Q3 2026 Gray Media, Inc. Earnings Conference Call - GRAY MEDIA INC

Financial Performance:

• Total Q3 2026 revenue reached $972 million, exceeding guidance by ~$7 million and up 30% year-over-year.
• Political revenue hit $198 million (beating guidance), with full-year 2026 political revenue through Election Day projected at $630–$640 million (a company record).
• Net retransmission revenue was $150 million, the high end of guidance, including $9 million from acquisitions; expected to approach 2023 highs of $595 million in 2026 despite blackouts.
• Core advertising revenue was down mid-single digits on a same-station basis, offset by acquisition contributions and growth in gambling/betting categories.
• Broadcast expenses were $596 million (up from $542 million YoY), driven by acquisitions; expected to decline modestly in Q4 as integration proceeds.
• Net income attributable to common stockholders was $78 million; adjusted EBITDA was $319 million.
• Leverage ratios: 2.54x First Lien, 3.7x Secured, and 5.7x Total Net Leverage; revolver fully repaid.
• Debt reduction: Reduced 10.5% senior notes by $1 billion (leaving $200 million outstanding); anticipates further $175–$200 million debt reduction by year-end using political cash flow.

Guidance and Future Outlook:

• Q4 2026 political revenue guidance raised to a record $319–$329 million; core advertising pacing for Q4 is down low-to-mid single digits due to election crowd-out.
• Q1 2027 core advertising pacing shows "green shoots" with positive growth expected, following a strong Q4 finish.
• Full-year 2026 CapEx guidance lowered to $110–$120 million from $120–$130 million due to construction delays.
• Full-year 2026 tax guidance lowered to $75–$80 million.
• Management anticipates at least $40 million in lower annual interest costs in 2027 due to refinancing and debt paydowns.
• Net retransmission revenue is expected to accelerate into 2027, driven by 18-month renewal cycles.
• Political cycle outlook for 2028 remains strong, with expanded competition in swing states and new competitive states aligning with Gray's footprint.

Business Segments and Product Lines:

• Sports Programming: Expanded coverage to include Hornets, Blues, Timberwolves, Cavaliers, and Magic; now present in 90 Gray markets; revenue remains small but profitable.
• Local Content: "Investigate TV Plus" Season 4 launched; "Aging Untold" in Season 2 (partnered with Hoda Kotb's Joy 101); "The Good Side" expanding from weekends to a daily Monday-Friday strip.
• Digital: Continued 12% YoY growth; migration to QuickPlay platform on track and delivering dividends.
• Newsroom Integration: Louisville newsroom consolidation (WDRB and WAVE) creating a unified local-first product with 100+ journalists; scalable model applied across 26+ duopolies.
• Acquisition Impact: 2026 acquisitions contributed $4 million to political revenue and $9 million to retrans revenue; operational synergies expected to fully materialize in 2027.

Market and Competitive Landscape:

• Political ad environment: 2026 cycle saw money flow into competitive swing states where Gray has strong market positions (e.g., Iowa, Alaska, Maine, Nebraska), achieving $13.45 political ad spend per TV household (vs. $10.83 in 2024).
• Competition: Gray reported winning 93 regional Edward R. Murrow Awards and 9 national awards in 2026, exceeding any other broadcast or cable network.
• Industry Consolidation: Management advocates for continued consolidation to sustain local newsrooms, citing job creation and expanded coverage despite regulatory headwinds.
• Telemundo Footprint: Highlighted as a key growth area for the 2028 cycle following recent demographic and political shifts.

Risks and Challenges:

• Regulatory/Legal: Awaiting clarity on potential impacts from the new Democratic-controlled Congress in 2027; FCC views remain stable, but political messaging on media consolidation may intensify.
• Economic Headwinds: Macroeconomic uncertainty continues to impact core verticals like communications, health, and insurance; automotive and legal services were mixed.
• Sports Contracts: Most local sports agreements remain short-term due to evolving national league deals, creating inventory predictability challenges.
• Election Volatility: Political ad spend shifts dynamically based on race competitiveness; future cycles require monitoring of state-by-state dynamics.
• Integration Execution: M&A integration requires time for system, workflow, and staffing harmonization, delaying full synergy realization until 2027.

Management Commentary and Tone:

• Tone is highly confident and optimistic, emphasizing "momentum" entering 2027 and positioning the company as a "predictable result" of strategic investment rather than a one-time windfall.
• Management expressed pride in journalistic quality and operational discipline, dismissing broader industry layoffs as unnecessary for their lean, tech-enabled model.
• CEO Hilton Howell emphasized the strategic importance of maintaining "number one stations" with strong local news to capture political and core ad dollars.
• CFO Jeff Juniak highlighted the balance sheet as a primary lever for value creation, noting significant progress in deleveraging ahead of the non-political year.

Analyst Questions and Answers:

• Expense Reduction & Integration: Management confirmed integration is 75-80% complete, with Q4/Q1 2027 showing expense run-rate normalization; underlying core ad growth is "inflation-ish."
• Sports Deals: Most sports agreements are short-term due to national league negotiations; multi-year deals are reserved for major partners.
• Capital Allocation & M&A: Priority is highest return; while M&A is an option, debt reduction remains the primary driver of value unless M&A offers immediate de-leveraging benefits.
• Core Ad Trends: Q1 2027 pacing is positive; Q4 core ad down-mid single digits, with Nov/Dec strength offsetting Oct crowd-out.
• Retransmission Renewals: No active network negotiations currently; 60% of MVPD subscriptions up for renewal over the next 18 months; gross and net retrans expected to grow in 2027.
• Workforce & Efficiency: Management rejected the need for significant layoffs (unlike peers), citing a lean staffing model and AI integration for content/sales efficiency rather than replacement.
• Acquisition Timeline: Retrans steps up immediately post-close; other synergies and operational efficiencies roll in over 1–3 quarters, fully impacting 2027.

Other Key Points:

• Capital Markets: Issued $750M in 7.5% notes to refinance 10.5% notes; extended revolver maturity to July 2030; upsized AR securitization to $450M with improved pricing.
• Newsroom Innovation: Louisville consolidation serves as a blueprint for other duopolies, focusing on "local first" content and cross-market resource sharing.
• Political Geography: 2026 cycle revealed more competitive states than anticipated, with money flowing to markets where Gray already dominates, reinforcing the value of their footprint.
• Employee Benefits: New partnership with Hoda Kotb's Joy 101 Wellness Company to provide wellness resources for employees.
• M&A History: 15-year track record of acquiring 60+ transactions; identified former newspaper-owned stations as having excess staff that has since been optimized via technology.