Gray Media, Inc. Class A 2026 Q2 Earnings Call

Hi, this is Alan Gould from Investor Relations. I'm going to lead off. Thank you, Lacey. Welcome everyone. Joining us on today's call are Hilton Howell, our Chairman and CEO, Pat LaPlatney, our President and Co-CEO, Sandy Breland, our Chief Operating Officer, Kevin Latek, our Chief Legal and Development Officer, and Jeff Gignac, our Chief Financial Officer. Today, we filed on Form 8-K our second quarter earnings release and updated investor presentation with the SEC, and later today, we will file our quarterly report on Form 10-Q. These materials are all available on our website, graymedia.com, where we recently updated our investor relations section to make this site more comprehensive and easier to navigate. Included on the call may be a discussion of non-GAAP financial measures, and in particular, adjusted EBITDA, leverage ratio denominator, net retransmission revenue, and certain net leverage ratios.

These metrics are not meant to replace GAAP measurements but are provided as supplements to assist the public in its analysis and valuation of our company. Further discussions and reconciliation of the company's non-GAAP financial measures to comparable GAAP financial measures can be found in our latest investor presentation on the website. All statements and comments made by management during this conference call, other than statements of historical fact, should be deemed forward-looking statements that are subject to a number of risks and uncertainties. Actual results in the future could differ from those described in the forward-looking statements as a result of various factors that are described in our most recent filings with the SEC. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

It is now my pleasure to introduce Gray's Executive Chairman and CEO, Hilton Howell.

Thank you, Alan. Today, we are very pleased to share our results for the second quarter of 2026 that were overall quite favorable to our previously issued guidance. Keep in mind that our second quarter reported results include 3 acquisitions and the Scripps swap that closed during the quarter. To provide everyone with a more meaningful comparison, our earnings release presents adjusted guidance reflecting the results of the second quarter acquisitions. The second quarter results reflect the benefits that we expected when we signed those transactions now nearly a year ago. Total revenue in the second quarter of 2026 was $839 million. This exceeded the high end of our adjusted guidance range by about $9 million, and total revenue increased 9% on a year-over-year basis. Political revenue in the second quarter reached $83 million, well above our guidance range of $60 million to $70 million.

Our second quarter acquisitions contributed $3 million to this total. As Pat will detail in a moment, with our third quarter outlook, we are trending ahead of both 2024, a presidential year, and 2022, a non-presidential year, on year-to-date levels with or without the impact of our 2026 acquisitions. Our net retransmission revenue was $150 million for the quarter, landing above our guidance range, adjusted for all of our acquisitions. Please remember, our second quarter net retransmission revenue included the very rare for Gray Media blackout with one of our largest distributors that ended on May 1st. I am highly encouraged by the continued progress we have made on our net retransmission revenue. Growth in this recurring revenue stream remains a foundational pillar in our deleveraging plan. Jeff Gignac will provide additional color on the leverage benefits.

Also remember that we have no further retransmission negotiations for the remainder of 2026. Broadcast expenses before depreciation, amortization, and gain or loss on disposal of assets in the second quarter of 2026 was $569 million, in the middle of our guidance range, and increased $6 million compared to the second quarter of last year. This included $30 million of operating expenses from our newly closed 2026 transactions. Net income attributable to our stockholders was $21 million for the quarter, and adjusted EBITDA for the second quarter was $214 million. A few comments now on our operations. I am exceptionally proud of our team for remaining focused on our business. We are well underway integrating all of our closed 2026 acquisitions and swap transactions. At the same time, we continue to invest in our stations, our people, and our communities to drive journalistic excellence.

I am exceptionally proud that our efforts have been reflected with 93 regional Edward R. Murrow Awards in 2026, up from 81 last year, and candidly, well ahead of our peers. Our station's commitment to local news, local sports, and weather is of significant value to the communities we serve and to our investors. I am particularly excited as a longtime season ticket holder about strategically expanding our local professional sports portfolio. Right here in our hometown of Atlanta, we reached a fabulous agreement with the Atlanta Hawks that goes through the 2028-2029 season. Our deal will bring 70 to 75 Atlanta Hawks regular season games and over 200 hours of program information to WANF, our local affiliate in Atlanta, and across our Peachtree Sports Networks, which really means it will reach every market in Georgia and a number of markets in Alabama, including Birmingham.

The team at Raycom Sports will produce the games just like they currently do with BravesVision and the Atlanta Braves. It is a great example of our production expertise supplementing our TV business. If you have seen the broadcast, it's truly world-class. At Assembly Atlanta, Investigate Tennis is wrapping up a three-month run that has raised Assembly's profile by hosting tennis matches with a live audience. We were able to broadcast some key matches on WANF and Peachtree Sports in Atlanta. Beyond the Gates, the CBS soap opera that premiered two years ago, was renewed for two additional seasons. We're exceptionally excited that they will be keeping the studio lot active for years to come.

Also, of significance to us, Assembly and Gray will be hosting both the senatorial and the gubernatorial debates at Assembly and carry it across every single market in the state of Georgia. We're thrilled to have these political aspirants into our home. On the M&A front, the second quarter was highly productive. We closed transactions covering seven markets from Allen Media Group, three markets from Block Communications, and then our swap with E.W. Scripps, and then two further markets from SagamoreHill. All told, for the transactions we closed in the first half of 2026, we added four new markets and added 14 stations in existing markets and swapped three markets to our friends at Scripps. If that wasn't enough, we completed two transactions immediately after quarter end on July 1.

We acquired the non-licensed assets of American Spirit Media, which had been under a shared service agreement for over a decade with our legacy Raycom stations. We also acquired WHPM, the Fox affiliate in Hattiesburg, Mississippi. We currently expect to close the licensed assets for each in the fourth quarter of 2026. We have recently taken a number of steps to enhance our balance sheet. We redeemed $50 million of our Series A preferred equity following the close of the quarter. We repurchased $120 million of our debt in a private transaction. Yesterday, our board reauthorized the purchase of up to $250 million of debt in the open market. Jeff Gignac will go into more detail on our broader balance sheet strategy shortly.

I'd like to take a moment to emphasize that our top priority for our incremental political cash flows is going to be to further reduce our debt. Despite having substantial political heretofore, the substantial majority of that cash comes in Q3 and in Q4. We're making great progress growing our portfolio of top-rated stations, executing our de-leveraging strategy, and enhancing long-term shareholder value. I'd also like to take a personal moment to welcome all the hundreds of new people that have joined our company via our recent acquisitions. At this time, I will turn the call over to Pat to dive deeper into our operations.

Thank you, Hilton. Second quarter core advertising revenue came in close to our expectations. Our guidance was for core to be down mid-single digits in the second quarter of 2026 compared to 2025. We reported down 1%, adjusted for the second quarter acquisitions, we would have been down in the mid-single-digit range. We also estimate that core advertising experienced a one-point decline from political crowd out. On the upside, we saw some tailwind from the FIFA World Cup. Looking at our categories, we saw strength in gaming, a positive trend that has sustained into the third quarter. Communications services, particularly health and insurance, and consumer-related categories were soft. The automotive vertical finished the second quarter down just 2%-3% compared to the second quarter of 2025 on a same-station basis and is pacing up slightly in the third quarter, which is encouraging.

Our digital momentum continued in Q2 with a healthy 12% year-over-year growth that remains strong into Q3, complemented by a 5% increase in new local direct business. Despite a highly competitive market, our sales teams continue to deliver outstanding results. While global economic factors and political crowd out introduce near-term caution for core advertising, we are leveraging our newly acquired 2026 stations to project stable Q3 core advertising, flat year-over-year performance on an as-reported basis. We are seeing encouraging gains in subcategories with automotive up slightly as mentioned, and discount and department stores showing nice strength. Some consumer-facing categories such as restaurants, supermarkets, as well as services, are seeing softer demand. Political advertising was a highlight, significantly exceeding our expectations. Against our second quarter guidance of $60 million-$70 million, we delivered $82 million, pardon me, $83 million, which includes $3 million from our 2026 acquisitions.