Gray Media, Inc. Q2 FY2025 earnings call

• M&A Activity: Reopened TV industry M&A market with FCC waiver, announced 5-market no-cash swap with Scripps, acquired stations from Sagamore Hill, Block Communications, and Allen Media, adding 6 new markets. - Balance Sheet: Reduced indebtedness by $22 million in Q2, finished Q2 with first lien leverage ratio 2.99x and total leverage 5.6x. Completed debt offerings in July, extending maturities and reducing cost of debt. - Operational Enhancements: Enhanced local content offerings, 80% of markets have local/regional pro sports deals, 81 regional Edward R. Murrow Awards, renewed CBS affiliation with WANF becoming independent, Assembly Studios momentum with Beyond the Gates extended. - Dividends: Board declared $0.08 per share quarterly dividend.

Total revenue in the second quarter of 2025 was $772 million, a decrease of 7% from the second quarter of 2024 and 1% above the high end of original guidance. Net loss was $56 million compared to net income of $22 million in Q2 2024. Adjusted EBITDA was $169 million, a decrease of 25% from Q2 2024. Political advertising in Q2 2025 finished well above expectations.

• Q2 2025 results better than original guidance, in line with revised. - Q3 2025 core ad revenue expected down low to mid-single digits, but flat to slightly up when factoring in Olympics uplift. Digital revenue expected up low double digits in Q3 with political spending. - M&A transactions expected to delever leverage ratio by ~0.25 point upon closing.

• Regulatory risks related to FCC approvals for M&A transactions. - Uncertainty in political advertising revenue guidance. - Challenges in providing accurate guidance for future quarters due to factors like Olympic uplift in prior years.

Q: A lot of ground to cover. Appreciate all the color, guys. I guess, well, first, I'll just say just a shout out to Jeff, heroic job with the balance sheet. So well done on that front. Second, I'll ask Hilton, I guess, kind of standing pat, does it mean -- I assume you'll continue to look at swaps and other things that could improve. Obviously, you have a lot to digest after what you've done, but just kind of where you're headed if an opportunity arises. And Jeff, I know you gave the color on leverage improvement post transaction, but just any way to think about synergies or buyers' multiples on some of these?

A: Well, Dan, let me just begin. First, thank you on your comments with regard to our balance sheet. It really was, in fact, heroic. And I'm really proud of Jeff Gignac for leading that and our whole team for that effort. With regard to the transactions that we have announced really since the announcement that I've covered in my comments in Rochester, Minnesota, we've done a lot of transactions. I think everybody that has spoken in the industry will tell you that everybody is talking to everybody else. And while we don't have any current plans on other transactions, we're always going to be listening, Dan. I mean -- but I do know that Sandy here, who's also with us is going to have -- it's a big lift. We've got a lot of markets here. And the first thing that you have to do when you run any kind of business is to make sure what you've bitten off can be handled. I am very, very excited. And I want to publicly thank the entire management team at Scripps because it's hard for any 2 companies who are all justifiably proud of their assets and their operations to be able to reach an amicable swap, and we did so, and I'm immensely proud of it. And so it's going to be very good for Scripps. It's also going to be very good with Gray because really when we announced it, we had a duopoly in Lansing. But now with the acquisition through Scripps and what we have announced this morning with Allen, we get a second duopoly out of that transaction in Lafayette, Louisiana. But we also get new duopolies in lots of markets. And as Jeff mentioned, if all these deals were done, just the transactions themselves delever us by about 0.25 point, and that is just the transactions. We have done a tremendous number of other initiatives that's going to be reducing our debt on a ratio basis prospectively. So with regard to other deals, yes, sure, we're going to talk about them. But right now, we've got a big job ahead of us, and we have to get these deals approved by the FCC. I don't see -- and Kevin is a better one to answer this question, but I don't see any real hurdles to getting every one of them done. And so for all of these -- just a handful, about 6, I think, new net up increase in markets, we are really excited to welcome them to our portfolio, but to see our increased depth in our local markets. And as you know, Gray Media is known for its content. The recognition with 81 Edward R. Murrow Awards is remarkable, and we're going to be able to increase local news, increase new local sports and increase new exciting content in each and every one of those markets.

Q: Just wanted to dig a bit more in the M&A as well. So Jeff, I was wondering if you could break the quarter turn improving leverage down to help us understand maybe what the net cash out is and what the EBITDA contribution is. And should we think of that as inclusive of synergies? Or is that prior to, I'm sure, what are some really significant synergies that you'll be able to drive through?

A: Yes, Steven. So we really -- we don't want to comment beyond the quarter turn reduction in our total leverage ratio, inclusive of funding and synergies.

Q: Just wanted to dig a bit more in the M&A as well. So Jeff, I was wondering if you could break the quarter turn improving leverage down to help us understand maybe what the net cash out is and what the EBITDA contribution is. And should we think of that as inclusive of synergies? Or is that prior to, I'm sure, what are some really significant synergies that you'll be able to drive through?

A: Yes, Steven. So we really -- we don't want to comment beyond the quarter turn reduction in our total leverage ratio, inclusive of funding and synergies.

Q: My first question will just start with the CBS Atlanta station stuff. Can you just talk about what happened there exactly? I mean why the switch? I mean this obviously rarely happens in the industry when an affiliation is not renewed. What can you comment there, please?

A: Craig, this is Kevin. In the mid-1990s, CBS and Paramount came together. Paramount had a station group of independent stations. CBS had O&Os affiliated with the CBS network in all of those markets other than a small handful. The only markets in the United States where a network owned a TV station not affiliated with their network was Atlanta, Seattle and Tampa. And that's simply CBS. We have expected -- at least as long as I've been in the industry, which is going on 3 decades, we have long expected that CBS would have a strong interest in moving its affiliation to those independent stations at some point in time. When Gray acquired Meredith, we knew there was a strong possibility that CBS would move the affiliation to the independent at some point in time. When we closed on the station, we made significant investments we've talked about in prior calls and press releases. We changed the call letters to Atlanta News First, WANF. We made that our -- everything about the station was Atlanta News First. It's not about anything else. It's about Atlanta News First. we added dozens of reporters, tons of hours of local news, tremendous amounts of additional resources. And it shows in research, shows in the ratings, it shows in the station sales. At some point, that station was going to stand on its own as an independent. With the Super Bowl coming to Atlanta in February 2027, it seemed likely to us that CBS is going to want the affiliation back under independent station at some point prior to the Super Bowl and therefore, probably prior to the 2026 NFL season. So as we were negotiating with CBS this time around, the opportunity came up to take our station independent at this time. We felt very good about what the station has done, what it has accomplished, having gone from 3 regional Emmy nominations, the year we bought it to, I think they had 30-some out last year, and they won a national award...

Q: I've got a couple of questions. First, and if I missed this, I apologize. I recognize that everyone is talking to everyone, but I'm curious if the 2 groups of TV assets you just bought from Block and Allen Media, were those competitive auctions? Or did the sellers approach you because of maybe particular benefits Gray brings to the table? And then I've got a couple more.

A: Yes. Avi, sorry, with time constraints and the number of callers, we're taking one question per folks. And I think we have you on our schedule for a call later today, so we can address the others later. We're under NDAs with our sellers, so we can't talk about their processes. I would say that, look, it's a small industry, folks know each other. On the Block side, I'm pleased to say I've worked with Block folks literally since I started in this industry in 1997. So I've known them for a very long time. And we all know -- we know Byron, we've done number of transactions with him in the past. I've served with him on the CBS affiliate Board for 4 years. We all know them from a number of industry events. So it's not like we need a broker to introduce us to people. Everybody knows everyone. Sometimes bankers are involved, sometimes they're not. I think they're not with us on these transactions. But whether people go to an auction process or hire bankers or just call us, it just depends on their situation, and we can't really comment on their decisions. I would say that -- I think our relationships with the counterparties here, which would include Scripps, have a lot to do with how we got these transactions done. There's a lot of trust that's required here and a lot of history with folks make these transactions go smoothly and putting them together and getting them closed, and that's really important to us. We have, I think, a call with you in a little bit, we can hit your other questions at that time.

Q: Your guidance for the third quarter shows a sequential decline in retransmission consent revenue of about $25 million, and it shows a decline in network affiliate fees of about $19 million. I don't think we've seen such a big kind of step function in sequential trends in those 2 line items. Does this have to do with the CBS affiliate change? Or is there something else that we should think about? And should we think about that going forward as well?

A: Yes. So the short answer to your question is yes. The P&L, we're not going to get into the details on exactly what the numbers are around any one station. Obviously, everybody is investing in the whole company. The P&L at -- just generically speaking, the P&L at WANF will shift much more in favor of advertising. So a piece of the retrans revenue side is a reduction in the rates that we'll get at WANF. You can see what we -- our guide incorporates what we see today on both sides of that, inclusive of everything that we know as of today.