GRAY TELEVISION, INC. Executive Overview
Introduction. The following discussion and analysis of the financial condition
and results of operations of
Business Overview. We are a television broadcast company headquartered in
Impact of COVID-19 and Related Government Restrictions on our Markets and Operations. The impact of COVID-19 and measures to prevent its spread are affecting our businesses in a number of ways. We have experienced a disruption in creation of content that we broadcast on our television stations and of events and programs we produce at our production companies, including the cancellation of certain sports events and the shutting down of production of certain television content. The extent to which the COVID-19 pandemic impacts our business operations, financial results, and liquidity will depend on numerous evolving factors that we may not be able to accurately predict or assess, including the duration and scope of the pandemic; the negative impact it has on global and regional economies and economic activity, changes in advertising customers and consumer behavior, impact of governmental regulations that might be imposed in response to the pandemic, its short and longer-term impact on the levels of consumer confidence; actions governments, businesses and individuals take in response to the pandemic; and how quickly economies recover after the COVID-19 pandemic subsides. The COVID-19 impact on the capital markets could impact our cost of borrowing.
We have been actively monitoring the global outbreak and spread of COVID-19 and taking steps to mitigate the potential risks to us posed by its spread and related circumstances and impacts. We are focused on navigating these recent challenges presented by the COVID-19 global pandemic through protecting the safety of our employees, seeking to maintain revenues, reduce expenses and delay capital expenditures. There are certain limitations on our ability to mitigate the adverse financial impact of the pandemic, including the high fixed-cost nature of our businesses. COVID-19 also makes it more challenging for management to estimate future performance of our businesses, particularly over the near to medium term, and consequently the broader impact that COVID-19 could have on our business, financial condition and results of operations. See "The novel coronavirus disease and its related diseases (COVID-19) global pandemic has had and is expected to continue to have an adverse impact on our business." in Part II, Item 1A. Risk Factors of this Quarterly Report on Form 10-Q.
Since March, most of our employees have been working from home, with only
certain essential employees working on site. For employees working on site, we
have instituted social distancing protocols, increased the level of cleaning and
sanitizing in those sites and undertaken other actions to make these sites
safer. We have also substantially reduced employee travel to only essential
business needs. We are generally following the requirements and protocols
published by the
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.
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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;
? Local and national advertising revenue on our NBC -affiliated stations
increases in certain periods in even numbered years as a result of their
broadcasts of the Olympic Games , which to some extent reduces the revenues
earned by non-NBC -affiliated stations during those periods (note that the 2020
Olympic Games have been postponed until 2021); and
? Because our stations and markets are not evenly divided among the Big Four
broadcast networks, our local and national advertising revenue can fluctuate
between years related to which network broadcasts the Super Bowl .
Automotive advertisers have traditionally accounted for a significant portion of
our revenue. During the three-months ended
While our total revenues have increased in recent years as a result of our acquisitions, they have also experienced a gradual improvement as a result of improvements in general economic conditions. However, revenue remains under pressure from the internet as a competitor for advertising spending. We continue to enhance and market our internet websites in an effort to generate additional revenue. Our aggregate internet revenue is derived from both advertising and sponsorship opportunities directly on our websites.
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.
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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,
2020 2019
Percent Percent
Amount of Total Amount of Total
Revenue:
Local (including internet/digital/mobile) $ 199 37.3% $ 211 40.7%
National 51 9.6% 50 9.7%
Political 36 6.7% 3 0.6%
Retransmission consent 213 39.9% 204 39.4%
Production companies 19 3.6% 37 7.1%
Other 16 2.9% 13 2.5%
Total $ 534 100.0% $ 518 100.0%
Results of Operations
Three-Months Ended
Revenue. Total revenue increased
Broadcast Expenses. Broadcast expenses (before depreciation, amortization and
gain or loss on disposal of assets) decreased
Production Company Expenses. Production company operating expenses were
approximately
Corporate and Administrative Expenses. Corporate and administrative expenses
(before depreciation, amortization and gain or loss on disposal of assets)
decreased
Depreciation. Depreciation of property and equipment totaled
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Amortization. Amortization of intangible assets totaled
Interest Expense. Interest expense decreased
Income tax expense. During the 2020 three-month period, we recognized income tax
expense of
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
March 31,
2020 2019
Net cash provided by operating activities $ 131 $ 24
Net cash used in investing activities (24 ) (2,562 )
Net cash (used in) provided by financing activities (23 ) 1,344 Net (decrease) increase in cash
$ 84 $ (1,194 ) As of March 31, December 31, 2020 2019 Cash$ 296 $ 212 Long-term debt, less deferred financing costs$ 3,700 $ 3,697
Borrowing availability under the Revolving Credit Facility
$ 650 $ 650
Net Cash Provided By (Used In) Operating, Investing and Financing Activities.
Net cash provided by operating activities was
Net cash used in investing activities was
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Net cash used in financing activities was approximately
Liquidity. We estimate that we will make approximately
Although our cash flows from operations are subject to a number of risks and
uncertainties, including the recent COVID-19 pandemic and related economic
effects, 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. 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
Capital Expenditures. In
Other. We file a consolidated federal income tax return and such state and local
tax returns as are required. During the 2020 three-month period, we did not make
any material tax payments. During the remainder of 2020, we anticipate making
income tax payments (net of refunds) of approximately
During the 2020 three-month period, we did not make a contribution to our
defined benefit pension plan. During the remainder of 2020, we expect to
contribute
Off-Balance Sheet Arrangements. There have been no material changes with respect to our off-balance sheet arrangements from those presented in our 2019 Form 10-K.
Critical Accounting Policies
The preparation of financial statements in conformity with
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Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (this "Quarterly Report") contains
"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 Securities Exchange Act of 1934 (the "Exchange Act").
Forward-looking statements are all statements other than those of historical
fact. When used in this Quarterly Report, the words "believes," "expects,"
"anticipates," "estimates," "will," "may," "should" and similar words and
expressions are generally intended to identify forward-looking statements. Among
other things, statements that describe our expectations regarding the evolving
and uncertain nature of the COVID-19 pandemic and its impact on the Company, the
media industry, and the economy in general, our results of operations, general
and industry-specific economic conditions, future pension plan contributions,
income tax payments and capital expenditures are forward-looking statements.
Readers of this Quarterly Report 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 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 under the
heading "Risk Factors" in our 2019 Form 10-K and as may be described in
subsequently filed quarterly reports on Form 10-Q, as well as the other factors
described from time to time in our filings with the
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