Gray Media, Inc: Form 10-Q for the period ended Mar 31, 2025

Executive Overview

Introduction. The following discussion and analysis of the financial condition and results of operations of Gray Media, 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, 2024 (the “2024 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 serving 113 television markets that collectively reach approximately 37 percent of US television households. The portfolio includes 78 markets with the top-rated television station and 99 markets with the first and/or second highest rated television station, as well as the largest Telemundo Affiliate group with 44 markets. We also own Gray Digital Media, a full-service digital agency offering national and local clients digital marketing strategies with the most advanced digital products and services. Our additional media properties include video production companies Raycom Sports, Tupelo Media Group, and PowerNation Studios, and 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, 2025 and 2024, we generated revenue of $782 million and $823 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.

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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, 2025 and 2024 approximately 27% and 25%, 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, 2025 and 2024 approximately 17% and 18%, 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):

Results of Operations

Three-Months Ended March 31, 2025 (“the 2025 three-month period”) Compared to Three-Months Ended March 31, 2024 (“the 2024 three-month period”)

Revenue. Total revenue decreased $41 million, or 5%, to $782 million in the 2025 three-month period. During the 2025 three-month period:

• Core advertising revenue decreased by $28 million. In the 2025 three-month period, we earned approximately $9 million of net revenue from the broadcast of the Super Bowl on our 33 FOX channels compared to an aggregate of $18 million of net revenue relating to the broadcast of the Super Bowl on our 54 CBS channels during the 2024 three-month period. We were very pleased that our Super Bowl advertising revenue on our FOX channels increased to $9 million in 2025, compared to $6 million on our FOX channels in 2023. Our first quarter was also negatively impacted by one less selling day due to Leap Day, which we estimate impacted core revenue by $4 million.
• Political advertising revenue decreased by $14 million, resulting primarily from 2025 being the “off-year” of the two-year election cycle.
• Retransmission consent revenue decreased by $2 million due to the net effect of a decrease in subscriptions offset, in part, by an increase in rates.
• Production company revenue increased by $3 million in the 2025 three-month period due to the start-up of our operations at Assembly Atlanta offset, in part, by decreases in revenue at our event production businesses.

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Broadcasting Expenses. Broadcasting expenses (before depreciation, amortization and gain or loss on disposal of assets) decreased $6 million, or 1%, to $577 million in the 2025 three-month period:

• Payroll broadcasting expenses decreased by $11 million in the 2025 three-month period primarily as a result of reductions in incentive compensation. Non-cash stock-based compensation was $1 million in each of the 2025 and 2024 three-month periods.
• Non-payroll broadcasting expenses increased by $6 million primarily because of increases in internet expenses, consistent with increases in related revenues and sports programming expenses.

Production Company Expenses. Production company operating expenses (before depreciation, amortization and gain or loss on disposal of assets) were $20 million in the 2025 three-month period, a decrease of $1 million compared to $21 million in the 2024 three-month period.

Corporate and Administrative Expenses. Corporate and administrative expenses (before depreciation, amortization and gain or loss on disposal of assets) increased $4 million to $32 million in the 2025 three-month period. These increases were primarily the result of increases in non-cash stock-based compensation expenses of $7 million in the 2025 three-month period, compared to $5 million in the 2024 three-month period.

Depreciation. Depreciation of property and equipment totaled $34 million for the 2025 three-month period and $36 million for the 2024 three-month period.

Amortization. Amortization of intangible assets totaled $29 million in the 2025 three-month period and $31 million in the 2024 three-month period. The decrease in amortization expense of $2 million was the result of finite-lived intangible assets becoming fully amortized.

Miscellaneous Income, Net. On February 8, 2024, we recorded a gain of $110 million from the sale of our investment in BMI.

Interest Expense. Interest expense increased $3 million to $118 million for the 2025 three-month period compared to $115 million in the 2024 three-month period. This increase was primarily attributable to several factors including: increases in average interest rates on all of our debt to 7.4% in 2025 compared to 6.6% in 2024, partially offset by a decrease in the outstanding principal balances of our debt.

Gain on Early Extinguishment of debt. During the 2025 three-month period, we reported a gain on early extinguishment of debt of $1 million as a result of the repurchase of a portion of our outstanding debt in the open market at a discount.

Income Tax (Benefit) Expense. During the 2025 three-month period, we recognized income tax benefit of $15 million. During the 2024 three-month period, we recognized income tax expense of $31 million. For the 2025 and 2024 three-month periods, our effective income tax rates were 63% and 26%, 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 GAAP income or loss and taxable income or loss, state income taxes and adjustments to our liability for unrecognized tax benefits. For the 2025 three-month period, these estimates increased our statutory Federal income tax rate of 21% to our effective income tax rate of 63% as follows: state income taxes that added 15%; permanent differences added 39%; restricted stock differences resulted in a decrease of 12%.

Liquidity and Capital Resources

General. The following table presents data that we believe is helpful in evaluating our liquidity and capital resources (in millions):

Net Cash Provided By (Used In) Operating, Investing and Financing Activities. Net cash provided by operating activities was $132 million in the 2025 three-month period compared to net cash provided by operating activities of $68 million in the 2024 three-month period. The net increase of $64 million was primarily the result of an increase in non-cash charges of $101 million, offsetting a decrease in net income of $97 million and an increase in net working capital of $60 million.

Net cash used in investing activities was $15 million in the 2025 three-month period compared to net cash provided by investing activities of $80 million in the 2024 three-month period. The net decrease was largely due to a reduction in proceeds received from the sale of our investment in BMI in the 2024 three-month period.

Net cash used in financing activities was approximately $42 million and $35 million in the 2025 and 2024 three-month periods, respectively. The increase was primarily due to the use, in the 2025 three-month period, of cash to repay amounts outstanding under our 2021 Term Loan and 2024 Term Loan under our 2019 Senior Credit Agreement.

Liquidity. We estimate that we will make approximately $456 million in debt interest payments over the twelve months immediately following March 31, 2025. 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 Senior Credit Agreement (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 twelve months and the foreseeable future. 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 Senior Credit Agreement (or any such other credit facility) will be sufficient to fund our future capital expenditures and long-term debt service obligations for the next twelve months and the foreseeable future.

Collateral, Covenants and Restrictions of our credit agreements. Our obligations under the Senior Credit Agreement and the 2029 Notes are secured by substantially all of our consolidated assets, excluding real estate. In addition, substantially all of our subsidiaries are joint and several guarantors of, and our ownership interests in those subsidiaries are pledged to collateralize, our obligations under the Senior Credit Agreement. Gray Media, Inc. is a holding company, and has no material independent assets or operations. For all applicable periods, the 2026 Notes, 2027 Notes, 2030 Notes and 2031 Notes have been fully and unconditionally guaranteed, on a joint and several, senior unsecured basis, by substantially all of Gray Media, Inc.’s subsidiaries. Any subsidiaries of Gray Media, Inc. that do not guarantee the 2026 Notes, 2027 Notes, 2030 Notes and 2031 Notes are not material or are designated as unrestricted under the Senior Credit Agreement. As of March 31, 2025 and December 31, 2024, there were no significant restrictions on the ability of Gray Media, Inc.'s subsidiaries to distribute cash to Gray or to the guarantor subsidiaries.

The 2019 Senior Credit Agreement contains affirmative and restrictive covenants with which we must comply, including: (a) limitations on additional indebtedness, (b) limitations on liens, (c) limitations on the sale of assets, (d) limitations on guarantees, (e) limitations on investments and acquisitions, (f) limitations on the payment of dividends and share repurchases, (g) limitations on mergers and (h) maintenance of the First Lien Leverage Ratio while any amount is outstanding under the revolving credit facility, as well as other customary covenants for credit facilities of this type. The 2026 Notes, 2027 Notes, 2029 Notes, 2030 Notes and 2031 Notes include covenants with which we must comply which are typical for financing transactions of their nature. As of March 31, 2025 and December 31, 2024, we were in compliance with all required covenants under all of our debt obligations.”

In addition to results prepared in accordance with GAAP, “Leverage Ratio Denominator” is a metric that management uses to calculate our compliance with our financial covenants in our indebtedness agreements. This metric is calculated as specified in our Senior Credit Agreement and is a significant measure that represents the denominator of a formula used to calculate compliance with material financial covenants within the Senior Credit Agreement that govern our ability to incur indebtedness, incur liens, make investments and make restricted payments, among other limitations usual and customary for credit agreements of this type. Accordingly, management believes this metric is a very material metric to our debt and equity investors.

Leverage Ratio Denominator gives effect to the revenue and broadcast expenses of all completed acquisitions and divestitures as if they had been acquired or divested, respectively, on April 1, 2023. 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, if applicable, 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 Leverage Ratio Denominator as determined in the Senior Credit Agreement and the adjustments to such information, including expected synergies, if applicable, 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 of 1933. Leverage Ratio Denominator, as determined in the Senior Credit Agreement, represents an average amount for the preceding eight quarters then ended.

Our “Adjusted Total Indebtedness”, “First Lien Adjusted Total Indebtedness” and “Secured Adjusted Total Indebtedness”, in each case “Net of All Cash”, represents the amount of outstanding principal of our long-term debt, plus certain other obligations as defined in our Senior Credit Agreement, less all cash (excluding restricted cash) for the applicable amount of indebtedness.

Below is a calculation of our “Leverage Ratio”, “First Lien Leverage Ratio” and “Total Secured Leverage Ratio” as defined in our Senior Credit Agreement as of March 31, 2025:

(in millions)

(dollars in millions)

(1) At any time any amounts are outstanding under our revolving credit facility, our maximum First Lien Leverage Ratio cannot exceed 4.25 to 1.00.

Debt. As of March 31, 2025, long-term debt consisted of obligations under our 2019 Senior Credit Agreement, our $10 million in aggregate principal amount of senior notes due 2026, our $528 million in aggregate principal amount of senior notes due 2027, our $1.25 billion in aggregate principal amount of senior notes due 2029, our $790 million in aggregate principal amount of senior notes due 2030 and our $1.2 billion in aggregate principal amount of senior notes due 2031. As of March 31, 2025, the 2019 Senior Credit Agreement provided total commitments of $2.6 billion, consisting of a $1.4 billion term loan facility, a $496 million term loan facility and $692 million available under our revolving credit facility. We were in compliance with the covenants in these debt agreements at March 31, 2025.

Repurchase of Debt. On May 6, 2024, our Board of Directors authorized us to use up to $250 million of available liquidity to repurchase our outstanding indebtedness. On November 20, 2024, our Board of Directors replenished and extended the repurchase authorization through December 31, 2025. The extent of such repurchases, including the amount and timing of any repurchases, will depend on general market conditions, regulatory requirements, alternative investment opportunities and other considerations. This repurchase program does not require us to repurchase a minimum amount of debt, and it may be modified, suspended or terminated at any time without prior notice. We currently have approximately $240 million of availability to repurchase our outstanding indebtedness remaining under this authorization.

Capital Expenditures. Including capital expenditures related to our Assembly Atlanta project, we currently expect that our routine capital expenditures will be in a range of approximately $70 million to $75 million for the remainder of 2025. We incurred costs to build public infrastructure within the Assembly Atlanta project. Pursuant to our Purchase and Sale Agreement with 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. Consistent with previous practice, we anticipate transferring certain public infrastructure at Assembly Atlanta to the CID for which we anticipate receiving proceeds during 2025. We received reimbursements totaling $5 million in the 2025 three-month period and we expect reimbursements of approximately $20 million during the remainder of 2025, and that our capital expenditures in 2025 will approximate the reimbursements we expect to receive. We can give no assurances of the actual proceeds to be received in the future from the CID, nor the timing of any such proceeds.

Other. We file a consolidated federal income tax return and such state and local tax returns as are required. During the first quarter of 2025, we made no material federal or state income tax payments. During the remainder of 2025, we anticipate making income tax payments within a range of $48 million to $68 million. As of March 31, 2025, we have an aggregate of approximately $252 million of various state operating loss carryforwards, of which we expect that approximately $173 million will not be utilized due to section 382 limitations and those that will expire prior to utilization. After applying our state effective tax rate, this amount is included in our valuation allowance for deferred tax assets.

During the 2025 three-month period, we did not make a contribution to our defined benefit pension plan. During the remainder of 2025, we do not expect to contribute to this pension plan.

Critical Accounting Policies

The preparation of financial statements in conformity with 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 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 2024 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, 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 expenses 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.

We believe that the market risk of our financial instruments as of March 31, 2025 has not materially changed since December 31, 2024. Our market risk profile on December 31, 2024 is disclosed in our 2024 Annual Report on Form 10-K.

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, 2025.

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, 2025, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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, 2024. 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.