Gray Television, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2014. The filing describes a television broadcasting company operating in 42 markets with 139 programming streams. All figures below are in millions of dollars, except per-share data.
Financial performance and liquidity
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Revenue | $107.2 | $84.3 | $198.5 | $162.5 |
| Operating income | $23.2 | $21.3 | $40.6 | $36.4 |
| Operating margin | 21.6% | 25.3% | 20.4% | 22.4% |
| Net income | $1.6 | $5.1 | $2.9 | $6.0 |
| Diluted EPS | $0.03 | $0.09 | $0.05 | $0.10 |
| Operating cash flow | Not separately stated | $29.3 | $25.9 |
For the six months, investing cash outflow was $335.3 million, primarily reflecting acquisitions; financing cash inflow was $358.6 million. Cash ended June 30 at $66.1 million, versus $13.5 million at year-end 2013.
Total debt carrying value was $1.203 billion, up from $842.7 million at December 31, 2013. The balance included $675 million of 7.5% notes due 2020 and a $525 million term loan under a new credit facility. The company reported $40 million of revolving availability and covenant compliance. Current assets were $199.0 million and current liabilities $69.6 million. No dividends were declared.
Material changes and drivers
- Revenue rose 27% in Q2 and 22% for the six-month period. Growth reflected acquired stations, higher local advertising, retransmission consent fees and election-year political advertising.
- Six-month retransmission consent revenue increased 77% to $33.8 million; political revenue increased to $11.4 million from $1.4 million. National advertising was slightly lower. Local and national advertising also benefited from the 2014 Winter Olympics.
- Operating income increased, but operating margins declined as expenses grew. Six-month broadcast expense rose 20% and corporate and administrative expense rose 79%, including acquisition-related costs, higher network fees, compensation and other expenses.
- Net income fell despite revenue growth, reflecting higher interest expense and a $4.9 million loss on early extinguishment of debt. Q2 interest expense was $15.8 million versus $12.6 million a year earlier.
- Four acquisitions were completed in the first half, including Hoak for approximately $298.4 million. Acquired stations contributed $8.9 million of Q2 revenue and $12.6 million for the six-month period. Preliminary acquisition accounting recorded $135.8 million of goodwill.
Outlook, risks and unusual items
- Management expected cash on hand, operating cash flows and available borrowing capacity to fund debt service, planned capital expenditures and acquisition obligations; it stated it expected funding capacity through the June 2021 term-loan maturity. This outlook is subject to operating and financing risks.
- Management estimated approximately $70.8 million of debt interest payments over the twelve months after June 30, 2014, $5.5 million of principal repayments, and capital expenditures of $25–$28 million. It expected an additional $3.4 million pension contribution during 2014.
- A $128 million acquisition of WJRT-TV and WTVG-TV was agreed to after quarter-end, subject to regulatory and other approvals, and was expected to close before year-end 2014. The company also had pending acquisitions requiring approximately $4.2 million in additional payments.
- Advertising is seasonal, cyclical and typically stronger in even-numbered election years. Automotive was the largest advertising customer category, representing approximately 24% of broadcast advertising revenue in each six-month period presented.
- Other notable items included $4.6 million of Hoak transaction costs, increased non-cash paid-time-off expense following a benefit-policy change, and healthcare costs affected by higher claims. Acquisition fair values remained preliminary and could change materially.
- The company disclosed a guarantee of Excalibur’s loan and possible exposure under a sports marketing agreement if IMG fails to pay required fees. Management said it did not consider IMG’s non-performance risk high. No material change to previously disclosed risk factors was reported.
Investor facts to verify
- Whether acquired stations deliver the expected revenue, cash flow and operational efficiencies, and how final purchase-price allocations compare with preliminary estimates.
- Debt-service capacity and covenant headroom after the Hoak acquisition, including the impact of interest rates and further acquisition financing.
- Whether retransmission fee growth and election-related advertising are sustainable, given seasonality and dependence on advertising customers, particularly automotive.
- Approval, financing and closing status of the WJRT-TV/WTVG-TV and other pending acquisitions, plus their total cash requirements.
- Future operating expenses and margins, including network affiliation fees, employee costs, healthcare claims and acquisition-related costs.