Gray Media Q2 2026 Earnings Call Transcript

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August 7, 2026

Key Takeaways

  • Positive Sentiment: Second-quarter results exceeded guidance: Revenue rose 9% year over year to $839 million, while adjusted EBITDA reached $214 million. Political revenue was $83 million, above the company’s $60 million–$70 million outlook.
  • Positive Sentiment: Gray expects strong political advertising momentum, forecasting $165 million–$185 million of political revenue in Q3 amid significant exposure to competitive Senate, gubernatorial, and House races. Management plans to use substantially all incremental political cash flow to reduce debt.
  • Positive Sentiment: The company continued balance-sheet management by redeeming $50 million of preferred equity, repurchasing $120 million of debt, and authorizing up to $250 million more in debt purchases. Management said refinancing and repurchases could reduce annual interest expense by more than $30 million.
  • Positive Sentiment: Net retransmission revenue reached $150 million and is expected to accelerate into 2027 as newly acquired stations contribute and existing contracts remain in place. Management expects organic growth in the low single digits, plus additional acquisition-related revenue.
  • Negative Sentiment: Core advertising remained soft, declining 1% as reported and an estimated mid-single digits excluding acquisitions, with additional pressure from political crowd-out and an uncertain macroeconomic environment. Gray expects Q3 core advertising to be flat as reported only because acquisition growth offsets underlying weakness.
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Earnings Conference Call
Gray Media Q2 2026
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Operator

Good day, everyone. Welcome to Gray Media's second quarter 2026 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, press star one on your telephone keypad. To withdraw your question, press star one again. I will now turn the call over to Gray's President and CEO, Hilton Howell Jr. Sir, please go ahead.

Alan Gould
Alan Gould
Head of Investor Relations at Gray Media

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.

Alan Gould
Alan Gould
Head of Investor Relations at Gray Media

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.

Alan Gould
Alan Gould
Head of Investor Relations at Gray Media

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.

Hilton Howell Jr.
Hilton Howell Jr.
Chairman and CEO at Gray Media

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 three 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-$70 million.

Hilton Howell Jr.
Hilton Howell Jr.
Chairman and CEO at Gray Media

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.

Hilton Howell Jr.
Hilton Howell Jr.
Chairman and CEO at Gray Media

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.

Hilton Howell Jr.
Hilton Howell Jr.
Chairman and CEO at Gray Media

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 70-75 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.

Hilton Howell Jr.
Hilton Howell Jr.
Chairman and CEO at Gray Media

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, and we're exceptionally excited that they will be keeping the studio lot active for years to come.

Hilton Howell Jr.
Hilton Howell Jr.
Chairman and CEO at Gray Media

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.

Hilton Howell Jr.
Hilton Howell Jr.
Chairman and CEO at Gray Media

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.

Hilton Howell Jr.
Hilton Howell Jr.
Chairman and CEO at Gray Media

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.

Pat LaPlatney
Pat LaPlatney
President and Co-CEO at Gray Media

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.

Pat LaPlatney
Pat LaPlatney
President and Co-CEO at Gray Media

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.

Pat LaPlatney
Pat LaPlatney
President and Co-CEO at Gray Media

This compares to $47 million and $90 million in second quarters of 2024 and 2022 respectively, the previous on years of the two-year election cycle. Looking ahead, we anticipate third quarter political revenue will be in $165 million-$185 million range. Third quarter political revenue is back-loaded, with September historically driving about half the quarter's totals and August generally outperforming July. We are providing our best estimate based on quarter-to-date results and our stations portfolio's positioning against the current political landscape. As detailed in our investor presentation, Gray's footprint has significant exposure to key battlegrounds. We operate in markets covering all 12 competitive U.S. Senate races, all 11 competitive gubernatorial races, and 29 competitive House races per The Cook Political Report.

Pat LaPlatney
Pat LaPlatney
President and Co-CEO at Gray Media

We're seeing strong primary spending in Tennessee, Kansas, Florida, Michigan, Arkansas, Wisconsin, Connecticut, and Hawaii, alongside heavy early general election spending in the Maine, Ohio, Iowa, Alaska, and Michigan U.S. Senate races. We're also benefiting from early activity in other markets with contested Senate, gubernatorial, and House races. As we continue to expand our focus on sports, as Hilton mentioned, we have 19 MLB teams playing on our 16 broadcast sports networks, including Peachtree Sports Network here in Georgia. Raycom Sports is partnering with the Atlanta Braves, as mentioned, to produce all non-national games for the Braves. Raycom Sports will also be producing the non-national games for the Atlanta Hawks under our recently announced three-year deal. Combining our world-class production capabilities with Gray station distribution reach is a material advantage as we explore additional local professional sports deals.

Pat LaPlatney
Pat LaPlatney
President and Co-CEO at Gray Media

On the technology front, our digital team has successfully completed the transition of all of our digital video streams into the Quickplay platform, powered by Google Cloud, of course, in a remarkably short timeframe. Over the next quarter, we'll transition our CTV and mobile applications to the Quickplay platform, creating a personalized streaming experience that will revolutionize how viewers discover, engage with, and consume our content across every screen. Finally, a quick note on our more recent acquisitions. The current wave of Gray M&A is a bit different than in years past. We are combining station operations within markets, whereas historically, M&A expanded horizontally into new markets for Gray. Jeff will now address the key financial developments and give us some context around how the transaction activity is showing up in our results.

Jeff Gignac
Jeff Gignac
CFO at Gray Media

Thanks, Pat. In the second quarter of 2026, our reported results include the results of the stations we acquired and swapped from the date that each transaction closed. As Hilton described, our earnings release provides both our Q2 reported results and a comparison of those results to our 2Q guidance, adjusted for the actual results of the acquisitions closed during the quarter. Our second quarter results were in line with or favorable to the adjusted guidance other than corporate expenses, where we once again incurred elevated transaction costs. Our leverage metrics as of June 30, 2026 under our amended senior credit agreement were 2.55x consolidated first lien net leverage ratio, 3.71x through the second lien, the consolidated secured net leverage ratio, and 5.73x consolidated total net leverage ratio. We initially anticipated approximately a quarter turn of deleveraging from the announced acquisitions.

Jeff Gignac
Jeff Gignac
CFO at Gray Media

Our actual result is 0.18x using the first quarter calculation. To put this in perspective for everybody, we reported a first quarter 2026 consolidated total net leverage ratio of 5.94x. Had the acquisitions closed in the first quarter, that leverage ratio would have been 5.76x compared to the 5.73x we're reporting today. None of the ratios just discussed include the additional contribution we expect from American Spirit or WHPM, each of which closed into local management agreements on July 1st. Our third quarter guide includes all transactions closed as of today, including American Spirit and WHPM, and reflects our expectations for third quarter on an as-reported basis. For second quarter and our third quarter guidance, about a quarter to a third of the leverage ratio denominator contribution from the transactions is from actual results. The balance is from synergies.

Jeff Gignac
Jeff Gignac
CFO at Gray Media

Again, all is calculated under our senior credit agreement. Of the synergies, about half is from net retransmission revenue, and the other half is from operating expense rationalization. Several notable things to mention on the balance sheet. We closed all of our 2026 acquisitions without drawing on our revolver. We finished the second quarter with a little over $900 million in liquidity. On June 30, we issued a $70 million add-on to our 7.25% first lien notes due 2033. Excuse me. These notes were issued at par in a privately-negotiated transaction. We utilized $30 million of the proceeds to repurchase $50 million of liquidation preference of our Series A preferred equity, a Gray-initiated transaction that reduces our total capital obligations and lowers our fixed charges. The remaining $40 million was used to fund the July 1 acquisition closings.

Jeff Gignac
Jeff Gignac
CFO at Gray Media

On July 21st, subsequent to quarter end, we completed another privately negotiated transaction whereby we bought $100 million of our 10.5% first lien notes and $20 million of our 5.38% unsecured notes at par plus accrued interest. This transaction lowered our interest expense without increasing the quantum of debt. The transaction was favorable from a tax perspective. It's another example of how we'll be opportunistic and creative as we manage the balance sheet. We used balance sheet cash plus revolver borrowings to complete the transaction. We expect to fully repay the revolver as we move into the heavier political ad season. Net retransmission was $150 million for the quarter, which includes a $6 million contribution from the second quarter acquisitions. That places us above the high end of our guidance range.

Jeff Gignac
Jeff Gignac
CFO at Gray Media

This quarter marks a key inflection point in terms of how our net retransmission revenue, that's what we keep, how that benefits our leverage ratio denominator. On an eight-quarter rolling basis, our net retransmission revenue grew slightly versus the prior quarter. This happened even with declines in gross retransmission revenue and the blackout. With all of our contracts in place until 2027, we expect the net retransmission revenue contribution to accelerate into 2027, especially when we factor in the contribution from the newly acquired stations.

Jeff Gignac
Jeff Gignac
CFO at Gray Media

I'll conclude with a couple of other cash flow-related items. We're lowering our company-wide CapEx estimate to a range of $120 million-$130 million from a prior $140 million estimate for full year 2026. Our full-year tax guide also came down a little bit and is now in the range of $80 million-$100 million. As Hilton mentioned, we expect to use essentially all of the incremental cash flow from political advertising to reduce our debt. I'll now turn the call back over to Hilton.

Hilton Howell Jr.
Hilton Howell Jr.
Chairman and CEO at Gray Media

Thank you very much, Jeff. Now, Lacey would love to open up the phone line to any questions that anyone may have.

Operator

At this time, I would like to remind everyone, if you would like to ask a question, please press star one. Your first question comes from the line of Steven Cahall with Wells Fargo. Please go ahead.

Steven Cahall
Steven Cahall
Analyst at Wells Fargo

Yeah, thanks. Good morning, everybody. Jeff, thank you for that net retrans outlook. I just wanted to confirm, that's dollars accelerate into 2027, including the M&A contributions, and I know you went into this a little bit, but the net retrans margin was down a little bit quarter-over-quarter in the third quarter. Was wondering if that was M&A-related or lapping some of the renewals you did last year. Just trying to understand what those margins look like.

Jeff Gignac
Jeff Gignac
CFO at Gray Media

Yeah. You have seen an overall uplift this year in the margins, and remember, into third quarter, we'll be lapping the WANF transition to independent. There's a lot going on below the surface across all the different contracts and everything that changed. The margin should be holding in the range that we've seen in first and second quarter, a little above 40%. When you project that out for the rest of the year and with the additional stations coming online from the acquisitions, and as those come into the number, you'll see the total dollars start to ramp. Really the way to think about it, Steven, is you've got low single-digit growth on an organic basis, plus the acquisitions on top of that.

Steven Cahall
Steven Cahall
Analyst at Wells Fargo

Great.

Hilton Howell Jr.
Hilton Howell Jr.
Chairman and CEO at Gray Media

On the net line.

Steven Cahall
Steven Cahall
Analyst at Wells Fargo

Yeah. Got it. Okay. Just kind of a related question as we think about 2027. I know it's both early, but also not so far off. At this point with M&A, would you expect to have more or less EBITDA in 2027 as you had in 2025? I think the answer is more, but core has been a little soft across the space. You've done a lot of work on cost, and you have M&A. Just trying to think about the kind of bigger trends in the business from an EBITDA perspective on the two-year stack.

Jeff Gignac
Jeff Gignac
CFO at Gray Media

Yeah, I think we will see it up slightly. When you look out into 2027, we'll have integrated all the acquisitions, we'll be on a run rate there. Trying to predict exactly what will happen on core, as Pat described, is a little bit tricky at the moment. Between some political crowd out and everything right now, there should be more inventory in 2027 than there is in 2026, but I know you're asking about 2027 versus 2025 to think about where we're leveraged and where the trajectory of the business goes.

Pat LaPlatney
Pat LaPlatney
President and Co-CEO at Gray Media

Sorry to interrupt.

Jeff Gignac
Jeff Gignac
CFO at Gray Media

No.

Pat LaPlatney
Pat LaPlatney
President and Co-CEO at Gray Media

I would just say, a lot of it depends on the macro environment.

Steven Cahall
Steven Cahall
Analyst at Wells Fargo

Fair enough. Lastly, Chairman Carr has done a lot with broadcast related to the ownership cap. He's also been doing a lot to unlock spectrum and reutilize it. I was wondering how you think about, both for Gray Media and for the industry, the spectrum opportunity could be in the medium term. Thanks.

Kevin Latek
Kevin Latek
Chief Legal and Development Officer at Gray Media

Hey, Steven, it's Kevin Latek. I'm glad you asked medium term because there's no near-term ability for the FCC to auction spectrum. We're seeing a bit of a repeat from 15 years ago when AT&T was making some very strong pushes to have the FCC reclaim some broadcast spectrum through the reverse auction so that it could be redeployed to mobile. It seems like the spectrum needs were maybe satiated for a number of years there, and now we're hearing a lot more about spectrum needs again. At the same time, the broadcast industry is, as you know well, transitioning to 3.0. The stars may align a little bit more easily than last time around when it took about 10 years from the initial push until the time the spectrum actually moved.

Kevin Latek
Kevin Latek
Chief Legal and Development Officer at Gray Media

If there is a strong push in demand for the spectrum, which seems to be increasingly likely, and we have this new technology that allows us to repack more easily, again, the stars could come on in the medium term. There could be some spectrum reallocation with another auction for broadcasters. If that allowed us to accelerate the 3.0 transition and get all the stations onto 3.0, that would be a fantastic win at our sales. It would allow us to do a lot more with less spectrum allocated to our service and provide maybe a better use for some of that spectrum. It also would, we believe, provide the federal government with a backup timing system for the GPS system, which as you know or heard us talk and others talk, our GPS system has no backup unlike the GPS systems in other countries.

Kevin Latek
Kevin Latek
Chief Legal and Development Officer at Gray Media

Pretty critical from a national security standpoint as well to be working on a GPS backup, and 3.0 provides, it appears, a pretty robust and extremely cost-efficient timing solution. It seems, at least at this point, that there are a lot of very favorable and complementary pressures to move spectrum monetization forward in the medium term. We're happy to tackle that challenge with others, the FCC, and across our industry and other industries, and certainly the Department of Defense.

Steven Cahall
Steven Cahall
Analyst at Wells Fargo

Great. Thank you.

Kevin Latek
Kevin Latek
Chief Legal and Development Officer at Gray Media

Sure.

Operator

Your next question comes from the line of Dan Kurnos with StoneX. Please go ahead.

Dan Kurnos
Analyst at StoneX

Yeah, thanks. Good morning. Hilton, I'll ask the other boring FCC-related question given the cap repeal. I know you guys have said pretty consistently that you've been open for business, and frankly, you've demonstrated it, right? You've been continuing to add while others may have been stuck. How do you think this changes the landscape, if at all? Do you think conversations change at this point, or do we still kind of need to wait to see what happens with the next R-tag in the court system?

Hilton Howell Jr.
Hilton Howell Jr.
Chairman and CEO at Gray Media

I will say I really want to compliment Brendan Carr and the FCC for updating the rules that they put out there. I've said this before on this call because I love the quote from one of our lawyers who's terribly eloquent. These things were put together before the Japanese bombed Pearl Harbor. When they don't take into account Google, when they don't take into account everything that's going on that is a massive competitor for us for local ad dollars, it's just crazy. That being said, I think what the FCC has done is superb. So yeah, we are open for business. Short term, we made it very clear, I think, that we are trying to get our debt down, so we're going to be using our political revenue, which I personally believe is going to be robust, to reduce our debt.

Hilton Howell Jr.
Hilton Howell Jr.
Chairman and CEO at Gray Media

We'll look at anything. We all have to remember, though, that we have a very unique and unprecedented third regulatory structure, which is the attorney generals. So, we are going to have to pay attention to that. We're going to work very hard as a company, and I'm sure as an industry, to explain to them the benefits of TV station consolidation. I will tell you this. If we had not consolidated over the last 30 years, you wouldn't have 91 Edward R. Murrow Awards emanating out of our newsrooms and 83 last year. When I got into this business, which was at birth, it was a mom-and-pop operation. It can't work that way. So there's a lot of misunderstood commentary about newsrooms dying. Without consolidation, there wouldn't be a newsroom in existence in the United States.

Hilton Howell Jr.
Hilton Howell Jr.
Chairman and CEO at Gray Media

Getting that size allows everyone to invest in Gray, and you can see it in our numbers, and you can see it in our results. There is not a market, no matter how small, in Gray Media that does not have local news in all 117 markets, period. I'm very proud of that. Without consolidation, I couldn't make those comments. Other people are going to throw out a bunch of canards, but that is the financial reality of it. We'll see what the future brings. I'm kind of excited about it.

Dan Kurnos
Analyst at StoneX

Okay. That's super helpful. Then I will lean on your verbiage of robust. You mentioned it in your prepared remarks. You are pacing ahead of 2024. I know nothing's written until it's written, and I know you guys aren't going to give a full year guide, and I think it was maybe Pat that laid out the exposure you guys have on state by state and race by race, is there any way to kind of help us think directionally how optimistic you are?

Hilton Howell Jr.
Hilton Howell Jr.
Chairman and CEO at Gray Media

A couple of things. First, I looked at those numbers, 2022 is the last apples to apple non-presidential year, we had $90 million in 2022. I'm like, okay, Hilton, try to remember. Well, geez, guys, the two biggest senatorial spenders was our Senator Warnock here in Georgia, who spent right at $240 million all in Georgia, and we're in every market in that state. The second largest was Senator Kelly, who spent a ton of money in Arizona, and again, we're in every market in Arizona. Our numbers were higher, and I think that the biggest indicia for me to say robust is the sheer amount of money the parties have. We have a unique situation. The Democratic candidates have substantial funds, and they will deploy those funds. There's a lot of talk about the DNC not having that much cash.

Hilton Howell Jr.
Hilton Howell Jr.
Chairman and CEO at Gray Media

Well, I promise you, they're going to fix that. All right? The second thing is, if you look at the Republicans, and I don't know if it's $1 billion, $2 billion or more, but I can assure you they have the money. I think that's really where you need to look. If the fundraising is robust, the spending is going to be robust. I have a high degree of confidence. We've been burned once before by telling you what we think we're going to do, and we don't want to be burned again, but I'm immensely confident about what we're going to have ahead of us.

Kevin Latek
Kevin Latek
Chief Legal and Development Officer at Gray Media

I want to just add, there's a lot of wind at our sails this time around. In 2022, we had some very, very expensive primaries that hit in really July or in August. The candidates who won those then had no money for the generals, and they didn't get support. Those marquee races that we all expected turned out to be fizzles after the primary. We're really not seeing that this year. There's clearly some high-profile primaries, but it seems the parties are still unifying largely after a bruising primary. We have, through redistricting and other factors, we've had historically large number of members of Congress choosing not to run again.

Kevin Latek
Kevin Latek
Chief Legal and Development Officer at Gray Media

As of today, we have, I believe, a historically high number of incumbents who have lost a primary for re-election, and there are still more primaries to come before we get to the general. We have, just from a sort of political scientist perspective, this is another fairly unusual election. Lines up well for Gray. Our investor deck went out this morning and said we have substantial exposure to 11 of the 11 gubernatorial races that are deemed to be competitive by Cook and 11 of the 11 senatorial races deemed to be competitive by Cook. Then two hours later, Cook came out and moved the rating in the state of Kansas to competitive. Kansas, we have a very good presence in Kansas. We now have all 12 of the 12 competitive Senate races. We definitely very well-positioned.

Kevin Latek
Kevin Latek
Chief Legal and Development Officer at Gray Media

In 2022 and 2024, we definitely missed out on a lot of money spent in Pennsylvania and Montana because we have no presence in those states. Pennsylvania has sort of some spending this time around. Montana has not as much. It seems the focus is on places where Gray is very strong: Maine, Alaska, Ohio, Texas, Georgia, and elsewhere. We are feeling very good.

Kevin Latek
Kevin Latek
Chief Legal and Development Officer at Gray Media

Again, not going to go out on a limb with Guy, but we're feeling very good about where we are, not just against 2024, but in 2022 when remember, we were sitting here very excited four years ago, right before some primaries turned out in ways that people didn't expect, that then really had a big impact on the generals and hurt our 2022 political guide. Again, 2022 still performed very well historically. Again, knock on wood, but we feel cautiously pretty optimistic about this year wrapping up to be another very good year for us in our political front.

Dan Kurnos
Analyst at StoneX

Kevin, Hilton, thank you very much.

Hilton Howell Jr.
Hilton Howell Jr.
Chairman and CEO at Gray Media

Thank you, Dan.

Operator

Your next question comes from the line of Aaron Watts with Deutsche Bank. Please go ahead.

Aaron Watts
Aaron Watts
Analyst at Deutsche Bank

Hi, everyone. Thank you for having me on. On core advertising, just a quick hearing check. I wanted to confirm the flat third quarter guide applies to both and as reported and on a combined basis for the new stations you brought into the portfolio?

Jeff Gignac
Jeff Gignac
CFO at Gray Media

Just to be very clear on this, Aaron, what you should expect us to report today is flat on an as-reported basis versus the prior year, including the acquisition. Essentially, think of the acquisition benefit offsetting some drag on the portfolio between political crowd out and then a little bit of softness in the business on the core side.

Aaron Watts
Aaron Watts
Analyst at Deutsche Bank

Okay. Got it. Thank you for that. Then Jeff, you've been fleet-footed and certainly opportunistic with regards to the cap stack, with the board authorizing $250 million for debt repurchases through the end of the year. How should we think about what you're trying to accomplish near term? What can that mean for leverage and interest costs for the company going forward?

Jeff Gignac
Jeff Gignac
CFO at Gray Media

Some pretty significant benefits is what it means. We've been very creative and thoughtful about what we've done. We didn't come into the year expecting that we would try to go after preferred. We've let the markets guide us and been very opportunistic on it. As we look for the rest of the year, everybody who has a Bloomberg in front of them can see where our bonds are trading relative to our current weighted average interest cost. Now the shortest bond tranche is fairly expensive, compared to what's available in the market. If the market is there, I think we'd love to extend out some maturities, drive down the cost of debt, which then accrues to the free cash flow going through for many years to come. You'd be talking about our current full year guide for 2026 is $440 of interest expense.

Jeff Gignac
Jeff Gignac
CFO at Gray Media

That could come down by $30+ million through some refinancing activities. There is a cost to doing it. The call price on the 10.5s is steep. Congratulations to those who supported us in 2024. You've done well. Look, it's a priority to get our interest costs down. It accrues to the long-term health of the company, and it accelerates our de-leveraging. If it's there, we'd love to get some of that done. Then, as Hilton and I both mentioned, when we look at the hundreds of millions of dollars of political that still aren't in our bank account that we expect for the rest of the year, that can make a pretty big dent in the total dollars outstanding. Driving down the cost and driving down the quantum puts the interest expense on a much better trajectory and lets us accelerate the de-leveraging on the business.

Aaron Watts
Aaron Watts
Analyst at Deutsche Bank

Great. I'll leave it at that. Thank you.

Jeff Gignac
Jeff Gignac
CFO at Gray Media

Remember too, Aaron, just one other point on that. We're still under a 163J interest deductibility limitation. When you think about how reduced interest expense translates into discretionary free cash flow for the company, it's dollar for dollar for a little while here. It's very beneficial to us to pay less interest, in terms of how that translates into free cash flow.

Aaron Watts
Aaron Watts
Analyst at Deutsche Bank

Makes sense. Thanks, Jeff.

Jeff Gignac
Jeff Gignac
CFO at Gray Media

Yep. Thanks, Aaron.

Operator

Your next question comes from the line of Patrick Sholl with Barrington Research. Please go ahead.

Patrick Sholl
Patrick Sholl
Analyst at Barrington Research

Hi. Good morning. Thanks for taking the question. If I could ask a question about the Q3 guide on operating expenses. You had mentioned, on the leverage calculation, including some of the synergies from the acquisition. I guess, is there any sort of lag between recognizing those in the leverage and applying some of the operating expense synergies within your guidance?

Jeff Gignac
Jeff Gignac
CFO at Gray Media

Yes, there absolutely is. You can see that in our earnings release. I'll be very specific. The last page, we lay out in great detail exactly how the leverage ratio is calculated. You'll see a line on there that puts in adjustments for what's not in the eight quarters. That number is $144 million divided by two. You have $72 million of add back that's in the calculation.

Patrick Sholl
Patrick Sholl
Analyst at Barrington Research

Okay. I'm sorry.

Jeff Gignac
Jeff Gignac
CFO at Gray Media

As we realize that. As we implement all of our synergies, that add back will come down. The actual results will also benefit. It'll be sort of capitalized into our actual results rather than being an add back.

Patrick Sholl
Patrick Sholl
Analyst at Barrington Research

Okay. Yeah. Sorry for missing that. Then just to follow up on advertising. Some of the categories that you talked about, auto recovering in Q3 or being lower in Q2 and recovering in Q3. Is that just within the core station group, or is that also across the digital as well?

Pat LaPlatney
Pat LaPlatney
President and Co-CEO at Gray Media

It's both. Digital, actually, there's more money. Money's flowing into digital at a faster rate than core. It affects both sort of categories. I would say, if you look at it historically over the last three, four years, there's a slow in the decline. Automotive has been declining for a long time, and it's flattened out. If we can somehow keep it flat to positive in third quarter, that would be outstanding. Not sure that'll happen because it's close to flat, but anything in the low single digits or anything positive in automotive is a great story.

Patrick Sholl
Patrick Sholl
Analyst at Barrington Research

Okay. Thank you.

Operator

Your next question comes from the line of Craig Huber with Huber Research Partners. Please go ahead.

Craig Huber
Analyst at Huber Research Partners

Great. Thank you. My first question is, obviously, your outlook for core advertising in the third quarter is flat on a reported basis. Maybe I missed this. What is it if you adjust for the acquisitions?

Pat LaPlatney
Pat LaPlatney
President and Co-CEO at Gray Media

Mid-single digits.

Jeff Gignac
Jeff Gignac
CFO at Gray Media

Yeah. If you take out the acquisitions, you're talking about down mid-single digits on core. Some of that is attributable to expected political crowd out, but that's not all of it. To be clear, there is some softness in core that is not related to crowd out. When you put that together with the acquisitions, that's where we get to flat on a year-over-year as reported basis.

Hilton Howell Jr.
Hilton Howell Jr.
Chairman and CEO at Gray Media

Hey, Craig, can I add something?

Craig Huber
Analyst at Huber Research Partners

Yeah.

Hilton Howell Jr.
Hilton Howell Jr.
Chairman and CEO at Gray Media

Can I add something to that just by way of color? We were talking about this around the table this morning. Think about it. For the last two years, 2025, all through the quarter so far of 2026. Last year we had tariffs, we don't have tariffs, we have this hero, we have that. Everybody who is an ad buyer is confused by that. Now we've got a situation where do we have a war, do we don't have a war, it's the same thing.

Hilton Howell Jr.
Hilton Howell Jr.
Chairman and CEO at Gray Media

It's particularly, I think, impactful on the automobile segment. One of the things that I personally, I'm going to let anybody else say whatever they think about it, Q3 we're pacing well with automobile. I'm hoping that we will see a return to more stability, in the third and fourth quarter and into 2027. We'll see. It's been a very unusual macroeconomic time, most of what we think is happening is due to those macroeconomic issues.

Pat LaPlatney
Pat LaPlatney
President and Co-CEO at Gray Media

Yeah. To sum it, to say the macro environment is turbulent would be a gross understatement. Yeah. We haven't seen an environment like this. Frankly, I've been doing this 40+ years, I don't think I've ever seen anything quite like this. Look, I think the ad market against that backdrop is holding up reasonably well. Perhaps very well, not just to Gray, but from what I've read across the industry. Look, we don't want to be down mid-single digits. We want to be up mid-single digits. Given the environment, that's okay.

Craig Huber
Analyst at Huber Research Partners

Yeah. Fair enough. On the cost side of things, some of your peers are feeling the need to be much more aggressive, taking out costs out of their TV station, etc, operations and stuff. You guys have been much more steady to your credit on that. Can you just talk about, maybe that a little bit, also the use of AI at your company. How aggressive are you trying to lean into that to help make your company more and more efficient here?

Pat LaPlatney
Pat LaPlatney
President and Co-CEO at Gray Media

Look, we have found use for AI in a number of areas on the editorial side of our business, on the sales side of our business, and the marketing side as well. It's important to keep in mind that anything that we publish has been reviewed by a human being, and it'll always be that way. There are a lot of things you can do with AI that we're choosing not to do. We're using AI as an efficiency tool and giving our people better tool sets. That's the way we look at it philosophically. There's others who are looking at it differently, that's their business. We see benefits from AI. We're definitely seeing benefits from AI, in most disciplines in our business, and are excited about its future. We're going to roll it out cautiously and wisely.

Hilton Howell Jr.
Hilton Howell Jr.
Chairman and CEO at Gray Media

Craig, let me say something else. Gray historically, and certainly today, always runs lean. All right? The most important asset we have in this company is our people. We never lose sight of that because every company's got a camera, every company's got cars, every company's got a building where they film stuff out of, but it's our people that generate our revenue, it's our people that generate our content, and it's our people that will carry us forward. We're very judicious and look after our folks as much as we can. We do operate in a very lean capacity across the board, 24/7. Every now and then, you got to sit back and see if there's been a little creep and where you need to tighten your belt. We're doing that all the time.

Craig Huber
Analyst at Huber Research Partners

My last question, if I could. On Assembly Atlanta, do you feel like you get any added benefit there as things move along here with companies getting more and more frustrated with the operating environment out in California? Are you getting any benefit from that of people wanting to do work in Atlanta at your facility, or is there more talk about that coming out to Atlanta, leaving Hollywood, et cetera? Maybe touch on that, please.

Hilton Howell Jr.
Hilton Howell Jr.
Chairman and CEO at Gray Media

Well, I'd be delighted to. There's a whole lot of headlines out there about the film business. I will tell you that with regard to our studios, which is really the only thing I can speak to, we're going to be in the 90% filled up in the remainder of the year soon. We will have a large blockbuster, we think, we always have to be careful about that. That should begin shooting In September. We're very excited about what has been produced there. There's been a lot of issues in terms of the production pipeline that really all stem from the strike several years ago, that is all settling out.

Hilton Howell Jr.
Hilton Howell Jr.
Chairman and CEO at Gray Media

One of the things that I'm actually taking a great deal of personal excitement for is that, when you look at The Odyssey, when you look at Spider-Man, and you look at Toys”R”Us, you're talking about 3 billion dollar franchises, multi-billion dollar franchises. It's been a while since, I'm not going to use the term Hollywood, since the film industry had that kind of success. Christopher Nolan should be complimented, and I can't wait to see it. I haven't yet. We are doing great. There has been a slowness to the production of films, probably due to an overexpansion during COVID, then a tightening of belts that's happened industry wide. I think that Georgia and its film incentives remains the best single incentive structure, particularly because it is uncapped. Unlike a lot of our state competitors, Georgia's paying and paying rapidly.

Hilton Howell Jr.
Hilton Howell Jr.
Chairman and CEO at Gray Media

There are, in other states, seven and eight-year wait times for folks to get their cash. That's a problem. Some producers don't realize that. Georgia has been committed, and we are deeply involved with both gubernatorial campaigns. We see no risk to the film tax credit, we hope that there's a chance for some enhancements, because we want Georgia to be out there as a leader. We're really excited about it.

Craig Huber
Analyst at Huber Research Partners

Great. Thank you for that.

Hilton Howell Jr.
Hilton Howell Jr.
Chairman and CEO at Gray Media

You bet. Thank you, Craig.

Operator

Your final question comes from the line of Gowshi Sri with Singular Research. Please go ahead.

Gowshi Sri
Gowshi Sri
Analyst at Singular Research

Good morning. Can you all hear me?

Hilton Howell Jr.
Hilton Howell Jr.
Chairman and CEO at Gray Media

Yes.

Gowshi Sri
Gowshi Sri
Analyst at Singular Research

Okay. Thank you. Thank you for taking my questions. My first question is, on the virtual MVPD side, what share of the gross transmission comes through that channel and the dynamics in net transmission, is that similar, or give us any color on that between those two channels.

Jeff Gignac
Jeff Gignac
CFO at Gray Media

Yeah, Gowshi, it's Jeff. We don't break out the different individual contracts and streams, whether it's traditional or virtual MVPD. I don't believe anybody in the industry does. I can't comment on the mix. I think what matters is what we keep. On the virtual side, it's a fee that we receive. On the traditional side, there's a fee and then think of it as a network fee back to the network. The margin profile on those is different, but we're not going to comment on the mix.

Gowshi Sri
Gowshi Sri
Analyst at Singular Research

Okay. Sounds good. I know you guys have covered this a lot. Let me come at it another way. In the 2024 cycle, the core fell. There was 11% displacement in the fourth quarter. Given the change in mix of the portfolio, what kind of displacement can we expect in Q4?

Jeff Gignac
Jeff Gignac
CFO at Gray Media

Yeah, I think it's going to depend a lot on just how crazy political gets as we get later in the year. It's hard to put a number on that. If political, which should have higher margins, goes gangbusters, the net will be better than if it doesn't. There's only so many spots, so depending on exactly when political ramps up and how aggressive the spending is that will really drive it. Can't really put a number on it where we sit today.

Gowshi Sri
Gowshi Sri
Analyst at Singular Research

Okay. My last question, are the $400 million securitization facility fully drawn and political revenue now kind of being prepaid, when that revenue steps down in an off year, is that the first quarter? Does that borrowing base shrink and force a pay-down? How does that dynamics work?

Jeff Gignac
Jeff Gignac
CFO at Gray Media

It does, because the borrowing base is made up of all of our receivables. Our receivables largely track the two different revenue streams. Half or so is retrans and half is from commercial advertising. We do not, just to be very clear, any political is prepaid. When you replace commercial dollars, where there are terms for payment, with dollars coming in before the ad runs, the borrowing base will dip. I can't remember the exact number, but I think the borrowing base went down by over $100 million. It quickly recovered in the next month. That happens when the heaviest political hits, really in October, but a little bit in September. When we add in the new stations, that piece will offset that somewhat, there will be a dip there, it's temporary and quickly recovers.

Jeff Gignac
Jeff Gignac
CFO at Gray Media

I would expect by the end of the year, we should be back to the full capacity. Also, just to be clear, the borrowing base today is above $400 million, it doesn't mean that we won't necessarily lose all of it. Again, I think by the time we get back through, we should be back at the full capacity, I would expect by the end of the year, even if there is a month-to-month dip in that availability.

Gowshi Sri
Gowshi Sri
Analyst at Singular Research

Sounds good.

Hilton Howell Jr.
Hilton Howell Jr.
Chairman and CEO at Gray Media

All right. Thank you, Gowshi. I recall that Lacey said that was our last question, I'd like to just step forward and say thank you. Thank you for your questions. Thank you for your attendance. We're very happy about our Q2 results, we expect even better numbers and better sort of sunshine in Q3 and Q4. Thank you for being here, we'll talk to you next quarter.

Operator

This concludes today's conference call. You may disconnect.

Executives
    • Alan Gould
      Alan Gould
      Head of Investor Relations
    • Hilton Howell Jr.
      Hilton Howell Jr.
      Chairman and CEO
    • Pat LaPlatney
      Pat LaPlatney
      President and Co-CEO
    • Jeff Gignac
      Jeff Gignac
      CFO
    • Kevin Latek
      Kevin Latek
      Chief Legal and Development Officer
Analysts
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