Gray Television, Inc. — Q2 2020 Form 10-Q
Business context and period. The filing covers the three and six months ended June 30, 2020. Gray Television operated television stations and digital properties in 94 U.S. markets, alongside production businesses. The filing identifies the registrant as Gray Television, Inc.
Financial performance
- Second quarter: Revenue was $451 million, down 11% from $508 million. Operating income was $65 million, versus $119 million; operating margin was approximately 14.4%, compared with 23.4%. Net income was $11 million, versus $44 million. After $13 million of preferred dividends, the loss attributable to common stockholders was $2 million, or $0.02 per share, compared with income of $31 million, or $0.31 per share.
- First six months: Revenue was $985 million, down 4% from $1.026 billion. Operating income was $189 million, up from $159 million; operating margin was approximately 19.2%, compared with 15.5%. Net income was $64 million, versus $26 million; income attributable to common stockholders was $38 million, versus zero reported in 2019. Interest expense declined to $98 million from $116 million.
- Revenue mix: Q2 advertising revenue was $219 million, down from $287 million; local and national advertising fell by a combined $84 million, while political advertising rose to $21 million from $5 million. Retransmission consent revenue increased to $220 million from $201 million. Production-company revenue declined to $2 million from $9 million.
- Cash flow: First-half operating cash flow was $307 million, versus $105 million. Management attributed the increase partly to approximately $151 million of cash from working-capital changes. Investing cash use was $59 million, compared with $2.599 billion, reflecting the absence of prior-year acquisition activity. Financing cash use was $81 million, including $49 million of common-stock repurchases and $26 million of preferred dividends.
- Liquidity and debt: Cash was $379 million at June 30, up from $212 million at year-end. Debt principal was $3.760 billion; the balance-sheet carrying amount, net of financing costs, was $3.703 billion. The revolving facility had $200 million available. Preferred stock had a $650 million liquidation value. The company reported compliance with debt covenants and estimated $168 million of debt interest payments over the next 12 months.
- Capital spending: First-half capital expenditures were $51 million, including $14 million for the FCC spectrum Repack. Management expected full-year 2020 spending of approximately $65–$75 million excluding Repack, plus $45–$50 million for Repack; it anticipated reimbursement for most Repack costs.
Material changes and management commentary
- Management attributed declines in local and national advertising and production-company revenue primarily to COVID-19, which disrupted customers, sports and event programming, and content production. Cost reductions, including lower compensation and production expenses, partly offset revenue pressure.
- Political advertising and retransmission consent revenue provided partial offsets to the advertising decline. The 2020 election cycle increased political spending; management noted that political demand can displace other advertising inventory.
- Management was reducing expenses and delaying capital expenditures where possible, while noting that the business has high fixed costs and that pandemic duration, economic conditions, customer behavior, and recovery remain uncertain. It said available cash, expected operating cash flow, and credit-facility borrowing capacity were expected to support debt service and capital needs.
- The company repurchased 3.34 million common shares in Q2 for approximately $49 million, at a weighted average $12.99 per share. Approximately $80 million remained under the repurchase authorization at June 30.
- Repack reimbursements are subject to FCC fund sufficiency and timing. Approximately $7 million of requested reimbursements had not been received at June 30.
- Management reported no material change to previously disclosed risk factors. It stated disclosure controls were effective, while noting that it was evaluating possible effects of pandemic-related workplace changes on internal controls.
Investor verification points
- Assess whether advertising demand and production activity recover, and how much of the revenue decline is pandemic-related versus cyclical or structural.
- Check cash-flow quality: first-half operating cash flow benefited materially from working-capital movements, including changes in accounts payable.
- Monitor leverage, interest costs, debt maturities, covenant compliance, and the availability of the revolving facility.
- Verify timing and sufficiency of FCC Repack reimbursements against planned spending.
- Review the ongoing cost of preferred dividends and common-stock repurchases relative to liquidity and investment needs.