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

Explicit Guidance:

• FY 2026 Full-Year Political Revenue: Guidance provided for political ad revenue through Election Day set at $630–$640 million, a record high surpassing the 2020 presidential year benchmark.
• Q4 2026 Political Revenue: Expected to be a record $319–$329 million (slightly more than half of the full-year 2026 political result).
• FY 2026 Capital Expenditures (CapEx): Reduced range lowered from $120–$130 million to $110–$120 million; variances attributed to construction projects deferring to 2027.
• FY 2026 Tax Guidance: Lowered to a range of $75–$80 million.
• FY 2027 Interest Savings: Anticipated reduction in annual interest costs of at least $40 million compared to 2026 due to refinancing and lower debt balances.
• Debt Reduction Target (Remaining FY 2026): Commitment to reduce debt by an additional $175–$200 million using political cash flow before year-end.
• FY 2027 Interest Costs: Anticipated to be at least $40 million lower than 2026 levels; preferred dividends reduced by $4 million annually following equity redemption earlier in the year.
• Recurring Revenue Outlook: Net retransmission revenue for 2026 expected to approach 2023 high of $595 million, excluding acquisitions; expected to accelerate growth into 2027.

Business-Segment Outlook:

• Core Advertising: Q4 pacing down low-to-mid single digits due to political crowd-out; Q1 2027 pacing is positive, with early "green shoots" observed. Core ad revenue for Q1 2027 excludes acquisition impacts (same-station basis).
• Sports Programming: Expansion to 90 markets; recent agreements added for Hornets, St. Louis Blues, Minnesota Timberwolves, Cleveland Cavaliers, and Orlando Magic. Viewed as a "nice, profitable business" driving new viewers and revenue.
• Local Programming & Content: "Investigate TV Plus" entering 4th season; "Aging Untold" entering 2nd season; "The Good Side" moving to a Monday–Friday daily strip. Partnership announced with Hoda Kotb's Joy 101 Wellness Company.
• Digital Revenue: Healthy 12% year-over-year growth sustained into Q4, driven by migration to QuickPlay digital video platform.
• Acquisition Integration: Operational expenses for acquired stations in Q4 expected to drop materially from Q3's $52 million peak. Full integration impact on financials expected to materialize in 2027 rather than 2028, with synergies rolling in over 1–4 quarters. Retransmission revenue from acquisitions expected to step up immediately ("day one").
• Newsroom Consolidation: Scalable model confirmed across all acquisitions (51 markets with two+ Big Four channels); specific "Local First" product in Louisville (WDRB/WAVE) serving as a scalable template for other markets.

Market and Competitive Outlook:

• Political Landscape: Expectation of a "very healthy" and "exciting" political cycle for 2028, driven by a broader set of swing and competitive states than previously anticipated. Footprint now covers all previous swing states plus newly competitive ones (e.g., Iowa, Alaska, Maine, Nebraska).
• Ad Spend Efficiency: Political ad dollars per TV household for 2026 expected to reach approx. $13.45, significantly outperforming other media types. Money is shifting into markets where Gray has a dominant presence.
• Content & Exclusivity: Anticipated to benefit from 2028 "Telemundo" market dynamics; emphasis on delivering 100+ candidate forums/debates per cycle as a competitive moat.
• Reaffirmation of Business Model: Rejection of "connected TV" narrative eroding local news; affirmation that local news drives ad revenue and viewer loyalty.
• M&A Environment: No specific new M&A targets announced, but management maintains "choosy" posture with capital flexibility; potential for M&A to accelerate deleveraging if opportunities arise.

Macro / Industry Outlook:

• Regulatory/Political Environment: Expectation of no significant FCC changes post-election; belief that both political parties prioritize maintaining/quality local newsrooms.
• Labor/Workforce: Commitment to no significant workforce reductions ("not going to see us making big, dramatic 100-people reductions"); focus on maintaining journalistic quality and sales capability over cost-cutting via layoffs.
• Inflation/Costs: Core advertising trends (excluding acquisitions) described as "inflation-ish" growth on a comparative basis.
• Sports Rights: Local sports inventory agreements described as "mixed bag," with most being short-term; multi-year deals are a small percentage, pending broader national league deal impacts.
• Industry Consolidation: Strong advocacy for continued consolidation to save newsrooms; belief that "mom and pop" models cannot survive without scale.

Strategic Initiatives:

• Capital Allocation: Primary focus remains on debt reduction to enhance discretionary free cash flow and equity value.
• Debt Management: Refinancing completed (extended revolver to July 2030, issued 7.5% notes due 2034, reduced 10.5% notes to $200M outstanding); nearest maturities now $150M (Term Loan D, Dec 2028) and $200M (10.5% notes, July 2029).
• Asset Optimization: Upgraded AR securitization facility to $450 million (extended to Nov 2029, pricing reduced to SOFR + 115).
• Technology Integration: Continued investment in AI as an enhancement for content and sales (not replacement); migration to QuickPlay platform driving digital growth.
• Content Strategy: Expansion of non-sports and sports programming to drive non-ad revenue streams.

Risks and Headwinds to Outlook:

• Election Aftermath Uncertainty: Management notes it will take time to assess the full impact of the recent election on the non-political advertising environment in 2027.
• Sports Contract Instability: High reliance on short-term local sports agreements exposes revenue to volatility pending broader national league negotiations.
• Regulatory/Political Sensitivity: Potential changes in legislative focus on local news funding or FCC views, though management expects continuity.
• Macroeconomic Headwinds: "Softness" noted in communications, health, and insurance sectors previously; macro uncertainty still present in non-political categories.
• Integration Execution: Acquired station expense synergies take time (1–4 quarters) to fully materialize; immediate breakage costs from refinancing (call premiums) impact near-term leverage metrics.

Management Tone on the Future:

• Confidence Level: High regarding 2028 political cycle prospects and the long-term viability of the business model.
• Debt Deleveraging: "Exceptionally active" and "methodical" approach; confidence that the 2026 political cash windfall will drive a significant inflection in leverage metrics (denominator growth) starting 2027.
• Strategic Positioning: Management views the company as entering 2027 with "a great deal of momentum" and "freedom to think about growth" post-refinancing.
• Cost Structure: Defensive but not aggressive on cuts; "very comfortable" with current cost base, emphasizing efficiency over headcount reduction.
• Competitive Moat: Strong conviction that local news quality and market dominance create a defensible position against national networks and digital platforms.

Miscellaneous:

• 2026 Political Map: Described as "exceptionally favorable" and "predictable result of intentional investment strategy."
• Acquisition Performance: 2026 deals described as "very good for us financially and operationally" with immediate retrans steps and lagging operational synergies.
• Nashville Market: Specific mention of successful transformation of Nashville NBC affiliate as a proof point for station growth and integration capabilities.
• Dividends: Preferred dividends reduced by $4 million annually; no mention of common stock dividend changes.