UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark one)
| | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
|
| For the quarterly period ended |
| | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
|
| For the transition period from _________ to _________ . |
Commission file number:
| Gray Television, Inc. |
| (Exact name of registrant as specified in its charter) |
| | | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |
| | | |
| (Address of principal executive offices) | (Zip code) |
| ( |
| (Registrant's telephone number, including area code) |
| Not Applicable |
| (Former name, former address and former fiscal year, if changed since last report.) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each Class | Trading Symbol(s) | Name of each exchange on which registered |
| | | |
| | | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.
| Common Stock (No Par Value) | Class A Common Stock (No Par Value) | |
| | |
INDEX
GRAY TELEVISION, INC.
| PART I. |
FINANCIAL INFORMATION |
PAGE |
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| Item 1. |
Financial Statements |
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| Condensed consolidated balance sheets (Unaudited) – March 31, 2023 and December 31, 2022 |
3 |
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| Condensed consolidated statements of operations (Unaudited) – three-months ended March 31, 2023 and 2022 |
5 |
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| Condensed consolidated statements of comprehensive (loss) income (Unaudited) – three-months ended March 31, 2023 and 2022 |
6 |
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| Condensed consolidated statement of stockholders' equity (Unaudited) – three-months ended March 31, 2023 and 2022 |
7 |
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| Condensed consolidated statements of cash flows (Unaudited) – three-months ended March 31, 2023 and 2022 |
8 |
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| Notes to condensed consolidated financial statements (Unaudited) |
9 |
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| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
22 |
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| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
27 |
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| Item 4. |
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Controls and Procedures |
27 |
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| PART II. |
OTHER INFORMATION |
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| Item 1A. |
Risk Factors |
28 |
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| Item 6. |
Exhibits |
28 |
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| SIGNATURES |
29 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
| GRAY TELEVISION, INC. |
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| CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) |
|||
| (in millions) |
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Assets: | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, less allowance for credit losses of $ and $, respectively | ||||||||
| Current portion of program broadcast rights, net | ||||||||
| Income tax refunds receivable | ||||||||
| Prepaid income taxes | ||||||||
| Prepaid and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right of use assets | ||||||||
| Broadcast licenses | ||||||||
| Goodwill | ||||||||
| Other intangible assets, net | ||||||||
| Investment in broadcasting and technology companies | ||||||||
| Deferred pension assets | ||||||||
| Other | ||||||||
| Total assets | $ | $ | ||||||
See notes to condensed consolidated financial statements.
| GRAY TELEVISION, INC. |
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| CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) |
|||
| (in millions except for share data) |
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Liabilities and stockholders’ equity: | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Employee compensation and benefits | ||||||||
| Accrued interest | ||||||||
| Accrued network programming fees | ||||||||
| Other accrued expenses | ||||||||
| Federal and state income taxes | ||||||||
| Current portion of program broadcast obligations | ||||||||
| Deferred revenue | ||||||||
| Dividends payable | ||||||||
| Current portion of operating lease liabilities | ||||||||
| Current portion of long-term debt | ||||||||
| Total current liabilities | ||||||||
| Long-term debt, less current portion and deferred financing costs | ||||||||
| Program broadcast obligations, less current portion | ||||||||
| Deferred income taxes | ||||||||
| Operating lease liabilities, less current portion | ||||||||
| Other | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 9) | ||||||||
| Series A Perpetual Preferred Stock, par value; cumulative; redeemable; designated shares, issued and outstanding shares at each date and $ aggregate liquidation value at each date | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock, par value; authorized shares, issued shares and shares, respectively, and outstanding shares and shares, respectively | ||||||||
| Class A common stock, par value; authorized shares, issued shares and shares, respectively, and outstanding shares and shares, respectively | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss, net of income tax benefit | ( | ) | ( | ) | ||||
| Treasury stock at cost, common stock, shares and shares, respectively | ( | ) | ( | ) | ||||
| Treasury stock at cost, Class A common stock, shares and shares, respectively | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See notes to condensed consolidated financial statements.
| GRAY TELEVISION, INC. |
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| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) |
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| (in millions, except for per share data) |
| Three Months Ended |
||||||||
| March 31, |
||||||||
| 2023 |
2022 |
|||||||
| Revenue (less agency commissions) |
||||||||
| Broadcasting |
$ | $ | ||||||
| Production companies |
||||||||
| Total revenue (less agency commissions) |
||||||||
| Operating expenses before depreciation, amortization and gain on disposal of assets, net: |
||||||||
| Broadcasting |
||||||||
| Production companies |
||||||||
| Corporate and administrative |
||||||||
| Depreciation |
||||||||
| Amortization of intangible assets |
||||||||
| Loss (gain) on disposal of assets, net |
( |
) | ||||||
| Operating expenses |
||||||||
| Operating income |
||||||||
| Other expense: |
||||||||
| Miscellaneous, net |
( |
) | ( |
) | ||||
| Interest expense |
( |
) | ( |
) | ||||
| Loss from early extinguishment of debt |
( |
) | ||||||
| (Loss) income before income taxes |
( |
) | ||||||
| Income tax expense (benefit) |
( |
) | ||||||
| Net (loss) income |
( |
) | ||||||
| Preferred stock dividends |
||||||||
| Net (loss) income attributable to common stockholders |
$ | ( |
) | $ | ||||
| Basic per common share information: |
||||||||
| Net (loss) income attributable to common stockholders |
$ | ( |
) | $ | ||||
| Weighted average common shares outstanding |
||||||||
| Diluted per common share information: |
||||||||
| Net (loss) income attributable to common stockholders |
$ | ( |
) | $ | ||||
| Weighted average common shares outstanding |
||||||||
| Dividends declared per common share |
$ | $ | ||||||
See notes to condensed consolidated financial statements.
| GRAY TELEVISION, INC. |
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| CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited) |
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| (in millions) |
| Three Months Ended |
||||||||
| March 31, |
||||||||
| 2023 |
2022 |
|||||||
| Net (loss) income |
$ | ( |
) | $ | ||||
| Other comprehensive loss: |
||||||||
| Adjustment - fair value of interest rate caps |
( |
) | ||||||
| Income tax benefit |
( |
) | ||||||
| Other comprehensive loss, net |
( |
) | ||||||
| Comprehensive (loss) income |
$ | ( |
) | $ | ||||
See notes to condensed consolidated financial statements.
| GRAY TELEVISION, INC. |
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| CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited) |
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| (in millions, except for number of shares) |
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| Class A |
Class A |
Common |
Other |
|||||||||||||||||||||||||||||||||||||||||
| Common Stock |
Common Stock |
Retained |
Treasury Stock |
Treasury Stock |
Comprehensive |
|||||||||||||||||||||||||||||||||||||||
| Shares |
Amount |
Shares |
Amount |
Earnings |
Shares |
Amount |
Shares |
Amount |
Loss |
Total |
||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 |
$ | $ | $ | ( |
) | $ | ( |
) | ( |
) | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||||||||||||||
| Net income |
- | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Preferred stock dividends |
- | - | ( |
) | - | - | ( |
) | ||||||||||||||||||||||||||||||||||||
| Common stock dividends |
- | - | ( |
) | - | - | ( |
) | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock: |
||||||||||||||||||||||||||||||||||||||||||||
| 401(k) Plan |
||||||||||||||||||||||||||||||||||||||||||||
| 2017 Equity and Incentive |
||||||||||||||||||||||||||||||||||||||||||||
| Compensation Plan: |
||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock awards |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||
| Restricted stock unit awards |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||
| Stock-based compensation |
- | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | ( |
) | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||||||||||||||
| Balance at December 31, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | ( |
) | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||||||||||||||
| Net loss |
- | - | ( |
) | - | - | ( |
) | ||||||||||||||||||||||||||||||||||||
| Preferred stock dividends |
- | - | ( |
) | - | - | ( |
) | ||||||||||||||||||||||||||||||||||||
| Common stock dividends |
- | - | ( |
) | - | - | ( |
) | ||||||||||||||||||||||||||||||||||||
| Adjustment to fair value of interest rate cap |
- | - | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock: |
||||||||||||||||||||||||||||||||||||||||||||
| 401(k) Plan |
||||||||||||||||||||||||||||||||||||||||||||
| 2022 Equity and Incentive |
||||||||||||||||||||||||||||||||||||||||||||
| Compensation Plan: |
||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock awards |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||
| Restricted stock unit awards |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||
| Stock-based compensation |
- | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 |
$ | $ | $ | ( |
) | $ | ( |
) | ( |
) | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||||||||||||||
See notes to condensed consolidated financial statements.
| GRAY TELEVISION, INC. |
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| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) |
|||
| (in millions) |
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Operating activities | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization of intangible assets | ||||||||
| Amortization of deferred loan costs | ||||||||
| Amortization of restricted stock awards | ||||||||
| Amortization of program broadcast rights | ||||||||
| Payments on program broadcast obligations | ( | ) | ( | ) | ||||
| Deferred income taxes | ||||||||
| Loss (gain) on disposal of assets, net | ( | ) | ||||||
| Loss from early extinguishment of debt | ||||||||
| Other | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Income tax receivable or prepaid | ( | ) | ||||||
| Other current assets | ( | ) | ||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Employee compensation, benefits and pension cost | ( | ) | ( | ) | ||||
| Accrued network fees and other expenses | ||||||||
| Accrued interest | ||||||||
| Income taxes payable | ||||||||
| Deferred revenue | ||||||||
| Net cash provided by operating activities | ||||||||
| Investing activities | ||||||||
| Acquisitions of television businesses and licenses, net of cash acquired | ( | ) | ||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Proceeds from asset sales | ||||||||
| Reimbursement of development costs | ||||||||
| Proceeds from Repack reimbursement (Note 1) | ||||||||
| Investments in broadcast, production and technology companies | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing activities | ||||||||
| Proceeds from borrowings on long-term debt | ||||||||
| Repayments of borrowings on long-term debt | ( | ) | ( | ) | ||||
| Payment of common stock dividends | ( | ) | ( | ) | ||||
| Payment of preferred stock dividends | ( | ) | ( | ) | ||||
| Payment for taxes related to net share settlement of equity awards | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
See notes to condensed consolidated financial statements.
GRAY TELEVISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 1. | Basis of Presentation |
The accompanying condensed consolidated balance sheet of Gray Television, Inc. (and its consolidated subsidiaries, except as the context otherwise provides,“Gray,” the “Company,” “we,” “us,” and “our”) as of December 31, 2022, which was derived from the Company’s audited financial statements as of December 31, 2022, and our accompanying unaudited condensed consolidated financial statements as of March 31, 2023 and for the three-month periods ended March 31, 2023 and 2022, have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to make the information not misleading. In our opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. We manage our business on the basis of
Overview. We are a multimedia company headquartered in Atlanta, Georgia. We are the nation’s largest owner of top-rated local television stations and digital assets in the United States. Our television stations serve
Investments in Broadcasting, Production and Technology Companies. We have investments in several television, production and technology companies. We account for all material investments in which we have significant influence over the investee under the equity method of accounting. Upon initial investment, we record equity method investments at cost. The amounts initially recognized are subsequently adjusted for our appropriate share of the net earnings or losses of the investee. We record any investee losses up to the carrying amount of the investment plus advances and loans made to the investee, and any financial guarantees made on behalf of the investee. We recognize our share in earnings and losses of the investee as miscellaneous (expense) income, net in our consolidated statements of operations. Investments are also increased by contributions made to and decreased by the distributions from the investee. The Company evaluates equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may be impaired.
Investments in non-public businesses that do not have readily determinable pricing, and for which the Company does not have control or does not exert significant influence, are carried at cost less impairments, if any, plus or minus changes in observable prices for those investments. Gains or losses resulting from changes in the carrying value of these investments are included as miscellaneous (expense) income, net in our consolidated statements of operations. These investments are reported together as a non-current asset on our consolidated balance sheets.
Use of Estimates. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Our actual results could differ materially from these estimated amounts. Our most significant estimates are our allowance for credit losses in receivables, valuation of goodwill and intangible assets, amortization of program rights and intangible assets, pension costs, income taxes, employee medical insurance claims, useful lives of property and equipment and contingencies.
Earnings Per Share. We compute basic earnings per share by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during the relevant period. The weighted-average number of common shares outstanding does not include restricted shares. These shares, although classified as issued and outstanding, are considered contingently returnable until the restrictions lapse and, in accordance with U.S. GAAP, are not included in the basic earnings per share calculation until the shares vest. Diluted earnings per share is computed by including all potentially dilutive common shares, including restricted shares, in the diluted weighted-average shares outstanding calculation, unless their inclusion would be antidilutive.
The following table reconciles basic weighted-average common shares outstanding to diluted weighted-average common shares outstanding for the three-months ended March 31, 2023 and 2022, respectively (in millions):
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Weighted-average common shares outstanding-basic | ||||||||
| Common stock equivalents for stock options and restricted stock | ||||||||
| Weighted-average common shares outstanding-diluted | ||||||||
Accumulated Other Comprehensive Loss. Our accumulated other comprehensive loss balances as of March 31, 2023 and December 31, 2022, consist of adjustments to our pension liability and changes in the fair value of our interest rate cap, each net of tax. Our comprehensive income for the three-months ended March 31, 2023 and 2022 consisted of our net income and recognition of the initial fair value adjustment related to our interest rate cap, and the related income tax benefit. As of March 31, 2023 and December 31, 2022 the balances were as follows (in millions):
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Items included in accumulated other comprehensive loss: | ||||||||
| Adjustment to pension liability | $ | ( | ) | $ | ( | ) | ||
| Adjustment to fair value of interest rate caps | ( | ) | ||||||
| Income tax benefit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | $ | ( | ) | $ | ( | ) | ||
Property and Equipment. Property and equipment are carried at cost, or in the case of acquired businesses, at fair value. Depreciation is computed principally by the straight-line method. The following table lists the components of property and equipment by major category (dollars in millions):
| Estimated | |||||||||||||
| March 31, | December 31, | Useful Lives | |||||||||||
| 2023 | 2022 | (in years) | |||||||||||
| Property and equipment: | |||||||||||||
| Land | $ | $ | |||||||||||
| Buildings and improvements | to | ||||||||||||
| Equipment | to | ||||||||||||
| Construction in progress | |||||||||||||
| Accumulated depreciation | ( | ) | ( | ) | |||||||||
| Total property and equipment, net | $ | $ | |||||||||||
Maintenance, repairs and minor replacements are charged to operations as incurred; major replacements and betterments are capitalized. The cost of any assets divested, sold or retired and the related accumulated depreciation are removed from the accounts at the time of disposition, and any resulting gain or loss is reflected in income or expense for the period.
We incurred costs to build public infrastructure within the Assembly Atlanta project. Pursuant to the Purchase and Sale Agreement between us and the Doraville Community Improvement District (the “CID”), we receive cash reimbursements for the transfer of specific infrastructure projects to the CID and for other construction costs previously incurred. During the first quarter of 2023, we received a total of $
In April 2017, the Federal Communications Commission (“FCC”) began the process of requiring certain television stations to change channels and/or modify their transmission facilities (“Repack”). The majority of our costs associated with Repack qualify for capitalization, rather than expense. Upon receipt of funds reimbursing us for our Repack costs, we record those proceeds as a component of our (gain) loss on disposal of assets, net.
The following tables provide additional information related to gain on disposal of assets, net included in our condensed consolidated statements of operations and purchases of property and equipment included in our condensed consolidated statements of cash flows (in millions):
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Loss (gain) on disposal of assets, net: | ||||||||
| Proceeds from sale of fixed assets | $ | ( | ) | $ | ||||
| Proceeds from Repack | ( | ) | ||||||
| Net book value of fixed assets disposed | ||||||||
| Discount - Securitization Facility | ||||||||
| Total | $ | $ | ( | ) | ||||
| Purchase of property and equipment: | ||||||||
| Recurring purchases - operations | $ | $ | ||||||
| Assembly Atlanta development | ||||||||
| Total | $ | $ | ||||||
Accounts Receivable and Allowance for Credit Losses. We record accounts receivable from sales and service transactions in our condensed consolidated balance sheets at amortized cost adjusted for any write-offs and net of allowance for credit losses. We are exposed to credit risk primarily through sales of broadcast and digital advertising with a variety of direct and agency-based advertising customers, retransmission consent agreements with multichannel video program distributors and program production sales and services.
Our allowance for credit losses is an estimate of expected losses over the remaining contractual life of our receivables based on an ongoing analysis of collectability, historical collection experience, current economic and industry conditions and reasonable and supportable forecasts. The allowance is calculated using a historical loss rate applied to the current aging analysis. We may also apply additional allowance when warranted by specific facts and circumstances. We generally write off account receivable balances when the customer files for bankruptcy or when all commonly used methods of collection have been exhausted.
As of March 31, 2023, our allowance for credit losses includes a reserve of $
On February 23, 2023, we, certain of our subsidiaries and a wholly-owned special purpose subsidiary (the “SPV”), entered into a three-year $
Under the Securitization Facility, the SPV sells to the Purchasers certain receivables, including all rights, title, and interest in the related receivables (“Sold Receivables”). The parties intend that the conveyance of accounts receivables to the Purchasers, for the ratable benefit of the Purchasers will constitute a purchase and sale of receivables and not a pledge for security. The SPV has guaranteed to each Purchaser the prompt payment of Sold Receivables, and to secure the prompt payment and performance of such guaranteed obligations, the SPV has granted a security interest to the Purchasers in all assets of the SPV. In our capacity as servicer under the Securitization Facility, we are responsible for administering and collecting receivables and have made customary representations, warranties, covenants and indemnities. The Company does not record a servicing asset or liability since the estimated fair value of the servicing of the receivables approximates the servicing income. We also provided a performance guarantee for the benefit of the Purchasers.
The Securitization Facility is subject to interest charges, at the one-month Secured Overnight Financing Rate (“SOFR”) plus a margin (100 basis points) on the amount of the outstanding facility. The SPV was required to pay an upfront fee and a commitment fee in connection with the Securitization Facility. Servicing fee income recognized during the quarter ended March 31, 2023 was not material.
The SPV is a separate legal entity with its own separate creditors who will be entitled to access the SPV’s assets before the assets become available to us. As a result, the SPV’s assets are not available to pay our creditors or any of our subsidiaries, although collections from the receivables in excess of amounts required to repay the Purchasers under the Securitization Facility and other creditors of the SPV may be remitted to us.
The proceeds of the Securitization Facility are classified as operating activities in our Consolidated Statement of Cash Flows. Cash received from collections of Sold Receivables is used by the SPV to fund additional purchases of receivables on a revolving basis or to return all or any portion of outstanding capital of the Purchasers. Subsequent collections on the pledged receivables, which have not been sold, will be classified as operating cash flows at the time of collection.
The amount sold to the Purchasers was $
The following table provides a roll-forward of the allowance for credit losses. The allowance is deducted from the amortized cost basis of accounts receivable in our condensed consolidated balance sheets (in millions):
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Beginning balance | $ | $ | ||||||
| Provision for credit losses | ( | ) | ||||||
| Ending balance | $ | $ | ||||||
Implementation of ASC 848, Reference Rate Reform. On March 17, 2023, we amended the 2019 Senior Credit Facility and transitioned the variable rate on Term Loan C from 1-month LIBOR to 1-month SOFR. The Company elected to apply the optional expedient in ASC 848, in connection with the amendment that enabled it to consider the amendment as a non-significant contract modification of the existing debt agreement. Additionally, for Term Loan D, the Company transitioned to the fallback language within the credit agreement and transitioned from 1-month LIBOR to 1-month SOFR as of March 31, 2023. As a result, the amendment to Term Loan C and fallback to SOFR in Term Loan D did not have a material impact to the Company’s financial statements.
| 2. |
Revenue |
Revenue Recognition. We recognize revenue when we have completed a specified service and effectively transferred the control of that service to a customer in return for an amount of consideration we expect to be entitled to receive. The amount of revenue recognized is determined by the amount of consideration specified in a contract with our customers. We have elected to exclude taxes assessed by a governmental authority on transactions with our customers from our revenue. Any unremitted balance is included in current liabilities on our balance sheet.
We record a deposit liability for cash deposits received from our customers that are to be applied as payment once the performance obligation arises and is satisfied. These deposits are recorded as deposit liabilities on our balance sheet. When we invoice our customers for completed performance obligations, we are unconditionally entitled to receive payment of the invoiced amounts. Therefore, we record invoiced amounts in accounts receivable on our balance sheet. We generally require amounts payable under advertising contracts with our political advertising customers to be paid for in advance. We record the receipt of this cash as a deposit liability. Once the advertisement has been broadcast, the revenue is earned, and we record the revenue and reduce the balance in this deposit liability account. We recorded $
Disaggregation of Revenue. Revenue from our production companies segment is generated through our direct sales channel. Revenue from our broadcast and other segment is generated through both our direct and advertising agency intermediary sales channels. The following table presents our revenue from contracts with customers disaggregated by type of service and sales channel (in millions):
| Three Months Ended |
||||||||
| March 31, |
||||||||
| 2023 |
2022 |
|||||||
| Market and service type: |
||||||||
| Broadcast advertising: |
||||||||
| Core advertising |
$ | $ | ||||||
| Political |
||||||||
| Total advertising |
||||||||
| Retransmission consent |
||||||||
| Production companies |
||||||||
| Other |
||||||||
| Total revenue |
$ | $ | ||||||
| Sales Channel: |
||||||||
| Direct |
$ | $ | ||||||
| Advertising agency intermediary |
||||||||
| Total revenue |
$ | $ | ||||||
| 3. | Long-term Debt |
As of March 31, 2023 and December 31, 2022, long-term debt consisted of obligations under our 2019 Senior Credit Facility (as defined below), our
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Long-term debt: | ||||||||
| 2019 Senior Credit Facility: | ||||||||
| 2017 Term Loan (pre-paid on March 1, 2023) | $ | $ | ||||||
| 2019 Term Loan (matures January 2, 2026) | ||||||||
| 2021 Term Loan (matures December 1, 2028) | ||||||||
| 2026 Notes (matures July 15, 2026) | ||||||||
| 2027 Notes (matures May 15, 2027) | ||||||||
| 2030 Notes (matures October 15, 2030) | ||||||||
| 2031 Notes (matures November 15, 2031) | ||||||||
| Total outstanding principal, including current portion | ||||||||
| Unamortized deferred loan costs - 2017 Term Loan | ( | ) | ||||||
| Unamortized deferred loan costs - 2019 Term Loan | ( | ) | ( | ) | ||||
| Unamortized deferred loan costs - 2021 Term Loan | ( | ) | ( | ) | ||||
| Unamortized deferred loan costs - 2026 Notes | ( | ) | ( | ) | ||||
| Unamortized deferred loan costs - 2027 Notes | ( | ) | ( | ) | ||||
| Unamortized deferred loan costs - 2030 Notes | ( | ) | ( | ) | ||||
| Unamortized deferred loan costs - 2031 Notes | ( | ) | ( | ) | ||||
| Unamortized premium - 2026 Notes | ||||||||
| Less current portion | ( | ) | ( | ) | ||||
| Long-term debt, less deferred financing costs | $ | $ | ||||||
| Borrowing availability under Revolving Credit Facility | $ | $ | ||||||
Borrowings under the Revolving Credit Facility bear interest, at our option, at either the SOFR rate or the Base Rate, in each case, plus an applicable margin. Because of their relationship to the interest rate caps, described below, borrowings under the 2021 Term Loan and 2019 Term Loan bear interest at the 1-month SOFR rate, plus applicable margin. As of March 31, 2023, the interest rate on the balance outstanding under the 2021 Term Loan and the 2019 Term Loan were
Interest Rate Cap. On February 23, 2023, we entered into two interest rate caps pursuant to an International Swaps and Derivatives Association ("ISDA") Master Agreement with two counterparties, Wells Fargo Bank, NA and Truist Bank, respectively. At March 31, 2023, the caps have a combined notional value of approximately $
The interest rate caps, as amended, effectively limit the annual interest charged on our Term Loan D and Term Loan E to a maximum of 1-month Term SOFR of 4.97% and 5.015%. We are required to pay aggregate fees in connection with the interest rate caps of approximately $
The ISDA Master Agreement, together with its related schedules, contain customary representations, warranties and covenants. The interest rate caps were not entered into for speculative trading purposes. Changes in the fair value of the interest rate caps are reported as a component of other comprehensive income. Actual gains and losses are reclassified into earnings in the same period or periods during which the hedged transaction affects earnings and are presented in the same income statement line item as the earnings effect of the hedged transaction. Gains and losses on the derivative instrument representing hedge components excluded from the assessment of effectiveness are recognized currently in earnings and are presented in the same line of the income statement for the hedged item. We recognized $
For all of our interest bearing obligations, we made interest payments of approximately $
As of March 31, 2023, the aggregate minimum principal maturities of our long term debt for the remainder of 2023 and the succeeding five years were as follows (in millions):
| Minimum Principal Maturities | ||||||||||||||||||||||||
| Year | 2019 Senior Credit Facility | 2026 Notes | 2027 Notes | 2030 Notes | 2031 Notes | Total | ||||||||||||||||||
| Remainder of 2023 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| 2024 | ||||||||||||||||||||||||
| 2025 | ||||||||||||||||||||||||
| 2026 | ||||||||||||||||||||||||
| 2027 | ||||||||||||||||||||||||
| 2028 | ||||||||||||||||||||||||
| Thereafter | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
As of March 31, 2023, there were no significant restrictions on the ability of our subsidiaries to distribute cash to us or to the guarantor subsidiaries. The 2019 Senior Credit Facility contains affirmative and restrictive covenants with which we must comply. The 2026 Notes, the 2027 Notes, the 2030 Notes and the 2031 Notes also include covenants with which we must comply. As of March 31, 2023 and December 31, 2022, we were in compliance with all required covenants under all our debt obligations.
| 4. | Fair Value Measurement |
We measure certain assets and liabilities at fair value, which are classified by the FASB Codification within the fair value hierarchy as level 1, 2, or 3, on the basis of whether the measurement employs observable or unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s own assumptions and consider information about readily available market participant assumptions.
| ● | Level 1: Quoted prices for identical instruments in active markets |
| ● | Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets |
| ● | Level 3: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable |
Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. The use of different market assumptions or methodologies could have a material effect on the fair value measurement.
The carrying amounts of accounts receivable, prepaid and other current assets, accounts payable, employee compensation and benefits, accrued interest, other accrued expenses, and deferred revenue approximate fair value at both March 31, 2023 and December 31, 2022.
At March 31, 2023 and December 31, 2022 the carrying amount of our long-term debt was $
The fair value of our interest rate caps are based on observable estimates provided by the counterparties and, as such, are classified within Level 2 of the fair value hierarchy. At March 31, 2023, the fair value of the interest caps was a liability of $
| 5. |
Stockholders’ Equity |
We are authorized to issue
Our common stock and Class A common stock are entitled to receive cash dividends if declared, on an equal per-share basis. The Board of Directors declared a quarterly cash dividend of $
Under our various employee benefit plans, we may, at our discretion, issue authorized and unissued shares, or previously issued shares held in treasury, of our Class A common stock or common stock. As of March 31, 2023, we had reserved
During the three-months ended March 31, 2023, we have repurchased any shares of our common stock or Class A common stock under our share repurchase programs. As of March 31, 2023, approximately $
| 6. |
Retirement Plans |
The components of our net periodic pension benefit are included in miscellaneous income in our statement of operations. During the three-months ended March 31, 2023, the amount recorded as a benefit was not material, and we did not make a contribution to our defined benefit pension plan. During the remainder of 2023, we expect to contribute $
During the three-months ended March 31, 2023, we contributed $
| 7. |
Stock-based Compensation |
We recognize compensation expense for stock-based payment awards made to our employees, consultants and directors. Our current stock-based compensation plan, is the 2022 Equity and Incentive Compensation Plan (the “2022 EICP”). Our stock-based compensation expense and related income tax benefit for the three-months ended March 31, 2023 and 2022, respectively (in millions).
| Three Months Ended March 31, |
||||||||
| 2023 |
2022 |
|||||||
| Stock-based compensation expense, gross |
$ | $ | ||||||
| Income tax benefit at our statutory rate associated with stock-based compensation |
( |
) | ( |
) | ||||
| Stock-based compensation expense, net |
$ | $ | ||||||
All shares of common stock and Class A common stock underlying Restricted stock, restricted stock units and performance awards are counted as issued at target levels under the 2022 EICP for purposes of determining the number of shares available for future issuance.
A summary of restricted common stock and Class A common stock activities for the three-months ended March 31, 2023 and 2022, respectively, is as follows:
| Three Months Ended March 31, |
||||||||||||||||
| 2023 |
2022 |
|||||||||||||||
| Weighted- |
Weighted- |
|||||||||||||||
| Average |
Average |
|||||||||||||||
| Number |
Grant Date |
Number |
Grant Date |
|||||||||||||
| of |
Fair Value |
of |
Fair Value |
|||||||||||||
| Shares |
Per Share |
Shares |
Per Share |
|||||||||||||
| Restricted common stock: |
||||||||||||||||
| Outstanding - beginning of period |
$ | $ | ||||||||||||||
| Granted (1) |
||||||||||||||||
| Vested |
( |
) | ( |
) | ||||||||||||
| Outstanding - end of period |
$ | $ | ||||||||||||||
| Restricted Class A common stock: |
||||||||||||||||
| Outstanding - beginning of period |
$ | $ | ||||||||||||||
| Granted (1) |
||||||||||||||||
| Vested |
( |
) | ( |
) | ||||||||||||
| Outstanding - end of period |
$ | $ | ||||||||||||||
| Restricted stock units - common stock: |
||||||||||||||||
| Outstanding - beginning of period |
$ | $ | ||||||||||||||
| Granted |
||||||||||||||||
| Vested |
( |
) | ( |
) | ||||||||||||
| Forfeited |
( |
) | ( |
) | ||||||||||||
| Outstanding - end of period |
$ | $ | ||||||||||||||
(1) For awards subject to future performance conditions, amounts assume target performance.
| 8. |
Leases |
We determine if an arrangement is a lease at its inception. Operating lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. We generally use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future payments, because the implicit rate of the lease is generally not known. Right-of-use (“ROU”) assets related to our operating lease liabilities are measured at lease inception based on the initial measurement of the lease liability, plus any prepaid lease payments and less any lease incentives. Our lease terms that are used in determining our operating lease liabilities at lease inception may include options to extend or terminate the leases when it is reasonably certain that we will exercise such options. We amortize our ROU assets as operating lease expense generally on a straight-line basis over the lease term and classify both the lease amortization and imputed interest as operating expenses. We have lease agreements with lease and non-lease components, and in such cases, we generally account for the components separately with only the lease component included in the calculation of the right of use asset and lease liability.
We have operating leases that primarily relate to certain of our land, facilities and equipment. As of March 31, 2023, our operating leases substantially have remaining terms of year to
Cash flow movements related to our lease activities are included in other assets and accounts payable and other liabilities as presented in net cash provided by operating activities in our condensed consolidated statement of cash flows for the three-months ended March 31, 2023.
As of March 31, 2023, the weighted average remaining term of our operating leases was years. The weighted average discount rate used to calculate the values associated with our operating leases was The table below describes the nature of lease expense and classification of operating lease expense recognized in the three-months ended March 31, 2023 and 2022 (in millions):
| Three Months Ended March 31, |
||||||||
| 2023 |
2022 |
|||||||
| Lease expense |
||||||||
| Operating lease expense |
$ | $ | ||||||
| Short-term lease expense |
||||||||
| Total lease expense |
$ | $ | ||||||
The maturities of operating lease liabilities as of March 31, 2023, for the remainder of 2023 and the succeeding five years were as follows (in millions):
| Year ending December 31, |
Operating Leases |
|||
| Remainder of 2023 |
$ | |||
| 2024 |
||||
| 2025 |
||||
| 2026 |
||||
| 2027 |
||||
| Thereafter |
||||
| Total lease payments |
$ | |||
| Less: Imputed interest |
( |
) | ||
| Present value of lease liabilities |
$ | |||
| 9. |
Commitments and Contingencies |
We are and expect to continue to be subject to legal actions, proceedings and claims that arise in the normal course of our business. In the opinion of management, the amount of ultimate liability, if any, with respect to these actions, proceedings and claims will not materially affect our financial position, results of operations or cash flows, although legal proceedings are subject to inherent uncertainties, and unfavorable rulings or events could have a material adverse impact on our financial position, results of operations or cash flows.
As of March 31, 2023, we recorded an accrual of $
| 10. |
Goodwill and Intangible Assets |
As of March 31, 2023 and December 31, 2022, our intangible assets and related accumulated amortization consisted of the following (in millions):
| As of March 31, 2023 |
As of December 31, 2022 |
|||||||||||||||||||||||
| Accumulated |
Accumulated |
|||||||||||||||||||||||
| Gross |
Amortization |
Net |
Gross |
Amortization |
Net |
|||||||||||||||||||
| Intangible assets not currently subject to amortization: |
||||||||||||||||||||||||
| Broadcast licenses |
$ | $ | ( |
) | $ | $ | $ | ( |
) | $ | ||||||||||||||
| Goodwill |
||||||||||||||||||||||||
| $ | $ | ( |
) | $ | $ | $ | ( |
) | $ | |||||||||||||||
| Intangible assets subject to amortization: |
||||||||||||||||||||||||
| Network affiliation agreements |
$ | $ | ( |
) | $ | $ | $ | ( |
) | $ | ||||||||||||||
| Other finite-lived intangible assets |
( |
) | ( |
) | ||||||||||||||||||||
| $ | $ | ( |
) | $ | $ | $ | ( |
) | $ | |||||||||||||||
| Total intangible assets |
$ | $ | ( |
) | $ | $ | $ | ( |
) | $ | ||||||||||||||
Amortization expense for the three-months ended March 31, 2023 and 2022 was $
| 11. |
Income Taxes |
For the three-months ended March 31, 2023 and 2022, our income tax expense and effective income tax rates were as follows (dollars in millions):
| Three Months Ended March 31, |
||||||||
| 2023 |
2022 |
|||||||
| Income tax (benefit) expense |
$ | ( |
) | $ | ||||
| Effective income tax rate |
% | % | ||||||
We estimate our differences between taxable income or loss and recorded income or loss on an annual basis. Our tax provision for each quarter is based upon these full year projections, which are revised each reporting period. These projections incorporate estimates of permanent differences between U.S. GAAP income or loss and taxable income or loss, state income taxes and adjustments to our liability for unrecognized tax benefits to adjust our statutory Federal income tax rate of
During the first quarter of 2023, we made no material federal or state income tax payments. During the remainder of 2023, we anticipate making income tax payments of $
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, contains modifications on the limitation of business interest for tax years beginning in 2019 and 2020, and permits net operating loss (“NOL”) carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. During 2020, we carried back certain net operating losses resulting in a refund of $
| 12. |
Segment information |
The Company operates in
| Production |
||||||||||||||||
| As of and for the three months ended March 31, 2023: |
Broadcast |
Companies |
Other |
Consolidated |
||||||||||||
| Revenue (less agency commissions) |
$ | $ | $ | $ | ||||||||||||
| Operating expenses before depreciation, amortization and gain on disposal of assets, net |
||||||||||||||||
| Depreciation and amortization |
||||||||||||||||
| Loss on disposal of assets, net |
||||||||||||||||
| Operating expenses |
||||||||||||||||
| Operating income (loss) |
$ | $ | ( |
) | $ | ( |
) | $ | ||||||||
| Interest expense |
$ | $ | $ | $ | ||||||||||||
| Capital expenditures (excluding business combinations) |
$ | $ | $ | $ | ||||||||||||
| Goodwill |
$ | $ | $ | $ | ||||||||||||
| Total Assets |
$ | $ | $ | $ | ||||||||||||
| For the three months ended March 31, 2022: |
||||||||||||||||
| Revenue (less agency commissions) |
$ | $ | $ | $ | ||||||||||||
| Operating expenses before depreciation, amortization and gain on disposal of assets, net |
||||||||||||||||
| Depreciation and amortization |
||||||||||||||||
| Gain on disposal of assets, net |
( |
) | ( |
) | ||||||||||||
| Operating expenses |
||||||||||||||||
| Operating income (loss) |
$ | $ | ( |
) | $ | ( |
) | $ | ||||||||
| Interest expense |
$ | $ | $ | $ | ||||||||||||
| Capital expenditures (excluding business combinations) |
$ | $ | $ | $ | ||||||||||||
| As of December 31, 2022: |
||||||||||||||||
| Goodwill |
$ | $ | $ | $ | ||||||||||||
| Total Assets |
$ | $ | $ | $ | ||||||||||||
| 13. | Subsequent Events |
On May 1, 2023, we and Marquee Broadcasting, Inc. (“Marquee”) completed transactions in which we sold television station KNIN (FOX) in the Boise, Idaho market (DMA 102) for $
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Overview
Introduction. The following discussion and analysis of the financial condition and results of operations of Gray Television, Inc. and its consolidated subsidiaries (except as the context otherwise provides, “Gray,” the “Company,” “we,” “us” or “our”) should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto included elsewhere herein, as well as with our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”) filed with the SEC.
Business Overview. We are a multimedia company headquartered in Atlanta, Georgia. We are the nation’s largest owner of top-rated local television stations and digital assets in the United States. Our television stations serve 113 television markets that collectively reach approximately 36 percent of US television households. This portfolio includes 80 markets with the top-rated television station and 102 markets with the first and/or second highest rated television station. We also own video program companies Raycom Sports, Tupelo Media Group, PowerNation Studios, as well as the studio production facilities Assembly Atlanta and Third Rail Studios.
Our operating revenues are derived primarily from broadcast and internet advertising, retransmission consent fees and, to a lesser extent, other sources such as production of television and event programming, television commercials, tower rentals and management fees. For the three-months ended March 31, 2023 and 2022, we generated revenue of $801 million and $827 million, respectively.
Revenues, Operations, Cyclicality and Seasonality. Broadcast advertising is sold for placement generally preceding or following a television station’s network programming and within local and syndicated programming. Broadcast advertising is sold in time increments and is priced primarily on the basis of a program’s popularity among the specific audience an advertiser desires to reach. In addition, broadcast advertising rates are affected by the number of advertisers competing for the available time, the size and demographic makeup of the market served by the station and the availability of alternative advertising media in the market area. Broadcast advertising rates are generally the highest during the most desirable viewing hours, with corresponding reductions during other hours. The ratings of a local station affiliated with a major network can be affected by ratings of network programming. Most advertising contracts are short-term, and generally run only for a few weeks.
We also sell internet advertising on our stations’ websites and mobile apps. These advertisements may be sold as banner advertisements, video advertisements and other types of advertisements or sponsorships.
Our broadcast and internet advertising revenues are affected by several factors that we consider to be seasonal in nature. These factors include:
| ● |
Spending by political candidates, political parties and special interest groups increases during the even-numbered “on-year” of the two-year election cycle. This political spending typically is heaviest during the fourth quarter of such years; |
| ● |
Broadcast advertising revenue is generally highest in the second and fourth quarters each year. This seasonality results partly from increases in advertising in the spring and in the period leading up to, and including, the holiday season; |
| ● |
Core advertising revenue on our NBC-affiliated stations increases in certain years as a result of broadcasts of the Olympic Games; and |
| ● |
Because our stations and markets are not evenly divided among the Big Four broadcast networks, our core advertising revenue can fluctuate between years related to which network broadcasts the Super Bowl. |
We derived a material portion of our non-political broadcast advertising revenue from advertisers in a limited number of industries, particularly the services sector, comprising financial, legal and medical advertisers, and the automotive industry. The services sector has become an increasingly important source of advertising revenue over the past few years. During the three-months ended March 31, 2023 and 2022 approximately 27% and 29%, respectively, of our broadcast advertising revenue (excluding political advertising revenue) was obtained from advertising sales to the services sector. During the three-months ended March 31, 2023 and 2022 approximately 19% and 15%, respectively, of our broadcast advertising revenue (excluding political advertising revenue) was obtained from advertising sales to automotive customers. Revenue from these industries may represent a higher percentage of total revenue in odd-numbered years due to, among other things, the increased availability of advertising time, as a result of such years being the “off year” of the two-year election cycle.
Our primary broadcasting operating expenses are employee compensation, related benefits and programming costs. In addition, the broadcasting operations incur overhead expenses, such as maintenance, supplies, insurance, rent and utilities. A large portion of the operating expenses of our broadcasting operations is fixed. We continue to monitor our operating expenses and seek opportunities to reduce them where possible.
Please see our “Results of Operations” and “Liquidity and Capital Resources” sections below for further discussion of our operating results.
Revenue
Set forth below are the principal types of revenue, less agency commissions, earned by us for the periods indicated and the percentage contribution of each type of revenue to our total revenue (dollars in millions):
| Three Months Ended March 31, |
||||||||||||||||
| 2023 |
2022 |
|||||||||||||||
| Percent |
Percent |
|||||||||||||||
| Amount |
of Total |
Amount |
of Total |
|||||||||||||
| Revenue: |
||||||||||||||||
| Core advertising |
$ | 357 | 45 | % | $ | 365 | 44 | % | ||||||||
| Political |
8 | 1 | % | 26 | 3 | % | ||||||||||
| Retransmission consent |
395 | 49 | % | 393 | 48 | % | ||||||||||
| Production companies |
22 | 3 | % | 23 | 3 | % | ||||||||||
| Other |
19 | 2 | % | 20 | 2 | % | ||||||||||
| Total |
$ | 801 | 100 | % | $ | 827 | 100 | % | ||||||||
Results of Operations
Three-Months Ended March 31, 2023 (“the 2023 three-month period”) Compared to Three-Months Ended March 31, 2022 (“the 2022 three-month period”)
Revenue. Total revenue decreased $26 million, or 3%, to $801 million in the 2023 three-month period. During the 2023 three-month period:
| ● |
Retransmission consent revenue increased by $2 million due to the net effect of an increase in rates offset, in part, by a decrease in subscribers; |
| ● |
Core advertising revenue decreased by $8 million. In the 2023 three-month period, we earned $6 million of net revenue from the broadcast of the Super Bowl on our 27 FOX channels compared to an aggregate of $13 million of net revenue relating to the broadcast of the Winter Olympics and the Super Bowl on our 56 NBC channels during the 2022 three-month period. |
| ● |
Political advertising revenue decreased by $18 million, resulting primarily from 2023 being the “off-year” of the two-year election cycle; |
| ● |
Production company revenue decreased by $1 million in the 2023 three-month period. |
Broadcasting Expenses. Broadcasting expenses (before depreciation, amortization and gain or loss on disposal of assets) increased $25 million, or 5%, to $555 million in the 2023 three-month period:
| ● |
Payroll broadcasting expenses increased by $12 million in the 2023 three-month period as a result of routine increases in compensation. |
| ● |
Non-payroll broadcasting expenses increased by $13 million primarily because of the following: |
| o |
Retransmission expense increased by $8 million in the 2023 three-month period consistent with the increase in retransmission revenue; |
| o |
Professional services expenses increased by $2 million; and |
| o |
Promotion expenses increased by $2 million. |
| o |
Broadcast non-cash stock-based compensation expense was not material in the 2023 three-month period compared to $1 million in the 2022 three-month period. |
Production Company Expenses. Production company operating expenses were $59 million in the 2023 three-month period an increase of $33 million compared to the 2022 three-month period. Production company operating expenses included $17 million allowance for credit losses related to the bankruptcy of Diamond, a counterparty in contracts with us and $18 million to settle litigation related to the Assembly Atlanta project.
Corporate and Administrative Expenses. Corporate and administrative expenses (before depreciation, amortization and gain or loss on disposal of assets) decreased $2 million, or 7%, to $26 million in the 2023 three-month period. These decreases were primarily the result of decreases in Transaction Related Expenses. Non-cash stock-based compensation expenses decreased to $2 million in the 2023 three-month period compared to $5 million in the 2022 three-month period.
Depreciation. Depreciation of property and equipment totaled $35 million for the 2023 three-month period and $32 million for the 2022 three-month period.
Amortization. Amortization of intangible assets totaled $49 million in the 2023 three-month period and $52 million in the 2022 three-month period.
Loss on Disposal of Assets, Net. Loss on disposal of assets included $9 million of expense in the 2023 three-month period representing the initial discount recognized on the accounts receivable balance transferred to the SPV upon the implementation of the accounts receivable Securitization Facility. We expect that future amounts related to the Securitization Facility in this line item will not be material.
Interest Expense. Interest expense increased $25 million to $104 million for the 2023 three-month period compared to $79 million in the 2022 three-month period. This increase was primarily attributable to increases in interest rates on our floating rate 2019 Senior Credit Facility to 7.3% in the 2023 three-month period compared to 2.9% in the 2022 three-month period. Our average outstanding total long-term debt balance was $6.4 billion and $6.8 billion during the 2023 and 2022 three-month periods, respectively. Interest expense also increased by $1 million related to the non-cash amortization of fees for our interest rate cap agreement. We anticipate in future quarters this non-cash amortization expense will be $3 million per quarter for the duration of the agreements. Interest expense also increased by $2 million related to the amount outstanding under the Securitization Facility, from inception through the end of the quarter, during the 2023 three-month period. In future quarters, we anticipate interest expense resulting from the Securitization Facility will be approximately $5 million per quarter, for the duration of the agreement representing the amount outstanding under the facility at the one-month SOFR rate plus 1%.
Loss from Early Extinguishment of debt. During the 2023 three month period, we repaid in full the $295 million balance of the 2017 Term Loan under our 2019 Senior Credit Facility. As a result, we recorded a loss on early extinguishment of debt of $3 million, representing the unamortized balance of the related deferred financing costs of that loan.
Income Tax (Benefit) Expense. During the 2023 three-month period, we recognized income tax benefit of $11 million. During the 2022 three-month period, we recognized income tax expense of $21 million. For the 2023 three-month period and the 2022 three-month period, our effective income tax rate was 26% and 25%, respectively. We estimate our differences between taxable income or loss and recorded income or loss on an annual basis. Our tax provision for each quarter is based upon these full year projections which are revised each reporting period. These projections incorporate estimates of permanent differences between U.S. GAAP income or loss and taxable income or loss, state income taxes and adjustments to our liability for unrecognized tax benefits. For the 2023 three-month period, these estimates increased or decreased our statutory Federal income tax rate of 21% to our effective income tax rate of 26% as a result of state income taxes that added 5%.
Liquidity and Capital Resources
General. The following table presents data that we believe is helpful in evaluating our liquidity and capital resources (in millions):
| Three Months Ended |
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| March 31, |
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| 2023 |
2022 |
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| Net cash provided by operating activities |
$ | 412 | $ | 141 | ||||
| Net cash used in investing activities |
(95 | ) | (53 | ) | ||||
| Net cash used in financing activities |
(322 | ) | (30 | ) | ||||
| Net (decrease) increase in cash |
$ | (5 | ) | $ | 58 | |||
| As of |
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| March 31, |
December 31, |
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| 2023 |
2022 |
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| Cash |
$ | 56 | $ | 61 | ||||
| Long-term debt, including current portion, less deferred financing costs |
$ | 6,162 | $ | 6,455 | ||||
| Series A Perpetual Preferred Stock |
$ | 650 | $ | 650 | ||||
| Borrowing availability under the Revolving Credit Facility |
$ | 494 | $ | 496 | ||||
Net Cash Provided By (Used In) Operating, Investing and Financing Activities. Net cash provided by operating activities was $412 million in the 2023 three-month period compared to net cash provided by operating activities of $141 million in the 2022 three-month period. The increase of $271 million was primarily the result of $339 million of cash provided from the sale of accounts receivable under our Securitization Facility; and other changes in working capital, partially offset by a decrease in net income.
Net cash used in investing activities was $95 million in the 2023 three-month period compared to $53 million in the 2022 three-month period. The increase in the amount used was largely due to increased purchases of property and equipment in the 2023 three-month period compared to the 2022 three-month period.
Net cash used in financing activities was approximately $322 million in the 2023 three-month period compared to $30 million in the 2022 three-month period. The increase was primarily due to the use of $4 million of cash to repay a portion of the amount outstanding under our 2021 Term Loan and to repay the $295 million balance of our 2017 Term Loan under our 2019 Senior Credit Facility in the 2023 three-month period.
Liquidity. We estimate that we will make approximately $434 million in debt interest payments over the twelve months immediately following March 31, 2023.
Although our cash flows from operations are subject to a number of risks and uncertainties, we anticipate that our cash on hand, future cash expected to be generated from operations, borrowings from time to time under the 2019 Senior Credit Facility (or any such other credit facility as may be in place at the appropriate time) and, potentially, external equity or debt financing, will be sufficient to fund any debt service obligations, estimated capital expenditures and acquisition-related obligations for the next 12 months and beyond. Any potential equity or debt financing would depend upon, among other things, the costs and availability of such financing at the appropriate time. We also believe that our future cash expected to be generated from operations and borrowing availability under the 2019 Senior Credit Facility (or any such other credit facility) will be sufficient to fund our future capital expenditures and long-term debt service obligations until at least January 2, 2026, which is the maturity date of the 2019 Term Loan under the 2019 Senior Credit Facility.
Debt. As of March 31, 2023, long-term debt consisted of obligations under our 2019 Senior Credit Facility, our $700 million in aggregate principal amount of senior notes due 2026, our $750 million in aggregate principal amount of senior notes due 2027, our $800 million in aggregate principal amount of senior notes due 2030 and our $1.3 billion in aggregate principal amount of senior notes due 2031. As of March 31, 2023, the 2019 Senior Credit Facility provided total commitments of $3.2 billion, consisting of a $1.2 billion term loan facility, a $1.5 billion term loan facility and $494 million available under our revolving credit facility. We were in compliance with the covenants in these debt agreements at March 31, 2023.
Capital Expenditures. Excluding capital expenditures related to Assembly Atlanta, we currently expect that our routine capital expenditures will be in a range of approximately $86 million to $96 million for the remainder of 2023. In addition, we currently expect that our Assembly Atlanta capital expenditures will likely be offset by proceeds from Assembly Atlanta property sales and CID incentive payments for the remainder of 2023. More specifically, we currently expect that our Assembly Atlanta construction expenditures will be in a range of $95 million to $100 million, offset by the combined proceeds from Assembly Atlanta property sales and CID incentive payments that we expect will also be in a range of $95 million to $100 million for the remainder 2023. We can give no assurances of the actual proceeds to be received in the future from property sales and incentive payments, nor the timing of any such proceeds.
Completed Transaction. On May 1, 2023, we completed the transaction with Marquee Broadcasting, Inc. (“Marquee”) through which we sold television station KNIN (FOX) in the Boise, Idaho market (DMA 102) for $6 million, and purchased television station WPGA (MeTV) in the Macon, Georgia market (DMA 126) for $6 million. As a result, Gray’s television station portfolio now includes 102 markets with the first and/or second highest rated television station. Due to the proximity of the closing date of the transaction to the filing date of this report we are unable to present a preliminary purchase price allocation for the acquired business. The fair value estimates of assets acquired, liabilities assumed and resulting goodwill will be based upon management’s estimate of the fair values using valuation techniques including income, cost and market approaches. In estimating the fair value of the acquired assets and liabilities assumed, the fair value estimates will be based on, among other factors, expected future revenue and cash flows, expected future growth rates and estimated discount rates.
Other. We file a consolidated federal income tax return and such state and local tax returns as are required. During the first quarter of 2023, we made no material federal or state income tax payments. During the remainder of 2023, we anticipate making income tax payments within a range of $35 million to $45 million. As of March 31, 2023, we have an aggregate of approximately $344 million of various state operating loss carryforwards, of which we expect that approximately one-third will be utilized.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, contains modifications on the limitation of business interest for tax years beginning in 2019 and 2020, and permits net operating loss (“NOL”) carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. During 2020, we carried back certain net operating losses resulting in a refund of $21 million, that is currently outstanding.
During the 2023 three-month period, we did not make a contribution to our defined benefit pension plan. During the remainder of 2023, we expect to contribute $4 million to this pension plan.
Off-Balance Sheet Arrangements. On February 23, 2023, we, certain of our subsidiaries and a wholly-owned special purpose subsidiary (the “SPV”), entered into a three-year $300 million revolving accounts receivable securitization facility (the “Securitization Facility”) with Wells Fargo Bank, N.A., as administrative agent, for the purpose of providing additional liquidity in order to repay indebtedness under the Senior Credit Facility. The Securitization Facility permits the SPV to draw up to a total of $300 million, subject to the outstanding amount of the receivables pool and other factors. The Securitization Facility is subject to interest charges, at the one-month Secured Overnight Financing Rate (“SOFR”) plus 100 basis points on the amount of the outstanding facility. The SPV is also required to pay an upfront fee and a commitment fee in connection with the Securitization Facility. Other than as described above, there have been no material changes with respect to our off-balance sheet arrangements from those presented in our 2022 Form 10-K.
Critical Accounting Policies
The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments and estimations that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. We consider our accounting policies relating to intangible assets and income taxes to be critical policies that require judgments or estimations in their application where variances in those judgments or estimations could make a significant difference to future reported results. These critical accounting policies and estimates are more fully discussed in our 2022 Form 10-K.
Cautionary Note Regarding Forward-Looking Statements
This quarterly report on Form 10-Q contains and incorporates by reference “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act. Forward-looking statements are all statements other than those of historical fact. When used in this annual report, the words “believes,” “expects,” “anticipates,” “estimates,” “will,” “may,” “should” and similar words and expressions are generally intended to identify forward-looking statements. These forward-looking statements reflect our then-current expectations and are based upon data available to us at the time the statements are made. Forward-looking statements may relate to, among other things, statements about the economy in general, our strategies, expected results of operations, general and industry-specific economic conditions, future pension plan contributions, future capital expenditures, future income tax payments, future payments of interest and principal on our long-term debt, future interest expense under our Securitization Facility, future interest expense under our interest rate caps, assumptions underlying various estimates and estimates of future obligations and commitments, and should be considered in context with the various other disclosures made by us about our business. Readers are cautioned that any forward-looking statements, including those regarding the intent, belief or current expectations of our management, are not guarantees of future performance, results or events and involve significant risks and uncertainties, and that actual results and events may differ materially from those contained in the forward-looking statements as a result of various factors including, but not limited to, those listed in Item 1A. of our Annual Report and the other factors described from time to time in our SEC filings. The forward-looking statements included in this quarterly report are made only as of the date hereof. We undertake no obligation to update such forward-looking statements to reflect subsequent events or circumstances.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
We believe that the market risk of our financial instruments as of March 31, 2023 has not materially changed since December 31, 2022. Our market risk profile on December 31, 2022 is disclosed in our 2022 Annual Report on Form 10-K.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report, an evaluation was carried out under the supervision and with the participation of management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended. Based on this evaluation, the CEO and CFO have concluded that our controls and procedures were effective as of March 31, 2023.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1A. Risk Factors
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors that affect our business and financial results that are discussed in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. These factors could materially adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this report. There have been no material changes to such risk factors.
Item 6. Exhibits
The following exhibits are filed as part of this Quarterly Report:
| Exhibit Number |
Description of Document |
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| 10.1 |
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| 10.2 |
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| 10.3 |
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| 10.4 |
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| 31.1 |
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| 31.2 |
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| 32.1 |
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| 32.2 |
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| 101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
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| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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| 101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
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| 101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
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| 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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| 104 |
The cover page from Gray Television, Inc.’s Quarterly Report on Form 10-Q for the fiscal period ended March 31, 2023 has been formatted in Inline XBRL and contained in Exhibit 101. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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GRAY TELEVISION, INC. (Registrant) |
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| Date: May 5, 2023 |
By: |
/s/ James C. Ryan |
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James C. Ryan Executive Vice President and Chief Financial Officer |
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EXHIBIT 31.1
CERTIFICATION
I, Hilton H. Howell, Jr., certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q of Gray Television, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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Date: May 5, 2023 |
By: |
/s/ Hilton H. Howell, Jr. |
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Hilton H. Howell, Jr. Executive Chairman and Chief Executive Officer |
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EXHIBIT 31.2
CERTIFICATION
I, James C. Ryan, certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q of Gray Television, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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Date: May 5, 2023 |
By: |
/s/ James C. Ryan |
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James C. Ryan Executive Vice President and Chief Financial Officer |
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EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the accompanying quarterly report on Form 10-Q of Gray Television, Inc. (the “Company”) for the quarterly period ended March 31, 2023 (the “Periodic Report”), the undersigned Chief Executive Officer of the Company, hereby certifies pursuant to Title 18, Section 1350 United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of his individual knowledge and belief, that the Periodic Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: May 5, 2023
| /s/ Hilton H. Howell, Jr. |
Hilton H. Howell, Jr.
Executive Chairman and Chief Executive Officer
A signed original of this written statement required by Section 906 has been provided to Gray Television, Inc. and will be retained by Gray Television, Inc. and furnished to the SEC or its staff upon request.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the accompanying quarterly report on Form 10-Q of Gray Television, Inc. (the “Company”) for the quarterly period ended March 31, 2023 (the “Periodic Report”), the undersigned Chief Financial Officer of the Company, hereby certifies pursuant to Title 18, Section 1350 United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of his individual knowledge and belief, that the Periodic Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: May 5, 2023
| /s/ James C. Ryan |
James C. Ryan
Executive Vice President and Chief Financial Officer
A signed original of this written statement required by Section 906 has been provided to Gray Television, Inc. and will be retained by Gray Television, Inc. and furnished to the SEC or its staff upon request.