Business context and reporting period
Gray Television, Inc. filed this Form 10-K for the fiscal year ended December 31, 2022; it is an annual report, not a standalone fourth-quarter filing. Gray operates local television stations and digital assets across 113 U.S. markets, reaching approximately 36% of U.S. television households, and owns several production businesses. Its principal revenue sources are advertising and retransmission consent fees.
Financial performance and liquidity
| Metric | 2022 | 2021 |
|---|---|---|
| Total revenue | $3.676 billion | $2.413 billion |
| Operating income | $990 million | $381 million |
| Operating margin | 26.9% | 15.8% |
| Net income | $455 million | $90 million |
| Net income attributable to common stockholders | $403 million | $38 million |
| Diluted earnings per share | $4.33 | $0.40 |
| Interest expense | $354 million | $205 million |
| Cash from operating activities | $829 million | $300 million |
| Cash used in investing activities | $503 million | $3.534 billion |
| Cash used in financing activities | $454 million | Cash provided: $2.650 billion |
Revenue mix in 2022: core advertising $1.496 billion (41%); political advertising $515 million (14%); retransmission consent $1.496 billion (41%); production companies $93 million (3%); and other revenue $76 million (1%). Operating margin is calculated as operating income divided by revenue.
At December 31, 2022, cash was $61 million, current assets were $857 million, and current liabilities were $409 million. Debt principal outstanding was $6.520 billion (reported carrying amount, net of deferred financing costs and including the current portion, was $6.455 billion); approximately $496 million was available under the revolving credit facility. Gray also had $650 million of Series A perpetual preferred stock. During 2022, it repaid $315 million of senior credit facility principal, paid $30 million of common-stock dividends, and repurchased $50 million of common stock. Property and equipment purchases were $436 million, including $264 million for Assembly Atlanta.
Material changes versus the prior comparable period
- Revenue rose 52%, primarily because 2021 included the Meredith and Quincy acquisitions for only part of the year. Revenue from stations acquired in those transactions increased by $974 million in 2022 versus 2021.
- Excluding the net impact of the 2021 acquisitions, political revenue increased $252 million as 2022 was an election “on-year”; retransmission revenue increased $31 million, while core advertising decreased $11 million.
- Operating expenses before depreciation, amortization and disposal gains or losses increased $617 million, principally reflecting the acquired stations. Corporate and administrative expense fell $55 million, largely due to lower acquisition-related professional fees.
- Interest expense increased $149 million, reflecting acquisition financing and higher rates. The average rate on the Senior Credit Facility rose to 4.4% from 2.6% in 2021.
- Cash from operations increased $529 million. Investing cash use fell substantially from 2021, when major acquisitions drove $3.3 billion of net acquisition spending; 2022 acquisition spending, net of divestiture proceeds, was $58 million.
Outlook, risks, contingencies and unusual items
- Company estimates: Gray expected 2023 routine capital expenditures of $105–$115 million and net Assembly Atlanta capital expenditures of $70–$75 million. It estimated 2023 income tax payments, before refunds, of $90–$110 million and a $4 million contribution to its frozen pension plan. These are estimates, not earnings guidance.
- Debt and interest rates: Substantial debt, variable-rate borrowings, debt covenants and required interest and principal payments may constrain investment, acquisitions, dividends and liquidity. Gray reported compliance with debt covenants at year-end. After year-end, it drew $300 million under a new receivables securitization facility and planned to use proceeds to repay $295 million of Term Loan B. It also entered into interest-rate caps intended to limit rate exposure; the filing describes the cap benchmark as LIBOR.
- Operating risks: Advertising is economically sensitive, seasonal and election-cycle dependent. Competition from digital platforms, streaming and other media, reliance on network affiliations and retransmission agreements, and concentration of non-political advertising in services and automotive sectors could affect results. Political revenue represented 14% of 2022 total revenue versus 2% in 2021.
- Regulatory and legal matters: The FCC imposed a $518,283 forfeiture in November 2022 concerning Gray’s Anchorage-market programming arrangement; Gray challenged the order and the matter remained pending. Gray also disclosed consolidated local-TV advertising antitrust litigation related to acquired Raycom and Meredith operations; the company said it intended to defend the claims. Management did not believe known ordinary-course proceedings were likely to have a material adverse effect, while noting litigation uncertainty.
- Unusual items and controls: Gray recorded an $18 million investment impairment in 2022 and a $2 million gain on asset disposals; 2021 included a $42 million disposal loss and $81 million in acquisition-related expenses. No goodwill or broadcast-license impairment was recorded in 2022. A material weakness in user-access and segregation-of-duties controls identified in 2021 was reported remediated; management and the auditor concluded internal control over financial reporting was effective at year-end 2022. The auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- How much 2022 earnings and cash generation reflect acquired businesses and election-year political spending, and how the company performs in a non-election year.
- Debt maturities, floating-rate exposure, refinancing plans, covenant headroom and the actual use and cost of the post-year-end securitization facility and interest-rate caps.
- Assembly Atlanta spending, expected project completion and whether anticipated property-sale and incentive proceeds arrive on schedule.
- Progress and outcomes in the FCC Anchorage matter and the advertising antitrust litigation, along with any material changes in regulatory ownership rules.
- Whether retransmission agreements and network affiliations are renewed on acceptable terms, and whether advertising concentration or digital competition changes materially.