Gray Television, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. The filing is for Gray Television, Inc., a multimedia company operating broadcasting and production businesses. Its stations serve 113 U.S. television markets, reaching approximately 36% of U.S. television households.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $827 million | $544 million | Up $283 million (52%) |
| Operating income | $164 million | $101 million | Up $63 million |
| Operating margin | 19.8% | 18.6% | Expanded approximately 1.2 percentage points |
| Net income | $62 million | $39 million | Up $23 million |
| Net income attributable to common stockholders | $49 million | $26 million | Up $23 million |
| Diluted earnings per common share | $0.52 | $0.27 | Up $0.25 |
| Net cash from operating activities | $141 million | $147 million | Down $6 million |
| Capital expenditures | $47 million | $13 million | Up $34 million |
- Revenue mix: Broadcasting revenue was $804 million; production companies revenue was $23 million. Core advertising was $365 million, political advertising $26 million, and retransmission consent $393 million.
- Cash and liquidity: Cash was $247 million at quarter-end, versus $189 million at December 31, 2021. Revolving credit availability was $496 million. Current assets were $1.018 billion and current liabilities $363 million.
- Debt: Gross outstanding principal was $6.831 billion; debt carrying value, including current portion and net of deferred financing costs, was approximately $6.755 billion. The company reported $79 million of quarterly interest expense and estimated approximately $300 million of interest payments over the 12 months after March 31. It was in compliance with debt covenants.
- Dividends: Common dividends declared were $0.08 per share; preferred dividends were $13 million for the quarter.
Material changes and drivers
- The 2021 acquisitions contributed approximately $234 million of Q1 2022 revenue and $150 million of broadcasting expenses, substantially affecting year-over-year comparisons. Acquisitions included Quincy Media and Meredith Local Media Group.
- Excluding the 2021 acquisitions, management attributed revenue growth to higher retransmission rates, improving core advertising conditions, election-year political spending, and increased production-company activity as pandemic effects eased.
- Interest expense increased $31 million, primarily due to acquisition-related debt; average debt rose to $6.8 billion from $4.0 billion. Average rates on the senior credit facility also increased.
- Amortization rose to $52 million from $26 million, mainly reflecting acquired finite-lived intangible assets. Depreciation increased to $32 million from $25 million.
- Operating cash flow declined despite higher net income, with management citing working-capital changes. Investing outflow was $53 million, including $47 million of property and equipment purchases; financing outflow was $30 million.
Outlook, risks and unusual items
- For 2022, management expected routine capital expenditures of $120–$130 million, plus $130–$140 million for studio-facility development. Repack spending was expected to be about $2 million, with most costs expected to be reimbursed, potentially after they are incurred.
- Management anticipated 2022 income tax payments, net of refunds, of $170–$190 million and a $4 million pension contribution. It stated that cash, operating cash generation and borrowing availability were expected to fund obligations, capital expenditures and debt service; it believed funding was sufficient at least through the February 2024 maturity of the 2017 Term Loan.
- On April 1, 2022, Gray acquired the assets of Atlanta-area Telemundo affiliate WKTB-CD for $30 million in cash, subject to adjustments. A preliminary purchase-price allocation was not available when the filing was prepared.
- Management cited continuing uncertainty from COVID-19 and its economic effects, advertising competition from internet platforms, seasonal and election-cycle advertising fluctuations, and exposure to a limited number of advertising industries. The filing notes that political advertising generally peaks in the fourth quarter of even-numbered election years.
- Internal controls: Management concluded internal control over financial reporting was not effective at March 31, 2022 because of a material weakness in user-access controls for certain financial-reporting systems, including access provisioning and segregation of duties. The company reported no identified improper access, financial-statement misstatements, or changes to previously reported results, and said remediation efforts were underway.
- Management said there were no material changes to the risk factors in its 2021 Form 10-K. Legal proceedings arise in the ordinary course; management did not expect ultimate liabilities to materially affect results, while acknowledging litigation uncertainty.
Important facts for investors to verify
- How much of subsequent revenue and earnings growth reflects acquired operations versus organic performance, especially as political advertising changes through the election cycle.
- Debt repayment capacity, interest-rate exposure on floating-rate term loans, and refinancing needs, including the 2024 loan maturity and planned investment spending.
- Execution, funding and expected returns for Assembly Atlanta and other studio projects, and whether projected capital expenditures remain within management’s stated ranges.
- Progress and independent validation of remediation of the material weakness in financial-reporting access controls.
- Completion accounting and expected financial contribution of the April 2022 Telemundo Atlanta acquisition.