Gray Media, Inc Q3 FY2025 Earnings Call

Good day, everyone, and thank you for joining this Gray Media Q3 2025 Earnings Call. As a reminder, today's session is also being recorded. It's now my pleasure to turn the floor over to our host, CEO and President, Mr. Hilton Howell Jr. Please go ahead, sir.

Thank you, operator. Good morning, everyone. As the operator mentioned, this is Hilton Howell, the Chairman and CEO of Gray Media, and I want to thank all of you for joining our third quarter 2025 earnings call. As usual, all of our executive officers are here with me in Atlanta; 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. And then also we had Jim here for the last formal time to join us here but he won't be doing anything but telling us what the right answers are. And so we will begin with a disclaimer that Kevin will be providing.

Thank you, Hilton. Good morning, everyone. Today, we filed with the SEC on Form 8-K, our earnings release and updated investor slides. Later today, we will file with the SEC our quarterly report on Form 10-Q. These materials are all available on our website, which is www.graymedia.com. Included on the call may be a discussion of non-GAAP financial measures and in particular, adjusted EBITDA, leverage ratio denominator, and certain 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 reconciliations of the company's non-GAAP financial measures to comparable GAAP financial measures can be found on our website. All statements and comments made by management during this conference call, other than statements of historical facts, should be deemed forward-looking statements. These forward-looking statements 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 important factors that are contained 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. And now I turn the call to Hilton.

Thank you, Kevin. Today, we are very pleased to report that our third quarter results for 2025 exceeded our guidance for both revenues and expenses. Total revenue for the third quarter was $749 million, which is at the high end of our guidance. Our total operating expenses, excluding depreciation, amortization, impairment, and asset disposal gains or losses, were $592 million, $17 million below our guidance's low end. Some of this was due to cost-cutting at our corporate headquarters, and I want to take a moment to thank our TV stations for contributing to a significantly lower expense compared to previous quarters. So thank you, Gray. The net loss attributable to common stockholders was $23 million in the third quarter. Adjusted EBITDA stood at $162 million, and political advertising revenue reached $8 million, exceeding our expectations for an off-cycle year. Additionally, the third quarter experienced a notable increase in mergers and acquisition activity as we seek to identify and negotiate valuable transactions that enhance our business and balance sheet. As previously mentioned, we expect to enter six new markets by acquiring the local news stations ranked #1 in those markets in 2024. We also aim to establish 11 new Big Four full duopolies, which we believe are essential for our industry and for maintaining local news in smaller markets. We made significant strides in strengthening our balance sheet during the third quarter. The financing transactions completed in July were transformative and provide us with more options to manage our debt and leverage. Our Board of Directors has declared a quarterly common dividend of $0.08 per share, consistent with recent quarters, and the Board will consider capital allocation each quarter in light of growth opportunities. Operationally, we are enhancing our local content offerings. We renewed our partnership with the Suns and the Mercury and expanded our sports portfolio to include the Dallas Stars in outer markets. Investigate TV premiered its third season in September and launched a multi-platform project focused on educating viewers about artificial intelligence. We also announced a groundbreaking partnership with Google Cloud powered by Quickplay, aimed at transforming how our viewers connect with our content. This new streaming structure will roll out in all Gray markets in January next year. In August, we renewed our affiliation agreement for our 27 FOX markets for an additional two years. WANF, our Atlanta station, became an independent television station on August 16 and has had a strong start, adding over 25.5 hours of news and local programming in Atlanta. We are also collaborating with potential development partners at Assembly Atlanta, who are offering financial resources and expertise as we look to further monetize our investment in this valuable asset. We anticipate making more announcements next quarter and next year about these exciting plans. We have made substantial progress so far in 2025 and are thrilled to capitalize on opportunities in various areas of our business to enhance value for our stakeholders. Now, I'll hand the call over to Pat to discuss our operations.

Thanks, Hilton. Q3 continued the theme we've been describing throughout '25, with advertisers remaining somewhat cautious due to the macro environment. Through the quarter, though, we saw core activity strengthen more than we had projected back in August; we ultimately finished on the high side of guidance. Remember that the Olympics on NBC provided about a $20 million uplift in July and August of '24, of which about $16 million was core ad revenue and $4 million was political. Factoring that in, our third quarter was up about 1% over '24. From a category perspective, in first and second quarters and as we guided for the third quarter, automotive finished down high single digits. Services as a whole were up, driven by legal, which continues to grow at double-digit percentages versus last year and is the top 5 category for Gray. The financial services category is also a bright spot, up high single-digit percentages. Digital continued its healthy growth, and our new local direct business was up low single digits over the same period in '24. Our sales teams continue to perform admirably in a challenging environment. Political ad revenue exceeded our expectations in the third quarter of '25. Our guide for the third quarter was $6 million to $7 million and our actual results came in at $8 million. Some of this revenue was generated from issue advertisers supporting the President's legislative priorities. We also saw early spending supporting 2026 U.S. Senate candidates and generated good results in Virginia from the '25 Governor and Attorney General races. Our fourth quarter '25 guidance is for core ad revenue to be up low single digits as we have less challenging comps due to political displacement in the prior year quarter. October finished up low double digits, which really isn't surprising given the significant demand from political advertisers in the prior year period. It's also encouraging that as of today, November and December are pacing up slightly. Across categories in the fourth quarter, we're seeing a lot of green in services like legal, financial, home improvement, supermarkets, and travel and tourism are trending better, and it's good to see automotive flattening out at a new run rate down low single digits as opposed to the higher single digits numbers we saw earlier in the year. Jeff will now address the key financial developments.

Thanks, Pat. As Hilton mentioned earlier, we continued to make progress on our balance sheet during the third quarter. We took advantage of strong debt market conditions in July to extend our maturity profile out to 2033. Our capital markets activities addressed all material maturities through December of '28 with a modest impact of less than 25 basis points on our overall cost of debt. We finished the third quarter with over $900 million in liquidity and $232 million in availability on our open market repurchase authorization. Our leverage metrics at 9/30/25 were 2.72x first lien leverage ratio, 3.66x secured leverage ratio, which includes the second lien that's new this period and 5.77x total leverage ratio, each of those calculated as prescribed in our senior credit agreement. On our second-quarter call, we discussed the expected impact of our pending M&A transactions on our leverage. We continue to estimate that if we close those transactions today using cash on hand and/or revolver borrowings, our total leverage ratio, again, as defined in our senior credit agreement, would be approximately a quarter turn lower than where we finished the quarter. Our expense reductions continue to show up in our results, and we're proud of our team for the company-wide focus on cost containment. In third quarter of 2025, our station level operating expenses, excluding network affiliation fees, were actually down $8 million or 2% compared to third quarter of '24, and that follows a decline in first quarter versus first quarter of '24 and flat in second quarter versus second quarter of '24. We've had a lot of questions about net retrans, so let me provide a little more context to help everyone understand the current situation. We've discussed our multiyear effort working towards sustainability with our MVPD and network partners. In the third quarter, our network affiliation expenses declined by 9%, while our retransmission consent revenue declined by 6%. Our fourth quarter guide, which now fully excludes the expected impact on both revenue and expenses related to WANF, is that our retransmission consent revenue less network affiliation fees will decline slightly compared to the prior year period. That decline is primarily attributable to WANF and Atlanta shifting to be independent. Our guide for full year cash taxes for 2025 remains at $39 million, and we continue to expect that we will have no further cash tax payments this year. We've reduced our expected CapEx range for full year 2025 by $15 million to a new range of $70 million to $75 million, again, reflecting a company-wide effort on where and when to invest. We expect the further reimbursement related to public works construction at Assembly Atlanta to be received prior to year-end, such that our net capital investment in Assembly Atlanta during 2025 will be 0. That concludes my remarks, and I'll turn the call back to Hilton.

Thank you so much, Jeff. And so operator, let us open it up to any questions anyone may have.

We'll hear first from Dan Kurnos at the Benchmark Company.

Nice print. I guess, Jeff, thanks for the color around net retrans. Super helpful. You're finishing the year at this $202 million to $203 million. Is that kind of the right run rate we should think of as we start heading into '26? How should we think about things kind of puts and takes there on the reverse side? And obviously, you have renewals. So I know you're not going to guide to net next year, but it just feels like it could be an accelerating net year. So just any directional color would be helpful.

Yes, Dan. Let me focus on the net aspect because that’s really how we approach this. There are many contracts that contribute to this situation. The key point is to see how much it has leveled off, especially when comparing 2024 to 2023 and the guidance we have for the full year of 2025 versus 2024. You can notice the quarters are flattening out. While it's too early to provide guidance for the full year, we are observing this flattening trend, and ideally, it could turn positive. We are optimistic, but the main factor involves some declines, and we are uncertain about those.

Our next question will come from Aaron Watts at Deutsche Bank.

Core advertising was down 4% in the first half of this year, down 3% in the third quarter, and you're guiding flat to up low single digits for 4Q. I know there's some noise in those numbers. But you're closing the book on a tough 2025 with improved momentum. How does that frame the discussion on core for next year when you'll have the typical political crowd out and what's expected to be a very healthy political spending cycle but also a lot of incremental sports content and hopefully firming across key verticals as well.

Yes, Aaron, it's Pat. I would say that we're really optimistic about 2026. We have some early Q1 numbers that are encouraging, in fact, very encouraging. Towards the end of the year, we'll obviously get political crowd out, as you saw in the comps for this year from last year. But as we sit here today, we are very, very optimistic about 2026.

We'll hear next from Patrick Sholl at Barrington Research.

Just another follow-up on the ad trends. With the rebrand of the Atlanta Station, could you maybe just talk about the advertiser reception to that increase in news content and if there was any sort of, I guess, disruption in how that viewership of that station transitioned?

Yes. This is Sandy. We've had really good reception to what we're doing in Atlanta. We added 25 hours of local news and sports, and viewers are responding. We're seeing gains in mornings and key demos and in prime access, and we're able to really serve the community with hyperlocal content, and they're responding. And it's quality content. This is a team that won 26 Southeast Emmy awards and a National Emmy Award this year. And so the quality of the content, people are finding it. They're staying with us longer, and we expect those numbers to continue to grow.

I want to mention that I wasn't present due to prior commitments with Sandy and Pat along with our entire WANF team. For the first time, we utilized the stage at Assembly Atlanta for a comprehensive local WANF, Telemundo, Peachtree TV, CW Upfront event aimed at the advertising community, which was very well attended. This initiative significantly facilitated our transition to an independent station in a remarkable way. We envision WANF as serving our local market in Atlanta much like CNN did under Ted Turner's ownership. The upfront event was distinct, innovative, and exceptional.

I'd add that we renewed our Hawks deal, and our Braves deal for 2026 is going to kick in in March with a 10-game spring training schedule, and the ratings last year were great for those games. So there's a lot of momentum over there.

We'll hear next from Craig Huber at Huber Research.

My one question has to do with the Assembly Atlanta. Can you remind us, please, of what the total cost, the net cost you've done there so far? I believe it's around $600 million. But along those fronts, can you just touch on when you think you're going to get a proper ROI off that spend? I see your production company's EBITDA was about $3 million in the quarter. But just when do you think you'll be getting fuller lease commitments, et cetera, but the number will go up significantly?

We are not a development company but we are actually and have been from day 1 on the building portion of what we had at the old General Motors plant, which is the studios. It is doing quite well. The partnership between NBCUniversal and Gray Media is probably stronger than ever. They're bringing their shows in. We have leased out things and we actually heard last night, and we kind of think that the dam may be breaking that Hulu renewed a third season on a show that we believe is going to occupy 3 of our stages out there. I can't commit to you today that's going to happen, but it is. And so each of those parts add to a growing EBITDA out of what's been built. We're not making money, Craig, on raw land, but we are in negotiations with a wide variety of parties who will bring their financial assets. And we will be entering into joint ventures with them to create assets that we would like to maintain an interest in, and then other assets like an apartment complex. We may just absolutely sell and liquidate. As Jeff mentioned, we have finished up sort of the last obstacles to getting about $25 million back from the cities, which we will be picking up in Q4. And so we're not going to go and like tout what we've got coming, but it's really, really, really exciting. And I think within 12 to 24 months, I think it will be the biggest cash flowing operation we've got in the company.

And Craig, just to follow up on the numbers, it's around $650 million of net investment thus far. There will be some development ideas currently under review. We can expect returns on either capital or investment as these projects progress. As Hilton mentioned, we hope to have more updates by our next call later in the year. There is a lot of activity and much happening on that front.

We will hear next from Mr. Steven Cahall at Wells Fargo.

So a question on M&A. I mean, you've been very active already this year between the announced deals and the swaps and related to pushing some of the debt out. So I know you're in a strong position to figure the next few years out. There's always the risk that things happen, I guess, that you're not a part of in terms of mergers and acquisitions. So how do you think about maybe something that's more strategic on the M&A side right now? And what do you look for that would be a particularly attractive sort of large-scale transaction if that is indeed something that could be on your radar?

Steven, it's Kevin. Just to repeat what we said last time, we are laser-focused on the deals that we announced in the third quarter. The government being shut for so long has clearly delayed our efforts to work on that approval process and transition. But we remain fully committed and fully occupied by those transactions. Looking sort of down the road into the future, I think was really your question. We think there are other opportunities to do transactions like the ones we've done here, which are, say, sub-$200 million deleveraging deals that improve our portfolio and our balance sheet. Those we will look at, again, down the road as we get through these transactions. Also, closing these transactions will give us some real intel on where the new regulatory restrictions will be. We have FCC proceedings that are ongoing, and more news will come out of that by the end of this year, which will provide all of us some additional insight into what our real opportunities are. I would say from the very beginning, this company was essentially a single TV station. It was about becoming a large company with very, very high-quality TV stations. And we've stuck to that now for decades. It’s #1, strong #2 TV stations. There are a lot of stations out there that would, we think, be good fits for Gray. And we're going to continue our focus on transactions that improve the overall portfolio that don't tax the balance sheet with high-quality assets and great employees. So again, thinking down the road, nothing has really changed in our views there.

I would like to add, Steven, that in relation to smaller acquisitions and what we announced in Q3, we completed a number of transactions in markets that significantly helped expand our footprint, especially in areas we aim to serve alongside our sports partners. This is a key aspect of our strategy. Additionally, we have established a number of different sports networks across the United States.

Yes, 13.

They go from coast to coast, and we aim to fill those gaps. You can look at our map to see where we might be interested in expanding. Regarding major transactions, we've seen some news recently that we're aware of, but there are no deep negotiations happening at this time. The pace of change in our industry is unprecedented, and we find ourselves operating in a very uncertain environment. Anyone claiming to have all the answers is mistaken. We have many possibilities in front of us, but I want to ensure that we don't pursue any deals that could jeopardize our company. With 10,000 employees and their families relying on us, safeguarding their interests is my top priority. There are significant growth opportunities ahead, but unlike some competitors, my management team and I believe that Gray doesn’t need to take drastic actions. We're content with our current position and can continue our plans to reduce our debt and return more value to our shareholders. However, if a great opportunity arises at the right price for expansion, we'll be open to it. We believe there are numerous ways to create a larger company that benefits our shareholders and also enhances local news coverage in communities. Over the past 30-plus years, we've focused on acquiring #1 and #2 stations because they meet essential needs. Local news faces threats today, and we are committed to ensuring that this vital component of our society is preserved and strengthened, which will guide our discussions on mergers and acquisitions.

We'll hear next from Shanna Qiu at Barclays.

Sorry if I missed this, but I think historically, 4Q ahead of a political year generated $20 million, $30 million of revenue. And I think in the fourth quarter guide, it's $7 million to $8 million. I guess just what's driving that delta if it seems like political is still going to be a reasonably strong year into 2026.

This is Kevin. The first half of this year is quite similar to the political revenue we had in the first halves of the past two years, though there are always fluctuations. For instance, there was Georgia Senate runoff funding in early 2021, and various ballot initiatives have emerged, producing significant revenue. A few years back, a ballot issue in Maine raised more money than what the Virginia governor's race generated for us, despite our larger presence in Virginia. So there are always these nuances. In the second half of this year, we did not observe, until this week, the level of campaign spending that we have seen in previous off years. We believe this is not due to a change in our race coverage but rather different fundraising levels this year. For the past ten months, there has been a sense in Washington that the Trump administration was more active than any previous administration, while the Democrats seemed less effective in addressing those issues. The election on Tuesday revealed that not only were the polls significantly off, but the Democrats performed exceedingly well across various races, from Georgia to California to the Virginia State House. It appears that the Democrats now have a much stronger chance in races that were recently considered lost causes. Some races once thought to be uncompetitive are now competitive, and this will likely shift Democratic fundraising in a meaningful way following the election results on Tuesday, which indicate strong prospects in multiple races. Up until Tuesday, we noticed limited strong Democratic fundraising to support the races we faced. Based on our previous pacing assessments for guidance, we did not expect a significant increase in spending during the fourth quarter for races next year, as we saw in prior off cycles. However, we are hopeful that this will change because of Tuesday's outcomes. We expect Democratic fundraising to quickly flow into support for races in next year's primaries and the general election in November. We know Democrats are investing heavily, and Republicans will follow suit. We've observed that candidate quality has resurfaced as a key topic in several races next year, with some notable candidates emerging from both parties. Overall, we feel positive about next year. Although we are somewhat disappointed with the fundraising levels affecting us in the second quarter, we also entered this year anticipating the political landscape would not be as strong as it has turned out to be, so we're actually quite pleased with political performance relative to our initial expectations. That's our perspective on the political situation at this moment.

Shannon, this is Hilton. Let me just add something. I stayed up late and watched the returns on Tuesday night, and it was a democratic blowout. And I left regardless of where people come out on political; what I love is a great fight out there. And I think the Democrats are going to be able to raise a ton of money. And I know the Republicans are going to be able to do the same thing. And so my confidence in the level of political spend in the midterm this year is tremendous. I think it's going to be gargantuan. I'm really looking forward to seeing it all rolling in.

Next question today will come from the line of Avi Steiner at JPMorgan.

I would love to get your thoughts on the YouTube TV carriage dispute. What might the impact be on future negotiations and maybe between affiliates and networks as well going forward?

Sure, it's Pat LaPlatney. The situation with our ABC stations being removed from YouTube is frustrating. We would prefer to have a say in the negotiations for our stations, but we don't. We hope they resolve it quickly. I can't predict the impact on the market moving forward, but these are two large companies with significant presence. We genuinely hope that for the benefit of both companies and the American consumer, they find a resolution soon. That's our perspective.

It is. But it is very frustrating that we're getting penalized and have no control over the outcome of that dispute. But like the government dispute, we hope they all come to a positive conclusion soon.

Ladies and gentlemen, we thank you all for your questions and comments today. Again, if you did have a question or comment or follow-up that we didn't get to today, you are invited to reach out to management following today's conference. It is now my pleasure to turn the call back to Mr. Hilton and our management team for any additional or closing remarks.

Thank you for the questions. In closing, I want to mention that the first half of 2025, particularly the third quarter, was extremely busy. We achieved a significant number of goals that will bring long-term benefits to Gray Media and all its stakeholders. We will continue to take actions to enhance value for our advertisers, investors, and the communities and families we serve. I want to express my gratitude to everyone for joining the call today, and we look forward to speaking with you next quarter.

Thank you, ladies and gentlemen, for joining today's Gray Media Q3 2025 Earnings Call. You may now disconnect your lines, and have a good day.