Executive Summary / Key Takeaways

• Strategic Deleveraging and Accretive M&A: Gray Media is aggressively reducing its debt, having cut $560 million since early 2024. Recent strategic acquisitions and divestitures, including a significant flurry of deals in July/August 2025, are expected to be immediately cash flow accretive, adding a net of six new markets and creating 11 new Big 4 duopolies, projected to lower the leverage ratio by approximately 0.25 turn upon closing.
• Operational Discipline and Cost Efficiency: The company has implemented a significant cost containment program, targeting $60 million in annualized savings, with benefits already flowing through. This, coupled with a multi-year effort to rebalance network affiliation fees, is improving profitability and cash flow generation.
• Technological and Content Differentiation: Gray Media is leveraging NEXTGEN TV (ATSC 3.0) for enhanced viewer experiences, including pioneering native HDR broadcasts, and investing in hyper-personalized video streaming with Google Cloud and Quickplay. Its strong focus on local news, expanded local sports programming (covering nearly 80% of markets), and the operationalization of Assembly Atlanta studios are key differentiators.
• Financial Resilience Amidst Headwinds: Despite macroeconomic softness, particularly in automotive advertising, and retransmission subscriber erosion, Gray Media has demonstrated revenue resilience, especially in digital and new local direct sales. Strategic debt refinancings in July 2025 have extended maturities, providing a clear path to its long-term leverage target below 4x.
• Evolving Regulatory Landscape: An anticipated shift towards a more deregulatory FCC environment could unlock further opportunities for in-market consolidation and strategic swaps, enabling Gray Media to compete more effectively against larger tech giants.

Gray Media: Forging a Local Content Empire Amidst Industry Flux

Gray Media, Inc. (NYSE:GTN), a company with roots tracing back to 1891, stands today as the nation's largest owner of top-rated local television stations and digital assets. Headquartered in Atlanta, Georgia, Gray Media serves 113 television markets, collectively reaching approximately 37% of US television households. Its extensive portfolio includes 78 markets with the top-rated television station and 99 markets with the first or second highest-rated station, alongside the largest Telemundo Affiliate group spanning 44 markets. This deep local penetration forms the bedrock of Gray Media's strategy, emphasizing community-focused content, robust local journalism, and an expanding suite of digital offerings.

The media landscape is undergoing profound transformation, characterized by intense competition from tech giants like Alphabet (GOOGL) and Meta (META), which capture a significant portion of local advertising dollars. Streaming services further fragment audience attention, challenging traditional broadcast models. In this dynamic environment, Gray Media's overarching strategy is clear: leverage its local market dominance and content strengths, drive operational efficiencies, strategically expand through accretive mergers and acquisitions, and embrace technological innovation to maintain relevance and foster long-term growth. The company's history, marked by significant acquisitions like Raycom and Meredith, demonstrates a consistent playbook of expanding its footprint and then aggressively deleveraging, a cycle it is actively repeating.

Competitive Landscape and Strategic Positioning

Gray Media operates in a competitive broadcasting industry, facing direct rivals such as Sinclair Broadcast Group (SBGI), Nexstar Media Group (NXST), TEGNA Inc. (TGNA), and Fox Corporation (FOXA). While these competitors also boast extensive station networks and digital presences, Gray Media differentiates itself through its hyper-local content focus and a strategically diversified affiliate network. Its strong community engagement and established brand loyalty in mid-sized markets provide a unique value proposition that larger, more nationally focused players may not replicate as effectively.

However, larger competitors like Nexstar Media Group often exhibit greater agility in digital innovation and aggressive acquisition strategies, which can translate to stronger efficiency in audience engagement and revenue diversification. Gray Media's dependency on traditional advertising, while supported by its local strength, presents a vulnerability to market fluctuations compared to rivals with more diversified revenue streams. The company actively counters these pressures by focusing on growing its digital ad sales and new local direct business, which consistently show positive growth, and by advocating for regulatory reforms that would level the playing field against tech giants. The recent FCC approval of Gray's KXLT-TV (FOX) acquisition in Rochester, Minnesota, creating a duopoly, marks the first such approval for top-four ranked stations in over five years, signaling a potentially more favorable regulatory environment for in-market consolidation.

Technological Edge: Enhancing Viewer Experience and Content Delivery

Gray Media is not merely a traditional broadcaster; it is actively investing in technological differentiation to secure its future. The company's commitment to NEXTGEN TV (ATSC 3.0) is a prime example. This advanced broadcast standard offers tangible benefits, including enhanced picture quality and interactive features. Gray Media's New Orleans station, WVUE FOX8, recently achieved a historic milestone by producing and broadcasting a New Orleans Saints preseason game using end-to-end native High Dynamic Range (HDR) via NEXTGEN TV, marking the first over-the-air broadcast of its kind in the United States. Furthermore, Gray is the first broadcast group to upconvert to HDR across all Big Four Networks for its NEXTGEN TV stations, ensuring a first-in-class viewing experience for its audiences.

Beyond broadcast, Gray Media is pioneering a hyper-personalized video streaming strategy through a new deal with Google Cloud and Quickplay. This initiative combines Google Cloud's AI infrastructure with Quickplay's cloud-native platform to deliver deeply personalized viewing experiences. The stated goal is to redefine content delivery and consumption, establishing a new benchmark for the media and entertainment industry. For investors, these technological advancements are critical. NEXTGEN TV enhances the core product, potentially driving higher viewership and advertising rates, while the streaming and AI initiatives open new digital revenue streams and improve audience engagement, strengthening Gray Media's competitive moat against both traditional and digital rivals.

Strategic Pillars: Deleveraging, M&A, and Content Expansion

Gray Media's strategic narrative is built on three interconnected pillars: aggressive deleveraging, disciplined M&A, and robust content expansion.

The company has made significant strides in deleveraging, reducing its outstanding indebtedness by an additional $22 million in Q2 2025, bringing the total capital markets debt reduction since the beginning of 2024 to $560 million. This commitment was further underscored by strategic refinancing activities in July 2025. Gray Media issued $900 million of 9.625% Senior Secured Second Lien Notes due 2032 and $775 million of 7.25% Senior Secured First Lien Notes due 2033. These proceeds were used to repurchase all $528 million of its 2027 Notes and repay $403 million of its 2024 Term Loan, along with other debt. These actions have resulted in no material debt maturities until December 2028, providing substantial financial flexibility and a clear runway to achieve its long-term leverage target below 4x.

Strategic M&A remains a key component of Gray Media's growth and deleveraging strategy. The company focuses on "delevering transactions that are strategically important and/or create duopolies to strengthen our local market presence." The period around Q2 2025 saw a flurry of such activity:

• Scripps (SSP) Swap (July 7, 2025): An even exchange of comparable assets, acquiring WSYM (FOX) in Lansing, MI, and KATC (ABC) in Lafayette, LA, while divesting stations in Colorado Springs, Grand Junction, and Twin Falls, ID.
• Sagamore Hill Broadcasting (July 31, 2025): Acquisition of WLTZ (NBC) in Columbus, GA, and KJTV (FOX) in Lubbock, TX, for less than $2 million, leveraging existing back-office services.
• Block Communications, Inc. (August 1, 2025): Acquisition of stations for $80 million, including WDRB (FOX) and WBKI (CW) in Louisville, KY (creating a new Big Four duopoly with Gray's existing WAVE NBC), WAND (NBC) in Springfield-Champaign-Decatur, IL, and WLIO (NBC) in Lima, OH.
• Allen Media Group (August 8, 2025): Acquisition of stations in ten markets for $171 million, adding three new markets (Columbus-Tupelo, MS; Terre Haute, IN; West Lafayette, IN) and creating additional duopolies.

These transactions are anticipated to add a net of six new markets and create 11 new Big 4 full-powered duopolies, immediately contributing to cash flow and an estimated 0.25 turn reduction in the leverage ratio upon closing. While the company has been "very active" recently, it plans to focus on regulatory approvals and smooth transitions for these announced deals through the end of 2025.

Content expansion is central to Gray Media's value proposition. The company's commitment to local journalism is evidenced by its impressive haul of 81 regional and a record 10 National Edward R. Murrow Awards in 2025. Initiatives like "Manipulated: A Disinformation Nation" highlight its dedication to impactful investigative reporting. Gray Media is also aggressively expanding its local sports programming, with local and regional professional sports deals now covering nearly 80% of its markets (90 television stations). Notable partnerships include the New Orleans Pelicans, Atlanta Braves, New Orleans Saints, and University of Tennessee Athletics, which not only attract viewers but also create a "halo effect" for advertising across other dayparts.

The Assembly Atlanta studios are another key content asset. The CBS daytime soap opera "Beyond the Gates" and NBC's "Grosse Pointe Garden Society" are produced there, with "Beyond the Gates" already extended for a second season. The studios are operating at roughly 75% to 80% occupancy. The broader Assembly Atlanta mixed-use campus, a roughly $500 million investment, is expected to expand its financial contributions through partnerships with minimal additional capital expenditure from Gray, aiming for capital neutrality in 2025 due to anticipated reimbursements.

Financial Performance and Operational Discipline

Gray Media's recent financial performance reflects both industry headwinds and effective operational management. For the six months ended June 30, 2025, total revenue decreased by 6% year-over-year to $1.55 billion. This was primarily driven by a 6.1% decline in broadcasting revenue to $1.509 billion. Core advertising revenue for the period was down 5.4% to $705 million, impacted by macroeconomic softness and a tough Super Bowl comparison. Political advertising revenue, as expected in an off-cycle year, saw a significant decrease of 70.3% to $22 million, though it finished "well above expectations" in both Q1 and Q2 2025. Retransmission consent revenue remained relatively stable, decreasing by a modest 0.5% to $748 million, reflecting subscriber erosion partially offset by rate increases. Production companies revenue, however, increased by 7.1% to $45 million, boosted by the start-up of Assembly Atlanta operations.

The company reported a net loss of $65 million for the first six months of 2025, compared to a net income of $110 million in the prior year, largely due to lower political revenue and a $28 million non-cash impairment charge in Q2 2025 related to a network affiliation change.

Adjusted EBITDA for Q2 2025 was $169 million, a 25% decrease from Q2 2024. Despite revenue pressures, Gray Media demonstrated strong operational discipline. Broadcasting operating expenses decreased by 1% in Q2 2025, driven by staffing reductions and lower incentive compensation. The $60 million annualized cost savings initiative, launched in August 2024, is expected to be at its full run rate by the end of Q1 2025, bending the curve of expense growth. The company also achieved its first year-over-year decrease in network affiliation fees in 2024, a trend it expects to continue as it renegotiates contracts.

As of June 30, 2025, Gray Media maintained a cash balance of $199 million. Its first lien leverage ratio stood at 2.99x and total leverage ratio at 5.6x. Following the July 2025 refinancings, the estimated first lien leverage decreased to 2.6x, while secured leverage increased to approximately 3.6x, with total leverage remaining stable (excluding transaction costs). The company's Revolving Credit Facility was expanded to $750 million (extended to December 2028), and its Accounts Receivable Securitization Facility to $400 million (extended to March 2028), providing ample liquidity. The quarterly common dividend of $0.08 per share was maintained, reflecting the Board's balanced approach to capital allocation.

Outlook and Risks

Gray Media's outlook for Q3 2025 projects core advertising revenue to be down low to mid-single digits. However, adjusting for the $20 million Olympics uplift in Q3 2024, the underlying trend is anticipated to be flat to slightly up. Digital revenue is expected to grow by low double digits. For the remainder of 2025, routine capital expenditures are guided between $40 million and $45 million, largely offset by expected reimbursements for Assembly Atlanta public infrastructure. Critically, due to the "One Big Beautiful Bill Act" easing interest expense limitation rules, Gray Media no longer expects to make material income tax payments for the remainder of 2025. The long-term objective remains to reduce total leverage below 4x.

Key risks include persistent economic uncertainty, particularly impacting the automotive advertising sector due to tariffs and high interest rates. Political advertising volatility remains a factor, as spending can shift geographically. Retransmission subscriber erosion continues to pressure revenue, though management observes modest improvements in subscriber decline rates. The regulatory environment, while showing signs of becoming more favorable, still presents uncertainties regarding the scope and timing of potential changes. Finally, the WANF Atlanta transition to an independent station, while strategically exciting for its local content and advertising opportunities, introduces a new dynamic in a major market.

Conclusion

Gray Media is actively transforming its business to thrive in a rapidly evolving media landscape. Its core investment thesis is rooted in its unparalleled local market presence, a disciplined approach to deleveraging through operational efficiencies and accretive M&A, and a forward-looking embrace of technological innovation. The company's recent financial performance, while impacted by cyclical and macroeconomic factors, demonstrates resilience in core areas and a strong commitment to cost control.

The strategic flurry of acquisitions and refinancings in mid-2025, coupled with pioneering efforts in NEXTGEN TV and advanced streaming, positions Gray Media to enhance its competitive standing and drive future cash flow. As the company continues to expand its local content offerings, particularly in news and sports, and capitalizes on a potentially more favorable regulatory environment, it is building a robust foundation for long-term value creation. Investors should recognize Gray Media's proactive strategies to strengthen its balance sheet and diversify its revenue streams, making it a compelling player in the future of local media.