Business context and reporting period
Gray Television, Inc. (the registrant named in this filing) filed this Form 10-K for the fiscal year ended December 31, 2021. It operates local television stations and digital assets in 113 U.S. markets, plus production businesses. The filing is an annual report, not a standalone fourth-quarter report; 2021 results include the Meredith acquisition from December 1 and the Quincy acquisition from August 2.
Key financial results
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $2.413 billion | $2.381 billion |
| Operating income | $381 million | $752 million |
| Net income | $90 million | $410 million |
| Net income attributable to common stockholders | $38 million | $358 million |
| Basic and diluted EPS | $0.40 | $3.73 basic; $3.69 diluted |
| Cash from operating activities | $300 million | $652 million |
| Cash used in investing activities | $3.534 billion | $211 million |
| Cash from financing activities | $2.650 billion | $120 million |
| Cash at year-end | $189 million | $773 million |
| Long-term debt, including current portion, net of financing costs | $6.755 billion | $3.974 billion |
Revenue increased about 1%. Operating margin fell to about 15.8% from 31.6%; net margin was about 3.7% versus 17.2%. The effective tax rate rose to 46% from 25%. The filing reports $205 million of interest expense, up from $191 million. Current assets were $963 million and current liabilities $384 million at year-end. Undrawn revolving-credit availability was $497 million; the facility’s stated capacity was $500 million.
Material changes versus the prior comparable period
- Local and national advertising revenue increased, while political advertising fell to $44 million from $430 million as 2021 was an election off-year. Retransmission consent revenue increased to $1.049 billion from $867 million.
- Operating expenses rose substantially, including corporate and administrative expenses of $159 million versus $65 million. The company recorded $81 million of transaction-related expenses and a $42 million net loss on asset disposals, compared with a $29 million gain in 2020.
- Operating cash flow declined by $352 million. Investing cash outflow included $3.765 billion for acquisitions, partly offset by $473 million of station-sale proceeds. Debt increased principally to finance the Meredith transaction.
- Gray acquired Quincy for an adjusted $936 million and Meredith for $2.8 billion in total enterprise value; station divestitures accompanied the transactions. The acquisitions contributed $128 million of 2021 revenue.
Outlook, risks and unusual items
- The filing gives no specific revenue or earnings guidance. Management estimated 2022 income-tax payments, net of refunds, of $170 million to $190 million; routine capital expenditures of about $125 million; studio-facility spending of $110 million to $120 million; and approximately $2 million of additional Repack spending.
- Management cited advertising cyclicality, competition from digital and streaming platforms, COVID-19 and macroeconomic uncertainty, dependence on retransmission agreements and network affiliations, acquisition integration, and substantial indebtedness as risks. Political advertising is typically stronger in even-numbered election years.
- Debt includes $1.5 billion of incremental term loans and $1.3 billion of 5.375% senior notes due 2031 issued to help fund Meredith. Variable-rate debt creates interest exposure; management estimated a 100-basis-point rate change would affect annual interest expense by about $33 million.
- A material weakness in financial-reporting controls existed at year-end, involving user-access controls and segregation of duties. Management and the auditor reported no identified misstatements from the weakness, and remediation had begun. The auditor issued an unqualified opinion on the financial statements but concluded internal control over financial reporting was ineffective. Acquired operations representing about 36% of assets and 5% of revenue were excluded from the controls assessment.
- The company disclosed ongoing class-action antitrust litigation related to alleged local TV advertising practices; it disputes the claims and intends to defend itself. It also reported no impairment in its 2021 annual tests, while noting future impairments could result if assumptions or market conditions change.
- A $30 million Atlanta Telemundo station acquisition was agreed in February 2022, subject to customary conditions and FCC approval. Gray paid $0.32 per share in common dividends during 2021; future payments remain subject to board approval and financing restrictions.
Important facts for investors to verify
- Whether acquired stations deliver expected results and synergies, and how final purchase-price allocations affect amortization and reported earnings.
- Debt repayment capacity, covenant headroom, refinancing needs, floating-rate exposure, and restrictions on dividends or repurchases.
- Progress and testing of remediation for the material weakness, including control coverage of acquired operations.
- Underlying advertising trends, retransmission-consent renewals, political-advertising comparisons, and exposure to services and automotive advertisers.
- Cash requirements for taxes, capital investment and studio development, and the outcome of the antitrust litigation and pending Atlanta transaction.