Gray Media Inc-a Stock

Ladies and gentlemen, thank you for standing by. My name is Christa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Gray Media Third Quarter 2026 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Alan Gould, Vice President of Investor Relations. Alan, please go ahead.

Thank you, Christa, and 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 our third quarter earnings release and updated investor presentation on Form 8-K with the SEC. Later today, we will file our quarterly report on Form 10-Q. These materials, including our safe harbor disclaimer, are available on our website at www.graymedia/investorrelations.

This conference call may include forward-looking statements regarding, among other things, future operating results that are subject to risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Various risks and uncertainties which could cause actual results to differ have been set forth in the company's most recent reports filed with the SEC, including our most recent quarterly report on Form 10-Q and our most recent earnings release. We refer you to the cautionary language, language regarding forward-looking statements contained in our earnings release and in our SEC filings. The company undertakes no obligation to update these forward-looking statements.

In addition, we will refer to certain non-GAAP financial measures. Please see our 8-K and investor presentation issued earlier this morning for a reconciliation of these non-GAAP financial measures to GAAP.

It is now my pleasure to turn the call over to Gray's Executive Chairman and CEO, Hilton Howell.

Thank you, Alan. Today, we are very pleased to share the results for an exceptionally strong third quarter of 2026. Our third quarter reported results included the contribution from the acquisitions and the station swaps that we have completed this year. Total revenue in the third quarter of 2026 was $972 million. This exceeded the high end of our updated guidance range by approximately $7 million. And total revenue increased 30% year-over-year, largely reflecting Gray's strong political performance and the contributions from our recent acquisitions.

Political revenue in the third quarter reached $198 million, well above our updated guidance range of $188 million to $195 million. Our 2026 acquisitions contributed $4 million of this total. More importantly, with election day now behind us, we can now share guidance for the full year 2026 political advertising revenue through election day in the range of $630 million to $640 million. This year's political ad revenue through election day has set a new record for our company, surpassing even our high prior year watermark of $600 million during the 2020 presidential election year.

Net retransmission revenue was $150 million for the quarter, at the high end of our guidance range. I'm highly encouraged by the continued progress we have made in net retransmission revenue. 2026 should approach our 2023 high of $595 million of net retrans, which would be meaningfully higher than in 2024 and 2025, even excluding the contribution from the acquisitions and despite the blackout we have previously discussed. Growth in this recurring revenue stream positions us well to continue deleveraging into the nonpolitical year ahead.

Broadcast expenses before depreciation, amortization and gain or loss on disposal of assets in Q3 of 2026 were $596 million, in the middle of our guidance range, compared with $542 million in the third quarter of last year. Almost all of the increase is attributable to our acquisitions. We expect additional costs from the acquisitions to begin decreasing modestly in the fourth quarter as we continue our integration efforts. Net income attributable to common stockholders was $78 million for the quarter. Adjusted EBITDA for the third quarter was $319 million.

We came into 2026 with a very favorable political map, and our results speak for themselves. Our continued success in political advertising cycle after cycle is less a biannual windfall than the predictable result of our intentional investment strategy. And that success is continually demonstrated not just in our political ad revenue. Gray's journalistic professionals are continually recognized by their peers for exceptional work. This year, they won 93 regional Edward R. Murrow Awards, up from 81 last year, as well as 9 National Murrow Awards. In both cases, our teams took more honors than any broadcast or cable network or any other independent broadcast group. I am exceptionally proud of the work of our teams and what they do each and every day across this nation to gather, produce and deliver the stories that matter locally, nationally, all of which exceed our public service obligations like no one else.

On the capital market side, we have opportunistically assessed the market several times over the last 3 months to extend our maturities while lowering the average cost of our debt. We have now reduced our 10.5% first lien notes by approximately $1 billion to only $200 million remaining outstanding. As we noted last quarter, we plan to use our fourth quarter political cash flow to continue to reduce our absolute debt level. Today, we announced that we currently anticipate further debt reduction of an additional $175 million to $200 million annually this year. Between the lower coupons from our refinancing activities and our lower year-end debt balances, we currently anticipate at least $40 million in lower interest cost next year over this current year.

We are making great progress growing our portfolio of top-rated stations, integrating our acquisitions and exceeding and executing our deleveraging strategy, enhancing long-term shareholder value. We therefore will enter 2027 with a great deal of momentum at our back.

So at this time, I will turn the call over to Pat LaPlatney to dive deeper into our operations.

Thanks, Hilton. Third quarter for advertising revenue came in above our expectations at plus 1% compared with our Q3 '25 results. The benefits from the 2026 acquisitions slightly more than offset the political crowd out and some softness from macroeconomic headwinds. On an as-reported basis, we were up 1%. Excluding the acquisitions, our core advertising revenue would have been down somewhere in the mid-single-digit range.

Looking at our categories, we saw strength in gambling/betting, as well as some service sectors in Q3. Communications, health and insurance were soft. The automotive vertical and legal services finished the third quarter down just 1% to 2% compared to Q3 of '25 on a same-station basis. For Q4, [ core ] is currently pacing down low to mid-single digits. As you'd expect, there was significant political crowd out in October and early November. In Q4 categories, legal is pacing up, along with communications and finance. Auto and other service categories are down low single digits to mid-single digits at this point in the quarter.

Our digital momentum continued in the third quarter with healthy 12% year-over-year growth. That's remained strong into Q4. [ Trimming ] some of that digital growth is the migration of Quickplay for our digital video platforms. That project is on track and already paying dividends. Political advertising [ that have minor he ] exceeded our updated expectations against initial third quarter guidance of $165 million to $185 million and an updated guide of $188 million to $195 million, we delivered $198 million, including $4 million from our 2026 acquisitions. This compares with $173 million in the third quarter of 2024 and $144 million in the third quarter of 2022. A very strong October more than offset the fact that there are only 3 calendar days in November during this election cycle. Fourth quarter political revenue is expected to be a record $319 million to $329 million, or again, slightly more than half of the full year result with full year 2026 political advertising revenue of $630 million to $640 million.

We continue to expand our focus on sports programming. We've recently begun new and expanded broadcast coverage of the Hornets, St. Louis Blues, Minnesota Timberwolves, Cleveland Cavaliers and the Orlando Magic. We have a pro sports presence in 90 Gray markets now.

Our sports programming is bringing new viewers and revenue into our stations. It's also an excellent marketing platform, and while still relatively small, a nice profitable business for Gray. We're also focused on quality local nonsports programming. InvestigateTV+ returned for its fourth season, once again delivering solutions-oriented in-depth investigative journalism. Aging Untold enters its second season, providing practical solutions for aging adults, their families and caregivers. We're also thrilled to recently announce a partnership with Aging Untold and Hoda Kotb's Joy 101 wellness company. The partnership will involve content for Aging Untold, as well as providing wellness resource for our employees.

And finally, The Good Side, which has been a highly successful weekend program, will move to a Monday through Friday strip. The Good Side celebrates people across our footprint who are making a real difference in our communities.

I'll close by highlighting the operational benefits we're beginning to see from integrating our acquisitions. As Hilton noted, in Q4, acquired station expenses should be down materially from the $52 million we reported during the third quarter.

Jeff will now address the key financial developments since the last call. Jeff?

Thanks, Pat. I'd like to spend a minute on our balance sheet and our leverage. As most of you have seen, we've been exceptionally active in the capital market since our last call. In July, as we previously discussed, we repurchased $120 million of our secured and unsecured notes using cash and revolver borrowings. On October 21, we issued $750 million of 7.5% first lien notes due 2034, with most of the proceeds used to redeem $675 million of our 10.5% 2029 notes. Political cash allowed us to fully repay our revolver by the end of the quarter.

In October, we issued a $675 million Term Loan G due July of 2030 at SOFR plus [ 350 ]. The Term Loan G proceeds and cash were used to pay down all but $150 million of our Term Loan D that's due in December of 2028 and to redeem an additional $150 million of our 10.5% notes. In October, we also expanded our revolver from to July of 2030 from December of 2028, and we reduced the commitments to $680 million. This past Monday, we prepaid $25 million on the Term Loan G, satisfying all scheduled amortization payments through maturity.

Just yesterday, we closed on an upsize of our AR securitization facility to $450 million. We also reduced the pricing on that facility to SOFR plus [ 115 ] and extended the maturity to November of 2029. Finally, as noted in our release, we intend to use our political cash to further reduce debt by another $175 million to $200 million between now and the end of the year. That's almost $2 per share of value as we reduce debt.

The net result of all of these actions is that our nearest maturities are now $150 million on the Term Loan B due in December '28, $200 million of our 10.5% first lien notes due in July of '29. We incurred $65 million of transaction costs related to these refinancing transactions, which includes about $43 million of call premiums on the 10.5% notes. While the breakage costs work against us on near-term debt and leverage reduction, the lower debt coupons, together with additional debt repayments, are expected to reduce our annual interest cost, as Hilton noted, by at least $40 million next year.

Remember, too, that the preferred equity redemption earlier this year reduced our annual preferred dividends by $4 million, and that was $50 million of face value that we reduced earlier this year. All of this enhances our discretionary free cash flow as we move into the nonpolitical year next year. Our leverage metrics at the end of the quarter under our amended senior credit agreement definitions were 2.54x consolidated first lien net leverage ratio, 3.7x consolidated secured net leverage ratio and 5.7x consolidated total net leverage ratio.

A few things I'd like to mention related to our release in the 10-Q. Our third quarter '26 results included a full quarter of the stations that we acquired and swapped earlier in the year. All key third quarter revenue metrics exceeded our updated guidance, and our expense items all fell within the updated guidance ranges. We're progressing as expected on our acquired station integrations, and you're seeing that show up in our reported results.

That retrans revenue was $150 million for the quarter. That included $9 million of the contribution from our '26 acquisitions. And this is the second straight quarter in which net retrans revenue benefited our leverage ratio denominator, rather than being a drag on that on an [ 8-quarter ] basis. We expect net retrans revenue to be a growing contribution and to accelerate into 2027.

We lowered our company-wide CapEx estimate to $110 million to $120 million from a prior $120 million to $130 million for 2026. It's mainly due to a couple of our station construction projects moving to 2027. We also lowered our full year tax guidance to a range of $75 million to $80 million.

And with that, I'll turn the call back over to Hilton.

Thank you so much, Jeff. And so operator, at this time, we'd love to open up the call to any questions anyone may have.

[Operator Instructions] And your first question comes from Patrick Sholl with Barrington Research.

Just wondering if you could maybe provide a little bit more color on the expense reductions that you expect as you integrate some of the acquisitions? And maybe just within the guidance, how to think about some of the core advertising trends when you back out the 2026 acquisitions?

Yes. Pat, it's Jeff. I'll take that one. So the way to think about it is, remember, this integration is, in most cases, pushing 2 stations together in a market. And we don't want to break things. So we've taken a very deliberate approach on that. It's taken a little bit longer than in historical periods because it's in-market rather than new market integration. So we are -- I'd say we're probably 75% to 80% of the way there in getting those into our run rate. You'll start to see that show up as -- certainly as we get through fourth quarter and into first quarter. The other -- so the other part of your question about just the underlying kind of same station, I would say it's inflation-ish in terms of the growth on a comparative station basis versus last year.

Okay. And then on the sports programming, as that, I guess, process of more inventory going into local has progressed, so why some of these agreements gone to more multiyear? Or is that kind of more the standard now? I'm just kind of curious, what that process has looked like and kind of getting more, I guess, consistency and predictability of the inventory?

I didn't understand the question. Pat, could you repeat that question, the most recent question, please?

Yes. Just on the sports programming across -- I think you said 90 markets with pro sports inventory. Just how many of those agreements are like multiyear in nature?

Got you. So a small percentage are multiyear. As you know, some of the leagues are working on some broader national deals that will impact local deals. So that's the primary reason, although we do some of the bigger deals we have are multiyear deals. So it's a mixed bag, but most of them are short term.

In the case of the [ Phoenix ] one, our longest-standing partner, we just expanded that deal, extended that deal.

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

Great. I'm going to ask one kind of sweeping question that touches a bunch of things, and this is probably for Hilton and Jeff. I mean, first of all, I guess, just, Jeff, again, I know I feel like I say this every call, but you're clearly ahead of the curve on all the balance sheet stuff. And I think that puts you relative to the folks in sort of your relative situation on a much better footing going into '27.

Now we all know there's a lot of puts and takes. As we turn the page post election, everybody is thrilled with all the political dollars. You guys did fantastic. You're paying down debt. For both of you, the interest savings will help accelerate the leverage [ cal ]. And I know, Hilton, you're kind of looking at the rest of the space, we've had some government change in Congress. And so how do you guys think about having cash dry and/or available if things change and maybe a tougher nonpolitical environment in '27 versus continuing to attack the balance sheet, which I know is going to remain a priority, but you've got a lot of moving pieces, and you guys are in kind of great position, plus all the sports stuff is helping you too. So I know there's a lot of things in there, but just help us think through the puts and takes into '27 and how you're thinking about sort of the broader landscape more from an M&A perspective?

Well, Dan, first, I'm extremely proud of what we've been able to accomplish with the entire complexion of our balance sheet. And so it moves us beyond not just the '26 but the '28 presidential election year and gives us a lot of freedom to think about how we develop and grow this company.

Second, the election was Tuesday. And I think it's going to take us a little time to sort out exactly what impact that's going to have in terms of things from what I've seen. There's not going to be a significant change in -- from the FCC in terms of their views. We'll wait and see probably in January, what Democratic majority in both the Senate and the House had to say about it.

But I will tell you that I think both sides are very interested in making sure that newsrooms don't close. [ What I think they ] mean by that is that it's not the multiple numbers of newsrooms. It's the quality, the intensity and the just the overall comprehensiveness of local news coverage, one of the things that we are really, really -- that we strive at. And in every deal that we have made, what we actually have done is save a local newsroom. We have saved the news jobs despite put over the BS that goes out in terms of headlines, we are creating jobs.

We are adding news coverage because at the end of the day, this company and I, in particular, believe profoundly that we're not going to make the mistake that the newspapers were forced to make by cutting our local content. So you saw and you can see an increase in news jobs within our portfolio and an increase in hours that are put out to the local community. And I think actually, the awards that we have had this year is an independent proof of that.

So I'm willing to talk to either a Republican executive or to a Democratic legislative house and tell them the benefits of continuing consolidation because the truth, Dan, is without consolidation, the mom-and-pop nature of this business when I was born into it would not exist. Consolidation has allowed newsrooms to stay open and to expand. And I only speak, I only speak with regard to our company. But at the end of the day, if you don't have a damn product that people want to watch, you're not going to have viewers, and you're not going to have advertisers.

So I believe that we can make the case, regardless of who is in power, that consolidation needs to continue because of our track record. And we can prove it. We can absolutely prove it. So that's -- I don't know if that answered all of your questions, but that's where I am.

Yes. And Dan, it's Jeff. Let me just add on to what Hilton said. I think really, your question is what is capital allocation and what's the highest priority. The highest priority is the highest return. So if that means reducing our debt, and we see good opportunities there. You've seen us do that pretty consistently and in a very thoughtful way so that we don't -- cost of capital is not a static thing. It is an over time thing. If we find M&A that helps us delever faster, then we're all about that.

You saw us take a bite out of the preferred earlier this year. Not a priority for us to do more there. It was available, and we thought it made sense. And so again, I think it's -- we're assessing a whole bunch of opportunities, and I would not be surprised if there's a lot more opportunities that come over the next couple of years, given some of the things that we've already done to get ourselves in the spot where we can be choosy about what we do.

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

To start, just around core advertising. I want to clarify some of your comments earlier. Were those core pacings all post the election or for 4Q overall? And maybe you can talk a bit more about what you're seeing and hearing from the ad marketplace as you turn the corner into 2027? Are there any kind of green shoots to point to at this time, or is the same macro uncertainty still serving as a bit of a headwind?

Yes. So the fourth quarter pacing is full quarter, right? So we obviously saw significant crowd out in October. So you can do the math. If the quarter is down mid-singles, that means that November and December are pretty solid, and they are.

And I would -- to your question around Q1 green shoots, the answer is yes, we're actually seeing some green shoots. Our current -- it's early, but our current pacing in Q1 is positive. And I just note that in Q1 of last year, we had the Winter Olympics and NBC Super Bowl. So that was a lot of money that -- not all of which is going to return, obviously. So we feel positive about what's going on in -- currently in Q4 and as we look to Q1.

Okay. Great. That is helpful. And then if I could ask one more, kind of turning over to the distribution side. It sounds like you're cautiously optimistic about net retrans going into next year. On the distribution revenue side, I think you have around 60% of your MVPD subs up for renewal. What are you seeing from your latest reports on the pace of sub declines? And as you balance that with the current pricing environment, what are your latest thoughts on how to think about distribution revenue growth in 2027?

And I guess on the other side of the coin, with the affiliation renewals you're going through, how are those discussions trending? And I think about Disney deciding to offer multiple feeds of the Super Bowl across its broadcast, cable and digital platforms. And -- what impact do you see that having on your typical upside from a game like that? And I suppose it points to content exclusivity and how that dovetails with those renewals?

Aaron, we tend to do about 18 months of busy retrans negotiations, and then we take 18 months off. We're in that latter period now. Our next round of retrans get going, really finish 6 or so months from now, so I can't tell you what might be happening in that environment. At a high level, we -- as Jeff said, do anticipate retrans, both gross and net, to grow in '27.

In terms of networks, we also are not in discussions with any networks on any renewals right now. So I can't -- there's no intel to share on how those negotiations are going because we're just not in any of those. So thankfully, we've had -- we have other things to keep us busy than talking to the networks and the distributors right now. At a revenue identified a bunch of the talking points and concerns for the industry talking points that we believe are being addressed by not just those who are in active negotiations with the networks because they're important points, but also by the 4 affiliate network boards with their networks as they have done now for 40 or 50 years with issues of concern to all affiliates generally.

And those negotiations in this guidance sometimes lead to improvements and sometimes don't. That's the nature of a business relationship. So again, we don't have any unique insight on anything right now, but you've definitely hit some of the talking points that are purely under discussion with the networks.

Your next question comes from the line of Steven Cahall with Wells Fargo.

First, maybe a question for either Pat or Hilton. I think I saw an article about some innovation you're doing in a [ Louisville ] newsroom. I was wondering if you could speak a little more to that project and if you think it's applicable and scalable across the enterprise and what it could mean for both content and expenses?

And then, Jeff, just wanted to go a bit deeper into deleveraging efforts. I think the challenge is sector valuations are kind of in the 7x EBITDA range. And if we add up net debt and accounts receivable, there just isn't a lot of room left for equity. And so I was wondering if you can think of ways that are more strategic? I know you're chipping away at the debt, but is there anything bigger that you can do to take that down a chunk the way equity investors look at it to help drive more equity value?

Yes, Steven, I'll go first. So the AR facility is what it is. It's a cheap source of financing. You didn't mention the preferred, by the way, where ours has declined this year, which frankly, is a bigger -- that starts to grow, that's a bigger drag on equity value. So the AR facility is evergreen. It just kind of sits there, and there is a cost associated with that.

But we should have pretty decent positive cash flow in 2027 due to all the actions that we have taken this year, reducing the quantum of debt. We're talking about $40 million to $50 million less in fixed charges that we have to bear in '27 versus '26. Also, all the M&A activity should -- as those lap and they go into -- we report everything as reported. We haven't gotten into any kind of pro forma or anything like that, but we try to be clear on what the contribution is from the acquisition.

So when you put that together, you have an 8-quarter leverage ratio denominator, however, whatever you want to call it. That has been working against us for a while and is now starting to turn positive. That's the best way to delever the company is to grow the denominator. And we've hit that inflection point where it's starting to flatten in turn.

So going into '27, and then look, the outlook, based on what happened with the map on Tuesday, there's reasons for optimism where there was a lot of pessimism. I think a lot of people might have had us under $500 million for the year on political this year on everything going to connected TV. And that narrative seems to have died on Tuesday. So there's a lot of things that are pointing in the right direction that I think should really accelerate the delevering and also then -- or therefore, drive equity value, which is the ultimate objective here.

And Steve, on [ unlever ] we've been working to bring together, as you know, the 2 newsrooms, WDRB and WAVE. We're bringing those together under a local first product. We have more than 100 journalists now coming together under 1 roof, serving that community, focusing on community impact, around the clock breaking news, sports and weather. We will be able to serve the community of Louisville, quite frankly, unmatched. And we have been very methodical in how we have brought those 2 stations together, really tapping into the best of both, using those teams to broaden our reach and our impact across all of Louisville.

As Hilton said earlier, we've taken our time with this because we want to get it right. And quite candidly, it's not -- we have not taken a one-size-fits-all approach. We've looked at each individual market, each individual newsroom, tapped into the strength, and put together the product that best serves that particular community. And that's what we're doing in Louisville.

Steven, does that cover it for you?

Is the Louisville project scalable to other markets?

Absolutely.

Yes. So look, I think what Sandy was saying is putting 2 stations together Louisville is different than putting 2 stations together in Meridian, Mississippi or Phoenix, Arizona, right? You got to look at the assets you have in each market. And you put them together, utilizing the best resources from either side.

The numbers vary widely. And just in the case of Louisville, there's a ton of capability, and we're making sure we hang on to every bit. And we're very excited about that business.

Great.

And Steven, it is scalable. I mean, across the board out of all of the acquisitions that we have done. And I think it's 26 or north in terms of individual station count. All but 3 are duopolies within our market. And as Sandy mentioned in her comments to you, we've looked at them based upon each set of assets because there's really talented folks on both sides. And she has been -- I'm particularly proud of what she and her team have accomplished in doing a lot of these things through the course of 2026. So we think it's scalable, and we intend to continue.

Just for a data point, Steven, we currently have 51 markets with 2 or more Big 4 channels across 117 markets. Some of those are just FOX [ D2s ] in tiny markets, but many of them are places like Louisville.

Our next question comes from the line of Craig Huber with Huber Research Partners.

Just a couple of points of clarification, if I could start, please. When you were talking about core ad revenue trends for the first quarter being up, does that comment include the small acquisitions?

No, it's on the same station. Our pacing report is done on a same-station basis.

Okay. And then I had the same question, frankly, when you said you're expecting growth in net up next year in '27. Does that include small acquisitions when you said that?

So that actually does because the core reports are bookings, but the retrans, we're looking at our contracts. So the retrans side, up on a gross and net basis, would include the acquisitions.

Okay. So growth in net and common does include the small acquisitions. Okay. I appreciate that. And then the other bigger question I have. When you look at one of your peers that's in the process this calendar year of removing, laying off 20% of their workforce this year, trying to streamline things given where the debt is at this stage and stuff, when you look at your company, your cost base and stuff -- and I know this is a tough question to ask and answer on a public call. But I mean, are you comfortable with your cost base here? Or do you think there's some significant moves you can potentially make here to save some significant costs without harming the top line? I mean, how comfortable are you guys right now with your cost base, both employee levels and all your other expenses in your TV station?

Actually -- Craig, this is Hilton. I'll start, and I'll let everybody else in the room as they see fit, opine. We feel very good with regard to where we are on a cost basis. But know that as a company, we, as a matter of course, always maintain a strict expense control as we're able to do. That's not only at the station level, but it's at the corporate level.

And so we're looking at it 100% of the time. I will tell you, you're not going to see us making big dramatic 100 people reductions in our force. We don't see a need to, to be quite honestly with you. Our revenue is great. If we don't have folks to sell the content that we're creating, we're not going to be pacing our core op. It's just not going to happen.

There is a certain level of humanity that is absolutely necessary for the journalistic quality that we insist upon and for the sales that we insist upon. And so we feel very good where we are. And a lot of what people are talking about reinventing TV. We've been doing it for 5, 6, 7 years at this point. So we're very comfortable about it. Anyone else want to add?

Craig, this is Kevin. Without picking on or addressing any particular company, I would say, just a very high level, I've been at Gray for 15 years now. We've closed over 60 transactions in that time period. As a general rule, when we have acquired stations from private equity owners, we have found that the stations who are understaffed, and we added -- to add some reporters or add some sellers, add some digital people. When we have acquired from newspaper or former newspaper owners, we have found many, many additional bodies doing work that our folks are doing with technology and smarter work processes with many fewer bodies involved. And those former newspaper owned stations over time have gotten new work streams, new training and new technology and have come into line with our very lean staffing model.

So we don't -- that's just, again, a very high level from our experience over 15 years. You can buy that however you want. Not everyone is where they were, obviously, 10, 12 years ago in this industry. But as a general rule, we have been, I believe, the leanest operator of TV stations in this industry, other than some private equity folks who were just cut into the bone. And I say that having done diligence on hundreds and hundreds of stations, many of which we bought, many of which we walked away and shared our own diligence in some potential swaps and sale and divestiture transactions. There's just not a lot of extra people working in Gray stations like we have found with certain other broadcasters. And so therefore, it's not like we have 4 people doing the job that 1 person can do. We've already fixed that a long time ago with technology and support from other stations and better work streams. Anyone else?

Just the only other thing I would say is Hilton and Kevin both just said we're always looking for ways to continuously be efficient. And quite frankly, AI has been -- played a part in that recently, obviously. And that is -- we're looking at that not as a replacement, but as an enhancement. How do we become more efficient? How can we improve sales? How can we improve content? How can we use it in those ways, lead generation preparation, resource, editing, all under the eye, verified by a human journalist, but how do we use it to become more efficient across our business? And that's just 1 of the things we're looking at.

Your next question comes from the line of Gowshi Sri with Singular Research.

On the acquisitions, now that you have a full quarter of results, how you guys think about the bias multiple on the 2026 deals? And the acquired stations moving into your retrans and network terms, is that a 2027 step-up? Or is that more of a 2028 step up?

This is Kevin. Our 2026 transactions, I'd say we're all -- without exception, were very good for us financially and operationally. These transactions were all -- followed the formula of our transactions over the last many, many years here, 15 years I've been here. Retrans steps up on day 1, and everything else takes a little bit of time. If you have 2 buildings, you don't move to 1 building the day of the transaction. Frankly, you don't move there within 6 months.

If you have to adjust our systems, our back end corporate systems, computer systems, number of servers, staffing workflows, adding newscast, which means you have sometimes moved some programming around drops in syndication contracts, those things just take time. We spent months while waiting for FCC approval working on these integration plans, but we often don't even get a chance to meet with the employees until we close. And we don't walk in the door and ask -- tells employees here's where we are, here's our business plan. We walk in the door and we meet the employees, and we talk to them and we understand what they think they need, what we think we need and we figure out upon over the next couple of months, and we implemented over the subsequent quarters.

So we're going to see retrans on these deals like the past was immediate. The other synergies roll in over 1, 2, 3, 4 quarters depending on the type of efficiencies we can get from them. So I think the answer is it's a little bit of immediate and a little bit of '27. There should not -- I don't think we got to wait until 2028 for anything on the acquisitions we did here, just like when we did Meredith and Quincy and Schurz and all the rest of them. There's a lot of the operational stuff. It just takes time to work through. And sometimes contracts you have to keep paying and not using, going to get those have to burn off.

And sometimes you can launch a new newscast at 4:00, for example, or 9:00 at night. You got to staff up for that. You got to get resources in place, you got your graphics in place, and you just can't do it overnight. So it takes a little bit of time. It's worth it at the end, but you should see the impact of the acquisitions fully in 2027, not 2028.

On your strategy, what is the cycle -- political cycle really teach you? Where do the political dollars go when the race is shift was late? And how does that shape your thinking for '28? And how should we think about the 2027 free cash directed towards debt versus M&A?

Craig, this is Hilton. I'm going to let other people talk too on this. But the 1 thing we learned on Tuesday night or Wednesday morning is that there's a hell of a lot more swing states and competitive states in this country and in our portfolio than we ever dreamed of before the election. So the way we look at it is that we're going to have a very healthy, very exciting from a financial standpoint, political contest in 2028. And states that used to be viewed as being noncompetitive are certainly going to be competitive prospectively.

And we actually had someone who helps us in D.C. go through with our Board yesterday in Nashville, Tennessee, looking at that exact question. And we remain extremely pleased with where our existing station groups are and what we think we're going to be able to do in a couple of years.

This is Kevin again. When political -- U.S. political dollars moving around, every cycle that political dollars move around as races tighten up and raises break away. We saw in this campaign, money moving out of states that we thought would be very competitive early in the year, and they move to other battlegrounds. That happens every single cycle. It's part of the fund for the political people.

We traditionally are there to capture the money because we have such a great footprint in battleground places. Not always, but we usually cover them pretty well. In '22 and '24, we saw money move to places -- move out of our markets and into states where we don't have much of a presence or any presence like California, like Pennsylvania. This cycle, as money moved out of Georgia and out of North Carolina, for example, they moved into Iowa and Alaska, in Maine, Nebraska, places where Gray has a huge presence. In fact, almost every one of those places, we are the largest media company in the entire state.

For context, in 2022, our political revenue was $11.50 per TV household. '24 was $10.83. So a little bit less. We had presidential there, but we didn't have as much of the Senate piece in 2024. In 2026, our political ad dollars work out about $13 and about $0.45 for the TV households that are covered by Gray's local news TV stations. That's just incredible. It's still heads and shoulders above anyone else, whether it's a network or another group. So $13.45, call it, is a pretty remarkable number. It's because of where our footprint is.

As we look forward, as Hilton said, as you're not reading in every analysis of that, every single swing state that has existed in the last 3 presidential cycles, it remains a swing state today. And now we also have several additional swing states that will likely be added to that column. These additional swing states are places where, again, Gray has a very strong position.

So the map as we look forward to 2028, I can't say yet, it's going to be as nearly perfect or 100% perfect with Gray's footprint because it's too early to know exactly what the candidates are and whatnot this far out. But looking at the swing states the last 3 cycles, plus the newly competitive, we're not missing anything. We have strong #1 TV stations in all of them. And most of them, we cover or darn -- we have a very, very strong presence in all of them.

So looking forward, we feel political worked out very well for us and will continue to work out very well for us because the politicians want to reach persuadable voters and the voters who are interested. And those are people who watch local news, and we deliver a bigger local news audience in anyone in the country.

Yes. I would just -- I would echo that. Craig, it reaffirmed that it pays to have #1 stations, #1 stations with strong local news presence. I'm really proud of the fact that our stations delivered more than 100 candidate forums, debate, town halls this midterm cycle.

I think 1 final note. I am particularly excited about our Telemundo footprint as we head into '28 because I think that is going to be a very interesting watch as we saw what happened on Tuesday, and there were some significant changes there. And I think that they're up for grabs.

I hope we handled that question, Craig.

Ladies and gentlemen, that does conclude our question-and-answer session. And I would now like to turn the conference back over to Hilton Howell, Chairman and CEO, for closing comments.

Thank you so much, operator. First, I want to thank everyone here for joining us on the call this morning. I know that you had a lot of folks in this industry and our sector kind of compressed in a short period of time. But also, I want to take just a small portion of a sort of personal privilege. We're all here together in Atlanta at our headquarters. But yesterday, our Board of Directors and everyone here in the room today were in Nashville, where we watched a remarkable transformation of our NBC affiliate in that market. And I just want to publicly thank each and everyone that was involved in hosting our Board there in Nashville. It was an extraordinary day. The numbers coming out of that market demonstrate what we do as an operator of television stations, and that is grow them and build their audiences across the board. And the progress that has been made in the now the 25th largest market in the United States and Nashville, Tennessee, was fabulous. Thank you, Nashville.

All the rest of you, we have great pacings for Q4. Q1 is actually looking pretty good. So I'm looking forward to talking to you on our future earnings calls. Thank you, and have a happy holiday.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.

Good day, everyone. Welcome to Gray Media's Second Quarter 2026 Earnings Call. [Operator Instructions] I will now turn the call over to Gray's President and CEO, Hilton Howell, Jr. Sir, please go ahead.

This is Alan Gould from Investor Relations. I'm going to lead off. Thank you, Lary, and 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. 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. 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.

Thank you, Alan. Today, we are very pleased to share our results for the second quarter of 2026 that were overall quite favorable tour previously issued guidance. Keep in mind that our second quarter reported results include 3 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 to $70 million. 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 nonpresidential 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 rave for Gray Media blackout with one of our largest distributors that ended on May 1.

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. 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.

I am exceptionally proud that our efforts have been reflected with 93 regional Edward 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 long-time 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, '29 season. A deal will bring 70 to 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.

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. And if you have seen the broadcast, it's truly world-class.

At Assembly Atlanta, intense Tennis is wrapping up a 3-month roadrun 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 2 years ago was renewed for 2 additional seasons, and we're exceptionally excited that they will be keeping the studio lot active for years to come.

And then 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 are thrilled to have these political aspirants in our home.

On the M&A front, the second quarter was highly productive. We closed transactions covering 7 markets from Allen Media Group, 3 markets from Block Communications and then our Swap with E.W. Scripps and then 2 further markets from SagamoreHill. All told, for the transactions we closed in the first half of 2026, we added 4 new markets and added 14 stations in existing markets and swapped 3 markets to our friends at Scripps.

And if that wasn't enough, we completed 2 transactions immediately after quarter end on July 1. 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, and we also acquired WHPM, the Fox affiliate in Hattiesburg, Mississippi. We currently expect to close the license 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, and we repurchased $120 million of our debt in a private transaction. And 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, but 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. And despite having substantial political hereto for the substantial majority of that cash comes in Q3 and in Q4. We are making great progress growing our portfolio of top-rated stations, executing our deleveraging strategy and enhancing long-term shareholder value. And 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.

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 '26 compared to '25. We reported down 1%, but 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 1 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 is 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% to 3% compared to the second quarter of '25 on a same-station basis and is pacing up slightly in the third quarter, which is encouraging. Our digital momentum continued in Q2 with a healthy 12% year-over-year growth that remained 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 introduced 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 some categories with automotive up slightly, as mentioned, and discount and department stores showing nice strength. But 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 to $70 million, we delivered $82 million -- pardon me, $83 million, which includes $3 million from our 2026 acquisitions. This compares to $47 million and $90 million in second quarters of '24 and '22, respectively, the previous on years of the 2-year election cycle.

Looking ahead, we anticipate third quarter political revenue will be in the $165 million to $185 million range. Third quarter political revenue is backloaded 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 12 -- all 12 competitive U.S. Senate races, all 11 competitive gubernatorial races and 29 competitive house races per the Cook Political. We're seeing strong primary spending in Tennessee, Kansas, Florida, Michigan, Arkansas, Wisconsin, Connecticut and Hawaii, alongside heavy early general election spending in domain, 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. In the Hawks, Raycom Sports will also be producing the non-national games to Atlanta Hawks under our recently announced 3-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.

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 time frame. 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.

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 0.25 turn of deleveraging from the announced acquisitions. 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 1. 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 1/4 to 1/3 of the leverage ratio denominator contribution from the transactions is from actual results. The balance is from synergies, and 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. On July 21, 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 5-3/8 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, and 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, and 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. 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.

So on an 8-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. And 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.

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 to $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 to $100 million. And 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.

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

[Operator Instructions] Your first question comes from the line of Steven Cahall with Wells Fargo.

So Jeff, thank you for that net retrans outlook. I just wanted to confirm, so 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. I 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.

Yes. So you have seen an overall uplift this year in the margins. And remember, we're lapping 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.

So the margin should be holding in the range that we've been -- that we've seen in first and second quarter, a little above 40%. And 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. And 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. On the net line.

Yes. Got it. Okay. And then 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? And 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. So just trying to think about the kind of bigger trends in the business from an EBITDA perspective on the 2-year stack.

Yes. I think we will see it up slightly. But when you look out into '27, we'll be -- 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 '27 than there is in '26, but I know you're asking about '27 versus '25 to think about where we -- where leverage and where the trajectory of the business goes. So...

Just sorry to interrupt, but I would just say a lot of it depends on the macro environment.

Fair enough. And then lastly, just 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?

Steven, it's Kevin Latek. I'm glad you asked the medium term because there's no near-term ability for the FCC to auction spectrum. But 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 for the reverse auction, so they could be redeployed to mobile.

And 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. So we are -- 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.

If we have a -- 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 starts to come on in the medium term, there could be some spectrum reallocation with another auction for broadcasters. And that allowed us to accelerate the 3.0 transition, get all the stations on to 3.0. That would be a fantastic win at our sales, to allow us to do a lot more with less spectrum allocated to our service and provide better use for some of that spectrum.

And it also would, we believe, provide the federal government with a backup timing system or the GPS system, which, as you know, have heard us talk and others have talk, our GPS system has no backup unlike the GPS systems in other countries. So 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. So 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. So we're happy to tackle that challenge with others, the FCC and across our industry and other industries and certainly the Department of Defense.

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

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. But how do you think this changes the landscape, if at all? And do you think conversations change at this point? Or do we still kind of need to wait to see what happens with the Nexstar tagged in the court system?

Well, 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 in this call because I love the quote from one of our lawyers who's terribly eloquent. These things were put together before the Japanese Bomb 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.

Now that being said, I think what the SEC has done is superb. And so yes, we are open for business. Short term, we made it very clear, I think, that we are trying to get our debt down. And so we're going to be using our political revenue, which I personally believe is going to be robust to reduce our debt. But 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. And so we are going to have to pay attention to that, and 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 in this business, which was at birth, it was a mom-and-pop operation. It can't work that way. And 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.

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, and I'm very proud of that. But without consolidation, I couldn't make those comments. So other people are going to throw out a bunch of canards, but that is the financial reality of it. So we'll see what the future brings. I'm kind of excited about it.

Okay. That's super helpful. And then I will lean on your verbiage of robust. I mean, you mentioned it in your prepared remarks, you are pacing ahead of '24. I know nothing is written until it's written, and I know you guys aren't going to give kind of a full year guide. And I think it was -- maybe Pat that laid out kind of the exposure you guys have on state-by-state and race by race. But is there any way to kind of help us think directionally how optimistic you are?

A couple of things. First, I looked at those numbers and 2022 is the last apples-to-apple nonpresidential year, and we had $90 million in 2022. And I'm like, okay, Hilton, try to remember. Well, geez, guys, the 2 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. So 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 flow. I promise you, they're going to fix that, all right?

The second thing is if you look at the Republicans, and I mean, I don't know if it's $1 billion, $2 billion or more, but I can assure you they have the money. And I think that's really where you need to look if the fundraising is robust, the spending is going to be robust. And so 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.

I would just add, there's a lot of wind at our sails this time around. In '22, we had some very, very expensive primaries that hit in really July or in August. And the candidates who won those then had no money for the generals and they didn't get support. And 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 candidate -- after bruising primary. We have through redistricting and other factors, we've had a historically large number of members of Congress choosing not to run again.

And we've had a -- as of today, we have, I believe, a historically high number of incumbents who have post a primary for reelection. And there are still more primaries to come before we get to the general.

So we have just from a sort of political scientist perspective, this is another fairly unusual election, minds up well for Gray. Our investor deck went out this morning and said we have 11 -- 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. And then 2 hours later, Cook came out and moved the rating in the state of Kansas to competitive. In Kansas, we have a very good presence in Kansas.

So we now have all 12 of the 12 competitive Senate races. So we definitely can be very well positioned. In '22 and '24, we definitely missed out on a lot of money spent in Pennsylvania and Montana because we have no presence in those states. Pennsylvania has certainly some spending this time around. Montana has not as much. And it seems that the focus is on places where Gray is very strong, Maine, Alaska, Ohio, Texas, Georgia and elsewhere.

So we are feeling very good. Again, not going to go out on the limb with guy, but we're feeling very good about where we are not just against 2024, but in 2022, when we were -- remember, we're sitting here very excited 4 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 '22 political guide. But again, '22 still performed very well historically.

So again, knock on wood, but we feel cautiously pretty optimistic about this year wrapping up to be another very good year for us on the political front.

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

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

So it's -- yes, just to be very clear on this, Aaron, it's -- we -- what you should expect us to report today is flat on an as-reported basis versus the prior year, including the acquisition. So 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.

Okay. Okay. Got it. And 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? And what can that mean for leverage and interest cost for the company going forward?

Some pretty significant benefits is what it means. We've been very creative and thoughtful about what we've done. It was -- we didn't come into the year expecting that we would try to go after preferred or we've let the markets guide us and been very opportunistic on it. So as we look for the rest of the year, everybody who has a Bloomberg in front of them can see where bonds are trading -- our bonds are trading relative to our current weighted average interest cost.

And now the shortest bond tranche is fairly expensive compared to what's available in the market. So 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. And you'd be talking about our current full year guide for '26 is $440 million of interest expense. That could come down by $30-plus million through some refinancing activities.

So there is a cost to doing it. The call price on the 10.5% is steep. Congratulations to those who supported us in 2024. You've done well. But look, it's a priority to get our interest cost down. It accrues to the long-term health of the company, and it accelerates our deleveraging. So if it's there, we'd love to get some of that done. And 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.

So driving down the cost and driving down the quantum puts the interest expense on a much better trajectory and lets us accelerate the delevering on the business. And remember, too, Aaron, it's not -- remember, just one other point on that. We're still under a 163(j) interest deductibility limitation. So 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. So it's very beneficial to us to pay less interest in terms of how that translates into free cash flow.

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

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 like lag between recognizing those in the leverage and applying some of the operating expense synergies within your guidance?

Yes, there absolutely is, and 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, and you'll see a line on there that puts in adjustments for what's not in our -- the 8 quarters. That number is $144 million divided by 2. So you have $72 million of add-back that's in the calculation.

I'm sorry.

As we realize that and get it into -- as we implement all of our synergies, that add-back will come down and the actual results will also benefit. So it will be sort of capitalized into our actual results rather than being an add-back.

Okay. Yes. Sorry for missing that. And then just a follow-up on advertising. The -- some of the categories that you talked about auto being recovering in Q3 -- being lower in Q2 and recovering in Q3. Is there kind of any -- is that just within the core station group? Or is that also across the digital as well?

Well, so it's both. Digital actually is -- there's more money -- money is flowing into digital at a faster rate than core. So it affects both sort of categories. But I would say, if you look at it historically over the last 3, 4 years, there's a slow in the decline. So automotive has been declining for a long time, and it's flattened out. And if we can somehow keep it flat to positive in third quarter, that would be outstanding. Not sure that will happen because we're -- it's close to flat. But anything in the low single digits or anything positive in automotive is a great story.

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

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

Yes. 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. So we're -- 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.

Craig, can I add something to that just by way of color? We were talking about this around the table this morning. And think about it for the last 2 years, '25, all through the course, so far of '26. Last year, it was -- we had tariffs, so we don't have tariffs. So we have this year, we have that and 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, and it's the same thing.

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

Yes. I would just -- to sum it, I would say -- to say the macro environment is turbulent would be a gross understatement. We haven't seen an environment like this, frankly, I've been doing this 40-plus years. I don't think I've ever seen anything quite like this. So I think -- 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. So look, we don't want to be down mid-single digits. We want to be up mid-single digits. But given the environment, that's okay.

Yes. Fair enough. On the cost side of things, I mean, some of your peers are feeling the need to be much more aggressive taking out costs out of the TV station, et cetera, operations and stuff. You guys are much more steady to your credit on that. Can you just talk about maybe that a little bit, but 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?

Sure. So look, we have found use for AI in a number of areas, on the editorial side of our business and 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 will always be that way. So there's -- there are a lot of things you can do with AI that we're choosing not to do.

But we're using AI as an efficiency tool and making our people -- 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. But we see benefits from AI. We're definitely seeing benefits from AI in most disciplines in our business and are excited about its future, but we are going to be -- we're going to roll it out cautiously and wisely.

And Craig, let me say something else. Gray historically and certainly today always runs lean, all right? But the most important asset we have in this company is our people. And we never lose sight of that because they're -- I mean, every company has got a camera. Every company has got cars. Every company has 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. So we're very judicious and look after our folks as much as we can. But 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. But we're doing that all the time.

My last question, if I could. On Assembly Atlanta, do you feel like you're getting any added benefit there? I mean as things move along here with people -- 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.

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, but we always have to be careful about that. That should begin shooting in September. And 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. And that is all settling out. And 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 franchises, multibillion-dollar franchises.

And 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. But we are doing great. There has been a slowness to the production of films, probably due to an overexpansion during COVID and then a tightening of belts that has happened industry-wide. I think that Georgia and its film incentives remains the best single incentive structure, particularly because it is uncapped. And unlike a lot of our state competitors, Georgia is paying and paying rapidly. And there are in other states, 7- and 8-year wait times for folks to get their cash. And that's a problem. Some producers don't realize that. But Georgia has been committed, and we are deeply involved with both gubernatorial campaigns. We see no risk to the film tax credit, and we hope that there's a chance for some enhancements because we want Georgia to be out there as a leader, and we're really excited about it.

Your final question comes from the line of [ Goshi Sri ] with Singular Research.

Okay. My first question is on the virtual MVP side, what share of the gross transmission comes through that channel and the dynamics in net transmission. Is that similar? Or is there -- can you give us any color on that between those 2 channels?

Yes. Goshi, it's Jeff. So 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. So we're -- I can't comment on the mix. I think what matters is what we keep. And on the virtual side, we do -- it's just -- it's a fee that we receive. On the traditional side, there is a fee and then think of it as a network fee back to the network. So the margin profile on those is different, but we're not going to comment on the mix.

Okay. Sounds good. I know you guys have covered this a lot, but let me comment at it another way. In the 2024 cycle, the core fell about -- 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?

Yes. 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. So if political, which should have higher margins goes gangbusters, the net will be better than if it doesn't. So we're basically -- 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. I can't really put a number on it where we sit today.

And my last question, on the $400 million securitization facility fully drawn and political revenue now kind of being prepaid, when that revenue steps down in and off here, is that the first quarter, does that borrowing base shrink and force us pay down? How does that dynamic work?

Yes, it does because the borrowing base is made up of all of our receivables. So our receivables largely track the 2 different revenue streams. Half of it is from -- half or so is retrans and half is from commercial advertising. We do not -- just to be very clear, we -- any political is prepaid. So 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 it was -- I think the borrowing base went down by over $100 million, but then it quickly recovered in the next month. That happens when the heaviest political hits really in October, but a little bit in September.

So when we add in the new stations, that piece will offset that somewhat, but there will be a dip there, but it's temporary and quickly recovers. And I would expect by the end of the year, we should be back to the full capacity. And also, just to be clear, the borrowing base today is above the $400 million. So it doesn't mean that we will lose dollar -- we won't necessarily lose all of it. So again, I think by the time we get back through, it's -- 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.

All right. Thank you, Goshi. I recall that Lary said that was our last question. And so 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, and we expect even better numbers and better sort of sunshine in Q3 and Q4. Thank you for being here, and we'll talk to you next quarter.

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

Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Gray Media, Inc., First Quarter Earnings Call. [Operator Instructions]

It is now my pleasure to turn the call over to Alan Gould, Vice President of Investor Relations. Thank you. You may begin.

Thank you, Tina, and welcome, everybody. Joining us today on Gray'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 with the SEC on Form 8-K our first quarter earnings release and updated investor presentation. And later today, we will file with the SEC our quarterly report on Form 10-Q. These materials are all available on our website, www.graymedia.com.

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. 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 in the latest investor presentation 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.

It is now my pleasure to introduce Gray's Executive Chairman and CEO, Hilton Howell.

Thank you, Alan. Today, we are very pleased to announce solid results for our first quarter of 2026 with core advertising above our previously issued guidance, political revenue at the high end of our guidance range and total revenue at the high end of our guidance even factoring in a recently resolved dispute with one of our MVPDs.

Total revenue in the first quarter of 2026 was $768 million, at the high end of our guidance for the quarter. Total operating expenses before depreciation, amortization, impairment and gain or loss on disposal of assets in the first quarter of 2026 were $622 million, which was $7 million below the comparable period last year.

Notably, within these results, our broadcasting expenses continued to decline and were down by $22 million in Q1 2026 as compared to Q1 2025. Net loss attributable to common stockholders was $33 million for the first quarter of 2026. Adjusted EBITDA was $154 million in Q1 2026. Political advertising revenue was $30 million at the high end of our guidance and compares to $26 million in the first quarter of 2022, the last midterm cycle.

As you all hopefully saw by now on Friday, Gray and DISH, resolved the first extended distribution blackout amazingly in our company's history. It was a rough negotiation for both sides, and we very much regret how local viewers and advertisers were impacted by the impasse. In the end, we reached a new multiyear agreement that was consistent with our internal expectations. We thank our viewers, our advertisers and our team for their patience, as we navigated that uncharted territory for Gray Media.

Since the beginning of the year, we have successfully negotiated retransmission consent agreement renewals with 3 of our largest traditional MVPDs, representing approximately 39% of our traditional MVPD footprint. We also expanded important agreements with 2 of our virtual MVPDs involving a number of our independent stations that carry professional sports. We have no further retransmission negotiations for the remainder of 2026.

In addition to these operating results in the first quarter, we acquired WBBJ in Jackson, Tennessee from Bahakel. We recently completed the acquisition of TV stations in 10 markets from Allen Media Group. And just yesterday evening, we closed on our acquisition of stations in 3 markets from Block Communications. We currently anticipate closing our remaining transactions with E.W. Scripps and Sagamore Hill in the next few weeks.

Finally, turning to Assembly. We were delighted to learn that CBS renewed its successful daytime soap, Beyond the Gates, for 2 additional seasons. Seasons 1 and 2 will film at Assembly. And we anticipate leasing additional studio production space. In February, tennis league INTENNSE Tennis announced that it will host all 52 tennis matches for its 2026 season in our 30,000-square-foot sound stage within Assembly Studios. This setup will also have a live audience of up to 500 people, and we will broadcast some of the key matches on WANF and Peachtree Sports in Atlanta, Georgia. Meanwhile, discussions and design work are continuing to make further progress on future development at Assembly.

Looking forward, we are excited to have the upcoming FIFA World Cup games on both our 33 Fox channels and our 47 Telemundo affiliates. We are optimistic that as the largest owner of top-rated local television stations and a footprint covering most of the competitive races that we will again capitalize on a strong midterm political cycle.

At this time, I'll turn the call over to Pat to address our operations.

Thank you, Hilton. First quarter core advertising revenue was stronger than initial -- our guidance was reported to be approximately flat in the first quarter 2026 compared to 2025. We finished the quarter up 2% with the boost from the Winter Olympics.

As we move into the second quarter, we're seeing some softness in core advertising. It appears that the situation in the Middle East and resulting volatility in oil prices is having an effect, causing advertisers to delay their commitments, which limits our visibility. Some of the softness in core is due to NCAA Final Four rotating away from CBS. Recall last year, we earned $5 million of revenue in April as the largest CBS affiliate group.

Let's talk about categories for a minute. We saw strength in gaming, a trend that continued into Q2. Within services, legal, insurance and financial were strong. Automotive finished the first quarter down just slightly compared to the first quarter of '25, which is encouraging. Some of the consumer-focused categories experienced weakness, consumer goods and discount and department stores in particular. Digital continued its healthy growth in first quarter, up high teens versus first quarter of '25 and our new local direct business growth rate accelerated to 15% over the same period in 2025. Our sales teams continue to perform well against stiff competition for local advertising in a challenging market.

Political ad revenue exceeded our expectations in the first quarter of '26. Our guide for first quarter '26 was $25 million to $30 million, and our actual results came in at the high end right at $30 million. This compares to $26 million in the first quarter of 2022, which is the most recent midterm cycle. We saw strong spending in Texas, Maine, Virginia, Georgia and Michigan. We currently anticipate political revenue for Q2 will be in the range of $60 million to $70 million.

As I mentioned earlier, we're seeing some softness caused by economic uncertainty, as we progress through the second quarter. Our second quarter 2026 guidance is for core ad revenue to be down mid-single digits versus second quarter of '25. Some of the consumer-focused categories are the most affected.

We continue to expand our focus on sports programming. This year, 19 Major League Baseball teams will play in our 16 broadcast sports networks in addition to 13 NBA teams, 8 NHL teams, 6 WNBA teams and numerous NCAA and Minor League Baseball teams. I'm also proud to note that our Raycom Sports division has partnered with the Atlanta Braves as their live production team for BravesVision producing all non-national games, including 25 games in WANF here in Atlanta and across the Southeast on our broadcast sports networks.

Our digital team has completed the transition of all of our digital apps and websites to the Quickplay platform in a remarkably short window. This personalized streaming platform will revolutionize how our viewers find and connect with our content. We believe that we have now built an incredibly strong foundation for continued digital audience and advertising growth.

Jeff will now address the key financial developments.

Thanks, Pat. In the first quarter of 2026, our broadcasting station operating expenses excluding network affiliation fees were up 4% compared to first quarter of 2025. This was partially due to timing of certain expenses, as was noted in last quarter's call, along with normal inflationary increases. We're continuing our focus on smart cost management, and we are investing in our team and making sure they have the best tools available to efficiently and effectively compete in the marketplace.

You will also notice that we are guiding Q2 '26 broadcasting expenses to be down 3% at the midpoint versus the second quarter of 2025. Corporate expenses were above our guidance range due primarily to legal costs associated with completing our M&A regulatory approvals. And as you can see from our guide, corporate is expected to normalize as we complete the additional transactions.

Net retrans revenue was down $4 million in first quarter '26 versus first quarter of '25. We didn't anticipate the now-resolved distribution dispute when we provided our first quarter guide. I want to focus on that for a second. There are 2 things to point out in the Q2 '26 net retransmission guide: first, now that we've negotiated all MVPD renewals scheduled for 2026 and we know the impact of the blackout on second quarter, those elements are reflected.

Secondly, we now incorporate the 4 stations acquired in first quarter, but none of the stations that we have acquired since the end of first quarter into our guide. We currently expect 2026 net retransmission revenue to be in the same ZIP code as the quarter that just ended, implying low single-digit growth in net retransmission revenue.

Remember that the blackout impacted the full month of April versus only 21 days in the March quarter. And importantly, with all of our renewals now negotiated, we have clear line of sight to growth in net retransmission revenue for full year 2026 even before adjusting for the impact of any of the acquisitions.

Turning to the balance sheet for a minute, we finished first quarter with over $1 billion in liquidity. Our leverage metrics at March 31, 2026, were 2.56x consolidated first lien net leverage ratio, 3.79x consolidated secured net leverage ratio and 5.94x consolidated total net leverage ratio, each using the calculation in our amended senior credit agreement. These ratios include the pro forma impact of the 4 station acquisitions we completed as of March 31, 2026.

With the closing of the Allen 7 market transaction and yesterday's closing on the Block Communications transaction, we will begin to see the estimated quarter turn of delevering flow into our ratios. It's also worth noting that after we closed the Block acquisition yesterday, our revolver was undrawn. There was approximately a $50 million working capital swing during first quarter related to the payment of accrued interest.

On March 31, we completed an amendment to our senior credit agreement to align the document with the covenants under our secured notes and to incorporate current market standards. We pursued this to give us better access to the market, as we evaluate potential refinancing opportunities. Immediately after we closed that on April 2, we fully repaid the $10 million balance on the Term Loan F that was scheduled to mature in 2029.

As we progress through 2026, we're gaining visibility on deleveraging during the year. We're closing, and we will begin integrating our M&A transactions. Our net retrans revenue is set to grow compared to 2025. Political advertising is ramping, and finally, refinancing to reduce interest expense could further improve our cash flow during 2026.

A couple of housekeeping items. First quarter 2026 CapEx was $19 million versus $15 million in the first quarter of 2025. Both periods now include Assembly Atlanta. We're maintaining our $140 million company-wide CapEx estimate for 2026, although we expect that to be back-end weighted as we align the spending with the expected cash inflow from political advertising. Our full year tax guide came down by $25 million to a range of $90 million to $110 million.

That concludes my remarks, and I'll now turn the call back over to Hilton.

Thank you, Jeff. In closing, first quarter was very busy, and we have already accomplished numerous objectives in Q2, which will have long-term benefits for Gray Media. We will continue to take actions to enhance value for our advertisers, our investors and for the communities we serve. We thank everyone for joining the call today.

So Tina, at this time, we would like to ask that you open up the line for questions.

[Operator Instructions] Our first question comes from the line of Steven Cahall with Wells Fargo.

First, just a question on your regulatory outlook. I think the last time we spoke, you were encouraged by generally what was happening in Washington, but maybe things were moving a bit slowly in terms of getting transactions approved, like the Scripps swaps and some of the Allen Media stations. It looks like post Nexstar, TEGNA getting approved, the wheels are turning much faster. So I'm wondering if you now feel like that the regulatory process is something that you understand under this administration, if it's moving at a pace that's conducive to additional transactions. And as you think about potential strategic transactions, I was wondering just how you factor in state AG regulatory risk and if that's different from prior.

And then, Jeff, thank you for the retrans outlook for '26. Any sense of what that might have looked like had you not had the blackout? Is that a point or two addition? Or is it not so big now that reverse maybe is a bit more variable than it used to be? And also, as we think about retrans pro forma for the deals you've done, would that have added -- or could that still add a point or two as well?

Steven, it's Kevin. We announced, as you alluded to 5 deals last summer over the course of a couple of weeks and promptly filed those with the SEC and the DOJ, and those transactions are only now coming out of the regulatory agencies. We had to file them with DOJ as well. And our DOJ process pushed our transactions behind the Nexstar transaction and necessitated a very intensive document production and review, I'd say, a far more intense DOJ review of those transactions than anything we saw in Meredith, Quincy, Schurz or Hoak under prior administrations.

And the Department of Justice cleared those transactions just in the last, I think, roughly 2 or 3 weeks or so. The FCC, consistent with past practice, has waited for DOJ to resolve its reviews before it acted. So that's why we're seeing these now. It would appear to us on the outside that the FCC and DOJ, in particular, have received a number of broadcast transactions since last summer from us, from, obviously, other broadcasters, some large, some small, some gaining headlines, some not.

And through those reviews, especially of the mega deal and then our little deals, they've really come to understand the competitive situation that we face. And as a result, I think they're more comfortable with the transactions probably than they were a year ago. So we are encouraged that we're now seeing the DOJ after submitting millions of documents at great expense to us really seems to understand our industry far better than it has probably ever and that's supportive. So we do think that it facilitates the industry, not just us in the industry, continuing to do M&A for Gray. Well, again, as we've said many times, we're looking at strategic deleveraging transactions. And there are some things we're looking at and some things maybe we look at it at a different time.

And your last question on that is, we have not previously considered state AG theories on antitrust. And without commenting on current litigation, we are definitely mindful of what's happening, and we are evaluating our opportunities through the lens of potential additional uncertainty under new and novel theories being advanced by some attorneys generals in various states. So we're looking through it, but obviously, we've not announced any other transactions in a number of months. And as we evaluate the new FCC and DOJ understanding of our industries and this new uncertainty, we'll make decisions accordingly on what might be actionable in this environment versus what might not have been as actionable a year ago.

Does that answer the question?

That does, Kevin.

Yes. And I guess let me comment, Steven, on the net retrans question. So I won't comment about the specific impact of what it would have been from any individual contract. We always think about it as a portfolio on both sides. So think about for the full year, though, we're thinking of inflationary type organic growth in net retrans, even with the blackout, which is really a continuation of the trend that started in the fourth quarter, where we were getting back to growing net retrans. But on top of that, there is net retrans that is acquired that will start to flow in on top of that.

And our next question comes from the line of Dan Kurnos with StoneX.

Jeff, just to put a finer point on that response to Steve's question, notwithstanding the blackout, which we all knew was coming, so it shouldn't be surprise to folks, I mean other than that it happened, it seems like the net retrans guide has actually raised, and that's before the transactions, given the commentary you gave us last quarter. So is that an assumption on better underlying subs, better underlying terms? Just any thoughts you can give us there?

And then one for Hilton, one of my favorite subjects, political, and I know they're going to tell you to be careful with what you say Hilton because it's too early, and it never benefits until you really get over there pretty clear. But your 2Q guide is very, very strong. So I just -- any way, Hilton, you can help us think through how you're thinking about this political season would be fantastic.

Let me just address the retrans since we're on that topic, so that in the transcript, it's all together. The short answer to your question, Dan, is yes, it is better sub trends, it is us achieving our objectives on market and getting to market rates as we renew contracts. It's everything together. Look, the blackout is unfortunate, but that's part of the business. And we reached something, as Hilton said, that was mutually beneficial and a long-term agreement there. So I'll kick it over on the political question to Kevin or Hilton.

Yes. I'll refrain from using adjectives to describe this. We've said a couple of times, we're pretty encouraged, and we have exposure to almost every -- all but one of the competitive governor and senate races this year. One thing I'd mention is, a couple of years ago, in 2022, we had a number of interparty very expensive conflict -- or contest that brought a lot of primary money to us. And what we discovered at the end of the year is that a lot of the money raised and then spent in '22 was essentially pulled forward to these primaries. And once those primaries were over, we talked about this a bunch, obviously, in early '22, the candidates who didn't have any money and the super PACs were kind of tired of spending on those races. And those campaigns kind of died after the primary, and that was something we hadn't seen before.

This time around, obviously, there's 2 or 3 pretty high-profile Senate primaries, one of which just essentially ended the other day in Maine. So we're down to 2 pretty expensive Senate primaries: Texas, where we have a number of stations, but definitely not a huge presence relative to the 45 media markets there, and then, Michigan, where we have a decent presence, but we're not in 2 or 3 of the markets there. So we have some exposure to those.

The money -- the impression is that while a lot of money is being spent in those competitive primaries. It's -- the map is just different from '22, where we spent -- so much money was pulled into second quarter for those primaries. You've seen all the articles on the hundreds of millions of dollars that the super PACs are sitting on, the candidates have raised, and frankly, haven't even been allocated yet.

One of the Senate party's super PACs has started reserving time. The other has barely started reserving time. So it seems this is going to be a cycle where the money is going to be -- is being deployed more towards the general elections and not second quarter primary. So we still feel very good about this year. I'd say recent events in fundraising numbers and successes are pointing to a very engaged electorate.

And as we've said many times a year ago, the house might have been a potential jump ball for the Dems, but not the Senate, and now, the house is very much in play. And even the headline in the Washington Post this morning says Dems are feeling they have a real shot now at taking the Senate. Didn't -- never would have seen that 6 months ago. And obviously, that may change with the more people are engaged and think there's a potential change of control, the more motivated they are to raise money and campaign and work the doors and work the phones and vote. And so we think this is going to be a very, very engaged campaign season, and we happily have a very good portfolio of #1 TV stations in the right markets to capitalize on that.

Does that answer your question, Dan? Or you're looking for an adjective?

I'll take an adjective Hilton if I can get one. That was the safe answer, but very helpful from Kevin.

But suffice it to say I'll give you one, Dan, though. It's just going to be extraordinarily strong. What those numbers are going to be? We've learned our lesson. We don't know. And -- but I think it's easy to check our markets, our position and where the races are. And we do think that we are exceptionally well positioned the way Kevin so wisely articulated our market sort of operations.

[Operator Instructions] Our next question comes from the line of Aaron Watts with Deutsche Bank.

Apologies in advance, but one more on retrans. You had described an unprecedented new demand as being at the core of the programming dispute you recently resolved. Is it safe to say you were able to back that demand down? And what risk do you see that other distributors bring that type of a demand to the table in the future?

Aaron, it's Kevin. You've understandably asked what was the detail. We don't comment on specifics in our negotiations. I would say I started doing retrans in 1997. Did it pretty much full time for 1.5 decades before coming here. And obviously, Gray has a few retrans negotiations over the last 14 years I've been here. I did retrans on for Comcast and some cable companies in a prior job and a whole bunch of broadcasters. And we've seen a ton of retrans contracts through our 60-some-odd transaction since I came to Gray. I've never seen a provision like the one that was thrown at us as a nonnegotiable line in the sand, take it or leave it, as we saw here. It is not something that we are prepared then or ever to do. I don't expect other MVPDs will expect to exert control over a broadcast company anymore than we would expect to do a deal where we would try to control the operations of another company.

So the bottom line is it was bizarre, it was incredibly unprecedented in a lot of very deep professional experience. And we're willing to take the extraordinary step of Gray, breaking its long history of never having a major retrans dispute. It clearly was pretty existential for us. So we resolved -- when this was resolved, it was resolved in terms that we felt comfortable with. And that's unfortunately all I really can say on terms that are subject to confidentiality that we expect DISH to respect, and we will respect. So I think it was a one-off. I'm not expecting other people on either side to ask for a level of control or another company that neither -- I think no entity is willing to -- will be willing to give. So let's just leave it at that.

Okay. That's helpful. I appreciate your kind of view on that. And then just one for Jeff. We can see your continued work on the expense side in the first half of this year. How should we be thinking about costs in the second half? Are you lapping any initiatives that will flatten things out? Or is the first half expense base a fair baseline for the remainder of the year? Any help would be appreciated.

Yes. We talked about this a little bit on our first quarter call, Aaron. We did align company-wide raised dates for all non-union employees to January 1 so that we can manage things better and budget better. Everybody had their own individual anniversary date prior to this. So you can imagine when you've got 5,000 employees, it's a lot just to keep track of, and it was fair to everybody. So it's that pull forward some of the increases in what's our largest expense item that will average out throughout the year to get back to it, so the back half.

I wouldn't say the first half is necessarily a perfect proxy for the back half. The back half should be -- on a comparable basis, the year-to-date should start to get to a more normalized inflationary type, right? We also will have in the back half of the year, too. Remember, as we report, we'll have all the acquired station expenses rolling into. So that's the other piece of it here. But they come in normal SEC reporting, they come in as they close.

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

Just on your advertising guidance, is there any amount of crowd out from the World Cup just being on -- just not based on the station that it's a part of?

No. There's -- World Cup is a benefit, net benefit. There's no question. But if you mean preemptions of other programming by World Cup, there's really no sort of net negative. It's -- World Cup is a positive.

Okay. Yes. Just that as in respect of like drawing advertiser interest to different stations, but okay. And then just with the MVPDs, including access to the network streaming services, have you seen that have any sort of impact on like local programming viewership?

Yes. Modestly, if any.

Our local programming viewership is still extremely strong, especially when you look at our local newscasts. What we're doing on the linear side, and frankly, the streaming side as well, our local newscast continue to perform very well.

The streaming is totally additive. And if you go back and look at the net viewership between all the different platforms are on now, that's grown over the last few years, hasn't diminished.

Pat, this is Hilton. Pat mentioned that FIFA was a positive, but not a negative. And I really think that our sort of unique degree in NBC exposure to the Telemundo portfolio, we have 47 affiliates with the largest affiliate group outside of the major markets that NBC has. And we think it's going to be really, really strong in the Spanish language. And we're also very excited about FIFA on our 33 FOX stations in English, obviously. But it's going to have a big impact on us, we believe.

And having stations in 2 host cities in Atlanta and Kansas City.

Yes, it's very beneficial for us.

Your next question comes from the line of Shanna Qiu with Barclays.

I just had a clarification on the guidance for the net retrans distribution. Is there any true-up catch-up payments that we should think about that was negotiated as part of the resolution?

So Shanna, everything is factored into the guide. Again, I don't want to comment about any specific aspect of the contract's portal really. There are multiple contracts that were negotiated during the quarter.

And then just on your comments on organic low single-digit growth in the net retrans, does that take into account for the full year? Does that take into account any kind of changes from the pending closing of Charter and Cox.

So we've factored in our own estimate of when that closes into the guide. So I'm not going to handicap exactly when that closes, but we're aware of that, and it is factored into what we've put out and the comments about inflationary type growth for the full year.

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

Can you just comment if you would, where you think the FCC is right now on this 39% TV station ownership cap? I mean, they obviously did the TEGNA deal. They approved it underneath the waiver as opposed to first doing the -- getting rid of the 39% ownership cap or lifting it. Where do you think we are on the timing of maybe getting rid of that? It's been long overdue, obviously.

Yes. This is Kevin Latek. To be honest, we have no idea, and it's just not something we follow. Gray is at 25% under the cap. There's nothing that we could imagine doing in the near or medium term that would require the cap to be raised for Gray. So it's just not, frankly, an issue that we follow. I point you to one of the broadcasters who's closer to the cap and lobbying on that issue. We are not. It's just not -- again, it's irrelevant to Gray.

Okay. And my other question I want to ask you, the use of AI at your company, your TV stations, can you just quickly go through with us the benefits in terms of just enhancing your services, but also just on the efficiency side of things at your station level, the use of AI?

It's really been a multiplier of sorts for our teams, primarily time saving, increasing productivity on both the sales and the news side, it kind of allows us to free up our people on the content side to create more original sticky content. And on the sales side, it allows us to spend more time on client relationships and growing businesses with using AI for things like accelerated pipeline for new business and things such as that. It's really -- and prospecting. So it's really a multiplier amplifying -- giving our people more time to focus on the things that we really need them to focus on.

[Operator Instructions] And with no further questions in queue, I will now turn the call back over to Mr. Hilton Howell, Jr., for closing remarks.

Well, thank you very much, operator. And I want to thank everyone for joining us this morning. We're very pleased with our results that we've reported, and I really look forward to talking to you guys at the conclusion of next quarter. Thank you.

Thank you again for joining us today. This does conclude today's conference call. You may now disconnect.

Good day, everyone, and thank you for joining us for this Gray Media Q4 2025 Earnings Release Call. [Operator Instructions] Also, today's meeting is being recorded.

For opening remarks and introductions, I am pleased to turn the floor over to Chairman and CEO, Mr. Hilton Howell. Welcome, sir.

Thank you, operator. Good morning, everyone. As the operator mentioned, this is Hilton Howell, and I'm Chairman and CEO of Gray Media. And I want to thank all of you for joining our fourth quarter 2025 earnings call.

As usual, all of our executive officers are here with me in Atlanta; Pat LaPlatney, our President and CEO; and Sandy Breland, our Chief Operating Officer; Kevin Latek, our Chief Legal and Development Officer; and Jeff Gignac, our Chief Financial Officer. And joining us for the first time is Alan Gould, our newly appointed Vice President of Investor Relations, who many of you know from his prior role as a sell-side analyst.

Alan joined us in December, and we are thrilled to have him on board and believe his insights will help us better engage with investors at a time when much is changing in our business. So we will begin with a disclaimer that Alan will provide.

Thank you, Hilton. Good morning, everyone. I want to say how thrilled I am to join Gray and work with this outstanding team. After many years as a sell-side analyst covering the media industry, I have tremendous respect for what Gray has built and the strategic direction Hilton and the team are charging.

Today, we filed with the SEC, our Form 8-K, our fourth quarter earnings release and updated slides. And later today, we will file with the SEC our annual report on 10-K. 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, net retransmission revenue 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 and 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.

I now return the call to Hilton.

Thank you, Alan. Today, we are very pleased to announce that our results for the fourth quarter of 2025 compare very favorably to our previously issued guidance for both revenues and expenses. Total revenue in the fourth quarter of 2025 was $792 million, above the high end of our guidance for the quarter. Total operating expenses before depreciation, amortization, impairment and gain or loss on disposal of assets in the fourth quarter were $618 million, which was $5 million below the low end of our guidance.

Notably, within these results, our broadcasting expenses actually declined by $41 million in the fourth quarter as compared to fourth quarter 2024. On a full year basis, broadcasting expenses declined by $78 million or about 3% in 2025 as compared to 2024.

Net loss attributable to common stockholders was $23 million in the fourth quarter of 2025. Adjusted EBITDA was $179 million in the fourth quarter of 2025.

Political advertising revenue of $12 million finished above our expectations for an off-cycle period.

There is one particular item I'd like to highlight from our fourth quarter financial results. Our net retransmission revenue, which is our retransmission revenue less our network affiliation fees, returned to growth in the fourth quarter of 2025 as compared to the fourth quarter of 2024. You have heard us talk in prior quarters about the need to create a more sustainable model in light of subscriber trends. Returning to growth in net retrans is a clear sign of progress on this multiyear effort.

On a full year basis, our net retransmission revenue stabilized at $547 million in 2025, similar to 2024.

In addition to these operating results, we have now completed our recently announced acquisition of WBBJ-TV in Jackson, Tennessee from Bahakel for $25 million. We are continuing to work towards regulatory approvals and expect to close our other announced transactions in the next several months.

We also continued to make progress in strengthening our balance sheet during the fourth quarter of 2025. We opportunistically issued a $250 million add-on to our second-lien notes through a private placement. Now I'll let Jeff provide additional details on that opportunistic transaction.

We're entering 2026 poised to close our delevering M&A transactions, and we expect to both reduce our debt and leverage ratio through what we believe will be a fantastic 2026 political cycle for Gray Media. Operationally, we continued to enhance our local content offerings in the fourth quarter of 2025. Our newscasts continue to attract, engage local audiences and have won prestigious journalistic honors, including a total of 10 National Edward R. Murrow Awards, the most of any media company in the United States. This honor underscores the culture of journalistic excellence that is across our company.

We have added a number of local and regional live sports broadcast throughout our portfolio. Investigate TV premiered its third season in September and also launched a multi-platform project to educate viewers about AI.

Yesterday, we announced a new program called Aging Untold, that will launch across our footprint next week. This new series features a panel of experienced industry professionals offering insight and solutions for people entering a new chapter of life as well as their families and caregivers. We believe the program addresses the most important lifestyle topics that nearly everyone faces now or will soon face and yet no one is really covering honestly or as in-depth as this new program will do.

We have also continued to renew and expand our local professional sports portfolio. We are thrilled to continue our broadcast partnership with the Atlanta Braves. And another example, just yesterday, we reached an agreement to broadcast an additional 5 Ace baseball games and will now broadcast 20 Ace games in Las Vegas.

Meanwhile, our digital team is now very busily rolling out the transition of all of our digital apps and websites to the Quickplay platform powered by Google Cloud. This personalized streaming platform will revolutionize, help our viewers find and connect with our content. And we are honored and excited to be Google's first broadcast partner for Quickplay.

In December, we renewed our affiliation agreement covering our 54 NBC markets for 3 additional years. Earlier this month, we renewed and expanded our Telemundo portfolio to include 47 markets, reaching 1.6 million Spanish-speaking households. This was a good timing with NBC hosting a very successful Super Bowl, Winter Olympics and the NBA All Star events all this month, and with Telemundo providing the only Spanish-language broadcast for both the Super Bowl and this summer's FIFA World Cup.

Finally, we are continuing our efforts to bring in the right development partners to further monetize our investment at Assembly Atlanta. Our next capital investment in Assembly in 2025 was essentially 0, but we expect to have more announcements about the next phase of development as we move through 2026.

One additional issue I'd like to add is that we have struck a deal with INTENNSE tennis that will begin actually competing in June, and we will be carrying it here locally in Atlanta and on our Peachtree sports broadcasting network.

2025 was a pivotal year for Gray. We're excited at not entering 2026 on a firm foundation that will lead to enhanced value for all our stakeholders.

At this time, I'll turn the call over to Pat to address our operations.

Thank you, Hilton. Fourth quarter core advertising revenue started strong in October, which was up low double digits versus a comp in '24 that included significant political displacement. We finished the quarter slightly above the high end of our guidance, up 3% compared to the fourth quarter of '24.

In terms of our core advertising categories, we saw continued strength in services, including financial, health and home improvement. Legal, again, showed strong growth in Q4, and that trend continues as we look ahead to our guidance for Q1 of '26. There's also a nice pickup in gaming and lotteries/gambling in the fourth quarter that is also reflected in our Q1 '26 guidance. Automotive finished fourth quarter down low single digits.

For the full year, core finished up 3%. Recall that in first quarter of '25, we were down 8%, primarily on tariff uncertainty. And it's encouraging that the second half of '25 finished in positive territory versus the second half of '24.

Digital continued its healthy growth in the fourth quarter, up low double digits and our new local direct business continued to grow 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 fourth quarter '25. Our guide for the fourth quarter of '25 was $7 million to $8 million, and our actual results came in at $12 million. Once again, we saw some revenue from issue advertisers supporting the President's legislative priorities. We also saw good results in Virginia from the 2025 state governor and Attorney General races.

Our first quarter 2026 guidance is for core ad revenue to be approximately flat with first quarter of '25. The Super Bowl generated 11 million on our 54 NBC affiliates and 47 Telemundo affiliates in 2026, compared to 9 million on our FOX affiliates in 2025. We will also benefit from the Winter Olympics on NBC in Q1 of '26. We estimate that our net revenue from the games will contribute $15 million in the quarter, versus $8 million during the 2022 Games.

Across categories, in the first quarter, as I mentioned before, legal services and lottery/gaming are bright spots. We're also seeing signs of improvement in auto, which is currently flattish.

We're excited about the upcoming midterm election season. Our first quarter '26 guidance for political is to be $25 million to $30 million, which compares to $26 million in the first quarter of '22, which is a comparable period for the '26 midterm elections. The map in '26 looks to be very favorable for our TV station footprint, with all 10 competitive senate races, nearly all of the 13 competitive gubernatorial races and countless other competitive races in markets where you operate top-ranking local news stations.

Jeff will now address the key financial developments.

Thank you, Pat. As Hilton mentioned earlier, we made further progress on our balance sheet during the fourth quarter. We completed a $250 million add-on to our 9 5/8 second-lien notes at 102% and used a portion of the proceeds to call $125 million of our 10 1/2 first-lien notes at 103%. This transaction is another step in our capital structure plan and matches long-term funding with long-term investment for M&A while also reducing our interest cost.

We finished fourth quarter with over $1.1 billion in liquidity and $232 million in availability under our open market debt repurchase authorization. Our leverage metrics at year-end 2025 were 2.43x first-lien leverage ratio, 2.65x secured leverage ratio and 5.8x total leverage ratio, each using the calculation in our senior credit agreement.

We expect that our delevering M&A transactions together with political revenue in 2026 will help us make significant progress on our leverage during 2026.

Our expense reductions are once again reflected in our results. In fourth quarter of 2025, our broadcasting station operating expenses, excluding network affiliation fees, were down $10 million or 3% compared to fourth quarter 2024.

Let me elaborate a little bit more on net retrans as this is important to understanding our financial picture. Hilton mentioned the return to growth in fourth quarter 2025 versus fourth quarter 2024. In fourth quarter, our network affiliation expenses declined by 13%, while our retransmission consent revenue declined by 7%. Remember the WANF moving to an independent station affected both the revenue and expense sides of the net retransmission revenue equation starting in third quarter 2025. That also means that our results are not comparable to our peers when you look at these numbers in isolation.

Fourth quarter 2025 is the first quarter where the full impact of that change is reflected in our results. Our fourth quarter guide was for a slight decline in net retransmission revenue, but we ended up with growth in net retrans of about $4 million, which is largely attributable to better-than-expected subscriber trends.

For the full year, net retransmission revenue finished at $547 million in 2025, versus $550 million in 2024, which is essentially flat.

Our first quarter guide of $148 million to $150 million, excuse me, indicates that we expect continued modest growth in net retransmission revenue. And without giving a full year guide, our current expectation is that net retransmission revenue will grow slightly for full year 2026 as compared to 2025.

You will also notice that we are guiding Q1 broadcasting expenses to be down 3% at the midpoint versus the first quarter of 2025. This would be a similar decline to full year 2025, but less than the 7% year-over-year decline reported in fourth quarter 2025, which is primarily due to the timing of certain annual expenses as well as normal inflationary adjustments at year-end.

We finished 2025 at $74 million of capital expenditures, excluding Assembly Atlanta, which is in line with our revised guidance. Net of reimbursements related to public infrastructure at Assembly Atlanta, our net capital investment in Assembly Atlanta during 2025 was $1 million.

We currently estimate that our 2026 company-wide CapEx will be approximately $140 million. For some context, we've historically invested about $25 million more during political years. For 2026, the increase will be a little more than usual as we take advantage of bonus depreciation under the OBBBA bill. We will also [ be having ] several building-related construction projects within the TV business that we intentionally scheduled to coincide with our stronger cash position this year.

This concludes my prepared remarks, and I'll return the call back to Hilton.

Thank you, Jeff. And now operator, we'll open up the call to any questions that anyone may have.

[Operator Instructions] We'll hear first today from the line of Dan Kurnos at Benchmark.

Great. Nice results. Hilton, just first for you. I've been asking everybody this, outside of Nexstar. I mean if -- Nexstar after the tweet seems pretty confident they're going to get the deal -- their deal done by the end of the second quarter. We'll see, a lot of moving pieces there. But if it does get done, does that change the way that you guys think [ assets ] become available, take some of the risk off the table, have you guys maybe approach anything either larger or more transformative in addition to all of the accretive stuff you've already done?

And then, Jeff, just a quick one for you. I appreciate the color on net and understand no lack -- or lack of specific guide. But on a going-forward basis, I mean, should we expect -- I know there's going to be timing delta with when you guys have renewals, but is like modest growth in net retrans the right way to think about the trajectory from kind of here on out with just some lumpiness in years when you don't have renewals?

Yes. I'll tackle the question for me first. So yes, Dan, we've talked about the multiyear effort to get to a sustainable model on the net retrans side, which would start to look maybe more like inflationary growth type of an arrangement. So that is what we're -- that's, I think, the right way to think about that.

And then I will say, woman, I'm happy about -- I can reiterate Nexstar's optimism about our own transactions. We have all smaller than what they're doing with this mega merger with Tegna, but maybe 5 different transactions before the FCC and the DOJ. And we're very optimistic about having those closed, hopefully, very early in 2026.

And then with regard to if Nexstar-Tegna closes, sure, that will present a number of issues competitively. And it may put a little impetus on our company to get larger. But that's something that the whole industry is just going to have to take a look at. I wish Nexstar [ all dust ] in getting that closed. They, like we, believe that consolidation is important for the industry, because it is critically important that we maintain local news in all of the markets, all the 210 markets across the United States.

And as our industry faces broader competition from the massive companies, from Google to Meta to all the rest, getting larger is an absolute requirement. So we're delighted that they're optimistic. And I am personally looking forward to clarity in terms of what the rules are. Because you'd hate to launch a deal and then not be able to get it to completion. But we've got new optimism on that potential.

We'll move forward to the line of Steven Cahall at Wells Fargo.

A couple of questions pertaining to leverage. So Jeff, you said significant progress to leverage in '26. I think the M&A deals you've announced are about 0.25 turn of deleveraging. I think about something that sort of rounds to 4x is like the big key to unlocking your equity value. So could you give us any sense of what significant progress means and if it maybe could get you towards that ZIP code?

And then sort of a bigger picture follow-on, you've done a lot to bring down leverage but it is gradual. An equity merger with synergies could do that in a much shorter amount of time or to a greater extent. I know you're being very patient and deliberate in terms of looking at those types of transactions. But could you just give us an update on the state of industry conversations between maybe yourselves and other levered broadcasters? And how we should just think about that continued opportunity?

Yes, Steve. So we're not going to talk about private conversations. We have consistently said that we are -- we will look at any transaction that we think makes sense for us and whoever the partner is. So to your question about leverage, yes, about 0.25 turn from the announced M&A. There could be more of that out there once we, as Hilton said, once we know what the rules are. So that is another avenue to help us accelerate that deleveraging.

And then if you could tell me exactly what the political number is going to be this year, I could give you a pretty good direction on exactly where we'll land. But when I said progress, we know it's -- we know the longer-term objective is to get back towards that 4x. So once we know exactly -- we've been pretty clear in our actions about what we're doing on the leverage side, managing the top of the capital structure, making sure we're proactive in having the runway that we need. So now we have this political cycle plus the next one before our next maturity. So we will continue to be judicious in lowering the quantum of debt outstanding and proactively addressing maturities as we have in the past.

And if I could squeeze in a quick follow-on. I certainly get the constructive direction of net retrans. Just to help us understand, since WANF is in there right now. Would it look even better if the WANF noise wasn't in there in the first half?

So look, WANF is in there, so I can't speculate about what it would look like if it were -- it was part of -- it was all part of a broader negotiation and you're seeing the results of not just that, but a whole bunch of other negotiations that are out there. And importantly, the improving subscriber trends.

So it's hundreds of contracts like we've talked about that all result in that number. And part of the reason we went to giving that number is both the gross -- and those sides create a lot of noise for us relative to peers, but the point there is that we're -- our net retransmission revenue is getting back to growth, which is critically important.

Look, on the leverage point, just to follow up on that piece, part of what we've been doing is chasing the denominator because of the drag from net retrans. So that's also why we are pointing people to that, because that will also help us, as the denominator flattens out and hopefully returns to growing here in the not-too-distant future, all of that will help us get to a better spot from a leverage point of view.

Our next question today comes from the line of Aaron Watts at Deutsche Bank.

I had 2 questions, if I may. The first on advertising. Can you just talk a bit more about the health of the core ad backdrop based on what you're seeing so far in the year? What optimism do you have that core ads can grow as you move through 2026, acknowledging your first Q guide and the robust political that's going to roll through?

Yes. So look, I think -- Aaron, it's Pat LaPlatney. I think given the large expected political, looking for growth in this kind of year can be challenging. In Q1, we're calling it flat. And obviously, the month of February for us has been pretty strong. We have a lot of NBC affiliates. With the Olympics and the Super Bowl, it's helpful. We got to remember that we also have non-NBC affiliates too, so that isn't as beneficial for those guys. But we're optimistic about the market, but we have to be fully aware that political is going to get really, really heavy once you get into August, September. And so that's going to impact the core numbers.

Okay. That makes sense. And then if I could just ask one more. The potential for the NFL to reassess its TV rights this year has raised some concerns around economics and also potential dilution of content to digital platforms. Do you still view this potential renegotiation as an overall positive for the space and for Gray?

And I guess specifically on the economic side, you just renewed your affiliation agreement with NBC, who is in the midst of their first season with the MDA. Any learnings from that renewal that can be informative of how sports rights price increases absorbed by the networks might trickle down to the local affiliates like yourselves?

Yes. Look, it's a negotiation at the end of the day. I mean there's going to be -- there's a lot of speculation around the platforms coming in, picking up a package, I'm not going to comment on that, but there is a lot of speculation out there. In general, extending the NFL contracts is a big, big positive for the industry. The NFL is a huge driver of audience for our TV stations. And ultimately, there will be a dialogue around who pays for it, but it will work its way through the ecosystem like it always does.

And to say that -- I'm not sure you can compare the NBC NBA deal with anything else that's out there. So we'll just -- we'll take it 1 day at a time. But net-net, keeping the NFL on broadcast is critical, and we're -- we fully believe that will happen.

Craig Huber with Huber Research Partners.

Just a housekeeping question. You said a few times here that your subscriber trends for retrans has improved. Can you just quantify that for us? I mean how much better was the year-over-year that impacted revenues in the fourth quarter versus how it was trending a year before? How much better is it, please?

Craig, this is Kevin. We have not disclosed subscriber numbers, I think, ever. What we have said is our trends, given that we are fairly well dispersed from large markets to small markets, are similar to what is reported publicly for the pay-TV industry. We said in the last call, and reiterating here, we are seeing some improvement in the rate of decline. There's still declines in traditional MVPD. There are still increases in virtual MVPD. The net result is that there's still declines overall in our pay TV subs, but the rate of decline has slowed.

And we're not going to provide more detail on that, and I don't think any of our -- I'm not sure any other company is providing much more clarity than that. So I will just -- again, we have markets from Atlanta, Georgia to North Platte, Nebraska. So we are pretty well dispersed with the U.S. population.

Okay. And then my second question, on Atlanta Assembly, just update us, if you would, the overall net cost of that project has cost you so far and how much money have you put into on a net basis? And then as I typically like to ask you, how much further out do you think until you start to get a real proper return off that in terms of leasing out the space, et cetera, that you'll be happy with versus that overall cost? How much farther out is that, do you think at this stage? .

This is Hilton. We actually will have a number of transactions that we will likely be announcing through the course of 2026. And right now, we've got 80 plus or minus acres that are not producing, that we purchased when we bought the General Motors plant. And we've got a lot of potential joint ventures that will be opening up there soon, and we will be announcing. But right now, we can't say too much about that one way or another.

To answer the other part of your question, Craig, it's around $630 million as of the end of 2025.

That's a net number, right?

Yes, net of all of the reimbursements that we that we received through the end of the year.

[Operator Instructions] Mr. Huber, do you have a follow-up, sir?

Yes, I do have a follow-up. On the AI front, can you just give us some examples of how AI is helping you from a cost efficiency standpoint, speed of what you guys provide on your services, news, advertising, et cetera? Just what's the benefits of AI so far? What's the example you're most excited about, what you're implementing so far?

So we're seeing benefits really across the company. We unveiled our own sort of Ask Gray AI, sort of our own ChatGPT, if you will. And we're really finding it allows us to be much more efficient for time-consuming tasks, things that can be automated. For journalists, for example, helping convincing a broadcast story, to a story that will air on other -- run on other platforms. So things that previously would take hours can literally be done in a matter of minutes. That allows our journalists to spend more time at their important work of reporting and enterprise reporting.

One thing to note though I do want to add is that our internal policy is any final product is signed off by a human. So that's really important to us. But it's certainly allowed us to be much more efficient. And even in things like aftersales, right, prospecting, I mean, the opportunities there. It's allowed us to really focus on the important core work and free up time for that work.

I assume it's too hard to figure out how much potential cost savings that it may have at this stage on an annual basis, AI?

A little early.

Yes, it is. And quite honestly, we've really been using it, at this point, it's more about how to make us more efficient, more productive, more responsive to our communities.

But it's not replacing human beings or how would you categorize that?

The way the way we are using Gray AI across news, sales, marketing, administration is like having 1,000 extra interns that we're not paying for. So there are a lot of mechanical tasks, like building a sales pitch or converting a story for the web, building -- adding information databases that people do that takes away from their creative energies. And if we could offload that to an intern or 1,000 interns, we would do that. And just like our intern policy, everything gets reviewed by a Gray employee before it becomes final. So this is not -- if you want to talk about expense savings, it's like saving the cost of 1,000 interns. It's making us more productive, but we are thinking about this as efficiency to provide better, faster, more, and not about saving money. But if you want to quantify cost, it's -- we would get to this point, it's like saving the money on 1,000 interns.

And we thank each of our audience members who shared their questions and comments today. Mr. Howell, I'm happy to turn the floor back to you, sir, for any additional or closing remarks that you've got.

Well, thank you. So in closing, like the rest of 2025, our fourth quarter was very busy, and we accomplished numerous objectives and that will have long-term benefits for our company. We will continue to take actions to enhance our value for our advertisers, our investors and for the communities we serve.

We thank everyone for joining the call today, and we look forward to our Q1 call coming up soon. Thank you.

Ladies and gentlemen, this does conclude today's Gray Media Q4 2025 Earnings Conference Call. We thank you all for your participation. You may now disconnect your lines.

Good day, everyone, and thank you for joining this Gray Media Q3 2025 Earnings Call. [Operator Instructions] 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 Legal -- I'm sorry, 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 an 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 happy to announce that our results for the third quarter of 2025 compared favorably to our Q3 guidance for both revenues and expenses. Total revenue in the third quarter of 2025 was $749 million, at the high end of our guidance for the quarter. Total operating expenses before depreciation, amortization, impairment and gain or loss on any disposal of assets in the third quarter were $592 million, which was $17 million below the low end of our guidance. While some of this was due to tightening the belt at the corporate headquarters, I'm going to take a moment to thank our TV stations who uniformly contributed to a much lower expense than we have had in previous operating quarters. So thank you, Gray.

Net loss attributable to common stockholders was $23 million in the third quarter of 2025. Adjusted EBITDA was $162 million in the third quarter of 2025. And political advertising revenue hit $8 million, which finished above our expectations for an off-cycle year. In addition to these operating results, third quarter saw a significant acceleration of mergers and acquisition activity as we look to identify and negotiate accretive transactions that strengthen our business and our balance sheet. All told, we -- as we have described previously, we anticipate entering into 6 new markets by acquiring the local news station that was ranked #1 in their respective markets in 2024. We also plan to create 11 new Big Four full duopolies. And we may deal with this in questions but we believe these duopolies are absolutely necessary for our industry and to preserve local news in respective smaller markets.

We also made significant progress on strengthening our balance sheet during the third quarter of 2025. The financing transactions completed in July were transformational and provide additional avenues for us to manage our debt and our leverage. As noted in our press release this morning, our Board of Directors has declared an $0.08 per share quarterly common dividend, which is consistent with recent quarters. And as always, the Board will consider capital allocation each quarter in light of other opportunities to deploy capital for growth.

Operationally, we continue to enhance our local content offerings in the third quarter of 2025. We renewed our partnership with the Suns and the Mercury and we expanded our sports portfolio to include the Dallas Stars outer markets. Investigate TV premiered its third season in September and also launched a multi-platform project to educate viewers about artificial intelligence. We also announced a first-of-its-kind partnership with Google Cloud powered by Quickplay to revolutionize how our viewers find and connect with our content. This new streaming structure will begin rolling out in all Gray markets in January next year. In August, we announced that we renewed our affiliation agreement covering our 27 FOX markets for 2 additional years. WANF, our station in Atlanta, became an independent television station on August 16, and as we expected, is off to an exceptionally strong start, adding over 25.5 hours of news and other locally focused programming in our home market here in Atlanta.

Finally, we are continuing to work with potential development partners at Assembly Atlanta who are contributing their financial resources and development expertise as we look to further monetize our investment in this remarkable asset. We expect to have more announcements in the following quarter and next year about all of these exciting plans. We have made a lot of progress so far in 2025, and we are excited that we're capitalizing on opportunities across multiple aspects of our business to enhance value for all of our stakeholders.

At this time, I'll turn our call over to Pat to address 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 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 -- yes, in 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 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.

[Operator Instructions] We'll hear first from the line of 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. So let me focus the commentary more on the net because that's really where -- how we think about it. There's hundreds of contracts that underlie all of this. So the way to really think about it is that we -- you can see how much it has flattened out, even if you go back to '24 versus '23 and where the guide implies for full year '25 versus '24. So you're seeing the quarters flatten out. And it's too early to give a guide for full year, but there's really this flattening that's occurring in front of us and look, ideally, it can turn positive, and we're hopeful, but the big input there is some declines, and we don't know 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.

Our next question this morning will come 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 like 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 as 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.

Well, and Patrick, I just want to tell you, I wasn't there because I was previously committed with Sandy and Pat were plus our whole team at WANF and for the first time ever and so we may be repeating this in the future. We used the stage at Assembly Atlanta, and we had a full-scale local WANF, Telemundo, Peachtree TV, CW Upfront for all of the advertising community and it was hugely well attended, and it really helped set the whole transition off to an independent station in a remarkable, remarkable way. We see this as being -- the WANF as being the local CNN from the days when Ted Turner owns CNN for our local market in this really growing and really exciting city of Atlanta. And that upfront was unique, different and special.

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.

[Operator Instructions] we'll hear next from the line of 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 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 broking 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, as Hilton just mentioned, some of the development ideas that are being basically diligence at this point. Those will -- we can get return either of capital or on capital as those come to fruition. So as Hilton mentioned, later in the year, hopefully, by the time we have our next call, hopefully, we'll have more to report. There's a lot of activity and a lot going on up there.

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 is, 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 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 will add to that, Steven, like with regard to smaller acquisitions and what we announced in Q3, we did a lot of transactions of markets that really helped fill in our footprint, particularly a footprint that we want to address with regard to our sports partners that we have created. And so you need to know that's very much part of what we're doing. And we've created -- I can't remember how many, Sandy? different sports networks across the United States.

Yes, 13.

13. So -- and they literally go really from coast to coast. And we like to fill those holes in. And so you can kind of look at our map and get a guess where we might be interested in going. In terms of really big transactions, obviously, there was sort of some news on TV news check this morning and we're well aware of that. And -- but there's nothing that we are in deep negotiation with at the moment. But we're in a period of time in our industry where things change faster than I've ever seen it. And for the first time in the history of our business, we are really operating in the wild, wild west. No one knows what the rules actually are. And anybody that tells you that they do is just -- I mean, they just don't, they can't.

Now there's a lot of things that we think we can do. But also, the one thing I don't want to get to happen to our company is to do any deal that would put the basic company in any kind of risk. We have 10,000 employees and all of their families to look after. And that's sort of my first job is looking after what they do. Now there's a lot of big opportunities to grow. But unlike perhaps some of our competitors, I don't believe and my management team unanimously does not believe that Gray actually has to do anything. I mean that we're just fine where we are and we can carry on our previously announced efforts to just reduce our debt and pay it down and then return more to our shareholders.

But if not, and if we get an opportunity at the right price to get much bigger, we're not going to run from it. We're not going to run from it. There are a lot of opportunities to make a bigger company that does better by its shareholders and then from our standpoint, does better by creating more local news within its individual community. If you go back and you look at the full 30-plus year history of building this company, the reason we only bought #1 and #2 stations is because we know that those stations deliver something that is absolutely needed. And today, local news is threatened. And we're going to do everything we can to make sure that, that threatened piece of what needs to be done in our country is retained and enhanced. So that will drive our M&A discussions.

[Operator Instructions] 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 essentially the same political revenue we had in the first half 2 years ago and 3 years ago, and there's always puts and takes. There was some Georgia Senate runoff money in early '21, for example, some ballot initiatives pop up. generate a lot of money. A couple of years ago, Maine had a ballot issue that was brought more money than the Virginia governor raised for us despite our bigger presence in Virginia. So there's always sort of puts and takes. The second half of this year, we just -- we did not see up until this week, we've not seen as robust spending on races that we have seen in prior off years. We would attribute that not to any sort of change in the dynamic of the rate -- sorry, our coverage of the races, but rather the fundraising levels were really different this year.

For the last kind of 10 months, there's been at least in my world in Washington, the feeling that the Trump administration was doing more than any prior administration and the Democrats were not, let's say, effectively addressing those issues. And there was a lot of seemingly some handwringing on the Democratic side about Trump administration's efforts. And the election on Tuesday showed that not only were the polls radically wrong, but the Democrats did exceptionally well from statewide races in Georgia to California, Virginia State House across the board. It would appear this week that the Democrats have a much better shot at races that were written off as recently as a week ago.

Some races that we expected to not be competitive will be competitive and that fundraising for the Democrats is going to change in a very material way now that the electric showed on Tuesday that the Democrats do have a really good shot in a lot of races. So we have seen not a lot of, frankly, very strong democratic fundraising this year to support the races we went into on Tuesday. And at least as of our last read on pacing last week that we used for our guidance, we have not anticipated a huge upsurge in spending in the fourth quarter of this year for races that happen next year like we've seen in the last couple of off cycles.

We're pretty optimistic that's going to change because of the outcome on Tuesday of this week. And we certainly hope to see that democratic fundraising flow through pretty quickly to supporting races that are going to happen in the primaries next year and of course, the General next November. And what we do know is Democrats are spending heavily, the Republicans will follow. We've seen a number of races where we're -- it seems candidate quality is where we've talked about the last couple of elections. It's back in the dialogue again this week and some races next year seem to be attracting some marquee names on both sides. So I think we're set up really well for next year. This year, we are a bit disappointed in the fundraising levels that have impacted us in the second quarter, but we also went into the year expecting political not to be as strong as it has been. So we're actually pretty happy with how political has done versus our expectations at the beginning of this year. So that would be our view on political at this time.

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. Avi, it's Pat LaPlatney. Look, the situation with our ABC stations going off YouTube is frustrating. Obviously, we prefer to have a voice in the MVPD negotiations for our stations. We don't. Hopefully, they get it worked out soon. And I can't really speculate on what's going to happen here, how it's going to impact the market going forward. But this is -- these are 2 very big companies have very big footprints. And again, it's our hope that for the good of both companies and candidly, the American consumer, they get something worked out soon. So that's our thoughts.

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, operator, and I'm going to thank you all for the questions. In closing, I just want to say that the first half of 2025, the third quarter was very, very busy, and we accomplished a tremendous number of objectives that will have long-term benefits to Gray Media and all of its stakeholders. We will continue to take actions to enhance the value for our advertisers, for our investors and for the communities and families that we serve. And I really want to take everyone -- to thank everyone for joining the call today, and we'll talk to 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.