarter-end, $300 million of receivables had been sold and derecognized, with $297 million of unsold receivables maintained as collateral. The initial $9 million discount was expensed.
- Gray entered interest-rate caps with approximately $2.6 billion of combined notional value, maturing in December 2025. The filing reports a $15 million fair-value liability at March 31.
- On May 1, 2023, Gray sold KNIN in Boise and acquired WPGA in Macon, each for $6 million.
Outlook, risks and contingencies
- Management expects cash on hand, operating cash generation and available borrowing capacity to cover debt service, capital expenditures and acquisition obligations for at least the next 12 months, and expects funding capacity through the January 2026 maturity of the 2019 Term Loan. Gray estimates approximately $434 million of debt interest payments in the 12 months after March 31, 2023.
- For the remainder of 2023, Gray expects routine capital expenditures of $86–$96 million. Assembly Atlanta construction spending is projected at $95–$100 million and is expected to be offset by a similar amount from property-sale proceeds and CID incentives; timing and amounts are not assured.
- Management anticipates $35–$45 million of income-tax payments and a $4 million pension contribution during the remainder of 2023. It expects the securitization facility to incur about $5 million of interest per quarter at the quarter-end balance, and interest-cap premium amortization of about $3 million per quarter.
- Key exposures include high leverage and floating-rate interest costs, advertising cyclicality and seasonality, counterparty credit risk, and uncertainty around Assembly Atlanta proceeds and project costs. Gray recorded an $18 million accrual to resolve Assembly Atlanta litigation. Management said other legal matters are not expected to materially affect results, while noting litigation outcomes remain uncertain.
- Management reported disclosure controls were effective and no material changes in internal control. The filing stated there were no material changes to the risk factors in the 2022 Form 10-K.
Most important facts for investors to verify
- Whether operating cash generation remains adequate after separating recurring cash flow from receivables-facility proceeds and working-capital movements.
- Debt refinancing, floating-rate exposure, interest expense and covenant headroom, particularly ahead of the 2026 maturities.
- Recovery, if any, of the $17 million Diamond Sports receivable and the effects of its bankruptcy on related contracts.
- Actual Assembly Atlanta spending, litigation resolution and timing and realization of expected property-sale and CID proceeds.
- Advertising and retransmission trends, including political-cycle comparisons and changes in subscriber counts and rates.