Gray Television, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. The filing is an annual report, not a standalone Q4 filing; selected Q4 results are included below. The company operated television stations and digital properties in 94 U.S. markets, reaching about 24% of U.S. television households, plus production businesses.
Financial performance
| Metric | FY2020 | FY2019 | Change / context |
|---|---|---|---|
| Revenue, less agency commissions | $2.381 billion | $2.122 billion | Up 12% |
| Operating income | $752 million | $478 million | Up 57%; operating margin about 31.6%, versus 22.5% |
| Net income | $410 million | $179 million | Up from prior year |
| Net income attributable to common stockholders | $358 million; $3.73 basic / $3.69 diluted per share | $127 million; $1.28 basic / $1.27 diluted | After $52 million preferred dividends in each year |
| Cash from operating activities | $652 million | $385 million | Up $267 million |
| Cash used in investing activities | $211 million | $2.656 billion | 2019 included substantial acquisition spending |
| Cash from financing activities | $120 million | $1.064 billion | 2020 included debt issuance and redemption, buybacks and preferred dividends |
| Cash at year-end | $773 million | $212 million | Up $561 million |
| Long-term debt, including current portion | $3.974 billion carrying amount; $4.035 billion principal | $3.697 billion carrying amount | Principal increased; $200 million revolver availability at year-end |
| Total assets / stockholders’ equity | $7.643 billion / $1.753 billion | $6.972 billion / $1.464 billion |
Revenue mix and fourth quarter
- FY2020 revenue included retransmission consent of $867 million (36.4%), political advertising of $430 million (18.1%), local advertising of $771 million (32.4%), and national advertising of $198 million (8.3%).
- Political advertising rose by $362 million to $430 million in the election-year comparison. Retransmission revenue increased 9% to $867 million. Local and national advertising combined fell $158 million, or 14%, and production company revenue declined $26 million to $61 million, primarily reflecting COVID-19 disruption.
- Q4 2020 revenue was $792 million, operating income $351 million, and net income attributable to common stockholders $211 million, compared with $579 million, $180 million, and $81 million, respectively, in Q4 2019.
Material changes and notable items
- Operating income benefited from higher political and retransmission revenue, lower corporate and transaction expenses, and lower interest expense; comparisons also reflect the large 2019 Raycom acquisition and the even-year political cycle.
- Interest expense fell 16% to $191 million; the average rate on the senior credit facility declined to 3.0% from 4.7%. The 2020 results included a $12 million loss on early debt extinguishment.
- Asset disposal gains were $29 million, mainly related to the FCC spectrum repack, compared with $54 million in 2019, which also included a station-divestiture gain. No goodwill or broadcast-license impairment was recorded in 2020.
- Gray issued $800 million of 4.75% senior notes due 2030 and used proceeds principally to redeem $525 million of 5.125% notes due 2024. The company repurchased about $75 million of common stock during 2020.
Liquidity, outlook and risks
- Management reported $773 million cash and $200 million of revolver availability at December 31, 2020. A February 2021 credit-facility amendment increased revolver availability to $300 million and extended its maturity to January 2026. The company reported compliance with debt covenants at year-end.
- Management expected 2021 capital expenditures of about $80 million excluding repack, plus about $7 million of repack costs, with most repack costs expected to be reimbursed. Estimated 2021 net income tax payments were $21–$23 million and expected pension contributions about $4 million.
- On January 31, 2021, Gray agreed to acquire Quincy Media for $925 million in cash, subject to adjustments and regulatory approvals. Management expected closing in Q2 or Q3 2021; a $25 million termination fee may apply in specified regulatory-failure circumstances.
- COVID-19 disrupted advertising demand, sports and event programming, and content production. Management cited uncertainty in the pandemic’s duration and economic effects, and limited mitigation flexibility given the business’s high fixed costs.
- Other key risks include substantial debt and variable-rate exposure, dependence on advertising and retransmission consent, automotive-industry concentration, competition from digital and streaming platforms, network affiliation renewals, FCC ownership and licensing rules, and potential impairment of significant goodwill and broadcast-license balances.
- The frozen defined-benefit pension plan was underfunded by $43 million at year-end. The company also disclosed ongoing antitrust-related class-action litigation and an FCC good-faith negotiation complaint involving Frontier; outcomes were uncertain.
- After year-end, the board declared a quarterly common-stock dividend of $0.08 per share, payable March 31, 2021. The company had not paid common-stock dividends in 2020.
Most important facts for investors to verify
- Whether revenue and cash generation can hold up after the unusually high 2020 political-advertising cycle, particularly amid ongoing local and national advertising pressure.
- Quincy acquisition closing conditions, funding, required divestitures, and expected effect on leverage and cash flows.
- Debt maturities, interest-rate sensitivity, covenant headroom, and the continuing cash cost of preferred dividends.
- Progress in recovering advertising and production activity from pandemic disruption, and the collectability of receivables.
- Management’s significant impairment assumptions for broadcast licenses and goodwill; these assets totaled about $5.0 billion net at year-end.
Audit and controls: RSM issued an unqualified opinion on the financial statements and internal controls; management and the auditor reported effective internal control over financial reporting as of December 31, 2020.