Gray Media, Inc.

Good day, everyone. Welcome to Gray Media's second quarter 2026 earnings call. Our lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, press star 1 on your telephone keypad. To withdraw your question, press star 1 again. I will now turn the call over to Grace President and CEO, Hilton Howell, Jr. Sir, please go ahead.

Hi, this is Alan Gould from Investor Relations. I'm going to lead off. Thank you, Lacey, 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 8K our second quarter earnings release and updated investor presentation with the SEC, and later today we will file our quarterly report on Form 10Q. 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. Thank you very much. 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. Thank you, Alan.

Today, we are very pleased to share our results for the second quarter of 2026 that were overall quite favorable to our previously issued guidance. Keep in mind that our second quarter reported results include three acquisitions and the script 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 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 non-presidential year, on year-to-date levels, with or without the impact of our 2026 acquisitions. Our net retransmission revenue was $150 million for the quarter, landing above our guidance range adjusted for all of our acquisitions. Please remember, our second quarter net retransmission revenue included the very rate for gray media blackout with one of our largest distributors that ended on May 1st. I am highly encouraged by the continued progress we have made on our net retransmission revenue. Growth in this recurring revenue stream remains a foundational pillar in our deleveraging plan. Jeff Gignac will provide additional color on the leverage benefits. 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 integrated 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 R. Murrow Awards in 2026, up from 81 last year, and candidly, well ahead of our peers. Our station's commitment to local news, local sports, and weather is of significant value to the communities we serve and to our investors. I'm particularly excited as a longtime season ticket holder about strategically expanding our local professional sports portfolio. Right here in our hometown of Atlanta, we reached a fabulous agreement with the Atlanta Hawks that goes through the 2028-29 season. That deal will bring 70-75 Atlanta Hawks regular season games and over 200 hours of program Information to WANF, our local affiliate in Atlanta, and across our Peachtree Sports Networks, which really means it will reach every market in Georgia and a number of markets in Alabama, including Birmingham. The team at Raycom Sports will produce the games just like they currently do with Braves, Brit Vision, 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 three-month run that has raised Assembly's profile by hosting tennis matches with a live audience. We were able to broadcast some key matches on WANF and Petrie Sports in Atlanta. Beyond the Gates, the CBS soap opera that premiered two years ago, was renewed for two additional seasons, and we're exceptionally excited that they will be keeping the studio lot active for years to come. 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 seven markets from Allen Media Group, three markets from Block Communications, and then our swap with EWScripts, and then two further markets from Sagamore Hill. All told, for the transactions, we closed in the first half of 2026, We added four new markets and added 14 stations in existing markets and swapped three markets to our friends at Scripps. And if that wasn't enough, we completed two 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 RACOM 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 heretofore The substantial majority of that cash comes in Q3 and in Q4. We're making great progress growing our portfolio of top-rated stations, executing our 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 close to our expectations. Our guidance was for core to be down mid-single digits in the second quarter to 26 compared to 25. We reported down 1%, but adjusted for the second quarter acquisitions, we would have been down the mid-single digit range. We also estimate that core advertising experienced a one-point decline from political crowd out. On the upside, we saw some tailwind from the FIFA World Cup. Looking at our categories, we saw strength in gaming, a positive trend that 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 at 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 introduce near-term caution for core advertising, we are leveraging our newly acquired 2026 stations to project stable Q3 core advertising, flat year-over-year performance on an as-reported basis. We are seeing encouraging gains in subcategories with automotive up slightly, as mentioned, and discount 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 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 two-year election cycle. Looking ahead, we anticipate third quarter political revenue will be in $165 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 station's portfolios positioning against the current political landscape. As detailed in our investor presentation, Gray's footprint has significant exposure to key battlegrounds. We operate in markets covering all 12 competitive U.S. Senate races, all 11 competitive gubernatorial races, and 29 competitive House races, per the Cook Political Report. 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. And the Hawks, Raycom Sports will also be producing the non-national games to the Atlanta Hawks under our recently announced three-year deal. Combining our world-class production capabilities with great 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 Quick Play 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 Quick Play 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 2.55 times consolidated first lien net leverage ratio, 3.71 times through the second lien, the consolidated secured net leverage ratio, and 5.73 times consolidated total net leverage ratio. We initially anticipated approximately a quarter turn of deleveraging from the announced acquisitions. Our actual result is 0.18 times using the first quarter calculation. To put this in perspective for everybody, we reported a first quarter 2026 consolidated total net leverage ratio of 5.94 times. Had the acquisitions closed in the first quarter, that leverage ratio would have been 5.76 times compared to the 5.73 times we're reporting today. None of the ratios just discussed include the additional contribution we expect from American Spirit or WHPM, each of which closed into local management agreements on July 1st. Our third quarter guide includes all transactions closed as of today, including American Spirit and WHPM, and reflects our expectations for third quarter on an as reported basis. For second quarter and our third quarter guidance, about a quarter to a third of the leverage ratio denominator contribution from the transactions is from actual results. The balance is from synergies, 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 rationalizations. 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. 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 21st, subsequent to quarter end, we completed another privately negotiated transaction whereby we bought $100 million of our 10.5% first lien notes and $20 million of our 5 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 use 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 eight-quarter rolling basis, our net retransmission revenue grew slightly versus the prior quarter. This happened even with declines in gross retransmission revenue and the blackouts. 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 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 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 Lacey would love to open up the phone line to any questions that anyone may have.

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

Yeah, thanks. Good morning, everybody. 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.

Yeah, 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. Yeah, 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 two-year stack.

Yeah, I think we will see it up slightly. When you look out into 27, we'll have integrated all the acquisitions. We'll be on a run right there trying to 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 leverage and where the trajectory of the business goes.

Just to, 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. Thanks.

Hey, Steven, it's Kevin Latek. I'm glad you asked medium term because there's no near term ability for the FCC to auction spectrum. 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 and demand for the spectrum, which seems to be increasingly likely. And we have this new technology that allows us to repack more easily. Again, the stars could come on and in the medium term there could be some spectrum reallocation with another auction for broadcasters. That allowed us to accelerate the 3.0 transition, get all the stations on a 3.0. That would be a fantastic win at our sales. It would allow us to do a lot more with less spectrum allocated to our service. and provide better use for some of that spectrum. And it also would, we believe, provide the federal government with a backup timing system for the GPS system, which, as you know, have heard us talk and others have talked, our GPS system has no backup, unlike the GPS systems in other countries. Pretty critical from a national security standpoint as well to be working on a GPS backup, and 3.0 provides, 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 SEC and across our industry and other industries and certainly the Department of Defense.

Great. Thank you. Sure.

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

Thanks. Good morning. Hilton, I'll ask the other boring FCC-related question, given the cap repeal. I know you guys have said pretty consistently that you've been open for business, and frankly, you've demonstrated it, right? You've been continuing to add while others may have been stuck. But, you know, 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 next are 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 bombed Pearl Harbor. And when they... 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, yeah, 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, you know, 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, 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's 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? Yeah. Thanks for telling me how optimistic you are.

A couple of things. First, I looked at those numbers and 2022 is the last apples to apple non-presidential year. And we had $90 million in 2022. And I'm like, okay, Hilton, try to remember. Well, geez, guys, the two biggest senatorial spenders was our Senator Warnock here in Georgia, who spent right at $240 million. All in Georgia. And we're in every market in that state. The second largest was Senator Kelly, who spent a ton of money in Arizona. And again, we're in every market in Arizona. 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. Well, 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 one billion, two 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. You know, 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'll 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 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 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, as of today, we have, I believe, a historically high number of incumbents who have lost a primary for re-election. And there are still more primaries to come before we get to the general. So, We have, just from a sort of political scientist perspective, this is another fairly unusual election. Lines out well for gray. Our investor deck went out this morning and said we have substantial exposure to 11 of the 11 gubernatorial races that are deemed to be competitive by Cook and 11 of the 11 senatorial races deemed to be competitive by Cook. And then two 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 been 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. We are not going to go out on a limb with Guy, but we're feeling very good about we are not just against 2024, but in 2022 when we were, remember, we're sitting here very excited four years ago right before some Thank you, Dan.

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

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

So it's, yeah, just to be very clear on this, Aaron, it's 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, got it. Thank you for that. been fleet-footed and certainly opportunistic with regards to the cap stack with the board authorizing $250 million for debt repurchases through the end of the year. How should we think about what you're trying to accomplish near term? What can that mean for leverage and interest costs for the company going forward?

Some pretty significant benefits is what it means. We have 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. 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 our bonds are trading relative to our current weighted average interest costs. And now the shortest bond tranche is fairly expensive compared to what's available in the market. If the market is there, I think we'd love to extend out some maturities, drive down the cost of debt, which then accrues to the free cash flow going through for many years to come. And you'd be talking about our current full year guide for 26 is 440 of interest expense. That could come down by 30 plus million dollars through

Thank you for joining us.

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.

Great.

And remember too, Aaron, it's not, remember, just one other point on that. We're still under a 163J 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. Makes sense. Thanks, Jeff.

Thanks, Aaron.

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

Hi. Good morning. Thanks for taking the question. 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, is there any sort of like lag between, you know, 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... That number is $144 million divided by two. So you have $72 million of ad back that's in the calculation. As we implement all of our synergies, that ad back will come down and the actual results will also benefit. So it'll be sort of capitalized into our actual results rather than being an ad back.

Okay, yeah, sorry for missing that. And then just to follow up on advertising, some of the categories that you talked about, auto being lower in Q2 and recovering in Q3, is that just within the core station group or is that also across the digital as well?

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

Okay, thank you.

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

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

Yeah, if you take out the acquisitions, you're talking about down mid-single digits on core. Some of that is attributable to expected political crowd out, but that's not all of it. So 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.

Hey, Craig, can I add something? 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 two years, 25 all through the course so far of 26, last year it was we had tariffs or we don't have tariffs or we have this here. 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. 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 macroeconomics issues.

Yeah, I would just, to sum it, I would 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 grade, 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, you know, that's okay.

Yeah, 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 under the TV station, et cetera, operations and stuff. You guys are much more steady, to your credit, on that. 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 in the marketing side as well. It's important to keep in mind that anything that we publish has been reviewed by a human being, and it'll always be that way. So 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 giving our people better tool sets. That's the way we look at it philosophically. You know, 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 every company's got a camera. Every company's got cars. Every company's got a building where they film stuff out of. But it's our people that generate our revenue. It's our people that generate our content. And it's our people that will carry us forward. We're very judicious and look after our folks as much as we can, but we do operate in a very lean capacity across the board 24-7. Every now and then, you've 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 the added benefit there 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, multi-billion 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's 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's paying and paying rapidly. And there are, in other states, seven and eight-year wait times for folks to get their cash. And, you know, 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.

Great. Thank you for that.

You bet. Thank you, Craig.

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

Good morning. Can you all hear me? Yes. Okay. Thank you. Thank you for taking my questions. My first question is on the virtual MVP side, what share of the gross transmission comes through that channel and the dynamics Is that similar or does it give us any color on that between those two channels?

Yeah, it's Jeff. So we don't break out the different individual contracts and streams, whether it's traditional or virtual. MBPD, I don't believe anybody in the industry does. So I can't comment on the mix. I think what matters is what we keep. And On the virtual side, it's a fee that we receive. On the traditional side, there's a fee and then think of it as a network fee back to the network. 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 on it another way. In the 2024 cycle, The core fell about, there was 11% displacement in the fourth quarter. Given the changing mix of the portfolio, what kind of displacement can we expect in Q4?

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 political If political, which should have higher margins, goes gangbusters, the net will be better than if it doesn't. There's only so many spots, so depending on exactly when political ramps up and how aggressive the spending is, that will really drive it. It can't really put a number on it where we sit today. Okay.

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

Yeah, it does because the borrowing base is made up of all of our receivables. So our receivables largely track The two different revenue streams, half of it's from half or so is retrans and half is from commercial advertising. We do not, just to be very clear, 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 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 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, 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.

Sounds good.

All right, thank you, Gushi. I recall that Lacey 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.