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Gray Reports Record Operating Results

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ATLANTA, Feb. 27, 2020 (GLOBE NEWSWIRE) -- Gray Television, Inc. ("Gray," "we," "us" or "our") (NYSE:GTN) today announces record results of operations for the fourth quarter ended December 31, 2019.

Highlights and Recent Developments:

  • Record Fourth Quarter Results - Our revenue for the fourth quarter of 2019 was $579 million, increasing $251 million, or 77%, from the fourth quarter of 2018, marking our highest ever quarterly revenue. Our net income for the fourth quarter of 2019 was $94 million. Our Broadcast Cash Flow was $229 million, increasing $57 million, or 33%, from the fourth quarter of 2018, making it our highest ever quarterly Broadcast Cash Flow. Our Adjusted EBITDA for the fourth quarter of 2019 of $215 million significantly exceeded our expectations.

  • Record Annual Results - Our revenue for the full year 2019 was $2.1 billion, increasing $1.0 billion, or 96%, from 2018, marking our highest ever annual revenue. Our net income for 2019 was $179 million. Our Broadcast Cash Flow for the full year 2019 was $729 million, increasing $236 million, or 48%, from 2018, our highest ever annual Broadcast Cash Flow. Our Adjusted EBIDTA in 2019 was $714 million. Our Free Cash Flow for full year 2019 was $273 million, which was 4% higher than in 2018 and 59% higher than 2017, the last "off-year" of the two-year political advertising cycle. On a Combined Historical Basis (as defined herein), our Free Cash Flow for full year 2019 was $358 million, which was 19% higher than our free cash flow in 2017.  Furthermore, our 2019 free cash flow significantly exceeded our previously issued guidance range of between $315 million and $325 million on this adjusted basis.

  • Political Revenue – Our political advertising revenue was $38 million for the fourth quarter of 2019 (on both an As Reported Basis and on a Combined Historical Basis), significantly exceeding our previously issued guidance of $25 million to $26 million and, for full year 2019, our political advertising revenue was $68 million. In 2017, the most recent non election year, and on a Combined Historical Basis, our political advertising revenue was $14 million in the fourth quarter of 2017 and $31 million for the full year 2017. As a result, on a Combined Historical Basis our political advertising revenue for the fourth quarter of 2019 was approximately 171% greater than that of the fourth quarter of 2017, and for the year, it was 119% greater than the full year 2017.

  • Balance Sheet – During the fourth quarter of 2019, we repurchased slightly over one million shares of our common stock on the open market at an average price of $20.86 per share, including commissions, for a total cost of approximately $21 million, under a stock repurchase authorization adopted in November, 2019.  During the fourth quarter of 2019, we made voluntary pre-payments totaling $200 million on the term loan outstanding under our senior credit facility, using cash on hand, that reduced the lenders' total loan commitment for the senior credit facility by an equal amount.  As of December 31, 2019, our total leverage ratio, as defined in our senior credit facility, was 4.35 times on a trailing eight-quarter basis after netting our total cash on hand of $212 million and after giving effect to all Transaction Related Expenses (as defined below).

  • Operational Update – We have essentially completed the integration of our operations with that of our 2019 Acquisitions (as defined herein) including our acquisition of Raycom Media, Inc. Our actions have resulted in annualized synergies of at least $85 million.

  • Transaction Related Expenses and Non-Cash Stock-Based Compensation - During our fourth quarter and year to date 2019 and 2018 periods, we incurred incremental expenses ("Transaction Related Expenses") on an As-Reported Basis that were specific to acquisitions, divestitures, and financing activities, including but not limited to legal and professional fees, severance and incentive compensation and contract termination fees. In addition, we have 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,
    2019       2018       2019       2018  
Transaction Related Expenses:              
Broadcast $ 7     $ -     $ 45     $ 3  
Corporate and administrative   -       2       34       8  
Total Transaction Related Expenses $ 7     $ 2       $ 79       $ 11  
               
Total non-cash stock-based compensation $ 6     $ 2     $ 16     $ 7  

  •  Selected Statement of Operations Data – The following table presents certain operating data for the fourth quarter and year to date 2019 and 2018 periods (in millions, except for per share data):
  Three Months Ended   Year Ended
  December 31,   December 31,
    2019       2018       2019       2018  
As-Reported:              
Net income attributable to common stockholders $ 81     $ 88     $ 127     $ 211  
Net income attributable to common stockholders, diluted, per share $ 0.81     $ 1.00     $ 1.27     $ 2.37  
Adjusted EBITDA (1) $ 215     $ 161     $ 714     $ 465  
               
Excluding Transaction Related Expenses and non-cash stock-based comp:            
Net income attributable to common stockholders (1) $ 91     $ 91     $ 198     $ 224  
Net income attributable to common stockholders, diluted, per share (1) $ 0.91     $ 1.02     $ 1.98     $ 2.52  
                               
(1) See reconciliation of non-GAAP amounts to net income, included elsewhere herein.

  • Selected Guidance Data - Based on our current forecasts and expectations, which include consistent macroeconomic and industry trends, immaterial stock repurchases and immaterial business acquisitions, we currently anticipate revenue and expenses within the following approximate ranges for the quarter ended March 31, 2020 ("first quarter of 2020") and for year ended December 31, 2020 as set forth below (in millions):
  Three Months Ended   Year Ended
  March 31, 2020   December 31, 2020
  Low   High   Low   High
  Guidance   Guidance
  Guidance   Guidance
               
Total revenue $ 540     $ 555     $ 2,375     $ 2,425  
Political Revenue $ 35     $ 40     $ 250     $ 275  
               
Operating expenses before depreciation, amortization and gain              
on disposal of assets, net: $ 384     $ 391     $ 1,530     $ 1,545  
               
Free Cash Flow                 $ 500  
                       
Subject to the foregoing qualifications and guidance, by year-end 2020, we currently expect that our total leverage ratio will continue to decline to a range of between 3.7 and 3.8 times, on a trailing eight-quarter basis, after netting our total cash, and after giving effect to all Transaction Related Expenses. Actual results are subject to a number of risks and uncertainties and may differ materially from the current expectations.


Combined Historical Basis Information

We define "2019 Acquisitions" as the businesses acquired, and stations divested in connection with the merger with Raycom Media, Inc. (the "Raycom Merger") completed on January 2, 2019; the acquisition of the assets of WWNY-TV (CBS) and WNYF-CD (FOX) in Watertown, New York (DMA 181) and KEYC-TV (CBS/FOX) in Mankato, Minnesota (DMA 198) from United Communications Corporation (the "United Acquisition") completed on May 1, 2019; the acquisition of KDLT-TV (NBC), in the Sioux Falls, South Dakota market (DMA 113) from Red River Broadcasting Co., LLC on September 25, 2019; the acquisition of WVIR-TV (NBC) in the Charlottesville, Virginia market (DMA 182) from Waterman Broadcasting Corporation on October 1, 2019; and the divestiture of our legacy stations in the Charlottesville, Virginia market, WCAV-TV (CBS/FOX) and WVAW-LD (ABC), also on October 1, 2019. Including the 2019 Acquisitions, from January 1, 2017 through December 31, 2019, we completed several acquisition and divestiture transactions, including some that had a material impact on our results of operations. In order to provide more meaningful period over period comparisons, we present certain financial information below on a "Combined Historical Basis" or "CHB." Our Combined Historical Basis presentation reflects financial results that have been compiled by adding Gray's historical revenue, broadcast expenses and corporate and administrative expenses to the historical revenue, broadcast expenses and corporate and administrative expenses of the net stations acquired in those acquisitions, and subtracting the historical revenues and broadcast expenses of the divested stations as if all stations had been acquired or divested, respectively, on January 1, 2017, the beginning of the earliest period that CHB information is presented herein.  For more information on CHB, see "Effects of Acquisitions and Divestitures on Our Results of Operations and Non-GAAP Terms" at the end of this release.


Selected Operating Data on As-Reported Basis (unaudited):                  
                   
  Three Months Ended December 31,
    2019     2018   % Change
2019 to 2018
    2017   % Change
2019 to 2017
                         
  (dollars in millions)
Revenue (less agency commissions):                  
Broadcast $ 554   $ 328   69  %   $ 234   137  %
Production companies $ 25   $ -       $ -    
Total revenue $ 579   $ 328   77  %   $ 234   147  %
                   
Political $ 38   $ 83   (54 )%   $ 7   443  %
                   
Operating expenses (1)(3):                  
Broadcast $ 339   $ 160   112  %   $ 151   125  %
Production companies $ 17   $ -       $ -    
Corporate and administrative $ 21   $ 11   91  %   $ 7   200  %
                   
Net income $ 94   $ 88   7  %   $ 166   (43 )%
                   
Non-GAAP Cash Flow (2):                  
Broadcast Cash Flow (3) $ 229   $ 172   33  %   $ 87   163  %
Broadcast Cash Flow Less Cash Corporate Expenses (3) $ 212   $ 163   30  %   $ 81   162  %
Free Cash Flow $ 108   $ 98   10  %   $ 41   163  %
                   
Transaction related expenses included in operating expenses (4):                
Broadcast $ 7   $ -       $ 1    
Production companies $ -   $ -       $ -    
Corporate and administrative $ -
  $ 2       $ -    
                   
                   
  Year Ended December 31,
    2019     2018   % Change
2019 to 2018
    2017   % Change
2019 to 2017
                         
  (dollars in millions)
Revenue (less agency commissions):                  
Broadcast $ 2,035   $ 1,084   88  %   $ 883   130  %
Production companies $ 87   $ -       $ -    
Total revenue $ 2,122   $ 1,084   96  %   $ 883   140  %
                   
Political $ 68   $ 155   (56 )%   $ 16   325  %
                   
Operating expenses (1)(3):                  
Broadcast $ 1,325   $ 596   122  %   $ 558   137  %
Production companies $ 74   $ -       $ -    
Corporate and administrative $ 104   $ 41   154  %   $ 32   225  %
                   
Net income $ 179   $ 211   (15 )%   $ 262   (32 )%
                   
Non-GAAP Cash Flow (2):                  
Broadcast Cash Flow (3) $ 729   $ 493   48  %   $ 329   122  %
Broadcast Cash Flow Less Cash Corporate Expenses (3) $ 636   $ 457   39  %   $ 302   111  %
Free Cash Flow $ 273   $ 263   4  %   $ 171   60  %
                   
Transaction related expenses included in operating expenses (4):                
Broadcast $ 45   $ 3       $ 3    
Production companies $ -   $ -       $ -    
Corporate and administrative $ 34   $ 8       $ 1    
                   


(1) Excludes depreciation, amortization and (gain) loss on disposal of assets.
(2) See definition of non-GAAP terms and a reconciliation of the non-GAAP amounts to net income included herein.
(3) Amounts in 2017 have been reclassified to give effect to the implementation of Accounting Standards Update 2017-07, Compensation – Retirement Benefits (Topic 715) – Improving the Presentation of Net Periodic Pension Cost and Net Postretirement Benefit Cost ("ASU 2017-07").
(4) Transaction Related Expenses are incremental expenses incurred specific to acquisitions and divestitures, including but not limited to legal and professional fees, severance and incentive compensation and contract termination fees.


Results of Operations for the Fourth Quarter of 2019 on an As-Reported basis:

Revenue (Less Agency Commissions).

The table below presents our revenue (less agency commissions) by type for the quarters ended December 31, 2019 and 2018 (dollars in millions):

    Three Months Ended December 31,
      2019       2018     Amount   Percent
        Percent       Percent   Increase   Increase
    Amount   of Total   Amount   of Total   (Decrease)   (Decrease)
Revenue (less agency commissions):                        
Local (including internet/digital/mobile) $ 243   42.0  %   $ 117   35.7  %   $ 126     108  %
National     67   11.6  %     31   9.5  %     36     116  %
Political     38   6.6  %     83   25.3  %     (45 )   (54 )%
Retransmission consent     195   33.7  %     93   28.4  %     102     110  %
Production companies     25   4.3  %     -   0.0  %     25      
Other     11   1.8  %     4   1.1  %     7     175  %
Total   $ 579   100.0  %   $ 328   100.0  %   $ 251     77  %


Total revenue increased primarily as a result of the 2019 Acquisitions, but political advertising revenue decreased in 2019 due to 2019 being the "off-year" of the two-year election cycle. The 2019 Acquisitions accounted for $314 million of the increase in our total revenue for the fourth quarter of 2019 compared to the fourth quarter of 2018. Excluding the revenue attributable to the 2019 Acquisitions, revenue decreased by $63 million or 19% in the fourth quarter of 2019 as compared to the fourth quarter of 2018 solely as a result of decreased political advertising revenue.

Operating Expenses (before depreciation, amortization and gain or loss on disposal of assets).

Broadcast operating expenses increased $179 million, or 112%, to $339 million for the fourth quarter of 2019 compared to 2018. The 2019 Acquisitions accounted for $174 million of the increase in broadcast operating expenses for the fourth quarter of 2019. The table below presents our operating expenses (before depreciation, amortization and gain or loss on disposal of assets) for the quarters ended December 31, 2019 and 2018, respectively:

  Three Months Ended December 31,
    2019       2018     Amount   Percent
      Percent       Percent   Increase   Increase
  Amount   of Total   Amount   of Total   (Decrease)   (Decrease)
                       
   (dollars in millions) 
OPERATING EXPENSES (before                      
depreciation, amortization and                      
(gain) loss on disposal of assets):                      
Broadcast:                      
Station expenses $ 223   65.8  %   $ 117   73.1  %   $ 106     91  %
Retransmission expense   107   31.6  %     43   26.9  %     64     149  %
Transaction Related Expenses   7   2.1  %     -   0.0  %     7      
Non-cash stock-based compensation   2   0.5  %     -   0.0  %     2      
Total broadcast expense $ 339   100.0  %   $ 160   100.0  %   $ 179     112  %
                       
Production companies expense $ 17       $ -       $ 17      
                       
Corporate and administrative:                      
Corporate expenses $ 17   81.0  %   $ 7   63.6  %   $ 10     143  %
Transaction Related Expenses   -   0.0  %     2   18.2  %     (2 )    
Non-cash stock-based compensation   4   19.0  %     2   18.2  %     2      
Total corporate and                      
administrative expense $ 21   100.0  %   $ 11   100.0  %   $ 10     91  %


Results of Operations for the Year Ended December 31, 2019 on an As-Reported basis:

Revenue (Less Agency Commissions).

The table below presents our revenue (less agency commissions) by type for the years ended December 31, 2019 and 2018, respectively (dollars in millions):

    Year Ended December 31,
      2019       2018     Amount   Percent
        Percent       Percent   Increase   Increase
    Amount   of Total   Amount   of Total   (Decrease)   (Decrease)
Revenue (less agency commissions):                        
Local (including internet/digital/mobile)   $ 898   42.3  %   $ 443     40.9  %   $ 455     103  %
National     229   10.8  %     114     10.5  %     115     101  %
Political     68   3.2  %     155     14.3  %     (87 )   (56 )%
Retransmission consent     796   37.5  %     355     32.7  %     441     124  %
Production companies     87   4.1  %     -     0.0  %     87      
Other     44   2.1  %     17     1.6  %     27     159  %
Total   $ 2,122   100.0  %   $ 1,084     100.0  %   $ 1,038     96  %


The stations and production companies acquired in the 2019 Acquisitions accounted for $1.1 billion of the increase in our total revenue during 2019. Excluding the revenue attributable to the 2019 Acquisitions, revenue decreased by $95 million due to decreases in political advertising revenue, resulting primarily from 2019 being an "off-year" of the two-year political advertising cycle, partially offset by increases in retransmission consent revenue resulting from increases in rates.

Operating Expenses (before depreciation, amortization and gain or loss on disposal of assets) on an As-Reported Basis.  

Broadcast operating expenses increased $729 million, or 122%, to $1.3 billion for 2019 compared to $596 million in 2018. The 2019 Acquisitions accounted $713 million of the increase in broadcast operating expenses in 2019. The table below presents our operating expenses (before depreciation, amortization and gain or loss on disposal of assets) for the years ended December 31, 2019 and 2018, respectively:

  Year Ended December 31,
    2019       2018     Amount   Percent
      Percent       Percent   Increase   Increase
  Amount   of Total   Amount   of Total   (Decrease)   (Decrease)
                       
   (dollars in millions) 
OPERATING EXPENSES (before                      
depreciation, amortization and                      
(gain) loss on disposal of assets):                      
Broadcast:                      
Station expenses $ 855   64.5  %   $ 426   71.5  %   $ 429     101  %
Retransmission expense   420   31.7  %     165   27.7  %     255     155  %
Transaction Related Expenses   45   3.4  %     3   0.5  %     42      
Non-cash stock-based compensation   5   0.4  %     2   0.3  %     3      
Total broadcast expense $ 1,325   100.0  %   $ 596   100.0  %   $ 729     122  %
                       
Production companies expense $ 74       $ -       $ 74      
                       
Corporate and administrative:                      
Corporate expenses $ 59   56.7  %   $ 28   68.3  %   $ 31     111  %
Transaction Related Expenses   34   32.7  %     8   19.5  %     26      
Non-cash stock-based compensation   11   10.6  %     5   12.2  %     6      
Total corporate and                      
administrative expense $ 104   100.0  %   $ 41   100.0  %    $ 63     154  %


Taxes.

During 2019 and 2018, we made aggregate federal and state income tax payments (net of refunds) of approximately $23 million and $34 million, respectively. During 2020, we anticipate making income tax payments (net of refunds) within a range of approximately $79 million to $81 million. As of December 31, 2019, we have approximately $438 million of federal operating loss carryforwards, which expire during the years 2023 through 2037. We expect to have federal taxable income in the carryforward periods, therefore we believe that it is more likely than not that these federal operating loss carryforwards will be fully utilized. Additionally, we have an aggregate of approximately $677 million of various state operating loss carryforwards, of which we expect that approximately half will be utilized.

Detailed table of operating results on As-Reported Basis: 

               
Gray Television, Inc.
Selected Operating Data (Unaudited)
(in millions, except for net income per share data)
           
  Three Months Ended   Year Ended
  December 31,   December 31,
               
    2019       2018       2019       2018  
               
Revenue (less agency commissions)              
Broadcasting $ 554     $ 328     $ 2,035     $ 1,084  
Production companies   25       -       87       -  
Total revenue (less agency commissions)   579       328       2,122       1,084  
Operating expenses before depreciation,              
amortization and gain on disposal              
of assets, net:              
Broadcast   339       160       1,325       596  
Production companies   17       -       74       -  
Corporate and administrative   21       11       104       41  
Depreciation   20       13       80       54  
Amortization of intangible assets   29       5       115       21  
Gain on disposal of assets, net   (27 )     (11 )     (54 )     (17 )
Operating expenses   399       178       1,644       695  
Operating income   180       150       478       389  
Other income (expense):              
Miscellaneous income, net   -       3       4       6  
Interest expense   (54 )     (32 )     (227 )     (107 )
Income before income tax   126       121       255       288  
Income tax expense   32       33       76       77  
Net income   94       88       179       211  
Preferred stock dividends   13       -       52       -  
Net income attributable to common stockholders $ 81     $ 88     $ 127     $ 211  
               
Basic per share information:              
Net income attributable to common stockholders $ 0.82     $ 1.01     $ 1.28     $ 2.39  
Weighted-average shares outstanding   99       88       99       88  
               
Diluted per share information:              
Net income attributable to common stockholders $ 0.81     $ 1.00     $ 1.27     $ 2.37  
Weighted-average shares outstanding   100       89       100       89  


Other Financial Data on an As-Reported Basis:

  December 31, 2019   December 31, 2018
       
  (in millions)
       
Cash $ 212     $ 667  
Restricted cash $ -     $ 752  
Long-term debt, including current portion, net of      
deferred financing costs $ 3,697     $ 2,549  
Borrowing availability under our senior credit facility $ 200     $ 100  
       
  Year Ended December 31,
    2019       2018  
               
  (in millions)
       
Net cash provided by operating activities $ 385     $ 323  
Net cash used in investing activities   (2,656 )     (47 )
Net cash provided by financing activities   1,064       681  
Net (decrease) increase in cash and restricted cash $ (1,207 )   $ 957  
       


Selected Operating Data on Combined Historical Basis (1) (unaudited):  
                   
  Three Months Ended December 31,
    2019     2018   % Change
2019 to 2018
    2017   % Change
2019 to 2017
                         
  (dollars in millions)
Revenue (less agency commissions):                  
Broadcast $ 554   $ 625   (11 )%   $ 477   16  %
Production companies $ 25   $ 22   14  %   $ 25   0  %
Total revenue $ 579   $ 647   (11 )%   $ 502   15  %
                   
Political $ 38   $ 127   (70 )%   $ 14   171  %
                   
Operating expenses (2) (3):                  
Broadcast $ 339   $ 334   1  %   $ 312   9  %
Production companies $ 17   $ 16   6  %   $ 18   (6 )%
Corporate and administrative $ 21   $ 31   (32 )%   $ 21   0  %
                   
Non-GAAP Cash Flow (2):                  
Broadcast Cash Flow(3) $ 236   $ 306   (23 )%   $ 181   30  %
Broadcast Cash Flow Less Cash Corporate Expenses $ 221   $ 279   (21 )%   $ 163   36  %
Operating Cash Flow as Defined in our Senior Credit Agreement $ 221   $ 307   (28 )%   $ 180   23  %
Free Cash Flow $ 119   $ 200   (41 )%   $ 70   70  %
                   
Transaction related expenses included in operating expenses (4):                  
Broadcast $ 7   $ -       $ 1    
Production companies $ -   $ -       $ -    
Corporate and administrative $ 1   $ 8       $ -    
                   
  Year Ended December 31,
    2019     2018   % Change
2019 to 2018
    2017   % Change
2019 to 2017
                         
  (dollars in millions)
Revenue (less agency commissions):                  
Broadcast $ 2,044   $ 2,110   (3 )%   $ 1,813   13  %
Production companies $ 87   $ 86   1  %   $ 85   2  %
Total revenue $ 2,131   $ 2,196   (3 )%   $ 1,898   12  %
                   
Political $ 68   $ 235   (71 )%   $ 31   119  %
                   
Operating expenses (2) (3):                  
Broadcast $ 1,335   $ 1,248   7  %   $ 1,181   13  %
Production companies $ 74   $ 74   0  %   $ 71   4  %
Corporate and administrative $ 104   $ 85   22  %   $ 64   63  %
                   
Non-GAAP Cash Flow (2):                  
Broadcast Cash Flow(3) $ 779   $ 894   (13 )%   $ 666   17  %
Broadcast Cash Flow Less Cash Corporate Expenses $ 687   $ 822   (16 )%   $ 612   12  %
Operating Cash Flow as Defined in our Senior Credit Agreement $ 718   $ 914   (21 )%   $ 690   4  %
Free Cash Flow $ 358   $ 534   (33 )%   $ 301   19  %
                   
Transaction related expenses included in operating expenses (4):                  
Broadcast $ 45   $ 3       $ 3    
Production companies $ -   $ -       $ -    
Corporate and administrative $ 34   $ 14       $ 1    


(1) Excludes depreciation, amortization and (gain) loss on disposal of assets.
(2) See definition of non-GAAP terms and a reconciliation of the non-GAAP amounts to net income included herein.
(3) Amounts in 2017 have been reclassified to give effect to the implementation of Accounting Standards Update 2017-07, Compensation – Retirement Benefits (Topic 715) – Improving the Presentation of Net Periodic Pension Cost and Net Postretirement Benefit Cost ("ASU 2017-07").
(4) Transaction Related Expenses are incremental expenses incurred specific to acquisitions and divestitures, including but not limited to legal and professional fees, severance and incentive compensation and contract termination fees.


Results of Operations for the Fourth Quarter of 2019 on the Combined Historical Basis:

  Three Months Ended December 31,
          Amount   Percent
          Increase   Increase
    2019     2018   (Decrease)   (Decrease)
                   
   (dollars in millions)
REVENUE (less agency commissions):              
Broadcast:              
Local (including internet/digital/mobile) $ 243   $ 244   $ (1 )   0  %
National   67     66     1     2  %
Political   38     127     (89 )   (70 )%
Retransmission consent   195     178     17     10  %
Other   11     10     1     10  %
Total Broadcast revenue   554     625     (71 )   (11 )%
Production companies revenue   25     22     3     14  %
Total revenue $ 579   $ 647   $ (68 )   (11 )%
               
OPERATING EXPENSES (before              
depreciation, amortization and              
(gain) loss on disposal of assets):              
Broadcast:              
Station expenses $ 223   $ 243   $ (20 )   (8 )%
Retransmission expense   107     91     16     18  %
Transaction Related Expenses   7     -     7      
Non-cash stock-based compensation   2     -     2      
Total broadcast expense $ 339   $ 334   $ 5     1  %
               
Production companies expense $ 17   $ 16   $ 1     6  %
               
Corporate and administrative:              
Corporate expenses $ 17   $ 19   $ (2 )   (11 )%
Transaction Related Expenses   -     8     (8 )    
Non-cash stock-based compensation   4     4     -      
Total corporate and              
administrative expense $ 21   $ 31   $ (10 )   (32 )%


Results of Operations for the Year Ended December 31, 2019 on the Combined Historical basis:

  Year Ended December 31,
          Amount   Percent
          Increase   Increase
    2019     2018   (Decrease)   (Decrease)
                   
   (dollars in millions)
REVENUE (less agency commissions):              
Broadcast:              
Local (including internet/digital/mobile) $ 903   $ 913   $ (10 )   (1 )%
National   230     242     (12 )   (5 )%
Political   68     235     (167 )   (71 )%
Retransmission consent   799     677     122     18  %
Other   44     43     1     2  %
Total Broadcast revenue   2,044     2,110     (66 )   (3 )%
Production companies revenue   87     86     1     1  %
Total revenue $ 2,131   $ 2,196   $ (65 )   (3 )%
               
OPERATING EXPENSES (before              
depreciation, amortization and              
(gain) loss on disposal of assets):              
Broadcast:              
Station expenses $ 863   $ 892   $ (29 )   (3 )%
Retransmission expense   422     351     71     20  %
Transaction Related Expenses   45     3     42      
Non-cash stock-based compensation   5     2     3      
Total broadcast expense $ 1,335   $ 1,248   $ 87     7  %
               
Production companies expense $ 74   $ 74   $ -     0  %
               
Corporate and administrative:              
Corporate expenses $ 59   $ 58   $ 1     2  %
Transaction Related Expenses   34     14     20      
Non-cash stock-based compensation   11     13     (2 )    
Total corporate and              
administrative expense $ 104   $ 85   $ 19     22  %


Guidance for the Three-Months Ending March 31, 2020:  

Based on our current forecasts for the quarter ending March 31, 2020 (the "first quarter of 2020"), we anticipate changes from the quarter ended March 31, 2019 (the "first quarter of 2019"), as outlined below:

    As Reported Basis
Selected operating data:   Three Months Ending March 31,
    Low End Guidance   High End Guidance    
    Low
  Amount
  Percentage
  High
  Amount
  Percentage
   
    Guidance for
  Change From
  Change From
  Guidance for
  Change From 
  Change From
   
    the First
  First
  First
  the First
  First
  First
  First
    Quarter of
  Quarter of
  Quarter of
  Quarter of
  Quarter of
  Quarter of
  Quarter of
     2020    2019    2019     2020    2019    2019     2019
                                               
    (dollars in millions)
REVENUE (less agency commissions):                            
Broadcast:                            
Local (including internet/digital/mobile) $ 205   $ (6 )   (3 )%   $ 209   $ (2 )   (1 )%   $ 211
National     52     2     4  %     54     4     8  %     50
Political     35     32     1067  %     40     37     1233  %     3
Retransmission consent     213     9     4  %     215     11     5  %     204
Other     15     2     15  %     16     3     23  %     13
Total Broadcast revenue     520     39     8  %     534     53     11  %     481
Production companies revenue     20     (17 )   (46 )%     21     (16 )   (43 )%     37
Total revenue   $ 540   $ 22     4  %   $ 555   $ 37     7  %   $ 518
                             
OPERATING EXPENSES (before                            
depreciation, amortization and                            
(gain) loss on disposal of assets):                            
Broadcast:                            
Station expenses   $ 221   $ 4     2  %   $ 224   $ 7     3  %   $ 217
Retransmission expense     123     19     18  %     124     20     19  %     104
Transaction Related Expenses     -     (35 )         -     (35 )         35
Non-cash stock-based compensation     2     2           2     2           -
Total broadcast expense   $ 346   $ (10 )   (3 )%   $ 350   $ (6 )   (2 )%   $ 356
                             
Production companies expense   $ 20   $ (15 )   (43 )%   $ 21   $ (14 )   (40 )%   $ 35
                             
Corporate and administrative:                            
Corporate expenses   $ 16   $ 3     23  %   $ 18   $ 5     38  %   $ 13
Transaction Related Expenses     -     (32 )         -     (32 )         32
Non-cash stock-based compensation     2     (1 )         2     (1 )         3
Total corporate and                            
administrative expense   $ 18   $ (30 )   (63 )%   $ 20   $ (28 )   (58 )%   $ 48


The Company

We are a television broadcast company headquartered in Atlanta, Georgia, that is the largest owner of top-rated local television stations and digital assets in the United States.  Gray currently owns and/or operates television stations and leading digital properties in 93 television markets that collectively reach approximately 24 percent of US television households.  Over calendar year 2019, Gray's stations were ranked first in 68 markets, and first and/or second in 86 markets, as calculated by Comscore's audience measurement service. We also own video program production, marketing, and digital businesses including Raycom Sports, Tupelo-Raycom, and RTM Studios, the producer of PowerNation programs and content, which we refer to collectively as our "production companies."

Cautionary Statements for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act

This press release contains statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and the federal securities laws. These "forward-looking statements" are not statements of historical facts, and may include, among other things, statements regarding our current expectations and beliefs of operating results for the first quarter of 2020 or other periods, future income tax payments, future leverage ratio and other future events. Actual results are subject to a number of risks and uncertainties and may differ materially from the current expectations and beliefs discussed in this press release. All information set forth in this release is as of the date hereof. We do not intend, and undertake no duty, to update this information to reflect future events or circumstances. Information about certain potential factors that could affect our business and financial results and cause actual results to differ materially from those expressed or implied in any forward-looking statements are included under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," in our Annual Report on Form 10-K for the year ended December 31, 2019, and may be contained in reports subsequently filed with the U.S. Securities and Exchange Commission (the "SEC") and available at the SEC's website at www.sec.gov.

Conference Call Information

We will host a conference call to discuss our fourth quarter operating results on February 27, 2020. The call will begin at 10:00 a.m. Eastern Time. The live dial-in number is 1-855-493-3489 and the confirmation code is 1219718. The call will be webcast live and available for replay at www.gray.tv. The taped replay of the conference call will be available at 1-855-859-2056, Confirmation Code: 1219718 until March 27, 2020.

Gray Contacts

Web site: www.gray.tv

Hilton H. Howell, Jr., Executive Chairman and Chief Executive Officer, 404-266-5512

Pat LaPlatney, President and Co-Chief Executive Officer, 334-206-1400

Jim Ryan, Executive Vice President and Chief Financial Officer, 404-504-9828

Kevin P. Latek, Executive Vice President, Chief Legal and Development Officer, 404-266-8333


Effects of Acquisitions and Divestitures on Our Results of Operations and Non-GAAP Terms

From January 1, 2017 through December 31, 2019, we completed several acquisition and divestiture transactions. As more fully described in our Form 10-K to be filed with the Securities and Exchange Commission today and in our prior disclosures, these transactions materially affected our operations. We refer to the 2019 Acquisitions collectively with all other television stations acquired or divested on or subsequent to January 1, 2017 as the "Acquisitions."

Due to the significant effect that the Acquisitions have had on our results of operations, and in order to provide more meaningful period over period comparisons, we present herein certain financial information on a Combined Historical Basis (or "CHB"). Combined Historical Basis financial information does not include any adjustments for other events attributable to the Acquisitions unless otherwise described. Certain of the Combined Historical Basis financial information has been derived from, and adjusted based on unaudited, unreviewed financial information prepared by other entities, which Gray cannot independently verify. We cannot assure you that such financial information would not be materially different if such information were audited or reviewed and no assurances can be provided as to the accuracy of such information, or that our actual results would not differ materially from the Combined Historical Basis financial information if the Acquisitions had been completed at the stated date. In addition, the presentation of Combined Historical Basis may not comply with accounting principles generally accepted in the United States of America ("GAAP") or the requirements for proforma financial information under Regulation S-X under the Securities Act.

From time to time, Gray supplements its financial results prepared in accordance with GAAP by disclosing the non-GAAP financial measures Broadcast Cash Flow, Broadcast Cash Flow Less Cash Corporate Expenses, Operating Cash Flow as defined in the Senior Credit Agreement, Free Cash Flow, Adjusted EBITDA and Total Leverage Ratio, Net of All Cash. These non-GAAP amounts are used by us to approximate amounts used to calculate key financial performance covenants contained in our debt agreements and are used with our GAAP data to evaluate our results and liquidity.

We define Broadcast Cash Flow as net income or loss plus loss from early extinguishment of debt, non-cash corporate and administrative expenses, non-cash stock based compensation, depreciation and amortization (including amortization of intangible assets and program broadcast rights), any loss on disposal of assets, any miscellaneous expense, interest expense, any income tax expense, non-cash 401(k) expense, Broadcast Transactions Related Expenses and broadcast other adjustments less any gain on disposal of assets, any miscellaneous income, any income tax benefits and payments for program broadcast rights.

We define Broadcast Cash Flow Less Cash Corporate Expenses as net income or loss plus loss from early extinguishment of debt, non-cash stock based compensation, depreciation and amortization (including amortization of intangible assets and program broadcast rights), any loss on disposal of assets, any miscellaneous expense, interest expense, any income tax expense, non-cash 401(k) expense, Broadcast Transactions Related Expenses and broadcast other adjustments less any gain on disposal of assets, any miscellaneous income, any income tax benefits and payments for program broadcast rights.

We define Operating Cash Flow as defined in our Senior Credit Agreement as net income or loss plus loss from early extinguishment of debt, non-cash stock based compensation, depreciation and amortization (including amortization of intangible assets and program broadcast rights), any loss on disposal of assets, any miscellaneous expense, interest expense, any income tax expense, non-cash 401(k) expense, Broadcast Transactions Related Expenses, broadcast other adjustments, certain pension expenses, Corporate Transaction Related Expenses, synergies and other adjustments less any gain on disposal of assets, any miscellaneous income, any income tax benefits, payments for program broadcast rights, pension income and contributions to pension plans.

Operating Cash Flow as defined in our Senior Credit Agreement is presented on the Combined Historical Basis and gives effect to the revenue and broadcast expenses of the Acquisitions as if they had been acquired or divested, respectively, on January 1, 2017. It also gives effect to certain operating synergies expected from the Acquisitions and related financings and adds back professional fees incurred in completing the Acquisitions. Certain of the financial information related to the Acquisitions has been derived from, and adjusted based on, unaudited, un-reviewed financial information prepared by other entities, which Gray cannot independently verify. We cannot assure you that such financial information would not be materially different if such information were audited or reviewed and no assurances can be provided as to the accuracy of such information, or that our actual results would not differ materially from this financial information if the Acquisitions had been completed on the stated date. In addition, the presentation of Operating Cash Flow as defined in the Senior Credit Agreement and the adjustments to such information, including expected synergies resulting from such transactions, may not comply with GAAP or the requirements for pro forma financial information under Regulation S-X under the Securities Act.

We define Free Cash Flow as net income or loss plus loss from early extinguishment of debt, non-cash stock based compensation, depreciation and amortization (including amortization of intangible assets and program broadcast rights), any loss on disposal of assets, any miscellaneous expense, any income tax expense, non-cash 401(k) expense, Broadcast Transactions Related Expenses, broadcast other adjustments, certain pension expenses, Corporate Transaction Related Expenses, synergies, other adjustments and amortization of deferred financing costs less any gain on disposal of assets, any miscellaneous income, any income tax benefits, payments for program broadcast rights, pension income, contributions to pension plans, preferred dividends, purchase of property and equipment (net of reimbursements) and income taxes paid (net of any refunds received).

We define Adjusted EBITDA as net income or loss, plus loss from early extinguishment of debt, non-cash stock based compensation, depreciation and amortization of intangible assets, any loss on disposal of assets, any miscellaneous expense, interest expense, any income tax expense, non-cash 401(k) expense, Transaction Related Expenses less any gain on disposal of assets, any miscellaneous income and any income tax benefits.

Our Total Leverage Ratio, Net of All Cash is determined by dividing our Adjusted Total Indebtedness, Net of All Cash, by our Operating Cash Flow as defined in our Senior Credit Agreement, divided by two. Our Adjusted Total Indebtedness, Net of All Cash, represents the total outstanding principal of our long-term debt, plus certain other obligations as defined in our Senior Credit Agreement, less all cash (excluding restricted cash). Our Operating Cash Flow, as defined in our Senior Credit Agreement, divided by two, represents our average annual Operating Cash Flow as defined in our Senior Credit Agreement for the preceding eight quarters.

We define Transaction Related Expenses as incremental expenses incurred specific to acquisitions and divestitures, including, but not limited to legal and professional fees, severance and incentive compensation, and contract termination fees. We present certain line-items from our selected operating data, net of Transaction Related Expenses, in order to present a more meaningful comparison between periods of our operating expenses and our results of operations.

These non-GAAP terms are not defined in GAAP and our definitions may differ from, and therefore may not be comparable to, similarly titled measures used by other companies, thereby limiting their usefulness. Such terms are used by management in addition to, and in conjunction with, results presented in accordance with GAAP and should be considered as supplements to, and not as substitutes for, net income and cash flows reported in accordance with GAAP.


Reconciliation of Non-GAAP Terms on As-Reported Basis, in millions:

  Three Months Ended
  December 31,
    2019       2018       2017  
           
Net income $ 94     $ 88     $ 166  
Adjustments to reconcile from net income to          
Free Cash Flow:          
Depreciation   20       13       13  
Amortization of intangible assets   29       5       6  
Non-cash stock based compensation   6       2       4  
(Gain) loss on disposal of assets, net   (27 )     (11 )     1  
Miscellaneous (income) expense, net (1)   -       (3 )     -  
Interest expense   54       32       24  
Income tax (benefit) expense   32       33       (134 )
Amortization of program broadcast rights   9       6       6  
Non-cash 401(k) expense   5       4       -  
Payments for program broadcast rights   (10 )     (6 )     (5 )
Corporate and administrative expenses before          
depreciation, amortization of intangible assets and          
non-cash stock based compensation   17       9       6  
Broadcast Cash Flow (1)   229       172       87  
Corporate and administrative expenses excluding          
depreciation, amortization of intangible assets and          
non-cash stock based compensation   (17 )     (9 )     (6 )
Broadcast Cash Flow Less Cash Corporate Expenses (1)   212       163       81  
Contributions to pension plans   -       -       (3 )
Interest expense   (54 )     (32 )     (24 )
Amortization of deferred financing costs   2       1       1  
Preferred dividends   (13 )     -       -  
Purchase of property and equipment   (37 )     (35 )     (13 )
Reimbursements of property and equipment purchases   9       8       -  
Income taxes paid, net of refunds   (11 )     (7 )     (1 )
Free Cash Flow $ 108     $ 98     $ 41  

(1) Amounts in 2017 have been reclassified to give effect to the implementation of ASU 2017-07.


Reconciliation of Non-GAAP Terms on As-Reported Basis, in millions:

  Year Ended
  December 31,
    2019       2018       2017  
           
Net income $ 179     $ 211     $ 262  
Adjustments to reconcile from net income to          
Free Cash Flow:          
Depreciation   80       54       52  
Amortization of intangible assets   115       21       25  
Non-cash stock based compensation   16       7       8  
Gain on disposal of assets, net   (54 )     (17 )     (74 )
Miscellaneous (income) expense, net (1)   (4 )     (6 )     -  
Interest expense   227       107       95  
Loss from early extinguishment of debt   -       -       3  
Income tax (benefit) expense   76       77       (69 )
Amortization of program broadcast rights   39       21       21  
Non-cash 401(k) expense   5       4       -  
Payments for program broadcast rights   (43 )     (22 )     (21 )
Corporate and administrative expenses before          
depreciation, amortization of intangible assets and          
non-cash stock based compensation   93       36       27  
Broadcast Cash Flow (1)   729       493       329  
Corporate and administrative expenses before          
depreciation, amortization of intangible assets and          
non-cash stock based compensation   (93 )     (36 )     (27 )
Broadcast Cash Flow Less Cash Corporate Expenses (1)   636       457       302  
Contributions to pension plans   (3 )     (2 )     (3 )
Interest expense   (227 )     (107 )     (95 )
Amortization of deferred financing costs   11       5       4  
Preferred dividends   (52 )     -       -  
Purchase of property and equipment   (110 )     (70 )     (35 )
Reimbursements of property and equipment purchases   41       14       -  
Income taxes paid, net of refunds   (23 )     (34 )     (2 )
Free Cash Flow $ 273     $ 263     $ 171  

(1) Amounts in 2017 have been reclassified to give effect to the implementation of ASU 2017-07.


Reconciliation of Non-GAAP Terms on Combined Historical Basis, in millions:

  Three Months Ended
  December 31,
    2019       2018       2017  
                       
Net income $ 72     $ 126     $ 494  
Adjustments to reconcile from net income to          
Free Cash Flow:          
Depreciation   21       20       22  
Amortization of intangible assets   30       29       28  
Non-cash stock based compensation   6       4       6  
(Gain) loss on disposal of assets, net   (6 )     (3 )     1  
Miscellaneous (income) loss, net   1       2       2  
Interest expense   54       54       54  
Loss from early extinguishment of debt   -       -       2  
Income tax (benefit) expense   32       35       (452 )
Amortization of program broadcast rights   10       12       11  
Common stock contributed to 401(k) plan          
excluding corporate 401(k) contributions   4       4       -  
Payments for program broadcast rights   (11 )     (12 )     (11 )
Corporate and administrative expenses before          
depreciation, amortization of intangible assets and          
non-cash stock-based compensation   15       27       18  
Broadcast Transaction Related Expenses   7       -       1  
Broadcast other adjustments   1       8       5  
Broadcast Cash Flow (1)   236       306       181  
Corporate and administrative expenses before          
depreciation, amortization of intangible assets and          
non-cash stock-based compensation   (15 )     (27 )     (18 )
Broadcast Cash Flow Less Cash Corporate Expenses (1)   221       279       163  
Contributions to pension plans   -       -       (3 )
Corporate Transaction Related Expenses   -       8       -  
Synergies and other adjustments   -       20       20  
Operating Cash Flow as Defined in Senior Credit Facility (1)   221       307       180  
Interest expense   (54 )     (54 )     (54 )
Amortization of deferred financing costs   4       3       3  
Preferred dividends   (13 )     (13 )     (13 )
Purchase of property and equipment   (37 )     (43 )     (23 )
Reimbursement of purchases of property and equipment   9       8       -  
Income taxes paid, net of refunds   (11 )     (8 )     (23 )
Free Cash Flow $ 119     $ 200     $ 70  

(1) Amounts in 2017 have been reclassified to give effect to the implementation of ASU 2017-07.


Reconciliation of Non-GAAP Terms on Combined Historical Basis, in millions:

  Year Ended
  December 31,
    2019       2018       2017  
                       
Net income $ 157     $ 288     $ 648  
Adjustments to reconcile from net income to          
Free Cash Flow:          
Depreciation   81       86       86  
Amortization of intangible assets   115       117       124  
Non-cash stock-based compensation   16       15       14  
Gain on disposal of assets, net   (35 )     (7 )     (155 )
Miscellaneous (income) expense, net   (3 )     4       1  
Interest expense   227       227       227  
Loss from early extinguishment of debt   -       -       5  
Income tax (benefit) expense   76       74       (354 )
Amortization of program broadcast rights   40       42       41  
Common stock contributed to 401(k) plan          
excluding corporate 401(k) contributions   4       4       -  
Payments for program broadcast rights   (44 )     (42 )     (41 )
Corporate and administrative expenses excluding          
depreciation, amortization of intangible assets and          
non-cash stock-based compensation   92       72       54  
Broadcast Transaction Related Expenses   45       3       3  
Broadcast other adjustments   8       11       13  
Broadcast Cash Flow (1)   779       894       666  
Corporate and administrative expenses excluding          
depreciation, amortization of intangible assets and          
non-cash stock-based compensation   (92 )     (72 )     (54 )
Broadcast Cash Flow Less Cash Corporate Expenses (1)   687       822       612  
Contributions to pension plans   (3 )     (2 )     (3 )
Corporate Transaction Related Expenses   34       14       1  
Synergies and other adjustments   -       80       80  
Operating Cash Flow as Defined in Senior Credit Facility (1)   718       914       690  
Interest expense   (227 )     (227 )     (227 )
Amortization of deferred financing costs   12       12       12  
Amortization of net original issue discount (premium)          
on senior notes   (1 )     (1 )     (1 )
Preferred dividends   (52 )     (52 )     (52 )
Purchase of property and equipment   (110 )     (88 )     (57 )
Reimbursement of purchases of property and equipment   41       14       -  
Income taxes paid, net of refunds   (23 )     (38 )     (64 )
Free Cash Flow $ 358     $ 534     $ 301  

(1) Amounts in 2017 have been reclassified to give effect to the implementation of ASU 2017-07.


Reconciliation of Net Income on As-Reported Basis to Adjusted EBITDA and the Effect of Transaction Related Expenses and Certain Non-cash Expenses, in millions except for per share information:

  Three Months Ended   Year Ended
  December 31,   December 31,
    2019       2018       2019       2018  
               
Net income $ 94     $ 88     $ 179     $ 211  
Adjustments to reconcile from net income to              
Adjusted EBITDA:              
Depreciation   20       13       80       54  
Amortization of intangible assets   29       5       115       21  
Non-cash stock-based compensation   6       2       16       7  
(Gain) loss on disposals of assets, net   (27 )     (11 )     (54 )     (17 )
Miscellaneous income, net   -       (3 )     (4 )     (6 )
Interest expense   54       32       227       107  
Income tax expense   32       33       76       77  
Total   208       159       635       454  
Add: Transaction Related Expenses   7       2       79       11  
Adjusted EBITDA $ 215     $ 161     $ 714     $ 465  
               
Net income attributable to common stockholders $ 81     $ 88     $ 127     $ 211  
Add: Transaction Related Expenses and non-cash              
stock-based compensation   13       4       95       18  
Less: Income tax expense related to Transaction Related              
Expenses and non-cash stock-based compensation   (3 )     (1 )     (24 )     (5 )
Net income attributable to common stockholders - excluding              
Transaction Related Expenses and non-cash stock-based              
compensation $ 91     $ 91     $ 198     $ 224  
               
Net income attributable to common stockholders per common share, diluted - excluding Transaction Related Expenses and non-cash stock-based compensation $ 0.91     $ 1.02     $ 1.98     $ 2.52  
               
Diluted weighted-average shares outstanding   100       89       100       89  


Reconciliation of Total Leverage Ratio, Net of All Cash, in millions except for ratio:

 
Eight Quarters Ended
 
December 31, 2019
     
Net income $ 390
Adjustments to reconcile from net income to operating cash flow as    
  defined in our Senior Credit Agreement:    
Depreciation   134
Amortization of intangible assets   136
Non-cash stock-based compensation   22
(Gain) loss on disposals of assets, net   (72)
Interest expense   334
Income tax expense   153
Amortization of program broadcast rights   61
Common stock contributed to 401(k) plan   9
Payments for program broadcast rights   (65)
Pension expense   (1)
Contributions to pension plans   (6)
Adjustments for stations acquired or divested, financings and expected    
synergies during the eight quarter period   447
Transaction Related Expenses   91
Operating Cash Flow as defined in our Senior Credit Agreement $ 1,633
Operating Cash Flow as defined in our Senior Credit Agreement,    
 divided by two $ 816
     
 
December 31, 2019
Adjusted Total Indebtedness:    
Total outstanding principal, including current portion $ 3,760
Cash (unrestricted)   (212)
Adjusted Total Indebtedness, Net of All Cash $ 3,548
     
Total Leverage Ratio, Net of All Cash   4.35

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