Gray Television, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; unaudited. Gray operated television stations in 44 markets and reported one segment. The filing describes the company as Gray Television, Inc.
Financial performance and liquidity
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue | $133.3 million | $91.3 million |
| Operating income | $28.1 million | $17.4 million |
| Operating margin | 21.1% | 19.1% |
| Interest expense | $18.5 million | $15.3 million |
| Net income | $5.6 million | $1.3 million |
| Diluted EPS | $0.10 | $0.02 |
| Operating cash flow | $29.2 million | $16.4 million |
| Capital expenditures | $2.8 million | $3.8 million |
Cash at March 31 was $224.6 million, versus $30.8 million at year-end. Current assets were $355.8 million and current liabilities $79.0 million. Long-term debt carrying value was $1.236 billion, comprising $556.4 million under the Senior Credit Facility and $675.0 million of 7.5% notes due 2020. Outstanding principal was $1.231 billion; the filing reports $50 million of revolver availability. No principal payments were required over the next 12 months, and the company estimated $71.8 million of debt interest payments during that period. It reported compliance with debt covenants.
Changes versus Q1 2014
- Revenue grew 46%, with approximately $32.6 million attributable to 2014 acquisitions. Local advertising rose 34% to $68.3 million, national advertising rose 33% to $17.8 million, and retransmission consent revenue rose 125% to $36.3 million.
- Political revenue fell 58% to $1.2 million, consistent with an election off-year. Q1 2014 included Winter Olympics advertising; Q1 2015 included Super Bowl advertising.
- Broadcast expenses increased 44% to $86.8 million, including approximately $19.8 million from the 2014 acquisitions. Operating income increased 61%. Interest expense rose 21%, reflecting higher average debt balances, partly offset by lower average rates.
- Operating cash flow increased $12.8 million, driven by higher earnings and noncash expenses, partly offset by working-capital movements.
Outlook, commentary and risks
- Management cited improving economic conditions as supporting non-political advertising. Advertising is seasonal, generally stronger in the second and fourth quarters, and typically higher in even-numbered election years.
- Management anticipated $20–25 million of capital expenditures during the 12 months following March 31, 2015, and $2.0–5.3 million of pension contributions during the remainder of 2015. It expected available cash, operating cash flow and potential borrowing capacity to fund debt service, capital spending and acquisitions; these expectations are forward-looking, not guarantees.
- Pending acquisitions were expected to require approximately $25 million in total: Twin Falls, Idaho, for $17.5 million and Presque Isle, Maine, for $10.25 million. Both were expected to close in Q3 2015, subject to regulatory and other conditions. The Presque Isle agreement and $1.0 million escrow deposit occurred after quarter-end; the company planned to use cash on hand.
- The March 31 common-stock offering raised $167.5 million net from 13.5 million shares. Proceeds were held for general corporate purposes, including possible debt repayment, acquisitions and capital expenditures. No dividends were declared or paid.
- Automotive was the largest advertising category, accounting for approximately 25% of broadcast advertising revenue in both periods; management warned that declines in automotive or other major categories could materially affect results. Legal matters were described as ordinary-course; unfavorable outcomes could have a material adverse effect, though management did not expect known claims to materially affect financial position.
Important facts for investors to verify
- How much revenue and operating performance came from acquired stations versus organic growth, and whether retransmission revenue increases are sustainable.
- Use of the offering proceeds, subsequent cash balances, and the company’s ability to service approximately $1.2 billion of debt while funding acquisitions and capital spending.
- Completion, final cost and financing of the Twin Falls and Presque Isle acquisitions, including regulatory approvals and expected closing timing.
- Actual capital expenditures, pension contributions and interest payments against management’s estimates; covenant headroom is not quantified in the filing.
- Advertising exposure, particularly automotive concentration, seasonality and election-cycle variability.