Gray Finishes 2022 In A Strong Position and Issues Stable Outlook for 2023

Gray Television, Inc.

ATLANTA, Feb. 24, 2023 (GLOBE NEWSWIRE) -- Gray Television, Inc. (“Gray,” “we,” “us” or “our”) (NYSE: GTN) today announced financial results for the fourth quarter ended December 31, 2022, reflecting revenue above our guidance and expenses near the low end of our guidance for the quarter.

Overall, the fourth quarter of 2022 produced record results, including $1.1 billion in total revenue, due to the combination of recent acquisitions, added scale, increasingly efficient integrated operations, and the “on-year” of the two-year political advertising cycle. Moreover, compared to the fourth quarter of 2018, the last mid-term election year, our political advertising revenue of $255 million in the fourth quarter of 2022 grew by 207% on an As-Reported Basis (as defined below) and by 24% on a Combined Historical Basis (as defined below). For the full year 2022, our political advertising revenue was $515 million, which exceeded 2018’s political advertising revenue by 232% on an As-Reported Basis and by 38% on a Combined Historical Basis.

Our strong cash flow in the fourth quarter of 2022 enabled us to return a total of $174 million of capital to our shareholders during the fourth quarter, including: two voluntary debt principal pre-payments totaling $150 million under our 2017 Term Loan B (due 2024); a required principal payment of $4 million under our 2021 Term Loan D (due 2028); and $20 million of cash dividends to our preferred and common shareholders. As part of our strong commitment to strengthen our balance sheet, as described below, we currently intend to fully pre-pay the remaining $295 million principal balance on our Term Loan B on March 1, 2023, and we have undertaken efforts to cap the interest rate on our floating rate debt, as described below.

Despite concerns about a possible macroeconomic recession discussed publicly in the general media and by certain sectors of the economy, we believe that our businesses performed well throughout last year and have started 2023 in a strong position. Most notably, on a Combined Historical Basis, our television stations’ Core Advertising Revenue (total local, national and internet advertising revenue) of $1.5 billion for full-year 2022 declined by only $19 million or a mere 1% compared to 2021. This performance came despite a more challenging macro-economic environment as well as inventory displacement caused by $515 million of political advertising revenue in 2022, an increase of $455 million, on a Combined Historical Basis. We attribute these solid results to real-world confidence among advertisers and businesses in local markets, which we believe has been and remains more positive than the advertising sentiment currently held by many national advertisers. We also attribute our success in maintaining Core Advertising Revenues to our scale and portfolio of high-quality local stations, our investments in recently acquired television stations, and our efficient sales and news operations. Relatedly, on a Combined Historical Basis, our retransmission revenues grew 5% in full-year 2022 over the prior year, as rate increases outpaced subscriber declines and subscriber rotation into lower revenue generating platforms.

Looking ahead, we anticipate that our television stations and production companies will maintain revenues at a level generally flat with recent years should macroeconomic conditions, particularly in local markets, slow during 2023. In addition, we anticipate that our retransmission revenues in the first quarter of 2023 will increase by approximately 10% to 11% over the fourth quarter of 2022 as rates increases continue to outpace negative subscriber trends.

Meanwhile, we believe our investments in Atlanta Assembly will provide some diversification from our broadcasting segment with new exposure to the growing film and television production industry in Georgia. We currently anticipate that construction on the Assembly Studios portion of the development and much of the infrastructure for the entire project will be completed in the summer of 2023. At that time, we expect that the new facilities will begin generating revenue from both long-term and short-term leases of soundstages and related facilities to various content producers. Also at that time, Gray intends to pause its funding of construction projects at Atlanta Assembly to evaluate carefully certain opportunities to maximize the long-term value of this unique real estate investment.

Summary of Operating Results

Due to the significant effect that material business combination transactions have had on our results of our operations, we present the financial information herein consistent with both U.S. Generally Accepted Accounting Principles (“GAAP” or “As Reported Basis”) and on a Combined Historical Basis (“CHB”), which incorporates certain historical results of acquired businesses, less the historical results of divested businesses. We also furnish certain other detailed non-GAAP metrics to provide more meaningful period-over-period comparisons to assist the public in its analysis and valuation of Gray. This additional information includes a summary of incremental expenses that were specific to our acquisitions, divestitures, and related financing activities (“Transaction Related Expenses”), non-cash stock-based compensation expenses and certain non-GAAP terms common in our industry. Please refer to the detailed discussion of the foregoing terms and concepts included elsewhere herein.

Gray has not completed any material business combination transactions since late 2021. As a result, we do not currently anticipate providing CHB results going forward.

As Reported Basis (the respective 2021 periods reflect the “off-year” of the two year political advertising cycle):

For the fourth quarter of 2022:

• Total revenue was $1.1 billion, an increase of 49% from the fourth quarter of 2021, primarily due to the cyclical increase in political advertising revenue.

• Core Advertising Revenue was $406 million, an increase of 13% from the fourth quarter of 2021.

• Net income attributable to common stockholders was $173 million, or $1.88 per fully diluted share, an increase of 981% from the fourth quarter of 2021.

• Broadcast Cash Flow was $485 million, an increase of 88% from the fourth quarter of 2021.

For the full year of 2022:

• Total revenue was $3.7 billion, an increase of 52% from 2021, marking our highest ever annual revenue.

• Core Advertising Revenue was $1.5 billion, an increase of 26% from 2021.

• Net income attributable to common stockholders was $403 million, an increase of 961% from 2021.

• Broadcast Cash Flow was $1.4 billion, an increase of 77% from 2021.

Combined Historical Basis (the respective 2021 periods reflect the “off-year” of the two year political advertising cycle):

For the fourth quarter of 2022:

• Total revenue was $1.1 billion, an increase of 25% from the fourth quarter of 2021.

• Total Core Revenue was $406 million, a decrease of 4% from the fourth quarter of 2021, due primarily to displacement resulting from the $230 million increase in political advertising revenue, to $255 million, in 2022.

• Broadcast Cash Flow was $484 million, an increase of 56% from the fourth quarter of 2021.
  

For the full year of 2022:

• Total revenue was $3.7 billion, an increase of 17% from 2021.

• Total Core Revenue was $1.5 billion, a decrease of 1% from 2021, due primarily to displacement resulting from the $455 million increase in political advertising revenue, to $515 million, in 2022.

• Broadcast Cash Flow was $1.4 billion, an increase of 31% from 2021.
  

Other Key Metrics

• As of December 31, 2022, our Total Leverage Ratio, Net of all Cash, was 5.41 times on a trailing eight-quarter basis, netting our total cash balance of $61 million and giving effect to all Transaction Related Expenses, which is calculated as set forth in our Senior Credit Facility.

• Throughout 2022 and 2021, we incurred Transaction Related Expenses on an As Reported Basis that included but were not limited to legal and professional fees, severance and incentive compensation and contract termination fees. In addition, we recorded certain non-cash stock-based compensation expenses. These expenses are summarized as follows (in millions):

	Three Months Ended						Year Ended
	December 31,						December 31,
		2022			2021			2022			2021
	(Unaudited)
Transaction Related Expenses:
Broadcasting	$	1		$	3		$	6		$	3
Corporate and administrative		1			52			2			71
Miscellaneous expense		-			-			-			7
Total Transaction Related Expenses	$	2		$	55		$	8		$	81
Total non-cash stock-based compensation	$	5		$	4		$	22		$	14

Taxes

• During 2022 and 2021, we made aggregate federal and state income tax payments (net of refunds) of $180 million and $149 million, respectively. During 2023, we anticipate making income tax payments (before deducting refunds) within a range of $90 million to $110 million.

• As of December 31, 2022, we have an aggregate of $344 million of various state operating loss carryforwards, of which we expect that approximately one-third will be utilized.

Marquee Transaction

On February 15, 2023, we announced that we have reached agreements with Marquee Broadcasting, Inc. (“Marquee”) through which we will sell television station KNIN (FOX) in the Boise, Idaho market (DMA 102) for $6 million, and purchase television station WPGA (MeTV) in the Macon, Georgia market (DMA 126) for $6 million. The completion of the transactions is subject to regulatory and other approvals.

Securitization Facility

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. On February 23, 2023, we drew $300 million under the Securitization Facility and intend to use the proceeds to pre-pay the outstanding principal balance of $295 million of Term Loan B under our Senior Credit Facility on March 1, 2023.

Under the Securitization Facility, the SPV will sell certain receivables and related rights (“Sold Receivables”) and guarantee the collection of the Sold Receivables and pledge the remaining receivables and related rights that it owns in order to secure such guarantee. We will service the accounts receivables on behalf of the SPV for a fee.

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 sale of receivables from SPV will be accounted for in the Company’s financial statements as a "true-sale" under Accounting Standards Codification ("ASC") Topic 860.

Interest Rate Cap

On February 23, 2023, we entered into interest rate caps pursuant to an International Swaps and Derivatives Association ("ISDA") Master Agreement with Wells Fargo Bank, NA and Truist Bank, respectively. The caps have a combined fixed notional value of approximately $2.6 billion through the last business day in 2024 and then a reduction in notional value to approximately $2.1 billion until maturity on December 31, 2025. The agreement effectively limits the annual interest charged on all of our variable rate debt to a maximum one-month LIBOR rate of 5 percent, plus the Applicable Margin, as specified in our Senior Credit Facility. The Company is also required to pay aggregate fees in connection with the agreement of approximately $32 million that is due and payable on December 31, 2025. The ISDA Master Agreement, together with its related schedules, contain customary representations, warranties and covenants. This hedging agreement was entered into to mitigate the interest rate risk inherent in our variable rate debt and is not for speculative trading purposes.

Guidance for the Three-Months Ending March 31, 2023

Based on our current forecasts for the quarter ending March 31, 2023, we anticipate the following key financial results, as outlined below in approximate ranges. We present revenue net of agency commissions. We present operating expenses excluding depreciation, amortization and gain/loss on disposal of assets.

As noted above, Gray does not intend to present financial results in the Combined Historical Basis going forward due to the lack of material transactions since late 2021.

• Revenue:

  • Total Core Revenue of $350 million to $360 million.

    • In the three months ended March 31, 2023, we anticipate approximately $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 three months ended March 31, 2022.

  • Retransmission revenue of $387 million to $393 million.

  • Political revenue of $2 million to $3 million.

  • Production company revenue of $20 million to $21 million.

  • Total revenue of $777 million to $796 million.
    
    

• Operating Expenses:
  

  • Broadcasting expenses of $560 million to $565 million, including retransmission expense of approximately $235 million and non-cash stock-based compensation expense of approximately $1 million.

  • Production company expenses of approximately $23 million to $24 million.

  • Corporate expenses of $30 million to $33 million, including non-cash stock-based compensation expense of approximately $4 million.

Selected Operating Data on As Reported Basis (Unaudited)
	Three Months Ended December 31,
		2022			2021		% Change 2022 to 2021			2020		% Change 2022 to 2020
	(dollars in millions)
Revenue (less agency commissions):
Broadcasting	$	1,035		$	692		50%		$	763		36%
Production companies		37			29		28%			29		28%
Total revenue	$	1,072		$	721		49%		$	792		35%
Political advertising revenue	$	255		$	20		1175%		$	245		4%
Operating expenses (1):
Broadcasting	$	570		$	449		27%		$	355		61%
Production companies	$	27		$	23		17%		$	20		35%
Corporate and administrative	$	24		$	84		(71)%		$	18		33%
Net income	$	186		$	29		541%		$	224		(17)%
Non-GAAP Cash Flow (2):
Broadcast Cash Flow	$	485		$	258		88%		$	424		14%
Broadcast Cash Flow Less Cash Corporate Expenses	$	465		$	177		163%		$	409		14%
Free Cash Flow (3)	$	242		$	59		310%		$	300		(19)%
	Year Ended Ended December 31,
		2022			2021		% Change 2022 to 2021			2020		% Change 2022 to 2020
	(dollars in millions)
Revenue (less agency commissions):
Broadcasting	$	3,583		$	2,340		53%		$	2,320		54%
Production companies		93			73		27%			61		52%
Total revenue	$	3,676		$	2,413		52%		$	2,381		54%
Political advertising revenue	$	515		$	44		1070%		$	430		20%
Operating expenses (1):
Broadcasting	$	2,165		$	1,548		40%		$	1,340		62%
Production companies	$	83		$	62		34%		$	52		60%
Corporate and administrative	$	104		$	159		(35)%		$	65		60%
Net income	$	455		$	90		406%		$	410		11%
Non-GAAP Cash Flow (2):
Broadcast Cash Flow	$	1,440		$	813		77%		$	999		44%
Broadcast Cash Flow Less Cash Corporate Expenses	$	1,354		$	666		103%		$	945		43%
Free Cash Flow (3)	$	581		$	238		144%		$	559		4%

(1)   Excludes depreciation, amortization and gain on disposal of assets, net.
(2)   See definition of non-GAAP terms and a reconciliation of the non-GAAP amounts to net income included herein.
(3)   Excludes deduction for purchase of property and equipment related to the Assembly Atlanta project in 2022 and 2021.

		Three Months Ended December 31,
			2022						2021				Amount				Percent
					Percent						Percent		Increase				Increase
		Amount			of Total			Amount			of Total		(Decrease)				(Decrease)
		(dollars in millions)
Revenue (less agency commissions):
Core		$	406		38%			$	359		49%		$	47			13%
Political			255		24%				20		3%			235			1175%
Retransmission consent			353		33%				294		41%			59			20%
Production companies			37		3%				29		4%			8			28%
Other			21		2%				19		3%			2			11%
Total		$	1,072		100%			$	721		100%		$	351			49%
Operating Expenses (before
depreciation, amortization and
gain on disposal of assets, net):
Broadcasting:
Station expenses		$	343		60%			$	274		61%		$	69			25%
Retransmission expense			225		40%				171		38%			54			32%
Transaction Related Expenses			1		0%				3		1%			(2	)		(67)%
Non-cash stock-based compensation			1		0%				1		0%			-			0%
Total broadcasting expense		$	570		100%			$	449		100%		$	121			27%
Production companies expense		$	27					$	23				$	4			17%
Corporate and administrative:
Corporate expenses		$	19		79%			$	29		35%		$	(10	)		(34)%
Transaction Related Expenses			1		4%				52		61%			(51	)		(98)%
Non-cash stock-based compensation			4		17%				3		4%			1			33%
Total corporate and
administrative expense		$	24		100%			$	84		100%		$	(60	)		(71)%
		Year Ended December 31,
			2022						2021				Amount				Percent
					Percent						Percent		Increase				Increase
		Amount			of Total			Amount			of Total		(Decrease)				(Decrease)
		(dollars in millions)
Revenue (less agency commissions):
Core		$	1,496		41%			$	1,190		50%		$	306			26%
Political			515		14%				44		2%			471			1070%
Retransmission consent			1,496		41%				1,049		43%			447			43%
Production companies			93		3%				73		3%			20			27%
Other			76		1%				57		2%			19			33%
Total		$	3,676		100%			$	2,413		100%		$	1,263			52%
Operating Expenses (before
depreciation, amortization and
gain on disposal of assets, net):
Broadcasting:
Station expenses		$	1,252		58%			$	928		60%		$	324			35%
Retransmission expense			903		42%				615		40%			288			47%
Transaction Related Expenses			6		0%				3		0%			3			100%
Non-cash stock-based compensation			4		0%				2		0%			2			100%
Total broadcasting expense		$	2,165		100%			$	1,548		100%		$	617			40%
Production companies expense		$	83					$	62				$	21			34%
Corporate and administrative:
Corporate expenses		$	84		81%			$	76		48%		$	8			11%
Transaction Related Expenses			2		2%				71		45%			(69	)		(97)%
Non-cash stock-based compensation			18		17%				12		7%			6			50%
Total corporate and
administrative expense		$	104		100%			$	159		100%		$	(55	)		(35)%

Detail Table of Operating Results on As Reported Basis (Unaudited)
	Three Months Ended								Year Ended
	December 31,								December 31,
		2022				2021				2022				2021
	(in millions, except for net income per share data)
Revenue (less agency commissions):
Broadcasting	$	1,035			$	692			$	3,583			$	2,340
Production companies		37				29				93				73
Total revenue (less agency commissions)		1,072				721				3,676				2,413
Operating expenses before depreciation, amortization and gain on
disposal of assets, net:
Broadcasting		570				449				2,165				1,548
Production companies		27				23				83				62
Corporate and administrative		24				84				104				159
Depreciation		33				28				129				104
Amortization of intangible assets		51				36				207				117
Loss (gain) on disposal of assets, net		4				(4	)			(2	)			42
Operating expenses		709				616				2,686				2,032
Operating income		363				105				990				381
Other expense:
Miscellaneous expense, net		(1	)			(1	)			(4	)			(8	)
Impairment of investment		(18	)			-				(18	)			-
Interest expense		(100	)			(62	)			(354	)			(205	)
Income before income tax		244				42				614				168
Income tax expense		58				13				159				78
Net income		186				29				455				90
Preferred stock dividends		13				13				52				52
Net income attributable to common stockholders	$	173			$	16			$	403			$	38
Basic per share information:
Net income attributable to common stockholders	$	1.90			$	0.17			$	4.38			$	0.40
Weighted-average shares outstanding		91				95				92				95
Diluted per share information:
Net income attributable to common stockholders	$	1.88			$	0.17			$	4.33			$	0.40
Weighted-average shares outstanding		92				95				93				95

Selected Operating Data on Combined Historical Basis (Unaudited)
	Three Months Ended December 31,
		2022			2021		% Change 2022 to 2021		2020			% Change 2022 to 2020
	(dollars in millions)
Revenue (less agency commissions):
Broadcast	$	1,035		$	828		25%		$	1,104		(6)%
Production companies		37			29		28%			29		28%
Total revenue	$	1,072		$	857		25%		$	1,133		(5)%
Political advertising revenue	$	255		$	25		920%		$	383		(33)%
Operating expenses (1):
Broadcast	$	570		$	536		6%		$	518		10%
Production companies	$	27		$	23		17%		$	20		35%
Corporate and administrative	$	24		$	84		(71)%		$	18		33%
Non-GAAP Cash Flow (2):
Broadcast Cash Flow	$	484		$	311		56%		$	624		(22)%
Broadcast Cash Flow Less Cash Corporate Expenses	$	464		$	230		102%		$	609		(24)%
Operating Cash Flow as defined in our Senior Credit Agreement	$	465		$	285		63%		$	609		(24)%
Free Cash Flow (3)	$	243		$	139		75%		$	423		(43)%
	Year Ended December 31,
		2022			2021		% Change 2022 to 2021		2020			% Change 2022 to 2020
	(dollars in millions)
Revenue (less agency commissions):
Broadcast	$	3,583		$	3,080		16%		$	3,291		9%
Production companies		93			73		27%			61		52%
Total revenue	$	3,676		$	3,153		17%		$	3,352		10%
Political advertising revenue	$	515		$	60		758%		$	652		(21)%
Operating expenses (1):
Broadcast	$	2,165		$	2,059		5%		$	1,923		13%
Production companies	$	83		$	62		34%		$	53		57%
Corporate and administrative	$	104		$	160		(35)%		$	65		60%
Non-GAAP Cash Flow (2):
Broadcast Cash Flow	$	1,444		$	1,105		31%		$	1,459		(1)%
Broadcast Cash Flow Less Cash Corporate Expenses	$	1,358		$	958		42%		$	1,405		(3)%
Operating Cash Flow as defined in our Senior Credit Agreement	$	1,359		$	1,029		32%		$	1,403		(3)%
Free Cash Flow (3)	$	593		$	443		34%		$	809		(27)%

(1)   Excludes depreciation, amortization and gain on disposal of assets, net.
(2)   See definition of non-GAAP terms and a reconciliation of the non-GAAP amounts to net income included herein.
(3)   Excludes deduction for purchase of property and equipment related to the Assembly Atlanta project in 2022 and 2021.

		Three Months Ended December 31,
			2022						2021					Amount				Percent
					Percent						Percent			Increase				Increase
		Amount			of Total			Amount			of Total			(Decrease)				(Decrease)
		(dollars in millions)
Revenue (less agency commissions):
Core		$	406		38%			$	422		49%			$	(16	)		(4)%
Political			255		24%				25		3%				230			920%
Retransmission consent			353		33%				358		42%				(5	)		(1)%
Production companies			37		3%				29		3%				8			28%
Other			21		2%				23		3%				(2	)		(9)%
Total		$	1,072		100%			$	857		100%			$	215			25%
Operating Expenses (before
depreciation, amortization and
gain on disposal of assets, net):
Broadcasting:
Station expenses		$	343		60%			$	321		60%			$	22			7%
Retransmission expense			225		40%				211		39%				14			7%
Transaction Related Expenses			1		0%				3		1%				(2	)		(67)%
Non-cash stock-based compensation			1		0%				1		0%				-			0%
Total broadcasting expense		$	570		100%			$	536		100%			$	34