TGNA
#Thanks.
Good morning, and welcome to our second quarter earnings call and webcast.
Today, our President and CEO, Dave <UNK> and our CFO, <UNK> <UNK>, will review TEGNA's second quarter results.
After that, we'll open up the call for questions.
Hopefully, you've had the opportunity to review this morning's press release.
If you have not yet seen a copy of the release, it's available at tegna.com.
Before we get started, I'd like to remind you that this conference call and webcast include forward-looking statements, and our actual results may differ.
Factors that may cause them to differ are outlined in our SEC filings.
This presentation also includes certain non-GAAP financial measures.
We have provided reconciliations of those measures to the most directly comparable GAAP measures in the press release and on the Investor Relations portion of our website.
With that, let me turn the call over to Dave.
Thanks, Jeff, and welcome, everyone.
Thanks for joining us this morning.
This morning, I\
Thanks, <UNK>.
So we're pleased with the results for the quarter, and as I expounded upon earlier, we're very excited about what the future holds given the culture of innovation that's taken hold across our company.
One final note.
As a reminder, looking ahead to 2018, in addition to the acceleration of our initiatives, we have some unprecedented tailwinds, specifically a trio of big revenue events that we've not had in the same year in a long time that will especially benefit TEGNA in 2018 for the reasons <UNK> mentioned that are very large NBC portfolio and a great political advertising footprint.
For the first time in a long time, we'll have both the Winter Olympics and the Super Bowl on our strong large market NBC stations in the same year, and in fact, they'll be in the same quarter, the first quarter.
With both the Olympics and the Super Bowl, our stations regularly out-index the country in ratings and revenue and that won't change.
And second, as I referenced on Investor Day, 2018 is setting up to be an unprecedented off-year election as you can probably tell from the noise.
How our footprint will line up on competitive House-Senate and gubernatorial races remains to be seen because in this political environment, 1 year is like 5 years, 10 years ago.
But so far, it looks very good and we expect it will be very good for us by the end of 2018.
With that, I'd like to open it up to questions.
Operator.
Yes, <UNK>, I'd just simply say that we saw marginal improvement from first to second and our advertising services were large.
And we see ---+ we think we're also going to see marginal improvement in the third quarter, as we indicated in the guidance that <UNK> gave when you factor out the noise of the Olympics, political and these other factors that we talked about.
I think that, yes, there's probably ---+ national as we had always forecasted, hence our local initiatives, is not as the strong as local.
And I would ---+ and that has been the case for some time.
Yes, for almost ---+ most of the political ---+ almost all the political is incremental for how we price because we've gotten really good at pricing it.
There's that 6-week period between Labor Day and Election Day, <UNK>, when we do have some displacement, but a lot of their political now is spread more evenly across the year, and that's pretty much 100% incremental.
I think Olympics, we vary between 50% and 55% based on the year is the number we use.
It's not an exact science, but that's probably a pretty good governor.
Look, I think, obviously, the Sinclair-Tribune deal is out there going through the regulatory pipelines of the SEC and the DOJ.
I think a lot of people are waiting for clarity on the in-market rules that the FCC will likely issue and order in September.
They'll probably circulate the order and people will get to see it 2 or 3 weeks before they act on it.
So, I think they're waiting for clarity on that but everyone is assuming there will be some significant relaxation of the in-market rules.
And obviously, the UHF discount, which is already in place, <UNK>, provides vertical opportunities.
I think the thing for us, to remind you, is that 25% on a discounted basis, we still have vertical room.
And as we said at Investor Day, regardless of what the rules become on in-markets, we are also ---+ given that we're a large market operator with a lot of a stand-alone Big Fours, we especially stand to benefit from the ability to consolidate in market ---+ in the markets we're in.
<UNK>, and we also, just to reiterate what we said at Investor Day, we are fully preparing ourselves to be poised to act on the opportunities.
We have a balance sheet that's certainly been bolstered by the transaction that we've just talked about, including doing what we said we would do on debt paydown but also increasing our firepower.
I think the other, you'll note in our numbers, we had also extended the current financial covenant relative to our leverage levels, so we have capacity and the ability to act as the market opens up.
Yes, I think that's a great question and I think there's a very good possibility.
I think that there's actually 3 dynamics that are happening.
It's that some cord cutters are going to over-the-air, right, so those are non-pay homes for us, not good on one hand.
The flip side is, in an over-the-air home, our percentage of viewing dramatically increases.
But I think that the movement, like I said earlier, from an MVPD service to an OTT service, that's ---+ we're agnostic on that.
I think the OTT providers do believe that they're going to bring in a lot of younger consumers who, heretofore, will not pay $88 a month or whatever it is for a cable or service but will pay $30 for a skinny bundle.
So there's a lot of assumptions out there that it will expand the pay marketplace, but remains to be seen.
Actually, for us, it's not ---+ yes, you're right, it's U-verse, AT&T, I was thinking FiOS.
We have a little more of that to go, and thanks for the question, <UNK>, because that is part of the headwind we faced in second quarter, is that we're still cycling through these AT&T U-verse homes and there appears to be more of that to go.
So it definitely has hurt us in the media telecom space.
I think the issue on overall ad spend in the third quarter is going to be a function of automotive.
Look, it's no secret that automotive has hit a cyclical slow spot.
New car sales have slowed down, and that's affecting advertising.
Nobody should be fooled differently for the entire industry.
And so a lot will depend on how auto holds up and recovers.
But long term, I'm not worried about auto because it ---+ television's an important part of any auto buy.
Furthermore, the marketing services and initiatives we've created position us to take an increasingly larger share of the auto pie out of our markets.
No, I think only in a handful of markets, and it's really a morning news issue.
I think there are people waking up to the cable news 24-hour offering of Trump, and certainly, there's a hard-core group of those, more in some markets and others like you might expect like <UNK>
C.
or Seattle, places like that.
But overall, no.
I mean, our ratings are ---+ local news ratings remain the highest-rated shows in our market, and in our case, very much so.
So yes, I think it's chopped into a little bit, the mornings, but it's got unusual circumstances for obvious reasons.
No, it can ---+ the order ---+ this is not a quadrennial review, where there'll be an NPRM, and then there's months and months of comments.
It's a petition for reconsideration of the previous quadrennial review.
So the order can go on place right away.
But to be frank, <UNK>, I think it ---+ you would assume that public interest groups will likely appeal it, and then the case ---+ then the issue will be is there a stay or not.
If there's a stay ---+ the bad news about a stay that will delay the M&A.
Maybe the good news is a stay pushes the legal process through faster.
If there's not a stay, I think you start to see deals go through.
And remember, it's not just necessarily acquisitions, it can be swaps.
And I think that once there's clarity about the in-market rules, a lot of groups that maybe are semi-engaged right now in the in-market consolidation will become much more engaged, some already are.
Yes, actually, I mentioned in my script too, I think it's on the come just because ---+ and they're later ---+ they're all later to market than they intended to be both because of, frankly, they had to have us and there's also ---+ it's not ---+ they're using difficult ---+ different and difficult technologies.
There's no uniform technology being used.
I mean, YouTube is building out receivers in every local market, others are going through encoders that are placed at stations that won't go into the weeds.
I don't think you'll ---+ I just don't think there's time left in the year for them to get enough subs to have a meaningful impact on our numbers.
But I do ---+ clearly, what it will be in 2, 3, 4 and 5 years, but again, we feel like, to the earlier question, it will be agnostic to positive at worse for us on our subscription economics.
I apologize, <UNK>.
I misunderstood the question, I apologize.
Not yet but we expect it.
They're not ---+ they're still ---+ I know from our own contracts, and we ---+ we're amongst the first markets to go because it's the large markets that are going to go first and clearly, whether some of them, I don't know when they'll go to smaller markets, but they're not lit up yet.
So once they're lit up, we'll see.
And just like a lot of those types of dollars, we don't get a lot of transparency ahead of time on when they're coming.
But I ---+ it just makes intuitive sense to us that TV will be the place to market TV.
So, yes, glad to talk about Premion.
I mean, again, we were a little delayed to get to market last year just because of the not small challenge of putting together the appropriate technologies, but our team really did an incredible job in a small amount of time.
And a year ago in July, we had one campaign.
And as I told you, we\
Yes, that's about the same on a run-rate basis.
Sure, sure.
And I guess the ---+ keep in mind, obviously, we've been talking about total company.
We have the moving parts, as you mentioned, relative to digital, but I think it's important to keep in mind some of the comments that Dave made earlier as we've indicated so far, the second quarter ad trends improved somewhat over the first quarter.
But through the first half of the year, they're softer than we had forecasted them.
So moving to the back half, we're seeing some marginal improvement in ad trending as well as some accelerating performance in the initiatives that Dave also referred to, but it's really too early to tell if the overall consumer and ad spending is going to match the full year expectations.
<UNK>, we are not restating.
What we're saying is that we are ---+ given what's happening in auto and others, we're going to have to see how the third quarter develops to provide clarity on that.
I think as we walked through the puts and takes relative to the negotiation of the value, relative to where CareerBuilder is, the pivots of business on the Software-as-a-Service, we felt there was upside opportunity for us as an equity holder.
Obviously, it's a distraction from our core business now, but we felt it was worth continuing an ongoing stake and to return from that business as it grows over time.
No, they're 0 right now in our revenues to date.
We recognized 0 at this point, <UNK>.
We'll probably ---+ we will recognize some in the back half of this year.
But to the earlier question, it won't be material for this year.
I think what we said ---+ what we said, <UNK>, was that when you factor out the noise of political and Olympics and the Cofactor and the other stuff, that on a ---+ take a media base that you're looking at, we're looking at mid-to-high single digits.
Which is in line with the second quarter.
You mean the dollar number.
Okay.
Let's get back to you.
And do you have a second question.
We'll get that.
.
You're talking about operating expense inclusive of programming.
Full year OpEx.
Yes, no, I think.
.
Yes, I think it looks like, probably, when you take out programming expenses ---+ no, actually, no with program expenses it's actually going to be lower than that now.
Probably closer to 10 than 20.
It is the goal.
We've got some puts and takes.
Look, the one thing I'd say about our initiatives, the good news is we've learned that the strategic thesis of all of them is good, so we're on the right track, but some are performing than others.
Premion is really performing well, a couple others are a little behind.
But yes, net-net, we're still looking at $100 million.
And your earlier question, with the ---+ you were looking for total company revenue last year in the third quarter.
I'm not sure we have that right now.
We will call you back to make sure.
Because it's new to us too, we want to make sure we give you the right number.
For the third quarter, Doug.
There's a table on ---+ I guess, it's Table 6, talking about the various impactors relative to Cofactor, as you pointed out, lapping in December.
The TSA terminated in June, so it was partially in the quarter but also subsequent.
And then we also had digital marketing services, a piece of it was remaining in the Digital Segment.
Now that we're only reporting one segment is obviously moving over to it.
But it's a fairly small piece of the business.
So I think we\
That's the number I'm giving you.
I'm sorry, are you talking about the impact of the discontinued Gannett services.
You mean, insight.
I don't have the breakout.
But the bottom line is the net of Cofactor and Gannett and the discontinued former Gannett-related services total up to $16.5 million.
Okay.
It is confusing, and we've got 4 quarters to cycle through this, so we'll work our best to provide clarity every quarter.
Thank you, everyone.
Appreciate it.
My first call as our new company CEO.
We look forward to answer more of your questions.
As always, you can call Jeff <UNK> with questions, and you ---+ I think you all have this number.
Thank you, operator.
